Toronto launched its 2012 budget on November 28, 2011 with an overview presentation. Much of this has nothing to do with transit, and I will leave analysis of the full budget to others. For those who like the details, further information about the TTC’s Operating, Wheel-Trans and Capital Budgets can be found in the Analyst Notes.
The City’s Budget Committee will consider details of the TTC budgets on December 6, 2011, and the Commission will debate the final version of its budget on December 14. Everything goes to Council on January 17, 2012.
The City’s contribution to the TTC’s operations in 2012 is budgeted at $404.1-million, down from $429.1m (budget) and $425.6m (projected) in 2011. Still outstanding is the question of a fare increase, although the TTC plans to consider a 10-cent hike in adult token fares (with proportional adjustments to other fare types) in December 2011.
Several “service efficiencies” were proposed for the TTC including a reduction in loading standards and the elimination or restructing of all night services. Council voted to “receive” these recommendations in late September, but the TTC went ahead with the new loading standards anyhow. This led to the long list of service cuts effective in January 2012.
City Manager Joe Pennachetti was asked to explain the difference between an efficiency and a change in service. He replied that if an existing service could be delivered at less cost, that’s an “efficiency”. Otherwise, it’s a change in the level of service.
That’s the new spin we have on “service cuts”. Changes to TTC routes are not “cuts” because people can still ride buses and streetcars, just not as comfortably. This assumes you can get on at all.
Often I am asked how the service cuts could be backed out. There are a number of considerations.
The net saving in the Operating Budget is $14m which is actually an expense saving of $21m offset by $7m in lost fare revenue (roughly 3.5m riders at $2 each). The ten cent fare increase is projected to bring in about $30m. In round numbers we could get the $14m with another five cents on the fare increase assuming this does not drive away a disproportionate number of riders.
Alternately, if this came as a tax increase, we know that the proposed 2.5% property tax increase will yield $57m. We would need about another 0.6% to generate $14m from this tax.
However, the City also will carry over an operating surplus in 2011 just as it has in many previous years. City staff want to use some of this to fund capital projects (see below) and part to go into the Tax Stabilization Reserve. That reserve is actually yields $83m of the 2012 budget, and so in reality a good chunk of the projected $139m surplus will cover a gap in the 2012 budget.
The money to keep TTC service levels at 2011 standards could come from this pot also, although we would have to hope that the TTC itself would generate a 2012 “surplus” thanks to good service and strong riding to justify staying with the more generous service standards permanently. Otherwise, we would be back with the same proposed cuts for 2013.
For a detailed look at the City’s sources of revenue and historical use of surpluses and reserves, visit Matt Elliott’s Ford for Toronto site.
The Wheel-Trans service will be withdrawn from dialysis patients in January 2012 unless an external source of funding can be found. Overall, Wheel-Trans will carry 55,300 fewer trips in 2012 than are projected for 2011.
According to the Budget Analyst’s report, the City is seeking a further $8m saving (about 9%) in the Wheel-Trans budget to reduce its subsidy requirement. On page 3 of the notes, we see:
5. the Chief General Manager of the Toronto Transit Commission report back to the Budget Committee by its final wrap-up meeting of January 9, 2012 with options to reduce the Wheel-Trans operating budget by a further $8.001 million, such as a $0.10 fare increase or additional reductions to service.
Considering that the entire fare revenue of Wheel-Trans is only $5.3m, it is unclear how a modest fare increase could generate so much revenue. There is no indication of what a 9% cut in Wheel-Trans funding and operations would entail for riders.
On the capital side, the big problem remains how to finance the City’s share of some large projects, mainly the replacement of transit vehicles.
When Council looked at the 2011 budget, the future spending was well beyond their comfort level in terms of the amount of City debt and the uncertainty of future subsidy programs from Queen’s Park and Ottawa. All projects that were not already committed were zeroed out in the budget effectively killing any commitment to years beyond 2012.
In the 2012 budget, funding has been restored for many projects on the basis that the budget is now affordable. How we got to this state is a combination of project deferrals and creative accounting.
In September, the TTC adopted an amended capital plan that deferred over $1-billion in expenses beyond the 10-year planning window. This eliminated one batch of bus purchases, shaved 19 cars off of the new streetcar order, and dropped 10 Toronto Rocket trains intended for additional service. Spin-off effects of these changes included elimination of the need for additional bus and subway car storage.
(See also the City’s Capital Budget presentation at page 27.)
The remaining gap of $1.149b will be filled with:
- $294m reduction in 2012′s spending request
- $193m reduction in 2011′s planned spending
- $ 25m additional development charges in 2012
- $700m asset sales, city operating surplus, renewed subsidy programs
The last item has little detail, but is composed of whatever money the City can cobble together by selling assets (such as a part share in Toronto Hydro), using some of the 2011 City operating surplus, and hopes that Queen’s Park and Ottawa will extend or replace subsidy programs that are now winding down. This may be wishful thinking in the current economic climate.
With this rather expensive collection of fig leaves, funding is restored to future capital projects in the budget. However, notable by its absence is any reference to the Sheppard Subway because that scheme is not yet an approved project, not even to the point of coming “above the line” in the budget with actual commitments and projected funding.
Accenture, a management consulting firm who also, wearing another hat, have the contract to provide and operate the provincial Presto system, were retained by the City Manager to review the TTC’s operations.
Their report covers many of the usual areas you would expect from such consultants such as business process re-engineering, headcounts, absenteeism and overtime. It also wanders into operational areas where Accenture’s unfamiliarity with transit is glaringly obvious.
Pages 9-11 include a table summarizing various possible actions and savings, and claims possible annual reductions of $57-101-million. This analysis makes the first and most basic mistake of TTC budget critics: it combines costs and savings from the three budgets into one total. Unwary readers may miss the fact that almost 40% of the savings, at maximum value, are not in the Operating budget, but lie in Wheel-Trans or in Capital.
A number of recommendations bear on the TTC’s Information Technology where problems of archaic or unco-ordinated systems lead to inefficiencies, difficulties in data sharing and, one would expect, extra costs. The potential savings identified are small, and a wise manager waits until a project is actually up and running successfully before counting them.
The greater problem with poor IT systems is that some things just don’t get done, or done very well, because they are too difficult. Oddly, Accenture made no mention of the fact that field staff have access to less information about service than an average, well-informed rider does on their smartphone. The TTC will not improve line management until they start using the very data already in their hands both for real-time and for historic analysis (some of which can be found elsewhere on this site).
The three largest contributions to operating savings are staff cuts, bus maintenance, and service standards.
Staff cuts contribute $22m in total both through downsizing and through a higher manager:staff ratio. Of this, roughly 3/4 is attributable to the Operating budget. The appropriate supervisory ratio will vary from unit to unit within an organization like the TTC, but it is unclear how extensively Accenture has considered this. It’s no secret that the TTC is top-heavy although some areas, such as line management, probably need more, not fewer, better trained and equipped supervisory staff.
Bus maintenance savings (up to $13m) are presumed to come from outsourcing some work now done at higher cost by TTC staff. Accenture observes that the TTC’s ratio of maintenance to total operating cost is about 25%, higher than other transit organizations at 19-21%. It is hard to believe that the TTC is the only overpriced shop in North America, and there may be other reasons, including the lifespan of buses at TTC, that may underly this figure. Long bus lives reduce ongoing capital costs, but this saving (which may cost more in maintenance to achieve) is not reflected in the total budget review.
The question of service standards is titled “Peak Hour and Off Peak Service Efficiency” in the report as if getting more people on a bus or streetcar is somehow more “efficient”. Crowded buses spend longer at stops, and they have less-satisfied customers. Both of these have a cost, but Accenture makes no effort to quantify this. If this were a process control review at a factory, it would do little good to produce more widgets per hour if the defect rate went up or, worse, the after-purchase failure rate.
Much more troubling in this section (starting on page 30) is the reappearance of net loss figures in a review of TTC operations. Although this exercise has been dropped from service reports for several years, the technique is still obviously in use internally in the TTC.
I don’t know how to say this any more bluntly: it is impossible to allocate revenues to individual routes in a flat fare, free transfer system where the majority of riders don’t even pay per trip, but use passes. Any figures purporting to show the subsidy due to a specific route or collection of services is a complete fabrication and is deeply misleading as a guide to service performance. Lightly-used routes will always score low regardless of how one evaluates them, but so-called profit-and-loss statements for routes are riddled with inaccuracy.
In the past, the TTC has allocated revenue per “boarding” so that each link in a rider’s journey receives a fractional fare, typically about half of the system average. Adjustments are made in this calculation to allow for routes with a high proportion of one-seat rides. This scheme makes no allowance for the length of time or mileage travelled in each link. Moreover, riders who transfer more than once will contribute more than 1 fare to the routes they use.
The cost of various operations is shown in Appendix F (page 63) with a breakdown by type of day and day or blue-night operation.
The first problem with this chart is that the total cost of operation is only about $825-million, well below the total cost of running the TTC. Where does the other $600m go? In fact, the numbers cited are for the bus fleet only as can easily be verified by comparing the total mileage with the annual statistics by mode.
Second, the calculated cost/hour is the same on Saturdays and Sundays even though staff are paid a premium for Sunday work.
Third, the cost/hour for night services is much higher than for everything else, and yet the cost per kilometre is much lower. If we look at the hours and kilometres booked against the night service, we see that the average speed of operation is over 40km/h. None of the night services operates at this speed, and the closest is Steeles East at 37.9. Most are well below this figure. There is a fundamental problem in the data used to calculate these costs.
Even more fascinating are statements about the amount of subsidy. Accenture claims that the day routes consume $37m while the night routes consume $16m.
That’s only $53m out of a total subsidy 8 times this value, and this implies that the streetcar and rapid transit systems jointly consume over $350m in annual subsidy. That simply does not make sense.
The report states that about 75% ($29m of $37m) of the subsidy to daytime routes goes to a handful of routes, and these should be reviewed for possible efficiencies. These routes include 53 Steeles East and 86 Scarborough, both routes not known for their light ridership. Indeed, Steeles East manages loads of close to a full bus, although it will lose 2 peak vehicles in January.
The report claims that Night Services have a 31% cost recovery ratio and are responsible for $16m of operating subsidy. If this figure is correct, it is a small price to pay out of a $425m total (2011) subsidy to provide 24-hour service. Elsewhere in the report (P10), Night Services are listed as part of “Ridership Growth Management”, a collection of changes intended to get more riders with no added cost. How can the changes to Night Services fit this category when they will either save money from service cuts, improve their cost recovery from higher fares, and almost certainly have fewer riders overall.
A few other service-related observations deserve comment.
Accenture claims that the TTC manages to headways, not to schedules. This is the complete opposite of what happens, except on the subway.
They also claim that the TTC is rolling out automatic passenger counters to get accurate passenger counts. From the service debates of early 2011, we know that many of the TTC’s counts are years out of date.
One recommendation involves the use of express buses to carry long-haul passengers at lower cost. Possibly Accenture has not read the Transit City Bus Plan which proposed exactly this a few years ago, but was shelved due to budget constraints.
Another recommendation advocates better priority for transit vehicles both in lane usage and in signal timings. Possibly the consultants have not heard of the “war on the car” and how this scheme might not fit with today’s transportation planning philosophy.
Accenture talks about interlining and the elimination of double fares, but ignores the basic fact that revenue sharing across municipal boundaries requires added subsidy that nobody seems willing to pay.
They talk about fare cards as a way to reduce fraud, but ignore the fact that over half of all adult fares are now paid with passes. Regardless of the technology, no fare system will eliminate evasion if it is not enforced, a practice we see rarely on the TTC because it costs money.
Rear-door loading is decried as a source of evasion, but the consultants ignore that this speeds service and increases vehicle utilization at times and places where most riders have transfers or passes anyhow. This is a tradeoff of one “efficiency” (fare collection) for another (capacity and speed of loading).
The bottom line is that this report is full of holes. There are efficiencies to be had at the TTC, improvements that could benefit both the organization and its customers. You won’t find them in Accenture’s report. Sadly, budget hawks at Council may use this document to go after the TTC for even more fictitious savings rather than concentrating on better service.