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Proceedings of the Standing Senate Committee on
National Finance

Issue 12 - Evidence

OTTAWA, Tuesday, May 13, 2008

The Standing Senate Committee of National Finance met this day at 9:32 a.m. to study the Main Estimates tabled before Parliament for the fiscal year ending March 31, 2009.

Senator Joseph A. Day (Chair) in the chair.


The Chair: Good morning everybody and welcome to this meeting of the Standing Senate Committee of National Finance. My name is Joseph Day, I represent the Province of New Brunswick in the Senate and I am the chair of this committee.


The committee's field of interest is government spending and operations. We do this through the estimates of expenditures and funds made available to officers of Parliament to perform their functions and through budget implementation acts and other matters referred to the Senate and referred by the Senate to this committee.

Today, as part of our committee's review of the 2008-2009 Estimates, we are examining federal expenditures on infrastructure and related activities, including the participation of the federal regional development agencies in the delivery of infrastructure funding.

It is my pleasure to welcome the President of the Federation of Canadian Municipalities, Counsellor Gord Steeves of the City of Winnipeg. Accompanying Mr. Steeves today is Mr. Gabriel Miller, Intergovernmental Relations Manager.


I would also like to welcome the students from the Cégep de Sainte-Foy, winners of a debating contest, who are here invited by Senator Dawson, from Quebec City.

We will start our meeting with a presentation by Mr. Steeves which will be followed by a question and discussion period.


Gord Steeves, President, Councillor of City of Winnipeg, Federation of Canadian Municipalities: One of your colleagues, Senator Stratton, is one of our senators from Winnipeg and we are very proud of him. We are pleased to be before the committee this morning.

The committee was gracious in its invitation to the Federation of Canadian Municipalities, as it has been in the past, and we appreciate that. We will do our best to lay out some of our policy items and our direction. If it seems that we are on the wrong track or if you want to discuss anything else that we have not covered, please feel free to step in and direct the conversation as needed for the purposes of the committee. Obviously, we are here to play a role to inform and assist the committee to the best of our ability.


This morning, I will speak mainly in English, which is my main language, but if you have some questions in French, we can try to answer in French. Our Federation is bilingual, therefore Mr. Miller and myself will be happy to answer your questions in both languages.


We are hoping that our appearance today will meet with the expectations of the committee. Senators are familiar with FCM and what we do. Our organization represents municipalities across Canada. Right now, our membership is about 1,500 municipalities. By extension, our members represent approximately 90 per cent of the Canadian population. Of course, our lot in life is to try to influence, to the best of our ability, federal government policy to the betterment of municipal governments across this country.

I will focus on some key principles this morning, things we have shared with the Government of Canada for the effective, efficient design and delivery of infrastructure funding. These principles can provide a useful framework against which to evaluate past, existing and planned federal government programs.

Before I introduce our principles, I will highlight why any of these issues should matter by drawing on key results from a large national public opinion survey that FCM recently undertook with the Strategic Counsel. Not surprisingly, health care was sited as the highest public policy priority. However, somewhat to our surprise, Canadians rated assistance to communities for infrastructure the second most important priority, well ahead of competing priorities such as post-secondary education, climate change, economic development and issues surrounding foreign policy and Afghanistan. Those are certainly serious and important items, but the items we advocate on behalf of have clearly risen to close to the top of the Canadian psyche.

Half or better than half of Canadians and 70 per cent of those living in the country's largest cities feel that investments in infrastructure have fallen behind, and over 90 per cent say the federal government should provide financial support to assist municipal governments with infrastructure issues. About 67 per cent of Canadians feel that any surplus should be used to fund areas in need as opposed to lowering taxes.

Clearly, infrastructure does matter to taxpayers in this nation. That is why it is commendable that your committee is examining these issues today.

The other trend I want to highlight is the Government of Canada's growing commitment to supporting municipal infrastructure in this country. Although the near history of federal investments in municipal infrastructure stretches back to the first program launched in 1994, it is the last three to five years that have seen a sea change in the government's approach to funding municipal governments. The key difference has been the government's focus on the long term, which is much welcomed. Starting in Budget 2006, the government clearly recognized the need for a long- term investment horizon for infrastructure, at the time defined as seven years. Budget 2008 took a significant step further by making the tax permanent. For the first time, the government is recognizing the reality of infrastructure planning and investment — the incredibly long time horizons. That is the first and most important principle I want to begin with.

Infrastructure financing is a long-term undertaking and investment with a 30-, 50- or even 70-year time horizon. While ad hoc contributions from the federal government have been useful, they have not provided the long-term solution needed to fix the estimated $123-billion infrastructure deficit permanently. Federal investments in municipal infrastructure must reflect the long-term nature of infrastructure investments and will require an undertaking on the part of all orders of government to commit and development a long-term strategy with agreed-upon priorities.

This is the same approach that was used so successfully in our recent past to address the federal fiscal deficit. A very clear public commitment was made to eliminate that deficit within five years. It was, to a large extent, successful; we all recall that.

In the case of infrastructure, the deficit has taken a generation to grow to its current size. With appropriate planning and concomitant commitment of resources, it can be eliminated within one generation — around 20 years. A long-term plan will bring long-term certainty to infrastructure funding, which will promote new efficiencies, technologies and best practices in the field of infrastructure delivery. This plan must be based on a real commitment to eliminate the infrastructure deficit and on agreed-upon investment priorities and strategies.

In our opinion, the federal government, in cooperation with the provincial and territorial governments, liaising with municipal governments through FCM, should develop a long-term legislative package designed to address national infrastructure needs. Ideally, this package should include a gas tax escalator provision that protects the value of this critical investment against the effects of inflation and growing needs.

You should and probably do know that in municipalities and other levels of government where we are budgeting for infrastructure projects, it is currently the practice for city governments to budget 2 per cent per month inflation costs for any infrastructure project. That is a lot of inflation for any project, but it has been borne out for the last three years as the accelerating cost to do these very expensive projects.

Second, it should include the long-term extension of application-based programs to provide greater certainty, facilitate long-term programming, reduce delays due to negotiations and eliminate gaps in funding. For example, although the Building Canada Fund is in many respects a laudable program, as you go from province to province and territory to territory, a lot of the money that was committed several months ago still has not flowed to municipalities and is direly needed by them for the projects they require.

Third, we need an action plan and comprehensive research agenda to better determine the nature of our municipal infrastructure needs and set targets for eliminating the infrastructure deficit and establish indicators for establishing progress in meeting targets over a set period of time. We need to tie this plan to a program for developing and communicating best practices, new technologies and new research among orders of government.

Federal transit funding, which has been significant but unpredictable and short term in recent years, should also be placed on long-term footing. The difficulty, we have found in the recent history of this nation, is that in the practicalities of municipal governance, if transit funding is not set aside as a specific pot of funding that can be accessed for transit-specific programming, transit programs often simply do not happen. That is because transit can get woven into the milieu of provincial or territorial infrastructure funding and priorities can be set.

The practical difficulty on the ground in provinces and in territories is that from an absolute numbers standpoint, the lion's share of municipalities do not have any transit programs. For example, in Saskatchewan there are almost 800 municipalities and fewer than five would have any transit program whatsoever. If infrastructure money is put on the table for municipalities to talk about and access in terms of priorities, you have a limited number of municipalities actually asking for transit, and sometimes transit can become a descended priority in order precisely because so many municipalities do not have an interest in putting that in place.

The down side to that rationalization is that big cities like Toronto, Montreal, Vancouver, Edmonton and Calgary sometimes simply cannot access this money to do these very expensive transit programs. If we do not have this money in the big cities, the problem obviously is that the transit programs might not happen. The benefit in terms of transportation and greenhouse gas reduction is absolutely astronomic compared to the bang for a buck that we can get in rural municipalities.

The only solution we can see is if the federal government could evolve back to a position where it sets aside transit funding. However, we want to maintain existing infrastructure funding for roads and bridges; it is very important. We feel strongly about the transit funding. If it does not exist, our experience is that transit programs do not happen to the same degree.

The government must also lead development of new national funding programs to address new infrastructure challenges, most notably climate change adaptation and the implementation of new national waste water standards. I was just up in the North, in Yukon, Northwest Territories and Nunavut. I can tell the honourable members of this committee that the prospect of perspective climate change in the North, as you probably know, is a notion of the past. They are now actively dealing with the effects of climate change in Canada's North. Up there, things are built on foundations that are rooted in permafrost. As permafrost decreases, we are seeing the waving of roads and infrastructure sagging. They think that problem will get worse, not better, and not in the long- or medium-term but in the short term, which will have big financial ramifications.

These are issues we must address. Regarding issues of waste water standards, you are probably well aware of the situation in Winnipeg. Recently the Province of Manitoba mandated that in order to maintain its licence to serve water to its citizens, the City of Winnipeg will have to undertake $1.5 billion of infrastructure upgrades to its waste water program over the course of the next 20 years; $1.5 billion is a lot of money to a city that on average will hoist a capital budget of approximately $250 million to $300 million a year. This is putting tremendous pressure on the fiscal ability of the City of Winnipeg and will probably cause a doubling twice over, over the next 15 years, of water and sewer rates in the City of Winnipeg. These effects are being mirrored across the country in different circumstances.

In addition, we encourage the government to design the new public-private partnerships, P3, office and fund to maximize accessibility and innovation. This means making provisions to develop projects that meet needs in smaller urban and rural communities and that address infrastructure rehabilitation.

Finally, FCM and its members have identified a number of ways to improve the operation and efficiency of application-based infrastructure programs. We have produced a report. We would urge the government to implement those recommendations.

In our opinion, the foundation of a robust accountability framework for federal investment in municipal infrastructure will primarily reside in clear and agreed-upon measures and targets. Accountability requires the capacity to measure performance against agreed-upon policy targets and objectives. Prevailing federal policy priorities can and will still be reflected in this framework, but the overall framework principles will be developed cooperatively with provincial, territorial and municipal governments as part of the process of developing the long-term plan. Only a cooperatively developed accountability framework will ensure the results are measured and reported on in a manner that is relevant to Canadians and to each order of government.

Where does that leave us today? Clearly, Budget 2008's announcement of a permanent gas tax represents a giant step forward towards these key principles and provides a template or model on which all future investments should be based: long-term, flexible and streamlined administration. What is missing at this stage is a clear rationale to eliminate the municipal infrastructure deficit by 2025. We believe the next step is to enshrine the permanent gas tax commitment in legislation along with a clear intergovernmental accountability framework to eliminate the municipal infrastructure deficit within that 20-year period.

Finally, I will speak briefly to the administrative design of existing programs, which has been a topic of some discussion at your recent meetings. Municipal leaders certainly understand the government's concerns about accountability, as they are on the front lines of providing essential services in Canada's communities. They are accountable every day for how well they deliver those services.

Accountability, of course, is not a one-way street. All governments involved in the program have to be accountable for how the money is spent. Nor does more paperwork necessarily improve accountability; it just increases compliance costs. We have to fight the simple reflex of throwing more reporting requirements into the mix. The results of a survey of our members in 2006 and our experiences of federal infrastructure programs show a strong view on the administrative burden posed by existing accountability requirements for municipalities. This tells us at a minimum that these have to be streamlined and basic efficacy tests applied to all new approaches.

Direct accountability to local ratepayers will be lost and overall accountability for public funds diminished if federal accountability requirements are allowed to override local requirements. Municipal governments must be recognized for what they are — responsible orders of government — and treated differently from the usual non-profit or private signatories to federal contribution agreements.

With respect to the Municipal Rural Infrastructure Fund, MRIF, and the design of the Building Canada Fund, BCF, if the committee is looking at that, I can tell you that from a municipal perspective, our experience with the application and administrative processes of the old MRIF were poor. Accordingly, the expectations are high that the administration and design of BCF will mark a significant departure and improvement over the approach used in the MRIF program.

Administrative design of BCF must provide greater flexibility and predictability, as has been the practice in previous programs, to protect and enhance the benefits of existing municipal plans. Overly rigid administration of these programs in our opinion leads to the distortion of local priority setting and results in suboptimal allocation of funds. FCM believes that rather than implementing application-based programs, the Government of Canada should model its efforts on the existing Gas Tax Fund.

The establishment of the federal Gas Tax Fund represents a crucial step forward in the way that the Government of Canada supports municipal infrastructure investments. Not only has the transfer provided a critical increase in the overall level of federal infrastructure funding, but it has provided a more accessible funding tool that helps cities and communities better plan local infrastructure priorities. With a commitment to make the gas tax permanent, the current government has taken a step in the right direction to help municipalities plan. However, no allowance has been made for that escalated provision I talked about earlier to protect the value of the transfer in future years. Without that escalator, the GTF will decline significantly in real value in relation to actual needs over the coming years. Municipalities are currently facing that $123-billion deficit we talked about, and that can only be addressed appreciably with a real long-term approach. In our respectful opinion, the Government of Canada needs to ask itself what vision it has for the future of Canadian cities and communities and what problems it is willing to solve to help maintain the quality of life, the health and the safety of Canadians.

I will conclude by saying that even though the challenges are great, we at the Federation of Canadian Municipalities do to a very large extent feel that we have established the federal government as true partners in trying to address the infrastructure challenges that municipalities face, over the last half decade or potentially even a bit longer. We look forward to the ongoing cooperation of all federal government parties in addressing these very real needs for the citizens we represent.

The Chair: Thank you, Mr. Steeves. I appreciate your taking the time to review some of the discussion we have had with other granting agencies and regional economic development organizations and programs. You have made some points, and there may be questions arising from the points you made.

Senator Stratton: To return a compliment, you are doing a very fine job for the citizens of our city.

I would like to go back to your trip to the North. Last weekend I was up in The Pas, Wabowden and Thompson, Manitoba, for Western Economic Diversification Canada, WED, because I wanted to experience what happens with WED, which we have been studying. There was no talk of climate change. It was cold up there and they were waiting for spring like the rest of the country and anxious to get it because it had been a long, cold winter.

In The Pas there was a request for money for a sewage lift station, which WED funded, and for Wabowden it was a new water treatment plant. The process to implement a request for money takes generally five years, from the time the application is first made to government until it reaches fruition. I would like the councillor to comment on that. Then there is a selection process. A northern regional council vets all the applications and then chooses. You can understand part of the process taking as long as it does, but it was rather interesting to observe. The communities were very grateful to have the money.

Northern Manitoba is just booming. The softwood is in a slump but pulp and paper is not. With mining, the roof is coming off. They cannot get enough people. WED put money into an Aboriginal training program for future miners at Vale Inco, because Vale Inco is dramatically short of people. They want to get the Aboriginals trained to go in. That is an aside. I think WED seems to be working. The problem is the length of time it takes to get a project to fruition.

Transit is a serious problem for the larger cities — Montreal, Toronto, Vancouver, and to a lesser degree Winnipeg and others — but when you say you want to fund subways or sky trains for larger cities, the people in the smaller municipalities get uptight and ask about their highways. That is where they are focused.

Is there a saw-off we can agree to? I believe Saskatchewan has the largest number of kilometres in their highway system of any province in the country. They are always complaining about funding for the big cities when Saskatchewan has a unique problem. Can you comment on a saw-off? This is Canada, and we always try to balance what we do.

Mr. Steeves: That is a great question. More than the question itself, it is great insight into the politics of this country and the challenges we sometimes have regionally. We are a country where a huge proportion of our citizens actually live in a relatively small number of cities. However, we have this vast territory that we obviously have to steward and be responsible for with a smattering of smaller communities within it. The senator has twigged to one of the biggest bugaboos or challenges infrastructure-wise in terms of inter-municipal negotiation.

I can use the Manitoba example because it is indicative of what is happening across the country. When the gas tax came forward, for example, there was an allotment between the city and the balance of Manitoba. In Manitoba, two thirds of the population live in Winnipeg. There was proportional division of the Gas Tax Fund, but there was a certain amount set aside for transit funding because no one else had to deal with that problem.

Although I will not be able to offer any story that will say this has been solved, I will come back to the idea that FCM really has thought about this problem and wrestled with its members across the country. We have inevitably come to the conclusion that in order to keep municipalities away from destructive infighting over municipal dollars and to get money to transit, it is better — from our perspective — that a certain amount of money is set aside for transit funding at the federal level so that everyone understands that this money is for transit because it has been made a priority by the federal government and that is where the money must go. In my experience, that takes a lot of pressure off the municipal argument out there, and it releases the balance and the lion's share of the infrastructure funding across the country to flow to smaller municipalities for their priorities, such as highways.

Many people have the comfort of knowing these transit projects are to a large degree being addressed, and bigger cities also have the comfort of knowing they have kind of had their priorities addressed because in larger communities transit will be one of the top priorities.

In bigger cities everyone is starting to really get the transit priority now, especially with the price of gasoline. The City of Winnipeg is not a huge draw on transit resources traditionally. Yet, this past year there were 1 million extra riders for no other reason than the price of gas, which was a complete surprise to our administration.

We really try to focus on that piece of setting the amount of funding aside. Historically, our transit strategy has called for $2 billion, which may or may not be plausible in the current framework. The key principle is a separate amount of funding, and then we can talk about the amount later.

Senator Stratton: The big problem is the age of the infrastructure. The infrastructure in The Pas is from 1970, and Wabowden's is from 1973, so that infrastructure is becoming very old. Winnipeg has the problem of $1.5 billion for its waste water infrastructure upgrades. You can imagine the costs, when we fund The Pas and Wabowden in Manitoba and you multiply that across the country. As you say, it is $123 billion. Over 20 years you are talking about $6 billion a year, with an escalator.

Mr. Steeves: That is the number, I suppose. Our expectations are probably more realistic than that in terms of what other governments can provide.

Senator Stratton: We would all love to do it, but I become concerned because $6.5 billion with an escalator is a lot of money a year. We know it needs to be addressed. Thank you for your presentation, and good luck with what you are trying to do for the citizens of Winnipeg.


The Chair: Before hearing the next senator, I would like to ask a short question about the infrastructure in Quebec.

If we speak about the Quebec bridge and the other bridges on the highways in Quebec, is it the federal government's responsibility to repair those infrastructures?

Mr. Steeves: Yes, of course, I think there is a new program or a new division, in Quebec, so that the provincial government is responsible of the bridges infrastructure especially. I know there is a precise number in Quebec about which the provincial government has confirmed that it was now in charge of the maintenance of those bridges.

My answer is yes, the federal government is responsible for that. He probably may discharge his responsibility by transferring funds to a provincial government to review the infrastructures projects in Quebec. And the provincial government must work with the municipal governments in Quebec to find specific solutions at the municipal level. I am not a specialist of those programs but I think that the provincial government works hard to assume again the responsibility for maintaining bridges which are specific to the province of Quebec. I do not know exactly the number of bridges nor where they are situated. But it's slightly different in Quebec.

I do not know if that's the answer you wanted but yes, there is a role, a responsibility for the federal government. But there is also in Quebec a specific organization which is different from that of other provinces and territories.

The Chair: Thank you. We now will hear a former mayor of Toronto and a former federal minister, senator Eggleton.


Senator Eggleton: You highlight urban transit and the need for a dedicated fund, and I support that fully. The minister responsible for urban matters announced a year ago — I think it was at your conference in Calgary — that there would be an urban transit strategy. In the recent budget, $500 million was dedicated for urban transit.

First, have you been consulted about this urban transit strategy that the minister announced? Second, how does the $500 million relate to the challenge of dealing with urban transit? Urban transit must be recognized in terms of the impact congestion is having on the economy and the environment in our major cities and really does require a fair bit of attention. Could you comment on consultation and how the funds relate to what is needed?

Mr. Steeves: That is another good question. As usual, senators are spot on the issues.

Our organization participated in the setting up of the transit framework. I believe that was the term used by the federal government. We went through the process with the minister and officials. I believe the framework has been set up, to the largest degree, but I will be candid: We are completely supportive of the idea of a framework and a strategy from the federal government — obviously that is a part of any responsible infrastructure program — but we have always maintained, and will continue to maintain, senator, that along with the framework and strategy should come dedicated funding for transit. We are all aware that such funding does not exist at this stage and is not part of the mix.

Having said that, in the last budget there was an allocation of about $500 million toward transit initiatives. There are some relatively tight timelines in place for municipalities to access that funding, which had to be through letters of request by the provincial and territorial governments. The funding flows through that micro process, which I am sure was done at all provincial and territorial levels with participating municipalities. Certainly, $500 million is much better than nothing and the funding is welcome. Our philosophy at the FCM has always been, and will continue to be, that while ad hoc program-based funding is better than nothing, it is not as good as the model of sustained, consistent, year- to-year funding like, for example, the gas tax.

While we applauded the federal government in the budget for putting the funding in place, because it will result in some very good projects, it did not quite go the distance to meet FCM's request for transit funding.

Senator Eggleton: It would barely buy a couple of subway stations in Toronto, but it is a beginning.

My second question deals with the infrastructure funding overall. A few months ago, the government unveiled a $33-billion program that it called the most significant contribution to municipal infrastructure since the end of World War II. However, when you examine the program in detail, you find that the majority of it is a repackaging of programs already in place, such as the gas tax, the GST, and other programs put in place by the previous government.

Also, upon further examination, you find that some of these programs might not be available to municipalities at all or they might have to compete with the provinces for the funding. There was a direct-to-the-province allocation, for example, that is obviously not available for municipalities. I am not sure how much of the Public-Private Partnerships Fund might go to municipalities. As well, there is the Building Canada Fund, which seems to be created by sun-setting the previous Liberal government's provisions for infrastructure. I am not certain how much of that will go to municipalities rather than to provinces.

What is the reaction of your members to funds like the P3 Fund and the Building Canada Fund? Were there consultations? Do you know how much might go to municipalities? Are you being consulted in the design of those programs?

Mr. Steeves: I will speak to this generally and ask for support from my policy associate, Mr. Miller. The Building Canada Fund was announced in Budget 2007, I believe, along with many of the P3 initiatives. Yes, there was consultation, in that we consulted with the Minister of Finance prior to the budget announcement. We had detailed meetings and talked about our issues, so we had an opportunity to go through the process.

The actual development of the Building Canada Fund, when the budget was released, was something of a surprise to the FCM. The program was not a request of our organization, and we did not necessarily know that it would be announced in that budget.

Like many Canadians, we had a sense that there might be a general movement towards P3 project funding or support for P3-type projects and that this federal government might make that a priority. Again, it was not necessarily a request of our organization, although we had had discussions about infrastructure just prior to the announcement. We have always been careful with respect to specific P3s in terms of our consultation. P3 funding, in our experience, which is vast given our membership, can work or not work in the same way that traditional design-build funding can work or not work depending on the project. P3 funding is not new money, and certainly it does not replace the obligation of a municipality to fund something. Ultimately, funding is a game of inches. At times you can do a bit better, but a P3 is not a silver bullet; essentially, it is simply a method of financing. There has been a bit of misunderstanding over the years as to what a P3 is.

The Chair: Could you tell us what a P3 is, to make it clear for the record?

Mr. Steeves: If a municipality needs to build a $50-million bridge, traditionally it tenders the project, three companies bid, and the bid goes to the lowest bidder. The municipality borrows the money and pays the company to build the bridge in 18 months. Then, the municipality will pay off its debt incurred with the lender. That is the traditional design-build method.

A P3 build method is a public-private partnership. For example, when a municipality puts out a tender to build a $50-million bridge, three companies will bid on the project. The company whose bid is accepted will undertake to build the bridge at the company's expense and will own it for 30 years, for example, while the municipality will pay the company for the bridge prorated over those 30 years. Therefore, the municipality is obliged to pay for the bridge construction over the 30 years while the private company is obliged to maintain the bridge. At the end of 30 years, the company will return to the municipality a fully functioning bridge that has been paid off in full. That is the role.

With a P3, there is an ongoing public-private partnership. When the private sector owns and operates the bridge, there might be some competitive value to a private company doing the maintenance on a bridge as opposed to a civic administration doing it. That might be the benefit that could accrue to the municipality. Some examples seem to have worked very well and others not as well, frankly.

Senator Eggleton: I would not mind hearing more about consultation or the flowing of funds under the Building Canada Fund, but you can answer that in a broader question. Your studies indicate that $123 billion is required to correct the infrastructure situation. I also understand that 79 per cent of the service life of a public infrastructure is used up, so the situation is not getting any better and is getting worse. We need a long-term plan. You have indicated that you would like a long-term plan that would take us through to 2025.

I understand that the current federal government commitments would lead to about $2.2 billion per year in federal funding. We need to add provincial and municipal funding to that figure. That has been the tradition of the three-way partnership, plus, perhaps, some private-sector money as well.

How much federal money will it take each year to deal with this $123 billion in a reasonably timely fashion? What is the long-term projection for getting out of this situation?

Mr. Steeves: We are grappling with this ourselves. Prior to the recent GST one-cent cut, we projected, based on the Conference Board of Canada projections, that we were looking at an estimated surplus over the next six years, per year, in the range of $4 billion to $6 billion as a nation, give or take, maybe higher. The combination of the cut of the one point of GST and recent economic projections have brought that back. Our position used to be that as Canadians we had to make up our mind about what to do with the surplus on a year-to-year basis. For example, if we wound up with a surplus of $6 billion dollars over the next six years, what would we, as Canadians, do with that money? In order to appreciably affect our infrastructure deficit, it would probably require $6 billion a year. That is probably not realistic from a political or economic perspective. We were hoping to get an additional something in the range of $2 billion to $3 billion and try to do the best we could with that amount. We are now struggling to reassess our position as Canadians. Will there even be a surplus in the anticipated out years? We do not know that. If there is not, what will we do as a nation?

The Prime Minister has said that potentially, because some room has been vacated by the federal government with the one point of GST, that might free up provinces and territories to pick up some of that room, maybe municipalities themselves. These are some of the things that we are struggling with.

It is amazing how things have changed with the one-cent GST reduction and the changed economic projections. The surplus probably will not be what it was anticipated to be. We might have to look to other levels of government to do that. Previously we were looking to fill that few billion dollars a year at the federal level; that opportunity may still exist but it may not. If it does not, we will either have to re-prioritize within the existing operating budget of the federal government, which is more difficult, or look to other levels of government to backfill that. It would appear, at least in the short term, that the economic opportunity in terms of available funding might not be there. That is why our position prior to the one-cent GST cut was that we might want to think about this before we do it. Having said that, what is done is done.

Senator Eggleton: Too late. I have more questions, but I will yield the floor.

Senator Murray: I will follow up on the reference Senator Eggleton made to the flow of funds under the Building Canada fund. Your federation puts out a magazine called Forum — Canada's National Municipal Magazine. I have the March/April number in front of me. Some of the information here may have been overtaken by events. That is what I want to ask you about.

Apropos British Columbia and quoting Mr. Frank Leonard, Mayor of Saanich, the article states:

``The premier, Gordon Campbell, is a former mayor and believes in local government. He signs off on these things without trying to siphon some of the funds for the province.''

Nevertheless . . . municipal leaders are still waiting for the funds to flow nearly five months after the Campbell government signed its framework agreement. ``We still haven't seen any letterhead with Building Canada Fund on it, or any Building Canada application forms,'' says Leonard.

Indeed, municipal leaders in most parts of the country may be waiting a while before that happens. The federal government signed agreements last year with Nova Scotia (Nov. 9), New Brunswick (Dec. 7) and Newfoundland and Labrador (Dec. 17). Similar accords were signed with Nunavut and the Northwest Territories in February 2008. But negotiations with the six other provinces and the Yukon were ongoing when Forum went to press, and that is testing the patience of some of the country's mayors and councillors.

We are talking about the Budget 2007 and the Building Canada Fund. Can you bring us up to date on where this stands? Is this information still good or has it been overtaken by events?

Mr. Steeves: It has been updated a bit.

Gabriel Miller, Intergovernmental Relations Manager, Federation of Canadian Municipalities: I read a similar exchange in the transcript from a previous committee meeting. For the most part, you have not been overtaken by events, as far as we know. Framework agreements have been signed in a number of provinces and territories, though not all, and not in many of the largest provinces. It is our understanding that no money from the Building Canada Fund has flowed, nor have applications been received nor considered in any jurisdiction, because there are logistical issues in all provinces and territories that need to be addressed before those applications have been received.

Senator Murray: Is the problem at the provincial or local level, or is the problem here?

Mr. Miller: I could not tell you that for sure. What I can tell you is that it is our understanding that following the signing of a framework agreement, contribution agreements need to be in place for the dedicated municipal funding. Those contribution agreements are established between the provincial and federal governments. Whether there is an issue in a particular jurisdiction on the provincial side or on the federal side, I could not tell you. All I know is that those agreements are not yet in place, to our knowledge.

Senator Murray: Fair enough.

Mr. Steeves: I feel confident in telling you I believe the conflict is between the federal and provincial governments, by and large, and has been over the course of the last year across the country.

Senator Murray: Just complications.

Mr. Steeves: If that piece is solved, I think the flow-through from provincial or territorial governments to municipalities will be relatively smooth.

Senator Murray: The money is there; we all know that. However, there is a problem when some communities are waiting, either for the conclusion of framework agreements, as in the case of several larger provinces, or for the flow to start.

There is another fund called the Community Development Trust, a $1 billion fund to help regions and workers who have been negatively affected by the economic downturns.

The Prime Minister issued a press release with the Premier of New Brunswick on January 10 and with the Government of Saskatchewan on January 17. I do not know what has happened since, what other provinces have signed or have reached agreements with the government. This is being run out of the Department of Finance, I think.

It took a separate bill through Parliament to set this up. The bill passed in 11 minutes in the House of Commons. It then came over here. When we presumed to spend a day on it at this committee, one of your more credulous colleagues, the Mayor of Miramichi, was pressed into service, obviously by the federal government or its agents, to send us not quite threatening letters but letters telling us that we had to pass this bill post-haste to get the money going.

I wonder whether any of that money has gone to Miramichi or to any other place since it was announced. What other provinces have signed on? Do you know anything about that fund?

Mr. Steeves: I cannot say that it has been a big issue for us from a national perspective. The program was designed to address specific, regional issues in challenged parts of the nation; the lion's share of the nation probably was not too affected by the funding that was made available.

Some money has been flowing in certain areas, but I do not think there has been a massive let-go of the money into the communities, although I cannot personally account for every dollar. That is the general sense that I get.

Senator Murray: You do not know anything about the details yet?

The Chair: My recollection is that the distribution was $10 million per province and a per capita distribution for the rest. It is significant across the country.

Mr. Miller: On that issue, I think the committee would probably be better informed than we are. Our involvement on this issue has been at the level of principle; we have expressed support for the idea that support needed to be provided. We have also been constant supporters of economic diversification for various regions in the country.

Senator Murray: You take the principled approach and you think it is up to us to get into the down and dirty.

Mr. Miller: Sometimes, yes.

Senator Murray: I will ask you one more question, then.

The Chair: Mr. Miller had a comment on your last question.

Mr. Miller: Whenever you are finished, I wanted to come back to your earlier point about the Building Canada Fund and provide more information.

Senator Murray: That is helpful. Perhaps Councillor Steeves would tell us what he thinks of Mr. Dion's proposal to use any federal budget surplus in excess of $3 billion to address the municipal infrastructure deficit. The first $3 billion of any surplus would go to paying down the national debt. Whatever is left would go to municipal infrastructure.

Mr. Steeves, I see you have applauded his announcement. I think it is probably moot now, since it does not look like there will be much more than $3 billion in the surplus. What is your view of that?

Mr. Steeves: You are right. That announcement was made at one of our conferences here in Ottawa in early February. The laudable initiative, of course, was in lockstep with our policy to meet the infrastructure deficit. We have always stated that we are not in favour of increasing the overall tax burden on Canadians. If there is going to be a surplus, then we should be reinvesting a good proportion of it in infrastructure. Obviously, that policy met that entirely.

As you said, that was then and this is now, to a large extent. Things have changed — two things, primarily. Because of the decrease in the GST and now the combined economic outlook — although I think it is still somewhat up in the air — we have good reason to believe that the economic surplus will not be as robust as we originally thought. It is not that that policy is in any way bad or that we do not support it; however, the surplus might not be there at the end of the day. If that policy were ever put in place and it turned out that it did not actually yield any funding for municipalities, our organization would have to look to a different way of doing things.

We did applaud the policy, but it does lack the certainty and the predictability that we always advocate for in funding for municipalities.

Mr. Miller: I wanted to speak briefly about the Building Canada Fund. The issue came up in the transcripts of the committee's previous meeting; I saw you struggling with it, and it is terribly important. The issue is the delays that come up and what happens during those delays, when construction costs go up and needs go unmet. As in the example that Senator Stratton provided, by the time a project gets delivered, the application may not bear any resemblance to the cost of delivering it. People have gone a long time without getting what they need.

I am of the view that any time you stop and reinvent a federal program and go around the country to talk to every government, it takes some time, which is an argument for not doing that all the time. If you put these programs on a longer-term footing, we will not have to stop every two or three years to have discussions about their most basic makeup. You can adjust, you can measure, you can monitor; but the notion that the money should be there and that there is an ongoing role for these programs is a principle we are willing to embrace. It would eliminate a lot of the uncertainty and delay that plagues these programs. There is also inefficiency, where a huge number of officials need to be engaged in ongoing negotiations for, I would argue, less gain than the effort invested.

I would like to go a step further on the point raised by Senator Murray and Senator Eggleton about the overall scale of the issue and the $123 billion. These are huge numbers, huge challenges; there are climate change and higher regulations, and there will be greater pressures. We are getting to a point where the tools for a significant federal contribution to address this issue are in play. Twenty years of a permanent gas tax will be $40 billion. That is a significant portion of the problem. Permanent application-based programs, the current programs, will provide $8 billion over seven years. If you do those over 20 years, you are starting to get into the neighbourhood of the kind of funding that can make a real difference. What we are missing is a strategy for how those different investments are combined and a commitment to provide them over the long term so that you can make the most of them.

Transit is the best example. This country has made significant federal transit investments over the last four or five years of about $300 million a year, starting with the previous government and continued. However, because they have not been part of a plan and have not been announced over a period of time, the impact of them and their effectiveness in dealing with our needs has been much less than they might have been.

There are tools on the table that can make a huge difference, and there is a real opportunity for groups like this committee and for other decision makers and policy-makers in the city to say that we have some valuable tools here; let us put them to use in the most effective way and see how much of a difference that makes in the issue.

Senator Murray: That is an excellent point. One factor that contributes to reinventing programs — and those of us who are old enough have seen this a number of times — is that when a new government is elected to office, members want to put their own logo on the program, change the name of it, fiddle with it a bit and perhaps do unnecessary consultations, all of which bears a cost. That is your point.

Mr. Steeves: I did not get to this answer with Senator Eggleton, but regarding the new Building Canada Fund, we estimate that of the $33 billion in the fund, about $18 billion is available to municipalities. The balance would be for infrastructure, but infrastructure outside of municipal interests. Municipalities do not use the number $33 billion; we use the number $18 billion, which represents essentially a continuation of the amalgamated pre-existing infrastructure programs prior to the BCF.

Senator Ringuette: Thank you for being here during our study of infrastructure. I was looking at $33 billion, but you just mentioned $18 billion. If I look at the nine-year span of infrastructure programs, at an average increase of $2 billion a year, $18 billion only takes care of the yearly increase over the nine-year period. We are basically back to zero.

Mr. Steeves: It is a rough estimate, and it has to be a bit rough because sometimes it is hard to say what money will actually be accessed by a municipality, because sometimes there are options within programs. Essentially, the money available to municipalities is pretty much the same or maybe slightly augmented as compared to the pre-existing programs, the old MRIF and the Canada Strategic Infrastructure Fund, CSIF, going forward. It is pretty much a rebranding. Hopefully, ultimately the new program would get rid of some of the application-type challenges that existed historically for those programs. That might be one good outcome.

Senator Ringuette: I see in your presentation that you have looked into some of our previous meetings and quotes. You certainly understand that I have some reservations about having eight different infrastructure programs for $33 billion over a nine-year period. All the witnesses who are responsible for delivering the different infrastructure programs across the nation were before us. From my recollection, it seems that only the Province of Quebec has a strategic plan in regard to infrastructure.

Can you confirm that? Is that what you have perceived? Your organization has been working on infrastructure for a long time.

Mr. Steeves: The ambit of our organization is to work for the federal government and federal government- influenced policy. Once it gets to the provincial level, there are, in each province and territory, organizations that work with the given provincial or territorial government, which is outside of our authority. We anticipate that the AMO, the Association of Municipalities of Ontario, for example, or the UMQ, Union des municipalités du Québec, will be the group that will work with the provincial government.

It is probably accurate to say that in Quebec there is a greater degree of provincial involvement in municipal infrastructure and a provincial plan, and there always has been traditionally. It was only in our very recent history that the Province of Quebec even allowed the municipalities to have any direct lean or direct connection with the federal government. We can all imagine the challenges when the Parti Québécois was in power in Quebec with their reticence toward an individual municipality having a direct connection with the federal government when statutorily there is a clear subservience. It has got better in Quebec, but many of the old traditions have still held true. I cannot necessarily criticize them, because in certain circumstances they do work well. The example of the bridges is probably progressive, where the province is taking control of some of the arterial bridges in Quebec because of the challenges that exist and the unfortunate incident in Laval. To answer your question, it is correct to say that Quebec does have more of a provincial strategy.

Senator Ringuette: In regard to strategic planning again, where did you get your number of $123.4 billion?

Mr. Steeves: It is an updated number from our ongoing study. This is probably the third or fourth update of our infrastructure deficit, which was started several decades back. The last update was done in the late 1990s. The team was led out of McGill University in Montreal by Professor Saeed Mirza. The update represented a snapshot in time just last year of the infrastructure deficit. The team at McGill University goes out into the field to municipalities and gets data, which they input into a software program, and the program comes out with an updated infrastructure. We have used the same model for the past three or four gyrations of the infrastructure deficit over the course of the last couple of decades. It is an updated amount.

I want to be clear that within the context of that $123 billion deficit, there are municipal priorities that run the gamut from things that are more urgent to things that are less urgent in terms community safety and health, like any priority survey would have.

Mr. Miller: As Mr. Steeves said, the report was done by Professor Mirza at McGill University. He is one of Canada's leading experts on the state of public infrastructure, and the figure is based on information he has collected from municipal governments. We talk about the number because it is a way of thinking about the size of the challenge we have in catching up on our infrastructure investments. However, Professor Mirza's paper makes an even more important point that is less often talked about regarding the nature of infrastructure investments and capital development. They are inherently long-term. Too often we think of a facility as something built and done. That is the way capital budgets have traditionally worked. However, as we all know, the construction of a capital asset is just the beginning of your financial liability to it. It needs to be maintained and repaired and eventually to be replaced.

The other aspect of Professor Mirza's work that is incredibly important is what happens to repairs and replacements when they are not made in a timely way. Then we see this ski slope of exponential growth in our infrastructure needs, because what could have been a small and relatively manageable repair turns into a full-blown replacement.

That goes to the point about strategy, which you have raised at this meeting and at previous meetings. I cannot speak to the provincial level, but nationally we are looking for a strategic plan to go with the investments Canada is making. The country is making substantial investments in infrastructure. We feel there needs to be more, but if there is a need, we must have a shared picture of that need. Part of what we have said from the Mirza report is that the government needs to do more research. This is just a start of the research that needs to be done. We need a shared understanding of the need, and we need targets and measures to see our progress, so that when we are back here five years from now we can talk to you about the targets set and how well we are doing in meeting those targets, instead of just showing you another big number.

Senator Ringuette: I certainly do not want to be sitting here trying to defend the federal infrastructure program or the federal government policy in regard to infrastructure, but it seems to me that you are saying that we need the federal government to be putting forward a long-term strategy in financial terms. I am looking at municipalities and provinces, because of the different infrastructure responsibilities, and I say you need to know what are your medium- and long-term needs in order to say what the reality is. I am not arguing the $123 billion, but how can we acknowledge that we are going ahead, that things are being done effectively and with priorities if all the players are not putting forth the information, the data that are truly required in order to have a strategic plan?

Mr. Steeves: That is a fair comment, senator. Part of the frustration you are feeling has to do with who is setting the priorities and where the priorities should really be coming from. I want to be careful. We have always said that the priorities should be set by municipalities. It is a little concerning to talk about provincial strategies when we consider that in any given municipality — Calgary, Vancouver, Toronto, Ottawa, it does not matter — the infrastructure priorities are incredibly well set out. You can go to any city or town, and I will use Winnipeg as an example. The City of Winnipeg has a five-year capital plan laid out that is clearly visible for anyone to see at any time. There is no question as to what the priorities of the City of Winnipeg are at any given time. We have been using the gas tax money to simply augment our existing priorities, to expand them and bring them forward in terms of the out years.

I understand the need for provincial-type strategies, but I would not want to ever get to a situation where any provincial strategy would somehow override municipal capital strategies that have been in place for a long time. I do not know if I am misunderstanding.

Senator Ringuette: I think we understand. Municipal infrastructure is as important as provincial infrastructure. That is not the issue. My issue is that $33 billion worth of infrastructure money is out there over a period of nine years in a smorgasbord of eight different programs and processes. The bottom line is that not only does the federal government need to get its act together in respect of infrastructure but also the provinces and the municipalities need to get their respective acts together.

You represent one of the major partners, and you said that the municipalities have five-year planning. Therefore, I believe that you are one of the best stakeholders in this process to have a grasp of the big picture of who needs what municipal infrastructure, the cost of it, and the most efficient way to deliver the programs to attack those priorities. I understand that municipalities in the various provinces have different priorities depending on the state of their respective infrastructures, although water should be their priority. I understand that there is some money, although it might be not much given the incremental cost over the years, but we need to come to one table and deal with this issue. I am reminded of saying the same thing three years ago. We have simply made announcements and given press releases, which do not deliver any concrete, measurable goods to the people of Canada.

Mr. Steeves: Your point is spot on, senator. At the municipal level we advocate the gas tax modelling. Using the old MRIF program as an example, your comments are entirely correct. We get involved in the ribbon-cutting politics and other issues, such as whose riding it is, that no one wants to consider. Compare that to the gas tax funding: we have never heard an argument or a dispute over that, because it flows to the capital plans and projects of the municipalities, and things get done. We love that model as opposed to the alternative.

The Chair: Senator Ringuette, if you have another question we might have a little time on the second round.

Senator Di Nino: Welcome, gentlemen, this is an interesting meeting. I will ask for clarifications of some of your comments.

Mr. Steeves you said that of the $33 billion, $18 billion is going to the municipalities.

Mr. Steeves: That is our estimate.

Senator Di Nino: Where is the other $15 billion going?

Mr. Steeves: We anticipate that it will be for other infrastructure priorities at either the federal or the provincial level. For example, provincial highways are priorities as well, but for the most part trunk highways in provinces are not municipal responsibilities. When municipalities talk about trying to meet their infrastructure needs, they are not talking about that specifically. I am not saying that it is not a worthwhile project, because I am certain that it is.

Senator Di Nino: It is important to make that distinction, because those highways still serve the people of those municipalities. You do not approve the projects or spend the money, but the $33 billion is earmarked for projects to serve your people.

Mr. Steeves: That is precisely correct, where it is highways or port funding.

Senator Di Nino: Without the roads, people cannot come to Winnipeg.

Mr. Steeves: I do not disagree.

Senator Di Nino: You said that there is a 2 per cent budget per month for infrastructure. Could you explain that?

Mr. Steeves: Simply put, and this is grotesque, if a municipality anticipates today that a project will cost $1 million and we go to tender, we have to add 2 per cent on to that number in one month's time. That is the anticipation of inflation.

Senator Di Nino: You are saying that the rate is 2 per cent per month and 24 per cent per annum.

Mr. Steeves: I regret to say, yes, that is the percentage.

Senator Di Nino: We can check that because it seems a little high. You talked about last year being a sea change. What was the reference?

Mr. Steeves: I believe I was talking about the permanence of the Gas Tax Fund.

Senator Di Nino: You mean making the tax a permanent feature.

Mr. Steeves: It is a favourable comment in that respect.

Senator Di Nino: I want to ensure that is what you said.

Mr. Steeves: Yes.

Senator Di Nino: It was dealing with that particular issue.

Mr. Miller: I understand the frustration that people have and why they seem to blame the federal government for every problem and wait for the federal government to solve the problems. I want to make the point that the country has made tremendous progress with this kind of policy, and the prospects for continued progress should be good. In the early 1990s, when the first infrastructure programs were introduced, they were entirely application-based and the real focus was economic stimulus. More and more they became focused on infrastructure, and the previous government introduced the gas tax, and the sea change made that permanent. We have seen an evolution in the federal government's role, and that meeting around one table could be getting closer and closer. There is a lot to be encouraged by, given the positions taken by all parties on this issue and the work done by a number of governments. It is encouraging for what might lie ahead.

Senator Di Nino: I will pick up on Senator Ringuette's point. The report that you commissioned indicated that the infrastructure in this country is near collapse. I believe you said that 79 per cent of it has collapsed. What led us to that point? I would like you to address the areas of responsibilities and where the different levels of government failed.

Mr. Steeves: I will tell you what I believe happened, senator, and it will take me 30 seconds. In the post-war era, when everybody returned home, there was a massive building of infrastructure right across the board at all levels of government. Everyone was investing in infrastructure and going into heavy debt. Then, the chickens came home to roost. Provincial governments were able to right their revenue ship by augmenting provincial sales taxes. Over time, they got their financial house in order. Then, the federal government struggled for a long time with massive debt until the early 1990s when the GST came into force. That allowed the government to get itself into a much better revenue position. Throughout that same period of time and despite the fact that they had the same time pressures, municipalities have never evolved to that different fiscal model. To this day, they rely on property taxation to fund these massive and expensive infrastructure projects. That is why municipalities have evolved with such a need to work with other levels of government to backfill their financial needs.

That is a gross oversimplification, but it is my economic theory that bears truth as to how this nation, in the broadest strokes, has come to be in this condition. Municipalities have been trying to pay for $50-million bridges on the backs of homeowners who pay about $2,000 per year in property tax. The model does not work. The federal and provincial governments have recognized it, to a degree. That is why the new programs are coming into place, but it is not a sustainable financial model.

Senator Di Nino: Everyone is at fault, I suppose.

Mr. Steeves: Yes.

Senator Di Nino: When you have a big problem, someone has to take responsibility for it. That is why we should say that all levels of government have some responsibility to bear on this. We should admit it so that we can try to fix it.

I want to deal with one other comment that you made, which was that the priorities of the provincial government must not come above the priorities of the municipalities. How does that happen when the municipalities are a creation of the provincial governments? How does the federal government deal with that jurisdictional problem?

Mr. Steeves: If money were to flow to the provincial governments, they could make a choice between provincial priorities, such as highways, or municipal roads and bridges, which also need work. That is the first area of concern, and it does work in most provinces and territories. Historically, we have seen problems from time to time, but we would like to see flow-through funding, simply put. For example, if money is allocated to the City of Toronto at the federal government level that has to be administered by the provincial government, then that is the way it is and that is fine. However, an appropriate percentage should flow through to the City of Toronto, which has done all of the legwork historically for setting their five-year capital plan; and those priorities should be addressed. If there are specifics for transit, then we can focus on transit.

Senator Di Nino: The jurisdictional issues will always be part of the problem. Obviously, we have a serious problem that needs to be fixed. The near collapse cannot become the collapse, because that would create calamity. An incredible number of priorities are screaming for help. We talked about infrastructure and transit, social services, education and arts and culture, which also need funding. Environment requires assistance, as does community safety, and there are unexpected costs, such as flooding.

Mr. Steeves, I believe you said that money should be streamed to specific areas. Could you talk a little more about that as advice to this committee in preparation for our report? Should each one of those elements have its own stream? Do we need a provincial government if we do that?

Mr. Steeves: We talked about specifics for transit funding, and you understand how we could stream toward that.

Senator Di Nino: As well, you could stream toward social services, and we do that in some cases.

Mr. Steeves: The FCM's suggestions for streaming are as follows: We talked about the transit issue and about the housing issue, which is a little bit off the beaten track in respect of traditional infrastructure. Currently, the federal government is in the process of reviewing housing funding initiatives that are set to sunset in March 2009. It has not said that it will discontinue the programs, but they are under review. Again, that is a specific method of streaming. We know that regulations are coming into place for waste water funding and water treatment funding, which can be specifically streamed.

If we are to stream, we have to be careful and mindful that depending upon the region, the province and the territory, streaming can get in the way of equal distribution of the funding. We must be careful of that problem. Our preference with streaming is that we remain mindful of all those things to ensure that there is not disproportionate distribution of the money across the country, because that has happened in the past. Different places have different needs.

If the funding is set up properly with a reasonable amount of effort, it can be aligned to reach the provinces through which it has to flow invariably to the specific programs. I have always maintained that if a city receives funding for any specific program — transit, for example — you can plug that into the municipal infrastructure model to take the pressure off. Then, the municipality can move forward with other needs. Even if you do not get the full plethora of program funding for every single thing, every bit of funding helps.

Whether it is rapid transit programming or land planning issues, there is funding available. Those things all work. However, the overriding principle is the direct connection to municipal priorities. Funding will flow through and find its way into the municipal realm, which will help regardless of the program.

Senator Di Nino: I know that this is not a federal responsibility, but do you think that municipalities should have taxing powers?

Mr. Steeves: Do you mean beyond the powers they have right now?

Senator Di Nino: Yes.

Mr. Steeves: Speaking personally, because it is not FCM policy, it would not be a bad thing if the City of Winnipeg were suddenly to receive back a dedicated portion of the provincial sales tax that is raised in the City of Winnipeg. In my estimation, that would provide a more entrepreneurial administration instead of an administration looking to expand its revenue base by building in the suburbs. The city administration would be more interested in getting more conferences, more tourism and more businesses to come to the centre of the city. The city's perspective would be more entrepreneurial. I speak to those things on a personal basis rather than on the basis of FCM's administrative policy.

Senator Eggleton: Picking up on Senator Di Nino's intervention, the needs at the local level of government far exceed the resources. When you have such a reliance on property tax, you cannot do it all. This committee put out a report one year ago on fiscal imbalance after we dealt with the horizontal imbalances and equalization, after which we went into vertical imbalances. If there is a vertical imbalance anywhere, it involves municipalities.

We talked earlier about Mr. Dion's suggestion that anything over $3 billion annually go for infrastructure, but that is not exactly looked upon as a big source of revenue, given the fiscal condition of the federal government at the moment. We talked about the Gas Tax Fund, which is popular with municipalities. Perhaps we need to look at a greater share of that, which can come to the municipalities by two means: increase the percentage of what is collected, except that something else suffers as a result, or add to the gas tax. Given the price of gas these days, that might be the one of the most unpopular things you could do.

I have another idea that you might not warm to. Would the Federation of Canadian Municipalities be willing to go on record as asking the federal government to reinstate one cent on the GST? That one cent, which equates to about $5 billion per year, could go to meeting the needs of municipal infrastructure. After all, the one cent is hardly noticeable to anyone. On the other hand, that $123-billion deficit reduction will have a big impact, not just on cities, because it is everyone's impact in the country in terms of the economy and the environment. Would you be willing to go on record asking for that?

Mr. Steeves: I cannot go on record and ask for that. The reality is that before the last penny was cut from the GST, at our annual general meeting, FCM accepted as policy that if the one cent were on the table for discussion, our preference was that it not be cut and that the proceeds be flowed to municipal infrastructure and priorities. We met with the Prime Minister and had a candid face-to-face conversation about this. He said that a cut to the GST was his promise to the citizens of the country and he intended to follow through with it; and he did, so I guess there were some policies at cross-purposes at the time. Sensing that in all likelihood the federal government would cut the GST by one cent, FCM evolved our policy to an equivalency amount; if revenue exists that is not required by the federal government, it could be flowed toward municipalities.

Senator, I cannot say that I am willing to go on record as asking that because the policy of the Federation of Canadian Municipalities is such that there should be no increased tax burden on the taxpayer in Canada and that existing revenues should be shared. Simply put, it is not FCM's policy to ask the federal government to put that one cent back on the GST rate. I am sure there are members across the country who would agree with that sentiment, but I cannot put it forward as organizational policy because it simply is not.

At the risk of sounding like I am evading the question, I am the organizational president and I do not have the liberty to make policy on the fly.

The Chair: Thank you, Mr. Steeves and Mr. Miller. Your representation here today was most helpful and brought back memories of the earlier work we had done, as Senator Eggleton had mentioned, with respect to fiscal, vertical and horizontal balances; that report is on our website. We hope to have another report out with respect to infrastructure in the next few weeks, and your contribution has been important. You are our last witnesses in relation to this study.

Mr. Steeves: We follow closely the work of the committee. We have been pleased with the work of the committee. We have found the committee to be supportive and we appreciate the positions taken by this committee. We have found them to be helpful in advancing the issues.

The committee adjourned.

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