My 2013 submissions to Metrolinx and Toronto’s “feeling congested” process

FEEDBACK PROVIDED IN 2013 FOR:

– Toronto Planning’s “Feeling Congested” initiative (or why I circled only four of the 14 suggested funding tools instead of the requested five)

– Metrolinx’s Big Move funding options

ABOUT ME: Journalist and urbanist who worked nearly 40 years at four Toronto newspapers, mostly as an editor. I’ve written many times on transit matters and have frequently interviewed local and international transit officials and academics. I’ve followed local transit and development issues seriously since the 1960s and have recently been a commercial real estate reporter. I provided detailed (and, as it turns out, somewhat prescient) feedback on the Official Plan nearly a decade ago. I also provided a detailed critique of the Metrolinx’s Green and White papers, which appears to have been ignored.

Dear Feedback reviewers:

I’ve little to add regarding most of the Metrolinx and City consultation processes. Property tax increases and regional parking, gas and sales taxes will be needed for much of the revenue-gathering process. I’m eager to pay my share. But I have a few key concerns, mostly about our apparent unwillingness to even start looking seriously at the full economic potential of linking transit and land use through real world real estate leverage. Get that stuff right, and you’ll have a much easier time persuading the public to pay taxes and tolls, and our transit systems’ operations sides will be that much more effective day-in, day-out. 

TOLLS AND CONGESTION CHARGES:

It’s nice to see that talk of tolls and congestion charges hasn’t been as divisive and controversial as many had predicted, though that might change once politicians have to debate recommendations. Unfortunately, tolls and/or congestion charges likely won’t be very useful to us until we have enough transit-based alternatives for those living and/or working in largely car-dependent environments, and until we stop adding new sprawl in the region. As it stands, the TTC is overcrowded. Also, as ex-Transport for London vice-chair Dave Wetzel told me in 2006, that city’s congestion zone was much more effective in shaping behaviour than raising funds (He called the actual congestion revenue “a drop in the bucket.”) He also doubted the overall program would have worked without London’s massive rail networks, something we lack.

MENU OF REVENUE TOOLS:

It was also encouraging, at least from media coverage I’ve seen, that there’s fairly broad support for a fairly wide range of revenue tools. We’ve long talked about transit as an investment, but have still tended to act as if it’s an expense. We get hung up on initial outlay costs and don’t seem to pay any real attention to return-on-investment opportunities. Wise investors diversify the portfolio and we’d be wise to diversify the income sources. But the real key to investing is to focus on ROI. In recent decades, we’ve fallen down in this area, and it seems the revenue-tools discussion has ignored the need to nurture self-regenerating income sources.

BEWARE OF UNINTENDED CONSEQUENCES:

Reliance on development charges, “benefit assessment districts” and value-capture levies can be tempting and might seem fair on first thought. Unfortunately, if we’re serious about properly linking land-use and transportation planning (and we’d better be), we have to be wary of disincentives to growth in the station catchment areas. We have a longstanding and serious problem in the GTHA with perverse subsidies that inadvertently encourage the same sprawl that public policymakers are grappling with. So many accepted norms of the past century, including our property tax system, need to be re-examined if we want to direct growth to locations where it’s desired. This process has to focus not only on raising the bucks needed to fund transit expansion, but also on finding ways to give the public the best bang for their bucks. Often that won’t mean simplistic short-term strategies such as merely choosing less-expensive transportation technologies (though LRT will almost certainly turn out to be best tool for many priority applications we’ve identified).

LAND USE, TRANSIT PLANNING AND REAL ESTATE:

Somewhere in a space between the loons and hucksters who tell us we can have subways for free and the extremists who seem eager to silence any discussions about involving private-sector developers in transit capital projects, lies a significant funding tool largely ignored and/or forgotten on this continent.

      From what I can see, neither the city nor Metrolinx have given the Rail + Property directed-value-capture model (or Rail + Property value-trade) any thought while compiling their lists of potential tools, though in one-on-one discussions, I get the sense a few senior people in these parts know it’s out there. It may be that in the wake of fantastical recent claims from the Toronto mayor’s office (and problems 20 to 25 years ago involving Canada Square, Penta Stolp and early plans for Mel Lastman’s Sheppard subway), that directed value capture (not to be confused in any way with the value-capture levy mentioned in the city’s “Feeling Congested” documentation) is still seen as potentially more controversial than tolls and congestion charges. The thing is, we’re not just decades behind on building transit infrastructure, we’re way overdue for a discussion of how to fully unlock the potential of real estate development in contributing to the process.

     Directed value capture was an essential part of the business model in the Far Past, before the public took over transit operations, back when private operators had a fiduciary duty to approach all spending as proper and necessary investments. Duties to investors and shareholders forced private transit operators to be directly involved in the development of properties along their tramlines, often as amusement parks, main street commercial strips and residential subdivisions. They needed to capture much of the value they created for capital and operating investment returns, and they couldn’t wait passively for the process to start playing itself out.

     Directed value capture was also crucial to the success of Japanese railway companies beginning in the 1920s, led by Tokyu and Hankyu. Not only did they create profitable real estate-transit relationships in dense cities, they created many new towns involving rapid transit and all forms of real estate. That latter point is essential to understand because so much of the GTHA is suburban in form, rather than truly urban (and decades after establishment, even our older suburbs are not really urbanizing).

     And directed value capture, inspired in large part by the Japanese models, is the heart of Hong Kong MTR Corp.’s Rail + Property business model, which has made both transit-system construction and transit operations profitable since the 1970s, largely because MTR is also a major property developer. MTR was 100% publicly owned until 2000, when it became 23% publicly traded. It’s a strong performer on the Hang Seng Index and is now expanding by exporting its expertise (Melbourne, London and Stockholm). The Rail + Property model is also essential to ambitious current transit expansion plans in Paris.

      Yes, we fully realize Hong Kong is far denser than Toronto, and that government entities there have far more leeway to do as they please, and that Hong Kong has a very different property ownership regime – points usually trotted out by North Americans determined to shut down any such conversation and revert to simpler but much-tougher-to-sustain tax-and-toll revenue collection tools. But there are significant lessons we can learn from the MTR experience as well as tools we can adapt for the Ontario-specific context. If we get them right we not only raise significant funds for transit capital projects, but we improve operational efficiencies and provide the working tools for the transit and land-use planners who’ve awakened in recent decades to the mutually-supportive nature of their missions. Even better, if we prove to the electorate that we’re doing a really good job of fully leveraging the worth of our transit entities’ real estate assets, we’ll have a much easier time persuading the citizenry to cough up a bit more with the traditional revenue tools in the current discussion.

    How much could a directed value-capture program raise? The only truthful answer within the North American context is, who knows? As Martin Wachs, a long-distinguished California-based planning professor and expert on transit funding puts it: “This form of public-private partnership is not even in the lexicon. I don’t know about Canada, but in the U.S., imitation plays an essential role and until there is a proven example here, few people will take it seriously.” Wachs tells an interesting tale of one attempt to get such a plan rolling for the 1924 L.A. subway plan, but in the wake of the then-recent Russian Revolution, public involvement in land development was shot down as a communist idea. One of Wachs’s former PhD students, Prof. Robert Cervero of UC Berkeley has written extensively on the Far East models, and we should bring him to Toronto to talk about MTR. Robert and I are playing telephone tag right now.

   By some measures and accounts, Hong Kong does get its subways for free (though straight construction-outlay costs are similar to ours on a per-kilometre basis) and three extensions are currently approved or under construction (also, unlike Toronto, Hong Kong and London, for that matter, don’t tunnel in low-density areas). In a 2004 discussion with an MTR executive, interviewed for a Globe and Mail story, I was told that in North America, it should be realistic to expect that we at least get our stations for free. The logic was that if we can’t even get that much return on a subway project, we’re putting the stations in the wrong places and/or the funding model is broken. Free stations on the Spadina-York extension, based on capturing and leveraging their development potential, would have saved about $860M, or about 33% of the up-front capital costs, not to mention significantly improving operating revenues from Day 1. Instead, we opted for standalone stations that stifle most of the value they create. But even if 33% is overstating the potential, and that’s likely in the initial stages, when we’d still be experimenting with the adaptations for Toronto (and getting the crucial oversight and moral-hazard puzzles worked out), significant potential exists.

      Oversimplified, of course, Rail + Property directed value capture requires that the development goals and real estate potential be fully considered right from the start of the planning process. If we wait to consider station development and then try to collect levies or air rights or increased tax-base benefits that might accrue over time from the catchment area of an operating station, the public collects far less than it should and has to wait a long time to capture the value. Several decades-old TTC stations serve as unpleasant exhibits of what can happen, especially when you expand urban transit tools into suburban areas without a real plan. It’s important to note that Japanese railcos and DC’s WMATA have found that the serious development premium opportunities drop off dramatically after about 100 metres of the turnstiles. 

     Hugely important for us in considering Toronto-model possibilities, is the MTR view that it’s impossible to fully leverage crucial space potential atop operating stations if planning for significant development wasn’t included right from the conceptual stages of the station project. Tunnels and tracks are always expensive, but stations can be gold mines if you do them properly. And stations can and should have great catalyst effects for entire catchment areas, both financially and in the creation of vibrant urbanism. Essential to the exploitable efficiencies is the sharing of excavation and foundation costs. Next time you walk past a condo or office tower construction site, linger a while to take in the scale of the below-ground work. Then consider this MTR logic, that the marginal costs of adding a station (fully up to standards set and enforced by public sector experts) should be far less than the premiums available to landlords (private or public) whose commercial and residential tenants or condo holders can walk to platforms or other daily primary uses without ever having to go outside. Various land-tenure arrangements should be workable, and some flexibility might be needed, depending on needs of partners and the context of the site over time. MTR isn’t always eliciting presale/prelease interest from developers, but its stations are built to underpin development from the start, and they’ve found that in some parts of the market cycle it’s a good investment to sit on such sites for a few years. It’s a forward-thinking investment strategy that brings great returns to the public, but requires considerable private sector input and expertise.

      Part of the reason we can never get anywhere close to matching MTR’s return levels is that we have to factor in land-acquisition costs. However, we have huge swaths of strategically placed, publicly owned land that is significantly underleveraged (not just in the hands of our transportation authorities). At least one stretch of land would holds remarkable potential for a project that should be on the radar for the TTC and Metrolinx (a variation on it was yanked from the Chong report last year, at the last minute, just before it was leaked to the Star). We often talk of selling off public land, but it’s a much better deal for all concerned if we first try to leverage its full potential worth. Selling it off is akin to burning the furniture to heat the family home.

     I could go on, but won’t … for now.

A COUPLE OF CLOSING POINTS:

       Something akin to a REIT or real estate investment trust, may be needed to ensure Metrolinx’s land holdings are properly leveraged. Metrolinx faces a tricky balancing act, keeping the stations as connected as possible with current car-dependent suburbs, but shepherding a difficult transition toward transit-friendly urbanism. Obviously, serious thought is going into the process through Mobility Hubs planning for the station catchment zones, and my sources throughout the world of commercial real estate indicate that discussions are active throughout the region. But, Metrolinx has huge untapped outbound morning-rush GO capacity that will be needed soon because we can’t build new GTHA-wide transit capacity fast enough for the impending growth, especially after at least three decades of neglect. We need to make GO stations, whenever possible, into the centres of all-day destinations, places that local transit systems have to serve well, further reducing the need for parking at the stations.

       We have lots of existing public properties within Toronto that have potential but cannot be leveraged well because Build Toronto can only get access to them if the TTC or the city deems them surplus. We have to rethink and tweak this relationship.

 

Good luck. This mission is crucial to Toronto’s survival.

Steve

A Toronto Star editorial for the ages (and a few footnotes for context)

Interrupting a good read to study footnotes, according to Noel Coward, is like “going downstairs to answer the door while in the midst of making love.” Coward, the 20th-century wit, playwright and man about town was right, of course, but this is an occasion when the footnotes should be worth your while, especially if you’re the least bit interested in Toronto transit matters. But first, read this seemingly timeless gem from the Toronto Daily Star (faithfully retyped further below for better readability) .

TTC Trouble: Too Much Politics (Toronto Star editorial from October 28, 1959)

The TTC is one of the finest transportation systems in North America. It didn’t get that way by having politicians stick their fingers into its administration and operations whenever they felt the urge. It achieved success through strong leadership, freed of political meddling and pressure.

That is something to remember today, amid the welter of proposals for reform or renovation of the TTC’s top structure. Changes are certainly needed if the TTC is to provide good service for this swiftly growing metropolis. But the intent of some “reformers” is to put the TTC directly under the thumb of Metro council.

Alderman Givens (1) would wipe out the commission — the governing body of the system — and leave its operation to the managers, with policy direction from Metro council. This is a formula for constant, permanent political interference in matters which should be reserved to experienced judgment of transportation needs and economics.

Less drastic, but also destructive of TTC autonomy, are suggestions that commissioners’ terms be cut to two years (instead of five), and that they be subject to removal any time at Metro’s pleasure. Such changes would put TTC commissioners in the position of truckling to Metro politicians as the only guarantee of holding their jobs.

Admittedly, the problem of keeping politics out of the TTC is more difficult than it used to be when the system was entirely self-supporting (2). Now that the TTC must go to Metro for some of its financing, Metro politicians logically conclude that they ought to have some say in how the money is spent. It’s a valid claim, and one that is being satisfied by Metro-TTC consultation on the Bloor subway construction. But Metro’s subsidy is no valid ground for political bossing of the whole system. That could soon drag down the efficiency and reputation of the TTC. (3)

The problem of good Metro-TTC relations could be greatly eased if Metro took care to appoint the best men available to the commission and left them free to make policy except on projects to which Metro contributes money. And Metro is under no compulsion to put up money for any TTC project it disapproves.

The cries for Allan Lamport’s (4) scalp sound childish from Metro politicians who cheerfully reappointed him only last year; by condemning him, they are only condemning their own judgment. A commissioner who gives unsatisfactory service should be let out at the end of his term; otherwise he should not be removed except for serious cause, such as dishonesty or neglect of his duties.

Personality clashes and political meddling have figured prominently in the chronic rows over the TTC, but the root of the trouble is probably a policy conflict — or rather, an ambiguity in Metro policy. Metro pays lip service to the principle that public transit must have priority over private transportation if the traffic problem of this region is to be managed, much less eased. But in practice, Metro has dragged its feet — delaying approval of the east-west subway, for example, and stretching out its construction over 10 years instead of five. (5)

Metro must give much more help to the TTC is public transportation is to prevail — for instance, subsidies to provide fast and frequent bus service for the suburbs. The TTC cannot finance this improvement out of the fare box; it is already losing money on 22 of its 33 suburban bus lines. (6)

A genuine policy of “public transit first,” plus a strict policy of “hands off the TTC” (except where it needs Metro money) should end most of the bickering and feuding. Most important, it would mean better and cheaper transportation for the people of Metro Toronto.

The long-awaited footnotes

  1. Phil Givens would go on to become mayor, 1963-66. Maybe best remembered for his crusade to bring Henry Moore’s Archer to Nathan Phillips Square. Importantly, but less well known, he saw the future of Toronto’s transportation system as car-based and later became an MPP heavily supporting the Spadina Expressway.
  2. The TTC was still self-supporting for operations until the early 1970s, but there was concern in 1959 because, for the second time in its history, the TTC reported an operating loss ($96,755). The reference in the editorial is to the TTC’s need for funds from Metro (a now-defunct senior, regional municipal government akin to Peel, York Region or Durham) to build the University-Bloor-Danforth subway project, for which ground would be broken a couple of weeks after the editorial was published.
  3. Metro’s money was coming with dangerous strings attached, but the interference was minor compared with the damage Queen’s Park would eventually cause via vote buying, once it started subsidizing operations and capital in the 1970s. The height of interference came early in the 21st-century when provincial cabinet minister Greg Sorbara and federal finance minister Jim Flaherty made a deal to support each other’s pet projects, the wasteful and unnecessarily tunnelled York-Vaughan subway extension and the 407E-412-418 highway expansion in Durham Region.
  4. Allan Lamport (mayor 1951-55 and TTC chair 1955-59) is best remembered for Yogi Berra-like malapropisms (e.g.: “It’s hard to make predictions, especially about the

    TTC chair Allan Lamport, addresses the gathering on Nov. 16, 1959, when a smaller, poorer Toronto went ahead and broke ground on the University and Bloor-Danforth subway project, even though it got no funds from Queen’s Park or Ottawa.

    future,” and, “If anybody’s going to stab me in the back, I want to be there.”  He should be remembered most for battling to make transit and the TTC the top transportation priorities, a tough task in a town with rapidly rising car ownership, with Metro Chairman Fred (Big Daddy) Gardiner favouring expressways and in a province that would pay 50% of expressway costs but refused to subsidize subways or public transit.

  5. The University and Bloor-Danforth (Woodbine to Keele) got built in 75 months when the province guaranteed the TTC and Metro loans, allowing Metro politicians to vote to speed up construction. Building the east-west subway along Bloor made sense as part of a longer-term plan that included the Queen subway (roughly what we call the Downtown Relief Line). Within a decade, however, suburban Metro politicians and the owners of Yorkdale pushed instead to build a subway in the Spadina Expressway median instead. Sixty years later, politicians overrule serious planners and evidence, leaving us unable to built the elemental basis of a proper subway network.
  6. The most amazing thing about this statement is that it’s telling us 11 of the suburban bus routes were making a profit (largely because of the zone fare system). It should be noted that all of the inner-city zone routes were profitable on their single-zone fare, and were helping subsidize money-losing routes in the suburbs that were being rapidly expanded since the creation of Metro in 1954. Once operating subsidies became available from Metro and the province in the 1970s, zone fares were killed and the TTC threw out its most valuable asset — its business model. Deficits mushroomed to such a degree by the 1980s that the TTC has, for 30-plus years, been forced by politicians into a downward spiral of service cuts that have done nothing to improve the system’s financial sustainability.

Further reading for serious Toronto transit nerds

  • Seminal Lessons From the Transit Time Tunnel: (first published in the Toronto Star in February, 2015). It explains how we built the University and Bloor-Danforth lines, on budget and ahead of schedule with no funding help from Queen’s Park or Ottawa.
  • More on the sordid deal between Greg Sorbara and Jim Flaherty can be found in a chapter of Sorbara’s memoirs, The Battlefield of Ontario Politics, (Dundurn Press, 2015) summarized here by Star columnist Royson James. (Steven Del Duca’s game of largesse regarding unwarranted GO stations and a Highway 400 widening through his riding “to ease congestion” is peanuts by comparison.)
  • Edward J. Levy’s Rapid Transit in Toronto, A Century of Plans, Projects, Politics and Paralysis (2015, published by Neptis Foundation).