1. PepsiCo, Inc. A Private Sector Model
for
GTA Public Transit Governance
The Honourable Jim Bradley
Minister of Transportation
Government of Ontario
February, 2009
Robert J. (Bob) Brent, BASc, MBA
Principal
R.J. Brent & Associates
Bob-Brent@Rogers.com
http://web.me.com/bob_brent/
3. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
To review GTA Public Transit Governance and recommend a Private
Sector model, to maximize GTA public transit ridership and revenues
—within finite capital and operating subsidies—at a critical “make or
break” time for GTA transit integration (fares & operations).
Purpose
3
6. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
6
Recommendations
I.Metrolinx needs a revised capital & operating oversight mandate:
a. To successfully integrate GTA fares;
b. To increase business savvy of GTA transit:
• To maximize ridership & revenue, minimize subsidies;
• To obsess on customer/rider, focus on competition (car);
• To promote more sophisticated capital & operating planning;
• To run it “like a business”: David Gunn Harvard MBA,TTC CGM;
• To champion adoption of OSC 2004 Best Governance Practices;
a. To successfully rationalize GTA transit operations;
b. To fully leverage smartcard data to improve service delivery;
II.PepsiCo, Inc. is a good private sector model for Metrolinx Governance
7. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
TTC Marketing RGS: Cheaper, faster, better (Sept 2004) Toronto Budget Chair David Socknaki:
TTC operating subsidy, R/C ratio & ridership growth relationship table;
Conclusions;
Top 10+ TTC Transit Myths;
Realistic TTC Ridership Growth (June 2006) TTC Vice-Chair Joe Mihevc;
TTC Service Flatlining Service (1999–2006) TTC Service Planning graph (Jan 2006);
Mayor David Miller’s First term: 40M TTC ride growth (Nov 2006)
Marketing Transit 101: Looking back to see forward… lessons for the GTTA (March 2007):
David Gunn “I run the TTC like a business”
Lessons for the GTTA;
NPV analysis/capital rationing
Davis Transit Funding Formula: No Panacea;
Transit City NPV Analysis (April 2007);
RJB graphical career summary and summary CV.
Online: TTC CGM Deputation (September, 2007);
Online: TTC 2007 Factsheet (PDF);
Online: TTC Metropass Parking Deputation (August, 2008).
Appendices/Hyperlinks
7
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
8. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
8
TTC
Marketing Ridership Growth Strategy
Cheaper, better, faster
IM P A C T O F T T C S U B S ID Y A N D " R E V E N U E / C O S T ( R / C ) R A T IO O N T T C R ID E S & R E V E N U E
1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3
R id e s ( M ) 3 7 2 3 8 0 3 8 9 3 9 2 4 1 0 4 2 0 4 1 5 4 0 5
G r o w t h v s Y A G - 1 6 + 8 + 9 + 3 + 1 7 + 1 0 - 5 - 1 0
R e v e n u e ( $ M ) $ 5 1 5 $ 5 5 9 $ 5 6 4 $ 5 8 5 $ 6 3 0 $ 6 7 1 $ 6 8 8 $ 7 0 3
G r o w t h v s Y A G + $ 5 8 + $ 4 5 + $ 5 + $ 2 1 + $ 4 5 + $ 4 1 + $ 1 7 + $ 1 5
V e h ic le F le e t 2 5 8 1 2 5 0 4 2 5 5 2 2 5 6 9 2 5 6 5 2 5 9 0 2 5 7 1 2 5 9 3
O p e r a t in g S u b s id y
T o r o n t o o n ly ( $ M ) $ 1 6 9 $ 1 5 9 $ 1 2 9 $ 1 2 1 $ 1 1 2 $ 1 2 7 $ 1 6 1 $ 1 7 9
C h a n g e v s Y A G - $ 4 5 - $ 1 0 - $ 3 0 - $ 8 - $ 9 + $ 1 5 + $ 3 4 + $ 1 8
S u b s id y / p a s s e n g e r $ 0 . 4 5 $ 0 . 4 2 $ 0 . 3 6 $ 0 . 3 1 $ 0 . 2 7 $ 0 . 3 0 $ 0 . 3 9 $ 0 . 4 4
R / C R a t io 7 5 . 7 % 8 0 . 4 % 8 0 . 2 % 8 2 . 8 % 8 4 . 6 % 8 4 . 1 % 8 1 . 0 % 7 8 . 2 %
C h a n g e v s . Y A G + 6 . 4 % + 4 . 7 % - 0 . 2 % + 2 . 6 % + 1 . 8 % - 0 . 5 % - 3 . 0 % - 2 . 8 %
S o u r c e : T T C A n n u a l R e p o r t 2 0 0 3
6
TTC
Marketing Ridership Growth Strategy
Cheaper, better, faster
Mr. David Soknacki
Chair, Budget Committee
City of Toronto
September 28th 2004
Robert J. (Bob) Brent, BASc, MBA
Principal
R.J. Brent & Associates
1121 Steeles Avenue West, Suite 814 Business:
(416) 864-0454
Toronto, Ontario M2R 3W7 Facsimile: (416) 864-1770
Bob-Brent@Rogers.com Residence: (416) 667-02441
9. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
9
TTC
Marketing Ridership Growth Strategy
Cheaper, better, faster
Conclusions
The TTC is a billion dollar corporation, that excels in providing (world-class)
transit rides at the lowest possible cost. The best of command & control.
The TTC needs to become more customer (as opposed to just cost)
focused and learn to “grow” the business like a private sector business.
TTC Commissioners needs to be more demanding of TTC Senior Staff w.r.t
to responsibilities, accountabilities, goals and turnaround timeliness.
TTC Staff, to ensure efficiency need to be held accountable for achieving
specific annual ride & revenue goals & objectives, as in the private sector .
TTC Staff need training, industry secondments and education to learn to
deal with marketing risk-taking and uncertainty.
TTC suffers from Marketing Myopia…the worst of command & control.
10
TTC
Marketing Ridership Growth Strategy
Cheaper, better, faster
Mr. David Soknacki
Chair, Budget Committee
City of Toronto
September 28th 2004
Robert J. (Bob) Brent, BASc, MBA
Principal
R.J. Brent & Associates
1121 Steeles Avenue West, Suite 814 Business:
(416) 864-0454
Toronto, Ontario M2R 3W7 Facsimile: (416) 864-1770
Bob-Brent@Rogers.com Residence: (416) 667-02441
10. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
10
TTC
Marketing Ridership Growth Strategy
Cheaper, better, faster
Top 10+ TTC Transit Myths:
1. Somebody’s got to pay for it
2. TTC fares are at the breaking point
3. A GTA-wide fare zone is yesterday’s news
4. Fare increases cost the TTC millions of rides
5. TTC service cuts in 1990’s led to TTC losing 90M rides
6. TTC and transit riders want better service, not lower fares
7. TTC ridership is down because there are 22% fewer buses…
8. We looked at that… and we can’t afford it without more subsidy
9. Increasing TTC service will automatically increase TTC ridership
10. Lowering or promoting specific fares will cost the TTC millions of $
11. TTC rides declined in 2001–2003 due to 911, SARS, West Nile, Blackout…
9
TTC
Marketing Ridership Growth Strategy
Cheaper, better, faster
Mr. David Soknacki
Chair, Budget Committee
City of Toronto
September 28th 2004
Robert J. (Bob) Brent, BASc, MBA
Principal
R.J. Brent & Associates
1121 Steeles Avenue West, Suite 814 Business:
(416) 864-0454
Toronto, Ontario M2R 3W7 Facsimile: (416) 864-1770
Bob-Brent@Rogers.com Residence: (416) 667-02441
11. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
11
TTC Service “Flatlining”: 2001–2006
12. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
12
370
389
408
427
446
465
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
TTC Rides 1990-2006(E)
Source:TTC 1997, 2003, 2004 Annual Reports; March & October 2006 CGM Repor t
Mayor Miller’s RGS* drives 40M TTC ride growth 2003-2006(E)
405M
445M(E)
Mayor
David
Miller
• 2006 $1.00 Adult Metropass Price Increase
• 2006 All-Day Day Pass, start of service
• 2005 Transferable (no photo) Adult Metropass
• 2005 905 Secondary Student Discount
• 2005 Adult Metropass Price Freeze
• 2005 Saturday “Family” Day Pass
• 2005 Weekly Pass
• 2004 *Ridership Growth Strategy
• 2004 Bulk Discount Metropass
• 2004 TTC Fare freeze
TTC
40M
Ride
Growth
Mayor David Miller’s 2003–2006 RGS* Fare Initiatives:
(E)
Million
13. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
13
Realistic TTC Ridership Growth
<<<<Looking Back… to See Forward>>>>
Conclusions
Historical TTC growth is in the range of 2-3%.
The TTC’s 2006+ ridership projections are conservative.
The BAC should plan for on-going TTC ride growth of 3-5%.
Conservative TTC forecasting>>Service Imbalance vs Demand.
Ridership Growth of 3% generates $130M more revenue (vs. 1.2%)
The TTC is an integrated system: the BAC cannot just look at bus
needs in isolation of connecting streetcars and subways.
Realistic TTC Ridership Growth
<<<<Looking Back… to See Forward>>>>
Mr. Joe Mihevc
Vice-Chair
Budget Advisory Committee
City of Toronto
June 15th 2006 Robert J. (Bob) Brent, BASc, MBA
Principal
R.J. Brent & Associates
1121 Steeles Avenue West, Suite 814 Business:
(416) 864-0454
Toronto, Ontario M2R 3W7 Facsimile: (416) 864-1770
Bob-Brent@Rogers.com Residence: (416) 667-0244
18. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
18
TRANSI T CI TY YORK U~ VCC
NPV ANALYSI S TTC Don Mills Eglinton Etob-FinchW Jane Scar-Malv Shep-East Water-West Total TTC + YRT
Actual Route Rides (M)/% Total TTC (2006) 445 13.7M/3.1% 19M/4.3% 11.3M/2.5% 11.9M/2.7% 9.6M/2.2% 10M/2.3% 5.2M/1.2% 80.7M/18.1% 462.5M
Projected 2021 TC Route Rides (M)/% Total 693 21.2/3.1% 53/7.6% 25/3.6% 24/3.5% 14/2.0% 17/2.5% 21/3.0% 175.2/25.3% -
% Annual Comp Ride Growth (2006:2021) 3.0% 3.0% 7.1% 5.4% 4.8% 2.5% 3.6% 9.8% 5.3% -
Capital Cost—PV
Don Mills (17.6 km) –$734M
Eglinton Crosstown (30.8 km) –$1,800M
Etobicoke-Finch West (17.9 km) –$852M
Jane (16.5 km) –$829M
Scarborough-Malvern (15.0 km) –$474M
Sheppard East (13.6 km) –$592M
Waterfront West (11.0 km) –$711M
Total TransitCity (122.4 km) –$5,992.7B –$2.0B
Cost of Capital—i 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50% 6.50%
Life (years)—n 25 25 25 25 25 25 25 25 30
Future Value—FV (2031) 0 0 0 0 0 0 0 0 0
Breakeven Cashflow—PMT 25 Year $60.2M $147.6M $69.9M $68.0M $38.8M $48.5M $58.3M $491.3M $153.2M
Average Fare 2007–$ $1.72 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72 $1.72
2031 Route Rides (PMT÷AF)/% Total Rides 1129 35.0M/3.1% 85.8M/7.6% 40.6M/3.6% 39.5M/3.5% 22.6M/2.0% 28.2M/2.5% 33.9M/3.0% 286M/25.3% 89.0M/7.9%
2031 Rides as % 2006 Route Rides 255% 452% 359% 332% 235% 282% 652% 354% 19%
2031 Rides as % 2021 TC Rides 165% 161% 162% 165% 161% 166% 161% 163% 13%
Annual % Ride Growth (2006:2031) 3.8% 6.2% 6.6% 4.9% 4.9% 4.2% 7.9% 5.2% -
Data/Assumptions/ Notes:
Transit City Report/YorkU/VCC Subway Announcement
25 Year LRT/trackbed life//30 Year Subway Car/Track life
6.5% Provincial Cost of Capital
TTC Feb 2007 (Actual) Average Fare
TTC total ride growth projected at 3% annual compound growth to 2021 (693M); and 5% 2021 to 2031 (1129M): 3.8% (2006–2031)
Assumes all LRT routes are built and the LRT network is fully operating by 2021; and all routes maintain the same % total T TC rides from 2021 to 2031.
The Transit City Report forecasted 2021 rides were used to calculate 2021 % T otal Rides (@3% growth) which w as also used to calculate 2031 route rides and break even capital limit.
HP12C NPV calculation= one (PV) out, equal annual PMT ; while construction and cash flows will be unev en as they are phased over many years and rides/revenue will build over many years.
N.B. Given limitations of HP12C NPV calculations, without detailed construction schedule, cash flows and annual rides/rev enue input, this is an "order-of-magnitude" estimate only. Bob Brent May 7th 2007
20. PepsiCo, Inc. A Private Sector Model for GTA Public Transit Governance
The Honourable Jim Bradley, Minister of Transportation, MTO
20
Robert J. (Bob) Brent Bio /Click for full CV
Bob grew up in Vancouver, where BC Hydro was his TTC and electric trolley buses were his “streetcars.” The London Underground or
Tube was his first subway experience at 21!
After completing his BASc in Chemical Engineering and MBA in Marketing at UBC, Bob came back to Toronto for a “couple” years and
began his marketing career with General Foods in packaged goods, rising to Product Manager in the Maxwell House Coffee Division
where he turned around two brands: Mellow Roast and GFIC—General Foods International (flavoured) Coffees.
Bob then joined Ralston Purina (Dog Chow, Puppy Chow, Cat Chow, Meow Mix), where as a Group Product Manager was part of the
turn around team that doubled the company’s sales from $50M to $100M, going from third to first in market share and from a -$1.0M
loss to a $10M profit—all in just 3 years!
Then Bob headed marketing for Pizza Hut & Taco Bell Canada, a company losing money and threatened with closure by corporate parent
PepsiCo, unless results improved PDQ! Sales tripled over 3 years and the division became profitable… much to PepisCo’s surprise!
The next corporate stop was Hunt-Wesson Foods Canada working on Hunts, Orville Reddenbacher, SnackPack brands where sales
increased 25% in a year before Bob deemed himself ready to take on the transit world when the TTC came knocking, looking for a turn-
around specialist to head up their marketing and public affairs department under CGM David Gunn, a Harvard MBA.
Bob was TTC Chief Marketing Officer 1997–2001 charged with re-stimulating TTC Ride Growth after a 7 year ridership decline: 1989–
1996. Since 2002- he has informally advised TTC Commissioners on first re-stimulating and now maintaining TTC Ridership growth.
Bob sits on the Board of the Metro Toronto Convention Centre (2004–) and was on the Toronto Parking Authority Board (2004–2007) as
a City of Toronto appointee.
Editor's Notes
This presentation to The Honourable Jim Bradley, Minister of Transportation in the Government of Ontario proposes a new Governance paradigm modeled on the Private Sector, for governing public transit in the GTA: Greater Toronto Area.
There has never been more promise for GTA Transit integration with the Metrolinx Board having just approved the visionary 15/25 year Regional Transportation Plan (RTP) in November, 2008. That said, it is clear that the Government of Ontario cannot fund all requests for transit capital and operating subsidies (and should think carefully about being involved at all in the latter), let alone on the accelerated schedule now being advocated to spur economic growth in these uncertain, volatile economic times; when forecasting economic growth and government revenues, normally fairly predictable is showing unprecedented volatility and shrinking time frames of certainty: from years (2007) to months (Fall 2008) and now even weeks (early 2009).
A new governance model is needed going forward to ensure effective rationing of public tax dollars on longer term GTA Transit capital projects where they will return the greatest ridership and revenue impact, and facilitate Metrolinx developing the operating expertise needed to integrate GTA transit service and fares whilst achieving the RTP’s other goals with respect to increasing transit’s modal share of trips. Metrolinx, to succeed in its GTA transit mandate should have oversight of both capital and operating plans of GTA transit properties, not just capital as is the present case. This does not mean they should necessarily operate them. Metrolinx, however, cannot effectively integrate GTA transit operations or GTA fare integration via a Smartcard with just a RTP Capital governance mandate. A wise advisor once told me “Success in retail is 95% execution” and public transit is a retail consumer business at its heart. Metrolinx will surely fail in integrating GTA transit without an evolution in its mandate. Presently, Metrolinx (‘s mostly provincial civil service-sourced staff) knows how to develop policy but not how to run transit operations, whilst TTC Staff know how to run complex transit operations, they have little business savvy and are not intuitive about their riders’ needs nor the overwhelming business case for GTA fare and service integration issues, other than as political bargaining chips to extract more operating subsidy from the Province.
The Metrolinx RTP came with the recommendation from Metrolinx Stakeholder’s advisory panel to include Private Sector Directors on Metrolinx’s Board. One Metrolinx Board member, Mayor David Miller asked “What would be gained?” so clearly there is not universal acceptance that GTA politicians have anything to learn from the private sector (full disclosure: I supported Mr. Miller as a volunteer on both his 2003 & 2006 Mayoral campaigns after working with him on TTC matters beginning in 1998). This is unlike in B.C. where the Provincial Government changed the Translink Board from all political to all private sector January 1st, 2008. My answer to the Mayor would be that the private sector, particularly the world’s most sophisticated multi-national companies have the best practices in capital and operating rationing and funding, honed in many cases over more than a century of applied experience in extremely competitive consumer and business markets. As a result of GTA Transit’s/TTC’s all political governance, there is no Walter Oster at the TTC, with a sustained career and substantial entrepreneurial track record of success in starting and running construction, hotel and food service companies in addition to exemplary long term service, as Mr. Oster recently celebrated and was feted for his 20 years service on the MTCC Board. He is a very competent, engaging inspiration to MTCC President & CEO Barry Smith and greatly admired by all MTCC Directors. The average tenure of TTC Commissioners is less than 5 years, so they cannot effectively lead staff, many of whom have 25+ years TTC experience.
Private sector Board appointees are obviously a very sensitive issue with respect to not only Metrolinx but the TTC Commission. While the TTC has exemplary Political Governance under a very astute, articulate, bright, competent, diplomatic, hard working Chair, Adam Giambrone who revels in mastering TTC operational detail (full disclosure: I supported Mr. Giambrone, as a volunteer on his 2006 campaign) he is not a businessman, nor does he have any business experience managing a P&L for a consumer operating brand, brand group, division, country or company. In his second term as a Toronto Councillor and a TTC Commissioner, and his first term as TTC Chair he’s “learning to do by doing” making a few inevitable “rookie” mistakes along the way, most often when the matter requires more business savvy than political judgment and experience. Overall, I am very impressed with his leadership of the TTC, especially on technology, service improvement, and the orderly concise Chairing of TTC Commission meetings; whilst recognizing inherent weaknesses in the TTC’s business governance (ill-advised $9/month increase to monthly Metropass, with no MDP discount and no cash fare increase to coin convenient $3 Adult (two coin) and $2 Student/Senior (1 coin) cash fares; and removal of free Metropass parking at commuter lots. The private sector does the opposite: protect value for super-heavy users, while charging occasional users higher premium prices (e.g. Discounted super-sized 2L/3L (US only) Pepsi pricing vs. 500ml Pepsi premium “convenience” pricing in convenience stores);
Similarly, the TTC CGM (Chief General Manager), Gary Webster, is a very bright, pleasant, competent Operations Manager, my favourite TTC colleague, with diverse TTC experience managing TTC HR, Purchasing (M&P), Maintenance, Transportation and as GM Operations before his present elevation as the first promoted-from-within CGM; a decision I strongly support (he was my first choice to succeed David Gunn in 1999). Unfortunately, all his 30+ years work experience has been at the TTC, so while deep in TTC knowledge, he hasn’t learned the sophisticated capital rationing and operating practices of sophisticated multinational companies, nor the obsession on meeting and exceeding customer expectations, all the whilst looking over his shoulder to make sure he mastered competitive strengths and weaknesses, and learned from them to keep a competitive advantage over them, as does MTCC President, Barry Smith, necessarily concerned about competition from all NA Convention Centres.
It is astounding to me that a large $1 billion administratively excellent company such as the TTC, which does know how to budget, administer and operate daily transit operations carrying 1.6 million passengers each workday, has no 3-year strategic plan, no 3-year business plan, is not complying with the OSC’s October 2004 Best Practices Guidelines for Publicly Listed companies as does the MTCC, a Crown Corporation (I cannot say if there is even awareness of the benefits let alone interest at the TTC in high level OSC “Private Sector” Board Governance Best Practices as there is under MTCC Chair Walter Oster, President &CEO Barry Smith, mentored by former Tourism Deputy Minister Bill Allen under your leadership as Minister.
There is also an inherent conflict of interest in Metrolinx Board members, who are elected politicians (aside from Paul Bedford, Toronto’s citizen appointee) deciding in favour of transit projects in their own city or region; in competition with projects in other GTAH areas. How then to best capitalize on the private sector’s best practices in operating, financial and capital governance, whilst avoiding prickly ethical and procedural dilemmas in shifting from virtually a 100% political to a mixed or all private sector Metrolinx governance?
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
When I think of the Metrolinx (then GTTA) governance structure I’m reminded of PepsiCo Inc. in the late 1980’s, when I was head of marketing for Pizza Hut and Taco Bell in Canada (Director of Marketing, PepsiCo Food Service International, PFSI).
Now after Metrolinx’s Board approved the Regional Transportation Plan in November 2008 for Queen’s Park approval, I want to suggest PepsiCo, Inc. as a private sector governance model for both GTA Public Transit capital and operating funding.
In the past 12 years I have attended “Board” meetings for the TTC Commission, for 4 years as TTC Chief Marketing Officer under CGM David Gunn, and thereafter as a private citizen advocating for better TTC business governance. In addition I regularly attend Metrolinx and GO Transit Board meetings and even dropped in for a couple YRT/ViVA transit Board meetings in Newmarket. So I think I have a fairly unique perspective on the strengths and weaknesses and opportunities for improving GTA Transit Governance.
After being appointed to the Toronto Parking Authority and Metro Toronto Convention Centre Boards as a City of Toronto appointee, I joined ICD, the Institute for Corporate Directors to further my knowledge of my Director duties and responsibilities, a sharp contrast to running a line operating marketing department of 100+ people at the TTC.
I find it astounding after 20 years of personally preparing 3 & 5-year private sector strategic plans, annual operating and financial plans in my career, 5 years after the Ontario Securities Commission (OSC) prepared it’s revised best corporate governance guidelines, that there is no requirement for the TTC (or other GTA Public Transit properties) to prepare the same, submit them to the MTO/Metrolinx in advance for approval as the MTCC was/is required to do as a Provincial Crown Corporation, as you remember from your Minister of Tourism tenure. This is particularly true as the TTC, after receiving permanent Ontario & Federal Gas tax funding is now asking for a return to the “Davis Formula”: GO 75% subsidy of TTC capital and 50% operating subsidy. The Davis Formula is no panacea (see appendix for chart of last 5 years of Davis Formula funding during which TTC lost 90M rides, cut service, increased fares +60%!!!).
Having spent the first 20 years of my career working for and with sophisticated American multi-national companies (General Foods, Ralston Purina Canada, PFSI Canada, Pizza Pizza, Scott’s Hospitality, Nalley’s Foods Canada, Hunt-Wesson Canada…) noted for their consumer marketing, financial and operating acumen, I view GTA transit organizations not from the perspective of a transit or transportation expert (Dr. Richard Soberman) or advocate (Steve Munro) or politician (David Miller), but as a P&L-trained marketing general manager interested in maximizing GTA ridership and revenue, by giving riders what they want, better than the primary competitor: the car for fixed annual capital and operating subsidies. I am not in favour of endless, unlimited operating subsidies that promote subsidy dependence, waste and a lack of focus on customer service needs and competitive strengths & weaknesses.
It is clear, particularly in the current difficult, uncertain economic situation that the government’s primary task of setting spending priorities will become truly Herculean. There are always more public and ministry funding requests than funds available, so how can Metrolinx better ration GTA Public transit funds (both capital and operating) with the Government’s stated spending priorities being health care, education and the environment? Effectively all the GTA’s transit properties are competing for scarce capital dollars being allocated by Metrolinx in the RTP. There is no process, however, for Metrolinx to manage, oversee, govern transit operating practices, to ensure best operating practices are being followed to maximize the government’s return on transit investment through increased transit ridership and revenues. That’s why I think the PepsiCo Inc. governance model is apropos to Metrolinx: neither PepsiCo nor Metrolinx are operating entities, but PepsiCo oversees and approves both long capital and short term annual operating plans of its operating divisions.
Also, if Metrolinx is to effectively oversee GTA Fare integration, implementation of the Presto Smartcard and adjudicate operating subsidy requests at arm’s length (see caution above about Davis Formula being no magic silver bullet) it needs to develop low level transit operating expertise and best practices, in addition to high level strategic policy, capital & operating subsidy rationing and overall business governance at the Board level.
Let’s turn to PepsiCo, Inc. as a private sector model for Metrolinx to emulate.
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
PepsiCo, was the corporate holding company and acted as the defacto “banker” for its late 1980’s operating divisions: KFC, Taco Bell, Frito~Lay, Pizza Hut, Pepsi-Cola and my PFSI division.
The 5 (6 with tiny PFSI) Operating companies would present their Annual Operating Plans~AOP’s and 3-year Strategic Plans each year to PepsiCo Inc.&apos;s Chairman Wayne Calloway and his Corporate Staff. Every year another division was invited to the AOP presentation of a sister division to foster intra-division learning and accelerate results by adopting divisional best practices. PepsiCo would approve the AOP’s and Strategic Plans based on their evaluation of the Operating division’s success in achieving past AOP’s Goals and Objectives. Capital Expenditure plans or CAPEX received the scrutiny of not only the Chair’s Corporate Staff but full PepsiCo, Inc. Board approval for expenditures over $1.0 million. On a smaller scale, when we computerized the 39-person head office in 1988, we had to keep the CAPEX below $150,000 as that was the limit of the PFSI President’s capital signing authority, over which it had to go to PepsiCo Chair Wayne Calloway for approval—to be avoided at all costs—regardless of our actual IT needs! Toronto’s Transit City, by comparison was a $6B project literally rushed out the door in 2 weeks, after the first GTTA Board meeting in March 2007, in advance of Minister Duncan’s April 2007 Provincial Budget the next week.
When PFSI Canada wanted to build a C$1.0M Pizza Hut dine-in restaurant PFSI staff would prepare a very detailed 250 page CAPEX proposal outlining the trade area, competition and pro forma P&Ls and return on investment. It would be sent to PFSI President Gil Butler’s Divisional Financial Staff for review and be revised, submitted to PepsiCo Chair Wayne Calloway’s Corporate Financial Staff for review and be revised before being submitted to the full PepsiCo Board for approval. PepsiCo, Inc. was then a US$21B multinational with 17,000 restaurants around the world along with Pepsi Cola corporate and franchised bottling operations and Frito-Lay snack operations. It was a very sophisticated multi-national company with superb operating and financial controls and governance that simply aren’t matched in GTA transit governance.
The PepsiCo divisions had to compete for capital and were only successful in getting it if they were successful in producing the results they’d promised the year before. When I joined PFSI in 1986, the division was in crisis, not meeting its CAPEX goals after spending $25M to acquire and convert the Frank Vetere’s pizza chain in Ontario to Pizza Huts to create an operating base. As a result our tiny $50M division was under the magnifying glass of the “Canada Project” being scrutinized by Chair Wayne Calloway and his Corporate Staff. It was unusual time and attention from a multi-national Chair, not normally expended on a tiny division, to better understand international restaurant operations. When Mr. Calloway and his staff came to Toronto in 1986 I presented my Marketing plans to him and took him on a store tour of Toronto. Later in Purchase New York at a follow-up presentation he told us to learn from the competition, “We just finished a competitive study of CCE (Coca-Cola Enterprises) and learned a lot of things to do better” and “We found a tiny Mid-Western snack food company was buying potatoes cheaper than Frito-Lay, the world’s biggest salty snack company!” After the presentation ended he came over to me and said “Bob, don’t reinvent the wheel on delivery. Make sure you speak to Bill MacDonald (Pizza Hut US SVP Delivery Marketing), and learn all you can from our experience in the US” The next year I hosted Steve Reinemund, who came to Toronto at Mr. Calloway’s suggestion to see the mature pizza delivery market (60% Toronto share vs. 11% in US). The lessons learned from Steve Reinemund’s Toronto visit had profound impact on Pizza Hut’s development of carry-out and delivery restaurants. Bill Klemper, Pizza Hut CFO told Pizza Hut franchisee’s at the next year’s annual convention “Why should we spend $US1.0 million to build a dine-in Pizza Hut restaurant when we can get 85% of the revenue flow for 15% of the capital!” The cost of a small Pizza Pizza style delivery/carry-out or Delco unit being only $150,000. This example of PepsiCo’s capital discipline is very apropos to the multitude of transit capital projects Metrolinx is currently evaluating: can the rides/revenue be achieved with more economical capital and operating funding? It’s a discipline sorely needed in today’s recession with no signs of a National Transit Strategy from the Conservative federal government—not too surprising given they’re shut out, with no seats in Vancouver, Toronto and Montreal. At present it doesn’t look like the “1/3 Federal share” of many Ontario transit projects is under active consideration, let alone with a cheque “in the mail!”
Pepsi was an amazing company to work for, and I’m still proud of fact we beat both Pizza Hut/Taco Bell US on per store sales and profit growth during my tenure! We boosted Pizza Hut sales from $14,000/week to $21,000/week—more than $1,000,000/year and helped transform PepsiCo Canada (along with stellar results from Hostess/Frito-Lay, Pepsi and KFC Canada) from a tax loss to the second most profitable country after the USA.
The GTTA needs to adopt a similar form of capital rationing to evaluate concurrent capital requests, once the backlog from this initial start-up phase is concluded, resulting in the somewhat soft, mushy, subjective BCA (Business Case Analysis) evaluating capital transit projects consecutively rather than concurrently against each other on their ridership/revenue merits. It is clear that no matter how much money the municipal, provincial and federal governments provide, the TTC alone could “Hoover” it all up just building subways… it will never “be enough.” GTA transit properties, particularly the TTC are always asking for more subsidies, no matter how much they receive (“Someone has to pay for this…”) so some objective method of rapid transit financial discipline is needed to ensure the best possible ridership impact and return on investment. Let us be clear, there will always be an element of “politics” in public transit, as that is the basic role of the government—to decide upon its spending priorities, knowing it can’t fund all requests, whether in health care, education, the environment or public transit.
PepsiCo ultimately divested the restaurant divisions in a tax-free stock distribution in 1997, as it simply wasn’t able to fund all its capital-hungry divisions, even with access to world capital markets, leveraged by entrepreneurial independent franchisees providing ≈50% of the restaurants units/capital. It’s an interesting concept; YRT is using franchised buses. It may be something for TTC/GTTA to ponder as the TTC struggles to service 3% ridership growth, it’s service annually lagging demand and failing to meet rider expectations, let alone exceed them as does the MTCC (90%+ meet attendee expectations with 23% exceeded—”WOW”). Imagine if the TTC met 90%+ of its riders expectations! It can happen, but not without dramatic paradigm busting changes in how GTA transit is operated and governed.
Reference: Metrolinx January 2009 Report pulled from agenda regarding failure of GTA Fare and Service Integration project, squarely laying blame on TTC for withdrawing from the proposed Burnhamthorpe/Downsview tests.
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
Metrolinx Needs a revised Capital & Operating Oversight Mandate:
GTA fare integration is critically important to boosting GTA transit ridership and revenues. A quantum leap is needed to boost GTA’s transit market share or modal split from the low 20’s in Toronto (~23%) and single digits in 905 (e.g. York Region: ~7%) to 33%+ to really make a difference in air quality and congestion. N.B. GTA Fare Integration can be accomplished in a manner to not only significantly boost transit’s market share, but also provide state of the art, daily operational/ridership data totally lacking (at TTC presently) in a cost effective manner to both implement (capital hardware and programming cost) by adopting a “time-based” GTA fare (e.g. 2 hour transfer) that takes the distance travelled out of the cost of the fare. Let time determine how far riders are willing to travel. With tap-on technology the GO/MTO if they wish to provide operating subsidies for GTA travel need only subsidize the cross boundary traffic, not every transit trip. Disregard TTC dogma that all surveys show “riders want better service, not lower fares” it’s blatant political posturing, you can’t have a 100% fare premium and have it NOT depress transit ridership. The TTC tends to talk out of both sides of its mouth on fares… recently reporting that Ridership on Avenue Road Express & Don Valley/Bayview Express buses declined 75% when the TTC implemented a 100% fare premium in 1992, due to the economic recession—despite the “Davis Funding Formula” offering a 50% operating subsidy. So clearly it was no unfettered licence to spend anything the TTC wanted on operations. As an added bonus, all GTA Transit operations, save the TTC (testing 2-hour transfer on St. Clair but not saying anything publicly, meaning they will want more operating subsidy to implement it) have 2 hour time based transfers, which would significantly simplify the initial and on-going programming cost of the Presto smartcard (the TTC’s one way travel is horrendously complex to program), while boosting transit ridership with a simple, easy to understand fare system that eliminates the 100% GTA fare penalty, and provides the GO/MTO with real-time data, for cross-GTA-boundary operating subsidies, which if given would be a fraction of subsidizing all transit trips within the GTA (that the TTC, others will likely advocate for);
The TTC has good political governance, but little to non-existent business savvy, since David Gunn left (see Appendix). They frequently shoot themselves in the foot by not promoting ridership and revenue growth to minimize subsidy requirements and meet ridership fare/service expectations. Examples are: historically opposing GTA fare integration, misleadingly stating their riders want better service not lower fares; removing free parking at Metropass lots, that will double cost of riding TTC for 905 Metropass users who drive & park; discouraging heaviest 905 users of transit: 15–19 years old 905ers from riding transit by limiting access to TTC Secondary Student fare discount to only those with TTC Photo ID, whilst not having photo contractor go to all 905 schools as they do within Toronto; not making Debit/CC readers available at all TTC Collector booths to make fare payment more convenient (Canada has highest electronic fare payment use in world) as TTC doesn’t want to pay the CC processing fee (Senior TTC Financial Official’s verbal response to Commission question); Senior TTC staff tend to be so focused on daily operations and all the daily crisis management that comes with it; throw in all the political posturing for greater funding and Staff are often tone deaf to rider wants and needs with woeful daily operations in which they don’t know daily route ridership across the system, or time of day ridership, or real time GPS location of their vehicles for much better quality of service. They’re reduced to holus-bolus adding of buses and streetcars only for them to be snagged in congestion delays; The MTO/Metrolinx needs to implement uniform, consistent capital planning and annual operating planning across all 10 GTA transit properties to fully realize it’s ambitious mandate, otherwise it will be just another author of “Grand Plans” that never see the light of day, due to capital and operating funding that are simply not affordable to the government of the day, struggling to balance spending across all priorities: health, education and the environment. It’s time GTA transit was run like a business as with the TTC under David Gunn, to ensure they do obsess about their customers, learn from the competition and maximize rides/revenue to become as adept and self-sufficient as possible in boosting transit’s market share to 33%+ range that will make a difference to GTA road congestion and air quality. David Gunn, a Harvard MBA graduate told me on joining, he didn’t run the TTC like a political organization, he ran it like a business (see Appendix). It’s time for the TTC to be run like a business again, compliant with the Ontario Security Commission’s 2004 Best Practices Guidelines for Board Governance (as is required for Ontario Crown Corporations). N.B. that as a result of David Gunn’s leadership the TTC lost $57M in operating subsidy 1996–2000 and its R/C ratio peaked at 84% in 2000 whilst the TTC added 50M rides over 5 years to 2001—contrary to TTC dogma that they always need more operating subsidy to add more service to grow ridership, as “Someone has to pay for it!”. In 2008 TTC Rides increased to 467M from 460M in 2007, +1.5% growth, despite RGS Off-Peak (Ridership Growth Strategy) service additions in Feb 2008 and Peak service additions in Nov 2008; while GO Transit grew +7.2% in 2008 over 2007. Under the PepsiCo Governance model GO Transit’s AOP/CAPEX Plans would receive preferential funding over the TTC given their consistently superior performance;
Along the 416/905 perimeter, TTC and GTA transit buses are not allowed to pick up all passengers, leading to a horribly expensive duplication of service and wasted transit capacity. Recently, Metrolinx reported the TTC withdrew from proposed tests of service rationalization on Burnamthorpe Road and between Downsview and York U. I was told by a TTC insider “it wasn’t worth the effort” which is regrettable as it hinders pan GTA transit travel. As an 18-year resident of Thornhill I was mocked and ridiculed while at the TTC for advocating throughout my tenure for an extension of Yonge subway from Finch to Steeles and for a GTA fare without the 100% fare premium. Similarly, on the Yonge Subway extension to Richmond Hill the TTC is demanding an ever growing, costly list of capital preconditions for their cooperation, that simply aren’t economically feasible, nor necessary when more cost-effective alternatives exist (e.g.. Implementing Bay express major-stop only trolley bus or streetcar service parallel to Yonge subway, offering financial district employees more convenience without Bloor/Yonge crowding; running southbound relief trains between Bloor/Union stations in morning AM rush to reduce overcrowding on southbound trains originating further north; or even completing Sheppard subway from Yonge to Downsview to provide alternative routing or a subway relief line down University/Spadina when the Yonge line is out of service);
Presently the TTC relies on outdated 20+ year old CIS (Communications Information System) technology with “signposts” that tell CIS Control rooms where vehicles are located. Unfortunately, they are often lost and the CIS control screens are not to scale. To it’s credit, after I brought the potential to Senior TTC Commissioners and Operations Staff they proactively seized on the opportunity to investigate testing existing GPS Stop Call technology that would give Operations real time Google-like scale maps of actual GPS vehicle location, which the TTC is testing on Queen Car route with system expansion once proven. That’s the good news. In 1997, when as CMO I asked what was our “Off-peak” ridership during a Summerfest promotion I was told it wasn’t available. It still isn’t available in 2009. The TTC relies on 100 or so “Checkers” in the Service Planning Department who have to go out and manually “count” a route or subway station in order to provide partial snapshots of ridership that are horribly incomplete, and soon out-of-date. Tap-on smartcard technology will be like leaving the dark ages or the world of Dickens and time travelling 3 centuries in a flash to provide all transit properties with virtual real time ridership information by route, by time of day, including all cross GTA boundary ridership. The MTO/Metrolinx need only determine the differential in two-way GTA ridership in considering any kind of interim GTA operating subsidy. There are no capital implications as long as there is sufficient base service in each operating area… another reason for Metrolinx to coordinate/oversee not only capital projects but operating/fare harmonization/optimization;
II. PepsiCo was the most sophisticated multi-national company I worked for with incredibly sophisticated financial and operating controls & SOP’s (Standard Operating Procedures) honed over a century of deploying capital around the world with a corporate organizational structure much like Metrolinx in overseeing 10 GTA transit properties. There is much for GTA transit to improve upon and learn from from the best practices of the private sector as exemplified by PepsiCo, Inc.’s stellar results and internal company and Board Governance.
This table shows the many paradoxes of traditional TTC funding dogma and deeply held beliefs of transit enthusiasts… frankly I’m not sure if there is a correlation between the TTC rides & revenue trends and it’s operating subsidy!
Note also that the vehicle fleet has essentially remained constant, although the mix of vehicles has changed (fewer buses, more subway cars).
I chose this timeframe as it illustrates how dramatically good marketing (combined with Operations) can turn around a business. 1996 ridership, the low point at 372M was almost 90M below the 1989 peak of 459M rides.
TTC rides stopped declining in 1997, as rides grew for the 5 years I impacted as CMO, up almost +50M rides with revenue up over +$150M despite the total withdrawal of the Provincial 50% Operating subsidy in 1995 and declining Toronto Operating Subsidy, from $169M to $112 between 1996 & 2000.
The R/C or revenue/cost ratio and subsidy/passenger are really measures of the TTC’s Operational efficiency. I give Gary Webster and his Ops crews an A+ rating. I don’t think anyone else in the world carries passengers more efficiently as the TTC at reasonable fares. The R/C ratio peaked at 84.6% in 2000 or a $0.27subsidy/passenger, after which the R/C ratio has fallen, showing that simply increasing the operating subsidy (in this case due to higher fuel, electricity, wages, benefits in addition to service) does not guarantee incremental rides.
If the TTC grew rides and revenue by 5%, it would bring in $35M—virtually one year’s residential tax increase in 2004!
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
UPDATE (2009): this table is a good example of David Gunn, TTC CGM running the TTC like a business, overcoming all funding and organizational challenges he faced (e.g.. end of Davis Transit Funding formula 1995–1998 and 1995 Russell Hill Road fatal accident) to grow TTC ridership, despite the decreasing operating subsidy/increasing R/C ratio, anathema to Toronto politicians and TTC staff who are more comfortable asking for operating subsidies than being held accountable for ride and revenue growth and objectives, as in the private sector.
The TTC is a Billion dollar corporation (capital and operating) with the Marketing smarts of a family run business. A small family run business.
Marketing means focusing on the customer, what they want, how to give it to them better than the car competition. It involves risk-taking and uncertainly, anathema to TTC Managers who like to know the future 10 years in advance for capital budgeting purposes.
The TTC is a retail business. There should be monthly turnaround on Commission requests of and direction to TTC Staff. It shouldn’t take TTC Staff 5 or 6 months to reply to routine TTC Commission questions (905 Student Test, Lower Student Metropass fares, TTC Pay Parking after 3:00 p.m.)
Many TTC General Managers have worked their entire TTC career at the TTC and know of no other way of doing things than the TTC’s “Better Way” They can’t conceive of a different way of doing things, as they have no business experience other than at the TTC.
One way to encouraging more marketing, fare, ridership innovation and growth is to hold TTC Management, Marketing Staff responsible and accountable for achieving annual ridership and revenue targets via effective marketing, and not excusing missed revenue and rides as being due to a poor economy. It’s the CEO’s prime responsibility to create ride and revenue growth. It is not solely caused by the economy, as TTC Management currently portray.
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
The TTC has never seen a fare proposal or promotion that didn’t lose them money.
2. TTC fares are not at the breaking point. The cheapest TTC Adult fare is a $1.90 token, compare that to the cheapest NYC MTA fare of US$2 or C$2.60 on their Metrocard.
3. The historic TTC rides graph 1939–1996 shows that fewer fare zones boosts TTC ridership, more fare zones decrease TTC ridership.
4. TTC fares have gone up over the past 50 years like clockwork, as has TTC ridership. TTC rides only declined in the 1990’s due to the combined whammy of lost jobs, dramatic fare increases and sharp service cut backs.
5. It is not true that TTC riders want better service over lower fares, as is oft quoted from TTC research, most commonly w.r.t. 905 riders and a GTA-wide fare. Transit riders want better service but at a reasonable, competitive price.
6. If true why wouldn’t the TTC double fares to pay for better service? An exaggeration to demonstrate the fallacy of the argument!
7. It’s true the number of TTC buses is down in the past decade, but, the number of subway cars (each carrying up to 200 ppl) is up by 90.
8. The TTC has never looked at a fare proposal or promotion that they didn’t warn would cost them millions and millions of dollars. They always play the political card and say “someone has to pay for it” or “we need more subsidy to lower fares” totally ignoring the increase in total revenue that could occur with strategic, specific fare promotions (MDP, 905 Secondary Student fares, bulk Metropasses, etc.).
9. A review of TTC ridership since 1996 shows that the number of vehicles has been remarkably flat whilst ridership grew by +50M despite a declining Toronto Operating subsidy. Simply adding hours/kilometres or adding costs does not guarantee incremental revenue to cover the higher costs of the new service.
10. Despite initial TTC opposition, the MDP discount Metropass and York Region Student Fare Test did not lose money as the TTC predicted. Rides, revenue, and revenue/ride all increased behind them.
11. TTC rides declined in 2001–2003 due to ineffective TTC advertising, directed at political funding advocacy, that did nothing to buffer ridership against 911, SARS, West Nile, blackout as did MDP advertising in 1999 (snowstorm, strike, fare increase, fire).
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
This graph from TTC Service Planning’s January 25th 2006 Commission “Flatlining” presentation shows how TTC Service (Hours & kilometres) was essentially flat from 2001 to 2006 and includes Mayor David Miller’s first term as Mayor 2003–2006 during which the TTC added 40M rides (405–445M) despite constant service levels (see following graph)… so let’s not put too much faith in TTC dogma that their riders want better service than lower TTC fares, especially with flat ridership growth Jan-July 2008 despite initial February launch of RGS: Ridership Growth Strategy’s (off-peak) initiatives. Same caution with respect to the TTC dogma on GTA fare integration. It’s all about funding their favoured projects, i.e. Transit City, with the Yonge Subway capital improvements a bargaining chip, a quid pro quo for Provincial funding of new LRT cars for existing and new Transit City LRT routes not a part of Metrolinx’s November 2008 RTP release.
N.B. Increase ZOOM to 150 or 200% to see larger graph
This graph shows the TTC’s multi-dimensional fare promotion focus of Mayor David Miller’s first term as Mayor 2003–2006 during which the TTC added 40M rides despite keeping service flat (see previous graph).
Hyperlinks: Mac: Control Click / PC: Right-Click on graph , choose Hyperlink: Open in New Window to see full size PDF of chart in new window; or Increase ZOOM to 150 or 200% to see larger graph
One of the casualties of the incredibly labyrinthine political budget process of the setting of the annual TTC operating budget at Toronto City Hall is the imbalance between service desired by riders and what is offered by the TTC. For 5 years the TTC essentially froze service levels (2001–2006) while TTC ridership increased 40M rides during Mayor David Miller’s first term as Mayor (2003–2006 see previous two Appendix slides). Clearly there is something about effective TTC advertising and fare promotion that builds ridership, above and beyond TTC doctrine that more service is the only way to increase ridership (TTC dogma to extract more operating subsidy from Toronto BAC/Council).
N.B. the opposite was confirmed in 2008 where a $9/month increase in Metropass Adult fare without offsetting MDP “Beat the Fare hike” promotion led to anemic TTC growth; despite the first phase RGS: Ridership Growth Strategy off-peak implementation in February 2008 and record retail gasoline prices in July 2008 ($1.37/litre @ $147 peak oil/barrel). TTC rides to July 5th 2008 were –0.3% below year to date 2008 over 2007, whilst GO Transit was enjoying 8-9% growth over year ago over the same time as long distance travelers opted to park the car and travel on the GO! Fares matter, as does service!
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
When I was recruited by a headhunter for the position as head of TTC Marketing & Public Affairs, I had a 20-minute “courtesy” interview with David Gunn. It turned into a 2 &1/2 hour gabfest on a Friday afternoon. I thoroughly enjoyed meeting Mr. Gunn, as we shared war stories and samples of our work with each other. I did, however, express my concern near the end of our chat that I wouldn’t thrive or succeed in a political environment. He said “Bob, I run the TTC like a business, not a political organization.” That sold me on joining the TTC a week later in January 1997, as their first Chief Marketing Officer.
True to his word, Mr. Gunn (with Canadian parents: a Mother from Nova Scotia (Cape Breton) and a Newfoundland Father) who was born and raised in Boston and educated as an undergrad and MBA at Harvard, did operate the TTC as a business, overcoming all the funding obstacles thrown his way by the PC Government of Mike Harris, who eliminated the “Davis Transit Funding Formula” despite Al Leach, Mr. Gunn’s predecessor as TTC CGM being the Minister of Municipal Affairs, who introduced the Megacity amalgamation legislation at Queen’s Park Dec, 1996 and my predecessor, Ron McLaughlin on secondment to the Premier’s Office. There were no favours for the TTC during the “Common Sense Revolution!” (A strategic decision, as Tory votes were in the 905 “Ring” around Toronto).
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
What are the lessons for the GTTA?
GTA travel is like a spider’s web, no longer inbound along suburban radial spokes into the downtown Toronto employment hub; therefore there is a need for a GTA fare zone that makes transit cheaper, faster and more convenient than taking your car. In the TTC’s past: fewer fare zones = more rides, and more fare zones = fewer rides.
2. The GTTA’s electronic fare card should allow both unlimited use, flat-fare monthly passes for local transit in addition to fare-by-distance for GO Transit. If the GTTA fare card simply debits a rider two fares for crossing the 905/416 boundary, it will surely fail, despite the added convenience. Consumers won’t get out of their cars in the quantum needed to reduce road congestion unless GTA farecard transit is not only more convenient, but cheaper than paying two fares, e.g. Esso’s Speedpass (see appendix).
3. Beating road congestion will take not only orders of magnitude increases in transit funding and service to provide the carrot to encourage people to adopt a transit habit… but based on London’s experience with a much more mature, developed transit system will need a stick… road tolls or parking taxes to actively discourage driving and reduce road congestion. Congestion is down approximately 22–30% since London introduced its 5£/8£ Congestion Charge. Subway ridership is only 1% higher while bus service is +31% higher… something for the GTTA to think about, particularly w.r.t. to future subway vs.... LRT and BRT.
4. The GTTA needs to introduce Rational Rapid Transit Expansion planning, Rationing Transit Capital amongst the many transit properties based on NPV analysis of the CAPEX proposals, much as a sophisticated private sector company like PepsiCo does. At present RT Expansion has been Toronto-centric and heavily influenced by the politicians du jour, where they want votes… rather than the actual travel needs of GTA residents.
The GTTA must oversee future RT Environmental Assessments to ensure they meet all GTA’s needs, not just the TTC’s, not the TTC’s subway-centric Engineering & Construction department. It wants to build subways and has given short shrift to EA alternatives to subways, and to subways that would allow greater GTA transit integration. TTC E&C is great at building subways on budget and on time… but has a conflict of interest: they should not both oversee RT expansion and build the RT expansions too, as it creates perception of conflict, backed by the historical EA record the past 16 years (See Appendix for G&M article March 6, 2007 Advisors Conflict to also act as sellers…”
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
When a private or public sector organization has more capital requests than capital funds available, the only rational way to ration capital is with disciplined net present value financial analysis—seemingly absent from the last three TTC subway expansions which failed to meet the TTC’s internal ridership expectations. The consequences last for generations as the TTC is saddled with increased operating costs that reduce the overall service (particularly on surface) they can offer each year to meet ridership demand. If the EA’s ridership projections were based on bad ridership estimates, it further brings into question the efficacy of the present EA system as managed by TTC E&C under the oversight of the MTO and Ministry of the Environment. Inflated ridership projections bias TTC EA’s in favour of subways, rather than more cost effective BRT or LRT. The GTTA is an arms-length Agency without the stigma of past association with overtly TTC subway-biased RT EA’s. See Appendix for G&M article on “Advisors…” conflict when RBC/BMO acted both as advisors, and agents benefiting from it!
This NPV table is an aggregate example meant to illustrate how the GTTA should evaluate the individual RT expansion CAPEX proposals of all the transit properties on a comparable basis. They’re just the Billion~$ Rapid Transit expansions either already approved or for which transit properties are seeking capital funding. Also, note the non-subway projects involve several discrete stepped phases, whose timing and cost should be calculated separately to arrive at the true aggregate capital funding being sought, rather than my simple but misleading one “mega” project illustrations above. For example, YRT GM Don Gordon mentioned the ViVA BRT busway total $1.0B capital number at Ed Drass’ Metro Hall transit summit in November 2006. It obviously contains many discrete stages, as “FLOW” announced ≈$170–$250M for an initial ViVA busway phase. The payback looks high for ViVA busways in toto, but based on YRT’s doubling ridership in the last 5 years, it is an aggressive, but not an unreasonable target. Ditto for TTC LRT (n.b. NOT Transit City).
Notes:
Ontario Cost of Capital (i): 6–7%-TTC EGM Vince Rodo—November 2006 Commission meeting.
TTC Average Fare: $1.72 (Source TTC Weekly Ride/Revenue Report—Feb 2007)
GO Average Fare: $4.99; GO rounds to $5.00 (June Stark March 9th e-mail)
YRT Average Fare: $2.13—Paul Tobin, YRT (March 13th e-mail)
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
This slide shows that the Davis Transit Funding Formula was no panacea. It was not a licence for the TTC to spend whatever they wanted operating transit in Toronto. In fact the TTC had two masters: Metro Council and the MTO, both whom had to approve the TTC’s Annual Operating and Capital budgets and despite a nominal 50% Operating subsidy, increased fares +60% 1990–2006. So be careful what you wish for certainly applies here. Ideally, the Province will upload costs from Municipalities, as provincial revenues permit, to finally reverse Tory downloading of the late 1990s; and allow the municipalities to decide where transit fits within their operating budget, with the exception of the GTA where Metrolinx would ideally set GTA transit operating/fare policies and standards.
Attached is the rudimentary NPV Analysis I did of the TTC’s March 2007 C$6B Transit City announcement, using TTC figures as supplied. This is a far cry from the financial discipline/capital rationing of PepsiCo’s 250 page CAPEX proposal for a C$1M Pizza Hut Dine-in restaurant in Canada.
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
This slide is a graphical representation of the consumer marketing stops with packaged goods firms in my career prior to joining the TTC, an organization that excels at delivering low-cost basic public transit, but often without the business savvy to obsess about what their riders want, and what the competition is doing better that they can learn from to exceed customers’ expectations (as does the MTCC) as I learned in my 20 working for and with sophisticated, disciplined multinational companies noted for their marketing, operations and financial acumen. It was perfect preparation for my role as the first TTC Chief Marketing Officer, to tackle a 7-year ridership decline, despite my having no transit expertise nor particular insight into the TTC, having lived 18 years in Thornhill (with a company car) before joining the organization.
Hyperlinks: Mac: Control Click / PC: Right-Click on Cover Page (PDF) or slide page (PPT), choose Hyperlink: Open in New Window to see source material.
Hyperlinks: Mac: Control Click / PC: Right-Click on tan “CV” , choose Hyperlink: Open in New Window to see full size PDF of RJB résumé.
