Staff miscalculations on the ridership of the Scarborough subway will leave taxpayers on the hook for millions more, after city council voted to settle a dispute with developers.

According to a secret report before council on Tuesday, the contents of which were shared with the Star, the city’s lawyers advised councillors to accept a settlement with the group representing developers, the Building Industry and Land Development Association (BILD).

The settlement, which reduces the amount builders will have to pony up to help finance the subway, is expected to cost the city as much as $6 million in lost revenues.

There had been concern that staff would be forced to acknowledge at a public hearing that at least one of their own ridership calculations was wrong — an admission that casts further doubt on city’s planning process for the controversial project.

The closed-doors discussion of the settlement came late in the meeting, long after a charged speech by Councillor Josh Matlow, who criticized plans for a six-kilometre tunnel to Scarborough Town Centre — what he dubbed “Toronto’s longest hole” — with council now headed toward a debate over new taxes and fees to raise desperately needed revenues.

“Council rejected a provincially fully-funded LRT plan that would have provided seven stops for Scarborough residents, serving more residents for far fewer dollars,” Matlow said. “In no way, in good conscience, can I go back to my neighbours, your neighbours, and say I want you to give us more money through new revenue tools when I know for a fact we’re blowing their money out the door here.

“We have mismanaged, we have mishandled and we have been dishonest when it comes to the transit planning of our city, and we’ve got to get our act together.”

BILD challenged the city’s calculations on ridership and development fees at the Ontario Municipal Board last year.

The city’s lawyers said in the confidential report discussed Tuesday that councillors should accept the settlement offer because the city stands to lose even more if its numbers were to face further scrutiny at the public OMB hearing. Councillors agreed to support it, directing the city’s lawyers to attend a hearing scheduled for August..

The city’s chief planner, Jennifer Keesmaat, whose division produced the numbers at issue, didn’t respond to questions from the Star Tuesday. A city spokesperson responding for her said the city was unable to comment with a confidential report before council. A spokesperson for BILD said the organization could not comment with the appeal ongoing.

In 2013, under pressure from self-styled subway champion Rob Ford and several Scarborough councillors, council voted to switch from a seven-stop LRT fully funded by the province to a three-stop subway costing $2 billion more. Of the total $3.56-billion cost, the city needs to fund $910 million — most of it landing on homeowners’ tax bills. The city anticipated raising the remaining $165 million by charging developers under provincial legislation.

Senior staff have acknowledged there was a rushed process to produce updated estimates of ridership on the proposed subway at peak hours — a standard calculation to determine what type of transit is most cost-effective. They reported that by 2031 there would be 14,000 people riding the subway at the busiest time in the busiest direction — a number that just barely justified the switch to a higher-capacity, more expensive subway.

After BILD questioned the ridership calculations, the city walked away from a one-day mediation meeting this April in a compromised position. BILD offered the city a deal.

“Given that city witnesses have already determined that when challenged they would be forced to concede the (development charge) rates would need to be reduced by at least 10 per cent, capping the city’s risk at 10 per cent is the financially prudent course of action,” the confidential report says.

While senior city officials continue to defend the 14,000 figure, they are now acknowledging a flaw in a related calculation.

Provincial rules governing development charges say growth should pay for growth, meaning the city is not allowed to charge developers for costs related to how the subway would benefit existing development.

With that in mind, the city needed to come up with a baseline figure for how many people would have used the subway had it already been fully operational in 2015 — before new developments might boost the figure. The number the city came up with was a peak ridership of 5,500.

BILD believed that 5,500 baseline was too low. A low starting figure would have the effect of exaggerating future ridership growth — and increasing the amount developers would have to shell out. BILD argued the baseline number, lifted from a 2013 TTC report, didn’t actually reflect potential subway riders but rather future ridership for lower-capacity options such as an improved SRT, an LRT or bus rapid transit.

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The city’s hired consultants acknowledged BILD was right about that, but still defended the 5,500 figure, saying it was “generally representative of the ridership for a subway option” and was “reasonable based on the best available information.”

Now, the city’s lawyers told council that “the city’s own witnesses would have to concede that the benefit to existing share ought to have been higher by an amount that would lead to a reduction of the overall (development charge) rate of 10 per cent or more.”

“BILD would also challenge various other aspects of the city’s calculation,” the report says. While staff are said to “believe that these other aspects are based on sound data and analysis,” the lawyers said taking the issue to a hearing would risk the OMB agreeing with BILD’s arguments.

Publicly, senior staff and Mayor John Tory have defended the 14,000 ridership projection. But Tory has appeared to distance himself from it over the past week, saying he “can’t speak to the numbers that were bandied around before I was here.”

When Matlow questioned a lack of transparency over how the 14,000 figure was reached in February 2015, most of council, including Tory, voted to shelve his request for more information. Later that year, Keesmaat told the Star the “rushed” process that produced that number was “problematic.” But in a letter to Matlow in October, she said the numbers were “accurate.”

The subway plan was significantly revised this year, reduced from a three-stop to one-stop extension. While staff say the money saved is enough to build an 18-stop LRT east along Eglinton Ave., critics have questioned the $2 billion cost of a single subway stop, now projected to carry just 7,300 riders at rush hour.

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RIDERSHIP PROJECTIONS

8,000: The projected number of future riders for a seven-stop LRT provided to council before it confirmed that plan in 2012.

9,500: The projected number of future riders for a three-stop subway aligned under McCowan Rd provided to council before it backed the LRT.

14,000: The updated projected number of future riders for the three-stop subway provided to council before it scrapped plans for an LRT.

7,300: The most recent projection for future riders of a one-stop subway aligned under McCowan Rd. provided to council ahead of a vote to confirm that plan.

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