Transport Committee on Sept. 28th, 2011

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I'd like to talk a little about the percentage of public transit costs that is financed by fares. I'm wondering, Mr. Sarantakis, if there is a generally accepted ratio of cost recovery by fares that is considered to be the threshold for a good investment.

[Taki Sarantakis]

There are two parts to your question: the first is operating and the second is capital.

In terms of operating, generally speaking across Canada, the fare recovery tends to be 50%. Some are better and some are worse. Toronto's TTC actually has one of the best cost-recovery rates in all of North America. I believe they're in the high 80% range, but that's unusual. Most are at 50% or below.

That's on the operating side. The second part has to do with capital, and virtually no transit lines recover their capital costs. So to the extent that transit lines get built, whether they get built with federal funding, provincial funding, or municipal funding, they entail large public subsidies.

If you can recover more than 50% of your operating costs, you tend to be doing well.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Is there a way to use basic and generally accepted accounting principles to amortize capital costs and determine what the recovery rate is?

I know that you're not going to recover 100% or anywhere near it on capital costs, but just in terms of having a financial model to determine the viability of a given project and to have an accepted threshold of recovery that determines whether or not a project is worthwhile, is there any sort of formula that incorporates operating capital and then devises a recovery rate based on the total investment?

[Taki Sarantakis]

I'll flip your question around a little and answer it this way. If you were to look at public transit strictly from an economic point of view, there wouldn't be any public transit.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

No, no, that's not my question.

[Taki Sarantakis]

I know--

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I'm not suggesting that we should only invest in things that are profitable.

[Taki Sarantakis]

I know. Right, but I was--

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I'm just saying that there has to be a benchmark to determine a recovery rate that is viable and one that's not.

[Taki Sarantakis]

Right. The benchmark tends to be what a community is willing to bear for that service, because transit is not only a means of transporting people back and forth; it's also a means of developing your community. So you tend to--

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I understand the intangibles of it. I'm just wondering if there is a way.... You said that on an operating side the average is about 50%. You also said that public transit is very capital intensive. I'm just wondering about it. One of the things that would help us in that consideration, as legislators and politicians who consider these investments on their merits, is if there were a sort of acceptable recovery rate on capital and on operating.

[Taki Sarantakis]

In the past we did do a capital cost-benefit analysis on transit projects.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Okay.

[Taki Sarantakis]

As you could expect, they were all negative. So the question was, to what extent were the other non-economic benefits greater than that? The short answer is that because the returns are always negative, you can't have a positive negative return, if I'm explaining that properly.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Well, see, if you amortize the capital costs over a certain period of time, you therefore determine the annual cost of running a public transit system operating on amortized capital, and then you take the portion of that cost recovered from fares--there should be some, even if it's a very small number, maybe 10% or 15%....

I'm just wondering if there's any accepted fare recovery threshold that determines whether something is or is not a good investment.

[Taki Sarantakis]

To my knowledge, no. Sorry.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Okay.

Ms. Chow seems to have a different point of view on that. Anyway, I think that concludes my question.

I think we do have to look at the financing and the recovery rate, because one of the indicators of the value and use of a public transit investment is what people are prepared to pay and how many people are prepared to pay it. If there are a lot of people who want to pay it and they're prepared to pay a fair amount of money to do so, then that probably indicates to us that it's a good investment.

In the case of the TTC, they have a high recovery rate because it is an essential public transit system that works well and serves people properly. We have an indicator there of a successful investment. I'm just wondering if we can start to systematize that as we consider future investments.

[The Chair, Conservative, Merv Tweed]

That wraps up the first seven minutes.

We have an opening for seven more minutes on this side. I know that Mr. Albas has another question.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Yes, if I may, Mr. Chair.

It has to be extremely difficult to develop a national policy when you're dealing, as you've said, with so many jurisdictions and so many different circumstances. I come from a rural community, and a highway is our national transit policy. We're just happy to have a highway.

So how do you blend them or how do you make it so that everybody's satisfied? How do you make it so that taxpayers are satisfied paying for infrastructure that may not necessarily serve them? Is there a formula or a process that you use?

[Taki Sarantakis]

Well, on the formula, what the government has chosen to do over the last decade or so--again, in different manifestations--is to create omnibus infrastructure programs. Instead of saying that we're doing a program for public transit, a program for water, or a program for cultural centres, the government has basically created programs that allow communities to access funding for all of those things.

In some communities their priority is water; they haven't dealt with their water systems. In other communities their recreation centres are not in good shape. In other communities it's transit. As I've said, in the Building Canada fund, 40% of the money for the large component has been accessed for transit.

Basically, the Government of Canada has been able to allow communities to make those decisions for themselves, as opposed going to Nunavut or Prince Edward Island and saying “Tell us what your transit strategy is so we can incorporate it into a national framework”.

[The Chair, Conservative, Merv Tweed]

Mr. Albas? I did add that time.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

Thank you, Mr. Chair. I appreciate that.

I'm also appreciative of your earlier answer about municipalities and making sure that proposals are reasonable. One of the cities in my riding already has a large increase in its budget for public transit. We would hate to see overbuilding in an area leaving a municipality on the hook for its operating budget.

My question actually relates back to how we've seen significant investments in public infrastructure. In fact, in my understanding, a lot of these investments we've seen are historic. Can you tell us how much has been committed to public transit over the past five years?

[Taki Sarantakis]

Yes. Over the last five years, the Government of Canada has directly provided $5 billion in program expenditures. It has provided another $1.1 billion through the gas tax, which, as I mentioned earlier, the municipal sector accesses on its own. That's over $6 billion in direct federal funding, and that in turn has leveraged some $17 billion to $18 billion in investments in public transit across Canada.

[Dan Albas, Conservative, Okanagan—Coquihalla, BC]

How does this level of investment compare to what was provided pre-2006?

[Taki Sarantakis]

Prior to 2006, the main funding instrument for transit was the Canada Strategic Infrastructure Fund. That fund in total had about $4.3 billion, and I believe about $1.5 billion of that went towards transit. So the quantum is significantly higher today.

Prior to that period, there was virtually no funding of public transit historically by the Government of Canada. The Government of Canada basically started entering into public infrastructure in transit in 1993.