At the recent TTC meeting, the Operating Budget for 2010 was up for review, not that there were many questions in the public session. All of the heavy lifting took place, no doubt, in private session and in other discussions leading up to the final version. (The information in the linked report does not exactly match the material presented at the meeting, and that presentation is not available online.)
I will review the budget and the sources of increased costs for 2010 in a separate article, but the fare increase deserves special mention. TTC staff have a bad habit of stating almost everything relative to something else, and this makes reference to a zero base tricky. Money shuffles around rather like a game of Three Card Monte, and only if you’re very good, can you find the lucky card.
The 2010 Shortfall, Then and Now
First off, we get a description of the budgetary shortfall. This is the difference between planned expenses and known revenue (either fares, subsidies or other income). This shortfall, originally stated as $106-million in November, then $131-million in December (both before any fare increase), has been whittled down to $46-million by various means, some of which are only accounting changes.
In past budgets, the TTC made provision for accident claims in the year of the accident even though the payout may be years in the future. The City of Toronto’s standard way of handling such claims is to expense them in the year they occur, and this takes a $25-million reserve off of the 2010 budget. This is a one-time saving which only puts off costs to future years. Eventually, we will reach a point where there is nothing left in the old claims reserve account, and the cost of settlements will show up as a current item.
When the Commission approved the fare increase, staff claimed that it would bring in $48-million in new revenue. Well, sort of. They deduct $2-million as the cost of implementing the Transit City Bus Plan (for 2010) because that was part of the fare increase package, and this leaves us with $46-million, net. Of course, the TCBP will only run for a few months at the end of the year, and its full year cost will have to be factored into the 2011 budget.
Next, the staff predict that ridership will fall from 472-million (2009 probable) to 462-million (2010 budget) even though riding has actually been growing relative to 2008 all year. The total is below the budgeted projection, but not below 2008 levels. That loss of riding allows the service budget to be cut by $9-million.
Miscellaneous reductions and the transfer of Special Constable costs to the Toronto Police Service yield another $5-million, and this brings the gap down to $46-million.
Fare Revenue — Now You See It, Now You Don’t
Recall that staff claimed the 11% fare hike would bring in $48-million. You may also recall that the TTC’s revenue stream is roughly $900-million, of which most is from the farebox. One might reasonably expect to see around $90 million from the fare hike, but it doesn’t work that way.
Because the TTC assumes that we will lose 10-million rides, we also lose the revenue associated with those rides. At the 2009 average fare of $1.78, that translates to $17.8-million dollars, or a bit over$20-million if you include the extra 25¢ the fare increase would bring.
Next, the TTC believes that the fare increase will disproportionately affect riders who pay expensive fares — single cash fares and adult tokens, and that the effect will be lower or negligible for the various concession fares. This will drive the average fare down by 2.5¢ relative to what it would have been otherwise, and that “costs” $12-million. This, of course, is money the TTC never had. What they are saying is that if everything had stayed the same, they would have taken in $48-million more, but that’s not how the real world works. In effect, the benefit of the 11% fare hike were overstated by about 33% because they were shown on a gross rather than a net basis.
(Other income from advertising and parking change a bit, but the effects net out to zero.)
This means that after an 11% fare increase, the TTC’s revenue stream will only rise from $904-million to $940-million, or about 4%.
Expenses rise by $82-million from $1.298-billion to $1.380-billion (6.3%), and this leaves the $46-million funding gap after the net new revenue is included. I will look at the issue of costs running above the rate of inflation in a separate article.
What Happened Between November and December
When the Commission discussed the proposed fare increase in November, the shift away from expensive fare forms was already underway, and the projected 2009 revenue was below budget. It is unclear whether the presumed drop in revenue for the 2010 budget continues this change pro-rata into 2010, or if this is an additional drop arising from continued shifts from full to concession fares.
In the three scenarios presented for a fare increase (see page 8 of the November report), the revenue benefit ranged from $50.4-million to $62.5-million depending on the pricing option for the Metropass, and the projected riding losses ranged from 11.5 to 12.5-million. Keeping the Metropass at the same pricing multiple only cost $12-million in lost revenue against the highest projection. Even with this included along with lost riding in calculations, the net revenue projection was about $50-million. Now it is only $36-million.
Why has there been such a shift in projections in only one month? Why were higher numbers shown to the Commission in November, only to be adjusted in the December budget presentation? What has changed in the methodology of staff riding and revenue estimates?
If riding continues to increase in 2010, even with the fare increase, then the TTC will have both a greater demand and greater revenue. However, increases generally do not bring in enough to cover the cost of more service, and the system will be constrained in reacting to growth if this occurs.
Between November and December, there was a substantial increase in the pre-increase budgetary shortfall (up from $106 to $131-million) and a decrease in the net benefit of the new fare structure (down from about $50 to $36-million). That’s a big swing in one month, and TTC staff should be called to account for such major changes.
In the next article, I will turn to the expense side of the TTC’s budget.