Updated December 1, 2017 at 11:15 am:
The preliminary City of Toronto operating and capital budgets were presented at Toronto’s Budget Committee on November 30, 2017.
To no great surprise for seasoned budget watchers, the Two Hour Transfer was not included in the funded budget, but instead appears among a long list of unfunded new or enhanced services. The total value of these proposals is $41.3 million (after considering any associated revenue), and they are competing for a much smaller amount of available headroom in the operating budget. (The list is on pp 12-14 in the appendices linked above.)
Although Council may approve many wonderful initiatives and the Mayor may hold many press conferences and photo ops exulting in the decisions, the money to pay for them is often not part of Council’s decision. What actually happens is that these are “nice to haves” thrown into the coming year’s budget hopper on the off chance funding will materialize by budget time. This has the effect of throttling the will of Council and feeding all of its decisions through the much more conservative outlook of the Budget and Executive Committees.
Council further limits this process by passing a budget directive early in the cycle (usually late spring) directing that property taxes for the coming year not rise by more than the rate of inflation. The actual increase is below inflation because commercial property rates are on a long downward trend thanks to rules imposed by Mike Harris to rebalance the relative tax levels for commercial and residential properties in Toronto. This will not complete until, probably, the 2021 budget after which tax increases will apply equally across the board.
Of the new revenues Toronto will receive in 2018, property taxes are actually only a small component, but Council debates inevitably turn on this source as a benchmark. The actual tax increase anyone sees is the result of several factors:
- the tax rate change for their property class;
- changes, if any, in separate levies such as the Scarborough Subway tax and the Mayor’s Infrastructure tax;
- updated and/or phased in changes to the assessed value of property;
- policy directions such as rebalancing rates between property classes (e.g. commercial vs residential).
Other new revenues can flow to the City through various rate structures notably TTC fares, although these have been frozen for 2018. A small increase in fare revenue is expected compared to the 2017 budget thanks to a changes in the relative number of fares paid of each type (passes, tokens, cash).
As things stand today, the funding to pay for the Two Hour Transfer simply isn’t there, but it may be found, almost like magic, as the budget process unfolds from now through February 2018 at Council. Another transit fare proposal, the first phase of the “Fair Fare” scheme in the Poverty Reduction Strategy, is also not funded.
This process creates a drag on implementation of new programs unless there is strong political support from the Mayor and his voting block on Council, and should serve as a warning to advocates for schemes such as the Ridership Growth Strategy. With luck, there will be proposals before the TTC Board before the hiatus of meetings for the 2018 elections, but anything the Board approves will be considered as an “enhancement” going into 2019 and could well be derailed. Add to this the chronic problems of vehicle and garage space shortages at the TTC, and there is a recipe for seeing little real growth in service until at least the 2020 budget year if not later.
This is the combined effect of a process that has valued capping spending above all other goals for many years. Infrastructure that would be needed to support growth doesn’t exist and has a multi-year lead time, and even the vehicles the TTC owns run less service than they could because improving service never comes with enough revenue to cover costs.
Passengers who have shorter waits or are less crowded do not represent extra revenue, and the marginal gain lies only with new fare-paying trips attracted to the TTC. On a grand scale this is seen for 2018 with the Vaughan subway extension where net new revenue does not come close to paying for the added operating cost of service, but this happens at a smaller scale whenever a bus runs more often and less crowded, but mainly with passengers who were already on the system.
A further problem for constrained budgets is that the cost of existing service goes up through inflationary pressure, and the population requiring municipal services including transit continues to grow. City management use that growth to show how the tax burden is actually declining on a per capita basis from $4,480 in 2010 to $4,262 in 2018 (presentation, p 17), and this is considered to be virtuous when in fact it shows not just “efficiency” but also a decline in service provided. The effect on individuals varies depending on which municipal services they consume, and the program-by-program effect is never reported.
Every year, the budget is hauled into balance through a combination of new revenues, reduced expenditures and “bridging”, a term for various accounting “fixes” that get the City past short-term problems. (Apologies for the subtlety of the colour changes in the chart below. It is from the City presentation.) Note that the values below are “deltas”, the change from year to year, not the total revenue or spending in each category. Expenditure cuts (darker blue) have been a large chunk of the savings in recent years. By comparison, TTC fare increases are small change within the larger City context and, of course, there is no increase in 2018, a policy direction endorsed during the 2017 budget cycle.
However, City budgets are debated at the margin in that any fine tuning is achieved by tweaking revenue sources to accommodate new spending, and the proportional effect on thinks like fares, property taxes and other user fees tends to be higher than for the budget as a whole. The reason for this is that much of the City’s revenue comes from sources that Council cannot “tweak” in the course of setting its budget, and so the effect on what remains is higher.
The TTC Board decided that it would include the money sitting in the Transit Stabilization Reserve as 2018 revenue, just as they did in 2017 (although in fact this was not needed because of better-than-budget results). This keeps the year-to-year subsidy increase down to $24 million paying mainly for the new cost of the TYSSE and for transitional increases in fare handling while Presto and the legacy fares both remain in place. Using that reserve is an example of a “bridging strategy” because the reserve will not be available in 2019 if it is depleted in 2018, and new revenue will be needed to replace it. That $24 million pressure from the TTC (with more to come from unfunded proposals) crowds other City departments and agencies by taking the lion’s share of new spending.
Among the factors listed in the revenue and expenditure changes for 2018 (p 27), there is a section headed “Prior Year Decisions”. This includes the TYSSE effect, but does not include the cost of the fare freeze decision on the 2018 revenues. Had there been a fare increase, politicians would be forced to explain to riders how opening a new subway is not free and how York Region gets a free ride on Toronto taxpayers.
The City’s overall revenue and expense budget is summarized in the chart below. The TTC’s total expenditures of $1.974 billion consume about 18% of the budget, but 63% of this is paid for through the farebox. (Note that there is a common problem when “farebox” recoveries are cited for the TTC because other revenues such as advertising and parking are sometimes erroneously included as if they were rider contributions. Also, occasionally, the TTC funds some capital costs from current revenues and these do not properly belong in the “operating cost recovery” calculation.)
When the available revenue including assessment growth and inflation in property taxes are considered, the City has a small surplus of $3.4 million in the preliminary budget. A further $5 million will be available from a pending change in taxation of vacant property, although Council has already directed that this go toward the Poverty Reduction Strategy. Without further adjustments, these are the only funds now available to pay for the $41 million in approved but unfunded initiatives including the Two Hour Transfer.
On the Capital side, there are a few points worth noting in the City Budget that bear on the TTC’s funding.
The City of Toronto has a policy that total debt service payments should not exceed 15% of property taxes. This was changed in recent years from a hard cap to one that considered the 10-year average debt ratio mainly to deal with a bulge in borrowing that will peak in 2021. That bulge would affect projections well into the next decade as lower-than-average borrowing in 2018-19 slips off of the chart but must be replaced by comparably low numbers in 2028 and beyond to hold down the average while the 2021 peak is “digested”.
Various adjustments to the budget change the shape of this chart and somewhat tame the peak. There are additions (funding for TCHC repairs and other unspecified “unmet needs”), but new provincial gas tax revenue announced in 2017 allows a reduction in the debt load producing the revised chart below.
The debt limitation, together with limited provincial and federal funding, is directly responsible for the TTC’s enormous list of unfunded projects. The new gas tax revenue will generally not go to transit projects (except possibly under “unmet needs”), but will offset other City borrowing needs.
Another change in projected City financing will be an increase in the “Capital from Current” amount. The proportion of funding provided by this source will rise from 12% of the 2018 budget to 22% in the ten year plan while debt falls from 32% to 22%. This will shift more of the spending in later years of the plan into the operating budget, although the dollar increase may be offset by a reduction in total annual funding needs assuming no major projects are added without dedicated revenue sources and/or subsidies from other governments.
Even with all of this spending, the “state of good repair” backlog across the city will continue to grow, notably at the TTC. This plan understates future funding requirements by its failure to include the TTC’s SOGR projects that are known to exist, but not included in the City’s plans. (Some other City departments, notably Transportation and Facilities Management, also have large unfunded repair backlogs. See p 63 of the presentation.)
Updated December 1, 2017 at 9:15 am:
The budget presentations, which contain slightly different information from the budget reports, are now online.
The Capital presentation has a more detailed breakdown of the “Capacity to Spend” reduction, and I have added this, plus a few comments, to that section of the main article (scroll down to the end).
Updated November 29, 2017 at 8:30 pm:
Two Hour Transfer
To no great surprise, given support from the Mayor and the TTC Chair, the Board endorsed the implementation of time-based fares effective August 2018, or earlier if possible. There was only one vote opposed, Councillor John Campbell who has been opposed to this scheme because, he claims, it will undercut sales of Metropasses. His argument, as I understand it, is that some riders who now buy Metropasses do so for convenience even though they don’t “break even” on the cost versus single fares. With a “token” buying more travel, their extra revenue could be lost. From my point of view, that’s part of the cost of doing business, and there are many other fare options that could also affect the balance of fare types used.
For example, if the TTC changed from a pre-purchased pass loaded onto a Presto card to a monthly capping scheme such as that used by GO Transit, then those who would be entitled to “metropass” fares would get them automatically without the up front cost. A related function that has been available in the software for some time, but not turned on, is daily capping which would provide an equivalent-to-day-pass function. Any move to fare capping will almost certainly reduce TTC revenue and lift ridership, but nobody has run the numbers (at least not publicly).
A further consideration would be whether in a regionally integrated system with, say, cross-region two hour transfer, daily or monthly capping might be part of the amalgamated tariff.
These are the sorts of issues Metrolinx’ Fare Integration Strategy has studiously ignored in a relentless pursuit of fare-by-distance and two-tier fares for local services, notably the subway. It is long overdue for the Metrolinx Board to direct their planning staff to desist with this nonsense.
Reports on Overcrowding
An important amendment to the Budget approval was a motion by Councillor Mihevc directing staff to provide a list of over-capacity routes (relative to the Board-approved Service Standards) on a quarterly basis, and to attempt to bring services within the standards as possible within the budget. The information will be presented in the CEO’s report.
This is an important change because for too long the degree to which service does not meet standards has been swept under the rug with the more pressing issues of budget headroom and vehicle availability.
Additional Provincial Funding
There was talk among the Board members of new Provincial funding through a higher gas tax handover. The details of this have not yet appeared in the TTC’s budget. although there may be more inforation when the City unveils its own budget on November 30.
The idea is that the new money would free up existing City borrowing room for dedication to other projects.
There are now three classes of “unfunded” capital projects.
(1) Approved Unfunded Projects
Within the base budget, there is about $2.7 billion of “approved” projects for which there is no identified funding. Of this amount, $426 million is considered as ephemeral and eliminated as a “capacity to spend” adjustment even though the majority of the projects are vehicle purchases which tend to have very little underspending. This is part of the City/TTC creative accounting to minimize the capital gap. (See Table 7 in the main part of this article.)
(2) Unfunded Projects That Are Not Approved
There is a list on p 25 of the Supplementary Report with the detailed breakdown of the Capital Budget listing $128 million in previously identified projects that have not been approved for inclusion in the base capital program.
The largest items among these are:
- Fire ventillation upgrades: $60 million.
- Escalator replacement: $22 million.
A further list of $1.05 billion in new projects appears on p 24. Council has told the TTC not to add any more projects to the unfunded list, and yet there is a need for more work. Some items on this list are quite interesting:
- Purchase of 549 Low Floor 40 Foot Diesel Buses: $612 million. Recent decisions about green power at the TTC rule out diesel, and this project will no doubt be “recycled” to a different technology. Spending for this project lies in the years 2022-27 after the current large bus orders will already be in service.
- A CNG Facility Upgrade and Fueling Station for $96 million. The TTC has no intention of resuming CNG operations, and yet when the Capital Budget was prepared, someone thought to include a fueling facility. This is yet another part of the mysterious puzzle regarding new bus technologies.
- Warden Station Development: $71.4 million. The corresponding project for Islington Station is further down the list.
- Davenport Garage renewal: $93 million. The old garage building on the north side of the Hillcrest complex has been unused for many years. It is also adjacent to the revenue service building on Davenport Road whose function will be obsolete when the TTC converts completely to Presto.
(3) Projects for Future Consideration
Yet more projects are shown on pp 25-26 totalling $2.2 billion of which the largest are:
- Yonge-Bloor capacity improvements: $1 billion. There have been no details of just what this entails, and how the need might be altered with the opening of a Relief subway line or other diversions of load away from this interchange. This is a project that could become critical if more frequent subway service planned for the early 2020s places a burden of transfer movements on this station which it cannot handle.
- Platform Edge Doors for Line 1 YUS: $592 million
- Station Modernization: $120 million
- Islington Station Renewal: $79 million
- New Davisville Facility: $317 million (part, see below)
- New Transit Control Centre: $100 million (This would be a backup site for the Gunn Building.)
The following “future” projects are beyond 2027 and are therefore not part of the $2.2 billion cited above.
- Platform Edge Doors for Line 2 BD: $632 million
- Fire ventillation: $1.5 billion
- New Davisville Facility: $113 million (remainder)
- Bremner Streetcar: $277 million
There is no indication of the pressure with which all of the above, a total of roughly $8 billion, will try to edge into the approved budget, and there are other items, notably a new subway yard and carhouse at Kipling, that do not appear to be anywhere in the Capital Budget.Moreover, there is no provision for the buses and garage that would be required to handle an uptick in service levels beyond very modest current growth.
The hole in TTC’s funding is considerable, and the many projects on the “unfunded” list must be prioritized to determine just how much funding must be located soon. At previous meetings staff have said that they are working on a scheme for prioritization, but nothing concrete has shown up to inform debates on the budget.
The original article follows below.
The TTC Board will hold a special meeting on Tuesday, November 28 to discuss the 2018 Operating and Capital budgets and related matters.
Regular attendees should note that the public meeting begins at 10:00 am, not at the usual time after lunch.
The budgets approved at this meeting will feed into the City’s own budget process which launches two days later on November 30. There is no guarantee that the funding sought by the TTC has actually been provided within the draft City budget.
Responding to the motion placed at the recent Budget Committee meeting and Mayor Tory’s position on this issue, staff have brought forward a proposal for changing from the current transfer rules (no stopovers, no backtracking) to an arrangement whereby a fare would purchase, in effect, a two-hour pass. Metropass users, who account for over half of all TTC journeys, already have this privilege.
The specifics of the plan are:
- The two-hour fare would be available only to Presto users.
- The change will take effect in August 2018.
- Additional budget room will be provided for modest service increases in September 2018 in anticipation of higher demand.
The financial effects are summarized in the following table taken from the report.
The calculation of lost revenue is based on the behaviour of existing Presto card users whose movements are known in detail. Of the 11 million journeys studied, 4% would have been eligible for free carriage if the two-hour rule were in place. There is no estimate of the behaviour of token or cash-paying passengers, and it is assumed to be the same as the Presto group.
On an annual basis, the $22.4 million shown above is the 4% of “lost” fares implying that the base against which it is calculated is $560 million. This is about half of the total fare revenue of $1.175 billion (the remainder comes from pass sales which are outside of this calculation).
However, because one fare will now buy “more” than it did in the past, there is an expectation of new trips that will bring in some offsetting revenue with growth continuing into 2020 as more riders take advantage of the new rules.
Presto fees paid by the TTC are affected in two ways. In 2018, the takeup rate of Presto would be faster than might otherwise occur, and this will shift token/ticket/cash fares to Presto along with its handling fees. Conversely, with less revenue attributable to single fare payments that will now buy more riding time, Presto fees will fall for that set of trips.
There is a provision in 2018 for a $5 million payment to Presto to cover conversion costs, although this is tentative. It says something about the amount of “planning” within the Presto system that a function already used in the rest of the GTA, and one that the TTC has been headed toward for several years, is not already built in as a simple “flip of the switch”. Indeed, Presto actually operated on this basis for TTC trips until the transfer rules were implemented. Metrolinx has backpedaled a bit on this thanks to criticism in social media, and the cost may actually be lower. It should be zero.
The report argues at some length for a two-hour transfer, and it is no secret that this has been supported by TTC management for quite some time, notably as part of a package of improvements proposed in 2014. Many benefits are cited as advocates for this change have been saying in the face of political opposition for years:
- “Trip chaining” is the process of making several short, linked trips with stop-offs along the way for shopping or other errands, and the simplest version is a round trip that can be made within the time window. Motorists are quite accustomed to this type of journey where the greatest challenge is to find parking at each intermediate destination, while pass users simply jump onto and off of transit without considering the extra cost, beyond the time awaiting the next bus or streetcar.
- By making trip chains cheaper, the new rules will save money for the most transit dependent riders who otherwise face the need to pay an additional fare for each “hop” in their journeys, or to travel in a way that allows them to cheat on their transfers (a time-honoured tradition).
- As part of the background work for the city’s anti-poverty strategy, low income Torontonians were surveyed to determine their preferred change to transit fares. The top ranked choices were a discounted monthly pass (1,924), a discounted single fare (1,534) and a time-based transfer (1,455). The discounted pass is already in the works for 2018 (albeit for a very small group initially), and a time-based fare also addresses the request for a lower single fare in the case of chained trips.
- Disputes concerning the validity of a transfer are eliminated, and the question simply is a matter of checking the timestamp on the Presto card against current time. (See note below.)
- Overcharging on Presto – caused by GPS errors, incorrect or missing data in the “valid transfer” database, and non-standard transfers thanks to diversions and short turns – will disappear along with the customer service time required to back out these bogus charges.
- A disincentive to TTC usage thanks to the high cost of short linked trips is removed.
- Regional fares are much simpler to implement if every transit system is using similar, if not identical, policies for transfers between vehicles. A cross-border co-fare (or even free ride) is simpler to introduce if a 905-based fare remains valid for the same period in the 416.
- Ongoing maintenance of a free-transfer table within Presto will not be required.
One missing but essential policy element will be a clear statement on the validity of a two-hour transfer. This is important where a rider boards a vehicle before the two hours have expired, but their last ride extends beyond that interval. It should be clear that if the fare is inspected, the boarding time should be the governing factor. There is a related issue for riders who are forced to make an unexpected vehicle change thanks to a short turn, diversion or breakdown. This is a matter for common sense informed by a stated policy so that staff and riders understand what is expected.
The old rules have been in place for a very long time, and wording that has changed little since the TTC was created in 1921 appears on the back of transfers. The example below is from 1924, and includes wording about the “Conductor” in the days of two-man cars. Transfers will still be in use later in 2018, and we could see a short-lived variant in this text reflecting the new rules. Transfer collectors will have an entirely new set to assemble, while it lasts.
The budget report before the Board is identical to the version presented to the TTC Budget Committee with two exceptions arising from request by the Committee.
First is the incorporation of the effect of time-based transfer rules. This adjusts the overall budget increasing the subsidy request for 2018, and it also reduces the projected ridership bexcause some trips now counted separately will be one fare in the new scheme. This shows how “ridership” can be affected by how you count it.
Even though there will be more people on the TTC, the number of fares collected will drop. There will be an asterisk and a footnote in all tables and charts of ridership from 2018 forward to explain this. Another effect will be that the subsidy “per rider” will be higher than otherwise because the subsidy pot will be divided between fewer “rides”. Without time-based transfers, there would be 539 million rides and a subsidy of $727.1 million for a subsidy of $1.35 per ride. With time-based transfers, 539.4 million rides share a subsidy of $738.2 million for a subsidy of $1.37 per ride.
Projections also change slightly for 2019-20.
The other change in the report is the addition of a table showing how the budgeted hours of service will be adjusted from 2017 to 2018. This arises from the observation that the CEO’s report showed a shortfall in streetcar hours throughout 2017.
The reduction in streetcar hours for New LRVs on King, Dundas and St. Clair reflects the adjustment to frequencies once the conversion to larger cars is complete.
In early October, I wrote about the 2018 Capital Budget and Plan when it was in the draft stage at TTC Budget Committee. An updated version is now before the full TTC Board.
The plan includes $9.24 billion in spending, including inflation, over the coming decade. This does not include projects with their own funding arrangements notably the Spadina subway extension (TYSSE) and the Scarborough subway extension (SSE).
The annual spending rate drops off in future years and this could understate the TTC’s needs. Development charges are forecast to be high in the short term, but these numbers typically change in from year to year as known and projected development in the pipeline changes.
A bit over half of this chart represents subway projects, and this shows the scale of spending needed if subway costs were uploaded to Queen’s Park. Any new subway construction would be over and above the amounts here. (For a more detailed version of this chart, scroll down to the end of this article.)
In the short term, there is more money available than the TTC plans to spend in 2018, but long term, there is a $2.7 billion gap. Of that gap, it is assumed that $427 million can be set aside under the rubric “Capacity to Spend” on the basis that historically the TTC does not spend everything it asks for. In fact, this allowance has been fine tuned in recent years to reflect the difference between spending rates in different types of projects. Some “underspending” is only a matter of timing, not that the work is never done. It is important not to assume that underspending “this year” can be pro-rated through the ten year cycle.
The line by line details of the plan are found in the “blue pages” (so called because in hard copy they are traditionally printed on blue paper). These include the Capacity to Spend adjustments which went through a more detailed review for the 2018 budget cycle. For the first five years of the plan, the adjustments are smaller in the 2018-27 plan than in the 2017-26 version except for groups of projects where the total spending has gone up substantially. In other words, the projected underspending for budgetary purposes is lower than the previously assumed rate based on historic trends.
Gas tax revenue accounts for $242.6 million annually from the provincial and federal governments. Note that the Ontario amount is lower because about 60% of the provincial subsidy goes to the operating budget, not to capital.
Between the September and November versions of the budget there have been various adjustments as detailed on pp. 5-6 of the report. The largest changes involved plans for Line 2 BD’s renewal. The resignalling project has been moved from unfunded to funded, while the new subway car project has shifted to unfunded. One consideration here is that the signalling project needs to get started first, and leaving it unfunded was not an ideal situation. This still leaves Toronto with a big hole – one quarter of the capital budget is not funded.
The funding requirement for 2018 has actually gone down primarily because the budgeted amount for the new streetcar project has been reduced from $335 to $185 million reflecting delivery dates, and provision for an up-front payment on the planned 60-car follow-on order has been reduced.
Over the ten year plan window, the total spending requirement is down because a very capital-intensive year (2017 – $1.264 b) has been replaced by a much leaner one (2027 – $373m, at least as currently projected).
In the chart above, Federal Funding includes only the first phase of PTIF and there are more projects, some in the currently unfunded list, that will move “above the line” when the second phase details are announced. However, that will also trigger the need for matching funding at the city level. New projects such as further subway extensions require funding beyond this table.
The unfunded project list as it now stands contains mainly future vehicle purchases. Note that:
- The capital budget does not contain any provision for expanding bus garage facilities beyond the McNicoll Garage now under construction.
- Bus purchases shown are mainly for replacements, not for fleet expansion.
- The streetcar purchase is for an additional 60 cars to handle ridership growth and new services such as the Waterfront extensions.
- The new subway cars will replace the existing T1 fleet on Line 2 BD.
The funding sources for TTC capital projects are broken into more detail in Appendix B. The PTIF money for 115 additional buses is shown separately because originally this funding was earmarked for non-TTC projects by the City, but later redirected to the TTC budget.
The Capacity to Spend amounts are more finely-divided in the presentation from the Board meeting. In 2018-19, the amounts are lower because there is more certainty about project costs based on recent history. Future amounts are likely to drop as budgets are refined. This remains at least partly an artificial way to understate future capital requirements, but as these are dominated by the huge list of unfunded projects, this adjustment does not get much political attention.
The footnote that these adjustments “do not reflect a decrease in capital need”, only the likely cash flows, contradicts the use of this as part of the “funding strategy” for the unfunded projects.