The TTC’s operating and capital budgets are a major part of the City of Toronto’s overall budget, and a considerable amount of TTC spending is provided directly by Council.
In 2010, the operating subsidy will be paid entirely by the City with no contribution from Queen’s Park. This subsidy will be about $420-million, and in the absence of a fare increase, this will rise to $500-million in 2011. The final 2010 figure will not be known until the year-long effects of ridership growth and the 2010 fare increase are clear. Notwithstanding repeated statements from Queen’s Park and various mayoral candidates, no operating subsidy flows to the TTC from the Province.
The capital budget is complex because there are many sources of subsidy. Some of these are project-specific such as the contributions by Ottawa, Queen’s Park and York Region to the Spadina Subway Extension. Others are intended to support a specific class of project such as security upgrades or vehicle replacements. Still others are not earmarked, and these sources fund projects as needed.
In 2009, the capital subsidies totalled $742-million. Of this, $333-million came from the City, $195-million from Queen’s Park and $208-million from Ottawa. The remaining $6-million came from other sources such as Waterfront Toronto. Gas tax revenues from Ottawa and Queen’s Park amounted to about $320-million in 2009, and of this, slightly more than half of the Provincial money was used as an operating subsidy. In 2010, all of the gas taxes are going to the Capital Budget. (For details on subsidy arrangements, please refer to the TTC Financial Statements for 2009.)
Whatever is left over after all of the external subsidies is funded by the City. These monies are raised partly from debt and partly as “capital from current” in the City’s operating budget.
A critical problem going forward in capital planning for the City is that various funding programs at both senior levels are drying up, and Toronto will be left with only gas taxes and the cost sharing on Metrolinx projects. This leaves the City open to a greater call for TTC capital in future years, a problem compounded by the growth in planned capital spending. Recent announcements of Provincial funding for transit network expansion contribute nothing to ongoing capital requirements for system renewal.
In this context, proper control and oversight by the City over TTC budgeting is essential. However, the TTC has a long history of operating as an independent agency managing its own accounts. This may have been acceptable before the City was the TTC’s primary funder, but not today, especially considering the effect of unexpected changes in TTC financial results and requirements on the City’s books.
Toronto’s Executive Committee will consider a report on August 16 to formalize the protocols for relations between the TTC, City Council and their respective staffs on budgetary matters. Authority for City oversight and control already exists in the City of Toronto Act. A telling paragraph from the report gives a hint of problems that exist between the two bodies:
It is important that the City and the TTC, as a city board, clearly understand their respective roles (including authority and accountability) in financial planning and budget management and that the financial management relationship be clearly and publicly documented. Consequently, it is necessary to codify the responsibilities of the TTC in relation to budgetary matters in a City by-law. [Page 4]
Among the protocols to be implemented are:
- Council approves a 10-year capital plan including current and future planned spending on approved projects, identification of changes in scope, planned funding sources for each project and debt requirements for each year.
- The TTC is not allowed to pay for overruns in, say, a Provincially funded project with savings in a City funded one. Any changes to the budget and plan from items listed below must be funded by reallocation from projects with a similar funding structure.
- accelerated or deferred work,
- scope changes greater than 10% or $500k,
- new projects, or
- unplanned allocations of funding including reserves.
- The TTC will report capital projects that are closed so that unspent balances can be released.
- Council approves the operating budget including total cost of services, service levels and staff complement, total revenue (including external subsidy, if any) and the net expenditure to be funded by the City.
- Any changes to the budget that would affect the City’s financial position must be approved by Council. These include:
- projected gross expenses or revenue
- net expenses (City subsidy required)
- overall staff complement including proposed changes to services or service levels
- The TTC will file a quarterly variance report for both of its budgets.
- Any surplus in the operating budget will be retained by the City, and Council will decide what to do with the funds.
[See Attachment 1, pp. 9-10. The operation of these protocols is set out in more detail in Attachment 2, pp. 11-15.]
The TTC’s capital budget contains a great deal of information already, but the reasons for and effects of scope creep are hard to dig out of the background material. Of particular concern is the budgetary shell game involved when unexpected cost growth in project “A” requires an offsetting saving or deferral in projects “B” and “C”. The trade-offs involved are not always clear. Indeed, the TTC now talks of a backlog of capital projects that have been pushed into future years, but has not documented this problem so the Council can assess its severity.
Another subtle problem with large projects can occur when elements that were expected to be part of the base project become future upgrades (in effect, new unbudgeted projects). The most flagrant of these, a quarter-century ago, was the SRT whose cost ballooned from just under $100-million to about $240-million, not to mention an endless series of fixup projects. More recently, careful watchers have noticed many unexpected cost increases on the Spadina Subway Extension. Although these are officially funded from “contingencies”, there is word that some elements have been deleted. Whether these re-appear as add-ons after the line opens remains to be seen. The problem is that such design changes have been made without any public review.
Some projects seen from the outside as one entity are actually sub-projects of many capital plans. For example, a station renewal may draw on half a dozen separate internal plans including accessibility, fire prevention, structural repair, communications systems, etc. This approach is useful in tracking the cost associated with each type of upgrade, and on occasion this can affect funding (e.g. accessibility may be funded differently from security).
When a project is scheduled, it may not retain all of its components, or they may be stretched out in time, to resolve overall cash flow planning. The project at Broadview Station is a good example of this effect.
Open-ended projects create their own budgetary problems in two ways. A still-open project may continue to draw on a previous capital approval for work that might be difficult to describe as part of the original project. At some point, a project has to be declared “finished” and any additional work approved and budgeted on its own merits.
Another problem arises with projects whose scope is repeatedly modified by the addition of new phases. This muddies the tracking of costs for the original components and those added later.
Council (and City staff) will have their work cut out to understand the inner workings of the TTC’s capital accounts.
Council’s approval of the operating budget and service is not intended to micro-manage TTC operations. For example, if riding growth triggers the need for more service, the TTC is free to add this service provided that the marginal cost is offset by additional fare revenue. Only if additional subsidy is needed would this come to Council for approval.
Changes in overall service quality such as those that would come from the Ridership Growth Strategy or the Transit City Bus Plan must be approved as part of an annual operating budget so that Council explicitly authorizes the new service policy.
An important part of the operating budget will be a 3-year strategic plan. This is the place where future changes in policies should appear so that the overall direction of transit service provision can be debated and approved by Council. A vital part of this plan will be projections of future subsidy requirements, service initiatives and fares.
The TTC and City do medium-to-long range planning for the big capital projects and system expansion, but rarely have comparable debates about operations even though this is transit’s bread-and-butter. Rather than overall discussion of what the transit system might be, what services it could offer, how much it would charge, who should benefit from special fare subsidies, we have the annual “squeaky wheel” debates where line item changes are approved in the heat of the budget sessions.
If Council agrees to implement the new protocols, they will take effect for the 2011 budget year. The new Commission (and its management) will have to adapt to a Council exercising closer budgetary oversight. Conversely, Council will have to take more responsibility for transit decisions, and blaming the TTC for every problem won’t be as easy.
How well this actually works will depend on the new Mayor, Council and TTC. Advocacy for better transit will shift, in part, to Council as part of the budget debates and any work on a strategic plan. A slash-and-burn administration could undo much that is worthwhile in the TTC looking on this only as a Miller legacy. More responsibly, the new Mayor and Council can build on what is good and make the TTC even better.