Ottawa’s subway handout to cost Torontonians

Ottawa’s decision to fund a subway in Scarborough comes with a cost for the residents of Toronto.

In a strange bit of irony, Ottawa’s decision to write a $660-million cheque to help build a subway in Scarborough will result in increased property taxes and higher transit fares for the residents of Toronto.

Why? Because the $660-million commitment from the federal government, combined with the $1.4 billion that the province has pledged to the project, is still well short of the money needed to build the proposed subway. City Hall has already signed up to fill that hole by raising property taxes and is considering another hike to transit fares.

Torontonians can expect more of the same if the subway is eventually built.

Taken together, the province and Ottawa have agreed to give Toronto around $2 billion for the new subway. But the final cost will be far higher than that – a gap the residents of Toronto will be left to fill.

The City estimates that the final price tag for the project will be $3.28 billion when adjusted for inflation and assuming that it is completed by 2024. That’s equivalent to $2.3 billion in 2010 (the number most often quoted by politicians). On top of that, the city will be on the hook for an additional $250 million related to keeping the current Scarborough Rapid Transit (SRT) line in operation until 2023 and eventually tearing down the SRT. Adding those figures together brings the total up to $3.5 billion in nominal terms.

The $2-billion commitment from the province and Ottawa looks paltry compared to that sum.

But it gets worse. TTC officials admit that costs could be as much as 30% higher than originally estimated. Taking the current figures and applying a worst-case scenario, the total figure for the Scarborough’s new subway line could be more than $4.5 billion. Even if the TTC is only undershooting the cost of the project by 15%, that would still add an additional $500 million to the final price tag.

City Hall has already turned to Toronto’s taxpayers to pay for the new subway. In July, councillors committed to raising property taxes by as much as 2.4%, matched by a hike in property taxes for businesses equivalent to one-third of that increase. City Hall is also hoping for an increase in development fees on new construction.

Once the subway is built, the city expects it will result in “incremental operating and capital maintenance costs”, which will further strain the TTC’s budget.

And the increase in development that is typically associated with a new subway – such as condos and businesses that will move closer to the new stations – will fail to materialize, according to the TTC. That’s because the proposed subway line would move largely through low-density, residential neighbourhoods.

So, what do the residents of Toronto get after handing over billions of dollars? A subway that’s not needed.

TTC admits that a Scarborough subway would move as many as 9,500 passengers per hour per direction during its busiest periods. Yet, it would be capable of moving as many as 30,000 per hour – meaning that more than two-thirds of the subway’s capacity would be wasted. And that’s only considering times of peak operation. More recent estimates from the City have upped that ridership figure to 14,000, which would – even on those optimistic forecasts – mean more than half of the subway’s capacity would go unused during peak travel times.

If we consider that the number of riders will fall dramatically in off-peak hours (on a per-hour basis), but capacity will remain the same – a problem that plagues most transit systems – the inefficiency worsens.

The result for Toronto’s transit riders and residents is clear: higher fares and increased property taxes to subsidize a subway that’s not needed.

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or at (416) 964-9223 ext 236.