Updated at 3:20 pm, September 7: Metrolinx wrote pointing out that there is a ten-year cash flow for the “5-in-10” Transit City projects. It is at pages 25-26 of their presentation. [Note that Metrolinx has fouled up its website, and their presentation is no longer visible. The link here is to the two-page cashflow taken from their report and posted on my site.]
Updated at 10:00 am, September 7: The section on funding of Transit City lines has been clarified to distinguish between announced and suspected funding strategies.
Updated at 10:40 pm, September 4: A small section has been added near the end about the problem of creative project descriptions and their effect on capital planning.
Politicians love to claim that other people don’t know what they’re talking about. Even transit commentators and activists like me say this sort of thing, but the pols tend to be more aggressive in their tone as they play for media and public attention. Reading the source material helps, but it can be a long slog.
As a service to my readers and would-be transit financial analysts, here is a review of how TTC subsidies work. The primary source material for this article is the draft audited financial statements of the TTC for 2009 which were published in May. They are “draft” only in that, when published, they had not received formal Commission approval which has subsequently been given.
A journalist whose bluster is greater than his accuracy recently implied that the TTC was hiding its financial results when in fact they have been available for months. This sort of thing passes for penetrating analysis in some quarters.
Operating Subsidies
The real meat of this report is the long series of footnotes to the financial statements. On page 16 of the linked report, note 12 discusses operating subsidies.
In 2008 and 2009, a portion of the provincial gas tax was directed to the operating budget ($91.6-million in each year). For the record, on 2010, all of the gas tax is going to the capital budget.
In 2008, Queen’s Park made a special $100-million contribution over and above the gas tax, but this was not repeated in 2009 nor is any planned for 2010.
The total subsidy paid by the City of Toronto was $196.7m in 2008, rising to $427.8m in 2009. Note that this includes the full cost of Wheel-Trans which receives no provincial operating subsidy.
Subsidy requirements for 2010 are reported in the Chief General Manager’s Report which I cited in my previous article about fare revenue. For 2010, the probable subsidy for the regular TTC system will be $411.2m and for Wheel-Trans will be $85.4m giving a total of $496.6m.
Some TTC critics claim that costs are rising uncontrollably, but they don’t look at the breakdowns or the change in the accounting or subsidy rates for provincial contributions. Also, critics compare only the rise in subsidy dollars, not the overall budget.
Total TTC costs rose from $1,289m in 2008 to $1,415m in 2009, an increase of 9.8% (see expense summary on page 5 of the financial statements). However, the percentage changes were different for each component of the total. For example, wages and benefits went up 7.7% reflecting both the arbitration-imposed 3% contract award, plus overall increase in the amount of service operated.
Total vehicle kilometres operated (see TTC operating statistics summary) rose by 5% in 2009, but most of this was on the bus network where mileage rose by almost 8.3%. However, some costs are not affected by changes in ridership or mileage, at least not at the comparatively small scale of year-to-year deltas, because they are more closely related to the overall size of the system.
Note 12 continues with a reconciliation of the subsidy as seen by the TTC (first line of table on page 17) and by the City. This shows the effect of deferred subsidy payments that I discussed in my previous article.
Capital Subsidies
Overview
Capital projects are subsidized from a bewildering array of sources. There is much chest-beating by politicians at all levels about how much they pay, but attention to details is important. Note 13 contains these details, and note 14 summarizes the state of various City reserve accounts.
(For another view of the TTC capital budget, see the TTC report from September 2009 in which the 2010 budget was introduced. Some of the information in this report is now out of date.)
In the budget context, although the TTC and City have multi-year capital projections, they agonize each year over current numbers. Promises from Queen’s Park and Ottawa to fund future vehicle replacements and system expansion are welcome, but they don’t pay the bills in the current year. Indeed, some projects already committed by the TTC such as new subway cars, streetcars and maintenance yards, are not funded to the degree hoped in original TTC projections. This shortfall threatens to drive up City funding costs in coming years and/or to crowd out other projects.
In 2009, the TTC’s capital requirements were $742-million, up from $638-million in 2008. Toronto is on the leading edge of a steep rise in yearly capital spending as many new projects kick in after a long dry spell. Year-to-year comparisons in spending are meaningless without knowing the detailed lists of funded projects or where they are in their life cycles (design, construction, commissioning, close-out). Indeed, part of the dance involved in fine-tuning the capital budget includes shifting projects so that their peak spending periods to not co-incide. Because much has been deferred, and the system is now in a period of growth, this fine-tuning has become difficult.
In 2009, the proportion of capital subsidy received from various sources was 32% City of Toronto, 26% Queen’s Park, 28% Ottawa, and 1% other (mainly Waterfront Toronto). A further 13% comes from the Spadina extension project which is administered by the City as banker, but funded jointly by Ottawa, Queen’s Park, Toronto and York Region (the details are not broken out in the statements).
Provincial and Federal Subsidy Programs
Ontario funds vehicles through separate programs. Originally, the Ontario Bus Replacement Program (OBRP) contributed substantially in 2008, and to a lesser extent in 2009. This program was cancelled in the March 2010 budget. Queen’s Park now plans to fund bus purchases on a life-cycle basis with the City carrying the purchase cost as debt, and the Province reimbursing the City with capital subsidies against that debt (and interest). Although in the short term this pushes some payments out to future years for Queen’s Park, in the long term when all buses are funded this way, the effect will be to flatten out the Provincial cash flow and lessen the effect of bulges in the size of bus orders from year to year.
Another vehicle fund was set up as a reserve from a one-time payment from Queen’s Park in 2007. This $150m reserve had, by the end of 2009, been drawn to the amount of $127.8m. At the current rate, it will be exhausted in 2010 or 2011 at the latest. This fund was intended to deal with Toronto-specific funding needs (subway cars), although it does not address long-term funding for the Toronto Rockets including the add-on order which will replace the H-6 subway fleet.
The Canada Strategic Infrastructure Fund provides money from Ottawa and from Queen’s Park (the City is also required to pay a matching 1/3 for CSIF projects). Part of this was intended to pay for a GTA farecard (“Presto”, a topic of discussion elsewhere), and this amount is still on hold. Queen’s Park discharged its obligations under CSIF in 2007 by paying $275.6m to the City of Toronto where the funds are in a reserve account. Of this, $219.2m has already been spent, and this reserve will probably run dry in 2011. The federal portion of CSIF funding is claimed from Ottawa. This program will end in 2012.
Provincial Gas Tax generated $164.1m in 2009, of which over half went to the operating budget. In 2010, all of the gas tax revenue is applied to capital.
Federal Gas Tax generated $162.9m in 2009, and all of this goes to capital.
The Transit Technology Infrastructure Program is another closed funding channel. In 2007, Queen’s Park paid the City $31.1m and most of this had been spent by the end of 2009.
In 2006, Ottawa announced the Public Transit Capital Trust of which Toronto’s share was $222.6m. This was paid into a City reserve fund to cover various capital projects, and the reserve is now exhausted.
Also in 2006, Ottawa announced the Transit Secure program from which Toronto received $8.8m. About 2/3 of this has been spent.
The Federal Infrastructure Stimulus has generated $60.4m in funding for Toronto. Most of this will be spent in 2010 and early 2011.
Finally, Queen’s Park has agreed to pay 1/3 of the cost of the new streetcars for the “legacy” network. Although this is a large contract, the spending in 2009 was small, and the provincial share was only $11.7m.
What is striking about this long list is that:
- Only the gas tax from Ottawa and Queen’s Park are ongoing programs. There is no guarantee of the bus funding scheme remaining as a long term commitment for future purchases. Funding for rail vehicles is uncertain, and tends to occur on a project basis rather than as an ongoing revenue stream.
- Many subsidy programs are closed, and funds in many reserve accounts will be exhausted over the next few years. Indeed, Queen’s Park paid its way out of programs a few years ago (when they had surpluses to burn up), and as a result there is no base budget line at the Provincial level on which to build.
Update added at 10:40 pm September 4:
A side-effect of the various subsidy arrangements is that the TTC has, on occasion, attempted to turn routine maintenance into a special project to attract separate funding. The Yonge Subway Capacity Improvement project consists of the resignalling of the YUS with a new system capable of automatic train control. The claim is that this will allow for closer headways and greater capacity. (The signalling replacement is overdue with the original equipment dating from the early 1950s.)
This is true to a point, but it ignores the fact that if trains will run at shorter headways, the number of trains will rise. This could be offset by a move to “high rate” operation with faster acceleration and better performance on hills, but I doubt this will completely offset the requirement for more trains.
The TTC has no budget plans for more trains nor for the carhouse needed to store them, although this might be buried in the Richmond Hill subway extension budget.
It is imperative that the full cost of projects and claimed benefits be understood so that “surprise” subsidy requirements don’t elbow aside planned improvements.
The Role of Metrolinx
Through Metrolinx, Queen’s Park has funded some transit projects, although not at the level originally expected. Broadly speaking, the funding falls into two blocks.
- The “Quick Wins” program was intended for projects that could get underway without long planning lead times. The lion’s share of the $452.5-million funding is reserved for the Yonge Subway Capacity Improvement project (that is to say, the new signal system) in the amount of $386m. A good deal of this will not be spent until 2010 and future years.
- The “Transit City” projects have gone through changes over the past year, but in brief their funding status is:
- Sheppard: Funded roughly 2/3 by Ontario, 1/3 by Ottawa
- Eglinton: Funded 100% by Ontario
- SRT replacement and extension to Sheppard: Funded 100% by Ontario (*)
- Finch West from Spadina subway to Humber College: Funded 100% by Ontario (*)
- Vehicles for Transit City Lines: Included in funding for their respective projects.
- (*) These projects are in the latter years of “Phase I” of the Metrolinx “5-in-10” program. They are announced as being funded by Ontario, although I would not be surprised to see the first monies from the Investment Strategy used to pay for them. Queen’s Park needs to make a definitive statement in that regard so that we do not find future spending constrained by further cutbacks in announced funding from general revenue.
It is Ontario’s intent that the Metrolinx projects will be owned by that provincial agency, not by the local transit system. Operation will likely fall to the TTC, but the infrastructure and vehicles will be owned by Queen’s Park. This allows the Province to show a capital asset on its books balancing the debt incurred to build the projects.
At some point, a book transfer will be needed to shift Transit City assets that might be sitting on the TTC or City books to Metrolinx. From that point onward, any revenues and expenses on the capital accounts would not include provincially owned assets. As this is now handled by the City/TTC on a pass through basis, there should be no net outlay related to this transfer.
What will remain, however, is the large number of capital projects for which there is no dedicated provincial funding.
The Provincial “solution” to everything will be the Metrolinx investment strategy, but at this point we have no idea of what this will actually be, how soon money will flow from it and what level of funding will be available. Metrolinx’ “Big Move” raised a lot of expectations, and their network plans must compete for funding with many local transit system needs for which the gas tax does not begin to cover the cost.
Politicians now or recently at Queen’s Park would do well to recognize how deep the hole in transit funding really is. It’s easy to say that Toronto isn’t minding its business properly, but that’s hard to credit from a government that raised its own expectations for better transit service without a solid funding plan. Provincial contributions to transit have been falling, not rising, except for project-specific announcements that depend on the whims of the current government and the state of the provincial budget.
A Few Parting Words
If you are still reading, congratulations. Transit funding is a big shell game where funding partners like us to think they are generosity itself. That generosity is selective. It is announced, and re-announced to anyone who will listen, without regard for the larger picture.
Meanwhile, funding for the basics, for keeping the system in good repair, is far below the level needed and this creates pressure for the City’s capital planning. Much needed capital works are simply ignored, pushed off into future years when more funding might be available.
This is not a sustainable future for transit capital spending.
Steve Munro 
If I was trying to get operating subsidies from senior government, I’d start with WheelTrans. It is as much a welfare program as it is a transportation program and the need for paratransit is only going to increase as the boomers shift into retirement.
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To those who say get rid of WheelTrans once all vehicles are handicap accessible and all the stations have elevators, I say: how many times have the elevators gone out of service, will ALL the streets have sidewalks, and will ALL the sidewalks be cleared of snow, garbage bins, etc. at all times?
Steve: Many WheelTrans riders cannot get to subway stations on their own, and some local service will always be needed. The tradeoff comes with an ability to handle more riders who have some mobility problems on the “conventional” system to offset growth in demand for WheelTrans for those who have no alternative.
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This is not a sustainable future for viable transit.
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Steve says: “The Federal Infrastructure Stimulus has generated $60.4m in funding for Toronto. Most of this will be spent in 2010 and early 2011.”
Unless the Feds change their mind, if this infrastructure money is not spent by March 31 2011 it will be lost (and I think a project has to be FINISHED, so one can’t get half way and get 50% of the promised subsidy.) The TTC projects are listed as a section in this backgrounder.
Question: How is the TTC getting along with their Federal Infrastructure projects? Will all be finished in time to get their promised subsidy?
Steve: TTC staff have not yet given a status report on whether the works will all be completed by March 2011. I am waiting for the collected wrath of cities across the country to force an extension of that deadline.
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There is a cultural and systemic problem here and eventually Ontario/Toronto/TTC will end up like Greece or Spain.
I will not be affected as I am not employed by any of these groups.
That some arbitrator decided to give 3% increase in salaries when the world wide economy was entering a major recession says something. Do not say it was the arbitrator that imposed this criteria on the TTC, and we are not responsible.
Someone is not acting in a responsible manner, at least when it comes to government spending.
This has been an Ontario/Toronto Government problem for a long time and it does not matter which party is in power.
Steve: And now, ironically, Queen’s Park is talking about an across-the-board public sector wage freeze for two years to claw back increases. This will not make the Liberals popular. The difficult part will be to rein in spending on staff who are not covered by union contracts — management and contract staff who are not “on salary”.
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I think that it is important to put the issue of TTC subsidies into the broader context of transportation subsidies.
Automobiles receive massive subsidies from all levels of government. These include:
1. Costs of building roads, bridges and other physical infrastructure for automobiles.
2. Costs of maintaining roads, bridges and other physical infrastructure for automobiles.
3. Costs of paying emergency services (police, fire and ambulance) for automobile users.
4. Costs of health care for when car drivers injure people in crashes.
5. Costs of health care for victims of car pollution. I note that Toronto’s Medical Officer of Health has calculated just the mortality costs of car pollution to be $2.2 billion per year. See this Toronto Health report.
6. The high cost of “free” or heavily subsidised car parking.
7. The costs of zoning regulations that pervert development by requiring car parking.
8. The $35 billion that the federal government has spent so far on their current war in the Middle East.
9. The cost to both the Ontario and federal government for bailing out General Motors in 2008-09.
10. A long, long list of subsidies, tax incentives, special unemployment insurance rules, property tax giveaways, etc, etc, handed out to the auto industry.
11. Perverse rules that subsidise auto insurance rates on the backs of auto crash victims by limiting restitution to them for the very real harm done to them.
The subsidies paid to car drivers in the City of Toronto alone come to over $27 billion per year. I suggest that ending the subsidies and requiring car drivers to pay up the $27 billion that they owe each year would allow us to afford a world-class transit system.
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Steve said ” this will not make the Liberals popular.”
This is not an issue.
Soon Ontario will follow Greece and some states in the US (at least some are cluing in) are attempting to pass laws that cut back on benefits for public sector employees and former public sector employees.
The ones that are not on a contract are not an issue.
If they do not want a freeze they can leave.
Many of these people should be on a 4 day week with an appropriate reduction in salary. The same people can complete their weekly workload in 4 days.
Hint.
Steve: As a retired former public servant (management), I can tell you that I and most of my staff had our hands full doing our work in five days, and there was a fair amount of weekend work on top of the regular hours. That’s what the IT business is like.
As for my pension, OMERS is in fairly decent shape, and I will thank you to keep your hands off it.
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The TTC has required unusually long warranties on their new buses that they buy. I had a theory that, besides giving bus builders a stronger incentive to improve quality, the purpose it to turn an operating cost (bus maintenance) into a capital cost (extended warranty). It seems to be much easier to get funding for capital costs from the city and other levels of government then operating costs.
Steve: Oddly enough, the opposite happened throughout the US transit industry because the federal government agreed that a bus could be replaced when it was 12 years old. There was no incentive for maintenance, and indeed, some systems would pillage out-of-service buses for parts because a replacement bus was a capital cost (with generous subsidies) while a spare part was operating (with poor subsidies). The whole subsidy game creates distortions in planning and budgeting, and it’s not helped when the rules change every few years.
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I live near to the house/apt. building, which Steve calls his “primary residence”. I had to go to the PIA area recently and I was really horrified, how much space is allocated to the parking lots along 427/409/410 highways in T.O. The lots requires special service during heavy water run-offs. The same “attention” has to be given to a private driveway, if the resident needs to get it re-paved (City inspector has a right to see the contractor’s licence).
Please do not belittle Steve. I do not know his position at the “City hall” (whatever that means); Mr. and Mrs. J.Q.Public want to have their hidden I.T. services available, when needed – school registration, hockey rings payments and such. I.T. needs constant attention and quite often very complicated tasks (upgrades, dataset reorganization) are left for the weekends.
Current fiscal problems in ON (and indeed in countries of original NAFTA) stem from the under-production of value-producing items.
The TSE has been given recently a boost by the fact, that Bombardier won a tender for 100 high-speed trains for FS (Italian railways), Yet not even one screw will be produced in CDA. As long as CDA is NOT producing the big ticket items, the deficit situation will continue.
Steve: For the record, my position, before retirement, was as System Operations Manager for the Toronto District School Board’s IT Department.
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Talk about subsidies to the automobile industry. Huge amounts of city taxes go to paying for roads and highways. You say they get the gas tax money, the city to my understanding gets none. of it. The malls have free parking, and employers offer free parking to employees, yet the transit riders get nothing.
They are spending millions on an expensive train link from the airport (the link and its fares). Why not extend the subway to there?
Then look at the other car costs, from pollution, to health costs from accidents, to the costs for the police to investigate the accidents. Not a cent is recovered from the insurance.
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Hi Steve.
When talking about auto use and hidden costs and subsidies we should not forget the costs of congestion in the GTA area. If I recall correctly, this was pegged at around $2.5 billion per year by the OECD.
Steve: At the risk of sounding like a car advocate, we have to be careful with the OECD numbers. The larger context is that travel demand will grow, and will almost certainly do so faster than we build new capacity to handle it given that people would rather have no new taxes. At best, congestion (and its cost) will get no worse than it is today.
The real challenge is that in some corridors there must be a reallocation of how road space is used, but nobody wants to give up their ability to drive. They have good reason in many areas because transit is offered as a distant second best and is the first thing to be cut when budgets are tight.
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Talk about subsidies to the automobile industry. Huge amounts of city taxes go to paying for roads and highways. You say they get the gas tax money, the city to my understanding gets none. of it. The malls have free parking, and employers offer free parking to employees, yet the transit riders get nothing.
I’m all for the expansion of transit (especially since moving to Islington and Finch from the Yonge & Sheppard), but we also need some balance and perspective.
Yes the auto is subsidized by the taxpayer, but all services provided by government are, this is the nature of government services.
Not everyone needs to visit an emergency room – but we all pay for it on the chance we will need it. Same with police or the fire department.
Not everyone rides the TTC – but we all pay for it, I would say those in the inner suburbs pay far more then the quality of service they receive, than those who live on a subway line or those in the downtown core. The suburbs – pay the same property tax rate, and receive less service (distance to stops, speed and frequency of transport). They subsidize service in the core.
Not everyone drives – but we all pay for roads, drivers even more so. Ever see the amount of tax on a new car, or the amount of tax included in the cost of gas (some of which goes directly to transit)? A car driver needs to buy insurance to cover the medical costs of themselves and anyone else involved. Can the TTC operate buses without roads? Can trash pickup or commuting on bikes work without a road network? How will goods arrive at your local store?
It’s not transit vs. cars, it’s not suburbs vs. the core. It’s about making thing better for everyone. Penalizing one group over another solves nothing – although it may be fun to demonize cars and trucks – sometimes there isn’t a reasonable alternative.
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Steve writes: The section on funding of Transit City lines has been clarified to distinguish between announced and suspected funding strategies.
I like the use of “suspected”. Even if maybe it was a typo.
Steve: No, it was not a typo. I don’t trust Queen’s Park, and if push comes to shove, we could see another round of transit funding deferrals while the GTA continues to grow. I hope to be pleasantly surprised.
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Why not address the real issue? Compare and contrast with the 2009 financials of the MTA, one of the world’s largest public transit systems: http://www.mta.info/mta/budget/pdf/cons_0908.pdf
I don’t mean the massive qualitative difference. Just please, look at the operating costs, and compare the two.
The MTA has something like 10 times the assets of the TTC, 9 times the subway cars, 8 times the passengers, but only has approx. 6 times the workforce and employee expenses. Simply put? The TTC *costs too much*.
Steve: A much higher proportion of riders in NYC are carried on subway trains and commuter rail with a lower staff:passenger ratio than in Toronto. You are comparing apples and oranges. A detailed staffing breakdown for 2009, by the way, is available here starting at page 13.
And don’t get me started on that laughable swine-trough program for the Provincial elite class, Metrolinx; if this country, and in particular this Province, had a little bit of political honesty that gross example of lifestyle jobs for the pyramid upper crust would have been shut down or at least came under review by failing to to obey their mandate to engage the public — stating that “page hits” which amount to roughly 7% of Ontario public transit users, never mind tax-payers, (probably much smaller considering the number of times the pages are re-visted by the same people) somehow upholds their mandate for public discourse is insultingly transparent and would be grounds for a material breach of contract in a just society. But anyway.
Please continue to dutifully repeat the contents of reports from the operations of the elite class, and I’ll remind everyone that this Province, and possibly all of Canada is a dead horse currently tumbling lifelessly down-hill — at least once in a while.
Steve: I agree that Metrolinx falls short on many aspects of its public engagement. Oddly enough, nobody ever seems to go on about “waste” at the province with quite the energy expended on the City.
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My own thoughts about getting the province to help subsidize the TTC is that in return the province will want have a say on who will be on the commission itself. That would be fine with me actually, but it should be in proportion to the amount of subsidy they provide. In other words, if the province would provide 50% of the subsidy, they may want to have 50% of the commission membership, with the other 50% coming from the city. However, I would put a further adjustment to those numbers and have them go further than just the percentage of the subsidy.
I would prefer to see the commission membership based on the source of revenue, with the subsidy being only a part of the incoming cash. For example, using 2008 numbers, if the farebox recovery was 73.8%, then the subsidy would have been 26.2%. If the subsidy was 50/50, then I would give the province 13.1% of the commission membership to them, 13.1% to the city councilors, and the rest, 73.8% to public representative appointments. Rounded to the nearest whole number of course.
Just my thoughts.
Steve: Metrolinx has taken control of the Transit City Projects, and Queen’s Park is paying almost the entire shot. As for the existing system, be careful what you wish for. Almost inevitably, “citizen” members of boards, especially those with significant spending power, are cronies of those in power, and the boards are used as places to “park” politicians who don’t have a seat at the time. That’s exactly what happened on the TTC and invalidated its role as a truly independent citizen board, that and a few dubious property transactions I won’t go into.
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