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.
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 The Metrolinx Big Move plan was priced at $2b/year, but that estimate is several years out of date and does not include inflation.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.
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”.