Sinking Dreams of a Privately-Funded Subway in Toronto

» Mayor Rob Ford’s claim that he can build new subway with little public financing looks increasingly unlikely. But value capture remains one of many funding devices that should be considered seriously by transit agencies.

Last fall’s mayoral election in Toronto was a watershed moment for Canada’s largest city; in electing conservative Rob Ford to the top post, the public essentially rejected the approach that had been taken by former Mayor David Miller. For transportation, the change was particularly dramatic. Whereas Mr. Miller had advocated a network of surface-running light rail lines called Transit City, Mr. Ford lambasted this approach as a “war on cars” and declared that the only public transportation projects he would pursue would be in subways.

In March, in an agreement with the Ontario provincial government, he got what he wanted. The planned surface line on Eglinton would be replaced with a subway sponsored by the Province. The light rail line on Finch West would be put off to a later date, as would an extension of the Scarborough RT. And the Sheppard East light rail line — then already under construction — would be substituted by an extension of the Sheppard Subway, to be funded by the city.

That project now appears fiscally impossible.

The Mayor, pursuant to his electoral promises, said that the Sheppard Subway could be done with the commitment of no new city funds; rather, he claimed, private investors interested in development rights around stations would produce an increase in area property values. The city would be able to sell off enough station-area land and collect a large enough amount of new taxes to be able to pay for the project. The idea was that Toronto, like Hong Kong, would be able to build better transit through private development.

This week, the wildly optimistic proposal fell apart. Gordon Chong, the man appointed by Mr. Ford to head up Toronto Transit Infrastructure Ltd., the group meant to pioneer this public-private partnership, said that even with significant upzoning around stations, the private sector would be able to contribute a maximum of only 40% of the line’s C$4.2 billion estimated costs. And in a city where neighborhood groups have fought hard to prevent such zoning changes in the past, the prospect of 30-to-40 story towers in the backyards of single-family homes was not likely to be easily accepted by local residents — so that 40% was probably a high estimate.

Though federal funds could aid a bit, lacking provincial aid, the rest of the line’s costs would have to be paid for by other funding devices, such as road tolls, according to Mr. Chong. Mr. Ford, who made his campaign work on the basis of his predecessor’s supposed hated of cars, rejected the idea hastily.

While Toronto appeared in early 2010 to have four transit lines ready to go, it now is down to just one and a half — the Eglinton Corridor and the replacement of the Scarborough RT. Unless Mr. Ford makes a quick turnaround on the use of municipal funds for his Sheppard Subway (or provincial or national governments fly in for the rescue), the project will be dead in the water.

In some ways, that’s a pity: The financing scheme being considered — using value capture on surrounding properties to fund the project’s completion — is a reasonable one that should be used much more frequently in cities funding new transit lines. That is, to pay for a portion of total costs, since for now most cities will not be able to raise the kinds of funds from property development that Hong Kong has. Fortunately, its adoption by cities in the U.S. and abroad appears to be gathering steam.

In Paris, the just-approved 125-mile metro network will be partially financed through the sale of land around stations. And in North Texas, the development of a new 68-mile commuter rail line called the Cotton Belt is moving forward thanks to a tax-increment financing district that is being proposed for neighborhoods around stops.

In a talk at the Congress for the New Urbanism in Madison today, Mike Krusee of the Partnership for Livable Communities suggested that this new route between Fort Worth and Northern Dallas County could cover about $380 million of its $1.54 billion in total construction costs — and all of its operations costs — through value capture in the towns through which the line would run. In short, increases in property tax collections over a few decades would be used to subsidize the creation and maintenance of the new transit offering. Though the proposal has yet to be adopted (and the remaining $1.16 billion in construction costs has yet to be found), it demonstrates the potential of integrating private investment into what is otherwise a public project.

Most American transit system capital programs are financed purely through federal and state grants and municipal sales tax income.

It is indicative that in the first request for proposals for constructing the Cotton Belt, investors in Dallas apparently hoped that the private sector would be able to step in and pay for the whole project, said Mr. Krusee. Facing revenue shortfalls, the metropolitan area had abandoned full government financing for the program. Of course, just as in Toronto, that was not possible: 55 replies from companies provided no solution to the overall lack of funds. Only since Mr. Krusee’s Partnership proposed the value capture system have private developers become seriously interested in working to raise funds to pay for construction. Major transit-oriented developments are apparently planned around many of the stations.

Increasingly, transit systems across the country looking for expansion opportunities may have no choice but to look for similar deals: Agree to use tax revenues from property value increases on transportation corridors to the area, and development will follow. No such deals could mean fewer new transit lines in the future.

Image above: Subway station at Sheppard-Yonge, from Flickr user Kenny Louie (cc)