Updated November 17, 2017 at 6:30 pm

The TTC Budget Committee met today and considered the draft 2018 Operating Budget. Between the original release (described later in this article) and today’s meeting, Mayor Tory and two members of the TTC Board endorsed the concept of a two-hour fare to replace the complex transfer rules now in place.

Although this was listed as the second item on the revised meeting agenda, Commissioner Mary Fragedakis moved that it be considered first. This re-ordering was a procedural move to forestall a standard tactic used at City Council where a motion setting the next year’s tax increase is introduced and passed before the budget which it will fund. The result is that any proposed budget changes must fit within the already-approved tax level rather than having taxes set after the budget is finalized. In this case, the motion regarding a two-hour fare was only a report request, and the order was less critical. That request passed by a vote of 3-1 with Budget Chair John Campbell in the negative as he opposes the two-hour fare scheme.

The meeting then turned to a series of deputations which, as these things tend to do, fell on largely hostile ears. A favourite tactic is to challenge members of the public to explain “how would you do  it”, despite the fact that the issues are complex and do not fit within an answer of a few sentences. The Budget Committee itself cancels more of its meetings than it holds, and opportunities for an open debate about transit policy options and the budget rarely occur.

Beyond information already in the budget report, there were a few additional items of note in the staff presentation.

The Cost of the Vaughan Extension

This comes up from time to time, and it is clear that the Committee did not fully understand the costs and revenues associated with the extension.

For some time, a cost increase of $30 million annually has been cited for the TYSSE. However, the 2018 Budget only includes a $25 million bump because $5 million had already been included for start-up costs and operation in the 2017 Budget.

The $25 million comes from a combination of new costs, and revised revenues. The TTC now receives $8 million for bus services operated on contract for York Region, but those services will be assumed by the Region when the subway extension opens. The TTC will continue to operate the vehicles, but now at their own cost and so this is a net increase in costs because of the lost revenue. That amount is partly offset by a combination of $3 million in new fare revenue and $1 million in parking revenue.

Ridership

The projected ridership for 2018 is 539 million, a growth of 3 million over the probable results for 2017, but below the originally budgeted target of 543.8 million. The change from 2017 to 2018 arises from several factors:

Increases:

• 4.8 million rides due to economic growth
• 2.1 million rides due to service improvements and the GO Transit co-fare
• 1.5 million more rides by children (who travel free of charge)
• 1.2 million new rides from the TYSSE
• 0.5 million additional rides counted due to improved reliability of Presto readers
• Total: 10.1 million

Note that most of the expected ridership on the TYSSE will be by existing riders changing travel patterns, not by net new riders. This is further constrained because York Region Transit will continue to serve York University directly thanks to a lack of agreement on a co-fare between YRT and TTC. Riders who were anticipated to show up as YRT-TYSSE-YorkU trips will not be using the subway. It is ironic that there will be more new rides by children on the system as a whole than by riders on the subway extension.

Half a million rides were estimated to have not been counted in 2017 because failing Presto readers were unable to charge these fares. The TTC’s Brad Ross advises that these are

“rides not counted, assuming they still rode but couldn’t pay. The TTC is in the process of accounting for all lost revenue due to out-of-service Presto readers.”

Reductions:

• 0.5 million rides due to increased subway closures
• 0.7 million rides due to the elimination of the Public Transit Tax Credit
• 2.8 million rides due to decreasing sales of Metropasses and Day Passes
• 3.1 million rides due to a reduction in the average number of trips taken on each Metropass
• Total: 7.1 million

This provides the net increase of 3 million over 2017 probable results.

Expense Risks

The budget has been drawn up on a conservative basis and leaves several areas where the outcomes in 2018 could be different than projected. The $14 million now sitting in the Transit Stabilization Reserve could be used to offset some of this risk, provided that Council does not scoop the reserve simply to hold down the subsidy increase.

Some of the items below refer to savings that allowed 2017 to show a “surplus” (actually a reduced requirement for subsidy), and these might not all continue into 2018.

The budget contains a provision for $4.1 million in extra costs through the provincially mandated payment for two emergency leave days per year. This has been estimated conservatively, and TTC staff advised the Committee that the worst case cost could be $18 million.

The History of TTC Budget Variances and Subsidies

For many years, the TTC has consistently come in under budget for the annual subsidy requirement. In the table below, the amounts are for the subsidies, not for the overall operating costs. This always leaves the TTC in a position for its next year estimates that a budget-to-budget subsidy flat-line actually represents an increase over actual requirements in the current year.

The subsidy per rider will go up in 2018 because of the fare freeze. Although this takes Toronto back to the level of 2010, that does not allow for cost inflation over that period which has been well above the CPI.

Updated November 15, 2017 at 5:00 pm

The TTC Budget Committee will meet on Friday, November 16 to discuss the proposed 2018 Operating Budget.

The highlights of this budget are:

• Fares and service will remain at 2017 levels.
• An additional subsidy of $36.9 million over the 2017 budgeted level will be required for the “conventional” TTC system, and a further $0.9 million for Wheel Trans.

This is very much an election year budget in which the twin goals of no fare increase and minimal extra expenditure are pulled like a rabbit from a hat thanks to unusually strong results in 2017. Despite flat ridership this year, the average fare has been higher than expected largely offsetting the revenue shortfall that would otherwise have left the TTC in a deep hole for 2018. Some major expense categories, notably for diesel fuel and employee benefits, were under budget in 2017 and these savings have been rolled forward into 2018. Other cost reductions arise from a wide review of expenses through the organization.

This is a “good news” story for everyone who looks at the dollars, but not at the service. The biggest new expenses for 2018 are the opening of the subway to Vaughan which will add $21.3 million and rising Presto fees as use of that fare medium grows adding $8.3 million. However, there will be only minimal additions to service within the scope allowed by the 2017 budget numbers.

There is no provision for any Ridership Growth Strategy.

Updated November 15, 2017

The budget proposes a 5.5% increase in the subsidy requirement, a level higher than inflation and certainly higher than the target zero percent. This is the inevitable result of political promises to flatline revenues in the face of unavoidable costs and inflation.

How that will play at the political level remains to be seen. Moreover, from recent media reports and comments at the TTC Board Meeting, we know that ridership is actually going up on parts of the bus network. How can this be reconciled with the limitation on adding more service both from a fleet and budgetary perspective. Riders are still waiting for the promised land they were sold by Mayor Tory in the last election, and his post-election acknowledgement that service really had been harmed during the Ford  years.

The next debate will come when the TTC brings forth new proposals, and please let this happen sooner rather than later because better transit is an important election issue.

Quoting Andy Byford from an email today:

Our RGS paper and our call for two hour transfers is the battle ground to ask for more.

Budget-to-Budget Versus Actual-to-Budget Accounting

Every year at budget time, there is much confusion over the numbers cited in various budgets, including the TTC’s. Didn’t they run a “surplus” in 2017, some will ask? Haven’t they saved money with efficiencies and cutting down on fraud? How can they flatline fares and service, and yet only require a paltry $37.6 million in new subsidy? What ever happened to the 0% target for increased city spending?

When the TTC (or any City Department or Agency) talks about its new funding requirements, this is always relative to the previous year’s budget, including extra monies that may have been authorized as in-year adjustments to compensate for Council-approved changes.

In 2017 (as in some past years) the TTC will not spend all of its allocated subsidy nor will it require a planned $14 million draw from a Stabilization Reserve created with previous surpluses. This arises from a combination of two factors.

• Riding may be down 7.8 million from projections, but the average fare is up so that total revenue is only $1.3 million short of the budgeted value.
• Expenses are below budget on several accounts for a saving of $50.4 million.

This leaves the TTC with a subsidy requirement $49.1 million lower than budgeted, and with no need for the reserve draw.

The factors that affect expense lines are a mix of management-led savings and external factors, some of which may not be repeatable over the long haul. The $50.4 million saving relative to the 2017 budget comprises:

• Labour costs: Down $14.4 million because of gapping, project deferrals, the transfer of some staff time to the capital budget, and the assumption by Metrolinx of frontline Presto support that was included as a TTC budget cost for 2017.
• Employee benefits: Down $10 million. A good chunk of this comes from reduction in fraudulent claims.
• Non-labour costs: Down $8 million because of better vehicle reliability and the deferral of some subway car work due to parts availability.
• Presto fees: Down $7 million because Metropass users have not converted at the expected rate.
• Diesel fuel: Down $6 million because fuel consumption has been below predictions, partly due to better weather.
• Hydro and utilities: Down $3 million because rates and consumption are below budget.
• Depreciation: Down $2 million because the TTC’s unsubsidized capital purchases in 2016 were lower than expected, and thiswas not factored into the 2017 budget when it was approved.

[See the November 2017 CEO’s Report at pp 57-58 for details.]

Going into 2018, a zero percent subsidy increase actually gives the TTC more money than they will actually have used in 2017, and, of course, revenue will continue to roll in at a higher rate per passenger than in the 2017 budget.

For 2018, the TTC faces new costs and reduced revenue from various sources totalling $37.6 million:

• Opening of the Vaughan subway extension (TYSSE): $21.3 million
• Loss of revenue from contract services in York Region (net): $4 million
• Additional Presto costs: $8.2 million
• Mandated Paid Leave Days (Ontario Bill 148): $4.1 million

These are unavoidable new costs. If the TTC had to absorb them into its budget without extra subsidy, offsetting cuts and/or a fare increase would be required. The budget seeks new subsidy funding to cover these expenses.

The TYSSE effects are quite substantial as shown in the table below:

The budget-to-budget changes are summarized in the “Key Drivers” table.

A few important points should be noted here:

• The TTC booked the reserve draw in 2017 as potential revenue, and as this is not in the 2018 budget, it is a reduction year-to-year. Of course this draw was never taken, and so on an actual-to-budget basis, this item would disappear.
• Costs in 2018 on the base budget will rise by $38.3 million, but these are more than offset by savings of $50.6 million. Much of that saving comes from the carry-forward of the underspending in 2017.
• The additional cost of unavoidable items leaves the TTC requiring more subsidy in 2018 than in 2017.

The Collective Bargaining Agreement

The chart above contains a footnote about provisional funding for the CBA, and other tables in the report show that the TTC has made provision only for three months of a CBA increase over 2017 to the end of the contract on March 31, 2018. This is the standard way the City and its agencies handle unknown future contract costs, and the “Non-Program Budget” is used to top up budgets after the effects of any new contract provisions are known.

However, this has the effect of understating the likely magnitude of the TTC’s subsidy requirement once the contract adjustment is in place. This allows much back-patting by various politicians about how effective their TTC has been in controlling costs when, in fact, all of the likely costs are not in the budget. Later in the report, we will see that the estimated value of the CBA adjustment for the first quarter is $6.7 million. If the new contract is at a comparable rate, this will require an additional $20.1 million in subsidy or offsetting cuts to expenses in other areas such as service.

The Evolving Budget

The first version of the operating budget submitted to the City by the TTC in June 2017 projected an “opening pressure” (the amount of money needed to balance the budget without additional subsidy or fares) of $97.3 million, offset by reductions of $17.6 million that came from preliminary reviews. [See Opening Budget Pressure table on p. 5]

The largest components of the increase were:

• TYSSE: $29.5 million
• Presto: $13 million
• Loss of the reserve draw: $14 million

The total increase included only 3 months’ worth of CBA at $6.7 million.

The largest components of that reduction were:

• Orion VII bus retirements: $11 million
• Employee benefits reduction: $4 million

The bus retirements not only eliminate the maintenance cost of old buses, but with the large number of new buses in the fleet, some routine costs will be transferred to the capital budget via the warranty. This will be an extraordinary cost increase in a few years as the warranty period ends for this large portion of the bus fleet.

After the initial version of the budget, there was more trimming.

• Vehicle and Facility Maintenance costs have been adjusted based on actual experience in 2017 notably with hybrid bus batteries, the effect of recent trackwork, and lower contract pricing and “refined” requirements for T1 subway car maintenance.
• The projected cost of benefits has been reduced further from the first round of changes based on elimination of fraudulent claims.
• Diesel fuel costs are expected to drop through a combination of new buses, fuel efficiency and a lower price.
• Utility prices are also expected to drop.
• Accident claims have fallen due to legislative changes and the use of video evidence.
• The Materials & Procurement Department has improved various procedures, and some of the actions detailed in the report are aresult of a review by the City’s Auditor General.
• Slow deliveries of the new Flexity streetcars reduces staffing required at Leslie Barns, although this is partly offset by hiring for maintenance of the pantographs.
• With the consolidation of the Metropass VIP program (Volume Incentive Purchase) into the MDP (Monthly Discount Plan), the TTC expects a small rise in Metropass revenue.

Yet another round of budget revisions brought more reductions.

• Presto costs are expected to be lower than originally planned because the full transition to fare cards will not occur as soon as originally hoped.
• TYSSE costs have been reduced by “the deferral of certain maintenance requirements”. Whether this is a real saving, or merely pushing costs off to future budget years is not clear, although there is a reversing entry in the projected 2019 estimates shown later in this report.
• Because the new TR subway trains are performing exceptionally well, the cost effect of their end of warranty was less than originally budgeted.

When all this is stirred together, the version of the conventional system budget presented by staff requires a subsidy increase of $36.9 million, or of $22.9 million if the City uses the Stabilization Reserve as a partial offset. There may be a temptation to use the reserve to minimize the subsidy requirement and related tax pressure, but TTC staff warn that this will eliminate any buffer against future unexpected costs.

Ridership, Revenue and Service

Unlike other parts of the budget report, the ridership table shows both the 2017 budget and probably actual values. This illustrates the evolution of revenue estimates for 2017 and how this flows into 2018.

The 2018 budgeted ridership is 539 million, below the 543.8 million budgeted for 2017, but above the 536 million expected for this year. 1.2 million new rides are projected for the TYSSE which, at an average fare of $2.1807 represents $2.62 million in new revenue, not a huge gain considering the operating and capital costs. If a York-TTC co-fare is implemented, the revenue will fall further unless the TTC is “made whole” for carrying riders who cross the Steeles Avenue boundary.

The average fare is above budget for 2017, but there is a projection that it will continue to rise even without a fare increase in 2018 by a small amount.

The overall result is that fare revenue is expected to be $7 million higher on a budget-to-budget basis.

Service planned for 2018 will increase in budgeted hours primarily because of the subway extension which is not completely offset by cuts in the bus network. Streetcar hours will be budgeted based on the fleet as it exists rather than the higher level originally set for 2017, and bus hours will be adjusted upward to compensate. Until Bombardier’s delivery (or non-delivery) schedule proves to be reliable, the long term balance in services is difficult to project.

Wheel-Trans demand in 2017 was considerably below the budgeted level. Although the projected 2018 increase is 11.5% above the actual level for 2017, it is only 1.8% above the 2017 budget. This means that the City does not face a large increase in the Wheel-Trans subsidy for 2018 even in the face of strong demand.

Advertising and Other Non-Fare Revenue

From time to time there are calls to eliminate advertising on the TTC. That is more easily said than done for two reasons.

First, there is a long term contract that cannot be cancelled overnight. This 12-year contract took effect on January 1, 2012, and the TTC has the option of two five-year extensions.

Second, and more importantly, advertising will bring $28.35 million to the budget in 2018. Replacing that amount is more than what has been projected as the cost for a two hour transfer, or it could pay for proposed lower fares in the City’s poverty reduction strategy, or it could pay for better service.

Other non-fare revenue includes $10.6 million in rent (primarily for subway station concession stands) and $10.8 million from commuter parking.

Looking Ahead to 2019 and 2020

Future budget projections have always been a matter of creative writing at the TTC because they omit future changes that could substantially affect the numbers notably:

• Collective Bargaining costs
• Growth beyond minimal levels including an active plan to gain new riders

Budgetary Risks

Appendix B lists several areas where the TTC (and hence City) could be exposed to risk because of the changes made in the 2018 budget. Collectively, what these show is that some of the contingency (which the more cynical would call “fat”) provisions in the budget have been trimmed away, and there is less room to absorb unexpected costs in 2018. A related issue, of course, is that some of the savings obtained in 2017 relative to budget will not occur in 2018 because they are already “baked in” and the TTC must look to new windfalls.