Ontario Has Yet Another Proposal for Transit Funding
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Ontario Has Yet Another Proposal for Transit Funding

A provincially appointed panel has issued a set of recommendations on which new taxes would be the best for transit funding.

In September 2013, Queen’s Park appointed a Transit Investment Strategy Advisory Panel, chaired by Anne Golden, to review the Investment Strategy proposed by Metrolinx, the regional planning agency for transportation in the Greater Toronto and Hamilton Area (GTHA). The panel included representatives from all political views, business, labour, and public interest groups. Although this move deferred any immediate provincial debate about transit funding, it provided a chance for an arm’s length review of Metrolinx’s work. The panel has now released its recommended strategy for funding the so-called Next Wave of Metrolinx transit projects, including a new relief subway line for Toronto.

The fundamental problem is that the GTHA’s population will grow by 2.5 million people over the next quarter-century, and one million more cars will be trying to use the region’s road network—these developments will not be sustainable with current infrastructure. As the panel’s vice-chair, Paul Bedford, noted when the report was released, no urban region of over 11 million in population (the GTHA in 2038) attempts to operate without a robust public transit network.

We need one, and we need a way to pay for it. Here’s what the panel is recommending:

How Should We Pay

The panel proposes two alternatives for raising the needed money, each of which would involve a mix of revenue tools and a phased-in implementation process.

Option A Option B
Corporate Income Tax 0.5%
(beginning in 2015-16)
(beginning in 2015-16)
Gasoline and Diesel Fuel Tax (per litre) 10¢
(3¢ in 2015-16 and rising 1¢ per year thereafter until 2022-23)

(3¢ in 2015-16 and rising 1¢ per year thereafter until 2017-18)
Existing HST on Gasoline and Fuel Repurposed to transit funding Repurposed to transit funding
Additional HST None 0.5%
(beginning in 2018-19)
Total annual GTHA revenue when fully implemented $1.7 billion $1.8 billion

All of these taxes would be applied province-wide, but the revenue would divided regionally: 54 per cent for the GTHA and 46 per cent for the rest of Ontario (a split based on each region’s proportion of the provincial GDP). This would ensure that money raised in, say, Timmins, didn’t go to paying for transit in Toronto.

In either scenario, although there is an NDP-friendly corporate tax increase, the lion’s share of the revenue would come from existing and proposed taxes on gasoline and diesel fuel.

The most important strategic change the panel has made compared to Metrolinx’s earlier set of recommendations is to include debt as a financing tool. Metrolinx proposed a long-term revenue stream, but hog-tied itself with pay-as-you-play project financing. This would be akin to building a house and paying for work out of your weekly income rather than through a mortgage. Large projects such as a new Toronto subway would either suck up so much of the annual funding they would elbow everything else out of the way for several years, or, if only a slow drip of money from a shared revenue stream were available, take an eternity to build.

The panel proposes that debt be used to accelerate work on transit projects, limited by a debt-to-revenue ratio of 2.5. This aligns with the provincial auditor’s recommendations, and would allow the debt to be retired fairly quickly.

Acknowledging another problem—namely, that project-specific funding gets reallocated as governments change—the panel emphasizes that the funding process must be transparent, with new revenues and project costs tracked publicly, and separate from general revenues.

The panel also rejected, or wants to delay, some revenue tools that Metrolinx had recommended. Among them are road tolls (which are good at shifting people from cars to transit, but depend on transit being in place to accept the new demand); land value capture (a charge on developers who benefit from new transit lines, the revenue from which is hard to estimate in advance); and parking levies (which are politically unpopular and complicated to implement since there are so many types of lots—major malls, local stores, business and industrial areas, etc.).

What Should We Build

Recent debates over the Scarborough subway highlight a major problem: much transit planning right now comes via ad hoc decisions based more on political interference and pandering than on clear-eyed evaluation of projects’ relative merits. The panel was originally charged with looking at the financial question—how we raise the money—but decided also to make recommendations about which GTHA projects are the top priorities, perhaps in an effort to combat that ongoing political struggle.

The criteria transit projects must meet in order to be funded, according to the panel: they must help ease congestion; form part of a network; align with locations of employment, public, and community institutions; be appropriate for their demand, cost, and environment; have a practical timeline; and provide tangible benefits and improvements.

Based on that, the panel extracted a group of projects from Metrolinx’s Next Wave list, the first three of which in particular “are expected to deliver the highest ridership, provide the most congestion relief, create connections to employment in the region, and establish the needed backbone of a region-wide rapid transit network”:

  • The Toronto relief subway line
  • Two-way all-day GO service (already implemented on the Lakeshore line)
  • Hurontario LRT
  • Union-Pearson Express (UPX) electrification
  • Yonge North subway (initially to Steeles, and to follow after the Toronto relief line)
  • Priority portions of other projects in Hamilton, Durham, Dundas, and Brampton

Given all the competing interests at play, even this list will be controversial.

The panel also advises that all transit projects (including the ones on its own short list) should undergo an updated business case analysis (BCA). The challenge for any evaluation scheme is to ensure that it is applied consistently, and that underlying data such as ridership estimates are not fudged to boost credibility. Metrolinx is preparing a more consistent, rigorous format for its BCAs—whether the new format will prevent politicians from freelancing and making changes to established plans at will and by whim remains to be seen.

Money for Local Transit Priorities

A regional transit network is useless without local transit service, just as expressways serve no purpose without local roads. Metrolinx had proposed that 25 per cent of any new revenue be set aside for municipalities, which could use it for either capital or operating expenses. This would not bring provincial funding back to its former level in Toronto (Queen’s Park used to cover half of the TTC’s operating deficit—the difference between farebox revenue and the total cost of running the TTC—and at least half of capital costs), but it is a start.

The panel concurs with this proposal, but adds its own “Kick-Start Program” to allow local systems to upgrade their service in the very near term. No major rapid transit project can possibly yield benefits for a few years at best, given construction timelines, but it is important for the public to see real improvements soon. The panel is therefore recommending that the province create a fund specifically for 2015 and 2016, to correspond with the implementation of new taxes. It suggests the province kick in $150 million per year, with municipalities contributing 20 per cent matching funds. This money could not be used to offset local taxes or fares—the intent is to make visible changes that will produce better ridership numbers quickly.

The one wrinkle with this program would be what happens after that kick-start money is finished, and municipalities need to keep paying for the newly created service entirely on their own.

Planning Ahead

Although The Big Move and the Ontario Growth Strategy are due for review in a few years, the panel urges that these both be brought forward to 2014 and that work on the plans be coordinated so that transit and land-use goals mirror each other.

The panel urges that the federal government (described in the report as “missing in action”) be part of future transit funding, contributing up to one-third of future Next Wave projects. However, the panel does not make this support a pre-requisite for any projects going ahead. If Ottawa comes to the table, this will reduce the burden of the next round of projects, but transit progress in the GTHA cannot be hostage to the political moods of a government with little historical attachment to transit funding.

What Happens Now

The Transit Panel’s recommendations go to the government for review and should inform proposals for the 2014-15 budget—not to mention the almost inevitable provincial election campaign this upcoming spring. The Tories will almost certainly continue to claim that new transit can be funded entirely from internal savings and efficiencies in government, while the NDP will likely press for higher contributions from the corporate sector and much lower ones from taxes that are paid by individuals. The election, however it comes out, will endorse one of three transit funding philosophies.

At the press briefing, Anne Golden was asked if the panel’s report was doomed to sit on a shelf collecting dust, like so many that have come before. She replied that she hopes the diversity of authorship and support will help minimize partisan interference, and that the media will do their part in showing the public the benefits that could flow from the recommendations. That is an optimistic outlook, to be sure, and the public’s jaundiced view of transit plans and political wrangling does not bode well for any plan that doesn’t have sustained support in all quarters.

This is no time for the provincial or municipal governments to drop the ball on transit support. Plans need review and validation, but we cannot afford inaction. The question is quite simple: Does the Ontario government want to build an extensive, modern transit network or not?

As Golden said late in the briefing, “Cynicism is not an excuse to do nothing.”