Funding Considerations

It is a widely held view that all transit systems lose money, and that they all need public subsidies. This is not the case.

Many individual bus services are profitable, recovering their full capital and operating costs from fares. Most bus routes in Britain outside London are operated on a purely commercial basis, by private operators. There are also many routes in Germany developed and delivered by private operators under “route licenses.” Germany’s “market initiative” allows private operators to launch new routes, even within urban areas, if they see an opportunity to serve a market that is being neglected by municipal operators. Private operators even have the right to participate in integrated fares schemes, so passengers view them as a part of the wider public transport network.

Many suburban rail services in Britain and Japan recover their full operating costs, even paying for amortization and renewal of capital assets, including tracks and trains, and some even generate a profit for shareholders. Often, however, fares are are held down by government policy, so that subsidy is required. Public transit operators are usually highly regulated, and profitable routes are used to cross-subsidize other routes and services. Even wholly private operators may be required to operate late evening and weekend services where incremental revenues may not offset all incremental costs.

There is little doubt that with smarter fare policies, and more efficient operating practices (including changes to work and overtime rules for operating staff), the TTC and GO systems could recover all operating costs for existing services from fares and even generate a surplus that could go towards service improvements. Current operating subsidies may be supporting inefficient operating practices, rather than expanding services for passengers.

Nevertheless, it is true that very few subways (metros) can generate sufficient revenue to pay the massive costs of construction, maintenance, and renewal, especially of expensive tunnels and stations in urban areas. Almost inevitably, these systems require capital subsidies.

In 2005, Metrolinx received “committed” funding totalling $9.5 billion, mostly from the provincial and federal governments. Metrolinx now says it has projects under way costing $16 billion in total. It is seeking ways to raise another $2 billion per year, to sustain the current rate of capital expenditure of about $3.5 billion per year, and fund the $34 billion “Next Wave” schemes.[1]

Metrolinx has examined a wide range of “investment tools.” It presented a proposed Investment Strategy on May 27, 2013.[2] In its proposals, it pointed to the experience of other cities in North America and Europe. A full review of Metrolinx’s Investment Strategy is beyond the scope of this review; however some points have particular relevance to the schemes in the Big Move.

“After thorough and exhaustive study and consultation,” Metrolinx has recommended four options:

  • A one percentage point increase to the Harmonized Sales Tax, which would raise an estimated $1.3 billion annually;
  • A five-cent-per-litre increase on a GTHA basis to the Fuel and Gasoline Tax, which would raise an estimated $330 million annually;
  • A Business Parking Levy on off-street, non-residential parking spaces based on relative market value, which would raise an estimated $350 million annually (apparently the charge would be about $0.25 per day);
  • A share of the revenue raised from updated and amended development changes levied in the GTHA, which would raise an estimated $100 million annually.

Proposals to raise the gas tax, and to introduce a non-residential parking levy, will also help to encourage greater transit use. However the levels currently being discussed can be considered “introductory levels.”

 
Notes
[1] The $34 billion cost is given in part 6.4.2 of the Metrolinx Investment Strategy.