Staff Report #8
June 23, 2025
To All Commissioners
Re: 2026 Budget Assessment – Response to Request from Mayor/Budget Chair
Recommendations
That the Commission:
- PROVIDE DIRECTION with respect to which of the items included in this report should be incorporated into the 2026 operating and capital budgets;
- DIRECT administration to finalize the 2026 operating and capital budgets for presentation and consideration at the August 27, 2025 meeting; and
- DIRECT administration to prepare a communication summarizing this report for submission to Council’s Budget Committee.
Background
2024-2027 Multi-Year Budget Preparation
The 2024-2027 multi-year operation budget was significantly influenced by the steps taken by the Commission during the previous multi-year budget horizon of 2020-2023 noting during that period the organization faced significant challenges as it continued to provide public transit services throughout a global pandemic. In addition to the pandemic-related cost pressures placed on the organization, other expenditure lines were also subject to significant increases unrelated to the pandemic. Throughout the horizon of the 2020-2023 multi-year budget, the Commission utilized all options available to balance annual operating budgets without seeking additional funding from the City of London.
While the Provincial and Federal governments partnered to provide a Safe Restart Fund to cover the pandemic-related costs associated with continuing to operate public transit services through the pandemic period, significant funding was also required from the Commission’s reserves and reserve funds to cover non-pandemic related expenditure increases.
The table below illustrates the inflationary impacts experienced over the 2020-2023 multi-year budget period for both the conventional and specialized services over and above what was anticipated when the budget was approved.
Operating Cost Per Hour Change
| Service | 2023 Original MYB Estimate | 2023 Actual | Percent Variance |
| Conventional Service – Direct Operating Cost/Hr | $120.24 | $129.21 | 7.5% |
| Specialized Service – Direct Operating Cost/Hr | $ 74.16 | $ 81.34 | 10.4% |
Given the significant shifts in a number of key budget lines over the previous multi-year budget period, and in an effort to ensure budget allocations in all line items were consistent with current realities, administration utilized a zero-based budget approach in building the status quo budgets for the 2024-2027 period. The finance department worked directly with each department to review all budget line items for 2024 to be used as the base, and then identified the factors that should be applied for the remaining three years.
In an effort to mitigate, to the greatest extent possible, the increase in City of London funding required in 2024 and future years, the following initiatives were undertaken as part of the budget preparation process:
- Fare Increase – A fare increase was included in 2024, which was targeted to increase transportation revenues by approximately $3.3 million. All cash, ticket and monthly pass categories were increased by 17% effective January 1, 2024. As provided for under separate contract, the annual tuition pass program fees were increased by 5% in the fall of 2024, and will continue to be subject to increases each year going forward based on an inflationary formula included in the respective contracts.
- Provincial Gas Tax – In the previous multi-year budget, Provincial Gas Tax was utilized to offset operating costs on both the conventional and specialized budgets as well as some capital programs, all of which was subject to Commission approval as part of the annual budget approval process. This was possible due to a healthy balance in the Provincial Gas Tax reserve which had accumulated from previous years when the full annual allocation was not required to balance the budget. Given the extensive reliance on reserves and reserve funds during the pandemic period, including the Provincial Gas Tax Reserve, this approach is not feasible beyond the contributions already included in the approved 2024-2027 multi-year budget.
Additionally, the 2024-2027 multi-year budget assumed annual allocations from the Provincial Gas Tax of $11.5 million; however, London’s annual allocation from the Province has decreased to $10.7 million, and as such, the shortfall also needs to be addressed in each of the annual budget reviews.
- Expenditure Control – All expenditures were reviewed in detail, and, where possible, reduced or held to 2023 levels. With respect to increases in administrative support, all new position budgets are considered placeholders and will be subject to detailed review prior to being filled.
An important consideration when assessing the assumptions included in the 2024-2027 multi-year budget is the fact that it was prepared in 2023, when the economy was still significantly impacted by the global pandemic. As such, the inflationary factors that were applied to some of the expenditure lines were based on current and projected inflation rates. The value of the annual budget update process is that it provides the opportunity to revisit these assumptions and adjust budgets accordingly. As discussed later in this report, assessments in both 2024 and 2025 have resulted in Business Case adjustments being forwarded for Municipal Council consideration during the annual budget updates.
The resulting operating budgets for the conventional and specialized services for the 2024-2027 budget years, as approved by Municipal Council are broken down by area of expenditure in the following tables in order to illustrate, at a high level, where expenditures are allocated. These breakdowns are based on the total operating budgets for each service, inclusive of the growth hours approved during the multi-year budget deliberations. On the conventional service, the Commission requested 25,000 growth hours for each of the four years and Municipal Council ultimately approved 18,000 growth hours in each year. For the specialized service, the Commission requested 20,000 hours for the first two years, followed by 10,000 in year three and 8,000 in year four. Municipal Council ultimately approved 10,000 hours in the first three years followed by 8,000 hours in year four.
Summary Allocation of Conventional Transit Operating Investment by Function
| Description | 2024 | 2025 | 2026 | 2027 |
| Transportation Services | 53.7% | 53.7% | 53.8% | 54.0% |
| Fuel | 10.8% | 10.7% | 10.7% | 10.6% |
| Vehicle Maintenance and Servicing | 22.2% | 22.2% | 22.2% | 22.1% |
| Total “on road” investment | 86.6% | 86.6% | 86.7% | 86.7% |
| Facility Maintenance | 4.7% | 4.8% | 4.8% | 4.8% |
| General and Administrative | 7.2% | 7.1% | 7.1% | 7.1% |
| Total Direct Operating Costs | 98.5% | 98.7% | 98.6% | 98.7% |
| Other | 1.5% | 1.3% | 1.4% | 1.3% |
| Total Operating Investment | 100.0% | 100.0% | 100.0% | 100.0% |
Summary Allocation of Specialized Transit Operating Investment by Function
| Description | 2024 | 2025 | 2026 | 2027 |
| Brokerage Operation | 11.4% | 11.3% | 11.2% | 11.1% |
| Contract Service Delivery Costs | 87.7% | 87.8% | 87.9% | 88.0% |
| Total “on road” investment | 99.1% | 99.1% | 99.1% | 99.1% |
| General and Administrative | 0.9% | 0.9% | 0.9% | 0.9% |
| Total Direct Operating Costs | 100.0% | 100.0% | 100.0% | 100.0% |
The service growth budgets for both conventional and specialized services were approved based on the annualized costs for each of the four years. Given service improvements are generally not implemented until the fall of each year, approximately 60% of the annualized growth costs are not required in the year of implementation. This funding is not flowed to London Transit in the year of implementation as it is not required, but flowed in full in the following years once the implementation has been undertaken.
2024-2027 Multi-Year Budget Implementation
Notwithstanding the approval of the multi-year budgets covering the period of 2024-2027, administration undertakes a review of each year’s budget and seeks Commission approval for same. The annual reviews assess current operating conditions and trends that had not been identified at time of budget preparation, and realign budgets accordingly.
In 2024, this review process resulted in the need to adjust the capital program for bus replacement as the cost of buses had increased beyond what was anticipated in the multi-year budget submission. As discussed above, a portion of the annualized operating costs associated with the growth budget are not required in year one given the fall implementation. Through discussions with civic administration, it was determined that a Business Case could be tabled which would utilize the year-one operating funds to cover the capital program shortfall without any net impacts on City of London funding. This Business Case was approved as part of the 2024 budget approval process. The remainder of the items identified through the 2024 budget review were able to be addressed without affecting the City of London apportionment.
In 2025, the review process resulted in an operating surplus as the result of higher than budgeted transportation revenue and lower than budgeted contract costs for the specialized service. The transportation revenue budgets in the original MYB contemplated a decrease in enrolment at both Fanshawe College and Western University due to the caps on foreign students beginning in the fall of 2024, which would in turn result in fewer participants in the tuition-based pass program. During the annual budget update, Fanshawe and Western confirmed that the decline would not occur to the extent anticipated, and as the result, the revenue collected from this program would be higher than budgeted.
With respect to the contract for specialized services, the annual price index that was built into the MYB, was based on inflationary trends at the time the budget was prepared, and was higher than actual, resulting in a lower cost per hour than budgeted. The net impact of these two factors, in addition to the remaining line items that were adjusted, resulted in a Business Case being submitted to the 2025 budget process which reduced City of London funding by $1.495 million for 2025. This case was submitted as a one-time savings given the continued uncertainties with respect to the impacts of the foreign student cap going forward.
In May 2025, the Commission received a delegation from Budget Chair Peloza with respect to efforts to reduce the 2026 tax rate adjustment. In response, the Commission requested administration bring forward a report outlining the following:
- Opportunities for savings for 2026 budget
- Items for joint advocacy with the City of London
- Opportunities for group procurement
- Ideas for revenue generation
- Opportunities for delayed capital planning
In addition, the Commission also directed administration to continue work with civic administration to find appropriate service growth opportunities for inclusion in an Assessment Growth Business Case to be considered as part of the 2026 budget process.
The draft 2026 operating and capital budgets will be presented to the Commission at the August 27 meeting; however, in response to the aforementioned direction, administration undertook a high-level assessment of each area identified in the direction, the results of which are set out in the remainder of this report. It should be noted that the assessments undertaken did not include reductions in service levels on either the conventional or specialized services, as this assessment would be contrary to the direction to seek opportunities for additional growth through the Assessment Growth Business Case process. Should the Commission wish to consider service level reductions in 2026, options can be included as part of the 2026 budget approval process at the August 27 meeting.
Opportunities for Savings in 2026 budget
Operating Budgets
A high level assessment of the operating budget expenditure lines against the 2026 budgets included in the original multi-year budget submission has resulted in the following savings being identified for the 2026 budget year. As discussed in the details below, each of these line items is subject to significant fluctuation that is out of the control of the Commission, as such, administration is not comfortable with assuming the current trends impacting these line items will remain consistent through to the end of 2027. Consistent with each of the previous years, administration will undertake an annual review and prepare a report for Commission consideration which provides the opportunity to reduce City of London investment based on the savings identified.
Expenditures
Diesel Fuel
As set out earlier in this report, fuel makes up approximately 11% of the conventional service operating budget. In 2025, approximately 7.7 million litres of diesel fuel will be required to operate conventional services. Fuel is one of the most volatile commodities in the operating budget, noting prices can be impacted by numerous factors that are difficult to predict. The prices included in the 2024-2027 multi-year budget were based on fuel prices in mid-2023 with annual escalations based on current inflationary trends. The cancellation of the Federal Carbon Tax Program has resulted in a significant decrease in fuel prices, which was not anticipated at the time the budget was prepared.
Updating the 2026 price assumptions to be consistent with the projected actual prices for 2025, will result in a savings of approximately $1.8 million. While there is the potential incremental growth in fuel pricing going forward given factors such as unrest in the Middle East and the potential of some form of replacement program for the pre-existing federal carbon tax, the Commission’s Energy Management Reserve could be relied upon to cover any shortfalls in 2026. This savings should be considered for 2026 only, and will be revisited as part of the 2027 annual budget update in the same manner.
Contracted Service Costs – Specialized
The contract for the provision of drivers and vehicles to provide the specialized service includes an annual price adjustment based on CPI. The assumptions built into the current multi-year budget were based on inflationary rates and trends experienced in 2023 at the time of budget preparation. Consistent with the budget update for the 2025 budget, the rate increase assumed for 2026 is also higher than actual, and as the result, there will be a variance of approximately $0.5 million in 2026. This savings should be considered for 2026 only, and will be revisited as part of the 2027 annual budget update in the same manner.
General Insurance Costs
As set out in Staff Report #6, dated June 23, 2025, the general insurance renewal for 2025 resulted in a decrease in premiums in the auto liability category, which is projected to result in an approximate $0.250 million annual savings in premiums. The Commission manages deductible payments relating to claims from the Claims Management Reserve, and trends are indicating that annual payouts in the range of $0.65 million. The reserve currently maintains a balance that is sufficient to fund these claim payments and remain within administrative guidelines through the end of this multi-year budget period. This savings can be considered permanent through to the end of this multi-year budget (2027).
Software Maintenance Agreements
The Commission holds a number of maintenance agreements with various software providers for the systems that support public transit operations. A number of agreements are in the process of being renewed, and while final costs have not yet been confirmed, administration is anticipating increases in the annual fees. Additionally, some software in use will need to be upgraded in 2026, and the costs associated with the upgrades not considered in the original multi-year budget assumptions. Administration estimates that the incremental costs in 2026 and going forward to be in the range of $0.350 million.
Revenue
Given the London Transit operating budget expenditures are funded by three primary sources (transportation and operating revenue, Provincial Gas Tax for Transit, and City of London investment), the annual budget review to identify overall savings in the City of London share needs to also consider the other sources of revenue. As discussed earlier in this report, the annual allocations London receives through the Provincial Gas Tax for Transit funding are being fully utilized to offset operating costs, and as such, there is no opportunity for any additional funding from this source.
Transportation Revenue
As discussed earlier in this report, assumptions with respect to a decline in tuition-based pass participation were included in the 2024-2027 multi-year budget relating to the established cap on foreign students. This decline did not occur in the fall of 2024 as anticipated, and as such, revenue projections were understated. These overall budget savings were included in a Business Case for the 2025 budget update which reduced the City of London investment. Discussions with both Fanshawe and Western indicate that the anticipated decline will occur with fall 2025 enrolment, and projections provided indicate that it will be greater than what was included in the original multi-year budget assumptions. This will result in a revenue shortfall in 2026 of an estimated $0.5 million. This reduction should be considered permanent and as such, be carried forward to the 2027 budget as well.
Opportunities for Revenue Generation
As indicated earlier in this report, transportation revenue covers approximately 40% of the total public transit services operating budget. Increasing the revenue collected from riders requires increased ridership, increased fares, or a combination of the two. The impacts of the January 1, 2024 fare increase were assessed in early 2025 and outlined in Staff Report #5 dated March 25, 2025, with the conclusion being that ridership and revenue from all fare programs available to the general public fell short of budget expectations in 2024. These results indicated that there may have been some migration away from public transit as the result of the January 1, 2024 fare adjustments, and concluded that further fare increases in the near term would very likely result in greater ridership decline, and should be avoided for as long possible. As such, administration does not recommend any additional fare increases in 2026.
The other operating revenue generated by the Commission relates to advertising contracts on transit infrastructure (buses, shelters and benches). The contracts associated with this revenue include annual revenue guarantees which have been incorporated into the existing operating budget. As the rapid transit legs are completed, an opportunity exists to expand contracts to include advertising in the new rapid transit stations and on the rapid transit buses; however, this would be contemplated once the legs have been completed, so would not impact the 2026 operating budget.
The Commission’s reserves and reserve funds were relied upon heavily during the previous multi-year budget in an effort to mitigate the need to seek additional City of London investment to cover increased expenditures. While this approach was successful in maintaining City of London investment levels throughout that MYB period, it resulted in depleted reserves and reserve funds, and required a significant increase in City of London funding in 2024 in order to re-set funding shares to traditional levels. While the reserves and reserve funds have balances within administrative guidelines, increased reliance on these funds is not recommended as it would be limited to one year, and would result in a need to identify replacement funding in the following year in order to balance the budget.
The Provincial Gas Tax for Transit annual allocation is being fully utilized to offset operating expenditures on the conventional transit services budget. The 2026 operating budget estimates in the MYB called for $11.652 million in Provincial Gas Tax to offset the conventional transit operating expenditures. Given caps on the Provincial Gas Tax program which have frozen annual allocations at 2022 levels, London’s annual allocation is forecast to be $10.158 million. Given the other variances identified through the 2026 budget update process, administration recommends that the Provincial Gas Tax allocation for 2026 be reduced by $0.500 million. While this adjustment does not address the full difference between the amount utilized for 2026 and the annual allocation, it will help to avoid significant adjustments to City of London funding in the next multi-year budget as this shortfall will eventually need to be addressed.
Opportunities for Delayed Capital Planning
The capital programs which are funded in some part by City of London investment were also reviewed in an effort to identify any potential savings, or possibility of deferment. Given the continued inflationary impacts on capital projects, no opportunities for savings within the scope of the capital projects reviewed were identified. Life-cycle maintenance projects were not assessed for delay/deferment given the negative impacts this would create going forward when the resulting infrastructure deficit would need to be addressed.
The capital projects that are not life-cycle maintenance include the Zero Emission Bus Pilot Program and the Highbury Facility Rebuild Program. While there were no identified savings with respect to the scope of the projects as currently approved, the Zero Emission Bus Program could be scaled down to reduce City of London investment, which would require a reduction from the planned 10 buses, five depot chargers, and one opportunity charger. The retrofits to the Wonderland facility associated with this project will need to proceed regardless of the number of buses as they are required in order to be able to safely service and maintain electric buses. The Highbury Facility Rebuild project is a multi-year project, with expenditures in 2026 associated with the detailed design and creation of construction tender. This aspect of the project needs to move forward in order to ensure the overall project can be completed within the timelines associated with the Provincial and Federal funding programs that are supporting it.
Opportunities for Group Procurement
London Transit participates in the Elgin-Middlesex Oxford Procurement (EMOP), and leads the procurement for this group for diesel fuel as the largest consumer. While this does not necessarily result in savings for London Transit, the large volumes that transit requires, likely results in savings for other participating parties including but not limited to London Police, City of London, and London Hydro. Office supplies and items of that nature are procured through the Provincial Vendor of Record Program. Software licences for Microsoft Office are procured through the City of London, as are cellular phones and related cell service contracts.
The remaining consumables that are procured on a regular basis are specific to transit operations, and as such, there is limited opportunity to partner with anyone local on procurements. Metrolinx also offers joint procurement opportunities for capital purchases, and London Transit has participated in the past; however, chose to issue an individual tender call several years ago as this enabled better pricing and delivery timelines than what was being achieved through the joint procurement. These options are assessed each time a major capital procurement is being undertaken, noting the Electric Bus Project is currently being undertaken through a Joint Procurement process, which provided for expertise in electric bus and related equipment procurement that London Transit did not have internally.
Opportunities for Joint Advocacy
London Transit is a member of both the Ontario Public Transit Association (OPTA) and the Canadian Urban Transit Association (CUTA) and is represented on both boards of directors. Between these two associations, advocacy on behalf of public transit service providers is undertaken at both the provincial and federal levels.
Provincially, OPTA has repeatedly called for increased funding to help address operating and capital costs. OPTA shares these requests with the Association of Municipalities of Ontario, and where appropriate, joint submissions are made to the Province.
Federally, CUTA is currently focused on ensuring the Permanent Transit Fund rolls out as promised in April 2026 with the annual Baseline Funding allocations as previously committed. Additionally, CUTA is seeking additional funding sources to assist transit providers with the transition to zero emission fleets. The previous Zero-Emission Transit Fund was over-subscribed and no further applications will be granted under that program. The lack of dedicated funding for the costs associated with fleet transition will stall progress for many transit systems. These positions have been shared with the Federation of Canadian Municipalities (FCM) and is consistent with their call for increased funding for public transit.
Additionally, CUTA is also currently advocating for an amendment to the Criminal Code to strengthen penalties for assault of all transit workers by amending subsection 269.01 of the Criminal Code to include all transit workers, not just transit operators. Incidents of Violence in the Workplace continue to be a concern on public transit systems across the county, London included. This amendment would ensure that assault against any transit worker would be subject to stricter penalties.
All of the aforementioned could be supported by Municipal Council, either directly, or through representation at AMO and FCM.
Summary
The table below provides a summary overview of the items included in this report for Commission consideration for inclusion in the 2026 budget updates. As set out in the report recommendation, subsequent to Commission direction, administration will finalize the 2026 budgets for Commission consideration at the August 27, 2025 meeting.
| Budget Line Item | 2026 Budget Impact | 2027 Budget Impact |
| Diesel Fuel | $ (1,800,000) | TBD |
| Contracted Service | (500,000) | TBD |
| General Insurance | (250,000) | (250,000) |
| Software Maintenance | 350,000 | 350,000 |
| Transportation Revenue | 500,000 | 500,000 |
| Provincial Gas Tax Contribution | 500,000 | 500,000 |
| Total Net Budget Impact | $ (1,200,000) | $ 1,100,000 |
As set out in the table, should the Commission direct administration to proceed with the assumptions associated with each of the items discussed, a Business Case could be prepared for a reduction in City of London funding in 2026 of $1.200 million. It is not recommended that any Business Case be prepared until such time as all costing has been completed for the 2026 budget. As indicated earlier in this report, key expenditure and revenue line items were reviewed in preparation of this report as they represent the highest proportions of operating budgets. Smaller line item expenditure adjustments in the 2026 budget update may be required that will result in offsets to the projected $1.2 million, which will be confirmed when the 2026 budget update is tabled with the Commission.
While four of the items were identified as permanent adjustments for the remainder of this multi-year budget, they net out to an increase in City of London funding for 2027. The two expenditure lines relating to fuel and contracted service costs cannot be estimated for 2027 at this time, however they have the potential to be significant enough to offset the known permanent adjustments included in the table. As such, administration would recommend that all items included in the Business Case be identified as 2026 only, with the intention that all line items will again be reviewed in 2027 consistent with the Commission’s annual budget update process.
Next Steps
Subsequent to discussion and direction from the Commission with respect to the various opportunities identified in this report, administration will complete the 2026 operating and capital budget updates for Commission review and consideration at the August 27 meeting. Additionally, a summary of the direction provided by the Commission will be prepared for submission to the City of London Budget Committee.
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
David Butler, Manager of Operations Administration
Concurred in by:
Kelly S. Paleczny, General Manager