I’ve spent some time this week trying to hunt down solid evidence for mayoral candidate John Tory’s contention that the city’s share of his $8-billion SmartTrack plan can be funded purely with tax increment financing (TIF).
So far I’ve found nothing. Nada.
That’s not to say TIF is junk. It’s not. It’s actually an intriguing funding mechanism that could come into play as Toronto pursues other capital projects.
In simple terms, TIF resembles a student loan, in which a lender provides an unfathomable amount of money to somebody with little income with the idea that they’ll pay it off — with interest — once they get their degree and, hopefully, a high-paying swanky job.
TIF is a similar gamble. Municipal governments receive a loan to build infrastructure in an area that isn't generating much tax revenue with the idea that they'll pay it off off — with interest — once developers and residents move in and start paying taxes.
In other words, TIF is a flat circle. The city takes on debt for an investment, and that same investment will hopefully do its part to clear the debt in the future.
From that angle, TIF is a worthwhile option for projects where the government can make a safe assumption that their infrastructure investment will directly lead to development and increased tax revenue. An ideal TIF-backed project would be something like flood protection or soil remediation — investments that unlock the development potential of currently uninhabitable parts of the city.
But those are very specific use cases, and nearly every TIF report I’ve read cautions against applying it too broadly.
For example, let’s look at one of the attachments to Dr. Gordon Chong’s 2012 report on Sheppard Subway financing — the one that essentially concluded it needed to be built with revenue tools. In it, Dr. David Amborski of Ryerson University lays out a series of recommendations and limitations for TIF, the most notable of which is the “but for” test.
He describes it like this: “In examining the TIF policies and regulations across North America, a number of jurisdictions employ the ‘but for’ test. This refers to the fact that, but for some type of public investment (usually in infrastructure), the proposed development would not be built or would not be built at the proposed density or form.”
He notes that Ontario law doesn’t require the “but for” test, but he thinks it'd be a good idea. I’d agree. If rapid development is going to happen regardless — or is already happening — it simply doesn’t make sense to look at TIF to finance infrastructure in the area.
Going back to our imperfect student loan example, it would be equivalent to a person taking on a student loan to ultimately get a job they’re already qualified for. Or maybe even one they already have.
This is where Tory’s plan seems to fall apart. Not only does he propose using TIF to finance a capital investment larger than most other comparable projects, he’s yet to really make the case that SmartTrack will prompt development that wouldn’t happen otherwise.
In his SmartTrack financing plan backgrounder, Tory says a full $2.5 billion can be raised through TIF based on only on office developments in the “central core,” Liberty Village and the East Don Lands development. In the first two cases, it’s hard for anyone with eyesight to argue that development isn’t already happening. The “but for” test fails.
With the East Don Lands, there’s a whole lot of expensive infrastructure that needs to be built for that area to realize its full potential, including rebuilding a section of the Gardiner Expressway. It’s unclear how a heavy rail tunnel along Eglinton Avenue West or SmartTrack service to Markham will directly contribute to unlocking the development potential of this site.
Concern about TIF’s ability to pay for Toronto transit isn’t a new thing. Back in 2012, in response to the Chong report, staff at Toronto city hall were asked to weigh in on the shceme as a tool for funding the Sheppard Subway. As John Lorinc reported in the Globe & Mail, they weren’t big fans:
But in e-mails to KPMG, city officials said that Cam Weldon, the city’s CFO and deputy city manager, felt the municipality would “basically break even” under the proposed TIF financing: New revenue generated by condo development near the stations would be offset by higher municipal servicing costs.
Joe Farag, a director in the City’s finance division, also wrote in an August, 25, 2011, note to Dr. Chong’s analyst Jo Kennelly that much of the additional development in those 800-metre TIF zones “will be drawn from other parts of the City of Toronto” – where there would be a corresponding “reduction in growth-related tax revenues.”
In other words, it's short-sighted to just look at potential new developments near infrastructure as tax windfalls that can cover capital costs. New developments aren't free. The city needs to provide them — and the people who live in them — with a range of services.
I’d feel better if Tory wasn’t wholly reliant on TIF for his centrepiece transit plan, but he’s offered no other options.
As a result, if TIF doesn’t work to fully fund the city’s share of SmartTrack, the danger isn’t really that taxpayers will get stuck with the bill. The more pressing worry is that Tory’s SmartTrack aspirations will conflict with his repeated promise to keep property taxes at or below the rate of inflation, whatever that means.
The most likely outcome in that scenario won’t be higher property tax bills, but a further cannibalization of transit and other city services.
None of this sounds good. But the only alternative is to talk honestly about funding transit with tax increases.
And who wants to hear that kind of thing during an election campaign?
This post was originally published at http://www.metronews.ca/views/toronto/ford-for-toronto-matt-elliott/2014/09/17/john-torys-smarttrack-makes-a-poor-fit-for-tif.html on 2014-09-17T00:00:00.000Z