Metrolinx Math

In a recent comment, a reader questioned the disparity between the $34-billion cost of the Metrolinx “Next Wave” projects and the sum of the individual projects listed on the website.  These projects are:

Brampton-Queen BRT     $  600 million
Dundas BRT                600
Durham BRT                500
GO Expansion            4,900
GO Lakeshore Express    1,700
GO KW Electrification     900
Hamilton RT             1,000
Hurontario LRT          1,600
Downtown Relief Line    7,400
Yonge North Subway      3,400
Total                 $22,600 million

A big chunk of the difference between these two numbers can be explained by a factor which is new in the “Next Wave”, a provision of 25% of whatever funding is available for local transit, regional highways and other smaller projects.  This would eat up $8.5b out of the total leaving $25.5b for the next wave of “Big Move” projects.

I wrote to Metrolinx asking for an explanation of the remaining $2.9b, and this is their response.

Transforming the transportation network in the Greater Toronto and Hamilton Area is similar to any renovation project, and $50 billion was a planning number that was developed in 2008 for the Regional Transportation Plan, also known as The Big Move. As we move through assessments and delivery, we will have harder numbers, so that figure will change.

However, prior to the assessments and delivery, we’ve built a contingency into the $34 billion cost of the Next Wave projects, which accounts for a difference in numbers.

It should be noted that more than $16 billion from all three levels of government has been allocated to the “first wave” of projects drawn from The Big Moves list of top priorities. This is the largest financial commitment to transit expansion in Canadian history. [Email from Metrolinx February 5, 2013]

I will take at face value the statement that the $2.9b is “contingency”, but note that this was not mentioned in any of the presentation materials nor on the website.  To me it looks more like an “oops”.

This is not simply a question of catching Metrolinx out on an incomplete or inaccurate presentation.  We are now engaged in a debate about regional transportation and funding, and it is vital that this take place in a fully informed context.  An amount of $2b/year is commonly used as a reference point for the amount of funding that must be delivered by any new revenue tools.  This was in the original “Big Move” budget of $50b delivered over 25 years, and shows up most recently in the City of Toronto’s “Feeling Congested” outreach program.

That original number was in 2008$ and it included some provision for future operating costs.  However, it did not include inflation, nor did it include the recently added provision for local transit and road projects which would take 25% off the top of any new revenue stream.

The $50b was supposed to finance 52 separate projects listed in The Big Move, but between the “first wave” and “next wave” list, many still remain outside of funding plans.

If the Investment Strategy report expected from Metrolinx late this spring is to have any relevance to the discussion, it must include current estimates of capital and operating costs to be funded from new revenues, and must provide for inflation.  Either the capital provisions must be escalated to future dollars, or the future revenue from new tools must be discounted to present day.  We cannot discuss our long-term funding needs with a mixture of dollar values spanning decades.

Public transit projects have a long history of coming in over budget for various reasons.  Some of this is bad planning and some is scope creep, although it could be argued that these are often related.  There is always the issue of unexpected circumstances, not to mention the treatment of large public transit projects as an opportunity for every nearby utility to have their plant upgraded at the project’s expense.  Past funding for Metrolinx projects has always been announced as $x-billion plus inflation so that a $16b or $34b “commitment” may actually be much larger in as-spent dollars.

A further wrinkle is the use of private sector financing, construction and operation through “AFP” (Alternate Finance and Procurement), a methodology now in favour both in Ottawa and at Queen’s Park.  In this scheme, part of the capital cost of a project is assumed by a private partner, and this can reduce the capital outlay required during construction by the public sector.  However, that money has to be paid someday, and the payments show up on the operating budgets through mechanisms such as leases and revenue guarantees.  That will be a future call on the new revenue streams, and it must be built into the long range Investment Strategy.

Finally, some transit costs have been borne through non-Metrolinx budgets including various transfers to municipalities (now mainly the gas tax, although the infrastructure fund may be revived in a future budget) and a clawback to GO transit via a tithe to help pay for its capital program ($20m from Toronto this year).  All of these funding streams need to be sorted out and presented in one place so that a rational view of what is needed going forward is available for everyone to see.

Metrolinx should take greater care with its announcements and fiscal plans so that its credibility is not undermined by simple questions about arithmetic, and so that the funding they seek will actually match the funding they will need.