Interesting analysis, and one that I certainly agree with. Sheppard needs to be tossed into the deal if we're going to get the support of the hardliners on the right.
As for the DRL, here is my idea of how to fund it:
1) Make it abundantly clear that the majority of the line will be financed through alternative revenue streams.
2) Finance the line through the following formula: 2/5 Municipal, 2/5 Provincial, 1/5 Federal
3) The day the DRL opens, a London-style congestion zone gets implemented around downtown (Spadina, Bloor, Don Valley, Lake).
4) The Province implements tolls on the 400 series highways, or even just the 401 Express if we need a less drastic approach.
5) Use the toll revenues to pay down the interest and some of the principle on the debts. Congestion zone goes to Municipal portion, 400 series highways goes to Provincial portion.
I think that the assumption that a lot of people are making is that the revenue from these revenue tools needs to be entirely raised up front. The problem is that building up enough cash in that fund to do anything useful with it is going to take years. Why not use the on-going revenue coming from those sources to pay down the construction debt instead? Yes, it may cost us a bit more in the long run, but we'll get the projects years quicker than we would if we had to wait for the money to come in first. Think of it as like using a credit card vs using a debit card.