Peter Wallace - Financial Impact lyrics

SUMMARY TERM SHEET This report recommends that City Council adopt Agreements based on the Summary Term Sheet set out in Attachment 1 of this report. The terms will commit the City to both capital, operating and maintenance costs a**ociated with a number of transit initiatives. Firm Predefined Capital Cost Commitments The proposed terms will bind the City to the following firm capital cost commitment amounts summarized in Table 3 below: Firm Commitment to Actual RER Grade Separation Capital Cost The recommended terms will bind the City to funding 15 percent of the capital costs a**ociated with the five grade separations that Metrolinx has identified as part of the RER program. Based on the preliminary cost estimate provided by Metrolinx, the City's contribution amount would be approximately $62.5 million. However, this estimate is subject to final costs established through a procurement process and the City's contribution will be based on 15 percent of the actual cost. Firm Commitments to Actual LRT Operating and Maintenance Costs In 2012, Metrolinx, the City of Toronto, and the TTC signed a Master Agreement that identified the TTC as the operator of the Metrolinx LRT lines. The Master Agreement was silent on how operating and maintenance costs of the LRT lines would be funded. The terms will bind the City to the funding of the operating and regular maintenance costs for the Eglinton Crosstown, Finch West, Sheppard East and proposed Eglinton West and Eglinton East LRT projects. Table 4 provides the gross operating and maintenance cost estimates provided by Metrolinx for these LRT lines. As discussed below, the gross costs will be partially offset by reductions in bus operating and maintenance costs on these routes and also by increases in fare revenue as a result of increased ridership. However, a full an*lysis of the net impact has not been completed for all of these routes. A preliminary an*lysis for the Eglinton Crosstown LRT indicates that the bus operating and maintenance savings, along with incremental fare revenue, will offset approximately 50 percent ( $39 million in $2021) of the gross operating and maintenance costs of the LRT. Potential Commitment to Full Capital, Operating and Maintenance Costs of SmartTrack Finally, the recommended terms will commit the City to a Stage Gate process that, if followed to completion, will result in the total estimated capital costs shown in Table 5 below for the SmartTrack initiative. The current capital cost estimates have been prepared by Metrolinx and are preliminary Cla** 4/5 estimates. These estimates are intended for early concept screening and include 50 percent cost contingencies, but do not yet contain any allowances for financing costs or the transferral of risks under an Alternate Financing and Procurement (AFP) approach The terms will also commit the City to funding the cost of any additional infrastructure required to accommodate SmartTrack that deviates from planned infrastructure for RER. The costs of this potential additional infrastructure are not yet known. In addition, if the SmartTrack Project proceeds to completion, the terms commit the City to funding the direct operating and maintenance costs a**ociated with the SmartTrack station buildings as well as any indirect incremental operating and maintenance impacts, resulting from SmartTrack, on the GO corridors. These operating and maintenance costs have not yet been fully estimated. CAPITAL FUNDING SmartTrack Capital Financing and Funding Strategy While staff will explore potential capital funding sources, such as a**et sales, it is anticipated that the capital costs of SmartTrack will have to be financed and that the debt repayment will be funded through the following potential revenue streams: 1. Development Charges; 2. Incremental municipal property tax revenue from new development along the SmartTrack corridor (TIF); and should these funding sources be insufficient, 3. Property tax increases or equivalent sources of annual revenue. The traditional approach for financing the capital costs of SmartTrack would be by way of traditional debenture debt financing (30-year debt). Issuance of debenture debt gives rise to fixed debt charges that must be funded through equal annual payments. As the projected tax increment revenue is small in the early years, initial cash flow shortfalls are forecast between required debt payments and initial development charge and incremental tax revenues. Even if the full forecast incremental tax revenues are applied to repayment of the debt, a tax increase of 2.1 percent is projected to be necessary in order to fund the early shortfalls. Assuming a more conservative allocation of 50 percent of TIF revenue, a tax increase of 3.0 percent is projected. Table 6 summarizes the required tax increase based on traditional debenture financing, a**uming: an allocation of 100 percent of TIF revenue, 50 percent of TIF revenue, and 0 percent TIF revenue. An alternative to traditional debenture financing may be possible through the use of revenue-matched debt instruments. With a revenue-matched debt instrument, the debt repayment stream could be structured to require smaller payments in the earlier years, and increase over time to match the projected tax increment revenue from new development along the SmartTrack corridor. This closer matching of payments with revenues reduces the need for tax increases. Using this approach, a tax increase of 2.0 percent is estimated (a**uming an allocation of 50 percent of TIF revenues) as shown in Table 7, compared with 3.0 percent using traditional debenture financing shown in Table 6. It is noted that such a debt instrument would require a City guarantee and possibly legislative or regulatory change. Staff will engage members of the City's debt syndicate and legal expertise to develop an appropriate debt structure instrument, and will report back for City Council consideration. GO Transit Georgetown Corridor Grade Separations and Utility Crossings The City's $95.5 million contribution towards the Georgetown South GO Corridor grade separations and utility crossings has already been incorporated in the City Council-approved budgets for Water ($28.4 million) and Transportation Services ($67.1 million). Excerpts from staff's confidential report in 2015, explaining the rationale for the settlement are included in the confidential Attachment 6. RER Grade Separations Metrolinx has indicated that, according to RER an*lysis, five level crossings on the GO corridors impacted by the RER initiative will have to be replaced with grade separated crossings. Metrolinx has estimated that these five level crossings will have an estimated total cost of $417 million ($YOE). The proposed terms require the City contribute 15 percent of this cost, or approximately $62 million ($YOE). It is proposed that the City's share of the capital costs be funded through the rate and property-tax supported portion of the Capital Budget as appropriate. In the absence of any alternate funding sources, the City's $62 million capital obligation, if funded through debentures, would result in debt charges impacting the operating budget by an equivalent residential tax increase of up to 0.12 percent. New GO RER stations and upgrading of existing GO stations Metrolinx and the Province have sought contributions from the City towards the capital cost of the proposed new GO RER stations and the upgrading of existing GO stations. The City's payments to GO for capital expansion costs were suspended by City Council in 2015 as a result of under-payments by other Greater Toronto Area (GTA) municipalities. Under the recommended Summary Term Sheet, the City would make its suspended $20 million/year 2015-2017 GO Capital Expansion payments and Metrolinx will apply these payments as the City's contribution towards the two new RER stations (Spadina and Bloor-Lansdowne on the Barrie Corridor) and required upgrades to existing stations on the GO network in Toronto. It is proposed that the City's share of the capital costs be funded through the property-tax supported portion of the Capital Budget. In the absence of any alternate funding sources, the City's $60 million capital obligation (payment of the suspended 2015-2017 GO Capital Expansion Payments), if funded through debentures, would result in debt charges impacting the operating budget by an equivalent residential tax increase of up to 0.11 percent. Overall Tax Impact of Capital Funding As discussed above, the illustrative funding model indicates that a property tax increase of approximately 2 percent will be required to provide additional funding for the SmartTrack capital costs. A further total property tax increase of up to 0.23 percent ( Table 8) will be required to fund the City's contributions for RER grade separations, and GO Transit Capital Expansion costs. This results in an overall tax increase of up to 2.23 percent. Overall Impact of Operating and Maintenance Funding for SmartTrack and LRT Projects As discussed above, the Summary Term Sheet firmly commits the City to funding 100 percent of the operating and maintenance costs of the LRT projects. If the SmartTrack Project is carried through to completion, the City will also be committed to 100 percent of its operating and maintenance costs. These operating and maintenance costs will have a direct impact on the City's operating budget and that impact has not been quantified to date. OTHER CONSIDERATIONS – HISTORICAL AND PROPOSED FUNDING SHARES Since amalgamation, the City of Toronto and the Province of Ontario, and the Federal Government, have cooperatively participated in three major transit infrastructure projects: (i) the Sheppard East subway extension; (ii) the Toronto-York Spadina subway extension (TYSSE); and (iii) the Scarborough Subway Extension. The historical cost-sharing arrangements have been contributions by each order of government for the capital costs of the projects, with ownership and all operating costs, including maintenance and life cycle costs being the obligation of the local transit authority. Under previous cost sharing agreements, the City a**umed on average a 29 percent funding share of the capital costs, and 100 percent of the operating, maintenance and life cycle costs of these projects ( Table 9). New Cost Sharing Funding Arrangements Part of the terms being recommended for approval are new cost sharing arrangements for the current and planned transit initiatives. These new cost sharing arrangements reflect that the City of Toronto and the Province of Ontario have each made and have each benefited from significant investments in transit infrastructure in Toronto and the Region. The Province has committed $13.5 billion for extensive rail improvements through RER and an additional $8 billion in rapid transit projects in the City of Toronto. The Federal government has also previously announced a financial commitment to fund SmartTrack up to $2.6 billion. As shown in Table 10, the City stands to benefit from an estimated $11.4 billion in capital investment to build five priority transit projects. The City's share of the capital costs, are expected to be lower overall (15 percent) than under previous cost sharing arrangements. The City's financial obligations to transit funding going forward will include annual operating and maintenance costs, as has been its obligation historically, but not lifecycle costs, for which it had been previously responsible.