Staff Report #3
May 31, 2023
To All Commissioners
Re: 2024-2027 Multi-Year Budget
Recommendation
That the Commission PROVIDE DIRECTION for budget preparation purposes on the growth initiatives that should be included in the 2024-2027 Multi-Year Budget for both the conventional and specialized services noting that growth budgets will be presented separate from base (status quo) budgets.
Background
At the April 25, 2023 meeting, Municipal Council introduced a by-law formalizing the budget submission requirements and deadlines applying to the City’s agencies, boards and commissions for the 2024-2027 multi-year budget. In addition, council provided direction with respect to annual tax levy increase ranges to be utilized for budgeting and planning purposes. The by-law calls for the Commission to submit a draft budget covering the period 2024-2027 by August 15, followed by an approved operating and capital budget by September 30, 2023.
Civic administration was also advised to bring forward a draft 2024-2027 multi-year budget with an annual tax levy increase in the range of 2.9% to 3.9% as identified to maintain existing services (base budget) as well as additional investment of 0.5% for growth initiatives supporting the Strategic Plan.
The multi-year budget covering the period of 2020-2023 was approved prior to the onset of the global pandemic, and as such, did not contemplate the myriad of impacts experienced over the four-year period. Specific to public transit services, operations continued throughout the pandemic period in order to ensure access to the community for riders dependent upon public transit as their mode of transportation. The service levels that remained in place were possible due to the Safe Restart Funding program provided by a partnership between the federal and provincial governments. This funding was made available to offset the pandemic-related impacts on operating budgets as well as to support any capital projects related to the pandemic. Over the period of 2020 through 2022, $27.9 million of Safe Restart funding was utilized to offset pandemic-related budget impacts, which avoided the need to seek additional funding from the City of London or reduce service levels to balance the budget.
As set out in Staff Report #3 dated April 13, 2023, the Commission holds a number of reserve and reserve funds which, over the last number of years, have been critical in supporting:
- the maintenance of transit infrastructure in a state of good repair, attaining an overall ranking of “very good – fit for the future”;
- the ability to take advantage of senior level government funding programs that required matching or a portion of local funding; and
- the increase in expenditures not included in the initial multi-year budget and not eligible for increases to the City funding allocation
While the Safe Restart funding provided relief from pandemic-related budget impacts, the significant inflationary pressures experienced during the pandemic period were not considered eligible for this funding program. In an effort to avoid base budget adjustments, administration recommended utilizing available funds in the Provincial Gas Tax Reserve Fund to address shortfalls relating to increases in bus pricing which affected the annual Bus Replacement Program for 2022 and 2023 programs. The 2022 operating budget faced significant inflationary pressures, which were offset in part to the lower than budgeted service hours in place, with the remainder being offset by a transfer from the Energy Management Reserve of $1.5 million to cover the impacts of higher than budgeted diesel fuel and other energy pricing.
The 2023 operating budget, as approved by the Commission at the April 13, 2023 meeting, includes a shortfall of $6.3 million which will be offset by a transfer from reserves/reserve funds to the extent necessary to balance the budget. This approach will provide the opportunity to gain a better understanding of ridership patterns and levels and their impact on transportation revenue going forward. Given transportation revenue has historically provided approximately 48% of the total public transit service operating budget, any permanent shifts in this budget line will need to be addressed in the multi-year budget through increased fares, increased investment from the City of London, or a combination of both. The remainder of this report provides more detailed commentary specific to conventional and specialized services both in terms of base budget impacts as well as growth pressures and options for consideration.
Conventional Transit Services – Base Budget
As discussed earlier in this report, ridership declines and inflationary impacts experienced throughout the multi-year budget covering the period of 2020-2023 were addressed through a combination of Safe Restart Funding and use of the Commission’s reserves/reserve funds in order to avoid going back to City of London for budget adjustments within the multi-year period. The base operating budget will include the revenue and expenditures associated with maintaining a status quo service (i.e. no additional growth beyond what is included in the 2023 budget).
The 2023 conventional transit service operating budget includes a shortfall of $6.5 million resulting from a combination of decreased passenger revenues, increased expenditures and the desire to maintain the City of London funding at the original multi-year budget submission for 2023. The decreased passenger revenue is a direct result of lower than budgeted ridership in the first quarter of 2023 (data utilized to undertake the re-costing exercise). In terms of expenditure increases, while inflation projections were built into the multi-year budget, a number of line items saw significant increases well above budget projections, the most significant of which include:
- diesel fuel pricing, which currently sits at levels 45% higher than projected when the multi-year budget was approved;
- general insurance costs, which have increased by 48% over the period of the multi-year budget; and
- direct bus maintenance costs, which have experienced significant price increases coupled with delayed delivery times, resulting in extended down-time for impacted buses
In addition to the aforementioned impacts which will need to be addressed in the next multi-year base budget, the Zero Emission Bus Fleet Implementation strategy and the Highbury Facility Replacement projects will both require dedicated staff resources above the current complement in order to keep the projects moving forward. The costs associated with additional complement required to maintain current service level will be incorporated into the base budget projections.
While no formal budget estimates have been compiled for 2024 nor future years, a cursory review of the aforementioned issues indicates that the base budget increases for the conventional transit service in the next multi-year budget submission are likely to exceed the City of London targets of 2.9% to 3.9% in each year. The options to mitigate the extent of increases to City of London investment have historically been to increase transportation revenue through fare increases and/or to increase reliance on Provincial Gas Tax for operating budget support. As set out in Staff Report #3 dated April 13, 2023, the balance remaining in the Provincial Gas Tax Reserve Fund will be depleted by the end of 2023 resulting in an inability to increase the annual allocation beyond that which is received each year (approximately $11 million, noting part of the annual allocation is also utilized for capital expenditures). As such, fare increases will need to be included in the multi-year base budget, the nature and extent of which will be dependent upon the desired level of City of London investment the Commission wishes to maintain over the next four year period.
Recommended Approach
The approach recommended by administration for the development of the conventional transit service base operating budget is to undertake a comprehensive review of all departmental budgets to ensure each is adequate to support the current service levels in place at the current/projected costs. This includes ensuring the appropriate staffing levels/resources to deliver on initiatives that have been approved but are not yet underway (i.e. Highbury Facility Replacement, Zero-Emission Bus Implementation).
Subsequent to identifying the total expenditure base budget for each of the years 2024-2027, the balance of the budget that is not funded by transportation/operation revenues will be shared between fare increases and increases to City of London investment noting that fare increases must be undertaken in a manner that do not result in ridership loss.
Conventional Transit Services – Growth Budget
When the multi-year budget is presented to the Commission at its August 30, 2023 meeting, it will be broken down between a base budget submission (see previous section), and a growth budget. The budget approval process followed by municipal council sees the base budgets debated and approved separate and apart from any growth considerations. With respect to growth budgets, business cases must be prepared and submitted outlining the details of the request including which of the outcomes in the City of London Strategic Plan will be impacted as well as a detailed breakdown of the costs and measures that will be used to monitor whether the initiative is delivering as proposed. There are a number of strategies in the City of London Strategic Plan impacting the conventional transit services budget that may require a growth budget allocation to be implemented including the following:
- Wellbeing and Safety – item 1.7b – Assess opportunities to enhance garbage collection in bus shelters
- Wellbeing and Safety – item 2.3b – Provide, enhance, and promote access to municipal subsidy programs, including public transit
- Safe London for Women, Girls, and Gender-Diverse and Trans People – item 1.3b – Increase the capacity of the City of London, agencies, boards, and commissions to recognize, address, and prevent sexual violence
- Mobility and Transportation – item 1.1a – Build infrastructure that provides safe, integrated, connected, reliable and efficient transportation choices
- Mobility and Transportation – item 1.2c – Continue to support the London Transit Commission’s Zero Emission Bus Fleet Implementation Framework
- Mobility and Transportation – item 1.3a, 1.4a and 1.6a – Support greater access to affordable, reliable public transit and paratransit through the implementation of the London Transit Commission’s 5 Year Service Plans, including growth hours
- Mobility and Transportation – item 1.4b – Support implementation of the London Transit Commission Ridership Growth Strategy initiatives
- Mobility and Transportation – item 1.4c – Support transit rider survey initiatives to improve rider satisfaction
- Mobility and Transportation – item 1.6b – Support the implementation of Alternative Service Delivery options to areas of the city not currently served by transit
When assessing the initiatives above, it is important to recognize that their implementation will impact the operating budget in different ways. By way of example, item 2.3 under Wellbeing and Safety calls for enhancing and promoting access to the transit fare subsidy programs, which, should it be effective, will result in an increase to City of London funding directly as these programs are funded through a direct contribution from the City. The current fare subsidy programs in place for which the City subsidized the reduced fares include free transit for the blind/visually impaired and children 12 and under, reduced ticket fares for seniors and secondary school students, and reduced monthly pass fares for secondary students and for those below the defined income threshold. In contrast, item 1.3a under Mobility and Transportation calls for supporting the implementation of the LTC 5 Year Service Plans. This initiative requires increased service hours which are offset in part by the increased revenue anticipated to be collected as the result of increased ridership. In this case, the cost of the initiative is shared between the City of London and the transit rider.
As set out in the Commission’s 2023 Work Program, the next 5 Year Service Planning process is set to get underway later in 2023. Notwithstanding the changes in ridership levels and patterns across the system, there are a number of outstanding service improvements that will need to be made in the coming years in order to meet the expectations of stakeholders. The following table sets out a high-level summary of the outstanding service improvements from the current 5 Year Service Plan as well as those that have been identified subsequent to the plan’s approval.
Conventional Transit Service Outstanding Service Improvements
| Service Improvement | Issues Addressed | Estimated Service Hour Requirement |
| Earlier service for all routes (starting at 5am) | · Improved access to employment with early start times | 24, 000 |
| Extend remaining routes to 1 am Mon-Sat | · Improved access to employment with late finish times | 20,000 |
| Extend Sunday Service to midnight on all routes | · Address increased ridership and demands on Sundays
· Improved access to employment on Sundays |
20,000 |
| Start remaining routes at 7am on Sundays | · Address increased ridership and demands on Sundays
· Improved access to employment with early start times |
18,000 |
| Extend service into new growth areas including:
· Cedarhollow · Hamilton/Old Victoria area · Hyde Park between Sunningdale, Wonderland and Fanshawe Park Road · South Byron · Wickerson Road area · West 5 · Southwinds |
· Improved access to the community to areas that are currently not served by public transit | 44,800 |
| Improve frequencies on existing routes to be no more than two times the frequency on connecting Rapid Transit routes | · Improved reliability and viability of public transit system wide | 184,000 |
| Improve operating times/frequencies of routes currently serving industrial areas | · Improved access to industrial areas | 13,000 |
| Total Estimated Outstanding Service Hour Requirements | 323,800 | |
It should be noted that the table above does not include all outstanding requests for new/improved service, nor the implementation of additional Alternative Service Delivery (ASD) options as identified in the Alternative Service Delivery Framework. As discussed earlier, the next 5 Year Service Planning process will revisit each of the outstanding items as well as those additional requests in light of new ridership levels and patterns and recommend a path forward.
The current 5 Year Service Plan called for the implementation of an additional 18,000 hours of service each year, which represents an approximate 2.5% growth in service each year. As a reference, the additional 18,000 service hours included in the 2022 Growth Business Case required an annualized increased City of London investment of $1.3 million (or $5.2 million over the 4 year multi-year budget horizon). A number of the service improvements identified in the table have been carried forward from previous 5 Year Plans in recognition that growth must be undertaken in a manner that is affordable and sustainable, and within approved budgets.
Recommended Approach
The approach recommended by administration for the development of the conventional transit service growth items is to provide budget estimates for each growth item being recommended. Specific to the annual growth hours for the conventional service, administration is recommending that cost estimates be provided for the addition of 22,000 and 24,000 hours each year for Commission consideration noting these scenarios would provide the ability to address between 27% and 30% of the outstanding service improvements over the four year period and result in a service increase of approximately 3% annually.
Specialized Transit Service – Base Budget
As discussed earlier in this report, ridership declines and inflationary impacts experienced throughout the multi-year budget covering the period of 2020-2023 were addressed through a reduction in service levels to correspond to the reduced demand for service. The base operating budget will include the revenue and expenditures associated with maintaining a status quo service (i.e. no additional growth beyond what is included in the 2023 budget).
Given the specialized service drivers and vehicles are provided via a third party contract, inflationary impacts are mostly limited to those which are incorporated into the contract. The current contract includes an annual price increase tied to Statistics Canada inflation indices as well as fuel-escalation clause that can be triggered in the event of significant fluctuations in fuel prices beyond which is captured in the annual CPI increase. The hourly cost in the specialized service contract has increased by 27% during the current multi-year budget period, noting another increase will be applied in August of 2023 consistent with contract provisions.
Unlike the conventional transit service, the revenue collected from ridership on the specialized service accounts for a much smaller portion of the budget (approximately 5.5%) and as such, ridership fluctuations have very limited impact on the overall budget. This funding share results in the City of London investment in this service covering approximately 80% of total expenditure, a much higher proportion than the 49% on the conventional service. As such, while the total budget for the specialized service is smaller than that of conventional, the impacts of any increased expenditure are much more reliant on City of London investment to balance the budget.
While no formal budget estimates have been compiled for 2024 or future years, a cursory review of the inflationary pressures that are likely to continue into 2024 at a minimum indicates that the base budget increases for the specialized transit service in the next multi-year budget submission will exceed the City of London targets of 2.9% to 3.9% in each year. As discussed earlier, while a fare increase will be included in the base budget projections, given the relatively small portion this revenue provides on the specialized service budget, the incremental costs will be borne largely by the City of London.
Recommended Approach
The approach recommended by administration for the development of the specialized transit service base operating budget is to undertake a comprehensive review of all budget line items to ensure each is adequate to support the current service levels in place at the current/projected costs. This includes ensuring the appropriate staffing levels/resources to deliver on initiatives that have been approved but are not yet underway (i.e. Smart Card Implementation on specialized service, Booking/Scheduling System Assessment, Service Integration Plan).
Subsequent to identifying the total expenditure base budget for each of the years 2024-2027, the balance of the budget that is not funded by transportation revenues inclusive of fare increases will be funded by City of London investment and Provincial Gas Tax contributions noting that the overall funding share may increase due to limitations with availability of Provincial Gas Tax.
Specialized Transit Services – Growth Budget
When the multi-year budget is presented to the Commission in August, it will be broken down between a base budget submission (see previous section), and a growth budget consistent with the manner the conventional budget will be prepared and presented. There are a number of strategies in the City of London Strategic Plan impacting the specialized transit services budget that may require a growth budget allocation to be implemented including the following:
- Mobility and Transportation – item 1.3a, 1.4a and 1.6a – Support greater access to affordable, reliable public transit and paratransit through the implementation of the London Transit Commission’s 5 Year Service Plans, including growth hours
- Mobility and Transportation – item 1.4c – Support transit rider survey initiatives to improve rider satisfaction
- Mobility and Transportation – item 1.6b – Support the implementation of Alternative Service Delivery options to areas of the city not currently served by transit
As set out in the Commission’s 2023 Work Program, the next 5 Year Service Planning process is set to get underway later in 2023. Notwithstanding the changes in ridership levels and patterns on the service, there continue to be trip requests that cannot be accommodated within approved service levels. In addition, the Commission heard a delegation with respect to the specialized service earlier in 2023, with one of the recommendations being a 10% annual increase in service hours to help mitigate non-accommodated trip rates.
The current 5 Year Service Plan called for the implementation of an additional 6,000 hours of service each year, which represents an approximate 3.5% growth in service each year. As a reference, the additional 6,000 service hours included in the 2022 Growth Business Case required an annualized increased City of London investment of $0.359 million (or $1.5 million over the four-year multi-year budget horizon).
Recommended Approach
The approach recommended by administration for the development of the specialized transit service growth items is to provide budget estimates for the addition of 8,000 and 10,000 hours each year for Commission consideration, noting this would result in a service increase of between 5% and 6% annually.
Capital Budget
The multi-year budget process includes the submission of an updated Capital Budget program covering the period of 2024-2033. Inflationary impacts on capital programs experienced during the current multi-year budget horizon were managed in a similar fashion as those on the operating side, with the Commission’s reserves/reserve funds being utilized to cover the increased costs versus requesting additional funding from the City of London.
The program most significantly impacted by inflationary pressures during this period was the Bus Replacement program, noting bus/ancillary equipment pricing has increased by approximately 37% over the period, with the most significant increase occurring in late 2022 which impacted the 2023 order. Given the magnitude of the adjustment, the approach for 2023 was to reduce the number of replacement buses from 17 to 15 to match the available funding. As indicated earlier in this report, the Provincial Gas Tax Reserve Fund, which has been historically relied upon to cover incremental costs above which have been budgeted is no longer an option given the increased reliance on those funds to cover operating costs.
While this approach was recommended for 2023, it is inconsistent with the Commission’s Asset Management Plan which calls for an average fleet age of six years. In order to maintain this average given the current fleet size, 17 buses are required to be replaced each year.
Recommended Approach
The approach recommended by administration for the update of the Capital Budget Program is to update all programs with current pricing and adjust funding sources where applicable to ensure that the use of Provincial Gas Tax is consistent with available funds giving consideration to the budgeted use of same in the operating budgets. Further, the bus replacement schedule will be consistent with the Commission’s Asset Management Strategy which calls for 17 buses per year.
Recommended by:
Mike Gregor, Director of Finance
Katie Burns, Director of Planning
Joanne Galloway, Director of Human Resources
Craig Morneau, Director of Fleet & Facilities
Shawn Wilson, Director of Operations
Concurred in by:
Kelly S. Paleczny, General Manager