Mayor’s executive committee approves ‘untested’ financing plan for SmartTrack

Thestar.com
April 17, 2018
Ben Spurr

The city is one council vote away from committing up to $1.46 billion to Mayor John Tory’s SmartTrack project, despite concerns the plan to finance the venture is risky and untried.

Councillors on the mayor’s executive committee voted Tuesday to approve funding for the rail project, which consists of six new stops on GO Transit lines within Toronto to be branded as “SmartTrack” stations.

“This is a very significant step forward,” Tory told the committee. He predicted the project will “make a very significant contribution to the well-being of this city and getting people out of their cars and reducing congestion.”

The funding plan will go to council next week for a decisive vote.

The six new stations are expected to cost up to $268 million more than a previous estimate of about $1.2 billion. The additional money would be for station components like bus bays and bridges the city believes are required to link the stops to surrounding communities and the TTC network.

The federal government is expected to contribute $585 million, leaving the city on the hook for $878 million.

Some councillors at the meeting expressed doubt about the proposed financing plan, which would require the city to borrow money to fund SmartTrack and then pay off a portion of the debt through a method called tax increment financing, or TIF.

Under the plan, the city would designate areas around stations on the GO lines as TIF zones, and then use some of the property tax money generated by new development attracted to those areas by SmartTrack to pay the debt charges over time.
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The city is planning to raise $292 million for SmartTrack through TIF over 25 years. During his 2014 campaign, Tory pledged that TIF could be used to pay the entire cost of his transit plan, which at that time was estimated at $2.7 billion.

TIF has never been used in Canada to fund a major infrastructure project, and a consultant’s review of the city’s plan warned it carries significant risks.

“Forecasted development activity and property value increases may not materialize, leaving a shortfall in funding,” said the review by Ernst & Young Orenda Corporate Finance Inc.

The review determined the revenue the city is expecting through TIF was “reasonable” but suggested staff should do more to verify the accuracy of development projections for station sites, which were prepared by a third party and “may be out of date.”

“I’m sceptical that the financing will work out. We have an untested tool with the TIF financing that I think will cause problems,” said Councillor Mike Layton (Ward 19 Tirintiy-Spadina), who isn’t on Tory’s executive but represents the ward where the King-Liberty SmartTrack station would be built.

“But investments in transit shouldn’t necessarily be delayed because we have an untested tool. There are other ways to raise revenue,” such as increasing property taxes, he said.

TIF would be used to pay down roughly one third of the SmartTrack debt, while the city would draw on the City Building Fund and development charges to each make up another third.

Council approved the City Building Fund to pay for transit and housing needs. It’s being generated by five successive 0.5-per-cent annual property tax increases that began in 2017 and are scheduled to continue until 2021.

By then the fund will take in about $74.2 million annually, about $18.2 million of which would go to pay for SmartTrack. The payments would continue for 30 years, until the debt is paid off.

During his campaign, the mayor pledged SmartTrack “will not be financed by raising property taxes.”

In a morning news conference Tuesday, he claimed he had not broken that promise despite the fact the plan he supports would use a fund created by property tax increases to pay for SmartTrack.

Tory argued the City Building Fund was created “to provide for the funding of transit projects, not specifically SmartTrack,” and “so I think in terms of the question of whether property taxes are specifically being raised in order to pay for SmartTrack, they’re not.”

He also said a “small portion” of the fund would go towards SmartTrack costs. According to city staff, a quarter of all money generated by the fund over three decades would be used to pay for the new stations.

In addition to questions about the financing plan, councillors also expressed concern that SmartTrack service patterns and fare integration between GO and the TTC have yet to be finalized.

The city wants train frequencies of between six and 10 minutes during peak periods, and for there to be no charge to transfer between GO and TTC vehicles. The policies are critical to attracting riders to the SmartTrack stops, but Metrolinx, the provincial agency that operates GO, has not finalized plans for them to be in place when the stations go into service around 2025.

By 2041, 33 million riders are expected to use SmartTrack every year. Of those, roughly 6.2 million would be new to the transit system.