None of the detailed numbers in the Minister's six-page LRT cost breakdown add up to the totals.
By Ryan McGreal
Published January 07, 2020
When Ontario Transport Minister Caroline Mulroney abruptly cancelled the Hamilton Light Rail Transit (LRT) project last December 16, she shocked local officials and observers alike by claiming that the $1 billion capital cost had ballooned to an outrageous $5.5 billion.
The number seemed impossible to take seriously, and the one-page summary table Mulroney provided offered no details on how the cost was calculated.
Closer to Christmas, Hamilton Mayor Fred Eisenberger released two more documents that he had also received from the Minister. The first document is another high-level one-page summary, but the second document [PDF] goes into finer detail on the cost breakdown.
The problem is that Mulroney's numbers don't come anywhere close to adding up.
The first page is just a copy of the one-page summary Mulroney provided to media on cancelling the project. It includes:
That gives a total provincial cost of $4,604,382,908.
The summary also includes an estimated $950,229,025 in gross municipal operating and maintenance costs, for a grand total of $5,554,681,932.
Without knowing anything about where these numbers come from, there are already two glaring problems with the total.
Mulroney claimed that the $1 billion capital cost had ballooned to $5.5 billion, but this conflates the basic capital cost with the all-in capital, financing, operations, maintenance and lifecycle cost over 30 years. Those are two entirely different numbers!
In addition, it adds an estimated 30 years of municipal gross operating and maintenance cost to the total, which makes no sense for a provincial budget.
Mulroney herself admitted to CTV News that she was conflating capital, financing, operations, maintenance, lifecycle and municipal costs in her total when challenged on the supposed cost escalation.
The provincial document released by Eisenberger also includes a more detailed breakdown. Unfortunately, the numbers don't come close to adding up. Specifically, the detailed numbers on pages 2 through 6 of the document don't actually correspond to the totals on page 1.
Pages 2 and 3-5 both cite total capital costs at $2.32 billion. This total includes a $320 million 'contingency' of 17.75 percent of the total cost, plus a $190 million 'escalation' that might possibly account for inflation since the budget was approved 6 years ago.
This $2.32 billion capital total does not correspond to any numbers on page 1. It is $530 million less than the $2.85 billion capital total on page 1, though the difference may be that the page 1 total includes capital financing costs. However, this is not stated anywhere.
Page 6 provides an estimate, inflation-indexed to 2027, of "total operations, maintenance and lifecycle costs" of $1.33 billion. Again, this does not correspond to any numbers on page 1. It is $380 million more than the $984 million lifecycle and long-term financing costs on page 1, but $600 million less than the total provincial and municipal operating and lifecycle costs on page 1.
So out of the $5.5 billion in claimed total costs, the breakdown only accounts for $3.65 billion - $2.32 billion capital plus $1.33 billion in lifecycle and financing.
Perhaps the gap of $1.85 billion is made up of the estimated municipal contribution - for which there is no detailed breakdown - plus the "other costs" from page 1. However, Those costs add up to $1.72 billion, not $1.85 billion, and there is no detailed breakdown of the "other costs" either.
To conclude, the numbers provided in pages 2-6 do not come close to adding up to the totals on page 1, not overall and not by category. Mulroney's math simply makes no sense.
One thing that jumps out is the provincial 30-year all-in cost on page 1 of $4.6 billion. It seems highly coincidental that this is the exact same number the Province just committed to the Hurontario LRT in Mississauga and Brampton, especially since there does not seem to be any correspondence between the Hamilton total and its own detailed cost breakdown.
Did Mulroney just take the Hurontario total cost and add $950 million in estimated municipal costs to get her $5.5 billion total? That explanation is as likely as any.
But it's important to remember that the Hurontario LRT is 18 km and the Hamilton LRT is only 14 km, or 22 percent shorter.
If we reduce the total Hurontario budget by 22 percent, we get $3.6 billion - very close to the total Hamilton budget as detailed in pages 2-6 of the provincial breakdown.
Again, the reason this total is higher than the $1 billion capital budget announced in 2014 is that it also includes the cost of capital financing, long-term financing, operations, maintenance and lifecycle over 30 years.
Of course the all-in, 30-year cost is going to be higher than the base capital cost. That was always going to be the case, as reflected in the already-approved total 30-year budget of $3.66 billion, and it is exactly the same in other approved projects like the Hurontario LRT.
An article published last night in The Toronto Star and The Hamilton Spectator reports that a recent internal Metrolinx document found the estimated all-in 30-year cost for Hamilton's LRT was $3.75 billion, or just $87 million over its approved budget.
RTH has also obtained a copy of the internal Metrolinx document and confirmed the total. According to the Budget Position Table, the total cost is $3,746,047,000, or $87,474,000 over budget. That $87 million is found entirely in the "Professional Services" category.
Metrolinx Budget Position Table, Hamilton LRT
The document also cites project risks and potential mitigations. The main identified risk was that two of the three consortiums bidding on the project were "not actively engaging in the RFP in-market process, citing concerns around municipal and provincial support, lack of a Break Fee in the RFP/PA documents, and concerns with vehicle risk tranasfer".
In response, the Province agreed to add a Break Fee, though the Province will not say how much that fee is, citing the need to protect future contract negotiations. Then the Province cancelled the project on December 16, just three months before the consortiums were supposed to present their bids.
This project risk is an outrageous self-fulfilling prophecy - the Province cancelled the project because the bidders were afraid the Province would cancel the project! It's an entirely preventable outcome of the reckless failure of leadership at both the municipal and provincial level over the past decade-plus. With Hamilton City Council constantly musing about an "exit ramp" from this project, it's no surprise the companies bidding to build it wanted their own "exit ramp" as well.
Another identified project risk is the potential for the bids to come in over the approved budget. The Province retained a cost consultant named Turner & Townsend to do an independent review, which they delivered on October 22. According to Metrolinx, "The report shows a significant increase as compared to the Treasury Board approved budget."
It is not clear whether the Turner & Townsend study is the source of the cost breakdown from Mulroney that Eisenberger released just before Christmas, but based on what we've seen, there are more questions than answers about any cost overruns.
In addition, when the final bids for the Hurontario LRT came in over-budget, the Government's response was to scale back the project to bring it within the budget by removing a loop around Mississauga City Centre, removing four stops and deferring a pedestrian overpass.
The province has provided no explanation for why the Hamilton LRT was denied the opportunity to see the final bids and scale back the project to fit the approved budget, or alternately to seek federal funding to cover any shortfall. Instead, the Hamilton LRT was just unceremoniously cancelled.
With files from Nicholas Kevlahan
Note: Hamilton Light Rail has launched a new campaign calling on Hamiltonians to send Premier Ford a message calling in him to fix Minister Mulroney's mistake and get the Hamilton LRT back on track. Please join the call to action and make your voice heard.
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