4 things you should know about the $4.66B contract for LRT Stage 2

It's only been a few days since the startling news that the price tag to build the second stage of Ottawa's light-rail system ballooned by more than $1.2 billion to a whopping $4.66 billion — more than twice the cost of the current Confederation Line project under construction right now. 

As Coun. Diane Deans said, it was "pretty surprising news for a Friday afternoon."

• LRT expansion balloons by more than $1B

That's when the city released a complex 113-page document that councillors — and the public — have less than two weeks to absorb before our elected officials vote on the contract on March 6.

Here are four of the most pressing things you need to know about Ottawa's most expensive infrastructure project in history.

1. How we added more than $1.2B to the price

The total cost for LRT Stage 2 has been a bit of a moving target, but last we heard, the estimate for the project — which will add 44 kilometres of track and 24 new stations — was $3.4 billion. It's now $4.66 billion.

What happened?

Two basic things: the city kept increasing the scope of the project, and massive transit projects got more expensive.

First, the city added about $150 million in civics projects — think water pipe replacements — that made sense to do at the same time the light-rail system was being built.

Apparently, we already had the money for this in another envelope, but it still counts toward the total price of this project.

The city also added more than $310-million worth of extra stuff, such as escalators and washrooms and a garage at Moodie station, for which there was no funding. We thought we could find the money through better design and smarter engineering, but we didn't.

Then there's the additional money in the Trillium Line extension deal that's supposed to save us cash in the long run. 

SNC-Lavalin is the city's top choice to extend the north-south line into Riverside South as well as maintain the system for 27 years.

The city was prepared to spend $1.7 billion on both the expansion and maintenance of the line. But SNC-Lavalin apparently submitted a plan that came in at just $1.6 billion, proposing to upgrade the Trillium Line sooner than planned to cut down on future maintenance costs.

But to make those improvements, the city would have to fork over $236 million earlier than planned, which has jacked up the price of the project.

However, the single biggest additional cost comes from the contractors, who are asking for more money because they say they are facing higher capital costs and risks. 

Existing projects are taking longer than expected — Rideau Transit Group (RTG) is at least a year behind schedule building the Confederation Line — and companies are bidding more conservatively, offering longer — and perhaps more realistic — timelines.

Consider that for the extension of the Confederation Line to Moodie in the west and Trim Road in the east, as well as a connection to Algonquin College, the city wanted to pay about $2 billion.

But the lowest bid, brought in by top choice East West Connectors, was $2.57 billion.

2. How — and how much — we're paying

Under the previous plan, the federal, provincial and municipal governments were going to pay about $1.2 billion each for Stage 2 of the LRT. (And the provincial money isn't technically committed yet.)

Now, the city is paying $2.256 billion, almost half the total price tag. 

How will we pay for it? Basically, debt. We will borrow $700 million more than anticipated for transit over the next 30 years, for a total of $5 billion.

The additional borrowing will eventually breach the city's self-imposed limit of debt representing 7.5 per cent of revenue. In other words, for every $100 in property taxes you pay, a maximum of $7.50 should go to debt servicing.

If council approves this plan, it will have to change the city's debt policy.

The province sets the maximum debt-to-revenue ratio at 25 per cent, so the city will be well below that mandated threshold. But it still means that, without raising property taxes significantly, it could be difficult for the city to borrow for other capital projects — think affordable housing or local libraries — and still retain the highest credit rating from debt-rating agencies.

Also, the previous 2017 plan for LRT Stage 2 called for a minimum annual increase in the transit levy of 2.5 per cent. It's now proposed to be three per cent.

3. Monthly instead of milestone payments

During the first stage of LRT, the city has made much of the fact of so-called "milestone payments" to RTG. 

These are giant lump sums handed over to the contractor once it's completed a significant task in the project. The last milestone cheque the city owes RTG is worth about $260 million and will be handed over once RTG actually finishes the Confederation Line.​

That's not the payment system the city is proposing for Stage 2.

The city will still make some lump-sum payments to contractors — and there are still mechanisms to withhold work that's not complete.

But for Stage 2, the city is also proposing to fork over monthly cheques to cover the bulk of that month's construction costs.

It's easy to see why the proponents want this. These transit projects run late and companies are forced to extend their financing at great cost. They want a more reliable cash flow.

But what's in it for the city? Right now, we're hanging onto our money longer. Why would we want to give that up?

4. The deadline is crazy soon

There are dozens of questions that councillors and members of the public need answered before agreeing to spend more than $4 billion of taxpayers' money.

There's also little time.

The report was released Friday, and there's a special council meeting Wednesday where the public can make presentations and councillors can ask questions. Council is set to vote on the project less than two weeks after they laid eyes on the report — and at the same meeting they're also supposed to vote on the 2019 budget!

Time is apparently of the essence, especially for the Trillium Line bid, which expires at the end of March. But if there was such a concern about the schedule, why was this report not released in January and a meeting held last month?

This is by far the most money that any city council has ever spent in our history. Surely we should spend more than 11 days thinking about what to do next.