How Ontarians will keep moving in urban areas
This is the proposed light rail transit vehicle, capacity about 200, that will carry passengers up and down the Hurontario Street line between Lake Ontario and Brampton City Centre.
Both on personal vacation trips, and on government business trips, I’ve been able to see and experience parts of Asia in the last dozen years. One can feel the vitality in the people, and also in Asian cities. I’m reminded a bit of the North America in which I grew up after the Second World War. North America had not been damaged by the war, but had lived through a decade (the 1930s) of depression, and then six years of war, after which millions of soldiers were returning. North America’s economy then switched from producing the tools of conflict to the products of peace. Then in North America as now in Asia, everybody needed everything almost immediately.
North American cities invented suburbia. Asia lacks the geography to spread most of the world’s population as thinly as we do outside our large cities. Asian cities – and European cities – are showing North America how to re-invent access to a city without needing to bring two tons of steel (a car) with you.
One either believes that Ontario, and especially the Greater Toronto and Hamilton Area (GTHA), has the infrastructure, especially transit, investment needs or you don’t. If you do, you’re willing to do something about the need, or you aren’t. And if you grasp the need, and want to do something about it, you’re either willing to make the choices to get the work done, or you are not.
That’s our Ontario urban quandary in a nutshell. Canada’s economic engine is approaching Asia in density, and choking on cars and trucks at the expense of getting anywhere and doing anything. Economists call this lost productivity. Most of us know what it is like to be parked at 10 km/hr on a highway that’s rated at 100 km/hr if you’re doing the legal limit. The Government of Canada’s recent transportation infrastructure spending has been nowhere near enough to maintain what we already have. That leaves the cities and the Province. So how does one pay to expand transit options to get around the region of Ontario that drives one third of Canada’s economy? What is the range of choices available if the Province accepts the need for better infrastructure and is willing to do something to address that need? Should Ontario and our cities:
- Just do nothing at all? Just ignore the problem and hope it will either go away, or someone else will fix it?
- Toll the roads we drive on? Or raise transit prices even more?
- Raise taxes: income, corporate and/or consumption taxes, to pay for ways to move about in our cities?
- Borrow more money to fund better urban movement?
- Disassemble health care and education in order to pay for better transit? Why those two areas? Because that’s where most of the Province’s money is spent;
- Find some capital money in other assets in which the Province already has existing capital?
Doing nothing isn’t an option! People and goods can’t move on our highways and streets. Economists can quantify the billions Ontario is leaving on the table in traffic. The economists call this the opportunity cost. Toll our roads? I tend to side with people who feel that they’ll talk toll roads when they can see and ride on the transit the tolls propose to pay for. Transit prices are subsidized everywhere in the world, and Ontario’s public subsidy is already one of the globe’s lowest. We don’t need higher fares; we need more riders and more of the money that shouldn’t go into further clogging highways moving people on transit.
Ontario has become the most competitive jurisdiction in North America for its low tax ‘burden’ on individuals and businesses. Those who say ‘just raise taxes’ risk chasing away the geese that lay the golden eggs. Those who may wonder if governments are pandering to the wealthy miss the point. Even if the wealthiest one or two percent had all their wealth simply taken away from them, it wouldn’t be enough to solve the gridlock problem. The tax load must be a broadly-shared one within Ontario’s large middle class. The prevailing wisdom is that Ontario income, business and consumption tax rates are about where they should be right now.
Ontario borrowed a lot of money to get through the recession. There was a choice, and as a member of the government caucus, I recall the discussion about the choices. We could have lost the auto industry. We could have seen perhaps a million Ontario families lose their livelihood as the Province fired police officers, nurses, teachers and cut support levels and programs to keep bankers happy and ratios of debt-to-GDP consistent. The United States went down that austerity road. Ontario had recovered all its recession job losses fully three years before our American neighbours did likewise.
The jury is in on austerity. It didn’t work in the USA, or anywhere else. Ontario’s borrowing, however, left the Province’s families able to continue their lives and careers. The cost is that there is a limit to what is healthy to borrow. The Province, which has never missed a debt reduction target, remains on schedule to return to a structural surplus and reduce net public debt by 2017-18, as it did during its three consecutive budget surpluses (2006, ’07 and ’08) prior to the recent recession. Borrowing it all to build transit is not an option.
If Ontario would be asked to take apart something to find a lot of money to build something else, it has to go to areas where it spends most of its money: public health care; primary, secondary and post-secondary education; highways and assistance to cities; administration of justice and so on. Cannibalizing what manifestly works well isn’t how to fund new urban transit that the Province also wants to work well.
This led the Province to ask itself if there is any way to keep control of assets that we have, we value, we use and we need, and to ‘unlock’ some value within them. For example, many Ontario-based pension funds note there aren’t many public assets that pension funds can buy in this province, and thus those funds invest Ontarians’ money elsewhere. In the autumn of 2015, the Canada Pension Plan Investment Board, and two prominent Ontario pension funds, acquired a portion of the Chicago Skyway, a toll road that links downtown Chicago and its southeastern suburbs. Newfoundland-based Fortis Inc. in 2016 acquired U.S. electric transmission company ITC, a similar entity to Hydro One, for US $11.3 billion. Is it a problem if Ontarians, as investors, own part of what, as taxpayers, they already own through their pension funds?
The Hydro One proposal
Background reading:
Ontarians retain effective control over electricity transmitter Hydro One with a 40 percent share, while ‘unlocking’ funds to invest in building transit.
The Ontario Budget for 2015-16 proposed a partial sale of electricity distribution company Hydro One, with the net proceeds going to assist in building transit in Ontario. At present, about 30 percent of Hydro One is now publicly-traded stock. What constitutes a ‘controlling interest’ in a publicly-traded company? Experience and court decisions suggests that ‘control’ does not mean ‘dominance[1].’ Ontario’s proposed 40 percent ownership of Hydro One, as a publicly-traded entity, represents solid, effective control of such a broadly-owned entity. The Province has veto power over the CEO, and is able to fire the entire Board, among other safeguards.
In Mississauga, we are used to dealing with a privately-owned local electricity distribution company, Enersource. Like what is proposed for Hydro One, Enersource is a publicly-traded entity. As a publicly-traded company, Hydro One is now subject to the same disclosure, transparency and audit rules, through the Ontario Securities Commission, that govern all other publicly-traded companies, including Enersource. Publicly-traded companies are regulated through the Ontario Business Corporations Act, and the Ontario Securities Act.
Though debt is not equity and a lender is not an owner, a homeowner retains ownership and control over a family home even though the mortgage lender’s loan amount may be upwards of 90 percent of the home’s value. In debate in the Legislature, I responded to an Opposition Day motion concerning Hydro One on behalf of the Government. Click to read my response.
The ‘unlocked value’ in a public asset such as Hydro One would enable Ontario to pay for additional public assets it would otherwise be unable to build. In the case of Hydro One, the Province maintains uncontested control of Hydro One itself.
Hydro One Q & A
Question: Won’t a partially-private Hydro One be able to increase rates to businesses and consumers without limit?
Answer: Absolute nonsense! This is pure fiction circulated by groups advocating for the do-nothing status-quo. The rates that Enersource, or Toronto Hydro, or Powerstream, or the dozens of other distribution charge their customers are not set by the distribution companies, but by the Ontario Energy Board. An assertion that any distribution company, including our own Enersource (which is 100 percent private) can simply raise rates is false. Hydro One has less than a quarter of the distribution business Ontario-wide. It does not make the market. It takes the rates approved by the OEB. Always has; does now; will continue to do so. Period. People who assert higher rates, ‘just like happened elsewhere,’ will never say where the ‘elsewhere’ is, because they can’t!
Question: Won’t Ontario lose billions in annual revenues that could be used for other purposes?
Answer: Only if you assume that Hydro One’s business will never change, that its revenues will never grow, and that it will never do anything that it is not doing now. The history of successful privatizations shows otherwise. Hydro One is more likely to move into other areas of business, grow its revenues and increase its profitability once its operational decisions are no longer made on the floor of the Ontario Legislature.
Question: Will a private Hydro One mean Ontario will lose control over its energy future?
Answer: Energy in Ontario is regulated by independent bodies such as the Ontario Energy Board, planned and managed by entities such as the Independent Electricity System Operator. Hydro One, with its approximately 1.1 million customers, has less than a quarter share of the electricity distribution marketplace now. Second place is the newly-merged (and publicly-traded, just like Hydro One) entity consisting of Enersource, Verizon, Powerstream, Brampton Hydro and other local distribution companies, with just less than one million customers. Toronto Hydro is third in Ontario with just less than 900,000 customers. Some 60 other local distribution companies compete for the remaining 20 percent of the market. Firm control over electricity, regardless of who generates or transmits it, remains in the hands of Ontarians.
Question: What will the funds from the successive share offerings be used for?
Answer: Funds from the sale of such assets as Hydro One do not become revenue for the Province. Instead, they go into the Ontario Trillium Trust to use in building additional infrastructure assets. For example, the Alberta Heritage Trust is a similar such entity. Such reasonable safeguards ensure that the entity continues to focus on the public good for which it was created, and how the entity operates to benefit its shareholders, including the citizens of Ontario.
[1]An article by Liz Hoffmann in a 2015 issue of the U.S. legal newsletter Law 360 states: “The definition of controlling party always has been something of a moving target, said Bernard Black, a finance and law professor at Northwestern University. Back in 1988, the Chancery Court held that a 39 percent stake in Macmillan Inc. was enough to give a hostile buyer effective control. Seven years later, in a heavily litigated battle for Unitrin Inc., the court said 28 percent was not. So when it comes to stock ownership, somewhere between 28 and 39 percent is a fuzzy line that denotes control, moving with the facts specific to each case, Black said.
