TTC 2015 Budget Preview: Business As Usual or Transit Renaissance?

Toronto will get a sense of where its new Council and TTC Board are headed next week when the City launches its budget for 2015 on Tuesday, January 20. This will be followed by debates at Budget Committee and the TTC’s own budget meeting on Monday February 2.

After months of election campaigns and an early honeymoon, our politicians will have to pick which “Transit City” they really want.

  • Do we face more of the small-minded penny-pinching, the false economies of the Ford era, or a view of Toronto and its transit services where policy is more than drawing fantasy subway maps and stuffing more people in fewer buses?
  • Will Toronto be a city with expanding, attractive transit service for riders on the network as a whole?
  • Will Council spend money on transit today and make real changes, or do we face four more years of making do with inferior service?
  • Will capital spending focus only on megaprojects (ideally ones paid for with other governments’ money), or will Council recognize the needs of the existing system for maintenance and improvement?

Capital vs Operating Budgets

The TTC and the City have two budgets that affect transit. The one we hear most about is the Operating Budget because subsidies directly affect property taxes and fares. This budget pays for day-to-day operations and routine maintenance, for the operators who drive the buses, the fuel that powers them and the maintenance that makes sure they are in good shape for daily service. The Capital Budget pays for new buses and for major overhauls to those the TTC already owns. (The same split applies to the system as a whole, although the balance leans more to capital for rail modes especially to the asset-intensive subway network.)

The budgets are linked in two ways. First, and most obviously, Toronto cannot have new vehicles or perform major repairs to its infrastructure without capital spending. But the second, hidden, constraint comes in how we pay for capital projects. In past years, a variety of subsidy programs allowed Toronto to budget with 25-cent or 50-cent dollars while Queen’s Park and Ottawa (less so) picked up the difference. Today, the capital budget falls entirely on Toronto but for a relatively small contribution of federal and provincial gas tax revenue. In turn, this pushes up the city’s need to pay capital costs from a combination of debt or current revenues (to avoid the cost of borrowing). The city has a self-imposed limitation on the ratio of debt costs to current property tax revenue. As Councillor Gord Perks pointed out in a recent Toronto Star article, the Ford era, by limiting the growth of taxes, also limited the amount of debt that the city considered to be “affordable”. The one exception to this is the Scarborough Subway tax which directly funds the city’s share of that one project.

If Toronto wants more transit service, it needs not just more operators, but more buses, garage space to house them, and the headroom in capital planning to pay for the expanded asset base. One side effect of the early Ford era decision to relax transit crowding standards (i.e. to fit more riders on existing buses) was the deferral of new bus purchases and a delay in a projected new bus garage in Scarborough. That allowed for short-term juggling in capital spending plans, but left the TTC facing a future without enough vehicles to provide service.

Operating Subsidies

For 2014, the projected subsidy required for regular TTC operations (not including Wheel-Trans) is $422.3-million. This is lower than the budgeted subsidy of $440.1-million thanks to a mix of factors for various items such as fuel, utilities and employee benefits where actual costs came in below budget. The “surplus” (actually an unspent allocation) remains in the City’s hands, but the original budget figure will be the starting point for 2015. This will effectively give the TTC an increase over actual spending of $17.8-million going into the budget process. Similar “surpluses” provided a small cushion in some previous budgets. (See CEO’s Report for December 2014 at page 22)

However, the subsidy budget for the TTC changed little over the period from 2010 to 2014 (see 2014 Operating Budget report at page 10) despite a rise in budgeted ridership from 462-million to 540-million over the same period. The subsidy per rider has dropped from $0.93 to $0.79.

Some “efficiencies” have been implemented during the Ford era, although riders may dispute whether that word appropriately describes their experience. This brings two basic issues forward for 2015:

  • Most changes that were implemented represent one-time savings. One cannot cut the same management position or fill the “extra” space on buses year after year. At some point, the “gravy boat” is empty. These are practices that the City refers to as “unsustainable” because they give a false sense that future years will enjoy them too.
  • Should the changes, especially those related to service quality, be continued or should they be rolled back?

A more subtle issue is the question of whether the system as it exists today even meets the standards Toronto expects of it. We have been here before. There are crowding standards on the TTC, relaxed though they are compared to 2010, that the system cannot meet. Either there are not enough vehicles, or enough operators, or budget headroom to pay for the service. Since mid 2014, there have been service cuts directly related to budget and other resource constraints, not to ridership. Behind the scenes, maintenance that may not be critical (at least not today) might be put off for another day. The TTC swears that safety is a paramount concern, but we have been down this path before with tragic results.

An essential first question for a new budget is how deep is the hole we are already in? What is needed just to get to the level we claim is our target for the transit system?

Next comes the matter of system improvements. A substantial list was proposed in August 2014 (Opportunities to Improve Transit Service) by TTC management. The initial response from then-candidate John Tory was dismissive ostensibly because no funding source was included in the proposal, but more basically because this report was seen as supporting rival candidate Olivia Chow’s transit platform. The now-mayor needs to move beyond are-you-with-me-or-against-me attitudes from the campaign to a real debate over what transit might become. Being in the Tory platform should not be a pre-requisite for good ideas.

The proposals included:

  • All door boarding and proof-of-payment on the streetcar network
  • Reduced waiting times and crowding on buses and streetcars
  • A core bus and streetcar network with 10-minute or better service
  • Expansion of the express bus network
  • Increased transit priority
  • Added resources to improve service reliability and route performance
  • All day, every day service on all routes
  • Shift from existing transfer rules to a two-hour fare
  • Expansion of the overnight route network

All of these will cost money, although the proposed implementation is staged over several years so that the incremental costs would ramp up. Within 2015 it is unlikely that much would change before the fall schedules given the lead time needed for implementation of additional service. Therefore, the full cost will not come into play until at least 2016 and beyond.

Beside this long list are (at least) three proposals regarding fares:

  • A fare freeze (the classic campaign-trail promise)
  • Reduced fares for specific disadvantaged groups such as Ontario Disability Support Program (ODSP) recipients
  • Limited fare integration with GO Transit

TTC revenues amounted to $1.154-billion in 2014 of which almost all was from passenger fares. The average fare is about $2 per ride against which a 10-cent increase would be 5 percent. This is probably the highest increase possible with only minimal effect on ridership, and it would bring $50-55-million in additional revenue on a full-year basis. No discussion of improved service is possible without more revenue from fares, subsidy or some combination of the two. Additional revenue would come from ridership growth of 2-to-3 percent, although this could be partly offset by the cost of service, if any, to handle growing demand.

The two-hour fare’s cost to revenues is pegged at $20-million annually. The primary beneficiaries are those who now make a series of short trips stitched together, if possible, by creative use of the transfer rules, or by paying multiple fares. These are some of the most expensive trips (for riders) that the TTC carries measured on revenue per amount of service consumed. A shift to time-based fares would benefit riders for whom passes are not an attractive option, but who have bursts of travel needs that now require multiple fares. A move to two-hour fares is also essential to any regional fare integration with the 905 systems where this is already the standard, and for simplification of Presto’s use on the TTC.

The proposed improvement in crowding standards would add about 5 percent to peak period capacity (moving from a target average load of 51 to 48 per bus). Off peak standards would be changed so that the target was a seated load, on average, rather than seated plus 20 percent. (See current crowding standards.) This would improve service on busy routes, while less frequent routes where the seated load standard already applies would not change. (A full return to Ridership Growth Strategy standard would require adding about 10% to peak period capacity, but that is not included in the TTC’s proposal.)


The incremental cost for 2015 (see pages 15-16 of the report for details) is only $16.6-million because most of the changes would not be implemented until September. The full year costs for 2016 are $48.6-million. Commitment to these changes in 2015 implies that the full cost will have to be covered in the 2016 budget. Some Councillors may try to hide opposition to the package by saying it is too soon to make commitments for 2016 and beyond. If so, how is any medium-to-long term planning ever going to happen?

Finally, the Pan Am Games will bring special requirements for service during the summer. Until we see the City and TTC budgets, we will not know the extent to which resources will be diverted to serve the Games, or what the net effect will be on TTC costs and revenues.

The Capital Budget and Unfunded Projects

The TTC’s Capital Budget and 10 Year Plan can be an impenetrable document because of the sheer size and complexity of projects in includes, and the varied ways in which the projects are (or might be) funded. (Readers interested in this should refer to my previous article on TTC financing.)

When the TTC proposed its 2014 Capital Budget, the 10 Year Plan foresaw a total of $13.6-billion in spending broken down into major areas:

  • Infrastructure: $5.39-billion comprising
    • Track: $0.66-billion
    • Signals, Electrical & Communications: $1.12-billion
    • Facilities & Structures: $3.02-billion
    • Computers: $0.38-billion
    • Equipment: $0.13-billion
    • Other: $0.09-billion
  • Vehicles: $3.65-billion comprising
    • Bus purchases and overhauls: $1.61-billion
    • Subway car purchases and overhauls: $0.92-billion
    • Streetcar purchases and overhauls: $1.05-billion
    • Other: $.07-billion
  • Toronto-York subway extension: $1.12-billion
  • Scarborough subway extension: $3.44-billion

Note that the relative level of spending on subway cars and streetcars is a factor of project timing. The TR subway car order is about 75% through the delivery of 80 trainsets, and the next  batch of subway cars (for the BD line) only begins to appear as a cost in 2023. The streetcar order is almost entirely delivered and paid for within the 10 year plan. Also note that these values are the gross cost of the projects before the application of any subsidies.

The so-called “base budget” for capital totals $9.04-billion (the Infrastructure and Vehicles components above). However, the City’s view (as expressed in the budget recommendations adopted by Council) is that the TTC never actually spends the money it has budgeted, and therefore the approved budget should be lower than the proposed one. This accounting sleight-of-hand pushes a substantial amount of spending “below the line” and treats it as a “state of good repair backlog”. The problem with this approach is that it ignores the fact that the work must be done sometime, and one cannot simply wish it away as a future cost. By 2023 there would be a $338-million backlog under this scheme, and that does not include other project deferrals thanks to funding shortfalls. (See pages 19-21 of the 2014 Budget Analyst Notes for TTC’s Capital Program.)

Many projects within the base budget had no funding when Council approved the budget, and so the total amount actually approved is considerably less than the $9-billion total as shown in the 2014 budget exhibit below.


As with the Operating Budget, the approval of a substantially reduced Capital Plan can create the impression that this is a “normal” level of funding, and each of the projects that have been omitted or downsized would represent excessive spending. Moving these projects back “above the line” into funded status (let alone adding new projects) would have a substantial effect on the City’s consolidated capital requirements for coming years. It suits the City’s debt management optics to keep this number as low as possible, and to hope that new funding from Queen’s Park or Ottawa will materialize to fill in the gap. Even that tactic fell apart with the Scarborough Subway project because it already had money from other governments, and the City had to impose an extra tax to pay for future capital spending on that line.

The effect of system aging is visible in the large proportion (about one third) represented by “Facilities & Structures”. The original Yonge subway is now 60 years old, and the BD line will have its 50th birthday in 2016. Structures and systems that had little ongoing cost early in their life now face substantial repair bills to rebuild or replace major elements. This spending has no precedent within TTC budgeting (seen over the long term) because previous generations of vehicles and infrastructure were not intended to last so long without complete replacement.

Many years ago, during the era when David Gunn was the TTC’s Chief General Manager (a title now changed to “CEO”), in reaction to the subway crash at Russell Hill, the budget was subdivided so that “State of Good Repair” (SOGR) items appeared separately from system expansion and enhancements, or legislatively required projects such as accessibility. The idea was that SOGR would get top priority for funding. However, three factors have interfered with that scheme:

  • System expansion projects attract a disproportionately high amount of funding from Queen’s Park and Ottawa, and they have substantial political clout in the fights over transit spending.
  • Various subsidy programs targeted at specific types of capital projects such as bus purchases have ended leaving only the gas tax revenues (roughly $230-million annually) to fund the base capital program.
  • Major “generational” capital projects — items that do not represent ongoing replacement of assets with lives of 15-30 years — are becoming a larger part of the total.

“SOGR” now accounts for the vast majority of the base capital program, and there is no sense of how this might be broken down. A good example of this is the resignalling project on the YUS, work that replaces a 60-year old subsystem, but which will not have to be repeated (at least on the current scale) for another half-century. Some costs associated with the new streetcars such as the construction of Leslie Barns (leaving aside any debates about whether this project might better and more cheaply have been located elsewhere) are one-time projects, at least in the context of any budgets people now on Council will have to deal with. (The older carhouses, Russell and Roncesvalles, are coming up on their centenaries.)

It is vital that these large-scale, once-in-many-decades projects not crowd out the much-needed spending on “routine” capital maintenance.

Vehicle purchases present their own problems. Subway cars tend to be bought in large batches for economy of scale, and more recently for technical compatibility of a single fleet that will operate the YUS including the Vaughan extension and increased service with the new signal system and automatic train control (ATC). A similar large-scale order will come in the 2020s when the BD line goes through the same upgrade. Because of its age, the streetcar fleet is being replaced in a single large order, although this will be spread out over much of a decade (particularly if the option to add 60 more cars is exercised). Buying smaller orders to spread out the City’s financing needs is a nice idea on paper, and if Toronto had been actively expanding its fleet for the past few decades, it would have made sense as a procurement option. By waiting so long to obtain new cars, the City and TTC have created a bulge in spending that might not otherwise have been required.

As for the bus fleet, in theory there should be an ongoing purchase of new buses, annual retirements of  old vehicles, and a gradual increase in the total fleet to accommodate growth. In practice, things don’t work out that way for various reasons. Historically, there have been bulges in vehicle purchases associated with system expansion, and the rate of purchase has not been uniform over the past decades. A further problem with the current fleet is that some vehicles may not live out their planned 18-year lives. These may have to be replaced prematurely bringing capital spending simply to maintain existing service forward on top of planned spending for routine replacements and expansion. This is directly contrary to the City’s desire to smooth out capital spending.

The 2014 budget had no provision for service expansion until 2019 because the TTC has run out of garage space. A new garage at McNicoll is on the books, but the project is only half-funded, and there is local opposition to its construction. Obviously both the bus purchases and the timing of the garage construction must change if Toronto expects to improve the capacity of its bus routes, but it is not yet clear how this will happen. Between Mayor Tory and TTC Chair Josh Colle, there appears to be a desire to improve service, but this must be matched by budgetary support, and not at the expense of other needed capital projects.

When the 2015 budget comes out at the City, and then with details from TTC and in the City Budget Analyst Notes, Toronto will see the level of advocacy, the assumptions, that are built into spending plans. If little has changed from 2014’s budget except a one-year shift in the window on projects and there is no commitment to greater spending, then it will be a “business as usual” budget no matter what fine words we may hear about transit’s importance to the future of our city.

Will Anyone Lead a Transit Renaissance?

Transit was the issue of the past election campaign, but far too much turned on competing views of a rapid transit network with little attention to the needs of day-to-day transit service. Someone waiting for the bus on Dufferin or Finch does not care about a subway line that might open in 2023, nor do they care about a regional “SmartTrack” service that will do nothing to improve their travels.

Toronto has lived through the Rob Ford era, one in which the city chose to ignore the damage that short-sighted, “tax fighting” budgets did to our long-term health and attractiveness. As with any recovery, the first step Toronto must take is to acknowledge that the City has a problem. Simply continuing as if nothing went wrong for the past four years dooms us to starting from the wrong place, from an assumption that what we have now is acceptable and normal, and that anything we might add is an enhancement, an attempt to pour on the gravy. If that’s the starting point, why did we bother with an election?

Mayor Tory’s real challenge, and that for his TTC Chair, Josh Colle, will be to say “no, the TTC we have is not acceptable” and to acknowledge what must be rebuilt. This won’t be done overnight, or even in one budget year. There is a chance for real leadership, to map out a plan for transit service that will benefit all riders.

Will Tory, Colle and Council rise to this with a clear goal and commitment for transit improvements over their current terms of office, or will Toronto dither about transit spending today while planning billions in projects for years to come?

8 thoughts on “TTC 2015 Budget Preview: Business As Usual or Transit Renaissance?

  1. Steve, I hope the approach the city is taking to towing is a sign. A display of real leadership in the extent of resources the TTC has, how they operate (headway & loading) and the environment in which they operate must all get notable improvements. However, I think this should be no different than choosing to clear the roads of parked and stopped vehicles, and most seem to accept the need.


  2. I’m worried that city council (and the TTC board) will only return the “10%” cuts from four years ago, without considering the inflation increases over the last four years. From 2010 to 2014, inflation calculated by the Bank of Canada was 6.72%. During the last three years, did city council even consider inflation in its budget calculations, or did they just pick a number out of the air?

    Steve: Council tends to aim for a tax increase at about the rate of inflation. However, taxes are only about 1/3 of the total operating budget, and if the other 2/3 don’t keep up, then there is a net loss looking at the budget as a whole. Considering that fare revenue brings in over $1-billion (roughly 10% of the total city revenue), if fares are frozen, then that part of the revenue stream shows only minimal increase thanks to whatever new ridership we get.

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  3. I don’t know if this is even legally possible, but instead if having a bulge by spending/buying new needed vehicles, would it not make sense to ‘squirrel’ money away in an account specifically for that purpose of bulk buying at a later date? IE, if we know that streetcars have an average life of 30 years, and will therefore need to be replaced IN 30 years, we put X amount into the account every year, then, when it come time to purchase…we have at least a good portion of the money needed to do this. Small scale example: I’ll need a new TV in two years. I put $7/week into an ‘account’ for this (or…a jar…) in 2 years I can buy a TV and already have $730 available for that…If I want a cheaper TV, I have money left over, if I want a more expensive TV…it’s less of a hit on the rest of my budget…

    Obviously my ‘idea’ does not take into consideration the time needed to actually build the vehicles… like you stated the streetcars are rolling out over almost a decade, and are already late in the first few months of the purchase.

    Steve: Politicians loathe raising taxes to pay for something in the future, and the best you can hope for is that they will set aside some reserves. This is especially true of spending they hope to see subsidized by another government.


  4. I would argue that a $500 Million underspend in capital this year is a really dumb thing to have happen…that’s $500 million that could be spent this year on other things…and at a time when interest rates are very low…if rates rise the city will not be willing to spend nearly as much in debt, and TTC has not shown that it can spend the money anyways…

    If projects are looking to take a lot longer than they were expected to, they should be pushed out and other projects that can spend quickly should be brought forward…are we still serious about Spadina opening on schedule? Are we still serious about getting all the LRT’s by 2019? If we’re going to be delaying spadina by two years anyways, lets spend the $500 Million on buses over the next 2 years, with way less risk of delay.

    Steve: Money for the Spadina subway extension is project specific and cannot be redirected. Problems on that line arise from various factors including unexpected site conditions, poor performance by contractors (that wonderful private sector we hear so much about), and a worksite fatality.

    Vehicle deliveries (hmmm, the private sector again) don’t show up as expected and so the payments associated with them are delayed.

    Planned track construction is deferred because the original schedule does not fit with other plans such as work by other utilities or conflicting activities that limit how much road space can be closed at once. A good example of this is the delay in rebuilding Wellington Street pending completion of work on Front Street at Union Station.

    In all three cases, the work is done eventually, just not at the time originally scheduled. The idea that the funding should be treated as if the work will never be done is nothing more than an accounting fiction to make the capital shortfall look smaller than it really is.

    Ironically, there are cases where projects spend more than planned in one year because delays from a previous year are made up.

    The problem here lies in the fact that capital projects occur over multiple years and the real world does not organize itself neatly into 12-month spending cycles.


  5. @Steve, however in the case of a purchase they hope to see subsidized, this is reasonable behaviour. It is very much harder to get that help unless you can make the argument that they are hurting your city unless they provide it — hard to do when you have the money. Seems like politics and good planning do not mix well.


  6. Steve, what about ATU113’s proposals. In conjunction with the TTC’s own proposals, the various Mayoral candidates proposals, and John Tory’s proposals, the ATU113 proposals could ALL be analysed and “merged” into a proper plan. There are many good (some even great) ideas out there. It behooves the “powers that be” to take all ideas and formulated a plan from the “best of the best” ideas and proposals.

    Steve: The last time I chatted with Bob Kinnear of ATU, the Mayor had not agreed to a meeting to review the proposals. This may have changed since mid-December, and I will check out the current status. Yes, there is a lot of good stuff in that paper. [Full disclosure: I was consulted by the primary author to review that paper and made some contributions to it.]


  7. John Tory fooled us all. With his tax increases, TTC fare increase, spending, spending, spending, John Tory is Olivia Chow in disguise. John Tory fooled conservatives into voting for him.

    Steve: Tee hee, tee hee!


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