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The $125-billion question

Infrastructure spending is shaping up to be the Liberals’ biggest single policy response to the dramatic changes in the Canadian economy.
Bill Curry explains the nuts and bolts of the impending program. Meanwhile, Globe bureaus across the country speak with city mayors about their most important infrastructure projects, how much they’ll cost and what the short and long-term payoffs might be

One of the most basic functions of government is to provide the roads, bridges and safe drinking water that the public needs. Numerous reports have warned in recent years that governments are falling behind in this area, creating a massive backlog of urgent projects.

Provinces and municipalities have long been asking Ottawa to help cover these costs. These are projects that need to happen regardless of the state of the economy. During an economic downturn, spending more on infrastructure is widely viewed as a concrete move that governments can take to boost employment and get more money flowing into the economy.

“You never want a serious crisis to go to waste,” said President Barack Obama’s chief of staff Rahm Emanuel in 2008 as the U.S. rallied the global community – including Canada – to spend billions on new infrastructure to support economic growth during the financial crisis. That oft-quoted line is also a tell. Politicians like Mr. Obama and Liberal Prime Minister Justin Trudeau already have a bias in favour of activist government. Calls for stimulus can provide political justification for their preferred plans. Fiscal conservatives will warn of the long-term consequences of more debt when spending is financed through deficits.

There is also a a debate when it comes to the effectiveness of infrastructure spending. Economists argue that it is better to spend money on projects that will achieve long-term productivity gains, like improved border crossings or better public transit. The downside is that these larger projects take time. The money likely won’t flow until after the economy is already in recovery mode.

The alternative is to fund so-called “shovel-ready” projects. This might involve upgrades to hockey rinks or other recreational facilities that, while welcome by those who will use them, don’t deliver major long-term economic gains. Mayors say there are small projects that can start quickly and produce longer-term benefits. These include sewer upgrades and energy retrofits of social housing, which can reduce energy costs and lower greenhouse-gas emissions.

How much are the Liberals going spend?

The Liberals promoted a plan during the 2015 election campaign that promised $60-billion in extra cash over 10 years on infrastructure, split evenly between public transit, green infrastructure and social infrastructure. That is in addition to spending promised under the Conservatives, bringing the total federal budget for infrastructure spending to about $125-billion over 10 years.

There are questions though as to how much more money provinces and municipalities can contribute to infrastructure, given that many cities and provinces are already managing high debt loads.

What’s the process?

Provinces and municipalities already have wish lists sitting on the desks of federal bureaucrats in relation to previous infrastructure funds. The Liberals have said they plan on loosening some of the restrictions of those existing programs, such as removing requirements to seek out private-sector involvement in projects. Infrastructure Minister Amarjeet Sohi has said that he is looking to speed up approvals under those programs while he consults on what the new programs will look like.

Mr. Sohi and other senior Liberals have signalled that the goal is to have as few strings attached as possible.

“We will work with our partners to let them prioritize what their needs are,” Mr. Sohi said this week as he toured a construction site for the City of Ottawa’s light-rail project. “We are keenly aware of the need to intervene in the economy, and we’re working really hard with our counterparts throughout the country, with the provinces and municipalities, to get them to prioritize their projects, get their lists to us, so we can start looking at them.”

Who gets the money?

The government has indicated that infrastructure cash will be spread evenly across the country. However the economic downturn is largely centred on sectors and regions that are tied to commodities. That means Alberta, Saskatchewan and Newfoundland and Labrador are bearing the brunt of low oil prices and private sector layoffs.

That raises the question of whether Ottawa’s stimulus response should be targeted to where the needs are greatest.

Calgary Mayor Naheed Nenshi said he doesn’t think that’s necessary.

“Certainly there are parts of Canada that need more investment and there are good arguments to invest in them,” he said in an interview. “That said, every city in Canada needs an infrastructure. Every single city in Canada has an infrastructure gap.”

Will it work?

Finance Canada has a simple table that is widely used by advocates for infrastructure spending. According to the department, every dollar spent on infrastructure increases economic growth by a dollar-and-a-half. The department says infrastructure spending is the most effective form of stimulus when compared to other options, including more generous Employment Insurance benefits or tax cuts.

Private sector economists have said the Liberal infrastructure spending to date would boost growth by about half a percentage point. More spending would produce more growth.

The downside is that it will also lead to larger than planned deficits and a larger federal debt, when measured in dollar terms. Canada’s debt as a percentage of GDP is relatively low at 31 per cent.

The assumptions for Ottawa’s annual bottom line have deteriorated considerably since the election, meaning the Liberal spending promises start from a deeper deficit hole than originally thought. Nonetheless, the Liberals are not planning to scale back their spending plans. Some economists say the Liberals should actually spend more and run deeper deficits, while others caution the current situation does not warrant further stimulus than already promised. The Liberals have hinted the annual deficit will be larger than $10-billion, but have not given an indication of how much larger.

The Liberals have promised to return to balanced books before the next election. They’ve also promised to keep the debt-to-GDP ratio on a downward trend, which likely rules out annual deficits that are larger than about $25-billion.

“These are difficult times for Canada and extreme measures should be taken,” said economist Sherry Cooper of Dominion Lending Centres in a note Friday. “None of Canada’s economic pain was our own doing, but counter-cyclical policy measures can and should reduce the pain as we work our way towards a more diversified economy.”



The Skytrain station at Broadway and Commercial in Vancouver August 9, 2013.

The Skytrain station at Broadway and Commercial in Vancouver August 9, 2013.

John Lehmann/The Globe and Mail

Vancouver

Vancouver’s top priority when it comes to infrastructure projects is a 10-year transit plan put together by Lower Mainland mayors – a plan that includes the Broadway subway line.

“Within the city of Vancouver, the Broadway subway is a key element,” said Vancouver Mayor Gregor Robertson. “But we really want to see the whole 10-year plan funded because we need the investment across the entire region and a comprehensive approach to improving transportation.”

Lower Mainland mayors agreed to the 10-year plan in 2014 and it comes with a total price tag of $7.5-billion. The plan calls on the federal government to pick up one-third of the cost.

In addition to the Broadway subway line – which would run along the region’s busiest bus corridor – the plan calls for expanded light rail in Surrey and a new Pattullo Bridge.

Mr. Robertson said once the money is in place, the Broadway subway line could be up and running in five or six years. But he said transit goers would see benefits long before that.

“It could start immediately with investments in more buses, the third SeaBus, all of which can be deployed in 2016, creating jobs and easing the traffic congestion around the region,” he said.

A spokesman for the mayor said the plan will create 7,000 new jobs in the region by 2030. He said this will include direct and indirect construction, transportation, operations and customer service jobs.

Sunny Dhillon



Airport Trail and the Airport Trail Tunnel project.

Airport Trail and the Airport Trail Tunnel project.

CH2M

Calgary

Calgary Mayor Naheed Nenshi calculates his city has a total of $25-billion in unfunded infrastructure projects, both large and small. The city cobbled together $2.5-billion this year for stimulus projects, but the mayor hopes the provincial and federal governments will make good on their campaign promises so he can spend more.

The city’s largest project is its so-called Green Line, which would expand Calgary’s light rail network. That is a long-term effort. More immediate projects include completing Airport Trail and funding affordable housing, Mr. Nenshi said. And if the provincial government and the federal government demand any money they provide be spent on projects that will instantly put people to work, the mayor is ready to post help-wanted ads.

“The easiest thing to do for shovel-ready is life-cycle maintenance. I can fix roads and fix roofs at arenas – and that stuff can happen literally the day the cheque arrives,” he said.

Work on Airport Trail could start this construction season, and shovels on the Green Line could be in the ground a year from now, he said. It is difficult to quantify how many jobs Calgary’s infrastructure projects would create, but the opportunities would extend beyond people in hardhats and safety vests.

“I need people to do procurement, I need lawyers to write the contracts, I need accountants to track the money, I need human resources people to do the hiring,” Mr. Nenshi said.

Roofs could be patched immediately. Those types of projects start at around $500,000. Airport Trail, which rings in at about $100-million, could wrap by 2018. And folks could be riding the expanded LRT some time between 2021 and 2023. For that, the city needs $4-billion - three times more than anything the city has ever built, Mr. Nenshi said.

– Carrie Tait





The Alexandra Park development in Toronto on March 4, 2013.

The Alexandra Park development in Toronto on March 4, 2013.

Deborah Baic/The Globe and Mail

Toronto

The country’s largest city has two main “shovel-ready” priorities for the Trudeau government’s infrastructure funds: public transit and public housing.

The Prime Minister, who met Mayor John Tory this week, pledged in the election campaign to provide $2.6-billion for Mr. Tory’s estimated $8-billion SmartTrack transit expansion plan. But that plan is nowhere near “shovel ready.”

In the meantime, the Toronto Transit Commission’s top priority is for federal help with its $9-billion list of unfunded capital projects, a list heavy on run-of-the-mill maintenance: Replacing the subway’s Second-World-War-era signalling system, installing elevators at subway stations, renewing the battered bus fleet.

Work could go ahead this year on many projects, said Josh Colle, the city councillor who chairs the TTC, if money were to flow: “One of the big pressing TTC needs is a lot of the day-to-day maintenance, state-of-good-repair work that… has been neglected, in my estimation, for years and years.”

Meanwhile, Toronto’s 10-year, $2.6-billion plan to renovate its many dilapidated public-housing buildings is now in its third year, having ramped up to a budget of $250-million this year. But it is about to run out of money.

City Councillor Ana Bailao, who chairs Toronto’s Affordable Housing Committee, says more work could start late this year if new money flowed – but without a new commitment from Ottawa, activity will be scaled back. The revitalization projects, in addition to improving the lives of some of the city’s poorest residents, are creating 14,000 jobs a year, she said.

“Most of our buildings were built in the sixties and they are like any home that was built at that time,” Ms. Bailao said. “They are in need of repairs.”

– Jeff Gray



Passengers stand while a Montreal Metro train passes through a station in Montreal, Quebec, Canada, on Saturday, Nov. 5, 2011. The Montreal Metro system is currently Canada's busiest subway system in total daily passenger usage, serving an average of 1,111,700 daily passengers on an average weekday. Photographer:

Passengers stand while a Montreal Metro train passes through a station in Montreal, Quebec, Canada, on Saturday, Nov. 5, 2011. The Montreal Metro system is currently Canada’s busiest subway system in total daily passenger usage, serving an average of 1,111,700 daily passengers on an average weekday. Photographer:

Brent Lewin/Bloomberg

Montreal

At the top of Montreal Mayor Denis Coderre’s infrastructure wish list is a project that has been talked about for years but remains unrealized: the extension of the subway system’s blue line eastward through Saint-Léonard to Anjou.

“I think that mobility is the name of the game,” Mr. Coderre said on Friday. “Eastern Montreal truly needs an extension of the subway.”

The Société de transport de Montréal, the city’s transit authority, and the former Parti Québécois government announced in 2013 that they would push that specific Métro corridor farther east from its current end point at Saint-Michel. But, as with previous pledges, construction work never got off the ground.

There was a change in government. But part of the issue is sheer price: Former provincial ministers have pegged the cost of a six-kilometre stretch underground at $250-million to $300-million per km, which would yield a top-line project appraisal of $1.8-billion.

Mr. Coderre has suggested that going above ground could reduce some of the cost associated with tunnel digging. But then engineers would have to figure out whether the Montreal Métro’s subway cars, which are unusual in that they run on rubber tires versus steel wheels in other cities, could handle winter conditions. Studies on the options are under way, the mayor said.

Backers of the project have noted that the main benefits include helping to alleviate traffic on the Metropolitan highway and boosting the economy of the boroughs along the route by bringing more people eastward. Skeptics note that it has been touted for years with no result, with one saying, “Am I going to be in a wheelchair by the time it happens? I’m not sure.”

Mr. Coderre suggested that it might just happen this time. “All those planets are aligned together. We want to make it work.”

– Nicolas Van Praet



The downtown and waterfront area of Halifax, Nova Scotia with Citadel Hill visible in the background.

The downtown and waterfront area of Halifax, Nova Scotia with Citadel Hill visible in the background.

Larry MacDougal/The Canadian Press Images

Halifax

Halifax Mayor Michael Savage envisions ambitious new infrastructure projects transforming the city. But the first priority is still water.

“By Canadian standards, we’re an old city and we have old pipes,” Mr. Savage said. The Halifax Regional Municipality has a long-term plan that calls for about $2.5-billion in spending to upgrade water and waste-water systems, in some cases just to to meet federal regulations. It may not be sexy, Mr. Savage said, but deferred maintenance has put the city in a position where investment is crucial and it can’t fund the work on its own.

Water-system renewal was one of three priorities identified for federal and provincial funding back in 2013, alongside transit and urban upgrades, such as streetscaping and lighting.

Now Halifax needs to be strategic and ready to jump on projects that fit the federal government’s funding plans, Mr. Savage said.

Halifax is in the early phases of studying whether commuter trains could possibly come in along the shoreline using the old VIA Rail tracks. Mr. Savage said the project could be “transformative” for the city and he is “hoping it could be the kind of thing that might qualify in the new public transit funds that are going to be available.”

New buses, ferry-system upgrades and bike lanes would be quicker transit projects to tackle. “We need to look at how we’re moving people and transporting goods in this municipality,” he said.

While waiting for details, Mr. Savage is thinking about how to work with the private sector and the province, which will also be looking for funding for projects such as hospitals. “We have to look at what the criteria is for each of the funds. Who’s eligible? Who are we going to be competing with? Who are we going to be partnering with?”

Jacqueline Nelson


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