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The Globe and Mail

The Fords' transit plan is no more than a reckless gamble

The Brothers Ford - Mayor Rob and right-hand-man Doug - pride themselves on being prudent businessmen. Yet, just weeks after storming into city hall, they are about to take an enormous and expensive gamble.

Under a deal that is rapidly coming together between provincial authorities and the mayor's office, provincial funds would go toward building a new underground Eglinton transit line, using the money that had been devoted to the near-defunct Transit City light-rail project. The city, for its part, would extend the Sheppard subway by running it into Scarborough, at a cost of around $3-billion or $4-billion. In effect, the city is offering to go it alone on a hugely costly megaproject.

How can the Fords saddle the city with such a burden? Easy, they say: we'll get the private sector to build it.

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But the Fords' scheme for persuading private companies to get on board is risky and untested. What they are talking about is using the land development around new subway stations to rake in higher fees from developers and higher property taxes from residents and businesses. With the promise of profit from those cash streams, they seem to think ("I really can't into details," says the mayor), private companies would line up to build the new Sheppard line.

"The private sector would take the risk, not the taxpayers," said a soothing Doug Ford on CBC Radio. Nothing suggests it would do any such thing.

Before they invested billions of dollars in something as complex as a subway, private companies would demand to know that they're going to at least make their money back. What if developers aren't keen on building in the suburbs through which much of the new subway would run? What if the condos and office towers that are supposed to sprout up never do - or don't come for years, even decades. On much of the Bloor-Danforth line, after all, they never have.

No private company is going to make such a bet. In return for its money, the company would demand a guarantee from the city of a regular revenue stream, whether or not the development came. If it in fact did not, the city would be on the hook for hundreds of millions.

The potential from higher property taxes is doubtful, too. In the United States, cities use something called tax-increment financing to redevelop blighted neighbourhoods. The Fords' people are musing about using it to build the subway. The theory is that you would borrow money for its construction and pay it back years or decades later when the land values rise and the take from property taxes is much higher.

But again there is that risk. As a recent British study put it, "the problem is that developments may fail in increasing tax revenues, so that local governments are left with a debt burden which has to be repaid by cutting back on services or increasing taxes."

In the United States, tax-increment financing is usually employed only for smaller transit improvements. Denver, for example, is using it to help renovate its Union Station. Even in the major exception, New York's 7 Subway extension, it is government that it is taking the risk. New York City has issued bonds on the expectation of repaying them with the property-tax revenue from new development in the district of west-side Manhattan that the subway will serve. So, in other words, the city is borrowing money to build its subway.

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That is a lot different from getting the private sector to take the risk. Cities, in fact, can borrow more cheaply than companies, so having them issue the bonds makes more sense. The experts say they don't know of any case in which the kind of financing scheme the mayor's office is talking about has been used for a major project like the Scarborough subway.

The latest big transit project in this country, Vancouver's Canada Line, was built with a mix of funding, roughly two-thirds public, one-third private. That seemed to work and the line is a big success. If the Fords can find a private partner for the Scarborough subway, then great. Public-private partnerships are more and more common for building expensive infrastructure.

But getting private companies to take on all the risk of funding and building such a big project is another thing. The danger is that the lowly taxpayer whom the Fords vow to protect will be left holding the bag.

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About the Author
Toronto columnist

Marcus Gee is Toronto columnist for the Globe and Mail, Canada's national newspaper.Born in Toronto, he graduated from the University of British Columbia in 1979 with a degree in modern European history, then worked as a reporter for The Province, Vancouver's morning newspaper. More

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