In Budget 2013, the federal government responded to municipal concerns over sustainable funding and infrastructure. It will need to do more if decades of senior government paternalism and municipal dependency are to be reversed. Further announcements should tell us whether we can expect to see a shift in policy direction or more of the same policy thinking that has continued to undermine infrastructure renewal and good governance to the point of crisis.
Estimates of Canada’s infrastructure deficit could be as much as $125 billion. The growing “infrastructure crisis” has been brought into sharp focus by revelations of waste and corruption emerging from the Charbonneau Commission in Montreal, the winding down of the stimulus program and the launch of the next wave of federal infrastructure programs planned for 2014. As 2014 approaches, it will be interesting to see what kind of policy framework emerges and the extent to which it constitutes a federal infrastructure strategy or a continuation of existing grants and contributions which have so far failed to address the widening infrastructure gap.
Infrastructure maintenance and renewal in Canada confront a number of sizeable obstacles. The Constitution, specifically the division of powers and responsibilities, is the primary challenge. An increasingly urbanized Canada is not well served by the current fiscal arrangement that provides municipal government with less than 10 percent of the total taxes levied, especially as it is responsible for most of Canada’s infrastructure. Canada’s municipalities are also heavily reliant on property, not income, taxes and even large cities such as Toronto, Vancouver and Montreal have little fiscal autonomy from provincial control compared with other major cities in the world.
Without constitutional authority over municipal government, the federal government must tread carefully so as not to be seen to encroach on provincial jurisdiction. Nevertheless, the federal government is an important source of funding for municipalities and the provinces will not normally object if money is brought to the table. Municipalities, faced with severe constraints on their own financing options, have become increasingly reliant on ad hoc provincial and federal transfers and programs for financing local infrastructure.
This makes long-term planning difficult at the municipal level, particularly when the funding comes through a myriad of small programs with different strings and conditions attached. It has also helped fuel an unhealthy dependency culture whereby councillors are content to pursue infrastructure funding from senior governments rather than raise more revenues locally. Of course, in pursuing “free money,” councillors are behaving rationally. The problem is that this violates some fundamental principles of public financing such as “user pays,” attribution and accountability and can seriously distort local priorities resulting in a “policy by project” approach to planning and infrastructure renewal.
In addition, Canada’s complex tri-lateral approach to infrastructure renewal has created the conditions where infrastructure financing has become highly politicized and multi-purpose over many decades. Infrastructure renewal has been used primarily as a policy tool for job creation, economic stimulus and regional redistribution. While these may be valid policy aims, pumping short-term funding into shovel-ready projects is not a means to providing sustainable and transformative infrastructure based on strategic long-term planning. Because of the enormous amounts of money and political visibility involved in infrastructure financing, politicians find it difficult to resist building partisan interests into the programs. The millions of dollars spent on advertising and branding the Economic Action Plan has illustrated the increasing importance of “retail politics.”
Ideally, municipal governments would be empowered and emboldened to raise more financing locally but, as this seems unlikely in the near future, the federal government should look to provide an enabling role toward municipal infrastructure funding. To this end, the framework used in the Federal Gas Tax provides a step in the right direction, balancing local autonomy with central oversight, while reducing the scope for politicizing transfers.
The creation of Public Private Partnerships Canada suggests that the federal government recognizes the value of the private sector playing an enhanced role though direct investment and by “nudging” provincial and municipal governments toward greater use of congestion pricing and related user-pay mechanisms. “Nudges” could include the financing of demonstration programs and research endeavors, and the creation of a federal Infrastructure Financing Bank to help finance municipal infrastructure needs, perhaps in tandem with similar initiatives at the provincial level.
Finally, Canada makes relatively little use of pension funds as a source of infrastructure financing compared to other countries, despite the fact that some of our pension funds invest heavily in infrastructure projects abroad.
