Wheel-Trans Vehicle Replacement

The Strategic Policies and Priorities Committee recommends the adoption of the recommendations of the Budget Committee contained in the following communication (December10,1998) from the City Clerk:

Recommendation:

The Budget Committee on December 8, 1998 recommended to the Strategic Policies and Priorities Committee and Council the adoption of the report (November 17, 1998) from the Commissioner of Finance and Treasurer.

The Budget Committee reports having requested the Toronto Transit Commission to report directly to the meeting of the Strategic Policies and Priorities Committee on the stability of the ELF vehicles with regard to their usage in other Canadian cities such as Winnipeg, Hamilton and Edmonton; such report to also include the length of service, any maintenance problems, etc.

Background:

The Budget Committee on December 8, 1998 had before it the following:

-report (December 7, 1998) from the Chief General Manager, Toronto Transit Commission, regarding the purchase of 127 replacement Wheel-Trans vehicles;

-report (November 17, 1998) from the Chief Financial Officer and Treasurer recommending approval of the gross request for Project 415-127 Wheel-Trans vehicle replacements; and

-transmittal letter (October 6, 1998) from the City Clerk forwarding the recommendations of the Urban Environment and Development Committee to approve the Wheel-Trans Vehicle Replacements.

Councillor Johnston appeared before the Budget Committee in connection with the foregoing matter.

The following persons also appeared before the Budget Committee in connection with the foregoing matter:

-Mr. Rick Miles, Transportation Action Now;

-Ms. Janet Youdell, Ontario March of Dimes, who filed a copy of her brief with the City Clerk;

-Mr. Bill Brown, Advisory Committee for Accessible Transportation;

-Mr. Keith Sheardown, Orion Bus Industries Ltd.; and

-Mr. Doug McKay, Orion Bus Industries Ltd.

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(Joint report dated December 7, 1998, addressed to the

Budget Committee from the

Chief Financial Officer, City of Toronto and the

Chief General Manager, Toronto Transit Commission)

Purpose:

The purpose of this report is to provide the Budget Committee and Council with a summary of the information presented to date which supports the following recommendations.

Both the Commission and City staff have recommended that the purchase of the Wheel-Trans replacement vehicles proceed now, thereby avoiding significant additional expenditures on maintenance and alternate service.

Financial Implications:

Approval of the recommendations will increase the net capital requirement to be financed through the issuance of debentures by $2.7 million in 1999, $2.9 million in 2000, $3.0 million in 2001, and $1.8 million in 2002, in relation to the TTC 1999-2003 capital request for the project. In addition, the recommended funding will result in a 1998 increased contribution from the TTC Capital Subsidy Reserve Fund of $0.7 million.

Recommendations:

It is recommended that:

(1)the gross request for Project 152-127 Wheel-Trans Vehicle Replacements (Orion II) be approved as originally submitted with the TTC 1999-2003 capital request, based on the staggered delivery option, at a total gross cost of $27.5 million;

(2)the contributions from the Wheel-Trans operating budget to this project be limited to the anticipated operating savings resulting from the project, plus the $1.4 million contribution for vehicle replacements included in the approved 1998 operating budget for the TTC;

(3)funding for this project, excluding the reserve contribution, be financed through the issuance of debentures for a term not exceeding twenty years, noting that the amount is within the City's updated debt and financing obligations limit, and direct the City Solicitor to apply to the OMB for approval as required under the City of Toronto Act;

(4)a Wheel-Trans vehicle replacement reserve fund be established and funded from the anticipated operating savings resulting from the purchase of new vehicles, plus the $1.4 million contribution for vehicle replacement included in the 1998 operating budget for the TTC, as per the schedule of contributions set in the body of this report;

(5)the $0.7 million increase in the 1998 net capital program requirement for the project be financed from the TTC Capital Subsidy Reserve Fund; and

(6)the City Solicitor be authorized to prepare and introduce the necessary By-Law to give effect thereto.

Reference:

Included in the Commission and City Council approved 1998-2002 Capital Program were funds for the purchase of vehicles intended to replace the existing Wheel-Trans fleet. On June 30, 1998 a Request for Proposals (RFP) was issued and publicly advertised. Based on the proposals received, the Commission, at its meeting of September 23, 1998 approved the purchase of 127 low floor (ELF) vehicles from Overland Custom Coach Inc. subject to City Council approval. The Urban Environment and Development Committee adopted the recommendations of the Commission and forwarded the report to the Budget Committee for their consideration. The Budget Committee, in considering the item requested additional information on the operating budget savings associated with the purchase, the methods available to finance the purchase and the impact of the various scenarios on the City's operating budget. The Committee also requested the TTC and the City Treasurer to investigate the use of Off-Balance Sheet leases which would allow the payments to match the projected operating budget savings.

Background:

The following is a brief summary of the justification for the replacement of the Wheel-Trans vehicles. More detailed information is contained in both the original Commission report and the TTC's 1997 and 1998 Capital Program Blue Books.

Prior to any estimates being included in TTC's Capital Program three basic questions are asked:

(1)Is there a need?

(2)Is the estimate reasonable?

(3)Is there a lower cost alternative?

(1)Determining Need:

The need for the Wheel-Trans fleet is driven by ridership on the system. The current and projected ridership is the basis for the fleet requirements.

The current Orion bus fleet will exceed their twelve-year design life during the next five years. A combination of increasing maintenance costs and decreasing bus reliability has negatively impacted the ability of the Wheel-Trans system to accommodate the increasing demand for service. Currently the Orion vehicles are experiencing high annual maintenance costs of $52,500 per bus excluding the fuel and overhead allowances.

The decreased reliability associated with these aging buses not only impacts the ability of the system to meet demand, but also impacts the quality of service. A summary of the 1998 customer service impacts associated with these ageing buses is as follows:

(i)60 in service failures per week resulting in a minimum of 100 customer trips being disrupted;

(ii)disrupted trips experiencing increased travel time up to 1 hour; and

(iii)5 Fewer Accessible Buses available on average to meet demand.

Therefore, the combination of the vehicles being at the end of their useful life, the increase in operational costs and the decrease in customer satisfaction supports the need to replace these vehicles.

(2)Is the Estimate Reasonable:

The 1998 - 2002 Capital Program included $17.4 million dollars for the replacement of these Orion buses. A competitive process identified an additional cost to replace these Orion buses of approximately $10 million dollars. Although a fluctuating exchange rate is partially responsible for this price increase, the majority of the increase is as a result of a change in vehicle market conditions. The revised estimate of $27.5 million dollars is included in the 1999-2003 Capital Program Request as approved by the Commission on October 7, 1998.

(3)Are there Alternatives:

Vehicle Considerations:

A detailed discussion of alternatives is included in the Commission's budget submission. In summary the vehicles are at the end of their design life. In order to continue using these vehicles, either a heavy rebuild program will be required or a major investment in the short term will be required to allow replacement purchases to be deferred for one or two years (This report discusses the option of the short term deferrals in greater detail). Both options have been considered by the TTC in developing the budget and the recommendations to the Commission. Neither option was recommended based on cost.

Use of Lift equipped vehicles rather low floor vehicles was also considered. Based on a strong customer preference for low floor vehicles, staff and the Commission recommended the purchase of low floor vehicles rather than lift equipped (see discussion in original commission report).

Mixture of Vehicles:

Currently, Wheel-Trans service is provided by TTC owned and operated Orion buses, as well as contracted sedan and accessible taxis. As part of the 1997 Five-year Wheel-Trans Accessible Service Plan developed as part of the Task Force on Accessible Transit which was adopted by the Commission and Metro Council, larger capacity accessible buses would service the peak demand period whereas low capacity vehicles would be used predominately in the off peak periods. This combination of large and small capacity accessible vehicles is considered the most effective method of providing a cost effective quality service.

During the preparation of the Wheel-Trans Operating and Capital Budgets, consideration is given to the level of service provided by large capacity buses as well as the small capacity vehicles. Accessible buses are predominately used during peak demand periods (7:00 a.m. to 7:00 p.m.) when the opportunity exists to utilize the additional capacity in order to accommodate as many rides as possible. In contrast, the accessible taxis have a much smaller capacity and therefore are utilized in the off peak demand periods where opportunities for ride sharing are reduced and the length of trips increased. Similarly, sedan taxis provide service in the off peak periods for Wheel-Trans customers who do not use a wheelchair or scooter. These sedan taxis are utilized as a last resort since additional accessible small capacity vehicles are not available for Wheel-Trans service at this time. The Five-year Wheel-Trans Accessible Service Plan provides for the gradual elimination of sedan taxi service whereas based upon current demand projections, the accessible taxis contracted to provide Wheel-Trans service will need to increase from 25 in 1998 to 73 in 2002. Table 1 provides a summary of the proposed mix of vehicles for Wheel-Trans over the next five years. If the current high demand (10 per cent growth per year) continues, then the additional accessible vehicles will be required.

Table 1

Wheel-Trans Vehicle Mix - 1999-2003

Although the 25 accessible taxis under contract for Wheel-Trans service are fully utilized, taxi contractors do not appear interested in significantly expanding their accessible taxi fleet. Essentially there is no incentive for owners of taxi plates to purchase accessible cabs rather than the traditional sedan style cabs. Unlike the early 1990's, provincial and federal grant programs are not currently available to offset the significant additional cost associated with purchasing accessible vehicles. Based upon the current licensing fees and lack of accessible vehicle grant programs, it is extremely unlikely that the accessible taxis available for Wheel-Trans service will increase from 25 to 73 over the next five years. The Taxi Task Force report approved by the City of Toronto Council provides for an increase in accessible taxis by providing for issuance of 25 additional licenses to be issued annually until 10 per cent. of all taxis are accessible. It remains to be seen whether the industry will respond favourably to this aspect of the report.

Discussion:

Purchase Options:

The low floor (ELF) buses were recommended in the amount of $27.5 million dollars based upon a five-year staggered schedule. The cost of purchasing these 127 low floor (ELF) buses is reduced to $25.8 million dollars if a continuous delivery schedule is approved. Based upon City of Toronto cash flow considerations, both the City finance and Commission staff agree that the staggered delivery schedule is acceptable.

The Budget Committee requested that the TTC report on the impact of deferring the purchase of these buses for one year. Table 2 provides the total cash flow associated with the continuous and staggered delivery schedule as well as two alternate schedules.

Table 2

Summary of Cash Flows Associated with the Options for Purchase of Wheel-Trans Vehicles

(Recommended Scenario has been Bolded)

Note:Any contracts awarded beyond March 1, 1999, the price validity date may be impacted by additional costs not reflected. (Specifically Inflation)

In order to defer the purchase of replacement vehicles one year, it is necessary to undertake additional maintenance on the vehicles. If the purchase of the vehicles is deferred one year for all five years, an additional $8.0 million in labour and materials is required (as highlighted in TTC's presentation given to committee at its last meeting). This work, required to keep the ageing Orions running, includes major repairs to the engines and frames of the vehicles as well as the axle assemblies. While a deferral of one year only will reduce the cost of the increased maintenance to $2.4 million, these additional expenditures are still required. The remainder of the costs associated with both scenarios relate to additional taxi service and foregone maintenance savings associated with newer vehicles which will be under warranty.

The TTC does not recommend any of these alternate delivery schedules all of which result in significant additional costs to maintain the ageing Orion bus fleet as well as additional unaccommodated trips. In addition, Wheel-Trans customers would continue to experience interrupted trips resulting in travel times that exceed Wheel-Trans customer service targets.

Operating Budget Impact and Financing Options:

Operating Budget Impacts:

Each option has a unique impact on the operating budget. Table 3 presents a summary of the key cost indicators and Table 4 provides a summary of the five year impact.

Table 3

Summary of Cost Calculations for Wheel-Trans Replacement Vehicles Purchase Options

*Note:Includes debt servicing costs for the purchase assuming standard 10 year debentures, 6 per cent bond rate, 5 per cent sinking fund rate and 6 per cent discount rate for the purposes of calculating net present value.

Calculations do not include the future replacement cost of the vehicles to be purchased.

Table 4

Summary of Impact on the 1999-2003 Budget

The lowest cost option in terms of overall cost, debt servicing costs, and additional maintenance costs is the continuous delivery option. However, given the cash flow pressures in 1999, this option was not recommended.

The next lowest cost option and the one with the lowest cost impact in 1999 and 2000 is the staggered delivery option. This option also has a significantly lower overall total cost as compared to the deferral options. Therefore, the staggered delivery option, as approved by the Commission and previously recommended by City staff is still recommended.

The deferral options all require a significant operating budget expenditure in 1999 in order to keep the fleet running. These expenditures are essentially throw away dollars in that they only enable fleet deferrals of one or two years at the most and add limited life to the vehicles.

Impact on 1998 Approved Budget:

The funding structure of the staggered option, as originally requested by the TTC, was based on major contributions from the Wheel-Trans Operating Budget. In particular, the entire 1998 gross expenditure of $2.8 million is anticipated to be financed through an equivalent contribution from the operating budget.

The approved 1998 Operating budget for the Wheel-Trans (at a total flat-lined 1997 level of $37.543 million) includes an amount of only $1.4 million for the funding of the Orion II fleet replacement. In addition the approved 1998 Capital Program for the TTC includes a net funding of $0.7 million in 1998 for Project 415 - 127 Wheel-Trans Vehicle Replacements (Orion II), to be financed through the issuance of debentures. Therefore, the total 1998 funding anticipated for the project in the approved operating and capital budgets is $2.1 million ($1.4 million operating and $0.7 million capital). It is recommended that the funding for the 1998 expenditure of $2.8 million be provided as follows: $1.4 million from the 1998 operating budget; $0.7 million for the issuance of debentures, as included in the approved 1998 Capital Program; and the remainder $0.7 million for the TTC Capital Subsidy Reserve.

1999-2003 Expenditures:

The funding structure submitted by the TTC for 1999 onwards includes operating budget contributions significantly higher that the projected savings. Even if the $1.4 million operating contributions to capital for vehicle purchases (included in the 1998 Operating Budget) is added, the total funding available from the future operating budgets would increase through the four year period to a maximum of $3.6 million in 2002 ($1.4 million plus the $2.2 million estimated savings). This level of operating budget contributions to the capital program would allow for continuation of the operating budget on a flat line 1997 level until year 2000 (excluding other pressures, i.e. increased demand). Any additional contributions from the operating budget should be made either through cuts in other expenditures or through higher subsidy from the tax levy.

The 1999 operating budget discussion will take place in early 1999. Therefore, to avoid committing budget increasing in advance, it is recommended that the contributions from the operating budget to this project be limited to the anticipated operating savings resulting from the project, plus the $1.4 million contribution for vehicle replacements included in the approved 1998 operating budget for the TTC, through future contributions from the reserve to be established for this purpose (See Reserve section below). The balance of the required funds are recommended to be financed through the issuance of debentures.

Therefore, the recommended funding of the project is as follows:

Recommended Funding Structure

($ Millions)

19981999200020012002Total

Debenture Financing1.4*4.43.93.71.815.2

Funding from the Reserve Fund**1.41.82.53.03.612.3

Total2.86.26.46.75.427.5

*The 1998 requirement is recommended to be funded $0.7 million from the issuance of debentures, as included in the approved 1998 Capital Program, and $0.7 million from the TTC Capital Reserve Fund

**See next page for details

The impact of the currently recommended funding structure on the debenture financing levels included in the requested TTC 1999-2003 Capital Program is as follows:

Increase in debenture financing levels

($ Millions)

1999200020012002

1999-2003 Capital Program Request1.71.00.70.0

As Per recommendations in this Report4.43.93.71.8

Increase2.72.93.01.8

Use of a Vehicle Replacement Reserve Fund:

Funding vehicle purchases from a reserves is a normal business practice for many municipalities. Vehicle purchases tend to be 'big ticket' items which are purchased on an irregular schedule. The advantage of using a reserve mechanism to fund purchases of this type are:

(a)Annual contributions to a reserve provide stabilization by moderating large fluctuations in the replacement expenditure;

(b)Reserves provide an alternate funding source from the operating budget; and

(c)Reserves provide for better financial and vehicle management by contributing to the replacement of vehicles in a timely fashion and economically advantageous fashion.

In either of the suggested replacement options of the Wheel-Trans vehicles, the outflow of funds for the purchase of the vehicles will fluctuate from zero to several million dollars. To include these sums in the operating budget as needed would cause dramatic swings in the operating budget from year to year. A reserve fund mechanism would mitigate this fluctuation. In addition the reserve fund would allow for the capture of the projected operating savings resulting from the regular purchase of the new vehicles as well as the provision for vehicle replacement already included in the approved 1998 Operating budget of the TTC. It is therefore recommended that a Wheel-Trans Vehicle Replacement Reserve Fund be established and funded as follows:

($Millions)

19981999200020012002

1998 Provision1.41.41.41.41.4

Operating Savings 0.00.41.11.62.2

Total Contribution to the reserve fund1.41.82.53.03.6

Use of Off-Balance Sheet Financing Methods:

Off Balance Sheet Financing methods, or lease back alternatives are currently being investigated jointly by TTC and City staff in relationship to the purchase of the Subway Car fleet. In simplistic terms, a lease back alternative would involve the TTC leasing the vehicles from a company based in a foreign jurisdiction, who would purchase the vehicles and would claim the depreciation expense (Capital Cost Allowance) associated with the vehicles each year in order to reduce the company's taxable income and thereby reduce their annual income tax payments. Theoretically, the City would benefit from the company's savings through reduced lease payments although significant concerns regarding maintenance of the vehicles, operational constraints and ownership do exist and would need to be addressed.

As indicated in the report from the Chief Financial Officer and Treasurer on the preliminary Capital Financing Plan, dated November 11, 1998, one of the conditions to make the sale-leaseback a feasible financial instrument is the long life-span of the assets. A longer life-span reduces the risk of the investment by ensuring a higher residual value in case of an advanced recovery of the asset, and allows a claim for depreciation tax deductions during a longer period of time, therefore making the operation financially attractive. The expected life of the Wheel-Trans vehicles is 7 to 10 years. It is therefore the opinion of City Finance that the sale-leaseback of the vehicles is not a viable option in this case.

Conclusion:

Based on age of the vehicles (the design life will be exceeded prior to completion of the purchase order), the cost of maintaining the current Wheel-Trans fleet and the various reliability issues, there is a need to replace the Wheel-Trans buses. Deferring the purchase of the vehicles by one or two years requires additional operating expenditures in 1999 that are essentially throw away expenses.

The lowest overall cost option to replace these vehicles is the continuous delivery option. The next lowest overall cost option, which has the least impact on the 1999 and 2000 budget, is the staggered delivery option, which was approved by the Commission. Therefore, it is recommended that approval be granted for this purchase and that, consistent with the Chief Financial Officer's earlier recommendations, that a vehicle replacement reserve be established.

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(Report dated November 17, 1998, addressed to the

Budget Committee from the

Chief Financial Officer and Treasurer)

Purpose:

The report recommends funding options for Project 415 - 127 Wheel Trans Vehicle Replacements (Orion II).

Financial Implications:

Approval of the recommendations will increase the net capital requirements to be financed from debentures by $2.7 million in 1999, $2.9 million in 2000, $3.0 million in 2001, and $1.8 million in 2003, in relation to the TTC 1999-2003 capital request for the project. In addition, the recommended funding will result in a 1998 increased contribution from the TTC Capital Subsidy Reserve Fund of $0.7 million to finance the increased net capital requirement for the project ($1.4 million recommended less the 1998 approved net expenditure of $0.7 million).

Recommendations:

It is recommended that:

(1)the gross request for Project 415-127 Wheel Trans Vehicle Replacements (Orion II) be approved as originally submitted with the TTC 1999-2003 capital request, based on the staggered delivery option, at a total gross cost of $27.5 million;

(2)the contributions from the Wheel Trans operating budget to this project be limited to the provision for vehicle replacement of $1.4 million as included in the approved 1998 operating budget for the TTC, with the addition of the projected operating savings resulting from the project, through future reserve contributions as set in the body of this report;

(3)a Wheel-Trans Vehicle Replacement reserve be established and funded from the provision for vehicle replacement included in the approved 1998 operating budget for the TTC and the future operating savings from the purchase of the new vehicles as per the schedule of contributions set in the body of this report; and

(4)the $0.7 million increase in the 1998 net capital requirement for the project be financed from the TTC Capital Subsidy Reserve Fund.

Background:

The Urban Environment and Development Committee on October 5, 1998, recommended:

(a)the adoption of:

(1)additional project approval and financing of $10.1 million for City Project No.415, "127 Wheel-Trans Vehicle Replacements (Orion II)"; noting that such additional project approval and financing is required no later than October30, 1998, at which time the bids expire; and

(2)an increase of $800,000.00 in the 1998 Wheel-Trans Operating Budget, subject to successful negotiations between the Toronto Transit Commission and Overland Custom Coach Inc. regarding the delivery of 14 ELF low floor buses in 1998; and

(b)that the communication (October 5, 1998) from the Chief General Manager, Toronto Transit Commission, be forwarded to the Budget Committee for consideration.

The Budget Committee on October 13, 1998, had before it the item together with a communication (September 24, 1998) addressed to the Clerk, City of Toronto from the General Secretary, TorontoTransit Commission indicating that a continuous delivery schedule rather than a staggered schedule had been further considered and that an overall price reduction of $1.7 million could be realized under this option, i.e. $27.5 million to $25.8 million.

The Budget Committee deferred this item until the next meeting, with a request that the Chief Administrative Officer, the Chief Financial Officer and Treasurer and the Chief General Manager, Toronto Transit Commission, provide a joint report providing other financial options to fund the Wheel-Trans Vehicle Replacement project; and further that, due to time restraints, if a special Budget Committee meeting is required to finalize this matter, the said meeting, be at the call of the Chair.

Discussion:

Gross Expenditures:

On June 30, 1998 a Request for Proposals to supply 127 specialized accessible low floor and lift-equipped vehicles over a five year period was issued by the TTC. Based on the results of the request for proposals, the TTC is recommending the replacement of the Orion bus fleet with 127 low floor (ELF) buses to be delivered from 1998 through 2002. The total cost of the project, under this staggered delivery option, is $27.5 million. Once the vehicles are fully delivered, it is estimated that annual operating costs will be reduced by $2.2 million as a result of lower fuel and maintenance costs.

TTC also submitted an option based on the continuous delivery of vehicles combined with the accelerated retirement of the Orion II vehicles by the year 2000. The total project cost under this option is $25.8 million, $1.7 million less than the staggered option, however through an accelerated cash flow. The comparison of capital costs, operating savings and net present value under both alternatives is as follows:($ Millions)

19981999200020012002Total

Staggered Delivery

Gross Project Cost2.86.26.46.75.427.5

Operating Savings0.0(0.4)(1.1)(1.6)(2.2)(2.2)

Net Present Value (@7%)2.85.44.54.02.419.1

Continuous Delivery

Gross Project Cost2.811.811.20.00.025.8

Operating Savings0.0(0.3)(1.4)(1.8)(2.2)(2.2)

Net Present Value (@7%)2.810.68.4(1.4)(1.6)18.8

The Continuous delivery option would result in a net present value saving of only $0.3 million or 1.6 percent. However, this option would increase the already existing pressure on the 1999 and 2000 debenturing requirements. It is therefore recommended that the gross request for the project be approved as originally submitted with the TTC 1999-2003 capital request, based on the Staggered Delivery option.

Each ELF bus can carry a maximum of five wheel-chairs, while an Orion II bus has a capacity of six wheel-chair positions (the new Orion vehicles are designed to carry a maximum of five wheel-chairs, as in the ELF buses). However, TTC staff indicate that the capacity reduction will have no significant impact in the operating expenditures or revenues. They indicate that currently the Orion II buses only carry simultaneously six wheel-chairs per vehicle in approximately one percent of the trips.

Funding:

The TTC request for the funding of the staggered option is mainly based on contributions from the Wheel Trans Operating Budget. The funding sources included in the current TTC request, also reflected in the 1999-2003 capital program request of the TTC, are as follows:

TTC Requested Funding Structure (1999-2003 Capital Program Request)

($ Millions)

19981999200020012002Total

Funding - Capital Budget0.01.71.00.70.03.4

Funding Operating * 2.84.55.46.05.424.1

Total2.86.26.46.75.427.5

*These amounts include the use of the noted savings plus new operating contributions.

The approved 1998 Operating Budget for Wheel Trans (at a total flat-lined 1997 level of $37.543 million) included an amount of $1.4 million for the funding of the Orion II fleet replacement. In addition, the approved 1998 Capital Budget for Project 415 - 127 Wheel Trans Vehicle Replacements (Orion II) included a net expenditure of $0.7 million from debenture financing. Therefore, the total 1998 funding anticipated for the project in the approved operating and capital budgets is $2.1 million ($1.4 million operating and $0.7 million capital). However, the funding authorization for Project #415 was granted for the total project cost of $17.4 million (as estimated at that time) on the basis that the purchase would be made on a single contract. It is therefore recommended that the funding of the 1998 expenditure of $2.8 million be provided as follows: $1.4 million from the 1998 operating budget; $0.7 million from debenturing , as included in the approved 1998 Capital Program; and the remainder $0.7 million from the TTC Capital Subsidy Reserve Fund.

The funding structure submitted by the TTC for 1999 onwards is based on operating budget contributions significantly higher than the projected savings, even if the $1.4 million provision anticipated in the 1998 budget is added.

If the provision for the project included in the 1998 Operating budget is added, the total funding available from the operating budget would increase through the four-year period to a maximum of $3.6 million in 2002 ($1.4 million plus the $2.2 million estimated savings). This level of operating budget contributions would allow for the maintenance of the operating budget on a flat-line 1997 level (excluding other pressures, i.e. increased demand). Any additional contribution from the operating budget should be made either through cuts in other expenditures or through a higher subsidy from the tax levy.

The 1999 operating budget discussion will occur from December 1998 onward. Therefore, to avoid committing budget increases in advance, it is recommended that the contributions from the operating budget to this project be limited to the provision for vehicle replacement of $1.4 million as included in the approved 1998 operating budget for the TTC, with the addition of the projected operating savings resulting from the project, through contributions from a reserve to be established as recommended below. The balance of the required funds would be financed through debenturing.

Therefore, the recommended funding of the project is as follows:

Recommended Funding Structure

($ Millions)

19981999200020012002Total

Funding - Capital Budget1.44.43.93.71.815.2

Funding from Reserve**1.4*1.82.53.03.612.3

Total2.86.26.46.75.427.5

*Direct contribution from the 1998 operating budget.

**See next page for details

The impact of the recommended funding on the debenturing levels included in the TTC 1999-2003 capital program request is as follows:

($Millions)

1999200020012002

Requested Funding from Debentures1.71.00.70.0

Recommended Funding from Debentures4.43.93.71.8

Increase2.72.93.01.8

It should be emphasized, however, that the alternative option to the increased debenturing requirements would be the funding of the project from the operating budget, with a direct impact on the tax levy. A possible alternative to this higher capital cost would the purchasing of lift-equipped, instead of low floor, vehicles (the proposed total cost for lift-equipped vehicles at the Request for Proposal was $16.6 million vis-a-vis $27.5 million for the low floor buses). The Toronto Transit Commission does not recommend this alternative on the basis that the service provided is not comparable.

Reserve:

Funding vehicle purchases from a reserve is a normal business practice for many municipalities. Vehicle purchases tend to be 'big ticket' items which are purchased on an irregular schedule. The advantage of using a reserve mechanism to fund purchases of this type are:

(a)Annual contributions to a reserve provide budget stabilization by moderating large fluctuations in the replacement expenditure;

(b)Reserves provide an alternate funding source from the operating budget; and

(c)Reserves provide for better financial and vehicle management by contributing to the replacement of vehicles in a timely and economically advantageous fashion.

In either of the suggested replacement options of the Wheel Trans vehicles, the outflow of funds for the purchase of vehicles will fluctuate from zero to several million dollars. To include these sums in the operating budget as needed would cause dramatic swings in the operating budget from year to year. A reserve fund mechanism would mitigate this fluctuation. In addition the reserve fund would allow for the capture of the projected operating savings resulting from the purchase of the new vehicles, as well as the provision for vehicle replacement already included in the approved 1998 Operating Budget of the TTC. It is therefore recommended that a Wheel-Trans Vehicle Replacement Reserve Fund be established and funded as follows:

($ Millions)

19981999200020012002Total

1998 Budget Provision1.41.41.41.41.41.4

Operating Savings0.00.41.11.62.22.2

Total Contribution to

Reserve Fund1.41.82.53.03.63.6

Conclusion:

The funding structure submitted by the TTC for 1999 onwards is based on operating budget contributions from the operating budget significantly higher than the projected savings, even if the $1.4 million provision anticipated in the 1998 budget is added. To avoid committing operating budget increases in advance, it is recommended that the contributions from the Wheel Trans operating budget to this project be limited to the provision for vehicle replacement of $1.4 million as included in the approved 1998 operating budget for the TTC, with the addition of the projected operating savings resulting from the project, through contributions from a reserve to be established as per the recommendations in this report.

The Chief General Manager of the TTC concurs with the recommendations of this report.

Contact Names:

Andres Hachard (416) 392-5377

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(Transmittal letter dated October 6, 1998, addressed to the

Budget Committee from the

City Clerk)

Recommendations:

The Urban Environment and Development Committee on October 5, 1998, recommended:

(A)the adoption of:

(1)additional project approval and financing of $10.1 million for City Project No.415, "127 Wheel-Trans Vehicle Replacements (Orion II)"; noting that such additional project approval and financing is required no later than October30, 1998, at which time the bids expire; and

(2)an increase of $800,000.00 in the 1998 Wheel-Trans Operating Budget, subject to successful negotiations between the Toronto Transit Commission and Overland Custom Coach Inc. regarding the delivery of 14 ELF low floor buses in 1998; and

(B)that the communication (October 5, 1998) from the Chief General Manager, Toronto Transit Commission, be forwarded to the Budget Committee for consideration.

Background:

The Urban Environment and Development Committee had before it the following communications:

-(September24, 1998) from the General Secretary, Toronto Transit Commission, advising that the Toronto Transit Commission on September 23, 1998, approved the Recommendations contained in Report No. (6), entitled "Wheel-Trans Vehicle Replacement"; and

-(October 5, 1998) from the Chief General Manager, Toronto Transit Commission (TTC), regarding the purchase of Wheel-Trans buses; advising that an evaluation of the continuous delivery option of ELF buses, combined with an accelerated retirement of the Orion II vehicles, would result in net overall savings of approximately $2.0 million; that, however, the continuous delivery option would require an increase to the 1999 and 2000 Operating Budgets which is significantly higher than the staggered delivery option; and stating that while City Council needs to consider the overall impact to the City of bringing forward the purchase, either approach is acceptable to the TTC.

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(Communication dated September 24, 1998, addressed to the

City Clerk from the

General Secretary, Toronto Transit Commission)

At its meeting on Wednesday, September 23, 1998, the Commission considered the attached report entitled, "Wheel-Trans Vehicle Replacement."

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

"It is recommended that the Commission approve:

(1)a $10.1M increase in the current project approval amount of $17.4 million for the Wheel-Trans Vehicle Replacement project, bringing the total to $27.5 million; and

(2)an increase in the 1998 Operating Budget allocation for purchasing these buses from $2,000,000.00 to $2,800,000.00 due to bus price increases, noting that should it not be possible to award this contract and make initial payments in 1998, arrangements should be made to place these funds into contingency for use in 1999; and

(3)the award of a contract to Overland Custom Coach Inc. for the supply of 127 accessible low floor (ELF) buses in the amount of $27,030,966.00 (including taxes), subject to City Council approval; and

(4)the provision of associated spare parts, test equipment, vehicle maintenance training, vehicle inspection services and in-house support in the amount of $469,034.00 (net of GST rebate); and

(5)forwarding this report to the City of Toronto Council for approval of:

(a)additional project approval and financing of $10.1 million by no later than October 30, 1998 at which time the bids expire;

(b)and an increase of $800,000.00 in the 1998 Wheel-Trans Operating Budget subject to successful negotiations with Overland Custom Coach Inc. regarding the delivery of 14 ELF low floor buses in 1998.

(6)forwarding this report to the TTC's Advisory Committee on Accessible Transportation for information."

The foregoing is forwarded to City of Toronto Council for the necessary action, as detailed in Recommendation No. 5 of the report, as well as, the TTC's Advisory Committee on Accessible Transportation for information.

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(Toronto Transit Commission Report No. 6)

Recommendations:

It is recommended that the Commission approve:

(1)a $10.1 million increase in the current project approval amount of $17.4 million for the Wheel-Trans Vehicle Replacement project, bringing the total to $27.5 million;

(2)an increase in the 1998 Operating Budget allocation for purchasing these buses from $2,000,000.00 to $2,800,000.00 due to bus price increases, noting that should it not be possible to award this contract and make initial payments in 1998, arrangements should be made to place these funds into contingency for use in 1999;

(3)the award of a contract to Overland Custom Coach Inc. for the supply of 127 accessible low floor (ELF) buses in the amount of $27,030,966.00 (including taxes), subject to City Council approval;

(4)the provision of associated spare parts, test equipment, vehicle maintenance training, vehicle inspection services and in-house support in the amount of $469,034.00 (net of GST rebate);

(5)forwarding this report to the City of Toronto Council for approval of:

(a)additional project approval and financing of $10.1 million by no later than October 30, 1998 at which time the bids expire; and

(b)an increase of $800,000.00 in the 1998 Wheel-Trans Operating Budget subject to successful negotiation with Overland Custom Coach Inc. regarding the delivery of 14 ELF low floor buses in 1998;

(6)forwarding this report to the TTC's Advisory Committee on Accessible Transportation for information.

Funding:

The 1998-2002 Wheel-Trans Service Plan assumed flatlined funding of $38.2 million per year in order to meet projected trip demand and to partially fund the procurement of new accessible buses to replace the Orion II fleet.

It was estimated that a total of $17.4 million would be required over the five year period to replace the fleet with $14.0 million to be provided from the Wheel-Trans Operating Budget and the balance of $3.4 million to be provided from the Commission's 1998-2002 Capital Program. The funding details of the 1998-2002 plan are shown in Table 1.

Table 1

1998-2002 Wheel-Trans Service Plan

($ Millions)

Based on a tender call, we now know that the cost to replace the Orion II Fleet with low floor buses has significantly increased from $17.4 million to $27.5 million resulting in a requirement for an additional $10.1 million in operating funds.

Table 2

Vehicle Replacement Costs

($ Millions)

*Includes Capital Funds of $3.4 million ($1.7 million in 1999, $1.0 million in 2000 and $0.7 million in 2001)

Background:

In 1997, the Task Force on Accessible Transit presented a Five Year Service Plan that was adopted by Metro Toronto and the Commission. That Plan identified the need to replace the aging fleet of Orion buses as they were approaching the end of their design life, are expensive to maintain, and increasingly unreliable. The Task Force concluded it would not be cost effective to refurbish the old Orion buses.

As per the Task Force's recommendation, a test of new low floor and lift-equipped buses was completed earlier this year. One low floor and two lift-equipped specialized buses were tested in service to consider factors such as vehicle reliability, maintenance and fuel costs, ride comfort, passenger safety, and scheduling constraints as well as the accommodation of various mobility devices. Wheel-Trans customers assisted Commission staff in the evaluation of the test buses. These vehicles were also viewed at a Wheel-Trans Open Forum and examined by the Advisory Committee on Accessible Transportation (ACAT). Members of ACAT assisted in the evaluation of each vehicle type.

From an Operator, scheduling, and maintenance perspective, both vehicle types were considered acceptable. However, Wheel-Trans customers and members of ACAT preferred the low floor design because of the superior ride quality, safety, security, and ease of entry and exit. Some customers were so concerned about their safety and comfort on lift-equipped buses that they requested trips only on low floor buses. This latter issue could be alleviated through increased customer familiarity with lift-equipped vehicles and additional Operator assistance in the shorter term.

Other concerns raised about the lift-equipped buses included scheduling constraints due to relocating wheelchairs and scooters when the bus was filled to capacity, as well as longer loading and unloading times. In addition, some customers were concerned about lift devices being able to accommodate large motorized scooters. While these concerns did not manifest themselves as significant delays to service, the test would suggest that lift-equipped buses are less adaptable and flexible with regard to quickly and efficiently handling large mobility devices and serving peak demand during core service hours.

Discussion:

As a result of this test, both types of vehicles are considered acceptable for Wheel-Trans service. In addition, the test identified areas to be addressed in the current accessible vehicle specifications such as safety systems for ramps and lifts, improved ride quality, better interior layout and access to doors, improved seating, better lighting and visibility, an alternate emergency exit on lift-equipped buses and upgraded major mechanical components to improve vehicle reliability and achieve cost efficiencies.

On June 30, 1998, a Request for Proposals to supply 127 specialized accessible lift-equipped and low floor vehicles over a five year period was publicly advertised in the Globe and Mail and 14 companies were issued notifications. Optional prices were requested for the delivery of 50 additional buses, a best continuous vehicle delivery, and a $2.0 million prepayment in late 1998.

A total of eight companies picked up the Request for Proposals and four proposals were received for the supply of lift-equipped buses and two proposals offered for the supply of low floor buses. Appendix 'A' summarizes the proposals for the supply of 127 buses of each type and the optional prices for the delivery of an additional 50 buses.

Based on a preliminary analysis to establish the cost benefit of proceeding with the aforementioned pricing options, staff concluded that insufficient benefit existed to pursue the prepayment option as proposed. Discussions are continuing with the manufacturer to secure a more advantageous discount in return for an advance payment. Staff are continuing to evaluate the continuous delivery option both from a cost benefit and operational perspective. If this option is determined to be more beneficial then staff will report to the Commission at the next meeting.

Lift-Equipped Buses

Overland Custom Coach Inc. (Overland) submitted the lowest priced proposal for a lift-equipped bus (El Dorado National Aertech Model 240). However, they stated several exceptions such as a reduced vehicle design life, limited warranty, limited access to wheelchair positions, and overall vehicle height. Therefore Overland's proposal is considered both commercially and technically non-compliant.

The second lowest price proposal was offered by Capital Bus Sales (Capital) for their Corbeil bus. However, Capital stated several exceptions including a limited warranty, limited random wheelchair access, and an inability to meet all the Provincial/Federal regulatory requirements at this time. Therefore Capital's proposal is considered both commercially and technically non-compliant.

Leeds Bus Sales Limited (Leeds) offered the only commercially and technically acceptable proposal for the supply of lift-equipped buses. The Girardin MB IV bus was offered. Their submission was qualified in that the Girardin MB IV has a five year service life. However, they met the specified seven year structural warranty (including chassis) and as a result this qualification is considered technically and commercially acceptable.

Low Floor Buses:

Overland Custom Coach (Overland) submitted the lowest price proposal for their ELF low floor bus. The only notable exception was a service life of five years or 200K miles. However, Overland did comply with the specified seven year structural warranty and offered an extended warranty exceeding the specified requirements of the overall bus, engine and transmission. Therefore Overland's proposal is considered both commercially and technically acceptable.

Orion Bus Industries (Orion) submitted an alternative proposal to lease 127 Orion II low floor buses over a seven year term at $3,703.00 per month or a nine year term of $3,139.00 per month. Based on a net present value analysis, the cost to lease these buses from Orion is higher than the purchase cost for the ELF buses. Also, Orion did not comply with various warranty provisions and therefore their proposal is considered commercially non-compliant.

Wheel-Trans has gained considerable experience with an earlier model low floor ELF bus which has been in revenue service since 1993. This test of the new low floor (ELF) bus in 1998 confirmed earlier assessments that this vehicle has the overall design and capacity necessary to meet the growing demand for Wheel-Trans service. In fact, the Task Force on Accessible Transit had used the previous model low floor ELF bus as a benchmark vehicle in their analysis as it was recognized as having the advantage of lower maintenance cost than the Orions and the capacity to meet Wheel-Trans demand.

Over the Five Year Vehicle Replacement period, the 127 low floor ELF buses plus associated spare parts, test equipment, vehicle maintenance training, vehicle inspection services and in-house support will cost approximately $27.5 million. These low floor buses are more expensive than the lift-equipped buses ($16.6 million) and rebuilt Orion buses ($26.0 million). With regard to the rebuilt Orions, the significant ongoing operating cost advantage of the low floor (ELF) buses negates the additional capital costs as compared to rebuilt Orion buses.

Based upon testing both lift-equipped and low floor buses, staff consider both vehicles appropriate for Wheel-Trans service. However, customers have indicated a distinct preference for low floor technology, in particular they appreciate the ease of entry and exit from the bus as well as the ride quality. This preference for low floor technology, combined with the increased flexibility of low floor buses in meeting the additional demand during peak service periods, prompted staff to not pursue the purchase of lift-equipped vehicles even though the procurement of these vehicles would have allowed us to remain within the original vehicle replacement budget ($17.4 million). Appendix 'B' outlines the total project funding required for each of the Orion vehicle replacement options considered; namely rebuilt Orions, the Girardin MB IV lift-equipped bus, and the low floor (ELF) bus as compared to the Operating and Capital funding provided for in the Five Year Plan.

Due to the increased cost of low floor (ELF) over what was projected last year, the $2.0 million provided for in the 1998 Operating Budget for purchasing 14 replacement buses must be increased to $2.8 million. Neither the Overland or Leeds proposals provided for delivery of buses in 1998. If Overland is unable to deliver buses this year, staff recommends approval to carry over these operating budget funds for the purchase of the 14 buses in 1999.

Justification:

Approval to purchase 127 ELF low floor buses from Overland will allow for the scheduled replacement of Orion buses over the five year period 1998-2002 resulting in decreased maintenance costs and increased vehicle reliability. The replacement program will allow the Commission to provide a quantity and quality of service required and expected by our customers. Continuing without the vehicle replacement program will result in further maintenance cost increases as well as continuing deterioration of vehicle performance and customer dissatisfaction.

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(Communication dated October 5, 1998, addressed to the

Urban Environment and Development Committee from the

Chief General Manager, Toronto Transit Commission)

Re: Purchase of Wheel-Trans Buses

At its meeting of September 23, 1998, the Commission approved awarding a contract with Overland Custom Coach Inc. for the supply of 127 accessible low floor (ELF) buses in the amount of $27,030,966.00 and a total project cost of $27.5 million subject to City Council approval.

As indicated in the report, a continuous delivery schedule rather than a staggered schedule has been further considered. An evaluation of the continuous delivery option has now been completed and indicates that an overall price reduction of $1.7 million could be realized, i.e. $27.5 million to $25.8 million. If the additional operating savings which would be realized through an accelerated retirement of the Orion II vehicles are considered, then the net overall savings increase to approximately $2.0 million. The net present value of these savings is approximately $680 thousand. (A continuous delivery schedule would require an accelerated cash flow which has an associated cost of money).

The difference in the cash flow projections is shown below:

*Approved by the Commission at its meeting of September 23, 1998.

(Note: Capital Funds of $3.4 million are included ($1.7 million in 1999, $1.0 million in 2000 and $0.7 million in 2001)

While the continuous delivery option results in a reduction in the overall price, it requires an increase to the 1999 and 2000 operating budgets which is significantly higher than the staggered delivery option. While Council needs to consider the overall impact to the City of bringing forward the purchase, either approach is acceptable to the TTC. In short, regardless of the option chosen by Council, low floor service to the Wheel-Trans customers can be maintained assuming approval of one of the options.

A copy of this letter is also being forwarded to the Commission for their information. I would ask that your Committee consider this option and forward it along with any other actions deemed appropriate to the Budget Committee and Council for their consideration in conjunction with our request to approve the purchase.

The Strategic Policies and Priorities Committee also submits the following communication (December 14, 1998) from the Chief General Manager, Toronto Transit Commission (TTC):

At the Budget Committee Meeting on Tuesday, December 8, 1998, TTC's Capital Project 152 - Purchase of 127 Replacement Wheel-Trans Vehicles, was approved. The Committee also requested that staff report to the Strategic Policies and Priorities Committee on the experience of other transit operators.

Staff had previously contacted numerous properties in order to consider the ELF bus operating performance experienced by other transit properties prior to and during the development of vehicle specifications which formed the basis of a Request for Proposals for the Supply of Accessible Buses. Additional follow-up information has also been obtained from the following transit properties:

DARTS Hamilton (51 ELF Buses):

DARTS Hamilton has operated ELF low-floor buses since 1991. Their customers appear to be satisfied with the ELF's interior design and ride quality. These buses have achieved a satisfactory level of reliability and overall maintenance costs have been relatively low for the type of service provided.

Peel TransHelp (2 ELF Buses):

Peel TransHelp have confirmed that their ELF buses are both cost efficient and suitable for the specialized transit service provided. Customer feedback regarding the low-floor design of these buses have been favourable.

Cleveland Transit (60 ELF Buses):

Cleveland Transit has operated ELF buses since 1993 and recently expanded their fleet by 27. Customer comments regarding these buses have been favourable. However, Cleveland has expressed some concern regarding the ELF braking system. The TTC accessible bus specification has addressed these braking system concerns as part of the original tender.

Edmonton Transit (20 ELF Buses):

Edmonton Transit has been operating ELF buses since 1993 and in 1998 expanded their fleet by 12. Their experience with the ELF has been favourable but they also had some concerns regarding the braking system. However, these problems have been resolved with the new models and the TTC tender specifications addressed these issues. Edmonton Transit have confirmed that their ELF buses are very reliable and cost efficient. Customer Comments regarding these buses have been favourable.

The ELF bus proposed for Wheel-Trans operations adequately addresses the relatively few concerns raised during the accessible bus test earlier this year as well as any operating issues experienced by other transit properties.