Financial Cost

 Untenable Tax Burden

We recognize that public transit is expensive, and we support investment in smart infrastructure. However, Edmonton needs improved public transit across the city, and LRT’s cost makes this impossible for decades, especially given the recent shift in Alberta’s economic environment.

The cost presented by the City for the Valley Line LRT (Southeast/Phase 1 only) is $1.8 billion, of which the City’s funding share is $950 million (including a $150 million interest-free loan from the province). $950 million is 71% of the entire “Taxation Revenue” of $1.335 billion for the City of Edmonton in 2015.[1] Edmonton’s Metro News (June 19-21) reported that property tax increases would average 6% each year from 2016 to 2018 and that 1% of each 6% annual increase was related to the costs of the Valley LRT project; the City has since stated that it anticipates 4.9% average tax increases for the 2016 through 2018 period, with 0.8% to start paying off the Valley Line LRT. Besides property tax or fee increases, a key variable in the ability to pay off the debt of this project is “assessment growth” (also referred to as “new revenue from additional properties”) but as the City states in its recently released 2016-2018 Operating Budget, assessment growth is forecast to moderate due to weakening economic conditions. This document also states that “A multi-year dedicated tax increase of 0.8% is being proposed for the Valley Line LRT to support the construction and future operation of the new Valley Line.” It seems clear from the preceding statements along with review of historical tax increases that it will likely take two decades or more of high annual tax increases for Edmonton taxpayers to pay off the cost of this project. How does the City expect Edmontonians to afford these tax increases? Will the City acknowledge that annual 6%, or even 4.9%, property tax increases are unsustainable?[4] And how and when will the funding for the West LRT ever be available?[5]

We have reviewed the City of Edmonton’s 2015-2018 Capital Budget Overview and we recognize that funding of capital projects comes from many sources. However, whether through fees or taxes, the costs must be borne by citizens. Our calculations[6] show that the Valley Line LRT may ultimately cost an average Edmonton household more than $2,600, plus long-term debt-servicing costs. If the City disputes our financial assertions, we ask that it post its own calculations, including assumptions, on the City’s website for the public to see the real long-term cost of this project that we are being “asked” to support.

Potential for Much Higher Real Financial Costs

The above point outlines the high tax burdens imposed by the Valley Line LRT if the final costs are as presented. However, that might not even be a realistic scenario. Based on the cost per kilometer of the Metro Line LRT extension, and allowing for six years of construction cost inflation at 3% per year, the Valley Line LRT’s Phase 1 could potentially cost closer to $3.15 billion[7] than $1.8 billion, resulting in a huge jump in taxpayer burden beyond that outlined above. While we recognize these are distinct projects and direct comparison is not possible, the Valley Line LRT does involve an extensive river valley tunnel, three new bridges and a pedestrian bridge, and extensive above-grade sections over Connors Road. There could also be problems – for example, with coal mines in tunnel construction, or delays/cost overruns due to planning problems. We would thus like to know the City’s currently forecasted estimate for this project, as well as the level of confidence in this estimate.

Early Warning Signs of Cost Overruns

Our concerns regarding the real financial cost of the Valley Line LRT seem legitimized by the City’s own website statement that “Construction costs for the Valley Line (SE to W LRT) project are only known at a conceptual level and are subject to change.”[8] Adding fuel to these concerns are recent reports that in order to pre-empt traffic congestion that may be caused by the Valley Line LRT, the City has requested reports to identify potential issues and solutions, and that the solutions under consideration include a bridge or tunnel over 82 Avenue and increasing capacity on other routes[9] – additions surely not included in the original presented costs. Considering the city auditor recently stated the delay of the Metro Line LRT was due to “poor planning” by the Transportation Department, and the fact the city has experienced a number of other transportation project problems over the past few years (102 Avenue Bridge over Groat Road, Walterdale Bridge, Quesnell Bridge) and the fact the Department has made recent statements suggesting the need for additional mitigation to prevent extensive traffic congestion due to the Valley Line LRT, it is hard to have confidence in the cost estimate. Since the funding allocations for various levels of government for Phase 1 of the project were based on the City’s estimate of $1.8 billion, where has the City outlined for citizens who would pay for cost overruns?

Edmonton has an unfortunate historic example proving that costs that are “conceptual level…subject to change” can indeed change drastically, in another central river valley project: the Shaw Conference Center’s construction costs ballooned from a $32 million estimate to an $82 million actual cost in the 1980s due to bank instability. This summer, undocumented mines delayed construction of a condo at Jasper Avenue and 95 Street, immediately adjacent to the proposed Valley Line route. Edmonton’s former historian laureate, Ken Tingley, said in a 2015 CBC radio interview that there are 153 coal mines in the river valley and the City has never commissioned a study of their locations/status. As archival maps clearly show the John Cameron mine opening to be at almost exactly the same location as the proposed Valley Line LRT tunnel opening on the river side of Cameron Avenue, we would like to know how the City has determined the proposed tunnel will not encounter coal mines.

Finally, the Muttart Station of the Valley Line LRT will be constructed in a flood plain [10], which may result in future remediation costs.

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Appendix A – Valley Line LRT Phase 1 – Discussion of Cost Estimates and Impacts – November 2015

Appendix B – Valley Line LRT Phase 1 – Financial Concerns & Questions – November 2015

[1] See http://www.edmonton.ca/city_government/budget_taxes/2015-operating-budget.aspx It is also 40% of “Total Revenue and Transfers” of $2.336 billion.

[2] These calculations assume that the City of Edmonton could obtain 2.5% debt-financing over a 25-year period, even though a COE publication titled “Municipal Debt” (September 2013; stored on the City’s website as “Debt_Fact_sheet”) states that “interest rates on the City’s debt range from as low as 1.59% for 5 year terms to 3.27% for 25 year terms – still a very low rate.”

[3] 5% base increase + 1% Valley LRT tax rider, an extension of the tax model reported by Edmonton MetroNews in June 2015 for the 2016-2018 tax years.

[4] If taxpayers’ income increases at an average of 2-3% per annum, an average annual 4.9-6% property tax increase will result in property taxes that will grow to be double relative to their ability to pay, over a 25-year period.

[5] See Edmonton Journal article “Limited cash for west Edmonton LRT until 2034” by Elise Stolte (February 22, 2015).

[6] See Appendices A and B for detailed financial calculations and concerns.

[7] See Appendices A and B for detailed financial calculations and concerns.

[8]http://www.edmonton.ca/transportation/PDF/Valley_Line_Frequently_Asked_Questions_Sept_2013.pdf

[9] Edmonton Journal article “LRT woes give council rough ride” by Elise Stolte (September 10, 2015) http://www.edmontonjournal.com/mobile/story.html?id=11350972

[10]http://www.edmonton.ca/transportation/PDF/Attachment_2_Valley_Line_Stage_1_Site_Location_Study.pdf (p.18)