Bixi program to lose millions for Montrealers, auditor general says

MONTREAL – Montrealers stand to lose millions of dollars in the popular Bixi bike-sharing program because of administrative irregularities, an illegal organizational set-up, incomplete planning and a lack of oversight and accountability, city auditor-general Jacques Bergeron has concluded.

The promised second part of Bergeron’s two-part 2010 annual report on the city’s operations, which is dedicated to Bixi and to the Société de transport de Montréal, was tabled in Montreal city council Monday after an initial portion dealing with other city services was tabled last month.

The auditor-general’s most damning findings concern Bixi and levels severe criticism at city authorities and the Société en commandite Stationnement de Montréal, the company that runs the city’s curbside parking concession company and that the administration of Mayor Gérald Tremblay delegated in 2007 to set up the bike-sharing system.

The city and the company had no business plan, no serious feasibility studies, no clear financing structure and, apparently, no legal authority to launch Bixi in May 2009, Bergeron’s report says.

“It’s not unreasonable to conclude that the city therefore exceeded its powers” in setting up Bixi, Bergeron writes.

Stationnement de Montréal created the Société de vélo en libre-service (SVLS) in September 2008 to run Bixi as a way to separate the costs of the Bixi program from the parking concession the company runs for the city. The subsidiary acquired the assets of the project from Stationnement de Montréal for $3.6 million in December 2008.

The SVLS’ financial statements this year show an operating profit of $1.5 million, compared with a loss of $6.9 million in 2010. However, the accumulated deficit is $6.3 million this year.

And while SVLS and Stationnement de Montréal have assured the Bixi program will overcome its deficit in the medium-term, the provincial government has thrown a wrench into their plans to turn a profit.

The Quebec Municipal Affairs Department last month ordered the city and Stationnement de Montréal to get out of the business of exporting Bixi to other cities in Canada and abroad because of their irregular structure, which violates the Cities and Towns Act.

The city is not permitted to be involved in a commercial entreprise. As a result, SVLS will have to sell off the business of exporting Bixi. That, says Bergeron, effectively cuts off its ability to make money off the Bixi program. It also jeopardizes the company’s ability to return a $37-million loan that Montreal city council approved last month, Bergeron finds.

Montreal city council approved the $37-million loan plus $71 million in financial guarantees to the company at a meeting in May despite calls from the city hall opposition to postpone a vote on the loan and guarantees until Bergeron tables his report.

Bergeron’s findings prompted city hall opposition leader Louise Harel Monday to question whether it would be “less expensive for the city to buy every Montrealer a bicycle than to run the Bixi service.”

Harel said her Vision Montreal party will demand the Tremblay administration allow a plenary session Tuesday so they can question city officials and Bergeron on the findings.

Bixi “was a good idea that became a bad project,” Vision Montreal councillor Laurent Blanchard said.

City executive committee member Michel Bisonnette and Roger Plamondon, the chairman and CEO of Bixi and of Stationnement de Montréal, said they too were indignant over Bergeron’s report, albeit for different reasons.

Bixi is an enormous success that has created 450 jobs in Quebec, Plamondon said at a news conference at city hall. He likened Bixi to the iPhone because of its success.

Contrary to what Bergeron found, Stationnement de Montréal did indeed have a financial plan for Bixi when it began, Plamondon said. It’s just that the financing was in evolution, he said.

“They had to create everything from A to Z,” Bissonnette said of Bixi’s set up. The city has placed new controls on Bixi, including a requirement that SVLS present its financial statements to the city every three months, he said. He also said the city and Stationnement de Montréal are discussing how they will withdraw from the business of exporting Bixi and still make money. The scenarios include a sale or a set-up involving investors, Bissonnette said.

Among the financial faux-pas Bergeron detected, he noted that the city is absorbing a $3-million loss because Stationnement de Montréal paid $16,000 a piece for pay stations that were supposed to service both the Bixi stands and parking meters, but wound up not being operational for parking meters. A pay station for the Bixi stands alone would have cost $6,000.

Bergeron also found “questionable” accounting procedures and “weaknesses in financial control” by the city.

For instance, two Montreal employees who represent the city on Stationnement de Montréal’s board of directors, including the city’s director of finance, missed 11 and eight of the company’s 23 board meetings, respectively, between 2007 and 2009 while Bixi was being set up. Both were absent at the same time from four of the meetings.

The city even stands to lose $1.3 million in interest on the loan it contracted for the Bixi program last month, Bergeron estimates, because it is charging an interest rate of two per cent, which is more than three per cent below market conditions and its other agreements.