Special Report: Light Rail

There is No Billion Dollars

Don't be distracted by the dubious promise of $1 billion in stocking stuffers: there is no money without the transformative public investment to generate the money that will pay for it.

By Ryan McGreal
Published December 19, 2019

On this matter of $1 billion dollars in Hamilton light rail transit (LRT) capital funding we keep hearing about...

It's really important to understand that there is no billion dollars sitting in a provincial government bank account somewhere. That's not how the LRT funding model works.

Under the Metrolinx procurement model, a consortium is selected through a competitive bidding process to Design, Build, Finance, Operate and Maintain (DBFOM) the system for Metrolinx over the 30 year term of the contract.

Note the third term in that mouthful of an acronym: Finance. The consortium that wins the contract isn't just building the system, they're also financing the capital construction costs as part of the contract.

This way, the Government doesn't have to put the capital cost of the system onto their books. Instead, the government is merely responsible to make the agreed-upon monthly payments to the consortium for 30 years as part of the DBFOM contract.

It's up to the consortium to make sure the construction is completed in a cost-effective manner, and the consortium has to eat any cost overruns that come from mis-calculating the construction cost.

But since the consortium also has to operate and maintain the system for 30 years, they have a strong incentive not to cut corners in the construction either, since it will only hurt their ability to operate and maintain the system cost-effectively.

Sidenote: I'm not a huge fan of P3 contracts. Overall, they actually tend to be more expensive than direct public works, mainly because the proponents build contingency costs into the contracts. The government essentially pays a risk premium in exchange for cost predictability.

But my main point is that the capital cost of LRT under the Metrolinx procurement model is financed by the company operating the system and partially recovered by operating revenues as the system provides rapid transit service.

When the Ontario government says Hamilton can still have $1 billion for some other transportation projects, I honestly don't know what they mean by that, since there is no $1 billion sitting in an account earmarked for our LRT.

If the government is going to invest $1 billion in Hamilton, that money will need to come from somewhere: an addition to the provincial debt, a diversion from some other program, or a new tax revenue stream. Does that sound like the kind of thing this government will do?

In addition, you can't just spend a billion dollars on public infrastructure without doing your due diligence, i.e. public and stakeholder consultation, cost-benefit analysis, design work, and so on. You're talking several years of work.

The easiest thing in the world would be for the so-called 'task force' to turn into the place where good-faith proposals on how to invest $1 billion in public money in Hamilton transportation infrastructure go to die, quietly and peacefully in their sleep.

Which is to say: be skeptical. Be very, very skeptical. Of course, there are people out there who don't actually want any investment and are perfectly happy for our rapid transit dreams to fall into this task force to die. But for everyone engaging in good faith, beware.

There's a reason the Hamilton LRT plan has survived 12 years of political turmoil at both City Hall and Queen's Park, complete with ongoing efforts to undermine, stall, delay and derail it, and it's not because of my florid Twitter threads: this really is the best plan.

Even now, it's not too late to save this project. Despite whatever internal politicking must be going on in the PC Party, what is good for Hamilton is also good for Ontario, and vice versa. Ontario needs Hamilton to thrive and prosper, and Hamilton needs Ontario to treat it fairly.

Don't be distracted by the dubious promise of $1 billion in stocking stuffers: there is no money without the transformative public investment to generate the money that will pay for it. Tell Premier Ford to step in and save Hamilton's LRT from whatever the heck happened on Monday.

We're literally three months away from getting the real numbers from the three consortia bidding on the project. Let's belay the belay, allow the competitive bidding process to conclude, and then see where we are.


Editor's Note: Hamilton Light Rail has launched a new campaign calling on Hamiltonians to send Premier Ford a message calling in him to fix Minister Mulroney's mistake and get the Hamilton LRT back on track. Please join the call to action and make your voice heard.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan wrote a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. His articles have also been published in The Walrus, HuffPost and Behind the Numbers. He maintains a personal website, has been known to share passing thoughts on Twitter and Facebook, and posts the occasional cat photo on Instagram.

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By Haveacow (registered) | Posted December 19, 2019 at 15:46:49

Back in 2006 after the municipal election, the new Mayor of Ottawa Larry O'Brien cancelled a signed contract for the North-South LRT project, hoping to get a better deal with the then LRT designer, main contractor and development partner, Siemens. There was a court case, which the city lost, forcing us to pay $43 million in costs and reparations to the Siemens Corporation. Mayor O'Brien was a Conservative he didn't hide it, he and many local Conservative groups as well as the Ottawa Tax Payer Coalition were against this "Liberal Boondoggle". Paying extra to stop this much needed project was what hurt the most.

I can say 13 years later, it was painful but we finally did get our LRT line, the Confederation LRT Line. Yes, it has had some big teething issues since opening on September 14, 2019 but it's a good line and the problems are subsiding slowly. Stage 2 LRT, 44 km of new line and 8 km of upgraded line all for the bargain price of $4.6 Billion, will open (hopefully) in stages between 2022 and 2025. The Confederation Line moves more people per day than the entire HSR transit system does (official numbers not yet publicly available). Ridership is estimated to be 195,000-230,000 riders per business day, around 10,000 passengers/hour/direction during peak hours. This high number of passengers is one of the chief symptoms with the line's technical issues. Transit ridership overall was up by almost 4% this year compared to September and October of last year.

Lastly, if you want to bring home the true cost of the cancellation of the B-Line LRT, do a organised and orderly count of lost development and spending opportunities. A running count of the amount of lost development due to LRT's cancellation s devastating to critics of the project. A former Councilor told me that, the loss in development to Carleton University alone (which was in his ward) due to the cancellation of the North-South LRT project, was almost a Billion dollars. Even with the Confederation Line being built and upgrades to the Trillium Line over the years, most of that development never came back. Let us see what happens when the original Trillium Line gets upgraded and extended with Stage 2 LRT expansion. Bus Rapid Transit can move people but it will never be able to reproduce the development potential of rail. We have seen this in Ottawa.

In Ottawa from 1985 to roughly 2003, there was almost no interest in development around our Lebreton Flats and Bayview development areas while the Transitway (Ottawa's high capacity Bus Rapid Transit Network) ran east to west directly through the centre of both (includes 2 stations). Water and sewer lines nobody wanted to pay for with BRT running right past the proposed building sites. As soon as LRT became a possible reality, for that section of Transitway, bang! Suddenly developers were interested. Even with the cancellation of the North-South LRT Line in 2006 and the years of planning and uncertainty that followed, until the approval and money for the Confederation Line in 2011, developers remained interested. Two not one, sewer and watermain projects were completed by 2011, one of them completely paid for by private money. Some condo construction even was started and completed in the extreme east end of the Flats, before the LRT was even finished. So, we maybe waiting still to find out if the Ottawa Senators new arena gets built there but the new central Ottawa Public Library is under construction. This is because of LRT, BRT had no effect for developers in this area. Only $400 Million in development over 30+ years was attributable to BRT. The current development from the O-Train (now the Trillium Line) on Preston Street and new development from the Confederation Line is already in the high Billions of dollars. LRT grows cities.

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By Haveacow (registered) | Posted December 19, 2019 at 15:52:52

Without rail, cities will fail!

By the way, both Quebec City and Gatineau (The Aylmer Sector) are building LRT. Gatineau has only 325,000 people and already has an impressive real BRT system called Rapibus.

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