Staff Report #3 Re: Provincial Gas Tax for Transit Program

Staff Report #3

April 24, 2019

To All Commissioners

Re: Provincial Gas Tax for Transit Program


That the Commission:

  1. APPROVE the removal of the On-Board Information Screen Program from the Public Transit Investment Fund (PTIF) project list; and
  1. DIRECT administration to undertake a detailed assessment of Provincial Gas Tax utilization as part of the next multi-year budget program.


In 2004, the Province of Ontario announced the establishment of the Provincial Gas Tax Program (PGT) dedicated specifically for public transit services (conventional and specialized transit services). PGT funding supports operating and capital expenditure investment related to the maintenance and growth of services and ridership. The PGT program is a performance based program, with the annual moneys received by respective transit systems being based upon the transit service’s position in terms of population and ridership in relation to total population and total ridership for all Ontario public transit services. The amount of PGT moneys available is fixed at $0.02 per litre of gasoline sales in a given year. Annual allocations are placed in a reserve fund maintained by the transit service with the reserve fund being subject to annual reporting and audit to/by the Province.

In January 2017, the previous Provincial Government announced changes to the program, which would see the current $0.02 per litre allocation double to $0.04 per litre by 2021/2022. The implementation of this planned increase was a key assumption when the Commission approved significant expenditures from the Provincial Gas Tax Reserve of approximately $9.1 million to cover the portion of infrastructure investment initiatives approved for 50% funding under the Federal Public Transit Infrastructure Funding (PTIF) program. The majority of the projects approved for funding under the PTIF program have been completed.

On April 11, 2019, the Provincial Government tabled the first budget of their mandate, and in the budget, they declined to proceed with the planned increase in the per litre allocation as confirmed by the previous government. In addition, they indicated that the government would be undertaking a review of the Gas Tax Fund for Public Transportation Program to determine whether uses of the funding from the program were demonstrating clear benefits for Ontarians and their communities. This review is expected to take place over the next several months.

Given the understanding that continuation of the Provincial Gas Tax for Transit program is at the discretion of the Provincial Government, the Commission established a Provincial Gas Tax (PGT) Reserve Fund, and associated administrative guideline that initially called for the PGT reserve fund balance at the end of any one year to be sufficient to support three years of projected PGT share of approved capital and operating investment needs. The three year balance guideline recognized:

  • the continuance of the PGT program was subject to approval by the Province each year;
  • the amount to be received in any one year was variable in that it was subject to London’s ridership and population performance in comparison to all Ontario municipalities with public transit services. Further, the amount of money subject to allocation is predicated on annual gasoline sales which is considered variable given the sensitivity of oil pricing; and
  • given the growing dependency on PGT funding to support operations (capital and operating) sufficient time was required to adjust capital and operating budget expectations should the PGT program be discontinued or London’s share of annual allocation decline.

The three year administrative guideline was modified in 2014 moving to a reserve fund balance at the end of any one year equal to 1.5 years of planned use. The change coincided with the Ontario Government’s announcement that the PGT was being made permanent vs. a year over year budget decision. It also recognized the need to invest in service growth, recognizing service deficits, to maintain and grow ridership, which in turn impacts the amount of PGT to be received.

In August 2016 the Commission approved a total of 31 projects under the Federal Government’s Public Transit Investment Funding (PTIF) program, which provided for up to 50% federal funding for public transit programs relating to infrastructure renewal and new programs intended to improve public transit. The following table provides the investment share of the various funding sources for the total programs approved by the Commission.

Public Transit Infrastructure Fund – LTC Total Project Costs

Funding Source Funding Contribution (millions) Percent Funding
Federal Gov’t (PTIF) $12.3 50%
Provincial Gas Tax Reserve Fund 9.2 38%
Capital Program Reserve Fund 0.8 3%
City of London 2.3 9%
Total PTIF Project Cost $24.5 100%

The existence of the PGT Reserve Fund provided the opportunity to take advantage of the 50% federal funding to undertake a number of infrastructure projects intended to ensure LTC assets remained in a state of good repair. Projects of this nature included the fast-tracking of bus retirements, upgrades to key systems including the Automatic Vehicle Location system and the on-board video surveillance systems, the retrofit of the existing bus fleet to perimeter seating to provide for improved accessibility, the installation of automatic passenger counters on the entire fleet and the replacement of engines, transmissions, and other required equipment on a number of buses. In addition to the infrastructure renewal projects, a number of new projects, intended to enhance the conventional transit service were approved, including the replacement of existing and addition of wayside information signs that provide real-time bus arrival information at key terminals and stops and the implementation of on-board information screens intended to provide routing information, next stop information and general information regarding the transit service.

The decision to proceed with these projects, and the associated use of the estimated $9.1 million in funding from the PGT Reserve Fund was predicated on the understanding that while this expenditure would take the reserve fund balance below the established guidelines, it would be temporary in nature given the planned increase in allocations beginning in 2019/2020. The Commission’s decision to forego two budgeted fare increases over the last three years and to fully fund the increased costs associated with the contract increases on the specialized service with Provincial Gas Tax were likewise predicated on the receipt of increased Provincial Gas Tax allocations in future years, restoring the reserve fund balance to be consistent with the administrative guidelines.

The following table sets out the actual reserve fund activity for 2015-2018 and provisional estimates for 2019.

Provincial Gas Tax Reserve Fund (millions)

 Actual Estimate
 Description 2015 2016  2017  2018 2019
 Opening balance  $27.483  $28.471  $ 28.889  $22.538  $ 16.946
 Provincial contributions 9.415 9.702 9.357 9.999 10.342
 Investment income 0.496 0.443 0.443 0.519 0.450
 Approved expenditure
capital (3.606) (3.117) (7.578) (4.412) (7.440)
operating – conventional (4.204) (5.394) (7.336) (8.967) (9.122)
operating – specialized (1.113) (1.215) (1.236) (2.730) (3.147)
 Closing balance  $28.471  $28.889  $ 22.538  $16.946  $ 8.029
 Budget expenditure investment – funded by PGT  $ 9.726  $16.151  $ 16.109  $ 19.709  $ 11.233
 Years available at December 31 2.9 1.8 1.4 0.9 0.7

As the table illustrates, the projected balance at the end of 2019 is somewhat lower than the administrative guideline of 1.5 years. While the next multi-year budget exercise will provide the opportunity to realign funding levels to reduce the reliance on Provincial Gas Tax for operating support either through a fare increase, increased investment from the City of London, or a combination of both, the report recommendation also calls for the On-Board Information Screen project to be removed from the PTIF project list. This would free up approximately $2 million in Provincial Gas Tax funding in 2019, moving the years of funding available at the end of the year to 0.9 years. This recommendation is also supported by the outcome of a more detailed project assessment which indicated the original budget of $3.9 million was insufficient to complete the project and there being no mechanism under this funding program to adjust the project budget upwards.

As set out in Staff Report #4 – Investing in Canada – Public Transit Infrastructure Stream (PTIS) Update dated April 24, 2019, the On-Board Information Screen project was submitted to Municipal Council for consideration under the Investing in Canada, Public Transit Stream Federal Funding program, with the Provincial and Federal governments providing a combined 70% for the estimated $5 million program. Municipal Council did not select this as one of the projects to be submitted in the first intake; however it was recommended for consideration at a future meeting noting the projects submitted did not take advantage of the full Federal allocation.

With respect to the planned review of the Provincial Gas Tax Program by the Provincial Government, administration will be working closely with the Ontario Public Transit Association and other transit systems to ensure that the clear benefits of this program for Ontarians and their communities are clearly demonstrated with supporting data. Should further changes occur to the Provincial Gas Tax program that would result in a decline in the annual allocation received, the balance remaining in the PGT Reserve Fund will provide the adequate time to undertake a detailed assessment and plan to identify alternative sources of revenue, reduce services, or a combination of both going forward. Further updates with respect to progress on the review will be provided to the Commission as appropriate.

Recommended by:

Mike Gregor, Director of Finance

Concurred in by:

Kelly S. Paleczny, General Manager