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TTC: Flexity Streetcars Testing & Delivery (Bombardier)

4 days to go for 4405 to fail again being ship as plan.

The boys at head office are pass Mars for real dates as to when a car is going to show up. They have too much egg on their face giving dates to the public supply by Bombardier, who keeps failing to delivery as promises to TTC.

All the great plans to have 512 fully 100% converted to the new cars at the end of Aug 2014 went out the window in the fall of 2013 to the point TTC almost had no cars on Opening day. 18 cars to 2 a real shocker for TTC. If 4400 hadn't return when it did, TTC would be hard press to put a new car out for service in the first place. 4404 was supposed to arrive ahead of 4400 as per the press release, yet when did 4404 show up??

Based of the late deliveries, the ALRV got a new life for another 10 years by being rebuilt when they were to be 75% retire at the end of 2014. The rest were to be in the process of being retire now, with a few still on the road.

As for the city debit, time to bit the bullet and add an extra 1-2% increase for the next 10 years to help to decrease the limit as well catching up on the huge backlog of work that is badly need now. That few million here or there for interest can sure buy a lot of projects that keep being pushed down the list City Wide.

More important, is a real tender process that will buy the biggest bang for items with good quality and delivery from where every that will easy the tax load on everyone, regardless what it is or if it a open/close shop.
 
I can't comment on what the city should or should not do with debt but I wanted to question the rational that it is good to take out debt when interest rates are low.

I personally take the position that it is better to take out debt when interest rates are high. Taking out debt when interest rates are low is inherently risky. It presumes that you can confidently predict that your investment will enhance your future financial picture, that is that the thing you are investing in will have a higher return in the future than expected. The opposite is generally true because in a low interest rate environment everyone is borrowing and hence the cost of what you are purchasing is greater and you are in competition with others for the same delivery of goods. Your future return on investment will likely be lower and the future cost of carrying the debt you took on will be higher. This is double-trouble like rolling a stone up a hill.

On the other hand if you borrow when interest rates are high the reverse happens. You are likely to get an ever improving return on investment in the future and the cost of carrying your debt will likely be lower and lower over time. This is like rolling a stone down a hill.

The City needs to do what it needs to do and if that means take on more debt because it's transit planning is so terribly behind or underinvested in so be it. But taking on a lot of new debt now when interest rates are low and our needs are so dire sounds more to me like the mentality of a desperate young couple who have to buy a house now at the market peak because the baby is on the way and they have no other options, than sound fiscal planning. In the end everything will be fine but it's still just decision-making based on hope and faith.
 
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The 2015-2024 TTC Capital Budget, to be discussed at the February 2nd TTC meeting, available from this link, has the following:

60 New LRVs for Growth (-$366 million): The TTC is replacing the entire streetcar fleet under the 204 LRV order. Ridership to date and future expectations are such that an additional 60 LRVs are needed to accommodate growth. Since these entire fleet replacements happen once a generation (a large order is needed to obtain a cost-effective price), it is cost-effective to add these 60 vehicles to the existing order to take advantage of the volume pricing.
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The closest one in Toronto happened with a visiting Texan:

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TrickyRicky said:
I can't comment on what the city should or should not do with debt but I wanted to question the rational that it is good to take out debt when interest rates are low.

I personally take the position that it is better to take out debt when interest rates are high. Taking out debt when interest rates are low is inherently risky. It presumes that you can confidently predict that your investment will enhance your future financial picture, that is that the thing you are investing in will have a higher return in the future than expected. The opposite is generally true because in a low interest rate environment everyone is borrowing and hence the cost of what you are purchasing is greater and you are in competition with others for the same delivery of goods. Your future return on investment will likely be lower and the future cost of carrying the debt you took on will be higher. This is double-trouble like rolling a stone up a hill.

On the other hand if you borrow when interest rates are high the reverse happens. You are likely to get an ever improving return on investment in the future and the cost of carrying your debt will likely be lower and lower over time. This is like rolling a stone down a hill.

The City needs to do what it needs to do and if that means take on more debt because it's transit planning is so terribly behind or underinvested in so be it. But taking on a lot of new debt now when interest rates are low and our needs are so dire sounds more to me like the mentality of a desperate young couple who have to buy a house now at the market peak because the baby is on the way and they have no other options, than sound fiscal planning. In the end everything will be fine but it's still just decision-making based on hope and faith.
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Interesting premise but I'm not sure it holds up on paper; Did you attempt to correlate the return of the stock market (take the TSX or the S&P 500 in the US) to the interest rates ? Do you find that the lower the rate the lower the returns ? I doubt you'll find this correlation, or if you do it won't be to the degree you need to prove your point ... if I can borrow at 2% I need my investment to go up 2%+ to make a return (ignore tax complication ..) it interest rates are 10% I need 10%+.
 
TrickyRicky said:
I can't comment on what the city should or should not do with debt but I wanted to question the rational that it is good to take out debt when interest rates are low.

I personally take the position that it is better to take out debt when interest rates are high. Taking out debt when interest rates are low is inherently risky. It presumes that you can confidently predict that your investment will enhance your future financial picture, that is that the thing you are investing in will have a higher return in the future than expected. The opposite is generally true because in a low interest rate environment everyone is borrowing and hence the cost of what you are purchasing is greater and you are in competition with others for the same delivery of goods. Your future return on investment will likely be lower and the future cost of carrying the debt you took on will be higher. This is double-trouble like rolling a stone up a hill.

On the other hand if you borrow when interest rates are high the reverse happens. You are likely to get an ever improving return on investment in the future and the cost of carrying your debt will likely be lower and lower over time. This is like rolling a stone down a hill.

The City needs to do what it needs to do and if that means take on more debt because it's transit planning is so terribly behind or underinvested in so be it. But taking on a lot of new debt now when interest rates are low and our needs are so dire sounds more to me like the mentality of a desperate young couple who have to buy a house now at the market peak because the baby is on the way and they have no other options, than sound fiscal planning. In the end everything will be fine but it's still just decision-making based on hope and faith.
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Well I'm not going to suggest you should become a financial advisor...

First, it is crucial to distinguish individual borrowers from corporate borrowers (governments, corporations). Individuals should not in general be borrowing for the purposes of investing. They should borrow to purchase major assets that are amortized over long periods (and which often allow for locked-in interest rates).

Second, government borrowing should mostly be focused on capital expenditures. Like new streetcars or water treatment plants or bridges or schools. There is always some risk with borrowing, but governments can borrow more cheaply than anyone (or anything) else. Borrowing when interest rates are low is sensible. Because it's cheaper. Yes, interest rates might and probably will go up at some point in the future - do you simply postpone crucial capital spending forever because financing costs might at some point become more expensive in the future? It's not about "investment" or future "returns" because that's not what the capital budget is for.

There's a world of difference between an institutional organization taking on debt to ensure adequate capital expenditures. Note that municipal governments cannot run operating deficits, so that does give rise to limitations on operating budgets if the financing costs start to go up excessively. Hence the "debt ceiling". Otherwise debts mature at different times and this is never simply a matter of all debt becoming intrinsically more expensive with time. Another feature is that the long-term tendency of government revenues is to increase, even simply due to inflation, so that net debt will shrink both in real terms and relative to the revenue base. It's not about "paying off" government debt in absolute terms (debt is constantly "paid off" - what do you think the money you get when a Canada Savings Bond matures is?), but managing it.

This is similarly the issue why obsessing over small deficits (as with the Harper government) is stupid and financially ignorant.

Anyway, as it stands, the BoC lowered rates in hopes to increase borrowing and hence increase investment and consumption. It's not clear that it will have great effect, but it will certainly be compounded by idiotic arguments about cutting spending and staving off borrowing because future debt might get more expensive. Of course it will.

As for your final analogy, the young couple would be well advised not to enter into a "peak" housing market, but then a house is not generally speaking an investment, but an alternative to renting where (hopefully) you will accumulate enough equity (or paper asset value) to offset the total amortized debt. Over the long term that's probably a very decent wager, but if said young couple had only "subprime" financial means to begin with, then they probably shouldn't have gotten the mortgage in the first place.

But I'm sure no bank would ever allow for a subprime mortgage.
 
JGHali said:
Well I'm not going to suggest you should become a financial advisor...

First, it is crucial to distinguish individual borrowers from corporate borrowers (governments, corporations). Individuals should not in general be borrowing for the purposes of investing. They should borrow to purchase major assets that are amortized over long periods (and which often allow for locked-in interest rates).

Second, government borrowing should mostly be focused on capital expenditures. Like new streetcars or water treatment plants or bridges or schools. There is always some risk with borrowing, but governments can borrow more cheaply than anyone (or anything) else. Borrowing when interest rates are low is sensible. Because it's cheaper. Yes, interest rates might and probably will go up at some point in the future - do you simply postpone crucial capital spending forever because financing costs might at some point become more expensive in the future? It's not about "investment" or future "returns" because that's not what the capital budget is for.

There's a world of difference between an institutional organization taking on debt to ensure adequate capital expenditures. Note that municipal governments cannot run operating deficits, so that does give rise to limitations on operating budgets if the financing costs start to go up excessively. Hence the "debt ceiling". Otherwise debts mature at different times and this is never simply a matter of all debt becoming intrinsically more expensive with time. Another feature is that the long-term tendency of government revenues is to increase, even simply due to inflation, so that net debt will shrink both in real terms and relative to the revenue base. It's not about "paying off" government debt in absolute terms (debt is constantly "paid off" - what do you think the money you get when a Canada Savings Bond matures is?), but managing it.

This is similarly the issue why obsessing over small deficits (as with the Harper government) is stupid and financially ignorant.

Anyway, as it stands, the BoC lowered rates in hopes to increase borrowing and hence increase investment and consumption. It's not clear that it will have great effect, but it will certainly be compounded by idiotic arguments about cutting spending and staving off borrowing because future debt might get more expensive. Of course it will.

As for your final analogy, the young couple would be well advised not to enter into a "peak" housing market, but then a house is not generally speaking an investment, but an alternative to renting where (hopefully) you will accumulate enough equity (or paper asset value) to offset the total amortized debt. Over the long term that's probably a very decent wager, but if said young couple had only "subprime" financial means to begin with, then they probably shouldn't have gotten the mortgage in the first place.

But I'm sure no bank would ever allow for a subprime mortgage.
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Few things I'd add...

The debt ceiling is linked to income, and as income increases so does debt ceiling...so over time inflation generally increases the debt ceiling anyways (assuming taxes increase at the rate of inflation)...

Almost all of the types of capital expenditures that we are discussing (~500 million a year, as I said that we left on the table)...adds value to where it is spent...for example property values on st. clair, or lakeshore after the upgrades to LRT results in increased taxes...they also in some cases can save on operating costs over long periods (less operators, lower maintenance)...and with regards to things like safety improvements also reduce risk of future litigation...

Also, since most of government spending on infrastructure happens in Cananda, most of the money spent is coming back in taxes, which you guessed it..also raises the debt ceiling and lowers the debt...unfortunately for Toronto most of that probably ends up with the province or feds, but some of it will come back in business and property taxes.

In any case, the city should be working to spend what they say they will spend, and when they say they will do it...if they don't it becomes hard to take them seriously...and that is bad for business...and bad for the politicians as well ;-)
 
nfitz said:
The city doesn't just pay interest on debt. It pays principal ... I'm not sure what the average amortization is though. But isn't it a fairly short period? 20 years or so on new debt?
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Amortization varies to equal the expected lifespan of the capital items it purchased, up to 30 years.

So, for a bridge it'll be 30 year. For a bus purchase it'll be about 18 years.
 
Agreed.

And, otherwise, if in general a situation of low interest rates is not the time to borrow, I'm interested to know why it is cheaper to borrow when rates are high.
 
Toronto should not spend “another cent” toward extending its streetcar order until the manufacturer comes through with vehicles already purchased and repeatedly delayed, TTC chair Josh Colle says.

According to Mr. Byford, the money would probably have to be paid this year to get any additional streetcars at the best possible price. But Mr. Colle dismissed the urgency, saying that he was more concerned with having the current order filled.
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http://www.theglobeandmail.com/news...r-more-streetcars/article22687361/?cmpid=rss1
 
JGHali said:
Well I'm not going to suggest you should become a financial advisor...

First, it is crucial to distinguish individual borrowers from corporate borrowers (governments, corporations). Individuals should not in general be borrowing for the purposes of investing. They should borrow to purchase major assets that are amortized over long periods (and which often allow for locked-in interest rates).
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That is, precisely, the only borrowing I allow myself to have.....Goods I want I pay for......I borrow to invest in things that will produce earnings....it is the only (appropriately) tax deductible debt we are allowed.
 
As I understand it, the TTC Flexity order will be followed by a Metrolinx order that will be divided among several users - KW, Crosstown, Finch, Hurontario, etc.

What if the TTC were to take the first 60 cars out of the Metrolinx order, leaving Metrolinx to buy something else for one of those uses? Standardisation across these is nice to have, but it's time to start the transition to some other supplier. This way the TTC stays with a single product, and the new users would also have a single-sourced fleet - just not a BBD fleet. There is still time for the planned lines to be designed with easier curves etc - so the argument that only Flexity is technically acceptable need not apply.

I understand there are some differences in gauge, pantographs, dual ends etc....but would the MLX order be operable on TTC with some minor mods, or is it out of the question? (Just don't use the rear end cab!) Maybe they could be delivered as is and TTC - not BBD - could make the adaptations, that way there is no expensive change order that would let BBD seek additional compensation.

BBD needs to feel pain on this, and not just Byford's printed comments....they need to lose business. I would think that after its current orders, GO will not need many more bilevels - with doubletracking, they can utilise their existing fleet better, so more GO service doesn't mean more new equipment. BBD should be off the list for anything needed for RER or SmartTrack as well as for further TTC orders.

I feel for the people in Thunder Bay, who may or may not be a party to whatever went wrong. Unfortunately in large companies, when the guys at the top screw up the people below are harmed. It has been that way since the Titanic! Keeping the business in Ontario isn't a good enough reason to keep going back to BBD, it just screws up what little open market dynamics there are in transit procurement.

- Paul
 
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