New Transit Funding Sources

[Palma]

The point is, there are cheaper ways to invest in infrastructure that doesn't involve losing stable long-term revenue from Hydro One. The question isn't whether or not to invest in infrastructure, but whether to sell Hydro One or not. Selling Hydro One is not a prerequisite for investing in infrastructure. There are much better options, some of which mentioned above already.

Investing in infrastructure is a great idea. Selling Hydro One to do it is just idiotic.

An option like putting the money Hydro One brings in every year towards infrastructire. After the Liberals get their 4B or whatever, its gone, yet by not selling Hydro One that money would continually be coming in every year. There has got to be more than this than the Liberals are letting on. Like the books are in worse shape. The Liberals must think by showing transit being built, they will get re-elected in 2 1/2 years especially if LCBO is also sold off and agin they will be forgoing revenue that brings in

 

[TOareaFan]

Considering that the Conservatives thought about selling Hydro a dozen years ago, I would say they would have done differently and did.

The budget watchdog said that Ontario would lose $300M to $500M per year when selling the 60% share. Since a long term bond yield is about 2.5% (or less), that means we should expect the sale to fetch about $16B ($400M / 0.025). Ontario says they are expecting to receive $9B for the sale, meaning we will be essentially paying twice the going interest rate to use this method of raising funds.

you are suggesting that equity investments should only yield the same as a government bond?

 

[TOareaFan]

Has anyone considered the economic uplift that will come from the infrastructure investments that will be made with the proceeds from the sale of Hydro One?

How could this be excluded from the analysis?

If you sell your stock in a company and then invest the proceeds in another company, and then that second company's revenue increases because of your investment, can't you say you're ahead of the game?

Don't take this as an anti-transit post at all...it isn't.....

....but if there is anything missing in the analysis (because it likely can't be known with any accuracy) is the level of additional operating subsidies that the invested money will create. We all love public transit....but we all know that it all, at varying levels, needs ongoing operating subsidy.

So Ontario is selling a very good cashflowing asset.......investing it in building transit....and that transit will produce higher levels of operating subsidy......it was always going to produce a deficit increasing effect.....not sure why anyone is surprised (a Liberal friend at work read these news reports and said to me...."is this what you meant when to told me Hyrdo sale would increase our deficit?"

One way that Ontario can get themselves out of this financial negative is, in its role of price regulator, allow the new Hydro 1 to increase electricity rates such that their 40% share (now in their role of equity partner) generates as much in annual cashflow to the province as their old 100% share did.

 

[W. K. Lis]

Can you imagine Forrest Gump selling his fruit company holdings (Apple) when he got them, instead of holding on to them?

 

[BurlOak]

you are suggesting that equity investments should only yield the same as a government bond?

As an investor, I agree that equity must pay more.
As a province, I would expect the option that costs less.

 

[TOareaFan]

As an investor, I agree that equity must pay more.
As a province, I would expect the option that costs less.

sure...but your statement (if I read it right was) was that $9B was about $7B less than we should expect from a sale......a $16B price for a 60% share of H1 is just not on.

 

[W. K. Lis]

TTC Budget Committee Meeting on Monday, November 9, 2015, at 1 p.m. in Executive Boardroom on the 7th floor at 1900 Yonge Street.

See link for the agenda.

 

[nfitz]

There's very little in those documents that doesn't look like a re release of the September material.

 

[ssiguy2]

I must admit that I am torn by the sale of Hydro One.

I don't like the idea of the government getting rid of it's total control over an essential service. At the same time the revenue gained will not go to a one time operational cost but rather to infrastructure. Basically it's swapping one essential piece of infrastructure to allow for the development of another. The new infrastructure is very needed in Ontario so is it not logical to pay for that new infrastructure by taking advantage of the sale of current infrastructure? The government will still be in control of all prices so what does it really matter?

I can certainly see the primary concern of opponents being the loss of government revenue to the tune of $300 million a year which will only increase. Conversely these people are not taking into account, besides the massive 10 year building and all the economic spinoffs, the real economic burden to the tune of $7 billion a year to the province's economy due to congestion. This amount will rise exponentially as the congestion grows.

The movement of goods and services is essential to a modern economy and for attracting skilled labour so those are real long-term benefits that could easily more than negate the loses in provincial revenue.

Like I said I am not thrilled about the sale of Hydro One but over both the medium and log-term I think it is worth it. The benefits of the overall economy must be given priority over government revenues.

 

[TOareaFan]

I don't like the idea of the government getting rid of it's total control over an essential service. At the same time the revenue gained will not go to a one time operational cost but rather to infrastructure. Basically it's swapping one essential piece of infrastructure to allow for the development of another. The new infrastructure is very needed in Ontario so is it not logical to pay for that new infrastructure by taking advantage of the sale of current infrastructure? The government will still be in control of all prices so what does it really matter?

they may control prices.....but they do not receive the revenue.....you/we are swapping income producing assets for cash that will be used to build other assets that need subsidization.....so, on a revenue basis, it is a double whammy.

 

[TOareaFan]

Wasn't sure where to post this but since Ontario and California seem to be leading the way in transit investment.....I think this article in the LA Times must have been read with frowns at QP!

http://www.latimes.com/local/california/la-me-ridership-slump-20160127-story.html

 

[gweed123]

Wasn't sure where to post this but since Ontario and California seem to be leading the way in transit investment.....I think this article in the LA Times must have been read with frowns at QP!

http://www.latimes.com/local/california/la-me-ridership-slump-20160127-story.html

I saw that article as well. The immediate thought that I had is that there's probably another factor at play. After reading through the comments (ignoring quite a few blatantly racist ones), one of the comments that made sense was security. When they first opened the Metro lines, they apparently had quite a lot of security. They seemed to have decreased the amount over time. When I was there last summer, honestly I didn't see any security people when I was riding the Metro. Admittedly I was mainly riding it from University City to Hollywood and to Union, but I could potentially see how if you get into some of the rougher areas of town, the lack of visible security may become an issue.

Compared to LA, that's a problem Toronto really doesn't have.

 

[TOareaFan]

Oh, I have no doubt there are multiple factors at play. I just think it should create a bit of pause for thought on some transit plans. We seem to be in an era of transit planning where it is assumed that the next order of transit up from what currently exists will lead to incremental increases in uses. I have always wondered if the increases we will see will be worth the investments we are making or if there was another more cost effective investment that leads to, perhaps, a lesser increase in use but a higher return on investment......but even I never contemplated that massive investment in transit could actually be met with an actual decrease in use.

 

[gweed123]

Oh, I have no doubt there are multiple factors at play. I just think it should create a bit of pause for thought on some transit plans. We seem to be in an era of transit planning where it is assumed that the next order of transit up from what currently exists will lead to incremental increases in uses. I have always wondered if the increases we will see will be worth the investments we are making or if there was another more cost effective investment that leads to, perhaps, a lesser increase in use but a higher return on investment......but even I never contemplated that massive investment in transit could actually be met with an actual decrease in use.

Very true. I think the GTHA doesn't really fall into that though. Just look at GO. Everytime they add service (jumping from 1hr to 30 min on Lakeshore, for example), ridership increases exceed expectations. Also looking at 905 pre-BRT services like Zum, where even just a new service pattern, branding, and some fancy shelters resulted in a pretty decent increase in ridership.

 

[TOareaFan]

Very true. I think the GTHA doesn't really fall into that though. Just look at GO. Everytime they add service (jumping from 1hr to 30 min on Lakeshore, for example), ridership increases exceed expectations. Also looking at 905 pre-BRT services like Zum, where even just a new service pattern, branding, and some fancy shelters resulted in a pretty decent increase in ridership.

Yes, I get that (and have commented on that in the past) but the increase/return is not always "in line" with the investment. Eg after a year of doubled off peak service on Lakeshore there had been a 25% increase in off peak ridership....still an increase but not exactly in line. At some point the law of diminishing returns kicks in (you would assume) but what is shocking in the LA numbers is not that the increase is not in line with the investment....it is that there is no increase and, in fact, an absolute number decrease.

I post the article not to suggest that we are not going to get increased usage, I believe we will. But that just building (as the article calls them) "shiny new things" is no guarantee that it will solve problems.