Ottawa·Analysis

The provincial budget just cost Ottawa $1B in transit cash. So why is Jim Watson smiling?

The city was banking on a big boost in provincial gas tax transfers to fund Stage 2 LRT and other future transit projects. So when the PC government cancelled the plan in this week's budget, why didn't the mayor mention it?

LRT plan counted on Liberal pledge to double gas tax transfers to cities

Mayor Jim Watson, left, shares a laugh with Ontario Premier Doug Ford during an announcement in March confirming the province's $1.2-billion contribution to the city's light rail expansion. (CBC)

When Premier Doug Ford came to town last month to personally commit $1.2 billion in provincial money for Ottawa's LRT expansion, city officials were relieved.

After all, time was running out: the announcement came just a week before one of the bids was due to expire.

So when this major contribution was highlighted in the big blue budget book tabled Thursday at Queen's Park, no one was surprised when Mayor Jim Watson announced he was "delighted."

The mayor's statement on the budget  — he was not available for comment — went on to say how "pleased" he was by several measures brought in by the Progressive Conservatives.

Glaringly absent from Watson's budget reaction? Any mention of the PCs' decision to cancel planned gas tax increases, a change that will cost Ottawa hundreds of millions of dollars in coming years.

A report to city council in February said the "affordablity model" for Ottawa's mass transit plan counts on the city's share of provincial gas taxes doubling. (Trevor Pritchard/CBC Ottawa)

City counting on cash 

The province collects tax on gasoline at the pumps, then gives some of it to municipalities to help fund transit. Right now, the city receives two cents per litre. For this calendar year, Ottawa is expected $36.5 million in gas tax payments from the province.

The previous Liberal government had promised to double the cities' share over several years. In the current fiscal year — which runs from April 1, 2019, to March 31, 2020 — municipalities were supposed to receive 2.5 cents per litre. Two years from now, it was supposed to nearly double to four cents per litre. For Ottawa, that would have meant an extra $36 million annually.

Over a 30-year period — the life span of the city's long-range financial transit plan — that's more than $1 billion. 

The affordability model assumes that the provincial portion will double over the next four years.- City report on funding for LRT Stage 2, February 2019

During the Ontario election campaign last spring, a spokesperson for the For campaign told CBC Toronto the PC government would honour the planned increase put in place by the Liberals.

But in a single paragraph in the 343-page budget, the PC government erased hundreds of millions in future city revenue by stating simply: "The province will not move forward with the previous government's proposed changes to the municipal share of the gas tax funding."

That simple sentence creates a complicated problem for us, because we were counting on that money to fund Stage 2 LRT.

According to the city report to council in February on the contracts for Stage 2, the money for the increasingly expensive project — it came in at $4.66 billion, more than $1 billion than expected — is coming from a number of sources, including gas tax revenues.

The report goes on to say that "the affordability model assumes that the provincial portion will double over the next four years per the commitment made by the previous government." 

Toronto Mayor John Tory called the cancellation of the gas tax increases "very, very disappointing." (Cole Burston/Canadian Press)

Where was Watson?

Given that we appear to be dependent on this money, why did the mayor remained silent about it in the hours after the news became public?

It is, frankly, a broken commitment.- Toronto Mayor John Tory

Other city leaders spoke up. Toronto Mayor John Tory, who spoke with reporters Thursday evening after the budget was made public, called the cancellation of the gas-tax increases "very, very disappointing," then said this: 

"It is, frankly, a broken commitment that was made and repeated and committed to during the election campaign," Tory said. "And we make our plans based on those commitments."

Did the city seek assurance?

At least one member of Ottawa city council was concerned about the possibility of this happening.

At a special meeting of council on Feb. 27 where councillors grilled city staff on the risks of Stage 2 LRT, Coun. Diane Deans wanted to know whether the city should worry about the PC government changing its policy on gas tax funding.

"Silence is golden," city manager Steve Kanellakos answered, pointing out that the government had given no such sign, and noting such change would create major issues for municipalities across Ontario.

The PCs do appear to have broken a campaign promise by not increasing gas taxes. They also didn't decrease the corporate tax rate by one percentage point, or reduce hydro bills by 12 per cent, or fulfil a number of other campaign promises. Newsflash: politicians sometimes break election promises.

City manager Steve Kanellakos was asked in February about the possibility of the PC government changing the gas tax plan for municipalities. 'Silence is golden,' he told council. (Kate Porter/CBC)

So what assurances did the city ask for, or receive, from the province about the gas-tax increase? Surely we're not basing the financing for LRT Stage 2 on a no-news-is-good-news philosophy? Was there a Plan B? 

CBC asked about this early Friday, but hadn't received a response by the end of the day.

LRT2 remains 'financially viable': city manager

The consequences of the PC government's decision not to move forward with the increased payments should have been immediately clear to the mayor's office and to senior officials.

It was Friday afternoon when the city manager responded to questions on the subject through a memo addressed to council, and also sent to media.

The email assured elected officials that "the LRT Stage 2 project remains financially viable despite the revised provincial direction regarding the gas tax."

The impact of the cancelled money is "manageable" in the short term, although transit projects "beyond Stage 2" could be affected, according to the Kanellakos memo.

It's not clear how the city will cover the more than $30 million a year it was expecting, even in the short term. 

And the city manager's memo appears to be at odds with the report to council that says that we've based our transit plans on the doubling of gas tax money.

Staff are working on an analysis on the implications of losing more than $1 billion in funding over three decades, and will bring options to council in "the months ahead."

Right now, though, we've got mostly silence. And it doesn't seem so golden.

About the Author

Joanne Chianello

City affairs analyst

Joanne Chianello is an award-winning journalist and CBC Ottawa's city affairs analyst. You can email her at joanne.chianello@cbc.ca or tweet her at @jchianello.

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