In my first article reviewing the TTC’s budget updates of September 15, 2015, I looked at the Capital Budget for 2016 and the ten-year plan out to 2025. This installment looks at the Operating Budget including proposals for fare increases and service improvements.
The reports discussed here are:
- An update on the 2016 Operating Budget
- Preliminary Fare Scenarios for 2016
- Proposed Service Improvements for 2016
Updated September 21, 2015 at 10:05 pm:
The TTC has responded to questions I posed to clarify some issues raised by this article regarding: ridership, revenues and costs for Pan Am Games operation; treatment of capital-from-current related to bus purchases in 2015 and 2016; contract service changes for York Region; and diesel fuel hedging savings. See the end of the article for details.
The update begins with a preliminary version of the 2016 budget.
The table above does not include provision for any fare increase, nor for other service initiatives. These are discussed later in this article.
Ridership for 2016 is expected to be 10-million higher than the 2015 budget figure, although the gain against actual 2015 results is projected to be 15m. The discrepancy is explained by three factors:
- the very cold winter early in 2015 plus more than anticipated subway shutdowns and poor bus fleet availability hurt this year’s results;
- the 2015 fare increase had a larger than expected effect on riding; and
- economic growth did not produce as much new demand as expected.
Ridership gains for 2016 are expected to come mainly from economic growth and service improvements (mainly the effect of changes made in fall 2015 having a full year effect in 2016).
Notable in these charts is the absence of any reference to the 2015 Pan Am Games as a one-time boost in service, ridership, fares and subsidy revenue or operating expenses.
The 2015 operating budget included a special Pan Am subsidy from Ontario of $3.5m which appears as part of the $474m total City subsidy in the summary chart. A further $0.9m from a “Stabilization Reserve” (an account held by the City with funding from underspending in past years) brought the estimated Pan Am cost up to $4.4m. The 2015 budget contained no estimate of the ridership gain specific to the Games.
This slightly skews year-over-year comparisons because the one-time event’s effects are not factored out.
Updated: Pan Am ridership, revenue and costs have been factored out of the Budget information and will be reported separately so that year-over-year comparisons do not include this extraordinary event. See the questions of clarification to the TTC at the end of the article.
Of the non-subsidy TTC revenues, the majority come from fares (95%) with the remainder from advertising (2%) and other minor income such as commuter parking. The latter is expected to fall in 2016 from about $10m to $9m. Revenue from charters and contract services (York Region) is also expected to fall due to cutbacks in services provided by the TTC for YRT, but this should be offset by a reduction in operating costs. However, no such reduction appears in the table of expense effects of various factors for 2016.
Much of the increase for 2016 lies in the full-year cost of improvements made in 2015, many of which did not kick in until the latter part of the year. A few items of note:
- “Leasing requirements” refers to the cost of temporary storage for the bus fleet which will be larger in 2016 than the available space in existing garages.
- “CBA” refers to the Collective Bargaining Agreement and is the one-year increase in costs due to higher wages.
- “Other Employee Costs” refers to benefits such as pensions, sick leave and the TTC’s contribution to government programs.
- “Diesel Hedging” shows a reduction in costs relative to 2015, but some of this may well be due to the lower market prices for fuel generally. These two effects should be disentangled, if possible, so that the contribution of each (and its reproducibility in future years) can be understood.
- Not included in the list above is a reduction in capital-from-current spending for new buses. The special subsidy added to the TTC’s budget in 2015 included money for bus purchases. $14m was budgeted for 2015 with a further $5m in 2016, but the $9m reduction is not reflected in the list above.
Updated: The capital-from-current reduction is bundled with “Other” changes according to the TTC, and the saving for 2016 under “hedging” is due to contracts already in place. See the clarification section at the end of the article.
Once again, the TTC raises the question of subsidy levels from other governments, and compares itself to many other cities. A common point of reference is the “fair share formula” of the 1970s when Ontario picked up half of the TTC’s operating subsidy. In 2015, the City will fund its TTC subsidy, in part, with just over $90m in provincial gas tax revenue. However, half of the operating subsidy would amount to $237m. Moreover, Queen’s Park contributes nothing to the operation of Wheel-Trans which is entirely funded by the City at a cost of over $100m.
A major problem can (and did) arise with formula-based subsidies. If Queen’s Park or the City are not feeling like giving the TTC much more money, they will set their subsidy level at a dollar amount. To protect their political credibility, this amount becomes a basis for setting the total budget so that the formula works out properly. For example, if Ontario only wants to spend $250m on the TTC, and its contribution is supposed to be 1/6 of the total (assuming 1/6 from Toronto and 2/3 from farebox and other revenue), then the total budget must be no more than $1.5b. Similarly, if Toronto wants to spend more on, say, better service, it could be locked into spending no more than a matching amount to the province so that everyone saves face.
TTC budgets routinely go up by more than the rate of inflation because of the compounding effects of:
- population and demand growth
- inflation in costs
- new or enhanced services
If the provincial government were to take the same attitude to TTC subsidies as it has to other portfolios, the TTC would be lucky to see a flat-lined amount.
Moreover, if the only effect of a higher provincial subsidy is to reduce the City’s contribution, then the TTC (and its riders) are no better off.
The TTC loves to talk about its low cost base relative to other cities, and repeatedly cites a 2012 study of major rapid transit systems:
“When compared with other metros in the world, Toronto’s Subway offers excellent value for money.”
This should be taken with several grains of salt. First off, there are major accounting differences (capital vs operating) between various systems in the study. Second, as we now well-know, TTC’s ongoing system maintenance has not exactly been first-rate, and we are now paying for that short-sighted approach through reliability problems and a backlog of capital repairs. According to the same study, the TTC subway covers its operating costs. This is not surprising given the high level of off-peak service and ridership, but it masks the level of spending in the capital budget. Toronto’s costs per car kilometre are low, but this may be in part due to the operation of frequent service with long trains throughout the entire day, 7 days/week. Many costs have nothing to do with the amount of service operated, but very frequent service can dilute these costs when expressed per car/km. [See pp 11-14 of the presentation]
The TTC also trots out a number of budgetary savings.
The problem with this list is that it mixes in one-time and ongoing savings, as well as values from previous years. “Efficiency” in spending is nice to have, but it is important that the benefits be recognized for what they are and whether they have any effect on current budgets. For example, the change in accident claims policy (a legislative change by Queen’s Park) made for a one-time saving. Even fuel contract hedging cannot be claimed as a “saving” because this has become the standard practice, and the “saving” is only against a notional market cost the TTC would never pay.
This information would be much more informative as a table showing the years in which savings occurred and whether any of them contribute to current and future year budgets. Similarly, any future savings such as reduced costs due to the use of larger vehicles would be ongoing, but only up to the point where the fleet size stabilized again. Moving to one-person subway crews would produce some saving, but only on a one-time basis.
There are many future costs that also should be presented with clarity as to whether they are one time changes, or have ongoing implications.
Budget projections for 2017 and 2018 include a few items of interest:
- The cost of opening the Spadina extension will be $11m in 2017 and a further $20m in 2018 for a running total of $31m on an annual basis. There is no estimate of the additional fare revenue this line would have to generate either to break even or to come in at a 70% cost recovery. However, given that the average fare is about $2, a break-even result would require roughly 45m new rides on the TTC to pay for the extension’s operation. That is a very substantial jump, about 8% on the system as a whole.
- Annual ridership growth is projected to be only 7m for the system, and this implies a much lower level of net new riding on the Spadina extension than needed to be financially self-sustaining. An offsetting consideration is that riders diversion to this line, to the extent it happens, will provide some relief on the Yonge line.
- The 2017 projection includes a reduction in capital contributions of $5m. This is the residual amount remaining in the 2016 budget discussed above.
Additional Service Increases
Beyond the service changes that will occur simply to handle ridership growth and to continue the implementation of 2015 policy changes (such as more generous loading standards and network coverage), the TTC has a number of proposals for further improvements in 2016.
The pie chart below shows that the majority of the additional service in 2016 will result from the full-year operation of changes from 2015. A much smaller amount will be due to growth-related service improvements. The grey section, “New Service Initiatives”, represents proposals for more service, but these are not yet included in the Operating Budget described above.
The total cost of the 2015 “initiatives” for 2016 will be $95.3m.
A further set of improvements is proposed for 2016 at a cost of $12m rising to an annual value of $33m in 2017. This ratio implies a fall 2016 implementation much as the 2015 improvements mainly kicked in for fall 2015.
After factoring in ridership and fare revenues these would bring, the net costs would be $8.5m for 2016 and $21.8m for years following.
The three “reliability” initiatives relate to continued changes in service scheduling so that vehicles have a better chance of completing their trips. This addresses shortcomings in the design of schedules, but what remains to be seen is an improvement in service reliability as I have discussed in other articles. It is unclear whether this can be achieved with the current staffing level for line management.
On Line 1 (the YUS), there is a proposal that trains operate at least every 3 minutes until 10:00pm this would reduce crowding and give more resiliency to the service for surge loads and special events downtown.
The earlier subway service initiative would see subways open at 8:00 rather than 9:00 am on Sundays with corresponding changes in feeder surface routes where necessary.
The express bus initiative would add four new off peak and weekend routes (unspecified) beyond those already contemplated by the 2015 initiatives.
The new Cherry Street streetcar would operate from the new loop at Cherry and Mill Streets and run north, then west via King to an as-yet undecided western terminus. This would provide additional service on the central and western parts of the 504 King route. It is hard to see this described as an “initiative” considering that the line will open in 2016 to serve both the new developments in the “Canary” district (former Pan Am Games Village) and the eastern end of the Distillery District.
At its previous meeting, the Budget Committee asked staff to present a range of fare options based on various assumptions. None of these has been selected for implementation nor incorporated in the preliminary budget, but they give Commissioners (and everyone else) a sense of what each type of change implies and how much revenue it could be expected to generate.
Scenario 1 is the “do nothing” option representing the Preliminary Budget as it now stands. The next two scenarios look at bumping the ticket/token fares by a nickel or a dime respectively, along with a jump in the adult cash fare from $3.00 to $3.25.
The cash fare has not changed since 2010, and the premium for paying cash has dwindled relative to tokens/tickets over the years. This has always been a flash point in fare discussions because, as advocates claim, cash fares are more commonly used by the very poor who wind up spending more for their journeys. In this presentation, the TTC counters that their user survey shows that “low income” riders overwhelmingly use tokens, tickets and passes with only 15% using cash. The problem here is in the definition of “low income” at a cutoff of $45k/year which is considerably higher than the poorest riders enjoy. This issue is not going to disappear, and it is entangled with a parallel request for special subsidies for very low income TTC riders such as recipients of disability allowances.
After bumping the Metropass trip multiple (the ratio of a pass price to a token fare) by 1 in each of 2014 and 2015, TTC staff recommend leaving the multiples unchanged in 2016 in part because the growth of pass usage is slowing.
Another proposal that was examined, based on practice in other GTA municipalities, is the creation of a single cash fare, eliminating the student and senior cash fares and making all cash transactions a standard amount. The projected additional revenue (compare scenarios 4/5 with 2/3 above) is from zero to $5m depending on assumptions about lost ridership or shifts to other fare media. Whether this is worth the political fallout inevitable from the elimination of cash fare discounts is dubious.
Even at the dime increase (scenario 3), the added revenue is nowhere near enough to offset the $95m gap in subsidy funding, let alone an additional $8.5m for the 2016 Service Initiatives.
The components of fare revenue by medium show up in scenarios 6 and 7 where a nickel increase is applied selectively to only non-Metropass and to Metropass fares. This shows that pass users account for about 40% of the revenue stream.
What to do with the City Subsidy?
The 2015 subsidy is set at $474m from Toronto for the “conventional” system plus an additional $108.8 for Wheel-Trans. Without a fare increase, and with no added service initiatives, the subsidy shortfall in the preliminary budget is $95m for the conventional service and $9m for Wheel-Trans. These represent increases of 20% and 8.3% respectively. These increases require well beyond the “just stay with inflation” level of, say, 2%, let alone a flat-lined subsidy. Even with the scenario 3 fare increase, there would still be a need for about 13% more in City subsidy for the conventional system, and that’s without the proposed service initiatives.
Toronto Council has hard decisions to make about its continued support for TTC service including funding of the growth in service quality it launched in 2015.
The Budget Committee passed the following motion:
- Request the Province of Ontario to return to the system of the province covering 50% of the operating shortfall of the TTC.
- Request the TTC to develop a strong campaign to this end.
- Request TTC staff to report back on commuter lot revenue enhancement opportunities.
- That staff provide comparable data for other transit systems on the non-passenger revenue sources identified on Page 4 of the Operating Budget presentation.
Clarifications September 21, 2015:
The following questions were posed by me to the TTC. Here are the responses from Vince Rodo, Chief Financial & Administration Officer. These have been edited to eliminate to-and-fro exchanges.
1. The service budget clearly identifies the reduced service hours associated with the lack of Pan Am Games in 2016. Why is there no comparable accounting of changes in expenditure, subsidy and ridership in the main ops budget presentation?
Answer: 2015 Budget included expenses and offsetting recovery of Pan Am and Parapan Am (i.e. it was in and out of the budget). Therefore, there was no reduction to show in the 2016 budget. Ridership for Pan Am etc was not budgeted.
The figures shown for the 2015 probable do not include the allowance for Pan Am rides. Adding in Pan Am rides would increase that figure. The analysis we showed to explain how we went from the 2015 budget of 545 million to the recommended budget for 2016 of 555 million rides was all done ignoring Pan Am, since it was a one-time very extraordinary item.
We are still finalizing the accounting for all of the items and will be billing Pan Am for both costs and revenues.
2. There is a reduction of about $9m in 16 in the capital from current amount because most of the bus purchase funded through this is booked in 2015. The 17 projection shows the last $5m of this disappearing but there is no comparable figure in the deltas for 2016.
Answer: An $8.7M reduction ($13.9M less $5.2M) was incorporated into the 2016 Budget but not shown separately. It was included in the “Other” variance (see page 7 of the Sept 15 presentation.
3. There is a revenue (and service budget) reduction related to contract services, but no corresponding drop in operating expenses.
Answer: The 2016 Service Budget already incorporates the reduction in service hours and kilometres related to the decrease in contract services to York Region. The variance is too small to show separately.
Within the $15 million revenue explanation, the revenue change associated with this was significant enough to warrant highlighting. Given the $100 million +/- expenditure change, this wasn’t a significant enough item to be shown individually.
4. What is the “saving” from hedging diesel measured against? There is $13m here, but what would this have been spent on otherwise? This shows in the presentation as a reduction vs 2015. Is this a net additional hedging saving or a reflection of lower market prices generally?
Answer: The $13M drop (year-over-year) in the Diesel budget reflects the lower budgeted price in 2016 resulting from the hedges made to date.