politics Reading the Fine Print: The TTC’s 2015 Budget

There's some upbeat news, but a closer look reveals how far the TTC still has to go to reach financial health.

When Toronto’s proposed 2015 budget was launched Tuesday, much attention focused on improvements planned for the transit system—new and enhanced services for bus and streetcar riders, for example, and free rides for children. Politically, the most important shift here was that Mayor Tory broke with the former Rob Ford regime and its policy of starving the TTC for subsidies. All of this is upbeat, forward-looking news, but a look under the covers, a review of the fine print, reveals the trade-offs made by this budget, and how far the TTC still must travel to reach financial health.

New Fares

Effective March 1, 2015, fares will rise for most riders, especially for Metropass users, while children will get free travel. How does this work in the budget?

Eliminating children’s fares will cost the TTC $5.4 million in 2015, ramping up to $7.1 million on a full-year basis in 2016.

The additional revenue from Metropass users will be $7 million in 2015, rising to $8 million in 2016.

TTC management attempts to squeeze more revenue out of Metropass users with every budget, claiming that these riders are getting too good a deal on transit use, especially when income tax credits are taken into account. The 2015 budget is no different, except that the change was not mentioned—either by the mayor, or by the TTC in its press release—in the ballyhoo around free transit for children.

The adult Metropass will cost $2.80 more than it would have if the ratio between token fares and passes had stayed the same as in 2014. Yes, it’s tax deductible, but the benefit is only 42 cents, and then only if the rider has taxable income.

More Service

TTC service will see many improvements across the system later in 2015, including the restoration of most Ford-era service cuts, improved crowding standards for busy routes, additional express-bus services, and a “10-minute network” of core routes during all but overnight services. The Blue Night network will be improved by filling in gaps in the grid.

Adding service takes time. Once the TTC and council have approved the budget, the TTC will have to plan for the service changes, which will mean updated schedules for vehicles and drivers. The budget provides partial funding for each change—about half of a full year’s funding is included for 2015. The numbers suggest that most changes will be introduced through a summer rollout, although “all day, every day” service restorations appear to be targeted for fall 2015. The timing of these changes could be affected by the Pan Am Games, an event that will preoccupy the TTC and consume spare capacity during July 2015.

More Buses and Streetcars

New peak-period services require a larger fleet. When mayoral candidate Olivia Chow touted better bus service as a plank in her campaign, the TTC’s response was, essentially, “We can’t get any buses.” Its story has now changed. According to the Operating Budget Analyst Notes (page 60):

In August of 2014 … there appeared to be no opportunity to procure additional buses in 2015. Through continued discussion with various Bus Vendors, an opportunity arose to procure up to 50 buses with delivery commencing in late 2015.

Storage space, another of the TTC’s problems, will be obtained on leased property until a new bus garage can be built later this decade.

As for streetcars, the TTC has changed its plans for its 52 “ALRVs,” the two-section cars that operate mainly on Queen Street: rather than retiring them as new cars enter service, it will now be overhauling 30 in order to provide an additional decade’s worth of life. Deliveries of the new cars are expected to ramp up from 27 vehicles in 2015 to 40 per year by 2018 to get Bombardier back on schedule.

For both bus and streetcar service planning, this represents an important change from “We can’t run any more service” in 2014 to an aggressive “We will run as much service as we can” in 2015.

More Subsidies for Riders

The TTC expects that its final ridership tally for 2014 will be 535 million, down 5 million from its budget estimate, thanks likely to last winter’s very bad weather and subway service disruptions caused by major projects on the Yonge-University line. The projected subsidy for 2014 is $422 million. This means, according to the December 2014 TTC CEO Report, that the subsidy per rider will be about 78.9 cents.

For 2015, the budget proposes an operating subsidy of $479 million—which works out to a per-rider subsidy of 87.9 cents—to support 545 million rides.

In the 2015 budget, however, the City and TTC have adopted an unusual approach to the cost of the 50 new buses. Instead of including funding for this project in the capital budget, most of the new bus costs are charged as “capital from current” in the operating budget. This means that almost $14 million of the “operating subsidy” will actually go to bus purchases. The real value of the subsidy, using an apples-to-apples comparison with previous practice, is thus only $465 million—or 85.3 cents per rider.

This may seem arcane, but shuffling costs between the budgets can make the level of operating support appear larger than it really is, and this practice should be avoided in future years.

The TTC will run extra service for the Pan Am Games, but the net cost will be covered by the games budget and not through the regular operating subsidy.

The Gaping Hole in Capital Funding

Despite all of the good news, a huge problem remains when it comes to funding the TTC’s capital budget—the one that pays for major repairs, new vehicles, and upgrades to the existing system. Although the TTC requires $9 billion over the next 10 years, about $2.7 billion of this was placed “below the line” in 2014 simply because the City of Toronto did not know how it would fund all the TTC’s projects. The situation has improved only slightly in 2015: $2.35 billion out of the $9 billion 10-year total remains unfunded.

This situation is the result of several factors:

The combined requirements of several projects—notably, new vehicle purchases—will create a peak in funding needs throughout much of this decade. And when that ramps down, the City’s share of the Scarborough subway project will ramp up.

Several provincial and federal programs that funded “routine” capital needs (as opposed to one-time projects such as the Spadina subway extension) have ended, leaving Toronto only with a fixed annual share of gas taxes, an amount that is starting to fall because of both demographic shifts (Toronto’s population relative to other cities) and declining gas consumption.

City council has imposed a cap on its borrowing for capital projects, which means that its total debt load must remain below 15 percent of the property tax revenue.

The Scarborough subway debt is worth mentioning, because the popular impression is that the special subway tax has that covered. That may be true, but the debt will build up quickly in the short term, and have to be paid back through the new tax over the course of 30 years. The result is that the City’s debt load relative to revenues will go up in the medium term, limiting the funding room for other major projects. Elsewhere in the City’s budget, funding for accelerated work on the Gardiner Expressway will drive up debt for the almost $1 billion project.

We can therefore expect to hear “We can’t afford more debt” as a common refrain until at least 2020, a year in which the City won’t even be issuing any new debt (except for the subway project), because doing so would bring it very close to that 15 per cent target.

This could have severe implications for the SmartTrack proposal, which relies on almost $3 billion in City funding. Like the subway tax, the underwriting mechanism that Mayor Tory’s campaign used for SmartTrack is based on additional tax revenues generated from improved transit service. However, it is unclear how much of Toronto’s future tax growth can be explicitly tied to SmartTrack, how much of it will actually be available for transit funding, and how long it will take for the new taxes to pay off the debt. Like the Scarborough subway, SmartTrack has the potential to produce a medium-term bulge in the City’s debt load that could crowd out other borrowing unless the City raises its debt ceiling.

Accessibility and Wheel-Trans

The TTC was rightly criticized in its 2014 budget for putting all future spending on subway accessibility “below the line” as part of the capital shortfall. Its hope was that accessibility projects might attract a special subsidy from Queen’s Park, given that the work is mandated by the Accessibility for Ontarians with Disabilities Act (AODA). But its funding requests fell on deaf ears, and meanwhile, planned projects for improved subway access via new elevators were halted.

In the 2015 capital plan, some of this work has now moved “above the line,” which means it can be undertaken in the next five years. However, a portion of the work, notably that scheduled for the early 2020s, remains “below the line” because of the crowded capital borrowing situation described above. In the short term, much of the money to pay for station renovations will come from deferring the purchase of the next generation of Wheel-Trans vehicles. Instead, the TTC will go for a less expensive option: a major overhaul of the current fleet to extend its life.

The operating subsidy for Wheel-Trans will rise by 1.8 per cent in 2015, primarily to support 24-hour operation and to improve customer service through better call centre response and trip-booking procedures.

Spadina Subway Extension and Future Rapid Transit Lines

The extension north from Downsview Station to Vaughan Centre is now not expected to open until late 2016 or early 2017, because of construction delays at a few station sites. When the line opens, the financial agreement with York Region stipulates that most of the cost of operating and maintaining the extension—even the section north of Steeles Avenue—will fall to Toronto, which in exchange will receive all fare revenue. This agreement, combined with the projected ridership level for the extension, will affect TTC costs in future years—a point made in an innocuous line item in the operating budget’s projection for “TTC Ridership Growth” (see the City Operating Budget Presentation, pages 48 and 58).

When the TTC projects its revenue budget, it factors in new money from both the fare increase to existing riders and the fares paid by new riders. To the extent that new riders can be handled within existing system capacity, their fares count as “new money” that can offset operating costs. However, if operating expenses go up faster than revenue, the new riders actually add to the pressure for subsidies rather than reducing it.

Despite the description of this budget line, the TTC has confirmed by email that these are “net” numbers, and that new costs have been taken into account.

In 2015, new riders are expected to generate $5 million more in revenue than it costs to accommodate them. In 2016, this number falls to $3 million, and by 2017, new riders will result in a net cost of $5 million. Why is there such a change? In the budget projections, it’s assumed that the Spadina extension will open in late 2016 and that its associated costs will start to affect the TTC’s budget. This—much like the fact that better service on bus and streetcar routes rarely pays for itself through increased fares—is part of the cost of doing business.

No projections have yet been made for the budgetary effects of opening future routes such as Eglinton Crosstown—a line that will require a cost- and revenue-sharing agreement with Queen’s Park—or of other proposals such as SmartTrack and the Scarborough subway. Discussions to date have looked only at capital costs, not at the complex issues related to operations and fare integration.

The Debate to Come

Although the entire budget proposal has been treated as a fait accompli by the mayor and TTC chair, it must still survive debate by the TTC board and city council. In an unusual move, highlights of the 2015 TTC budget were announced at a press conference, not at a meeting of the TTC Board, leading one to wonder how many of the board members were able to have input into the proposed changes.

Mayor Tory promised a fare freeze during his election campaign, but his focus is now on service improvement: he’s openly acknowledged that he was wrong and that a fare freeze would not be compatible with improvements to the transit system. It is inevitable that attempts will be made to restructure the proposed TTC changes both at the TTC board meeting on February 2 and at city council later in the budget process. Their success will depend on the strength of political support for what is now clearly The Mayor’s Plan—and how much horse-trading goes on for the TTC proposals and other parts of the City budget.

For those who want more details:



City Budget Analyst Notes for TTC Operating Budget

City Budget Analyst Notes for TTC Capital Budget

City Operating Budget Presentation

City Capital Budget Presentation