Proceedings of the Standing Senate Committee on
National Finance
Issue No. 8 - Evidence - May 10, 2016
OTTAWA, Tuesday, May 10, 2016
The Standing Senate Committee on National Finance met this day at 9:03 a.m. to study the federal government's multi-billion dollar infrastructure funding program.
Senator Larry Smith (Chair) in the chair.
[English]
The Chair: To the general public watching us today, welcome to the Standing Senate Committee on National Finance.
Colleagues and members of the viewing public, the mandate of our committee is to examine matters relating to federal estimates generally, as well as government finance. My name is Larry Smith, senator from Quebec, and I chair the committee. Let me briefly introduce the other members of the committee. To my left, formerly of La Presse, Senator André Pratte. To my right, from Newfoundland, former Auditor General, Senator Beth Marshall and, from Toronto, Senator Nicole Eaton.
[Translation]
And straight from New Brunswick, Senator Percy Mockler.
[English]
Today, we continue our study on the design and delivery of the federal government's multi-billion dollar infrastructure funding program. We have invited learned academics whose names were put forward in the work plan of our study because they are interested in the topic.
[Translation]
Today we are welcoming three academics to tell us about infrastructure funding. They have all published articles on the subject. There is Éric Champagne, associate professor in public administration at the School of Political Studies of the University of Ottawa.
[English]
Bev Dahlby, Distinguished Fellow, School of Public Policy, University of Calgary; and Christopher Stoney, Associate Professor, School of Public Policy and Administration, Carleton University.
Welcome, gentlemen. I would ask that each of you give a short opening statement, which we be followed by a question period.
[Translation]
Mr. Champagne, the floor is yours.
Éric Champagne, Associate Professor in Public Administration, School of Political Studies, University of Ottawa, as an individual: Thank you for the invitation. It is always nice for academics to be able to pass on our knowledge and the results of our research. Today, I will briefly present the results of research that I recently completed. The final interviews were done in April, so you are the first to receive the results of this study.
I carried out qualitative research funded by the Social Sciences and Humanities Research Council of Canada. It is important to note that the Government of Canada partially funded our research. I interviewed and visited 14 municipalities, 7 in Ontario and 7 in Quebec. My research was mostly done in central Canada.
The objective of my research was to examine the influence of federal programs from 2007 to 2014 on financial planning in municipalities from the point of view of their decision-making process or their planning. About 40 elected officials were interviewed, specifically mayors and infrastructure or finance officials. In each municipality, we also interviewed a manager responsible for infrastructure or finances.
In the beginning, what we were interested in was seeing if municipalities had implemented planning mechanisms in order to set out their priorities. Our study shows that municipalities, by necessity, are obliged to use very sophisticated planning measures and tools for their infrastructure spending. It is often the provinces that require it. Municipalities, small or big, like Montreal and Toronto, have plans and tools to understand their infrastructure well. In my opinion, in this case, there is a principle of subsidiarity, that is to allow the municipalities to decide on their priorities, which should predominate in giving thought to their infrastructure spending.
Afterwards, we studied four financing instruments used by the federal government: the gas tax, the cost-shared program, also called the matching fund — better known as the one-third, one-third, one-third concept — the economic stimulus program under which, from 2009 to 2012, significant sums were paid — the impact of which on municipal management we would like to know —, and finally, the public-private partnership fund, which is less well known, but which municipalities can use to invest in their infrastructure. We will very briefly examine each of these instruments.
As far as the gas tax fund is concerned, we were not surprised to find out that municipalities greatly appreciate this program. It includes few conditions, and the budget envelope is determined on a per capita basis. Municipalities know how much they will receive over the course of the year. The program is very useful to municipalities when they are setting a budget. It assures they have a certain autonomy, that is the possibility of investing according to their priorities. The program also includes a simple accountability process. Every year, municipalities must produce a comprehensive report on their use of the funds. This is a very reliable, predictable, sustainable and henceforth permanent program. It is therefore reassuring for municipalities to have this funding envelope at their disposal.
As far as the Building Canada Fund is concerned, the cost-shared program funds — divided in thirds — come from the federal government, the provincial government and the municipalities. The program offers great benefits, particularly to the federal government. The investments allow for the implementation of an urban policy. By establishing a certain number of priorities at the federal level, this allows for funds to be directed there, particularly in terms of public transit and green infrastructure. In fact, this approach allows for the implementation of a federal policy.
Moreover, since the mid-90s, shared financing resulted in an increase in investments. Like the provinces, the municipalities are ready to invest funds. We have seen a surge in infrastructure investments, which has been beneficial to Canada's infrastructure deficit record.
However, according to the municipalities, the management of this program is extremely complex for several reasons. In fact, there are two main problems, including the unpredictability of the funds — once they have submitted their proposals, the municipalities do not know if they will get the funding — and accountability, which is very complex. The municipalities propose projects that meet the criteria determined by the federal government and the provinces. Once their proposals are submitted, they wait for a decision from a committee made up of federal and provincial government representatives to know whether their projects will be funded. According to the municipalities, one of the great problems is that they do not receive feedback regarding the funding decision that was made. When they receive the appropriations they are happy to benefit from the program, but when they get nothing, they do not understand why. They invoke all kinds of reasons for these decisions, such as political considerations, et cetera. They become suspicious about political interventions.
It is even more difficult for the smallest municipalities to obtain the necessary resources to prepare these dossiers. They often subcontract the preparation of these dossiers without necessarily knowing whether they will get a return on their investment. Suffice it to say that there is no doubt work to be done with regard to the procedure.
In addition, the infrastructure stimulus fund has had a direct impact on job creation. Investments in infrastructure clearly require increased staffing, which has a positive impact on job creation and the economy. However, this program has not necessarily led to strategic investment at the municipal level. Municipalities hurry to create projects that are ready to be funded, also known as shovel-ready projects, but they are not always able to realize their priority initiatives. For example, if their true priority is to transform their aqueduct system, they find it impossible to prepare all the necessary documentation in such a short space of time. The funding will therefore be used to build a soccer or baseball field, to renovate an arena, or work on projects that are not necessarily that municipality's priority.
And so, providing significant investments or a flow of resources is not necessarily always the best approach. We have also noted that the service provision market is saturated in some municipalities, which means the same service may cost more than it normally would.
Finally, municipalities benefit little from public-private partnerships. They say that they do not know how to correctly use this tool, and do not have enough information on the fund and on the crown corporation that manages it, PPP Canada. They therefore find it hard to interact with federal institutions for a wide variety of reasons. Amongst others, there is insufficient information, the tool's potential is not fully known, and the tool's reputation is not strong enough. Some public-private partnerships have failed and municipalities are somewhat reticent towards this tool, especially because the process to use it makes them nervous, as there is not enough expertise at the municipal level. Their legal services do not have this expertise, and so the private sector has better resources, which creates a kind of inequity.
The only municipality to have consulted PPP Canada in our sample of 14 municipalities complained about the cumbersome administrative process and complex negotiations. I believe it would be imperative to offer more tools and support to municipalities if we want to continue down this path with PPPs. Indeed, the debate on the subject is often too ideological in Canada. It is evident that PPP Canada should play a more dynamic support role if we decide to continue down this path.
And so, I will stop myself here, let's say to promote discussion.
The Chair: Thanks to your excellent presentation, we will be able to grant you more time. We thank you, Mr. Champagne.
[English]
Bev Dahlby, Distinguished Fellow, School of Public Policy, University of Calgary, as an individual: Thank you for the invitation. It is a great honour to come and speak to you.
I can't help but recall that I first came to Ottawa in 1972 as a summer student working at Consumer Affairs. This is maybe the height of my advisory work with the federal government.
I didn't prepare remarks because my experience on panels and committees such as this is that you really want to get the most out of your expert witnesses in the shortest time available. Having them just present what they have already prepared is not necessarily the best; asking questions and eliciting information from them is the best way.
There has been distributed a translation of a PowerPoint presentation that I made about a month ago in Toronto. It summarizes a research paper we undertook and published last fall. The focus of that paper is an analysis of the federal infrastructure programs from 2002 to 2015 that dealt with all the programs that had matching funds.
I can briefly say that purpose of the paper is first to determine or discuss the role of the federal government in providing infrastructure funds. Most of the infrastructure is, in fact, owned by the provincial and municipal governments. So what is the role of the federal government in providing funds for infrastructure?
Second, we discussed problems with the spillover of benefits, issues around the federal benefit from infrastructure, increased tax revenues, the fiscal imbalance as it exists between the federal and provincial governments, and issues around national priorities. We looked at the appropriate matching rate formulas for those kinds of projects. We described some of the history of those programs. There are over 8,000 projects funded for $20 billion over this period. At the end, we felt that the matching provisions were reasonably consistent with the theory that we had developed.
Finally, we discussed alternative or complementary programs. Perhaps there have been too many small projects funded through these programs, and it might be better to have more block funding, such as an increased Gas Tax Fund or Canada Social Transfer and Canada Health Transfer as alternatives to those.
That basically summarizes the results of our work. I'm happy to take questions or comments that you might have.
Christopher Stoney, Associate Professor, School of Public Policy and Administration, Carleton University, as an individual: Good morning and thank you for inviting me. It is an honour to be here and great to have some input into what the three of us are all interested in.
I'm going to talk for a few minutes based on the findings. We have incentive for research and education at Carleton University. I believe it was at the start of the Gas Tax Fund that we had a three-year funded project from SSHRC to look at the implementation of the gas tax. A bit like Éric's work, we did that from the perspective of municipalities, so we went across five provinces to different-sized municipalities.
At the same time we were doing that, by the time we got into the third year we had already had the financial crisis, so the stimulus project had kicked in. Although we were not mandated to look at the stimulus, by the time we went out to municipalities and asked what they thought of the gas tax, they would say that compared to the stimulus funding, its X, Y, or Z.
To back up what Éric said, from a municipal point of view the Gas Tax Fund is very popular, certainly compared to the other types of funding. They feel they have more control over local priorities, that it's predictable and sustainable, and that they can actually rely on it.
Overall, that was seen as much more to their liking than other forms of infrastructure funding, which include the stimulus funding. To be honest, it suffers from some of the problems that typically have affected all infrastructure funding from the federal government over a number of years, not only in this country. Our Constitution is one issue that makes it a bigger problem here, as well as geography. I will just run through those.
I would say that accountability is one issue, the idea that you are spending money locally that you are not really accountable for because it is coming from another level of government. In terms of a principle of accountability, that notion of free money that has not been raised locally can lead to suboptimal decisions about infrastructure and also a sense that it has to be spent on something or you'll lose it. That's also one of the issues.
It doesn't help that municipal politics struggles anyway with voter turnouts of about 35 per cent. Unfortunately, if that money were raised more locally, then I think people would pay interest to where that money is going. Certainly, there are issues with the transfer of funds from one government to another. That said, we are where we are.
In terms of the accountability for taxpayers and citizens, the attribution is difficult. Because of all the multiple levels of funding, some of the places we went to had over 300 sources of funding for infrastructure if you count provincial and federal. Just think of the sheer administration of that.
Also, they all have different conditions. Toronto, for example, probably has enough staff to deal with that, but smaller municipalities had to hire new people to deal with the administration of the new funding.
The public becomes confused about who is paying for it. Where's all this money coming from? Who do we hold accountable? Is it provincial or municipal?
The other one mentioned was the justification being jobs. One of the real issues about stimulus funding was that the major criterion to justify the spending was the creation of jobs, and yet there was never any measurement of jobs created. A multiplier was used that could have been plucked out of the air. In terms of evaluation and accountability, that was a serious flaw.
The major issue I would quickly run through would be the sense of politicization that this kind of funding gets. Obviously, the government that collects the money therefore spends it wants to see it spent on projects in their own ridings or that they are particularly interested in. They want to get in on the signage, the huge cheques that we see and the Conservative logos, for example.
But all political parties, I think, play fast and loose with signage. That, I think, is something that distorts the decision making and delays announcements. Often, they couldn't open a piece of infrastructure because they had to wait until there was a gap in the minister's diary so that he or she could get out there to have the photo op. That would be another key issue.
We are hearing now from the Liberal government about investments in strategic infrastructure. My colleagues have already mentioned the fact that in the funding system, even under the gas tax — because this was a political decision, too, by Paul Martin to essentially sprinkle the money around, or to use the hose pipe analogy, no community is too small. That means there would be tiny projects where $3,000 would go toward a garden shed being built. That is not where the infrastructure is. We are a country where 85 per cent now live in our major cities. If we want to make a difference in the overall economic productivity of this country, the big cities have to be targeted, however politically unpalatable that might be in some quarters.
We know that recessions happen and that stimulus has to happen, yet there is no development of strategic infrastructure priorities, whether that is high speed rail between our major cities or new ports. We seem to get there and say, "Oh, we need to create jobs and throw money around. I know: Let's ask for shovel-ready projects." That, to me, is a lack of planning at all levels of government. We should have a bank of priorities for projects that are not just things where we see that somebody has a shovel ready project here and throw money at it. That is the other aspect that I think is problematic.
The enforcement of conditions is always a problem, particularly with Quebec, it has to be said. They didn't really like any conditions being put on them. But other provinces, too, would say, "Thank you very much for the money," and the government would look the other way in terms of not being able to enforce all of its conditions.
The other problem with the smaller projects that I mentioned before is that we are interested in having P3s and attracting pension funds. They need big projects. Pension funds will not get out of bed in the morning if what you are offering them is a small-fry project. They have to be these big, strategic projects. That needs looking at as well.
Those are the key issues, as I see them. I have some things I would like to discuss with my colleagues and yourselves about how we might be able to improve some of those issues, and I would be happy to discuss them with you. Thank you.
The Chair: Thank you very much, Mr. Stoney.
We look forward to hearing from the three of you. Let's set up some time before the end so that we can hear your recommendations. We have had the infrastructure folks in and this is one of the items that we received. We asked where we have been since 2007, because from the Conservative government, between 2007 and now, we had $33 billion, $53 billion and, suddenly, $120 billion. We asked a simple question: Where are all the projects and how are they going? And we received this document.
We want to create a war room where we have the history of where we have been, where we are going and how we will get there. But we want to make sure we understand the strategies that are required so that we maximize value for money, the multiplier effect and the economic output. That falls in line with some of the things that the three of you have talked about to this point. As we go through the questions, we would ask that the three of you think about giving us a resumé of the top three points that you think need to take place.
[Translation]
In other words, those are the three most important points that will allow us to succeed in future.
[English]
We want to make sure that whatever we do as a committee not only has impact but means something to the successful outcome. Without getting too emotional — and so that we understand our positions amongst ourselves — this is important for our country.
Panel and colleagues, we are ready to go. Senator Marshall, you are up.
Senator Marshall: Thank you very much for your presentations. They were very interesting.
My first question relates to the fact that all of you have looked back at what has happened in the past with regard to infrastructure funding. The federal government in its budget is making a big decision that they will pursue what they call evidence-based decision making, arriving at that using independent expert advice. You have looked back and haven't exactly given a glowing report about evaluations or knowing where we've been.
Do you think this is going to be a big issue? The federal government has announced a very major infrastructure program that will occur over 10 years. They want to make decisions based on evidence, but it seems like we really don't have those systems in place. I'd appreciate comments on that from all three of you. Do you think we are putting the cart before the horse? Can we catch up before the money starts going through the doors?
I guess we can start with Mr. Champagne. I would like to hear your views on that.
Mr. Champagne: There will be a difference from past cycles of infrastructure investment from the federal government. The shift you are seeing right now is that previously the debate was around economic development and creating jobs. The main argument was that infrastructure equals economic growth. Now there is a little shift in the political debate; it seems that the federal government wants to have an urban policy.
If they want to have an urban policy, they have to channel the money through public transit, housing or through green infrastructure. They consider this as infrastructure, and it is true in a way but different than it used to be. I think there is a shift. If you have a policy framework, you need to tie it to outcomes and you need results that are measurable in terms of what will we get for the dollars.
I think a very important step has to be taken by policy analysts in the system that will create a kind of urban policy, which is always sensitive because the provinces want to keep that responsibility over the municipalities.
Still, there seems to be a vision and nobody is complaining. It could have been a major problem for the federal government to invest in municipalities; it's sensitive. However, since the mid-1990s, there hasn't been huge disagreement from the provinces because they need that money and it is important that they have a share of it. Of course, for some provinces like Quebec would prefer to be given the money: "Mail it to us and we will do whatever we need to do."
But now there seems to be a policy framework. We need to start with that. What are the outcomes for the benefit of Canadians if we create new transit systems in large or medium-sized cities, or if we create this green infrastructure with a shift towards climate change? We need to create this policy framework with indicators and evidence-based policies around those areas.
For the rest, we also need to rely on municipalities in order to build these infrastructures. We also need to respect their capacities. I will come back to this later.
Mr. Dahlby: I agree with what Professor Champagne has said.
Evidence-based evaluation of projects is, of course, what we should have, but this is costly and difficult. A limited number of resources can be applied. Realistically, it can only be done with very large projects. This reinforces the notion that the infrastructure program of the federal government should be focused on fairly major strategic projects. If there is a need for funding infrastructure on smaller projects, it should be done through block grants as opposed to trying to fine-tune these things.
We should leave the fiscal stimulus issue to one side. The 2008-09 period is like the forest fire in Fort McMurray. You have to do things quickly. Maybe mistakes are made, but on balance the total package was probably the right thing.
I don't think it is easy to plan fiscal stimulus packages or even evaluate them. My own work suggests that on balance it was the appropriate thing to do. I'm not sure it is the appropriate thing to ramp up at this time.
Senator Marshall: Mr. Stoney, I think you have written articles on transparency and accountability. You must have some views.
Mr. Stoney: On that last point, I might disagree. I think it is possible to be ready for when a stimulus project is about to be needed. You can be in a position to identify several key projects that would both put people back to work and develop productivity. It takes long-term planning, and politics does not often afford us that opportunity.
It's difficult to argue against evidence-based policies, but it does take investment and time. Recently, I have seen reports on attempts to look at what kind of bang for the buck you get from different types of infrastructure, whether that is communications, transportation or hard infrastructure. There are attempts to quantify that. How robust and reliable they are, I don't know. These come from various think tanks, largely.
One would think this might be something that Infrastructure Canada would be doing over the long term and maybe looking internationally as well regarding data that is out there. They may already be doing it, but certainly this is all part of due diligence in terms of finding strategic infrastructure, however that is defined.
Senator Marshall: My experience has been that governments tend to focus on inputs rather than outputs. This is a very big, expensive program. It's going to run for over 10 years. I don't think the government has those systems in place yet to capture what I think would be fairly relevant information. Hopefully over the 10-year period they might be able to get something in place.
Thank you.
Senator Eaton: I live in downtown Toronto where most of the streets are like this and there are holes in the sidewalk. The public transportation is not as good as in Montreal because of fighting between the three levels of government. Why are the three levels of government involved? The GTA is 6 million people and the province of Ontario is 8 million or 9 million. One could question the governance of Toronto and the fact that it is not a party system; the mayor has one vote. Why shouldn't the priorities of the city bubble up? Why shouldn't they set the priorities, go to the federal government and say, "Over the next 10 years we are going to build eight miles of subway, and we would like X amount of money from you"?
I might be wrong, but what happens is that Toronto continues to fight amongst itself. The province sits there watching carefully, and the federal government comes down and says, "Well, maybe we will give you some money, and do you have your plans?" Wouldn't it be simpler if the federal government had an envelope of cash and went to each city and said this year your number one priority is transport or housing, get on with it? It seems to me it is very much top-down now. Shouldn't it be ground up? Why should the province get involved?
Mr. Champagne: Thanks for your question, senator.
You are absolutely right. There is a complexity in our system, and municipalities have always been the lower level and the provinces and the federal government will know better. We should rethink this and change the culture.
We have mentioned strategic investments. For those strategic investments, those who know better, from Toronto to Sudbury, are the municipalities. They know better their needs and where they want to go. We need to find a system where municipalities drive the decisions, but that's easier said than done.
Why aren't they all independent and why do they rely on the provincial and federal governments for infrastructure? In 2016 they do a good job at delivering local services, such as policing and local roads, but when it gets to heavy investment, they don't have the fiscal base to go beyond that. Their fiscal base, such as property tax, which represents more than 50 per cent of their budgets, is not the kind of tax that grows the economy like the revenue or consumer tax. They rely on the federal and the provincial governments in order to invest, and they wait and are passive.
Senator Eaton: I understand that, but why haven't we arrived at a system that if the cities of Montreal or Calgary say that this year their priority is this, or for the next three fiscal years this is what they would like, and it is given, end of story? We don't have this process of the federal government — and it's not a matter of Liberal or Conservative stripes — saying, "This is what we would like to invest in and this is what we ran on." Is it the federal government's job to decide that they will invest in social areas?
For instance, we heard witnesses at our last meeting say that the Liberal government ran on a policy of social infrastructure and early childhood training centres. Is it really the federal government's job to decide that, or is that a municipal priority?
I understand that they don't have the money base, but shouldn't it come the other way around? Should the federal government of any stripe have to decide that we're doing this in your province and here is the money?
Mr. Champagne: It is the complexity of our federal system where the federal and the provincial governments fight against each other a bit to get their say in municipal affairs. I think a shift in culture has to happen. The big mayors work hard in order to shift it to ensure that they are more respected in intergovernmental relations; they try. Now a political shift has to happen.
I will let my colleagues add to my response.
Mr. Dahlby: I don't want to talk about Toronto decision making, but it does go to the role of the federal government and why it is involved in infrastructure programs and financing.
Senator Eaton: Or deciding the priorities of infrastructure.
Mr. Dahlby: Yes.
One has to think about whether local priorities are really serving the national interest. Are there projects and things that would not get the highest degree of priority at the local level but that still have significant spillovers and benefits for people outside that municipality in the surrounding neighbourhood or in the province and even federally? I think that is where the provincial and federal interest comes in local decision making. I think it can be done in trying to identify those projects or those kinds of activities that generate these spillovers, where local decisions are not going to optimize the investment that takes place. Of course, the federal government and other higher levels of government — the provinces as well — should be quite conservative in that and not develop their own priorities that don't have anything to do with these kinds of spillover effects.
The question of the fiscal capacity of municipalities varies a lot across the provinces and even within provinces. I can only speak to my own province of Alberta. There, we have done work that suggests that major cities have substantial fiscal capacity to increase taxes and finance more infrastructure through the property tax base and debt. Nonetheless, our work does suggest that there is a fiscal imbalance between the federal and provincial municipal sector, which also provides a rationale for the federal government to be involved in financing.
The federal government has an interest in promoting productivity-enhancing projects, such as public transit in Toronto, which would reduce congestion in Toronto and improve the productivity in Toronto, raising incomes and raising federal tax revenue. So there are payoffs to the federal government from local decisions that should be taken into account in making those decisions but are not necessarily taken into account by the local government.
Mr. Stoney: I understand the frustration that if we were designing a Constitution today given the way that we are now a very urbanized country, it would not be along the lines that we have, unfortunately. I think what we have done is created a dependency culture where local councillors do have more tax room, but they really would rather get free money from elsewhere because politically it is easier to do that.
We forget, but historically income tax was something that municipalities could collect. The federal government took it over as part of the war effort but forgot to give it back, funnily enough. The federal government liked it. I mean, who likes to give up money, power and influence? Not any politician I know. They like to be able to get the signage out there, the decals — call it what you want — the "announceables." While I very much empathize with your view that local decisions should be bottom-up in terms of priorities, I can also see why, if you are spending this kind of money, you may want to attach certain conditions to that in order to justify how that's being spent and get your slice of credit for it.
I guess it's not satisfactory, but I think that's the reality of this particular funding model. They will always want to put conditions on that. To come back do your point, it does distort local priorities and local decision making.
Senator Eaton: To finish, I think you could get your credit if I turn around and you tell me your priority is public transportation and I say, "Fine, professor, here is $6 billion over the next four years." I can stand beside you on the platform and get my picture taken because I am giving you the money, but it is your priority. I am not imposing my priorities on you.
Mr. Stoney: But let's just say that it was a hockey rink or something that is not public transportation. Let's say it's a casino that somebody wants to put money into. Then I think the federal government has a more difficult role in justifying that.
Senator Eaton: Yes, municipal politicians are accountable to your electors. I can always say, as the federal government, "That's great, go and get your money for the casino, but I am spending my money somewhere else. That is not a federal imperative and will not benefit us nationally."
Senator Pratte: I have two points.
First, on strategic national infrastructure, Mr. Stoney, you said — and it was really music to my ears — that the federal government should have a list or a bank of strategic projects. I am a firm believer that the federal government's role in infrastructure should really be to have these strategic infrastructure projects of national importance, where that is really its role, rather than sprinkling money around on small infrastructure.
If there is a major national program over many years, what share of the money should be reserved for that kind of infrastructure project? Of the money left — because Ottawa has a large fiscal capacity and can borrow money at very low rates compared to municipal governments — what share should be reserved? I'm not asking for a specific percentage. Then the rest of the money could be sent for other transfer programs. Do you have any idea of the share we would be talking about?
Mr. Stoney: All of it.
Again, what we are balancing here are issues like productivity and bang for the buck versus equitable redistribution and, to some extent, job stimulus. In Canada, we are always going to have that sprinkling of money out in the regions because I think there would be a hell of a backlash if it were seen that most of the money was going to Toronto, Montreal or perhaps Vancouver. All I'm going to say is that as much as possible should go into those.
That could also be done on a regional basis. Every region has a need, whether it is the Confederation Bridge or high- speed rail between Ottawa and Montreal. These interprovincial things are a way of spreading it around. It doesn't just have to be that the hose pipe is on and we sprinkle it around very small areas. I think it will take a different mindset, but as much as possible from an economic point of view, I think it should go into these larger strategic projects.
Mr. Dahlby: Probably the priorities in any program should be projects that have provincial benefits and that spill over provincial boundaries and have a national benefit.
On the other hand, I still think that major public transit programs in specific cities like Montreal, Toronto, Vancouver or Calgary have a national benefit. These are the centres of business productivity and where people live. There is a payoff to the federal government from increased productivity in those areas, so in some sense they are also strategic, but maybe of the second order of activities.
We can't forget the smaller projects. Drinking water and wastewater projects around the country need to be funded or can be funded. Again, the local priorities may not be such that they will get as much attention as they otherwise would if there weren't some federal incentive to invest in those projects.
[Translation]
Mr. Champagne: Senator Pratte, I would like to clarify that, in my opinion, because of fiscal imbalance, federal transfers must not be forgotten. The role that must be played should not be forgotten either. Therefore, I believe that transfers should involve all municipalities, because of this fiscal imbalance.
That being said, within the framework of strategic investments, I agree with you that the federal government must play role in large centres to have an impact, as long as the strategic objective remains at the forefront above all, for all municipalities, of course. Therefore, a course of action that rests more heavily on an ascending model is required. Be it a medium-sized city or a large one, if would have an effect throughout all of Canada. Inasmuch as we can be better prepared for the next economic crisis — because it is a cyclical event and it is very likely it will happen again — and avoid distributing funds here and there without setting up a more strategic approach, we should consider this to be favourable economic conditions. Having $120 billion available for investments should be considered an opportunity for transformation. It must be transformative for our economy, and so we must be strategic.
The federal government needs to have a vision of the things it wants to change in Canada. Municipalities, on their end, need to have a strategy to determine how they will contribute and where they want to go. From there, the higher levels of government, as they are called, in other words the provinces and the federal government, should pay more attention to the regional and municipal strategies of these centres.
So we agree on the strategy. However, we should not forget that for reasons related to tax imbalances, we need to ensure that municipalities have access to funding for basic infrastructure, something that was neglected for a very long time. This may be a coincidence, but with federal programs, there have been significant investments in infrastructure since the mid-90s.
[English]
The Chair: Colleagues, some of you have had a chance to look at Professor Dahlby's Striking the Right Balance handout. Pages 17 and 18 show the allocation of funds, number of projects, and matching rates by infrastructure categories. It's quite interesting reading to see the various matching rates and the number of projects. If you haven't had a chance, it's fascinating reading.
Professor, you did a great job putting that together. How long did it take you to do that?
Mr. Dahlby: Not very long because I had an excellent research assistant, one of our MPP students, who was entrepreneurial in getting access to this data. She now has a job with the Government of Ontario to help with their municipal financing projects.
The Chair: Moving on to Senator Mockler.
[Translation]
Senator Mockler: I have listened to your comments with great interest, and Mr. Champagne, I would make the following comment to you, but my question is for all the witnesses.
It is said — and this was repeated this morning — that in Canada, 85 per cent of the population lives in large urban centres. However, Canada also has a lot of rural regions. You cannot shut down every little village and municipality and say that people can take an airplane to the major centres. You are probably aware of the two long books written by Dr. Donald Savoie, one of which is called Governing from the Centre, and the other one which is called What is Government Good At? In the spirit of what the chair is explaining, we might wonder what the next step is. And speaking of next steps, we could allude to what follows.
[English]
Should funds be allocated across Canada? Should funds be allocated on any program, shovel ready or not? Should they be allocated based on needs or only based on the percentage of our population?
You have the experience and you've done the analysis. If you had five minutes with the Prime Minister of Canada and his cabinet to tell them exactly how we should deal with the needs of all Canadians, what you would tell them?
[Translation]
The Chair: Mr. Champagne, would you like to start?
Mr. Champagne: Thank you for your question. If Mr. Trudeau were in front of me, this is what I would say to him: we could consider increasing the amounts given to municipalities as transfers, and imposing fewer conditions, like the gas tax for example. We could increase this transfer, because it is based on the number of people. So it gives municipalities the impression that there is a certain fairness. In fact, this is not the most progressive way of transferring money. However, it gives them a sort of measurement standard for the fair distribution of the transfer, and this allows them to plan.
As the senator said a little earlier, when it comes to respecting municipal jurisdiction, they know their needs better than the federal or provincial governments do, so this is a good way to give them that responsibility. Furthermore, I would provide a fairly constant amount because of this tax imbalance.
These funds led the municipalities to invest more. Sometimes, they use it to support their borrowing capacity, but in general, they use it to address their priorities, which reduces the number of conditions they need to meet.
The only cases in which the federal government should allocate money for specific projects, perhaps as shared funding, are cases that fall under federal jurisdiction, which involve a national strategy or vision, in which the funding can play a transformative role in the economy or society, for example as part of large-scale public transportation projects. It could also involve economic transformation projects.
After the economic crisis, many regions realized that they were too dependent on a given economy. Therefore, there may be reasons to encourage transformations with respect to the economy. Would infrastructure be necessary to allow them to undertake an economic transition? The federal government could perhaps assist them in this respect, and in the context of its own strategies. For example, climate change is affecting all of Canada. I imagine that we have a vision of the work to be carried out in this field, therefore a framework of public policies that is taken on and conducted by the federal government. There are areas of jurisdiction where the federal government is responsible for directing investments from other levels of government. However, they must be properly defined, and they were not in the past. It is possible that, as a result of the more strategic orientations that were set out in the last budget — even though the policies have not yet been fully set out — there will be a more strategic orientation in terms of investments.
[English]
Mr. Dahlby: In keeping with the title of our paper, Striking the Right Balance, I would say both. To strike the right balance, we need to have a balance between block grants, like the Gas Tax Fund. We could think of an expansion of the Canada Social Transfer and the Canada Health Transfer, which I think of as block funding to support the provincial and, by extension, municipal governments and reduce the vertical fiscal imbalance between the ability to raise revenue at the federal, provincial and municipal levels. A lot of smaller projects might otherwise not be funded to the degree possible without the federal government being directly involved in a lot administrative costs and so that the matching rate programs continue with various matching rates, somewhat dependent on the degree of spillovers — the fiscal benefits to the federal government and so on. Our analysis suggested that the matching rates of the existing programs from 2002 were basically in line with what good economic theory would predict.
I think the basis is there. Obviously there is always room for improvement, but I'm violently in favour of doing both and trying to strike a good balance.
Mr. Stoney: The thing to keep in mind here is that we tend to look internally at regional and provincial issues. It is a cliché, but it's true, that they compete against each other on a global scale now.
I've just come back from Hong Kong and Singapore, and it's always interesting to see how other major world-class cities do things. Then you come back to Ottawa and realize we don't even have a train that connects to the airport. It blows your mind how small-minded we are in so many of our major cities.
I looked at Copenhagen a couple of years ago and found out that 60 per cent of the taxes taken nationally are taken by the City of Copenhagen, and the regional and national governments scramble over the other 40 per cent. When you think that Toronto gets about 7 or 8 per cent — something of that magnitude — we are so far behind where we should be in terms of being able to put strategic infrastructure into cities.
I think it is a fact that, whether you like it or not, the big cities are the cash cows for this country. They are the ones that bring companies in and have to compete for the creative classes and investments from banks. These guys expect infrastructure to be there; otherwise they will not come.
I have one concern related to that. We are developing governance structures around cities, particularly in Ontario after forced amalgamation, whereby we are governing from the periphery. To change what Savoie was saying, our cities are now ruled by ex-urban councillors. Whether it is the belt that Rob Ford was particularly popular in, or in Ottawa where I think 9 councillors are urban and 23, or the rest, are ex-urban, they generally are against putting money into strategic infrastructure. That is a separate problem that the federal government can, at this point, try and fix.
I would say the thinking is this: If we don't milk the cash cows — the cities — for the money, there will be none to redistribute to the smaller regions and rural areas across Canada. I certainly would not confuse things and use infrastructure for redistribution. If we need to get money out to rural areas, whether it is for social assistance or investment in start-up projects, that might be economic development, but let's not kid ourselves that we need to do that through infrastructure when it's going to build a garden shed. This really is, I think, a disaster. That would be my view on it.
[Translation]
Senator Mockler: The argument can be easily defended, given the interdependence between rural and urban areas.
[English]
The people living in urban areas need food. Who produces the food? We need the infrastructure in rural areas to bring the food to the people. If not, where are they going to get their food?
Balance is an element. I think among politicians — the men and women who get elected — yes, there is politicizing but at the end of day who decides? It is the people who elect you.
How can the federal government ensure that provinces respect municipal priorities in selecting infrastructure? You tell us, given the results that you have found, what you would do better.
[Translation]
Mr. Champagne: I appreciate your reference to the interdependence between rural and urban areas. I believe that we must use our land.
Senator Mockler: Absolutely.
Mr. Champagne: In rural areas, the infrastructure deficit is as great, relatively speaking, as in urban centres. This must be kept in mind. I mentioned four instruments a bit earlier, and the only instrument that guarantees a minimum. . . I am saying a minimum, since it is not perfect, because the negotiations between the federal government and the provinces are always what, at the end of the day, impose the conditions on municipalities. Often, the provinces add a few more.
Essentially, programs are fairly broad when it comes to the federal government's investment criteria; we are talking about basic infrastructure, whether that be aqueducts, sewers, roads or recreational infrastructure. So that is fairly broad. Following that stage, there are negotiations with the provinces, and certain conditions are added on depending on their priorities. The only tool that provides cities with any kind of independence is the gasoline tax. So you have to make sure you are in a position to deal with infrastructure deficits.
I do want to mention this: the most important impact the federal infrastructure programs have had since the mid- 90s was to increase investments in infrastructure. The infrastructure deficit was quite substantial, and we found ourselves at a crossroads. Currently, the situation has improved somewhat, but additional investments will be required, as there is still much work to do. Furthermore, the federal government's contribution has had a ripple effect and other stakeholders have stepped forward. This has raised awareness about this very important issue.
Now, in order to ensure that rural areas receive a minimum of funds just as urban areas do, we need a tax base, like the gasoline tax as it is called, that instrument that provides a minimum threshold. Could that not be increased for smaller-scale projects? Mr. Dahlby mentioned that we could loosen the criteria when we are talking about smaller-scale projects. Of course, investing in infrastructure is a fundamental condition, but other conditions could be lifted or lightened. That would allow municipalities to choose their own priorities. I think that would be quite positive.
As for the rest, let us be strategic. When it comes to shared funding, what would Canada's vision be for changes to come? Perhaps a more elaborate public policy framework would be needed.
[English]
Mr. Dahlby: The rural-urban issues are, of course, very important. One of the reasons for having conditional matching grants is that many people in the rural areas — and I can speak only for Alberta — benefit from infrastructure in the cities in terms of parks, recreational facilities and transportation. I think it works the other way as well and that people in the city benefit from rural infrastructure.
In terms of dependence of the municipalities on the province, that's a very important issue. Again, while I can mainly speak in the Alberta context, I think it applies in other provinces. Increasingly, the property tax base is a shared tax base of both the provincial and municipal governments. For example, in Alberta, I think, roughly speaking, a quarter of my property tax bill is money that is for the provincial "education property tax." It doesn't go directly to education but to the province's general revenue fund.
This past year the provincial government raised its share of the provincial property tax, and this will squeeze the ability of municipal governments to raise property tax revenues. If the provincial government backed off the property tax and let the municipalities raise revenues through property taxation — instead of transferring money to the cities in order to fund infrastructure and other things — it would increase transparency, and the voters would have a much better idea what they are paying for and who is benefiting from these taxes. Right now, most property taxpayers are confused about this. It would also give the municipal governments more leeway. Where this situation has arisen, the provinces could actually help improve the ability of municipalities, certainly the major cities, to finance infrastructure if they backed off the property tax and allowed the municipal governments to have a larger share of that base.
Mr. Stoney: My two colleagues have addressed the key issues very well. Fewer conditions are better than more conditions.
One of the issues that we have to think carefully about, while it's difficult to be against green infrastructure, that's a bit of a luxury if what you need are the fundamental things, whether it's fixing potholes or whatever. I worry about putting green infrastructure on everything. That is really not addressing some of the infrastructure challenges. The gap is now too big.
Second, one of the big innovations with the gas tax that really worked — and I don't know if you found this, Éric — is the fact that municipalities were able to bank the funds. That is really important. I think it was up to five years, but I could be wrong. It allows them not just to spend it each year as it comes in but to actually say, ""In four or five years we would like to build X, Y or Z," and can save that money and spend it when they are ready, which is likely to be more strategic, rather than blowing it every year because it's coming in and if you don't spend it you will lose it. The conditionality and the bankable funds are really important.
Mr. Champagne: With the light rail, I think Ottawa banks some of the money in order to invest in that strategic asset.
Senator Mockler: There are checks and balances, and when you look at that, the Auditor General of Canada has highlighted a few. We keep finding that the departments are not living up to standards they have set for themselves. That impacts the flow of funds, when you release and administer them, and who wants to take the credit.
If I look at the five regions — Atlantic, Quebec, Ontario, Western Canada and B.C. — how many of those in your study had less than 250,000 people that you were looking at? And what would be the percentage of rural versus urban, because we don't plant any potatoes in downtown Winnipeg?
Mr. Dahlby: We didn't calculate the rural-urban split, so I cannot answer you.
In total, roughly half of all of the projects were $1 million or less. A substantial number were $100,000 and less. A lot of those were obviously going to smaller centres, but I can't answer that question specifically.
Mr. Champagne: I don't have the data to back up any response to that question.
Mr. Stoney: I'm sorry, but it's the same for me. It has been a few years since we did the gas tax study, but we did want to look at all sizes — mid, large and the small places. I would have to go back to the data.
Senator Mockler: Mr. Chair, if they don't have the information this morning, could they send it to us?
The Chair: Do you folks have access to that information?
Mr. Dahlby: We have access to the Infrastructure Canada database, data files, so we could try to identify rural versus urban.
What would be your cut-off? How do you define "rural"? This is an issue sometimes.
The Chair: What would you suggest, sir?
Mr. Dahlby: I grew up on a farm near Star City, Saskatchewan and my family lives in Star City. Is 500 people rural or urban?
The Chair: If we need an answer, senator, what do you suggest to the professors?
Senator Mockler: I'll take where I come from — Atlantic Canada. The Canadian municipalities association was meeting, and there are no mayors from Atlantic Canada because they don't half a million people plus. The only mayor they invited was the Mayor of Halifax. Well, there is St. John's, Newfoundland; Saint John, New Brunswick; Charlottetown. Infrastructure is as important to them as it is in downtown Vancouver.
The Chair: Professors, what would be logical?
Mr. Dahlby: Maybe we don't have to make a cut-off point. Maybe we could do it by population — the number of spending projects by cities of 500,000 to 1 million, all the way down to less than 5,000.
One municipality in Alberta has 100 people and no urban centre at all. There is a big range.
Senator Mockler: One hundred thousand.
Mr. Dahlby: Less than 100,000?
The Chair: Professor, would you be able to undertake that?
Mr. Dahlby: I will have to check. My assistant is gainfully employed with the Government of Ontario, but we have a good cohort of excellent students at the University of Calgary.
The Chair: Can we get something back in the next two weeks to 30 days?
Mr. Dahlby: I will do a scan to assess the feasibility and let you know.
The Chair: Our clerk will follow up with you. It is important that we get that information because we use it as part of the base for our project.
Mr. Dahlby: This would be for the programs that you see outlined in that spread sheet. It would not include the gas tax. I will let my colleagues determine that.
The Chair: Mr. Champagne is a proponent of the gas tax. That was one of his major recommendations in terms of reorienting money to the municipalities, especially the smaller areas.
[Translation]
Mr. Champagne, perhaps you could provide us with a short analysis?
Mr. Champagne: With pleasure, Mr. Chair.
The Chair: Thank you.
[English]
When we had the minister in last week, he said there are three areas he is focusing on. One of them is public social housing in terms of social infrastructure. Green infrastructure is number two, and then major projects like public transit.
He said that in phase 1 he wants to have shovel-ready projects, and we have glanced over shovel-ready projects. I want to make sure we understand your definition of shovel-ready projects. Is this money we're throwing out the window, or is it money that will do some good? I'm not sure of the messaging we are getting on shovel-ready projects.
One of the things that we found out in Quebec is that many of municipalities never submitted their proposals. The representatives of the municipalities are MPs, and they said their people didn't know what to do or didn't do it. They didn't make the submission. Here we have $1 billion worth of money that never got into the project. That is why we want a big chart on the wall that shows in 2007 with phase 1; 2014, phase 2; and 2016, the big $120 billion. What we have accomplished so we know what is out there? Reprofiling is a big message in government. If you don't spend the money, you can reprofile it or freeze it for the future. What happens to this money? Where has it gone?
Let's get back to shovel-ready projects. I got a little ahead of myself because I am so excited here.
Mr. Stoney: I think the new phrase is "shovel-worthy" projects, which is, obviously, a little tongue in cheek, but it is an attempt to say that not everything that is ready to go is worth doing or should be funded by the federal government.
The answer to your question is we will probably, out of all of the projects that were done under the gas tax and stimulus, see that there were some very beneficial ones and some that were a waste of money. I know it was a different fund, but gazebos in Muskoka come to mind.
This is one of the problems that was raised earlier — the evaluation side. I have to say that the Auditor General is looking into the lack of evaluation of projects. It was very much on the inputs and outputs. What went out of the door? Was it timely? Was it not, obviously, going into private bank accounts? That kind of evaluation is done, but what about following up on the actual economic impact? Of course that is a big job, but for this amount of money, one would think that that has to be built in — the longer term contribution — so that we can build up a database of what kind of projects are really working. Once it has gone out of the door from Infrastructure Canada, it seems, basically, that their job is done.
The Chair: Is there any other input?
Mr. Dahlby: I wrote a paper evaluating the fiscal stimulus package of 2008-2009. It had the title, Once on the Lips, Forever on the Hips. It was inspired by a fridge magnet. It basically suggested that, under those circumstances, a lot of projects that wouldn't make the cut under normal evaluation were probably worthwhile undertaking under the extreme conditions in 2008-2009.
I am rather skeptical about the ability of governments to time fiscal stimulus in a way that's going to really smooth the business cycle. To the extent that the government can do that, I think funding a large number of small projects spread throughout the country is actually the way to go as opposed to trying to fund a few big projects that might be strategic and might have a bigger payoff ultimately, but by the time all of the dust settles, the actual spending is going to occur long after it is probably actually needed.
I am more leaning toward these smaller projects that maybe don't have huge benefits when fiscal stimulus is appropriate. I'm not entirely convinced it's really important under the current circumstances because we don't face the kind of situation we faced in 2008-2009, which was unique under the circumstances.
Mr. Champagne: If we look at the roles of each actor, the federal government funds these infrastructures, but who delivers it is the municipalities. They have their two hands in the production of it, so they have lots for responsibility regarding the delivery of infrastructure.
When we talk with them about shovel-ready projects, they see it as a very conceptual and theoretical thing. Preparing a significant project in infrastructure is not a short-term thing. First, you need to make lots of decisions. You need to borrow money sometimes. You need to get into the procurement system. You need to recruit somebody. Then you need to build it and monitor the work.
"Shovel ready" is very theoretical for them. They get a bit frustrated about this idea because it pushes them to sometimes make the wrong decision. Again, we have a dilemma: Are we letting them decide what is best for the municipalities? Personally, I am more into "subsidiarity"; they know better than the federal government.
This notion of "shovel ready" is a bit problematic for them. It sometimes leads to the wrong investment. They will take the opportunity to fund this thing because it is easier to build rather than the most important thing, which is that they can bank these subsidies for a few years and have a bit of autonomy in terms of the way they are going to use them.
The Chair: It is very interesting that you say that. If I understand correctly, there is a pot of money that the minister wants to get moving and the season is starting. Listening to your feedback, it would appear that if the season is just starting but the people aren't ready and they make bad decisions — I don't want to prejudge it because obviously everyone wants to move forward — it is moving forward at what speed.
Mr. Champagne: I think they will take the money. I just think they will use it with projects that they know they can deliver on time. They may take shortcuts compared to their own most important priorities in terms of where they want to invest this money.
Senator Marshall: Listening to the conversation this morning, to me the easy part is done now. The program, we know, is going to be a $120 billion program over 10 years. The government is going to borrow to help pay for the program, and it seems like a lot of things have yet to be decided.
We talked a lot about allocation. I don't think that the small provinces will step back and say, "I understand now that the money is going to the big provinces with the big projects." It has to be spread around. I think there is quite a bit of work to be done.
I did have a question regarding the Federation of Canadian Municipalities. There is funding provided for them. My understanding is that the federal government has provided infrastructure money to the federation before for them to distribute. Has anybody looked at that? Have either of you looked at what the Federation of Canadian Municipalities is doing with their money? I think we are going to have them in during a future meeting.
The Chair: Tomorrow, yes.
Senator Marshall: Has anybody looked at that aspect?
Mr. Dahlby: No.
Mr. Stoney: I've looked at it, not in a sustained way, but I have looked at a number of their projects. Right now, I'm looking at their rewards system because we are looking at innovation and what they see as innovation. Is it based on a regional or more merit-based issue?
I'm a big supporter of the FCM. I think they play an important role. I would just make one observation, and that is that the FCM is a political body that represents a lot of small communities as well. I think they were very persistent with Paul Martin, saying that if they were to be in charge of the funds, then politically this had to be sprinkled around; no community is too small. It is worth knowing that before you speak to them. They obviously have a vested interest in that approach because of their membership.
Senator Marshall: That is what I was wondering. I am from a small province, Newfoundland and Labrador, so we are always concerned about getting our fair share.
Would you be aware of whether there have been any evaluations or studies, post mortems, done on the allocation?
Mr. Stoney: I haven't seen any, no.
Senator Eaton: Would you recommend changes to the governance of some cities? I am talking about Toronto again, but that is where I live. The mayor only has one vote, and it is very hard to get a consensus, as opposed to a party system, where you have a platform. You run on a certain policy and people vote for or against it.
Would you also be in favour of recommending a higher gas tax so that federal money, rather than going to the city, would be filtered through the gas tax? The city could decide on its own priorities and could reprofile the money the way other departments do. We have seen it done here with Defence and other ministries.
As well, should federal infrastructure money be kept for things like projects in the Arctic, national highways, ports, airports and railroads that really tie the whole country together?
Additionally, was Hwy 407 a PPP project? If so, is it a good example of a 3P project?
Mr. Champagne: The first question was about the governance of municipalities and which system works better. That question is a bit beyond what we are talking about here, but I understand your point.
Senator Eaton: It's at the root of how priorities are decided.
Mr. Champagne: Yes, that's true. Let's not forget the administrators, the professionals and the people who back up the —
[Translation]
Senator Eaton: Please feel free to speak in French.
Mr. Champagne: Consider municipal officials. They work very hard to present the facts at the municipal level. In a city such as Toronto, it is clear during meetings with local officials that they have professional abilities. This is not just about political capacity. There is rational evidence underpinning municipal priorities.
With respect to governance, it is fairly complex. There are systems, perhaps more common in Quebec, municipal political systems affiliated with political parties. That is the case in Gatineau. I believe this issue has more to do with political science and could lead us into a fairly broad debate. Is that better? I am unable to answer that question.
I would like to move on to the question about the gas tax. You asked whether it should be increased. In my opinion, it should be increased insofar as we agree with the idea that municipalities are in the best position to choose their own infrastructure priorities. This would allow us to avoid approaches of the shovel-ready type that impose certain. . .
Senator Eaton: Absolutely.
Mr. Champagne: I therefore believe that this tax should be increased, when it is not a national federal priority. It is an excellent vehicle, which has proven successful and which has drawn broad consensus among the municipalities. This mechanism exists already, so let us use it. If it did not exist, it would be difficult to create.
Senator Eaton: In addition, the political aspect could be avoided. When water pipes or sewers, which are not very sexy from a political point of view, need to be replaced, the municipalities could look after it.
Mr. Champagne: You are absolutely right. They use the gas tax for those purposes. In the case of other co-funded projects, there are more conditions and criteria. So they try to meet those criteria, whereas in the other case, they have a certain leeway.
The last question was about airports and ports. I believe that those sectors are under federal jurisdiction.
Senator Eaton: That is what I am asking you. Should the government focus on national projects, for example highways in the Arctic, ports and airports?
Mr. Champagne: I do not believe that they should focus exclusively on those projects. The federal government has been successful in both bolstering the economy and addressing the tremendous infrastructure deficit that we had. I think this program should be valued for what it is. It changed the culture and mentality that we had around not investing in infrastructure until it crumbled. Up until the mid-90s, infrastructure was totally neglected, and then all of a sudden, things changed. So this program brings an added value for all infrastructures in Canada. In my opinion, it should not focus on this. We need more transformational priorities, for example, as concerns climate change and that type of thing. Should the government invest in these areas? Yes, because it must continue to fulfil its own responsibilities. The gas tax also fosters regional development.
I would like to point out that the federal government owns some 13 per cent of Canada's infrastructure. The provinces own some 35 per cent, and the municipalities, over 50 per cent. The municipalities are responsible for most of the infrastructure, and that is why it is so important to transfer funding to them. Having specific strategic projects is also very important. Furthermore, the federal government must invest in its own infrastructure, because this benefits the regions as well.
The project to build Highway 407 was a PPP, if I remember correctly. So we could talk about the 407 model. Some highways and bridges in Canada would be an opportunity to use the PPP model, because they can be commercialized. User fees could be charged. You know about the Highway 407 project because it was documented.
PPP are sometimes difficult, because there are always issues. The PPP model is not well known, and we must learn to use it. The municipalities could perhaps use it more. They still do not have the required borrowing capacity. So they could form partnerships. I am not saying that this should be done everywhere, but the PPP model is one that municipalities do not use very well. The Highway 407 project does not have the best reputation, given that there were problems with billing and minor scandals. We need to be more proficient in the use of these tools.
[English]
The Chair: As I asked you earlier when we started, I would like you to take a minute to jot down some notes. Each of you has three to four minutes for a closing statement, which refers to your suggested plan to the Prime Minister of Canada for the approach to be taken in dealing with the opportunity of infrastructure investment and moving forward.
Jot down some notes. We will hear from Mr. Stoney first, then Mr. Champagne and Mr. Dahlby.
Mr. Stoney: Thank you for this opportunity.
I would agree with Mr. Champagne that "subsidiarity" is a good thing and that priorities be determined at the local level as much as possible.
For a number of reasons, I would like to see an infrastructure bank created by the federal government. As they have discussed, it would have a number of benefits. In addition to providing the ability to get money on reduced terms and rates, if the bank is at arm's length from government, it would help to depoliticize. If you have people at the bank to perform due diligence over which projects are worth funding, it will make local politicians who borrow that money accountable for it because it's not free money. It is discounted money but not free money. What they do with that money locally will be viewed by citizens.
The evidence also shows that an infrastructure bank can help to attract pension funds because of the fact that they are predictable and longer term, which is another thing we have to look at.
There are five or six other reasons I could go into, but for me, the infrastructure bank is important, provided it's created at arm's length and doesn't have the kinds of conditions on it that were talked about earlier. Take the conditions out. This is for local politicians to be held accountable at the local level. They don't need green infrastructure wording in their conditions. Let them be judged on merit. If they don't think a project is worth funding, then they won't fund it because there will be a limited amount of money. More importantly, it will keep the federal politicians out of the decision-making process. That would be my key recommendation for those reasons.
The other point that Senator Eaton raised was I would like to see the federal government do what I think the federal government should be doing, as it did with the railways, which is to nation-build and start thinking about some interprovincial projects for which they have authority to do under the Constitution. In cities like this one where there is so little connectivity with Gatineau — which is really the other half of the city — there is an opportunity for the federal government to play a lead role in ways that, for various reasons, the municipalities will not.
Yes, interprovincial and even national transportation projects — ports and airports — are things that I would very much like to see the federal government look into for its strategic investment decisions.
The Chair: Thank you very much, professor.
Professor Champagne?
[Translation]
Mr. Champagne: Thank you, Mr. Chair. I will repeat what I said earlier. In the case of small projects, in order to maintain our momentum with regard to investments in infrastructure, we must maintain and even increase the use of tools such as the gas tax. This tool is at our disposal and we can use it for all projects that have less to do with the federal government's vision and priorities. In the case of projects that are more in the national interest, we could use the co-funding model, with the help of measurable public policy frameworks, that is, so that we can gauge the actual impact of the policies thanks to a well-established framework. Thus, the federal government could put its stamp on these projects, which would in turn help transform the federal economy. The federal interest in infrastructure spending would be clearer.
Regarding private-public partnerships, as it now stands, the situation is fairly uncertain. Under the former regime, there was a lot of support for PPPs. But now, we do not know which way the wind is blowing. If we continue on this way, we will have to support municipalities so they can adopt this type of approach, because for now, they are not doing so. If PPP Canada continues to exist as it is, it will have to play a supporting role by providing guidelines and by supporting municipalities, or educating them, if municipalities wish to take this route. We might also have to address the issue of pension funds. Pension funds are akin to PPPs. They could be principal investors we could partner with. We could start by looking at this idea and be creative when it comes to developing other instruments, but for now, municipalities do not have the tools they need.
[English]
Mr. Dahlby: I would start by reaffirming that there is a role for the federal government in providing infrastructure funds. That is a fundamental point.
The matching grant programs do serve a useful purpose, but they should be restricted to relatively large projects of national significance. By that, I mean any project in Toronto that improves productivity and the ability of the people there to get to work and for goods to be moved around is of national significance and importance.
There are other projects — and here the government can and should be a bit visionary — in terms of linking the economies of the different regions together. I want to boost our own Northern Corridor project — in which Tom Jenkins, who is associated with the School of Public Policy, is involved —which is trying to promote a public corridor that would link regions across the northern part of Canada in a significant way. This would involve rail, pipelines and electricity transmission systems.
I think there is a role the federal government should be doing some thinking on; some of it would be, perhaps, quite visionary.
The second point I would make is that in conjunction with those grants, I think the federal government should impose conditions especially around pricing infrastructure. One of the issues that we have is congestion of infrastructure, which is why we want to spend money on it, but if we don't solve the pricing problem and price the scarce infrastructure resources, we will just wind up with yet another source of congestion.
Here I am speaking as a member of Canada's Ecofiscal Commission. Last fall we issued a report on congestion pricing in which we made the case that we need to price urban transportation systems, and I think the federal government could take the lead. We will also come out with a report on water. We also need to price in order to preserve this scarce resource.
When the federal government funds these kinds of projects, I think it could and should investigate whether pricing should be part of the provision of this infrastructure, and help fund the additional costs that might be required in order to put pricing mechanisms in place.
The third point I would make is in line with what my colleague said. I think there is a need for increasing block funding so that we can get some of the smaller projects out of the direct federal funding sphere, whether that is the gas tax or the Canada Social Transfer and Canada Health Transfer funds, to reduce the fiscal imbalance between the two levels of government.
The Chair: Perhaps I could ask one more question that ties into your summaries.
When we look at what was given to us by Infrastructure Canada, there is a multitude of programs. Are there too many programs? Obviously some of these have probably been sunsetted and no longer exist. One of the suggestions was that there should be a reduction of the number of programs, leaving three or four main programs. I think all three of you folks talked about that, but is there a way to simplify this complexity? One of the points raised earlier was it is sometimes difficult to understand the maze of how to get into the funding world. Is that something you have talked about a lot amongst yourselves?
Mr. Stoney: Not amongst ourselves, but certainly that is what I heard in every municipality I visited. They enjoyed taking us into a back room office where all the books and computer programs were laid out to deal with this plethora of funding mechanisms, all with different conditions. It could be spent on this; it had to be spent in that time; it can or cannot be banked. It's an absolute nightmare. How a citizen can possibly hold anyone accountable based on this diverse funding is beyond me. So my call would be yes, yes, yes.
Mr. Dahlby: I think there would be room for consolidation, especially if you take the smaller projects out of the system and concentrate on larger projects of national significance.
Of course, these municipalities are also faced with a plethora of provincial programs, not just federal ones. The federal government could do its part, but it's not the only one at fault here.
Mr. Champagne: I can only concur: In visiting municipalities, you see that it's very hard to handle all the provincial and federal programs. There is a complexity in it.
I think there are still three instruments: There is the tax base transfer money; a matching fund is another instrument that can have different areas of investment; and then there are PPPs and other types of more market-based instruments. In terms of instruments, it could be very simple.
The Chair: Gentlemen, I'd like to thank you on behalf of our colleagues. This has been very interesting and thoughtful, and we enjoyed having you with us.
(The committee continued in camera.)