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Infrastructure plan sorely needed to address deficit

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by Richard Gilbert

The largest cities in western Canada need to develop and implement a new set of financing and funding solutions, in order to address a growing infrastructure deficit.

“The Canada West Foundation has been working on that file and we’ve identified essentially one paradigm shift we think that needs to be made with respect to government policy and infrastructure,” said Canada West Foundation Senior Policy Analyst Casey Vander Ploeg, who is an expert on Infrastructure Financing, Funding and Delivery Options.

“That is to provide our municipalities with a diverse set of tools in order to attack the infrastructure challenge.”

Vander Ploeg recently gave a presentation at the Canadian Construction Association’s 93rd Annual Conference in Hawaii, where he told a room full of delegates that there is no consensus among economists about the scope of the infrastructure challenge.

Estimates of Canada’s public infrastructure deficit range from $50 billion to $570 billion, depending on how the figures are calculated.

“The big western Canadian cities, including Victoria, Vancouver, Calgary, Edmonton, Regina, Saskatoon and Winnipeg, are actively engaged in assessing their infrastructure issues and challenges,” he said.

“And they have provided numbers looking forward for the next 10 years of the infrastructure deficit in these cities.”

The City of Winnipeg produced a report in 2009 that estimated the cost of fixing and maintaining the city’s infrastructure will be $7.4 billion over a 10 year period.

In Edmonton, the city has estimated that the infrastructure deficit is $19 billion from 2009 to 2018.

“If you add up the deficit for the seven biggest western Canadian cities there is a $4.2 billion shortfall annually, in the infrastructure they need,” said Vander Ploeg.

“And a $4.2 billion problem puts a premium on finding creative, innovative and fresh solutions.”

Vander Ploeg said 60 to 90 per cent the western Canadian cities infrastructure problems lie in tax supported assets, such as roads and sidewalks, which rely on taxes to be built and maintained.

“One of the interesting ideas we have come across is the idea of a penny tax, which would be a small one per cent general sales tax, which would apply at a local level, but it would operate in a unique way,” he said.

The tax would have a number of unique features built into it.

For example, it would be voter approved, which means voters would have to agree to impose the tax.

The tax revenue would always be earmarked for infrastructure and it would expire after six years.

The rate would be capped by provincial legislation and once it was completed the tax would lapse.

If the government collected more revenue than is needed to complete the project, there would be a refund to taxpayers through reduced property taxes.

This is one of the many tax options municipalities should consider to boost the construction of infrastructure, by generating new sources of funding, he said.

One of the factors making it difficult for municipalities to fund much needed projects in the last few decades is a drastic reduction of fixed capital investment.

According to Vander Ploeg, public sector infrastructure expenditure as a share of Gross Domestic Product has fallen from around four per cent in the early 1960’s to almost two per cent in 2002.

In the same period, the ratio of public fixed capital stock to private stock has also declined from more than 40 per cent to almost 30 per cent.

At the same time, the profile of public infrastructure was also changing.

Vander Ploeg said that the federal government represented 43.4 per cent of the public stock of fixed capital ($111 billion) in 1955, while the municipalities represented 22.5 per cent and the provinces share was 34.1 per cent.

By 2007, there was a significant decline in the federal government’s share.

It dropped to 17.5 per cent of the public stock of fixed capital ($443 billion), while the share of the municipalities jumped to 47.8 per cent and the province’s share remained steady at 34.7 per cent.

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