Found Millions

Toronto’s media are abuzz with news and criticism of the City’s discovery that the 2009 operating budget surplus was $100-million higher than previously expected.

This all began with a media advisory Tuesday night that there would be an important announcement the following morning.  Don’t be left out in the dark.  Get there early with your cameras for the best position!  The next twelve hours brought rampant speculation about Mayor Miller resigning to take a job elsewhere, about a reversal of his decision not to stand for a third term, or just about anything else the pundits could spin to fill air time, print columns or websites.

The announcement was an anti-climax after the buildup.  Commentary switched to “why didn’t you know sooner” and variations on how the Miller crew had been misleading the public about the severity of Toronto’s financial position.  Lost in all of this chest-beating was the fact that this surplus is a windfall, a one-time benefit of circumstances coming out better in 2009 than expected.  Many of the savings that produced the surplus have already been factored into the 2010 budget, and we cannot expect a repeat performance — a $350-million surplus overall — in future years.

That’s where the TTC comes in.  For 2010, the City will provide all of its operating subsidy, roughly $440-million, and not a penny will come from Queen’s Park.  The total operating budget is about $1.4-billion, and if it rises as projected by 5% or so in 2011 (through a combination of wage and service increases), this will add $70-million.  Oddly enough, this is almost exactly the amount of the proposed tax stabilization reserve that would carry forward into 2011.

Mayor Miller claims that we could see a 2011 with no fare increase, a 3% property tax jump and a balanced budget.  The kicker is that he assumes he will be able to conclude an agreement with Queen’s Park for the resumption of shared operating subsidies in 2011.  The response was predictable given that this is an “ask” of about $250-million for 2011 before the province has even published its budget for 2010.  I was rather surprised that Miller spoke as if this were a done deal when, if we are to believe Queen’s Park, it is at best still under discussion, and the question of a partial or complete TTC takeover by Metrolinx is still bouncing around the rumour mill.

Regardless of whether the province steps in with operating subsidies, my position on this situation is quite clear.

First, we should not prejudge the use of surplus money from 2009 in the 2011 budget.  Over and over politicians and advocates who support transit speak of the importance of good transit service.  Fare freezes make good pre-election sound bites, but they don’t address the issue of providing better transit service.

Second, this is one-time money, not an ongoing revenue source.  If we use $70-million to freeze fares in 2011, that amount will have to be found anew in 2012 in addition to another $70-million to handle that year’s cost increases.  That’s a prime recipe for big jumps in fares and cutbacks in service, especially if the City is governed by a less transit-supportive Council and Queen’s Park hasn’t stepped in to help out with TTC costs.

Yes, there may be ways to increase the effectiveness of transit spending.  I don’t want to get into a big debate here about everything from wage controls to outsourcing or breaking up the TTC.  These are, to an extent, red herrings in the long term because they will at best achieve a temporary drop in cost pressures.  Eventually, costs will reach a new plateau from which they will grow and we will be back to the same debates about fares, subsidies and service levels. 

We should have these debates, if only to satisfy ourselves of the validity (or not) of alternative ways to provide transit in Toronto, but the long term issue of rising transit costs will not go away, particularly if we expect large-scale increase in transit use throughout the GTA.  The underlying policy issue, however, is what we expect our transit network to accomplish, and what the failure to improve transit’s market share means for the future of the region.

Meanwhile, Toronto must concentrate on maintaining and improving the attractiveness of transit, and anything that artificially hides the ongoing increase in costs simply threatens transit in future years when the increases must be faced.  The 2009 surplus should be seen for what it is, a one-time benefit to a city that tightened its belt and came through the year in better shape than expected.  Toronto should not prejudge transit policies for 2011 and beyond based on a one year windfall and an as-yet unseen provincial funding agreement.

24 thoughts on “Found Millions

  1. What a wonderful opportunity for infrastructure maintenance and/or improvement. Use a current windfall to provide a lasting future benefit. Oh, and, as an added benefit, it would work as though it were an economic stimulus. Two birds, one hundred millions dollars.


  2. 2.9% not 3% – for some reason I see you burning a voodoo doll of me for correcting you.

    You know, why don’t they get a salary freeze or a cut? 2.9% cut? (for their own paycheque).

    I would like to state for the record that I would have no problem the City of Toronto giving me $100m in cash, I accept cheque as well and it won’t have to be certified, I trust the City of Toronto.

    I honestly thought he was either going to quit or run for a third term.

    You know, City of Toronto/Queen’s Park and Ottawa has blanked me over. They blame each other, I as a Torontonian am sick and tired of having to beg Queen’s Park and Ottawa for money.

    I am sorry to say but if we can’t mantain the current # of libraries then maybe we shouldn’t have that many, same thing with pools, parks, etc…

    When the city decides to add a park/pool/library/etc…they have to think of how they will mantain them and if they can mantain them if not then it is a waste of money.

    The #1 thing I go on about Transit, the city or anything related is maintenance. Yet QP/Ottawa might give you money for more libraries/buses/streetcars/pools/ice skating arenas/etc… but you shouldn’t accept them if you can’t mantain them in the future.

    I remember when I was a teenager and recently came to Canada……I could go skating, swimming and many summer programs for free….now with so many fees, I have to get a mortage so my younger sister can go into summer programs.

    Cost of getting service + Yearly Maintenance = things that should be thought of.

    Yes I know I will cause a riot for saying we shouldn’t have as many pools/buses/libraries/ice rinks/etc… if we can’t maintain them. ARGH.

    I will not post how the Councillors and city suck in fear of being accussed of Libel and be sued by them.


  3. Though I like the idea of multi-year budgeting, I too wonder about the wisdom of ‘deciding’ now to freeze TTC fares in 2011 (and wonder whether the new Council will do so anyway). Maybe it’s better to have annual fare and tax increases pretty much in line with inflation and avoid big jumps.

    I think Trevor has the right idea and the ‘surprise money’ should mainly be used in 2010 for one-time projects.


  4. I fully support economic stimuli in the form of one-time projects… can that include installation of a left-turn transit signal at Lansdowne Loop?

    Steve: It is already activated.


  5. We really need a “50¢” campaign. The TTC has what, 440 million riders? If we asked the government for only “50¢”… per rider, we could get $220 from each level of government (city and province). Since the city is already willing to contribute this, that half is no problem, and a well marketed campaign would turn the public on side to ask the government of Ontario for “only 50¢”

    We should also campaign for this alongside other cities. Lets look at just what this would mean. Mississauga had what, 30 million riders? York had 20 million IIRC. Even OC Transpo only managed near 100 million. I think it is safe to presume that over half of all transit trips in this province are taken on the TTC. Dare I say the grand total of transit trips not on the TTC total less than 250 million. The “end result” of this “50¢” campaign would be a grand total of $350 million dollars for public transit in Ontario.

    Put another way. Ontario’s budgets are often thought of in terms of billions of dollars. If we were to add this entire campaign right here and right now, Ontario’s budget deficit would jump from a very low $24.7 billion to an earth-shatteringly high $25.1 billion. The net result of this would be about 100-200 extra buses on the road, each and every day.

    A small cost in exchange for a huge benefit. I know I’d certainly support that.

    Steve: I’m actually going to play devil’s advocate on this. If Queen’s Park hands over an additional $350-million to the cities, mainly Toronto, and this is used simply to reduce the amount of local subsidy, then we don’t get the 100-200 extra buses you note. In Toronto’s case, it is quite clear than the $250m would go to reducing the City contribution to transit and enabling a fare freeze, not to better service. That said, Ontario had a role in financing transit operating costs going back four decades, and its revenue is more broad-based than at the municipal level. Property taxes and other municipal fees are paying for programs that were once shared with the province.


  6. I don’t disagree with your arguments Steve but as I listen to all the shrieks of outrage from the mayor’s opponents I can’t help thinking how much happier they would be if this windfall hadn’t occured and they themselves had discovered a shortfall of similar size.


  7. That most of this found money went into the reserves is a good thing, in my opinion. Though there are no shortage of things we might want to spend this money on, the fact is that we’ve relied too heavily on reserves to balance the books for the past decade or more, and the result has been that the well is dry, putting the city in a series fiscal bind in the near to middle future.

    Really, Miller’s announcement is a gift to the next mayor, because the structural problems that have plagued this city since amalgamation have been pushed back a little, giving the next mayor room to maneuver.


  8. I am not concerned about the sudden increase of the surplus – the story said, that there was a surplus of $200M, which was increased to $350M and announced by David Miller.My main concern is, that this country does not have a long term policy/strategy on anything that is required to support all of us. The relationship between GTHA (or GTA) , Province and Feds. is murky at best.

    All mayoral candidates are almost hysterical about this windfall, yet the same people would scream “bailout” should T.O. need additional money to deal with a snow calamity.

    Mr. Miller et al may have been lucky, as (1) light snowfall during the past winter saved within snow-clearing budget, (2) few building code changes (galvanized pipes to copper), (3) few computer systems upgrades – and so on. On the other hand – does anyone really know, how much the Union Station reconstruction will cost?.

    Steve: The Union Station reconstruction budget is already set, and a good chunk of this is carried one way or another by other levels of government and a future lease to a private sector main tenant who will be responsible for subletting and managing the commercial space.


  9. James Bow said: Really, Miller’s announcement is a gift to the next mayor, because the structural problems that have plagued this city since amalgamation have been pushed back a little, giving the next mayor room to maneuver.

    Depends how you look at it: Instead of $75M of 2011 wiggle room, another way to look at it is that it makes a $250M 2011 problem a $175M 2011 problem.


  10. I am all for provinical support for transit, but is Toronto asking for operating support for TTC when the province doesn’t do this for any other municipal system?

    Steve: Toronto has been leading the call among Ontario transit systems for a return to a more generous provincial share of operating budgets. At present, systems get a relatively small amount of revenue from the gas tax, but the municipalities pick up the lion’s share of the cost. The situation varies from city to city, but in all cases the Liberals have never uploaded what Mike Harris downloaded. This is a particularly large cost pressure in Toronto not just because it is the largest city, but because the TTC carries a proportionately higher share of the total travel demand.


  11. Tom,

    Whatever deal Toronto gets should be the deal that other municipalities in Ontario get. It’s something the municipalities have united behind Toronto on. Used to be, from the late 1960s until 1996, the province covered half of all municipal transit operational costs. It would be nice to have that back, here in Waterloo.

    Steve: Queen’s Park takes advantage of the fact that Toronto is big enough and bold enough to take them on over funding issues, while the other cities hide behind our City’s efforts. Then the Liberals can claim that Toronto is making a special pleading and is fat enough to pay its own way.

    The issue here is shifting the cost of many programs, not just transit, back to the provincial level where the tax base is more broadly applied.


  12. I’m not sure the English language has a word to describe the surprise $100 million, but I’m sure “surplus” really doesn’t fit. Monopoly’s “bank error in your favour” seems closer.

    Isn’t the city still borrowing substantial sums to finance capital projects? (Yes, I know this is a separate budget from operating, but increasing debt levels are still cause for concern.) And didn’t it restructure its debt with longer amortization terms? (That strategy didn’t work out so well for many American homeowners.) And exactly what does boasting of the lowest tax increase in the GTA really accomplish, other than confusing people about the city’s fiscal health?

    Forgive me for thinking the announcement was pure politics. I suppose we can’t hope for better in an election year, but let’s hope for better soon after. One of the benefits of a four-year term is supposed to be a little extra time to tackle the tougher questions without an election looming quite so large.

    Steve: Yes, the city is still borrowing for capital, but does pay for a considerable amount of that budget from current revenues to avoid driving up the debt too much. Finding money at the end of the fiscal year (not to mention farting around with the books to charge as much to the old year as possible) has a long and honourable tradition at the provincial and federal level. I have a hard time with criticism based on the idea that the process Toronto followed is unusual.

    However, prejudging what the money would be used for by the 2011 Council rather than just putting it in a reserve account is a bit of a stretch.

    As for homebuyers, their problem was signing on to long term mortages with little down and low interest in the early years, followed by a big jump. The city is entering into long term loans whose future cost is known.


  13. Maybe the waste management (garbage) department is finding liquour and beer bottles and cans in their blue bins to return to the Beer Store. Or picking up loose change on the sidewalk. That’s what I do. I once found a twenty dollar bill that way.


  14. This is a one-off lump of cash and should be treated as such. Lowering taxes or putting it towards general operating expenditures will just cause problems next year. The city has plenty of one-of capital projects that are unfunded (we know TTC does), and it should be spent on them. (My vote would be to roll out Presto across the TTC).

    Steve: The current cost estimate for a Presto rollout is $450-million and counting, and of this only about $150m is committed from other governments. Installing this system will create a net new operating cost, although this will be partly offset by elimination of existing fare media and cash handling.


  15. I still find it stunning that most people blithely assume fares have to increase each year. They don’t have to at all–there’s a deliberate choice being made there to pass on rising costs to the consumer, and a different choice could be easily made. Assuming that a fare freeze one year means higher increases in the future is ridiculous and plays into the whole “downloading of costs is good” that it sounds like got the TTC into the mess it’s currently in (i.e. the Harris cuts in the 1990s).

    That being said, I can see why people don’t want one-time money used to freeze fares for just 1 year. But the underlying assumption should definitely be challenged.


  16. Whether TTC fares go up, taxes go up, or public services go down, the money to sustain TTC service is coming out of your pocket at the end of the day. How exactly that money is collected from your pocket is secondary.


  17. Whether TTC fares go up, taxes go up, or public services go down, the money to sustain TTC service is coming out of your pocket at the end of the day. How exactly that money is collected from your pocket is secondary.

    Not in the slightest. If it’s coming out as a fare, I’m paying the same as someone who might be making 10x my income or have far less wealth than me. If it comes out of income taxes (or other progressive taxes), then I’m paying more than someone making less but less than someone making more, which is as it should be. That’s the whole point of public services–because everyone has to contribute, we can do way more than if it was only supported by user-pay schemes. How we fund things like transit is EXACTLY the point.


  18. … which is fine if it is based on a progressive taxation scheme; unfortunately, property taxes are not progressive, and they’re the prime tool available to the funding agency responsible – the City.


  19. Not in the slightest. If it’s coming out as a fare, I’m paying the same as someone who might be making 10x my income or have far less wealth than me. If it comes out of income taxes (or other progressive taxes), then I’m paying more than someone making less but less than someone making more, which is as it should be. That’s the whole point of public services–because everyone has to contribute, we can do way more than if it was only supported by user-pay schemes. How we fund things like transit is EXACTLY the point.

    You’re changing the subject from where the money comes from to whether it is collected by a capitalist system or a communist system. It really doesn’t matter, because regardless of the system collecting the money, the money still comes out of your pocket, meaning that it does always get passed down to the consumer, the question is merely one of proportion, which, as I stated before, is secondary. Taxes or fares, both are paid by you and me, the consumer.

    The government only has as much money as it collects, predominantly from taxes, and the governing party can only collect as much money from the voters as the voters will tolerate while keeping the governing party in power through the next election.

    Do you believe in eliminating public transit fares altogether?


  20. Do you believe in eliminating public transit fares altogether?

    Uhm… how is that relevant? Is that your benchmark for whether I qualify as a nutty communist?

    I prefer “socialist” myself. 🙂

    To answer your question, though, in an ideal world, yeah, I do. However, I realize that’s highly unlikely in the current climate. I wouldn’t mind seeing them reduced, though.


  21. Ah, the question of whether transit should be paid for by fares or taxes!

    I would agree that there is a large benefit to society as a whole, which would dictate a move towards paying for it though taxes. That said, I don’t believe that it should be paid totally through taxes. An element of ‘user pay’ is necessary due to human nature. It is human to take for granted anything that involves no personal effort – call it ‘laziness’, if you will. If one did not have to pay something when they boarded transit, one would quickly forget its importance, and makes it easier for the powers that be to cut service. Yea, people will complain when something they took for granted is lost, but people who place a sense of value on that same thing will be more likely to fight for it before it is gone.

    To put it more simply: transit fares should never be eliminated, but I too wouldn’t mind seeing them reduced.

    As for what method of taxation should be used, I am a big fan of wealth taxes over either income or sales taxes. They are truly an equitable and fair way of taxing the public, but I won’t delve into that here mostly because I am well aware that it is pretty much impossible to get to that system from where we are today. That said, property taxes are the closest form of taxes to a wealth tax. I would say that the combination of property, income, and sales taxes that we currently have should fund transit. Meaning, the city and the province should share the cost of transit operations, while the feds should be playing a significant part of capital funding.


  22. Uhm… how is that relevant? Is that your benchmark for whether I qualify as a nutty communist?

    It’s not the only benchmark, but it’s an important one. Here’s why;

    The system up to the mid-1960s was a sound business model that turned a profit. Then the government started wading into things more than they should have, while also subsidizing highways to exorbitant degrees (which they’d been doing for decades already; none of the highways should ever have been toll-free in the first place) that competed directly with the transit infrastructure the same government started to subsidize (they didn’t subsidize the Yonge line back in the day). The Gardiner and the Bloor-Danforth Line are competing pairs, both built at about the same time. The TTC’s business model went out the window in the 1970s as the TTC ceased to turn a profit, and had to entertain political pet projects that made poor business sense. As Steve has posted on this site, a Globe article from 1969 shows a smart business sense proposal from the TTC of the day to build a MU streetcar operation from then-new Warden Station to up-and-coming Malvern via the then-planned Scarborough Centre. Alas, it wasn’t long before ICTS started to trickle into proposals. I was in the archives the other week when I stumbled upon a 1973 brief by Steve on that debate.

    Getting back to the point; the foundation of the TTC’s system (predominantly south of Eglinton in the Former City of Toronto) was built in a capitalist environment, and was profitable and effective up to and while the subway system was still very young (with Bloor-Danforth practically brand new). While the municipal government had involvement in TTC affairs since 1921, the TTC had the freedom to refuse municipal government requests if the proposal was blatantly political (of which the Bloor-Queen subway debate is probably the best example on record). As TTC still collects money through fares, it’s still run in a capitalist environment, it just fails to turn a profit in a land where government has provided “free” expressways for generations (and this is difficult to change due to a culture that creates inherent conflicting interests amongst the decision makers, but at least there are signs that they are talking about facing the challenge as it becomes more and more difficult to ignore).

    The results of eliminating fares, which is why that question is relevant, is that doing so would see demand jump by an estimated 50%, and the system is obviously incapable of handling such, particularly on the Yonge Line where it’s a struggle to meet existing demands. You hadn’t thought about that.


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