Other Limitations

We acknowledge that transit accounting and project evaluation is complicated and subject to many limitations:

  • Capital investments are very large, with implementation over many years, during which time cost rates may change in ways that cannot always be predicted accurately.
  • Capital investments may interact with the renewal of existing assets. Unless project accounts are “ring fenced” (that is, paid into a separate corporate entity with a single purpose), it is difficult to track planned against actual expenditure. Certain costs may be attributed either to the new project, or to maintenance and renewal of the existing system.
  • Fares are set by government policies and not necessarily in response to market demand.
  • Returns on investment can accrue through increased revenues, operational savings, or broader economic benefits. All can be difficult to estimate with confidence. Estimates of revenues depend on assumptions about fare policy and urban development, and on other transport policies.
  • Labour is a high proportion of operating costs, and the industry is highly unionized. Estimates of operating costs depend on assumptions about wage rates, but also on pension liabilities that fluctuate depending upon the stock market.
  • New services may increase or decrease traffic and revenues on other services or other operators. They may also increase or decrease crowding, affecting other investment and cost requirements. Individual investments need to be evaluated both on a stand-alone basis and as an increment to the entire system.
  • Project evaluation requires estimates of the cost of capital, so that figures for costs, revenues, and benefits can be converted into Net Present Values. The choice of interest rate can be decisive in deciding whether an investment is worthwhile. While governments may be able to borrow at relatively low interest rates, without reliable new sources of funding, large borrowings may affect the province’s credit rating and the cost of all debt.

We have attempted to consider these points in our analysis.

We have not considered social benefits (such as safety or equity) or environmental benefits (such as reduced air pollution or increased energy conservation), which often go unpriced in transportation forecasts. While these are important considerations, they are seldom the deciding factors in scheme selection.

We have tried to use numbers from Metrolinx, TTC, and other public sources, so schemes can be evaluated on a consistent basis. However, there are some inconsistencies and weaknesses in the available figures and studies.

Metrolinx and the TTC have not updated the Benefit Case Analyses (BCAs) as schemes have changed. For example, there is no published BCA for the Sheppard LRT, as it is currently envisaged, or for any of the current GO Rail schemes. There is no BCA for the Scarborough subway proposals. Metrolinx has issued a “Preliminary BCA” for the Downtown Relief Line, but it includes no estimates of ridership or benefits.

As noted above, the GGH model uses a fixed trip matrix, which Metrolinx rightly acknowledges has significant limitations. It is particularly likely to underestimate the benefits of the 905-region schemes, and its use is discussed further in the section on those schemes.

TTC and Metrolinx often present ridership forecasts as an annual figure, and do not break the figures down to show how many of these riders have been diverted from existing transit lines and how many are new riders who previously used automobiles to make a particular trip. We prefer where possible to give figures for daily riders, which are easier to understand and more meaningful. TTC forecasts also usually compare future ridership (after an improvement has been implemented) to existing ridership. This approach is potentially misleading, as some or even most of the ridership growth might have occurred even without the improvement. We try to distinguish “underlying” ridership growth from new ridership growth that can be attributed to a particular scheme or investment.

Metrolinx BCAs provide estimates of both incremental fares and auto cost savings. One or the other should be included in calculating the Benefit:Cost ratio, but not both, because they are two sides of the same coin. New transit riders pay fares, but pay less to drive their cars. One would expect the figures to be roughly similar. For the Eglinton Crosstown scheme, auto operating cost savings are said to range from 1.4 to 2.5 times incremental fare revenues,[1] but for Durham Scarborough Bus Rapid Transit, they are 10 times higher. For Transit City schemes, the Benefit:Cost ratios seem to have been calculated using auto cost savings, while for most of the 905 region BRT schemes, Metrolinx seems to have used incremental fares. We think that the calculation of auto cost savings is misleading, and recommend consideration only of incremental fares. This measure reflects the net value to passengers, taking account of the convenience and comfort factors that are traded off when they switch to transit.

Metrolinx BCAs usually do not disclose the number of trips that will be diverted from car to transit, so they provide no basis for verifying the claim that the Big Move schemes will, together, reduce road congestion from current levels. 

Most of the BCAs refer in general terms to reliability benefits of rapid transit, but only the Eglinton Crosstown BCA includes calculations of its possible value.[2] We do think there may be a case for including reliability benefits, which to some degree may also be a proxy for passenger comfort. However, we think this reliability benefit should probably be counted only for existing passengers; new passengers are making a trade-off between their existing mode and transit, and any benefit should already be reflected in the fare revenue. Metrolinx appears to be claiming the reliability benefit for all passengers, which would overstate its value by a large margin.


Notes
[1] See Eglinton Crosstown BCA, tables 4.5 and 4.6.
[2] The GO Electrification study also includes some estimates of reliability benefits.