Day: December 16, 2019

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TTC Capital Budget 2020-2029 and 15 Year Plan (Updated)

Updated December 17, 2019 at 12:00 nn

This item has been updated to reflect actions taken at the TTC Board meeting of December 16 to accelerate decisions on priority projects in light of new funding that will be available through the Mayor’s proposed City Building Fund. The new information is in a postscript at the end of this article.

The link to the “Blue Pages” has been updated to point to a revised version that corrects formatting problems with some amounts in the table, and corrects the names of several budget lines. Among these was a line called “Purch 496 LF 40 ft Diesel Buses”. This has been revised to “Purchase Conventional Buses”. The section on “Buses” within the “Fleet Plan” has been revised to reflect this and include some information from discussion at the meeting

Introduction

At its meeting on December 16, 2019, the TTC Board will consider its Operating and Capital budgets for 2020. The Operating Budget was my subject in a previous article, and here I turn to the Capital Budget and 15 Year Plan. There are two related documents on the TTC’s website:

The TTC has various ways of presenting its capital budget and plans, and navigating these can be tricky for the uninitiated. There are:

  • The 15 Year Capital Investment Plan (CIP)
  • The 10 Year Capital Plan
  • The current year Capital Budget
  • Variations on the budget and plan that do not include “below the line” projects that have no committed funding
  • Estimated Final Costs (EFCs) for projects beginning within the 10 or 15 year window, but stretching beyond

For anyone making comparisons with the opaque budgets and plans at Metrolinx, that agency does not include inflation over a project’s life in cost projections, while the TTC does. The simple fact is that Toronto borrows real dollars to fund projects at then-current prices, not a some years-old notional cost. City financing plans must be based on future year spending at future prices.

The Capital Investment Plan

The Capital Investment Plan was introduced in January 2019 to bring some reality into capital planning that had been absent at the TTC, City and Provincial levels for years. In an attempt to make its future exposure to large capital expenses and possible borrowing look better than it really was, the TTC and City produced 10-year capital budgets that omitted a growing list of critical and expensive projects essential to the health of the system. The CIP pulled up the rug, so to speak, under which all of these had been hiding, and revealed officially what anyone following the TTC already knew – the difference between available funding and needed investment was an ever-deepening hole.

This arrangement suited many parties because the City could make its future debt problems look less intimidating that they really were, and advocates of big spending on new projects did not have to contend with needed spending on repairs and renewal for funding. At the Provincial level, the cost of taking over the TTC, and especially the subway network, looked manageable, but that myth exploded when the real exposure to system renewal costs emerged. Toronto, now happily back in charge of all existing TTC assets, faces the bill for a mountain of projects that Ontario might otherwise have taken off their hands.

The 2019 CIP showed that there was a $33.5 billion investment requirement over the 15 years to 2033, of which over $20 billion had no identified source of funding. A gap that incoming City Manager Chris Murray though was a few billion exploded by an order of magnitude as he noted at a recent speech at the Munk Centre. This was not something that could be fixed with a nip here and a tuck there in the City and TTC budgets.

We must now have faith that the total amount shown in the CIP really is an exhaustive tally of needed spending. However, this could be subject to upheavals such as changes in policy about renewal cycles for equipment, service levels affecting fleet size, technology selections affecting vehicle costs and the timing of major projects paid for by others but affecting the existing network such as the Scarborough and North Yonge subway extensions.

Until quite recently, future spending on TTC capital projects other than rapid transit expansion faced a big downturn in the mid 2020s corresponding to the point where the City’s ability to borrow net new funds crashed into the City’s debt ceiling. In order to maintain a good credit rating and thereby save on borrowing costs, the City limits its debt service charges (interest) to no more than 15% of the revenue stream from property taxes. Other sources of revenue do not count toward this calculation either because they are earmarked (e.g. TTC fares or targeted subsidies from other governments), or because they cannot be counted on to survive as long as the debt they might pay for (government transfers that come and go with a Premier’s whim).

Mayor John Tory has proposed a substantial increase in the City Building Levy, an extra property tax just like Rob Ford’s Scarborough Subway Tax, that will allow the City to borrow $6.6 billion more to cover its share of transit and housing projects. There is a catch, of course, in that we have no idea what other governments might contribute, if anything. Toronto has already burned through its infrastructure stimulus money from Phase I of the federal government’s PTIF (Public Transit Infrastructure Fund), and the Phase II money will go substantially to a few major rapid transit projects as approved by Council. Asking for more effectively opens up the question of better support nationally for public transit, not just for Toronto. As for Queen’s Park, Ontario’s Ford government, not exactly a friend of Toronto, could well say “we are paying for your new subway lines, but you want more”, and dismiss any request. Both Toronto and Ontario are guilty of wasteful spending on big ticket projects while underfunding basic maintenance.

When the 2019 CIP was approved by the TTC Board, it included a recommendation that the Board:

Direct the CEO to begin steps required to prioritize critical base capital needs in advance of the Board’s consideration of the 2020 Capital Budget [Minutes of January 24, 2019, Item 10, point 3]

There is no sign of prioritization among the various projects as an indication of what any new funding, should it appear, would be spent on.

The 2020 CIP includes a recommendation that the Board:

Direct the CEO to update the Capital Investment Plan on an annual basis based on refined cost and schedule estimates as projects progress through stage gates and to prioritize critical base capital needs in advance of the Board’s consideration of the 2021 budget process

The situation with the budget is too critical, and the need for action now by Council and the TTC to identify critical projects that should be first in line for funding cannot be overstated. Without a priority list that identifies the core requirements, Toronto risks losing at least another year to debate and indecision, hallmarks of the City’s transit planning.

In the intervening year, the CIP has grown by about eight percent to $36.1 billion. This is a troubling development because a good chunk of the recently announced “new” money for transit could vanish into supporting cost overruns, not to building and renewing the system.

This growth is summarized in a chart from the TTC’s report. The top portion shows the original CIP presented in January 2019 with $9.7 billion in funded projects and $23.8 billion unfunded.

The bottom portion shows the changes moving forward one year:

  • The project to add capacity at Bloor-Yonge Station has grown by 45% with an additional $500 million above the $1.1 billion shown for this item in the 2019 CIP.
  • SAP ERP is a project to replace legacy IT systems with a modern, integrated suite of software. The added $200 million arises from a combination of scope change and higher estimated cost for the work already committed.
  • ATC resignalling has grown by $900 million due to a scope change in the Line 1 project, and a rise in the estimated cost of Line 2 ATC from $420 million cited in the 2019 CIP. It is not clear whether this includes funding for the retrofit of the T1 fleet that will, under current plans, continue to operate during the ATC era on Line 2, notably on the Scarborough extension (assuming it is built with ATC from day 1, unlike the Spadina Vaughan extension where this was an afterthought). Line 4 has been added to the scope of this project.
  • Lighting in Open Cut refers to the replacement of existing lighting along the above-grade portions of the subway much of which is decades old. This item was included in the 2019 CIP as part of a bundle of subway upgrades, and at a much lower cost.
  • It is not clear from the report just what is involved in the $300 million for “Subway Signal System Alterations” beyond the work under other projects to implement ATC.
  • The last line moves year 2029, originally part of years 11-15, into the years 1-10 column.

This should be a cautionary example that the full cost of maintaining and renewing the system is not written in stone, and increases are inevitable. This also does not include potential changes related to a fleet plan that focuses on replacing vehicles and expansion rather than making do with rebuilds of existing buses and trains.

The original CIP did not include funding for the major expansion projects such as the Scarborough Subway Extension even though in January 2019 this was a City project not yet assumed by Metrolinx. The reason for this is that the major projects have their own, separate budgets and funding streams and, therefore, they were not part of the CIP to begin with. This can lead to confusion when other major projects such as Waterfront Transit show up in the TTC/City project list, even though they are not in the CIP which, therefore, understates total future funding requirements.

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