Torstar News Service Mayor Rob Ford at a Scarborough subway press conference in Etobicoke on July 12, 2013.

It shouldn’t have been any kind of milestone. The mayor of Canada’s largest city should have always known that you can’t build transit infrastructure without money, and that money comes from taxes.

But this is Toronto. And our mayor is Rob Ford.

So when Ford stood up at his Scarborough subway press conference on Friday — held in Etobicoke for some reason — what he said was a pretty big deal. The famously anti-tax politician finally came forward and endorsed a proposal to increase taxes to fund transit construction. The plan will be up for approval at a Toronto City Council meeting today.

This would all be good news if the mayor’s plan to pay for his desired Scarborough subway wasn’t so short-sighted and risky.

Subway versus LRT, again

By now, the arguments for and against the two Scarborough transit options have been beaten to death. There was a time when an extension of the Bloor-Danforth subway into Scarborough made a fair amount of sense. But that time ended when councillors voted to go forward with LRT, which allows for greater flexibility and expandability. That time ended again when council voted to sign a master agreement confirming their support for LRT.

Today, the choice councillors will make is between a fully-funded and ready-to-start-construction LRT plan, which will run at subway speeds and have zero impact on traffic, and a subway plan that will trigger a complete restart of the planning process and expose the city to enormous risk. With the LRT option, Scarborough residents are guaranteed improved transit within the next decade. With the subway, they’re guaranteed nothing.

On a nuts-and-bolts level, this subway-versus-LRT battle shapes up like this:
srt-versus-subways-final

There’s more to it, of course. The transfer between the LRT and the subway at Kennedy Station is a contentious issue, as is the period of shutdown (and shuttle buses) that will be required when the SRT track is ripped up and replaced with LRT track. But it’s hard to honestly argue that the elimination of that transfer and a few years of construction headaches are, in themselves, worth more than a billion dollars in increased capital costs.

Instead, the most common argument politicians are making seems to be this one — the “we want something that can be called a subway” argument:

 all-that-matters

That argument, I’ve learned, is really hard to effectively argue against.

So let’s just set aside the case for LRT and pretend like a subway on this corridor is desirable. We know now, thanks to a staff report released by City Manager Joe Pennachetti, that the subway will cost between $750 million and $1.1 billion more in 2010 dollars, depending on whether you choose to believe Metrolinx’s latest cost figures. That’s a lot of money, clearly, but not enough to stop politicians from supporting the subway plan.

So: If we’re just bound and determined to get this subway, how should our governments pay for it?

How Rob Ford wants to pay for the Scarborough subway

Before we get into this, it’s important to understand that so much about financing this subway remains a complete and total mystery. There are ancillary costs, like $450 million needed to automate the trains in the Bloor-Danforth line, that remain unaccounted for in these figures. There’s also — no joke — a footnote in the staff report that indicates all subway-related estimates can’t really be considered accurate and may vary by up to 30 per cent. Which is kind of a lot.

Even ignoring those factors, there’s also several unknowns that could seriously change the face of this financing strategy. There’s the federal government’s supposed commitment to the project, which is nowhere near a safe bet. There’s the reliance on development charges, which are not a totally safe and secure revenue source, especially if the real estate market in this city is going to soften. And, most importantly, no one — not even the provincial government — seems to have any real idea how much the provincial government might actually commit to this project.

To make for plausible projections, the report from the city manager presents two workable scenarios, both of which rely on contributions from the federal government. In one case, the provincial government would provide the city would the full $1.8 billion once budgeted for the Scarborough RT in 2010, indexed to inflation. In the other scenario — which, reading between the lines, city staff seem to indicate is the more likely scenario — the province provides the inflation-adjusted equivalent of just $1.4 billion, which is the project budget claimed more recently by Metrolinx.

With that pile of caveats, here’s how the two financing scenarios shake out — one using the more recent Metrolinx figures for project cost and one using the old figures:

finance-strategy-final

Everything Ford has said on the matter indicates that he’s pulling hard for the strategy on the right side of the chart. He’s said repeatedly that he will only accept a property tax increase of 0.25 per cent. When pressed, he’s admitted that the property tax increase needed for his plan is actually a full one per cent — it’s just that he wants to phase that one per cent in at a rate of 0.25 per cent per year.

To make it work, the province needs to cough up nearly $2.5 billion, an amount that, after inflation, is equal to the original $1.8 billion pledged by the province for the LRT project. At the same time, the federal government needs to come to the table with another $420 million. The remaining funding would be funded by a mix of development charges — to the tune of $100 million, or about 66 per cent of what the city currently takes in via development charges in a single year — and, yes, taxes.

An ardent I-hate-taxes guy since the day he was born, Ford is suddenly talking about tax increases as “investments” and couching increases in ways that make them sound almost irrelevant. He spent the weekend repeating the claim that the cost of the subway would add up to just five dollars per household, as if all the average taxpayer needs to do is slip the mayor five bucks and he’ll get the subway going.

But that’s wrong.

What the staff report actually says is that, should the province deliver on the $1.8 billion 2010 funding commitment, and the federal government fork over a hefty chunk of cash, the subway could maybe be built for the equivalent of a 1.1 per cent increase to property tax revenue, city-wide. Maybe.

Any talk of individual property tax increases misses the point, because this subway extension wouldn’t be paid for up front. Instead, the city would use the dedicated revenue stream from increased property taxes to take on some debt equal to their share of the cost of the subway project. The annual cost of servicing that debt would in turn be paid for with property taxes.

Those debt servicing costs would shape up like this — again, with variation depending on how much the province actually comes to the table with and what sort of interest rate on debt the city will be able to secure in a few years:

year-one-web-final

But remember, this isn’t just a one-time thing. Instead, a portion of property tax revenue would go toward servicing the Scarborough subway debt for three decades.

And so a more accurate chart would look like this, assuming (optimistically) that the debt is issued in 2016 to begin construction shortly afterwards:

chart-finale

That’s 30 years.

Thirty years of debt payments for a three-stop subway extension that isn’t really justified. Thirty years of debt payments that could be easily avoided if council would just confirm the plan they already voted for and approved. Thirty years of debt payments that will make it even more challenging to pay for critical things like repairs at Toronto Community Housing, TTC operating costs, better childcare subsidies, new parks, community revitalization or the so-important downtown relief subway line.

Thirty years of debt payments. Based on risky assumptions. That’s what’s on the table today.

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