On November 23, 2015, the TTC Board will consider its operating budget for 2016 including issues of fares and possible service improvements. The version of the budget before the Board was approved at the TTC’s Budget Committee meeting of November 9, 2015 with some amendments from the original staff proposal. The only recommendation related to fares was that the price of a Metropasses be frozen in 2016, but no other specifics. (I have already commented on the motions passed by the Committee in a previous article.)
The matter is complicated by the fact that the actual subsidy that will be made available to the TTC by City Council will not be set until early in 2016, and the TTC will compete with other agencies for available money.
(The 2016-2025 Capital Budget is also on the November 23 agenda, but it has not changed from the version discussed at Budget Committee.)
Although the Operating Budget report is long, it is better organized than the previous version with more detail, rather than depending on whatever questions might arise from a long PowerPoint slide deck and the skill (or lack thereof) of the presenter.
This budget is always a balancing act between competing forces and interests:
- A political imperative to “keep taxes down” and limit the growth of the TTC’s call on City subsidies from the property tax base. This often manifests itself in calls for “efficiency” year after year in the hopes that the TTC can do more with less funding in constant dollar terms.
- A political will to keep riders happy with benefits such as controlling growth in, or even freezing fares while providing more and better service. This includes targeted fare changes to benefit groups who are perceived to be more deserving of support through lower fares.
- Annual increases in the cost of labour, materials and utilities.
- The cost of additional service to handle demand from a larger population and a shift to transit from other modes.
In 2015, Council approved an extra $95-million for a number of improvements to service, elimination of the fare for children, and a capital-from-current purchase of 50 new buses to be used for new express routes in 2016. This increase only covered the part-year cost of the changes, many of which came into effect only in recent months, and additional subsidy will be needed in 2016 for the full 12-month cost. Additional improvements are on the table as part of the 2016 budget, and some of these were approved in the Budget Committee. The bottom line here is that improving transit has an ongoing cost and is not something to be done on a one year “feel good” program followed by a return to penny-pinching. Indeed, even that $95m might not have come to the TTC had Council been aware of unexpected costs from changes in Provincial funding arrangements for other programs that came to light after the extra transit money was announced by Mayor Tory and TTC Chair Josh Colle.
The Budget Gap
When the TTC began work on its 2016 budget, it faced a $95m gap between anticipated revenues and projected costs. For the purpose of this analysis, the subsidy remained at 2015’s level (including the extra $95m from that year) and fare revenue was increased based on projected ridership, but at 2015 rates. Expenditures were originally expected to rise by $101m as shown below:
Expenditure Changes: +$101M Annualization of Prior Year Actions/Decisions: - Service – maintain existing, annualize current, growth to 555M $46M - Leasing Requirements 17 - Collective Bargaining Agreement 10 - Reliability Centered Maintenance 8 - POP Fare Inspectors – Deferred from 2015 2 - Annualization of 2015 workforce changes 5 Total Annualization of Prior Year Actions/Decisions: 88M Inflationary Increases: - Other Employee Costs 10 - Traction Power & Utilities (Hydro, Natural Gas, Water) 7 - Accident Claims & Insurance 4 - Material Price Inflation 3 Total Inflationary Increases: 24M - Presto Commissions 4 - Diesel Hedging (13) - Other (2) TOTAL $101M
TTC Management sharpened their pencils and cut a substantial chunk out of this increase:
Expenditure Reductions: -$42M Leasing Requirements - cancelled Concord Garage acquisition ($5.2M) - deferred 250 Bus Garage until later in 2016 (9.3) - other changes (0.5) (15.0M) Departmental Non-labour Reduction - across-the-board cut based on recent experience (10.0) Accident Claims flatlined to 2015 budget (3.5) Service - refined calculation (3.0) Hydro - reduced volume (2.0) Employee Benefits - actuarial projection re: reduced WSIB long-term liability (1.0) Diesel - reflects reduced futures price for unhedged volume (1.0) Leap Year - 1-time draw from TTC Stabilization Reserve (1.0) Contribution to Capital - all 50 new buses to be received in 2015, rather than phase in (5.0) Other/Rounding (0.5) TOTAL ($42.0M)
Detailed explanations are available in the budget appendices, but a few points should be noted here.
- The single largest “reduction”, $14.5m, is a deferral of leasing costs that will be unavoidable in future years.
- A further $5m reduction comes from moving a planned 2016 capital-from-current expense from 2016 into 2015. This has the effect of increasing costs in 2015 where financial results have been better than expected.
In other words, almost half of the reduction is simply a case of shifting costs to other budget years, not an actual reduction in total spending. If the subsidy stays at 2015 levels, this has the effect of giving the TTC more money on a net basis than it would otherwise have for 2016, but leaves a jump in costs for leasing to be absorbed in the 2017 budget.
The $42m reduction brings the net expense increase down from $101m to $59m. Further changes net out to a further small reduction in the budget gap going into 2016 to $58m.
Additional service improvements recommended by the Budget Committee: $5M Loss of one-time draw from reserves in 2015: 9 Fare revenue increase based on ridership growth, but at 2015 levels: (15) Net improvement: $1M
This gap must be filled by higher fares or subsidies, and the gap itself could widen if there are additional service improvements or fare restructuring.
Proposed Service Improvements
The Budget Committee approved some but not all of the improvements put forward by staff.
Approved ($5.4m in 2016):
- Earlier Sunday service
- Bus service reliability
- Streetcar service reliability
- New and enhanced express bus service
Not approved ($4.2m in 2016):
- Subway service reliability
- 3-minute or better service on Line 1 (Yonge-University-Spadina)
- New streetcar service on Cherry Street
It is important to understand that the bus and streetcar reliability items do not address every line in the system, but target specific routes for schedule and other operational improvements.
As for Cherry Street, this is a bizarre situation on several counts:
- The TTC has built the Cherry spur from King Street at considerable expense, but now chooses to treat its operation as an optional improvement rather than a natural part of system growth.
- Staff project that there will be no net ridership increase from this line even though it will serve the new condos in the former Pan Am Village and the east end of the Distillery District.
- The service will benefit not just riders on Cherry but those on the inner part of the 504 King route which is chronically short of capacity.
- The TTC has yet to address service to the West Don Lands in general including the future of the 172 Cherry and 72 Pape bus routes.
Imagine if the TTC were to treat the opening of the Spadina extension in late 2017 as an “optional” cost. Cherry Street is a small item, but it is a failure of both management (for omitting it from the base budget) and of the Budget Committee (for not correcting the situation).
Of the three options that were not approved, the lion’s share of the cost (67%) is due to the proposed improvement in service frequency on the YUS, 19% to the Cherry Street car and the remaining 14% to subway service reliability.
Without any further change in service plans for 2016, there remains a $58m gap to be filled by fares and/or increased subsidy. As subsidy, this would represent a 12% increase over the $473.7m budgeted for 2015.
Possible fare options are summarized in the table below and these include permutations on changes to various parts of the overall fare structure including:
- Freezing the Metropass prices at current levels, or letting them rise proportionately to other fares based on existing multiples to the ticket/token rate for the same class of rider (adults, seniors, etc.).
- Increasing only the adult Metropass by 5¢ per ride, roughly the equivalent of increasing the fare multiple by 1.
- Increasing the adult token fare by 5¢ or by 10¢ with proportionate changes in other ticket fares.
- Increasing adult cash fares by 25¢ and/or eliminating the discounted cash fare for seniors and students.
Quite predictably, the greatest amount of new revenue is produced by a 10¢ adult fare hike plus a 25¢ cash fare increase (with the move to a single cash fare generating up to $5m as a cost to seniors and students). If the adult fare goes up by only 5¢, then the revenue gain is about $12m less than with the 10¢ increase.
In all cases, the additional revenue is not sufficient to offset the $58m shortfall, let alone any additional costs or improvements.
One option not included in the table is a rebalancing of senior/student passes to use the same multiple as the adult pass. This would reduce them from 57 fares to 50.5, and would require an offsetting $1.30 per adult pass monthly in effect raising this pass close to a 51 multiple from 50.5. A simpler way to put this would be to move across the board to a 51 multiple in effect shifting some of the senior/student pass subsidy over to adult passholders. (The question of whether 51 or any number in that range is an appropriate multiple is a separate issue not part of this budget.)
The market for Metropasses has been changing in recent years as shown in the chart below. Total pass sales are down about 1% in 2015, but the drop is entirely in the full-priced adult pass while sales of the lower-priced discount passes for bulk purchases, subscriptions and students/seniors have grown. This shows that riders love to save money, and that if alternatives are available, there is a limit to the degree the market will accept a higher-priced adult pass.
Subsidy Per Rider
The report includes a table of subsidies (pp 30-31) for the TTC and other transit systems in the GTHA, Canada and the USA which shows, as usual, that Toronto has the lowest per rider subsidy of $0.89 and only Montreal, at $1.11, is remotely close to Toronto. Moreover, the subsidy has fallen from $0.93 in 2010 which, if inflation were included, would be the equivalent of $1.03 today. If that missing 14¢ per rider were restored, the TTC would have had $76.3m more subsidy available in 2015. That is the equivalent of about 2.5% on the property tax base that has been “saved” by the Ford era at the expense of transit quality. (Ironically, the saving is offset to a considerable degree by the Scarborough Subway tax.)
Fare Subsidies Based on Social Goals
The budget report is silent on any special subsidies for targeted groups as this will be the subject of another report expected in December. This will inevitably get into the question of “fare equity” both inside Toronto and will be a strong undercurrent in any regional fare consolidation that might come into play with full Presto adoption in 2017. Inevitably there will be calls for lower fares for specific groups in 2016, but this is unlikely before the TTC can move to a fare medium (Presto) where different fare structures for various types of riders can be more easily implemented.
Even for “standard” fares, Presto will bring many discussions about just what the appropriate fare level should be for each type of rider and trip, and Toronto will almost certainly go through a few years of adjustment to whatever new formula comes into play. An important factor with Presto is that bulk discount fares should be available on a retrospective basis depending on usage patterns rather than riders having to pay up front for a “pass” or “subscription” arrangement.
To say that TTC Boards obsess about staffing numbers would be an understatement. This often is discussed far out of proportion to other budget items, and in a strange world where operating more and better service supposedly can be done without hiring anybody. One cannot crow about added subsidy for more service and better maintenance, and then object to the fact that much of this money can only be spent by paying people to do the work.
Some “efficiencies” do occur primarily related to increasing the passenger to operator ratio with larger vehicles, all-door loading and eventually a move to one person operation of subway trains. However, these are not reproducible each year except to the point that there is a change in the fleet mix (a higher proportion of larger vehicles) or better scheduling of existing vehicles (changing the local/express service design, for example). Once the change occurs, it cannot be repeated in future years and cannot be counted on as a year-after-year cost reduction.
Overtime costs are another focus of bean-counting Board members. The issue is a valid one – don’t pay excessive overtime – but there are many cases where it is actually cheaper to pay someone overtime rather than to increase headcount. This affects both day-to-day crew schedules (with shifts longer than 8 hours to fill out the service day) and emergency situations (subway and other maintenance shuttles). There is no point in keeping operators on staff for a few hours’ work a day, or on the off chance that there will be a major breakdown of the subway (which would, in any event, require spare buses for them to drive). The whole process is a balancing act which is explained on pp. 18-19 of the budget report.
The Cost of New Riders
Appendix D (pp 22-23) explains the relationship between ridership and budgeted service. If 10 million more trips are projected, this will generate the need for about:
- 2,000 more operator hours
- 51,900 more vehicle kilometres
- 14 more peak buses
- 3 more peak streetcars
- 1 more peak subway train
- 80 more employees
- A marginal cost increase of $11m
A few important caveats:
- This analysis presumes that the ridership growth can be handled without a major change in underlying infrastructure such as the opening of a new bus garage or subway yard.
- The existing trip pattern by time of day and location over the entire system goes up proportionately rather than being concentrated on specific routes or time periods.
- It is not physically possible to increase subway capacity during the peak periods pending changes to signal and control systems.
Much of the improvement to service in recent years has come at off-peak periods when spare vehicles are available and the marginal cost of labour is lower (peak period changes cost more because they trigger more payments for split shifts and garage mileage, and new vehicles are required that only serve riders for a few hours each day).
The numbers above imply that on an average basis, the cost per new rider goes up by only $1.10, but that is because, in this model, the riders are carried at the margin by improving fleet and operator utilization. Service improvements, obviously, are not necessarily “marginal” in their cost, and so the payback for new riders is lower or non-existent. This is an important consideration when the system is recovering from several years of artificially constrained growth where much new riding did come at the margin without comparable increases to service. That sort of “efficiency” cannot go on forever as riders on many packed routes will attest.
The Wheel-Trans service is funded entirely by the City of Toronto at a 2016 cost of about $125-million with minimal cost recovery from fares. Ridership is growing very quickly on this system (13% in 2015, 14% projected in 2016) due to riding demand (demographic shifts) and legislative changes to eligibility rules and hours of service.
Wheel-Trans has been starved for funding, but its costs will continue to rise faster than the rate of inflation (7.3% in 2016).