In response to long-term funding constraints at the City of Toronto, the TTC has amended its Capital Budget  to remove about $548-million from the 2010-2019 plan.

“Remove” is not quite the right word, but to explain what is going on, I will first give a short tutorial on how TTC capital planning works.

Above and Below the Line

Capital projects are classified into major groups with the following hierarchy:

• State of Good Repair & Safety
• Legislated Requirements
• Capacity Enhancement
• Improvement
• Expansion

In theory, expansion comes last, at least if it has to compete with funding for groups that rank higher in the list.  However, much of the provincial and federal funding is project-based, and this tends to focus on major expansion projects.

“Below the Line” projects are those without funding.  Originally, this category was reserved for large projects, such as the Richmond Hill Subway, that were a gleam in someone’s eye, but for which funding had not yet been committed.  However, this clear distinction has blurred, particularly starting in 2010.

There is a major problem with the term “State of Good Repair and Safety” because, in some cases, a project may be a “nice to do”, not a “need to do”.  If everything is lumped into this category, we are back to the old budgeting style where there is really no distinction made, everything is “top priority”, and funding cutbacks require politicians to perform line-by-line budget surgery.

With the changes approved on October 29, a long list of projects has moved “below the line” even though they are, in theory, in the higher priority groups.  This happens because much of the budget is committed to large projects already in progress, or to items that are funded on a project basis by other governments.

We now have a situation where expansion projects appear “above the line” even though there are “repair” projects below the line.  The concept of priorities is, to say the least, muddled.

City Debt Targets

The City of Toronto funds a good deal of its capital programs from borrowing, and the growth in municipal debt is limited by a target on financing costs.  No more than 15% of the City’s income should go to debt service payments, and keeping to this target is vital to the City maintaining its good credit rating.

Working backward from that target, the City sets a cap on the amount and timing of debt it is prepared to finance on the TTC’s behalf.  Many projects that include some City funding are already in progress, and this causes the timing of new debt to be front-end loaded.  Over two-thirds of City spending for transit capital projects is in 2010-2014 with the remainder in the 2015-2019 period.  This creates a serious funding problem in the second half of the 10-year budget projection.

That funding only supports “above the line” projects, and a growing amount of work has been shifted “below the line”.  It isn’t cancelled, just lurking out of sight.

The danger, as we have seen many times before, is that new, large projects will jump the queue and pre-empt work that might not be critical today, but for which indefinite deferral is not practical.

Surprise Projects

For budget planners, and increasingly for advocates like me, the TTC has an annoying habit of discovering large projects that somehow were not included in the budget.  Many years ago, this might have been excused by a shorter planning horizon, and the fact that money was found, somehow, to handle this type of event.

Today, however, such oversights are major blunders that threaten the integrity of the budget process.  We often hear about politicians with pet projects, but here are three items that appeared for the first time in the budget update presented on October 29:

• Bloor-Danforth Subway replacement of signal system ($300-million plus)
• More Toronto Rocket trains, Wilson Yard expansion, more traction power ($400-million plus)
• Accessibility requirements mandated by AODA ($100-million plus)

The fact that the original BD subway will be 50 years old in 2016 is no secret, and the 50-year age of the original Yonge line was part of the justification for the signalling project now underway for that route.  2016 is well within the 10-year planning horizon, and yet the budget contains no project for resignalling BD.  Moreover, there is no project for providing ATO equipment on the BD trains, a T1 fleet that will only be 20 years old in 2016.

The subway fleet plan, discussed in a separate post, foresees additional trains, but not all of these are associated with specific budget lines.

The budget contains many subprojects for accessibility, but it appears from the October 29 report that a further $100-million is needed above what is already in the budget.  No details are available.

This is an outrageous situation.  Three major items collectively total almost $1-billion, about one sixth of the current approved 10-year budget, and I am sure we will be told that these are “must do” projects.  What other work will be displaced to make room for them?  Why are they not already in the 10-year plan?

The Effect of Federal Stimulus Spending

After much wrangling, there is a list of TTC projects that will receive stimulus money from Ottawa.  While Toronto welcomes any money it can get, there is a catch.  There is always a catch.

Many of the projects approved under this program were not previously funded — they were “below the line”.  Moving them “above the line” triggers a need for additional City spending that crowds other work off of the table either at the TTC or elsewhere in the City’s capital plans.

Some of the projects were originally planned for future years, and removing them from future budgets gives the impression that there is “more room” in those out years.  However, the City debt target limits total spending within the 10-year window, and moving projects between years, while it may attract stimulus dollars, does nothing for the City’s overall budget.

I will discuss the federal stimulus program and the projects it will fund in a separate post.

The Revised Capital Budget

The spending levels and funding sources approved on October 29 are summarizes in the October 2009 Ten-Year Funding Projection.  Note that this is only for the “base budget” and does not include the Spadina Subway extension nor the Transit City projects.

Provincial project-based funding includes partial or complete support of:

• Automatic Train Control and TR subway cars:  $386-million
• 204 new streetcars ($417m)
• Spadina subway ($870m)
• Transit City ($6.4-billion)
• SRT conversion and expansion ($1.4b)
• Total:  $9.506-billion

Federal project-based funding includes partial support of:

• Spadina subway ($697m)
• Transit City (Sheppard) ($300m)

The total base budget for 2010-2019 began at $7.096-billion.  In September 2009 Amendments the TTC made a number of changes, notably:

• The bus fleet plan was adjusted to remove some vehicle purchases from 2011.
• The mid-life rebuild of the bus fleet has been pushed beyond the 2019 window.  With the new, supposedly more robust designs for buses, the question is whether this rebuild will be necessary.  Alternately, will rebuilding be cost-effective versus simply replacing the vehicles?  This is a difficult question, and moving away from rebuilds would be a major change in the TTC’s maintenance and bus provisioning philosophy.  A difficult issue here is that many transit systems replace buses frequently (every 12 years at most) because funding is available for purchases, but not for maintenance, even though this may not be cost effective for large systems that can undertake their own repairs.
• The program to overhaul CLRVs has additional funding, but the ALRV overhaul has been cut from the budget.  The ALRVs will be the first of the existing fleet to be retired when the new Flexities arrive.
• Funding was added for the expansion of Transit Signal Priority as proposed in the Transit City Bus Plan.  This was cut again in October (see below).
• Funding was added for the TTC’s portion of a revitalization study of Lawrence and Allen Road (see discussion below).

Before the October 29 meeting, there were extensive discussions between TTC and City staff to wrestle the Capital Budget to fit within City targets.  At further set of October 2009 Amendments moved about $600-million worth of projects “below the line” and/or out beyond 2019 so that they are no longer part of the Base Program.  Of this amount, about $52.5-million would have been funded from other governments, and, therefore, shifting these projects only yields a net saving of $548.2-million in City spending.  The net result is a funding shortfall of $300-million over the 2010-2019 period.

This may seem small, but it has been achieved by pushing many projects under the table.  Whether the system can actually be operated without these expenses remains to be seen.  As I said earlier, the TTC has a bad habit of lumping almost everything it does under “State of Good Repair & Safety” with no real sense of prioritization.

The largest of the deferred projects are described below.  I have reordered these items from the linked TTC list to put related projects together.

• Station Modernization ($74.9m).  Work will continue on Pape and Dufferin that are already underway, but no further work will be done on Woodbine, Chester, Museum or any other site that has not yet reached the construction stage.
• Fire ventillation upgrade ($52m).  The project to add more ventillation to existing stations has proven far more complex and expensive than originally expected.  The TTC is attempting to figure out a way to achieve the safety improvements at lower cost.
• Easier Access Phase III ($60.2m).   This is part of a large bundle of accessibility retrofits to the TTC system.
• Warden Station Phase I ($19m).  This project is supposed to be at least partially funded by redevelopment of the lands around the station from which revenue should offset the cost of reconfiguring the station.
• BRT from Finch to Steeles ($24.2m).
• Various roads and structures (65.6m).
• Scarlett Road bridge ($5m).  This is a provision to rebuild the underpass at Scarlett Road and Dundas so that a future LRT line would have a dedicated right-of-way.  This route (a potential extension of the St. Clair streetcar to Kipling Station) is not part of Transit City and, personally, I don’t think it would ever be built.
• Bremner Streetcar Expansion Loop Design ($4m).  The status of the entire Bremner streetcar project is unclear as I discussed in an article about waterfront transit.  Some design and co-ordination will be required in light of the City’s Union Station project and that may partly resurrect this budget item.
• Lawrence Avenue Revitalization ($0.3m).  This is the same study that was added in September 2009’s amendments.  It is intended to support a large City project to revitalize the lands at Lawrence and Allen Road.  This is the one item in the proposed cuts that was not approved by the Commission.
• Bus Network Plan Improvements ($5.5m), Bus Purchases ($33.5m), Roadway Design Improvements $12.1m) and Traffic Signal Priority Expansion ($29.2m).  These are all parts of the Transit City Bus Plan.  Some of TCBP survives because it does not require a large capital investment, although the exact timing of implementation will depend on decisions made in the Operating Budget process over coming months.
• Transit Signal Priority ($22.m), offset by additional buses to compensate for lack of priority ($2.9m).  These are signal changes planned for routes that are not part of the TCBP.
• Industrial Facility Requirements ($78.3m).  This appears to be a mixed bag, albeit a rather large one, of sub-projects to improve field offices for some TTC staff, as well as some necessary health and safety improvements.  It is not clear at this time which parts of the overall project were actually cut.
• Facility Energy Conservation ($20.4m).  Various energy-saving changes require large capital investments with varying degrees of payback, some of which are not a direct financial benefit to the TTC.
• Downtown Relief Line Study ($3m).  This was to be the TTC’s study of the DRL as directed by Council earlier this year.  Given that Metrolinx is also supposed to be studying the DRL, it is unclear which agency should fund the study.
• CIS Replacement ($50m).  The proposed replacement of the vehicle monitoring system (CIS) is very expensive (the amount here is only part of the total).  It is unclear whether this has simply been pushed beyond 2019, of if the scheme has been sent back for review.

Out of Sight

During the discussion of the small expenditure for the Lawrence Avenue Revitalization study, TTC staff were quite firm in stating that they had cut only the low-priority items, and everything remaining needed to remain in the budget.  This may be so, but much is still lurking “below the line” and may compete with other projects for funding.

A small example is a proposal to replace the existing Bus Terminal with a new building stretching from Bay across Elizabeth Street (which would be closed) to Centre Street at a cost of $27-million.  Considering that the TTC’s subsidiary that owns the Bus Terminal as its only asset already owes the TTC roughly $15-million in accumulated losses from past years, I can’t help wondering what business the TTC would have in this market.  If Metrolinx or the private bus industry wants a terminal, let them build it with their own money.  The TTC has not been in the interurban bus business for decades, and the Bus Terminal is the last remnant of the old Gray Coach Lines.

A large example is a proposal to implement platform doors in subway stations at an estimated cost of $1-billion.  While I can sympathize with the goal of reducing passengers’ ability to reach track level and the other claimed benefits of this system, I have a big problem with the cost.  If it is intended as a mechanism to control platform crowding and boarding, then it is only needed at major stations.  If it is intended to prevent access to track level, then it is needed at all stations.  In either case, Automatic Train Control and precision stopping are a pre-requisite.  ATC for the Bloor-Danforth line was only recently identified as a future cost, and it is not even in the budget.  Likewise, money to retrofit BD trains with ATC electronics has not been included.

This is a good example of a project that has been inching along, just out of sight, for several years, growing in cost as it went.  The justifications proliferate to match the scope creep.

Conclusion

Future budget discussions both for 2010, and in the next cycle, 2011, will emphasize the need for ongoing, predictable funding.  Alas, the TTC appears to be able to generate projects faster than money appears on the table.

Support for transit is a good thing.  After all, I am a transit advocate.  This support must be tempered, however, by ensuring that we don’t spend whatever new money might come to the TTC or Metrolinx on projects of dubious value.  Future projections must be realistic, and they must include some indication of how critical (or not) they might be.

The challenge for both the City and the TTC will be to establish a “reasonable” and “sustainable”  level of funding for ongoing repairs and for system expansion.  The TTC must actually stick to these figures for more than a year or two rather than finding yet more ways to create budget shortfalls.