You may have already heard it in news reports this morning, but yes: TransLink is currently running a deficit. This made the news because yesterday, TransLink released its second quarter report on financials and performance for 2008, which outlines the situation in great detail and which you can download here.

So, since we have this fancy blog up and running now, I thought I’d take a look at the report and talk about some of the issues which you no doubt have questions about. Have a read through and feel free to ask any additional questions in the comments below.

What’s this second quarter report on financials and performance?

We issue a quarterly report four times a year (four quarters = 1 year, see?) so the public can see how we’re doing. This report discusses our financial results from Jan. 1 2008 until June 30, 2008.

How much is the deficit?

Right now, we are estimating a $3.1 million deficit by the end of the year.

Didn’t you estimate a surplus last year? What happened?

Well, yes. In the 2008 budget from December 2007, we predicted an $11.4 million surplus for 2008. But two major factors ate away at the surplus we had predicted.

First, diesel fuel prices went way up. This cost us an extra $9.5 million in transit operating costs this year.

Second, the provincial government cancelled our parking site tax at the end of 2007, but then allowed us to raise property taxes to compensate for the lost parking tax revenue. Since we would have received $18 million from the parking tax, we now had to generate this $18 million by increasing taxes on property owners.

We didn’t really want to boost property taxes though, and so, after discussion with the public, we made the decision to only collect half the amount through property tax this year (see this press release for more). So we only collected $9 million from property taxes levied only on business properties, and said we would cover the rest from our surplus in 2007. That means our 2008 revenue was $9 million less than we thought it would be.

As well, we also expanded transit service hours by 4.3 per cent, especially in the South of Fraser area, and saw transit ridership go up by 2.6 per cent (this is much higher than forecast – it’s a full percentage point higher than in 2007). This helped boost costs associated with support services and transit service expansion, including policing and security.

So how is TransLink planning to cover the shortfall?

We’re already working toward a balanced budget by the end of the year, and if it’s possible, we’ll even try to add to our surplus. But we’re planning to cover the shortfall through cost-cutting, not by increasing fares. We’re delaying hiring for some staff vacancies, we’re putting tighter controls on our spending, and we’re also expecting interest payments on our debt to be low.

But TransLink has been talking about more deficits in the future.

Right. Well, since 2005, we’ve known that our future budgets will be unable to keep up with the services we’re offering. We’ve had a lot of great support from the federal and provincial governments to pay for capital costs—buying buses and building train systems and so forth—but the enormous costs of operating the system fall solely to us.

Operating expenses such as wages, fuel and parts account for the majority of the lifecycle cost of running a bus, with capital costs accounting for about 10 per cent. But the support from senior governments has helped immensely in renewing and expanding the fleet and we are very grateful for the help.

Without new sources of revenue, or increases to the sources we already use such as fares, fuel tax or property taxes, TransLink is expecting to start drawing into its $400 million reserve fund starting in 2009. By 2010, we’re expecting a shortfall of $145 million. Then by 2011, we will have used up all of our reserves and we will have to start cutting service.

We don’t want to cut service – not only do we want to continue providing our region with good public transportation, it also puts us in a destructive cycle that could see much more service clawed back really quickly. (Reduced transit service means reduced revenues, which means more reduced transit service, and so on and so forth.)

So what is TransLink doing about the future deficits?

We’re trying right now to find more revenue sources to shore up the system and keep service going. To maintain the transit system at the status quo, we need an extra $150 million every year. If we want to expand the system, we need an extra $500 million annually. Needless to say, we’ll be doing a lot of public outreach on this issue in the coming year.

There’s a few more items in the report. For example, cost efficiency, effectiveness, and customer performance ratings are down.

Yes, but there’s a few good explanations behind those scores. They stem from the growing customer demand on our system: we’ve boosted transit service by 4.3 per cent in response, and ridership has increased 2.6 per cent, a huge jump from last year.

Expansion like this puts unusual pressure on our system. Cost efficiency and effectiveness scores declined because of the usual lag between the addition of new capacity and the uptake of that capacity through increased ridership. And customer service ratings slipped over the same period last year, in part due to more people on the system seeking relief from high gas prices.

In specific, here are the customer service ratings to the end of June: the ‘good to excellent’ scores for the individual services ranged from 56 per cent on the buses to 88 per cent on the West Coast Express and the average ratings out of 10 varied from 7.4 to 8.8. However, all of these scores represented a decrease over the same period in 2007. For the whole system, 48 per cent of customers gave the services high ratings with an average score of 7.0.

What are you going to do about the customer performance ratings?

Here’s a quote from Tom Prendergast, our CEO:

We measure our performance because we want to know how we’re doing, and right now we’re not doing as well as we need to. There’s no doubt that we’ve had many new people trying transit on account of the high gas prices, and generally they have high expectations. Our aim is to meet them, which is a matter of planning for service levels that attract and keep new customers and, day by day, making sure we deliver.

Transit customers are about the same wherever you go, and all my past experience says that they’ll rate your service only as good as your last rush hour. Our second quarter results have clarified TransLink’s financial and service challenges, and that gives us what we need to turn the situation around.

Right now, the main customer issues we’ve identified are the convenience of transit operating hours, the quality of connections and the length of wait times for service, the adequacy of information at stops and stations and a lack of shelters at bus stops. We’re already working hard to address these issues now and in the future.