Recent media reports of the effect of John Tory’s requested 2.6% cut in TTC funding have cited numbers that might confuse readers by giving an incomplete view of TTC revenues and spending. In the interest of better-informed context for the debate, here is the full story.

The TTC Operating Budget contains two separate sections, one for the so-called conventional system and one for Wheel-Trans. That term, “conventional”, is the one used by the TTC to describe its base system, the one used by most riders. Each budget has three major components: fares and other revenues, operating expenses and subsidy. The numbers in the budget are never the same as the year-end actuals, but the TTC is usually within 1%. Here are the numbers as of the July 2016 CEO’s Report [pp 46 & 50].

                  Conventional           Wheel-Trans            Total
                  Projected  Budget      Projected  Budget      Projected  Budget
Revenue
  Fares           $1,150.3   $1,175.3    $    7.1        7.0    $1,157.4   $1,182.3
  Other               66.1       66.8                               66.1       66.9
  Total            1,216.4    1,242.1         7.1        7.0     1,223.5    1,249.1
Expenses           1,726.0    1,736.7       128.4      123.7     1,854.4    1,860.4
Subsidy Required     509.6      494.6       121.3      116.7       630.9      611.3
City Subsidy         493.6      493.6       116.7      116.7       610.3      610.3
Draw From Reserve      1.0        1.0                                1.0        1.0
(Shortfall)       (   15.0)              (    4.6)              (   19.6)

1. All figures in millions of dollars.
2. Other revenue includes contract services, advertising, rent, parking and interest.
3. The reserve contains funds from previous years' "surpluses".

When the City looks for a cut, this is based on the “net” budget, in other words the subsidy that the City pays, not on the gross operating budget including fare revenue. Any shortfall would be covered by a combination of expense reductions and fare increases. In the “other revenue” category, the only item subject to extraordinary year-over-year increases is parking because the remainder are dictated by longer-term contracts. Commuter parking will bring in about $9.2 million in 2016, and even doubling these fees (assuming no loss of demand) would bring in only a tiny amount relative to the entire budget.

The starting point set by the Mayor and approved by Council is a 2.6% across the board cut to all departments and agencies. For the TTC, this translates to 2.6% of $611.3 million (the 2016 budget figure) or $15.89m.

However, the TTC faces many cost pressures including:

• Inflationary increases in utilities and materials
• Wage rate increases in the negotiated contract
• Costs for Presto implementation including the co-existence of old and new fare collection methods and staffing during 2017
• Increased vehicle maintenance cost (aging bus, streetcar and subway fleets, continued operation of old streetcars due to Bombardier delivery delays)
• Startup costs for the Spadina Subway Extension including maintenance of completed structures, and pre-opening activities such as training
• Substantial increase in demand for Wheel-Trans in part due to provincially mandated changes in eligibility, partly due to demographics

Moreover, if ridership for 2017 stays at the 2016 level, then the projected revenue (leaving aside any fare increase) will be lower than the 2016 budgeted level.

According to The Star, the TTC projects that the funding gap in 2017 will be $184m for the conventional system and $31m for Wheel-Trans. That is the difference between projected revenues, subsidies with the 2.6% cut taken into account, and projected expenses just to operate the system at 2016 service levels. One can work backwards from these numbers to see what the 2017 budget looks like before any further adjustments are made.

                  Conventional   Wheel-Trans    Total
2016 Subsidy      $  493.6       $  116.7       $  610.3
2.6% Cut              12.8            3.0           15.9
2017 Subsidy         480.8          113.7          594.4

Added 2017 Costs     184.0           31.0          215.0
Total Shortfall      196.8           34.0          230.9

2016 Budget        1,736.7          123.7        1,860.4
% Cut vs 2016         11.3%          27.5%          12.4%

1. All figures in millions of dollars.
2. Some numbers do not add due to rounding.

An obvious question here is whether Council will attempt to avoid the unpalatable effect of a large cut in the Wheel-Trans budget (one which would likely violate provincial service level requirements) by shifting the lion’s share of the cut to the conventional system. Offsetting this would require an even larger fare increase and/or service cut. The last thing Toronto needs is a fare and service battle between the Wheel-Trans user community and the rest of the system’s ridership.

The average fare currently sits at $2.11 (total probable fare revenue divided by probable ridership of 544m), while the adult token rate sits at $2.90. A ten cent fare increase would raise this to $3.00, or 3.4%. This would translate to $39m in added revenue before allowing for ridership loss (a dubious proposition in an era of limits on service expansion). [This paragraph has been updated to correct the value of the token fare and subsequent calculations.]

Various possible changes to fares and expenses include (according to the Star’s article):

• Eliminate cash fare discounts (reduced fares would only be available through tickets, tokens, passes and Presto)
  • Total additional fare revenue including fare increase: $40m
• Controls on Presto, diesel fuel and employee benefits: $7.5m
• Draw the remaining balance in the Transit Stabilization Reserve: $15.4m
• Unspecified reductions in the conventional system: $17m
• Unspecified reductions in Wheel-Trans: $1.8m
• Total: $81.7m

It is unclear how some of these reductions would actually be achieved, and it is not unusual to see the TTC start off the year facing a challenge of trimming expenses as it goes along to fit the available subsidy.

Further possible cuts include:

• Elimination of Metropass discounts: $80m
• Cutting service: $60m
• Deferral of the Spadina extension opening to 2018: $6m

These are not recommended by TTC management.

The relatively small saving through elimination of Metropass discounts gives a view into how riders actually use the system. Passholders account for over half of all adult “trips”, but one cannot simply assume that they would continue to make all of these journeys if they had to pay for each of them separately. The idea that all pass trips represent a huge subsidy (because the lower average fare one can achieve with very frequent use is “lost revenue”) simply does not hold up. Unfortunately, TTC management has encouraged this view ever since passes were introduced.

The total number of trips taken using any form of pass in 2015 was 292.983 million, or 55% of all ridership. With a projected saving of $80m, the average per pass trip is about 27 cents. However, eliminating pass-level pricing would represent a large fare increase and would affect ridership numbers, a counterproductive move when getting people onto transit is supposed to be one of the City’s priorities. Pass usage as a percentage of total ridership has grown from 25% in 1987 to 50% in 2008, and to 55% in 2015. This is now the primary way in which riders pay for travel, and the bean-counting politicians who agonize over TTC fares should stop thinking in terms of tokens, tickets and cash. Riders prefer to purchase their service in bulk at a fixed price, and this should be encouraged to simplify the fare system for as many riders as possible.

Mayor Tory’s financial schemes have been “running on the fumes” for two years, and the 2017 budget marks the point that his fantasies simply will not be tenable. Does Council have the will to tackle this problem, or will transit riders (not to mention users of many other City services) be forced to suffer through the effects of the tax cutters’ naïve belief that they can control costs through searches for “efficiency”? Will voters, especially those represented by Tory’s henchmen on Council, tell their representatives that cuts are unacceptable, or will those who languish awaiting suburban buses put their faith in myths about “waste” that prevents their having frequent, comfortable service?

Remember all of this the next time someone promises you billions in spending on transit, roads and other civic baubles.

Toronto’s Mayor Tory finds himself painted into a corner, a task he achieved all on his own with a mindless, solitary focus on controlling taxes and reducing waste in government spending. One might almost think Rob Ford was still in the Mayor’s office, especially considering that Tory’s understanding of the City’s financial situation is on a par with his predecessor’s. By “understanding” I do not mean simply reading and digesting reports from the City Manager, but of moving beyond knee-jerk reactions and policies where facts are not allowed to intrude on political fiction.

The fiction that we don’t need more taxes, that there are “efficiencies” to be found throughout the City, has strangled services through the Ford years, and shows no sign of releasing its grip under Tory. Unquestionably, from a starting point back in the “old days”, one might find money to be saved in any organization. However, there is a limit to how many rabbits there are in the budget hat, and as years go on, those rabbits get rather scrawny. In his recent presentations to Council, City Manager Peter Wallace warned that the hat is empty, and that the hocus-pocus by which past budgets have allowed low tax increases cannot continue. New revenues must come from somewhere because cuts simply won’t provide the level of savings required.

Shawn Jeffords in the Toronto Sun quotes Tory:

Tory said he would accept the TTC’s submissions as an “interim report” and assume that further efforts will be undertaken to meet the council directive. He also pointed to a report from the city’s Auditor General earlier this year which said the TTC had only implemented 14 of 53 cost-saving recommendations from her previous reports as evidence that further belt-tightening could be done.

This fundamentally misrepresents that Auditor General’s findings in a May 11, 2016 report:

Of the total 53 recommendations assessed in the current follow-up process, 14 recommendations, or 26 per cent, have been determined as fully implemented. For the remaining 39 recommendations, TTC staff have made significant progress towards implementing the recommended changes. [p 1]

In other words, the TTC is working on all of the recommendations and the AG is not breathing fire with any implication of foot-dragging or obstruction. That’s the implication Tory  brings to the discussion with the attitude that if the TTC won’t fix itself, he will find someone to do it for them.  As Ben Spurr reported in The Star:

“If (the TTC) can’t do this themselves, and I’m confident they have enough good management there to find these ways of doing things better and differently, then I guess we could help them,” the mayor said.

The AG’s recommendations flow from four reports going back to December 2012.

What, exactly, does “not fully implemented” mean? Have they started? Are they almost finished? Is there a dispute about the validity of the AG’s proposals? How much will each of the changes actually save and, thereby, contribute to “fixing” the TTC’s financial crisis?

The background reports reveal that the “Total” counts shown above are only the items that were not “fully implemented” in previous reports. For example, the December 2012 Wheel-Trans audit had 22 recommendations of which 9 had already been implemented by April 2014 as reported by the AG. The numbers here imply a much lower rate of addressing issues because previously completed items have been dropped from the count.

When one takes the time to read the details, one will find that many of the 39 items listed above are on the verge of being completed, or are dependent on changes (such as updated computer systems) that will address clusters of recommendations in one fell swoop later in 2016. Few of the items will lag into 2017 and beyond, and at least some of these are dependent on other systems or events for their timing.

What is consistent throughout the reports is that outright rejection of the recommendations is rare, and work on many is well underway. Moreover, the dollar savings by each of the changes is rarely stated by the AG and so there is no way to gauge their relative importance and budgetary effect.

Mayor Tory is renowned for being at work at 6:00 am at City Hall digesting his reports. From the way he has presented the Auditor General’s information, it is clear that he does not know that the vast majority of the recommendations have, in fact, been acted on by TTC management. Moreover, he would also know that few of the recommendations have a concrete dollar saving attached, and for those that do, it is not on the scale needed to rescue him from the TTC funding crisis.

The TTC faces a shortfall of $184 million for its base system, and a further $31m for Wheel-Trans. The total budget for 2016 is $1.860.4 million of which $1,736.7m is for the base system, and $123.7m is for Wheel-Trans. Year-end actual expenses will be slightly lower due to some cost reductions in 2016, but the subsidy requirement will be higher due to ridership and fare revenue at a lower-than-predicted level.

This shortfall is very much the product of the political optics of the 2016 budget in which a rosy ridership and revenue projection removed the need for hard discussions about subsidies and allowed a continued focus on service improvements. That particular trick failed when the riders did not show up as expected, and 2016’s budgetary scam is only compounded in 2017. However, this time around, the numbers are too big to fudge.

The Sun quotes Mayor Tory:

“I just think that any big organization, where you’ve got billions of dollars and tens of thousands of employees, there are going to be those opportunities without diminishing service that just see you doing differently, running things better,” Tory said.

Tory, who never gives up the opportunity to spend money the City does not have in aid of yet another feel-good photo op, might be forgiven for confusing the “billions” in the TTC’s capital budget (the one that builds new subways and performs major repairs) with the operating budget that actually provides service (including basics like air conditioner maintenance). Most of the operating costs arise from putting service on the street and maintaining vehicles and infrastructure.

The TTC faced ongoing budget crises twenty years ago thanks to the early 1990s recession. By 1995, the proposed budget cuts were severe, but at least the effects were discussed in the open. The 1995 Operating Budget report and a companion response to a proposed 5% cut in agency spending laid out the situation. In 2016, we have yet to see a public debate on the TTC’s 2017 plans, and the issue has been conspicuously absent from TTC Board agendas. The TTC Budget Committee has not met this year, and currently plans call for a September 6 meeting with the results going to the full Board on September 28. This is hardly an organization chomping at the bit. Is the Board trying to avoid a confrontation with Mayor Tory? Why do we even have a TTC Board if the Mayor’s office will make all decisions of any consequence?

In the 1990s, the TTC took the politically necessary “we can make do” position on funding cuts, but this had major effects on service and maintenance. Then, on August 11, 1995, the Russell Hill crash permanently changed the TTC’s view of itself. Three people died thanks to a combination of poor training and inadequate maintenance.

To his credit, CEO Andy Byford has taken a firm position, or so it would appear, on the level of cuts the TTC can actually endure, but whether his position will win the day either at the TTC Board or at Council is quite another matter. Will Josh Colle, TTC Chair, finally stand up to the Mayor or risk losing any remaining credibility of his office?

The remainder of this article reviews the four Auditor General reports in detail.

Continue reading →

Toronto City Council is poised to set dates for the 2017 budget process with a report up for approval at its July 12, 2016 meeting. This report states:

By early August, 2016 all City Programs and Agencies will have submitted their Tax Supported Capital Budget and Plan and their Operating Budget requests to the Financial Planning Division for review and recommendation to the City Manager and Deputy City Manager & Chief Financial Officer.

Over the course of the rest of the summer and fall, each budget request will be analyzed and reviewed, with a first round of analysis and review undertaken by the Executive Director, Financial Planning from July to early September. A second round of review will occur with the City Manager and Chief Financial Officer to review unresolved issues and recommendations with the Deputy City Managers and respective Program and Agency Heads. The Preliminary 2017 Operating Budget and 2-year Plan and a 10 – year Capital Budget and Plan will be finalized by the end of October to provide sufficient time to prepare the necessary budget documents, communications and budget website in time for the Budget Launch. [p 17]

The Executive Committee, in transmitting this report to Council, has recommended:

3. City Council adopt an across the board budget reduction target of -2.6 percent net below the 2016 Approved Net Operating Budgets for all City Programs, Agencies, Toronto Community Housing Corporation, and Accountability Offices [Agenda Item 2016.EX16.37]

The report also lists budgetary pressures going into 2017, and for the TTC these include:

Base requirements for system operation:   $136 million
Presto card implementation:                 29
Annualization of 2016 changes:              13
Revenue loss due to declining ridership:    12
Total:                                    $190 million

Anticipated revenue from a fare increase: $ 12 million

• The base requirements include inflationary increases plus startup costs for the Vaughan subway extension (TYSSE). Although its planned opening date is at the end of 2017, operating costs will begin to accumulate earlier in the year with no offsetting revenue. Ongoing operating losses are expected to exceed $10m annually, but this will be an issue for 2018’s budget.
• Presto card implementation was supposed to be cost neutral, but at least during the cutover period, TTC will bear costs of the new and old fare collection systems. Looking further ahead it is unclear whether there will be new long term costs associated with redeployment of the Station Collector staff to station management duties.
• The annualization value is derived by subtracting the first two items from the consolidated value of all TTC pressures which is given as $178m.
• The revenue loss is versus the budgeted level of revenue for 2016.

The 2016 budgeted subsidy level is $493.6m for the regular system plus $116.7m for Wheel-Trans for a total of $610.3m. A 2.6% cut translates to $15.9m, and so the TTC is facing a drop of over $200m relative to its already-identified needs. This is not the scale of cut that is absorbed by minor “efficiencies”.

The TTC Board has a Budget Subcommittee where one might expect a discussion and response to financial pressures might be discussed, but all meetings planned for 2016 to date were cancelled. The committee is scheduled to meet on September 6. A meeting of the full board to discuss overall policy and direction was planned for April 7, but this was also cancelled.

There are no public meetings planned before the “early August” deadline for a preliminary budget submission to the City Manager, and we have no way of knowing what options might be under consideration by TTC management or the Board. Moreover, any advocacy that might take place during this process will be completely hidden, and there will be no information about options for 2017. This could very well suit Mayor Tory and his TTC Chair Josh Colle, but it begs the question of just what the TTC Board is for if not to discuss options and examine the potential effects of funding changes.

In late June, Chair Colle’s office wrote to a regular reader of this site saying:

The TTC Budget Committee is comprised solely of a handful of members from its Board – currently, Chair Colle and four other Board members sit on the committee.

There was a Budget Committee meeting scheduled for this June, but it was cancelled because the TTC Board members felt that the current budget issues are so pressing that they should come before the entire Board, not just the handful of Board members sitting on the Budget Committee.

The budget items will be making their way before the TTC Board as a whole, so that all of the Board members can weigh in on the agency’s financial situation. That being said, the TTC Budget committee will still be holding meetings in the fall, in advance of the 2017 Budget. [June 27, 2016]

These issues may be “pressing” but clearly not enough to warrant the Board’s attention at this time. The next meeting of the full Board is scheduled for September 28, 2016, well after the lion’s share of work on budget review will have been done. Indeed, the City’s Budget Committee will already have begun its informal review of the 2017 plans before the TTC Board’s next opportunity to debate and set policy for the new year.

The July 11 TTC Board meeting agenda is long, and important items will not receive the debate they require. The 2017 budget issues are mentioned only in passing as part of a review of ridership problems, not as a broader review of funding, fares and service options.

What is the purpose of this Board?

A long-standing problem at the TTC has been the absence of advocacy, of the presentation of options. Toronto may not be able to afford every item on the transit wish list, but at a minimum, we should understand what options are even on the list, and what they might cost.

There was an “Options” report in August 2014, during the interregnum between TTC Chairs Karen Stintz and Josh Colle. The publication of this report greatly annoyed then-candidate Tory’s campaign because it appeared to support positions taken by Olivia Chow. After election, Mayor Tory discovered that transit really did need improvement, and seized on this as a way to establish a toe-hold on more progressive policies.

With cancellations and a long gap before their next meeting, the TTC Board is not participating in a very necessary public discussion of transit’s future at a critical time. The Mayor’s Budget and Executive Committees may slash any TTC proposals to ribbons, but this should occur in public, not by way of a secret initial budget submission from TTC management.

Meanwhile, Council is about to debate billions in capital spending for several rapid transit projects. These cannot possibly be afforded without new revenue, new taxes by whatever name they might be called. Council as a whole steadfastly refuses to accept the link between a “no new taxes” policy and the inability to provide service, let alone build new lines and maintain the infrastructure we already have.

Mayor Tory and Chair Colle were happy to announce new money for transit over the past two years: new services, restoration of the Ford/Stintz cuts, and free transit for children to name a few. The proposed budget policy for 2017 undoes all of that investment and more. Where will the photo op be held to announce the cutbacks?