August 31, 2016 by Jim Barnes
Stimulus and improving the efficiency of the Canadian economy are stated goals of Budget 2016, along with green construction and social concerns.
The Bank of Canada has predicted that Canadian GDP will slow by one per cent in the second quarter. The sharp decline in oil prices, the Alberta wildfires and shaky consumer confidence have been major drags on the economy.
The programs covered under Budget 2016 should raise the level of real GDP by 0.5 per cent in the first year and 1.0 per cent the following year, according to the Department of Finance.
The elephant in the room is debt.
The Parliamentary Budget Office has questioned the sustainability of provincial debt, now at 32.5 per cent of GDP.
That debt may hobble provincial spending on infrastructure. “We’ve been told by some of our provincial associations that some of the provinces don’t have the money [to implement significant new infrastructure spending],” says Michael Atkinson, president, Canadian Construction Association, Ottawa. “That’s particularly true for those provinces whose budgets depend on the price of oil.”
The outlook on federal debt is rosier and the net federal debt is manageable, according to the Parliamentary Building Office.
Despite the deficits, the budget has won international admiration. Angel Gurría, Secretary-General, Organisation for Economic Co-operation and Development, called Canada a “good example of a country taking the right measures to break out of the low-growth trap.” Citing Canada’s monetary policy and willingness to take advantage of low interest rates for public investment, he said “Canada is an example to other advanced countries.”
The Building Canada Plan dates back to 2007, and the New Building Canada Plan has been in force for two years now. On-Site has reported regularly on these investments.
However, much of the funding remains unallocated. The government wants to deliver these investments, involving some $8.7 billion, as quickly as possible and ideally within two years. “Two years from now, there will be no uncommitted money,” says Atkinson. “If it’s not allocated within the next few years, then it’s going into the Gas Tax Fund.”
Typical projects will be “ready to go” – repair and maintenance of municipal infrastructure, improving roads, bridges, transit, clean water, and wastewater facilities.
On top of that, some $3 billion each year is coming in dedicated funding for municipal infrastructure projects through the current Gas Tax Fund and the Incremental Goods and Services Tax Rebate for Municipalities.
The basic Gas Tax Fund provides $2 billion a year as a permanent source of infrastructure funding for municipalities. It is indexed at two per cent per year, which means that it will grow by $1.8 billion over the next decade.
The funds go to the provinces and territories twice a year, who in turn pass it on to the municipalities. The municipalities have great flexibility in their choice of projects.
Phase 1, the kick-off of the new funding, is underway. More than $11.8 billion is budgeted over five years, with other infrastructure-related spending also planned.
See Table A for spending projections.
The agreements under Phase One will differ from those of the original New Building Canada Plan. In cases where relevant projects are already underway, some agreements may be made retroactive to April 1. In effect, “for transit, wastewater and whitewater treatment projects, if you have a project that you have already started or want to start right away to take advantage of the summer construction season, you can do so,” says Atkinson.
Another plus is that the federal funding will cover the costs of design and planning for future expansion of those types of projects. “Previously, that was not covered,” says Atkinson.
As well the federal component for projects involving municipalities will be 50 per cent, instead of the 33.3 per cent under the previous program.
Phase 2 will be announced next year. It will take a longer-term look at investment. Major government infrastructure concerns will be highlighted, grouped under the general headings of green, social and transit, according to Atkinson. “They’re talking about spending $12 billion over the next five years.”
A lot of emphasis is being put on consultation, especially with the municipalities and the industry. Consultation will likely begin next year, beginning with eligibility requirements, according to Atkinson.
“It looks like there’s going to be quite a consultation process, with the provinces, territories, municipalities and indigenous communities. It’s going to be pretty significant,” says Jim Dougan, president, Eastern Canadian Buildings and Civil Infrastructure, PCL. Until the consultations are held, details will be scarce. “Until we know more, it’s hard to comment on it.”
For those accustomed to governmental delay and red tape, attitudes expressed about the funding agreements are refreshing.
Amarjeet Sohi, Minister of Infrastructure and Communities Infrastructure, said his government wants to allocate the unspent infrastructure money quickly. “I don’t want to lose another construction season,” he said. “We need to have as few strings attached to the funding [as possible], keeping in mind the outcomes we want to achieve.” As of this writing, Sohi has signed off on nearly 164 projects since November of 2015.
Are the floodgates opening? “I don’t believe that there is going to be any capacity problem in the industry. A lot of these projects are smaller, relatively speaking. In some parts of the country, things are pretty dry,” says Atkinson.
Dougan has concerns about the accelerated time frame. Time is needed “so we can respond, and get people put to work. We’re halfway through this year’s construction season. For 2017, we’d like to see a good, strong start so it can be fully utilized in that fiscal period.”
Another simplification was eliminating the requirement for P3 screening. “They said it was adding to the complexity of getting things approved. The provinces are going to be doing that [screening] anyway,” says Atkinson. “They don’t want to dictate to the provinces. They just assume that is part of the logical process.”
“I think that’s positive – cutting down on the process. Some of the thresholds may have been too low. I just hope P3s don’t get eliminated from the process, because it is a good delivery model from the taxpayers’ perspective,” says Dougan.
Funding beyond the programs under discussion may be available from PPP Canada. Responsibility for PPP Canada Inc. has been transferred to the Minister of Infrastructure and Communities from the Minister of Finance.
“Essentially, you have three framework agreements now. One is for the gas tax. Two, you have agreements for the Building Canada Plan, one and two. Three, there’s a framework agreement out that looks like it’s only for Phase I. I’m not sure whether separate agreements will be required for Phase 2… We are being told that Phase 2 will have different criteria. That’s why there is going to be a consultation process,” says Atkinson.
New Bilateral Agreements are needed for both the Public Transit Infrastructure Fund (funding for which is based on potential ridership) and the Clean Water and Wastewater Funds in Phase 1. As of this writing, agreements have been signed with: B.C. (PTIF) Newfoundland and Labrador (PTIF and CWWF), Quebec (PTIF and CWWF) and Yukon (PTIF and CWWF). “The rest should follow pretty quickly,” notes Atkinson.
Atkinson voices some concern about timing. Say a provincial government has a major project that can’t be completed in three years, meaning it doesn’t fit into Phase 1. Will they apply for the current NBCP funding at 33.3 per cent federal participation? Projects under the new program are being funded at 50 per cent when a municipality is involved. “Some of the provinces may be sitting back on major projects that they feel will qualify under the new plan, to get the additional dollars.”
Caveats aside, stakeholders in construction applaud the funding.
“This budget and the new, stronger working relationship between the federal government and municipalities really marks a new way of getting things done for Canadians,” said Don Iveson, chair of the Big City Mayors’ Caucus, under the Federation of Canadian Municipalities.
“It’s all a positive story. It’s like anything, it’s how it’s rolled out. Communication is so important for everybody – just so we understand it,” says Dougan.