[44 North]

Sorry, meant to write interest, not cost.

 

[W. K. Lis]

How much is spent on road maintenance from property taxes? None of that comes from the gasoline tax, which only goes to provincial highways, none to city roads or expressways.

 

[Mapleson]

What does that have to do with anything?
Smaller cities are not allowed to entertain partnerships with private companies?
Toronto is terrible at getting the private industry involved with transit.

It has to do with why Tokyo's transit system is profitable and why Toronto's is not. What exactly are you proposing Toronto emulate from Tokyo that might magically change the composition of the city to something more efficient?

Of course we should look at other districts to see what they are doing well and how we might do the same, but we also have to look at how their circumstances differ from ours.

A partnership with a private company isn't going to reduce operating costs of the TTC by 30%, nor would billions in capital improvements appear. Tokyo has a higher GDP than all of Canada, which is why there was private capital to pay for this system. There was $44 billion in market capitalization on the TSX last year, while Tokyo had $3.8 trillion.

 

[M II A II R II K]

And plus Tokyo has a lot of riders to pay into the system and more places to go.

 

[CDL.TO]

A partnership with a private company isn't going to reduce operating costs of the TTC by 30%, nor would billions in capital improvements appear. Tokyo has a higher GDP than all of Canada, which is why there was private capital to pay for this system. There was $44 billion in market capitalization on the TSX last year, while Tokyo had $3.8 trillion.

Wikipedia agrees with the $3.8 trillion for Tokyo, but says $2.17 billion for the TSX. It's Wikipedia, sure, but I'm pretty damn skeptical of your claim that Japan's economy, as represented by their stock exchange, is 86 times larger than Canada's.

 

[doady]

It has to do with why Tokyo's transit system is profitable and why Toronto's is not.

Comparing Tokyo Metro vs Toronto's subway system: is the Toronto subway really unprofitable?

 

[rbt]

Comparing Tokyo Metro vs Toronto's subway system: is the Toronto subway really unprofitable?

The TTC subway is not profitable in the corporate sense that it requires zero government funds going in and pays a reliable 5% to 10% dividend per annum out with expectations of paying back initial principal too.

The total cost of running the subway is operations (say $200M/year as a very low-ball estimate), a minimum of $400M per year (SOGR budget for rolling stock, signals, tunnel repair, storage yard expansion/work, etc.), plus initial capital outlay. TTC states their assets have a book value around $10B and you can assume a majority of that ($8B) is the subway tunnel/station infrastructure.



Even just determining it on an operations basis is difficult.

If you canceled all feeder bus routes then subway revenue would be severely impacted. Allocating funds for one part of the trip to one component and stating it is profitable and that the bus loses money isn't functional since we cannot actually eliminate that cost; and that's if you come up with an agreeable split. You can split revenues based on time, distance, operating cost of the segment, importance of that segment to the rider, equally based on number of segments, or any number of other ways. These will all impact the profitability, or not, of the individual segments.

I'm pretty certain that the TTC and Mississauga use different calculations for splitting revenue. There is no standard way to do this.


Second, what is an operations expense? You can buy a fare processing system as a capital expense OR you can lease it. You can buy the office building or you can lease it. One is capital and the other is operations.

Many firms prefer to put lots of things under operations that TTC puts under capital. Many airlines lease their aircraft (nearly all airlines lease some) and do not buy them for example. TTC can package up many small operations outlays into a single large capital project which they can convince the province to fund (see signal system overhaul which is development of about 3 new signal systems and dozens of supporting components).


Even some of the regular vehicle maintenance is a capital expense at the TTC through their interesting use of vendor warranty programs. They pay the vendor as a capital item and have the vendor pay the TTC maintenance guy on the operations budget. That 70% farebox recovery number is misleading at best.

Again, there is no standard amongst transit agencies for handling the capital/operations split and few push as much onto capital expenses as the TTC.


If the province suddenly decided to fund 75% of the operations budget and zero captial dollars you would find the TTC leasing TBMs and hiring contractors on a cost-plus arrangement for constant expansion, getting rolling stock as a service (1000 functional vehicles available daily; vendor provides vehicles and performs all necessary maintenance), leasing storage yards instead of buying them, etc.

The capital budget could be brought down close to $0 with a sufficiently large operations budget. Likewise, a preference can be made toward capital cost when funds are available there.


Profitability can only be measured on an overall basis because the numbers can be fudged any other way.

 

[k10ery]

Cool post, rbt.

But it's not quite that easy to fudge a budget. You have to follow PSAB rules, and the PSAB is wise to the difference between a capital lease and an operating lease. Sure there will be some grey areas though.

On the other hand I can't see what would stop you from paying up front for a vendor to pay maintenance costs, as you said.

 

[rbt]

Cool post, rbt.

But it's not quite that easy to fudge a budget. You have to follow PSAB rules, and the PSAB is wise to the difference between a capital lease and an operating lease. Sure there will be some grey areas though.

It is still a debt but it does change the portion of the budget it comes out of. A direct capital lease is obvious but it gets trickier if you actually buy it as a service (1000 functioning vehicles which are cleaned to standard X at a rate of $N per vehicle hour) for 20 years.

Actual purchase here is 1100 vehicles (10% spare rate) plus shops/parts/repair equipment with cleaners/mechanics/management/etc. as staff. PSAB would have a difficult time declaring this as a capital expense since it is obviously being purchased as a service. There is no CCA to be had by the TTC and nothing for them to sell other than the service contract itself.


Anyway, it's the provinces and cities tendency to fund capital expenses without question while getting stingy with operating expenses that is causing the TTC to package dozens to hundreds of small operating items into capital projects. Path of least resistance to getting them funded.

 

[k10ery]

I'm not too conversant, but I think the PSAB standard would come down to: "if the thing breaks and must be replaced, who does the contract say must pay for that?"

CCA is an interestiong side issue. If the private vendor can mortgage the assets to the hilt and pay no corporate tax, but use the CCA to reduce taxes on other assets of the company, then it could pay for the TTC to lease instead of buy - but just because it's a bit of a tax scam.

On the other hand, TTC would pay HST on a lease-and-service contract, but it does not pay HST on in-house labour costs. Since they only get a 78% rebate of Ontario HST, that makes it about 2% more expensive to contract out maintenance instead of doing it in-house.

OK, somebody press the nerd alert button. (Again.)

Anyway, it's the provinces and cities tendency to fund capital expenses without question while getting stingy with operating expenses that is causing the TTC to package dozens to hundreds of small operating items into capital projects. Path of least resistance to getting them funded.

I totally agree those games are going on. But I hadn't realized that they make the TTC's "fare recovery ratio" look better than others' til you pointed it out.

 

[Mapleson]

Wikipedia agrees with the $3.8 trillion for Tokyo, but says $2.17 billion for the TSX. It's Wikipedia, sure, but I'm pretty damn skeptical of your claim that Japan's economy, as represented by their stock exchange, is 86 times larger than Canada's.

I think we were looking at different numbers. The TSX has a total market capitalization of $2.105 trillion, but in 2009 $56.8 billion was raised and in 2010 $36.2 billion was raised. I wasn't commenting on the size of Japan or Canada's economy, but on the 'liquid' capital available to the markets. With more money means less advantageous projects still get funding and chance to turn a profit. When project wants overrun available capital, projectst that are worth doing but not the MOST worth doing get left behind.