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1. Another transit upload (theft) thread. This one is on public finance and it's gonna be looong.
2. There is a lot of speculation about the why of the the issue. Some think the upload is about mean vengeance and others talk about the development rights around subway stations. What I am hearing more and more often is the issue of financing.
3. It would be super nice if we could build, build, build, but transit is expensive. The City and the Province promise big, but neither has put up real money. Advocates (uploaders) claim that Provincial ownership solves this problem because it is easier for the Province to borrow
4. This is a very suspect claim. The City has a better credit rating than the Province. This matters for two reasons. First, credit ratings reflect how lenders see the borrowers ability to pay off debt. The market thinks Toronto is the better bet than the Province.
5. Second, a better rating means less risk. Bigger risk is the same as a bigger gamble that you won't get paid off. Lenders therefore demand a bigger pay off in the form of a higher interest rate. Long and short it is cheaper for Toronto to borrow.
6. Conservatives (including Conservatives on Council, like the Mayor) argue there is more to it than that. The City guarantees it's debt by promising to cover payment out of future taxes. The Province mostly does too, but they have another tool which we don't.
7. In some cases, the Province can borrow against the assets it owns. In this case they would presumably borrow against the value of the subway system and/or extensions to it. This is, frankly, crazy.
8. When you use an asset this way - as security for a loan - the idea is if you default the lender gets the asset. Think of a bank putting a house on the market under power of sale. Someone couldn't make mortgage payments so the bank sells the house to get the money back.
9. But who wants to buy a subway system? They cost a fortune to maintain AND THEY LOSE MONEY. If transit were profitable we wouldn't be in this fix in the first place.
10. The only reason to buy a subway is so you can hold the local government to ransom and charge whatever you want for us to operate transit on your system. This isn't a P3. This is straight privatization. In fact, why go through the borrowing/repayment pain? Sell it outright.
11. I should pause here to remind you that this isn't Doug Ford's idea. The upload was in Patrick Brown's "People's Guarantee". It fits with recentish Conservative thinking that their job is to privatize everything that isn't nailed down.
12. There's another public finance game afoot. I said up top that I had been hearing that the financing argument a lot. Council Conservatives are one source of the talk. They advance another financial reason.
13. As you may have heard Toronto is facing several tough budget years. Because we haven't been raising the property tax fast enough to keep up with costs, we have been relying on ever larger amounts of Land Transfer Tax to balance the books.
14. That was plain crazy. The LTT only grows endlessly if the real estate market never takes a downturn. And guess what? It has. We are going to be short - a lot short - for the foreseeable future.
15. The Mayor cannot solve this by increasing property taxes. His signature promise is he won't. I don't think he is the type to take a big axe to our services. (I hope I am right about this, but I have doubts). What does that leave?
16. Our annual operating budget has a line that few outside City Hall appreciate called "Capital From Current". This is the $ we take out of the taxes we collect in the current year and put straight into paying for long-term capital assets. In '18 this was a hefty $375 million.
17. I am pretty sure that this is how the circle gets squared. We will cut our capital spending. But, there are consequences. Stuff wears out and needs to be replaced. As the population grows we also just need more stuff. Pretty soon this strategy stops being viable.
18. And here we arrive at the reason why the Mayor and others see an upside to the upload. If we don't have to pay any TTC related capital costs the whole problem goes away.
19. Except: the subway (likely) winds up in private hands, meaning that we will pay more and get less (gotta pay a good return to get rentiers to buy our assets). All in the name of keeping property taxes at or below inflation. It's a bad deal. - end.
