Updated February 17, 2011 at 10:00 am:
Councillor Doug Ford talked to Matt Galloway today on Metro Morning. Listen to how he slides all over the place without giving specifics of how the money would be raised and simply says that such schemes have worked elsewhere. No details, but the usual put-downs of “nay sayers” as if anyone with the nerve to criticize is a foe of progress. Sounds very 50’s to me.
In a separate interview, MPP Greg Sorbara, former Minister of Finance and heavyweight proponent of the Spadina Subway, explains that, while the proposal may look interesting, the devil is in the details, and at the end the public pays.
Original article from February 16 at 16:44:
Mayor Ford’s office has proposed to Metrolinx that the Sheppard subway be extended west to Downsview and east to Scarborough Town Centre as a private sector deal with the City according to articles in the Globe and the Star.
The expansion would be privately financed, but owned by the City with the cost to be repaid out of development charges and tax increment financing.
What is unclear at this point is the amount of development that would be needed along the extended line to actually pay for its construction without adding to the City’s debt, nor is it clear how much of the proposed Provincial and Federal contributions to the Sheppard LRT would be available for a Sheppard Subway project.
This scheme leaves a number of other projects up in the air including:
- the remainder of the Sheppard LRT’s scope from Kennedy (where the subway would veer south to STC) to eastern Scarborough and, possibly, to the UofT Scarborough Campus
- the replacement of the SRT as either an LRT line (part of any remaining LRT-based Transit City network) or as a BD subway extension
- the status of the proposed Eglinton and Finch LRT lines, although the former as an LRT subway hybrid seems fairly certain to be built
A long term plan to finance a subway using future revenues presumes that the money to pay for its construction, debt financing and developer’s profit will actually materialize. This begs the question of station location and spacing because there would be little development on land far from stations spaced widely as on the most recent extensions to the subway. Enough land and development potential must exist to pay for the subway over time, and the locations must be sufficiently attractive to would-be builders that they will pay a premium to locate their buildings on subway sites.
Whether the subway would generate net new development or merely attract buildings away from other sites is hard to say given that major redevelopment of the older commercial/industrial strips in Scarborough and North York is not already underway.
Would existing neighbourhoods in which new stations (and their associated development) would be placed welcome a complete change in their density and character? This may be viable on Sheppard, but not in other neighbourhoods with well-establish, stable residential land use. Indeed, some routes, like a Downtown Relief Line, would be built as part of a wider network to spread demand and give access to new parts of the city. Should the locations a DRL would pass through enroute to downtown pay the cost in redevelopment effects because that’s where a line is drawn on a map?
The extensions would cost $3.4-$4.4-billion according to the Star, and this would translate to an annual debt service cost of $200m at 5%. That’s a lot of new tax revenue, although the amount would be lower depending on the amount of principal that can be paid off through development charges.
As with other private development schemes around the world, the real challenge lies in the details of any contract. Who, for example, will be responsible for upkeep of the infrastructure and repair of any premature faults that appear over the period of the lease-purchase?
My reaction to this is mixed. The Sheppard Subway may be the apple of some advocates’ eyes, but it is not the most important transit expansion project in the GTA. Regardless of how it is financed or who builds it, this will divert considerable investment and attention from other projects and may well pre-empt any expansion of LRT service to the northeast.
On the other hand, we have been hearing about the wonders of privately developed transit for so long, part of me wants to say “put up or shut up” to those who would pursue this course. Is the project really viable? Will the city see the revenues needed to pay for the long term lease-purchase of the new line, or will future taxpayers be on the hook to bail out the project?
Steve Munro 
Steve: “In other news, Doug Ford wants a strong Mayor system where Council need not bother showing up for work, and the Mayor (or his brother) gets to do everything. This is the mentality of the family we have elected to run Toronto. Next thing we know, he will want a “job for life”, just like his idol Mayor Daley.”
I believe that Chicago finally got rid of Mayor Daley. Actually he declined to run for re-election last November; probably because he was third in the polls. He can say that he never was defeated; he just got tired of being mayor.
LikeLike
Richard L says:
February 17, 2011 at 12:50 pm
“Steve said: “I would be very surprised if Ford would stomach the survival of any on-street LRT.”
“But isn’t Queen’s Park forcing the issue by completing the Eglinton LRT from Don Mills to Kennedy contrary to the mayor’s wishes? Or would there be a compromise to make Don Mills the eastern terminal?”
Don’t forget the talk after the Fords’ first encyclical about killing Transit City for the Sheppard Subway. Metrolinx suddenly discovered Elevated Rail Lines. I cannot see how an El could make most of Eglinton in Scarborough any uglier than it already is.
LikeLike
Disappointed to see that Metrolinx would probably opt for an all-underground Eglinton LRT from Jane to Kennedy. The reason? Just to appease Ford’s hatred for surface transit!
What a terrible reason for an expensive decision! Meanwhile, Finch West would suddenly get a much lower capacity bus system instead of LRT because of this.
Maybe Metrolinx is just using this opportunity to foist upon us what they really wanted along Eglinton 2 years ago?
Steve: I am very suspicious of Metrolinx in this whole business, not to mention the purveyor of a certain high-tech transit technology. It’s a shame we would not have an open bid so that some other proponent could offer an alternative, but that’s not the way we do business here in Ontario.
LikeLike
From out here, my first reading on the situation is simple: Ballsy. Stupid, but ballsy.
We’ve been using Community Revitalisation Levies, or CRLs–tax-increment financing by any other name–to finance projects like retrofitting infrastructure in brownfield redevelopment districts. The theory is very nearly identical, in that we’re betting on the differential between the property tax revenues we’d get if we let lands like the East Village lie fallow and the revenues we’d net from newer, shinier commercial and residential developments in the district being enough to repay the principal and interest over time on what we’ve invested to rebuild water and sewer lines and to raise the land elevation to guard against flooding. Where our CRLs differ from the plan I’m seeing here is that a project like the East Village is still being undertaken as a public trust, in quite a different fashion from the design-build-finance-maintain model I’m observing from here, and at a cost that is a full order of magnitude lower than the 13-gigabuck price tag being attached to a Downsview-to-Scarborough subway line.
The other really big concern I have from what I’m reading is that there’s a transit project I’m advocating for the part of town where I live that in comparison to a full-length Sheppard Subway is a mere bagatelle, yet would of necessity be publicly financed from municipal revenues under conditions quite similar to one of our CRLs. I fervently hope that the tax-increment financing plan being mooted for this privately-funded mass transit megaproject in your town does not go south, if only because I would rather not have to have a harder job of selling the value of our plan out our way based on events occurring down your way.
Steve: $13-billion is the combined value of the Sheppard line plus the other Metrolinx funding. As for TIF, your observation about the relative magnitude of costs is the heart of the problem. It’s one thing to pay for infrastructure like utilities, but quite another to pay for a full-blown subway. Moreover, a subway benefits not just the immediate properties along the line, but the larger region by providing connectivity for people who pass through a neighbourhood. For that reason, I strongly believe that TIF is inappropriate to fund subway construction. It’s a general good, and should be paid for from general revenues.
LikeLike
I can’t see this ending well. Sheppard between 404 and Kennedy is full of low income housing, mostly apartments and TCHC buildings. To facilitate redevelopment, developers will most certainly want these building demolished. Who will house these people? TCHC already has a waiting list up to the moon.
LikeLike
Some people may be unfamiliar with tax increment financing. It is *not* a new tax on the development district to pay for the project. Instead it is an accounting device that calculates the increase in property value that results from the development, and dedicates the associated increment in tax revenues to repaying the debt on the project.
So TIF is not a new tax, and it does not create revenues out of thin air. Without a doubt, Toronto ratepayers will be on the hook for this particular gravy train.
The only advantage to Toronto is if the province could be talked into dedicating the increment in its education property tax revenues to repaying the debt. Whether you think that is likely or not, the amount would be small.
Steve: See my remark in a previous comment about local versus regional benefits of a rapid transit line and the unsuitability of local tax revenue to pay for a regional benefit.
LikeLike
Steve, which Mayor Daley were you referring to? Sure, we all know that the father wound up being mayor for life but some who read this website may well be unaware that the present Mayor, the son, isn’t running again, which is a bit of a surprise to me. Just thought it was worth mentioning, that’s all.
Steve: I was referring to Daley the Father, although the Son continued the dynasty for a time.
LikeLike
Knowing a little about P3 / private finance of infrastructure, I would say this plan is unlikely to go anywhere. Why? A private consortium would not be willing to take the risk on whether or not development and revenue materialize, mainly because they would not be able to get lenders to take on this risk (or if they did the cost of capital would be very high). The city would have to guarantee the revenue, and while a TIF and development charges could result in significant amounts of money IF the real estate market stays strong, it would be debt by any other name. I doubt Mayor Ford would be willing to go borrow $3-$4 billion to build this line, but that is in fact what he would, de facto, be doing, as far as taxpayers are concerned.
LikeLike
The Fords’ TIF/PPP plan to pay for extending the Sheppard subway is a way of saving face; the Fords know that there’s no money for the subway and they know they can’t get it built in time for the next election campaign, so they’re setting up a situation that their fans can support ideologically and will shrug off when the plan doesn’t work out. The Fords’ plan will disappear just like Mel Lastman’s plan to sell station naming rights to help pay for the Sheppard subway.
LikeLike
So, um, if this subway can be privately funded, then why can’t a similar LRT be funded?
I think relying on the private sector to fund ALL the costs will not happen. Development takes time to develop.
You don’t need high density for subways. You need good bus connectivity to feed people into the subway. 40% of boardings on the subway come from people fed in by buses. It was even higher in the 1990s as I understand it.
LikeLike
The Fords have created a mess when it comes to transit expansion in Toronto. All of this bickering between them, Metrolinx and the Province will lead to (a) no Sheppard subway extension (b) none of the Transit City lines being built (with the exception of Eglinton?) (c) the Scarborough RT being shut down in 2015 and replaced by buses (d) even more inadequate bus service for the rest of the city as buses need to be diverted to Scarborough to deal with the loss of the RT. This will result in a major stop backwards for public transit in Toronto.
It’s a shame the Fords will never admit that they are clueless and have no idea what they’re doing when it comes to public transit expansion. If they just left public transit alone and let the TTC build Transit City at least we would have something being built with lines opening up in the next few years. Instead we will get nothing.
My feeling is that the Provincial Conservatives will be back in power after the elections this fall. I also think that they will not be inclined to fund the Big Move which means we can forget about new public transit infrastructure altogether.
LikeLike
I wouldn’t be so pessimistic Richard. Though I agree that Rob Ford doesn’t know what he’s doing with respect to transit planning in Toronto. The topic of transit expansion in the GTA has become such a major political issue that I don’t see it dying down anytime soon, so for a conservative government to come in on a platform that they will cut any future transit funding, to me that would be political suicide. We’re in a different era now — this is not the 80’s or 90’s the people won’t stand for transit cuts. I think we’re more aware of what’s going on around us when it comes to transit issues. Forums like this one and UrbanToronto has certainly helped things progress forward.
LikeLike
The only part of the plan that might work is expropriating land for a station, and then leasing it to a developer to put a high-rise up, in exchange for the developer building the subway station into the basement. The “win” comes from maximizing the value of the space over the station, something the TTC has not done much of. For stations that don’t require a big bus bay, this makes sense from a city building as well as a financial point of view.
Steve: But expropriation must pay the fair value of the land taken, and if the City intends high density development, then that makes the “fair value” higher. This is a basic principle — governments cannot seize your assets without compensation — and it would be amusing/amazing to see a right-wing regime try to get around this.
LikeLike
k writes “The topic of transit expansion in the GTA has become such a major political issue that I don’t see it dying down anytime soon, so for a conservative government to come in on a platform that they will cut any future transit funding, to me that would be political suicide. “
Who needs to have cuts as part of their platform? Leave it until the morning after you’re elected, and then cut, cut, cut! What’s the public gonna do? Occupy Nathan Philips Square or Queen’s Park?
LikeLike
Doug Ford “simply says that such schemes have worked elsewhere ”
Where????
(Emphasis on “worked” in any answers, please).
LikeLike
As one of the “nay sayers” brother ford refers to, how do you respond to the successful building of the Canada Line in Vancouver?
Steve: The Canada Line was paid for primarily by the public sector. Total project cost was $2.1b to which the contributions were:
Federal Government $450m
British Columbia $435m
Vancouver Airport Authority $300m
TransLink $334m
City of Vancouver $29m
Total Public Sector $1.55b (rounded)
It’s really easy for the private sector to do well when the public sector picks up 3/4 of the cost. It should also be noted that in this list, TransLink, unlike agencies in the GTA, has its own revenue stream and is in a position to fund part of capital projects directly. Also, the private partner also has an operating contract for the line on which, I must assume, they hope to make money.
By contrast, the Sheppard line is supposed to be completely financed from local funds. It is worth noting that the total of all development charges in the City’s 2011 budget would not even build half of a subway station, let alone billions of dollars worth of subway. The Ford crew has not done the most basic check on the reasonableness of their proposal against the actual cash flow likely in the development industry.
LikeLike
I have a worry about “eminent domain” practices in the States being copied here. They have instances down there where good, clean, cheap private property is expropriated through eminent domain (supposedly for public use), and then transfer it for a dollar a year or whatever to a private developer solely for the purpose of increasing municipal revenues. The Ford brothers may like to increase revenues by getting expensive high rise buildings built for the property taxes along Sheppard Avenue.
LikeLike
Ed said: “Who needs to have cuts as part of their platform? Leave it until the morning after you’re elected, and then cut, cut, cut! What’s the public gonna do? Occupy Nathan Philips Square or Queen’s Park?”
No, it’s more likely that they would present it as a “better transit or lower taxes” issue. With the way the world economy is, people are extremely myopic when it comes to government spending and would probably support the lower taxes side.
LikeLike
“But expropriation must pay the fair value of the land taken, and if the City intends high density development, then that makes the “fair value” higher.”
I wonder how that Catch 22 would work in the courts. If the city fails to amass the lands required then the higher fair market value isn’t real because the subway doesn’t get built. I would think people can’t make the returns on their sale for an improvement made after their sale. That would be a bit like selling your house and expecting more if the buyer intended on fixing it up, but less if they planned to let it fall into disrepair.
LikeLike
Nick L. writes: “With the way the world economy is, people are extremely myopic when it comes to government spending and would probably support the lower taxes side.”
That to me is Toronto’s (and Ontario’s) problem over the past 30 years. Having spent considerable time in places like Los Angeles, Vienna, Warsaw and others while living in Toronto over that time, I have seen how poorly we have invested in transit in Toronto, with small increments driven entirely by the occasional politician having unusual power for a while and the itch to realize a pet project (or to kill somebody else’s). Often politics are driven by resentment… “why should somebody else be better off when I’m not?” Time and again, this consists of taking away from Toronto the benefits of its own wealth and giving it to the rest of the province or Canada, while at the same time residential property taxes in Toronto and car registration fees are unsustainably too low. I do not see that changing for some years, especially if, as expected, in the coming months the GTA provides the crucial extra votes to bring the Conservatives to entrenched power in both Ontario and Canada.
Not only has expansion been minimal, but the equipment is depleted, despite the contracted subway and streetcar orders. New buses have been canceled, but it is buses we need to compensate for the arrested rail development. And why cannot we have modern articulated buses in Toronto?
And if transit goes on the back burner, what improvements are planned to alleviate gridlock? (I won’t even mention oil dependence, environment, etc. Such questions are anathema in North America … mass denial of “global warming” is the new orthodoxy).
So, what is to be done?
LikeLike
EnviroTO said: “I would think people can’t make the returns on their sale for an improvement made after their sale. That would be a bit like selling your house and expecting more if the buyer intended on fixing it up, but less if they planned to let it fall into disrepair.”
For an individual house sale, most likely that’s the case. Fair market value is the current market value.
However in the context of a massive subway expansion initiative, when there is funding and design in place, and some of the required lend is in the city’s hands already, owners of the remaining land can probably set their claims higher. For example, they can argue that they are actually willing to sell their land to the city for a subway expansion that is taking place anyway, and the whole argument is about the price.
LikeLike
Steve: “But expropriation must pay the fair value of the land taken, and if the City intends high density development, then that makes the “fair value” higher. This is a basic principle — governments cannot seize your assets without compensation — and it would be amusing/amazing to see a right-wing regime try to get around this.”
Yes but it must pay fare market value on the day that it is expropriated, not what it might be worth in the future. This was one of the main complaints from the people who were going to be expropriated in St. Dennis.
LikeLike
The City would be on the hook for increased market value if they changed zoning after expropriation, though, to allow more valuable development. Which, in the context of the current discussion, they’d pretty much have to do.
LikeLike
What is the update on the BIG 5 from February 18th Metrolinx meeting?
Steve: It was on the private agenda. There was no public info on this.
LikeLike
PSC says:
February 22, 2011 at 3:05 pm
“The City would be on the hook for increased market value if they changed zoning after expropriation, though, to allow more valuable development. Which, in the context of the current discussion, they’d pretty much have to do.”
The city representative from the department that acquires and expropriates land was quite adamant that it was the fair market value cost on the day of expropriation and not the future value of what the land would be after the transit line was built. This caused quite a stink because people whose lands were going to be expropriated could not sell because nobody wanted to buy and they could not get what he land would be worth after the line was built. These people were upset that they didn’t have the money now to buy another house in the area and wouldn’t be able to afford one when the new line was built.
LikeLike
And just like any napkin plan, one major thing threatens to cause the whole scheme to completely collapse in on itself.
LikeLike
The private partner IntransitBC still paid up a sizable chunk of change: $720 million. That’s close to 1/3.
Steve: I have been trying to reconcile the various tallies of project costs. The $720m figure is clearly more than the difference between the contributions of the public sector partners and the claimed total project cost of $2.054b. Even if it’s 2/3 public, that’s certainly not the all private funding scenario proposed for Sheppard.
The difference appears to arise because contributions by some partners include funding for non-project expenses as well as $165.7m in subsidy against future operating losses by the province of BC. See the 2007 Financial Statements at page 12.
Now, the ability to attract a private partner willing to pony up that much cash depends on the feasibility of the line and the ability to make money from it (note that fares are set by TransLink, so no Hwy407 fiasco) – and Sheppard ain’t got the numbers. Eglinton, probably, Sheppard, unlikely.
However, the taxing proposal by Ford isn’t similar to a DBOM anyways – it purports to pay for the line through adjacent development levies, not the operation of the line itself. With development being so politically sensitive, I could easily see resources dry up in future if future politicians balk at development.
LikeLike