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.