Planning for many transit projects in Toronto has been underway for years, but the public face of this work took a long holiday in 2018 thanks to elections at both the provincial and municipal levels.

In coming weeks, Toronto’s Executive Committee and then Council will consider an omnibus report that provides updates on many transit projects and recommends a path forward.

Today, that path is murky given uncertainty about provincial intentions and the degree to which consultation between the city and province is actually in good faith. Premier Ford’s approach on other portfolios, coupled with the breezy confidence of his Transportation Minister (seen recently on TVO’s The Agenda), do not bode well. With the arrival of Doug Ford at Queen’s Park, the provincial goal on transit is more about settling old scores with Toronto Council and proving that Ford’s transit vision is correct than it is about good planning. Recent correspondence between the province’s special advisor on a proposed subway takeover revealed just how much the province does not know, or chooses to ignore. This was not a good start and the province wounded its credibility on basic technical points, never mind the political context.

But for a moment, let us consider Toronto’s future from the point of view of what the city hopes to do, if only they have the control and the money to pull this off.

The report is long, and to break this article into digestible pieces, I will focus on groups of issues. This article covers overall financing of the transit expansion project and specific details for the Scarborough Subway Extension (SSE), now known as the Line 2 East Extension (L2EE). I will turn to other components of the plan in further articles.

Many reports are available on the City’s website (scroll down to the end for all of the links). The principal reports are:

• Main Report: Toronto’s Transit Expansion Program – Update and Next Steps
• Attachment 1: A status update on all projects
• Attachment 2: Line 2 East Extension
• Attachment 3: Waterfront Transit Network – Union Station-Queens Quay Link and East Bayfront Light Rail Transit
• Attachment 4: Eglinton East LRT
• Attachment 5: Eglinton West LRT

Financing Transit Expansion

The most challenging part of any transit project, let alone a complex program, is to obtain funding from governments whose priorities do not necessarily align and which may talk at least as much about the sanctity of “taxpayer dollars” as they do about investment in public infrastructure.

In a media briefing, city staff were quite clear that no project can proceed to the stage of contract tendering and awards unless the contribution agreements underpinning a project are in place.

At the federal level, the primary funding source will be the Public Transit Infrastructure Fund (PTIF) which has two phases. An initial phase was time-limited, and was used in Toronto mainly to fund the purchase of hundreds of new buses. The second, longer-lived phase of PTIF will be used for transit construction projects. There is some urgency to nail down PTIF contributions given the fall 2019 election and uncertainty about this program under a new government.

Note that this entire discussion relates only to projects that would be funded in part through PTIF, not to many others such as the Eglinton LRT extensions or the Waterfront LRT.

Federal funding of $4.897 billion will be allocated by the city, assuming government approval, as below [Main Report, p. 2]:

• $0.660 billion for the Line 2 East Extension project
• $0.585 billion for the SmartTrack Stations Program
• $3.151 billion for the Relief Line South
• $0.500 billion for the Bloor-Yonge Capacity Improvement project

Negotiations with Ontario are ongoing, and the status of projects and associated $4.04 billion in provincial funding is unclear. This could be clarified in the provincial budget to be announced on April 11, 2019. Provincial interest in and plans for the Scarborough extension and the Relief Line will affect both of these projects.

City funding comes from a variety of sources:

• Development charges
• The Scarborough Subway levy
• The City Building Fund levy
• Interest on accumulated reserves from the levies

Financial projections are also affected by factors that have changed since projections made in past years:

• Higher growth rates in development
• Lower interest rates

PTIF2 has an assumed split of 40-33-27% for the federal, provincial and municipal governments respectively. This creates a breakdown of responsibilities as shown below.

The provincial share is supposed to be “new funding” and the amount here does not include prior commitments to Scarborough transit which originally were for the proposed LRT line, later for a subway. Exactly how much Ontario will contribute remains to be seen given discussions about ownership and the scope of the Scarborough subway project. I will return to this in more detail later.

Within the city share, $2.42 billion is unfunded (no revenue sources have been committed to fund/finance the expense), and only $885 million of the SmartTrack Stations Program has city funding. The report recommends that the city’s CFO and Treasurer report prior to the 2020 budget process on strategies for addressing the shortfall.

The project cost estimates for these are broken down below. In the chart, the acronyms are:

• LTD: Life To Date
• PDE: Preliminary Design & Engineering

The possible funding arrangements vary for each project, and these are complicated both by past history and by the uncertainty of early “class 5” estimates. A tentative breakdown is shown below, but this must be taken with a grain (or more) of salt due to technical and political uncertainties. For example, the assumed provincial contribution to the Line 2 Scarborough project is based on inflation of a commitment made in 2010 dollars where the city and province do not agree on the appropriate inflation factor.

Two separate numbers have been used for the Relief Line cost estimate: $6.8 billion in Table 2 above, and $7.2 billion in Table 3 below. In the media briefing, TTC staff explained that the change was due to an alignment revision (Carlaw vs Pape) and changes in construction techniques (mining vs cut-and-cover) at some locations. That may be so, but to have two different numbers for the same project so close together within a report makes one wonder about the care taken in other aspects. On top of that is almost $2 billion as a “provision” for the Relief Line to guard against potential cost increase as the estimate is refined from class 5 to class 3.

This sort of uncertainty is not unusual, but the constant variation in quoted “estimates” makes for no end of problems. The converse is seen with the Scarborough project where the “estimate” for the subway’s cost has remained fixed since 2014 despite major changes in project scope.

The report explains the difference between initial class 5 estimates and the class 3 estimates to be used in setting project budgets:

As a project moves through the three phases, project definition becomes more refined and the information used as the basis for developing a cost estimate is more mature.

• A Class 5 cost estimate is typical when starting the initiation and development phase, where the project is conceptual (0-2% design level). This an order of magnitude estimate to inform the decision of whether or not to continue to study an option.
• A Class 3 cost estimate is based on PDE work (10-40% design level), and is the estimate class recommended when establishing a project budget for procurement and construction. A Class 3 estimate should be used to inform full funding commitment decisions. [p. 16]

Note that the term “order of magnitude” has considerable leeway, and a change from one order to the next is a factor of 10. Saying that costs “A” and “B” are in “the same order of magnitude” gives huge scope which on projects of this nature is measured in billions of dollars. Too much past debate has assumed that minor swings in estimates might occur as designs are refined, but this is more wishful thinking and the political hope that a project will not get out of hand even before shovels hit the ground.

Overall Project Status

The map below shows the location of all projects in the transit network plan.

Projects will advance from stage to stage on their own timetables which are summarized in the chart below.

Line 2 East Extension (aka Scarborough Subway Extension)

This section reviews the status of the Scarborough extension as it is presented in the city reports. Obviously this is subject to major change given provincial announcements of support for taking ownership of the extension and for building a three-stop subway.

One of the great mysteries of the Scarborough Subway is that the cost estimate as reflected in TTC budgets never changes. [Click on the illustration to enlarge it.]

Back in 2014, the first year the subway appeared in the Capital Budget, there were three items:

• Scarborough Subway: $3.305 billion
• SRT Life Extension: $132 million
• SRT Decommissioning: $123 million
• Total: $3.560 billion

Note that the spending, except for the decommission project, ends in 2023 when the extension was planned to open. These numbers are similar to the projected cost of the subway in mid 2013 when the option of switching from the LRT plan was before Council.

In the 2019 Capital Budget, five years later, the Life Extension project is broken into several parts, but the totals for each component remain exactly as they were in 2014. However, the underlying  project is not the same.

• The extension now ends at Scarborough Town Centre, not at Sheppard.
• There is only one station at STC. The two proposed for Lawrence East and Sheppard have been dropped.
• An at-grade bus terminal has been replaced with a large, grade-separated one.

The station now includes a large bus terminal whose cost was, in part, absorbed by cuts elsewhere in the project. At the point it was added in early 2017, the cost breakdown including inflation was:

• McCowan Alignment with at grade bus station: $3.159 billion
• Triton Bus Terminal: $0.187 billion
• Total: $3.346 billion

Another change lies in the signal system which was originally planned to be Automatic Train Control similar to that used on the Yonge-University subway, Line 1, and for which an ATC-compatible fleet was expected to be in place. At the media briefing, TTC staff confirmed that the extension is now planned to use a conventional block signalling system like the existing Bloor-Danforth Line 2. This will be more expensive than installing ATC, and when automatic operation does come to Line 2, ATC will have to be retrofitted to the extension at an added cost. Some preliminary structures needed for ATC will be included in the extension, but no equipment will be installed until the full conversion of Line 2.

Line 2 will continue to use the existing T-1 trainsets rebuilt rather than replaced as originally planned, supplemented by seven new trainsets. This will allow full service to operate through to Scarborough Centre, but only at the same frequency as existing service supported by the old signal system. By the time the TTC gets around to converting line 2 to ATC, the original signals will be 65 years old, an issue for reliability, but more importantly a limitation on any service improvement for Line 2 until ATC conversion in the earl 2030s.

STC station will be designed to permit the addition of Platform Edge Doors (PEDs), but their installation would be part of a separate, future project.

In summary, the scope of the subway project has changed and its opening date is pushed back, but the cost is identical to the originally projected value.

Through all of this, a critical question is to ensure that when council approves “the line 2 extension”, all of its component parts and pre-requisites are also identified and funded at the same time. Otherwise we will face the same situation as on Spadina with unexpected future costs because components were omitted from the approved budget.

In 2016, Council was sold a cock-and-bull story that by trimming two stations and shortening the subway line to an “optimized” configuration, there would be enough money to pay for the Eglinton East LRT extension to University of Toronto Scarborough Campus (UTSC). As recent media reports have shown, this was a fantasy cooked up by city staff to get a combined subway/LRT plan through a reluctant Council. We now know that the subway extension had no hope of being built for only marginally more than the original LRT scheme, but this was the fiction allowing Council to buy in to supporting the subway.

Since that time, the estimated cost of the subway has risen, and is now pushing $4 billion in the revised official numbers which conveniently were not available during the 2018 election campaign.

In the table below, the cost of the subway itself is shown as $3.61 billion in 2017, but that number comes from the original base figure of $3.305 billion, plus risk allowances of $0.305 billion. These are over and above any contingency built into the base project estimate. With the class 3 estimate now available, the projected cost of the extension has fallen by $135 million, and this offsets some scope changes.

The costs related to the existing SRT have changed slightly with the demolition cost dropping about $21 million, offset by $26 million additional for SRT life extension. Other scope changes add a further $61.4 million and enhancements $71.1 million. The scope change includes $55 million to make provision for future construction of the Eglinton East LRT by providing the piling structure within which its exit from Kennedy Station would be built above the subway tunnel. [See Figure 2 on Page 6 of Attachment 2.]

This brings the grand total to $3.87 billion. This does not include the cost of contract administration and interest during construction if the project were procured using a Design-Build-Finance scheme through Infrastructure Ontario (IO).

The recommended budget is shown below. The projected cost was initially over $4 billion, but the TTC now shows a value below that line because the project would be procured using a conventional design-bid-build process, not through IO. Whether Queen’s Park would allow this approach given their love for “alternative financing and procurement” (AFP) remains to be seen.

Although the project cost has gone up by $327 million, there is little effect on the scheme for funding it for various reasons:

• The extension is now built into the cost base used for Development Charges, and a 10% discount on such charges has been removed by legislation at Queen’s Park.
• More development is happening than projected adding to DC revenues.
• The Scarborough Subway Tax is bringing in more revenue because there is a larger tax base.
• The cost of borrowing is lower than in the original 2013 estimate.
• Interest on the accumulated tax reserve is now included.

These factors allow an additional $265 million in debt to be carried by existing revenue streams, and the city only has to finance an additional $62 million from other sources.

The actual value of the provincial share is a matter of some debate as Queen’s Park takes a different view of how its originally committed portion should be inflated to current dollars. Their contribution was set at $1.48 billion in 2010 dollars. There is a difference of roughly $200 million in the escalated value between the provincial and city positions, and the table above uses the higher city number. How this will be affected by negotiations regarding the subway “upload” to the province is unknown.

The Line 2 Extension Attachment claims that an updated business case for the extension is available on the TTC’s website. However, the document linked from that page contains only a title and a one page executive summary with few details of the analysis. It does mention that the Economic Case for the subway has a value well below 1 – that costs exceed benefits.

The Economic Case finds that Line 2 East Extension shows significant travel time benefits, which together with all other economic benefits result in total present value of benefits of approximately $3.5 billion over the 60 year appraisal period. Assessed against a total cost, over60 years, of approximately $5.3 billion, the Line 2 East Extension has an overall Benefit Cost Ratio of 0.66.

It also says:

The Financial Case for the Line 2 East Extension can be found in the April 2019 Report.

There is no Financial Case for the extension in the reports before Council.

The project schedule has been revised to take into account various types of risk that could occur. On the TYSSE project (Vaughan Subway), problems arose with target dates because all of the schedule contingency had been used up and any delay pushed out project completion. In this view of the project, there is an estimate of the scale of what could go wrong given the projects scale and complexity.

There are now two “opening dates” with a later one for the full bus terminal in a manner reminiscent of Vaughan Station. With no allowance for risk, the projected opening date for service is late 2026, but with almost a year added for risk factors, this is pushed out to late 2027. The bus terminal would not be completed until mid 2030 making for an extended period when the link from the extended subway to its feeder services would be less than ideal.

If, as the province desires, the stations at Lawrence and Sheppard are restored, then some routes now planned for STC station can feed the subway at other locations. Moreover, it appears that the province wants to shift the STC station site and simplify the bus interchange at this location. What these changes would do to the project schedule is unknown, but almost certain to delay the project for design revisions.