Without government funding and a reliance on fare revenue, TTC faces potential ‘transit death spiral’

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Transit agencies across Canada lost huge numbers of riders when the pandemic hit and many workers stayed home, blowing holes in municipal budgets. In most places, ridership still lags the pre-pandemic normal, forcing cities to seek repeated bailouts to stay afloat and balance their budgets.

But the impact has been especially acute in Toronto. Riders were paying as much as 70 per cent of the cost of their trips in the years prior to COVID-19 – a much higher percentage than straphangers in most North American cities – and this left the Toronto Transit Commission particularly vulnerable.

The result has been budget shortfalls that, while dramatically better than during the depths of the pandemic, have still left the TTC short hundreds of millions of dollars this year, which will be inherited by whomever wins Monday’s mayoral by-election. And as pandemic-era subsidies from higher levels of government dry up, there appears to be no politically plausible way to plug the fiscal hole at the TTC.

When the pandemic hit in 2020, the TTC chose not to make severe cuts. Instead, it kept service levels at more than 90 per cent of pre-pandemic levels, to keep the city moving and provide transportation for essential workers and others who had to get to work.

This was deemed necessary by political and transit leaders. But it was also costly and contributed to plunging the agency deep into the red. The TTC spent almost $10 per ride in 2021, up from about $3.50 before the pandemic, for a record $1.96-billion in operating expenses. Meanwhile, ridership dipped to just under 198 million; it had consistently been over 500 million in the years immediately before the pandemic. As a result, ridership revenue came in at about $500-million in 2021, down sharply from the $1.25-billion in 2019.

Lower ridership early in the pandemic meant budget shortfalls of $838-million in 2021 and $561-million last year. The picture is only somewhat better now. Ridership has climbed to about 70 per cent of pre-pandemic levels, but the TTC is still projecting a $366-million budget shortfall for 2023.

Since the start of the pandemic, the TTC has received almost $2-billion in emergency assistance from higher levels of government. But the money has been a series of one-off infusions, unlike the multiyear assistance that Washington has promised to U.S. transit agencies. And in Canada, the taps appear to be closing. The federal government did not meet Toronto’s request for help to close the transit-related hole in the city’s 2022 budget. And no emergency funding has been promised for this year from either Ottawa or Queen’s Park.

To help save money, the TTC announced cuts on a number of routes earlier this year, leaving passengers waiting longer for buses, streetcars and subways. Several candidates in the mayoral by-election have promised to reverse those cuts, but none has put forward a concrete way to fill the budget hole. Their promises instead focus on negotiating a better fiscal framework for the city, encompassing more than just transit.

Cutting TTC service further would rein in costs but could result in what’s known as a transit death spiral, in which service cuts lead to declining ridership, prompting revenue losses, which lead to more service cuts.

“It can’t just be the city of Toronto that funds public transit,” TTC chief executive officer Rick Leary told The Globe and Mail. “Recognizing the greater good of public transit for the economic benefit of not just Toronto but the entire country, right? … 10 per cent of the GDP [of Canada is generated] right here in the city of Toronto.”

Mr. Leary said the TTC budgeted for 2023 assuming downtown Toronto workers would come back to the office three days a week, based on the wishes of CEOs and other business leaders. Data suggests many are coming downtown two days a week at best.

The TTC has long argued that a lack of government subsidies has meant greater dependence on fares, which are vulnerable to ridership downturns and can’t be raised too high without driving away passengers.

When TTC officials went to the City of Toronto in 2017 for the budget process, they presented a comparison of operating subsidies at major North American systems. For example, the presentation said, the TTC received about 96 cents of government subsidy for each of its 536 million subway and bus riders, the lowest of the systems listed. New York City – which had a system four times the size, by ridership – collected $2.32 per ride in subsidies the previous year. The other cities ranged from $1.17 in Montreal, which carries 416 million riders a year, to $5.45 in Los Angeles. (The Globe converted U.S. dollars to Canadian using the exchange rates of the time.)

The Globe reviewed the financial statements of the Chicago Transit Authority – a system close to the TTC in size – to study the difference subsidies can make. In 2016, when the TTC made its comparison, the CTA’s US$813-million subsidy, spread across its 344 million rides, meant US$2.37 for each ride. The average CTA fare that year was US$1.16, according to the CTA’s annual report, which worked out to $1.54 in Canadian dollars. The TTC’s average fare that year was $2.90.

When the pandemic came calling, the CTA’s budget hole was much smaller than the deficit in Toronto. Operating revenue – fares plus other sales, such as advertising – collapsed, from US$654-million in 2019 to US$280-million in 2021, a decline of US$375-million, or 57 per cent.

At the TTC, the decline in operating revenue from 2019′s $1.25-billion to $513-million in 2021 was almost identical proportionally to the CTA’s, at 59 per cent. Dollarwise, though, the decline was almost double, more than $700-million.

In response, the federal and provincial governments stepped up and provided subsidies to Ontario’s mass-transit systems, with the bulk of the money going to the TTC. In 2019, the system needed $661-million in public subsidies, most of which came from the city budget. Over 2020 and 2021, the TTC received $2.94-billion in subsidies, including $1.39-billion from Ottawa and Queen’s Park. In 2022, those higher levels of government contributed $452-million, with the city providing about $1-billion.

The Globe also reviewed the financial statements of Montreal’s regional public transit agency, the Autorité régionale de transport métropolitain (ARTM), which collects fares, then provides operating grants to a variety of operators, including the subway’s Société de transport de Montréal.

The ARTM says 2022 fare revenue was $640.9-million, down 31.8 per cent from 2019′s $939.9-million. The fare revenue covered a small part of the $2.27-billion in operating expenses. Local governments contributed $904.3-million to ARTM, and operating grants, largely from the province of Quebec, provided $278.6-million. One other revenue source for Montreal’s public transit: $149-million in “motorist contributions” – $30 from the registration fee for each passenger vehicle under 3,000 kilograms and three cents from every litre of gas sold.

The simplest way to improve the bottom line of Canadian transit agencies is for higher levels of government to pick up more of the bill, as the TTC has been arguing for years. The only direct operational funding the TTC gets right now from governments other than the city is a small slice of the gas tax from the province, traditionally split between operations and capital, which last year amounted to about $186-million. The province hasn’t contributed serious money to TTC operations since the era of then-premier Mike Harris.

Asked about Ottawa’s willingness to discuss a new approach to funding, a spokesman for Dominic LeBlanc, the Minister of Intergovernmental Affairs, Infrastructure and Communities, did not answer directly. He pointed to pandemic-era bailouts, cited plans for future capital funding of transit projects and noted that operational funding falls within provincial jurisdiction. Dakota Brasier, a spokeswoman for provincial Transportation Minister Caroline Mulroney, also did not answer directly. She pointed instead to the pandemic relief the province had provided and the pre-existing gas-tax funding. Ontario provided $91.6-million in operating subsidies to the TTC in 2022 via gas taxes.

Even during the pandemic, the TTC and its masters at Toronto city hall had to go cap in hand each year to Queen’s Park and Ottawa, but they offered no help this year. In late May, the city launched a website and automated e-mail service to encourage residents to pressure those higher levels of government for funding.

The city can fill its 2023 budget hole by raiding a reserve fund, but depleting the fund would leave both the city and the transit agency vulnerable to budget gaps in 2024. Ridership isn’t projected to regain pre-pandemic levels for at least two years.

Meanwhile, a bigger financial problem could be looming.

Marco D’Angelo, president of the Canadian Urban Transit Association, which includes the country’s biggest agencies, points out that higher levels of government are willing to fund transit expansion but won’t provide money to run it.

The TTC says its 15-year capital investment plan calls for more than $38-billion in spending on new trains, streetcars and electric buses; modifications and upgrades to tracks and facilities; and maintenance to keep its fleets in good repair. It has just $12.5-billion of that lined up. Even if that hole gets filled, finding the operational funding remains a question for a future year.

A number of major projects are scheduled to open over the next decade. Immigration targets are also high, with many people expected to settle in southern Ontario, where road congestion is already a problem.

“It’s our belief that riders are paying as much as we can possibly expect them to and we have as much service on the street as our municipalities can afford to provide,” Mr. D’Angelo said. “As the population grows, as the need for access to work grows and the need to build more homes grows, so does the need to support transit operations and the funding that they receive.”

Without support from higher levels of government, there are no obvious sources of substantial additional revenue.

Advertising raises a modest amount for the agency. Last year, the TTC extended for another decade a long-standing, exclusive deal with advertising firm Pattison Outdoor Advertising, which promises the transit agency about $32-million in the first year of the contract, climbing to about $40-million in the final year. The amount may be lowered proportionally in years in which ridership is less than 80 per cent of pre-pandemic levels.

Another possible source of funding is selling naming rights for stations and vehicles. Long-term deals signed by San Diego’s transit agency to rename entire light rail lines generate about US$1-million per line per year.

The TTC keeps the faith that its years-long advocacy for a new funding model will finally pay off. Mr. Leary cited the climate benefits of public transit, the necessity of meeting the needs of new residents and the importance of Toronto to the national economy.

“There are a lot of reasons why you have to keep public transit moving,” he said. “I think that, you know, all levels of government know what’s necessary. They have to sit down and have that discussion of what are the options.”