Proceedings of the Standing Senate Committee on
National Finance
Issue No. 8 - Evidence - May 11, 2016
OTTAWA, Wednesday, May 11, 2016
The Standing Senate Committee on National Finance met this day at 6:45 p.m. to study the federal government's multi-billion dollar infrastructure funding program.
Senator Larry Smith (Chair) in the chair.
[English]
The Chair: Good evening, colleagues and guests. Welcome to the Standing Senate Committee on National Finance. I am Larry Smith, a senator from Quebec, and I chair the committee. Let me introduce the other members of our committee. One of our members will be with us shortly — Senator Mockler from New Brunswick. To my left, formerly of La Presse, is a well-known Quebecer and a great addition to our committee, Senator Pratte. On my right, we have someone who is graciously helping us in the absence of Senator Eaton, Senator Ataullahjan. To her right is a legend in his own mind, from the Rock, a long-time political activist, Senator Fabian Manning. They call him "the Moose." To his right, the former Auditor General of the Province of Labrador and Newfoundland and a great member of our Finance team, Senator Beth Marshall.
This evening we will continue to study the design and delivery of the federal government's multi-billion-dollar infrastructure-funding program.
[Translation]
This evening, we are hearing from two organizations that have produced reports or research on infrastructure.
[English]
To talk about it and answer our questions, we welcome, from the Conference Board of Canada, Glen Hodgson, Senior Vice-President and Chief Economist; from the Federation of Canadian Municipalities, Clark Somerville, First Vice President, and Brock Carlton, Chief Executive Officer, who is a former outstanding university basketball player.
I understand each organization has brief opening remarks. We'll have a question period after. Let's begin with Mr. Hodgson.
Glen Hodgson, Senior Vice-President and Chief Economist, Conference Board of Canada: Thank you, Mr. Chair and honourable senators. It's great to be here again. With Senator Marshall, I was trying to count how many times I've been to the Senate in my time at the Conference Board, and it's a few — less than 50 but more than 20.
I wanted to make five simple points as opening remarks. I'll be drawing upon a lot of research we've done over the years. I now have the pleasure of a commentary in The Globe and Mail every second week, and I have written about this topic two or three times, so I've pulled my thoughts together into a short opening statement.
First and arguably the most important, we're decades behind. We're in catch-up mode when it comes to public investment in infrastructure. It was probably more benign neglect than an activist campaign, but clearly the country is in crying need of more public investment in infrastructure.
Second, this is not about short-term stimulus. We gave advice to the federal government in 2009 about the advantages of using short-term spending on infrastructure as a way to stimulate the economy. Arguably, we had a much shorter duration of the recession then because of spending on things like infrastructure and also a program I quite like, which is the Home Renovation Tax Credit.
But that is not the context now. We're in a structural need. I rely upon the FCM members as a reference point, but we are hundreds of billions of dollars behind in terms of investing in our physical and social infrastructure.
A structural problem requires a structural solution. We're not going to solve this overnight. This has to become a permanent feature built into federal budgets for decades to come.
Third — and we've written about this — we need to think about in this a holistic sense, involving all three levels of government within a multi-year plan. We think the plan should be transparent — we said this in The Globe and Mail — open and with independent review on priorities and procedures, so not simply a within-government activity but something where we engage other stakeholders within our public.
All three levels of government should be involved in the planning process and not hub and spoke with the federal government at the centre — the feds, all provinces and as many municipalities as possible, with you as the representative, but really engaging communities to understand their priorities and help to set the priorities of the process going forward.
The plan needs to be internally consistent and aligned, not just a one-off here and there, so conceptually, it's building a framework that guides our decision making.
Point number four, I wanted to talk a bit about project economics. I had the benefit of working at Export Development Canada for a decade as vice-president of policy. EDC does project financing and has a lot of experience in how to fund infrastructure projects on an ongoing basis, all of them outside Canada, although potentially within Canada as well.
I think it's fair to say that when you consider infrastructure investment, there is a whole array of different projects, things that might be considered pure public goods where there is no chance of a financial return but clearly a return for the economy to things that could be more commercial.
On that basis, it's important to distinguish, in my mind, between things that have an economic return, are good for the economy, and things that could have a financial return but may not. Not every infrastructure project is going to generate revenue, but some might, and you have to develop a lens and examine the spectrum of options because that then takes you to funding options.
I also think that we are at a point where we should think about using pricing for allocating public resources. I'm part of a thing called the Ecofiscal Commission, a group of academic economists doing work. We are all big believers in the price system and price signals helping to change people's behavior and provide incentives over time.
We're doing research right now. We just did a very good study last year on road pricing, on congestion pricing, which is being considered very seriously in some of our major cities in particular as they think about how to allocate really scarce traffic lanes.
You hear the debate in Toronto about the Gardiner, for example. Would a hot lane on the QEW be a way to allocate resources? There are good things and bad things. But I think we should open our mind to the issue of pricing and capturing revenues from the projects. At least have that as kind of an arrow in our quiver of policy options.
The final point I wanted to make is on financing and being open to all the alternatives. I think direct spending from the budget is only one approach. It's the default approach too often. Maybe it should be the last resort rather than the first resort.
We have to think about providing more financing to our communities, actually to municipalities. We were supportive of the gas tax when it was introduced by the federal government a number of years ago.
We've written about giving our communities access to provincial sales taxes. Imagine if we carved a percentage point out of each province's sales tax revenue and rather having the centre control it, the province control it, actually sharing it amongst the communities and give them more tools that they could use for making their own funding decisions.
What about engaging the private sector? We're making much more use of P3s now than we were a decade or 20 years ago. I can recall having many meetings Ottawa, when I was at EDC, talking about the benefit of private-public partnerships. We have seen some really good infrastructure projects developed on a P3 basis.
We should also be thinking about how to access private capital. We have some tremendous institutional investors in this country, pension funds and others, who ironically can make great investments offshore but have a hard time placing money into projects within Canada. That creates a different lens, a different paradigm, through which to examine the funding options.
The last point I wanted to make, and I wrote about this in The Globe and Mail last summer, is that maybe it's time to at least consider the option of a national infrastructure bank. There are pluses and minuses. The governance would be very hard, but I would see at least three possible advantages.
It would certainly take a portion of the required funding off balance sheets. So take it away from core government and think about doing things where you capitalize an institution and have it raise its own funds.
Secondly, it would allow you to really build a centre of expertise on an ongoing basis. Through my career, I worked at EDC and BDC. I worked very closely with them for a number of years. They're incredibly good institutions because they have the expertise in-house. They can identify projects, evaluate them, identify the risks, play a monitoring role and be creative in funding.
Certainly it could be a way to offer lower cost financing, although that becomes complicated because if a project is not self-sustaining, you would then have to get counter-guarantees. The governance may be very complex, but I think at a minimum we have to open ourselves up to options when we examine how to fund what may be a decade-long build out of our infrastructure program.
With that, Mr. Chairman, I think I'll stop. I looked forward to your questions.
[Translation]
Clark Somerville, First Vice President, Federation of Canadian Municipalities: I am very happy to be with you this evening.
[English]
I would first like to begin tonight by thanking the members of this committee for the invitation to be able to discuss the vital role that FCM and the municipal sector will play in the federal government's new infrastructure program.
I bring the best greetings from President Raymond Louie, who is watching tonight as he is off in Vancouver attending to his duties there as a city councillor as well.
I'm Clark Somerville, a regional councillor for the Town of Halton Hills and Halton region, and I have the great honour of being the first vice-president of the Federation of Canadian Municipalities. I am joined by our CEO, Brock Carlton, and I will ask Brock to just briefly give you an overview of FCM and the work that we do.
[Translation]
Brock Carlton, Chief Executive Officer, Federation of Canadian Municipalities: Good evening, everyone. The Federation of Canadian Municipalities (FCM) is the national voice of municipal government in Canada.
The 2,000 municipalities that are members of the federation represent 90 per cent of Canada's population and come from all provinces and regions. They represent large cities, as well as rural, northern and remote communities.
FCM's board of directors comprises elected municipal officials from all regions and various-sized communities throughout Canada. It forms a broad base of support and carries the municipal message to the Government of Canada.
This is a very exciting time for municipalities, and we are happy to be joining you this evening to discuss how various levels of government can better collaborate amongst themselves and thereby provide Canadians with the crucial, social, green and fundamental infrastructure they need.
[English]
Mr. Somerville: As you know, the federal government ran on a platform to invest $60 billion over 10 years into much-needed infrastructure projects across the country. Phase one of that plan, $11.9 billion worth of new infrastructure funding, was announced in the March budget.
I can tell you, as the first vice-president of FCM, that this ambitious plan will pay dividends for municipalities and for the country. What stands before us is an opportunity to transform how our communities are built, to sustainably grow our economy, create local jobs, improve the quality of life for all Canadians and to work together, all as equal orders of government, to address the issues and challenges that Canadians are facing in their daily lives.
We already know that investment in infrastructure is good for the economy and for Canada. Every dollar invested in infrastructure generates up to $1.64 in economic growth. Every $1 billion invested creates 18,000 jobs. We know that these investments are much needed.
According to the 2016 Canadian Infrastructure Report Card released in January by FCM and a handful of partner organizations, one third of Canada's municipal infrastructure is in need of immediate repair. Those are the roads, bridges, wastewater treatment plants and the community centres that Canadians rely on every single day. In other words, time is of the essence. The question is: How do we best tackle this challenge and make the most of this opportunity?
Local governments own roughly 60 per cent of Canada's public infrastructure, so we are a natural partner and a very effective one too. Municipal leaders have a strong track record of delivering infrastructure projects quickly, fairly, transparently and with the utmost accountability. That's why we've been a trusted participant of the federal government for many years.
Our cities, towns and villages have no shortage of projects that are not only shovel-ready, they're shovel-worthy. What's more, we have the experience and expertise to identify projects that are of the greatest need and with the greatest return on investment. Simply put, the most effective way to ensure that infrastructure money is well-delivered is to give municipal leaders the tools and flexibility to do what we do best: make smart decisions based on our local needs and our local realities. That's what Budget 2016 did.
The municipal sector looks forward to working with the federal government to iron out the details of the infrastructure investments announced in March, and we look forward to working with our federal partners on the design and implementation of Phase 2 of the government's infrastructure plan. In fact, we've already begun engaging and consulting with our 2,000 members.
Strong, smart investments in infrastructure are an excellent opportunity to ensure that our world-class cities are more livable and competitive, and it's an opportunity to ensure that our rural and northern communities thrive. FCM and the municipal leaders in Canada are ready to partner with the federal government to do just that.
Thank you very much.
The Chair: Thank you very much, gentlemen. Senator Marshall?
Senator Marshall: I will start with the conference board and Mr. Hodgson.
You mentioned the infrastructure bank. We had the minister here, and then we have had other people who appeared before the committee, and infrastructure seems to cover a lot of things, like social infrastructure, daycare and things like that. When you refer to infrastructure, are you referring to the hard stuff, like roads and bridges, or are you referring to daycare? I want to make sure we're talking the same language.
Mr. Hodgson: In this instance, we're really referring to physical infrastructure, so the kinds of things that Mr. Somerville mentioned.
Senator Marshall: It would be like roads and bridges.
Mr. Hodgson: You can put in assets that are owned by the provincial governments and by the federal government as well, so you can include ports. It's quite striking that we found a way to localize our airports. They haven't been privatized, but they've been able to adopt a user pay model, and now we travel across the country and our airports are, frankly, in fabulous shape. When you walk out of the airport and compare it to the state of city or provincial infrastructure, the difference is very striking. I really am referring to physical infrastructure.
I would probably add public transit to that, and we have this incredible project being constructed in downtown Ottawa a block away. We probably have to put that on the list as well because in our major urban cities —
Senator Marshall: Are you talking about stadiums and pools and all that?
Mr. Hodgson: You could, but that's a matter of setting priorities and trying to identify what your criteria are for identifying the top priority projects.
Senator Marshall: In your opening remarks you spoke about an infrastructure bank because that was in the Liberal election platform, but it's not mentioned in the budget. You seem to like that, and I'm a little bit horrified when I saw that you seemed to like it.
Mr. Hodgson: I sort of hope they stole the idea from me because I wrote about it last summer. As I mentioned, senator, I had the chance to work inside one of our really good public sector financial institutions for a decade. I've seen well run and also badly run, because I did a lot of the engagement with other countries around the world.
It's certainly not a quick fix. It may not be an easy fix, but it should be maybe a tool in our arsenal of options. For some projects, there may be a way to use a separate financial institution to identify projects, to do the evaluation and to mobilize resources, but it won't solve all the problems.
Senator Marshall: Just give a little bit of thought to that and speak a little bit about that. How would you see that working? The federal government will borrow the money? That's what would happen? The federal government will borrow the money and put it in this bank, and then it would lend the money to municipalities and different organizations?
Mr. Hodgson: Before jumping to the end point, I think you have to start with some really simple principles. Would this be federal or national? For example, you could easily have an institution where the feds have a portion of the shares but the provinces do as well, and even communities, so conceptually that's possible.
You would have to have a capital base. Any financial institution has a capital base in place, and I helped to develop the whole strategy for that at EDC. You would then go to the private market to borrow the funds, perhaps with a federal guarantee, perhaps with a collective guarantee. It would become very complicated. You may have to have counter-guarantees from communities.
The key, though, would be to have expertise in the design of projects and do whatever you can in terms of financial structuring and raise funds at a lower cost of funds for communities. For me, that's the real kicker.
If a small community like Halton Hills can borrow money at 100 or 150 basis points better through an institution, with current interest rates at 3 per cent, or 1.5 per cent the short end, that's a huge saving. You're basically saving half the interest on the lifetime of a project. As an economist, that's what I find attractive — getting access to lower-cost funds for the collective.
The government structure may be too complicated. That may be the one thing that actually holds it back. If the intent is to be able to raise money at a lower cost of funds, we know for example in our pension savings that collective investment saves us between 100 and 150 basis points on our investments. Can we apply the same concept to borrowing for infrastructure?
Senator Marshall: The only concern I would have is that we're borrowing money and we're hoping we'll be able to collect it when the time comes. My experience has been that government doesn't do a really good job of collecting money that's owed to it.
Mr. Hodgson: That's the advantage, perhaps, of having an arm's length entity who is not government and who has the capacity to enforce contracts and to work things out if they don't go according to plan, which is what a lot of banks and expert credit lenders do, in fact. It's not the deal; it's what happens when the deal goes bad and how to actually make it a going concern again.
Senator Marshall: For the federation, I know you have some experience with programs lending out monies. With the budget, I know there are three sources of funds that look to be going to the federation to monitor: the Green Municipal Fund, the asset management best practices and the climate change fund.
Would you be able to give us some information on whether you're ready to start delivering that program and when you think you're going to get your money? Just bring us a little up to date as to where you are with that.
Mr. Carlton: As to where we are, we are in negotiation, but to the question of whether we're ready, we have been delivering capacity building programs for 27 years internationally.
Senator Marshall: Yes, I know.
Mr. Carlton: The Green Municipal Fund has been in operation since year 2000, so we have the systems of governance and the systems of program management. In the green fund, there is a very extensive peer review process. We have all those mechanisms in place.
We're quite pleased and we're ready to come to the conclusion of the negotiation and start delivering these programs so that we can create the framework and flow the appropriate money and manage the capacity-building complements to that money to benefit municipalities.
Senator Marshall: Do you know when you will be getting the money? We're heading into a construction season. Just thinking ahead, when do you hit the ground running?
Mr. Carlton: We're in the negotiations right now. It's important to understand that this money wouldn't necessarily be tied to a construction season cycle because the Green Municipal Fund monies — in the budget document, there is $125 million to add on to the green fund — that's an ongoing program that's about plans and studies and grants and loans. It's irrespective of construction season.
The $50 million for asset management is capacity building, so capacity building doesn't have seasonal cycles to it, and same with the $75 million for climate change. It is for plans and studies, feasibility, pilot projects, again, not construction season-related.
Senator Marshall: You have the internal resources to deliver all of those programs?
Mr. Carlton: We have the internal capacities and experience. These programs give us the extra resources to do the extra work.
Senator Marshall: Thank you.
Senator Pratte: Mr. Hodgson, about pricing, especially congestion pricing, road pricing, which I've promoted in my editorials for years without any success at all, one thing I have read and researched always indicated that pricing for new infrastructure should be more successful than pricing for existing infrastructure. People accept with difficulty a price on something that already exists, but if you built something new, like a new bridge, then people may accept it.
This was tried by the former government for the new Champlain Bridge in Montreal where they said, "Well, we're building a new bridge, but you will have to pay for part of it with a price, with a toll," and it was extremely unpopular, so much so that the Liberals campaigned against it, and the moment they were elected they said no toll on the new bridge. From an economic standpoint, it makes a lot of sense, but there are many examples where politically it's extremely difficult.
I don't know if you have seen research or anything that shows that there are cases or where politically it becomes feasible and therefore where economic sense and political sense meet?
Mr. Hodgson: We looked at this in our Ecofiscal Commission study a year ago. It looked at cases of congestion pricing in London, for example. There was a case in Stockholm where they announced that they were going to put a price on things as a pilot so people could try it out. Over the course of a year, public opposition was strong at the beginning but by the end people were embracing it.
I would suggest it is not just a matter of what you do but how you do it that really matters. There was a referendum in British Columbia, for example, where people voted down the chance to put a price on some of their bridges, which are real choke points in B.C. Clearly, there has to be strong political leadership; people have to believe this is the right thing to do.
The pilot seems to be a way to demonstrate to the public that congestion pricing, for example, can provide benefits. If you are a small business and you run a fleet of trucks, you would willingly pay $2 to use a so-called "hot lane" in Montreal, Toronto or Vancouver to ensure that your business could operate profitably and let commuters not pay and take the slow lane. The pilot is the way that has been tried in this country to bridge and start to demonstrate the benefits.
You are absolutely right in that if you just spring it on people, which is where the opposition comes from, in all likelihood you will get a push back.
Senator Pratte: This question is for the FCM. I haven't read the full Infrastructure Report Card but, from the summary I have seen, a few percentages jumped off this sheet of paper. It indicated that 62 per cent of large municipalities have a formal asset management plan in place, as do 56 per cent of medium-size municipalities and 35 per cent of small municipalities. I'm not surprised that small municipalities are fewer in having a formal asset management plan in place, but I'm surprised that only 62 per cent of large municipalities have such a plan in place. What are "large municipalities?" How large are large municipalities?
Mr. Somerville: It depends on where you are in the country. In Ontario, asset management was something that the province started pushing and requiring a number of years ago. Ontario has probably the most done out of anywhere in the country, except for British Columbia. You have to look at it in that case.
If you get into especially the northern and rural remote communities, a lot of them never had the capacity to be able to do asset management or the budget to be able to do it, even though it would greatly assist as they are getting into the infrastructure programs. It would help them tremendously.
We really have to make sure that there is the framework for them to be able to get the asset management plans done. Whichever program is used — because there is a number of them out there — it will help for smarter infrastructure investment and better planning for what they need for the community.
There is not really an easy answer as to what size is the medium.
Senator Pratte: When you say a "large municipality" in that report card, is that so many inhabitants in that municipality, or what?
Mr. Carlton: I'm not sure there is a precise population cutoff. As Clark says, "large municipality" is defined differently in different regions in the country. I imagine municipalities of over 150,000 to 200,000 are large.
Senator Pratte: Is an asset management plan something very bureaucratic and 500 pages long?
Mr. Somerville: No, not necessarily. There are some programs out there where literally the town engineer or one of the staff members would be able to plug in the information that they have on all their assets and it will come out with their results. It doesn't have to be a really complicated process; it can be a little easier. For some of the smaller municipalities, again, they can't afford the software and operating costs, and they need the staff to be able to do that.
Senator Pratte: Is that the type of thing you would help them with, for instance with the $50 million that you would receive from the federal government?
Mr. Carlton: Yes. We would be working with the provincial and territorial associations across the country to develop asset management training programs that are relevant in the different political jurisdictions, because that is the political context for a lot of this work, namely the provincial territorial government. It is about capacity building and some developing of best practices and pilots that we can then use as models to share with others.
The Chair: Maybe I could ask a question about the scorecard before we get to Senator Manning.
For the history of infrastructure, if we take it from when the Conservative government came in with their initial $33 billion in 2006-07 and then they went to another $53 billion in 2014, what has the scorecard for your membership been? Have you measured it? Have you been able to determine the multiplier effects or some form of quantification in terms of success? Or has it been getting the money out to the municipalities? What is your measurement? How does it work?
I am trying to understand. As Senator Marshall said, the minister came out with three objectives: The Green Fund, which is clean water, wastewater, et cetera; then Phase 1, Phase 2 and Phase 3; and then you have also the structure — that is, fix what we have today.
If we look at that particular program and the phase that has been announced — and I think, Mr. Somerville, you came up with it earlier — it is $11.9 billion in Phase 1, of which X number is $2.9 or $3.9 billion that will go to municipalities. Hearing those numbers and knowing the three areas that the minister wants to focus on, what happened when you heard that? How did you mobilize yourself with your 2,000 members to get it started?
If you look at the past, what have you done to measure your success? One of the things I notice is that people worry about just getting money out and getting projects done. However, we heard today in our Quebec caucus that many municipalities didn't even submit and $1 billion was never used in the last tranche of funding.
Could you give us some background? I know I am asking two or three questions.
Mr. Somerville: That is okay, Mr. Chair. You are allowed to ask as many questions as you want.
The Chair: Mr. Carlton, if you want to kick into any of the feedback, it is interesting to hear what the economist says, also.
Mr. Somerville: We did identify what the infrastructure deficit was in 2007. Since then, we have had a lot of municipalities, because of climate change and climate change mitigation and adaptation, increase the money that they have had to put into that. Especially in Halton region and in Halton Hills, we have had to do that on storm water to ensure that we are protected, because we have been getting dramatic increase in rainfall, rain events and flooding in both Burlington and Oakville. We have had to shift on that as well.
As far as what the number is today, I know we are still researching where that number stands today because a lot of money did go out from the stimulus in 2009; there was money as well the Building Canada Fund. It is hard to try to nail down what the number would be today on an infrastructure deficit within Canada.
As far as mobilization, I will let Brock handle that one because I was away when the budget was announced. I was trying to find out all the snippets that I could. I know that Brock was front and centre in the lockup as well.
Mr. Carlton: One of the prisms for us to look at this notion of scorecard is the policy framework of the federal money. A couple of important features of it have moved the yardsticks, if I can use that analogy effectively. Those tend to be around the degree to which decisions can be made locally so that the resources are channeled and the decisions are made locally to respond to the needs in the local environment. That is a really important piece of the puzzle of success in programming design.
The second feature would be the degree to which finance funding from a federal program is permanent, long term and predictable so that a municipality can see the money over the long term. It enables much more effective planning horizons, capital budgeting, et cetera. It also means that if you have the opportunity to think of a public-private partnership, the kind of stable, predictable long-term financing gives you that financial stability to say, "We can see over the long term this is a project that is "P3able" and we can manage the resources to contribute our share, the planning horizons and the predictability." so that the private partner can also see the stability and participate. The local decision-making, the long-term sustainable, predictable funding are elements of a scorecard that allow us to say that we're getting better at the framework of funding from the federal government vis-à-vis local infrastructure projects.
In terms of the history, the yardsticks have been moving. In terms of the specific moment in time with Budget 2016, we've come a long way from where we were 10 years ago in terms of infrastructure programming design.
Another important feature of the current budget framework is that, for the first time, federal infrastructure funding is allowed to be used for maintenance and repair. We have a whole bunch of infrastructure in this country that has been built and it's used and is aging. The Infrastructure Report Card that was referred to earlier talks about that aging infrastructure. The federal funding framework in the past has said it has to be new or it can't be in your capital plan. So all of a sudden, if you want access to this programming money, then you've got to create something new, whereas now we have a framework that says there's a real, legitimate investment in existing infrastructure to keep it up to shape so that it's a foundation for the future. That's a really important feature in this notion of a scorecard around the progress and design of federally-funded programs.
What's most interesting now is that this budget was kind of cast as a short-term, two-year timeframe while we talk about and figure out a ten-year program. The fascinating moment now is what does that ten-year conversation looks like and what are the new features that will move the yardsticks and enhance the score on the scorecard of effectiveness around funding for programming.
Senator Marshall: When you were talking about the scorecard, you put a dollar amount on the infrastructure deficit a number of years ago, and I think you said you are updating the numbers now. What's your gut feeling? Do you think the deficit has increased or has it decreased? Do you have a gut feeling? Can I get you to do a prediction?
Mr. Somerville: From speaking in my own municipality since that came out, we've seen our infrastructure deficit in our own municipality increase dramatically. Some of that is partially driven because the cost of getting the repairs done has gone up exponentially as well.
The Chair: How big is your municipality?
Mr. Somerville: Halton Hills is 65,000. Our unfunded deficit is $80 million.
The Chair: Do you have an average size? Do your 2,000 members consist of big cities?
Mr. Somerville: It's everyone.
The Chair: In that 2,000, what's your breakdown of big, medium and small?
Mr. Somerville: If I remember correctly, 80 per cent of the members are 10,000 and under. Then we also have the Big City Mayors' Caucus, which is 23 of Canada's largest cities by region. Within FCM, we have the rural forum, which by rough definition is municipalities under 100,000, using one of the federal numbers as well. We are a giant tent.
Mr. Carlton: Would it be helpful if I added a bit to this infrastructure deficit question?
The Chair: Yes, it would.
Mr. Carlton: What was referred to earlier was the Infrastructure Report Card, which is us, a big group of stakeholders, taking a different perspective on the infrastructure deficit, where the emphasis isn't on trying to find the big number because the numbers just get so big it's mind-boggling and actually depressing.
With the Infrastructure Report Card we have come to thinking that perhaps the most effective way to talk about this isn't the dollar amount but the quality of the infrastructure. When you look at the Infrastructure Report Card, it talks about transit, roads, bridges, buildings and rec centres, et cetera. It's really getting a sense of the quality of that infrastructure and the investments that are going to be required to help that infrastructure maintain the quality that we would expect as Canadians and the kind of quality of life we expect.
That Infrastructure Report Card says that over 30 per cent of the infrastructure in this country at the municipal level is at a state where, if not repaired fairly soon, it is going to start to affect the quality of service delivery and the capacity of that infrastructure to support the needs of the community.
It's really a qualitative approach that helps us understand where the infrastructure hot spots are and where will the investment resonate most in terms of maintenance and repair of existing so that we can then see a future for building the new stuff more effectively.
Senator Manning: Welcome to our guests. This is an interesting conversation, for sure.
I will start with Mr. Hodgson first. In your opening remarks, I didn't catch exactly what you said in regard to the gas tax and how municipalities and provinces are pleased to have that as a permanent part of the budget. You mentioned 1 per cent tax in regard to some way we could access more funding for municipalities and provinces. Would you elaborate on that?
Mr. Hodgson: Certainly, senator. One of the things we wrote about in the past was whether provinces should be identifying a clear revenue source for municipalities. The simplest for us would be to take 1 percentage point of the sales tax, which every province but Alberta has, and I've argued Alberta should have one as well, and frankly just transfer it to the municipalities. You would figure out what your transfer formula will be. I don't love the peanut butter approach where you give everyone the same amount based on per capita, but giving communities their own access to funds with their own availability meets for a different equation that has always been dependent upon the provinces and feds to transfer money.
I was thinking specifically of a sales tax as a revenue source to give cities and communities access to a growth tax, something that actually grows with the economy, rather than having to rely upon your property tax base and other fees and charges, which is what most communities have to do.
Senator Manning: Thank you for that. You made a comment there that I want to go back to. You do not necessarily agree with based on per capita? What would you suggest would be an alternative to doing that?
Mr. Hodgson: Per capita is a starting point. I have had the joy of being a public servant in my career as well. Bureaucrats are good at building frameworks with different criteria. You head count may be one criterion, but there may also be things like need, where you actually look at the expected life of an asset and where you are through it, and those that have gone beyond the expected life would be priority projects. You could develop a bit of a grid to guide the allocation of resources.
Senator Manning: I like that thought process. Mr. Somerville mentioned that 80 per cent of their memberships are under 10,000. Based on a per capita basis in my own province of Newfoundland and Labrador, it would be a long time. Usually we're decades behind and some would say we're centuries behind in some cases by the time we catch up.
Mr. Hodgson, you co-authored a brief opinion in an article entitled An infrastructure plan can boost our economy — if we get it right. I'm always interested in the idea of trying to get it right. I have been involved with three levels of government, and most of the time we spend our time trying to get things right, but we're not always successful. Based on what you have seen, what would you suggest as ways the government could look at to get it right?
Mr. Hodgson: Certainly in that article we tried to encourage the federal government to think beyond the short-term stimulus. Think about the long-term economic need — both the needs of our communities but also the need of our economy to ensure that we can get foods and services to market and get people to work easily. Those would be the kind of criteria I would put in place in terms of getting things right.
Arguably, there are parts of our economy that are in recession right now. We know that Alberta and Newfoundland and Labrador are really feeling it right now, but Quebec, Ontario and B.C. aren't. There isn't a crying need for short- term stimulus in those provinces, but there probably is a need for long-term capacity to keep growing at your potential.
Senator Manning: Mr. Somerville, and maybe Mr. Carlton, with regard to the discussions on projects that are going to be funded — I suppose this is an umbrella way of looking at things — what involvement have you had thus far with the projects? Most governments look for what we deem to call "shovel ready" with regard to getting the projects out. Mr. Hodgson touched on the fact that some provinces need that today while other provinces look at a long-term vision with regard to the projects that will be funded. Could you tell us about the involvement your organization has had in the development of projects that will be funded in the near future?
Mr. Somerville: First, I want to start off with a comment on what you asked about the sales tax and your mention of the per capita. One of the beauties of the federal gas tax is that there is a base component.. There is also the per capita component, which helps pick up, as you had said, the smaller communities as well.
In something like that, the important thing that we find with the gas tax is that we have the accountability for it as well. The other part of it is that it's transparent and accountable. The gas tax has really proven that it can work that way, having the transfers directly. In Ontario's case, it goes to the Association of Municipalities of Ontario, and they do the funding to the municipalities and the reporting up to make sure that everything has been in compliance and that there is the accountability.
Brock, I'd ask you for the second part of the question.
Mr. Carlton: It's important to understand that FCM's mandate is federal and national. Our focus is working with the federal government as closely as is possible to get the design right at the federal level, and then the federal government is in negotiation with the provinces on the particularities of the way that program's going to roll out in each province and territory.
In FCM's framework, each provincial and territorial municipal association is a member of our board. It's part of our world. For us, the provincial-level questions are managed through the provincial and territorial association, and that's where the decisions are generally made about specific projects. With the exception of the Economic Action Plan in 2008, where we were involved in developing these lists of shovel-ready projects, which is not the framework we're working with now, we don't get involved in the specific project-to-project analysis and application process. Our interest is the federal design so that it can be most useful for the municipalities in their application and their work in their localities.
Senator Manning: Turning to the distribution of funding costs on projects, we often hear of projects that are one- third, one-third, one-third. There are different formulae that are put forward. With regard to the formulae, as we mentioned earlier, some provinces are in a different situation than others economically at the present time. Five years ago, my own province of Newfoundland and Labrador could well afford to do a project. Today, they may not be in such a financial situation to be able to do that project, even though the project still needs to be done, such as certain roads, bridges, et cetera.
In Newfoundland and Labrador, when I was in provincial government a few years ago, we had a 50-50 cost-share program with the municipalities. Due to the economic surplus in the provincial government and the smaller communities, that went right down to a 90-10 in some places, with smaller communities, such as my own community. I'm just wondering how the formulae are developed. Is there room for movement on those? How are they negotiated? How do you put forward the concerns of your members that might not be able to afford the one third that the feds will be asking for?
Mr. Somerville: I don't think I've been at a board meeting talking about any type of program in the last 10 years where this hasn't been something that has come up, because it is always a concern. Hearing the minister talking about having a 50 per cent threshold is a tremendous benefit to the municipalities, an absolutely tremendous benefit, and, hopefully we can have the provinces come up to a similar one and not start looking at it and splitting it off as well.
I recall former Mayor McCallion saying that it was great when the projects was announced and it was this level but, as they increase in price, it is the municipalities that are 100 per cent picking up any shortfall that would come up. Having that level is a concern that has been expressed by municipalities, no matter the size, across Canada.
There were resolutions that were being circulated in the late fall and into the winter from municipalities asking for the federal government to be flexible on that and to work with the provinces to make sure that it takes in the economic realities that you mentioned, senator, so that the municipalities and provinces are able to deliver that as well. Knowing that in Newfoundland and Labrador, they have done that 90-10 — we hear that from our own members who are there — it's tremendous. I would love to see that.
The Chair: Is that what it is — 90-10?
Mr. Somerville: In some cases, yes.
Senator Manning: In some smaller communities.
The Chair: Is that federal?
Senator Manning: No, 90-10 provincial and municipal.
Mr. Somerville: One of the benefits of the gas tax, where it's the direct transfer to the municipalities, is that we're able to pick, under the parameters that we have for it, the programs that we can best use it for. I know that in my own community we have used it a lot for active transportation and trails and projects we had that we wanted to get to but just weren't able to.
Senator Ataullahjan: This is not my normal committee, so I'm sort of fascinated by what I'm hearing. Is there any criteria that is used to decide which projects these funds will support? How do you ensure equal distribution to various regions and municipalities of Canada?
Mr. Somerville: Which funds? Are you talking about what would be done for a program or for existing funds, just so that I can understand to answer?
Senator Ataullahjan: Existing funds.
Mr. Somerville: For the gas tax and municipalities, they all get that, based on the deal signed with the provinces.
For the Green Municipal Fund, there is an application process that they do, and at every single one of our conferences and events, we are always looking to make sure that we can get more municipalities to apply for it so that they can see the benefits.
I know that, last February, we had a small community, Marwayne, in Alberta, which received recognition for cleaning up gas stations within the town. That's a community of 700 in northern Alberta. We do really try to make sure that all sizes are able to access it. They all have equal access, and we really do promote to make sure that all sizes of municipalities are applying to get the projects.
Senator Marshall: I'm just going to continue on with Senator Ataullahjan's question. Who decides what projects are going to be funded? How is it done? Do you say, "Okay, we want everybody's application, and it has to come in by April 30 and then we decide who we're going to fund?" Or do municipalities apply, and then you decide whether they meet the criteria and just approve them as they come in, approve and reject? How's it done? What's the process? I sort of get the impression that it's not the federation that does it. Is it?
Mr. Somerville: That's why I want to make sure; are you talking about the Building Canada Fund or the Green Municipal Fund?
Senator Marshall: I'm talking about the Green Municipal Fund. The Green Municipal Fund you have in place now, and then you're getting more money for it, and then the new ones, the asset management one and the climate change. What's the process?
Mr. Carlton: The Green Municipal Fund is managed and governed in a very consistent process. It's a continuous application intake, and any municipality in the country that is interested and has the idea can submit an application. We have a whole mechanism for supporting the application process. There is a peer-review process so that experts in the field can look at the proponents' ideas. We're looking for innovative ideas.
That eventually gets to a council. The GMF council is made up of four representatives of the federal government, four from the municipal sector and four from the private and not-for-profit sector. This council then reviews the applications based on the peer review, so, if a peer review doesn't score an application high enough, it goes back for further process. So the council reviews and makes recommendations on which projects should be approved. Those recommendations go to the FCM executive committee for approval, and once that approval is in, things start to flow.
The fund is designed to ensure that there is fair distribution across the country and that there is fair distribution in terms of size. For example, right now, if you look at the allocation of funds through projects, about 20 per cent of the resources are going to small and rural towns in Canada, which is about the proportion in the country in terms of rural- urban split. There are relative balances across the country in terms of East Coast versus West Coast versus Ontario, Quebec, et cetera. All of these balances are part of the mechanism for making determinations of which projects get accepted.
The other important piece is that in the Green Municipal Fund, a very important piece of this fund is about learning, so the dollars are a mechanism for capacity building. We fund or provide loans to projects, and they do the work of the project, but they're also mining the project for learnings that others can benefit from.
We're looking for innovative projects and projects that are innovative within their regional context. The folks in Atlantic Canada have regional issues and challenges and opportunities, and those projects that are accepted in Atlantic Canada are accepted because of their merit and because they will be effective vehicles for others in Atlantic Canada to learn from, benefit from and replicate them in some way in their own place.
Senator Marshall: There is nothing that says that 5 per cent of the money has to go to Newfoundland.
Mr. Carlton: It's not that rigidly defined, but in the management and governance of the program, there is always an eye to that to ensure that there is an effective and appropriate regional balance.
Senator Marshall: You have a fairly big board, and there is representation from every province and territory. Does it ever come at your meetings that some provinces or territories feel they're not getting their fair share?
Mr. Carlton: From time to time, the board will ask for the data and for the information related to either that question or the question of the rural-urban balance, and so that's just part of our management process to ensure that those balances are in place.
I've been CEO nine years, and there has never been a moment where a board has overturned a recommendation from the GMF council, so the council is the oversight body for this balance and the board is just double checking.
Senator Marshall: Has your experience been that you're getting all the money that's available distributed? Are you in a position whereby there are so many millions of dollars available for distribution but you just don't have the applicants to use up all the money?
Mr. Carlton: There are times when there are dips, and we have ways of marketing the fund to encourage others to apply.
Senator Marshall: I've asked a lot of our witnesses this question, because it seems like it's a prominent objective of the federal government. When they're talking about infrastructure, they want to pursue evidence-based decision- making, arrived at through independent expert advice. What does that mean, in your opinion, if they wrote you a letter and said that?
Mr. Carlton: I would hate to presume the meaning of the minister with those words, but for us it comes back to the question that Senator Pratt asked earlier about asset management. For us it comes back to the question that there is a need in this country for more effective asset management, which includes a better capacity to gather data and analyze that data with respect to the infrastructure, the state of the infrastructure and infrastructure needs in the country.
Senator Marshall: This is my opinion now, but I get the impression that in a lot of cases there is not sufficient evidence. All this money is going to go out the door. I know there are some indicators available, but we need to do a bit more work on the indicators. Are we, in a way, putting the cart before the horse, or do you think we are in good shape with the indicators?
Mr. Carlton: You mean putting the cart before the horse by investing in infrastructure before we have the indicators?
Senator Marshall: Yes.
Mr. Carlton: Obviously I don't think the cart before the horse because we celebrate the infrastructure investments.
Senator Marshall: I know, but theoretically speaking.
Mr. Carlton: Not so much theoretically. I think the government has been very smart in saying that we've got an immediate challenge — jobs, employment, economic issues and infrastructure decay — so the short-term investments are about focusing on the immediate, shoring up the existing, and at the same time, in parallel with that $50 million and probably other resources with Statistics Canada, while investing in the immediacy of the challenge, we would be also building through this asset management program the capacity to gather, understand and manage the data in a way that enables the longer-term infrastructure investments to be informed by better analysis and data.
Part of the $50 million is not only about how you manage your assets, but it's also about information. How do you get the right information so you can use that information most effectively?
Senator Marshall: To make the right decisions.
Mr. Hodgson, Senator Manning referred to an article, An infrastructure plan can boost our economy — if we get it right. I know we're talking about infrastructure now. Is that the best way to stimulate the economy? Why wouldn't tax breaks be a better idea?
Mr. Hodgson: We have done lots of analysis for the federal government and provinces and cities on the multiplier that is available from public investment, and infrastructure is one the best ways. If you have to spend money quickly as a government, or just spend money, you get very strong multipliers out of infrastructure investment because we're employing people in Canada. A lot of the inputs are Canadian. We don't import a lot of the stuff that we're putting into our roads, bridges and water systems. Historically, it has been a very effective way to give pay-back to the economy.
Senator Marshall: Is it better than giving tax breaks to small businesses or individual taxpayers?
Mr. Hodgson: It's often better because of what economists call "leakages," where you start to import things; so the benefit of the spending is transferred to another country. In the case of infrastructure, you invariably get a ratio of 1 or higher. You were at 1.5 or 1.6. For every dollar you spend, you get $1.20 of benefit, typically. It always ranks up at the top in terms of impacts, better than tax cuts.
The Chair: On multipliers, I would be remiss, but I forgot to say that the third element of the minister's allocation was about social investments and social infrastructure. Mr. Hodgson, are there definitions that differentiate the different types of multipliers for the different types of infrastructure? Part of the government program is that there is a dependency on the value of the multiplier in infrastructure investment; so we're talking about shovel-ready projects and things we can fix. Is it the same multiplier on things you can fix versus a road program that deals with congestion and you put in a super lane? How many variables or measurements from history are there to determine the multiplier effect and the value?
You said for every dollar, a $1.20; and you said for every dollar, $1.63. We have already a couple of different measurements. It's important for us to be able to quantify. Can you give us the measurements? You've done a lot of research, and I'm sure Mr. Somerville and Mr. Carlton —
Mr. Somerville: I have some.
The Chair: Could you not only verbalize, but could you write them and give us a one-pager? We're trying to accumulate that type of information.
Mr. Somerville: I can give you a couple. For infrastructure, $1.64, economic growth generated per dollar invested in public infrastructure. That would be the roads and bridges. Eighteen thousand jobs created per $1 billion invested, and 60 per cent is owned locally by Canada's municipalities for the core infrastructure. That's just on the infrastructure piece. On housing, it's $1.40 economic growth generated per dollar invested.
The Chair: That is social housing?
Mr. Somerville: Yes. Thirteen thousand jobs created per $1 billion invested, and 50 per cent of renters are spending more than half of their income on rent.
On transit, $3 of economic growth is generated per dollar invested in transit.
The Chair: So for each dollar in transit, you get $3. And how many jobs?
Mr. Somerville: There's been a 21 per cent growth in ridership from 2006 to 2012. I don't have the number of jobs in my notes in front of me, but we can follow up on that and get that for you, as well.
The Chair: Are there any other measurements we could have, or are those the top three?
Mr. Somerville: They're the top three. But if we have other ones related to these ones, we will get them to you, Mr. Chair.
The Chair: The other thing that stuck in my mind as you were talking, Mr. Carlton, Mr. Somerville and Mr. Hodgson — you've had a lot of experience — is that for your organization, the FCM, can you give us an organizational structure? You're talking about these projects and these people have to go through a process, and the first question I had was: How long is the administrative process, from start to finish, before you're approved?
Mr. Carlton: For our Green Municipal Fund, which is —
The Chair: If there are three categories, give us all three.
Mr. Carlton: The Green Municipal Fund is the one fund we manage at the moment that provides financial support to municipalities to undertake initiatives. It's about a six-month process to —
The Chair: From start to finish, with finish defined as when they get the approval to get the money?
Mr. Carlton: That's right.
The Chair: And how long does it take to get the money once you approve it?
Mr. Carlton: It depends on the project. They will get the approval for the financial resources, and often they are projects that are bigger than our resources so they're bundling resources from different places. It takes time to get all that bundling in place. And then it depends on the speed with which the project is implemented.
The Chair: If you had to guess, based on your experience?
Mr. Carlton: A couple of years for the completion and financial rollout of it. But that's a rough ballpark. Imagine: Some of these are loans for pretty significant infrastructure projects, and some are grants for feasibility studies and pilot projects. So they range greatly in their scale and scope. When I say "a couple of years," that's pretty rough. Six months is the standard for processing and getting to approval.
The Chair: The shovel-ready projects that the minister is talking about —
Mr. Carlton: That's not the Green Municipal Fund.
The Chair: No, I understand that; it's a different area. I'm trying to understand. How long will it take for those people to get their money? In the media, the minister was saying that the construction season is now. Spring is almost half done; we're coming into early summer shortly. I'm trying to understand: Will there be shovel-ready projects started now, or is this frozen money that existed from prior funds that have been unfrozen and will start to go out? I'm trying to understand; I'm not trying to be silly.
Mr. Somerville: For us in Halton Hills and Halton region, when they had the economic action plan, we already had our budgets passed. So when funding was suddenly announced, we had to go back and do a shuffle because of projects that weren't on our capital forecasts. If the federal government were offering money to do a project, we would figure out a way to get that into our budget to be able to do it as quickly as we could.
A lot of it depends on the complexity of the project. If it's shovel-ready, that means we've already done the engineering studies on it and the environmental scans. We have everything relatively quick, ready to go, except sometimes for final design and then getting it out to tender. Then we get it into the line that we have for whatever the contractors are going to be able to do it. That can be relatively short on the ones that are truly shovel-ready.
The Chair: What are your members saying now with the minister's speech and the statement of shovel-ready projects? How many shovel-ready projects do you anticipate your 10,000 members — how many projects will take place or start?
Mr. Somerville: We don't know, because we have to see how the program looks when it comes out. That will be the main factor. I would not be able to give you a number. It would depend on the way the program is rolled out once we know the details. That is why it's important for us to work with them with the details of that.
The Chair: My last question would be on the administrative structure of decision-making. Senator Marshall, because of your experience, or Senator Manning, you would have access to this. I'd like to understand how the decision-making process works. How many employees do you have? Are the decisions made by your members reporting to you? I would like to understand the organizational structure of how this works. I would ask you to do a little map for us and send it to us in its simplest form.
We've asked this from the Infrastructure Canada people. We want to build a "war room" and in it, we want to say, "In 2007, you had 33 billion. In 2014, you had 53 billion. In 2016, you get 120 billion over 10 years." We want to understand the number of programs, the money available, the decision-making, what are the national priorities, what are nation-building programs, major provincial programs, and key municipal programs at different levels? Then, how will they execute all this stuff?
Maybe it's an unrealistic expectation, but it's the idea of planning. If this is going to go on for 10 years, we need someone doing strategic planning. At what level will we have it? Will it be just municipal, or will it be municipal, provincial and federal? There are all sorts of issues we have to understand, because if it's new to us, it will also be new to some other people.
Mr. Somerville: Municipally, we do our budgets and forecasts. On the stable, long-term, predictable funding, we can go through in our budget forecasts that we renew every year with a 10-year forecast to see the projects we'd like to see in there. Municipally, we do that already where we're already planning on our projects for 10 years out. If we knew what the funding levels would be and what we might be able to apply for, that helps us with stable, long-term, core funding.
As for the organizational structure, I'll let Brock answer.
Mr. Carlton: I'm smiling because this is a bloody complicated country.
I just want to be really clear: We're talking about two different things. There is the FCM Green Municipal Fund that has a specific organizational structure, and I can draw that and send it to you. I have described it, but I can paint that picture easily.
Then there is all the other stuff you were referring to: the 33 billion, the 53 billion, the new Building Canada Fund, et cetera. That's a totally different setup. We don't have anything to do with those decisions about projects.
Generically, the decision-making structure is that the federal government designs a program, commits to a certain magnitude of dollars in a certain framework for programming and then goes and negotiates with each province and territory. That is exactly what's going on right now with the new money in the budget — not the old Building Canada Fund, but the new money — where the federal government and their provincial-territorial counterparts are in negotiation about what this will look like in Newfoundland and Labrador versus in Saskatchewan. Those negotiations create the framework for decision-making about local projects.
In a very generic sense, the municipality — this is not gas tax, but the program-based funding for infrastructure — will say, "We have a school project. Let's develop our proposal." They develop a proposal, and it goes into a decision- making mechanism that involves the province and to some degree the feds but it varies, and then a decision is made. You, as the proponent of a project, may win the lottery or not. That's how it works.
A while ago, we were talking about the scorecard and how things have progressed over the years. One of the features of this from our perspective is the degree to which the federal government is willing to say to the province or territory that a successful federal program in infrastructure directs a certain proportion of this money to municipal projects. If the federal government is willing to do that and begins a negotiation with the province, then whatever the basket of money is at the provincial or territorial level, a certain percentage of that then becomes targeted for municipal projects. But it's not necessarily the case. It depends on each negotiation whether or not there is that percentage. It also depends on the willingness of the federal government to say, "This is our money. Some of it must end up here."
In the absence of that latter statement, then the generic process becomes municipalities applying to the province. The province has a pool of money — some of its own; some of it is federal — and they make the decision on which provincial projects, if any, will receive Building Canada Fund money, and then the money starts to flow. I can't be any more precise than that because it has a different flavour in each political jurisdiction at the provincial-territorial level.
Senator Pratte: I have one question to Mr. Hodgson. In the article that has already been referred to, you talk at one point about transparency, open consultation and independent review of funding.
This is a follow-up to Senator Marshall's questions. For each new infrastructure program, each time the government has said they would make sure the money would be well-spent, projects would be well-chosen, et cetera. In the end, we find that some things went wrong, and usually we find out in the Auditor General's report on the infrastructure program.
Has there been — maybe in other countries or in a province or somewhere — a system designed where we can have transparency as the program is rolled out? Where we can see, as things happen, whether projects are well chosen, whether the money is well spent, whether there is a good probability that we will get the results that we all want? Is there a way to do this while the program is rolled out, or is the only way to wait for the Auditor General's report to come out a year or two after the program is out and it is too late, frankly?
Mr. Hodgson: I had a good answer to your previous question about pilot projects and how they might proceed. Unfortunately, I don't have a good answer to your question because we haven't found that magic solution whereby you can have real-time monitoring. The AG is the default option. Given the complexity that Mr. Carlton described, you may end up having that default option. If all 10 projects are slightly different, with a local flavour, the Auditor General may then have to go and do the evaluation after the fact. But this is really all about value for money, which is the Auditor General's job. Unfortunately, there isn't a nice, off-the-shelf solution here to improve transparency. There could be. You could have an advisory group, for example. You could engage citizens in some form by province, but we haven't seen it applied yet.
Mr. Somerville: All our projects at the local, municipal level are audited as well, because we have to do annual audits. Any cost overrun on any project ends up back before council. I think the councils do a pretty close job of watching for the projects as they are going through.
Senator Pratte: It is not only a matter of whether the money has been overspent. For instance, one of the questions I have been asking, and I think Senator Marshall has been asking as well, is about social infrastructure — which is sort of a new concept, and it's a wide concept. Over 10 years of spending I don't know how many billions of dollars for social infrastructure, will the multipliers be what they think they will be? For both economic multipliers and social multipliers, will it be worth it or not? Will it have been a good decision or not? Instead of going on spending for another seven years, maybe we could take a look at it after three years. That is what I am thinking about. It doesn't seem there is a real process for doing this, and I find that a bit worrisome.
The Chair: Don't forget that the minister told us $20 billion for each of the three categories. We have knowledge of the numbers of $20 billion, $20 billion, $20 billion. So the green fund, $20 billion; $20 billion for social infrastructure; and the third would be for the roads.
Mr. Carlton: There are two related thoughts. First, the New Building Canada Fund, as it was announced by the Conservatives — which is becoming somewhat of a moot point, but nonetheless — was a ten-year time frame with a five-year evaluation moment, so there was an opportunity. We hadn't been working with them on developing the indicators of that five-year pause, but the intention was a five-year pause to say: Are we on the right track here? Are we getting things right? There is that element of periodic reviews of progress.
More importantly, what you are saying speaks directly to the critical nature of effective design at the beginning. FCM appreciates this government's openness to working with us on that very question so that, as much as possible, the design features of the program can be established so that they make sense and are appropriate for the effectiveness of the local infrastructure decision needs, et cetera. Taking the time to do that is critical.
The third thing I would say is that in that design period, there needs to be a good conversation about what we are actually trying to do here. I go back to when the gas tax was first introduced by Paul Martin's government. There was attached to the gas tax something called the Integrated Community Sustainability Plan. If you wanted gas tax money, you had to have an Integrated Community Sustainability Plan, and the gas tax money was to be used to respond to what was in that plan.
That government didn't last very long. We never had a long enough experience with that to be able to understand how it impacted decisions of this nature, but it is an interesting example of a federal government making a decision: Here is a whack of dough. We're not going to put detailed conditions on it, but we're going to put sort of aspirational objectives, principles and guidelines that then help guide local decisions so that they work toward a higher accumulated set of objectives at a national level. We haven't had that since the original gas tax was brought in and these Integrated Community Sustainability Plans were developed.
I would also say, as part of your thinking and your question, not only the design feature but let's get some objectives, principles and guidelines that paint the national imperative so the municipalities, provinces and territories can make their decisions that line up with those national imperatives.
Senator Mockler: I am intrigued by some of the comments you have made, and I want clarification or maybe additions to your comments. When we talk about shovel worthy and shovel ready, how do you define that for municipalities from coast to coast to coast?
Mr. Somerville: I will take the first stab at it. "Shovel ready" are the projects that you have ready to go. You have done the engineering studies and the design. They are ready to go. They are ones that you could turn around quickly.
"Shovel worthy" are the ones where you will get the biggest bang for the buck. It might take a little longer to get them. We know that this bridge should be replaced in my municipality. It may not be something that we were going to do this year, but we have done some of the preliminary work. But if it is a far better project to go, that is how I would define one as being shovel worthy because it might reduce traffic congestion and bottlenecks and help to improve transit corridors for people getting to work and for the movement of goods. That is how I would define it.
Mr. Carlton: Perfect.
Mr. Somerville: I got that one right. That is always good to hear.
Senator Mockler: When you come to shovel ready versus shovel worthy, that is no doubt depending on the infrastructure and/or the manpower that municipalities have. That is, how to prepare projects. If we look at shovel worthy, it will take more time to prepare and submit the application and, as the chair said earlier, to streamline and get the money faster or later. Would the shovel worthy take a lot more time than shovel ready?
Mr. Somerville: Not necessarily. If you look at our capital forecast for a municipality, we might have a project where we have all the engineering done and everything else ready to go, but it didn't meet our funding for this year so it has now been moved to our highest priority for next year. That is one that could be shovel ready that we could pull forward relatively quickly, as long as we could have the capacity in our municipalities to do it. Every year, we have projects we would love to do, but because of the financial realities of our budget, we have put it off for the next year.
Senator Mockler: I will come to the Conference Board of Canada. We read what you co-authored, Mr. Hodgson. I am a parliamentarian. Is it possible that political advantage should not be the driver for public infrastructure projects? Instead, the federal government needs to set the right infrastructure investment priorities that provide the highest possible economic return. I would like to have more clarification on this, especially when we look at Dr. Savoie.
[Translation]
I have no doubt that you are familiar with him. He wrote a very interesting book, and New Brunswick municipalities follow his work very closely. Here is the title of his book:
[English]
What is government good at? I want your opinion.
Mr. Hodgson: First, I learned a long time ago not to respond to questions in the other official language.
[Translation]
I have a good knowledge of French, but —
[English]
It is more effective to respond in English.
Senator Mockler: But we have translation.
Mr. Hodgson: Yes, that is to your advantage. Government is probably good at using analytics to define priorities and to build frameworks. I took a lot of comfort from the responses of my colleagues because it sounds like you built a fairly rigorous framework. I am a little more troubled on the allocation by province, but on the green fund, you are doing things right. That is probably what government should be best at, is using the evidence to build a rigorous framework to then allocate scarce resources. We clearly don't want this to become a political football. That is a bad pun, but it is too important for Canada's long term growth potential to get the allocation of funds right.
I would like to respond to Mr. Carlton about doing the work up front. Have the discussion now. Set the criteria now. Have the framework decided. I also like the thought of doing a review three to five years in to make sure you are on the right course. That is something government could be very good at. Knowing you have a funding need that will stretch over a decade, do your homework now, get the framework in place, and be prepared to do a course correction along the way, if required.
Senator Mockler: What do you mean by political football?
We have seen in Canada in the past, since 1867, for infrastructure, different governments have invested in air services, rails and seaways. Today we are faced with moving our natural resources to market. There are infrastructure programs. Small communities have their challenges. Mr. Somerville and Mr. Carlton have seen that, especially in regions like Atlantic Canada, where a municipality can have 200 people but it needs its water and sewage system, too. We have seen investment in air services, rail and seaways, so should government invest in getting our products, for example, in pipelines?
Mr. Somerville: Getting all our products to market is actually important. We have to remember that all trade in Canada begins on Main Street. It is just a matter of what the size our Main Street is. That is the difference.
We have tremendous traffic congestion in southern Ontario that is hindering the economy. If we did the serious investments in the transit infrastructure, it would relieve that, which frees up the roads for the transportation of goods, which can grow the economy because our manufacturing can help us out.
On the item specific to pipelines, FCM has never taken a position on that. We have a group being struck in the next couple of weeks that will look at the principles that municipalities should consider for pipelines. It's more respecting the municipal autonomy that we have. There are proposals like that as well, but it is not something we have ever taken a position on.
With us being the large tent and having municipalities from all sizes, from all areas of the country, economic growth is very important, but we also have to ensure we are respecting the local autonomy and the municipal authority is as well.
The Chair: Before I turn to Senator Manning, I would just indicate that, at the end, I would like to have three to four-minute résumés from each of you as to what recommendations you could make to us toward our study that could be helpful in addressing the key elements of the efforts we want to accomplish in terms of assisting the government in implementing the infrastructure program. The theme of our program is to get it right the first time.
Senator Manning: We are talking about a tremendous amount of money here. When you go from coast to coast to coast, you are talking about the $120 million, $130 million range. The taxpayers of the country would certainly like to see an independent review of this funding, with openness and transparency. None of us are naive around the table. Politics always plays a part in these things.
Mr. Hodgson, according to the annual report of the Conference Board of Canada 2014-15, the conference board published 496 reports, organized 37 conferences and has 13,000 organizations and 300,000 individuals in its customer database. That is a lot of focus groups, if you ask me.
Certainly the conversation is ongoing in the larger cities, not so much in my hometown of 400 people. That is when everyone is home. I would like to have a conversation on the role of the private sector, the 3Ps, whether that is public pension plans or whatever. How do you see us moving toward that with regard to the major infrastructure needed in the country? When you look at other countries in the world, a lot of the infrastructure that is in place is under 3Ps. In some places it works very well.
To get back to Senator Pratte's comments earlier on the bridge in Quebec, we are taxed a fair bit. Most Canadians don't want to be taxed any more, whether that is tax on a toll on a bridge or any type of tax.
From the consultations that you have with all these people, somewhere along the line I am sure that conversation has taken place. Perhaps you can suggest a couple of ways that governments should be looking to have private sector become involved in some of these major projects that would sell to Canadians.
Mr. Hodgson: Senator, I clearly know now that I can run but I can't hide. You have done your homework on the conference board, and I appreciate that.
I was personally an advocate for P3s probably 15 or 20 years ago when I was still in the federal government. We have come a long way in the intervening decade or so. For example, in Ontario, most schools and hospitals are now being built on a P3 model.
The key to P3s is figuring out what each party can bring to the table. Maybe the ultimate project risk has to still be taken by the state, but if you can get better project design, implementation or even some of the fundraising from the private sector, that is clearly a step in the right direction. You can often get a project delivered faster and maybe even at a better price, although the financial risk, the actual construction risk itself, will be borne by governments.
We have moved a long way, but we have another step to go. I think issues like being prepared to use prices and actually charge people for public services would be part of the conversation. There are things to be learned there.
What I find astounding, frankly, is that we have incredible pools of capital now in this country, such as private pension funds, CPPIB and so forth, and they are buying assets around the world. They're owning airports in Australia and in Europe, but we can't find a way to deploy those assets at home. That is where I would take the conversation.
We have the engineering capacity and the project management skills. That is where the P3s now function. Can we go the next step and look for ways to engage private capital? It may not be easy, and it certainly will not be not for every project. Not every municipality will be subject to a P3 model. Most of your projects may well be things the government has to do, and you will have to pay it from your broad revenue base. But where you can have a user-pay model more and more, even in part, that is where the P3 model becomes attractive because then you can attract private capital to the model.
Senator Manning: When you look at the bridge to P.E.I., people pay a toll on that.
Mr. Hodgson: That is a tremendous example, and it replaced the ferry service. I was at Finance Canada when the announcement was done. The counterfactual was clear. We either keep subsidizing the ferry forever or make a one- time investment. It is a toll road, and it is actually paying for itself to a great degree — a very effective project.
Highway 407 is a different story. It changed course two or three times. However, as someone living in the Greater Toronto Area, you would understand, Mr. Somerville, that it adds huge value during rush hour, and you are quite prepared to pay the toll and not use the 401. It is a case-by-case application.
The Chair: You talked with Senator Manning about P3s. Is there any connection to the infrastructure bank?
Mr. Hodgson: I see the value-added for the infrastructure bank in, first of all, the cost of funds for the more junior levels of government. If you could save 50 basis points on a 25-year loan, that is a lot of money. There is the expertise you would have in terms of packaging, the kind of things that EDC, BDC and Farm Credit are doing right now. P3s may be a different space along the way, but clearly an infrastructure bank could play a role in, for example, trying to bring private capital to the table.
Senator Manning: We are talking about a tunnel to Newfoundland and Labrador now. We are always interested in ways to get investments.
Mr. Hodgson: I think, senator, if you can get the power cable in place, that is a step in the right direction.
Senator Manning: That is a conversation we don't want to get into here this evening.
What incentives could the federal government bring forward to the private sector in relation to enhancing the opportunity for them to invest in public infrastructure?
Mr. Hodgson: I will show my Department of Finance bias here. I was with Finance Canada for 10 years. I would just as soon avoid formal subsidies for committing the public purse as a way to incentivize. I think the incentives would be things like risk sharing, creating the right conditions for the project, ensuring that each party knows what element they are bringing to the table.
The trouble with any incentive system, as you probably understand, is that once you're in, it's very hard to get out. I would much prefer to get the prices right and let the market decide how to allocate capital than building in an ongoing financial incentive. I would find it far preferable to have something like the gas tax and transfer resources to communities. That is not so much an incentive as a way to share a revenue base.
Senator Manning: Mr. Carlton, is your organization involved in the development of the structure for Phase 2 with where we are and where we go?
Mr. Carlton: It would be premature to say we are involved in the structure of Phase 2. We are certainly involved in the discussions about the ideas, the possibilities and the infrastructure bank discussion; we are participating in that. As the ideas are being kicked around and taking shape, we are absolutely involved and are very pleased with the openness and accessibility to that conversation.
We know that over the course of the next few months, it will take shape, it will start to take the framework, and we are feeling confident that we will participate actively as the ideas mature.
Senator Manning: I spent some time on municipal council, and sometimes the people that are on the ground closest to the projects are the people that know how to do this. Sometimes getting that through to the bureaucrats here in Ottawa is a mountain that some of the municipalities don't get to climb. So I wondered about your organization.
You mentioned earlier hot lanes with regard to trucking companies or someone else using a hot lane to move around their goods much faster. Are they in Canada now? I know there are some places where there are toll roads. Can you let us know? I haven't heard about that before.
Mr. Hodgson: There is a discussion, I believe, in Ontario right now to identify the HOV lanes, for example, on the QEW and converting it into a hot lane where people would pay for the privilege of using the lane. But I understand it may take a year to two years to have the technology in place, the chip reading technology to allow you to proceed. But there is an active discussion now, largely in southern Ontario, about how to allocate finite lane space to drivers and allow commercial vehicles, for example, to be able to pay a $3 or $4 toll and cut two hours out of their work schedule. For me, that would be the real saving, not so much drivers with high incomes as the real commercial payback that is getting out of traffic jams.
Senator Manning: It sounds like a good idea, but I wondered how advanced it was. I can see a lot of companies that would be willing to throw in those few extra dollars to move their goods two hours faster. Time is money.
Mr. Hodgson: But to get back to Senator Pratte's question, the issue would be how you actually build public support for this so it doesn't get scuppered before it ever has a chance. The pilot project model has worked.
Senator Mockler: To the Federation of Canadian Municipalities, could you expand, Mr. Carlton or Mr. Somerville, on the committee that is being formed to look at infrastructure such as pipelines?
Mr. Somerville: I can do that. We just had this approved at our last executive meeting a week or so ago because of concerns raised from across Canada for the variety of issues that have come up.
When this reports back in September — it's a tight task force, so they will have a quick mandate — the idea is that as they work through, they will come up with the principles that should be done if a pipeline is being proposed into a municipality.
I have no idea what they will come up with. I will be one of the members of the committee by virtue of being president in three weeks. It could be consideration for the environmental assessments around transportation corridors. It could be items like that. We haven't defined what it will look like. The committee has not met yet to be able to get to that. We do have the terms of reference, and the president and I will be doing the appointments over the next couple of weeks to do that. It is to be able to lay out what the municipal questions are.
Senator Mockler: In the structure of your committee, will we have representation across Canada?
Mr. Somerville: It will be at least one representative from every one of the regions that we have.
Senator Mockler: What are your five regions?
Mr. Somerville: We have Atlantic Canada, Quebec, Ontario, the Prairies and territories, and British Columbia. We also will have a representative from the rural forum, at least one. We will have a representative from the Big City Mayors' Caucus, plus from our three standing committees, one of the environment, one on finance and one on transportation; and then with the president and the first vice as the ex officio members of it as well.
Senator Mockler: That's very important. Be mindful that the safest way to transport oil is certainly by pipeline.
Mr. Carlton: Thank you.
Senator Mockler: How do you work with the other municipal associations in Canada, precisely Atlantic Canada and New Brunswick?
Mr. Somerville: There are 21 municipal associations across Canada. Every single one of them is represented at our board, where the president of them serves on the board of FCM. The president or one of his delegates gets out to as many of the conferences as possible to speak and meet with the members as well. They meet when we have our board meetings as well. They have a lot of dialogue, and that's just what I see as a board member. There may be more that I don't see.
Mr. Carlton: There's a variety of touch points at a staff level on any of the issues that are important. It's a very close and collaborative relationship. In New Brunswick, you have three provincial associations. We work there, and they are all represented on our board by their respective presidents, and they engage in the discussion.
Senator Mockler: I want to commend you for the leadership that you have provided. One of the first 3Ps in Canada was the TransCanada Highway in New Brunswick. I think it was the first, as a matter of fact. That's basically because you were also part of those discussions. I want to establish their leadership with other municipalities and associations.
Senator Marshall: For the three programs that are mentioned in the budget, the Green Municipal Fund, the asset management best practice and climate change, does the federal government transfer the money physically to you?
Mr. Carlton: We will have some kind of agreement whereby the money, through a contribution agreement or contract, will come to us and we'll manage it.
Senator Marshall: You don't just approve it. They send out the money.
Mr. Carlton: We will be managing it.
The Chair: Gentlemen, we've come to the point where we would like to have a summary. We have 12 minutes left for three of you, which mean four minutes each. The purpose is to help us as we move forward to have some pillars and posts that we can associate with what you're doing for the program implementation in Canada so that we can get it right the first time.
Mr. Somerville: We really appreciate the opportunity to present to you tonight. It's a great honour for FCM to be able to do this, and we really thank you for the opportunity. We also want to make sure that you remember we are here in Ottawa. If you have questions, please feel to contact us, because partnerships are what we do best.
We have to remember that municipalities are best positioned to understand the value of infrastructure investments and to the communities in both the short and long term. We also have a proven track record of being able to deliver the projects that meet the needs of the residents and improve the quality of life of our citizens. We've worked closely with the federal government to craft and implement a blueprint to turn the government's bold vision into meaningful action.
Having predictable, stable long-term funding arrangements like the gas tax is important to help us build on local asset management and our long-term capital planning, and it allows the federal government to establish clear and consistent program criteria. Having the predictable transfers also allows us to have municipalities be quick and efficient while allowing for the clear, measurable, accountable goals of the federal government with what our taxpayers demand.
Our key changes to program designs that have been undertaken by the federal government are equally important and will really help municipalities invest and meet current needs. Some of them are the increase of the maximum federal contribution for projects to 50 per cent; the application of the new cost-sharing model to both traditional projects as well as those involving a Public Private Partnership; the enhancement of cost eligibility to include engineering and design and the removal of the mandatory P3 screen.
All the municipalities agree to looking at a P3, but it has to be the right projects. With some of our infrastructure being social infrastructure, they're not ones where they would have a profit that would attract a P3, but it is something that should always be considered for projects. It's not something that necessarily works as a mandatory provision. There are projects that make sense for it to be done.
Mr. Carlton: To get it right the first time, we have to embrace the reality that municipal governments are key players in nation-building in this country, and they need to be at the table while programs are being designed and ideas are being conceived so what is contemplated in Ottawa is relevant in communities.
The Chair: Is that happening?
Mr. Carlton: It is happening now more than it has, and there is still work to do.
Mr. Hodgson: I'm usually the opening act, so I could take up a lot of time giving the economic forecast, but I won't do that right now. I will repeat some of the comments Mr. Somerville made.
First, I think your inquiry right now is very timely because getting the framework right now at the front end is very important. The engagement of FCM and other stakeholders with the federal government to get the criteria right and find the process, including a review, is vital. That's what governments should do best: Frame the issue at the front end.
Second, we should be open to the full array of financing options. A lot of these projects will be done on balance sheets, funding transfers to give the municipalities a capacity, but let's not rule out the potential to use PPPs where they make sense. We have gone a long way as a country in the last 15 to 20 years towards PPPs where they truly make sense. Senator, your mention of the highway in New Brunswick was spot on. It was kind of a pilot case, but we got the pilot right, and it led to further examination.
Third, because I did write about the infrastructure bank, it's clearly not a panacea — it's not for every project; but there are advantages to having a separate institution. You can take the funding off budget. You can build a centre of expertise, people who are really expert at identifying structuring, and maybe even provide a cost advantage to borrowers knowing that there will have to be all sorts of counter guarantees. The governance model right is critical to that so people have confidence in it. It will be fundamental to having an effective infrastructure bank.
Thank you for the chance to meet with you again.
The Chair: Mr. Hodgson, could you give us a one-pager? You had five points, but I ended up having nine points from your five points, and they were excellent. Would it be possible for you to write a one-pager — a summary of what you talked to us about in bullet form, including that infrastructure bank? It would be really fantastic if you could do that for us and get it to us in the next week. Is it possible? I know you're busy, but for us this is one of the most important studies we've ever done for our country.
Mr. Somerville and Mr. Carlton, it would be helpful if you could summarize the biggest challenges you face in implementing the new infrastructure program that has been brought out. Perhaps you could give us a one-pager on that and what you've learned from past experiences, maybe a couple of things that you have done right and couple of things that you would like to do better. It would help position us.
One point that came up from our deliberations to date is that there seems to be historically a lot of programs that have been in play. We talked a little about this when we first met. In simple language, if you have 15 or 20 programs that have been in place, how many should you have moving forward?
Do you want to focus on building the gas tax to a higher level of revenue? I know it's indexed to $100,000 per year or whatever it is, or $2.1 billion. Is that what the gas tax is each year? Or a million increase per year. It's indexed. Is there a way that the gas tax could be a platform that would be the primary platform for municipalities? Then you would be able to size your municipality so that gas tax would apply to X number. If you have 10,000 and 9,200 or whatever your percentage is, maybe that's where your 100 per cent focus should be. Let the focus on bigger projects go somewhere else, such as the Building Canada Fund.
I'm not trying to reduce what you do or suggest you do that, but how can you make yourselves more effective in the program? What program will give you the ability to carry the ball, to implement it better and to make sure the municipalities are going to get the biggest return? Maybe you could do a one-pager.
Mr. Somerville: We will. We also indicated we would make sure you had the numbers, the multipliers. We will have those sent over to you.
The Chair: Yes. If you have any form of organizational structure, that would be fantastic as well.
Mr. Somerville: Yes.
The Chair: Our clerk will follow up with you. We thank you very much. I know it has been a long night for you, but it has been fascinating to listen to your testimony. Maybe what we should do is plan a follow-up with you so we can get some technical debriefings from your office.
Mr. Somerville: Absolutely. We would welcome that.
The Chair: Gentlemen, thank you. Colleagues, outstanding job.
The meeting is adjourned.
(The committee adjourned.)