Board of Trade Advocates New Revenue For Transit

The Toronto Region Board of Trade has announced its support for new revenue streams that could fund the Metrolinx “Big Move” Investment Strategy and more.

Matt Elliott (aka @GraphicMatt) has produced a chart showing the contribution of each of four recommended sources and the range of possible incomes.

The Board of Trade has launched a new website under the name letsbreakthegridlock, and this includes a background paper on the evolution of their recommendations.

Most striking about the proposed revenues is that even the “low end” total is close to $3-billion per year with the high end over $4b.  The Board of Trade is not recommending specific levels for the new revenue stream, but the Toronto Region and Queen’s Park need to aim high.  The Metrolinx Big Move plan was priced at $2b/year, but that estimate is several years out of date and does not include inflation.  It also does not include any money for local transportation improvements that was recently announced as part of the “Next Wave”, and which would increase the total needs by one third.

This is not some wild-eyed, pinko-commie, downtown bunch of granola-eating, pot-smoking, tree hugging, tax-and-spend radicals — it’s the Board of Trade, and they claim wide support from their members.  Congestion and the lack of good transportation options within the GTHA are strangling business and making the region uncompetitive.  That’s the kind of effect businesses notice, and they recognize the effect of decades of disinvestment in the transportation network.

Three of the four proposed tools are easy to implement as extensions of existing tax regimes and they produce substantial revenue.

Regional Sales Tax

An additional 1% sales tax applied across the GTHA would generate $1.0-$1.6b annually.  Although there could be some boundary effects (businesses locating just outside of the tax region to lower their prices), the GTHA is a big place.  Given the scope of Metrolinx service territory that now reaches to Niagara Falls and Kitchener-Waterloo, the tax region could well be bigger than the formal “Greater Toronto and Hamilton Area”.

Parking Space Levy

A levy of $1.00 per day per parking space levied on non-residential parking would raise $1.2-$1.6b annually.  It is unclear how raising the cost of parking would benefit the transportation network, and a small increase per user is unlikely to push motorists over the edge onto transit, especially in areas built around car access to large parking lots.

This effectively becomes part of the cost of doing business for owners of malls, office blocks and industrial parks.

Regional Fuel Tax

A levy of $0.10 per litre would generate $640-840m per year.  To put this in context, there is already a five-cent tax at both the provincial and federal level that is directed to transit.  The new levy would effectively double the transportation-related tax on fuel.

The degree to which such a levy will influence behaviour is difficult to say.  Motorists are notoriously difficult to move out of their cars primarily because the alternatives are often unavailable or uncompetitive for their needs.

High Occupancy Tolls

A toll of $0.30 per vehicle kilometre would generate $25-$45m per year.  This toll would convert existing high occupancy (car sharing) lanes  to tolled lanes where anyone could pay for the privilege of driving in the (presumably) less crowded HOV lane.

Such a scheme is counter-productive.  Any changes to the road network should encourage increased utilization of the capacity provided, not offer those who can afford the option the ability to buy their way into a high occupancy lane.

In the background paper, we learn that this option was not even part of the mix originally studied by the Board of Trade, and it was a late addition to the recommended list (but with no real justification).

The background paper says the four recommended tools:

have the potential to act as the “heavy-lifters” of revenue collection [page 28]

This is simply not true of the HOT proposal.

I cannot help thinking someone in the Board just wouldn’t let this paper out the door without giving him (or her) the option of buying their way out of congestion.  This is pandering of the worst sort, and it devalues the Board’s report by its presence.

The Roads not Taken

Several potential revenue sources were studied but rejected [page 26]:

  • Road Tolls/Charges – $1.3b – 1.5b ($.10 per km)
  • Increased Income Tax – $640m-740m (0.5%)
  • Higher Property Taxes – $670m (5% increase)
  • Employer Payroll Tax – $630m – 730m (0.5%)

Income Tax is of particular interest because it is seen by many as a “progressive” tax that targets higher incomes more than low, while Sales Tax affects everyone.  The Board observes:

Increased Income Tax: The potential for economically negative impacts for the Region, such as smaller businesses moving out of Region and disruptions in local capital markets, given tax could cover income derived from investments.

This is a rather self-serving remark coming from a group with obvious interests in the business community.  The obvious rejoinder would simply be to increase taxes across the province (and possibly remove some existing exemptions).  Benefits from public spending will obviously flow to the same investors who might plan a flight to tax havens like North Bay or Winnipeg.

Other Financial Sources

To its credit, the Board accepts that the problem is of raising new revenue, and that spending cuts or “efficiencies” will simply not provide the needed capital.

Given the current fiscal state of all levels of government, bridging this funding gap will require new and dedicated funding streams. To suggest there are opportunities to find $34 billion from within the existing provincial and municipal funding envelope by reducing waste or finding efficiencies is simply not realistic. As the Drummond Report highlighted, for the provincial government to just meet its projections of annualized 1.4% increases in spending up to 2017 and balance its budget, it must reduce spending by $30.2 billion.  [page 20]

At the municipal level, they also observe:

there is a decreasing ability for development charges to mitigate the costs of capital as build-out and intensification plateau over time across the Toronto Region.  [page 20]

This has been echoed in material from consultations by Toronto and Metrolinx where the dollar value of development charges is tiny compared to the level of sustained spending required for regional plans.  Moreover, the development industry is notoriously unhappy about anything that adds to the cost of new housing units, especially as that market begins to soften.

Public-Private Partnerships come in for a review with the hope that by transferring some project risk to a private partner, performance will improve and projects will not be saddled with cost creep as this would penalize the partner.  However, the Board rightly notes:

However, it must be stressed that they [P3’s] are not new revenue streams. In many respects they are akin to a mortgage; you shop around for the best rate and get savings, but in the end, you still have to pay the interest charges and principal.  [page 21]

Metrolinx has recognized the limits of private investment, and on the Eglinton project expects that only about one third of the total financing will come from private partners.  The rest will be traditional public funding from general revenues and/or public debt.

Tax Increment Financing (TIF) and Special Property Taxes also get passing mention, but mainly in the municipal financing context.  There are two important distinctions here.

First, as the Board observes,

However, because of their location based bias (i.e. major urban centre redevelopment projects) they would not cover the entire costs of large cross region transit projects.  [page 22]

By their very nature, these taxes assume a direct link between new construction and benefits nearby of increased land values.  This is easy to demonstrate for cases where governments invest in a reclamation scheme for run-down neighbourhoods (Toronto’s waterfront infrastructure would be a good example where the investment and benefit are side-by-side), but much harder for a regional network.  A “Downtown Relief Line” has benefits scattered throughout the transit network and region, but assigning any of them to specific properties would not be possible.  This is a cost that must be borne generally because that is the scope of the benefit.

Another important issue not mentioned by the Board is that redevelopment schemes have a bad habit of not producing the expected economic activity and benefits.  Just because you build a subway terminal, buildings don’t sprout overnight beside it.  A public investment may take decades to bear fruit.

Transit Fares

The Board does not view fare revenue as an appropriate tool for capital projects, but rather that this stream should support better service.

[T]he Board believes it is more appropriate that this funding stream be directed towards covering operating costs and service enhancements like more frequent GO train service on what is still underutilized rail infrastructure within the Region of Toronto.  [page 23]

To put things in context, the total TTC fare revenue is roughly $1b annually on a budget of about $1.5b.  A very substantial fare hike would be needed to generate substantial revenue ($200m annually would require at least 20% higher fares, a jump proportionally much greater than in any of the other proposed revenue tools).

Farebox revenue from other systems in the GTHA is trivially small with the largest share coming from GO Transit (about $325m in the 2011/12 budget).  Huge fare increases would be needed to generate substantial additional revenues to support capital works.

Where Do We Go From Here?

For months, the Toronto Region Board of Trade has been hinting quite broadly that it would come out in favour of new revenue tools and a substantial revenue steam to fund investment in the GTHA’s transportation network.  This is an  important step as it shows support from the business community, not just from the “usual suspects” advocating more spending on transit.

With this announcement, the Board has clearly dismissed the view that we can have everything we need and want without paying for it, a view held by “conservatives” of whatever ilk that has hamstrung calls for more public spending in many portfolios.

Now we need a provincial government with the will to embrace and advance a program of transit investment.  In a future article, I will turn to the Metrolinx “Investment Strategy”.

51 thoughts on “Board of Trade Advocates New Revenue For Transit

  1. The congestion will not go away unless we (as a society) are prepared to look at minute albeit expensive items that can be “easily” fixed.

    One item, that stands up, is the crossover between UPX (nee ARL) and StClairW TTC ROW. Many studies have been prepared even at a time of Minister David Collenette, but no one noticed, that a potential bottleneck will be built on the ground/street level. The political will was missing at that time.

    On the other hand similar situation was evolving on Sheppard East east of Kennedy and Metrolinx has built a nice GO bridge there. You may argue,that it was a preperation for future ROW — I agree to certain extent – there is another (CPR) bridge in Whitby that is also widened because the street level intersection just south of that bridge is gradually becoming congested.

    Steve: The grade separation at Agincourt would have happened eventually as a GO project if not for the LRT plan, but when the Sheppard LRT construction was expected to start and the line be opened in 2014, it became a necessity.

    My argument — three locations, two were solved because there was political will, the last (StClairW) was/will be left for future generations.

    Steve: St. Clair West was not done because of attempts to save money on both that street redesign project and on the GO corridor. It was a choke point even before the LRT scheme was added, and was further complicated by shutdowns of Junction Road for the grade separation work at West Toronto Diamond.

    Another item is the supply of new LFLRVs. Does the capacity of new vehicles exceed capacity of C(A)LRVs? If not, why not? Why is the proposed (2015 and beyond) capacity not higher than the current one?

    Steve: The capacity of one LFLRV is roughly double that of a CLRV, and probably slightly more because there will be more efficient use of space throughout the vehicle with all-door loading. Relative to an ALRV, the space will be about one third greater.

    T.O. has gradually become a jurisdiction of people and managers, who lack a will to make a simple change — rather tonnes of documents are produced where years of procrastination are repeatedly justified — both for the past and future (whatever that means).


  2. @ Steve

    The $30 billion deficit by 2017 is the estimate from the 2012 Drummond Report. Now I’m willing to bet that a lot of people have issues with the report and believe that it’s nothing but a scare tactic. So let’s completely ignore it.

    The 2012 deficit was about $11.9 billion dollars. This is actually $2.9 billion less than forecast, and is partially due to enforced teacher contracts, as well as low interest rates.

    That’s still an $11.9 billion hole that we have to fill, assuming that it does not get any worse. Do you honestly believe that the province won’t be tempted to put most of the “transit funding” into general revenue in order to try and balance the books?

    Steve: Yes, with the caveat (and one of my outstanding questions to the Minister, Glen Murray) that Queen’s Park not claw back other funding streams such as the existing gas tax for transit. The $2b/year (or whatever number it is eventually) needs to be all “net new” spending, not a way to save money in other programs.


  3. I was thinking that the issue is that the suburbs (except for net employer suburbs like Mississauga) don’t have enough employment in relation to residential density and that this is the reason for all of this sprawl. That if they had more jobs closer to home, we wouldn’t be in this mess. But that may not be the issue. The more that I read into this issue, apparently the policy that I suggest (creating more jobs in the suburbs) is probably the culprit behind why we are in this mess in the first place!

    Having a lot of office jobs in the suburbs isn’t necessarily bad per se.

    Have you had a look at suburban office parks? The largest buildings are 5-6 storey offices surrounded by huge parking lots. There are too many to count that are single storey. Employment density is arguably a much bigger issue than residential density.

    Imagine if a large proportion of the office parks in Mississauga were consolidated into a bundle of large office towers in “downtown” Mississauga. Most people would still need to commute to work but designing and building a rail system to accommodate them becomes a lot more viable.


  4. L. Wall said: Imagine if a large proportion of the office parks in Mississauga were consolidated into a bundle of large office towers in “downtown” Mississauga.

    It’s hard for a lot of people to imagine Mississauga having a “downtown” or “downtown” councillors (as opposed to “suburban” councillors) but things are starting to coalesce.

    The first hint I saw was more than 5 years ago when some councillors started objecting to the expansion of the Heartland “Town Centre” big box complex at Mavis & Britannia to the north side of Britannia … they were concerned that the expansion would draw people and shoppers away from Square One and the “entertainment district”.

    Mississauga does have Celebration Square and additional things to draw people to the “downtown” but there hasn’t been a commercial building or office tower built there since the early 1990s.

    The Downtown 21 plans or are interesting but the big problem is the existing landowners (especially Oxford, which owns Square One) wants to stick to the traditional model of buildings surrounded by massive amounts of parking.

    Cheers, Moaz


  5. First three revenue tools are easy to implement, reasonably fair and collect the needed money. The HOT lanes? No so much. Enough said by previous posters and I won´t reiterate their objections.

    A similar amount (25-45mil) can be raised by charging for parking at the GO lots.

    Security at those lots is an issue. They are regularly used as a warehouse for parts. Many drive downtown because they found a missing muffler or someone broke into a vehicle left for the day. With a full enclosure of a lot and onsite contracted security personnel (or better yet, converting to a multilevel parking structure) the risk is much lower.

    Parking capacity is barrier to full day train operations. Someone who lives in Burlington 5 km from the station won´t find any parking if they decide to take a train downtown at 11am. With charging for parking, a rate can be set for each station to have 5% of spots available by 9am. Therefore, that person that choses to do the right thing can be certain they can leave their car at the station and take a train instead of battling the QEW traffic.

    Even more importantly, GO lots are sitting on premium real estate which could be rebuilt as mixed used communities with offices, condos and shopping. Many people want to live, work or shop within 5 minutes from an all day train service and that land can be sold at a premium. Upon conversion of those oceans of parking to multi level parkades land use changes can become a reality. The new development could be very dense because it won´t need lots of parking (the residents will be able to use the structured parking at the station and more spots will open up late morning when car commuters from the condos over the station leave for the day). While selling land is a one time fix it can still can go a long way to fund local transit and feeder service improvements. While highrise buildings are not ideal around those stations surrounded by subdivisions, midrise family size condos and stacked townhouses will work just fine.

    Finally, I think it is fair that GO users will be paying for better service. They would see benefits immediately as improved security and coverage by feeder buses. Maybe GO will even be able to gradually reduce the number of parking spots it needs to maintain. Most people who drive to the station do it because an alternative is inpractical. Bike lanes can help too and can be funded from the above mentioned ¨light¨revenue stream.


  6. I appreciate that the Board of Trade often declares positions and releases proposals on various public policy matters. But building an investment strategy has been on Metrolinx’s to-do list for quite a while. It almost seems like an embarrassment to have the Board of Trade step in and do a credible, detailed job of it — unless Metrolinx already has an investment strategy thought through and I just missed it somewhere.

    Steve: Metrolinx reported on the various options for revenue tools back in 2009 if memory serves, but they have been sitting on any discussion of the topic thanks to timidity at Queen’s Park. Work by the Board of Trade and others is partly to create political cover for this discussion.

    What is missing so far is any talk about project staging, cash flow and borrowing, not to mention the relative benefits of advancing specific projects. McGuinty slowed down the whole process to push much of the spending out beyond a supposed recovery to balanced budgets, and we need to speed up again. Simply having “15 year” and “25 year” plans, and arbitrarily announcing “waves” of projects with no sense of timings is probably the greatest failing of Metrolinx. Lots of talk, but no specifics to put any funding scheme in context or to identify the most productive investments.


  7. Office park consolidation sounds like a good idea. Until you deal with the people running office buildings and then you realise you would be dealing with thousands of mostly mom and pop shops, each with at least 6 mostly mom and pop shops as customers. Any attempt to consolidate can be easily undercut with a rent decrease and would most likely cause massive disruption to local GDP.

    Like it or not, a lot of people are supported by those inefficient office parks.

    Reality is we are stuck with our current suburban forms, until economics makes those forms nonviable. Not in any of our life times I predict.


  8. @L. Wall
    Hurontario Street is getting light rail and my Mississauga office just happens to be on that corridor. And Hurontario does run into the downtown so the downtown will get LRT access. Mississauga needs more than just a Hurontario LRT and Dundas BRT to get people out of cars. Though the real purpose of these rapid transit lines is not to get people out of cars. But to merely service a ridership that is expected to grow beyond mixed-traffic bus capacity. Lots of people in Mississauga can’t afford to own a car and Hurontario and Dundas just happen to be the two corridors with the most demand so they’re getting rapid transit. Metrolinx tries to play it up like Hurontario LRT and Dundas BRT will reduce traffic congestion in Mississauga. If you are travelling strictly along just Hurontario and Dundas, that’s possible. But everyone else is going to just drive because it’s faster.

    Mississauga has lots of GO Train Stations that could be used as commercial density hubs for longer haul commuters. If GO Transit rolls out off-peak direction service. There is so much potential there with GO Transit that is not being realized due to budget constraints. A lot of my co-workers are coming from outside Mississauga. Orangeville, Georgetown, random Anytown, Ontario, Toronto (haha :p). LRT is not going to be of much use to them. And the reality of the situation is that in these suburban business parks you have employees commuting from all over the place.

    The demand patterns that we created though are merely symptoms of a much bigger issue. Our economy is unwell. If our economy was healthy and workers felt that they had more options, they would be a lot less tolerant of these 45 minute+ commutes and choose more local options. You may just take that job offer an hour drive away if you’re afraid that you’ll remain underemployed if you don’t.


  9. Steve,

    I was wondering if you could comment on a proposal I’ve heard, but which the BoT didn’t address: a hotel room tax. Of the measures brought forward, I like the idea of a region-wide sales tax the most — that spreads the burden the widest within the region. But a tax on hotel rooms would enable us to get visitors to the GTA to contribute to these improvements.

    I also vaguely recall that a hotel room tax was proposed before as a means of adding funding to the TTC. And I heard that the hotel industry (or, at least, the Board of Trade) supported it. However, the idea was vetoed by Mike Harris who didn’t want any taxes increasing anywhere in Toronto ever.

    Steve: Hotel rooms are already subject to tax and would participate in any uplift of the existing tax structure. There is already a supplementary tax used for tourism promotion. In a 2004 report about its implementation, the annual revenue was projected at $15-19m based on a 3% levy. That’s for Toronto itself, and the take would be bigger for the GTA as a whole, but not double given the concentration of hotels within the city. This is not a big ticket item, or “heavy lifter” to use BOT terminology.


  10. @ Chris: March 20, 2013 at 8:19 am

    I whole heartedly agree with you. Your comment highlights one of the great needs of a modern globally competitive economy, which is the need for labor market flexibility. Centralizing economic development is the best way to ensure prosperity and equality of opportunity. This is why I and many others are such great fans of GO transit and the potential it has to modernize the economic and social environment of the GTA.


  11. Steve: Yes, with the caveat (and one of my outstanding questions to the Minister, Glen Murray) that Queen’s Park not claw back other funding streams such as the existing gas tax for transit. The $2b/year (or whatever number it is eventually) needs to be all “net new” spending, not a way to save money in other programs.

    Seeing how the Federal Government just did this in the 2013 Budget … and were immediately called on it by the CBC (and not …
    interestingly enough … by CTV, Global or Sun), The Star and Macleans, I wouldn’t be surprised if the Provincial government tries to pull something similar … especially considering the fiscal situation they are in.

    Cheers, Moaz


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