The Mythical Private Sector Subway

The Ford Administration and its followers at City Hall would have us believe that transit developments in Toronto can be had essentially free of public cost and that the private sector, whatever that means, will pony up the investment to build the subway.

Almost as soon as the scheme for a privately financed Sheppard Subway was announced, the wheels started to come off the plan.  Actually, “come off” assumes that it had wheels to begin with, and statements by the Fords showed clearly that they had not worked through the details.

Oddly enough, their hands were out for any public sector funds that might be available including $330-million or so originally earmarked by Ottawa for the Sheppard LRT, up to $650m in “left over” funding that might not be needed for the Eglinton tunnel project by Queen’s Park, and whatever investment could be pried loose from Ottawa’s “PPP Canada”.  Additional money might come from a quick sale of waterfront lands by the City to would-be developers.

The scale of the Sheppard project may well shrink to only the eastern leg from Don Mills to Scarborough Town Centre so that the total cost stays in the $2-billion range.

Recently, I learned that Queen’s Park had offered $2b toward the Sheppard Subway provided that the Fords would allow the eastern part of Eglinton to remain on the surface, but this was turned down flat.  So intransigent is the Mayor on the subject of incursion by transit into road space that the possibility of substantial funding for his pet project was not an option worth embracing.

You may have noticed by now that there isn’t a lot of private sector money in this story, except for the buy-out of waterfront lands, and that’s a sale of public assets, not a private sector investment in transit.

Meanwhile, we hear a lot about private sector investment elsewhere, usually with little context.  Vancouver’s Canada Line comes up now and then, including in comments on this site, and some people think it’s a private sector show all the way.  In fact, various public agencies have over $1-billion in the project, more than half of the total cost.  Even the “private” partner, a joint venture, includes investment agencies that manage public funds including pension plans.

Probably the most successful example of investment-supported transit is in Hong Kong, but this must be seen in the context of local conditions.  Not only is Hong Kong an extremely dense city, it is one in which the land ownership and planning are firmly in public hands.  Private buildings abound, but they sit on land leased from the public sector which reaps the benefit of land development.  (For an extensive look at the Hong Kong system’s financial and planning development, see Rail+Property Development by Cervero and Murakami [14MB]).

Leaving aside whether Toronto would ever support densities such as those found in major Asian cities like Hong Kong, there are important issues that do not get discussed here.

  • Who profits, and how soon?  If land is held in the public sector, the profit from  appreciation thanks to transit construction remains there too.
  • Will the City simply hand over land to developers to do with as they please, or will there be a recognition that city building involves us all?
  • Will new neighbourhoods to be planned both as attractive, pedestrian-friendly spaces where people will want to live even at high densities, or will we see a continuation of the tower-in-a-parking-lot so common in many developments?
  • Will we build car-oriented suburbs, generating even more congestion, along what is supposed to be a major transit corridor?
  • Will the Sheppard line be funded only with development along its corridor, or will other parts of the city, such as the waterfront, have development revenues siphoned off leaving them bereft of transit?
  • How much of the scheme depends on the City fronting the initial construction cost in the hope of future development revenues to pay the capital and operating expenses?
  • Will Council be allowed to perform, in public, a full review of the terms of any arrangement, or will we sell our transit system’s future in a back room deal?

PPPs are notorious for requiring careful structure of contracts, performance criteria, penalties and ongoing management.  Toronto’s political culture prefers to walk away from such responsibility in the public sector.

One way or another, Toronto will commit a pot load of money to a Sheppard subway of dubious value, and force Queen’s Park to bury the entire Eglinton line at great cost.  Billions will disappear into these projects while other parts of the transit system beg for funding.

The private sector may wind up funding some portion of the Sheppard project, but transit overall is still very much a public issue.  Long term funding will depend on public revenues.  We cannot avoid the debate on fares, tolls or taxes, with the assumption that magically money in the private sector will build, operate and maintain our transit system.  Somewhere, the public will spend more, or sell assets, or give away benefits as a tradeoff.  Nothing is free.