SmartTrack has its merits, but TIFs were never the means

John Tory's promises that tax increment financing could pay the $2.7 billion cost were wildly optimistic, as studies show.

Thestar.com
April 1, 2016
By Royson James

SmartTrack always was, and continues to be, a great idea to move people around Toronto. It proposes to expand existing GO rail lines and corridors to serve commuters inside the city, not just those riding in from the outer suburbs.

In theory, this proposal would deliver transit benefits faster and cheaper than the alternatives.

But SmartTrack proponent John Tory went off the rails in two critical areas. First, he branded the idea in too-grand terms, promising service where none was possible in the west end; and promoting stations too close to the planned Scarborough subway stations in the east end.

Secondly, his proposal to pay the $2.7 billion needed to create the service has always been suspect, and maybe cripplingly so.

Before Tory was elected mayor, colleague Daniel Dale eviscerated Tory’s promise to pay the city’s share of SmartTrack through the little-used and understood mechanism called Tax Increment Financing (TIF). After researching similar projects in the U.S. and elsewhere, Dale concluded: Tory would need a “world record” of a TIF - bigger than all such financing methods combined in the U.S., the birthplace of TIFs.

TIFs work like this: When a property owner develops his or her land and erects, let’s say, a 60-storey office building, the value of the property increases greatly and the city gets more taxes from it. Without TIFs, this increase in tax revenues is used for a wide range of city services.

With TIFs, the city identifies a specific area and designates it a TIF zone. (In this case, the zone is designated around possible SmartTrack station locations.) When development occurs in that zone, instead of distributing the added taxes to all services, the city designates it for the transit project. With that anticipated flow of cash, the city can borrow money with the expectation that it can pay back the loan from the steady source of TIF taxes over decades.

City staff is studying the idea, but don’t expect any answers before summer as changes to the scope of the SmartTrack project have expanded and delayed the analysis. And when the report is completed, don’t expect the rosy picture the Tory campaign painted.

On Wednesday, the Institute of Municipal Financing released a report that raises similar doubts about the viability of plans aimed at garnering huge sums from TIFs. Toronto will need $2.7 billion and counting for its share of SmartTrack. Meanwhile, TIFs are most successful when the goal is to raise tens of millions of dollars.

“TIF has largely been used to fund small-scale projects, often not exceeding one or two hundred million dollars in capital costs,” the report says. “We could find only two TIF implementations that aimed to generate over a billion dollars in TIF revenue.”

Ryerson professor Murtaza Haider and planning consultant Liam Donaldson authored the report for the Munk School of Global Affairs at U of T. Haider said in an interview that it’s difficult to guarantee the flow of funds, especially through recessions; it works best in zones where there is mixed-use development, not just residential; and it seems to work best in small zones, not the three big ones Tory had identified during his election campaign.
But this is no reason to despair, he said. Toronto needs more transit and must diversify its funding sources and not depend solely on TIFs to pay its one-third share of transit projects.

The problem with subway or transit funding is not that Toronto can’t pay its one-third share of the capital costs; the problem is politicians want to hide the amount being paid in all manner of confusing financial mechanisms, to camouflage the fact that it’s all taxes by other names.

One politician after another has sold citizens on the idea that we can get great transit improvements without spending a penny of property taxes, because developers are lining up to build it for us.

The biggest penny-pinching mayor of all sold that bag of untruths before relenting and raising property taxes for 30 years into the future, taxes dedicated to the Scarborough Subway extension. The result is that subway is fully funded before construction begins.

Tory could have followed a similar path for SmartTrack. He didn’t, because his proposal was not on the city’s radar and not in line for funding. To jump the queue, Tory proposed to pay for it without taxes, a ruse of another name.

We’ll see how that turns out.