Krax in Logic

Written by: Josh Lax and Michael Kravshik during January 2012.

As life long Torontonians and daily TTC customers we are dissatisfied with the management of our transit system. The major issues plaguing our current system can be classified into two broad categories: finances and customer experience. Disappointed, we have compiled some important information that all Canadians should be aware of. Further, we will present a few suggestions that may help resolve these issues. It should be noted that all figures are taken from the Audited 2010 TTC Financial Statements, as the 2011 figures have yet to be released. We believe that it is reasonable for the taxpayers to fund TTC expansion and also reasonable to expect the TTC to fund its own daily operations. There is still a chance to turn this system around and provide our city with the service it deserves, while at the same time removing the financial burden currently plaguing it.

Although the TTC is suffering from numerous financial inefficiencies, the most detrimental is unsustainably high employee compensation (wages, salaries and benefits).  To begin with, the TTC earned $997,515,000 in total revenue. By comparison, the TTC spent $1,100,013,000 on employee compensation alone, which is a full 10% more than everything they earned[1].  This does not include any other costs associated with running the system (i.e. maintenance, gas, etc.), which amount to 38% of revenues.  When factored in, the TTC spends 148% of its revenues on expenses and guess where the extra 48% comes from? Last year, in total, we handed the TTC $1,391,734,000, which on a per-capita basis breaks down to $6.76 per non-Ontarian, $35.73 per non-Torontonian, and $365.59 per Torontonian[2].  Of course, if you actually want to ride the rocket, you will also need to pay your fares, which are expected to increase in the near future (this applies no matter when you read this).

The TTC’s performance has significantly deteriorated over the past decade, which has lead to an increasing dependence on taxpayer dollars. If you analyze key operating metrics of the TTC from 2001 until the TTC’s most recent annual report in 2010, the picture that emerges is quite disheartening. Most positive indicators went up, but not very much, whereas all negative indicators have skyrocketed. The number of ‘passenger trips’ and ‘kilometers operated’ has increased by a modest 14%, whereas total operating expenses have increased by a disproportionate 74%. On the bright side, operating subsidies have decreased 10% from 2009 to 2010. Regrettably, the annual invoice to the taxpayer has still more than tripled since 2001, increasing by a whopping 215%. Fares increased 39% between 2001 and 2010 and as of today (January 2012), we pay 67% more than we did a decade ago (from $1.80 to $3.00). Meanwhile, to service our extra 14% passengers and kilometers operated, we have had a 23% increase in TTC staff. Not only have we increased the number of TTC operators since in 2001, but we are also paying them 38% more[3]. During the same period of time the average Canadian saw their earnings increase only 8.5%[4]. In 2010, the average compensation for a TTC operator was $44.50 per hour, and 14 of our friendly station collectors made over $100,000 per year plus benefits[5]!

Aside from these disturbing numbers, there is also significant accounting ‘sleight of hand’ that the TTC seems to excuse. The subway vehicles currently in operation are being amortized over 20-30 years[6]. This means that management is spreading the cost of these older vehicles (which are currently between 10 and 16 years old[7]) over 30 years in their accounting records. This would be fine if you’d like to be riding the same old trains until 2031. If not, this just lowers their expenses each year, at least on paper. Unfortunately, they didn’t even make it to the 20-year mark as the new trains started rolling out in 2011. This results in having $1.6 billion worth of trains on their balance sheet that certainly won’t fetch that price at the scrap yard[8]. Not only does it deceitfully improve the financial picture, it also allows for the internal degradation of the system to go easily unnoticed. Even with this financial ‘pick me up’ the deterioration noted above has still resulted in an operating loss of $482 million[9]. If the TTC had no operating losses, the taxpayers could afford more improvements to the service rather than being forced to pay for basic operating costs. Expansion expenses are a reasonable burden for the taxpayer to carry, but operating costs are not.

A staggering 74% of operating costs are labour expenses. So what is the root cause of this unsustainable cost of labour?  In our opinion, it is the disproportionate power the Amalgamated Transit Unit local 113 (the TTC employee’s union) wields.  This is an environment where the union shields employees from punishment for any misconduct, while at the same time electing not to reward good performance. This year, as always, is rife with stellar examples; from falling asleep on the job, all the way to relieving one’s self on, not at, their place of work.  It is obvious there is an issue when an employee, working anywhere, feels confident enough that they can literally urinate on company property and still have a job the next day.

The situation above illustrates the sense of entitlement among TTC employees that ensures a lackluster customer experience at best.  We need to start looking at the TTC as a business. However, unlike most corporations, its goal should not be profit. Instead, the goal should be a customer experience that combines a reliable and respectable service, at a reasonable cost for both fare-payers and taxpayers, with pleasant customer-employee relations. As daily riders, reliability has been of particular concern since over the past few years we have noticed a saddening consistency in morning delays and work stoppages.  When a paying customer must account for the ‘daily delay’ in their morning routine, something needs to change. Wouldn’t it be nice to hear, “Due to having no delays this morning, expect a faster than normal travel time. We apologize for the convenience”.

As most riders would attest, employee morale at the TTC is substandard at best. Although this does not apply to all TTC employees, by and large they are rude, disrespectful and generally seem dissatisfied with their current employment situation. TTC employees enjoy frivolous and ever expanding compensation packages that most Canadians could only dream of. In addition, they work in an environment where duration of employment, rather than performance, is the primary criterion for advancement (with the accompanying salary increase). This uninspiring work environment is detrimental to employee morale and as a result, our customer experience.

This increasing disparity between the real world and the taxpayer-financed bubble that TTC employees lavishly reside in is quite clearly the result of an overpowered, and consequently unyielding, union. We pay too much, and don’t get enough, yet some argue that the solution is to spend more.

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We do not profess to have the perfect solution, but we hold strong in our belief that we have identified at least part of the problem. As a city, we need to have an honest and objective discussion about our failing transit system and how to fix it. There are only two ways to steer us back in the right direction: decreasing costs and increasing revenue.

As discussed above, the most important costs to cut are wages, which constitute the lions-share (just under three quarters) of the TTC’s expenses. It is important to re-evaluate the TTC’s compensation packages and bring them in-line with comparable private sector standards.  Some jobs at the TTC require specialization or training and those positions deserve to be paid accordingly. However, there are many others that can be learned on the job and be fulfilled at minimum wage by practically anyone. It is necessary to immediately re-evaluate the TTC’s hiring policies and ensure that new employees are not being granted the same unsustainable compensation packages that have bankrupt the organization.

Increasing revenue at the TTC has only ever come in two forms, hiking fares or receiving more taxpayer money. These are the methods we would like to avoid. Instead, we need to focus on sustainable revenue streams where the TTC could take advantage of its existing corporate capabilities: prominent real estate, access to high passenger flow and a large infrastructure. Here are two simple suggestions:

(1) How much would you pay for wireless internet during your daily commute? This would not only provide additional revenue for the TTC, but also improve the customer experience.  Wouldn’t those morning delays be a little more bearable if you could check your email or read the news?

(2) The TTC has a massive infrastructure where more than 1.5 million passengers spend substantial amounts of time every day of the week[10]. Advertising needs to be approached in a more robust and creative manner. Although some people may feel it can be an eyesore, we will need to find an acceptable balance between the revenue earned from each source of advertising and its negative aesthetics. Everything from the walls of the station, to the uniform of visible employees should be considered potential advertising mediums. The TTC’s mismanagement of advertising space is obvious to anyone.  Shortly after the new train was launched it was lined with ads paid for by the taxpayers, to advertise to the taxpayers, about the new train (which was also paid for by the taxpayers), that they are currently riding. Is there some twisted sense of pride in touting the ability to spend our money?

It’s up to all of us to consider these ideas, as well as any others, to ensure the TTC becomes a source of pride for all Torontonians. In recent decades the TTC has continued to serve us with ever-increasing costs, deteriorating customer experience, and negligible service expansion. The TTC management’s mandate is to protect the taxpayers’ interests, not the employees’. By achieving the goal of eliminating the almost half a billion dollars in operating losses, the TTC can begin to provide the service we deserve at the price we deserve. Toronto has more human capital than is necessary to solve these issues in innovative ways. If we don’t make this issue a public priority, we will have a much bigger problem in years to come. We once heard a bus driver tell a customer to get off of “his bus,” to that we would reply, “I think you mean our bus.”

Thank you for your support.