In 1998, the Municipality of Metropolitan Toronto ceased to exist and was replaced by a new City of Toronto (formed from the amalgamation of its six former municipalities). Four years later, the Sheppard Line was opened, the first new subway line in decades. But it was much shorter than originally planned, going from Yonge St. east only as far as Don Mills Road, instead of connecting with the Scarborough RT at Scarborough Centre (which remains one of the TTC's priorities for further extensions, should the funding become available). The TTC is running four-car trains on the abbreviated Sheppard Line, 2/3 the size of those on the other Toronto subways, but the stations were built to accommodate full-length trains should sufficient traffic develop.

In January 2005, the cash-strapped TTC introduced a plan to curtail costly subway expansion and look at expanding the rapid transit network less expensively. This could involve busways, or expanding the streetcar system with more modern vehicles and less running in mixed traffic.

Nonetheless, the TTC recognizes the importance of rapid transit for the growing Greater Toronto Area, and is already in the planning stages, including an environmental assessment, for an extension of the Spadina line north to York University. The key to this next large step, as well as the completion of the Sheppard line, lies in the hands of the Province of Ontario and the federal government of Canada who have both promised better funding for public transit in the city.

On May 29, 2006, a wildcat strike took place after TTC employees walked off the job suddenly, primarily caused by safety concerns and late shifts. The strike was immediately deemed illegal by the Ontario Labour Relations Board and they were immediately ordered back to work, but not without causing severe disruption in the city on what was a very hot day. The strike, however, was not without consequence to TTC management, as the general manager, Rick Ducharme officially tendered his resignation just one week later.

A transit strike was averted for 21 April 2008, after a tentative contract was reached the day before. The deal in the contract was to give workers a 3% increase in salary over three years. On April 25, 2008, the TTC union voted down this contract. 65% of workers voted no to the settlement, and as of midnight on April 26, 2008, the Toronto Transit Commission was officially on strike.[2]

The TTC workers were legislated back to work on 27th April 2008 by the passing of Bill 66 by the Ontario Provincial Parliament.

The TTC continues to be the sole provider of public transit within the City of Toronto, as well as operating contracted services into the neighbouring York Region. Regional commuter service (both bus and rail) is operated by GO Transit, the vast majority of which goes to downtown Toronto's Union Station. Connection buses of the Mississauga, Brampton, York Region, and Durham Region transit systems enter Toronto at various points

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