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.
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 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.