When Metrolinx released its Investment Strategy on May 27, many urbanists rushed to endorse it, arguing that any plan to fund more transit was a good plan. Just as many critics rushed to denounce the strategy because it was financed by broad-based tax increases. In truth, so many observers prejudged the document that its details have escaped serious scrutiny. And that’s a problem, since those details include billions in uncounted, unallocated revenues.
Metrolinx’s strategy document is meant to backstop months of debate, and sell us on decades worth of new transit spending and dedicated revenue. The report and its appendices are hundreds of pages long, with countless anecdotes, quotes and photos.
Yet the report contains no clear breakdown of exactly how new tax revenues would flow in and out of Metrolinx coffers, when, or why. It’s true that the strategy does include a cash flow graph on P. 39 — but it’s abstract art, like a fiscal Rorschach test. No dates, dollar figures or numbers appear on the graph, only colorful lines. Metrolinx’s $2 billion revenue target appears as a straight black line, as if tax revenues never rise nor fall.
The conceit that the tax package will always raise “$2 billion per year” hides the potential impact of growth revenues. For example, Metrolinx repeatedly argues that a 1% HST hike raises $1.3 billion per year from the Greater Toronto Area in constant dollars. That’s not a plausible outcome.
As Metrolinx itself notes, sales tax revenues grow with the economy. Sometimes, they grow even faster. In the first full year of the HST regime (2011-12), Ontario sales tax revenues grew by 7%. Even if HST income grows at a modest 1.5% annually beyond inflation over the next two decades, this raises an additional $4 billion (in constant dollars) from the GTA alone.
Then there’s the parking tax. As proposed, it’s really a business property surtax, charged on the assessed land value of parking, rather than on the parking area as is done in other cities. Metrolinx recommends this untested, complicated alternative because it claims it will make the tax more equitable. Again, no data is included to support this, nor are there any examples to explain how the tax could impact different business sectors over time.
Time matters. Property values tend to rise over the long term. Cities usually gear-shift tax rates down to adjust accordingly. That’s why Toronto’s commercial and residential tax rates are almost a third smaller than they were in 2001, even though total revenues are much higher. A property that grows 10% in value doesn’t necessarily pay 10% more in property tax in a typical tax year.
However, as outlined in Metrolinx’s vague recommendations, the parking tax wouldn’t adjust for rising assessments — so revenues could easily soar like a property tax powered by rocket fuel. The document books $350m from parking in 2014. Suppose parkade assessments rise in the GTA by 3% annually — from higher valuations, new parking construction, or both. That raises another $2.4 billion over the following twenty years.
The headline dollar figures are lowballed, too. Metrolinx plans to spend $34 billion on new projects. The agency defines this figure as an “all-in” estimate, including financing, maintenance and contingency for cost overruns. So the strategy recommends tax tools sufficient to raise “$2 billion per year” over twenty years to fund this.
There’s one small problem: if you need $34 billion all-in, you need $34 billion. But $2 billion per year over twenty years raises $40 billion, not $34 billion.
The explanation for this $6 billion bonus seems to be carelessness; Metrolinx recommends 20 years of taxation, but it only benchmarks for 17 years of new spending. But if this distinction sounds innocuous, remember that projects will likely include some debt and P3 financing. Every additional year of incoming revenue can have a significant impact on debt-financed spending capacity.
Given the time taken, the money spent and the issues at stake, Metrolinx’s document should have transparently matched the flow of any revenue growth to a clear spending timetable. However, the failure to do could offer political benefits for several sides in the transit debate. Hardcore transit advocates now have more reason to defend the plan, since it is more generous than it looks. Premier Wynne’s government could also use growth revenue projections to buy some maneuvering room and table a smaller tax package.
That said, critics on the left and right have more ammunition, too. If you already thought Metrolinx’s tax plans were too rich for Ontario’s blood at $34 billion, a plan that’s billions richer will only reinforce that view. Seen in that light, the Investment Strategy reads a lot more like a sales pitch for new taxes with some transit projects attached, and a lot less like the carefully-staged financial plan that all sides deserved to see.
photo by OCAD123
Brian Kelcey is a public policy consultant and self-described “conservative urbanist.” His experience in urban policy includes work as a senior political advisor on transit policy at Queen’s Park in 2003, and as a budget advisor in Winnipeg’s Mayor’s Office from 2005-2008. Brian will occasionally contribute to Spacing’s urban blog network.