The Ontario Government introduced its 2019 budget on April 11. The section on transit and transportation begins with the usual statements about the cost of congestion, and the economic benefit of transit and highways. Transit specifics focus on the recent Toronto subway announcement. Metrolinx/GO continues on its expansion path, but with more emphasis on what has been done than what is to come.

The Subway “Upload”

Ontario reiterated its intention to take ownership of the Toronto subway network, but it is now clear that this will be done in two parts. First will come responsibility for system expansion as announced on April 10 with the existing system assets to follow in 2020. This puts the more complex problem off nominally for a year, but that debate is really underway now with negotiations between the City of Toronto, TTC and province.

By separating the upload into two distinctive parts, the Province can begin building subway extensions and new lines immediately while giving proper due diligence to the state of repair of the existing assets and fulfilling its commitments to consultation under the Terms of Reference.

The Province remains steadfastly committed to the full upload of the TTC subway network. [p. 64]

That “due diligence” is the nub of any transfer. Past provincial statements imply that the cost of life cycle maintenance (major repairs and replacement, items found in the TTC’s capital budget) would shift to the province leaving day-to-day costs to the City of Toronto. The problem lies in the inevitable tug-of-war between transit expansion and state of good repair. Provincial Treasurer Vic Fedeli, speaking on CBC’s Metro Morning, claims that the investment in new transit lines more than offsets gas tax revenue promised by the former Liberal government. However, this leaves a major hole in planned funding for system upgrades.

Gas Tax Transfer

Fedeli claimed that the Gas Tax can only be used for specific type of spending, but this is not true. The money today goes partly to subsidize day-to-day operations and partly to capital for state-of-good-repair (SOGR). Across the province, few cities are building rapid transit expansions, and their gas tax allocation goes to operation and maintenance of existing systems. Fedeli, in parliamentary language, is “badly briefed”.

The gas tax transfer from Ontario to Toronto for 2018-2019 will be $185 million, and this was expected to double in stages over the next four years. This increase has been cancelled in the new Ontario budget.

Beginning in 2019, Ontario will gradually increase the municipal share of gas tax funds up to a total of four cents per litre in 2021-22. Based on the averages from the past 10 years, gas tax funding is estimated to be about $642 million in 2021-22. There will not be any increase in the tax that people in Ontario pay on gasoline.

Year                            2018-19 2019-20 2020-21 2021-22

Municipal share (cents/litre)   2.0     2.5     3.0     4.0
Estimated funding (millions)    $321    $401.3  $481.5  $642

Source: Enhanced Gas Tax Program, Ontario Government Backgrounder, January 27, 2017

Note that the dollar funding above is for all of Ontario, not just for Toronto, although it gets the lion’s share due to its size.

The Province will not move forward with the previous government’s proposed changes to the municipal share of gas tax funding. The Province will continue to support municipalities through the existing Gas Tax program and ensure it continues to meet the needs of the people of Ontario in alignment with provincial priorities.

Over the next few months, the government will consult with municipalities to review the program parameters and identify opportunities for improvement. This review will be informed by the goals of responsible planning and a more sustainable government to ensure taxpayer dollars are being spent as effectively as possible. [p. 75]

Toronto allocates almost half, $91.6 million, to the TTC Operating Budget, leaving $93.4 million for capital in 2018-2019.

Planned spending based on federal and provincial gas tax transfers is summarized in the city’s 2019 budget papers. This document details the allocation of federal and provincial transfers planned over 2019-2028 with $1.358 billion broken out by TTC budget line. Note that this is less than the total that would have been expected over ten years because the “out years” of the TTC’c capital plan is constrained by city financing plans. Many projects are “below the line” in the budget, especially in the outer five years, and the rise in gas tax funding could have helped to bring some of these projects to approved, above the line status.

About 70% of planned provincial gas tax spending by Toronto is for assets that are subway related. If Ontario transfers responsibility for all of this to the provincial level, then this would offset the loss of expected gas tax. However, that depends on just what budget lines Ontario chooses to take on. When capital subsidies began under the Davis government, there was something of a shell game between Toronto and Queen’s Park over the classification of expenses because “capital” received at least a 50% subsidy while “operations” only got 16%. This sort of thing will bedevil negotiations between the two governments on funding of the uploaded subway system’s SOGR projects.

The table below summarizes the categories listed in the city’s budget and splits them between subway and surface networks. The breakdown is based on my experience in reviewing TTC budgets. Although some adjustment of percentages might be argued, the overall balance will not change much.

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