Recent press coverage of the opening salvos in Toronto’s 2013 budget process tell us that the Budget Chief, Mike Del Grande, is trying for another year in which he, the Mayor and the City Manager dictate a zero percent increase in city funding to all agencies. This is not playing well with some members of Council according to The Star, and with some luck this will extend to boards of agencies like the TTC.
The dynamics of Council have changed since the 2012 budget launch a year ago when the Mayor and City Manager issued a zero-percent edict and drove through cuts to many city services while claiming a massive, if fictional, deficit threatened the city’s integrity. Trying for a repeat performance may play well as part of the already-in-progress 2014 election campaign, but such an attempt runs counter to the will of many on Council. This is a delicate time for management at the City and its agencies like the TTC, and the leadership for a different world view must come from Council and the agency Boards.
This will not be as easy as holding a press conference to announce a $30-billion plan for a fairytale network of rapid transit lines that would be paid for through as-yet unknown future taxes and contributions from other governments. This is the real world where the City and its agencies must raise real money from existing revenue streams today, must make decisions that will affect real service levels today, must be prepared to fight for policies that will deliver results today, not decades in the future.
The Operating Budget in Brief
The Operating Budget covers the day-to-day cost of running and maintaining the transit system. Major repairs, new vehicles and infrastructure come out of the Capital Budget (about which more later). Generally speaking, expenses and funding cannot be moved between the two budgets.
2012 Budget (Revised) Operating Wheel-Trans ($m) ($m) Farebox & Other Revenues 1,069.9 5.3 Expenses 1,444.0 100.2 Subsidy 374.1 94.9 2012 Projected Farebox & Other Revenues 1,076.6 5.3 Expenses 1,447.4 101.4 Subsidy Required 370.8 96.1 Subsidy Available 374.1 94.9 "Surplus" 3.3 ( 1.2) Source: CEO's Report for April 2012 (Published June 2012)
The projected figures are always different from the budget for various reasons. The most common is that expenses never work out exactly as expected due to actual conditions including unexpected changes in major cost centres such as fuel and vehicle repairs. Some details are in the CEO’s report (see compendium of links at the end of the article). Revenue is affected by ridership, but can also be hurt or helped by fluctuations in advertising and rent revenues. While these are small numbers in the larger budget scheme, all of the political debates about transit funding revolve around such small amounts and discuss service cuts or adds in millions of dollars. A bad year for ad revenue coupled with a Council unwilling to backstop the loss with subsidies translates to worse service for riders.
The 2012 budgets were amended twice. In June 2012, Council approved increasing the regular expense budget by $2.1m to provide additional service beginning this fall with funding to come from increased revenues. Earlier, when the Commission was still dominated by Ford-friendly appointees, an attempt by Council to fund $5m in added service was thwarted by the Commission who diverted the funding to Wheel-Trans.
The Problem With Wheel-Trans
The TTC faces a particular problem with Wheel-Trans. Already it has non-recurring funding of the $5m snatched from the Operating Budget, and it faces cost pressures that are not offset by the revenue stream. A 5% bump in Wheel-Trans costs might reasonably arise from a combination of the already-awarded labour settlement and provision for added service. That would push the total Wheel-Trans expenses up by about $5m making the shortfall to be filled in 2013 about $10m. If fares go up by 3.85% (a 10¢ bump on the adult fare of $2.60), this would bring only about $200k. Most of the difference must come in subsidies.
However, Wheel-Trans has already been through debates about the extent of its service both in the number and type of customer in will serve. Flat-lining the City subsidy at the original 2012 level would require a 10% cut in service. The TTC is hoping to find an alternative funding source for transport of dialysis patients, but this is a band-aid solution that avoids a fundamental debate about what Wheel-Trans should be doing.
Wheel-Trans should not be funded by yearly raids on the regular operating budget, and Council must decide on the rider base and service quality they are prepared to fund.
How Many Riders Should We Plan For?
Meanwhile on the regular Operating Budget, we already know that the TTC is planning for ridership of 512-million in 2012 and 520-million in 2013. This gets us into to the problems of budget vs actual numbers. The budgeted ridership for 2012 was 503m, and the 2013 projection is 3.4% over that number in line with actual growth. However, the starting number should be the probable ridership of 512m which a 3.4% increase would bring to 529m.
In the past two budgets, the TTC has squeezed more capacity out of the system by changing the Service Standards:
- In 2011, a standard for economic viability was introduced requiring that a route carry at least 10 riders per vehicle hour during a scheduling period to remain in operation. This triggered cutbacks and service elimination on many routes, particularly on Sunday evenings.
- In 2012, the standard for vehicle loading was changed to increase the peak period target capacity for bus routes by 5% and the off-peak target capacity for frequent bus routes by 25%. This rolled back the effects of the Ridership Growth Strategy.
This type of fine-tuning has its limits because it cannot be repeated to gain more notional capacity on the system every year. At some point, the TTC has to run more trains, streetcars and buses to carry more riders. Even putting more people on the roof has its limitations.
Moving to larger vehicles can have some benefits, although again this is a one-time change (albeit one that may take several years to fully implement). However, the benefit from articulated buses and larger streetcars will not be seen on the TTC for several years, and meanwhile the TTC and City must face the financial pressures of the TTC as it is.
An Operating Budget for 2013
Operating Budget Pressures for 2013 ($m) Probable expenses for 2012 1,447.4 Add 3% for inflation / COLA 43.4 2012 adjusted for inflation 1,490.8 Add 3% for ridership growth 44.7 Expenses for 2013 1,535.5 Probable revenue for 2012 1,076.6 Less Miscellaneous Revenue 67.0 Farebox revenue 1,009.6 Add 3% for ridership growth 30.3 Revenue before fare increase 1,039.9 Add 3.85% for fare increase 40.0 Farebox revenue for 2013 1,079.9 Miscellaneous revenue 67.0 Total revenue for 2013 1,146.9 Subsidy required 388.6 2012 budgeted subsidy 374.1 Additional subsidy for 2013 14.5
TTC budgets are somewhat more complicated than this summary might indicate, but the basics are here.
- The increase I have allowed for inflation in labour and materials (3% across the board) is conservative and is lower than the TTC’s own projection. If actual numbers are higher, then the projected subsidy will also rise.
- The increase for service is at the sort of level I believe the TTC should be providing, not at a “make do” level that tries to stuff more riders into “spare” capacity on the system. I have applied the increase against all TTC costs, although in practice some of these do not vary with ridership at this level of change. For example, central functions such as financial control and human resources are unlikely to be expanded, but these are a comparatively small part of system costs overall. Physical infrastructure such as subway stations does not grow. My allowance for higher costs is generous on this count.
- Ridership growth is at the actual level relative to 2012 probable figures, not the lower budget number.
- The fare increase (10¢ on a base of $2.60, or 3.85%) is assumed to have no effect on ridership based on recent experience. I have made no adjustment for higher uptake of pass media by frequent riders. To the degree that more rides are taken by people with a fixed transit cost, this could reduce fare revenue per trip. Total revenue is trickier because more new riders may come into the system at higher average fares such as tokens or cash.
- Miscellaneous revenues are not projected to rise in 2013 according to the TTC’s 2012 budget report. Therefore, they are excluded from the calculation of revenue growth, and then added back in as a separate item above.
The fundamental problem of TTC budgets and the City’s desire for flatlining is that revenue growth is on a smaller base than expenses. Even if everything goes up by, say, 3%, this must include the subsidy. That is before any provision might be made for better service to respond to growth in riding or any initiatives intended to encourage travel by transit.
In the table above, the growth in revenue is $70.3m versus a growth in expenses of $88.1m. The difference, $17.8m, is partly offset by the 2012 “surplus”, $3.3m, giving a budgeted subsidy increase in 2013 of $14.5m. (The spread would be greater but for the fare increase that will be at a higher rate than the inflationary number used for the expenses.)
Added to the Wheel-Trans shortfall, we are looking at about $25m additional subsidy to the TTC on the City’s operating budget based on the assumptions and calculations here.
To put this in context, the City’s budgeted revenue from property tax in 2012 is $3.7b, or 39% of the total budget of $9.355b. (See 2012 budget presentation at page 30). A 1% increase in these taxes yields $37m. (The actual percentages vary depending on the class of property with a higher jump going to residential classes, and a lower one to commercial classes. This is part of the ongoing rebalancing of tax levels that has been underway for several years.)
The Future of Larger Vehicles
The TTC will begin its migration to articulated buses over coming years with the purchase of a small fleet later this year (delivery delays will probably mean service changes will likely occur in 2014), with an option for many more. This order is roughly the equivalent in vehicle capacity of two years’ worth of normal 40-foot bus purchases.
The operating cost per rider will go down provided that the additional complexity of the artics do not lift vehicle operating and maintenance costs disproportionately. It will take several years’ experience to determine whether this actually happens, and a related issue will be the integrity of the vehicle frame and major subsystems where costs may not show up in the early years.
Similarly, the new streetcars, twice the size of the standard CLRV, are planned to enter revenue service in late 2014. There is no experience with these cars to indicate how much of the saving from a higher passenger:crew ratio will be eaten up by higher operating and maintenance costs.
With all new vehicles, high costs in early years can be masked by warranty coverage, in effect transferring maintenance costs for a time to the capital budget (warranties are part of the capital cost of the vehicle). If the warranty expires, but the vehicle still has an ongoing problem, this represents a net new cost a few years into the vehicle’s life. It is vital to look at operating costs and potential savings over a timeframe long enough to capture this sort of issue.
In theory, the number of operators required for artic buses should go down by about 1/3 presuming a 2:3 replacement ratio of vehicles. The streetcar ratio would be even “better” from a budget standpoint. However, strict replacement of vehicles on the basis of capacity may cause service to get markedly worse because irregularities that are annoying at current service levels will become positively unbearable. This speaks to the problem of line management — with short headways and more vehicles, line managers don’t have to do much work to maintain vaguely good service — with longer headways things are not quite so simple.
Originally, the TTC claimed that it would not replace CLRVs on a 1:2 basis with the new LFLRVs, and some early projections of vehicle allocations to routes shown with the mockup LFLRV indicated significant improvements in line capacity. Now they are not so sure, even though latent demand is a big problem on the streetcar lines. For many years the fleet has not been able to accommodate peak period increases, although there is substantial population growth on some routes that shows no sign of letting up. Off-peak demand is also rising, but service improvements have been hamstrung by budget constraints and the focus on peak, commuter travel.
If the introduction of artics is used not just as a cost saving measure, but as an opportunity to add capacity, then part of the “saving” of artics will go into better service. Most businesses would consider that a good policy, but transit in Toronto operates by strange rules. Remember how, originally, the TTC planned to scoop all of the savings from faster trips on the St. Clair right-of-way by running fewer cars rather than better service? This is not a new problem.
If larger vehicles are used to add capacity on major routes, and if the TTC really focuses on managing these routes to provide reliable service, the combined effect will be to the riders’ benefit. The TTC might even save some money although not as much as a straight capacity-based swap might suggest. However, if the TTC looks only at reducing headcount without the possibility of redeploying some of the savings in better service, then Toronto will remain a land of budget-based rather than service-based transit.
Fleet and Service Level Planning
The TTC fleet plans for buses, streetcars and subway cars have not been published for a few years. The assumptions on which they are built were imperfect before, and now have many problems. These will affect both the Capital Budget and the ability of the TTC to actually offer more service to riders even if Council were willing to provide the operating subsidies to do so.
One side-effect of dropping back to the pre-Ridership Growth Strategy loading standard for buses was the elimination of one year’s bus order and the plans for a new garage. If your standards say you can fit more passengers into a bus, you don’t need as many of them, although 3% annual growth in demand won’t let you maintain that fiction for long.
TTC bus fleet plans also presumed that new LRT lines would start opening in the next few years reducing the requirement for buses on related routes. Thanks to Queen’s Park’s funding shuffles, the LRT network will open much later than expected, and the bus fleet must continue to serve the LRT corridors at a time riding on the system as a whole is growing.
For the streetcar fleet, the TTC reduced the size of the car order by about 10%, but it is not clear whether this is an absolute reduction, or merely a postponement into a budget beyond the 10-year window shown for purposes of estimating the City’s debt requirements.
The TTC must produce updated fleet plans for its surface vehicles together with their assumptions about future riding and service requirements so that the Commission and Council can debate budgetary projections on a meaningful basis and understand the effect changes might have.
On the subway, at the end of the current TR trainset order, the TTC will still not have enough trains to operate the entire Yonge-University-Spadina line with only TRs, and they will have a surplus of T1 trainsets for the Bloor-Danforth and Sheppard lines. This situation comes from planning for what was once a unified fleet and the assumption that some T1 trains would remain on the YUS.
Expanding the fleet so that the YUS can be entirely operated with TRs requires not only more trains, but also more storage. Various schemes may provide this including a proposed online yard in Richmond Hill (or an alternative version between Finch and a future station at Cummer). The common point in all scenarios is that there are unbudgeted capital funding requirements lurking in the TTC’s subway plans.
Capital planning may seem a long way from next year’s operating budget, but what we will see in time will be projects jostling with each other for funding, and competing with the higher-profile goodies like new subway lines for attention. If the surface fleets are too small, proposals to improve service may fail simply because we don’t have the vehicles to operate them. Such is the legacy of the penny-pinching Ford/Stintz years at the TTC.
Where Do We Go From Here?
Zero percent is no solution to anything. Already, it has brought us two years of makeshift cutbacks in service through processes with diminishing returns. The assumption is that there is always more to cut, and no thought is given to what happens when those cuts harm the system more than they help it over short-term policy problems.
TTC management and the Commission present budgets cut to the targets asked by the Mayor, and offer no alternatives, no “what if” numbers to inform Council of the cost of taking a different path. This is not acceptable. Management work for the whole City, not just the Mayor, and Council should demand a menu of alternative budgets.
Council should also demand a review of the degree to which options are constrained by the combination of ridership growth, cutbacks in fleet plans, and a focus on new rapid transit projects to the detriment of day-to-day operations.
Ideally this initiative should come from the Commission itself. Now that we have a “new” Commission supposedly free of dictates from Mayor Ford, will we see such independence? Will the Commission actually talk about how Toronto might once again build its transit network, attract riding and aim for strong growth in the coming decade?
Or will the Commission content itself with self-congratulatory TTC “good news”, with cleaner washrooms, and with press conferences for plans we will never see?
That’s the challenge for the “New” Commission. The 2013 budget process will show us what they really care about.
- City of Toronto 2012 Budget Presentation
- TTC CEO’s Report for April 2012 (Published June 2012)
- TTC Final Budget Report for 2012 (December 2011)
- TTC Final Budget Update (January 2012)
- Additional Operating Resource Requirements (May 2012)