ADDED
Staff Report #11
October 30, 2019
To All Commissioners
Re: 2020-2023 Operating Budget Update
Recommendation
The Commission DIRECT Administration with respect to the nature and extent of budget reductions to be included in any required Business Case, subject to the direction of Municipal Council relating to the multi-year operating budget process.
Background
Civic administration has prepared a report for the Strategic Priorities and Policy Committee with respect to the 2020-2023 Multi-Year Budget. While the report will not be discussed by the Committee until November 5, 2019, one of the recommendations relates directly to the Commission’s multi-year budget submission. The recommendation calls for civic administration to engage with the City’s agencies, boards and commissions (ABC’s) who submitted draft budgets in excess of the budget targets provided, to encourage them to submit potential opportunities for reductions, in accordance with the City’s format and timelines, and to be prepared to address the impacts of a reduction to their budget to achieve the budget target.
It is recognized this motion has neither been debated nor approved by the Committee or Council; however, in order to receive direction from the Commission with respect to the nature and extent of cuts to the budget to be included in any business case that may be required, this report is being tabled today. Should the motion be approved, a business case based on direction received from the Commission will be presented at the Commission’s November 27, 2019 meeting for approval.
The table below sets out the total operating budget request approved by the Commission at its August 2019 meeting for each of the years 2020 through 2023 as part of the next multi-year budget process.
Total Public Transit Services Operating Request by Year
| Funding Source (millions) | 2019 Proj | 2020 | 2021 | 2022 | 2023 |
| Passenger Revenue | $ 36.014 | $ 40.061 | $ 41.099 | $ 42.241 | $ 43.434 |
| Provincial Gas Tax | 14.713 | 9.232 | 9.211 | 9.399 | 9.589 |
| City of London | 32.308 | 38.956 | 42.235 | 44.683 | 47.340 |
| Total Operating Budget | $ 83.035 | $ 88.249 | $ 92.545 | $ 96.323 | $100.363 |
| City of London Increase | 20.6% | 8.4% | 5.8% | 5.9% | |
| Investment Share | 2019 Proj | 2020 | 2021 | 2022 | 2023 |
| Passenger Revenue | 43.4% | 45.4% | 44.4% | 43.9% | 43.3% |
| Provincial Gas Tax | 17.7% | 10.5% | 10.0% | 9.8% | 9.6% |
| City of London | 38.9% | 44.1% | 45.6% | 46.4% | 47.2% |
| 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
As was indicated in the budget report, (see Staff Report #3, dated August 28, 2019) reliance on Provincial Gas Tax over the previous four years far exceeded original projections for both conventional and specialized transit services, with the key contributing factors including:
- fare adjustment deferrals
- specialized service contracts
- operator recruitment changes
- general insurance program
- bus engine issues
The budget report further states that, 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 were undertaken:
- fare increase in 2020 raising approximately $3.3 million in revenue
- Provincial Gas Tax allocations optimized
- expenditure control in all areas
- review of reserves and reserve funds
- review of 2019-2022 Business Plan objectives
Finally, the report also highlights the options that were considered but not implemented during budget preparation to reduce the level of increase in City of London funding, included a more substantial fare increase than the recommended 15%, and a further review of expenditures to identify possible reductions.
Subsequent to Commission approval of the multi-year operating budget, administration prepared the budget for submission to the City, consistent with City of London requirements. In order to meet the reporting requirements, the budget needs to be broken down between the “base” budget request and the “growth” budget request. The following table breaks down the budget submission in these categories, noting that the base budget request for 2020 reflects the annualized cost of the service in place in the fall of 2019 (i.e. status quo budget). The growth in service (18,000 hours per year for conventional and 6,000 hours per year for specialized) form the growth budget request.
| 2019 Proj | 2020 | 2021 | 2022 | 2023 | Avg Inc | |
| Prior Year | $ 83.035 | $ 88.249 | $ 92.545 | $ 96.323 | ||
| Base | 2.853 | 2.098 | 1.711 | 1.851 | 2.4% | |
| Growth | 2.361 | 2.198 | 2.067 | 2.189 | 2.5% | |
| Total Operating Budget | $ 83.035 | $ 88.249 | $ 92.545 | $ 96.323 | $100.363 | 4.9% |
| 2019 Proj | 2020 | 2021 | 2022 | 2023 | ||
| Prior Year | $ 32.308 | $ 38.956 | $ 42.235 | $ 44.683 | ||
| Base | 5.029 | 1.507 | 0.795 | 0.882 | 5.8% | |
| Growth | 1.619 | 1.772 | 1.653 | 1.775 | 4.4% | |
| Total City of London | $ 32.308 | $ 38.956 | $ 42.235 | $ 44.683 | $ 47.340 | 10.2% |
As indicated in the table, the base budget requests call for an average annual increase in total expenditure budget of 2.4%, and an average annual increase in City of London investment of 5.8%, with the corresponding increases for growth being 2.5% of total expenditure and 4.4% in City of London investment.
Options for Budget Reductions – Conventional
The following table breaks down the total operating budget requests for the conventional service by function in AN effort to demonstrate where annual budgets are allocated.
Summary Allocation of Conventional Transit Operating Investment by Function
| Description | 2019 Proj | 2020 | 2021 | 2022 | 2023 |
| Transportation Services | 54.1% | 54.4% | 54.4% | 54.7% | 54.8% |
| Fuel | 9.5% | 9.5% | 9.4% | 9.5% | 9.5% |
| 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% |
| Facility Maintenance | 6.4% | 6.5% | 6.5% | 6.4% | 6.2% |
| 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% |
| Other | 1.7% | 1.3% | 1.3% | 1.2% | 1.2% |
| Total Operating Investment | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
As the table indicates, there is little opportunity to reduce the budget ask without affecting service levels. An average of 85.6% of the annual conventional service operating budget is dedicated to on-road service (labour, fuel, fleet maintenance). The remainder of the budget calls for an average of 6.4% of total investment to be invested in maintaining the two facilities, and an average of 6.7% of total investment to be invested in general and administrative costs (all administrative and management positions).
London Transit has been considered a leader with respect to service efficiency among its peers for a number of years. The table below provides a comparator of expenditure breakdown with the peer group average from the 2017 Canadian Urban Transit Association statistics.
| London | Peer Group Average | |
| Transportation Services | 54% | 58% |
| Fuel | 9% | 9% |
| Vehicle Maintenance | 22% | 16% |
| Total On-Road Investment | 85% | 83% |
| Facility Maintenance | 5% | 5% |
| General & Administrative | 7% | 8% |
| Total Direct Operating | 98% | 96% |
| Other | 2% | 4% |
| Total Operating Investment | 100% | 100% |
As the table indicates, London Transit continues to outperform the peer group with respect to on-road investment as well as the total direct operating investment. The only area that could arguably see reductions without a direct impact on service is the general and administrative, which, as the table indicates is already allocated a lower portion of the budget than the peer group average.
In an effort to provide an estimated order of magnitude with respect to the budget reductions required for the 2020 operating budget to meet the City of London established target of a 1.5% increase in City of London funding over the 2019 levels, a high level estimate was completed. In order to meet the 1.5% target, the total conventional transit operating budget would need to be reduced by $3.2 million, with the corresponding City of London annual investment being reduced by approximately $2.4 million. Taking into account the loss of ridership (estimated at approximately 0.725 million) and related revenue as well as the corresponding loss of Provincial Gas Tax revenues, it is estimated that approximately 44,000 hours of service would need to be eliminated in addition to an approximate $0.5 million in cuts to the general and administrative budgets.
It should be noted that the above is speaking only to the base budget request, and should cuts of any level be considered, the request for growth budget would be rescinded as a matter of course.
Options for Budget Reductions – Specialized
The following table breaks down the total operating budget requests for the conventional service by function in an effort to demonstrate where annual budgets are allocated.
Summary Allocation of Specialized Transit Operating Investment by Function
| Description | 2019 Proj | 2020 | 2021 | 2022 | 2023 |
| Brokerage Operation | 13.5% | 12.5% | 11.6% | 11.7% | 11.4% |
| 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% |
As the table indicates, there is very limited opportunity to reduce the specialized budget without impacting service, primarily due to the manner in which the service is delivered.
In an effort to provide an estimated order of magnitude with respect to the budget reductions required for the 2020 operating budget to meet the City of London established target of a 1.5% increase in City of London funding over the 2019 levels, a high level estimate was completed. In order to meet the 1.5% target, the total specialized transit operating budget would need to be reduced by $2.4 million, with the corresponding City of London annual investment being reduced by approximately $2.2 million. Taking into account the loss of ridership (estimated at approximately 95,000) and related revenue as well as the corresponding loss of Provincial Gas Tax revenues, it is estimated that approximately 38,000 hours of service would need to be eliminated, which would take the service levels back to those in 2013.
Summary
As indicated in the report recommendation, Administration is seeking direction with respect to the nature and extent of budget reductions that should be considered in preparation of a report back to the Commission at the November meeting. The estimates provided in this report have not been fully costed and are intended to provide an order of magnitude only. Subsequent to Commission direction, administration will undertake to complete a fully costed scenario(s) for Commission consideration.
Recommended by:
Mike Gregor, Director of Finance
Concurred in by:
Kelly S. Paleczny, General Manager