Funding five big regional transit projects with a 0.5% retail sales tax

keane_gruending

Keane Gruending – Communications Manager, Moving in a Livable Region

With the future of Metro Vancouver’s transportation network hanging in the balance, a referendum, to be held as early as spring 2014, will put transit funding options to the polls. Given TransLink’s stagnating revenue stream due to capped fares combined with declining gas and property tax shares, new funding for transit expansion will be required to cope with the region’s explosive population and job growth. But where should the additional funding come from? Until now, there has been little public discourse around the nature of the question, or which sources of funding should be sought.

Enter transportation advocates Paul Hillsdon and Nathan Pachal. Their report, “Leap Ahead: a transit plan for Metro Vancouver”, proposes a 0.5% regional sales tax to fund much-needed transit capital projects. While the report pitches just a single potential funding source, sitting alongside carbon taxes, development charges, mobility pricing, and vehicle levies (to name just a few other options), the proposal is one of the first comprehensive ideas put forth to solve the transport funding gap in Metro Vancouver.

But where would revenue from the sales tax go? How palatable would a new tax be for Metro Vancouver residents? In order to address these questions I will take a look at the plan and, since Vancouver is the third largest metro area in Canada, I will compare Metro Vancouver transit funding to Canada’s two largest centres – Toronto and Montreal.

The plan in a nutshell

The report claims that a 0.5% regional sales tax would raise up to $250 million in revenue each year, enough to co-finance the construction and operation of the following projects:

  • UBC SkyTrain
  • Two light rail lines in the South Fraser
  • Seven new B-Line routes
  • Burnaby Mountain gondola
  • Expo Line upgrades

These are crucial projects to be sure, and while the plan would enhance regional interconnectedness, some areas stand to benefit more than others. This is an important consideration given the wide net cast by a regional sales tax.

A taxing comparison

With an additional 0.5% regional sales tax to fund public transit capital projects, how would Metro Vancouver’s retail taxes compare to those in Toronto and Montreal?

salestax

When the regional 0.5% sales tax is added to BC’s existing 5% GST and 7% PST, Vancouver still compares favourably, with a 12.5% sales tax rate, to both Toronto and Montreal (with their 13% and 14.975% retail tax rates). Considering BC’s comparatively low personal income tax rates, Vancouver still would maintain a healthy tax advantage under a proposed regional sales tax.

Vancouver, Toronto, and Montreal transit funding

While it’s difficult to make direct comparisons between TransLink, Metrolinx (Toronto’s public transit provider), and STM (Montreal’s public transit provider), none of the agencies use a sales tax to fund transit capital projects or operations.

transitcomparison

Sources: TransLink (2012), Metrolinx (2012), and STM (2012, 2010 data).

It’s worth noting that both Toronto and Montreal recover a much higher proportion of their revenue through the farebox, something TransLink has tried to do, only to be denied by its independent regulator. Metrolinx and STM also receive a significant proportion of their funding through direct and indirect provincial subsidies and transfers.

You can draw your own conclusions about who should step up to the plate in the absence of higher fares or help from Victoria, but keep in mind that regional sales taxes are very much in vogue south of the border. Since the summer of 2012, Kansas City, Los Angeles, Orange County, and Everett have all adopted ballot-approved sales taxes in order to fund transit infrastructure. Even Metrolinx, Toronto’s transit agency, is asking for 1% of the province’s HST take in order to fund transit (along with some other big requests).

With the introduction of a 0.5% regional sales tax and $250 million in new funding, TransLink’s revenue base would grow by approximately 15%, from $1.42 billion to $1.67 billion per year. Leap Ahead proposes that the revenue be used to fund five very specific regional transit projects that would speed up regional travel and reduce congestion; the revenue would not be used to prop up current operations.

The tax hit

Two obstacles to the regional sales tax include the Metro Vancouver business community and low-income households. Businesses would have to weigh the gains of reduced travel times and higher customer visit rates against a slight tax disadvantage (compared to neighbouring regions). For low-income households the sales tax would be slightly regressive due to the fact that retail expenditure takes up a larger chunk of this group’s budget. However, since public transit funding disproportionately benefits lower income households, the retail sales tax hit might be negated. The concept of a new sales tax is pragmatic, straightforward, and tested in other regions. Contrary to the failed HST platform with its seemingly intangible benefits, the 0.5% “tax for transit” proposal puts five hard projects on the table.

(Retail photo courtesy of rickshung/Flickr)