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rfmcdonaldJames Bow's post analyzing Mayor Ford's sincere but economically illiterate plan for expanding Toronto's subways must be read.
The clincher, Bow notes, is that given the plausible projections for subway usage which indicate that there will be an uneconomic number of passengers, a privately-owned low-usage subway would need to be leased back to Toronto at a significantly greater cost than simple ownership of a TTC-owned subway line would incur. In that case, what's the point?
One frustrating aspect in hearing Toronto mayor Rob Ford pitch his plan to build new subways for Toronto is how he tries to make the true cost of his subway plan disappear.
I don’t believe that Ford is being deceitful, here. For a lie to be a lie, you have to know that what you are saying is untrue when you say it. Given Ford’s behaviour since taking office, I’m willing to believe that he has a mathematical or economic blindspot that he’s struggled to see around.
If you recall, when Ford killed Transit City and negotiated a new transit plan for Toronto, the agreement he reached with McGuinty would have funnelled all of the $8.4 Billion the province had committed to Toronto transit projects to an all-underground Eglinton LRT. In return the City of Toronto would concentrate on finishing the Sheppard subway, extending it east to the Scarborough Town Centre and west to Downsview station on the Spadina subway line. More importantly, the City of Toronto would be wholly responsible for paying for this project.
Most experts believed that the cost of finishing the Sheppard subway is in excess of $4 Billion. In terms of committed public money, all Toronto had was $300 million offered by the federal government for the Sheppard LRT project. How was Ford to close the gap? Not a problem, said Ford, private developers are lining up right now to build us the subway.
Except that they didn’t. Since then, Ford has floated a number of trial balloons to close the funding gap, such as tax-increment financing which estimates the amount that property taxes are likely to increase following the construction of a new piece of infrastructure and borrowing on that amount. Unfortunately, the projected increases for Sheppard Avenue alone weren’t enough to pay for more than 10% of new construction. Indeed, to cover the full cost of the Sheppard subway, the Ford administration would have to rely on tax increment financing based on all of the properties of all of the City of Toronto. Which brings to mind the question of: how do you fund the next subway, then?
The clincher, Bow notes, is that given the plausible projections for subway usage which indicate that there will be an uneconomic number of passengers, a privately-owned low-usage subway would need to be leased back to Toronto at a significantly greater cost than simple ownership of a TTC-owned subway line would incur. In that case, what's the point?
If such an infrastructure project is likely to generate substantial revenues over its lifetime (such as a toll road), a private company may be interested in making an arrangement to pay for the construction of new infrastructure, and then making back those costs through the profit of operation, but public transit does not make a profit. Moreover, the Sheppard subway’s capacity is so well beyond its current and future demand that it is currently a drain on the TTC’s financial resources, and will likely remain so even after the line is extended to the Scarborough Town Centre and Downsview.
So, unless we pay a private company to operate the Sheppard subway the same way we subsidize the TTC’s money-losing bus routes, no company is going to want to operate the Sheppard subway, and it would make little sense for the City of Toronto to pay someone to do so (unless the TTC engages in a wider privatization of its transit services — a debate well worth having, but not necessarily here). So, it is very likely that a public-private partnership to build the Sheppard subway would involve having a private company take on the cost of building the extensions, and then making back that cost by leasing the line back to the city for an extended period (say, twenty-five to thirty years).
And here’s the problem with that: to cover an investment of upwards of $4 Billion, the year-to-year payments of that lease would likely be much higher than just $90 million. How is Ford to raise that money? Gordon Chong has shown that development charges along the line won’t fill the gap. Other taxes would have to be considered. And given how Ford finds taxes so politically untenable that he scurries away from such proposals after he himself makes them, it’s no surprise that these extra costs do not show up in Rob Ford’s position paper.
