Is OC Transpo Dying? BENN

Published 11/18/2023 · Updated 11/18/2023

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Is OC Transpo in the mid-stage of its death throws?

OC Transpo tabled a draft budget for 2024 with an operating deficit of $50 million. To cover this major shortfall, it is transferring $12.7 million from its operating reserves. That will leave a balance of $4 million. Operating reserves, unless they are backed up by cash in the bank, are nothing more than an accounting illusion. Setting aside amounts on paper is just that. Paper.

So, unless OC Transpo has been storing cash to support its operating reserves, like squirrels store acorns in anticipation of winter, this transfer will do nothing to cover the actual operating losses. So, where does the somewhere between $37.3 million and $50 million in actual cash come from? The shareholder – also known as the City of Ottawa. Which, by the way, has a long history of deficits in its operating budget.

What is OC Transpo doing to address this major shortfall between operating costs and revenues?

When organizations identify cash flow shortfalls, operating losses, debts coming due with no realistic chance of refinancing them, there is a common pattern that emerges, many enter into a state of denial. Just an aberration. It will cure itself shortly. This takes the shape of generating forecasts that involve a heavy dose of pixy dust, or other hallucinogens. Sound familiar? Take a look at the last couple of budgets where ridership levels rose dramatically, in the face of no new compelling evidence.

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Once organizations get over the denial stage they search for efficiencies. This involves, to varying degrees, asking senior managers to cut back on discretionary spending, like travel and conferences. It includes looking at staffing levels, identifying if there are any positions that are currently vacant due to resignations or retirements that could be left vacant, for the time being.

This is supposed to be done quietly, behind the scenes. No need to alarm staff, let alone the general public. Except at OC Transpo.

Next step is to cut service levels, such as reducing the frequency of routes was an early step. This is often presented as a mere tinkering with the matrix of services provided, so as not to alarm the general public. When this is not enough, it is often followed by reducing the number of routes. Neither of these steps can be done behind the scenes. The public is told that the organization is optimizing resource allocations, the preferred euphemism so as not to sound too alarming. The negative impact on revenues is down-played.

What happens if the operating shortfalls are not reversed? If the cash out still exceeds the cash in? If the debts that are coming due cannot be refinanced? The next step is filing for some form of insolvency protection.

Except OC Transpo cannot file for insolvency protection. It is a basic service that must be provided by the city. It is up to the city to fund the operating shortfalls. To top up the bank account of its wholly owned subsidiary. Except, as noted above, the city is running its own operating deficit.

What is happening at OC Transpo is the most likely outcome of the failure to produce realistic balanced budgets for several years in a row. Both OC Transpo and the city passed operating budgets with a plug (for those who are not accountants, that is a pejorative term) to create the illusion that the budget is balanced. Balanced, as in what cities, and their wholly owned subsidiaries, are required ensure their budgets are.

All of which begs the question of where the regulator has been years ago, as this pantomime of passing de facto not-balanced budgets first started. Cities are wholly owned subsidiaries of the province. The same province that plays the role of regulator. Conflicts of interest such as these are inherent. The only way to address this conflict of interest is to ensure that the regulator is free of political interference.

So, over to you Premier Doug Ford. Not your highest priority, given that Toronto has been playing the same game for many years.

Ron Benn, a finance executive, has been a member of the Centrepointe Community Association for the better part of three decades.

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