Staff Report #2
June 24, 2020
To All Commissioners
Re: COVID-19 Financial Impacts
Recommendation
That the Commission:
- DIRECT administration to extend rear-door boarding and free fares for the period of July 1 to July 31, 2020 with the exception that anyone requiring accessibility features would continue to be allowed to board at the front doors without payment required;
- DIRECT administration to continue working with the Province, public health and other transit systems in an effort to identify the steps required to return to front door boarding and fare collection to ensure safety for Operators and riders and implement same as soon as possible; and
- DIRECT administration to continue to share financial projections relating to COVID-19 budget impacts with civic administration, noting that additional operating budget support from the City of London will be required if services continue to operate and no funding relief is provided by the Provincial or Federal levels of government.
Background
Since the onset of the COVID-19 pandemic in Canada, both the Federal and Provincial levels of government have made clear, through commentary and emergency orders, that public transit services are considered essential in order to keep communities moving, and to continue to provide transportation for essential workers as well as those customers that rely on public transit for access to the community.
While these comments and orders call for the continuation of services, they do not provide transit operators with any relief from compliance expectations of any other regulatory requirements including but not limited to the Employment Standards Act, Occupational Health & Safety Act, Accessibility for Ontarians with Disabilities Act, Ontario Human Rights Code, and the Municipal Act. Decisions that have been made with respect to any changes in practices or procedures in responding to the COVID-19 situation have been carefully weighed to ensure continued compliance with all regulatory requirements.
While ridership levels have dropped significantly, service levels have not been reduced to the same extent for a number of reasons, including the following:
- Reducing service levels to the same extent that ridership has decreased would result in a transit service that would be so pared down it would not be useful to the majority of riders, and as such, would not meet the expectations for public transit to continue to provide transportation for essential workers to and from work.
- Reducing service levels too far would result in potential crowding on buses and as such, transit systems have avoided this in an effort to have adequate service levels on the road to ensure buses are not over-crowded.
- Service level changes take time to be implemented noting Operators must be reassigned to new work, schedules must be created and made available to the public, and real-time information options must be updated to ensure customers have access to the information they require in order to make transit a viable option for them.
- Employee absenteeism during this period has been difficult to predict, and service levels need to be established based on employee availability. To date, London Transit has made two formal service level reductions and one interim measure that lasted for one week. The first reduction was in immediate response to decreased ridership and employee availability, and resulted in an approximate 10% reduction in total service hours. During the period of April 12-18, 2020, the public was notified that service on several routes may be impacted depending on the availability of resources. The third reduction took effect on April 19, 2020 and resulted in an additional 20% reduction in service hours, resulting in services currently running at 70% of what would normally be operating at this time of year.
On the specialized service, the number of vehicles in service has been reduced by approximately 35%. These reductions attempt to balance the continued need for the service, noting many of the customers who are continuing to utilize the specialized service are dialysis patients travelling to/from treatment and the need to continue to provide access to the service for those customers booking other essential trips.
Revenue Impacts
On March 19, 2020 (effective March 20, 2020), the Commission approved the move to rear door boarding for all riders with the exception of those who require the accessibility features of the bus which are only available at the front door. This move, undertaken to provide greater protection for bus Operators, resulted in the inability to collect fares, given the fare collection equipment is located at the front of the bus.
As set out in Staff Report #3 dated June 24, 2020, the Provincial Guidelines document released this month provides some reference to the return to front door boarding, which is dependent upon the installation of a barrier between the bus operator and the boarding passengers. The operator barriers which the Commission approved in April are scheduled to begin arriving the week of July 10, however it is estimated the receipt of all barriers and installation will not be completed until October at the earliest. In the interim, administration continues to work with the Province, public health and other transit systems in an effort to identify a solution that could be temporarily put in place to allow for the return to front door boarding and fare collection.
Options to Address Funding Shortfall
Administration has reviewed and considered the options to reduce the funding shortfall as recommended by civic administration; however most options assume that regular business has been interrupted or halted. As this is not the case with public transit services, most of them are not applicable. Steps that have been taken to date in an effort to reduce the funding shortfall include:
- Reduction in service levels on both the conventional and specialized services;
- Cancellation of the planned service improvements on both services scheduled to take effect in September;
- Reduced use of the Wonderland facility coincident with the reduced service levels, resulting in utility savings;
- Temporary hold placed on all studies associated with future growth plans; and
- Limits on all operational spending to only those deemed necessary for the continuation of service
The table below sets out the worse-case estimates for budget shortfalls to date, with estimates for June and July as well as options for funding same.
Budget Shortfalls To Date Associated with COVID-19
| To Date | June (Est) | July (Est) | Total | ||
| Lost Revenue | $(6,705,600) | $(2,649,700) | $(2,515,300) | $(11,870,600) | |
| Personnel | 765,000 | 284,900 | 309,200 | 1,359,100 | |
| Fuel | 667,000 | 241,200 | 278,100 | 1,186,300 | |
| Facility | 15,000 | 10,000 | 10,000 | 35,000 | |
| Other | 261,100 | 86,500 | 87,600 | 435,200 | |
| Total Impacts | $(4,997,500) | $(2,027,100) | $(1,830,400) | $(8,855,000) | |
| Funding Options | Opening Balance | Closing Balance | |||
| General Operating Reserve | $ 2,999,000 | (2,999,000) | – | ||
| Energy Management Reserve | 2,403,000 | (1,998,500) | (404,500) | – | |
| Assessment Growth from 2020 | 1,095,300 | (1,095,300) | – | ||
| Unfunded (shortfall) | – | (527,300) | (1,830,400) | (2,357,700) | |
| Total | $ 6,497,300 | $(4,997,500) | $(2,027,100) | $(1,830,400) | $(2,357,700) |
The table above provides budget shortfall projections through July, noting, should the service continue to operate under the same conditions, this shortfall will continue to grow. Further, in the event that a return to front door boarding and fare collection can be implemented, lower than budgeted ridership will continue to result in budget shortfalls, most likely through to the end of 2020 and into 2021.
While to date the cash-flow problem created with the cessation of fare collection has been managed through the use of two of the Commission’s reserves, this is not considered to be financially sustainable, and every effort should be made to either avoid this at year end, or identify a way to replenish these reserves as soon as possible. These reserves have been relied upon in the past to avoid the need to go back to the City of London, or undertake an unplanned fare increase within a budget year in order to respond to an unexpected budget shortfall (i.e. significant fluctuations in fuel costs, higher than expected insurance premiums). The move to utilize these reserves to cover the current shortfall will limit that type of flexibility going forward if not replenished. Further, given the implications of COVID-19 are anticipated to continue into 2021, it is very likely the approved budget for 2021 will be inadequate to cover the costs of continuing to operate the service at current levels. A lack of reserves will limit the Commission’s options to address the shortfall to fare increases, service reductions or increased investment from the City of London (or a combination of the three).
As set out in the table, there are three sources of financing that can be utilized to cover the cash-flow issues through to mid-June, the first two of which result in significant impacts to the financial sustainability of the Commission. While these two reserves have provided the ability to continue operations without the need for additional funding allocations from the City of London, it is hoped they can be replenished in full or to some extend by year end. The ability to replenish these reserves will be dependent upon success with advocacy efforts in securing funding from senior levels of government associated with the COVID-19 related impacts on operations, discussed later in this report.
- General Operating Reserve – The General Operating Reserve has been established and maintained in order to provide a funding source for budget shortfalls that are a one-time occurrence versus having to go back to the City to seek additional funding within a budget year. Utilizing these funds to cover the COVID-19 related budget shortfall is within the administrative guidelines for this reserve. It is important to recognize that while this use is within administrative guidelines, depleting this reserve to a zero balance leaves the Commission in a much less desirable financial position going forward.
- Energy Management Reserve – The Energy Management Reserve has been established to provide a funding source for budget shortfalls that are a one-time occurrence, specifically relating to fuel and energy costs. While the COVID-19 related budget shortfalls are not related to fuel/energy costs, the reserve is unrestricted, and as such, can be utilized for other needs as required. Depleting this reserve leaves the Commission in a much less desirable financial positon going forward.
- Assessment Growth from 2020 – As set out in report 2.3 on the Strategic Priorities and Policy Committee meeting agenda for June 23, 2020, civic administration is recommending that the assessment growth allocation that would have covered the service growth costs in 2020 be allocated to help cover the budget shortfall accumulated as the result of COVID-19. As set out in the table above, this allocation will cover a small portion of the accumulated shortfall to date. Consistent with the Commission’s reserves, should advocacy efforts be successful in securing funding from senior levels of government to cover COVID-19 related impacts on transit operating budgets, this funding could be reallocated to other City of London budgetary shortfalls resulting from COVID-19, noting the planned service growth in 2020 has been deferred for consideration in 2021.
While the aforementioned options provide cash flow to continue operations, the entire accumulated shortfall will need to be addressed at year end. This shortfall will continue to grow throughout the remainder of the year, noting that subsequent to the return to front door boarding and fare collection, ridership is expected to continue to be less than budgeted, resulting in continued revenue shortfalls as compared to budget.
Administration will continue to monitor and report monthly, as well as look to ways to mitigate the operating shortfalls including the ability to return to front door boarding and the resumption of fare collection. It should however be noted that the only way to address the shortfalls that are anticipated to continue within the Commission’s budget would be to significantly reduce service levels on both the conventional and specialized services. This would result in a service that would not be considered viable for most riders relying on transit to get to/from work, and is insufficient compared to the demand that is being created with the loosening of restrictions and opening of the economy. Administration will continue to share these projections with civic administration going forward.
Advocacy Efforts
The issues affecting London Transit as set out earlier in this report are consistent with those impacting every transit system in the country, to varying degrees. Given that municipalities and transit systems by extension are not allowed to operate at a deficit as a requirement of the Municipal Act, both the Ontario Public Transit Association (OPTA) and the Canadian Urban Transit Association (CUTA) have been working in partnership with the Association of Municipalities of Ontario (AMO) and the Federation of Municipalities of Canada (FCM) respectively in an effort to seek funding relief from both the Provincial and Federal governments. Most systems have been creative in managing shortfalls to date with similar approaches to those undertaken in London, however, consistent with the position outlined in this report, options are running out and the situation is becoming critical. Many transit systems have been forced to further reduce service levels at a time when the Province begins to loosen restrictions and demand for ridership increases. This approach will place increased pressure on the limited resources that are on the road, and have the potential to result in a loss of ridership that will be extremely difficult to get back.
Provincially, OPTA has supported the requests from the Large Urban Mayor’s Caucus of Ontario (LUMCO), which called for the province to begin a dialogue on potential solutions to the issues that transit systems are facing, including emergency relief funding to replace lost operating revenue and/or emergency grants for those facing liquidity issues. OPTA representatives have had the opportunity to speak directly with the Minister of Transportation regularly regarding the issues currently being faced by transit operators in Ontario and the possible role the province could play in providing relief. All transit systems in Ontario have provided data to the Ministry of Transportation outlining the budgetary impacts of COVID-19 on their operations through to the end of June. It is hoped this data will provide the Province with the order of magnitude the impacts of COVID-19 have had on the industry, and that some form of funding agreement will be reached with the Federal government for transit systems.
Earlier in June, the Federal government announced $14 billion in funding for Provinces, with funding for public transit being one of the items the funding could be utilized for. CUTA has allocated efforts to following up on this announcement, and determining the manner in which they can assist the Federal government with determining the manner in which the funds could be allocated for transit systems. At time of report writing, it is expected that agreements with the Province will be required prior to any flow of funding, which are likely to include some form of Provincial contribution.
In addition, at time of report writing, there have been no firm commitments from either level of government; however, both have signaled their understanding of the needs identified, as such advocacy efforts will continue in earnest.
Recommended by:
Mike Gregor, Director of Finance
Concurred in by:
Kelly S. Paleczny, General Manager