DCN ARCHIVES

September 29, 2004

CanaData’s construction forecast conference

New deal for cities likely to spur infrastructure spending

BY DAN O’REILLY

DCN CORRESPONDENT

There was some positive news on the future of infrastructure projects for design and construction industry representatives at the recent CanaData Construction Industry Forecasts Conference in Toronto.

The ‘New Deal for Cities’ agenda being promoted by Prime Minister Paul Martin should be the catalyst for major spending on infrastructure construction and rehabilitation, said Jeff Morrison, executive director of the Canadian Construction Association’s The Road and Infrastructure Program (TRIP).

“This new deal is a recognition municipalities are facing increasing responsibilities, primarily for the provision of new infrastructure or existing infrastructure.”

Centerpiece of the new deal is Ottawa’s proposal to share a portion of the federal gas tax, said Morrison, emphasizing that allocation is the share of taxes collected at the gas pump and not all excise fuel taxes.

Jeff Morrison

Infrastructure spending will never reach the levels of the 1960s and 1970s and it remains to be seen how much of the gas tax the federal government will allocate to municipalities will actually be used for infrastructure work, he cautioned.

“Without going into too much detail, the federal government is, as we speak, negotiating with provincial and municipal governments as to the policy details inherent in such an arrangement.”

According to Infrastructure Minister John Godfrey, who recently provided the CCA with a progress update, those negotiations should be complete by the end of this year, with a funding announcement in the 2005 federal budget, said Morrison.

“As for amounts, Paul Martin pledged during the recent election campaign to ramp-up funding to five cents a litre within five years, and given that each penny of gas tax raises about $500 million, that fivecents- a-litre would translate into $2 billion to $2.5-billion per year for municipalities.”

Ottawa has been quick to point out this amount will be ramped, and that years one through five will be a lower level, perhaps starting at two or three cents per litre, he said.

“You’ll notice, I said this money is for municipalities and not necessarily for infrastructure. This is one of the great unknowns of these negotiations.

“Whether there will be strings attached to ensure that this money must be used for core infrastructure, or whether cities can use this money for whatever they want, is yet to be seen.”

But given that infrastructure needs are the greatest liability that most municipalities face, it can be assumed that a bulk of funds will be going into infrastructure, said Morrison.

“To give just one example of the possible impact of gas tax money, let’s assume that in fiscal year 2005, municipalities spend an additional $100 million of gas tax money on the roads sector—which could well be a lowball amount.

“If just $100 million were added to road construction, the roads sector would realize growth of 3.2 per cent instead of the forecast 1.2 per cent. If an additional net $100 million was added in 2006, growth would be 4.3 per cent instead of 2.3 per cent, and so on.”

Even without the gas tax infusion, there will be at least moderately increased municipal spending on roads, highways, runways, bridges and sewer works from now until 2007.

Actual percentage dollars will vary from sector to sector and year-to-year, but will be within of 0.8 per cent to 2.7 per cent.

Those predictions are based on a forecast produced by the CCA’s economic forecasting firm, Informetrica. It didn’t include the possibility of the gas tax or other possible new funding sources, said Morrison.

“For all these sectors, Informetrica is placing its bets on the notion that overall economic growth across Canada will begin to decline in Canada around the second half of 2006, resulting in lower government revenues and the ability to spend on capital works in the 2007 fiscal year.”

While waterworks construction could be sluggish for the next two years, Informetrica is predicting a whopping 10.2 per cent growth in such work in 2007.

That’s based on the premise provinces will either introduce or start to consider “true water costing” about that time to finance needed water system remediation work, he said. (True costing is the policy of charging taxpayers the real cost of water and sewage projects, rather than at the subsidized rate they now pay.)

There are some caveats about those predictions. When the forecasts were being prepared, it was difficult to foresee this year’s strong residential construction market and similar market in 2005.

As more houses are built, more roads, sewers will be needed to service those neighbourhoods, said Morrison.

It would be “foolish” for the construction industry to think that infrastructure spending will ever reach the level of the immediate post-war years.

But federal and provincial governments have got the message our infrastructure systems are strained, he pointed out.

An example was former prime minister’s Jean Chretien’s 1993 election promise of a $6-billion, cost-shared infrastructure program, which was in fact implemented.

Since then, there have been a number of targeted programs under such headings as the Border Infrastructure Program, the Strategic Infrastructure Fund, the Strategic Highways Infrastructure Program and the most recent program that is currently under negotiation, the Municipal Rural Infrastructure Fund, added Morrison.

“Since 1993, Ottawa has unveiled infrastructure programs worth a total of $12 billion—when leveraged money is factored in, mostly from other orders of government, but some private sector money as well, the total reaches $30 billion.”

Of the federal money, some $1.75 billion has yet to be spent, said Morrison.

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