Scrapping Toronto’s road tolls creates budget hole: city manager

TheGlobeandMail.com
Feb. 1, 2017
Oliver Moore and Jeff Gray

Billions of dollars earmarked for transit, roads and other infrastructure in Toronto is in jeopardy, the city manager warns, in the wake of the province’s decision to veto a city plan for road tolls on the Gardiner Expressway and Don Valley Parkway.

Peter Wallace, the city’s top civil servant, lays out the implications of Premier Kathleen Wynne’s move to block the road-tolling plan in a memo sent on Tuesday to Mayor John Tory and members of council and obtained by The Globe and Mail.

The Premier says the additional $170-million the province announced it will now give the city in gas-tax revenues instead of tolls is “equal” to the amount the city would rake in from charging drivers. City officials had pegged potential toll revenues between $200-million and $330-million.

But in his memo, Mr. Wallace says the after-effects of scrapping of the city’s toll plans are even worse.

He writes that the gas-tax revenues are “helpful” but fall short in one very key way: The city cannot borrow against them, as it does not control them. With toll revenues, which the city could raise or lower as needed, the municipality had hoped to take on an extra $5.6-billion in debt.

Now, those spending plans have been shelved, as city finance officials scramble to fill the new hole created by Queen’s Park in Toronto’s capital budget.

“This remains a challenging situation, and I will work with the deputy city managers and senior staff to report back with new modelling within the next several months,” the city manager writes in his memo, dated Jan. 31.

Mr. Wallace says that gas-tax revenues will fluctuate with fuel consumption and will not be tied to inflation. They will also be subject to the whim of future provincial governments, making them unable to “support comparable leverage” to the $5.6-billion in debt room the city had hoped to free up with tolls.

“The Chief Financial Officer advises that the new funds be treated or largely treated as cash,” he writes. “The transfers do not meet the standards associated for allocation against recoverable debt and cannot provide the debt finance leverage envisaged by Budget Committee.”

In a statement, a spokeswoman for Transportation Minister Steven Del Duca suggested that Toronto could use the gas-tax monies the same way as tolling revenue.

“If a financier is comfortable with considering gas tax as the collateral or down payment to fund a project/municipality, that decision is between the financier and municipality,” Andrea Ernesaks said. “While gas tax was not explicitly designed for this purpose, the municipality and the financier assume the risk of how they are recognizing the funding.”

Toronto Region Board of Trade chief executive officer Jan De Silva echoed Mr. Wallace’s concerns in a statement on Tuesday: “Cities can only finance big infrastructure projects from own-source revenue and not provincial transfers such as a gas tax; therefore, a dollar of gas tax revenue does not equal a dollar of toll revenue.”

Mr. Wallace also lays out other problems created by the change of plans. Blocking the use of tolls means the city misses out on “important opportunities for congestion management,” something other cities are moving ahead on elsewhere in the world. And, he writes, it leaves transit riders paying fares every day, while drivers pay no extra fee to use the city’s roads.

“This asymmetry is not sustainable or fair, given the very significant costs associated with rehabilitation of the existing expressway and road network,” Mr. Wallace writes.

He also says the veto raises questions, given that Toronto was given new taxing powers – including the limited ability to bring in tolls with provincial approval – in the 2006 City of Toronto Act, which was supposed to make the city more of a master in its own house.

“The recent development creates greater challenges in advising City Council with respect to its decision making authority,” Mr. Wallace writes.

He advises that the city should keep lobbying the province for municipal finance reform and access to user fees and road tolls.