Ottawa’s behind-the-scenes infrastructure negotiations have hit a snag over a key issue: how to prove federal cash will fund new projects and not simply pad the budgets of provinces and municipalities.
There is little evidence so far that new infrastructure spending has entered the Canadian economy, according to the Bank of Canada and the Parliamentary Budget Officer. Industry groups with direct knowledge of spending trends – such as engineers – say their members are not seeing evidence of a spike in activity this year.
Officials from all three levels of government confirmed to The Globe and Mail that the issue of insuring federal money goes to new projects is one of the main unresolved problems before Ottawa can move ahead with its promised second phase of infrastructure spending. The bulk of the federal Liberals’ outlays will come in this second phase, which is aimed at large new projects that will boost economic growth.
The question for officials is how to define “incrementality” – the bureaucratic term used in infrastructure agreements between governments to outline the priorities and sequencing of construction. The debate hints at some concern in Ottawa that its increased transfers may not actually produce a similar level of new spending. Reports have shown that provinces and municipalities are generally in weaker financial health than Ottawa, but they insist they won’t use new federal money to help ease their own budget pressures. Federal officials are seeking extra assurance that that’s the case.
“The incrementality issue has been a major, major stumbling block and point of discussion,” Ontario Infrastructure Minister Bob Chiarelli told The Globe in an interview. The minister summarized how federal officials have expressed their concerns. He said the gist of the federal argument is to say: “Well, you’re just going to use our money to support your own budget. You’re going to use us twice, in effect.”
The federal government is planning to spend $186.7-billion on infrastructure over 12 years.
As Ottawa faces increasing pressure to get money moving, it must also address the fact that the Auditor-General of Canada’s office – via the Commissioner of the Environment and Sustainable Development – chastised the government last year for doing a poor job of tracking what has been accomplished with existing infrastructure transfers, such as the $2-billion-a-year federal gas tax fund.
Federal Infrastructure Minister Amarjeet Sohi acknowledged in an interview that the question of whether a project is new is an unresolved debate in the negotiations. “We have heard this challenge,” he said. However, he expressed optimism that it will soon be resolved. Part of the problem to date has been trying to match short-term federal funding, such as its two-year-long first phase, with provincial long-term plans. If Ottawa produces a clear 10-year plan that lets provinces know how much they can expect in each category, such as transit, social infrastructure and green infrastructure, he said that should make it easier for other levels of government to make their own plans. “If all provinces and territories and the federal government have a long-term vision for infrastructure and what kind of infrastructure we want to build, I think these issues will be easy to resolve,” he said.
Edmonton Mayor Don Iveson, who chairs the big city mayors caucus of the Federation of Canadian Municipalities, confirmed that the issue is a source of tension. However, he agreed with Mr. Sohi’s view that a clear long-term federal plan will make it easier for provinces and municipalities to say how much they can contribute to specific projects.
As an example, he pointed out that Edmonton has already spent some money to plan for a light-rail extension to the West Edmonton Mall, but that won’t happen unless the city receives federal funding. “Is it a new project or is it not a new project? Well, without $1.8-billion worth of combined municipal, provincial and federal money, it’s going to be a $40-million design exercise. It’s not going to be a project,” he said. “I think [the issue] will come out in the wash.”Report Typo/Error