The TTC Board will consider its Operating and Capital Budgets at its meeting of December 20, 2021. This piece deals with the Operating Budget, and I will turn to the Capital Budget in a second article.
The Operating Budget is rather straightforward and the major points are summarized here:
- No fare increase for 2022.
- There is no discussion of change in the “Fare Pass” pricing or eligibility because that decision is made by Toronto Council as part of its budget process, not by the TTC who only implement whatever the City mandates.
- Some of the service cuts of November 2021 will be restored in 1Q 2022, but full restoration to “normal” levels will come by 2Q 2022. The word “by” is important as it implies something that will happen at the outset of the quarter rather than on June 30.
- There is almost no discussion of service quality as opposed to quantity measured in crew hours.
- Ridership is not expected to return to pre-pandemic levels until late 2024.
- A substantial shortfall remains between the standard level of subsidy available from the City of Toronto (i.e. the pre-pandemic subsidy level) and the total budget, although the gap is smaller than in 2021. Filling that gap depends on the generosity of the provincial and federal governments.
- There is no discussion of a “Plan B” should this not materialize or what the effects on service might be
- Some costs, such as the operation of Line 5 Crosstown, are net new and are unavoidable. Line 5 is described as opening in “Late 2022”.
- Costs for the handful of service initiatives will be covered from internal “efficiencies”, reallocations and “second sourcing” of some functions.
- The budget does not contain any provision for wage increases because the old contract expired in early 2021 and the new contract is in negotiation/arbitration. This is standard practice for all City budgets and adjustments are made after the fact to deal with costs from any labour settlements.
Note: All illustrations and tables in this article are taken from the TTC 2022 Operating Budget Report.
2021 Ridership and Crowding
Weekly revenue grew bit by bit through the year, but ran below budget for the first six months.
Crowding levels have also started to build up with a higher proportion of trips running at load factors beyond the “socially distanced” seating arrangement.
A vitally important thing about this chart is what it does not show. The numbers are averages for all routes at all times of day. 15 per cent of all trips might be at 50 per cent capacity, but they will be concentrated in time and location, not to mention simply by the effect of erratic service.
The challenge here is that riders are not yet fully comfortable in a crowded environment, but even at a 100 per cent service level, there will be crowding. Remember, after all, that the system was overcrowded two years ago, and just getting back to 100 per cent of 2019 service is no Nirvana.
On Wheel-Trans, as on the conventional system, ridership ran below budget in 2021.
A cornerstone of the TTC’s response to crowding issues was “demand-responsive service”, but the actual magnitude of this was consistently oversold.
Throughout 2021, the TTC operated the demand-responsive service plan with more than 100 vehicles available, at various times of the day, to provide additional capacity and deliver a reliable service. These flexible vehicles have been used to serve customer demand to the Pearson Airport employment area during the early morning, in the northwest of the city along the Steeles Avenue corridor and in the northeast of the city to connect customers to a new Amazon Fulfillment Centre as well as on high demand routes. Customer demand and vehicle capacity have also been actively monitored throughout 2021 and scheduled service has been reallocated to ensure service is assigned based on demand.
The TTC says that more than 100 vehicles were available, but this does not match the scheduled levels that spread more than 100 crews, not vehicles, across three shifts. That is an important distinction.
As for service based on demand, that does not address the problem of reliability where the theoretical capacity might be present, but actual arrival times are erratic causing uneven bus loads. What the average rider sees is not what the schedule offers in theory, especially if all of the scheduled service does not actually operate because of staff shortages or budget restraints.
Where Are The Ridership Losses?
The chart below shows the distribution of rides by each group: adults, post secondary, seniors, youth and children. In each case, the darker coloured slice of the pie represents the riders who have stayed or returned while the lighter slices are those still to be lured back. The ratio of retained to lost riders varies between the groups.
This also shows up in the type of rider based on their trips/week transit habit. In the chart below, the height of the columns represents the full pre-pandemic demand level broken into four groups.
The group that has recovered the most stongly is the infrequent rider group, although some of that no doubt comes from people who have not yet “graduated” to the higher ranks and use transit only occasionally. In particular, the very frequent rider group is still much below former numbers.
(I am one of those former pass holders but I am only now getting into the “frequent” category, and even that not reliably because many things I used to ride to simply have not yet resumed. Also, my geographic circle is smaller, and many trips are accomplished on a single fare within the two-hour transfer.)
Proposed Funding Sources
The division of revenue sources is very different from pre-pandemic days when fares paid about 60 per cent of total costs, sundry revenue about 6 percent, and subsidies the rest. In the chart below, the “City Base Funding” is the amount the City would expect to contribute but for the effects of Covid-19. The Relief Funding fills the gap between actual fare and ancillary revenue, and what would come in “normally”.
The total Operating Budget, including Wheel-Trans, is $2.235 billion. Note that the TTC is now bundling the “conventional” and “Wheel-Trans” operations together in their subsidy ask.
A special mention must be made of “Reserves” where the TTC parks money it will not require in one year for use should a rainy day arrive. They have been so successful at reining in costs in 2021 through service reductions and cancellations that they turned a year-end funding problem, a deficit for 2021, into a surplus that goes into the pot to offset 2022 costs, if needed.
Based on the TTC’s actual and projected financial results, a 2021 net year-end variance of $0 is anticipated. As reported to the Board on November 29, 2021, total under-expenditures of $99.4 million realized from service demand and expenditure management in response to reduced ridership fully offset $47.5 million in passenger and ancillary revenue losses. As a result, TTC can forego the planned $15.8 million reserve withdrawal and place the projected $36.1 million net year-end surplus in the TTC Stabilization Reserve as per Council direction.TTC 2022 Operating Budget, p 14.
When you are wondering where your bus or streetcar might be, think of the wait as your contribution to avoiding a financial problem at City Hall.
Getting from the 2021 Budget to 2022
All of the City budgets start from the previous year’s numbers as a reference. The intent is to show how well the TTC (and any other agency or department) has controlled expenditures. This does not necessarily reflect zero-based budgeting. Also, the City only looks at its share of the total cost and how much this rises (or falls) as only the City share affects your tax bill.
This chart begins with the 2021 approved budget that includes almost $800 million in Covid-related costs, mostly the loss of fare revenue. The TTC is asking for $59.4 million in new funding on the “base budet” plus another $2.1 million for planned changes net of new revenues, a 7.8 per cent increase over 2021.
Funding requirements due to the pandemic are forecast to fall 42.1 percent to $461.2 million for 2022. With anticipated ridership recovery, this loss will be front-ended in 2022, but could leave the City with a challenge if the gap is not plugged by mid-year when decisions on fall service levels would normally occur.
Line 5 Costs
The base budget changes include several factors including the Line 5 Eglinton LRT startup and the service build-up back to 100 per cent of pre-pandemic levels. Eglinton will be expensive in 2022 because startup costs dominate and there is very little new revenue. However, even in 2023 (and beyond) the operating costs of this line will substantially exceed the net new fare revenue and the savings from bus service that is no longer required.
Restoring Service Cuts
Service restoration on the “conventional” system will occur in two steps because the TTC does not have enough staff to hit its policy target.
Here is what the service levels should look like according to approved policy:
Here is what we will actually get because the TTC is short-staffed. With some vaccine hesitant staff returning to work and a hiring push in progress, the TTC plans to be back to full service in Q2 2022. Any further adjustments to allow for route-specific pressures will come from reallocated resources. Other than Line 5 Eglinton, the changes planned for 2022 are very modest.
The expected demand growth on the conventional system starts with the system just under 50 per cent growing to 80 per cent by Q4 2022.
The TTC bases this on the assumption of a mixed in person and work-from-home model with the average employee travelling to work 1.7 days/week, a rather low ratio. Post-secondary schools are expected to resume full in-person learning, and entertainment venues are also expected to ramp up to pre-pandemic levels. With recent evolution of the virus, whether this will occur as predicted remains to be seen, and the TTC’s projections could be optimistic.
Another way of looking at the growth is a breakdown by rider type.
Looking further out, the TTC expects ridership growth to continue into 2023 albeit not at the same rate as in 2022.
Wheel-Transit riding is expected to grow back to 65 per cent of pre-pandemic levels on average over 2022 hitting 73 per cent by year end.
Miscellaneous Costs and Savings
Finally there are legislated changed in CPP contributions and in Carbon Pricing. Diesel fuel costs are expected to be limited by the TTC’s hedging strategy, but if there is a spike beyond current plans, they will use a reserve draw to cover the shortfall.
Among the cost saving areas are an “overtime reduction strategy” and the full conversion of Line 1 YUS to one person train operation (aka “OPTO”) by late 2022 after the new signal system is operational over the full route.
Overtime reduction can save money, but it can also be a false premise depending on how overtime has been used. The marginal cost of benefits does not go up as much as the overtime premium, and so the total cost can be less than it might appear. In some cases it is actually cheaper to pay someone overtime than to have another employee to work a partial shift but get paid for a full one. This is a balancing act that swings to and fro depending on the political mood of the day.
Service and Fare Plans
Two areas will get $1.1 million between them, but only for studies, not for any actual change.
- Service Plan Reset and Ridership Reacquisition Strategy
- The TTC really does need to figure out how to win back riders, and this will require more than tinkering with a few routes or painting red lanes on one more arterial street. Convincing people to come back to the TTC is a system-wide issue. As I have written at length elsewhere, there are pervasive problem with unreliable service and these were recently compounded by service cutbacks and unannounced cancellations.
- 10-Year Fare Collection Strategy
- “If only transit were cheaper, we would have more riders” is a refrain one often hears. This runs headlong into arguments that “riders should pay for what they use”. Those goals are contradictory on many levels notably that long trips contain a double penalty of cost in fares and in time, and yet we want to lure people out of their fast and comfortable autos. Either transit is a business trying for something like fully allocated cost recovery, or it is a service essential to the city’s environmental goals and economy.
- The strategy has not yet been published and I await the options that will appear if only to see what convoluted scheme has to be cooked up to address conflicting demands for a new regional fare structure.
- A related issue will be the business requirements for a fare collection technology and architecture. Metrolinx has its own ideas as do other GTHA transit systems.
The TTC needs to address head on why its acronym is so routinely interpreted as “Take The Car”, and this will require acknowledgement of the TTC’s own failings in service provision.
None of this will affect the 2022 budget, and with the distractions of a municipal election year, I suspect we will not see any real change until well into 2023 at best.
No fare change is proposed for 2022.
Balancing the Books
The 2022 budget has been trimmed in numerous ways to produce savings. The amounts are generally small and scattered through various budget lines. Notably the single largest reduction is in diesel fuel costs thanks to hybrid buses.
The second largest is in the overtime reduction strategy which is supposed to be achieved by hiring more staff. If this “saving” comes simply from not operating scheduled service, then it is not a “saving” at all but a disguised service cut such as we have seen in the latter part of 2021.
The saving from One Person Train Operation does not apply to the full year because ATC will not be operational to Finch until fall 2022. There will be a greater saving in 2023. Most of the saving shown for 2022 is the full year value of OPTO on the St. George to Vaughan segment of the line now in operation.
There is a very small change in staff complement assigned to the Operating Budget. Most of the change occurs on the Capital side due to changes in the project mix.
Ontario might have taken over a few high-profile projects, but there are still many on the TTC’s books. I will turn to them in the next article.
The Service Budget
From a planning point of view, service is budgeted in hours, not in dollars. The evolution of the 2022 values is shown below. (The line “Subtotal 2021 Service Changes” should read “2022”.)
The starting point is the 2021 budget which is higher than the service actually operated.
… on all modes service hours planned for 2022 exceed the levels actually operated in 2021.
Peering Into 2023 and 2024
The following two years see mainly the consolidation of changes already in the pipeline, especially the opening of Lines 5 and 6, as well as a return to full ridership levels. These will push City subsidy costs up faster than inflation because new revenues will not offset the added cost of new and restored services.
Covid-related costs will drop as ridership returns but they are still considerable out to 2024. How long these will be funded by provincial and federal subsidies remains to be seen.
There is no provision in these estimates for the effect of Ontario Line construction through downtown, nor of other subway extension plans that could affect bus services.
The Budget By Department
Here is the Operating Budget for the conventional system.
And here is the Wheel-Trans equivalent.
There are two reserves carried on the City of Toronto’s books with monies for the TTC.
- The Long Term Liability Reserve is maintained to fund payments on accident claims that can occur well after the actual incident. TTC pays a standard amount into the reserve each year and withdraws as needed to pay claims. Withdrawals are expected to be higher as ridership returns to the system.
- The Stabilization Reserve holds any “surplus” the TTC generates through spending less on operations than it is given. $36 million from 2021 operations will be added to this reserve.