Lost in all the debate about the TTC’s Operating Budget and fare increases for 2016 was the approval of the 2016 Capital Budget and 10-year plan out to 2025. There wasn’t much debate because the Board was worn out from the fare issue, but a few comments were worth noting before a very perfunctory approval of a $9-billion budget.
This is a very big, complex budget (see my previous article for some details). The Board only knows about it at the broadest possible scope – the really big projects and the major “state of good repair (SOGR)” budget lines – but there’s a lot more under the covers.
For the gory details of each project’s actual content and purpose, one needs to read the two-volume “Blue Books” which have not yet been published for the 2016 cycle. In past years I have included extracts from them in articles to give background info. The Board members will each get a set, eventually, but one requires a strong constitution to read through the equivalent of two Toronto phone books. Having done this for many years, I have the advantage of needing to look only for what has changed, but someone coming to this as a novice wouldn’t make it even part way through the first volume before the amount of detail bored them to sleep.
I do not expect my readers to look at every line of the budget, nor do I expect this of the Board members. Even I do not read every line.
One of the big challenges to a reader is knowing which parts to look at first: big ticket projects, projects that have a high profile, projects which, from past experience, are worth keeping an eye on. This takes experience, and TTC Board members don’t have the time to acquire it, let alone a guide saying “start here”. There is no trail of cookie crumbs through the budget forest.
To their credit, the Board agreed with a proposal by Commissioner Joe Mihevc that they should do a “deep dive” into capital plans in 2016 before the 2017 budget cycle starts. How far down they will get depends to a great deal on how well TTC management can package the budget in a way it can be clearly understood without undue simplification. This really is an iterative process needing a broad view, and then deeper passes through the details highlighting critical parts of the budget. It is not a session for a Councillor who only cares about his pet project and queries every penny in every other budget line as if it were a waste of previous taxpayer dollars (i.e. not being spent in his ward).
The question of project prioritization comes up every time the TTC looks at its capital plans because there is far less money available than the plans cost in total. What was once a problem for the medium future now stares the TTC (and the City) in the face for the 2017 budget round.
The chart below shows the mismatch between TTC capital needs and available funding.
The TTC requires $9.3-billion over the coming decade, but known funding will only cover $6.5b of this. The gap is trivial in 2017, but it quickly rises as various funding schemes wind down.
Of particular concern is the availability of City debt which effectively ends in 2020 and does not return to 2025 (this chart may actually be optimistic considering other spending plans the City might undertake that will further crowd their borrowing room). The cap on new debt is a result of a self-imposed rule that debt service costs must not exceed 15% of tax revenue (which itself only covers about 1/3 of the total City operating budget). Under provincial legislation, the City could go up to 25%, but they have always preferred a conservative limit and this helps with their bond ratings in the financial market.
The only way under this scheme to “afford” more debt is to raise revenues, either general tax revenue (which increases the base on which 15% is calculated) or an earmarked tax such as the Scarborough Subway tax (which in 2016 and beyond will be 1.6% over the basic property tax rate).
The “Note” in the chart above is important. There are really three classes of TTC capital projects:
- Those which are funded (the $6.5b above)
- Those which seek funding (the remaining $2.8b), but which are “below the line” and not formally part of the City’s 10-year plan
- Those which are little more than a footnote, but which can be very expensive such as the Relief Line and major upgrades to the Bloor-Danforth Subway.
The list below shows the unfunded projects, i.e. “below the line”.
Next comes the future projects list, another $5.5b worth:
And yet more to think about:
Note that there is a lot of duplication between the “additional” list and the other pages, and that some projects show up here only as studies because the big spending on construction would happen beyond the 10-year planning window.
There is a fundamental problem: the 10-year capital plan omits a very large amount of potential spending, some of which will be difficult to avoid. However, for political reasons it stays out of sight as only a footnote making the problem look less dire than it really is.
Into all this comes the need for project evaluation and prioritization, especially for the big ticket items. Because they languish out of sight as “nice to haves”, some of these never get the attention they deserve, but loom as potential ways to spend money whether they are actually needed, or the most important.
This became evident when the Board asked about prioritization if new infrastructure money came available from Ottawa. Management’s reaction was to talk about major upgrades to the B-D subway (line 2) including new signals, cars and maybe a new yard even though the actual need for more capacity has yet to be demonstrated. Indeed, Metrolinx demand projections for the effect of a Don Mills Relief Line show a considerable decrease in demand on at least the Danforth side of the B-D line. As for spending on a new yard, money for this is already included in the Scarborough Subway Project.
There are many potential calls on new Federal spending, including simply fleshing out funding for the SOGR projects sitting in the base budget, or even accelerating some of them if cash flow allows (notably accessibility improvements). What is not yet known is whether the Harper government’s “support” for the Scarborough Subway will come out of the new Liberal spending pot, in effect pre-empting a large chunk of capital for this project.
Prioritization will also trigger a debate on the likely sequence of new subway (and LRT) construction plans, to the extent that these projects are undertaken by Toronto and the TTC rather than by Metrolinx. Some hobby-horses will have to be put out to pasture such as the Sheppard West connection, but there are Councillors who simply will not accept that this project does not rank highly against many others, notably improved capacity into the fast-growing core area.
Service quality, although an operating issue, has implications for capital in its effect on fleet size for peak service and, hence, garaging requirements.
Toronto has lost at least four years, probably more, in understanding and dealing with its capital spending needs on transit. Between creative accounting and fictional revenue sources, beside which the Tooth Fairy is more reliable, City Council and the TTC have avoided a real debate about what transit should be beyond a few vote-getting projects. With the real size of the backlog hidden away, other governments can treat the situation as small enough for an occasional, election-based intervention rather than dealing with a fundamental need for ongoing capital funding.
It is not enough to say “give us more” – Toronto must understand what it needs, what each project will contribute, and how important each one really is to the city, not to the ballot box.
For the detail oriented, the line-by-line budget starts on page 34 of the linked report. Each project shows three lines:
- “B”: The budgeted amount broken down by spending year
- “P”: The previous year’s budgeted amount
- “C”: The change in the current version of the budget
Reading across are:
- The finalized costs up to 2014. These can include some changes from the previous budget because of variances between “probables” and “actuals” in 2014.
- The probable spending in 2015.
- The budgeted cash flow in 2016 through 2025. For 2025, as a new entry in this table, there is no “previous” budget amount.
- The projected spending beyond the 10-year window (2026 and beyond) for long-running projects.
- The Estimated Final Cost (“EFC”) of the project.