Staff Report #7
August 31, 2026
To All Commissioners
Re: 2027 Operating Budget Program
Recommendations
That the Commission:
i. APPROVE the 2027 Operating Budget Program for public transit services allocated as follows:
| Category | Conventional | Specialized | Total |
| Revenue | $ 55,106,500 | $ 984,500 | $ 56,091,000 |
| Expenditures | 114,808,400 | 19,615,900 | 134,424,300 |
| City of London | $ 59,701,900 | $ 18,631,400 | $ 78,333,300 |
ii. DIRECT Administration to submit the approved 2027 public transit services operating budget to civic administration consistent with the City of London’s reporting format; and
iii. DIRECT Administration to submit a Budget Amendment Case increasing the City of London investment by $2,037,800 million for 2027 to support the permanent addition of 2,400 service growth hours and the increased cost of diesel fuel.
Background
Multi-Year Budget Approach
When four-year budgets are prepared, a number of factors must be applied in an effort to estimate the cost escalations that will occur in each of the years. As due diligence, each year the budget is reassessed and adjustments as appropriate are recommended to the Commission for consideration as part of the annual budget approval process.
Over the 2020-2024 multi-year budget program, significant fluctuations from budgeted projections were experienced, which were primarily related to the global pandemic and its impact on supply chain and overall inflations. During this period, the Commission chose to utilize various reserves as well as the Safe Restart funding program from the Province to balance each year’s budget, versus seeking a budget increase from the City of London. While this avoided annual budget asks of the City, the approach essentially utilized the Commission’s reserves such that they could no longer be relied upon to cover the inflationary impacts on the operating budget. As the result, the starting point for the 2024-2027 Multi-Year Budget (MYB) sought a significant increase in City of London funding, which essentially covered the previous four years’ worth of increases that had been funded through other sources of funding which were no longer available. A significant (17%) fare increase was also applied in 2024 in an effort to mitigate the extent of the ask from the City. Not only did this approach result in a budget request that was difficult for members of council to understand given they had limited insight into the measures taken in the previous four years to balance the budget, it reduced reserve levels far below administrative guidelines, which limited the Commission’s in-year budget flexibility going forward.
For the 2024-2027 MYB program, Administration reviewed each annual budget and presented revised budgets to the Commission for consideration. In 2025 and 2026, the Commission approved lower contribution from the City than what was included in the approved MYB ($1.495 million and $0.700 million respectively), primarily due to major cost drivers trending lower than what was forecast in the original budgets. Each of these amendments were recommended to Council as a “one year” reduction, versus a permanent reduction given the in-year savings were attributable to significant fluctuations in major cost drivers, which have remained volatile over the last three years.
2027 Operating Budget
The 2027 Operating budget represents the fourth and final year of the current MYB. Consistent with past practice, Administration completed a detailed review of the 2027 Operating Budget Program, the details of which are provided in Enclosures I , II and III. The detail in the enclosures includes analysis between 2026 projected actual figures and 2027 budget by area of operation. The analysis breaks down variances into four categories, each of which is explained below.
- Unit Price Change – numbers in this column indicate a general price increase in the item being analysed. By way of example, a unit price fluctuation in transportation revenue would suggest a fare change and a unit price fluctuation in a material expenditure would suggest a shift in the cost of the commodity as compared to the 2026 projected actual figure.
- 2026 Growth Flow Through – numbers in this column reflect the additional costs incurred in the year following the implementation of service growth. Given that conventional service improvements are typically implemented in the fall, the costs associated with the growth in the implementation year reflect approximately 30% of the annualized cost of the growth. These flow through costs are identified in all areas of the operation that are impacted by service growth.
- 2027 Growth – numbers in this column reflect the costs directly attributable to the approved service growth being implemented in 2027 and will be identified in all areas of the operation that are impacted by the growth.
- Base Program Changes – numbers in this column reflect a fundamental change in a program that has resulted in a fluctuation from the 2026 projected actual. By way of example, an increase in fuel costs identified as a base program change in 2026 is due to the increase in fuel prices anticipated for all of 2027.
It should be noted that the revenue and residual City of London funding required to support the additional expenditures in each of the categories must balance. Expenditures pertaining to each of price or rate changes along with City approved growth in the 2024-2027 MYB have been supported through increases to City of London funding, as approved during the MYB process. Additional funding must be sought by way of a Budget Amendment Business Case submission for the 2027 budget process.
In addition to the analysis, information with respect to the items included in each line account are included in Enclosures II and III. On sections dealing with labour costs, details with respect to the number of employees is provided, and on sections dealing with material costs, details with respect to what is included in line accounts is provided where applicable.
The remainder of this report provides further details with respect to the more significant fluctuations in line-item accounts that have the net impact on the overall operating budgets for the conventional and specialized services. When reviewing the following discussion and analysis included in the report enclosures, it is important to recognize that the variances being analysed are between the 2026 project actual budget and 2027 proposed budget. This approach is consistent with the manner in which the annual budgets are assessed and updated throughout the MYB period.
Conventional Service
As indicated earlier, Enclosure II includes a detailed breakdown of the 2027 Conventional Transit service operating budget, with variance comparisons to the 2026 projected actual figures. The enclosure document provides summary information on the first several pages followed by detailed breakdowns of each revenue and expenditure area including analysis of variances. This section of the report provides further discussion relating to the key drivers in the 2027 conventional services operating budget as compared to 2026 project actual.
As mentioned earlier in this report, as part of the 2026 budget update process, the Commission approved a reduction in City of London funding of $0.700 million primarily due to lower than budgeted fuel costs. As has been shared through monthly financial updates, the unrest in the Middle East has resulted in significant fluctuations in diesel fuel prices which are resulting in a budget shortfall in 2026. The projections for 2026 include the requirement of $3.8 million from Commission reserves beyond which was included in the original budget. While it is possible to rely on the reserves to balance the 2026 budget, balances in the Commission reserves are such that this approach is not recommended for the increased funding required for the 2027 budget.
As part of the 2026 budget approval process, the Commission approved the addition of 2,000 service hours and a $50,000 expenditure to be utilized for service improvements in the fall of 2026, all of which was funded from Commission reserves. This approval came with the caveat that the use of reserves for these improvements was limited to 2026, and the flow-through costs of these changes would be included in the 2027 budget and funded through traditional sources (passenger fares, Provincial Gas Tax and City of London). Given the shortfalls identified in the 2027 budget process, there is no way to fund these additions other than to increase City of London funding in 2027.
As set out in the report recommendation, a budget adjustment business case for the conventional operating budget will be required which seeks an additional $2,037,800 in City of London funding for 2027. This increase covers the escalated fuel costs as well as the flow-through costs of the additional 2,000 service hours and $50,000 for service improvements that were approved by the Commission in 2026. As indicated later, the 2027 recommended budget also includes the deferral of $650,000 in contributions to reserves that was included in the original 2027 budget. This approach is recommended in an effort to mitigate, to the extent possible, the incremental ask for City of London funding.
Transportation Revenue
As part of the 2027 budget assessment, Administration worked with representatives from both Fanshawe and Western to identify estimated September 2026 enrolments as they relate to the tuition pass programs. As detailed in the report enclosures, transportation revenue is forecasted to increase by $0.981 million, or 2.5% in 2027 as compared with 2026. The estimated increase in revenue and corresponding ridership gains is attributable to the moderate ridership gains consistent across all fare categories after the significant declines in 2026 witnessed in comparison to 2025 due to the reduction in international students within the tuition pass programs, as well as the annual contractual increase in the cost of the tuition pass.
Transfers from Reserves
The 2026 projected actual estimates the need for the Commission’s reserves to balance the anticipated deficit due to higher than budgeted fuel costs ($2.570 million) as well as other increased net expenditures mainly including direct bus maintenance and servicing ($1.031 million). The use of the Commission’s reserves is prudent for unanticipated in-year fluctuations such as those noted above; however, continued reliance on the reserves is not sustainable given their limited funding levels as maintained within approved Commission guidelines. A combination of increased transportation and operating revenues as well as expenditure reductions partially covers this shortfall, however, as noted above, the need to look to the City of London for additional funding is necessary.
Provincial Gas Tax Revenue
The annual contribution from Provincial Gas Tax for Transit (PGT) program is increasing from the 2026 projected actual in keeping with the level of funding included within the original MYB for 2027. Note that 2026 did see a slight reduction that was part of the one-time 2026 budget reduction offered to the City for additional savings.
Personnel Expenditures
The 2027 budget requires over $78.8 million in personnel expenditures to support the implementation of over 773,000 revenue service hours, an increase of $3.881 million over 2026. This increase is mainly attributable to the increase in wage and benefit rates ($2.112 million) and the addition of service growth ($2.167 million).
Fuel Expenditures
The 2026 budget calls for the purchase of 7.8 million litres of diesel fuel. Given that fuel is one of the most volatile commodities in the operating budget, predicting the budget for this line item is challenging. To mitigate the in-year risks associated with price fluctuations beyond those included in a budget, the Commission maintains an Energy Management Reserve, which can be relied upon to cover unanticipated fluctuations in a given year.
2026 is currently witnessing extremely volatile diesel fuel prices, a direct result of the ongoing conflicts within the Middle East. Prices in January and February were in line with forecasted amounts but climbed significantly in March and have fluctuated significantly since. The original 2026 fuel budget was based on an estimated price of $1.217 per litre of fuel, noting it had been reduced during the 2026 budget setting process given the price trends at the time and desire to provide budget savings at Council’s request. The 2026 projected actual is anticipated to be $2.6 million over budget and will require the use of the Energy Management Reserve to manage this overage.
The diesel price used to set the 2027 fuel budget is based on the recent average price of $1.650 per litre, and is the same rate used to project the remaining fuel expenditures in 2026. The 8.8% increase in fuel expenditures is due to price ($0.706 million) and growth hours ($0.345 million).
Contributions to Reserves
In the 2026 projected actual, contributions to Commission reserves totalling $650,000 were deferred given the fact that reserves will be drawn down to balance the budget. These annual contributions ensure that healthy balances are maintained in the Capital Program Reserve and Public Liability Reserve Fund. In an effort to mitigate the extent of the request for additional City of London funding in 2027, these budgeted contributions have been deferred.
Specialized Service
As indicated earlier, Enclosure III includes a detailed breakdown of the 2027 Specialized Transit service operating budget, with variance comparisons to the 2026 projected actual figures. The enclosure document provides summary information on the first several pages followed by detailed breakdowns of each revenue and expenditure area including analysis of variances. This section of the report provides further discussion relating to the key drivers in the 2027 specialized services operating budget as compared to 2026 project actual.
Transportation Revenue
The transportation revenue on the specialized service is projected to increase by 2.5% over 2026 which is directly attributable to the increased ridership resulting from the additional 8,000 service growth hours to be added in 2026.
Personnel Expenditures
Personnel costs (relating to the brokerage operations) cover salaries, wages and employment benefits for 17 full-time equivalent staff. These costs are budgeted to increase $0.157 million, relating mainly to wage and benefit rates along with the addition of one position approved in the MYB.
Contracted Service Expenditures
The 2027 budget has been updated to reflect best estimates of the annual contractual increases which are tied to the consumer price index. Also included in this budget are the increased costs associated with the additional 8,000 service hours, which will be implemented in 2027. In August 2027, the specialized service is migrating to a new service provider as awarded through public tender, see Staff Report #10, dated March 30, 2026. Included in the 2027 budget are expenditures for potential transition costs.
As set out in the report recommendation, there is no request for incremental City of London funding relating to the Specialized Service Operating budget for 2027.
Next Steps
Subsequent to Commission approval of the report recommendations, Administration will prepare the budget documents in the requisite City of London format for submission, noting the City of London finance department has been provided with the numbers included in the report recommendation for their forecasting purposes.
Enclosures
I – 2027 Operating Budget Public Transit Services
II – 2027 Detailed Operating Budget Analysis – Conventional (Commissioners only)
III – 2027 Detailed Operating Budget Analysis – Specialized (Commissioners only)
Recommended by:
Mike Gregor, Director of Finance
Shawn Wilson, Director of Operations – Specialized
Joanne Galloway, Director of Human Resources
Craig Morneau, Director of Fleet & Facilities
Katie Burns, Director of Planning
David Butler, Director of Operations – Conventional
Concurred in by:
Kelly S. Paleczny, General Manager