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Finance Toronto

To Immediate Controversy, Toronto Region Unveils Potential Revenue Sources to Promote $34 Billion in New Transit

» With C$16 billion in transit expansion already underway, Ontario wants to line up twice as much funding for dozens of new subways, light rail lines, and bus rapidways.

The Toronto region* already has one of the continent’s largest funded transit expansions under construction. By the early 2020s, Greater Toronto, Canada’s largest metropolitan area, will have four new light rail lines running on 52 kilometers of track; an 8.6-kilometer extension of an existing subway line; an airport express line; an improved central station; several bus rapid transit lines; and improved all-day commuter rail service. For a growing region with serious congestion problems, it’s a big expansion that will provide more rapid transit more quickly than any city on the continent.

Those improvements, however, hardly satisfy regional officials, who have plans for more than C$34 billion additional new transit lines. But the primary sources of funding for the current projects — Ontario Province and the Canadian federal government — aren’t yet ready to commit to such a significant investment. Thus the regional transit coordinating body, Metrolinx, developed an investment strategy released last month that recommended a variety of new funding sources that could provide the needed revenues to pay for these transit expansions.

Metrolinx’s investment strategy is notable in two ways: First, it takes responsibility for articulating clear new funding streams that would cover the cost of the transportation program. The report provides a compelling argument, founded on international comparisons, that the region must find new ways to sponsor transportation spending or it will suffer from increased congestion and reduced economic activity. It thus offers strong rhetoric for why new revenues must be established, and it documents why certain revenue sources are more effective than others.

Second, in line with the province’s “Big Move” transportation proposal, the investment strategy articulates a bold vision for the future of the Toronto region. Rejecting a car-focused approach, the strategy suggests that almost all new revenues be directed towards new public transportation capacity. Its goals including reducing the average automobile commute distance, reducing the percentage of commutes by car, and increasing the mode share of transit by more than doubling annual transit rides. Though the Toronto region’s transit mode share is currently higher than that of any U.S. city other than New York, less than five percent of employees working in its suburban areas take public transportation to work. There’s a lot of improvement to be made.

The plan does this not by simply stating idealistic goals as policy but by endorsing a more than tripling of the length of the regional rapid transit network (from 500 kilometers to 1725 kilometers) and a doubling of the percentage of people living and working within two kilometers of a rapid transit station (not just any old bus line). Moreover, it prioritizes projects using a series of empirical performance measures that nonetheless recognize the value of investment throughout the region, rather than just within the core city.

There are reasons to suspect that the funding strategy suggested by Metrolinx won’t pass political muster, at least not in its entirety (I’ll get to that by the end of this article), but the regional entity’s entrepreneurial approach to promoting new investment is a model for other urban transportation agencies. Too many U.S. metropolitan areas are content to develop their transit networks line-by-line, hoping that federal funding might parachute in and contribute half the cost. There is usually little thought about how to develop transit from a regional perspective, nor about how to dedicate new funding streams most effectively. Though many U.S. regions hope to reduce automobile mode share, they rarely propose a concrete way in which to accomplish that objective. Toronto is doing just that. Its leaders are promoting an alternative vision: A public transportation network plan whose investments will benefit most residents of the region, backed by dedicated revenues, making a more environmentally friendly, transit-oriented metropolis possible.

The investment strategy

As the following chart shows, investment in public transportation infrastructure in the Toronto region has ramped up tremendously over the past few years, primarily because of increasing support from Ontario Province. Former Toronto Mayor David Miller was a big supporter of transit expansion and was able to convince Former Ontario Premier Dalton McGuinty to invest massively in new light rail lines for the city after decades of regional spending largely constrained to highway expansion. Though Mr. Miller’s transit projects were cancelled by new Mayor Rob Ford, they were put back into play by a rebellious city council and now several are under construction.

Ontario Transit Capital Funding

The region’s 25-year “Big Move” transportation plan was approved in 2008. The proposal includes the currently funded lines, but also a slew of other projects that would blanket the region with new rapid transit. By the early 2030s, the plan suggests, the region will have two additional subway extensions, three additional reserved-corridor BRT lines, two additional light rail lines, and a significantly improved commuter rail system that will implement regular all-day service on all lines and electrify two lines. Every area of the region will see improved service, and the large majority of residents would be placed within easy access of rapid transit. The plan’s name is hardly a misnomer.

These projects were selected through a “prioritization framework,” as summarized in the following chart. This included a cost-benefit analysis (“BCA”) for each project, which took advantage of empirical measures such as projected ridership, job creation, travel time savings, and costs. Political issues, such as whether the projects were seen to be a priority to officials and a guarantee that all parts of the region would be included (geographic equity), were then addressed to select the final list of proposed projects.

Strategic Project Priotization

To be fully implemented (including the “Next Wave” future projects), however, Big Move requires at least C$34 billion in new funding, or about C$2 billion more a year.

Metrolinx conducted a series of public engagement processes over the course of the previous six months to determine whether public support for new revenues could be amassed, and what kinds of revenues would be considered most appropriate of 25 potential tax sources. MASS LBP, a firm that specializes in consulting with the public, was hired to run 12 roundtables that engaged stakeholders directly. The firm produced a wonderful piece of marketing called the “conversation kit” that includes a series of information cards that allow the public to quickly evaluate different revenue sources, transportation options, and make international comparisons. Having handled it myself, the kit is a device other agencies attempting to determine public opinions about a project should absolutely engage.

Finally, Metrolinx randomly selected 36 representative citizens from around the region, who committed to four Saturdays to learn about transportation issues and develop a “reference panel” on regional transportation investment. These people, informed by experts but not experts themselves, recommended a series of measures to fund all of the proposed transportation investments in the Toronto region.

Following the roundtables, consultations, and input from municipalities, Metrolinx recommended a series of dedicated revenue sources to fund its new public transportation program. According to the plan, the sales tax in the metropolitan area would be increased by 1 percentage point (up from 8%, contributing about C$1.3 billion per year); an additional five-cent levy would be placed per liter of gas sold (that’s about a 20-cent per-gallon increase in U.S. terms, representing C$330 million per year); a fee would be placed on parking lots owned by businesses (equivalent to about C$0.25/space/day year, and totaling C$350 million per year); and new development charges (C$100 million per year) would be added.

Metrolinx argues that other funding tools, such as toll lanes, paid parking at transit stations, value capture, and the sale of publicly owned land, also be considered. Low-income residents will be provided a tax credit to offset some of the additional fees they would incur.

In sum, the more than C$2 billion to be raised each year would be distributed primarily (75%) to the new capital projects included in the Big Move plan. Once these projects are completed, funds will be used to fund maintenance costs and Metrolinx’s share of operating costs. Of the remaining C$500 million, about C$100 million will go towards improving existing highways, C$300 million to municipalities for local roads and transit, and C$100 million to walking, biking, and other assorted transportation projects.

Metrolinx’s investment strategy argues that the lack of transit system growth in the Toronto region has reduced the quality of life. “The consequence [of a lack of new transit spending] has been an overcrowded transit system, slowed commutes, increased greenhouse gas emissions, and barriers to economic growth,” the strategy articulates. With 100,000 new residents joining the region every year, the problems will increase. New funding is required.

Even with all of the new taxes, the public won’t see a huge hit to their pocketbooks, as the following chart makes clear. The cost of a brand-new transit network will be about 1/20th of the amount the typical Ontario household currently spends on owning personal vehicles annually.

Personal Spending

Political obstacles

The release of Metrolinx’s revenue strategy was greeted with immediate criticism from certain elected officials. Federal Finance Minister Jim Flaherty flatly refused to consider a sales tax increase only applicable to the metropolitan area, as Metrolinx has proposed (the Canadian government is run by the Conservative Party (on the political right), whereas Ontario is led by the center-left Liberal Party). Toronto Mayor Rob Ford — who is facing a complete breakdown of his power thanks to a drug scandal — has rejected the idea of any new taxes at all, and early polls suggest little public support for the idea.

Meanwhile, columnist Steve Munro argues that the $2 billion in revenues that the plan would raise may not be enough to fund the proposed projects, and that Toronto city councilors have all sorts of zany ideas about the appropriate projects to be funding, which in most cases do not seem to align with the plans Metrolinx has in mind.

Nonetheless, Liberal Ontario Premier Kathleen Wynne has shot back that she will defend the big new investment in public transportation — particularly if the Canadian federal government continues to refuse to develop a national transit funding strategy. She argues that traffic problems in the Toronto region are significant enough to merit new taxes. She and Metrolinx CEO Bruce McCuaig have argued that, rather than endorse a sales tax increase just in the Toronto metropolitan area, they might push a provincial-wide increase.

That would require defending the new taxes and imposing them on people far from Toronto, which might elicit an outcry. Yet Wynne argues that any money collected from outside of the metropolitan area would be spent outside as well.

Metrolinx’s revenue program, then, has a long way to go before it’s the law. But the sheer ambition of the proposal, and, more importantly, the willingness of at least some politicians to promote the tax increases it would include, are positive signs for the future of Toronto. As the investment strategy notes, “We could choose to pause after the current $16 billion investment is completed, and resume an ad hoc approach to transit expansion in our region. But the threat to our economic performance and quality of life is too great to take that risk. The alternative? To reaffirm our commitment to invest in a better future.” Other city leaders could learn to think the same way.

* The Toronto region is known as the Greater Toronto and Hamilton Area (GTHA) by locals, including Ontario province, as the region extends far beyond the confines of Toronto. For simplicity’s sake, I call it “Toronto region” here.

Images above from Metrolinx.