The TTC Budget Committee will meet on June 29, 2015 to consider a preview of the 2016-2025 ten year Capital Budget. This gives a sense of where the TTC is headed in its search for funding at the City of Toronto, Queen’s Park and Ottawa, as well as its priorities for future spending.

The Capital Budget often can be daunting both from its size (the detailed project description material fills two large binders), the complexity of its funding (many sources of money, one-time or ongoing schemes, and the fact that huge projects like subway extensions are mixed together with the more mundane work of routine repairs to refresh aging infrastructure.

This mix also shows the ongoing competition for attention between the megaprojects and the equally important job of keeping the TTC rolling.

The budget spans ten years, and each year brings updates to reflect planned work that now falls within the ten-year window, new projects that have not been included before, and changes to existing projects either in their scope or timing. For many years, the total budget has exceeded projected funding for the next decade, and many projects sit in limbo awaiting their own dedicated financing scheme, or the arrival of more money through increased subsidies. The balancing act the TTC faces is to keep the vital projects going in the short term while beating the drum for for better transit support in future budgets.

Funding from “senior” governments – Ontario and Canada – has declined considerably over the years. Although specific projects have large investments – notably the Spadina extension (TYSSE) and the Eglinton-Crosstown (which is now a Metrolinx project) – funding for basic capital maintenance is a hard sell. Toronto receives gas tax revenue from both governments, and in the case of the provincial stream, a bit over half is dedicated to operating subsidy, not to capital. The total gas tax capital flow each year from both Queen’s Park and Ottawa is about $220-million, less than one quarter of the typical annual spending. Almost all of the remainder comes from the City of Toronto.

This, together with other City financial pressures, has created a very tight squeeze in coming years which is shown in a chart from a recent budget presentation.

Recent decisions by Council have eaten up all of the headroom that formerly existed in the City’s capital debt plan. In order to keep spending on debt service under control, the City sets a ceiling of 15% of property tax revenues for this expenditure. This is actually much less than 15% of the overall City budget because property tax covers only about 1/3 of the total (for example, transit fares are roughly 10% of total City revenues). However, the other revenue streams are spoken for because they are dedicated to specific purposes, not to general operations. Also, some of these are non-recurring such as special grants, “surpluses” (actually underspending from previous years), or proceeds from asset sales. Such revenue cannot be counted on in future years as a source for debt payments. In simple terms, you can only spend an inheritance, or lottery winnings, or money from selling your antique furniture, once.

By 2020, the anticipated debt payments bump into that 15% line and there is no headroom. Any new capital project, especially one that starts in the next five years, and which is financed by debt, would push the debt service cost beyond that 15% by 2020. For example, you may have spare cash today to cover a car purchase loan, but if you are facing another loan for a planned home renovation project in a few years, you won’t be able to carry both when the crunch comes. That is the situation the City finds itself in, and current budget guidelines call for no new debt-funded projects to be added for the next nine years until there is headroom once again for borrowing. (Note that the City’s projections allow for anticipated future changes in interest rates, although these take time to build into the debt service base because of long-term fixed interest rates on City debt.)

One obvious solution is to either raise the amount of tax revenue so that the 15% is measured against a higher income stream, or to get a new source of revenue to pay for capital costs without borrowing. Neither of these is palatable to City Council, and they look to other governments to increase funding.

Project-based grants can shift individual items off of the books (for example a new rapid transit line might be “free” because someone else pays for it), but these projects are not necessarily our top priority (we might value better accessibility in existing stations over a new subway through vote-rich ridings). Moreover, the completed projects could bring additional operating costs (the TYSSE will certainly do this) for which money must be found in the Operating budget.

The presentation includes a long list of funding programs created by various governments that have run their course (end dates in parentheses) [see pp. 41-45]:

• Canada Ontario Infrastructure Program (2003)
• Ontario Bus Replacement Program (2010)
• Golden Horseshoe Transit Improvement Fund (2012)
• Ontario Rolling Stock Infrastructure Fund (2012)
• Canada Strategic Infrastructure Fund (near complete)
• Metrolinx Quick Wins (near complete)
• Transit Secure (2009)
• Infrastructure Stimulus Fund (2011)

A few remain in place:

• Light Rail Vehicle Procurement (to 2019)
• TYSSE (to 2018)
• Provincial Gas Tax (ongoing)
• Federal Gas Tax (ongoing)

Promised funding for future projects such as the Scarborough Subway Extension (SSE) are not included in this list because they are not yet approved beyond preliminary planning and engineering. Metrolinx projects do not appear in this list because they are entirely handled at the provincial level and do not affect City capital requirements.

The Big Picture

The Capital Budget contains several components:

• The “Base Budget” contains items that the TTC really wants/needs. These related generally to ongoing system maintenance and renewal. Contrary to popular myth, transit assets like subways do not last 100 years, at least not without regular and expensive upkeep. The proposed base budget for 2016-25 is $9.2-billion.
• The TYSSE is one project, the Spadina extension, for which $700m of the project budget is as yet unspent. This amount includes a proposed $150m extra to cover costs of getting this work back “on the rails” for a late 2017 opening date.
• The SSE budget is primarily for the Scarborough extension, but it also includes money to keep the SRT alive until the SSE’s opening day, and to decommission the SRT once it is retired. This project has $3.5b in the 2016-2025 period.

A vital point here is that this list, totalling $13.4b, is not fully funded and there is just under $3b from the Base Budget for which the TTC has no current source of funds. I will return to this problem later.

Over and above this list is a collection of items totalling $7.2b that are on even shakier ground that the unfunded portion of the Base Budget. These  include:

• Projects Under Review ($800m)
• Waterfront ($100m)
• Projects for Future Consideration ($6.3b)

The grand total is $20.6b, rather more than the amount of money now available.

The “Base Budget”

Almost all of the “base” amount falls under “State of Good Repair” according to the TTC’s breakdown.

This gets a bit tricky because those categories of “SOGR” and “Legislative” tend to be regarded as untouchable even though they comprise almost all of the budget. Next to nothing is left over for actual improvements (don’t forget that major rapid transit projects are elsewhere, not in this grouping).

An ongoing problem has been that projects get counted as SOGR when they may not be, or may only partially be. For example, in one past budget, a $1-billion project – platform doors – was buried in this list although it obviously had nothing to do with “repair” of the existing system. The Automatic Train Control project’s primary purpose is to replace a 50 year old signal system before it completely falls apart, and then, oh by the way, to increase the level of subway service possible. All the same part of the ATC costs should properly be classed as “growth related”.

The Legislative category is dominated by the Easier Access Program to add elevators and other accessibility aids to subway stations. Other components here include environmental remediation such as asbestos removal from subway tunnels.

Half of the Service Improvement category is for the purchase of 149 buses that will be net additions to the fleet (as opposed to replacement of aging rolling stock that must be retited, and is included properly under SOGR).

Growth Related includes McNicoll Garage, but does not include funding for a separate 250-bus facility that is proposed in the fleet plan. Because that will be a leased property, it will show up on the Operating Budget and add to the pressure on fares in future years rather than being paid for out of capital revenue streams. This is part of a subtle change that began in 2015 with the shift of some “capital” items to the Operating budget as “capital from current” expenses. The effect is to boost the need for higher fares or higher subsidies masquerading as support for service.

(The pie chart for “Growth” includes, believe it or not, a small item for the Sheppard Subway of $4m. No, we are not extending the line. There is a property settlement that after many, many years is expected to be completed in 2016 and will be paid from the still-open budget for that long-completed line.)

The breakdown charts are on pp. 6-9 of the presentation.

Just because something is in one of these charts, notably SOGR, does not mean that it is “funded” (i.e. that known revenue has been earmarked to pay for it). A useful addition to these charts would be a breakdown of funded/unfunded status for each of the major groups and for their line items.

Bus Fleet

The plan includes $1.813-billion in spending for the major parts of the budget related to the bus fleet.

The column “EFC” is the estimated final cost to complete projects. In many cases these are projects already underway with accumulated spending from past years. Some items shown here for reference have zero spending because they will complete in 2015 (at least for budgetary purposes).

I have discussed the bus fleet plan in a separate article, but it is worth repeating the illustration for the overall size of the fleet and required garage space.

The bus fleet will grow by over 10% relative to 2015 before settling down to a stable level in the 2020s after major rapid transit projects take over some of the demand, net of growth. It is not clear from this chart whether it includes provision for improved service crowding standards, nor of the scale of effect this would have on the plan.

Streetcar Fleet

The big items in the streetcar budget plans are the new vehicles and provisions for them around the system.

This is not the total list and notable by its absence is the ongoing maintenance of streetcar track.

The $15m project for trackswitch controllers has been in the budget unchanged for many years, and has never actually started as I discussed in another article.

Subway

The chart below only deals with the subway fleet and associated facilities. It does not include much of the ongoing maintenance of subway infrastructure.

The 372-car project starting in 2018 is the replacement fleet for the Bloor-Danforth line once the T1 trains reach end-of-life in the mid 2020s. This would completely replace the T1 fleet including cars that are now spare, but reserved for the SSE, as well as the T1s now used on Sheppard which are to be replaced by 4-car TR sets under a recent approval.

Conversely, if plans change, and the TR fleet from the Yonge line is to be shifted to Bloor-Danforth and replaced with a new fleet of longer trains, this plan will have to be amended because the two fleets are not the same size.

Of particular note here is the total cost of making room for a larger subway fleet with a final cost of just under $1-billion. This is a hidden cost in fleet expansion, and the TTC has now used up every inch of spare capacity on that score. Any further extensions or service increases (for example running all service to Vaughan or to Scarborough/Sheppard rather than 50% as now planned) will trigger a need for more trains and more storage space. It will not just be a matter of running existing equipment that would otherwise be sitting in the yard.

The larger fleet and more frequent service planned for YUS pose a challenge given that most of the fleet is based on the outer part of the western branch at Wilson. Just getting trains out for service in the morning and back in at night will be difficult. Exact details of how the TTC will deal with this remain to be decided although there have been several proposals including, astoundingly, closing the subway earlier than 2:00 am.

Automatic Train Control (ATC) is a large and important project not just because it will replace mid 20th century signal technology, but because it will give the potential for greater capacity. This is an integral part of plans for “Relief” in the Yonge corridor, although even this will be consumed by about 2031. The budget presentation is intriguing because it speaks of a 20-25% increase in capacity. Current plans call for subway capacity to rise from 28k/hour to 36k/hour, or 28.6%. Over the years, claims for the capabilities of ATC have stretched credibility, and the TTC has been pulling back in their claims. If the floor is now 20%, then this means a capacity of only 33.6k/hour which is only a few thousand above the current above-design loading level of the YUS.

This is not a trivial issue, and the TTC needs to settle on a target capacity and explain just how they will achieve it. For example, there is no provision in the capital budget for terminal changes that might be required to improve turnaround times.

We also know from the Metrolinx studies that a Relief Line could substantially cut future demand on both the YUS and BD lines, and this would affect fleet planning in the early 2030s or sooner.

Unfunded Projects

The list of unfunded projects within the Base Budget is substantial at a total value of $2.3-billion. This chart really needs work because it lumps projects where spending is not actually needed for many years together with necessary ongoing maintenance. Some items appear here because there are long lead times with requirements for an up front “signing” payment, notably for new rail vehicles. This is a point of some contention with Bombardier thanks to their poor performance on the Flexity streetcar contract.

Another point is the status of Easier Access III, the program to retrofit subway stations for accessibility. In the unfunded list below, it shows up with a cost of $165m. However, in the list of “Legislative” project costs, the value is $429m (p. 7). This implies that the shortfall in this program is not as dire as the TTC has previously led people to believe and that funding has been earmarked for about 60% of the project. This is good news, but the TTC should tell us just what this means for their construction plans.

Although there is much talk of service improvements, money on the table to pay for them is another matter. This includes the cost of 60 more streetcars and 99 more buses. The latter are  particularly critical because service improvements they would bring would occur in the next few years, not in the early 2020s.

Infrastructure maintenance is also vital, and failure to perform it leads inevitably to failures and to unavoidable, higher costs down the road.

Following the Money

An inevitable request from the politicians is an explanation of how this year’s budget has changed from last year’s. Because the Capital Budget is a multi-year affair rather than self-contained in 2016 like the Operating Budget, explaining the ins-and-outs takes a bit of effort.

The budget exists in two forms: the one Council approves and the overall request that the TTC has for funding. Relative to the approved budget in 2014 for the years 2016-2024, the total ask has gone up by $3.367b. However, $2.367b (the preceding table) is as yet unfunded, and this brings us down to $1.04b.

The new tenth year must be added back in at a cost of $821m for projects that have already been approved.

This leaves a net increase of $219m which is made up of:

• $11m in new projects
• $138m in slippage and carry-forwards from past years
• $70m in net changes for existing projects.

The two new projects are each interesting. First up is the “New Davisville Facility” with an estimated final cost of $400m. There are no details on what this entails, and at this point the only funding to be provided is for design work.

The other is $38.1m for the Presto Fare Gates which are discussed in another article. This is clearly new spending, an item not previously identified as part of the cost of Presto migration.

New Subways

The two new subway projects are the TYSSE and the SSE.

The Spadina extension’s estimated cost has risen by $150m (of which Toronto will pay 60%, York Region 40%) related to sorting out the mess with contracts and construction, all with the aim of a late 2017 opening date.

The Scarborough extension remains budgeted at $3.6b including construction of the new line ($3.305b), SRT life extension ($119m) and SRT decommissioning ($123m). This number is subject to change based on several factors:

• The actual route and station locations in the final approved version of the project.
• The actual cost of providing additional storage for vehicles considering that fleet the TTC already owns will be used to serve the extension.
• The actual cost, if any, of fleet for the line. This was included in the SSE budget, but may not be required.

(Note that this analysis of the SSE is my own, not the TTC’s, and it appears that SSE budget planners have been unaware, or chose not to acknowledge, the contents of the subway fleet plan.)

Waterfront Toronto

There are many unfunded projects for Waterfront Toronto with a net cost of $90m in the budget. Of these, only the West Donlands streetcar has been built. What remains is overhead power installation following the Pan-Am Games and service startup in spring 2016 (an Operating Budget issue). The Capital Budget has also included funding for more streetcars to operate the waterfront lines, but this may be double-counting against the expansion of the new streetcar order. Until the detailed budget listing is published it is difficult to tell.

The estimated final cost of the uncommitted waterfront lines is:

• $474m for East Bayfront (Union to Parliament)
• $200m for Port Lands
• $24m for the Bremner line (most of the cost of this project is under “Future Consideration” below)

Of the three, the Bremner line is the least likely given that it requires insertion of an LRT line through an area south of the Rogers Centre and onto a narrow right-of-way where there is heavy pedestrian traffic. The Port Lands line is a project for the mid 2020s or later when redevelopment reaches south along the revamped river mouth. Notably here, there is no provision for the Broadview extension contemplated as part of the First Gulf Uniliver site development.

Projects Under Review

Although there is a large unfunded backlog, the TTC is looking at many projects to determine whether they can be trimmed and what the priority should be to move them back into the funded list if money can be found.

Notable in this list is the Presto Fare Gates even though they appear on the verge of approval if presentations elsewhere are to be believed. This is an example of how the budget planning can get out of sync with line item approval requests. The amount is comparatively small, but this shows what can happen.

The single largest item on the list with almost half of the total value is the “New Davisville Facility”. This really needs more explanation.

Another item of interest is “Workcar ATC Capability” at $41m, a cost that was previously thought unnecessary as part of the ATC conversion. This is yet another cost and scope creep on that project.

Also, there is a Standby Power System at $40m. With recent events at Hillcrest where all power was lost to the main system control centre, this is sure to attract interest, but exactly what it might entail is not known. The project does not appear in the detailed 2015 budget books.

Future Considerations

This group contains some real dandies with a total project cost to completion of almost $9-billion. Looked at another way, this is a wish list that is almost as big as the entire capital base budget for the next decade.

Included here are changes at Warden and Islington that will be required to make these stations accessible. Originally the TTC hoped that redevelopments at both locations would pay for part of this work, but now they have to include the projects on their own. Money might still come from development, but the 2025 deadline for accessibility will be a spur for these projects.

A very large item is the $1b project to expand capacity at Bloor-Yonge Station. Some readers may think that I invented this number as part of my pitch for the Relief Line as an alternative, but here it is in black and white. The cost of Platform Edge Doors (PEDs) is now up to $1.17b. Fire ventillation is close to $1.5b.

The granddaddy of them all is the Yonge extension to Richmond Hill at $4.6-billion.

This page is quite misleading, verging on irresponsible, as part of the overall budget. Some of these projects are at best pipedreams of TTC managers looking for ways to spend money. Some projects will receive substantial funding from other sources (notably the Richmond Hill line). Some of them, notably anything to do with massive capacity growth on the YUS, could be rendered unnecessary by a Relief line and offset its cost. There is no question that transit needs more money, but throwing everything into the hopper without any sense of priority, likelihood or potential tradeoffs exaggerates the depth of the funding shortfall.

Finally, there are added items some of which are already included elsewhere in the budget, but some are simply floating “out there” as studies or proposals. The Relief Line is an obvious large item which oddly enough isn’t in the TTC’s list even though the Richmond Hill line is (above). A potential change in the planned life for buses from 18 down to 15 years would not affect the total fleet size, but would change the replacement rate and increase capital spending on that account.

Conclusion

Now, gentle reader, if you have come this far, you too can be an expert on TTC capital plans.

I will update this article after the Budget Committee Meeting if there is any useful additional information from the presentation and discussion.