To:Policy and Finance Committee

From:Chief Administrative Officer and Chief Financial Officer and Treasurer

Subject:Toronto Transit Commission (TTC) -- Provincial/Municipal Funding Trends and Longer Term Funding Strategies

Purpose:

This report provides an overview of the provincial and municipal funding trends with respect to the TTC and highlights the various initiatives underway to develop a stable funding base for the TTC. This report also provides a recommendation on the allocation of any proceeds (between operating and capital requirements) from gasoline taxes presently collected by the federal and provincial governments, if and when such taxes become available for public transit.

Funding Sources, Financial Implications and Impact Statement:

The City's 1999 approved operating budget for the TTC is $760.720 million gross and $188.128 million net, and consists of the following services:

ServiceGross BudgetNet Budget

($million) ($million)

TTC Conventional 719.545 148.888

Wheel Trans 41.175 39.240

Total Operating Budget 760.720 188.128

The 1999 approved capital budget is $644.727 million, funded by the City through a combination of reserve funds, capital from current contributions and debt.

Over the last five years, TTC's base capital program expenditures averaged $240 million a year, while capital expansion added another $140 million a year. As a result of provincial downloading of transit costs, the front-end loading nature of TTC's capital requirement in the next five years and the Sheppard Subway construction, the City is facing significant fiscal pressure relating to TTC's capital program, estimated to be more than $1.7 billion for 1999 to 2003. On the operating cost side, although TTC has been managing within operating budgets, the financing requirements of the capital program over the next 5 to 10 years will have a significant impact on future operating budgets. The annual incremental increase in operating budget for the next 5 years due to capital financing for TTC purposes is estimated to be $30 million a year, totalling almost $150 million over and above the 1998 level.

The economics of the TTC operation depends on a number of factors, including maintaining and improving its ridership, operating productivity, cost efficiency and effectiveness, maximizing existing revenue sources and finding new sources of funding from the provincial and/or the federal governments.

The TTC is facing an operating budget shortfall in 1999 and 2000 (due partly to a wage rate increase effective April 1, 1999, Y2K expenses and provision for foreign exchange, offset partially by a fare increase on May 3, 1999) estimated at approximately $4 million for 1999. Short term financial implications for 2000 include an increase in capital from current and debt levels as scheduled and/or another potential TTC fare increase to fund operations, and potential new municipal revenues such as parking levy and development charges to fund capital requirements. A fare increase, if required, may have potential negative impacts on ridership which is one of the main factors affecting TTC's viability. Mid to long term financial implications to meet capital needs include dependence on property assessment growth and an increase in property tax base, and potentially securing assistance from provincial and federal governments through grants or revenue-sharing agreements.

Recommendations:

It is recommended that:

1. the City of Toronto continue to support and take an active role in implementing the previously approved Council recommendations of the Task Force on Transportation Funding, in co-operation with the Greater Toronto Services Board, to work with the Association of Municipalities of Ontario and the Federation of Canadian Municipalities to pursue provincial and federal revenue-sharing for transportation;
2. the City of Toronto develop and propose, in the context of the broader regional transportation issues, a revenue sharing formula for any proceeds that may materialize as a result of the recommendations of the Task Force on Transportation Funding, if and when such revenues become available for public transportation in the City;
3. any new revenues received by the City for the TTC from the forgoing be applied to reduce the City's annual borrowing requirements on account of the TTC capital program, i.e. 100% of the revenues be applied to offset new debt for TTC's capital purposes for both maintenance and expansion.

Council Reference:

At its meeting held on March 2, 3, and 4, 1999 Council adopted Clause No. 1 of the Report No. 3 of the Strategic Policies and Priorities Committee, titled "1999 - 2003 Capital Budget and Five-Year Capital Program", which recommended that the Chief Administrative Officer, in consultation with the Mayor, the Chief General Manager of the TTC and other appropriate City Officials, be requested to submit a report to the Strategic Policies and Priorities Committee, for its meeting to be held in May 1999, on:

1) the Provincial/Municipal funding trends with respect to the TTC; and

2) a strategy for safeguarding the viability of the TTC.

Further, at its meeting on April 26, 27 and 28, 1999 Council adopted the following motion:

"It is further recommended that the TTC and the Chief Administrative Officer be requested to report to Council, through the Planning and Transportation Committee, no later than June 1999 on how the TTC would divide (between operational requirements and transit expansion) any proceeds from gasoline taxes presently collected by the federal and provincial governments, if and when such taxes become available for public transit".

This current report prepared by the Chief Financial Officer and Treasurer in consultation with the Chief Administrative Officer is addressing this issue and is reporting back to Council through Policy and Finance Committee.

In addition, at its meeting on May 11, 1999 Council adopted the following recommendations contained in Clause No. 8 of Report No. 7 titled "Report of the Task Force on Transportation Funding":

"1. It is recommended that Council:

i)support and promote the establishment of a Transportation Funding Partnership consisting of the City of Toronto, Regions of York, Peel, Durham, Halton and H-W, the Provincial and Federal governments, to reduce congestion levels, ensure a competitive economy, assist in meeting air quality targets, reduce dependency on the private automobile and to provide a better quality of life;

ii)support that the proposed Transportation Funding Partnership meet 66% of road and transit infrastructure needs in the GTA and H-W through a sustainable revenue sharing agreement with the Provincial government encompassing existing gasoline taxes, driver licensing and vehicle registration fees, the Provincial Sales Tax (PST) generated through vehicle sales and leases, and strategic investments by the Federal Government;

iii)request the Premier of Ontario to authorize the Provincial Minister of Finance to initiate a review and consider, negotiate and recommend by November 1999, a sustainable Transportation Funding Partnership for the GTA and H-W;

iv)request the Prime Minister of Canada to authorize the Federal Minister of Finance to initiate a review and consider, negotiate and recommend by November 1999, a sustainable Transportation Funding Partnership for the GTA and H-W;

v)refer the report entitled "Funding Transportation in the Greater Toronto Area and Hamilton-Wentworth Study Report" to the Greater Toronto Services Board for a presentation;

vi)request the Chairman and the Transportation Committee of the Greater Toronto Services Board to organize and host a presentation of the "Funding Transportation in the Greater Toronto Area and Hamilton-Wentworth Study Report" to key stakeholders as the earliest possible date;

vii)request the Chairman and the Transportation Committee of the Greater Toronto Services Board to arrange meetings with the Ontario Minister of Finance and the Federal Minister responsible for the GTA to present the "Funding Transportation in the Greater Toronto Area and Hamilton-Wentworth Study Report".

2.It is also recommended that Council:

i)request the Task Force on GTA and H-W Transportation Funding to present their findings at the upcoming meeting of the Federation of Canadian Municipalities; and

ii)request the Chairman and Transportation Committee of the Greater Toronto Services Board to meet with representatives of the Greater Vancouver Transit Authority (GVTA) and the Montreal Agence Metropolitaine de Transport (AMT) regarding establishing a partnership to pursue federal revenue sharing for urban transit."

Discussion:

1) Provincial/Municipal Funding Trends with respect to the TTC

CAPITAL

Provincial Downloading

From 1972 until 1996, the Province subsidized 75% of the TTC's capital expenditures for subway, light rail additions and improvements, and other capital asset maintenance and additions. In June 1996 the Province announced that the funding formula for capital projects would be reduced, first from 75% to 50% and then from 50% to 0. As well, the Province excluded property purchases from the funding formula and excluded various overheads associated with capital programs. On October 4, 1996 a TTC Capital Subsidy Agreement was executed between the Province, Metro and the TTC, which established the subsidy rates and rules governing the provincial share of capital contributions for the period January 1, 1996 to December 31, 2000. In general, projects committed at the time of the agreement continued to receive a 75% provincial subsidy, while new projects received a reduced provincial subsidy of 50%. Thus, Metro's share of the average annual TTC capital program of $240 million increased from $60 million (25%) to $120 million (50%), and finally to $240 million (100%) over the life of the agreement. The full impact of the capital subsidy loss is estimated to be approximately $180 million annually.

On January 1, 1998 the Province implemented a second reduction to eliminate the TTC operating subsidy of $78 million, terminate all capital subsidy upon expiry of the Capital Subsidy Agreement, and implement the other "Who Does What" downloading (or Local Services Realignment as it is known today). The Province used the subsidy reductions to calculate allocations from the Community Reinvestment Fund for all municipalities, except Toronto. In contrast, Toronto had arranged a five-year phase-out of capital subsidy under the "Capital Subsidy Agreement" which was based on expenditures levels identified in the 1996 capital program.

On March 31, 1998 the Province advised the City and the TTC that it planned to settle in 1998 its long-term obligation under the TTC Capital Subsidy Agreement. On June 17, 1998 the TTC and the City entered into an agreement with the Province that released its commitments in return for a lumpsum payment to the City of $829.2 million. The TTC also entered into an agreement with the City, which established two reserve funds, one for the purpose of funding the Sheppard Subway and the other for the purpose the TTC's base capital program, also called "State of Good Repair". The City assumed full responsibility for managing the funds and guaranteed the total amount of funding that would be available from the reserve funds. The two reserves funds will be expended by 2000.

Capital Program Expenditure Needs

The TTC's gross expenditures for capital maintenance increased from $125 million in 1992 to $427 million in 1998. Capital expansion increased from $29 million to $186 million in the same period. Please see Appendix A for details.

On March 2, 3 and 4, 1999 City Council approved the City's 1999 Capital Budget that consists of a gross expenditure in excess of $1.5 billion. While the 1999 capital expenditure request is comparable to the 1998 approved capital program for most program areas, the financing requirements of the capital program over the next five to 10 years will have a significant impact on future operating budgets. This impact is primarily caused by the downloaded costs for transit and transportation, the costs of funding extraordinary items such as amalgamation related projects, Y2K projects and the Sheppard Subway, the significant backlog of ongoing capital maintenance projects ands other new initiatives to be adopted by Council. The majority (60%) of the City's 1999 - 2003 capital funding pressures is related to TTC capital expenditures and capital subsidy elimination.

The TTC's capital program projected for the five years 1999 to 2003 is dominated by high expenditures in the first 3 years and significantly lower levels in years 4 and 5.

($millions)

The relatively high capital expenditures coupled with the loss of the provincial capital subsidy result in a severe capital funding shortfall through the period. The report titled "1999 Capital Financing Plan -- Tax Support Program", adopted as per Clause No. 1 of Report No. 8 of the April 26, 27 and 28, 1999 Council meeting, detailed TTC's capital requirements for the period 1999 to 2003 and outlined a financing plan. In 1999 the Sheppard Subway project is budgeted at $199 million, while the balance of $446 million in the capital program will be applied towards capital maintenance under the "State of Good Repair" program. The Sheppard Subway project will be financed 100% by accelerating the withdrawal of the Sheppard Subway Reserve Fund. The State of Good Repair program will be financed by a combination of an increase in operating contributions through capital from current, Capital Subsidy Reserve Fund, as well as new debt issuance. Appendix B details TTC's capital program and how it is financed in the next 5 years.

OPERATING

Provincial Downloading Impact on Operating Budget

As discussed earlier, the provincial operating subsidy was completely withdrawn on January 1, 1998 in the "Who Does What" initiative. Appendix A and the following chart show the provincial and municipal subsidies for operations of the conventional transit system for the years 1992 to 1999. In 1999 the total municipal subsidy excluding capital financing costs of just under $150 million was approved as part of the 1999 Operating Budget.

The following chart depicts TTC's operating revenues and other revenues, such as financing from retained earnings and Transit Improvement Fund. (The Transit Improvement Fund was set up in 1991 using the $36.9 million net proceeds of sale of specific assets of the Metro Toronto Coach Terminal Inc., for the purpose of financing future transit-related initiatives. The fund was used over the next few years to balance the operating budgets during Social Contract and in a period of declining ridership. This fund was depleted in 1995.) The same chart also displays the basic adult ticket fares over the eight-year period from 1992 to 1999. The rate of increase in the adult fare has kept pace with the operating expenditure growth, and has increased at a faster pace when provincial subsidies have decreased. Passenger fares and municipal revenue have become the only sources of revenue to offset the loss in provincial operating subsidy. The revenue/cost ratio (R/C ratio), which effectively measures the proportion of passenger ("Fare Box") revenues to operating expenses, increased from 66% in 1992 to 81% in 1999 along with the fare increases. Please see Appendix A for details.

Operating Impact of Capital Financing

The City's capital program has an impact on its operating budget funded by property taxes through interest on debt, sinking fund contributions to repay debt principal, and capital from current contributions to fund expenditures directly from the operating budget. The magnitude of these expenditures and the potential variances from year to year present the most significant fiscal challenge to the City. According to the 1999 Capital Financing Plan, the operating impact for the TTC capital program budget will be an annual increase of about $30 million per year in the next 5 years, for a total of just under $150 million. (The second $100 million interest-free provincial loan will be used to fund the City's amalgamation and related capital costs and does not impact directly the TTC). Therefore, without intervention from new revenue sources, the City would need to find operating savings or property tax increases totalling $150 million over the next 5 years to offset the TTC capital funding pressures.

In 1998, Council approved an increase in capital from current (CFC) contribution of $15 million to address TTC's financial pressure. In 1999, an additional increase of $25 million in CFC, plus debt charges of existing and new debt issued for the TTC capital programs totalling $43 million, coupled with the City's operating subsidy for the TTC of $150 million mentioned earlier, bring the total City's operating contribution for the TTC in excess of $230 million. Using the same concept of full cost accounting, the chart below shows the total City's operating contribution by 2003 will escalate to more than $330 million based on the 1999 Capital Financing Plan. Whereas the City's contribution before financing costs is estimated to be 19% of the total operating cost (excluding financing costs) in 1999, once capital financing costs are included, City's contribution becomes 32%. This percentage will escalate to 46% by 2003, assuming no change to either operating expenditures or revenues, i.e. increase is due solely to increased capital financing costs. Industry practice rarely includes capital financing costs in the consideration of total municipal operating subsidies (and therefore does not employ full cost accounting) since most other jurisdictions do not have such substantial capital financing costs borne by the municipal government.

2) Longer Term Funding Strategies

In order to safeguard the viability of the TTC, alternate long-term and sustainable sources of revenue must be found for both capital and operating purposes. Currently, the operations of the TTC are mainly financed by passenger revenues and a municipal subsidy raised through property taxes -- approximately in the ratio 80:20. Both of the operating revenue sources are significantly strained. On the capital side, the funding shortfall is most acute in 1999 - 2001. Without new revenue sources a combination of fare increases and/or property tax increases will be necessary. It is not possible to support the capital program through the fare box. The increase in fares would reduce ridership such that the TTC would function as a peak service (rush hour) operation only. From TTC's past experience, a moderate increase in fares would lead to a reduction in ridership estimated in the ratio of 4 (or 5) to 1. In other words, a 4% to 5% increase in fare levels would reduce ridership by 1%, assuming all other factors stay the same. Appendix C shows a comparison of bulk adult fares amongst major North American transit systems. It indicates that TTC's fares are currently higher than the counterparts in the Greater Toronto Area and many other cities. This will bring forth significant resistance towards another TTC fare increase in 2000, given that there has just been a 6.3% fare increase in May 1999. Fortunately, the current strong economic environment and the improving employment growth provide a favourable environment for ridership growth.

The following outlines the TTC's current performance, compares it with other jurisdictions, discusses how other jurisdictions are funded, and proposes alternate long-term and sustainable sources of revenue in order to maintain TTC's economic viability.

OPERATING -- Longer Term Funding Strategies

TTC's Operating Performance and Comparisons with Other Jurisdictions

It has been widely publicized that the TTC is the most efficient transit system and has the highest revenue/cost ratio (R/C ratio) amongst major North American Transit Systems. The following chart displays the 1997 R/C ratio for some of the peer group comparators in North America. (Note that all Canadian jurisdictions follow reporting requirements by the Canadian Urban Transit Association (CUTA). Similarly all US jurisdictions comply with the National Transit Database (NTA) administered by the Federal Transit Administration.)

TTC had the highest R/C ratio amongst the comparators in 1997. In 1998 the ratio has improved to 81%. In 1997, TTC also has the lowest municipal subsidy per capita as well as the lowest subsidy per passenger trip/boarding. At its April 26, 27 and 28, 1999 meeting, Council adopted the recommendation that City of Toronto strive to ensure that the TTC operating budget cost of 80% supported by its ridership will not be exceeded, as recommended by the then Chief General Manager of the TTC.

Source: 1997 data from Canadian Urban Transit Association and US Federal Transit Administration's National Transit Database, except for TTC.

Note: j TTC's data revised and reported by TTC.

$ are in Canadian Funds at the exchange rate of 1 USD = 1.3844 CAD per Bank of Canada's 1997 average;

# Both local and commuter rails are included in Vancouver's figures

* US transit properties report "boardings", or unlinked trips, while Canadian properties report "trips" which may be linked.

‡ R/C ratio is defined as Passenger Revenues/ Total Operating Costs. According to common industry practice, certain costs such as depreciation, debt charges, rental and lease charges, inter-city charters, and cross-boundary services to adjacent municipalities are excluded.

Although the TTC runs an efficient and comprehensive grid system of buses, street cars, subway and light rapid transit with a total of over 2,500 vehicles, and carries over one million Ontario commuters on a daily basis from all over the Toronto area, it is the only system amongst the peer comparators of urban transit systems which does not receive any form of operating subsidy from senior levels of government.

Many similar jurisdictions in North America and Europe receive operating as well as capital assistance through dedicated revenue sources, such as gasoline taxes, vehicle charges, sales taxes and road tolls. Funding is generated through a combination of local municipal power to institute dedicated taxes, and through channelling of taxes collected at the federal or provincial/state levels to local municipalities.

Note: Although provincial operating funding was provided to TTC in 1997, it was completely withdrawn in 1998.

Sources: 1997 Canadian Transit Fact Book by the Canadian Urban Transit Association

1997 US National Transit Database, Federal Transit Administration, US Department of Transportation

A good illustration of an innovative revenue source can be found in British Columbia's Translink, the regional transportation network for the Vancouver region created April 1, 1999 through provincial legislation (previously known as the Greater Vancouver Transportation Authority (GVTA)). It has broad powers including raising revenues, establishing subsidiaries and contracting out. Its sources of operating funding include a fuel tax of 8 cents/litre, a hydro levy of $1.90/residential account, PST on parking as well as non-residential property tax. These tax revenues will account for 61% of the 1999 Translink operating budget. Please see Appendix D for details.

Montreal's Agence Metropolitaine de Transport (AMT) was created by the Province of Quebec on January 1, 1996 for the Greater Montreal Region. The AMT has metropolitan-wide powers for transportation planning. It has a mandate to achieve a wide range of provincial objectives, including provision of stable long-term financing of public transportation by establishing dedicated sources of funding within the region; allocation of shared cost of regional facilities and infrastructure amongst all municipalities of the region; participation of users, property owners and non-user beneficiaries in financing public transit operating expenses; fare integration and harmonization among transit systems in the region.

AMT's revenue sources include:

• a new, dedicated 1.5 cent/litre gasoline tax in the Montreal region, starting January 1, 1996;
• dedicated vehicle licence surcharges of $30/vehicle in the region;
• property levies on municipalities that receive commuter train service; and
• property levies on municipalities for a capital asset fund.

AMT's remaining funds come from regional transit passes, commuter rail revenue, and a provincial commuter rail infrastructure subsidy. Please see Appendix D.

In the United States, the majority of operating funding for urban transit comes from dedicated sources, as evident in their low R/C ratios. The federal government provides both capital and operating subsidies for transit, but operating subsidies are available only for systems serving populations of under 200,000. Dedicated taxes include Income Tax, Sales Tax, Gasoline Tax, Motor Vehicle Excise Tax, Payroll Tax, Property Tax, Lottery Tax, Beer Tax, etc., levied by all levels of Government to differing extents. Please see Appendix E.

The concept of using federal fuel tax revenue for state and municipal transportation purposes has been in place in the US for many years in the form of Federal Highway Trust Fund. Until this year, the subsidy rate from federal fuel tax was 2 cents/gallon. With the introduction of the new Transportation Equity Act for the 21st Century (TEA-21) in June 1998, the allocation for transit was increased to 2.86 cents/gallon (CAD 0.75 cent/litre) out of a total gas tax rate of 18.3 cents/gallon (CAD 4.83 cents/litre). In other words, 16% of the federal fuel tax is allocated to transit for municipalities. TEA-21 will provide almost US$41 billion in 1998 to 2003 for transit, with $US 36 billion (all gasoline taxes and part of general fund subsidies) basically guaranteed.

TTC Stabilization Reserve Fund for Operating Purposes

At its meeting held on April 26, 27 and 28, 1999 Council adopted the recommendation, among other things, that the City of Toronto establish a reserve fund for the TTC in order to stabilize funding over time, such fund to be operated on the basis that any TTC operating surplus shall be paid in, and any operating deficit shall, to the limit of the fund's balance, be funded therefrom. This reserve fund has now been set up with the 1998 surplus of $1.203 million.

To the extent that discussions relating to alternate sources of operating revenues e.g. dedicated taxes may take a period of time, the TTC Stabilization Reserve Fund provides a short-term relief to stabilize operating funding.

CAPITAL -- Long term Funding Strategies

TTC's Capital Funding and Comparison with Other Jurisdictions

Capital requirements for transit systems are typically funded through sources other than passenger revenues. As explained in an earlier discussion, municipal revenues currently appears to be the sole source of capital funding for the TTC. The capital requirement of over $1.7 billion over the next 5 years will be funded through increases in operating contributions through capital from current, accelerating withdrawals from the Sheppard Subway Capital Subsidy Reserve Fund and new debt issuance. The Capital Subsidy Reserve Fund will be used up in 1999 while the Sheppard Subway Reserve Fund will be depleted in 2000.

In Canada, the Federal government does not provide funding for local transit services for either operating or capital purposes. The provinces of Ontario, Saskatchewan, Newfoundland, Nova Scotia, and New Brunswick do not fund local (non-specialized) transit. The provinces of Alberta, British Columbia, Manitoba, and Quebec provide funding in different ways. Included are per-capita operating and capital grants to municipalities, special project grants, operating and capital cost-sharing agreements, and contributions from gas taxes, parking fees, hydro levies, property levies and licence fees.

In the United States, Federal capital assistance is the single largest source of funds for capital investment in transit infrastructure. Of the nearly US$7.6 billion used in 1997 for capital investment in transit infrastructure expansion and rehabilitation, Federal assistance accounted for 54%. Local funds represented 33% and State funding contributed 13%.

Although each US state has its own funding policies and mechanisms, national aggregate data shows that the amount of dedicated funding for transit capital expenses exceeds that of general revenue at all levels. Appendix E shows the breakdown of sources of dedicated revenues in the form of income taxes, sales taxes, property taxes, gasoline taxes, etc. from the States, local municipalities and transit agencies themselves. Property tax revenues at all levels make up only a negligible amount (less than 8%) of the total funding source from any of the levels. In Toronto, property tax revenues currently are the sole funding source for local transit capital.

Gasoline Tax and Vehicle Registration Fee

The Canadian Provincial and Federal Governments raise almost $2 billion annually from the GTA/H-W region through transportation-related taxes and fees as follows:

Source: Funding Transportation in the GTA and Hamilton-Wentworth April 1999

Petro Canada reported that in the Toronto area in 1998, the total taxes included in the price of one litre of regular unleaded gasoline sold made up more than 50% of the average price -- of the average price of 52.5¢ per litre, 14.7¢ (27%) are provincial taxes, and 13.4¢ (26%) are federal taxes. Preliminary estimates based on 1996 Census data ( vehicle registration and population) indicated that if the Province was to institute a gas tax dedicated to transit, a rate of one-cent-per-litre gas tax would generate annual revenues of: approximately $62 million for GTA/Hamilton-Wentworth, $47 to $53 million for the GTA, and $19 to 28 million for Toronto.

The Province of Ontario currently charges residents of southern Ontario $74 per year to license each vehicle. Vehicle registration fees, like the gasoline tax, is an attractive source of revenue because of its relationship with transportation and ease of collection.

User pricing for transportation -- whether it be through gasoline taxes, or vehicle registration fees -- is an extremely powerful tool for addressing urban transportation challenges, since it:

• provides a revenue stream which rises in proportion to use (and therefore costs) of the transportation system and which can be dedicated to provide capital and operating funding to maintain, optimize and improve the system;
• has a moderating effect on transportation demand levels, provides an incentive for travellers to "double-up" in their trip making, decrease pollution, and use more sustainable and less expensive modes such as transit, walking and cycling.

A strong case can be made that it would only be fair to return some portion of the transportation-related taxes and fees back to the contributing area to improve transportation. The two senior levels of government must be strongly encouraged to provide alternate sources of funding for the TTC in order to maintain viable operations in the next few years amidst significant budget pressures. Other jurisdictions in Canada, specifically Vancouver and Montreal, have successfully negotiated revenue sharing of provincial gasoline tax for public transit. As well, US transit systems receive substantial assistance from the Federal and State governments. It is important that the City of Toronto not only follow suit, but also become the driving force to encourage the governments to provide new revenue-sharing programs.

Should the Province make such revenues available to the City, it will need to have a formula and a mechanism to allocate a share of the revenues to the TTC. The full amount (100%) of the TTC's share should be allocated to capital to reduce borrowing requirements for TTC's capital programs, as the funding pressure of the capital programs far exceeds that of the operating requirements.

Report on Funding Transportation in the GTA and Hamilton-Wentworth by the Transportation Funding Opportunities Task Force

On May 11, 1999 Council adopted the report to the Urban Environment and Development Committee from the Commissioner of Urban Planning and Development Services, titled Report of the Task Force on Transportation Funding. This report communicates the findings of the Task Force on Transportation Funding presented to the GO Transit Board on April 9, 1999 and recommends actions to improve transportation in the Greater Toronto Area (GTA) and Hamilton-Wentworth (H-W). The City of Toronto is a member of the Task Force.

The report includes findings that investment in roads and transits, even with Provincial subsidy before 1998, has not kept pace with the growth of transportation demand. The lack of expansion over the past 10 to 15 years has resulted in a decline in the quality and efficiency of overall transportation services. In addition to the limited expansion funds for the TTC, GO Transit has been unable to provide sufficient services to meet existing demand because of the lack of capital to increase the capacity particularly at Union Station. Over 70% of the GTA/H-W arterial road system is congested in peak periods. The GTA/H-W municipalities currently spend $570 million annually on capital investment for TTC, GO, regional roads and local transit. To improve transit services and road congestion as well as accommodate growth $1.37 billion in capital investment is required annually for expansion as well as maintenance. This leaves $800 million in funding gap for the GTA/H-W region. The City's share of the $800 million funding gap is estimated to be $400 million to $500 million annually.

In brief, the report recommended that Council support the establishment of a Transportation Funding Partnership (to be made up of all GTA cities and regions, the Provincial and Federal Governments) to reduce congestion levels, ensure a competitive economy, assist in meeting air quality targets, reduce dependency on the private automobile and to provide a better quality of life. It also recommended Council support that the proposed Transportation Funding Partnership meet 66% of road and transit infrastructure needs in the GTA and H-W through a sustainable revenue sharing agreement with the Provincial government encompassing existing gasoline taxes, driver licensing and vehicle registration fees, the Provincial Sales Tax (PST) generated through vehicle sales and leases, and strategic investments by the Federal Government. The report recommended that the Partnership complete the negotiation and have recommendations by November 1999.

In order for these proposed discussions to be fruitful, the City of Toronto should develop and propose, in the context of the broader regional transportation issues, a revenue sharing formula for any proceeds that may materialize as a result of the recommendations of the Task Force on Transportation Funding, if and when such revenues become available for public transit capital.

Kyoto Commitments

In December 1997, Canada and over 150 countries reached an agreement, the Kyoto Protocol, which commits the nations to specified greenhouse gas reduction targets for the post-2000 period. The Protocol will commit Canada to reduce its emissions of greenhouse gases by 6% below the 1990 levels, during the period 1998 to 2012. The Canadian Urban Transit Association and other organizations have been working over the last several years to identify, quantify and publicize the environmental benefits of public transit and what it would take to bring about a major modal shift from auto use to transit in urban areas. The following have been recommended to date:

• tax exemptions for employer-provided transit passes;
• alternate funding sources for transit;
• car disincentives (road pricing, fuel tax, management of parking supply and pricing);
• cross boundary fare and service integration in large urban areas;
• inter-modal integration; and
• adoption of transit-supportive land use planning policies.

Although these recommendations are still in the early stages of discussion, implementation of one or more of these in the GTA area will bring about longer-term behaviourial changes of travellers, which will likely increase the utilization rate of public transit. It may not provide immediate solutions to TTC's financial pressures, but will have an indirect impact on future policies relating to the TTC.

Meeting of the Federation of Canadian Municipalities

At the April 30, 1999 meeting of the Big City Mayors' Caucus of the Federation of Canadian Municipalities (FCM) held in Saskatoon, the mayors endorsed a proposal, as part of the on-going Kyoto commitment, that the Federal Government redirect at least 3 cents per liter of the fuel tax to support sustainable transportation, including urban transit. Preliminary estimates based on 1996 Census data indicate that over $900 million a year can potentially be raised across Canada. This potential revenue in GTA alone is approximately $130 million annually. For the City of Toronto, the corresponding revenue would be approximately $55 million.

Association of Municipalities of Ontario's Resolution

At the January 29, 1999 board meeting of the Association of Municipalities of Ontario (AMO), a resolution was adopted regarding gasoline and fuel taxes, as follows:

"WHEREAS there has been a realignment of responsibility for the maintenance and up-keep of highways from the Province to the municipal governments; and

WHEREAS the Provincial and Federal governments receive a gasoline and fuel tax on each liter of gasoline and fuel sold in Ontario; and

WHEREAS the gasoline tax in Ontario was originally designated for the maintenance and up-keep of highways; and

WHEREAS some of the highways transferred from the Province to municipalities are in very poor condition and the one time only funding for these newly acquired roads is very inadequate; and

WHEREAS local and regional transit systems plan a significant role in the economic sustainability of our urban centres and the Province has abandoned these systems, letting the property tax base and the fare box be the primary revenue source;

THEREFORE BE IT RESOLVED THAT the Association of Municipalities of Ontario hereby petitions the Province of Ontario and the Government of Canada to share the gasoline and fuel tax with the municipalities, and that this is done in a fair and equitable manner that supports the immediate and long term capital and operating requirements of Ontario's municipal roads and transit systems."

City staff will report back to Council with an update on the discussions of the Greater Toronto Services Board and the Task Force on Transportation Funding with FCM, AMO and the senior levels of government once a resolution is reached.

Development Charges

Under the Development Charges Act, 1997 (DCA), all existing development charge by-laws in Ontario, including all former municipalities of the City of Toronto, expire on August 31, 1999. At its May 11, 1999 meeting Council adopted the Clause No. 1 of the Report No. 9 of the Strategic Policies and Priorities Committee, titled New Development Charges By-Law. The purpose of the report was to table with Council the City's development charge background study and to seek authorization to hold a public meeting pursuant to the provisions of the Development Charges Act, 1997, in order to consider public input before the passage of a new development charge by-law.

The existing development charge policy has been inherited from the seven former municipalities and consists of a patchwork of schedules and coverage areas with a wide disparity. The proposed new schedule recommends a city-wide schedule of charges for all residential development and non-residential development.

According to the report, the TTC is one of the services which require a statutory percentage reduction. For the TTC, development-related capital projects for the next 10 years include the Sheppard Subway, Union Station Platform Expansion, LRT Harbourfront, bus fleet replacement and purchase and associated garage facilities. This report identified a total gross capital cost of $390.4 million as approved in the 1999 - 2003 Capital Budget and another $102.6 million for 2004 to 2008. Potential Development Charge Recoverable Costs are estimated to be up to $56.2 million for 1999 - 2003 and up to $14.8 million for 2004 to 2008, totaling $70.9 million for the next 10 years. This is equivalent to maximum annual average revenue of over $7 million.

A separate report will be presented to Policy and Finance Committee on the outcomes of public consultation held on June 24, 1999. Certain policy issues must be resolved before the actual revenues can be realized, including phasing in of the schedule of charges and possible exemptions.

Parking Levy

At its meeting on April 26, 27 and 28, 1999, the Council adopted Clause 1 contained in the Report No. 8 of the Strategic Policies and Priorities Committee, titled 1999 Operating Budget. That clause recommended that the Chief Administrative Officer and the Chief Financial Officer and Treasurer be requested to submit a joint report to the Planning and Transportation Committee on a recommended comprehensive parking levy, as part of a long-term strategy to sustain public transit in the City of Toronto, including the feasibility of dedicating a portion of revenue generated from permit parking, front yard parking, parking meters, and municipal parking lots, such report to also assess the anticipated economic impact of such a parking levy on business in the City of Toronto, as well as any correlation which might be expected based on past experience with the Commercial Concentration Tax. This report will be submitted to Council separately.

One-Time Measures

As part of the City's 1999 Capital Financing Plan - Tax Supported Program (adopted by Council at its meeting on April 26, 27 and 28, 1999) there are two potential one-time revenue sources related to the TTC.

The first one is the proceeds of sale of TTC properties, which can be used to offset against capital. With the exception of the Downsview station surplus lands, TTC related property sales are not expected to produce significant revenues in the next two years. Those properties that have been identified as surplus are pledged against the bus garage replacement project. Properties at the current Danforth and Eglinton bus garage sites may become surplus when the new garage is operational and can ultimately yield up to $5 million. The Downsview station surplus lands are subject to negotiations with the Federal Government, which holds covenants against the property preventing future development. These discussions have been protracted but are expected to be resolved in 1999. The proceeds will be applied against the cost of the Sheppard Subway to reduce the forecasted debt requirements per previous Metro Council resolution. The Facilities and Real Estate Division, in consultation with the TTC, will report to the Budget Advisory Committee on the estimated revenues from sales of surplus property of the TTC, including possible sale-lease options of the properties at the current Danforth and Eglinton bus garage sites prior to July 31, 1999.

As a means to reduce financing costs, consideration is also being given to alternate capital financing such as cross border sale-leaseback of rolling stock of subway cars. A Request for Proposal is under way and results will be reported back to Council.

Conclusion:

The impacts of provincial downloading and TTC's capital requirements have clearly created significant hardship to the City especially in its ability to fund its capital programs. The TTC has estimated that the capital program costs from 1999 to 2003 are in excess of $1.7 billion, at $645 million in 1999 decreasing to just over $200 million by 2003.

The City of Toronto is now responsible for all urban transit funding, yet it is under a great deal of financial pressure as a result of municipal restructuring, the new property tax system and public tolerance of increased taxation. Neither the property tax system nor current development charges is capable of generating sufficient revenues to offset the increased cost pressures.

New revenue sources and innovative financing approaches must be found for capital maintenance as well as transit expansion. Operating cost increases resulting from capital financing must also be funded through alternative sources of revenue. They include:

-channeling a share of existing or new transportation-related revenues. These could include federal and provincial gasoline taxes, vehicle registration fees and sales taxes. The only way to achieve this end is to actively petition the two senior levels of government;

-enabling the City of Toronto to collect transportation user fees directly, e.g. parking levy;

-applying one-time proceeds against capital borrowing requirements, such as the unencumbered proceeds of sale of surplus TTC properties;

-expanding and enhancing the existing municipal funding sources, e.g. on-going review of property tax base and the Development Charge By-law.

The TTC has recently initiated a campaign for gas tax revenue dedicated to public transit. It is imperative for the City to continue the momentum and aim to secure the co-operation of cities such as Vancouver and Montreal, the Association of Municipalities of Ontario, the Federation of Canadian Municipalities and the Greater Toronto Services Board to successfully approach the Provincial and the Federal Government for funding assistance in order to safeguard the viability of the TTC.

If, and when such funding assistance is available to the City of Toronto, an allocation formula and mechanism will need to be in place to provide a share of the revenues to the TTC. The full amount (100%) of the TTC's share should be applied to support the TTC capital program to reduce the City's annual borrowing requirement for TTC's new capital programs.

Contact Name:

Ruby Chui, Senior Financial Analyst, Financial Planning

Phone No.: 397-4117, Fax No. 392-3649, E-Mail: rchui@mta1.metrodesk.metrotor.on.ca

Don Altman, Manager, Financial Planning

Len Brittain, Director, Treasury & Financial Services

Michael R. GarrettW.A. Liczyk

Chief Administrative OfficerChief Financial Officer and Treasurer

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Alternate Sources of Funding -- Vancouver and Montreal Transit Systems

Vancouver -- Translink 1999 Transit Operating Revenues
Description	Rate	Revenues ($millions)	% of Total Operating Expenses
Fuel Tax	8 cents/litre (100% increase from prior year)	$127.9	33%
Hydro Levy	$1.90/residential account	$11.8	3%
PST on parking	7%	$7.5	2%
Non-residential property tax	$0.9627 to $1.3760 per $1000 assessed value	$88.1	23%
Total Tax Revenues		$235.3	61%
Total Passenger Revenues		$140.4	36%
Total Translink Operating Revenues		$375.7	100%

Source: GVTA's 1999 Operating and Capital Budget Transport 99

-The fiscal year for the Translink is January to December. As Translink assumed operating responsibility for its programs on April 1, 1999 the budget for 1999 reflects a nine month period.

-Major difference between the 1999 budget and the prior year is higher tax revenues due to the higher gasoline tax rate and the inclusion of property tax room.

Montreal -- AMT 1998 Transit Operating Revenues
Description	Rate	Revenues ($millions)	% of Total Operating Expenses
Fuel Tax from Region	1.5 cents/litre	$44,894	24%
Vehicle Licence Surcharge from Region	$30/vehicle/year	$41,565	23%
Municipal Subsidy for Trains		$17,674	10%
Metropolitan Receipts	levy according to user's residence based on legislated revenue-sharing formula	$32,967	18%
Provincial Subsidy for Suburban Trains		$21,993	12%
Provincial Subsidy for Metropolitan Services		$5,786	3%
Other		$1,462	1%
Total Non-Passenger Revenues		$166,341	90%
Total Passenger Revenues		$17,892	10%
Total AMT Operating Revenues		$184,233	100%

Source: 1998 AMT Annual Report