Funding Options for Sheppard Subway Extensions & Other Public Transit Infrastructure

• Presentation Outline

• KPMG Study

• Objectives & Conclusions

• Forecast growth-related revenues

• Risks associated with KPMG funding model

• Other Funding Tools Recommended for Consideration by KPMG

• Developing a New Model for Funding Long-Term Transit Infrastructure Needs

• Addressing Overall Funding Needs

• Assessing Potential Fees/Taxes Using User Fee Policy

• Historical Cost-Sharing Arrangements

• Proposal for New, Sustainable, Funding Arrangement

1

KPMG Study Objectives

• Determine the capital funding that private investors would provide in return for the right to the project’s growth-related revenues (without any recourse to other City revenues)

• If the amount identified above is insufficient to fund the • If the amount identified above is insufficient to fund the project, assess alternative funding options used in other jurisdictions

2

KPMG Study Conclusions/Outcomes

• The sale or monetization of growth-related revenues will not yield sufficient amounts to fund the project

• Detailed examination of funding potential provided for Sheppard East extensionSheppard East extension

• At least $739 million in additional funding required from non-growth-related sources

• Sheppard West extension assumed to be primarily funded from additional government support

3

What are the growth-related revenues?

• Incremental City property tax revenues raised in the proposed subway corridors (Eglinton-Scarborough and Sheppard East) through Tax Increment Financing (TIF)

• City-wide development charge amount levied specifically recover eligible costs for Sheppard Subway East extension

4

What is Tax Increment Financing?

5

Development Forecast

• N. Barry Lyon Consultants prepared the following development forecast used as the basis for the TIF and DC revenue forecast

Summary of N. Barry Lyon Development Forecast

Development Category

Annual Growth in TIF Zone

Annual Growth City-Wide

Residential 1,700 units 15,000 units increasing to

18,000

Office 257,000 sq. ft. 1.4 million sq. ft.

Retail 60,000 sq. ft. 482,000 sq. ft. decreasing to 346,000 sq. ft.

6

Monetizing TIF and DC Revenues (1)

• KPMG estimated the amounts that could be raised in year 5 by transferring to investors the right to future TIF and DC revenues on a non-recourse basis

• Bond purchasers would have first claim on these revenues for interest and repayment of principalinterest and repayment of principal

• Equity investors would have right to all revenues not claimed by bond investors

7

Monetizing TIF and DC Revenues (2)

Bond Proceeds Equity Financing Total

Tax Increment

SUMMARY OF FORECAST BOND AND EQUITY PROCEEDS

FROM TIF AND DC FOR SHEPPARD EAST CORRIDOR

(Amounts Raised in Year 5 $millions)

Tax Increment

Financing 156 129 285

Development

Charges 292 74 366

Total: 448 203 651

8

Sheppard Funding - Conclusions

TIF and DC Bond & Equity

Proceeds27%

City-Owned Development

Shortfall24%

Breakdown of FundingBased on $2.4 billion Cost

(SDG)TIF and DC

Bond & Equity Proceeds

20%

Shortfall42%

Breakdown of FundingBased on $3.2 billion Cost

(TTC)

• City does not have capacity to fund project using growth

9

Government Contributions

40%

Development Rights

9%Government Contributions

31%City-Owned

Development Rights

7%

Risks and Considerations

• Federal/Provincial contributions not assured

• Capital costs may vary from SDG estimates

• Growth-driven City servicing costs in TIF zones not accommodated

• Most valuable City properties in corridors already pledged to Build Toronto

• Interest rates, investment market conditions may impact the amount of • Interest rates, investment market conditions may impact the amount of bond, equity financing that can be raised

• Pledging of taxes, DC’s to investors may impact City’s credit rating

• Subway project operating and maintenance costs not addressed

• City still waiting for TYSSE TIF Regulation (5 years)

• May require limits on City’s planning powers in TIF zones

10

Funding Future Transit Requirements

• The Sheppard rapid transit project is one of several transit investments needed in Toronto

• Private funding approach not suitable for general application – layered burden of multiple TIF zones for other City priorities would be onerousother City priorities would be onerous

• Sustainable funding model for transit expansion is required

11

Future Rapid Transit Projects Capital Cost Estimates 2011 $

• Sheppard West $1.6 B

• Downtown Relief Line (east) $3.0 B

• Downtown Relief Line (west) $2.9 B

• Yonge Subway Extension $3.1 B

• Waterfront LRT $0.5 B

• Total $11.1B

12

Alternative Funding Tools(Toronto share)

Alternative Revenue Tools Suggested for Consideration by KPMG Estimated Year 1 Revenues ($ millions)

Revenue Tool Conservative Aggressive

Zone-based Tolls 95 136

Expressway Tolls 70 556

HOT Lanes 23 185

Parking Tax 26 105 Parking Tax 26 105

Parking Space Levy 91 227

Regional Sales Tax 251 503

Gas Tax 321 641

Passenger Vehicle Charge 84 168

Payroll Tax 340 680

13

Other revenue sources sufficient to cover shortfalls and/or replace TIFs & DCs as funding source

User Fee Policy Report- When to Charge User Fees (“Who Pays”)

WHOBENEFITS

TYPE OF SERVICE

TAX vs. FEESPOLICY MIX

Primarily the Community- with Less Individual

Benefit

Public / Individual Primarily Taxesand

Some User Fees

Community Public 100% Taxes1

Public

/

Private

2

Public

14

Primarily the Individual with Less Community

Benefit

Individual Benefit

Only

Public / Individual Primarily User Feesand

Some Taxes

Individual 100% Fees

Public

/

Private

3

Public

/

Private

4

Public

/

Private

Rapid Transit

Rapid Transit - Who Benefits

• Local property owners

• Local businesses

• Riders (area residents and commuters)

• Drivers (area residents and commuters)

• The economy • The economy

• The environment

15

Role of Metrolinx

• Released “The Big Move” Regional Transportation Plan in 2008

• $50 billion expenditure plan over 25 years

• Initial commitment of $8.4 billion, 100% capital funding for Toronto transit projectsfor Toronto transit projects

• Commitment to release complete funding (“investment”) strategy by June 2013

16

TTC Capital Subsidies History (IG)

Period Type Description of Contribution

Pre-1998 Conditional Grants 75% of eligible costs subject to caps

1998-2002 Capital SubsidyAgreement – Term Funding

50% for new projects subject to caps

2003 Ad-hoc funding programs (OTRP etc.)

•)

(OTRP etc.)

2004-Present

Project Specific Funding 1/3 each contributed by Fed, Provthrough CSIF, Building Canada, Move Ontario etc. subject to caps

17

TTC Project Funding Comparison

Project Total Cost ($ billions)

Toronto Share

(%)

Funding Source

Sheppard Subway (Yonge to Don Mills)

0.97 30 Debt funding supported by general property tax revenues

Toronto-York 2.6 20 Debt funded supported by

•)

Spadina Extension general property tax revenue and DC’s

Sheppard East 2.4-3.2 60-69 ??

18

Potential Funding Strategy

Phase I years 1 – 10

• Broad based regional taxes (sales, gas, CVA, DC) to support bond issues to show commitment to long-term funding strategy

Phase II years 10 – 25Phase II years 10 – 25• Transition to road pricing tools to change drivers into

riders, tax room may be available to support other infrastructure priorities (e.g. housing)

Phase III year 25 on

• Road related revenues extended to fund ongoing state of good repair

19

CURRENT(reassessment is revenue neutral)

After ReassessmentBefore Reassessment

CVA

Taxes

Tax Rate

402 B

$3.630 B

0.90%

422 B

$3.630 B

0.859%

CVA +5%

EXAMPLE OF POTENTIAL REVENUE GENERATION THROUGH CVA UPLIFT

20

36 73 110 1470

20406080

100120140160

2012 2013 2014 2015Ad

dit

ion

al R

eve

nu

e (

$m

illi

on

s)

Dedication of 1/5 of CVA Uplift = 1% tax increase or $36 million

4-Year CVA Phase-In 20%

366

Funding Potential (Toronto only)

CVA lift (e.g. 4 year phase-in)Services 30 Year bond in year 5 $2.5 B

DC’s (15% increase, $2k/unit)Services 30 year bond $0.7 B

5 ¢ gas tax - $155m5 ¢ gas tax - $155mServices 30 year bond $2.7 B

1¢ sales tax - $500mServices 30 year bond $8.7 B

Total Debt Capacity $14.6 B

21

Necessary Conditions for Proposed Model

• Long-term funding commitment required

• Municipal contribution contingent upon Fed/Prov participation

• Strong governance and accountability regime • Strong governance and accountability regime necessary for Metrolinx

– Broad agreement on what to build, where and when

– Demonstrate local benefit for municipal funding share

– Performance-project delivery against plan

22

Conclusions

• Encourage Metrolinx to complete its investment strategy and report to Province earlier than planned (currently planned for 2013)2013)

– Strategy assessment should focus on the potential for dedicated sales/gas taxes and CVA uplift/DC’s to provide adequate funding for rapid transit in GTAH

23