City Finds Rabbit in Hat: Balances Budget and Funds TTC (Updated)

Updated February 17:

The City’s Budget Analyst report on the TTC is now available online.  I will comment on it in more detail when I have time, but a few points warrant immediate attention.

The big issue in TTC budgeting is always the ridership projection and the anticipated revenue from fares.  This number has been jumping around a bit.

In the February 15 Budget Presentation, the City shows increased fare revenue from the TTC as providing $50m reduction in the original estimate of the City’s shortfall (see page 15).  However, in the Analyst’s notes, a value of $48.4m is cited on page 29 as a gross number.  From this, the Analyst deducts a charge of $12.125m to account for fare revenue “lost” to Metropass users giving a net figure of $36.805m.

The reason for this is that the Analyst uses budget numbers, not real numbers.  Therefore, to get from 2009 to 2010, one must first remove the $12.125m from 2009 to get an adjusted base, and then add in whatever benefit a fare change will bring.

On page 3 of the Analyst’s report, we learn that the TTC’s preliminary year-end report showed that the 2009 revenue shortfall was almost exactly matched by underexpenditures due to lower energy costs and an accounting change in treatment of future accident claims.

Today, TTC Chair Adam Giambrone updated his Facebook page with this information:

It has just come up that ridership is up 1% over last year despite the fare increase in January. And we reviewed the point that TTC actually recorded a SURPLUS of $300,000…amazing especially that at one point we were $23 million behind. It took a lot of work, but we did it. [Posted at about noon on February 17]

The TTC has not yet published stats for December 2009, but based on strong results in January, one might expect that December was a good month also, relative to budget expectations. 

The 1% increase in ridership (which applies to the first three weeks of January) is quite different from the expected riding drop after the fare increase.  Whether this will be sustained through the year remains to be seen, but it is a pleasant sign.  Having said that, a sustained increase would give full year results of about 476m riders, not the budgeted 462m.  Whether the service budget based on the lower ridership can handle more riders will depend on where the increases come and whether they can be absorbed into the service actually operated.

On the budget side, 14m more rides than budget translates to a tidy pot of unexpected revenue.  We do not yet know how many of these new rides are full adult fares, increased use of passes or greater riding at concession rates (students, seniors, children).  By the end of April, when the City budget comes to Council, the TTC should be required to provide an updated projection of its ridership, revenue and funding needs so that the subsidy level can be adjusted accordingly.

When TTC staff proposed the fare increase last November, they projected that there would be a $106m shortfall in 2010 before any budget adjustements in the new year.  Various scenarios were presented, and the one recommended included a 25-cent adult fare increase (pro-rated to concession fares) and a two-trip increase in the Metropass multiple.  This scheme was projected to bring in $50m net of the effect of lost riding.  (see page 8.)

However, the Commission actually improved a 25-cent adult increase, but no change in the Metropass multiple.  This is clearly shown in the staff report as generating only $38.9m in revenue net of losses in ridership, and this does not include the cost of an adult student pass rate starting in September 2010. 

Neither of figures includes the net effect of the $12m in “lost” Metropass revenue.  The Budget Analyst has flagged this in the “Issues for Discussion”, but the City’s budget does not reflect the lower net figure for new revenue compared to the 2009 budget.

Much of the confusion arises from the comparison of budget-to-budget figures, rather than using probable actuals as a base reference, and of citing gross effects of proposed changes such as new fares rather than net effects.

In summary, the TTC (and the City) appear to be overstating the net revenue benefit of the fare increase at the budgetary level, but may be rescued from their errors by stronger than projected ridership.

The original February 16 article follows the break.

February 16 was Budget Day at City Hall, and we saw the launch of the Operating Budget process that will conclude at the Council meeting late in April.

As I write this, all of the background reports are not yet available online. For example, under “Analyst Notes”, there is information only about the Capital Budget. The Operating Budget notes are supposed to go online soon (they were only finalized very recently).

The single biggest hole in Toronto’s budget sustainability is the funding of TTC operations. In 2009, Queen’s Park gave Toronto $238-million to pay against the carrying charges of TTC-related City debt. This released funds in the City’s budget that could be applied to the TTC’s operating subsidy. In 2010, there is no special payment from Queen’s Park, but the City has cobbled together $219-million from various sources to cover the “provincial share” of TTC funding.

Those sources include savings instituted during 2009 in other City operations, reserve funds and other odds and ends within the 2009 budget. As a funding source, this is not repeatable in future years because the reserves are now empty, and operational savings are built into the base budget. Indeed, the City’s ability to deal with unusual spending requirements in various parts of its operation is now constrained by the lack of reserves, and such expenses will have to be paid for from current revenues in future.

Mayor Miller, in introducing the budget, spoke of a goal of a signed agreement with Queen’s Park for ongoing transit funding.

It’s a fact the City needs the province to return to the sustainable transit operating funding that was in place for decades prior to amalgamation.

We will be working with the Province of Ontario to conclude a Toronto – Ontario Partnership Agreement by December 1, 2010 to provide the City with permanent sustainable transit operating funding, commencing in fiscal 2011.

That remains the single largest ongoing operating budget structural challenge affecting the City each year and I look forward to working on the resolution of the matter.

Transit is too important to be financed with ad-hoc, year-end or one-time funds, and the TTC is too important to the future of Toronto to allow it to suffer uncertain funding.

Such an agreement is vital to the TTC’s future health, and I hope that Miller’s critics (and would-be successors) will have the sense not to attack the idea just because it’s a “Miller” initiative.  A major challenge for any funding formula will be the need for flexibility in defining the rate of increase.  If services are to improve, transit will cost more quite independently of underlying cost factors.  Cost constraint is always possible in the short or even medium term, but eventually there is nothing left to squeeze but the service on the street.  The balance between these two factors will, I am sure, lead to a robust debate.

The TTC’s operating subsidy for 2010 will rise from $394m to $430m, or 9.1%, well above the prevailing rate of inflation.  Among the reasons for this situation are:

  • Service increases in 2009, plus planned additions in 2010, add to overall costs.
  • Ridership is predicted to fall slightly in 2010 due to the fare increase.
  • The fare increase does not increase total revenue proportionately to the overall TTC budget.
  • Non-fare revenue at the TTC is falling due to the prevailing economic situation (mainly advertising).

Service changes in the pipeline for 2010 include some cuts (the first of these will be detailed when I review the schedules coming into effect at the end of March) and some additions.  Overall, the TTC is attempting to limit growth in service to its budgeted level which assumes a drop in riding from 471m to 462m in 2010.  The TTC has not yet published ridership statistics for 2010, and it is unclear how or where the fare increase might have affected ridership.  Planned service changes would have been in the works before definitive riding counts for early 2010 were available, and these would be based on late 2009 information.

The one major initiative still officially on the books is the Transit City Bus Plan.  This plan includes a 10-minute network of key routes, but this needs a rethink:

  • Some routes selected as part of the “10 minute network” don’t make sense, while others were omitted on what appears to be an arbitrary basis.
  • The decision to not include future Transit City LRT routes, some of which won’t even begin construction for many years, in the 10-minute network is nonsensical.  These are obviously important parts of the network, and should have a minimum guaranteed level of service.

See the linked article for a discussion of the overall plan.  Although I am a supporter of better transit, I want to see “better transit” done right.

If TTC ridership comes in at a higher level than expected for 2010, this does not translate automatically to more service.  In past years, we know that the City treated any “surplus” within the TTC as “found money” to reduce the subsidy requirement.  In brief, the argument is that the City has bailed out the TTC when it falls short, and should benefit when revenues run higher than expected.  The TTC prefers that any surplus be banked in a reserve fund to smooth out year-to-year variations within its own accounts rather than going back to the City in the general accounts.  Which accounting treatment is used depends on the political balance at City Hall.

When additional budget materials related to the TTC are available online, I will update this post.

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18 Responses to City Finds Rabbit in Hat: Balances Budget and Funds TTC (Updated)

  1. Mark Dowling says:

    I would be interested to know the basis for the 1-Dec-10 deadline. The Mayor should undertake to be open on the progress of the agreement and the main heads, so that we can hear from the candidates whether they will sign it – and in fairness, expecting mayoral candidates to commit to a document sight unseen is probably somewhat unfair. The last thing we want is a Larry O’Brien situation where the mayor changes and everything is junked.

    Steve: Dec 1 is the date the new Council takes office after the election. Openness about its content is as much a question of how much Queen’s Park wants to announce as anything the City might control.

  2. Bradley Wentworth says:

    It’s a shame “surplus” ridership funnels funds back into the City. Transit agencies ought to have an incentive to increase ridership. I’ve always wondered if funding from Queen’s Park and Ottawa could be made long-term and partly proportional to ridership increase. If transit agencies knew they would get more money by attracting riders, presumably they would add more service to do so.

    There would be benefits to higher levels of government, including better bang-for-the-buck out of capital expenditures, less money spent on roads, less wastage from traffic congestion, and lower carbon emissions. Also, unfortunately, fewer photo ops in front of cathedral-sized subway stations.

    Steve: A few corrections here. First, if I was unclear in my post, there was a time when the City scoffed any “surplus” at the TTC, but more recently they have let it ride in a reserve. The problem is that we don’t know what any new administration come the 2011 budget might do.

    As for the capital accounts, this has nothing to do with whether there is money left over from operations. It’s been amusing to watch people complain about the proposed stations for the Spadina extension. For years, everyone complained that we had boring stations, and so part of the design ethos of the Spadina project was to have attractive stations, each designed by a separate architect.

    There’s a certain family resemblance to their general layout that comes from some basic requirements of station design. They must be 500 feet long, or the trains would not fit. They tend to be deep (multi level) because the bored tunnels have to be far enough underground for structural reasons and to avoid utilities. Why bored? Because many people complain about the disruption of cut-and-cover construction. There must be two separate exits for fire safety, and they must be accessible. When you dig a hole for a station, you can either fill it all in again, or leave the space open as much as possible between the levels. Yes, this may look like a cathedral, but it’s not overspending.

    In one case where we might have had cut-and-cover (the north end of Downsview Park), the line has been redesigned to go lower (hence bored) so that the station can be moved east directly under the GO line. Yes, that’s the same GO line that everyone regarded as something of a joke because it had so little service on it when the Spadina subway was proposed. Now GO owns the whole line, and plans good, all-day, two-way service. The connection between GO and the subway just got more important.

    As for the link to roads, congestion and carbon, there will always be congestion because we will never build enough transit to eat up all of the road demand — just look at the modal split numbers for the GTA to see how trivial transit is as part of the whole network today. The way to save money on roads is to “just say no” whenever people ask for “just one more”. Indeed, the same might be said for transit plans that build subways where they are not needed.

  3. George S says:

    I am glad that a dependable source of revenue has been found for the TTC. It sounds like most of this funding is for day to day operations rather then expansion of the network. I am glad though that the Transit City Bus Plan is going to be funded. I was thrilled that a BRT was going to use the modernized Victoria Park Subway Station and travel east on Danforth and then Kingston to the Eglinton/Kingston intersection. I am guessing though most of this secured funding will be for operational costs and our TTC councellors are still going to have to put together good proposals to secure funding for Subway extensions, new LRT routes and streetcar routes. I hope Ottawa sees what the different provinces are doing and starts to fund more transit expansion at the federal level as well. Was this funding secured by the new agency Metrolinx or was it our sitting politicians such as Miller and such who landed it?

    Steve: The revenue “found” for this year consists of unspent money left over from various 2009 accounts plus just about the last of the City’s reserve accounts. This money will not be available for a repeat performance in 2011. The City is negotiating an agreement with Queen’s Park and hopes to do this before the current Council term expires. The City sounds hopeful, but many details must be worked out.

    Transit City Bus Plan is funded, at best, only to the point of implementing the 10-minute network, and even that’s not a sure thing. The BRT to Victoria Park is an unfunded project in the Capital Budget. Some Transit City and subway extensions are funded, but not all. At this point, only the Spadina/Vaughan subway, the SRT conversion to LRT and extension to Sheppard, and LRTs for Eglinton, Sheppard East and Finch West have funding.

    The money for the 2010 operating budget is entirely City money. The money for the Spadina subway is shared among Toronto, York Region, Queen’s Park and Ottawa. The Sheppard East LRT is funded by Queen’s Park and Ottawa. The Eglinton, Finch and SRT projects are all funded by Queen’s Park.

  4. James Bow says:

    I’m a little shocked to hear that the province isn’t contributing to the operating budget of the TTC (or, by extension, any public transit agency in the province). What happened to the funnelling of funds from the gas tax?

    Steve: That goes to capital.

  5. REG says:

    Not that this would be included in any kind of budget… but what’s the deal with Adelaide? Will the TTC be adding it to the scapped network of tracks, or will they eventually be adding wires from Spadina to Church?

    I just feel like it could help out during diversions… or potentially take certain cars from the east Queen or King routes to make things go quicker.

    Steve: The TTC plans to rebuild Adelaide once various building construction projects get out of the way.

  6. lukev says:

    How is the province going to magically come up with money to fund transit operations? It would have to come with a new revenue stream, you know, those things like road tolls, which our politicians are too chicken to talk about openly.

  7. Nick J Boragina says:

    One of the key reasons increases to the funding of transit are always going to be above inflation is that the union demands increases beyond inflation every year, and wages make up 3/4ths of the TTC’s budget.

    Steve: Your anti-union bias is getting in the way of looking fairly at the figures. The ATU contract goes up by 3% this year (the result of arbitration), but the budget goes up by over 6%. The contract is part, but by no means all of the reason. Service increases count for at least half of the total.

  8. Tom West says:

    Imagine if the city had the power to levy a gas tax (over and above anything at present). What level would that tax have to be set at to cover the City’s contribution to TTC’s operating costs?

    Steve: In the TTC Capital budget financing sources (which is where the gas tax goes now), the annual Provincial contribution is $73m while the Federal contribution is $154m.

    The Ontario tax is 2 cents/litre distributed on the basis of 70% ridership, 30% population. Indeed, one of the side effects of losing ridership by pushing up fares is that this can hurt the gas tax subsidy. The TTC’s subsidy requirement for 2010 is on the order of $440m. Scaling up from the capital contribution, you would need about 12 cents/litre if it were allocated on the same basis. What we really need is the fuel sales for the GTA. There are funding requirements beyond the TTC.

    The Federal subsidy is based on a 5-cent/litre tax, but it is distributed pro-rata by population with no regard to actual ridership. This hurts cities like Toronto with strong ridership relative to population. Also, as Toronto’s population falls as a percentage of the national total, this will cause the federal subsidy to drop.

  9. W. K. Lis says:

    Is the electricity the TTC uses for the subway and streetcars on a separate contract cost basis or is it the time-of-day usage the rest of us pay? And does the TTC still have to pay the GST/PST/HST on the energy it uses?

    Steve: The TTC has its own contract with Toronto Hydro, and is their biggest customer. The rates are lower than you and I pay because they are classed as a large industrial customer. I believe that each substation is counted as a separate billing location rather than treating the whole system as one big consumer.

    As a municipal agency, the TTC gets a rebate of GST.

  10. Ross Wright says:

    Just wondering. Do you or anyone know what a typical T1 trainset draws, in kilowatts or amperes, running between stations?

  11. Benny Cheung says:

    To Ross, there is no standard way to measure power consumption of a metro trainset. It is not like a car where we can put it on a Department of Transportation test track and get a MPG number. Suffice to say, a T1 metro trainset should can draw a maximum of 3000 to 3500 kilowatt per hour.

    On a metro the only constant power consumption is the climatisation systems. The AC units are turned all the time, that could draw up to about 60% of the 3000 to 3500 kilowatt per hour. At maximum acceleration, the motors could draw up to 1000 to 1500 kilowatt per hour. However, when cruising, very little power is drawn. In addition, when it is braking, some of the energy is captured back and sent back to the grid. With regenerative braking, up to 25% of the momentum can be recaptured. Lighting is another power use as well. So, there is no way to really measure it.

    On a side note, Rama generates about $129.1 million in revenues for Q2 2009. This translate to about $500 million annually. OLG collects about $100 million annually in gaming tax. If we have 4 facilities like Rama in Toronto, it can pay for the entire TTC subsidy.

    Gaming is much more acceptable than raising property tax. If we impose a city sales tax, it can be easily evaded. Since gaming tax is paid for by tourists, it is much more socially acceptable. The structural deficits in Toronto can only be solved with a new revenue stream. Unless Toronto wishes to secede from Ontario can become an independent province.

  12. Jim Hoffman says:

    I assume you mean “updated February 17″

    Steve: Er, yes. Sometimes my fingers move faster than they should. Thanks for catching that.

  13. Nick J Boragina says:

    I wont claim to be pro-union, but you are using numerical trickery. Most of these “service increases” mean mean hiring more drivers, or, making the current ones work longer. You gave the figure of 3%. I know that Wages are around 75% of the budget. Thus, for every $133 in service improvements, $100 are wages, and for every $100, $3 of that comes from the raise demanded. $3 of $133 is not much (2%) but that means that rather than going up by 9.1%, that with inflation-rate increases in wages, that direct wage increases lower this to 8.0%, and the extra as I noted, lowers it further to 7.9%

    Steve: It’s not numerical trickery. Yes, running more service generally means hiring more drivers. It does not matter how much you pay them, you still need more of them. If you run, say, 10% more hours of bus service, then your labour costs for operations will go up by 10%. However, maintenance costs do not necessarily scale with service depending on whether it is peak or offpeak.

    All of the union staff got 3%, and that is on a base of about 70% of the budget. If everything else stayed the same, then the overall percentage increase would be 2.1%. Roll in new and improved services and maintenance (some of the new staff are management, not union), and you have additional costs. The overall TTC budget goes up by roughly 6%.

    The 9% figure you refer to is the increase in the subsidy. It goes up even more than the increase in the overall budget for the simple reason that the fares did not go up enough to cover their “share” of the increased costs. In effect, the farebox recovery rate was allowed to fall, and this requires a bigger subsidy contribution.

  14. James Bow says:

    I said: “What happened to the funnelling of funds from the gas tax?

    Steve said: “That goes to capital.”

    As shameful as it is for me not to know this, I’m still flummoxed. Basically, we’re looking at the TTC functioning on Harris levels of operating support — specifically, no regular funding from the province whatsoever, beyond what the City of Toronto can pull out of a hat?

    Mind you, I recall being quite disappointed with McGuinty’s performance in the public transportation realm up to 2007, until his bold moves with MoveOntario. Maybe I’ve been blinded, since. But perhaps it’s time to start mentioning McGuinty’s name in conjunction with Mike Harris when it comes to the TTC’s operating subsidy, not to mention the operating subsidies of transit agencies throughout the province. The Region of Waterloo is embarking on bold increases of its transportation network; lord knows it could use some help from Queen’s Park.

  15. James Bow says:

    Regarding the idea of using casinos to build up cash for the city: it’s a possibility, but I think that people are expecting too much from such an endeavor. It would be unwise to flood the market with these things since the costs of maintaining them and policing them go up linearly, while the benefits tend to diminish per casino, the more casinos happen to be around. Ontario found this out in the early 1990s with the Ontario Lottery Corporation when a much anticipated new lottery set up to pay for green initiatives failed to generate the revenues politicians hoped for. There are only so many people who are willing to game, and only so much money they want to spend on the game. Eventually, that source dries up.

    It may make sense for a casino to go up at Woodbine, and MAYBE in the Portlands (though I could see that as controversial), but I fear we are going to be disappointed if we expect revenues from these casinos are going to permanently close the fiscal gap in this city.

  16. DavidH says:

    Ross Wright asked:

    Do you or anyone know what a typical T1 trainset draws, in kilowatts or amperes, running between stations?

    I have no idea on this, but coincidentally a couple of weeks ago a streetcar driver I was chatting with mentioned that one of the major advantages of the streetcars was cost of ‘fuel’. He stated that one of the TTC engineers (I think) had told him that it cost about $3 a day in electricity to operate a streetcar, but $250 to $350 a day in diesel for a bus.

    I find those figures surprising, and would be pleased if someone could authoritatively confirm or debunk them.

  17. Benny Cheung says:

    The $3 a day figure is way too low. According to GM, it cost about $1 USD per day in electricity to drive the Volt for 40 miles. This is assuming electricity cost about $0.12 USD per kWh. Even with the inherent efficiencies in rail technology, it is hard for a tram operating at 12 hours a day and driving at least 100 miles to use the same amount of electricity as a Volt.

    The operating cost of an Orion VII hybrid is easier to calculate. According to Orion, this model gets about 3 MPG. If a bus operates say 200 miles a day, it will take about 60 gallons of diesel. At today’s prices, it should work out to about ($0.98 /L x 3.79 x 60) $222.

    To respond to James’ concerns, gaming revenues can be controlled via government rules. For example, to increase revenues at a gaming facilities, one can have more advertising. One can also allow high stakes gaming to take place. Woodbine does not have $100 slot machines or $100000 Blackjack tables. This will attract many high rollers to Toronto. If OLG permits on site check cahsing service, it will also increase betting. I am not saying that I support the maximization of gaming revenues. This is something Torontonians have to decide for themselves.

    Steve: The TTC’s budget for traction power in 2010 is $34.9 million, or about $95,600 per day on average.

    The total rail car fleet is 247 streetcars, 28 ICTS cars, 678 subway cars for a total of 953 vehicles. Assuming that 20% of the vehicles are not in service, this leaves an active fleet of about 762 on any given day. (Yes, the remainder may be sitting in yards drawing power, but not at the rate of a vehicle actually operating in service.) Therefore, the average vehicle (leaving aside different characteristics of vehicles and routes) will consume $95,600/762 or about $125 worth of electricity daily. The subway cars will almost certainly draw more because of their acceleration rates, top speed, and higher proportion of off-peak service (more vehicle hours per vehicle) than the streetcars.

    I could believe $100/day/streetcar, but not $1.

    Any of these numbers must be restated in terms of cost per passenger or per passenger km to be directly comparable, but at least the number above shows the order of magnitude value for the rail fleet generally.

  18. DavidH says:

    Thanks, Steve and Benny.

    When he made the $3 statement, I thought it was low by at least an order of magnitude; however, he seemed both certain and sincere, so I didn’t argue it.

    Perhaps he was told the cost of fuel for a bus, and that that amount was three times the cost of the electricity for a streetcar, but misremembered it as three dollars.

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