‘Capital costs of LRT Project have been understated by more than $128,000,000,’ says CRD Business + Residential Taxpayers’ Association


The CRD Business & Residential Taxpayer’s Association

The Capital costs of the LRT Project have been understated by more than $128,000,000. The following process can be used to calculate and verify the amount of the understated costs. Rather than accepting the Association’s assertions about understated costs, this process lets anyone understand how the costs have been understated. Note that the $950,000,000 usually referred to as the cost of LRT is the capital cost not the Present Value (PV) of LRT cost. The Present Value (PV) calculation takes into account the year in which the expenditures occur and the prevailing interest rate.

How the LRT Capital Costs are understated by $ 128,500,000
To discover how the LRT capital Costs have been understated in the VRRT Report, follow the following steps (spreadsheet recommended for determining Present Value PV)

Step 1

Print out the following pages from the LRT Study documentation:
From the VRRT (BC Transit Study website updated to September 26th)
1) Volume 5 Table 4.7 – Summary Capital Cost Estimate – LRT Alterative (pdf page 45)
2) Volume 5 Figure 4.8 – Cash Flow Profile- LRT Alternative (pdf page 53)
3) Volume 5 Summary Statistics – Primary Discount Rate (pdf page 3)

Step 2
Using Figure 4.8 and Table 4.7 (as a more precise cost guide for the subtotal of $950 million for 2012 to 2015), enter the (blue) LRT capital costs (by year) into a spreadsheet table.
Add the capital costs (indicated in blue in Figure 4.8) for the years 2020, 2021 and 2035-2037 to the table in their respective years. Subtotal for these is about $48 million

Step 3
Using the spreadsheet’s Present Value (PV) function with a 6% discount rate, determine the Present Value of the stream of capital costs from 2012 to 2038. The answer should come out to about $ 831,500,000.

Step 4
Refer to the ” F-Full LRT” column at the far right of the Summary Statistics – Primary Discount Page. The fifth row down is the LRT Study value for the LRT Present Value Capital Costs ($703 million).

The understatement of the LRT capital costs is $ 831,500,000 less $703,000,000 equals $128,500,000.

The understatement of costs is actually higher than the $128.5 million because the LRT option description does not fully disclose the “balloon” capital payment of $90,000,000 due in 2042 for the end-of-life replacement of all LRT cars (rolling stock).

It should have been disclosed and preferably added as a series of sinking fund payments (for vehicle replacement) prior to 2038. Otherwise all CRD taxpayers would have an unexpected tax increase in 2042 to pay for replacement of all LRT cars or, much more likely, there is an undisclosed baseline tax increase starting in 2015 as a sinking fund payment to pay for the replacement of the rolling stock in 2042.

2 Responses to ‘Capital costs of LRT Project have been understated by more than $128,000,000,’ says CRD Business + Residential Taxpayers’ Association

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