Step Right Up for the Miracle Cure! (Updated)

For those readers here who do not follow the Torontoist website, I have an article there commenting on the City of Toronto’s outreach program for the new Official Plan.

Toronto seeks the opinion of its residents on the purpose and priorities of a transportation network, and on how we might pay for this in coming years.  The City’s heart is in the right place, but the planned consultation has its problems.

Updated February 3, 2013 at 8:00 am:

Toronto City Planning’s website seeking feedback on priorities and revenue tools has been live for a few days now.  It operates in a somewhat different fashion than I had assumed from the presentation by Jennifer Keesmaat at a recent Planning & Growth Management Committee meeting.

The site allows participants to select among a set of priorities, choose their favourite revenue tools and build a budget showing how each tool would contribute to a $2b/year target.

The priorities are a bit wooly and don’t necessarily reflect the linkage between the options and the type of spending that might occur.  For example, the “affordable” priority is described as relating to the cost of using transit, not to the cost of building it.

On the budgetary side, the potential revenue from various sources is given (this was missing from the PGM presentation), but there is no discussion of the ease with which any of the tools could be implemented nor of issues such as fairness in who would pay the new revenue.  A few examples:

  • Congestion charges are aimed at downtown where, ironically, the level of road traffic relative to total travel is very small.
  • A payroll tax charges businesses based on the size and cost of their labour force, not on the level of economic activity they represent.
  • Charges assigned per unit (e.g. utility levies) fall disproportionately on those with the smallest units and low usage (typically poorer family units).
  • Charges related to property value are keyed to notional value (CVA) rather than ability to pay.  Value capture schemes, like CVA, would tax an asset that the owner could not monetize unless the property were sold.  The effect is completely different for residential and commercial uses.

I will examine the various revenue tools in a separate article consolidating the discussion with the recent proposals from the RCCAO (Residential & Commercial Construction Association of Ontario).

Finally, there is no discussion of how the money would be used.  From the Metrolinx “Next Wave” proposal, we know that 25% ($500m/yr) would come to the municipal sector, roads and active transportation options.  This is actually small change beside the ongoing needs for local transportation funding and the backlog of infrastructure repairs.

The consultation does not include any discussion of what, at a local level, the new revenue might fund although this could affect the selection of tools.  Responses do include the selection of where broadly speaking money should go (transit, roads, etc) but with no examples of the implications or needs for each sector.

As I write this, the ranking of responses so far places highway tolls, congestion levies and development charges at the top of the list although even the first ranked gets a score of only 2.46 suggesting that many respondents ranked it in 3rd place or lower.  Some scores are tightly clustered indicating that responses are picking a variety of options.  It is unclear whether the ranking system assigns a value to “not selected” and is assigning scores only to the five items which each participant selected.  No value of “n”, the number of people selecting an item, is given.

How useful this survey will prove in the next stage of the consultation remains to be seen.

5 thoughts on “Step Right Up for the Miracle Cure! (Updated)

  1. Your comments about the fairness and effectiveness of downtown congestion charges, payroll taxes and levies per unit are spot-on, but I don’t think CVA property taxes are so bad. In Europe, I have seen many developments built and standing empty for years, whereas in Toronto I rarely see that. I think this may be because in Europe taxes are paid on rental income and the like, with property taxes as we know them being low. The high Ontario property taxes, based on market value, force properties into generating income, and so whole blocks don’t stand empty, unrented or unsold.

    Steve: Your comment may be valid for properties that typically are rented, but CVA also penalizes people who hold property over a long time while the market around them appreciates. Taxes are based on the value a property could realize if sold, but not on the value or wealth of people who have lived there for decades. In a market with escalating values like Toronto, this is not fair to people who now have an “expensive” home through no effort or fault of their own, but are taxed as if they had the income to buy it at current prices. This is a major problem for seniors living on fixed incomes in older parts of the city who find themselves surrounded by gentrification.


  2. I’m glad you opened up the comments for this post. I’m also glad that there is some data to discuss. It is very important to have data to back up the effectiveness of the various revenue tools so the ultimate decision(s) is/are made by looking at what is best rather than who speaks the loudest or who has the ear of the decision makers.

    I was a bit concerned that Metrolinx and Toronto were having somewhat separate and possibly different consultations…but now I think it would be better to have much more consultations, surveys, polls etc, offered by MPPs, councilors, even MPs and the media too.

    Cheers, Moaz


  3. If traffic congestion or the lack of transit is truly a problem, would a prudent leader be setting up workshops to discuss how we might pay for it? To put it in another perspective, when the Kaiser’s army was advancing to Paris, should Mr. Borden hold workshops to see how we might finance the war effort? No, he imposed the temporary income tax so that the Allies get to write history.

    Even when the payment streams start to come, it will take some time for the war chest to have enough money to launch several constructions at the same time at full speed, not the 5 years to build the Sheppard East tram. The only way to get the cranes going fast would be to empower the private sector to build it. At the same time, the government should be signing lease to own deals so that the private sector is guaranteed a profit. We miss the boat, so now we have to pay cost+profit in order to solve this grid lock problem.

    Steve: I was with you up to the point where the private sector came in. Anyone can build transit lines, but what is needed is the will to do so. We have collectively lacked the will to spend on transit regardless of how it is financed.


  4. Steve, what I am trying to say is that even if all the revenues tools are in place, we will still not see shovels in the ground. This is just an example, I am not discussing the feasibility of this in Toronto. Assuming that we will host resort casinos or even build a storage for spent fuel rods. It takes years to contruct these facilities and the first dollar may not flow even five years later. Even new taxes will take time as rules are formulated. Also, taxes has to be ex post facto, so people may figure out a way to bypass it and reduce the potential revenues.

    When the dollars do flow, the initial revenues might only be enough for a “leisurely” pace of contructions for the Big Move 2020 items. A casino may generate $1 billion of profit, but the profit each month is not the same. Also, the $1 billion comes in over the year and one cannot get the whole amount upfront unless it is securitized. Even if the payment stream is constant, it might not allow for a team of 800 men at each construction project. With an 800 men building the Sheppard East tram line, it might be completed in a year not five. Remember the US Army Engineers can build a bridge across the Rhine River in weeks with 1940s tech, but it takes five years to build a tram line here.

    With a lease to own deal, the private sector will find a way to build it quicker so that it can start collecting revenues sooner. This is simplistic, but the thinking has to change. If the Sheppard East tram opens say five months late, it might reduce the losses of the TTC since initially it might lose money operating a new line due to the fact that it takes time to build ridership. So, this might be good news for the bean counters. For the private sector, a five month late opening means penalties and five months less of lease payments.

    This is not good financially, but this is the consequences of not building transit sooner. It is like a young couple who wants to furnish their first home. They can buy furniture as the money comes in, but the whole house might not be furnished for years. Or they could go to a rent to own place and have the whole house furnished within hours. But they will pay dearly for this privilege.


  5. Benny: The government has easy access to financial markets and can borrow against future revenue, just like they do to finance deficit spending.


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