Proceedings of the Standing Senate Committee on
National Finance
Issue 6 - Evidence - May 11, 2010
OTTAWA, Tuesday, May 11, 2010
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to examine the Estimates laid before Parliament for the fiscal year ending March 31, 2011 (topic: stimulus spending).
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Honourable senators, I call this meeting of the Standing Senate Committee on National Finance to order, and I thank all honourable senators for being here this morning.
[Translation]
This morning, we continue our study of the Main Estimates for the 2010-2011 fiscal year that were referred to our committee.
[English]
This committee has had nine meetings in relation to these Main Estimates for this fiscal year, and we will continue to examine them over the course of the fiscal year.
We will be focusing our attention this morning on the stimulus spending announced last year. It is a two-year program intended to deal with the financial crisis. Officials from Infrastructure Canada appeared before this committee on November 3 last year to update us on their work, and we are very pleased to welcome them back this morning to continue that dialogue.
In the second half of this meeting, we will hear from representatives of the Canadian Construction Association and the Federation of Canadian Municipalities, who have publicly expressed some concerns with respect to deadlines associated with the stimulus funding. Honourable senators will appreciate that this stimulus program, and the infrastructure aspect in particular, was a first-time affair; we have never had that kind of economic crisis in the past. Therefore, there are bound to be some hiccups, and some adjustments will need to be made with such a program. We are following it very closely since a significant amount of public funds is involved.
To begin, we are pleased to welcome back from Infrastructure Canada John Forster, Associate Deputy Minister; Taki Sarantakis, Assistant Deputy Minister, Policy and Communications Branch; and Bryce Conrad, Assistant Deputy Minister, Program Operations Branch.
Colleagues, we have one hour for this session, so we will start with introductory remarks from Mr. Forster. Those have been circulated. Then we will proceed to a question and answer period. The floor is yours, sir.
John Forster, Associate Deputy Minister, Infrastructure Canada: Thank you, Mr. Chair. It is our pleasure again to be here today to update the committee on Infrastructure Canada's progress in delivering the economic action plan.
[Translation]
When we were last in front of this committee, in November, we were in the midst of delivering Infrastructure Canada's programs under Canada`s Economic Action Plan, introduced by the Government in January 2009.
[English]
Our responsibilities under the plan are twofold. First, the government committed to accelerating over $10 million in existing infrastructure spending under the seven-year Building Canada Fund and the Provincial-Territorial Infrastructure Base Funding. Second, you will recall the plan included almost $12 billion over two years for new infrastructure initiatives to provide timely stimulus to the economy. Infrastructure Canada is responsible for about $5.5 billion of this funding.
[Translation]
The two flagship initiatives under Canada`s Economic Action Plan that we manage are the $4 billion Infrastructure Stimulus Fund and the $500 million top-up to the Communities Component of Building Canada for projects in small communities.
Since the announcement of the Canada`s Economic Action Plan on January 27, 2009, we have moved in record time to put these funds to work.
[English]
Two months after the budget, on April 7, 2009, the first agreement for this Infrastructure Stimulus Fund was signed and announced in British Columbia. At the same time, the federal and provincial governments announced a series of projects under the fund, such as the replacement of the Old Capilano Bridge in Vancouver.
Infrastructure Canada moved quickly to sign agreements with all provinces and territories, leveraging additional investments to stimulate the economy. Since January 2009, we have approved over 6,100 infrastructure projects, both by accelerating existing programs and under the new stimulus funds. This represents a combined investment of over $28 billion, with a federal contribution of $9.7 billion.
I am pleased to report that work has already started or is completed on over 3,700 projects across the country, valued at $17.8 billion.
[Translation]
Now, I understand the Committee is interested in discussing the end of the program on March 31, 2011, so I would like to take a minute to address this.
[English]
The intent of the action plan was to provide timely, targeted and temporary stimulus to the economy over a two- year period. The deadline of March 31, 2011, was established to ensure the stimulus spending would happen quickly when the economy needed it most.
Projects needed to start quickly and be substantially completed by the deadline. This was a key criterion for the stimulus funds, but not for the regular programs. When proponents — provinces, territories, municipalities and non- profit organizations — applied for funding, they formally attested that their project could be completed by the deadline. The conditions of the program were made clear to everyone and are reflected in all of our contribution agreements.
[Translation]
We established a streamlined approval process so proponents were able to tender immediately and begin construction as soon as their funding was announced.
[English]
Last year, at the annual meeting of the Federation of Canadian Municipalities, FCM, the minister met with the executive and, after hearing their concerns, provided some additional flexibilities under the program. He agreed not to claw back federal contributions to projects that were not finished by the deadline. This means the Government of Canada will provide its share of all costs incurred as of March 31, 2011, but our funding does not go beyond that date.
It is also important to note that the Infrastructure Stimulus Fund is not the only option for funding infrastructure projects. The seven-year, $33 billion Building Canada plan announced in 2007 will continue to provide funding to provinces, territories and municipalities in support of projects that have longer construction timelines, out to 2014. The federal gas tax transfers to cities will continue at $2 billion a year. Money from this fund can be pooled, banked or borrowed for future projects as municipalities see fit.
We are very proud our partners have all moved so quickly. This has been a true national partnership with provinces, territories and municipal governments, and it has moved at unprecedented speed. Our partners have already completed close to 900 projects across the country. For example, a brand new community centre in East Hawkesbury, Ontario, has opened. A new fire hall was built in Three Hills, Alberta. The Bellechasse bicycle route in the Chaudière-Applaches has been improved. Route 10 in New Brunswick and Highway 102 in Nova Scotia have both been repaved and rehabilitated.
[Translation]
As you can see, much has been achieved since we last met. But that does not mean there is not more to be done. We are working very closely with provinces, territories and municipalities to monitor progress on our investments and to ensure that claims are processed as fast as possible.
[English]
My colleagues and I are at your disposal and pleased to answer your questions.
The Chair: Thank you very much, Mr. Forster. We appreciate your bringing us up to speed on what you have been doing. To clarify something, you talked at the beginning of accelerating existing infrastructure programs of $10 billion. Then you spoke about the new initiative of $12 billion under the stimulus package, with the two programs in particular that you highlighted: communities and infrastructure. Toward the ends of your remarks, you talked about the seven- year $33 billion Building Canada Fund. Was that part of the $10 billion accelerated?
Mr. Forster: Yes. There were two tracks in Budget 2009 for us to follow up on. There was a First Ministers meeting in January 2009 where the premiers and the Prime Minister agreed on an action plan to accelerate what was a seven- year fund.
Part of our responsibility under that action plan was also to speed up that seven-year funding. Therefore, for example, every province gets $25 million a year for seven years under the provincial-territorial base funding. We offered to all provinces that if they wanted to have it over this year and the next, we would provide the full seven-year funding in two years. Some of them have taken us up on that offer to accelerate all or part of it.
Regarding the Building Canada Fund, we have fully committed the communities component, which is the part of the fund for cities under 100,000. We were looking at doing that seven-year program in two or three rounds of applications; we have done it all in one. That money has all been committed and approved. Those projects do not have to be completed by 2011. The seven-year funding is for longer-term projects.
In addition, there is over $7 billion for large projects under the Building Canada Fund, such as the Sheppard Avenue East Light Rail Transit in Toronto or the Evergreen Line in Vancouver. Those projects will take several years to build, so funding will flow over the time period.
The Chair: This committee looked into infrastructure projects previously and generated a report explaining all the different infrastructure programs. A large schedule of programs has been approved. Is it correct that Infrastructure Canada looks after only a portion of the infrastructure programs in Canada?
Mr. Forster: Yes, that is correct. Under Canada's Economic Action Plan, other infrastructure funds were announced for which we are not responsible. For example, the approximately $500-million Recreational Infrastructure Canada program is managed by regional development agencies across the country. The Knowledge Infrastructure Program, providing funding to universities and colleges, is managed by Industry Canada. We manage approximately $5.5 billion of the $12 billion.
The Chair: How much of the $12 billion over two years is still available that has not been spent?
Mr. Forster: I cannot speak for the funds for which we are not responsible. Of the funds we manage — the $4 billion Infrastructure Stimulus Fund, the top up for the small communities fund and the National Trails program — all of our stimulus funding is approved and fully committed to projects.
The Chair: How much of the accelerated $10 billion approved by Parliament is now committed?
Mr. Forster: I would have to find the exact amount. A little over $1 billion is committed and approved for small communities. A condition to access the $500 million top-up was that you had to agree to approve the long-term program. The rest of that fund has large strategic projects, such as large highway and water treatment plants. I believe about 90 per cent has been committed to projects at this point.
The Chair: Could you provide to our clerk for circulation to all committee members an analysis of the programs and how much is committed to date?
Mr. Forster: Yes, I would be happy to.
[Translation]
Senator Poulin: Thank you very much, gentlemen, for coming here. This program benefits a number of small and large communities across the country. Most likely you have already answered this question, given that you have already appeared before the committee, but would you be so kind as to explain to us the procedure that is followed when a city like Sudbury wants to participate in the infrastructure program?
Bryce Conrad, Assistant Deputy Minister, Program Operations Branch, Infrastructure Canada: It depends on the program. Are you referring to the $4 billion Infrastructure Stimulus Fund?
Senator Poulin: I am.
Mr. Conrad: We come to an agreement with the province of Ontario. Working with the province, we identify a number of projects. A call for proposals went out across Ontario in April 2009. All Ontario municipalities could submit bids over the internet. In all, we received 2,600 project proposals. Over a five-week period, we analyzed each project with an eye to environmental concerns and recommendations were made to the minister on or about June 1.
Senator Poulin: And the only criteria were environmental in nature?
Mr. Conrad: No, there were other criteria.
Senator Poulin: Such as?
Mr. Conrad: One was that the proposal must be for a new project with a March 31, 2011 completion date.
Senator Poulin: So then, projects were required to be completed by March 31, 2011.
Mr. Conrad: That is correct. If the scheduled completion date was later than March 31, 2011, then the projects were rejected.
Senator Poulin: On average, how much time elapses from the moment a request is submitted by the municipality until final approval is given? How long does the process take?
Mr. Conrad: In Ontario?
Senator Poulin: Yes, in Ontario.
Mr. Conrad: The entire process can take five or six weeks.
Senator Poulin: Still with respect to Ontario, approximately what percentage of these projects were public-private partnerships, or so-called P3 projects?
Mr. Conrad: Very few of the projects were P3 projects, as these are more complex and always require more time. Lawyers need to be consulted and agreements need to be reached with the private sector.
Senator Poulin: Indeed, lawyers always slow things down, if I may say so!
Mr. Conrad: My wife is a lawyer, so I am well aware of that! P3 projects are much more complex. We have a number of such projects in the works with Building Canada which, as Mr. Forster pointed out, is a much larger program.
Senator Poulin: Mr. Forster, are you responsible for high-speed internet infrastructure projects or is that a completely separate area?
Mr. Forster: Details of a separate broadband project were announced in the Economic Action Plan in January 2009. Industry Canada has a budget of $225 million for that initiative. Funding for the Eastern Ontario Broadband Project will be provided under the Building Canada program. However, I do believe the three-year Infrastructure Stimulus Fund is managed by Industry Canada.
Taki Sarantakis, Assistant Deputy Minister, Policy and Communications Branch, Infrastructure Canada: Industry Canada has a dedicated fund to extend broadband services. However, Infrastructure Canada provides a similar type of funding for broadband services.
[English]
Senator Ringuette: You state at the bottom of page 2 of your presentation that you are responsible for $5.5 billion of the infrastructure funding. Only $4.5 billion is identified on the top of page 3. Where is the other $1 billion?
Mr. Forster: The other $1 billion is for the Green Infrastructure Fund, which was also announced in Budget 2009, for environmental infrastructure projects. The Green Infrastructure Fund will flow for five years, which is somewhat different from the rest of the stimulus funds, which are only two years.
Senator Ringuette: How much of the Green Infrastructure Fund has been allocated?
Mr. Forster: Approximately $625 million of the $1 billion has been allocated.
Senator Ringuette: In one and a half years?
Mr. Forster: Yes. It is two thirds of the five-year fund.
Senator Ringuette: Can you provide a list of the projects approved and their locations?
Mr. Forster: Yes, absolutely.
Senator Ringuette: On page 4 of your presentation, you said:
Last year at the annual meeting of the Federation of Canadian Municipalities, the Minister provided additional flexibilities under the program. He agreed not to claw back federal contributions to projects that are not completed by March 31, 2011.
However, in the next sentence you say:
This means that the Government of Canada will provide its share of all costs incurred as of March 31, 2011.
Perhaps I am not reading this correctly, but on the one hand you say the minister has promised the municipalities more flexibility, yet on the other it will not provide for funding after March 31.
Mr. Forster: When the program was first announced, for projects that did not substantially finish by the deadline, the federal government could actually take back any money it had provided to the project. Let us say you had a project of $10 million and you did not finish by the deadline; we might have flowed you progress payments of $6 million out of the $10 million. Originally, we had the option of taking back the $6 million we had already provided. The Federation of Canadian Municipalities raised that as a serious concern, and the minister agreed and said he would not do that.
At the moment, we have two years of funding. We do not have funding beyond March 31, 2011. We are allowed to share costs up to that date. We will not claw back money we have already provided to the project.
Senator Ringuette: No, but you have provided money for the work that has been done, because we are talking about progress reports here.
Mr. Forster: Yes. We will share costs right up to March 31. We generally pay usually a third of municipal projects. The municipality builds it, incurs costs, and submits a claim to us for costs incurred; we will reimburse a third of the cost, and the province reimburses a third.
Senator Ringuette: What is the time frame between when you receive a progress report and a request for your share of the contribution and when the payment is made?
Mr. Forster: Most of the money flows through agreements with the provinces, which then flow the money to municipal governments. They submit claims to us quarterly; each quarter they provide us with a progress report and a claim. Once we have reviewed the claim to see that it is clean, complete and accurate, we will flow the money within 30 days.
Senator Finley: I have a supplementary question. I want to understand the payment system. Let us say a program was 33 per cent of the way through at the end of March 2011 and that the federal government was not paying its entire third. Then subsequent to that, the province and the municipalities would pay the remaining two thirds in order to maximize the use of federal money by March 2011. Is this staged in an equal fashion — one third, one third, one third — for each of the quarterly payments? Is that the way it works?
Mr. Forster: That is right. We pay a third of costs incurred. We reimburse the costs, and we can do so only on costs incurred up to March 31, 2011, not future costs.
Senator Ringuette: It would be ideal, Senator Finley, to have the first portion of the costs of a project receiving the federal contribution, so at least it would be provided for entirely.
Mr. Forster, correct me if I am wrong, but rarely is a major project completed within the time frame estimated. There are always unexpected elements that arise, and even sometimes the unexpected element is Mother Nature, which no one can control. Yet, the federal funding portion of these projects that have already been started will not be available after the end of March.
There was flexibility in last year's budget. I really do not see why you do not know exactly the amount of money the federal government has contributed to the different programs you administer. We have seen this before, money being put aside into a reserve if it was not allocated in the same budget year. Sometimes a department retains 10 per cent in operating expenses. Why not provide the same true flexibility? This clawback was honestly ridiculous. Provide true flexibility so that we will at least have completed infrastructure projects that have been funded by these programs.
Mr. Forster: I have a couple of points in response. Under the Infrastructure Stimulus Fund, we were generally looking at projects that could be completed within a two-year period. Normally under our regular programs, we are looking at larger projects that will take much longer to complete. The stimulus fund was very much intended to do rehabilitation, repairs, and those kinds of projects. For instance, the Spadina subway line in Toronto will not be built in two years. It is a five- or six-year project, and that is the home for those larger projects that take a long time.
The stimulus fund and the whole economic action plan, as the government announced in the budget, was designed to provide very temporary stimulus to the economy. Therefore, we really looked at projects that could be built within the two-year period, such as more repair work, rehabilitation, repaving of roads, fixing buildings, et cetera, that we normally would not fund in order for the projects to be completed.
The government announced in this year's budget that the action plan is there to provide a temporary stimulus and to be wound down so that the government can begin to move to fiscal balance. It was temporary and therefore time- sensitive. It is different from our normal infrastructure programs.
Senator Ringuette: I still reiterate the fact that it would not be unusual within the budget framework for your department to keep a reserve for future payment, as long as the projects are completed. I think that would be reasonable. I do not think it is reasonable to start a project and commit funds to it and, at the end of the day, not deliver on the funds you have committed because of a March 31 deadline. That is my own opinion.
Senator Dickson: Could I ask a follow-up question?
The Chair: Remember, we have only an hour. Are you giving up your time now?
Senator Dickson: Yes, I will use my time now.
Mr. Forster, I want to follow up on Senator Ringuette's and Senator Finley's lines of questioning with regard to the March deadline. Have you done an analysis of the projects to determine what the risk factors are and what projects will likely not be completed by that date? Could you quantify that in dollar terms so that we see what the exposure of the contractors is?
Following you this morning will be the municipalities and the Canadian Construction Association, and I am concerned about the risk factors and the liabilities they may be incurring. Likewise, lawyers will be making a lot of money here.
Mr. Forster: We do work with the provinces and the municipalities to monitor progress on projects. At this point, we have not received any formal notification of projects that will not be completed by the deadline.
Senator Dickson: Excuse me for interrupting, but that is not my question. Forget about getting information and questions from them. Have you done your own analysis?
Mr. Forster: We do so based on the information provided by the people who build the projects. We do not manage the construction. They provide quarterly reports to us, which we review and analyze. We then sit down with the provinces and municipalities to discuss progress or the projects at risk. At this point we do not have a formal notification from provinces or municipalities as to specific projects that will not be built, but we manage it closely and carefully with them.
Senator Dickson: When you approved the initial funding, you looked at whether it is realistic, considering all of the factors, to have completion by the March deadline?
Mr. Forster: Yes, we did that. Some projects we feel are easily managed, and others could not be built. When they applied to the fund, proponents attested that they could build their projects in that two-year period. If it was a high risk for them, this was not the right fund. There are other programs that should be applied to for a project that will take longer. There were projects we did not approve; for example, we felt it was not feasible to build an $80 million new building in a two-year time period. As I said, we monitor closely with the provinces and municipalities and discuss projects where we feel there may be risk and then work with them to see, as much as we can, what we can do to help.
Senator Finley: First, when this program started, or last year, the opposition in the House of Commons was screaming blue murder that it was taking too long to introduce the programs and projects, and now it would appear to be complaining that the programs are finishing too quickly, kind of a push-me-pull-you sort of operation.
Based on the planning, not the numbers you are giving us, you must have had some sort of project map that set out on a per date basis how many projects would have been launched or the dollar value of the projects that have been launched. Where are you on that particular project map?
Second, how many employees are involved at Infrastructure Canada in putting this extraordinarily large, short- term, one-time project together? As well, could you give me an idea of how significant this task has been for your department to undertake?
Mr. Forster: With respect to the first question, when people applied, they gave us construction start dates and so on. Provinces provide us a quarterly report. In Ontario, for example, the projects we do with municipal governments flow through the province. The province matches our funding and provides it to the municipalities. The municipalities give updates to the Ontario government on their projects, and Ontario reports quarterly to us on progress. Some projects started ahead of schedule; some projects are completed; and some, yes, are moving behind schedule.
If a project started a month or two late but was planning to finish this October, that is not a concern because it will still make the deadline easily. We do a risk analysis and talk to the province about projects that are starting late and whose original completion dates are close to the end of the program. We talk about what we can do with them and the municipality to help.
Senator Finley: Would you say your plan to roll out this additional stimulus money is 80 per cent of where you expected to be at this point in time, or 90 per cent or 100 per cent?
Mr. Forster: I am not sure I can give you a percentage number on where we think we are. As I said, at this point in our review with provinces we have identified some projects that are high risk, which we are talking to them about. Maybe 1 per cent of the 4,000 projects we are doing under the stimulus fund we think are high risk, and so we are working with them on those. It is not huge. The others are kind of a low to medium risk, and we will continue to monitor them closely.
On your second question, I would say the entire department is engaged on the economic action plan. We are a small department of about 300 people, but we have been managing infrastructure programs for 10 or 15 years. We have very good relationships. Again, we are not the contractors and builders; we do it partnership with provinces and municipalities. They have a lot of competency themselves.
We have grown in the past year. We probably augmented our staff by a third to be able to deliver. We invested a lot in our audit function to ensure we have good controls in place. We created a separate group that was headed at the time by an assistant deputy minister just to do the stimulus fund, so we ramped up quickly to ensure we had the capacity to deliver these programs. The entire department is very focused on just delivering the new programs in Canada's Economic Action Plan and accelerating the existing ones.
Senator Finley: I come from a very large, rural area in Southwestern Ontario with significant infrastructure problems, whether sewage or recreational facilities or whatever. I know we read about some of the very large infrastructure programs taking place in major urban centres, but could you tell me what the impact of the stimulus package has been on rural Canada or address that as a particular issue, including the number of projects, the kind of projects, employment, and so on?
Mr. Sarantakis: In some ways, the stimulus program is actually more suited for rural Canada than it is for larger cities, because the projects tend to be smaller, less complicated and able to get done faster. The stimulus program has been a big boon to rural Canada, not only because of the rapidity of construction and job creation and the like, but also because of what those projects leave behind: better roads, sewers, water, waste water systems.
We know that to the extent that there is an infrastructure deficit in Canada, it tends to be more pronounced in smaller areas because they have less fiscal capacity and smaller populations, so the stimulus spending has been a nice complement to the other larger infrastructure projects that tend to go to larger areas.
Senator Peterson: When municipalities completed their design and their environmental studies, got their financing in place and were ready to go, they still could not start until they got final approval from the federal government; is that correct?
Mr. Forster: Yes. In the stimulus program we changed the approval process. Often in our longer programs, we would approve it, then you would wait until there was announcement, an environmental assessment and a contract was signed. With the stimulus fund, and we worked closely with the Federation of Canadian Municipalities on this, once the announcement was made, then people were given the green light to start their projects. When we announced it, we knew the environmental assessments were all done and it was either exempt or under the regulations or approved. We put out a communiqué jointly with FCM last year and talked to provinces so that municipalities could start.
Senator Peterson: You talked about "completion" and "substantial completion." Is there any relevancy to those terms? You also indicated this morning that you will pay whatever is incurred to March 31; is that correct?
Mr. Forster: That is right.
Senator Peterson: If materials and equipment are ordered and paid for but not on site, would that qualify?
Mr. Conrad: I think the definition we have used consistently across the country with our provincial and municipal partners is substantial completion, which means that the project is open to the public and is in use. For example, for highway construction, the landscaping might not be complete along the road, but the road would still be open to the public and in use. That would be considered to be substantially complete.
There is a requirement under our agreements with provinces and municipalities that a certified professional engineer attest that the project has reached substantial completion. Again, we are relying on the provinces and the municipalities to attest to that point.
Senator Peterson: If it is not substantially completed, what does that mean?
Mr. Forster: We will still pay our share of the costs incurred and paid by the proponent up until midnight on March 31, 2011.
Senator Peterson: What about equipment and materials that have been ordered and paid for but are not on site?
Mr. Conrad: That project would likely not be considered to be substantially completed, and those costs would not be paid.
Senator Peterson: You just said that completion does not mean anything because it is March 31. I do not understand what you are saying. You are saying two different things. Either you will pay or you will not.
Mr. Forster: We will pay for costs incurred up to March 31.
Senator Peterson: Including equipment and materials ordered and paid for but not on site?
Mr. Forster: If they have paid for it, we will pay for it.
Senator Peterson: There is a strong possibility that a number of projects here will not be completed. When that date comes, the municipalities will not have the money. The provinces might, but that is questionable. What is your plan for dealing with that, or do they just stop? Do you have a plan? Will there be a plan?
Mr. Forster: We flow the money through our agreements with the provinces. Ontario, for example, has made a similar point in its budget this year; the province was clear that it does not have money to go beyond March 31. For the provinces, the stimulus money needs to be temporary and time-limited. We will pay our share of the costs incurred up to March 31, and the proponent will finish the project. I do not have money after March 31.
Senator Runciman: I think your approach to this is responsible. We are talking about taxpayers' dollars here. Having this kind of deadline with the advance notice that has been provided is the responsible way to approach this use of tax dollars.
I would like to know your experience with some of the larger projects, but I do not want you to limit your response to significant projects. For large projects, I assume that all provinces have a limited list of pre-qualified bidders. A number of years ago, Ontario was engaged in many capital construction projects and was dealing with a small group of firms that qualified to bid. Consequently, the bids went through the roof. Has the two-year focus on getting these projects up and running and completed had an impact in terms of cost overruns and bid prices that are significantly higher than earlier estimates?
Mr. Conrad: That is an interesting question, senator. We have not seen the cost escalation through our partners; we have seen the reverse. We have seen a number of provinces getting good tender prices across the country. For example, they estimated a project at $2 million; it came in at $1.4 million. We allowed them to reinvest and allocate the remaining $600,000 to another project.
We have seen significant savings in British Columbia, Alberta, Saskatchewan, New Brunswick, Ontario — across the board. In Ontario, for example, one project was originally a six-kilometre repaving job. The bids came in sufficiently low that they were able to do 10 kilometres. We have been happy to see that happen.
Senator Runciman: That is great.
You talked about streamlining the approval process. Was a change made to expedite environmental approvals? How did that process work?
Mr. Conrad: I would suggest that that is one of the great successes of the stimulus initiatives. The Canadian Environmental Assessment Agency implemented a series of regulatory changes that allowed us to expand the exclusion authorities under the act so that projects where there were no discernible environmental impacts could be excluded. We broadened our exclusion authorities dramatically to the point that roughly 90 per cent of the stimulus projects were excluded from having to do a separate federal environmental assessment. In several cases, they still required a provincial environmental assessment or a municipal class environmental assessment, or there were other requirements, for example dealing with navigable waters and fisheries habitat. However, there was no longer a requirement for a separate federal environmental assessment.
Senator Runciman: Will that streamlined process stay in place once the stimulus program evaporates? Is any change contemplated there?
Mr. Conrad: A change is contemplated. The time frames associated with the stimulus environmental assessments were two years. They were time-limited, but the government indicated it intended to make those permanent.
Mr. Forster: It is important to keep in mind that we are doing different kinds of projects under stimulus than under the large funds. Many of them are doing things like an energy retrofit to a building, which would not trigger an environmental assessment. That is, the building exists; the footprint is there. Some projects were repaving and rebuilding roads or doing sewer and water main work. The focus was to do projects that could be done quickly and would not trigger an environmental assessment, because that would add significant timelines.
Senator Runciman: The Windsor corridor was not part of this, then?
Mr. Forster: No.
Senator Runciman: Minister Baird made an announcement about the Michigan border crossing. Is that part of this program?
Mr. Forster: No, not at all. That is under the Gateways and Border Crossings Fund. The bridge will be done separately, probably through some kind of public-private partnership.
Senator Runciman: We have heard about the issue of spending quickly versus spending wisely. You mentioned beefing up your audit office. Can you tell us about the concern that many have expressed that some of these assessments and some of those monies have not been spent wisely? Can you react to that?
Mr. Forster: Yes. There are a couple of things to note about this program. By and large, we reimburse costs incurred. The proponent comes to us and says, "Yes, I built a third of my project. Here are my bills. Can you reimburse me for that?" We are paying costs generally as the project proceeds. Our final payments will be based on bills and costs incurred. The project is being built. That is an important part of managing the program and our accountability regime.
We also have most of the monies flowing through provincial governments that are also putting in place their accountability measures. All of this is designed to ensure that we are managing the program wisely and sensibly. It is a balance between speed and accountability. We are trying to find the right balance.
As I mentioned, we expanded significantly our audit shop. We did a lot of work last year in preparation for the program of business mapping the processes. We did initial assurances where we had our internal audit shop come in and review the program, the files, and how we were doing it. We then made changes and adjustments to that. We have tried to ensure that the governance and accountability regimes are in good shape.
Mr. Sarantakis: Virtually all of our projects are with provinces and municipalities. They each cost share, which adds a discipline to the process whereby the project is backed by a city council or by a provincial government that is willing to put up money. That tends to make them wise projects.
Mr. Forster: Both provinces and municipalities, in particular municipalities, are accountable to their own local taxpayers and citizens and have their own auditors.
The Chair: I am sure honourable senators will understand that we do not have time for supplementary questions, but I will put you down for round two.
Senator Marshall: I am finding the session here this morning both interesting and informative. Most of my questions have been answered, but I do have a couple more to ask.
How do you decide how much funding goes to each jurisdiction? Is it on a per capita basis, or is it on a first-come, first-served basis? How do you decide?
Mr. Forster: The $4 billion stimulus funding and the Building Canada Fund monies are done per capita. For the provincial-territorial base funding, which was announced in Budget 2007 and which we have tried to accelerate, each province got the same base amount: $175 million over seven years for each jurisdiction. It was designed to provide core infrastructure funding for smaller jurisdictions, which obviously do better there, and it was to help the smaller jurisdictions. However, by and large, the stimulus money and Building Canada is per capita.
Senator Marshall: Earlier there was some discussion regarding the audit process and your internal audit function. Is it the intent that there would be a formal evaluation of the program after it is completed? Has an evaluation framework been established?
Mr. Forster: Yes. We will do evaluations. We do our internal audit. As you know, the Auditor General is also reviewing all of the stimulus spending, and she will be doing reports in the fall and the next year as well. There is a fair bit of review and assessment of it.
Senator Marshall: When we discussed the March 31, 2011, deadline, did I understand you correctly that most of the projects will be finished by then, that you do not foresee a big problem come March 31, 2011?
Mr. Forster: At this stage, nobody has come to us and said, "I am not going to finish." We are obviously monitoring the schedules and the progress reports we get from provinces. As I said, we are looking closely at probably 1 per cent of projects, where the risks are higher than in others.
Mr. Conrad: The 1 per cent of projects that Mr. Forster is referring to are large projects that are scheduled to end on or around March 31, 2011. We recognized as we approved these projects and continue to monitor them that a slippage of a day or two or a week of contract delays could impact on their ability to complete. That is why we are monitoring them closely. We are not suggesting that they will not be completed on time.
Senator Marshall: As of now, the policy is that there will be no more payments after March 31, 2011?
Mr. Forster: You have to go back to the budget that was just tabled. The government was clear in signalling the importance of winding down the stimulus funding on time. It was there to be a two-year, temporary stimulus to the economy when the economy needed it most. That was very clear upfront with the programs: when you apply, give us stuff that you are very confident you can finish on time, because it will end. In the budget, the government said it is important that we wind down the stimulus funding, not just in infrastructure, but at large, to begin to return to fiscal balance, and the government withdraws as the economy recovers and the private sector moves in. You do not want it extending out another year or two or three years.
Mr. Sarantakis: That is the key point, because it is not infrastructure that is ending on March 31, 2011; it is Canada's Economic Action Plan. Infrastructure is part of that process.
Mr. Forster: Our regular programs will continue right out as scheduled to 2014, 2015. The government has made the gas tax a permanent $2 billion a year transfer to municipalities. That is running and will continue to run. Those longer- term programs and the longer-term funding for those kinds of projects that are not suitable for a two-year window are still there and will continue to flow.
Senator Murray: What you are doing is great to the extent that you are enabling municipalities to arrest and perhaps reverse the deterioration in infrastructure that has been going on for some time that we all know about and that took place partly as a result of earlier budgetary constraints, although that is not the only explanation. It is very important from that point of view.
I would like to know who is doing the thinking and the forward planning in terms of large infrastructure needs affecting the national picture, the national economy in particular. One thinks of ports and airports and border crossings. Senator Runciman mentioned the Michigan border crossing, which you have said is under the jurisdiction of the Gateways and Border Crossings Fund.
Mr. Forster: Yes.
Senator Murray: There is another one in New Brunswick, the New Brunswick-Maine crossing at St. Stephen, where I think some work is being done. This is long overdue in terms of the national economy. There are other needs, even with universities. This committee did a study some years ago about deferred maintenance at Canadian universities. A horrendous amount of money was involved here because of budgetary constraints and I think also because some administrators preferred to let the roof leak rather than take other, more difficult, decisions when faced with financial constraints.
Is it Infrastructure Canada, the Department of Finance, Treasury Board or Industry Canada that has a handle on our needs in terms of national infrastructure going forward? Who is prioritizing this?
Mr. Sarantakis: We all have a role to play in this process in the Government of Canada. Generally speaking, the Department of Finance sets the fiscal framework and lets us know what is available for infrastructure; then, within that, departments argue for how that pot should be allocated. In terms of our national infrastructure, you can think of things like capacity at the border or capacity at airports.
Senator Murray: Who is doing that?
Mr. Sarantakis: Transport Canada does some of that. Public Safety Canada and Infrastructure Canada do some of that. It depends on the issue. We have capacity at the borders for security constraints and physical constraints and different capacity at different ports of entry and exit. Generally speaking, Transport Canada does most of that work.
Senator Murray: If I wanted a list of our priority infrastructure needs in terms of the national economy, where would I go to get the list?
Mr. Sarantakis: It would depend on what specifically you are looking at as national infrastructure. Is water national infrastructure or is it not?
Senator Murray: Someone mentioned the Spadina subway. I accept that that is national, to the extent that it improves productivity in our largest city. That is part of it, but where is the list?
Mr. Sarantakis: We could give you a list by infrastructure sector. We could give you lists of things in transit, water, waste water.
Senator Murray: How far ahead?
Mr. Forster: For issues around the border and the efficiency of transportation networks, for example, Transport Canada would take the lead on the efficiency of the transportation network. They have under that fund a process to look at gateways in three major gateway areas of the country — Atlantic Canada, Central Canada and the West. They have a process with provinces. They sit down and do a lot of analysis: Where are the best investments we should make to improve the efficiency of our transportation networks leading to the border under those three gateways?
When you get to what I would call local infrastructure, which is still very significant, like large subway systems, there you are working with provinces and municipalities on a regional basis to identify the priorities, because they also are funding partners and the builders of it. We sit down with the Province of Ontario, which has a long-term infrastructure plan, and we talk about what priorities are important for Ontario, and we do that in the context of what is important for the national government as well. That is how the Building Canada Fund decides where to invest. I do not have a national list of the top 10 things.
Senator Murray: Someone must have one. Someone, perhaps in Finance Canada, has done analysis of where the priorities should lie going forward and what the needs will be, given population growth, economic trends and all the rest of it. It would be interesting to take a look.
Senator Ringuette: I have two quick questions, and you can provide the answers to our clerk as soon as possible. How much money in the programs that you administer has been identified for the Atlantic Gateway? How much federal, provincial and municipal money has been put forth to advertise and promote these programs?
Senator Dickson: I think you are doing an excellent job. Do not take my aggressiveness in the wrong manner.
Senator Peterson was discussing with you "substantial completion" and "certificate of final completion," which are technical terms. Will a document of clarification be sent to the municipalities, provinces and contractors stating that payment will be made for material and equipment that is not delivered onto the site, not incorporated into the work, and perhaps not even manufactured?
The Chair: I suppose that you will have to consult legal counsel on this and look at the agreement with the provinces. If you could provide us with your position, we will circulate it to our colleagues.
Mr. Forster: I did not find your questions to be at all aggressive. They were very good and important questions, and we are always happy to be here.
Senator Finley: I would like to join with several of my colleagues in commending the department for doing a stellar job in making this program work.
You may not be able to answer this question, and even if it is in your area of expertise, I doubt that you will be able to answer it now, so a written response would be fine. The country created 110,000 new jobs in April. Do you know how many of those jobs are related to Canada's Economic Action Plan?
Mr. Forster: The Department of Finance does the modelling and impact analysis on the jobs created by the action plan. We will provide you with that.
The Chair: You used the terms "committed," "allocated" and "spent." At the end of last fiscal year we were told that $1.4 billion of the infrastructure money had not gone out of the federal government and therefore had to be re-profiled into the next fiscal year. Was that money already allocated but not spent? Can you help us with these three terms?
If you provide that to us in writing, it will be circulated to members and will be part of our report so that the public can understand why we are re-profiling a large amount of that money when others were saying it was all allocated.
Thank you very much. I know that you were asked to do a lot of work in a short period of time. We thank you and Infrastructure Canada for the work you are doing.
Honourable senators, I would like to welcome His Worship Basil L. Stewart, Mayor of Summerside, P.E.I. The mayor is also President of the Federation of Canadian Municipalities, FCM, and is appearing here in that capacity today. He is accompanied by Gabriel Miller, Director of Advocacy for FCM. We are also pleased to welcome Michael Atkinson, President of the Canadian Construction Association, CCA.
His Worship Basil L. Stewart, Mayor of Summerside, P.E.I.; President, Federation of Canadian Municipalities: Good morning, honourable senators. It is great to be here. I want to thank Infrastructure Canada for working so closely with the Federation of Canadian Municipalities over the past number of months. As well, we want to thank the Canadian Construction Association for hiring all the people who built the many projects we have been speaking about.
I am pleased to be here today to talk to you about Canada's Economic Action Plan and the importance of building strong cities and communities.
The Federation of Canadian Municipalities has been the national voice of municipal governments since 1901. We represent about 90 per cent of the Canadian population and close to 2,000 municipalities across the country in every province and territory. Members include Canada's largest cities, small urban and rural communities, and 18 provincial and territorial municipal associations.
I am here today to deliver three messages on behalf of FCM. First, Canada's Economic Action Plan is a model for how governments can work together to meet national challenges. The plan established clear national objectives and brought federal, provincial, territorial and municipal governments together to achieve them. We should apply the same principles to longer-term national challenges, from traffic gridlock to homelessness.
Second, where there are challenges completing projects, governments must continue working together in the best interests of Canadians. We expect the stimulus plan to stay on track and the vast majority of projects to remain on schedule. Where delays are caused by forces beyond a community's control, governments need to use common sense to make sure the project is finished and the costs are shared fairly.
Finally, our biggest concern about the economic action plan is what happens after it is finished. Stimulus spending boosts our economy in the short term, but we need a long-term national vision for our cities and communities. Canada will be overwhelmed by the growing challenges playing out on our local streets.
A year and a half ago, Canada was plunged into a recession by the global economic crisis. Governments had to work together to take swift and decisive action. In January 2009, the federal government released its economic action plan. Today, the plan is delivering the largest ever one-time injection of federal funds into Canada's cities and communities. The federal government designed its economic action plan to provide a dramatic but temporary boost to Canada's economy, increasing public investments for a short period while the private sector recovered from global economic crisis.
While the government has stood by its stimulus deadline, it has shown flexibility in response to concerns brought forward by FCM. Initially, the government said it would not pay for stimulus projects not fully completed by March 31, 2011. This meant that, on a cost-shared project, a municipality could end up paying the full cost of construction if any part of the project was not finished in time.
The government revised its position and agreed to pay its full share of project costs incurred before the stimulus deadline, regardless of whether the entire project is complete. This took the threat of 100 per cent clawback of federal funding off the table.
The priority for all orders of government is to create as many jobs and complete as many projects as possible during the next 10 months. Governments must continue working together to move the country forward toward full economic recovery.
Municipalities are working flat out to finish stimulus projects by March 2011. According to Infrastructure Canada, virtually all stimulus projects are on schedule, and this is certainly good news.
Where there are challenges in specific communities, all governments need to use common sense. If a delay is caused by something outside of a municipality's control, federal, provincial and territorial governments should work with the municipality to work with the project and share the costs fairly.
Municipal stimulus projects are governed by separate funding agreements in each province and territory. These agreements were signed at different points during the past year and delivered funding through different programs. Some provinces and territories took longer to sign on to the plan than others.
The Federation of Canadian Municipalities is engaged in ongoing dialogue with the federal government and the provincial and territorial municipal associations. If there are signs that the deadline poses substantial risk to job creation or the completion of infrastructure projects, we at FCM will call on all of the governments to come together and revisit the issue.
Our biggest concern about the economic action plan is what will happen after it is gone. Canada must start planning for the post-recession world.
For more than a generation, governments looked the other way as Canada's cities and communities fell into disrepair. Cracks formed in Canada's core infrastructure and transportation networks, hurting our economy and quality of life. Now, thanks to recent investments and a spirit of intergovernmental cooperation, Canada is starting to put the brakes on this downward slide. Thousands of cost-shared stimulus projects have brought governments together to create jobs and fight the recession. The permanent Gas Tax Fund is giving municipalities stable, long-term infrastructure funding for the first time in history. These gains have slowed the decline in our cities and communities. Now, we must restore them to health.
Municipalities still do not have the revenue tools to meet growing 21st century challenges. Traffic congestion is hurting our environment and costing businesses billions of dollars a year in delays. More and more people are slipping through the holes in Canada's social safety net, struggling to get to and from work or to find affordable housing and child care. More and more, municipalities and the social infrastructure they provide are the primary support for this growing group of Canadians.
Municipalities continue struggling to eliminate $123-billion backlog in infrastructure repairs while collecting just 8 cents of every tax dollar in Canada. The federal government collects 52 cents, the provinces and territories 42 cents and municipalities collect 8 cents. That is our national average. If we want to narrow it down to P.E.I. and our community, it is around 4 cents.
Canada does not have to be a victim of its challenges. We can be a leader. However, governments must tear down the silos that keep us from delivering results on issues that affect Canadians. Today's challenges criss-cross provincial boundaries and call for greater cooperation.
Canada's Economic Action Plan is a powerful reminder of what governments can achieve when they set clear objectives and work together to meet them. We need to take the same approach when it comes to addressing our long- term challenges. That is a vision Canadians support and municipalities are ready to help build. We are closer to it than we were just a few years ago. Let us not stop now.
Thank you again for your attention this morning and for the opportunity to make this presentation on behalf of the Federation of Canadian Municipalities and its close to 2,000 members, which represent 90 per cent of our Canadian population.
The Chair: Thank you, Your Worship, Mayor Stewart.
Michael Atkinson, President, Canadian Construction Association: It is indeed a pleasure for me to be here. I am the principal staff person with the Canadian Construction Association. We represent the builders of the infrastructure you have been talking about. Our organization was established in 1918 to do just that.
I could make my remarks very short by agreeing with my colleague and saying "ditto"; however, I think there are some important factors to raise. First, we have been extremely pleased with the way the program has been rolled out. Governments at all levels have done an excellent job in building the infrastructure to allow the infrastructure programs to get out. We also want to restate that we think it has been extremely effective in giving that kick-start to the economy that we were looking for.
However, there is one caution we want to raise with you today. We believe there is some risk of ensuring the biggest bang for the stimulus dollar in the infrastructure programs if we continue to insist on an inflexible, steadfast adherence to that March 31 deadline. I will talk about that later.
In the lead up to Budget 2009, in which the these stimulus programs were introduced, we along with FCM made the point that we felt the best way to get the country back to work and to recover from the recession was indeed to invest in our public infrastructure. As proof that the measures are working, we raised the Infometrica study that showed that for every $1 billion spent on infrastructure construction, more than 11,500 jobs are created or sustained.
We saw a rapid decline in construction employment in the first eight months of the recent recession. In fact, the construction industry was perhaps the hardest hit industry during the early parts of recession; between October 2008 and July 2009, the construction industry experienced a net decrease in employment of more than 133,000 jobs due to the recession.
However, since August 2009, not coincidently when many of the municipalities began tendering some of these infrastructure programs, we have seen a consistent month-over-month increase in employment to the point that we have now regained some 90,200 jobs of the 133,000 we lost. We expect to be back to pre-recession levels within the next quarter.
From our perspective, the stimulus program is working to put people in our industry back to work, and it will continue to do so.
However, I must agree with my colleague: It is very important to note that, while investing in infrastructure does provide a substantive and effective kick-start to the economy in the short term, it is not the sole reason why Canada or any nation should be investing in infrastructure. One invests in critical public infrastructure because it is a course of sanity if you want to ensure that your nation is competitive, remains competitive, increases its productivity, and continues to provide the standard of living Canadians have become accustomed to.
Therefore, we also have a major concern about what happens when the stimulus programs end and, indeed, when the Building Canada Fund, which we are halfway through now, lapses come 2014. To echo Senator Murray's comments, where is the plan? Where is the long-term plan for Canada's key public critical infrastructure going forward? We have not seen it. We do not know where it is, either. We are in dire need of having that plan put in place. It is a collective exercise that needs to be done by all levels of government.
Again, we think the speed at which the program has been rolled out by Infrastructure Canada and Industry Canada, which manages the Knowledge Infrastructure Program, has just been incredible. Compared to the speed at which other co-funded infrastructure programs have been put in place, this one was put in place at light speed.
However, it is important to understand that the municipalities, in the case of the $4 billion Infrastructure Stimulus Fund, and colleges and universities, in the case of the $2 billion Knowledge Infrastructure Program, have to do all of the heavy lifting. They are the ones who have to get the projects ready for tender, put the documents together, call the bids, award to the successful contractor and manage the construction project to its completion.
We are concerned about the impact of repeated public pronouncements by both federal and provincial governments emphasizing that the deadline shall be unconditionally enforced. Infrastructure stimulus projects will lose their funding from both levels of government, in some cases, for any costs incurred after March 31, 2011. Municipalities may seek and are seeking to recover from contractors any of the federal or provincial stimulus funds that may be lost due to projects extending beyond the deadline.
We have issued a cautionary note to our members to ensure they have all the information to make an informed decision when they bid on these projects. The contingency plan is not always clear up front who will pick up the loss of one third or two thirds of the funding if the province also withdraws in the event a project runs beyond March 31, 2011. Before contractors bid on projects, we want to ensure they understand what the contingency is and whether it is they who will have to pick up the cost of potential lost funding.
We have seen tenders from municipalities that have been upfront in saying the project is subject to the March 31, 2011, deadline. If the project goes beyond the deadline, the contractor will be on the hook for any funding lost from any level of government. With that information in place, informed contractors may make a business decision regarding whether they will bid on that project or whether they should add risk premiums to their price to manage the risk transferred to them.
We understand why there is a deadline and why provincial, federal and municipal governments want projects done in a timely manner. The projects are, after all, primarily a stimulus program.
We do not understand what public benefit is met by pulling out the financial carpet from beneath the feet of projects that go beyond the March 31, 2011, deadline through no fault of the parties involved, where best efforts were made or in the case of unforeseen circumstances. Many weather-sensitive projects in the civil infrastructure field need to be done by this October. They do not have the luxury to proceed through the winter months; they must be done by October 2010.
In conclusion, we basically want a more common-sense, flexible approach communicated to municipalities, colleges or universities that have projects at risk of going beyond the March 31 deadline that there will not be a knee-jerk, inflexible yanking of funding on that date. Honourable senators, even if you are an optimist, as I am, and think that sanity will prevail at the end of day or that we will see an eleventh hour reprieve for projects that run into trouble, damage is being done now by publicly proclaiming an inflexible cut-off for the funding.
I want to say again how impressed we are with the rollout of the infrastructure program. Federal, provincial and municipal governments have worked together to put the system in place for infrastructure projects. The speed at which is has moved has been incredible. We are encouraged by the impact and effect the program has had on employment and in giving a jump-start to the economy.
We simply caution that, at the end of day, common sense must be used with respect to the application of the deadline. From our perspective, again, we see absolutely no benefit whatsoever in a project that is 90 per cent to 95 per cent complete by March 31, 2011, and that falls behind schedule due to weather conditions or unexpected unavailability of materials, et cetera, losing its funding. We are aware of situations in which the delay to put the project to tender is because of a dispute with another federal agency unforeseen at the time the project was approved.
I will be happy to listen to your comments and to answer questions.
The Chair: Thank you Mr. Atkinson. You provided to us the Standard Practices' Cautionary Note to Contractors Bidding Infrastructure Stimulus Projects dated March 2010. Has this document been circulated to all of your contractor members of the Canadian Construction Association?
Mr. Atkinson: That is correct.
The Chair: The Business Development Bank of Canada, BDC, appeared before us last week. Representatives pointed out that they were pleasantly surprised by a new revenue stream of performance bonds.
Is there any link between that and the March 31, 2011, deadline?
Mr. Atkinson: I cannot comment on that, but the bonding sources for most of our contractors are through private insurers. Therefore, the new performance bonds may or may not be linked.
The Chair: It is unfortunate that we had not heard from you before they appeared. However, we will ask them the question anyway.
Senator Finley: I have a couple of comments before I ask my question. First is in regard to the $0.08 tax collected. It may be collected but not spent on municipalities. Billions of dollars flow from both the federal and the provincial governments to municipalities. Therefore, I think that issue is a non sequitur.
Second, I am stunned and surprised that the people planning these construction projects, who have been doing this in Canada for many years, could say they will have to cut off a project off in October all of a sudden because of winter. This should be planned as part of the project undertaking by the potential contractor.
I believe strongly that history has a habit of repeating itself if careful planning is not done. Mayor Stewart, on page 9 of your presentation, you said, "For more than a generation, governments looked the other way as Canada's cities and communities fell into disrepair." You underlined this in a press release issued on March 4, 2010: "Canadians can't afford to relive the 1990s deficit-fight, when federal and provincial budget deficits were shifted on to their property tax bills."
In your view, how serious was the damage done to municipalities during the 1990s because of this downward shift of responsibilities? How might we avoid that happening again?
Mr. Stewart: You mentioned a few things.
The Federation of Canadian Municipalities had a couple of university professors, whose names I do not have, do some research for us a few years ago. They came up with the figure of $123 billion in infrastructure problems across the country. We feel that we are probably dropping behind by close to $2 billion per year. That is the problem that must be addressed. This last round of stimulus funding and projects has certainly helped the situation, but more must be done.
The downloading in the 1990s happened as a result of the federal, provincial and territorial governments trying to balance their budgets. Expenditures were shaved off and funnelled to the municipalities to compensate. This action made it difficult for municipalities.
I know what you said regarding the collection of tax dollars, but the number indicated is fairly accurate. When tax dollars are collected, fewer dollars go to municipalities than to the provinces and territories and the federal government. Municipalities have to provide the upfront services. It affected the municipalities across the country back in the times when they started shaving the dollars going to those regions. However, I could not give you an exact dollar amount on what the damage would have been.
We know, with respect to this recent stimulus package and the dollars that came out of it, that the federal government will be looking to try to get things back in order. We can understand that. We have gotten commitments that major projects will not be cut back, such as some of the ones we are talking about today.
Senator Finley: In the study you had completed that produced the $123 billion estimate of an infrastructure deficit, was any timetable attached to that to indicate what the progressive decay in infrastructure had been? Had this started in the 1960s, the 1970s, the 1980s or the 1990s?
What I am trying to get at is that there cannot be a short-term solution for $123 billion, especially if, as you say, it is continuing to decay at the rate of net $2 billion a year, notwithstanding the amount of money the federal government and provincial governments are currently pouring into it. With even a substantial program of $10 billion a year, for instance, if we are losing net $2 billion, that would give us $8 billion of recovery, which means we are into a 15-year program, at the very least, to bring the infrastructure deficit back to zero base, by and large. Is that reasonable?
Gabriel Miller, Director, Advocacy, Federation of Canadian Municipalities: Your math is disorientingly accurate. If you are looking for anything to do when you leave the Senate of Canada, FCM might be able to use you.
The deficit was 20 years in the making. You really see the huge growth start in the mid-1980s and accelerate through the 1990s and into the early part of this decade to the point we are now. You are absolutely right; you are looking at a 15- to 20- or 25-year plan realistically between the three orders of government to stop the growth and then eliminate the problem.
To your other point, the seeds of this problem were planted before that. Canada had a huge infrastructure boom in the 1950s and 1960s where our urban and suburban communities grew and a lot of infrastructure was built, but the tools that municipalities had to maintain that infrastructure were not modernized with the infrastructure itself. When budget cuts came in the 1990s, that is when the crisis came to a head and where we saw a huge expansion in municipal responsibilities and a huge contraction in the funding going into those communities. We are only now beginning to address the damage done in that period.
It will be interesting to look at the effects of the spending in the last two years. I suspect we will find that this was the first year in 20 or 25 years where growth in the infrastructure deficit was substantially slowed and perhaps even halted. It does open the door to have a real conversation about how to build on this progress going forward and maybe establish the kind of long-term intergovernmental strategy it would take to eliminate the problem.
Mr. Stewart: As we all know, we have a very diverse country, and it is difficult to come to a one-size-fits-all solution. In Atlantic Canada, for example, some of the infrastructure is much older than in other parts of the country.
FCM supports the new waste water regulations coming into effect. We want to protect our environment and keep our lakes and rivers clean, but it costs billions. We had the Atlantic mayors' meeting in Halifax about a month ago, and Mr. Miller attended. It will cost the City of Halifax over $2 billion to come up to regulation standard.
We are working to try to get a three-way deal — one third, one third, one third. As a matter of fact, some of the mayors in Atlantic Canada suggested that because of the way the tax dollars are collected, maybe it should be 45 per cent, 45 per cent and 10 per cent. In Atlantic Canada, it is lower than the national average. We support the new regulations, but it will be costly to have them brought into place.
Over the last few years, the gas tax has been a tremendous accomplishment by the Federation of Canadian Municipalities. I have been around the mayor's office since 1985 and have been a long-time member of the Federation of Canadian Municipalities, as a board member and on the executive. FCM is a non-partisan organization; we get along well with all political stripes. We have to. That gas tax was announced by the former government, and the present government announced that it will be permanent. That is a tremendous help to municipalities.
The little city of Summerside, population 15,000 people, receives a cheque every spring for about $1.4 million. That is lot of money, so you can imagine what Toronto and the other big cities get, which is great. I understand the federal government collects close to $5 billion in that gas tax, and when it was brought into effect many years ago, it was to go towards infrastructure such as bridges and roads. With our meetings in the last number of years, we have convinced the federal government to start returning that to municipalities, who use it to repair these kinds of projects. That has worked well.
We have 74 board members, probably one of the largest boards in the country, but every part of the country is represented when we go to our board meetings every three or four months. We get strong representation from every part of the country, and we are here today speaking on behalf of the board, not just two or three people from the FCM office or the national president. We take our orders, if you will, from the national board.
We have accomplished a lot through the Federation of Canadian Municipalities. We have done that through cooperation with all orders of government, and we have had meetings with senators as well over the years.
Mr. Atkinson: I wanted to mention that it is astute to note that we are not talking about a static number. The infrastructure deficit in fact is increasing and is a moving target. As I recall the study, the $123 billion was primarily for municipal infrastructure. It does not address border infrastructure, national highways and the bridges in that system, et cetera, which a government committee put at about a $17 billion deficit currently. A number of other areas as well need a national plan.
Quickly on the issue of seasonal construction, my point was that if a project has been delayed in getting out to tender, which decreases the availability of the summer months or the good months for construction to proceed, that is the difficulty within our industry. They see these schedules come out, and they know they are unrealistic. There is no way you will complete that project within two or two and a half months and be asked to take that liability on. That has been our concern.
Senator Peterson: Thank you, gentlemen, for your presentation. I do not know whether you were here earlier when we had officials from Infrastructure Canada present. They made it clear that March 31, 2011, is the deadline; over, done, no more money. You may want to start your consultations earlier in that regard.
The one other thing they did say and committed to was that on projects where all materials and equipment are ordered and paid for but not on site at the completion date will be covered. You might want to follow that up as well to ensure that is correct, as well as whether it includes the provincial governments. I do not know in the contracts whether they could opt out because of this deadline, but your members should also be aware of these circumstances.
Mr. Atkinson: I am interested in how that would work, because the majority of construction contracts that I have seen require the owner — in this case, the municipality — not to have to pay for materials until they are delivered to the site. In fact, the engineer or architect certificate that goes out to allow the progress payment to be made will look at the value of the work performed to date and the materials delivered to the site.
Unless the contract states that the materials will be paid for even if not delivered to the site, the municipality would not be cutting a cheque. There would be no bill or invoice, if you will, to remit to the government. Unless somehow we will revise all of those contracts retroactively, I do not know how that would work.
Engineers and architects issue certificates based primarily on the definition of substantial performance or completion, as dictated by the provincial builders lien legislation, in respect of when it is to be used by the public. In Ontario, for example, it not only has to be available for the use intended, but also it must be 97 per cent complete before the architect or engineer can issue a certificate. We will follow up with the department to find out what it means by that definition and how that will play out at the construction level.
Senator Peterson: The point is that it does not matter what it means, because if it is done before March 31, 2011, you are covered. If it is after that date, it is zero; so it does not matter what the completion certificate says after the date.
Mr. Atkinson: I hope that you are correct, because under the contract, the municipality does not incur a cost until it does.
Senator Peterson: The other point is that you had best start looking at the contracts, because after March 31, equipment and materials that are not on site will not be covered. For such work as a treatment plant, that could be a huge piece of equipment.
Mr. Atkinson: That is our concern and why we issued the cautionary note. We want to know who will bear the cost of that additional money. There is only one taxpayer in this country. If it means that the rate payers in a certain municipality will have to pay additional funds out of budget to complete those projects, it still comes out of the same pocket.
Senator Nolin: I refer back to the figure of $123 billion. Do you maintain an exact list of what that amount includes? Is that on your website?
Mr. Miller: The number of projects is great, and the specific projects are changing all the time because municipalities will fix some of that stuff and other things.
Senator Nolin: You do not maintain a precise list of the items under that amount.
Mr. Miller: No. A growing number of municipalities have 10-year capital programs that highlight the areas where they need to make investments. On a city-by-city basis, that information is available, but it is not on a central, national database.
Senator Nolin: Do you not think it would be appropriate to have that, given that you represent all the municipalities?
Mr. Miller: It would be a very labour-intensive and resource-intensive project, but it might be worth doing.
Senator Nolin: Mr. Mayor, in your testimony you talked about a decrease and about the gas tax being helpful. I want the numbers out of $123 billion. You started there, but what is it down to now? What is the plan for the municipalities? I understand that there are other deficits at the municipal level.
Mr. Stewart: Another of the many projects was getting the GST removed for municipalities. That was a good accomplishment for the Federation of Canadian Municipalities because it loosened up a few more dollars for the projects that we are talking about.
Senator Nolin: I am all for being entertained and listening to those arguments, but I want a list of how the big numbers will help. That is why those figures. It seems too loosey-goosey. It was a number once, but where is that number now?
Mr. Stewart: We mentioned the new waste water regulations that were announced. That will be a major project and will certainly add to this list. There is a sort of moving target all the time, as Mr. Miller mentioned, because some elements get repaired, and some regulations come in that will make other elements very costly. The exact dollar figure from that study was current three or four years ago. What year was that?
Mr. Miller: It was in 2007.
Mr. Stewart: The $123 billion was in 2007, but infrastructure ages every day, as you know. It is a major concern for all municipalities.
Senator Nolin: Mr. Atkinson, when did you issue the Cautionary Note to Contractors Bidding Infrastructure Stimulus Projects?
Mr. Atkinson: It was in early March.
Senator Nolin: Mr. Miller, what has been done at FCM to face that challenge legally? You will have to bear much of the challenge.
Mr. Atkinson: In fairness, we are asking the members of the Canadian Construction Association to get their facts before they bid the projects.
Senator Nolin: I understand about your members, Mr. Atkinson. I am concerned about the municipalities who legally face your members. That is why I am interested in knowing the Mr. Stewart's answer.
Mr. Miller: The answer for municipalities is similar to the answer for the CCA. It has been critical to ensure that municipalities know what they are getting into, know the rules governing these projects, know the allotted time frame when they propose their projects, and know the risks if not completed in time. The sense we have from talking to our members is that they understood those rules from the beginning of the program. As they do in all tenders and contracts with the private sector, they are looking at the parameters for the project and designing contracts and agreements that protect their interests and the interests of their taxpayers.
Obviously, the clarity and the nearness of this deadline heighten the importance around that, but the essential principles are the same. The municipality sees what has to be done, knows the rules governing its funding and then designs a tender and contract that protects its interests in that exchange.
Senator Nolin: Most of us have rarely seen a project finish on time. That is why I am concerned.
[Translation]
Senator Poulin: I would like to thank Mayor Stewart and Mr. Atkinson for joining us today.
Your Worship, you represent 90 per cent of the Canadian population, some 2,000 municipalities. One of your key partners in carrying out successful infrastructure projects is the Canadian Construction Association, an organization that is highly respected because of its 16,000 member companies. Your concerns are very important to us.
Since we are looking for a practical approach, and an ounce of prevention is worth a pound of cure, when you recommend a more flexible completion date, rather than a firm date of March 31, after consulting with your 16,000 members, can you tell us what approach you would like to see in place?
[English]
Mr. Atkinson: Public pronouncements were made by some provincial governments and the federal government on the absolute, unconditional, steadfast withdrawal of funds on March 31. Some projects have been identified by Infrastructure Canada or Industry Canada with the provinces as being on the border of completion on time or have sustained some delays due to unforeseen circumstances. At minimum, we would like to ensure them, at least privately if not publicly, that we will not cut off the table legs on March 31, and we would like municipalities delayed in getting their tender calls out to be aware that there is some flexibility and that some common sense will be applied. That, at a minimum, is what we are looking for. We understand that just to have an extension for all is probably unfair and unreasonable, particularly given the need to see these projects delivered in a timely fashion. We want to get the word out that there will be some flexibility and ongoing discussions rather than just hang on that date.
Senator Runciman: There is no point in getting into a debate on this; I think we have agreed to disagree. I think the government's approach with respect to the deadline is refreshing.
I agree with Senator Nolin regarding public projects; many I have seen over the years have not been completed on schedule, and many not on budget, either. However, it was refreshing to hear from Infrastructure Canada about the bidding process and the completion dates being met.
I personally think this is the responsible thing to do. We have elected officials at the federal, provincial and municipal levels. When they are drafting these plans, they have to keep their own taxpayers' interests in mind. If they enter into a project that will have real challenges meeting this deadline, they are being irresponsible with their taxpayers' dollars. I am strongly supportive of this.
My suspicion is that the government would take into consideration some significant, unforeseen circumstance that occurred, such as a natural disaster. However, Canada's climate and similar things clearly should have been given adequate and appropriate consideration before those applications went forward.
I have a couple of questions for the mayor. Is the gas tax a direct transfer to the municipal level?
Mr. Stewart: Yes, it is. Municipalities are very pleased with that. It is great to get the dollars to repair our streets and water systems and everything else, and when we do not have to match it, that helps.
Senator Runciman: Is that the only direct transfer from the federal level?
Mr. Stewart: As far as I know. I think it goes through the province and then directly to the municipalities. It is a great system, and we thank both this government and the last one for their work on that.
Senator Runciman: Are the waste water regulations you referred to national in scope?
Mr. Stewart: Yes.
Senator Runciman: Do they exceed the provincial regulations now in existence?
Mr. Stewart: Probably. FCM fully supports the regulations. The major expense there, which we are working on, will be to get them set up by 10, 20 or 30 years.
Senator Runciman: I appreciate that. I just say they vary in some provinces. That is usually a provincial role to play.
You mention in your presentation that you do not have the revenue tools to meet the challenges. I understand municipalities are creatures of the province they reside in. I am not sure what you are talking about specifically. Are you are talking about increased taxation authority transferred from the provincial level to the municipal governments?
Mr. Stewart: We have been discussing this for a number of years at the Federation of Canadian Municipalities since this research was done. With fewer dollars collected, it is more difficult for municipalities to provide the services they have to.
Senator Runciman: I understand that. Could you get to the specifics of what you are suggesting?
Mr. Miller: We believe that the taxing powers of municipalities need to be modernized. The property tax worked fine in the 19th century, but it is not up to the job now. I think it worked well before.
Senator Runciman: Are you looking for specific taxing powers? Do you have specific proposals?
Mr. Miller: Certainly municipalities need a share of taxes that grow with the economy — a share of income or sales taxes. However, I think it is important to put a caveat on that, which is what the gas tax recognized — that what might be the ideal solution to this is not necessarily a likely solution. In the meantime, there are other ways of effectively giving municipalities new revenue tools. The gas tax is a textbook example of the kind of predictable, stable funding that is making a huge difference in communities.
Senator Murray: What is it worth?
Mr. Stewart: May I comment?
The Chair: We are running down on time. We have an intervention by Senator Murray, and Senator Runciman has the floor.
Senator Runciman: Some of these areas, the social net and transportation efforts, density, infilling, are responsibilities of the municipal levels. All of those issues currently can be dealt with through the municipal governments. We kept referencing the national infrastructure deficit. I think you mentioned a study that was done by a couple of universities. Was that done for FCM?
Mr. Stewart: It was.
Senator Runciman: Could that be made available to the committee?
Mr. Stewart: Yes.
Senator Ringuette: Mr. Atkinson, I would like to know guesstimates in relation to bonds from your contractors. How much would the cost of these bonds reflect deadline costs, overrun costs?
Mr. Atkinson: First, the performance bonds are normally 50 per cent of whatever the agreed-upon contract price was. Assuming that most of these infrastructure projects will be proceeding on a lump sum or fixed price, the cost of the bond would be based upon the contract price. If changes or extras come along and the contract is increased, the bond premiums are increased too; but there is no way of guessing how that would impact on the bonds going forward, or the bond prices.
The other point I want to make clear here is that we are not asking for any additional stimulus funds. Those funds are committed. The project funding has been committed; the project budgets have been put in place.
My understanding of how these co-funded programs work is that if there is a cost overrun, the federal and provincial governments' portion is still capped at the initial one third of the initial budget. We are not talking about additional stimulus funding or funds over and above what was committed to the original budget for that project. That is important to understand.
The other issue is that to the extent that this risk gets transferred to the contractor, the contractor will turn around and point the finger at the municipality or their consultants and say they have delayed the project. This will end up in disputes and legal actions. With all due respect, we thought this program was to stimulate the economy, not the legal fraternity.
Senator Ringuette: I share both of your requests with regard to flexibility for many reasons. I find it a little rich when a government says that it will not have flexibility after March 31, putting all the burden on the municipal governments, which have only 8 per cent of the tax dollar revenue and are currently requested to pay 33 per cent of the costs of these projects, all for the benefit of the same taxpayer.
I find it rich that we have a government that put in place a four-year mandatory election, and yet we have had two elections in that same time frame. I think that flexibility is the word of the day, and you should be granted the flexibility you are requesting.
Senator Murray: I cannot resist the observation that perhaps "flexible deadline" is an oxymoron. I think, Mr. Atkinson, you will have to be more specific; you will have to make a specific proposal to them. The idea of "nudge nudge, wink wink" informal private understandings will not get very far. Nobody wants to see injustices created or unintended consequences come of this deadline; but if you have a proposal, you had better bring it in to the government.
I would like to think — and obviously I have no source of information — that the government is thinking, once this stimulus program is over, of a long-term infrastructure program, cooperative with the other levels of government, that would be oriented not to short-term stimulus but to the long-term needs of the country. If that is the case, then the sooner we put the stimulus or the need for the stimulus behind us, the better, and let us get on with the long term.
Anyway, that is pretty much what I wanted to say, except to welcome Mayor Stewart back here. I am sorry that as a former federal candidate you did not make it here on your own, but I presume the people of Summerside did not want to let you go.
Mr. Stewart: That was many years ago.
Senator Murray: I have a long memory.
Mr. Atkinson: I share your concern, senator. The bigger concern we have is what happens when the current stimulus programs lapse, and indeed when the Building Canada Fund does lapse. The only permanent program is the gas tax transfer. That is the only one we have.
Some might suggest that "government and long-term planning" is also an oxymoron. That is what we are sorely lacking in this country. We are the only country in the Organisation for Economic Co-operation and Development that does not have a national transportation strategy and does not have a long-term plan for some of its key infrastructure. That is the bigger concern we have.
The point in our raising this here today is that we wanted to make sure all stakeholders understand the danger and understand that making pronouncements that there is no flexibility is causing problems and damage right now — not six months from now, not when March 31 comes around. It is having an impact now. That is our basic point. It is a caution. We are not here to suggest that the deadline should be extended six months or into 2012. We understand the necessity and the urgency to get these projects completed in a timely fashion.
The Chair: Honourable colleagues, our time is up; in fact, we are a little bit over time. On your behalf, I would like to thank the Canadian Construction Association, Mr. Atkinson, and the Federation of Canadian Municipalities, Mr. Stewart as president and Mr. Miller as advocacy director. Thank you very much. The information you have given us will be very helpful to us in our deliberations.
(The committee adjourned.)