On January 8, 2016, TTC management presented an overview of the operating and capital budgets at the City of Toronto Budget Committee. The presentation slide deck and video are available on the City’s website.

The format of the presentation is, in part, dictated by a standard city template used by all divisions and agencies for consistency. Much of this material has been covered from previous meetings, and so this article will only touch on some clarifications and highlights.

TTC “Conventional” Operating Budget

For the year 2015, the TTC will show a “surplus” projected at $4.1-million. This arises from a combination of lower than expected expenses which more than offset a shortfall in revenue due to ridership below budgeted levels. The surplus from operations is actually larger than shown (see p10) because a capital-from-current expense for new buses originally planned to be spread over 2015-16 was actually completely paid for in 2015. (Originally the $14m was to be paid $9m in 2015 with the balance in 2016.)

There is a $14m reduction in 2016 because there is no capital-from-current item. Because the budgets are not “zero-based”, this money becomes available for operations in 2016. (Another way of looking at this is that the subsidy and fare increases would have to be larger in 2016 if the one-time capital element had not been present in 2015.)

The presence of capital-from-current spending in the Operating Budget will complicate future tracking of TTC financial performance because any year with such spending will have to be restated to filter out this item. Similarly, projections for future fare levels must take care to distinguish how much of an increase pays for day-to-day service versus capital costs transferred to the operating budget and, hence, to farebox revenue.

Additional costs and savings for 2016 arise from many parts of the operation.

During the debate, some members of the Budget Committee (including Councillors who also sit on the TTC) appeared surprised that there was a added cost ($30.2m) to continuing the service improvements funded in 2015. This should be no surprise at all because the $95m in added spending approved for 2015 resulted in changes that could not possibly operate for the full year simply due to the lead time necessary to ramp up better service. “Surprise” that this pushes up costs in 2016 belies a lack of basic understanding of how transit budgets work.

One particularly annoying factor in the overall budget process has been the “target” set by the City Manager for a 1% reduction in costs. This can yield some creative accounting notably in the cost savings for diesel fuel.

It is no secret that the cost of oil is going down, and this produces an automatic saving. However, the TTC books this as an “efficiency” under the title of “hedging” when a good deal of the saving is simply the changing market conditions. This “efficiency” is not repeatable and could be undone in future years if prices rise. Hedging produces some savings against pay-as-you-go pricing, but this should not be confused with the rise and fall of the energy market.

Future budget projections (see below) include provisions for $16m and $14m respectively for added energy costs in 2017 and 2018 implying that this will not be a budget line available for a contribution to a savings “request” from the Mayor or City Manager.

The saving attributed to “streetcar reliability” (a program to rebuild older cars) is actually a reduction in labour costs as fewer operators would be needed to drive the larger ALRVs which are to be rebuilt in place of the smaller CLRVs.

A related issue with the target is whether it relates to total TTC spending (about $1.7b) or only the City’s subsidy ($495m). In any event, the savings booked against this target total $27.745m of which $10m is a generic cut in budgeted non-labour costs across the entire TTC. Committee members asked where, specifically, this would come from, and were told that the potential saving is based on actual spending patterns in past years.

The “savings” the TTC claims are well above the 1% level measured against either base figure, and one must ask what else might have been funded if the cuts had been limited to $17m (1% of the total budget) or $5m (1% of the subdidy).

Also evident here is the problem of budget-to-budget comparisons rather than budget-to-actual. If the actuals are running lower than budget, then the problem is either (a) the original budget was too high or (b) spending has been artificially constrained. Indeed, if there was $10m on the table for the taking in 2016, this explains where much of the “surplus” came from in 2015. The underlying question is always whether spending is artificially constrained to hit shadow budget targets, and what this might imply for overall system quality.

All of the “savings” listed here are one-time effects and they are not “sustainable” (to use a favourite term in the City’s budget parlance) for future year savings to offset tax and fare increases.

Several enhancements have been submitted to the Budget Committee. These are approved by the TTC Board, but not yet by Council for inclusion in the TTC’s base budget.

Probably the most important of these is the change in the maintenance strategy for buses so that 80% of the repairs are performed on a pro-active preventative maintenance basis rather than fixing buses after they fail in service. This causes a cost increase in the short term for transition in wor practices, but should bring longer-term savings and better service. One obvious benefit is that if buses fail in service less often (the TTC’s mean distance to failure was running at about half the industry norm), then a larger proportion of the fleet can confidently be placed in service.

In the list above “earlier Sunday transit service” refers to the surface network where many lines do not begin service until 9:00 am. The earlier subway service was achieved at little marginal cost on January 3 simply by opening stations earlier so that passengers could ride trains that were otherwise dead-heading into position for a 9 am startup across the entire network.

Additional fare inspectors for Proof-of-Payment were budgeted in 2015, but these were not approved by Council. It is now clear that the TTC does not intend to extend POP to the bus network. Presto will roll out through 2016, but bus riders will be checked as they board, not by roving inspectors. The only difference will be the medium of fare payment.

Three potential improvements were not approved by the TTC Board, but they are included in the Budget Committee preentation:

Subway service reliability (primarily scheduling changes)

Three minute or better service on Line 1 Yonge-University until 10:00 pm

New streetcar service on Cherry Street

Given other budget pressures, I suspect that the first two will go back into the hopper for 2017 although they will have to compete with items such as the Spadina extension startup for funding. As for Cherry Street, the TTC will operate this service, likely starting in September, as a branch of 504 King by rearranging existing schedules at little net cost.

Future costs have been lurking just out of sight for a few years, but they are going to bite the City and TTC starting in 2017.

A large increase is projected for Presto fees ($51m), an astounding amount considering that the implementation of this system was supposed to be cost-neutral. As the footnote explains, there will be offsetting savings through the redeployment of staff and the scaling down of existing fare collection processes, but the TTC does not know yet what these will be. That is a rather odd position to be in considering how long this changeover has been in the pipeline.

There will be a cumulative added cost of $31m over the two years from the Spadina subway extension. This begins in 2017 (with no offsetting ridership and fare revenue) because of pre-service costs related to commissioning the line. Future revenues are not expected to cover total costs (although the TTC no longer puts a number in its budgets), and the actual amount of new revenue will depend on any decision about reductions in cross-border fares from York Region. If some sort of “co-fare” is created for trips straddling the York-Toronto border, how much revenue originally expected by the TTC will be sacrificed on the alter of “regional fare integration”, and who will pick up the tab?

The TTC anticipates large savings from a shift to one person crews on the subway, but it is unclear whether they will actually achieve this in the next three years (a pilot on Sheppard is planned for 2016, but there are no details yet of how or when this will occur).

All of these issues leave some major uncertainties in future budgets and will challenge politicians whose goals of minimal cost increases cannot be sustained thanks to changes already in the pipeline.

Wheel-Trans Operating Budget

As previously reported, this budget is going up well above the inflation rate (7.3%) because of strong growth in demand (14%). This arises from a combination of demographics (aging population) and provincial legislative changes increasing eligibility.

As with the “conventional” system’s budget, a substantial contribution to the “1% reduction target” comes from fuel hedging (a cost only applicable to the in-house WT van operations, not to taxis). Other savings come from savings (unspecified) on the WT taxi contracts, and from shifting riders from van to taxi travel thereby lowering per-trip average costs. These savings could be ephemeral, and future budgets will be dominated by the cost of quickly rising demand.

Capital Budget and 10-Year Plan

As previously reported, there is a $2.7-billion shortfall in funding for the capital plan for 2016-2025. The spending plans cover only the ongoing maintenance and renewal of existing infrastructure, including the subway, much of which is a half century and more old. Contrary to popular belief, subways do not last 100 years and all aspects of them require constant maintenance, moreso as they age.

I will review the Capital Plan in detail in future articles.

A major problem in the Capital Plan is that much of the funding is at the front end of the ten-year period and comes from specific projects such as the TYSSE. We have not yet had the hard, detailed discussions about “what must we really do” because there has been enough money, year-to-year, to keep capital spending at roughly the level needed to sustain the system. This will soon change.

The City of Toronto’s headroom for additional debt tops out in coming years, and unless there is a new financing strategy such as a dedicated transit tax, funding that now carries about half of TTC capital spending will disappear. This is without any new projects such as SmartTrack or the Relief Line.

Funding from Queen’s Park and Ottawa settles down to a consistent $243m annually from gas taxes. Even the anticipated federal monies are spoken for in the medium term by two projects: the Scarborough Subway and SmartTrack. They will not be available to deal with the backlog of TTC state-of-good-repair work.

It is ironic that “stimulus” is on everyone’s lips as a solution for economic woes, but this does not extend simply to fixing the infrastructure we already own.

The crisis in unfunded capital shows up in a few charts.

The unfunded slice of that pie is dangerously large, and it will grow as more “out years” without the benefit of existing funding streams become a larger part of the 10-year moving window.

The funding shortfall translates to planned capital work that will not get done, and increased problems with the quality and reliability of transit infrastructure. This also affects fleet plans as the table below show.

Finally, there is a long wish list of projects that are not even included in the plan.

Some of these, as I have commented before, need scrutiny to determine their actual priority (or even need) relative to other demands on capital such as the Relief Line. The “TBD” item regarding a rail yard is a new item in this list, and is odd considering that the budget for a new yard was supposedly part of the Scarborough Subway Extension project. I will discuss this and subway fleet planning generally in a future article.

Previous articles on TTC budgets

TTC Budgets for 2016: City Analyst Preliminary Notes

City of Toronto 2016 Budget Overview

TTC Capital Spending Priorities

TTC 2016 Operating Budget

TTC Budget Meeting: November 9, 2015