Updated July 8, 2011 at 10:00 am:
[Readers new to this item should read the original post, and then come back to the top of the item for the update.]
At the Commission meeting, I presented this deputation.
In the discussion that followed, it became clear that there are aspects of the deal between the TTC and Presto that the parties would prefer to hide from public view. Some of the details are up to Metrolinx to release, not the TTC.
On the matter of the recapture of the provincial loan for the cost overrun on the project, TTC’s Chief General Manager Gary Webster explained that Metrolinx had agreed to “hold the TTC harmless”, to use the legal phrase, against extra costs beyond what fare collection now costs the system. Apparently the payback of capital is very similar to the proposed arrangement with the proponent of the Open Payment system.
There would be no payment to Presto before savings in fare collection costs begin to accrue, although the detail on these payments remains to be worked out. The intent is that the sum of the cost of Presto service and the loan repayment will not exceed current costs.
Questions remaining unanswered include:
- If the load is to be repaid over 10 years, but if there has not been enough cumulative saving in fare collection costs by then, what happens with the outstanding debt?
- Is Queen’s Park contributing anything additional to the Presto project, or is the entire cost overrun entirely on Toronto’s back?
- How aggressively will the TTC have to migrate riders from the current system to Presto in order to generate the hoped-for savings?
- What is the status of Presto on the bus system given that the report proposing the financing scheme does not mention buses at all?
During the debate, Chair Karen Stintz stated that any regional integration would not occur until after 2015, presumably when Presto was fully rolled out. Indeed, it is not practical to restructure fares before the fare collection system can handle whatever new tariff is in place. Again, this begs the question of the status of the bus fleet which handles a great deal of cross-border travel.
Commissioner Minnan-Wong, unsatisfied with the level of detail in the discussion, moved deferral of the item, but this was voted down with only him in favour.
A update report on the status of negotiations with Presto will come back to the Commission in October or November 2011.
Original post from July 2 at 13:45:
Recent news from Metrolinx and from the TTC gives the impression that all is sweetness and light between the two agencies, that Toronto will adopt the Presto fare card, and the manifest destiny of Queen’s Park’s fare project will be revealed in all its glory.
A report on the TTC board’s agenda for July 6, 2011, gives is the fine print behind the deal, and shows just how much of a ride Toronto’s transit system and passengers are being taken for here.
The process starts with the Memorandum of Understanding between Mayor Rob Ford and Queen’s Park which commits Toronto to adopting the Presto system. This MOU has still not come before Council for ratification.
For many years, we have known that the actual implementation cost will be much higher than the original estimate of about $140-million partly through inflation (that estimate is about a decade old), and through refinement of the estimate. Depending on who you believe, the cost will be anywhere from $250 to $350-million, not including a few small add-ons like the Transit City network (or whatever will replace it), nor a retrofit of the existing streetcar system during the co-existence period of the old and new fleets. Although Metrolinx has always argued that the TTC estimates were high, even Metrolinx comes in with a projected cost well about $142-million.
At its June meeting, the Commission adopted this motion:
That the TTC’s upfront capital costs to implement PRESTO be capped at the previously budgeted amount of $47 million.
We now know that Toronto will still pay well over that $47-million “cap” by way of a financing arrangement with the Province.
The Province and Metrolinx have proposed and approved a financial approach for implementing PRESTO on TTC whereby the majority of the TTC-PRESTO capital costs are financed by the Province and recovered as part of a monthly fixed-fee paid by TTC to PRESTO. The proposed PRESTO-TTC financing arrangement provides predictability for TTC on PRESTO fare system costs (both capital and operating) over a 10-year period, and caps the TTC and City of Toronto’s capital contribution for PRESTO at the previously budgeted amount of $47 million.
In other words, Toronto has not “capped” anything, but simply borrowed whatever will be needed to top up the project budget from Queen’s Park. It is unclear whether this will be treated as a capital lease and paid for out of the capital budget, or if this will be considered as an operating expense and added to that budget.
If it’s “operating”, then the cost may well end up as a surcharge on fares, or alternately as one more excuse to cut service because the money is needed to pay down the Presto debt. If it’s “capital”, then there is no difference, from an accounting point of view, between this scheme and one where the City simply borrows the money on the open market. This is little more than a shell game to preserve the myth that Toronto can implement Presto cheaply, while Queen’s Park finally reels the biggest fish into its Presto net.
Completely missing from the report is any discussion of the full cost of a Presto rollout in Toronto or the share of this cost that will become part of the financing agreement with the Province. If the TTC agrees to this, it will commit Toronto to an open-ended contract for fare collection and an increase in operating costs that has not been approved by Council. That Council loves to rein in the TTC for making commitments without approval, but whether a scheme brought forward by Rob Ford’s TTC will meet the same resistance remains to be seen.
Meanwhile over at Metrolinx, their June 23 Board meeting brought us an update on the Presto system. The Presto organization will formally become a division of Metrolinx at the start of July 2011.
Presto now has roughly 50,000 cards in circulation, but has collected only about $23-million in revenue (4.5m fares) through them. Compared with GO Transit’s annual revenue stream of over $300-million, this is really small change. The expansion of Presto throughout GO’s network will boost this, but the real prize is integration with the TTC where a $1-billion annual revenue stream is up for grabs. As the Metrolinx report says:
The TTC is a crucial component of PRESTO’s ultimate success.
Presto and Metrolinx have not yet discussed publicly the cost of building up their back-end infrastructure to support a vastly higher number of transactions, the complexity of new fare schemes, or a move to a “next generation” of Presto supporting open payment technology. The original $250-million contract with Accenture for system development and operation covers the period ending in 2015, and does not include any costs related to the TTC.
Of that $250m, about 40% covers system operating costs and the rest was for development and implementation. According to Ernie Wallace, the retiring head of the Presto project, Metrolinx will be taking over the operational functions of Presto. Nothing was said about whether Accenture will forego the revenue associated with this part of its function, or if this is a convenient way to free up monies for further development by Accenture while leaving day-to-day support in Metrolinx’ hands.
With Presto moving under the wing of Metrolinx, it’s hard to predict whether this will bring better exposure to Presto’s work and costs, or if Metrolinx’ continuing love of “in camera” discussions of difficult issues will continue to shelter Presto from view. The challenge for Presto and for Metrolinx is to move beyond a development project into a fully-functioning product that improves the transit user experience without draining resources from transit systems and the cities that run them.
Presto hopes to better the TTC’s cost of fare collection which is 7% of the revenue stream. Depending on which type of fares Presto attracts, this could be a challenge, or could strip the TTC of its cheapest-to-collect fares. Roughly half of all adult fares on the TTC are paid by Metropass, and these are purchased either by direct bank withdrawal, by a single cash, credit or debit card transaction, or in bulk purchase by a reseller. The administrative cost per trip of these purchases is very low.
If Presto simply replaces the Metropass, this will skim the cheapest of the fares out of the TTC’s system while leaving the more expensive token, ticket and single fare users behind. Indeed, since the 7% figure is a system average, the actual cost of serving Metropass holders is well under 7%. If Presto charges the TTC 7% for its pass holders, this will effectively increase, not decrease the cost of fare collection (leaving aside any recovery of the system’s financing costs).
All in all, Metrolinx and Presto have done a great job of getting everything they could possibly want from the TTC while Toronto’s riders face future costs that the TTC either does not see or chooses to ignore.