February 12, 1998

Ms. Novina Wong

Clerk

City of Toronto

Station 1071, 7th Floor

Metro Hall

55 John Street

Toronto, Ontario

M5V 3C8

Dear Ms. Wong:

The Commission approved the Recommendation contained in the above report, as listed below:

1. Re-affirm both the TTC 1998 Operating Budget and TTC 1998-2002 Capital Budget.

2. Receive this report noting that:

3. Forward this report to the:

The Commission also re-affirmed the 1998 Wheel-Trans Budget and authorized staff to make their budget presentations at the next City Budget Committee meeting on February 17, 1998.

The foregoing is forwarded to the Chief Financial Officer, City of Toronto, the Urban Environment and Development Committee and Budget Committee for information and appropriate action, as detailed above.

In order to arrange for appropriate presentation material, it would be appreciated if TTC staff could be notified of the time and date that the staff presentation will take place.

Sincerely,

Vincent Rodo

General Secretary

Copy: Ms. Wanda Liczyk, Chief Financial Officer, City of Toronto

It is recommended the Commission:

1. Re-affirm both the TTC 1998 Operating Budget and TTC 1998-2002 Capital Budget.

2. Receive this report noting that:

3. Forward this report to the:

The implications of the following potential budget cuts have been requested by the City of Toronto Budget Committee:

1998 Conventional Operating 15% ($24 million)

1998 Wheel-Trans Operating 15% ($5.6 million)

1998 TTC Capital Budget $50 million

On November 18, 1997 the Commission approved the 1998 Operating and 1998-2002 Capital budgets. On January 26, 1998 the City Budget Committee met and discussed, amongst other things, the TTC Operating and Capital Budgets for 1998. The TTC was asked to address a 15% cut to the gross 1998 TTC approved Operating Budgets and a $50 million cut in the 1998 approved TTC Capital Budget.

Our understanding was that the TTC's report was to be available for the Strategic Policies and Priorities Committee meeting scheduled for Monday, February 2. While the minutes of the January 26 Budget Committee meeting were received, the issue of the potential cuts will be addressed at the next Budget Committee meeting scheduled for February 17. Copies of the TTC's response were provided to the Commission (Attachment I).

In summary, the operating budget response was consistent with responses to similar requests made earlier by the Toronto Transition Team and the City Treasurer. (Note: We assume the committee's 15% reduction was meant to apply to subsidy not gross expenditures).

Regarding the capital budget, our letter reiterates the Commission's and the former Metro Council's priorities which are in order of importance:

The issue was raised at the Budget Committee as to how the Commission would respond to a $50 million cut in 1998 capital expenditures, while completing the Sheppard Subway (an expansion project). The issue of gross vs. net savings (i.e. City vs. Provincial funding) was never discussed. (A $50 million gross cut would yield only a $25 million savings to the City if projects affected are funded 50/50 by the City and the Province.)

Notwithstanding that such a request is outside approved priorities, we have responded by categorizing projects as follows:

(1) Projects under contract - these are projects being undertaken by a third party with awarded contracts. For example, new buses, subway cars or shop renovations.

(2) Projects underway - these are projects being undertaken by TTC forces. Where human resources are hired and material has been ordered/or received. For example, the SRT car overhaul.

(3) Remaining projects - these are projects where some or all commitments are yet to be made.

Only category 3 projects will produce net savings in 1998 if deferred or cancelled. Ignoring the consequences of deferral or cancellation, category 3 contains less than $60 million in gross expenditures in 1998. Furthermore, a significant portion of the funding for these projects has been approved by the Province. The previous Commission and the former Metro government also approved these projects. In addition, a significant source of funding for this last group of projects is either TTC depreciation charges against the TTC Operating Budget or potential savings associated with the Wheel-Trans Operating budget. Thus the maximum potential savings to the City from cancelling or deferring all these projects would be $19 million considerably less than $50 million. Attachment II shows the 1998 Capital budget and categorizes each project. A glance at the nature of the projects in category 3 clearly indicates that, in fact, any significant savings from this category is illusory.

By nature a capital budget, as the City Treasurer has agreed, is a multi-year budget as few projects are completed within one year. Staff have recommended all of the budgeted projects for good reasons. The existing budget is reasonable for an organization with over $7 billion in assets and is based on a life cycle replacement of assets. With the average life of a transit asset being almost 30 years, a $250 million annual capital budget is required to maintain a $7 billion plus infrastructure. $250 million per year times five years equals $1.2 billion, the total value of the projects put forward in the TTC's five year Capital program for the existing system.

There are three fundamental principles that should be adopted by staff, the Commission and the City Councillors in ensuring the health of public transit:

The five year capital budget and the annual operating budget are cast with these principles in mind, a safe and reliable operation that is cost efficient for both the taxpayer and the rider.

The timely, life cycle replacement of public assets is an economic principle that is universally recognized by the industry, the funders and the bond-rating agencies as being prudent management of the public transit system. To slip into a "fix as fail" replacement program particularly in a rapid transit environment where close tolerances, speed and large passenger loads are the norm, is to seriously misjudge not only the impact on reliability and safety of the system, but will add unnecessary fiscal burden in future years.

Assuming that City Council wishes to maintain the current mix and quantity of transit service, the TTC Capital budget over the next five years is required. If the budget problem is one of cash flow in 1998, a small number of "deferrals" are possible. For example, the replacement bus garage for Eglinton and Danforth divisions could be deferred to next year, with acceptable risk.

However, if the Budget Comittee's goal is to reduce the average annual $250 million capital subsidy needs of the existing system and reduce the current operating subsidy of approximately $150 million, then Council must debate the future role of the TTC in the City of Toronto. (See Attachment III - report page 40 - 45, The Track Ahead).