What Should We Do With $47-million?

In a breathtaking display of political opportunism, mayoral candidate (and former TTC Chair) Karen Stintz attempted to highjack an unexpected “surplus” from 2013 transit operations to pay for a fare freeze in 2015. This move was not derailed, but at least shunted into a siding by an alternative proposal from the current Chair Maria Augimeri. How did we get from a TTC that is desperate to make ends meet to one that can glibly talk about avoiding a fare increase, conveniently in the run-up to an election?

The May 28 TTC meeting agenda included the audited financial statements for 2013 and a report on the unexpected drop in the subsidy requirement for last year’s operations.

The subsidy requirement was much lower than the budget projection because of one-time changes that benefited the TTC:

  • liabilities for Workplace Safety & Insurance Benefits and the Long Term Disability plan were reduced by $6.3-million;
  • various expenses including depreciation, allocation of costs between the operating and capital budgets, accident claims payouts and retroactive pay were below budget by about $18m;
  • variations in non-labour costs netted out to a saving of $16m relative to budget.

Add in the previously reported $7.3m surplus, and collectively, the subsidy needed by the conventional TTC system was $46m below budget, and Wheel Trans was down $1.7m.

Council’s policy dictates that when the TTC has a “surplus” (i.e. the subsidy requirement comes in lower than expected), the money stays with the city and is allocated mainly to capital accounts, including the large backlog of funding needed for TTC’s 10-year capital program. For 2013, the city’s current plans are to allocate any surplus:

  • 75% to the shortfall in TTC capital funding, and
  • 25% to fund TTC post-retirement benefits and and accident claims long-term liabilities.

(Although the TTC budgets for long-term liabilities in the year they are incurred, the city does not pay out the money through subsidies until the money is actually needed by the TTC. This keeps the working capital in city hands, and the future payouts are funded, if possible, from “found money” like the TTC “surplus” rather than from current revenues. From the TTC’s point of view, they are an “account receivable”.)

Stintz proposed that the TTC ask Council to approve that the money would stay in TTC hands and be used to avoid a fare increase in 2015. Riders have put up with a lot with service problems, and they deserve a reward, indeed they should get some of “their” money back, she argued.

Not only is this an unvarnished election ploy, but it runs directly contrary to positions Stintz has taken at the TTC and at Council.

  • The money is a “one time” windfall from better-than-expected conditions, and there is no guarantee that the TTC will perform similarly in 2014 and beyond. Indeed they are already short thanks to lower ridership and the brutal winter just past.
  • In both public and private sector finance the unfunded liabilities for future unavoidable costs such as pensions, benefits, and accident claims are a serious problem, and it is city policy to reduce its exposure to them.
  • Council debates over budgets repeatedly focus on the difference between “sustainable” and “unsustainable” funding practices. If City revenue is up, and this can reasonably be expected to continue in future years, then this is “sustainable”. The same is true for expense reductions that are permanent, not one-time blips. As part of “team Ford”, Stintz was quite insistent on the need for the City to avoid “unsustainable” funding strategies.
  • Stintz herself pushed and defended cuts to service quality both in hours of service and in crowding standards. These changes also led to the removal of a 150-bus order and the deferal of a new garage project in the Capital Budget. All of this was “for the greater good” of the transit system according to Stintz. Now, rather than improving service, she would rather hobble TTC’s revenue stream with a fare freeze.
  • Chair Augimeri attempted to get a motion through the TTC Board in April 2014 asking staff to report on service improvements to the June meeting with a view to including these proposals in the 2015 budget process. This motion was sidetracked by the Stintz faction on the Board who viewed it as an attempt to support her rival Olivia Chow. Staff will still do the work, but the due date is now conveniently beyond the election. Suddenly, with $47m in her pocket, Stintz wants a fare freeze.

During the debate, the question of creating a stabilization fund came up — “profits” from one year would go into a reserve to offset “losses” in another. This is a bit of accounting trickery because, of course, there is no “profit”, only a reduced subsidy requirement.

Nobody at the meeting, including the TTC’s own finance management, bothered to mention that such a fund already exists. It is listed in Note 17 to the financial statements on page 37 (page 41 of the PDF), and the account held $24.666m at yearend 2013. Oddly enough, during the 2014 budget debates, nobody talked about using this to lower fares or improve service for the obvious reason that the reserve is intended to deal with one-time events, and cannot provide “sustainable” funding for anything.

One member of the Board, Al Heisey, asked why there has been no debate on priorities for any spending of this type with a view either to service improvements or capital projects such as buying buses. This is part of a more general malaise at the TTC where broad policy objectives are not discussed by the Board. This is quite a change from the days of Chair Giambrone whose activist term routinely spawned many policy discussion through requests to staff for discussion papers that came to the public TTC agenda.

It is ironic that the city policy (keeping back any “surplus” from the TTC) arose in part due to Giambrone’s activism. If the money stayed in the TTC’s hands, it could be used to launch new programs without an explicit Council authorization. There was no guarantee against one-time “surplus” money funding a change that would require long-term subsidy funding in future years by Council. Stintz was trying to pull off precisely the type of funding trickery that Council spiked when it stopped putting TTC surpluses in the stabilization reserve.

In the end, the Board moved to ask the city to treat its budgets on a five-year basis so that a surplus from one year could be carried over and used to fund shortfalls the next. Whether the $47m will actually limit a fare increase, or even stay with the TTC, will be a decision for the new Council, one that, if polls are to be believed, will certainly not include Karen Stintz.