The announcement that Metrolinx would contract out operation of the Eglinton line when it opens in the early 2020s was news, but not really a surprise.
It’s another example of the province going back on its word. It had clearly stated that our LRTs would be run and maintained by the TTC.
But opening day on the Eglinton line is likely over 10 years away (no one in the industry expects the arbitrary 2020 deadline to be met), so we won’t find out for a long time what the consequences are of this decision.
History here and elsewhere shows what happens when contracts aren’t well structured – poor service and higher costs. Few know that the decision to create the TTC in 1921 was a direct result of the bad service offered by the private companies that had won the right to drive streetcars in the mid-19th century.
Those operators, then as now in other cities, were accountable more to shareholders and owners than to riders. The TTC was established to institute public control and accountability.
For some years, the province, through its agency Metrolinx, has been trying to use a financing structure that allows it to get credit for starting operations and then shifts paying for them to future generations, future governments and, of course, riders, even if this ends up costing more.
Typically, the TTC has grown its lines through a process where it designs the entire line, contracts with various specialty buiders for different parts of the project, and where financing comes directly from the government. This method allows the TTC to maintain control of design (to meet community standards), and quality of construction. It also offers the lowest cost because no entity can borrow cheaper than the government.
Metrolinx originally wanted to alter this kind of arrangement in favour of a design-build-finance (DBF) model, where a private company took on more of the design than normal, coordinated all the construction and borrowed for the costs. But such a plan can lead to lower quality construction, since private firms want to limit costs largely to offset their borrowing costs which are higher than governments.
The problem is, this type of plan is usually not attractive enough to attract good competition from private companies. In the international public-private-partnership model, the public sector goes one step further and offers contracts for operations and maintenance to outside firms. This piques private sector interest because it’s where the money can be made.
In this model, private companies borrow to pay building costs, and the government doesn’t have to shell out at the beginning, so debt servicing doesn’t appear on its books. That’s precisely why it’s so attractive to governments.
The TTC argued that there was no point taking separating out maintenance from operations since an operator that doesn’t control upkeep of vehicles and track can’t take responsibility for operations.
The other problem with the Metrolinx plan is that we’ll likely never see the actual full contract, because public scrutiny is in neither the government’s nor the private contractor’s interest. Loopholes in the Freedom of Information Act allow for commercial contracts to be kept private.
Attempting to make comparisons to other private transit in North America will also be difficult, as no other major systems or lines are contracted out in any other city. Looking to Europe is problematic, too, because public transit use and labour conditions are very different there.
This means the Eglinton line will be an experimental test case. The risks are very high that a small, inadvertent mistake in the contract could end up becoming very costly.
One of the lessons learned around the world is that contracts written by entities with little experience in transit operations often lead to unexpected costs and negative results. Infrastructure Ontario, the agency responsible for coordinating the construction of the line, may have a lot of experience constructing buildings for hospitals and schools, including basic maintenance, but running a transit line is very different and more complicated.
Metrolinx may claim they have experience with contracting operations because GO trains are staffed by Bombardier, but that is only one function in the running of a line – hardly a valid comparison.
Many factors may change or be unanticipated in a contract, especially one signed eight to 10 years prior to the beginning of operations, as in the case of the Eglinton line.
The only real argument for contracting out services, other than taking billions of dollars for construction off provincial books for the moment, is to try to lower costs. However, the TTC is one the lowest-cost operators in the world, as shown by NOVA, an international association of private and public urban transit systems run out of the Imperial College, London.
So it seems unlikely that dramatic savings will be found. Where the TTC falls down is on service quality, but this is largely the result of its receiving the lowest operating subsidy in North America. New York City’s MTA gets about three times more in government subsidies per rider than the TTC, and Montreal gets about 50 per cent more.
Quality of service is directly related to subsidy levels, and if the subsidy provided to the Eglinton line is not large enough to run an adequate number of trains or to clean stations, a private operator will complain. And labour costs won’t be substantially lower, since private operators also use unionized labour. We need look no further than the privately operated Viva bus, whose workers make only 10 per cent less than the TTC’s.
One positive result of this discussion is the opportunity to revisit the lack of a provincial subsidy for urban transit. Today it’s the city that pays the entire cost of operating the TTC, and each rider gets a subsidy of about $1.
The Eglinton line is projected to have over 50 million riders in 2031, and if the subsidy were only $1 a ride, the same as the TTC’s subsidy, in today’s dollars (it would come from the province, of course), this would constitute a transfer of $50 million a year of public money to a private company, and of course the amount will be a lot higher with inflation.
The line will be owned and operated by the province (through an operating contract), and the TTC has made clear that the province will have to pay the operating subsidy.
Under the very old funding agreement, the province used to pay half the operating subsidy of the TTC, which, if it were still in place, would provide around $250 million annually. The need to deal with who pays for running the Eglinton LRT could lead to a real discussion of who provides the subsidy.
If Toronto is responsible for planning but the control of major lines is out of the city’s hands, it will be hard to implement the Official Plan, which relies on transit expansion. Perhaps one way to solve this is to have the TTC bid for the operation of the system. A guaranteed provincial subsidy through a commercial contract would allow T.O. to borrow the money to construct the line. While this is unlikely to happen, it’s fun to imagine the TTC operating the line – and at last scoring a provincial subsidy.
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