Toronto eyes privatization of hydro, parking as Tory hunts for cash

theglobeandmail.com
Jan. 8, 2016
By Adrian Morrow and Marcus Gee

The city is exploring the privatization of Toronto Hydro and the Toronto Parking Authority as Mayor John Tory searches for money to pay for better transit and more affordable housing.

Sources with knowledge of the efforts say Toronto Hydro is crafting options for privatization - working on a financial analysis, hiring consultants and conducting polling to gauge public support. The most likely scenario, the sources said, would be to sell 49 per cent or less of the utility on the stock market. Mr. Tory’s administration is monitoring the proposal and has been encouraged by the province in the past to consider it, the sources said.

The mayor’s office is also considering privatizing all or some of the 160 Green P parking lots and 17,500 on-street spaces owned by the city through the parking authority, the sources said.

These moves could net billions of badly needed dollars for infrastructure. But they are also certain to cause a political firestorm. So far, Mr. Tory has not made any final decisions and appears keen to keep some distance from the files. The mayor’s spokeswoman denied that he is actively involved in the discussions or that he supports privatization.

“There is no proposal to sell any city asset currently before the mayor, nor is there active discussion in that regard. Any suggestion otherwise is false,” Amanda Galbraith wrote in an e-mail.

However, the privatization proposals align with Mr. Tory’s goal of finding funding for his ambitious infrastructure projects. After a quiet first year in office, the mayor is determined to make progress on some big files. Transit - including his $8-billion SmartTrack rail line across the city - and social housing are at the top of the list. Mr. Tory is averse to both tax hikes and deep budget cuts.

Mr. Tory’s administration would have to overcome significant obstacles to sell the assets.

The Ontario government’s privatization of Hydro One, which began last year, has provoked a widespread backlash, with unions, the NDP and the Progressive Conservatives all running campaigns against it. And a 2008 parking privatization in Chicago caused public outrage after it led to higher parking fees.

What’s more, Mr. Tory would have to square privatization with his own previous opposition to such a move: When candidate Karen Stintz proposed selling Toronto Hydro during the 2014 mayoral campaign, Mr. Tory dismissed it as a “fire sale.”

A majority of Toronto councillors would also have to support any privatization plan - no easy feat considering the city’s fractious council.

Inner-city Councillor Joe Cressy expressed the common view among council’s left wing Friday. “Selling off profitable city assets is simply shortsighted and foolish. It doesn’t solve our revenue problem, and may in fact make it worse in the long-run,” he said.

But Deputy Mayor Denzil Minnan-Wong said the city has to find new means to fund its needs. “Unless someone digs up Nathan Phillips Square and finds crates of gold, how do you pay for transit or housing?”

He said that, as a member of the Toronto Hydro board, he could not comment on whether the utility would go up for sale. But he warned critics of privatization not to dismiss the idea. “It is easy to throw stones at any idea of potential monetization, but what is their idea except for waving their fists at the federal and provincial governments for not ponying up more money?”

Gary Crawford, the head of council’s budget committee, said he did not know of specific plans to sell Toronto Hydro or Green P, but said the city is straining to find the resources to pay for all its needs and will look at every possibility. “I don’t think there is anything off the table at this point,” he said.

The trade-off of privatization is giving up some long-term revenues in exchange for a big payment up front. Toronto Hydro handed the city a $60.6-million dividend last year. In 2014, the parking authority gave the city $44.3-million in profits plus $19.5-million in property taxes and $2.5-million in rents.

Privatization of both assets would likely raise a figure in the low billions of dollars. One energy analyst, who spoke on condition of anonymity, estimated Toronto Hydro’s value at up to $5-billion; factoring in debt obligations and taxes, a sale of 50 per cent of the utility would net between $1-billion and $1.5-billion. When Chicago, a city only slightly smaller than Toronto, leased its parking meters to a private consortium for 75 years, it received $1.2-billion.

Toronto has already begun to lay the groundwork for privatization. A planning document released last month for the capital budget contained a reference to “asset sales” under a section titled “evaluate revenue options for 2017 budget and beyond.” Mr. Tory also put David McFadden, an electricity sector veteran and advocate of more competition, on Toronto Hydro’s board of directors.

The Ontario government has quietly encouraged Mr. Tory’s administration to consider privatization of Toronto Hydro. Premier Kathleen Wynne began selling stock in Hydro One last year in a bid to raise $4-billion for new transit lines. Her government believes the city would benefit from a similar move. The province could also have a role to play in facilitating the privatization. Currently, Toronto Hydro would have to pay two different taxes to the province in the event of privatization; the province could offer tax relief to make the process more lucrative for the city.

Toronto Hydro spokesman Brian Buchan said the company is exploring various options for raising money and Mr. Tory’s office “may or may not know about” the work Toronto Hydro is doing. He said there had not been a “formal” discussion with Mr. Tory, and declined to say what exact proposals his organization is looking at.

“Toronto Hydro is going to need capital to fund infrastructure. We have been looking into various options on our ongoing financial health as an organization,” he said.

Lorne Persiko, president of the Toronto Parking Authority, said his organization has had no discussions with Mr. Tory’s officials about privatization. “They haven’t raised that topic with us,” he said.

The talk about selling off assets comes as city hall is taking a hard look at its finances. The new city manager, Peter Wallace, recently read council the riot act, telling its executive committee that the city was getting by only because the real estate boom was yielding a tax windfall.

Mr. Tory agreed the city was “billions and billions” short of what it needs for big capital projects. In December, he proposed setting up a new city-building fund to bank money for transit and public housing projects. He wants to bring in a special property-tax levy of 0.5 per cent to start the fund.

“He has built a bucket and now he has to fill it,” Mr. Minnan-Wong said.