Staff Report #4
March 30, 2022
To All Commissioners
Re: Recosted 2022 Operating Budget Program
- APPROVE the recosted 2022 operating expenditure budget for London’s public transit services of $96,073,300 as summarized on the following table noting the recosting has not resulted in any changes to the City of London funding;
|Description||Conventional Transit||Specialized Transit||Total|
|Transportation revenue||$33,239,200||$ 567,800||$33,807,000|
|Transfer from reserves||2,659,100||–||2,659,100|
|Provincial gas tax funding||9,585,200||1,768,600||11,353,800|
|Direct bus maintenance||7,244,800||–||7,244,800|
|Contribution to reserves||945,100||–||945,100|
|Contracted service costs||–||9,582,900||9,582,900|
|All other material costs||3,743,800||261,100||4,004,900|
|Safe Restart Program||4,476,300||(670,700)||3,805,600|
|City of London||$33,878,600||$9,401,300||$43,279,900|
At the August 25, 2021 meeting, the Commission approved the 2022 base operating budget programs for conventional and specialized transit services as set out in the table below.
2022 Approved Base Operation Budget
|Revenue||$ 47,672,700||$ 2,365,700||$ 50,038,400|
|City of London||$ 33,197,500||$ 9,223,900||$ 42,421,400|
|Budget Shortfall||$ 2,737,100||$ 35,800||$ 2,772,900|
As indicated in the table, at the time the budget was approved, there was an identified shortfall of $2,772,900 million, which was anticipated to be the result of pandemic-related impacts on the operation. As part of the approval of the above budget, the Commission also directed administration to report back on options to mitigate the shortfall in March of 2022.
In addition to the approval of the base operating budget, the Commission also approved the growth budget of $997,400 to cover service growth for both the conventional and specialized services, noting this growth request would be forwarded to the City of London to be funded through the assessment growth business case process.
Municipal Council approved the base budget request in December 2021, and the assessment growth request in March 2022, both of which are reflected in the recosted 2022 operating budget set out in the report recommendation.
Consistent with established practices, the 2022 budget has been through a recosting exercise, noting this year the intent of the exercise was not only to identify significant trends and/or emergent issues that have developed since the budget was first prepared, but also to identify the manner in which the projected shortfall would be addressed. The Ministry of Transportation has confirmed the ability for municipalities to utilize excess Phase 3 funding of the Safe Restart program through December 2022. The recosted operating budget projects that $3.6 million of excess Safe Restart funding will be required to balance the 2022 budget.
Conventional Transit Service
In order to complete the 2022 budget, a number of key assumptions were applied, many of which have been refined given updated trending and the current and predicted pandemic situation through the remainder of the year. The following table sets out the updates that have been applied to the conventional transit service operating budget as the result of the recosting.
2022 Recosted Conventional Transit Service Operating Budget
|Description||2022 Budget||COVID Related Impacts||Other Updates||2022 Recosted|
|Transportation Revenue||$ 35,826,700||$ (2,587,500)||$ –||$ 33,239,200|
|Transfer from Reserves||1,121,600||–||1,537,500||2,659,100|
|Provincial Gas Tax||9,585,200||–||–||9,585,200|
|Direct Bus Maintenance||7,008,100||236,700||–||7,244,800|
|Contribution to Reserves||945,100||–||–||945,100|
|All Other Material Costs||3,743,800||–||–||3,743,800|
|Safe Restart Program||4,476,300||–||4,476,300|
|City of London||$ 33,878,600||–||–||$ 33,878,600|
|Surplus / (Deficit)||$ (2,737,100)||$ 2,737,100||–||$ –|
As set out in the table above, the recosting process for conventional service was broken into two areas; Safe Restart impacts and Other Updates. The Safe Restart updates are attributed directly to the ongoing pandemic with its financial impacts supported through Safe Restart Program funding. Items updated for this impact include transportation revenue, operating revenue, personnel costs, fuel and direct bus maintenance with an offsetting increase to Safe Restart funding. Other Updates comprise the typical recosting items that are reviewed annually such as fuel, personnel, etc. Further details with respect to each of these updates include the following:
COVID Related Impacts (covered by Phase 3 Safe Restart Program Funding):
- Transportation revenue (cash, tickets and passes) – the original budget projected a continued gradual return to historical ridership levels through the fall of 2021 and into 2022. Given unexpected waves in the fall of 2021 and continued lockdowns in early 2022, this projection has been adjusted to better reflect anticipated ridership through the remainder of 2022 noting the revised budget is based on actual ridership levels for January and February, followed by a gradual increase to full pre-pandemic ridership levels by August 2022 and continuing at that level for the remainder of the year.
- Transportation revenue (tuition passes) – the original budget projected that tuition passes throughout 2022 would return to historical levels as each school at the time indicated a full return to campus by January 2022. Lockdowns in January have prevented the schools from fully returning to campus, thus the projection has been updated to reflect the current ridership levels with a return to full pre-pandmic ridership levels for the September through December term of 2022.
- Operating revenue (advertising) – the impact felt on the advertising contracts in 2021 has carried into 2022, noting the bus advertising provider has negotiated a one-off reduction in the contract.
- Personnel costs – the original budget projected a return to full service hours, including 2021 growth by January 2022. Given the delay in implementing service growth and the ongoing reduction in hours, the budget has been amended to reflect the current plan of moving to full pre-pandemic service levels in May including the implementation of part of the 2021 service improvements followed by the remainder of the 2021 service improvements and 2022 service improvements being implemented in September 2022. These increases will be subject to resource availability (both buses and labour).
- Fuel (service hours) – the impact of reduced service hours noted above compared to the original budget have been reflected in fuel reductions.
- Direct bus maintenance (service hours) – similar to fuel, the reduction in service hours also reduces other costs within direct bus maintenance and servicing, such as tires.
- Direct bus maintenance (parts cost) – as ongoing over recent months, the availability and cost pressures on replacement parts due to significant supply chain constraints has been widely felt across many sectors including transportation. In many instances, prices are seeing nearly 30% increase levels. The budget has been updated to include the financial impact on parts pricing and will be included as an offsetting claim within the Safe Restart funding program.
- Safe Restart Program funding – the utilization of funding from this ongoing program has been extended through December 2022 by the ministry. The shortfall of $2.7 million identified in the original budget along with updated shortfalls in transportation and operating revenues as well as identified cost increases noted above, offset by other expenditure savings have been funded through the Safe Restart program within the recosted operating budget.
Other Non-COVID Related Updates
- Fuel – with the original 2022 fuel budget anticipating an average price of $1.02 per litre and a 2021 Q4 average price of $1.15 per litre, recosting in this key account was necessary. Early 2022 continued to see an increase in diesel prices and with the onset of the crisis in Ukraine, global fuel prices spiked and have remained quite unstable. A diesel fuel rate of $1.31 per litre has been included in the recosted budget, reflecting a price level that had been witnessed prior to the onset the conflict. The impact on the diesel fuel expenditure is $1.537 million. This budget variance will be funded through a draw down on the Energy Management Reserve as noted in the bullet below.
- Transfer from reserves (Energy Management Reserve) – as referenced in Staff Report #3, dated March 30, 2022, 2021 Reserve and Reserve Funds, the most relevant option to fund the shortfall relating to increased fuel costs is through a contribution from the Energy Management Reserve. The purpose of the reserve is to fund budget to actual shortfalls for consumption and pricing of energy related expenditures, including diesel fuel, natural gas and hydro. As at December 31, 2021 the reserve was considered to be in good standing and as such can accommodate a $1.537 million contribution to operations to cover this shortfall. Given the budgeted diesel fuel volume, the remaining funds within this reserve could offset a further price increase of up to nearly $0.24 per litre before being depleted fully.
Specialized Transit Service
Similar to the recosting for conventional services, the same review was performed for specialized transit. The table below sets out the adjustments to the 2022 specialized operating budget and the resulting recosted budget. Note that given there were no other major recosting items identified besides the updates due to the ongoing pandemic, the ‘Other Updates’ column has not been included for Specialized.
Recosted 2022 Specialized Transit Service Operating Budget
|Description||2022 Budget||COVID Related Impacts||2022 Recosted|
|Passenger fares||$ 611,300||$ (43,500)||$ 567,800|
|All other material costs||261,100||–||261,100|
|Safe Restart Program||–||(670,700)||(670,700)|
|City of London||$ 9,401,300||$ –||$ 9,401,300|
|Surplus / (Deficit)||$ (35,800)||$ 35,800||$ –|
Similar to conventional transit, specialized also reported an unfunded deficit of $35,800 within the original 2022 operating budget. This shortfall was due to the ongoing pandemic impacts, with no secured funding confirmed at the time.
The ridership and related revenue projections for the recosted 2022 specialized operating budget, similar to conventional transit, have been amended to be more reflective of the current trends being experienced, resulting in a reduction in transportation revenue. The recosted impact is a reduction in transportation revenue of $43,500.
The most significant impact relates to the expenditures for contracted services. The original budget reflected the implementation of approved service hours for the full year. However, the trend of reduced demand with corresponding service hour reductions has continued longer than originally anticipated. This trend has been updated within the recosted operating budget, noting that it is anticipated the contracted service provider will return to full service levels consistent with the timing of conventional services being restored in May 2022.
As the value of the service hour reduction greatly exceeds the reduced transportation revenue, an overall net reduction in Safe Restart funding is required for specialized. Consistent with the reporting for 2020 & 2021, these net savings are applied to the significant shortfalls occurring on the conventional service. It is a condition within the Safe Restart Agreement that revenue shortfalls and increased expenditures required to manage the COVID-19 impacts be offset with savings, such as labour and service reductions.
Administration will continue to monitor the operating budget performance, reporting on same on a monthly basis throughout 2022 noting there is approximately $7 million remaining in the Safe Restart funding to address any COVID-related impacts throughout 2022 that may materialize and which have not been addressed in the recosting.
Mike Gregor, Director of Finance
Concurred in by:
Kelly S. Paleczny, General Manager