Staff Report #1
August 29, 2018
To All Commissioners
Re: 2019 Operating Budget Program
Recommendation
That the Commission CONFIRM the 2019 Operating Budget Submission, as previously approved on August 26, 2015 as part of the multi-year budget submission, noting the 2019 Operating Budget consists of the following:
| Conventional | Specialized | Total | |
| Total Operating Expenditure | $ 74,688,400 | $ 9,281,800 | $ 83,970,200 |
| Total Operating Revenue | 47,332,600 | 3,763,400 | 51,096,000 |
| Total City of London Investment | $ 27,355,800 | $ 5,518,400 | $ 32,874,200 |
Background
In August 2015, the Commission approved the first ever multi-year operating budget, spanning the years 2016 through 2019. The approved multi-year budget was consistent with the Commission’s 2015-2018 Business Plan and associated Financial Plan.
The process with respect to operating and capital budget approvals changed significantly with the introduction of multi-year budgets. With respect to the operating budget specifically, Council approved the budgets as submitted for each of the years 2016 through 2019. A new step was introduced into the process to allow for Municipal Council to consider any changes to an operating budget in a given year. The intent of this step is to allow for requests relating to significant changes that may have occurred subsequent to budget submission (i.e. significant changes in price for utilities, fuel, etc. that are not within the control of the organization). This step is not intended to cover a change in direction or philosophy of the organization; requests of this nature are handled through the submission of a Business Case for the consideration of Council.
Through the multi-year process, the LTC base budget has been adjusted as the result of three business case amendments, Cap and Trade in 2017 (increased fuel and energy costs of $395,300), Dundas Place in 2018 (increased annual operating costs of $282,000), and Bill 148 in 2018 (increased labour costs of $334,400). The resulting increases in City of London funding relating to these business case approvals are all reflected in the projected 2018 operating budget numbers, both in the appropriate expenditure area and in the City of London funding.
Consistent with the revised multi-year process, administration undertook a review of the 2019 operating budget, giving consideration to the following:
- 2018 projected actual results;
- expenditures that have been confirmed subsequent to initial budget submission (insurance rates, utility rates, etc.);
- ridership and related revenue projections; noting the recommended deferral of the fare adjustment in 2017 and 2018;
- any required adjustments in expenditure programs resulting from program changes in 2018 or planned for 2019; and
- any known trends or legislative changes on the horizon that may impact operating costs.
The following table provides a high level summary of the funding sources for the total public transit services budget for 2019 with a comparison to 2018 projected actual. Details with respect to the explanations for variances are set out in Enclosure I.
2019 Operating Budget Summary – Total Public Transit Services
| 2018 Projected Actual | 2019 Budget | Variance | % Variance | |
| Funding Source (millions) | ||||
| Transportation/Operating/Reserve Revenue | $ 35.528 | $ 38.827 | $ 3.299 | 9.3 % |
| Provincial Gas Tax | 12.702 | 12.269 | (0.433) | (3.4)% |
| City of London | 31.530 | 32.874 | 1.345 | 4.3 % |
| $79,759 | $ 83.970 | $ 4.211 | 5.3 % | |
| Investment Share | ||||
| Transportation/Operating/Reserve Revenue | 44.5% | 46.2% | 1.7 % | |
| Provincial Gas Tax | 16.0% | 14.7% | (1.3)% | |
| City of London | 39.5% | 39.1% | (0.4)% | |
| 100.0% | 100.0% | |||
| Ridership (millions) | 24.170 | 24.541 | 0.370 | 1.5% |
As set out in the table, the City of London’s 2019 investment share for public transit services is 39.1% which is slightly less than the 40.6% share set out in the Financial Plan. The variance in the City of London investment share relates primarily to the projected increases in operating costs included in the 2019 budget, which are funded by an increase in Provincial Gas Tax allocation.
The 2019 recommended operating budget calls for City investment to increase by approximately $1.345 million or 4.3%. Of that amount, 64% or $0.862 million relates to service growth of 24,000 revenue services hours on both conventional and specialized transit services. The growth hours include 2018 flow through hours as well as new 2019 service hours.
Discussion regarding recommended operating budgets for conventional and specialized transit for 2019 follows.
Conventional Transit Services – 2019 Operating Budget Program
The conventional transit operating budget accounts for 88.9% or $74.688 million of the total $83.970 million transit operating investment. The balance applies to the specialized transit service which is discussed later in this report. Summary particulars of the make-up of the conventional transit operating budget as well as the explanations for variances are provided on page 2 of Enclosure I.
The following table sets out the operating investment share breakdown for 2019 as compared to 2018 projected actual results.
2019 Operating Budget Summary – Conventional Transit Services
| 2018 Projected Actual | 2019 Budget | Variance | % Variance | |
| Funding Source (millions) | ||||
| Transportation/Operating/Reserve Revenue | $ 34.971 | $ 38.211 | $ 3.240 | 9.3 % |
| Provincial Gas Tax | 10.130 | 9.122 | (1.008) | (10.0)% |
| City of London | 26.317 | 27.356 | 1.039 | 3.9 % |
| $ 71.418 | $ 74.688 | $ 3.270 | 4.6 % | |
| Investment Share | ||||
| Transportation/Operating/Reserve Revenue | 49.0% | 51.2% | 2.2 % | |
| Provincial Gas Tax | 14.2% | 12.2% | (2.0)% | |
| City of London | 36.8% | 36.6% | (0.2)% | |
| 100.0% | 100.0% | |||
| Ridership (millions) | 23.838 | 24.187 | 0.349 | 1.5 % |
| Rides per Capita | 60.7 | 61.0 | 0.283 | 0.5 % |
| Rides per Revenue Service Hour | 37.0 | 36.6 | (0.464) | (1.3)% |
Operating Expenditure Investment
The overall operating expenditure investment for 2019 is budgeted to increase by 4.6% or approximately $3.270 million vs. 2018 projected actual results. The 4.6% increase is comprised of:
- $1.808 million in unit price increases for such items as fuel, energy, insurance and personnel costs. The unit price increase accounts for a 2.5% increase in overall investment; and
- $1.476 million increase in service hours including 2018 flow through service hours and new service hours for 2019, scheduled to take effect in the fall of 2019. The growth in service hours accounts for a 2.1% increase in overall investment.
The following provides further discussion with respect to the most significant drivers in the increase of expenditure budget for conventional transit services for 2019 vs. 2018.
Service Plan
At the April 29, 2015 meeting, the Commission approved the Service Plan (Route Structure and Service Guidelines) which provides the overall framework for service improvements and monitoring of same for the period of 2015-2019. The timing and implementation of the recommended service improvements align with the planned move to a rapid transit platform, ensuring the base route structure and service frequencies will be at the required levels to support the future rapid transit corridors, and as importantly, addressing the current service quality issues relating to over-crowding and schedule adherence.
The annual increase of service hours included in the approved Service Plan recommendations have been included in the recommended operating budgets for the period of 2016-2019, noting the changes in any one year take effect in the fall. The total increase in revenue service hours in 2019 as compared to 2018 projected actual is 17,700.
Personnel Costs
Personnel costs include salaries, wages and employment benefits for 586.5 full-time equivalent conventional transit employees. Personnel costs account for approximately 68% of the annual operating expenditure investment for conventional transit.
As set out in Enclosure I (page 2), personnel cost investment is budgeted to increase by 4.8% or some $2.342 million. The increase is comprised of the following:
- 3% increase or some $1.133 million relating to increased service hours; and
- 5% increase or $1.223 million relating to unit price adjustments. The unit price respecting salaries, wages, including movement along the pay grid is as provided by the Collective Agreement and Employment Policy Statements. The unit price relating to employment benefits, both Commission provided and statutory benefits is as determined by supplier contracts, benefit utilization experience or as set by governing authority.
Fuel Expenditure
Fuel expenditure accounts for approximately 11% of the total operating expenditure investment. For 2019, fuel expenditure is budgeted at $8.511 million. The cost inputs are mileage travelled (which is directly impacted by the extent of service provided), rate of consumption (litres per kilometre) and price.
As experienced in 2017-2018, fuel prices are volatile and subject to significant fluctuations within a given budget year. For 2019, increases of $0.047 per litre of diesel over 2018 projected prices have been included in the budget.
Direct Bus Maintenance and Servicing
Direct bus maintenance and servicing investment for 2019 totals approximately $5.957 million, representing an increase of 2.5% over 2018 levels. As set out in Enclosure I, the increased investment is primarily influenced by changes in unit prices and service growth, which adds to mileage and fleet size.
Operating Revenue Investment
The approximate $47.333 million in identified operating revenues is comprised of:
- $35.978 million in transportation revenue which is directly related to ridership and related revenue, noting the deferred 2016 and 2018 fare increases are reflected in this number as a placeholder;
- $1.453 million in operating revenues – primarily associated with advertising contracts for shelters, buses and benches and investment income including that earned on reserve funds;
- $0.780 million transferred from reserves in support of operating investment; and
- $9.122 million Provincial Gas Tax allocation.
The above sources support 63% of budget operating expenditure investment in 2019.
Operating revenues are relatively static providing a 2.0% funding share. The revenues are largely driven by contract and market conditions.
The funds transferred from reserves include:
- transfer from the public liability reserve fund offsetting accident benefit and public liability deductible costs; and
- transfer from Health Care Management reserve offsetting return to work program costs, which is a critical element of LTC’s attendance management program.
For 2019, the $9.122 million in Provincial Gas Tax allocation funds 12.2% of the operating expenditure investment for conventional transit, lower than the 2018 projection. The decrease in gas tax funding is directly related to the deferral of the 2018 fare increase, which has been put back into transportation revenue for 2019, assuming the increase will be applied. Should the increase again be deferred, a source of funding would need to be identified.
Transportation Revenues
Transportation revenues support approximately 51% of operating expenditure investment.
The transportation revenue amount in the 2019 budget includes a placeholder amount relating to the deferred 2016 & 2018 fare increases that were included in the multi-year budget. The amount of revenue that is not only required but sustainable in 2019 will be dependent upon a number of factors. It is expected that the completion of a Ridership Growth Strategy and Fare Program Review as discussed in Staff Report #6, dated August 29, 2018 will provide the necessary direction relating to a fare increase. Any recommendations stemming from this review will be incorporated into the annual budget recosting exercise, which is undertaken in March each year.
Specialized Transit Services – 2019 Operating Budget Program
The specialized transit operating budget accounts for 11.1% or $9.282 million of the total $83.970 million transit operating investment. Summary particulars of the make-up of the specialized transit operating budget are set out on page 3 of Enclosure I including explanations relating to the variance between 2018 projected actual results and 2019 budget.
The following table sets out the operating investment share breakdown for 2019 as compared to 2018 projected actual results.
2019 Operating Budget Summary – Specialized Transit Services
| 2018 Projected Actual | 2019 Budget | Variance | % Variance | |
| Funding Source (millions) | ||||
| Transportation/Operating/Reserve Revenue | $ 0.557 | $ 0.616 | $ 0.059 | 10.7% |
| Provincial Gas Tax | 2.572 | 3.147 | 0.575 | 22.4% |
| City of London | 5.213 | 5.518 | 0.306 | 5.9% |
| $8.341 | $ 9.282 | $ 0.940 | 11.3% | |
| Investment Share | ||||
| Transportation/Operating/Reserve Revenue | 6.7% | 6.6% | 0.1 % | |
| Provincial Gas Tax | 30.8% | 33.9% | 3.1 % | |
| City of London | 62.5% | 59.5% | (3.0)% | |
| 100.0% | 100.0% | |||
| Ridership (millions) | ||||
| Eligible Passenger Trips | 0.296 | 0.317 | 0.021 | 7.1% |
| Attendant Trips | 0.036 | 0.037 | 0.001 | 2.8% |
| Total Ridership | 0.332 | 0.354 | 0.022 | 6.6% |
Operating Expenditure Investment
As set out in Enclosure I, overall operating expenditure investment for the 2019 specialized transit service is budgeted to increase by 11.3% or $0.940 million vs. the 2018 projected actual results bringing the total operating investment to $9.282 million. The 11.3% increase results from:
- $0.603 million in unit price increases for contracted service and personnel costs. This significant increase is a result of the impact of Bill 148 and the negotiated rate increases required for the contracted delivery of the specialized service as outlined in Staff Report #3 Specialized Services Contract Renewal, dated June 27, 2018. The unit price increase accounts for a 7.2% increase in overall investment;
- $0.322 million increase in service growth including 2018 flow through service changes and new 2019 service plans. Service growth accounts for a 3.8% increase in overall investment; and
- $0.016 million decrease in net base program changes.
The following provides further discussion with respect to the most significant drivers in the increase in the expenditure budget for specialized transit services for 2019 vs. 2018.
Personnel Costs
Personnel costs (relating to the brokerage operations) cover salaries, wages and employment benefits for 11.5 full-time equivalent staff. These costs are budgeted to increase 3.8% or $0.037 million, relating mainly to wage and benefit rates. The unit price respecting salaries and wages includes movement along the pay grid is as provided by the respective Employment Policy Statements and benefit contracts. The unit price relating to employee benefits, both Commission-provided and statutory benefits, is as determined by supplier contracts, benefit utilization experience or as set by governing authority.
Contracted Service Delivery Costs
The delivery of the specialized service is provided via primary and secondary service contracts, which cover the provision of drivers and vehicles. The contracts are based on hourly rates for service, and are subject to annual increases based on the change in consumer price index relating to transportation costs. The two year renewal of the primary services contract on August 1, 2018 and renegotiation of the secondary contract both required a further 12% price increase. Enclosure I sets out a summary analysis of the change in contract service delivery costs. As noted, contract delivery costs are expected to increase by $0.899 million or 12.6%. The increase is comprised of:
- $0.561 million in unit price increases as provided by service contracts; and
- $0.322 million increase in service growth including 2018 flow through service changes and new 2019 service plans
The increased costs associated with the contract delivery increases are being funded with increased Provincial Gas Tax contributions. This approach was utilized to maintain the request for City of London funding at the original requested amount set out in the multi-year budget. This shift is illustrated in the table above, with the 3.1% increase in the allocation of Provincial Gas Tax funding and the corresponding 3.0% decrease in the allocation of City of London investment.
Reconciliation City of London Budget Presentation
Subsequent to Commission confirmation of the 2019 operating budget as presented in this report, and capital budget as presented in Staff Report #2 dated August 29, 2018, administration will prepare the appropriate documents for inclusion in the summary documents provided to Municipal Council for the annual budget review process.
With respect to the service growth on both the conventional and specialized services, the recommended source of funding for service growth will be assessment growth, which is consistent with the approach taken since 2015.
Enclosures
I – 2019 Operating Budget Public Transit Services
II – Detailed Operating Budget Analysis – Conventional (Commissioners only)
III – Detailed Operating Budget Analysis – Specialized (Commissioners only)
Recommended by:
Mike Gregor, Director of Finance
Shawn Wilson, Director of Operations
Joanne Galloway, Director of Human Resources
Craig Morneau, Director of Fleet & Facilities
Katie Burns, Director of Planning
Concurred in by:
Kelly S. Paleczny, General Manager