Staff Report #4
August 25, 2021
To All Commissioners
Re: 2022 Operating Budget Program
Recommendation
The Commission:
i. APPROVE the 2022 base operating budget program for public transit services allocated as follows:
| Category | Conventional | Specialized | Total |
| Revenue | $ 47,672,700 | $ 2,365,700 | $ 50,038,400 |
| Expenditures | 83,607,300 | 11,625,400 | 95,232,700 |
| City of London | $ 33,197,500 | $ 9,223,900 | $ 42,421,400 |
| Budget Shortfall | $ 2,737,100 | $ 35,800 | $ 2,772,900 |
ii. DIRECT administration to report back on options to mitigate the base budget shortfall at the March 2022 meeting;
iii. APPROVE the 2022 growth operating budget (revenue and expenditure investment) as summarized in Enclosure I, for London’s public transit services of $ 997,400, noting this would be funded through assessment growth and is allocated as follows:
- Conventional transit $ 805,800
- Specialized transit $ 191,600
iv. DIRECT administration to submit the approved 2022 public transit services operating budget to the civic administration consistent with the City of London’s reporting format
Background
At the August 28, 2019 meeting, the Commission approved a multi-year operating budget for both conventional and specialized services, covering the period of 2020 through 2023. The table below sets out the operating budget estimates for the Conventional transit service for each year that were submitted to municipal council as part of the multi-year budget approval process, inclusive of the growth component.
2020-2023 Conventional Transit Service Operating Budget Estimates – Inclusive of Growth
| Funding Source (millions) | 2020 | 2021 | 2022 | 2023 |
| Transportation/Operating/Reserve Revenue | $39.426 | $ 40.440 | $ 41.550 | $ 42.715 |
| Provincial Gas Tax | 7.501 | 7.488 | 7.638 | 7.791 |
| City of London | 30.814 | 32.947 | 34.774 | 36.857 |
| Total Operating Budget | $ 77.741 | $ 80.875 | $ 83.962 | $ 87.363 |
| City of London Increase over Previous Year | 15.0% | 6.9% | 5.5% | 5.9% |
| Investment Share | 2020 | 2021 | 2022 | 2023 |
| Transportation/Operating/Reserve Revenue | 50.7% | 50.0% | 49.5% | 48.9% |
| Provincial Gas Tax | 9.6% | 9.3% | 9.1% | 8.9% |
| City of London | 39.6% | 40.7% | 41.4% | 42.2% |
| Total | 100.0% | 100.0% | 100.0% | 100.0% |
The budgets set out in the table above include growth of approximately 18,000 annualized service hours per year, noting when presented to Council, the budget was split between a base budget increase (based on status quo levels of service) and growth budgets, which are split out of the annual budget approval process for consideration for funding from assessment growth.
With the onset of the global pandemic in March 2020, the 2020 and 2021 operating budgets as noted above were significantly impacted. As part of the development of the 2021 operating budget last August, an extensive forecast (update) to the 2020 operating budget was completed. Ridership was witnessing drastic reductions as the province was in and out of lockdown and availability of labour required to deliver safe and reliable public transit was also uncertain. As a result, the planned 2020 service growth was deferred. The 2020 projection along with the 2021 operating budget included an unfunded deficit that resulted from continuing to operate the service with drastic reductions in ridership along with added expenditures for cleaning and disinfecting. Discussions with the federal and provincial government confirmed that a safe and reliable public transit system was essential during the pandemic and that financial assistance was going to be delivered to relieve the financial pressures created by COVID-19.
The confirmation of Safe Restart Funding in August 2020 ensured the balancing of the budget in 2020 along with the funds necessary to implement the Recosted 2021 Operating Budget (see Staff Report #4, March 31, 2021).
In light of the many uncertainties, the 2021 budget report was broken into two separate components, with separate recommendations. The first component set out the base operating budget for 2021 for both conventional and specialized services, which provided for status quo levels of service. These budgets represented the costs of continuing to deliver current service levels, with consideration to base program changes, unit price increases and COVID-19 related impacts. The second component of the report presented the budgets associated with implementing the planned service growth on both the Conventional and Specialized services, noting any funding associated with that budget request would be directed to an assessment growth business case. Given the base budget for 2022 was approved by the City during the multi-year budget process and assessment growth has yet to be approved, the 2022 operating budget will continue to be presented in this manner.
Both the base and growth budgets are being recommended. Further, the City of London’s Strategic Plan includes reference to the growth plans for both the Conventional and Specialized services, and as such, it is important to provide Municipal Council with the business case to proceed with these plans.
Conventional Transit Service – Base Operating Budget
In order to complete the 2022 budget, a number of key assumptions were applied, most of which are consistent with those utilized to complete the 2021 operating projected actual. Key assumptions include:
- ridership and related revenue in the cash, ticket and monthly pass categories would begin the year at 75% of what would normally be expected, growing to approximately 100% of normal expectations by the end of August;
- ridership and related revenue in the tuition pass programs is based on the estimated number of students anticipated to attend campus for the 2021/2022 academic year. Projections provided by the institutions call for Western University participation to be 100% of 2019 levels and Fanshawe College to be at 30% in the fall of 2021 and 100% by Winter (January) 2022; and
- service levels would return to 100% of what would normally be in place for the year based on an annualized 2021 service.
The conventional transit operating budget accounts for 88% or $83.607 million of the total $95.233 million transit operating investment. The balance applies to the Specialized transit service which is discussed later in this report. Summary particulars of the make-up of the Conventional transit operating budget are provided on page 2 of Enclosure I.
The following table sets out the operating investment share breakdown for 2022 as compared to 2021 projected actual results.
2022 Base Operating Budget Summary – Conventional Transit Services
| Category | 2021 Projected Actual | 2022 Budget | Total Variance | % Variance |
| Revenue | ||||
| Transportation revenue | $ 22.080 | $ 35.702 | $ 13.622 | 61.7% |
| Operating revenue | 1.189 | 1.264 | 0.074 | 6.3% |
| Transfer from reserves | 1.122 | 1.122 | 0.000 | 0.0% |
| Provincial Gas Tax | 8.758 | 9.585 | 0.827 | 9.4% |
| $ 33.149 | $ 47.673 | $ 14.523 | 43.8% | |
| Expenditures | ||||
| Personnel cost | $ 54.235 | $ 57.127 | $ 2.892 | 5.3% |
| Fuel | 6.517 | 7.872 | 1.355 | 20.8% |
| Direct bus maintenance/servicing | 6.552 | 6.880 | 0.328 | 5.0% |
| Facility | 3.273 | 3.323 | 0.050 | 1.5% |
| Insurance | 3.764 | 3.875 | 0.111 | 2.9% |
| Contributions to reserves | 1.045 | 0.945 | (0.100) | (9.6)% |
| All other material costs | 3.769 | 3.586 | (0.183) | (4.8)% |
| Total Expenditure | $ 79.154 | $ 83.607 | $ 4.453 | 5.6% |
| City of London | $ 31.978 | $ 33.198 | $ 1.220 | 3.8% |
| Safe Restart Funding | $ 14.027 | – | $(14.027) | |
| Operating Shortfall | $ – | $ 2.737 | $2.737 |
| Category | 2021 Projected Actual | 2022 Budget | Total Variance | % Variance |
| Investment Share | ||||
| Trans/Operating/Reserve Revenue | 30.8% | 45.6% | 14.7% | 47.7% |
| Provincial Gas Tax | 11.1% | 11.5% | 0.4% | 3.6% |
| City of London | 40.4% | 39.7% | (0.7)% | (1.7)% |
| Safe Restart Funding | 17.7% | 0.0% | (17.7)% | (100.0)% |
| Unfunded Shortfall | 0.0% | 3.3% | 3.3% | 0.0% |
| 100.0% | 100.0% | — | — | |
| Ridership (millions) | 9.882 | 20.213 | 10.331 | 104.5% |
Operating Revenue Investment
The approximate $47.673 million in identified operating revenues is comprised of:
- $35.702 million in transportation revenue which is directly related to ridership and fares, noting this projection is down slightly relating to the continued impacts of COVID through the first half of 2022;
- $1.264 million in operating revenues – primarily associated with advertising contracts for shelters, buses and benches and investment income including earned on reserve funds;
- $1.122 million transferred from reserves in support of operating investment; and
- $9.585 million Provincial Gas Tax allocation.
The above sources support 57.1% of budget operating expenditure investment in 2022, which is down slightly from the approximate 60% which has been the basis for the funding model over the past number of years. While it is anticipated that the revenue sources above can again grow to reach the traditional levels, it is not deemed possible at this time given the uncertainties with respect to impacts COVID may continue to have throughout 2022.
Transportation revenues traditionally support approximately 48% of operating expenditure investment; however, given the assumptions for 2022 with respect to ridership and related revenue, are anticipated to support only 43%.
Operating revenue includes advertising revenue, interest from the Commission’s operating and reserve funds, as well as miscellaneous other revenues. Advertising revenue is slightly higher compared to 2021 due to a one-time reduction in bus advertising revenue requested by the vendor due to the impact of the pandemic on the industry in 2021.
The funds transferred from reserves include a transfer from the public liability reserve fund offsetting the accident benefit and public liability deductible costs. The level remains unchanged in 2022.
In 2022, $9.585 million is the required allocation from the Provincial Gas Tax reserve for the base budget approval as well as additional base program changes.
Operating Expenditure Investment
The overall operating expenditure investment for 2022 is budgeted to increase by 5.6% or approximately $4.453 million vs. 2021 projected actual results. The 5.6% increase is comprised of:
- $1.478 million in unit price and base program increases for such items as fuel, energy, insurance and personnel costs. These increases account for a 1.9% increase in overall investment;
- $1.292 million in 2021 COVID-19 related impacts, primarily relating to service levels increasing over those provided in 2021, resulting in the associated costs in personnel, fuel, direct bus maintenance all increasing at a proportionate rate;
- $1.405 million pertaining to the 2021 service implemented in 2022, noting the 2022 budget includes the addition of approximately 18,000 additional service hours, 6,000 of which had been budgeted to commence in 2021; and
- $0.278 million in base program changes, primarily relating to additional fuel and insurance cost increases.
The following provides further discussion with respect to the most significant drivers of the increase in the expenditure budget for the Conventional transit services for 2022 versus 2021 projections.
Personnel Costs
Personnel costs include salaries, wages and employment benefits for 604.5 full-time equivalent Conventional transit employees. Personnel cost accounts for approximately 68% of the annual operating expenditure investment for conventional transit.
As set out above, personnel cost investment is budgeted to increase by 5.3% or some $2.9 million over 2021 projections. The increase is comprised of the following:
- 2.1% increase or $1.183 million relating to unit price. The unit price respecting salaries, wages, including movement along the pay grid is as provided by the Collective Agreement and Employment Policy Statements as well as new positions. The unit price relating to employment benefits, both Commission-provided and statutory benefits is as determined by supplier contracts, benefit utilization experience or as set by governing authority;
- 1.7% increase or $0.897 million relating to the 2021 COVID impact, noting 2021 witnessed a reduction in service hours to coincide with the pandemic as well as incurring additional employment benefit costs applicable to lost time and short term disability;
- 1.9% increase or $1.030 million relating to the approved 2021 service growth flow through hours slated to be implemented in early 2022; and
- 0.4% decrease or $0.218 million relating to adjustments in program delivery not included in the previous multi-year budget.
Fuel Expenditure
As set out above, fuel expenditures are budgeted to increase by 20.8% or $1.355 million. The increase is comprised of the following:
- 5% increase or $0.167 million relating the unit price. Fuel rates in 2021 have witnessed a slight increase compared to budget and the current level has been set for the 2022 budget going forward;
- 0% increase or $0.588 million relating to the 2021 COVID impact, noting 2021 witnessed a reduction in service hours (as noted above) and thus reduced the fuel requirements as well;
- 0% increase or $0.195 relating to the approved 2021 service growth hours slated to be implemented in early 2022; and
- 2% or $0.406 million relating to adjustments in program delivery not included in the previous multi-year budget.
Fuel prices during 2021 were slightly higher than budget and the current level being witnessed has been used to set the price for 2022. It is still unknown how closely 2020 & 2021 pricing was tied to COVID-19, making it difficult to predict going forward. Any net annual favourable/unfavourable price performance impact will be applied to/or funded from the Energy Management Reserve.
Direct Bus Maintenance and Servicing
Direct bus maintenance and servicing investment for 2022 totals approximately $6.880 million, representing an increase of 5.0%. Similar to personnel and fuel expenditures, direct bus maintenance follows a similar variable expenditure cost model with the $0.328 million increase being comprised of unit price increases (1.7%), 2021 COVID impact (0.6%), approved 2021 service growth (2.5%), and base program changes (0.2%).
Operating Budget Shortfall
Given that municipalities and transit systems by extension are not allowed to operate at a deficit as a requirement of the Municipal Act, the recommendation of a budget with a projected shortfall is not a normal practice; however, the onset of the COVID-19 pandemic has resulted in many aspects of operations being far from normal. As was the method in 2021, the 2022 budget is being presented with a shortfall that is attributed to the anticipated impact of the pandemic in 2022. The Safe Restart Funding discussed above has been approved to cover approved shortfalls for the period up to December 31, 2021 with the ability to apply for an extension for use of any unutilized Safe Restart funding from Phase 3 to cover the period of January 1, 2022 through March 31, 2022. Given the application to extend the funding has not been completed and the fact it currently is only slated to support shortfalls through March 31, 2022, a shortfall is being presented.
As the earlier table sets out, the 2022 base operating budget for conventional transit services is projecting a shortfall of approximately $2.737 million. The intent of the report recommendation to approve the 2022 base operating budget is not to end the 2022 fiscal year with an operating deficit, but rather to provide staff with the general direction relating to the service levels that should be planned to be delivered in 2022. From the onset of the pandemic declaration, through shutdowns and re-openings, the need for public transit has been evident across the country. Locally, London Transit continued to provide service to and from work to front-line workers, many of who were declared essential through the pandemic period. While it is not anticipated that ridership will rebound completely in 2022, it is also not recommended that service levels be reduced below those that were in place pre-pandemic. The investments made over the last number of years to improve public transit services in London have been significant, and have met their objectives. Any significant reductions to service levels has the potential to reverse these gains, and result in further ridership losses above those related to COVID-19.
Consistent with the 2021 operating budget shortfall, there are a number of options that can be utilized to address it, including the following:
- Funding from the Safe Restart Program, noting the current parameters of this funding program will only cover budget shortfalls relating to COVID-19 for the period January 1, 2022 through March 31, 2022;
- Use of Commission reserves, to the extent necessary;
- Reductions in service levels given slower than anticipated ridership rebound;
- Reductions in other expenditure programs;
- Increased investment from the City of London;
- Use of any new funding programs established by senior levels of government noting advocacy efforts continue in earnest given the anticipated longer-term nature of the COVID-19 related budget implications. Both the Provincial and Federal governments have recognized the impacts on public transit to be longer term than the current funding programs provide for, and conversations with respect to this are ongoing.
As set out in report recommendation ii), administration will report back in March 2022 with options to address the operating budget shortfall for 2022.
Specialized Transit Services – 2022 Base Operating Budget Program
In order to complete the 2022 budget, a number of key assumptions were applied, including:
- ridership and related revenue will rebound to approximately 90% of normal expectations by the end of 2021 and 100% in 2022; and
- service levels return to what would normally be in place for 2022, including 2021 growth for the full year.
The specialized transit operating budget accounts for 12% or $11.625 million of the total $95.233 million transit operating investment. Summary particulars of the make-up of the specialized transit operating budget are set out on page 3 of Enclosure I.
The following table sets out the 2022 Base Operating Budget as compared to 2021 projected actual results.
2022 Base Operating Budget Summary – Specialized Transit Services
| Category | 2021 Projected Actual | 2022 Budget | Total Variance | % Variance |
| Revenue | ||||
| Transportation revenue | $ 0.301 | $ 0.597 | $ 0.296 | 98.2% |
| Provincial Gas Tax | 1.519 | 1.769 | 0.249 | 16.4% |
| $ 1.821 | $ 2.366 | $ 0.545 | 29.9% | |
| Expenditures | ||||
| Personnel cost | $ 1.191 | $ 1.223 | $ 0.032 | 2.7% |
| All other material costs | 0.258 | 0.259 | 0.001 | 0.3% |
| Contracted services | 8.237 | 10.143 | 1.907 | 23.2% |
| Total Expenditure | $ 9.685 | $ 11.625 | $ 1.939 | 20.0% |
| City of London | $ 8.854 | $ 9.224 | $ 0.370 | 4.2% |
| Safe Restart Funding | $ (0.990) | $ – | $ 0.990 | |
| Operating Deficit | $ – | $ 0.035 | $ 0.035 | |
| Investment Share | ||||
| Trans/Operating/Reserve Revenue | 3.1% | 5.1% | 2.0% | 64.5% |
| Provincial Gas Tax | 15.7% | 15.2% | (0.5)% | (3.2)% |
| City of London | 91.4% | 79.3% | (12.1)% | (13.2)% |
| Safe Restart | (10.2)% | 0.0% | 10.2% | 100.0% |
| Unfunded Shortfall | 0.0% | 0.3% | 0.3% | 0.0% |
| 100.0% | 100.0% | — | — | |
| Ridership (millions) | 0.150 | 0.299 | 0.149 | 99.3% |
Operating Expenditure Investment
As set out above, overall operating expenditure investment for the 2022 specialized transit service is budgeted to increase by 20.0% or $1.939 million versus the 2021 projected actual results bringing the total operating investment to $11.625 million. The 20.0% increase results from:
- $0.233 million in unit price increases for contracted service and personnel costs;
- $1.336 million in 2021 COVID-19 related impacts, related solely to service level increases over reduced levels provided in 2021;
- $0.380 million increase pertaining to the 2021 service growth planned for implementation in 2022, noting the 2022 budget includes the addition of 6,000 additional service hours, 3,000 of which had previously been budgeted to commence in 2021; and
- $0.009 million reduction in base program changes.
The following provides further discussion with respect to the most significant factors in the increase in the expenditure budget for Specialized transit services for 2022 versus 2021 projections.
Personnel Costs
Personnel costs (relating to the brokerage operations) cover salaries, wages and employment benefits for 13.5 staff. The unit price respecting salaries and wages includes movement along the pay grid is as provided by the respective Employment Policy Statements and benefit contracts. The unit price relating to employee benefits, both Commission-provided and statutory benefits, is as determined by the supplier contracts, benefit utilization experience or as set by governing authority.
The increase in 2022 over 2021 pertains to the increase in labour and benefit rates.
Contracted Service Delivery Costs
The delivery of the specialized service is provided via primary and secondary service contracts, which cover the provision of drivers and vehicles. The contracts are based on hourly rates for service, and are subject to annual increases based on the change in consumer price index relating to transportation costs. Enclosure I sets out a summary analysis of the change in contract service delivery costs. As noted, contract delivery costs are expected to increase by $1.907 million or 23.2%, comprised of the following:
- $0.202 million in unit price increases as provided by service contracts;
- $1.336 million relating to the 2021 COVID impact, noting 2021 witnessed a reduction in service hours that are planned to be reinstated in 2022; and
- $0.375 relating to the approved 2021 service growth hours slated to be implemented in early 2022.
Conventional Transit Service – Growth Budget
At the February 27, 2019 meeting, the Commission approved the 5 Year Conventional Service Plan Framework which provides for service improvements and monitoring of same for the period of 2020-2024. The timing and implementation of the recommended service improvements align with the planned move to a rapid transit platform, ensuring the base route structure and service frequencies will be at the required levels to support the future rapid transit corridors, and as importantly, addressing the current service quality issues relating to schedule adherence, demand for expanded services into industrial areas and system-wide frequency improvements.
At the April 29, 2020 meeting, the Commission approved the deferral of the planned 2020 service growth, with a recommendation for reconsideration in 2021 and subsequently approved the implementation of these hours at the January 27, 2021 meeting. These annualized hours have been included in the base budget above.
The growth component of the conventional transit service represents the reconsideration of the growth components that were included the 5 Year Conventional Service Plan Framework for 2022, noting, it calls for a total increased investment of $0.806 million. The 2022 growth budget is made up of:
- the addition of 18,000 service hours, 6,000 of which are planned for implementation in 2022 with the residual occurring in 2023 (flow thru hours). The increased service is budgeted to result in a related increase in ridership of approximately 93,000, noting the service improvements would not be implemented until September 2022; and
- the addition of approximately $150,000 to cover the additional operating costs associated with the introduction of an alternative service delivery model to serve the Innovation Park industrial area.
As indicated earlier in this report, should the Commission approve the report recommendation, a business case for assessment growth funding will be completed and submitted to Municipal Council for consideration as part of the 2022 budget approval process.
Specialized Transit Service – Growth Budget
Also at the April 29, 2020 meeting, the Commission approved the deferral of the planned 2020 growth of 6,000 annualized hours (3,000 in 2021) on the Specialized service for consideration in 2021. These hours were subsequently approved at the January 27, 2021 commission meeting and are included in the base budget above presented above.
The growth component of the specialized transit service represents the annual level included in the 2020-2023 multi-year budget, at an increased investment cost of $191,600.
Unlike the Conventional service, the increase of hours on the Specialized service can be introduced prior to September; however, given that ridership demand on the Specialized service is generally lower in the summer months, improvements are generally made within the same time period.
As indicated earlier in this report, should the Commission approve the report recommendation, a business case for assessment growth funding will be completed and submitted to Municipal Council for consideration as part of the 2022 budget approval process.
City of London Budget Presentation
Subsequent to Commission approval of the 2022 base and growth operating budgets as presented in this report, administration will reformat the presentation to be consistent with the standard presentation format utilized for all civic departments, boards and commissions. The finalized documents will be provided to the Commission at a future meeting, once same has been completed.
Enclosure
I – 2022 Operating Budget Public Transit Services
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