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In Canada: Tolling “is no tool to sneeze at, especially when the toolbox is slammed shut by our own allergy to higher taxes…”

By: 
Bill Cramer

What kind of stir would it create if the former chair of the United States Federal Reserve issued a full-throated endorsement of tolling?

It hasn’t happened—at least, not yet. But it made news across the U.S. northern border last weekend when David Dodge, former governor of the Bank of Canada, listed some of the practical, inevitable steps the country will have to take to fund an ambitious, 10-year, C$186-billion plan to renew its critical infrastructure.

"If we want good infrastructure, we're going to have to pay for it," Dodge told CBC Radio's weekly federal politics roundup, The House. "We're going to have to pay for it in tolls, or we're going to have to pay for it in water rates, or we're going to have to pay for it in additional property taxes."

The bottom line: "The government can't go on investing in infrastructure, borrowing money to invest in infrastructure, unless there's a future revenue stream which is going to service that.”

Canada Explores an Infrastructure Bank

And Dodge isn’t alone. Not quite a year after taking office as Canada’s finance minister (latest equivalent: Treasury Secretary Steve Mnuchin), ex-Bay Street executive Bill Morneau was looking at a national infrastructure bank as the right tool to deploy private capital for public good.

“There's currently $12 trillion of money in institutional funds around the world that are attracting negative interest rates," he said at the time. For every dollar the government invested, he estimated, "we might find four or five or six dollars of pension fund money."

Not that the idea went unopposed. Veteran CBC columnist Neil Macdonald had his own ideas for what Morneau should really be saying: “The Canadian deal is changing. It used to be that the government would tax everything that moves, and in return would build and provide stuff. The new deal is that the government will keep taxing everybody just as enthusiastically, but you'll also have to pay extra to use the stuff we build.”

As the Greater Toronto Area recently found it, both views are still in vogue.

Toronto’s Tolling Fiasco: Courageous Plan Meet Political Reality

American visitors to Toronto inevitably remark on how lovely and clean the city is. The observation is usually accurate, and mostly gratifying for locals. But the deeper reality for most anyone who lives in the city and surrounding region is gridlocked highways and an overstretched transit system, all the result of the same delays in infrastructure investment that have plagued the U.S. and other countries.

Mayor John Tory and the Toronto City Council decided to do something about it. They floated the idea of a $2 toll along the congested Don Valley Parkway and Gardiner Expressway, with a plan that offered a fascinating twist on U.S. debates over revenue diversion: In Toronto, the condition on tolling was that the revenue would be earmarked for the roads where it was collected, or the transit systems that served the same geography.

In the months leading up to the vote, the plan earned wide-ranging support, including editorial backing from the country’s biggest newspaper, the Toronto Star. It passed an often-divided city council by a wide margin. Then “the rug was pulled out from under us”, in the words of Toronto Transit Commission Chair Josh Colle, after Premier Kathleen Wynne disallowed the plan and offered increased gas tax revenue instead.

The guiding assumption was that Wynne, looking ahead to a tough re-election fight in 2018, wasn’t keen to allow a new user fee that would hit the vote-rich suburbs surrounding Toronto.

Tolling: ‘Shaking Hands with the Obvious’

But Wynne’s response wasn’t a credible solution for Toronto Star political columnist Royson James, who called for what amounts to an “all of the above” infrastructure funding strategy.

“To embrace tolls is to shake hands with the obvious—even if the solution is not perfect, which it isn’t,” he wrote last weekend.

“One does not have to be economically suicidal or carry a strain of self-destructive genes to voluntarily embrace road tolls.

“Or higher property taxes.

“Or a municipal income tax.

“Or the establishment of a special one-time transit fund, initiated by a levy on all citizens.

“In fact, Toronto’s civic needs are so great, the costs so enormous and the sources of funds so limited, that this city region needs all of the above.”

While James bought in to some of the disproven old saws about tolling—that it’s a “regressive” tax that “punishes” drivers who choose to use a particular roadway—his column still went right to the heart of the issue.

Tolling “is no tool to sneeze at, especially when the toolbox is slammed shut by our own allergy to higher taxes and failure of the provincial and federal governments to provide permanent help,” the columnist wrote.

“The single greatest failure of our political leaders over the last three decades is the abject dereliction of the duty to get this clear message across to constituents,” he added. “Instead of repeating this essential truth, ad nauseam, our mayors and premiers and regional chairs and too many talk show hosts and opinion leaders have peddled an insidious and corrosive untruth. The lie, prominent at budget time, says somebody else will pay for what we so obviously need; they’ll pay tomorrow; they’ll pay, without paying any more taxes.”

Which leaves Toronto and Canada with some interesting battle lines around infrastructure financing. On one side, a former bank governor, a newly-minted finance minister, and a big-city mayor and council. On the other, the premier of the country’s biggest province and several toll-averse suburbs. And in the middle, a city and region that can’t wait another 20 years for a solution.

Looking for today’s solutions? Sign up today for IBTTA’s Summit on Finance, Policy, VMT, April 23-25, 2017 in Jersey City, NJ.