Staff Report #4
June 26, 2019
To All Commissioners
Re: 2020 – 2023 Multi-Year Budget
Recommendation
That the report be RECEIVED for information.
Background
The next multi-year budget submission is scheduled to be approved by Municipal Council in January 2020. The Commission’s operating and capital budgets are required to be provided to civic administration in August in order to allow for compilation of the budget to be tabled with Municipal Council in December 2019. Initial discussions have been held with Municipal Council, and resulting direction has been provided to administration that the target budget increases for each of the next four years is 1.5% per year.
The following report has been prepared in an effort to provide the Commission with an overview of a number of issues that will result in a challenge in meeting this target. The report is broken down into three key areas, issues that occurred over the last multi-year budget cycle, issues that have occurred in 2019 to date, and issues resulting from future plans.
Multi-Year Budget Decisions
A number of budget decisions over the past multi-year budget cycle 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 items rather than seek additional funding from the City of London. These decisions were based on the assumption that the planned doubling of annual PGT allocations would take place. In March of 2019, the new Provincial government announced that this increase will not be taking place and further, the existing program will undergo a 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. While there is a balance in the PGT reserve, the approach of spending more than is coming is neither sound fiscal management nor sustainable going forward. The major items that have played a role in this issue are discussed further below.
Fare Adjustments – the two fare adjustments that were included in the current multi-year budget submission were both deferred with the revenue shortfall being funded by Provincial Gas Tax. The resulting increased reliance on Provincial Gas Tax was considered viable for a short term, but is not considered to be sustainable going forward most notably due to the Provincial announcement that the planned increase to the Provincial Gas Tax allocations was cancelled. As a result, fare increase(s) will be inevitable going forward, the details of which will be subject to finalization of the multi-year budget, noting currently, the amount of historic planned fare increase being covered by Provincial Gas Tax is $2.4 million.
Specialized Service Contracts – increased costs to the specialized service contracts resulting from the ESA amendments affecting minimum wage have, to date, been covered by increased contributions from the Provincial Gas Tax reserve. This has resulted in a significant shift in the investment shares of the City of London (down to 59.5% from 70.1%) and Provincial Gas Tax (up to 33.9% from 21.4%). Investment shares need to be re-adjusted to historic levels going forward in order to be considered sustainable.
Software License Fees – a number of programs that have been implemented/upgraded over the past few years as part of the capital program now require annual license fee payments for continued support. The annual fees for the smart card system and the new scheduling system for specialized are both significant, and over and above what has been budgeted and will be ongoing in nature.
2019 Budget Issues
Given operating and capital budgets are prepared in the summer of the year prior, it is inevitable that issues arise in-year that have not been budgeted. Additionally, the approach utilized by the Commission with respect to the multi-year budget process was to avoid going back to the City of London for increased funding as the result of issues that arose, and rather rely on Provincial Gas Tax funding to balance the annual budgets.
Specific to the 2019 operating budget, the following provides an overview of the major issues that have arisen and are being addressed with no specific source of funding.
Operator recruitment – the planned assessment of the Operator recruitment program for 2020 was moved up to 2019 given ongoing issues with recruitment. The assessment resulted in changes that have been adopted for 2019 recruitment beginning in June which will require additional resources for increased interviews and training. Additionally, there will be increased costs associated with the third party contracted to undertake the intake and screening process given the anticipated increase in applicants. While this change is considered as a first step, it is anticipated to remain in place, and in all likelihood may need to be further revised going forward depending on the success of the initial changes.
Disability Management – increases in both the number and complexity of short and long term disability claims have resulted in the requirement of additional administrative resources beyond which were included in the 2019 budget. As previously reported, the increases in number are in part the result of a larger workforce, noting complement over the past five years has increased by 11%, as well as overall trends in disability claims being experienced across all sectors. Complexities continue to be increased with respect to disability management given the broad spectrum of often-changing legislative requirements that must be adhered to when managing same.
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.
All of the aforementioned issues, which are considered program changes versus growth, will need to be included in budgets going forward. In an effort to illustrate the impacts, the following tables set out the expected increases required for the 2020 budget based on status quo service levels (September 2019) for both conventional and specialized services. It should be noted that the numbers included in this table are high level estimates which have not been fully costed, they are intended to provide an order of magnitude.
Conventional Transit Service
| Expenditure Category | Expenditure | % Change |
| 2019 Budget | $74,688,000 | |
| Increases (Decreases) | ||
| Labour and Benefits | 2,070,000 | 4.1% |
| Fuel | (200,000) | (2.3)% |
| Direct Bus Maintenance | 320,000 | 5.4% |
| Insurance | 600,000 | 32.6% |
| All Other | 540,000 | 19.1% |
| 2020 Status Quo | $ 78,078,000 | 4.5% |
Specialized Transit Service
| Expenditure Category | Expenditure | % Change |
| 2019 Budget | $9,281,800 | |
| Increases (Decreases) | ||
| Labour and Benefits | 171,000 | 1.8% |
| Contracted Services | 472,000 | 5.1% |
| All Other | 41,000 | 0.4% |
| 2020 Status Quo | $ 9,965,800 | 7.4% |
As the tables indicate, total expenditure on both services is set to increase significantly in an effort to maintain status quo for the 2020 budget.
The two aforementioned areas will need to be addressed in the next multi-year budget submission, noting the items included are considered necessary going forward for a status quo budget. Any efforts to significantly reduce the expenditure budget going forward will result in service impacts.
Future Growth Plans
In addition to the status quo budget, the Commission has approved a number of plans, primarily the 2019-2022 Business Plan and the 5 Year Conventional Service Plan, the combination of which call for increased investment in a number of program areas. The following sets out an overview of some key items that are being recommended for inclusion in the Commission’s 2020-2023 operating budget submission.
Conventional Service Plan – the next 5 Year Conventional Service Plan, as approved by the Commission, calls for the addition of approximately 18,000 hours of service each year for the next five years. This level of growth is consistent with that included in the last multi-year operating budget.
Specialized Service Plan – while there is no formal service plan for the Specialized Service, it is anticipated that an additional 6,000 hours per year will need to be added to the service in an effort to continue to meet the demand of an existing and growing registrant base. This increase is consistent with that included in the last multi-year operating budget, and while the service continues to struggle to meet demand, the planned focus on service integration going forward is anticipated to result in some relief on the specialized service as a shift to conventional takes place.
Rapid Transit Service – the implementation of the first rapid transit corridor could, depending upon the funding approvals, occur within the next multi-year budget cycle. The 5 Year Conventional Service Plan does not include any resource allocations toward the delivery of a higher frequency service on a rapid transit corridor.
Administrative Resource Requirements – historic service growth coupled with planned growth have been addressed on the front lines with appropriate resource levels; however the level of administrative support for the continuously growing organization has not kept pace. Over the 2016-2019 multi-year budget period, efforts were made to provide for the required resources within a small budget allocation which had been included as a placeholder. While this provided for some relief, it did not account for some of the major restructuring that took place in the Operations and Planning departments as a result of a retirement. While no specific roles have been identified, it is anticipated that additional resources will be required in most areas of the organization as set out below.
- Human Resources – experiencing increased pressure on existing resources relating to increased overall complement as well as issues identified earlier in this report. In addition, the growing complement and increased rate of hires has resulted in increased pressure for health and safety and other on-boarding training in order to ensure that all legislative requirements continue to be met. A review of the current training model and associated resources is currently underway and is expected to result in a recommendation for increased or different resource allocations.
- Operations – front line complement continues to increase commensurate with service growth, however the administrative and management complement has not kept pace. The 2019-2022 Business Plan identifies service integration as a key priority, and it is anticipated this will require a dedicated position. In addition, the changes to the Operator recruitment model have resulted in an increase in the number of interviews being conducted and, while this has currently been accommodated within existing resources, any continued growth in this area will result in a resource issue.
- Fleet & Facilities – the continued growth in fleet size over the past four years has resulted in an increased number of buses being maintained at the Wonderland Facility. Plans for continued expansion will see this number grow to the extent that a second Manager will be required in order to cover multiple shifts. There is currently one Manager for the Wonderland facility who rotates between afternoon and night shifts in effort to manage both shifts.
- Information Technology – continued reliance on technology coupled with the planned replacement of some key software will require additional IT resources over the next four year period. Depending on the nature of the requirements, these resources may be obtained via third party with a specific skill set, or may be better managed with an addition to the current complement in the department.
- Communications & Marketing – the 2019-2022 Business Plan includes as a priority an enhanced marketing and communication presence for LTC in the community. Over the past few years, LTC participation has increased at festivals and community events, however, has been limited to events where a specific request to attend has been received due to staff availability. Going forward, should LTC wish to participate in festivals or other large events, appropriate staffing and associated compensation will need to be established.
- Specialized Service – the continued growth in registrants and service levels on the specialized service has placed increased pressure on call takers and trip assigners. Notwithstanding the increase in telephone lines and associated booking agents, customers continue to complain about the length of time required to secure a booking. In addition, the focus on service integration over the next four years will also impact staff resources in this area. A review of the staffing requirements is being undertaken in 2019, which is anticipated to result in the requirement for additional staff.
Front Line Resource Requirements – growth in service over the last four years has been addressed effectively for the Operator position, with the addition of approximately 11 Operators per year to cover the increased requirements associated with annual service plans. Notwithstanding this growth, there have been a number of occasions where service has not been met due to Operator availability. This shortage has also led to difficulty in completing the planned annual training programs for this group. A review of the approved complement for the Operator position is underway in an effort to determine the appropriate number which balances the need to ensure service is delivered as scheduled with the requirement to pay guarantee and overtime. It is anticipated this review may result in the need to increase complement in the Operator group. In addition, given the extension to the service day, an additional Inspector position is required in order to provide for on-road coverage during all service periods.
In addition to the Operations department, increased pressure with respect to the service and fleet increases has been placed on Fleet & Facilities. Planned extensions to the service day will result in less time for buses to be prepped each night, which may result in the requirement for additional resources.
WSIB Model Change – the model for WSIB will be changing in 2020, moving away from the current model which provides for annual rebates based on performance. Historically, these rebates have been utilized to fund the Commission’s return to work program. While the extent of the impact on the overall funding of WSIB premiums and the related return to work program is unknown at this time, it is anticipated that an alternative source of funding for some or all of the return to work costs will need to be identified.
Marketing and Community Presence – in addition to the staffing resources required for an enhanced marketing and community presence, a budget for marketing materials and equipment to support this initiative are required. In addition to a budget for marketing, items being considered include a portable tent or booth for participation at events, tablets or laptops to allow representatives to conduct surveys or display information, and appropriate signage for on-street presence during service changes each year.
Special Studies – are those which are generally undertaken by a third party on behalf of the Commission given the expertise required to undertake same is not available in-house. Given the continued changes in the manner public transit service is delivered, and the new technologies that are being introduced every day, it is anticipated that a greater reliance on outside expertise will be required over the next four years. This will be particularly critical for initiatives such as the assessment of alternative service delivery models and service integration options as well as the assessment of the potential implications of moving toward new bus technologies such as electric. Additionally, a review of the current performance program for administrative staff is scheduled to occur over the next four years which would require outside expertise.
New Public Transit Infrastructure Stream Projects – the replacement and increase of wayside signs as part of the phase one PTIF funding will result in increased operating requirements relating to the communication requirements. Each additional sign will require a cellular connection in order to be able to provide real-time information. The PTIS project to increase the number of shelters by 60, if approved, will require a contract for the maintenance and repair of the additional shelters, as this addition falls outside of the existing contract.
Specialized Service Contract Award – the primary contract for the provision of vehicles and drivers for the specialized service will expire in July 2020. The new contract costs will need to be provided going forward.
Third Party Review Recommendations – the recommendations stemming from the third party review being undertaken by Rubin Thomlinson with respect to the Commissions Harassment and Discrimination policies and procedures are likely to include items that will require resources that cannot be accommodated within existing budgets.
As referenced earlier in this report, all of the aforementioned initiatives are considered critical in terms of ensuring the adequate resources are in place to deliver on the approved future plans.
Capital Budget
In addition to the operating budget, the Capital budget is prepared for a ten year horizon, with approvals occurring for each program year. A number of issues have given rise to the need for changes to existing programs included on the ten year capital budget as well as the introduction of new programs.
Existing Programs
Bus Expansion – Given the planned extension to the service day for some routes beginning in September, coupled with the continued growth in fleet, there is a requirement to increase the spare buses in the fleet. Additionally, the expansion to the fleet over the last several years has only included the buses required to deliver the service, but has not considered the need to maintain a fleet-wide spare ratio to provide for adequate time to complete maintenance and servicing on the fleet. The number of spare buses required will be refined and included in the amended capital budget program. In addition, given the increase in new Operator hires and the number of training classes required to accommodate same, issues have occurred with respect to the availability of buses for training. Consideration is being given to increasing the fleet size to accommodate for this going forward.
Facility Replacement – the current placeholder numbers included in the ten year capital budget will be updated to be consistent with the estimate provided in the Facility Needs Assessment Report.
Bus Stop Amenities – the nature and complexity of service changes over the past few years, coupled with the planned future changes has resulted in the need for increased expenditure relating to the removal/replacement/movement of shelters and bus stops. The cost associated with the required cement pads included in the budget is not adequate to address the planned changes going forward. Further, the costs associated with the replacement of bus stop plates with each service change is also significantly higher than what has traditionally been included in the budget.
Service Vehicles – extensions to the service day as well as changes to maintenance practices will result in the need to revisit the annual budget for service vehicles in order to ensure availability of same during all required periods.
Software/Hardware – the costs associated with the replacement of the accounting and human resources software programs are anticipated to be more than what is included in the annual software/hardware budget, and as such, this program will be increased. In addition, the on-bus hardware associated with the smart card as well as other systems is reaching end of life, and as such will begin to require replacement. Given the amount of equipment involved, this expense will be significant over the next ten years and as such will be included in the updated program.
New Programs
Operator barriers – In August 2018, Operator Safety Barriers were introduced on three LTC buses for a one-year assessment. A report from the Joint Health and Safety Committee with respect to the outcome and recommendations going forward is expected in the fall of 2019. Should the recommendation be to move forward with this program, a new program will need to be included in the capital budget request.
Smart Card Vending Machines – An assessment of smart card vending machines, which provide for the opportunity to revalue existing smart cards at a machine is currently underway. These machines can be installed both indoors and outdoors and will provide flexibility in placement, ensuring city-wide coverage for smart card revaluing. This has not been identified in the current ten year capital program and as such will be a new program request dependent upon the outcome of the assessment.
Summary
As set out in the report recommendation, this report is being presented in order to provide the Commission with the opportunity to discuss the various budgetary issues going forward and to provide direction to administration with respect to the direction that should be taken in preparation of the 2020-2023 operating and 2020-2029 capital budget programs.
Recommended by:
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