Metro Vancouver Mayors Council on Regional Transportation

Transcription

1 Metro Vancouver Mayors Council on Regional Transportation Mayors Transportation and Transit Plan: Regional Funding of Planned Projects Final Report March, 2015 This document was developed by a joint working group including representatives from the Mayors Council, TransLink, local government, and KPMG LLP.

2 Contents Introduction... 1 Background... 1 Understanding This Document... 2 Funding Source Revenue... 3 Baseline Regional Sales Tax Revenue... 3 Demand Elasticity... 3 Incremental Tax Revenue... 4 Annual Revenue Growth... 4 Funding Planned Projects... 5 Cash Flow Analysis... 5 Uncertainties... 5

3 Introduction Background In 2014, the Metro Vancouver Mayors Council on Regional Transportation (the Mayors Council), TransLink, Metro Vancouver, and the respective local government authorities worked to confirm the region s vision and plan for transportation investments. This work is summarized in a document entitled Regional Transportation Investments: a Vision for Metro Vancouver, which serves as the Mayors Transportation and Transit Plan (the Plan). The Plan includes the following projects: Broadway Rapid Transit. This project would extend the Millennium Line westward from its current terminus at VCC-Clark Station to Arbutus Street in Vancouver, via a tunneled alignment. Surrey Rapid Transit. This project would introduce light rail transit on two corridors: 104th Avenue / King George Blvd.; and Fraser Highway. Pattullo Bridge Replacement. This project would replace the current Pattullo Bridge with a new four-lane bridge with better connections to the road network, a centre barrier, and high-quality cycling and pedestrian facilities. Major Road Network, Cycling, Walking. This project includes maintaining and upgrading 2,300 lane-kilometres of major roads, investing in the cycling network, and providing bicycle parking facilities and pedestrian facilities near transit stops and stations. Existing Rail. This project includes upgrades and expansions of fleet, facilities, and stations to increase capacity on existing rail lines in order to accommodate future growth, reduce anticipated future overcrowding, and facilitate increased transit mode share. Bus Service. This project focuses on the implementation of eleven new B-Line or Better routes, increasing bus service by 25%, and increasing service to new fast growing areas of the region (e.g., 30% increase in Handy Dart service, 50% increase to SeaBus service, and 80% increase to NightBus service). System Management. This program includes investment to provide traffic priority to transit vehicles on traffic corridors, support customer-focused transportation management tools and processes, and fund incremental corporate and security expenses. The Plan assumes a 10-year implementation period for the majority of investments. Ongoing costs and revenue have been estimated for a 15-year period. Based on technical analysis completed by TransLink and external engineering contractors, the Plan assumes a combined capital cost of $7.7 billion (in 2015 dollars). No additional capital costs are assumed beyond the 15-year period, while ongoing operating costs and revenue would continue thereafter. The following graphs illustrate estimated capital and operating expenses for the projects contained in the Plan. 1

4 (millions, 2015 CAD) (millions, 2015 CAD) Estimated Capital Expenses $1, Year Capital Expenses: $6.9 billion $1,200 $1, Year Capital Expenses: $7.7 billion (expressed in 2015 dollars) $800 $600 $400 $200 $0 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Broadway RT Surrey RT Pattullo Bridge MRN, Cycling, Walking Existing Rail Bus Services System Management Estimated Operating Expenses $ Year Operating Expenses: $1.3 billion $250 $ Year Operating Expenses: $2.6 billion (expressed in 2015 dollars) $150 $100 $50 $0 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Broadway RT Surrey RT Pattullo Bridge MRN, Cycling, Walking Existing Rail Bus Services System Management In December 2014, the Mayors Council selected a one half of one percentage point (0.5%) increase to the provincial sales tax for Metro Vancouver (the Option) to fund the region s contribution to the Plan. Funding from the Option would be directed to support the regional portion of planned capital expenses, in addition to ongoing operating and financing expenses for the projects described in the Plan. Understanding This Document This document was developed between October, 2014 and February, 2015 by a joint working group including representatives from the Mayors Council, TransLink, local government, and KPMG LLP. KPMG s role in this group involved facilitation of working sessions with subject matter experts, interviews with external engineering contractors, consultation with local government, and financial and economic analysis of the Option. In this document, incremental revenue from the Option has been estimated using the assumptions and other inputs gathered from historical budgets, economic data, TransLink operating and financial models, and external engineering contractors and parties. Financial analysis is also provided to calculate whether revenue from the Option can fund the incremental operating and financing costs of the Plan once implemented. This work consisted of inquiry, interviews, observation, comparison, and analysis of project participant provided information. Findings presented in this document rely fully on the appropriateness, accuracy, and completeness of provided information. Such work does not constitute an audit; accordingly, there are no expressed opinions regarding capital expenditures, operating expenditures and other funding. This document considers only the incremental costs and revenue of projects described in the Plan. Estimates are labeled as such, and were used in financial analysis without alteration. Actual results achieved will be based on future events and may vary from the estimates presented. 2

5 BC Retail Trade (millions) Funding Source Revenue Baseline Regional Sales Tax Revenue Based on estimates from the 2014 BC Budget, provincial sales tax revenue for 2016 is $6.43 billion 1. To estimate sales tax revenue generated within the Metro Vancouver region, several proxy variables were considered including population, retail sales, and expenditures. Based on these proxies, baseline regional sales tax revenue is estimated to be 55% to 60% of provincial sales tax revenue. The following figure illustrates proxy variables 2 considered: Based on the proxy variables below, regional sales tax revenues are estimated to be 55% to 60% of provincial sales tax revenues 55% 60% Population* (2014) Transportation** (2012) Taxes & Securities** (2012) Clothing** (2012) 53.8% 58.5% 61.3% 63.5% Retail Sales** (2017 proj.) 54.7% Expenditures** (2012) 61.1% Income** (2012) 63.3% If provincial sales tax revenue for 2016 is estimated to be $6.43 billion, and the regional percentage portion of tax revenue is 57.5% (using the mid-point of the range provided above), then the sales tax revenue affected in Metro Vancouver in 2016 would be $3.70 billion before any new tax increase. Demand Elasticity Demand elasticity can be observed empirically. Between February, 2002 and October, 2004, the provincial sales tax was temporarily increased to 7.5% from 7%. During this period, the growth of retail trade in British Columbia tracks very closely to national levels 3, despite a provincewide increase in sales tax. There is no marked decrease in demand (i.e., retail trade) resulting from the $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 Provincial and National Retail Trade $0 7% PST 7.5% PST 7% PST $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Canada Retail Trade (millions) sales tax increase. British Columbia Canada 1 British Columbia Budget and Fiscal Plan (2014) 2 Sources: *Statistics Canada CANSIM Application (2015); **Financial Post Market Data (2012) 3 Statistics Canada CANSIM Application (2015) 3

6 Annual Revenue (nominal, millions) Nevertheless, a range of potential demand elasticity for a 0.5% tax increase was identified based on literature review to be -0.3% to -1.5%. These estimates do not account for the effect of any reinvestment of regional sales tax revenue (i.e., implementing the Plan) or the potential for increased demand due to improved transit and accessibility, and are therefore considered conservative. If the baseline regional sales tax revenue is estimated to be $3.70 billion in 2016, and demand elasticity is assumed to be -0.9%, then regional sales tax revenue is $3.66 billion after demand elasticity. This value represents the estimated amount of sales tax revenue generated in Metro Vancouver in 2016 for the existing effective sales tax rate after the Option has been implemented (i.e., excluding incremental revenue from the Option). Incremental Tax Revenue The regional sales tax rate is assumed to increase by 0.5% on all PST-applicable products, regardless of the current applicable sales tax rate. For products with an existing sales tax rate of 7%, the future tax rate would increase by 0.5%. For products with a higher sales tax rate (e.g., vehicles, liquor, accommodation), the future tax rate would still only increase by 0.5%. Therefore, it is necessary to consider the current and future weighted average tax rates to determine incremental tax revenue. If it is assumed that the current weighted average provincial sales tax rate 4 across all applicable products is 7.4%, and the future weighted average rate increases to 7.9%, then revenue from the tax would increase by 6.75% 5. This value has been multiplied by the estimated regional sales tax revenue after demand elasticity ($3.66 billion) for an estimated first year revenue of $247 million. It is assumed that all revenues from the tax increase are available to the region to fund its share of investment in the Plan. Annual Revenue Growth The historical growth rate of provincial sales tax revenue between 1994 and 2009 was used as the assumption for revenue growth of 3% annually for the duration of the Plan. The graph below illustrates the impact of this assumed growth rate on the nominal value of the regional revenue over time, with an estimated $247 million in the first full year of implementation. The graph also shows other benchmark growth rates including target inflation (2%) 6 and the provincial government sales tax revenue growth projection (3.9%) 7. Estimated Revenue from the 0.5% Sales Tax Increase in Metro Vancouver $450 $400 $350 $ % 3% 2% $250 $200 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 4 Weighted average tax rate for all PST applicable items, including exception cases such as vehicles, liquor, accommodation, etc. 5 (7.9%-7.4%)/7.4% 6 Bank of Canada (2015) 7 British Columbia Budget and Fiscal Plan (2014) 4

7 Funding Planned Projects Cash Flow Analysis Using the assumptions and inputs described, financial analysis was completed to determine whether revenue from the Option can fund the incremental operating and financing costs of the Plan once implemented. This analysis considered project capital costs, operating expenses, incremental revenue (e.g., new fare and toll revenue), offsetting operating savings, and estimated financing costs. It also reflects the timing of costs and revenue across a 15-year period. Taking all of the above factors into account, it is estimated that if regional sales tax revenue is $247 million in the first year, and revenue grows at 3% annually, annual cash flows in 2015 dollars 8 at the end of the Plan are as follows: Regional Sales Tax Revenue $283 million 9 Ongoing Operating Costs ($279 million) Ongoing Financing Costs ($191 million) 10 Incremental Fare / Toll Revenue $187 million Offsetting Operational Savings $14 million 11 Surplus in Year 15 $14 million Holding all assumptions constant, funding from the Option fully services incremental operating and financing costs once capital projects have been completed. Costs related to current TransLink operations, and existing and previously planned projects have not been reviewed in the development of this report, and therefore any estimates provided consider only the incremental costs and revenue described in the Plan. Uncertainties Through this analysis, several uncertainties which may impact assumptions have been identified: Partner Government Funding. The amount of Partner Government funding available, and restrictions on that funding, may have a significant impact on the amount of revenue required. Capital Project Costs. Capital costs and scope are based on designs reflecting varying stages of project development. The final capital cost depends on various factors including the accuracy of the current estimates, final approved design and scope, and the amount of contingency provided. Revenue Growth Rate. Sales tax revenue growth has historically been driven in part by national and global economic trends. Variation in the assumed revenue growth rate will directly impact the ability to fund the Plan. Effective Incremental Increase. The effective incremental revenue increase assumes that all revenues from the tax increase are available to the region to fund its share of investment in the Plan. 8 Cash flows are presented in real terms, discounted at 2% 9 Regional sales tax revenue is shown in real terms, discounted at 2%, but with an assumed 3% growth rate 10 Includes principal and interest for the financing of completed capital projects 11 Operational savings result from elimination of select bus lines following rapid transit implementation 5

8 Regional Portion of the Tax Base. The precise regional portion of the tax base is uncertain, and may materially affect incremental revenue estimates if stated assumptions do not hold. Macroeconomic Uncertainty: Due to the extended timeframe of this project, assumptions regarding macroeconomic factors (e.g., demand, population, inflation, consumer preferences, etc.) may not hold over time and will have an unknown impact on final project costs and offsetting revenue. 6