In the melee that passes for Ontario politics, one major issue is the proposed takeover of Toronto’s subway system by Queen’s Park. Such a change, they claim, would allow a great speed-up of system expansion currently hung up at Toronto Council. A good deal of that hang up can be traced to the Premier and his brother’s actions at Council, but such trivialities get in the way of a good stump speech.

The idea that planning should be based on actual evidence is a buzz-phrase heard most commonly when a politician is trying to appear “businesslike” and claims to be applying some sort of intellectual rigour to back-of-the-envelope planning. The uploading proposal sounds good in theory, but this is due in part to poor understanding of transits needs and cost both at Queen’s Park and at City Hall. The scheme surfaced years ago at Council as a simplistic way to cut the cost of transit support in the City’s budget, and the idea moved to the provincial level along with the Ford regime.

A common thread through every proposal is that the true cost of owning, operating and upgrading the subway system is poorly understood, even by members of Toronto Council and the TTC Board whose job it should be to know these things. It is a convenient myth that the subway “breaks even”, and that if only someone would take the cost of expansion and capital maintenance off of the City’s hands, all would be well.

In the interest of informed debate, this article examines the plan, such as it is, and the many issues that have yet to be addressed by its proponents.

Understanding the TTC Budget

A detailed breakdown of the TTC Budgets can be found in:

The TTC’s budget and long-term plans are poorly understood. The TTC Board scheduled Budget and Strategy meetings, but either cancelled them or spent the available time on narrow-focus rather than system-wide issues. At Council, things are even worse because budget debates, crammed with every department’s issues, get only short review. These are usually in an environment hostile to discussions of change except for a few, small topics. The “big picture” is limited to battles over new transit lines while the health of the overall system goes ignored.

For a decade or more, service growth in Toronto was constrained by the size of the streetcar and bus fleets, the physical limits on train spacing on the subway and the capacity of its stations. Much of the recent service growth is outside of the peak period when spare vehicles are available.

On the capital side, the City has a policy that its debt service costs should not exceed 15% of tax revenues. The province mandates a 25% cap, but the City takes a more conservative approach to provide headroom. Originally the cap applied to each year individually, but it is now considered over a ten-year average so that peaks and valleys in debt costs can smooth out for a 15% average. Already, planned borrowing for future years takes up all available room, and additional debt-financed work is possible only with special levies such as the Scarborough Subway tax (1.6%) and the John Tory City Building Fund (building up to 2.5%). (These are both tax increases above the rate of inflation.) If the cost of borrowing goes up, or City tax revenues fall, the 15% line will be only a fond memory.

The problem is compounded by a chronic understatement of transit needs going back at least eight years. When the marching orders are to keep deficits, and hence taxes, down, any proposals for improvement run counter to political goals. “We can’t afford it” becomes a standard response, and options simply go unstudied especially if they are associated with the wrong political faction.

If we don’t know what options will cost, we don’t know what might be possible or what the trade-offs among options would look like.

Even worse, with the Capital Budget, there is a long list of items that are either:

approved but not funded (roughly 1/3 of the approved list, about $3 billion worth)

“below the line” with neither approval nor funding (over $1 billion)

“future consideration” (over $2 billion)

Many of the big ticket items in these lists are subway items such as new and expanded fleets for the two major routes, and capacity expansion at busy stations. Many items in the budget are actually part of a larger project such subway capacity. However, the budget is presented on a departmental basis, and there is no consolidation of related line items. This has two effects: the TTC Board and Council rightly complain when projects appear to grow because approving the first step triggers the need for all that follows, related items are consigned to “funded” or “unfunded” status without regard for their place in the larger scheme.

The problem with these lists is that they are getting longer, especially the second and third group, even though some items form parts of critical system updates. Other projects simply are not on any budget, or are pushed so far into the future that they have no effect on the current ten-year plans. The 15% rule caused important projects related to Line 2 Bloor-Danforth to be pushed into the late 2020s even though some of them are pre-requisites for the Scarborough Subway Extension. (The components of Bloor-Danforth subway renewal and capacity expansion are discussed in detail in an appendix to this article.)

If Ontario takes over responsibility for the subway, they will inherit that long list of projects. For its part, Toronto Council and the TTC Board do not fully understand the implications if Ontario simply chooses not to invest in the existing system because the estimate of a takeover has been low-balled.

The TTC Board is very simple-minded in its deliberations, and avoids going into details. Their focus is on cost containment, not on service, except when someone needs a photo op to announce some relatively trivial change such as an express bus network that adds few new buses.

If Council and the TTC don’t understand their own system and its real needs, how can they fight for it?

The Tory / Government Proposal

The idea of taking over the subway is set out on the Ontario PC website where they state:

We will: […] Upload responsibility for subway infrastructure, including the building and maintenance of new and existing subway lines, from the City of Toronto to the Province. Add $5 billion in new subway funding to the $9 billion already available to build the Sheppard Loop with Scarborough, the Relief Line, and the Yonge Extension while building future crosstown expansions underground. Keep responsibility for day-to-day operations, including labour relations, with the City of Toronto along with a guarantee that the City will continue to keep all revenue generated by the subway system. What this will cost: […] Upload Toronto Subway System – Costing to be amortized over life of subway projects once operational, plus $160 million per year for existing assets.

More details are in a May 9, 2018 article on their website including:

[…] the province will upload responsibility for the TTC’s subway infrastructure, including the building and maintenance of new subway lines, from the City of Toronto to the Province. The City will continue to be responsible for the subway’s day-to-day operations, including labour relations with the City of Toronto, along with a guarantee that the City will continue to keep all revenue generated by the subway system. Ford also highlighted that the Sheppard Loop and building the Relief Line and Yonge Extension would be his priority projects. […] The Ontario PCs will also commit an additional $5 billion in new subway funding. This will add to the roughly $9 billion already available to build new transit projects in Toronto. Assuming provincial responsibility for the TTC subway system will enable the province to leverage its balance sheet in ways not available to municipalities. Given that the province can amortize subway investments over the life of the asset, we will be able to utilize the province’s balance sheet to get more subway projects completed faster. […] “All of these investments will be included as part of our costed, responsible and affordable plan,” Ford concluded.

When Transportation Minister John Yakabuski announced the creation of a panel under Special Advisor Michael Lindsay, he said:

[Lindsay] will work with the province on a plan to efficiently and effectively deliver on this key commitment. Mr. Lindsay, and an advisory panel of up to three experts to be appointed, will support the government in determining the best approach for the upload, including the building and maintenance of new and existing subway lines. “This is part of our government’s plan to improve public transit and bring relief to commuters across the region,” said Minister Yakabuski. “Travelling around the GTHA can be difficult and cumbersome. Traffic congestion and a lack of transit infrastructure is costing money, jobs and time. Our government is stepping up and treating the subway like the vital service it is. I welcome our new Special Advisor, Michael Lindsay, and I look forward to working with him on this important initiative.” The Toronto subway system is critical for the economic success of the region. An upload of the subway would help the province to implement a more efficient regional transit system, reduce costs and build transit faster. It could also allow the province to fund and deliver additional transit projects sooner. [From the press release of August 31, 2018]

No specific commitments were made about financial arrangements or funding, as one might expect if this is really to be a “study”, not an exercise in rubber stamping a pre-determined outcome.

All of this sounds good, but there are a huge number of details to be worked out, not the least of which is that the money earmarked to support the subway by the PCs is much below the current level of spending, let alone the level actually needed to attack a backlog of unfunded projects. Premier Ford may have a severe case of sticker shock when he learns just what a subway takeover means, and Toronto could end up with an even worse situation than it now faces.

Who Pays What Today?

For the existing subway system, Toronto pays almost all operating subsidies and capital costs for major renewal and maintenance projects.

On the operating budget, fares cover about 66% of the total, subsidy 30% and miscellaneous revenue (such as leases and advertising) 4% on a base of $1.8 billion. For the provincial fiscal year 2017-18, Toronto received about $182 million in gas tax revenue from the province. Of this, $75 million is allocated to capital and the remainder goes to the operating subsidy. Details of operating subsidies can be found in footnote 13 to the TTC 2017 financial statements (at page 31). The allocation of the provincial contribution between capital and operating is made by the city as part of its budget process.

Capital expansion projects such as the Vaughan extension and the proposed Scarborough Subway are funded separately from the ongoing capital renewal and maintenance budget. The proportions carried by each government vary from one project to another depending on policies of governments at the time. One important aspect to this has been the capping of contributions at a level originally “committed”. A project’s cost may rise, but the provincial or federal spending is set not as a proportion of the total, but as a fixed dollar amount. The purpose of this is to discourage project creep with the city only having to pay “33-cent dollars” in the expectation most of an overrun will be funded by others.

In the case of the Sheppard Subway, the Harris government capped its contribution and thanks to inflation there was not enough money available to build beyond Don Mills even though Victoria Park might have been a better terminal location.

On the Vaughan extension, the cost of recovering from problems with both the station construction and signalling contracts was entirely covered at the municipal level (roughly 60/40 for Toronto/York Region based on mileage within each city).

With the Scarborough Subway, both the federal and provincial contributions are capped in theory, although with the new government at Queen’s Park this will almost certainly change. Moreover, the federal “commitment” which was originally its own item, has now been rolled into a new transit fund, PTIF (see below), and Toronto lost the chance to spend the original bundle by dithering over the LRT vs subway issue.

The federal government gives Toronto about $167 million per year from gas tax and all of this flows to the ongoing capital program. Recently, additional money has come through the Public Transit Infrastructure Fund, and Toronto’s Phase I funding has been substantially used to replace a large portion of the bus fleet. Phase II projects have not yet been announced, but the feds have made clear that their Scarborough Subway contribution will come out of that pot and so PTIF Phase II has less “new money” in it that the announced dollar value implies. PTIF, unlike the gas tax, requires matching contributions at the provincial and city levels. This requires projects on which all three levels of government agree, and in turn that can distort priorities to projects where external subsidies are available.

The ten year “base program” covers ongoing capital renewal and maintenance, and its total value its total value is $9.24 billion of which only $6.5 billion is actually “funded” in the sense that the city knows how it will be paid for. Of this, about half is related to subway projects. Within the list of “unfunded” projects, about 70% are for the subway and the percentage is even higher when “below the line” (and other euphemisms for deferred spending) items are considered. Just for the base budget, the annual cost is about $500 million (funded plus unfunded) without building one metre of system expansion.

This is three times higher than the amount estimated by the government for the ongoing cost of subway maintenance.

Subway Capacity Constraints

There are capacity constraints on the existing system that will not easily be relieved.

Yonge-University-Spadina (Line 1)

Automatic Train Control (ATC) will be fully active in 2020, and it will allow up to 25% more trains to pass a point and carry more riders. The TTC has some provision for more trains in its budget, but the current fleet is not sufficient to reach a 25% increase in service.

Bloor-Danforth (Line 2)

Installation of ATC on Bloor-Danforth is not planned to start until the Yonge project is more-or-less completed, and BD will not see ATC operation until the mid-2020s. The project is currently scheduled to finish after the Scarborough extension opens, but that line will be built with ATC.

The current BD fleet is not ATC equipped, and a retrofit for its short remaining life is not cost effective. Plans for a new fleet are in the budget, but with no funding, and with a completion date after the SSE opens.

A new yard is required to hold and service the new fleet. Property acquisition is in progress, but construction is not fully funded in the budget. Again, this facility must exist before the TTC can begin to take delivery of a new fleet.

Stations

Some stations are already overcrowded during the peak period because they cannot disperse arriving passengers fast enough between trains, or because their platforms do not have enough room for passengers waiting to board, particularly when there is a delay. Much attention has focused on the southbound platform at Bloor in the AM peak. However, there are also issues at St. George during the AM, and at both interchange stations during the PM peak when an enhanced Line 1 will deliver would-be riders to Line 2 25% faster than it does today. There will be no added capacity on Line 2 to absorb them.

The Surface Network

As I have written elsewhere, the surface network is constrained by bus garage capacity. McNicoll Garage will open in 2020, but this will mainly be a “relief value” for overcrowding of existing garages. The next garage after that is not planned until the mid-2020s, and this has severe implications for bus service.

The streetcar network is gaining capacity by the replacement of old cars by new, larger ones, but even this may only just make up for two decades of service freezes and cuts on the streetcar system. The King Street Pilot shows that there is latent demand, but there are no approved plans to deal with this. A potential 60-car add-on streetcar order is mired both in Bombardier’s performance problems with the Flexity contract, and with the inevitable pushback that will come from the Ford government on spending more money on streetcars even though the system badly needs them.

Expansion Proposals and Funding



The government’s plan, repeated from the quotes above is:

Add $5 billion in new subway funding to the $9 billion already available to build the Sheppard Loop with Scarborough, the Relief Line, and the Yonge Extension while building future crosstown expansions underground.

That $5 billion will not go very far. We know that the SSE is going to be around $3.5 billion even before it is restored to three stops which will add to the cost. The Sheppard Loop from STC to Don Mills would be about 8km long, almost 1/3 more than the SSE. This translates to $5 billion and would eat up all of the proposed new money even before the Relief or Yonge extension lines came into play. Although Ontario plans to take ownership of the subway, they cannot possibly build everything they advocate without substantially more funding. Either they must up their own ante, or get into discussions with Ottawa and the municipalities (mainly Toronto) about contributions. This is not a recipe for a fast conclusion of new project approvals and builds.

The question of whether Crosstown extensions will be underground is not clearly answered. The quote above implies this is definite, but in another article is this statement:

While the Eglinton Crosstown expansions must be built, a Doug Ford Government will build the Eglinton West and Eglinton East expansions underground, where feasible.

The “where feasible” qualifier is an important distinction. This also gets into the knotty problem of a “subway upload” also including surface lines.

What is the Subway Worth?

In a recent Toronto Star article, Ben Spurr reported that according to the TTC the subway system has a value of $3.9 billion. I have confirmed this figure with the TTC, but there are very important caveats here.

The cost base is the original cost of the asset which might have been bought half a century ago, not the replacement cost.

The value cited is the net value of the assets after amortization.

The costs include money provided by all contributors although the asset is carried on the TTC’s books. Capital subsidies flow to the TTC through the City of Toronto, and the resulting asset shows up as TTC capital property. However, any debt used to fund these subsidies remains on the books of the government providing them.

However, according to the TTC’s financial statements, the original cost of the system is $17 billion, and of course the replacement cost would be even higher.

The value of the TTC’s tangible capital assets (things you can actually touch like a subway train) is summarized in a note in the 2017 Financial Statements (at page 28) with excerpts below.

The first table shows these assets at cost.

The second shows accumulated amortization which writes down the capital cost over its useful lifespan.

The third shows the book value (original cost less amortization).

Note that the replacement cost of assets is considerably higher than their original cost, let alone their amortized book values. For example, a subway train purchase 30 years ago cannot be replaced for the same cost as the original train. The original Yonge subway opened in 1954 and the structure is in its last year of amortization (on a 65 year basis).

The net book value of the system at the end of 2017 was $10.9 billion, and it is very difficult to believe that only 40% of this is due to the subway which is the most capital-intensive of transit modes. By comparison, the Eglinton Crosstown line alone is valued at $5.3 billion (new, with no amortization yet), and the projected Scarborough subway is well over $3 billion.

The reason for this discrepancy is that many of the “subway” assets have been around long enough to have a much lower original cost than current prices, and they have run through years if not decades of amortization reducing their book value even further. By contrast the surface system assets do not last as long (nor are they designed to) and so the purchase of many of these assets is at a recent cost level with little amortization.

The amortization rates used by the TTC are summarized in the following table. Note that none of them is the infamous “100 year” lifespan claimed for “subways”.

I asked the TTC to break out the major parts of “Construction in Progress”, and they provided the following table. Note that a substantial portion of this (almost $1 billion) is for subway projects. (For clarity “EAIII” is the “Easier Access Phase III” project.) This shows how new assets cost far more than the book value of older assets.

Moreover, a “purchase” at book value would clear the subway off of the TTC’s books as an asset, but would also strip the underlying value as a revenue generator or even for resale (think of Highway 407).

With Toronto remaining responsible for “operation” of the subway, a cost that could include day-to-day maintenance, it is not clear that this is a break even arrangement. It is a common myth that the subway breaks even, but that assumes a specific way of allocating fares that could be biased to overpay for the subway portion of trips. Also we know that both the Sheppard and Vaughan subways operate at a net loss. The Vaughan extension adds about $30 million annually to the TTC’s expenses net of any offsetting new revenue from ridership growth. The further out the subway goes, the more it reaches into territory where it is a money-loser. This is of particular importance if the province takes over planning and building of lines, but expects Toronto to pick up operating costs and losses.

When a Subway is Not a Subway

An outstanding issue between Metrolinx and the TTC is a full operating agreement for the new LRT lines of which the Crosstown will open first. We know that the TTC will dispatch the service and operate the trains, with a Metrolinx contractor doing everything else. However, will Metrolinx expect to be paid by Toronto for provision of this service? How will fares be charged and allocated between the TTC and Metrolinx parts of the network?

We know from past Metrolinx studies that they prefer a fare-by-distance model and this could add considerably to the cost of long trips typical for many suburban riders. Offsetting this is the recent shift in pricing policy both for GO and for 416-905 cross-border travel that was proposed by the Wynne government. It is unclear whether this scheme will survive in the Ford-era budgets.

If Metrolinx charges for service provision, will Toronto be on the hook if the city wants better service than Metrolinx wishes to provide? Subways in Toronto operate every 5 minutes until after 1:00 am, but it is not clear that the same service standard would apply to Metrolinx LRT lines.

Challenges and Questions:



Ontario now gives Toronto about $180 million in gas tax revenue part of which goes to subway capital maintenance. How much of this will be clawed back by Ontario as part of its “taking over” funding requirements for subway maintenance?

Canada also gives gas tax money to Toronto. Will Ontario seek to take over part of this subsidy stream for subway maintenance?

What exactly does Ontario mean by “maintenance”? Do they include only the capital projects, or also the day-to-day running maintenance of the system? If Toronto is expected to “operate” the subway, does this include routine maintenance of the vehicles and infrastructure?

What will happen to shared infrastructure such as stations, power distribution systems and central support/maintenance locations that now serve both subway and surface modes?

If Toronto chooses to use provincial assets, that is the trains and stations, at a higher level of service, will Ontario charge for the privilege? In other words, who determines service standards on lines owned by Ontario but operated by Toronto? (There is an analogy here to the as-yet unknown terms of the operating contracts for LRT lines.) If Toronto wants better service than Ontario is willing to provide, how is this to be funded?

Outlying portions of the subway network operate at a loss, notably outside of Toronto. If the province takes over the subway, why should Toronto pay to operate trains into York Region rather than having the regional government or province shoulder the subsidy?

Will Ontario review the list of capital projects, including those that are unfunded or not even part of formal lists, and bring funding to a level where needed improvements such as the Bloor-Danforth subway renewal can take place?

Will Ontario expect capital contributions to system maintenance from Toronto?

Will Ontario expect capital contributions for subway system expansion from the municipal and federal governments?

The City of Toronto carries debt that was used to pay for subway assets. Will the province either assume this debt or compensate the city for its investment in subway infrastructure?

Does Ontario intend to impose fare changes such as fare-by-distance for its routes, or would all routes within Toronto remain as part of a flat fare regime?

After the subway “upload” to Queen’s Park, what, if any, subsidies will be provided for the conventional surface and Wheel-Trans systems?

This list only begins to delve into the issues involved in a provincial takeover of the subway system, but these are questions that must be answered.

Appendix: Bloor-Danforth Subway Renewal Projects

Over a year ago, TTC management talked of producing a compendium report on renewal and enhancement of Line 2 Bloor-Danforth. This report has never appeared, and my suspicion is that the central problem is that the city and provincial funding plans do not align with the requirements of a consolidated renewal project. The Scarborough Subway creates an additional pressure by setting a date when some components of the plan must be ready even though earlier capital budgets showed dates that were incompatible with the extension’s timing.

Here are the major components of what would be in a renewal plan:

T1 subway car replacements. The T1s serve the BD line and they will be due for replacement in the late 2020s. There is $1.411 billion in the base budget, but the project has an estimated final cost (EFC) of $1.861 billion because in extends beyond the 10-year capital budget window. This project is not funded, and yet it is closely related to other projects below.

Subway ridership growth will provide some additional trains for both the YUS and BD lines. This is an unfunded item with an EFC of $287 million.

Resignalling of the BD subway has an EFC of $431.5 million in the base budget, and it is funded. However, project completion is post-2027. Automatic Train Control (ATC) cannot be used on the BD line and Scarborough extension until there is a fleet capable of using it.

A new shops and yard will be required because two fleets must exist concurrently, and the yard at Greenwood is (a) full and (b) not suited to maintenance of six-car trainsets now used on the Yonge line. Property acquisition for an old CPR freight yard near Kipling Station is in progress, but a full project to build a yard and carhouse does not yet exist in the capital budget. A cost of $500 million would be at least in the ball park. (Greenwood Yard would eventually be used, in part, for the Relief Line.) This project was originally timed on the basis that the T1 replacement would occur starting in 2025, but if BD trains are to be ATC equipped for a Scarborough extension, both the trains and the carhouse are needed sooner. There is no line item project for this in the capital budget beyond property acquisition.

Yonge-Bloor capacity improvements are an item for “future consideration” with a pricetag of about $1 billion.

Capacity improvements at other stations are only an item for study at present, and there is no project to actually implement improvements.

Platform doors are another “future consideration”. For the YUS there is a line item at $348 million, but there is no provision for anything on the BD line, probably because ATC is a pre-requisite and this would not be in place within the timeframe of the 10-year budget.

These are capital costs related to capacity expansion, and it is unclear who would cover these expenses considering the relatively small distance an “extra” $5 billion will go.