Staff Report #3
August 28, 2019
To All Commissioners
Re: 2020-2023 Operating Budget Program
- APPROVE the 2020 operating expenditure investment program for public transit services as set out in Enclosure I attached, of $88,248,700 allocated as follows:
- conventional transit $77,740,500
- specialized transit $10,508,200
- APPROVE the 2020 operating budget revenue program, comprised of transportation, operating revenues and transfers from reserves including Provincial Gas Tax for public transit services of $49,293,600 allocated as follows:
- conventional transit $46,927,200
- specialized transit $2,366,400
- APPROVE a request for City of London investment in support of the 2020 operating budget program for transit services of $38,955,100 allocated as follows:
- conventional transit $30,813,300
- specialized transit $ 8,141,800
- APPROVE the 2021-2023 operating budget estimates (revenue and expenditure investment) as summarized in Enclosure I, for London’s public transit services noting they exclude consideration of implementing the rapid transit strategy;
- DIRECT administration to submit the approved 2020 public transit services operating budget and the approved provisional operating estimates for 2021-2023 to the civic administration consistent with the City of London’s reporting format; and
- CONFIRM the revision of the administrative guideline for the Provincial Gas Tax Reserve to provide for its depletion by 2024, moving toward utilization of the total annual Provincial Gas Tax allocation in the same budget year.
As set out in Staff Report #4, dated June 26, 2019, a number of budget decisions over the past multi-year budget cycle (2016-2019) were made based on factors that are no longer in play, most of which revolve around Provincial Gas Tax (PGT). Over the past multi-year budget period, the Commission approved the utilization of PGT to fund a number of items rather than seek additional funding from the City of London. These decisions were based on the planned doubling of annual PGT allocations which would have seen London’s annual allocation increase to approximately $21 million by 2021. In March of 2019, the new Provincial government announced that the doubling would not be taking place and further, the existing program would be subject to review. In 2019, total PGT funding for conventional and specialized operating is budgeted at $12.3 million, which is approximately $2.0 million more than the annual allocation received. This level of reliance on PGT for annual operating and capital expenditures is no longer sustainable given the cancellation of the doubling of the fund.
The conventional and specialized transit services operating budgets rely on three primary sources of revenue to offset expenditures; transportation and operating revenue (fares from riders, advertising contracts), Provincial Gas Tax, and the City of London. The table below sets out the funding shares that were projected for 2019 when the original multi-year budget was approved in 2016 in contrast to the projected actual for 2019, broken down for conventional and specialized services.
Funding Share Discrepancies – Multi-Year Budget
|Conventional Transit||Specialized Transit|
|Funding Source||Budgeted % Share||Projected Actual % Share||Budgeted % Share||Projected Actual % Share|
|Provincial Gas Tax||9.8%||15.5%||21.4%||35.2%|
|City of London||36.9%||36.4%||70.1%||58.5%|
As the table clearly depicts, reliance on Provincial Gas Tax has far exceeded original projections for both conventional and specialized transit services. The key contributing factors to this shift over the past four years include the following:
- Fare Adjustment Deferrals – the two fare adjustments that were included in the 2016-2019 multi-year budget were both deferred with the revenue shortfall being funded by Provincial Gas Tax. The resulting increased reliance on Provincial Gas Tax was considered viable given the planned doubling of the PGT annual allocations.
- Specialized Service Contracts – increased costs to the specialized service contracts resulting from the Employment Standards Act (ESA) amendments affecting minimum wage were covered by increased contributions from the Provincial Gas Tax reserve versus going back to the City of London to request additional in-year funding. In addition, as set out in Staff Report #1, dated August 28, 2019, the hourly costs are set to increase by an additional 13.6% in August 2020 consistent with the new contract award.
- Operator recruitment – the planned assessment of the Operator recruitment program for 2020 was moved up to 2019 given ongoing challenges with recruitment. The assessment resulted in changes that were adopted in 2019 for recruitment beginning in June which require additional resources for increased interviews and training. Additionally, there are increased costs associated with the third party contracted to undertake the intake and screening process given the anticipated increase in applicants.
- General Insurance Program – as set out in Staff Report #1, dated June 26, 2019, the premiums and deductible costs associated with the general insurance program have risen beyond what was anticipated in the 2019 budget. Indications from the Commission’s broker with respect to trending are; to expect continued increases in costs due to the unattractive nature of the public transit book of business.
- Bus Engines – as indicated in numerous reports to the Commission, the reliability of the current series of bus engines is not at the levels experienced historically, resulting in the need to replace engines sooner in the bus life cycle. The reliability issue, coupled with the increase in fleet over the past five years, will continue to result in increased costs associated with engine replacement.
With the exception of the deferral of the planned fare increases, all other issues are considered mandatory in nature, with no opportunity to avoid the costs while continuing to operate at a status quo level.
In an effort to mitigate, to the greatest extent possible, the increase in City of London funding required to return to a balanced budget in 2020, the following initiatives have been undertaken.
- Fare Increase – A fare increase has been included in 2020, which is targeted to increase transportation revenues by approximately $3.3 million. In order to generate this amount of revenue from a fare increase, an across the board increase of approximately 15% will be required (an increase which affects all fare categories).
- Provincial Gas Tax – The amount of Provincial Gas Tax (PGT) utilized to fund the operating costs of the conventional and specialized services has been reduced by $5.482 million in total ($3.894 million for conventional and $1.588 million for specialized). This approach maximizes the amount of PGT that can be utilized in each of the four years of the multi-year budget, and will result in the Provincial Gas Tax Reserve reaching a zero balance in 2024. While this approach is contrary to the administrative guidelines associated with the Reserve, it achieves a balanced approach from all funding sources to address the funding issues associated with the cancellation of the doubling of the Provincial Gas Tax annual funding.
- Expenditure Control – All expenditures were reviewed in detail, and, where possible, reduced or held to 2019 levels. The exception to this includes the provision for the service growth on the conventional (18,000 annual hours) and specialized (6,000 annual hours) services consistent with the 5 Year Service Plan and the expenditures that are related to this growth.
With respect to increases in administrative support (Operations, Human Resources, Specialized Transit, Communications & Marketing and Information Technology), changes in complement have been deferred, where possible, to 2021 through 2023. All new position budgets are considered placeholders and will be subject to detailed review prior to being filled.
- Review of Reserves and Reserve Funds – All of the Commission’s reserves and reserve funds were reviewed in an effort to identify whether any additional operating funding could be freed up. As indicated earlier in this report, the Provincial Gas Tax Reserve is being depleted to a zero balance over the period of the 2020-2023 multi-year budget. As set out in Enclosure II, with the exception of the Energy Management and General Operating Reserves, all other reserves and reserve funds will not meet their associated administrative guidelines going forward. Subsequent to Commission approval of the 2020-2023 operating budget, all reserves and reserve funds and associated guidelines will be reviewed for possible restructuring.
- Review of 2019-2022 Business Plan Objectives – The 2019-2022 Business Plan, which was approved by the Commission in March 2019, was reviewed to ensure that the multi-year budget being presented would ensure the ability to achieve the objectives of the Plan, including the underlying objective of maintaining the momentum that was gained over the previous business plan cycle.
The following table sets out the funding requirements for the total public transit services for 2020 in comparison to 2019 projected actual figures.
2020 Operating Budget Summary – Total Public Transit Services
|Funding Source (millions)||2019 Projected Actual||2020 Budget||Total Variance||% Variance||Unit price/Base Change||2016-2019 Adjust||2019 Flow Through||2020 Growth||2020-2023 Adds|
|Trans/Operating/Reserve Revenue||$ 36.014||$ 40.061||$ 4.047||11.2%||$ 0.292||$ 3.322||$ 0.285||$0.148||$ –|
|Provincial Gas Tax||14.714||9.232||(5.482)||-37.3%||0.259||(6.049)||0.309||–||–|
|City of London||32.307||38.956||6.649||20.6%||1.836||3.331||0.524||0.566||0.391|
|$ 83.035||$ 88.249||$ 5.214||6.3%||$ 2.387||$ 0.604||$ 1.118||$0.714||$ 0.391|
|Provincial Gas Tax||17.7%||10.5%||-7.3%||-41.0%||5.0%||-116.0%||5.9%||0.0%||0.0%|
|City of London||38.9%||44.1%||5.2%||13.5%||35.2%||63.9%||10.0%||10.9%||7.5%|
As indicated in the table above, in light of the aforementioned issues and approach to preparation of the 2020-2023 multi-year budget, an increase of 20.6% in City of London funding is required. The increase in City of London funding can be split between a base budget increase (based on 2019 status quo service levels) and assessment growth (any new growth planned for the future). The base budget increase will have a direct impact on the overall tax rate increase required by the City of London, while the assessment growth portion is funded from the revenues collected by the City from growth, and as such, does not directly impact the tax rate increase. LTC administration is in discussion with civic administration with respect to the required increased contribution and possible options to mitigate the impact on the tax rate. These discussions will continue as the overall City of London budget is being prepared for tabling with Municipal Council in December 2019.
In light of the substantial increase in City of London funding required for the 2020 transit services budget, a number of options to reduce the requirement were assessed as part of the budget preparation process. The following provides an overview of the options that were assessed but not included in the recommended budget.
- Fare Increase – Consideration was given to a more significant fare increase in 2020, in the area of 20% across the board. An increase of this level was not recommended given, an increase of that magnitude, not withstanding the significant time period since that last fare increase, would be expected to result in ridership losses in the 3% to 5% range based on industry experience. Losses in ridership ultimately result in reductions to the annual Provincial Gas Tax allocation received by London given the allocation formula is based primarily on total ridership. Any loses in Provincial Gas Tax funding would need to be made up by an additional fare increase, increased City of London investment, or reductions in service.
- Expenditure Reductions – Consideration was given to reducing the annual service increases that were previously approved in principle by the Commission as part of the 5 Year Service Plan Framework. Given the continued identification of the need for improvements to the public transit service by Londoner’s, coupled with the strategic objectives of the Commission’s 2019-2022 Business Plan, reducing the planned service increases is not being recommended.
With respect to increases in administrative support (Operations, Human Resources, Specialized Transit, Communications & Marketing and Information Technology), consideration was given to eliminating all new positions from the budget and continuing with the status quo. Recognizing that gaps exist in the current complement with respect to the ability to address all aspects of the workplan, coupled with the fact that, notwithstanding the significant investment in on-road services over the past four years, administrative support was flat-lined, the approach of attempting to continue to do more with less is not deemed to be sustainable, and as such, not being recommended.
Of note, 92.1% of the total operating budget relates to on-road services and facility maintenance, leaving very little room for reductions in the operating budget that will not directly affect service.
- Review of Reserves and Reserve Funds – All of the Commission’s reserves and reserve funds were reviewed in an effort to identify whether any additional operating funding could be freed up. With the exception of drawing down the Provincial Gas Tax Reserve to a zero balance, the remaining reserves and reserve funds are being recommended to be left intact, noting the existence of reserves and reserve funds provides the opportunity to fund one-time expenditures that were not included in the annual operating budget versus the need to go back to the City of London for additional in-year funding. A status of the Commission’s reserves and reserve funds based on the budget recommendations set out in this report is set out in Enclosure II.
Discussion regarding the 2020-2023 recommended operating budgets for conventional and specialized transit services is set out below.
Conventional Transit Services – 2020-2023 Operating Budget Program
The conventional transit operating budget accounts for 88% or $77.741 million of the total $88.249 million transit operating investment. The balance applies to the specialized transit service which is discussed later in this report. Summary particulars of the make-up of the conventional transit operating budget are provided on page 2 of Enclosure I.
The following table sets out the operating investment share breakdown for 2020 as compared to 2019 projected actual results.
2020 Operating Budget Summary – Conventional Transit Services
|Funding Source (millions)||2019 Projected Actual||2020 Budget||Total Variance||% Variance||Unit Price/Base Changes||2016-2019 Adjust||2019 Flow Through||2020 Growth||2020-2023 Additions|
|Trans/Operating/Reserve Revenue||$ 35.419||$ 39.427||$ 4.007||11.3%||$ 0.280||$ 3.322||$ 0.271||$ 0.134||$ –|
|Provincial Gas Tax||11.395||7.501||(3.894)||-34.2%||0.217||(4.362)||0.250||0.000||0.000|
|City of London||26.789||30.814||4.025||15.0%||1.167||1.638||0.402||0.327||0.391|
|$ 73.603||$ 77.741||$ 4.138||5.6%||$ 1.764||$ 0.598||$ 0.923||$ 0.461||$ 0.391|
|Provincial Gas Tax||15.5%||9.6%||-5.8%||-37.7%||5.2%||-105.4%||6.0%||0.0%||0.0%|
|City of London||36.4%||39.6%||3.2%||8.9%||30.6%||39.6%||9.7%||7.9%||9.4%|
Operating Expenditure Investment
The overall operating expenditure investment for 2020 is budgeted to increase by 5.6% or approximately $4.139 million vs. 2019 projected actual results. The 5.6% increase is comprised of:
- $1.764 million in unit price and base program increases for such items as fuel, energy, insurance and personnel costs. These increases account for a 2.4% increase in overall investment;
- $0.598 million in costs associated with program changes during the previous multi-year budget including items such as the cost associated with the new Operator recruitment program, general insurance program price increases, and the inclusion of a fare increase and related reduction in Provincial Gas Tax funding;
- $1.384 million increase in service hours including 2019 flow through service hours and new growth service hours for 2020, scheduled to take effect in the fall of 2020. The growth in service hours accounts for a 1.9% increase in overall investment; and
- $0.391 million net increase or 0.5% relating to additions to the multi-year budget program relating to items such as administrative positions and increased allocations for marketing and communication efforts.
The following provides further discussion with respect to the most significant drivers in the increase in the expenditure budget for conventional transit services for 2020 versus 2019.
As indicated, continued service hour growth results in an increased operating expenditure investment for 2020 of some $1.384 million. At the February 27, 2019 meeting, the Commission approved the 5 Year Conventional Service Plan Framework which provides for service improvements and monitoring of same for the period 2020-2024. The timing and implementation of the recommended service improvements align with the planned move to a rapid transit platform, ensuring the base route structure and service frequencies will be at the required levels to support the future rapid transit corridors, and as importantly, addressing the current service quality issues relating to schedule adherence, demand for expanded services into industrial areas and system-wide frequency improvements.
The annual increase of service hours included in the approved Service Plan recommendations have been included in the recommended operating budgets for the period of 2020-2023, noting the change in any one year take effect in the fall of each year.
Personnel costs include salaries, wages and employment benefits for 601.8 full time equivalent conventional transit employees. Personnel cost accounts for approximately 69% of the annual operating expenditure investment for conventional transit.
As set out in Enclosure I (page 2), personnel cost investment is budgeted to increase by 5.5% or some $2.8 million. The increase is comprised of the following:
- 2.0% increase or some $1.011 million relating to increased service hours;
- 2.8% increase or $1.407 million relating to unit price adjustments and base program changes. The unit price respecting salaries, wages, including movement along the pay grid is as provided by the Collective Agreement and Employment Policy Statements as well as new positions. The unit price relating to employment benefits, both Commission provided and statutory benefits is as determined by supplier contracts, benefit utilization experience or as set by governing authority; and
- 0.7% increase or $0.369 million relating to adjustments in program delivery during the previous multi-year budget period and additions included in the 2020-2023 budget.
Fuel expenditure accounts for approximately 10% of the total operating expenditure investment. For 2020, fuel expenditure is budgeted at $7.362 million. The cost inputs are mileage travelled (which is directly impacted by the extent of service provided), rate of consumption (litres per kilometre) and price.
Fuel prices are volatile and subject to significant fluctuations within a given budget year. Effective 2015, consistent with the Commission’s Financial Plan, fuel expenditure investment is based upon a standard pricing model (average price paid for previous 12 months adjusted for change in the transportation consumer price index) for the recording/reporting of fuel expenditure on a monthly basis. Any net annual favourable/unfavourable price performance impact will be applied to/or funded from the Energy Management Reserve. 2019 to date has seen fuel prices decline, which is contrary to trends over the past number of years.
Direct Bus Maintenance and Servicing
Direct bus maintenance and servicing investment for 2020 totals approximately $5.207 million, representing an increase of 8.1%.
In 2015 such costs increased at a higher rate than expected, primarily relating to the required repair of new engine technology employed on buses purchased after 2009. In order for engines to meet the required emissions standards set out by the Environmental Protection Agency (EPA), they are equipped with a number of new components intended to further filter the exhaust prior to releasing it into the environment. In 2015, these components began to fail on the buses purchased from 2010-2012. The failure has occurred outside of the warranty period. The failure is not unique to London Transit operations. The components cost approximately $5,000 per bus and require three hours of labour to replace.
Issues continue to be experienced with the reliability of the new engines, ultimately requiring engines to be replaced sooner than was required historically. Given the number of buses in the fleet that have the engine in question, the budget associated with engine replacement has grown significantly over the last multi-year budget period, and is anticipated to continue to grow. Every effort is made to ensure that repairs to failing engines are undertaken within the warranty period; however this effort has not mitigated the increased costs nor need to replace the engines at the approximate 5-6 year mark.
Operating Revenue Investment
The approximate $46.927 million in identified operating revenues is comprised of:
- $37.468 million in transportation revenue which is directly related to ridership and fares;
- $1.337 million in operating revenues – primarily associated with advertising contracts for shelters, buses and benches and investment income including that earned on reserve funds;
- $0.622 million transferred from reserves in support of operating investment; and
- $7.501 million Provincial Gas Tax allocation.
The above sources support 60.4% of budget operating expenditure investment in 2020.
Operating revenues have declined given the reduced interest earned on the Commission’s reserves and reserve funds due to declining balances. The other operating revenues are largely driven by contract and market conditions.
The funds transferred from reserves include:
- transfer from the public liability reserve fund offsetting accident benefit and public liability deductible costs; and
- transfer from Health Care Management reserve offsetting return to work program costs, which is a critical element of LTC’s attendance management costs.
In 2019, $11.395 million in allocation from the Provincial Gas Tax reserve is required to balance the operating budget. As indicated earlier in this report, given the elimination of the planned doubling of the gas tax allocations, this level of funding is no longer sustainable. In 2020, the allocation from Provincial Gas Tax has been reduced to $7.501 million, which is sustainable given the status of the Provincial Gas Tax Reserve.
Transportation revenues support approximately 48% of operating expenditure investment.
Revenue from fares has two related component parts i.e. price and volume. Over the period of the last multi-year budget, two fare increases were planned but deferred given ongoing service quality issues coupled with the planned doubling of annual gas tax allocations. With 2020 being the sixth consecutive year that approximately 18,000 annualized growth service hours are to be added, coupled with the 12 year span since fares have increased, it is believed that 2020 is the appropriate time for a fare adjustment with the expectation that there will be no loss of ridership that traditionally results from across-the-board and/or year over year fare increases.
In order to raise the approximate $3.332 million in fares, the adjustment will need to occur as early in 2020 as possible. The nature and extent of the fare changes will be finalized subsequent to Commission approval of the 2020 Operating budget program. As previously indicated, the budget fare increase calls for an approximate 15% across the board fare increase. The table below provides the impacts of the 15% increase on the fare structure as well as a comparison to Ontario system peer group average fares.
Impact of 15% increase across the board
|Fare Category||Current Fare||Adjusted Fare||Peer Group Average|
|Ticket – Adult||$1.90||$2.20||$2.74|
|Ticket – Student||$1.54||$1.77|
|Ticket – Senior||$1.43||$1.64|
|Ticket – Child||$1.15||$1.32|
The adjusted fares included in the table do not represent the final recommended fare structure, rather provide an indication of the level of increases required to meet the 2020 budget expectations. Subsequent to Commission approval of the 2020 Operating budget, a detailed fare strategy report, including the recommended fare structure and timing of implementation will be prepared and tabled with the Commission.
2021 -2023 Operating Budget Estimates – Conventional Transit
The following table summarizes the conventional transit operating budget estimates for each of the years 2021 through 2023, with comparative amounts for 2019 and 2020. Building the summaries for 2021-2023 was predicated on using the 2020 recommended budget as the base and considering the direction of the Business, Financial and Service Plans and other known or expected changes.
2021-2023 Conventional Transit Service Operating Budget Estimates
|Funding Source (millions)||2019 Proj||2020||2021||2022||2023|
|Transportation/Operating/Reserve Revenue||$ 35.419||$39.426||$ 39.530||$ 40.630||$ 41.785|
|Provincial Gas Tax||11.395||7.501||7.488||7.638||7.791|
|City of London||26.789||30.814||33.857||35.694||37.787|
|Total Operating Budget||$ 73.603||$ 77.741||$ 80.875||$ 83.962||$ 87.363|
|City of London Increase||15.0%||9.9%||5.4%||5.9%|
|Investment Share||2019 Proj||2020||2021||2022||2023|
|Provincial Gas Tax||15.5%||9.6%||9.3%||9.1%||8.9%|
|City of London||36.4%||39.6%||41.9%||42.5%||43.3%|
The investment share is consistent with the need to reduce the reliance on Provincial Gas Tax for operating expenditures. The additional annual investment required from the City of London fluctuates between 5.4% and 15.0% annual increases over the period b with the city share of total operating investment increasing from 36.4% in 2019 to 43.3% in 2023. This increase is due to the decline in reliance on Provincial Gas Tax to fund operating costs.
While the increases in City of London funding are significant, the majority of the changes in the years 2021 through 2023 relate to the continued planned growth in service hours, which will be submitted for assessment growth funding versus reliance on the annual tax rate increase. This approach is consistent with the approach taken over the last multi-year budget, with each year’s growth component of the increased investment being funded with assessment growth. The planned increase in City of London share, growing to 43.3% in 2023 remains well below the Ontario peer group average from 2017 of 52.6%.
Make-up of Expenditure
The table below sets out the breakdown of expenditures by function and demonstrates the upward trend of the percent of the operating budget directly related to on-road service while also lowering vehicle maintenance and servicing costs as a percent of total investment.
Summary Allocation of Conventional Transit Operating Investment by Function
|Vehicle Maintenance and Servicing||21.6%||21.7%||21.6%||21.5%||21.4%|
|Total “on road” investment||85.3%||85.6%||85.4%||85.7%||85.6%|
|General and Administrative||6.7%||6.6%||6.8%||6.7%||7.0%|
|Total Direct Operating Costs||98.3%||98.7%||98.7%||98.8%||98.8%|
|Total Operating Investment||100.0%||100.0%||100.0%||100.0%||100.0%|
|Operating Expenditure (millions)||$ 73.603||$ 77.739||$ 80.879||$ 83.964||$ 87.362|
|Total Revenue Service Hours||656,300||677,100||692,100||709,400||727,500|
|Investment per Revenue Service Hour|
|On Road Investment||$ 1.30||$ 1.26||$ 1.23||$ 1.21||$ 1.18|
|Direct Operating Investment||$ 1.50||$ 1.46||$ 1.43||$ 1.39||$ 1.36|
|Total Operating Investment||$ 1.52||$ 1.48||$ 1.44||$ 1.41||$ 1.37|
As indicated earlier in this report, the table above sets out the percentage of the operating budget that is allocated to “on-road” service. The average budget share that is allocated to service on the road is approximately 85.5%. This level of investment makes it extremely difficult to find budget reductions that will not impact service. Adding the costs associated with facility maintenance brings the average annual investment to approximately 92%, all of which cannot be reduced without having a negative impact on service.
Ridership is projected to grow by approximately 1.5% per year, which given the significant investment in growth service hours is considered reasonable. The table below sets out the ridership budgets over the period.
Conventional Transit Services – Ridership Budget
|Ridership (millions)||2019 Proj||2020||2021||2022||2023|
|Rides per Capita||60.88||61.19||63.17||63.48||63.80|
|Rides per Revenue Service Hour||36.45||35.86||35.50||35.60||34.80|
As set out in the table, the Rides per Revenue Service Hour declines only slightly over the period from a high of 36.5 down to 34.8.
Specialized Transit Services – 2020 – 2023 Operating Budget Program
The specialized transit operating budget accounts for 12% or $10.508 million of the total $88.249 million transit operating investment. Summary particulars of the make-up of the specialized transit operating budget are set out on page 3 of Enclosure I.
The following table sets out the operating investment share breakdown for 2020 as compared to 2019 projected actual results.
2020 Operating Budget Summary – Specialized Transit Services
|Funding Source (millions)||2019 Projected Actual||2020 Budget||Total Variance||% Variance||Unit price/Base Change||2016-2019 Adjustments||2019 Flow Through||2020 Growth|
|Passenger Fares||$ 0.595||$ 0.635||$ 0.040||6.7%||$ 0.012||$ 0.014||$ 0.014|
|Provincial Gas Tax||3.319||1.731||(1.588)||-47.8%||0.042||(1.687)||0.059|
|City of London||5.518||8.142||2.624||47.6%||0.569||1.693||0.122||0.239|
|$9.432||$ 10.508||$ 1.076||11.4%||$ 0.623||$ 0.006||$ 0.195||$ 0.253|
|Provincial Gas Tax||35.2%||16.5%||-18.7%||-53.2%||3.9%||-156.8%||5.5%||0.0%|
|City of London||58.5%||77.5%||19.0%||32.4%||52.9%||157.3%||11.3%||22.2%|
|Funding Source (millions)||2019 Projected Actual||2020 Budget||Total Variance||% Variance|
|Eligible Passenger Trips||314,500||328,600||14,100||4.5%|
Operating Expenditure Investment
As set out in Enclosure I, overall operating expenditure investment for the 2020 specialized transit service is budgeted to increase by 11.4% or $1.076 million versus the 2019 projected actual results bringing the total operating investment to $10.508 million. The 11.4% increase results from:
- $0.623 million in unit price increases for contracted service and personnel costs, noting the increased hourly costs associated with the award of the primary service provider contract as set out in Staff Report #1, dated August 28, 2019. The unit price increase accounts for a 6.6% increase in overall investment; and
- $0.448 million increase in service growth including 2019 flow through service changes and new 2020 service plans. Service growth accounts for a 4.7% increase in overall investment.
The following provides further discussion with respect to the most significant drivers in the increase in the expenditure budget for specialized transit services for 2020 versus 2019.
Personnel costs (relating to the brokerage operations) cover salaries, wages and employment benefits for 13.5 staff. The unit price respecting salaries and wages includes movement along the pay grid is as provided by the respective Employment Policy Statements and benefit contracts. The unit price relating to employee benefits, both Commission provided and statutory benefits, is as determined by supplier contracts, benefit utilization experience or as set by governing authority.
The majority of the increase in 2020 relates to the need for additional resources in order to begin to implement the move to integrate the conventional and specialized services. The budget allocation is considered a placeholder and will be subject to assessment prior to any position being created and filled.
Contracted Service Delivery Costs
The delivery of the specialized service is provided via primary and secondary service contracts, which cover the provision of drivers and vehicles. The contracts are based on hourly rates for service, and are subject to annual increases based on the change in consumer price index relating to transportation costs. Enclosure I sets out a summary analysis of the change in contract service delivery costs. As noted, contract delivery costs are expected to increase by $0.935 million or 12%. The increase is comprised of:
- $0.552 million in unit price increases as provided by service contracts;
- $0.343 million increase in service growth including 2019 flow through service changes and new 2020 service plans; and
- $0.040 million increase in net base program changes.
2021 -2023 Operating Budget Estimates – Specialized Transit
As indicated earlier in the report, the methodology employed for budget preparation was to first develop the 2020 budget and analyze trends and variances so they could be applied as appropriate going forward. The following table sets out the specialized transit operating budget for each of the years 2019 through 2023.
2019-2023 Specialized Transit Service Operating Budgets
|Funding Source (millions)||2019 Proj||2020||2021||2022||2023|
|Passenger Revenue||$ 0.595||$ 0.635||$ 0.659||$ 0.691||$ 0.719|
|Provincial Gas Tax||3.318||1.731||1.723||1.761||1.798|
|City of London||5.518||8.142||9.288||9.909||10.483|
|Total Operating Budget||$ 9.431||$ 10.508||$ 11.670||$ 12.361||$ 13.000|
|City of London Increase||47.6%||14.1%||6.7%||5.8%|
|Investment Share||2019 Proj||2020||2021||2022||2023|
|Provincial Gas Tax||35.2%||16.5%||14.8%||14.2%||13.8%|
|City of London||58.5%||77.5%||79.6%||80.2%||80.6%|
As set out in the table, the City of London investment share is set to increase by 19% in 2020. The rates of contribution increase slightly in future years, given the City of London is funding more of the costs associated with growth as Provincial Gas Tax contributions have been maximized. Currently the Specialized Service is scheduled to grow by 6,000 hours per year.
The following table provides a breakdown of the specialized service budget by expenditure function. As indicated, on road service accounts for 98% of total investment, with general administrative accounting for the balance. The concentration of investment in on road service is unique to the manner in which specialized transit service is structured (brokerage) and service delivered.
Summary Allocation of Specialized Transit Operating Investment by Function
|Contract Service Delivery Costs||85.4%||85.6%||86.7%||86.6%||86.9%|
|Total “on road” investment||98.9%||98.1%||98.3%||98.3%||98.4%|
|General and Administrative||1.1%||1.9%||1.7%||1.7%||1.6%|
|Total Direct Operating Costs||100.0%||100.0%||100.0%||100.0%||100.0%|
|Operating Expenditure (millions)||$ 9.432||$10.508||$ 11.670||$ 12.361||$ 13.000|
|Total Revenue Service Hours||150,600||157,300||163,300||169,300||175,300|
|Investment per Revenue Service Hour|
|On Road Investment||$ 61.97||$ 65.53||$ 70.24||$ 71.77||$ 72.96|
|Direct Operating Investment||$ 62.63||$ 66.80||$ 71.46||$ 73.01||$ 74.16|
The significant percentage share of on road service of the total operating budget is consistent with the Commission’s Financial Plan. Further, the total direct operating and total operating investment per revenue service hour continues to be well below the Ontario average for a specialized transit system.
The following table provides the ridership budget for the specialized service over the period of 2021-2023 with comparative figures for 2019 and 2020.
Specialized Transit Services – Summary Ridership Budget
|Ridership (millions)||2019 Proj||2020||2021||2022||2023|
|Eligible Passenger Trips||314,500||328,600||341,600||355,300||369,500|
|Rides per Capita||0.86||0.89||0.91||0.93||0.96|
|Rides per Revenue Service Hour||2.33||2.33||2.33||2.34||2.35|
|Average Rides per Registrant||34.8||34.9||34.3||33.9||33.5|
As set out in the table, the rides per capita is scheduled to increase to a high of 0.96 in 2023. The rides per service hour and average rides per registrant are scheduled to level off at 2.3 and 34 respectively, demonstrating the intent to focus on service integration with conventional transit services in an effort to manage growth on the specialized service.
Reconciliation City of London Budget Presentation
Subsequent to Commission approval of the 2020-2023 operating and 2020-2029 capital (see Staff Report #4 dated August 28, 2019) budgets as presented in this report, administration will reformat the presentation to be consistent with the standard presentation format utilized for all civic departments, boards and commissions. The finalized documents will be provided to the Commission at a future meeting, once same has been completed.
As indicated earlier in this report, part of the reformatting process will be to break the budget requests into “base budget request”, funded from the tax rate increase and “growth request” funded from assessment growth. This approach is consistent with that followed over the period of the previous multi-year budget. Consistent with City of London policy respecting assessment growth funding, the total annualized costs associated with any items being funded by assessment growth are included in the budget request and ultimate approval. Accordingly, certain of the 2020 increased City investment (that relate to 2019 flow through service growth on conventional and specialized transit) has already been approved.
Status of Reserves and Reserve Funds
Enclosure II provides a summary of each of the Commission’s reserves and reserve funds over the period of 2019-2023 including contributions to/from each as set out in the operating and capital budgets as well as the administrative guideline relating to each.
The planned use of reserves and reserve funds over the four year period results in all reserves and reserve funds, with the exception of the General Operating and Energy Management Reserves, maintaining balances below their established administrative guidelines. The Provincial Gas Tax Reserve will be depleted by 2024.
III – Detailed Operating Budget Analysis – Conventional (Commissioners only)
IV – Detailed Operating Budget Analysis – Specialized (Commissioners only)
Mike Gregor, Director of Finance
Shawn Wilson, Director of Operations
Joanne Galloway, Director of Human Resources
Craig Morneau, Director of Fleet & Facilities
Katie Burns, Director of Planning
Concurred in by:
Kelly S. Paleczny, General Manager