This article is a deeper dive into the budget for 2023 following up from my first cut on the subject yesterday (January 4).

See:

• TTC 2023 Budget: A Bit More Subsidy, But …
• 2023 TTC Conventional and Wheel-Trans Operating Budgets

Updated January 6, 2023 at 2:10pm: Of all the tables included in this article, I realized that I had not included the full budgets showing functional breakdowns, as opposed to individual line items. These have been added at the end.

The annual budget cycle is always a challenge because the document comes to the TTC Board at the last minute before it must be passed and forwarded to Council. This year, the situation was complicated by the election (normally we would see the budget reports in December, not January), and by the new “strong mayor” system in which the Mayor effectively dictates the budget by setting the City’s proposed subsidy ceiling. We have many new Board members most of whom have no experience with TTC budgets, and who will not know “which rocks to look under”.

Even worse, the Mayor’s press conference announcing the budget made no mention of planned service cuts coming in Spring 2023 and gave the impression that this “core service” was defended. That can, at best, be called “misdirection” in the hope that nobody would notice what was happening and focus on the “good news”.

Here, in much more detail than I had time for in the first article, is the budget information distilled from the TTC’s 55-page report.

Key points (the TL/DR version):

• The City will give the TTC $53 million more in subsidy in 2023 than 2022. This is pitched as being in support of more security, safety and cleanliness on the system, although the cost of those changes is less than 10% of that amount.
• The same argument is advanced for proceeds from a fare increase (10 cents on single fares for adults and youth/students) projected at roughly $16 million.
• The effect is that new funding is advertised for a politically unassailable purpose even though it will mainly pay for other aspects of TTC operations.
• The year-over-year increase in City subsidy is lower than in some past years and should not be seen as a generous windfall. This is in part possible because of underspending in 2022 which leaves headroom for 2023 without as much additional City money as would otherwise be required.
• The cost of beginning operations on Lines 5 and 6 will eat up over $40 million in 2023 and even more in 2024. At the same time, the TTC proposes service cuts elsewhere that will save about $46 million nominally in the name of matching service to demand. What is actually happening is that most of the network is paying for two new rapid transit lines through service cuts.
• Crowding standards for off-peak service will be substantially changed to permit more riders on buses, streetcars and subway trains. On buses, the off-peak standard will be only slightly less than the peak standard. Combined with chronic unreliability of service, this will lead to more full buses and will discourage riding during the period when recovery to pre-pandemic levels is strong.
• Headway maxima will be raised so that rapid transit service could operate as infrequently as every 10 minutes during periods of light demand. For buses and streetcars, there is no guarantee that the existing Ten Minute Network will be preserved.
• The changes to Service Standards (crowding and maximum headways) are not explicitly listed in the report’s recommendations and would be missed by someone only browsing early pages, a not unusual situation for TTC Board members and Councillors.
• The TTC has not published any details of planned service changes even though, for April 2023 implementation, they are certainly in the early stages of planning. The TTC and Council were clearly expected to approve the changes sight-unseen, possibly without even realizing they were buried in the budget. TTC management must be forced to reveal the details of what they plan.
• The budget provides for additional operators who will be used to fill open crews to reduce or eliminate the incidence of service gaps caused by missing buses and streetcars. This is a change and improvement from using “run as directed” vehicles to the extent that operators are available to drive them.
• Even this austerity service is possible only with additional subsidy of $336 million which the City/TTC will seek from the provincial and federal governments.
• Ridership recovery is stronger on weekends, and among concession fare groups (seniors, youth, students). This type of riding is less affected by work-from-home.
• Projections for future budgets in 2024 and 2025 include no provision for additional service beyond that which will be operated in 2023.
• The TTC claims it will pursue a ridership recovery program, but its budgetary plans suggest that service will remain below 2022 levels for 2023 through 2025. This, coupled with chronic service reliability problems, is not a recipe for winning back riders.

Financial Breakdown Charts

At a very high level, the lion’s share of spending goes to the “Base Budget” to operate the “conventional” transit system (90%). Smaller amounts go to run the Wheel-Trans service (6%) and costs associated with rapid transit changes (opening Lines 5 and 6, closing line 3) (4%).

Farebox revenue, which once covered about two-thirds of total needs, is now only 39% and is less than the City subsidy at 40%. (Note that the City funding includes $91.6 million in provincial gas taxes.)

Ins and Outs of Budget Changes

One topic that has received much discussion already is this: just what is the $53 million in new City subsidy and the $16.1 in net new fare revenue going to pay for? The Mayor’s presentation gives the erroneous impression that this is primarily for safety and security on the TTC, but the budget itself tells a different story with less than ten percent of this $69.1 million going to “System Safety & Cleanliness” in the amount of $4.4 million. A further $2.7 million is going to “System Accessibility” but that is a actually a reference to the increased Fair Pass eligibility and some selective service improvements.

The summary of changes from 2022 to 2023 is shown in the table below.

The following sections describe the information in this table in more detail.

2022 Results

The starting point is the 2022 approved budget. There are a few important points here:

• The amount shown is not the same as originally approved, but includes amendments made through the year as budget adjustments.
• The gross number is a budget value, not what the TTC actually spent in 2022. In fact they spent less than planned, and so there is some headroom on a budget-to-budget basis going into the new year.

The underspending relative to budget in 2022 arose from various factors described below:

“… a 2022 net year-end favourable variance of $99.5 million is anticipated. Of this amount, $20.5 million relates to a lower than anticipated COVID-19 financial impact … and $78.9 million related to underspending. The $78.9 million favourable variance is driven by under-expenditures including:

• Deferred opening of Line 5.
• Conventional Service hours averaging 5% below budget, for the year as a whole, due to both reduced operator availability in the first half of the year, and the matching of service capacity to actual ridership demand.
• Lower than anticipated Wheel-Trans ridership demand.
• Labour and benefit under-expenditures resulting from vacancies.
• Lower average hydro prices and accident claim payments.” [p 15]

To date, the TTC and City have received $415.2 million of the $540.5 million requested for Covid relief leaving a $125.3 million balance in the 2022 budget request to the provincial and federal governments. The Mayor expresses confidence that other governments will come through, but this is still uncertain.

Costs associated with the pandemic and with major expansion programs (mainly construction effects) are factored out at this point to focus on base costs going into 2023. They will be added back at the end of the process.

Inflation

The biggest increase in 2023 comes from inflation at $92.7 million.

• Within inflation, about 40% is due to diesel price changes, and 38% is due to Collective Bargaining and COLA clauses. The remainder comes from contractual price increases (multi-year contracts including insurance and leases), and from legislated increases in CPP and EI premiums.
• Most of the “revenue” shown in this category is the loss of a 2022 offset of diesel costs using reserve funds. This does not exist in the 2023 budget and so is “lost revenue” from a budgetary point of view.

Base Service Cost Changes

Base Service Cost Changes are described as:

“… required to protect the reliability of scheduled service, deliver on customer experience improvements, address operating impacts of completed capital projects and accommodate anticipated growth in Wheel-Trans ridership …” [p 30]

The TTC’s usual response to reliability problems has been to extend scheduled running times on routes on the premise that poor service is due to the inability to stay “on time”. This approach has failed in many cases because vehicles simply do not maintain proper spacing even leaving from terminals.

The TTC plans a reliability program in 2023 to address problems with missing service, one of the common reasons for irregular service on bus and streetcar routes.

“… the 2023 Operating Budget provides funding to increase spare operators available to backfill for unplanned absences and reduce the reliance on overtime.” [p 31]

The budget allocates $11.5 million and 123 new positions to this effort. This is a major change from attempts to fill occasional gaps with “run as directed” [RAD] buses crewed by spare operators, but instead is a recognition that there is an ongoing problem with service gaps caused by operators who are off work.

The budget also notes:

“As a continuation of work completed in 2022, the Service Plan Reset will contribute to ensuring system resiliency and improving financial sustainability by planning transit service that effectively serves TTC riders while implementing policies designed to attract riders back to public transit to ensure TTC is the mode of choice.” [p 31]

Exactly how this will be accomplished while running less frequent and more crowded service is not yet clear. The TTC has a big problem with headway reliability (the time between vehicles) that is pervasive through the system. Running evenly spaced service is the cheapest way to improve system capacity, but this requires an acknowledgement that the problem exists. There is no explicit provision for better route supervision in the budget.

Other “Base Service Costs” include:

• Construction impacts from City and Metrolinx (no net cost as these are reimbursed from the TTC Capital and Metrolinx budgets)
• Safety training, consulting and recruiting (no net cost)
• Station cleanliness ($1.5 million)
• Operating impact of capital projects, predominantly IT, moving into production ($4.1 million)
• Wheel-Trans demand growth ($4.9 million net of new revenue)
• Others ($1.3 million net)

Service Alignment with Demand

Next comes “Service Alignment with Demand”. This is the cost saving of $50.4 million gross, or $46.5 million net of revenue from lost riding. This is the value of the planned service changes to rebalance resources in light of actual demand on routes.

This is described quite superficially in the early part of the budget report.

“Substantial ridership recovery occurred in the spring and summer of 2022, however, the pace of ridership recovery has slowed in the fall and is currently approximately 69% of pre-pandemic levels. Given this experience, revenue ridership is expected to reach 75% by year-end 2023, with ridership recovery to be limited primarily by the frequency of in-office workdays to approximately twice a week, resulting in marginal change in commuter ridership behaviour in 2023.

“Given this experience, service hours will continue to be aligned to reflect this customer demand and 2023 weekly service hours will be approximately 91% of the pre-pandemic service. Proportionally to pre-COVID levels, service hours will continue to be higher than ridership recovery forecasted at 75% by year-end, which is necessary to account for increases in traffic congestion that require revised schedules and to ensure sufficient service capacity exists to service the upper range of forecasted customer demand, in the event it occurs.” [p 8]

What this fails to mention is that this is actually a planned cut in service both in vehicle-hours operated and in off-peak crowding standards. The TTC plans to reduce service hours from the current 95% of prepandemic levels to 91%. This is an average across all modes, and the bus system will be spared the worst cuts because its ridership recovery to date is the strongest.

A major change in standards will come for rapid transit lines where the maximum permitted headway will rise to ten minutes. The current maximum is six minutes with an exception for new lines:

“New rapid transit lines may have a frequency of up to 10 minutes in the first few years of operation until ridership matures.” (Table 3 at p 12 of the Service Standards)

Current service on the 1 Yonge, 2 Bloor-Danforth and 4 Sheppard subways has a maximum headway of 6 minutes. On 3 Scarborough RT, the maximum headway is 6’45” evenings and weekends.

As riders know well, real-world operations do not have evenly spaced trains, and a shift to ten minute headways will bring wider gaps in service. From a budgetary point of view, cutting subway service does not have the same proportional effect as for surface modes because of the large fixed cost associated with infrastructure and station operations.

These changes are not explicitly listed in the recommendations but simply come along for the ride buried in the budget report.

In the table below, November 2022 is used as a “pre-covid proxy” although in fact the budget for January 2020 (before the pandemic shut down much of the city) was about 186k hours for regular service plus about 8k for construction. Therefore, the relative level of service to “pre-covid” is actually somewhat less than the percentages shown here.

Crowding Standard (Busiest Hour)	Bus	Streetcar	Line 1	Line 2
Peak Standard	50	130	1100	1000
Off Peak Standard (existing)	35	70	540	500
Off Peak Standard (revised)	45	90	650	600

New & Enhanced

This category includes spending for 50 new Special Constables, 10 Streets-to-Home workers, and cleaners to deal with the accumulation of litter and other substances on streetcars during the service day ($4.4 million). It also includes the cost of improved Fair Pass eligibility ($2 million) and of targeted service improvements ($0.7 million). Note that the service improvement funding is much less than the planned cuts under “alignment” above.

The Fair Pass program now provides reduced fares to:

“… eligible customers including Ontario Works, Ontario Disability Support Program, Child Care Fee Subsidy and Rent Geared to Income clients whose income is below a threshold set 15% above the Low Income Measure are eligible for the Fair Pass Program. This program entitles eligible customers to a discount of approximately one-third on single adult fares for a single rides or 21% off adult monthly passes.

“In 2023, this program will be expanded to all low-income residents with a family income below 75% of the Low Income Measure, with approximately 50,000 more individuals expected to be eligible.” [pp 12-13]

The service improvements are described in the budget as:

“… a targeted incremental investment of 240 weekly service hours will be made and prioritized on routes with a high proportion of boardings at stops serving Neighbourhood Improvement Areas. The increase in service hours will provide additional weekend afternoon service on major shopping corridors to account for capacity requirements of customers, as well as the establishment of a base grid of 15-minute overnight service on the Finch Avenue, Jane Street and Wilson Avenue corridors. These changes will provide more frequent, 15-minute overnight bus service to more than 1,200 customers every day.”

Note that 240 weekly service hours do not go very far on a base of 170,000.

New Revenue

The proposed ten cent single fare increase for Adults and Students will bring in $16.1 million net of ridership losses.

“Other Revenue” will improve by $11.9 million almost half of which come from increased fare enforcement. Whether this will actually be achieved remains to be seen, and it is very difficult to monitor. This is not the first budget in which the TTC has manufactured revenue out of thin air by assuming the effects of better enforcement.

Transit Reserve Fund & “Efficiencies”

A $15.7 million draw from the Transit Reserve Fund will be used to offset high diesel costs and limit the scope of the fare increase. This is “one time” money that will have to be replenished somehow in 2024.

There are two reserves held by the City for TTC use. One is used as a buffer for accident claims for which the TTC partly self-insures as this is cheaper than purchasing commercial insurance. The other is the Stabilization Reserve that is funded from any “surpluses” (actually underspending of subsidies) the TTC accumulates. About $30 million will be drawn in 2023.

We are left with a net requirement for $10.4 million before taking expansion and Covid costs into account.

“With the available increase in City funding for the base budget limited to $10.4 million, the use of the TTC Stabilization Reserve is recommended to fund the remaining balance of $15.7 million in order to partially mitigate inflationary impacts and to limit the fare increase for 2023 by freezing the cost of all passes and all fair pass riders and seniors’ fares at 2020 rates and ensuring that the increase on all other fares remains below the rate of inflation. This action is necessary to minimize the impact on TTC riders given current economic conditions.” [p 36]

“Efficiencies” will reduce costs by $22.5 million. These comprise a raft of small changes listed in the table below. For more details, read the TTC’s report.

One large item here is One Person Train Operation on Line 1. Note that this saving is the net amount for 2023 versus 2022 when this had already been partially implemented.

Another large item is the “Line-by-Line Reviews”. This saving reduces the provision for purchases in 2023 based on actual experience. It will also, in effect, remove one of the sources of a year-end “surplus” if actual spending is closer to the budgeted level.

“… $10.3 million in expenditure reductions have been identified and reflected in the 2023 Operating Budget, primarily due to material volume and contract costs being lower than original estimates.” [p 35]

Transit Expansion/Conversion

The combined cost of opening Lines 5 Eglinton Crosstown and 6 Finch, plus the bus replacement for Line 3 Scarborough RT, will add $42.6 million net of new revenue to TTC costs.

For budgetary purposes, the TTC assumes Line 5 training will begin in the first quarter of 2023, and a July 2023 opening date. This is a placeholder and subject to whatever Metrolinx actually delivers.

The SRT shutdown is planned for the fourth quarter of 2023, probably with the mid-November schedule changes. The bus replacement costs shown here for 2023 are only for a small portion of the year and there will be a large jump in 2024. (Note that the circled numbers in the table are in the original document and are not my addition.)

Covid Related Costs

Finally we come to projected Covid costs in 2023 totalling $366.4 million. The City will seek subsidies from the Ontario and Canada to cover this shortfall. How much they will actually receive is another matter, and the question will then be how the City would respond to a shortfall.

This has implications into 2024 and beyond because at some point, the idea of special Covid subsidies will disappear from budgets and Toronto will have to make hard decisions about just how much transit it wants and at what cost both from taxes and fares.

Ridership

The charts below show actual and projected ridership for 2022 and 2023.

• Chart 3 compares the percentage of ridership recovery that was budgeted in 2022 versus what actually happened. The year began strongly, but growth flattened out from summer onward due to the continued effects of work-from-home on commuting traffic.
• Chart 6 shows the projected range of ridership changes from a low demand with little new riding through 2023 to a higher projection rising to 82% by year-end.
• Chart 7 shows the ridership projection that has been used for the 2023 budget.
• Chart 9 shows the recovery rates for the conventional and Wheel-Trans services.

Note that in all cases the annual percentages relative to historical levels will be lower than the year-end values because of growth through the year.

Ridership patterns for recent years are broken into more detail in the following charts. Chart 11 shows the proportion of lost rides by group. The adult group has by far the greatest loss corresponding to commuter trips. The losses in Post Secondary, Senior and Youth riders are smaller both because they represent a smaller part of total demand, but also because, as shown in Chart 16, their riding has recovered at a higher level than for adult fares.

Ridership has been growing fairly steadily with the bus system leading the way as it serves areas where work-from-home has a lower effect. By the end of 2022, bus ridership had reached 77% of the prepandemic level. Subway and streetcar demand follow the same overall trend, but at a lower percentage due to the effect of lost riding in the core area.

The report is silent on the effect that major disruptions to streetcar routes have had on ridership recovery, or how long it will take to rebuild riders’ faith in these routes.

Ridership recovery is stronger on weekends than on weekdays. This reflects the nature of weekend trips which are moreso for purposes that cannot be “worked from home”. This is a particular concern with plans to increase crowding as weekends are a surrogate for off-peak demand generally, the very period the TTC is making less attractive.

Presto usage has changed since 2019 with a big drop in frequent “commuter” usage, but a rise in less frequent travel patterns above 2019 levels.

Similarly passes, which are used primarily by frequent riders are at only about 40% of pre-pandemic sales.

Projections for 2024 and 2025

The table below shows the projected additional funding required in 2024 and 2025. Considering that the TTC plans no service increases in these years, it is unclear just what they will do with 60 additional streetcars. We will have the vehicles, but no budget headroom to operate them.

Meanwhile, the bus fleet will continue to be substantially larger than what is needed for service and maintenance needs even allowing for pending changes including the SRT replacement shuttle.

Covid effects stabilize at $350m / $335m in 24/25. This is a structural problem due to assumed plateau of ridership recovery, primarily of downtown office workers. This is a medium to long term problem the city must address through new revenue.

“When the currently anticipated ongoing impacts of COVID-19 are combined with forecasted budget increases, an additional $461.0 million would be required in 2024 and $379.0 million in 2025. A multi-year, multi-pronged funding strategy will be required to address what appears to be a mid-term systemic revenue shortfall. At the same time, the TTC will continue its ridership recovery efforts with a focus on improving service reliability and customer satisfaction.” [p 4]

These projections include no provision for service increases above 2023 levels in response to higher demand, nor is there any provision for the cost of changes to Collective Agreements that will expire in March 2024.

Ridership recovery will be hard to achieve if service is locked at a level below 2022 with crowding and erratic headways.

Budget by Functional Area