CTAR

FRANÇAIS  
<< PREVIOUS CHAPTER | TABLE OF CONTENTS | NEXT CHAPTER >>

Chapter 13

Preserving Urban Rail Corridors

The terms of reference asked the Panel to consider "the advisability of specific measures designed to preserve urban corridors for future mass transit use in the rail line abandonment process." The Panel's interest in this issue was reinforced by several parties that came forward to discuss related topics, including access to urban rail lines and railway access pricing practices. In addition, some interveners expressed concern that unless the federal government provides funding, useful mass transportation corridors may be lost if the railways choose to discontinue lines in urban areas.

For many years CN and CPR, provided commuter rail services in several Canadian cities, in particular Montreal and Toronto. Over time, however, the railways found they were losing substantial amounts of money. As Canada became more urban and cities continued to grow, increasing the demand for better commuter services, railway-operated services gradually gave way to operations managed by local commuter or transit authorities, established and funded in part by provincial governments. As the railways' commuter services were terminated, some of the corridors used for those commuter trains remained in service for freight. In some instances commuter service has now been reintroduced.

In other cases, however, urban and ex-urban corridors not used for commuter services were abandoned. Some were acquired by a provincial or municipal government for current or potential use as a transportation corridor (e.g., part of Ottawa's bus Transitway operates in a former CPR rail corridor). But commuter authorities and municipalities remain concerned that no more rail corridors with transit potential be discontinued without their having the option to acquire them.

Today, the commuter and transit authorities — Montreal's Agence Métropolitaine de Transport (AMT), the Toronto area's GO Transit, and the Greater Vancouver Transportation Authority (TransLink) — have a mandate to provide commuter services. GO was Canada's first interregional public transit system, established to link Toronto's local bus, streetcar and subway services with the suburbs of the Greater Toronto Area. AMT is responsible for developing and operating a commuter rail system and for co-ordinating the efforts of transit operators on the Island of Montreal and in the surrounding areas. TransLink provides ferry, bus and commuter rail systems through subsidiary organizations, including West Coast Express.

Transit authorities receive operating funds from a variety of sources. Some, such as AMT and TransLink, receive funding from fuel taxes collected in their respective metropolitan areas, while GO Transit receives funding from the Greater Toronto Services Board. All receive money from the fare box as well, but revenue shares from fares vary considerably among service providers.

Fare box revenues are insufficient to allow commuter authorities to fund capital projects, which means that acquisitions of capital assets such as property must be funded by other means. Market borrowing would be circumscribed by the inability even to cover operating costs. Accordingly, the ability to acquire capital assets without assistance is limited.

Continued urbanization will bring greater traffic congestion in the next 20 years, with continued growth at suburban and ex-urban nodes also contributing to commuter demand. Several Canadian cities anticipate that commuter rail will become an increasingly attractive option as population and traffic volume rise. In order for the option to be available, existing rail corridors might need to be preserved from abandonment and redevelopment. The Alberta government, for example, recommended protecting urban corridors where needed for mass public transit. TransLink recommended designating urban rail corridors as general transportation corridors. In the city cores, rail corridors are one of the few options available for expanding urban transit or developing it where it does not yet exist.

The Panel sees two broad issues connected with urban rail corridors:

Access for Commuter Services

Issues and Concerns

Submissions and presentations to the Panel from commuter rail authorities, several provinces and municipalities, the mainline railways and other interested organizations spoke to access-related concerns.

Commuter authorities' main concern was their lack of a right of access to federal railway lines in urban areas. TransLink, supported by the Canadian Urban Transit Association on behalf of its members, recommended amendments to the Canada Transportation Act to

The three rail commuter operators also had concerns about the level of charges and saw final offer arbitration as a useful tool during contract negotiations with the railways.

Several provinces, including Quebec, Ontario, Nova Scotia and British Columbia, emphasized to the Panel the importance of access to urban rail corridors in meeting current and future transportation needs.

Several municipalities also commented on access issues. The cities of Vancouver, Burnaby and Surrey wrote in support of the TransLink submission, while the county of Peterborough said that the federal government should adopt sustainable transportation as a core principle and that this would include emphasizing commuter rail.

The railways that own the lines and operate freight services in most existing urban rail corridors were concerned mainly with ensuring that their freight operations would not be disadvantaged by having commuter operations on their lines, with safety issues, and with pricing. CN and CPR pointed to the increasing number of commuter operations on their lines and the availability of final offer arbitration where a railway and a commuter operation were unable to reach agreement on the price of access and the level of service. To summarize the access-related issues raised:

At least one broad-based organization reinforced some of the railways' concerns. The Greater Vancouver Gateway Council, a group representing a range of interests in the Vancouver area, told the Panel that "priority and primacy of freight transportation on urban rail corridors is a primary concern".

For commuter authorities, the issue is gaining the right of access to a line and the quality of service provided on that line. West Coast Express, for example, wanted assurances that a level of service would continue during a dispute with a railway, while GO Transit was concerned about the availability of capacity to expand its services. For their part, the railways made clear their understanding that responsible corporate citizenship requires them to continue to offer quality services to commuter operators — even if contractual disputes do arise from time to time. They also pointed out that commuter authorities, like other rail line users, have access to final offer arbitration to resolve price and service issues when the parties are unable to reach agreement on a contract by themselves.

Considerations and Recommendations

Commuter services are an important part of urban transport. In keeping with the Panel's principle of relying on market forces wherever possible, the preferred route to the access commuter authorities seek would be negotiations leading to a commercial contract, with a regulatory solution called for only if the commercial approach fails.

The Panel has recommended changes to the provisions dealing with the obligation of a railway company to quote a rate for the movement of traffic at the request of a shipper (Chapter 5). The Panel believes that the commuter authorities' concern could be adequately addressed by extending the availability of this provision, as amended, to commuter authorities. Commuter authorities already have access to final offer arbitration in the event they are not satisfied with the rate the railway company proposes to charge or with the conditions associated with the movement.

Recommendation 13.1
The Panel recommends that section 118 of the Canada Transportation Act, as amended by the Panel's proposals, be made available to commuter authorities.

The Panel also recommended in Chapter 5 that the right to apply for running rights be extended to railway operators, regardless of whether they are provincially or federally regulated, and has proposed a method for determining the price of track access. The recourse available through running rights, as amended by the Panel's proposals, would also be available to commuter authorities that want to set themselves up as railway operators.

The Panel examined concerns about the cost of access for commuter authorities and concluded that although the railways appear to have some real bargaining advantages, commuter authorities are not without bargaining power. Final offer arbitration became available to commuter rail operators in 1996. Over the years, agreements for new services have been negotiated, and existing services have been expanded. The Panel is further encouraged by CN's willingness to see contracts between railways and commuter agencies deemed public.

In the Panel's view, the recommended amendments should be sufficient to meet these concerns and deal with the access issues raised. The Panel therefore does not recommend any legislative tampering with existing commuter rail contracts. However, in keeping with the desire for greater transparency, and because commuter rail contracts are entered into by public bodies, the Panel believes such contracts should be made public.

Recommendation 13.2
The Panel recommends that future commuter rail contracts be made public and that current contracts be made public unless one of the parties can demonstrate to the satisfaction of the Canadian Transportation Agency that the contract contains commercially sensitive information and that it would be harmed by its release.

Commuter authorities also raised the issue of amending the Canada Transportation Act to allow shared use of active rail rights of way by light rail transit. The access concern is addressed by the Panel's earlier discussion of commuter rail. Research conducted for the Panel indicates, however, that existing safety requirements may constrain the combined use of corridors by conventional railway equipment and urban transit vehicles to some degree. The safety issue is a profoundly important one. In this regard, the Panel encourages interested parties to seek innovative approaches to ensure that safety is not compromised.

TOP OF PAGE

Preserving Discontinued Branch Line Corridors

Issues and Concerns

The Panel heard views on two main topics:

Calls for preserving urban rail corridors came from, among others, the Greater Toronto Services Board, the Comité Interrégional pour le Transport des Marchandises, and Rail Ways to the Future. Looking at the existing discontinuance process and the capacity of commuter rail authorities to purchase discontinued lines, one possible solution is for the federal government to establish a rail line bank to acquire and retain lines proposed for abandonment. Several advocates of preservation said compensation for line owners should be "fair" (the government of Alberta) or should reflect "a value appropriate to a transportation corridor" (TransLink).

In submissions and presentations, CN and CPR made the following points, among others:

Considerations and Recommendations

A review of the rail lines now running through major urban areas with commuter rail services suggests that few would likely be candidates for abandonment, since a significant share are either part of a railway's mainline or already have commuter trains operating on them.

For example, Montreal's AMT operates in part on CN's Halifax-Montreal mainline, in part on other mainlines, and in part on lines dedicated essentially to commuter rail. Similarly, commuter operations in and around Toronto also use a combination of mainline segments and branch line segments, none of which appears to be in any danger of abandonment, although some may have capacity limitations. West Coast Express in Vancouver operates over the CPR mainline in a high-density corridor and has invested a considerable amount of money in having CPR upgrade the line for commuter services.

For lines already serving commuter trains, as long as the railways believe that they are receiving fair compensation from the commuter authority, there would appear to be no reason to abandon a line. Mainlines are also unlikely to be proposed for abandonment unless they are replaced by a re-routed mainline, as could occur, for example, after a merger of CN and CPR, should such an event ever occur. Nevertheless, the preservation of urban and ex-urban rail lines could prove important in the development of commuter rail services.

Discontinuance Process
Despite these observations, concern about the discontinuance process remains, precisely because the corridors are unique and potentially among the few options available for new or expanded transit services. Commuter authorities in particular questioned the appropriateness of the abandonment provisions in the context of urban realities.

A railway is required to publish a three-year plan indicating which lines it proposes to discontinue. After a twelve-month waiting period, lines not already sold commercially for continued railway operations are to be made available in sequence to the federal (a restricted option), the provincial, and the relevant municipal governments. Traditionally, the federal government has not acquired lines proposed for abandonment, and provincial governments are less likely to do so now than they were in the past. Having municipalities on the notification list tends to add to the length and complexity of the process, because if the line in question goes through more than one, all municipalities on the line become part of the decision-making process.

Direct notice to relevant commuter authorities is not required, and commuter authorities have no special right of acquisition. Commuter rail authorities asked that they receive notice and be able to receive and respond to offers.

Section 145 of the Canada Transportation Act outlines conditions under which a railway company must offer a line that has been identified for discontinuance to various levels of government. The Panel believes that such lines should be also be offered to commuter rail authorities if a municipality or the commuter authority has identified them in its official plan or transportation plan as being required for mass transit purposes. Further, commuter rail authorities should rank ahead of municipalities with respect to these lines, so that corridors can be maintained for urban transportation purposes where required.

Recommendation 13.3
The Panel recommends that section 145 of the Canada Transportation Act be amended to require that a railway offer lines it intends to discontinue to commuter rail authorities before offering them to a municipal or district government, provided the line has been identified officially as being required for urban transit purposes.

Valuation of Corridors
When a railway company offers a railway line to governments or, following the Panel's recommendation, to commuter rail authorities, it must do so at a price no higher than "net salvage value". Valuation of the track component — ties, rails and other material — is relatively straightforward, but valuation of the underlying land has been a particularly contentious area, especially where the line traverses an urban area.

Railways want to maximize the return from the sale of the land, as they would be free to do if it were not required for government or commuter purposes, while governments and commuter authorities argue that the land may have limited use, and this should be recognized in its value. Alternatively, some argue that the railways should not reap a windfall gain from the increase in the value of land, which in many cases has been in railway hands since before urbanization.

The current mechanism for line abandonment ensures that the railways follow certain protocols. When a line is transferred to public ownership at net salvage value, to be used or preserved for later use as an urban transportation corridor, the essential fact is that offering the line on a commercial basis to other railways did not result in a sale.

The Panel believes that the only valuation that can be recognized as fair to both the railway and those who would acquire the lands at net salvage value is one based on recognized land valuation principles and techniques, which attempt to provide the best possible estimate of value.

The 'across the fence' value is the usual starting point for valuing a corridor. The U.S. Appraisal Institute defines this as "a means of estimating the price or value of land adjacent to or 'across the fence' from a railroad, pipeline, highway or other corridor real estate; as distinguished from valuing the right-of-way as a separate entity." The method is based on the premise that the value of the land within a corridor should reflect the land through which it passes; it requires detailed analysis, in which the corridor is valued in segments or zones consistent with the adjacent land use (based on the same 'highest and best use'). Given its acceptance in corridor valuation, the Panel believes that the across the fence value should be used as the basis for land valuations in net salvage value determinations.

The Panel also concludes that in such cases, no assemblage premium should be applied. The assemblage factor may be appropriate for estimating the cost of constructing a new line for internal use by an organization, but it should have no bearing in determining net salvage value. This is because of the simple fact that a commercial sale to another rail operator did not occur, resulting in the corridor being transferred at net salvage value. Further, applying an assembly premium would be inconsistent with the way the net salvage value of track and other materials is determined. Finally, in jurisdictions where property taxes are based on market value, the railway is not paying taxes based on assessed values using an enhancement factor. In the Panel's view, the methodology recommended here should be applied to any rail corridor being transferred under the Canada Transportation Act at net salvage value.

Recommendation 13.4
The Panel recommends that land being transferred under the Canada Transportation Act process at net salvage value be valued at no more than its 'across the fence' value, with no premium for assembly applied.

Within these parameters, there are several possible valid valuation approaches, and the methodology must remain flexible enough to allow the appraisal to reflect the inherent characteristics of the land within the corridor. These approaches would include information derived from the 'direct comparison approach', where that is possible, the application of a discount factor to the across the fence value where appropriate, and a more detailed 'break-up analysis'.6 In all cases, adjustments would need to be made for interests in leases and agreements that are not transferred.

Rail Line Banking
Some participants in the Panel's consultations saw sale of abandoned lines for development purposes, particularly in urban areas, as a serious threat to long-term transport plans. In addition, they argued that the time frame for the current discontinuance process gives provincial and municipal governments insufficient time to decide to buy a railway line offered for transfer.

For some the solution is a rail line bank, with the federal government acquiring railway corridors in which municipal governments have expressed a formal interest and banking them (possibly through the use of a revolving fund) for potential use as urban transit corridors.

The United States has a system for banking rail lines (under the National Trails System Act), many of which can be used as trails pending further need as rail corridors. Approximately 90% of all rail/trail projects (whether rail banked or not) are funded from federal Transportation Enhancement funds, a subset of Surface Transportation Program funds. Funds are used to purchase lines in an 80/20 federal/sponsor cost-sharing formula. Also, a railway company that donates land may be eligible for income tax deductions under federal and state laws. Banking lines may be simpler in the U.S., however, since the railways in many instances do not own the land on which their infrastructure rests, unlike the situation in Canada, where the railways own both the infrastructure and the land.

The Panel notes that rail line banking is a matter normally handled by the provinces, although in recent years the provinces have been less inclined to purchase surplus lines. The federal government has some responsibility for urban rail issues, given that lines of federal railways are under its constitutional responsibility.

Under the Panel's earlier proposal, railway companies planning to discontinue a line would offer it sequentially to the federal government, the provincial government, commuter authorities, and municipal governments. Where lines or corridors are proposed for mass transit use, they could be purchased by either the province or the commuter authority — whether the line was used immediately or the corridor was banked for future use. Consequently, there is no requirement for further amendment to the line discontinuance and transfer process, beyond that recommended by the Panel, to achieve this purpose.

Some portions of lines (such as spurs) that are no longer needed by railway companies could be important for urban transport purposes, but they are not covered by the current discontinuance process. The Panel believes an expeditious process should be available for offering such lines for sale to governments. Where a line has been identified by a municipality or commuter authority in its official or transportation plan as being required for mass transit purposes, a railway company should be required to offer the line for sale to the province, the commuter authority or the municipal governments involved.

Recommendation 13.5
The Panel recommends that railway companies be required to offer for sale, to the relevant province, commuter authority or municipal government(s), a spur or other line not covered by the current transfer and discontinuance process, provided the line has been identified officially as being required for urban transit purposes.

Finally, where the purchase of a line or spur is deemed necessary for current or future urban transit use, funding to help cover the purchase price could be made available as part of the integrated approach the Panel recommends for establishing priorities in urban passenger transportation and funding projects in consequence.

Recommendation 13.6
The Panel recommends that the purchase of railway lines for use as urban transit corridors (including spurs identified through the process set out in the previous recommendation) qualify for funding consideration from the provincial and territorial roads and transport funds the Panel proposes.

In making this recommendation, the Panel is aware that in the case of urban rail corridors intended for future use, evaluation of their purchase would likely produce a negative net present value, so an application would likely fail the cost/benefit test that projects competing for funds would have to meet. The Panel sees such corridors as falling under a public interest exception category — in the sense that a case could be made that these are strategic investments for the future and that forgoing current spending on another project in order to put aside a corridor for future use is justifiable. Strict discipline would have to be applied, however, so that only corridors with genuine future potential would be put forward as candidates for purchase.

TOP OF PAGE

Notes

1 Adapted from Canadian Pacific Railway, "Canada's Railways: Achieving Full Potential — General Brief to the Canada Transportation Act Review Panel", December 2000, pp. 46-49.

2 Canadian National Railway, "Submission to the Canada Transportation Act Review Panel", November 2000, p. 40.

3 Canadian Pacific Railway, "Canada's Railways: Achieving Full Potential", p. 47.

4 CN submission, p. 41.

5 CPR submission, p. 49.

6 Direct comparison approach: This approach to value is not common but could be used, provided adequate, verifiable, abandoned Canadian corridor sales are available that are similar in terms of location, physical features and other characteristics.

Application of a discount factor to the across the fence value: The appraisal must begin by determining across the fence values to ensure that the corridor's value includes some reflection of the abutting land uses through which it passes. The next step is to apply a discount factor to the entire corridor. To be relevant, the factor must be derived from verified sales of Canadian abandoned corridors located within similar market areas.

Alternatively, a more detailed break-up analysis could be completed for the corridor to establish the present value of the net amount the owner would likely receive if it were sold on a piecemeal basis over a reasonable period of time. This is based on the highest and best use of the individual segments of the line. This must take into account the individual characteristics of each parcel, some of which may be viable independently, whereas others would need to be sold to abutting owners. The reaction of buyers to urban land may be different. Unlike rural areas, the soil productivity (or lack thereof) is not an issue. In all cases, market evidence or case studies must be presented by the appraiser to support adjustment factors. (Kevin Antonides, "Valuation of Rail Corridors", brief prepared for CTAR, May 2001.)

<< PREVIOUS CHAPTER | TABLE OF CONTENTS | NEXT CHAPTER >>