April 30, 2015

Recommended Readings: Transit, development, who should pay and how

Two articles worth bringing forward.  The first by Kerry Gold in the Globe and Mail:


In Vancouver, developers’ plans hinge on plebiscite results


Transit provides the framework for future development. It has the power to create entire communities and shape the region. And this unaffordable city needs it more than ever.

Developers already know that, which is why Intergulf Development Group vice-president Shaadi Faris will be keeping a close eye on the transit plebiscite results. Better transit won’t just offer better regional access, but it will add fire to the already hot market.

“All development sites are based around transit – as a city, that is our issue,” says Mr. Faris. “We are surrounded by water and mountains, and we can’t expand that way, so we have to work around transit. Transit drives development here. It’s our biggest concern.”

Which immediately raises the question: What happens if the referendum fails?

(1)  Should projects that require transit be put on hold?  I’m thinking, in particular, of Jericho and development on UBC lands.  Or …

(2) Should such projects have to front-end the costs of transit?

The article goes on:

Mr. Shaadi has got his eye on the Broadway corridor to the University of British Columbia, whose future will also depend on rapid transit. …

He doesn’t see a No vote standing in the way of the new corridor. The plebiscite will only help answer the question of who will pay for better transit. Regardless of the outcome, adjustments will have to be made. There are an estimated million-plus people expected to move to Metro Vancouver by 2041. …

Another analyst suggested a tax levy on transit-oriented developments.

“It’s clear that transit could be paying for itself in some manner such as it does in other cities around the world,” said the analyst, who preferred to remain nameless. “Transit infrastructure is one of the few government investments which actually makes money. If you build a new hospital or courthouse or some other civic improvement, it’s a net cost. But a new transit line generates significant real estate profits.

“Here, the general public pays and private development benefits.”


The second article, in the National Post, makes it clear that not all the capital required for major projects needs to be raised at once.  Just enough to pay the debt servicing or participation costs in a public-private partnershop (P3):

Brian Kelcey: Ottawa’s new transit fund — a weapon of mass construction

For cities, the big news in the 2015 federal budget was the announcement of a national transit fund, which starts at $250 million in 2017 and scales up to $1 billion per year in 2019 (and) could finance the biggest surge in Canadian infrastructure construction since gas tax transfers began in the last decade. …

Push aside all of the usual left-right bickering over P3s for a moment, because the change in policy matters even if P3s aren’t used after all. What matters here is cash flow. As notes in the budget make clear, the real policy shift is financial, not ideological. The Conservative goal here is to fund projects “over the useful life of the asset.”

By promising long-term project financing rather than up-front funding, Ottawa could commit to its $7 billion-plus share of $23 billion in transit projects in 2017. By 2019/2020, they could scale up to back up to $90 billion worth of transit construction — if provinces and cities can keep up with their own share.

Structured this way, Ottawa’s transit plan is a financial weapon of mass construction. Federal officials will be equipped to simultaneously announce long-term financing commitments to multiple projects in multiple cities (and, not incidentally, multiple ridings). …

However …

Unlike other governments, most Canadian cities have specific debt limits. These limits are usually calculated by measuring debt service costs against a city’s property tax or “own-source” revenues. Historically unstable federal transfers aren’t counted toward that limit — so the new model would push some cities to a debt wall faster than expected, and outright exclude others with large debt burdens.

This is a fixable problem. New federal or provincial agencies could carry a share of transit debts instead. Debt limit rules could be amended to include guaranteed transfers from senior governments. But either way, these complicated details must be resolved well in advance — ideally in partnership, rather than through another surprise footnote in another budget — if this new model is ever going to meet its hidden potential.


There’s more to read in both articles.  Check them out – and discuss below.

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  1. The quote from the article, “The Conservative goal here is to fund projects “over the useful life of the asset” certainly sounds like a way to encourage P3s. It would provide a funding steam for repaying the higher private sector debt costs to a concessionaire over a period of decades.

    1. The Ontario Auditor General estimates Ontario’s existing P3 projects have cost that province’s taxpayers an extra $8 Billion than if public financing and operations had been used (http://tiny.cc/6hbtxx). And BC’s Auditor General’s analysis of P3s indicates that the weighted average cost of government borrowing through P3 projects is twice that of the government’s weighted average cost of borrowing (http://tiny.cc/qjbtxx). None of which seems to have dampened either government’s enthusiasm for P3s.

  2. “Here, the general public pays and private development benefits.”
    I’ve heard quite a few No supporters cite that as the primary reason for their position.

    As if voting no is going to magically change a status quo that has been in effect for most of recorded history.

    History tells us that those at the top will always find a way to get everyone else to pay for their dreams. Taxes, fees, costs, it matters not what you call it or how it’s collected, wealth flows almost exclusively in one direction and only a fool trusts that any will be spent on the common good.

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