New big measures to cut TransLink's costs by $90 million annually

SkyTrain Expo Line tracks near Gateway Station in Surrey. (TransLink)

Metro Vancouver’s public transit authority is embarking on a strategic initiative to implement stringent measures aimed at reducing operating costs and revenue losses in anticipation of an impending fiscal cliff.

When fully implemented, the range of new cost-efficiency measures will improve TransLink’s financial picture by about $90 million each year. These savings will be generated by carrying out most of the measures recommended by an independent efficiency review of the public transit authority by consultancy firm Ernst & Young, in addition to rolling out further cutbacks that go beyond the review’s recommendations.

TransLink’s self-initiated measures include increasing fare evasion enforcement, reducing third-party contractors by bringing more work in-house, eliminating 35 unfilled corporate staff positions and deferring other positions, reducing leadership training courses, optimizing the debt management strategy, and reducing IT software and hardware expenses.

There would also be a reduction of ridership development and community initiatives and a reduction of research grants and projects on mobility innovations.

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As for the measures outlined in Ernst & Young’s review, TransLink will accept all of the consultancy firm’s recommendations, except for the various suggestions to perform targeted cuts to public transit service levels. For the time being, due to growing ridership and overcrowding, TransLink is planning to delay the need to cut services as long as possible, with the $90 million in identified annual savings intended to extend the runway before the public transit authority hits the fiscal cliff starting in 2026.

TransLink is facing a fiscal cliff after 2025, when an existing operating subsidy from the provincial government runs out. The public transit authority forecasts a cumulative shortfall of $4.7 billion between 2026 and 2033, starting with over $600 million for the 2026 fiscal year. This shortfall does not include any service expansion and new infrastructure costs.

TransLink and the Mayors’ Council are actively lobbying the provincial and federal governments to provide the public transit authority with new funding and ongoing revenue sources to fill the operating cost gap and cover multi-billion dollar expansion and improvement projects.

“This Mayors’ Council has been fighting for a solution that would allow for transit expansion, not reductions, for residents in our communities, but time is running out,” said Brad West, the Chair of the Mayors’ Council and the Mayor of Port Coquitlam.

“Everyone needs to be part of that solution, and I’m pleased that TransLink has looked inward to find considerable savings and efficiencies that help to close the funding gap.”

While ridership is now over 90% of pre-pandemic volumes, fare revenue is still down due to more passengers taking fewer trips on cheaper single-use trip fares as opposed to making frequent trips on more expensive monthly passes. Fare revenue increases have also been suppressed over the last few years by the decision to cancel fare increases and performing fare increases below inflation. As well, after peaking in 2022, gas tax revenues are on a downward trend due to the growing use of battery-electric or fuel-economy vehicles. There are added operating and capital costs from inflation and forthcoming service expansions, such as the opening of the two SkyTrain extensions of the Millennium Line to Arbutus and the Expo Line to Langley.

In 2023, fares were TransLink’s single largest operating revenue source (29%), followed by property tax (22%), gas tax (18%), parking tax (4%), and the remaining (26%) from other sources, including other levels of government, especially pandemic operating subsidies.

“We have worked closely with the Mayors’ Council and TransLink’s Board to take decisive action to examine our costs amidst this financial challenge. As a result, we’ve made some tough, but necessary decisions,” said TransLink CEO Kevin Quinn.

“Many of the corporate programs and strategic initiatives we are scaling back played an important role in bringing riders back to our system, but now we must do whatever we can to reduce our long-term funding gap. The urgency of solving this crisis cannot be understated as we will be forced to look at service reductions at the end of 2025, should a solution not be found for our broken funding model.”

Rising salaries, benefits, and wages are the leading cost factor

Ernst & Young reaffirmed TransLink’s position that there are relatively limited opportunities to cut the operating budget, as 85% of these expenditures go towards the direct costs of running and maintaining public transit services, and the remaining 15% is for administrative costs, essential IT and Compass systems, and the cost of fare media.

The $90 million in total identified cost efficiencies per year will be equivalent to reducing TransLink’s operating costs by about 4%. TransLink’s operating budget is expected to reach $2.37 billion in 2024 — up from $2.15 billion in 2023, $2.0 billion in 2022, $1.86 billion in 2021, $1.72 billion in 2020, $1.75 billion in 2019, and $1.66 billion in 2018.

TransLink’s growing annual operating budget between 2018 and 2023. (Ernst & Young)

Out of TransLink’s $2.15 billion operating budget for 2023, 25% went to SkyTrain and West Coast Express, 51% went to the bus and SeaBus system, 9% went to corporate operations, 3% went to Transit Police, and 12% went to roads and bridges, such as TransLink’s support for the region’s Major Road Network and its ownership and maintenance of the Pattullo Bridge, Golden Ears Bridge, and Knight Street Bridge.

The 2024 budget includes a 9% increase in labour costs due to newly negotiated contracts for unionized labour and a 16.8% increase in the maintenance and utilities for aging bus and rail assets.

“Although TransLink’s administrative costs are still below those of comparable organizations, there has been a rise in expenses. Consequently, it is important for TransLink to carefully monitor these costs and provide clear explanations for the factors contributing to the increases, which may encompass issues like expanding responsibilities, inflationary trends, or the growth of the transportation system,” states the review.

One of the largest cost-efficiency opportunities identified by Ernst & Young is the ongoing transition from the existing reactive maintenance approach to a proactive and preventative maintenance regime for SkyTrain, SeaBus, and the bus system, which will improve efficiency and effectiveness. Such proactive maintenance is expected to reduce operating costs by over $15 million per year, but this strategy requires upfront investment, up-skilling of staff, and changes to the technology of operations.

Another $5 million to $15 million would be saved annually from improved planning and budgeting for infrastructure repair work based on adopting a “lifecycle cost estimation method.”

Between $5 million and $15 million would be saved annually by continuing TransLink’s existing bus stop balancing or consolidation initiative of removing closely spaced bus stops, which is a measure that increases travel speed and reduces operating costs. Similarly, TransLink would continue to improve bus speed and reliability by implementing more road design changes in partnership with municipal governments. There could also be a long-term potential for additional savings from reviewing the “appropriateness of on-time performance targets and the relationship with operating efficiency.”

Ernst & Young identified a major area for cost savings in the growth of TransLink’s workforce. The consultancy firm recommends examining and evaluating the “headcount growth assumptions in departments where growth exceeds that of the associated cost drivers.”

Ernst & Young states salaries, wages, and benefits are the leading operating cost increase factor.

Between 2018 and 2023, the workforce size for TransLink subsidiary BC Rapid Transit Company (BCRTC) grew by 35%, with most of the new hires working in maintenance, especially with the rail infrastructure and engineering teams of SkyTrain’s Expo and Millennium lines. This is due to aging infrastructure, the forthcoming SkyTrain line extensions reaching Arbutus and Langley, and the opening of a major additional SkyTrain operations and maintenance centre in Coquitlam later this decade.

Over the same five-year period, TransLink subsidiary Coast Mountain Bus Company (CMBC) saw an increased headcount of 16%, mainly in operations, such as the need for more bus drivers and SeaBus workers due to increased service levels.

TransLink’s corporate staff numbers have increased by 32% over the same period, with this increase driven by the planned expansion of the public transit network, response to growing cyber-security threats, technology complexities, and “adjusting the support functions to match the needs of a growing enterprise.”

As of the end of 2023, TransLink had a total workforce size of nearly 8,600 staff, including 1,300 with BCRTC, 6,040 with CMBC, 917 with corporate, 330 with Transit Police, and only eight with West Coast Express, which are only administrative positions as the operations of the commuter rail service is contracted to Bombardier for operations and VIA Rail for maintenance.

Need for a structured framework

Ernst & Young identified numerous organizational challenges such as inefficiencies with TransLink’s governance structure, inadequate decision-making ownership (indecisiveness), labour-intensive budgeting and forecasting processes, and a reliance on the strength of personal relationships rather than institutionalized processes for effective coordination across departments.

“TransLink has an intricate and unique governance structure. Through the course of this review, there were indications that while the complexity of the TransLink governance model had many benefits, including more robust levels of transparency and accountability, it could also be contributing to inefficiencies for the organization,” states the review.

“Responsibilities related to finance, HR, communications, and transportation planning exist in both corporate and operating companies. Currently, the effectiveness of coordination across these functions is supported by the strength of personal relationships rather than institutionalized processes. While this has its merits, it may lead to some operational inefficiencies and a reliance on the presence of specific individuals. By adopting a structured framework that emphasizes clear role definition and process formalization, TransLink can build a more robust and efficient operational model that withstands future shifts in personnel.”

The review acknowledges that TransLink has already made some proactive cost-cutting steps by reducing some of its office space lease costs. This year, the CMBC headquarters office will be relocated from Surrey to TransLink’s main corporate headquarters next to Sapperton Station in New Westminster. This is expected to save $2 million each year or $20 million over 10 years.

TransLink’s recent changes with contract management and competitive bidding practices bidding processes are estimated to save $10 million to $20 million annually.

The review also noted the cost savings of performing work in-house rather than contracting the work to companies. TransLink saw $3.4 million in cost savings from having CMBC staff design and produce bus driver safety barriers that help protect bus drivers from assaults.

Last month, TransLink indicated it could discontinue funding to municipal governments for building and improving roads, bike lanes, pedestrian paths, and other active transportation infrastructure. Due to the fiscal cliff, this program would end after 2025 to better enable TransLink to focus on its core mandate. According to TransLink, between 2017 and 2024, this program has provided municipal governments across the region with a combined total of $887 million towards 733 projects, including $144 million in 2024 alone.

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