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ARE STRATEGIC - CANADA'S LOOMING INFRASTRUCTURE CRISIS AND ICSPs

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ARE STRATEGIC - CANADA'S LOOMING INFRASTRUCTURE CRISIS AND ICSPs Powered By Docstoc
					  Working Paper #2: Canada’s Looming Infrastructure
Crisis and Gas Tax Agreements: Are Strategic Connections
                      Being Made?

        SFU Centre for Sustainable Community Development
                                 www.sfu.ca/cscd

                                In Partnership with

                ICLEI – Local Governments for Sustainability
                                www.iclei.org
               Centre for Indigenous Environmental Resources
                                 www.cier.ca

                              Emilia Kennedy
                          Research Assistant, CSCD
                     MA candidate SFU Dept. of Geography

                            Dr. Mark Roseland
                              Co-Investigator
              Director SFU CSCD, Professor, Dept. of Geography

                              Dr. Sean Markey
                                Co-Investigator
            Research Associate, CSCD, Professor, SFU Explorations

                                Sean Connelly
                   Senior Researcher and Project Co-ordinator
                           PhD candidate, SFU CSCD




                               Funded By:
         Infrastructure Canada – Peer Reviewed Research Strategy

          Production of this working paper has been made possible through a
        financial contribution from Infrastructure Canada. The views expressed
           herein do not necessarily represent the views of the Government of
                                         Canada.




                                    March 2008
Centre for Sustainable Community Development – Strategic Sustainability and Community
Infrastructure – Brief: Infrastructure Crisis and Community Sustainability

CANADA’S LOOMING INFRASTRUCTURE CRISIS AND GAS TAX AGREEMENTS:
ARE STRATEGIC SUSTAINABLE CONNECTIONS BEING MADE?

        Canadian municipalities face a myriad of challenges with regard to the continued
maintenance and development of services and infrastructure. With regard to infrastructure, this brief
seeks to examine three factors in particular – the large and growing ‘infrastructure crisis’, increasing
policy importance of sustainability and sustainable community planning, and the Gas Tax
Agreements (hereafter GTAs), with the concomitant Integrated Community Sustainability Plans
(ICSPs) – in order to make a preliminary assessment of the degree to which the Gas Tax
Agreements and ICSPs are or could strategically address both the infrastructure crisis and the goals
of sustainability planning. That is, do the Gas Tax Agreements and associated ICSPs represent, or
have the potential to represent a means of addressing both Canada’s municipal infrastructure crisis
on the one hand, and the need to shift towards greener, more sustainable infrastructure systems on
the other?

        An underlying rationale for the Strategic Sustainability and Community Infrastructure project is the
recognition of the ever-growing municipal infrastructure deficit. This deficit represents an obvious
challenge for municipal governments and communities, as well as senior levels of government. Yet,
viewed from another perspective, this deficit also represents a tremendous opportunity to ‘unlock’
communities from inefficient, unsustainable infrastructure systems. The need to replace, upgrade,
and add to Canada’s infrastructure inventory represents an enormous chance to insert infrastructural
technologies and methods which are more sustainable, greener and more holistically conceived into
municipal systems.

         Not only does a triple bottom-line or sustainable solution to infrastructure crisis perhaps
represent the wisest approach to addressing the municipal infrastructure deficit, it is perhaps the only
truly feasible way out of the crisis. This is because, ideally, a ‘sustainable’ or ‘triple-bottom line’
approach to infrastructure would take into consideration economic, environmental and social factors
of infrastructure, as well as take a longer term view for infrastructure planning. Indeed, as Dale and
Hamilton have stated, “infrastructure plays a critical role in the capacity of Canadian communities to
realize… sustainable development goals” (2007: 1). Also this approach would have the potential to
expand our definition of what constitutes infrastructure, thus taking advantages of extant
‘infrastructural’ services of local ecologies and communities’ ‘soft’ infrastructure, thus taking into
account “the full range of municipal infrastructure” (Mirza 2007: 22). In other words, a sustainable
approach to infrastructure may afford Canadian communities with a timely chance to re-imagine
infrastructure: it’s form; it’s role, etc. In this way, sustainable infrastructure is also strategic
infrastructure.

        Research findings from the case studies have indicated that, at the municipal scale, local
crises and challenges can often represent opportunities to innovate or engage with new technologies
or processes. For example, in the cases of Surrey and of Toronto, new approaches to infrastructure
arose from the need to address local environmental problems through non-conventional avenues (be
they financial, engineering or planning).




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Centre for Sustainable Community Development – Strategic Sustainability and Community
Infrastructure – Brief: Infrastructure Crisis and Community Sustainability

I) The Municipal Infrastructure Crisis

        A report released by the FCM in November 2007 is the latest publication to alert us to the
growing size and severity of Canada’s looming infrastructure crisis. Authors of the report estimated
the national municipal infrastructure deficit to be $123 billion. This does not include new
infrastructure needs, which authors of the report estimated that about $115 billion.

        This figure is higher than other previous studies, but the authors argue that other studies did
not take into account the effects of such factors as: rapid aging and escalating deterioration of
infrastructure, demographics, geography, local needs, climate change, economics (Mirza 2007: 10).
While various studies offer differing exact dollar figures for the size of the deficit, “all point to a
massive and growing backlog” of infrastructure requirements (Mirza 2007: 9).

        Further more, not only is the FCM deficit estimate is higher than previous calculations; the
authors also contend that the deficit is growing at a faster rate than expected. In 2003, the deficit
estimated to be growing by $2 billion a year (p.4). The ever-increasing rate of deficit growth is
thought to be occurring as a result of: delayed maintenance, many assets reaching end of service of
life and rapidly increasing repair and replacement costs. These factors are further compounded by
population growth.

        The infrastructure deficit is distinguished from new infrastructure needs, as “the cost of
maintaining and upgrading existing, municipally owned assets.” (FCM, p.4, emphasis added). This
includes unfunded investments needed to maintain and upgrade existing infrastructure assets, as well
as funds required to bring existing facilities to minimum acceptable levels of operation over their
service life. This deficit does not include infrastructure owned by other levels of government. It is
important to note that Canadian municipalities face not only the strain of a large and rapidly
compounding infrastructure deficit (existing infrastructure), but are also faced with the need for
investments in new infrastructure.

What are the causes of this municipal infrastructure deficit?

        Firstly, municipalities own and maintain most of the existing infrastructure stock in Canada
(Mirza 2007: 6), and continue to own a greater and greater share of the stock. From 1961 to 2002,
Canadian municipalities’ share of national public capital stock rose from 30.9% to 52.4% (near 70%
increase) while federal infrastructure stocks fell to 6.8% from 23.9%.

        Secondly, FCM attributes the root cause of the infrastructure deficit to changes affected by
senior governments’ restructuring since the 1970s. They argue that municipalities have been
squeezed by increased responsibilities on one end (senior government down-loading), and reduced
revenues on the other (reduced transfer payments from senior government). Whereas in the period
prior to senior government’s retreat from infrastructure provision (1955-1977) new investment in
infrastructure grew by 4.8% annually, it grew, by only 0.1% per year from 1987-2001. This reduction
in investment reflects municipalities’ inability to invest in infrastructure due to the senior
government “squeeze”.

        Thirdly, unlike senior governments, municipalities are not allowed to run deficits in their
operating budgets, leaving them with chronic under-investments in infrastructure maintenance and


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Centre for Sustainable Community Development – Strategic Sustainability and Community
Infrastructure – Brief: Infrastructure Crisis and Community Sustainability
building and escalating inability to keep up with ever more rapidly deteriorating stock. According to
FCM, municipalities’ inability to run deficits “has put tremendous downward pressure on municipal
capital budgets, which do not face the same immediate pressures as operating expenditures, making
capital investments easier to delay” (p.5).

        Further, the maintenance of the municipal public capital stock is maintained primarily
through property tax (Soberman 2006), a less responsive form of taxation compared to incomes and
sales tax. This means that large or growing communities may experience economic growth or
population expansion without commensurate budgets to increase or maintain services. In small or
declining communities, the reliance on property taxes can entail insufficiently large tax base to
maintain infrastructure stocks. As Soberman (2006) argues, “almost all municipal governments in
Canada lack the resources and fiscal instruments to meet needs related to maintenance and
rehabilitation of existing physical infrastructure, as well as expansion of infrastructure to
accommodate rapid urbanization and population growth.”

Table 1. Municipal Infrastructure Deficits and New Needs by Sub-category. Adapted from Mirza
2007.

“Sub-Deficit” Category                                    Deficit              New Needs          TOTAL
                                                          $ Billions           ($ billions)
Water, waste water systems                                31.0                 56.6               87.6
Transportation                                            21.7                 28.5               50.2
Transit                                                   22.8                 7.7                30.5
Waste Management                                          7.7                  4.3                12.0
Community,      social,   recreational,          cultural 40.2                 18.1               58.3
infrastructure
TOTAL                                                       123.4              115.2              238.6


          The FCM report contained one single recommendation: “that we establish a national plan to
eliminate the municipal infrastructure deficit and prepare the ground-work for effective management
of our infrastructure in the future” (Mirza 2007: 21). Authors also called “the plan must bring long-
term certainty to infrastructure funding”, arguing that it would “promote new efficiencies,
technologies and best practices” (Mirza 2007: 3). Raises important questions: Where will this funding
come from? How and why is the infrastructure deficit so large and what can be done differently (strategically)? Are
current infrastructure funding sources and mechanisms enough?


II) The New Deal for Canadian Communities: Gas Tax Agreements

      In their 2004 Budget, the federal Liberal government announced “The New Deal for Cities
and Communities” (NDCC), intended to amount to “historically unparalleled levels of funding to
municipalities” (Infrastructure Canada 2008). The goal of the NDCC is to 1) ensure the
sustainability of Canadian communities, 2) by providing them with long-term funding, 3) a larger
role in decision-making and to 4) promote a localist approach to infrastructure in which
communities develop local solutions for local problems (Infrastructure Canada 2008). The NDCC
amounts to “historically unparalleled levels of funding to municipalities” (Department of Finance


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Centre for Sustainable Community Development – Strategic Sustainability and Community
Infrastructure – Brief: Infrastructure Crisis and Community Sustainability
Canada 2005) for infrastructure projects, consisting of two financial commitments from the federal
government to municipalities, a GST rebate and a share of gas tax revenues.

   1) $7 billion over a 10 year period of “unconditional funding for municipalities” streamed from
      a 100-per-cent rebate of the goods and services tax and the federal portion of the
      harmonized sales tax, for municipalities
   2) $5 billion in stable funding to municipalities over five years (2005-2010) through sharing of
      federal gas tax revenue with Canada’s cities and communities.

     Gas Tax Agreements were signed between the federal government and each provincial and
territorial government. All provinces and territories signed bilateral agreements between May and
November 2005. Alberta and Yukon Territory were the first two jurisdictions to sign with the
federal government. Funds can be transferred to communities once provinces and territories sign
bilateral agreements.

         The NDCC became effective in the 2005–06 fiscal year, Canada’s cities and communities
will receive a share of federal gas tax revenues worth $600 million. This funding is to be scaled up
annually until it reaches $2 billion annually, equivalent to 5 cents per liter of gas tax revenues, by
2009–10 (Government of Canada, 2005). Funding is to be distributed to provinces, territories and
First Nations on a per capita basis. In their 2007 Budget, as part of its $33 billion "Building Canada"
plan, the Conservative Harper government extended the Gas Tax Fund by an additional $2 billion
per year nationally, from 2010 to 2014. In Budget 2008, these funding agreements were made
permanent. Therefore, from the period of 2005-08 to 2013-14, municipalities will receive a total of
$13 billion in gas tax funding from the federal government (Infrastructure Canada, 2008).

       Terms that are uniform across provinces are: a commitment from the province to distribute
Gas Tax funds to municipalities, the type of infrastructure projects eligible for funding, eligible
costs, reporting and transparency, establishment of ‘Oversight Committees’ representing all levels of
government to help guide and monitor the program, and a commitment to ensuring all
municipalities develop Capital Investment Plans and ICSPs (Hindle 2006).

       According to Infrastructure Canada (2007), the benefits of the Gas Tax Agreements are:
   -    “Predictable, up-front funding in support of municipal infrastructure that enhances the
        environment and our quality of life.

   -    Increase[ed] capacity of communities to undertake long-term financial commitments needed
        to address local needs such as public transit, water and sewers, solid waste, community
        energy systems, and local roads and bridges.

   -    Provides funding for capacity building to support communities in planning for long-term
        sustainability.”

       The goal of the NDCC and Gas Tax funding specifically links infrastructure and sustainability as
funding from the Gas Tax Agreements are intended to be available primarily for ‘sustainable
infrastructure’ projects “such as public transit, water and wastewater treatment, community energy
systems and the handling of solid waste” (Association of Yukon Communities 2005). Gas Tax
agreements specifically state that funds are to be used for infrastructure projects that “improve the
quality of the environment and contribute to reduced greenhouse gas emissions, clean water, or


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Centre for Sustainable Community Development – Strategic Sustainability and Community
Infrastructure – Brief: Infrastructure Crisis and Community Sustainability
clean air” (Hindle 2006).

       Project eligibility will be similar to other existing Infrastructure Canada grant programs, but
with a strong emphasis on environmentally sustainable infrastructure. As of yet, there has been no
review of the kinds of infrastructure projects that have been successfully implemented by
municipalities using GTA funds. It would be valuable to know if implemented projects are indeed
within the scope of ‘sustainable infrastructure’ projects. The Harper government, in their 2006 party
platform stated that it would expand the New Deal to allow all cities and communities, including
cities with more than 500,000 people, to use gas tax transfer dollars to build and repair roads and
bridges to improve road safety and fight traffic congestion (Conservative Party of Canada, 2006).
Given that, with the exception of the Yukon, communities are not required to develop sustainability
plans before accessing GTA funds, and given the federal government’s apparently broad
understanding of ‘environmentally sustainable infrastructure’ as including conventional road repair,
it remains to be seen to what extent the Gas Tax funds represent a new or sustainable way of
conceiving of infrastructure.


III) Integrated       Community       Sustainability    Plans:    Institutionalizing     Sustainable
Infrastructure?

      Each Gas Tax Agreement (GTA) signed between the federal government and the provinces
contains a stipulation that Integrated Community Sustainability Plans (ICSPs) be developed by all
communities receiving Gas Tax funds (with the exception of Quebec). GTAs specify that ICSPs are
“to be developed through consultations within communities and that they are to consider
environmental, cultural, social and economic objectives” (Averill 2006). ICSPs are defined in the
federal/provincial GTAs as “a long-term plan, developed in consultation with community members,
that provides direction for the community to realize sustainability objectives it has for the
environmental, cultural, social, and economic dimensions of its identity” (Association of Yukon
Communities 2005).

      Municipalities who receive Gas Tax funds must develop ICSPs by the end of the Gas Tax
Agreement in 2010 (Hindle 2006). The Yukon Territory is notable, however, in that communities
must develop ICSPs prior to receiving GTA funds. As of March 2008, all Yukon communities ISCPs
have been approved by the Yukon Gas Tax Review Committee (Association of Yukon
Communities 2008), making it the only jurisdiction to have all communities complete ICSPs. How
ICSPs are to be developed, what they are required to contain, and how they are administered varies
by province/territory. In a number of instances, provincial community associations will administer
the gas tax program (Alberta, British Columbia Manitoba, Ontario), while in others provincial
ministries are charged with developing and administering ICSPs (New Brunswick, Nova Scotia,
Saskatchewan) (Averill 2006, Hindle 2006). In many cases, existing community Official Community
Plans or other high-level planning policies may serve as ICSP.

       Although communities will be required to develop ICSPs in order to have access to GTA
revenues for infrastructure projects, ICSPs do not have to be completed until 2010 (except in the
Yukon). This policy of “money now, plans later” is potentially problematic from the perspective of
strategic sustainable infrastructure development. As it is, communities are allowed to fund
infrastructure projects intended for “sustainable infrastructure” that not only do not require public
participation, but that also need not be informed by any larger sustainability plan or policy. This


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Centre for Sustainable Community Development – Strategic Sustainability and Community
Infrastructure – Brief: Infrastructure Crisis and Community Sustainability
represents a continuation of a piecemeal approach to sustainable infrastructure development in
which municipalities use GTA funds to play catch up with infrastructure backlogs without a national
strategy to seriously address either the municipal infrastructure crisis or the need for more
sustainable forms of infrastructure development.


IV) Diagnosis: Are ICSPs and the Gas Tax going to enable communities to ‘make it’ to a
sustainable infrastructure future?

      According to an FCM report, which surveyed municipalities about their experiences with
federal infrastructure programs, Soberman (2006) reported that almost every municipality
respondent agreed, “municipalities were far more likely to take a longer term view of infrastructure
planning if federal funding programs were to be guaranteed for a longer period”. For their part, Dale
and Hamilton (2007) found “serious disconnects between planning and on-the-ground
implementation”, in which “the process of infrastructure investment in Canada appears remarkably
weak in terms of governance and integrated land-use planning”.

        Compare these findings to the 2007 FCM Mirza report and its single policy recommendation
that all levels of government work to “establish a national plan to eliminate the municipal
infrastructure deficit and prepare the groundwork for effective management of… infrastructure in
the future.” It would seem that the Gas Tax Agreements and associated ICSPs miss the mark for a
potential to truly ‘integrate’ sustainability and infrastructure and to seriously address the municipal
infrastructure crisis. Although the New Deal represents unprecedented levels of funding to
municipalities for infrastructure, it could be viewed as yet another way in which senior governments
continue to retreat from their role in municipal infrastructure. The New Deal is touted as a means by
which local communities are given decision-making power with respect to their own infrastructure
needs and priorities, yet they are left without sufficient means of funding these needs and also
without a concomitant over-arching national strategy or commitment to tackle the need for
infrastructure maintenance, expansion and re-imagination.

    The shortcomings of the New Deal, Gas Tax Agreements and Integrated Community
Sustainability Plans for the strategic, sustainable response to the municipal infrastructure crisis can
be summarized as:
    - Financially insufficient - $13 billion has been allocated to leverage a response to a need for
        $238.6 billion in infrastructure funding
    - Non-strategic – funding is available before sustainability planning is required.
    - Possibly reinforcing capacity gaps – those jurisdictions and communities with an existing
        capacity to plan and implement sustainability planning has been the most successful in
        commencing and engaging with the ICSP process. The New Deal does not emphasize the
        transfer of innovative, greener technologies, or dissemination and support for smaller or less
        capable communities to learn and engage in SCP.
    - Not comprehensive – While the emphasis of the New Deal is for communities to use
        funds to identify their own infrastructure priorities, there is not over-arching national
        strategy to either eliminate (or even reduce) the national infrastructure crisis
    - Not sufficiently focused on sustainable infrastructure? – It would be valuable to
        investigate what projects have been both approved and successfully implemented using



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Centre for Sustainable Community Development – Strategic Sustainability and Community
Infrastructure – Brief: Infrastructure Crisis and Community Sustainability
        GTA funds to assess their alignment with intended goal of promoting “environmentally
        sustainable infrastructure”.

         In their investigation of municipalities’ efforts to direct infrastructure investments towards
SCP goals, Dale and Hamilton (2007) found among urban policy-makers “near unanimous
agreement that that investment in infrastructure is a necessary and sufficient condition for the
ecological, social and economic well-being of all communities.” They also found that communities
are making “innovative sustainable infrastructure choices”, but that these are still very much
hampered by implementation gaps, as well as serious weaknesses in infrastructure investments. In
their diagnosis for the closing of this gap, Dale and Hamilton suggested the need to accelerate the
diffusion of sustainable technologies by linking key actors, increasing “policy congruence and policy
alignment”, as well as turning to more innovative financing mechanisms. None of these
recommendations is sufficient to address either the municipal infrastructure crisis or the need to
move towards more sustainable forms of infrastructure without a serious national commitment to
addressing Canada’s infrastructure need for the 21st century: infrastructure that is environmentally,
socially and fiscally sustainable. Here, as Dale and Hamilton find “senior governments have a key
leadership role to play in promoting sustainable infrastructure”.



References:

Averill, N. 2006. Collaboration Critical to Sustainable Cities. Public Policy Forum. URL:
[http://www.ppforum.ca/common/assets/publications/fr/collaboration_critical_to_sustainable_cit
ies.pdf]

Association of Municipalities of Ontario. 2007. Integrated Community Sustainability Plan Backgrounder.
[URL:
http://www.amo.on.ca/AM/Template.cfm?Section=FAQs1&Template=/CM/ContentDisplay.cfm
&ContentID=148645]

Association of Yukon Communities. 2005. Integrated Community Sustainability Planning - A Background
Paper. URL: [www.ayc.yk.ca/user/image/federal.handout.pdf]

Association of Yukon Communities. 2008. Policy and Planning Officer Update for March 1, 2008 AYC
Board Meeting. URL: [ http://www.ayc.yk.ca/icsp-yscp-update.htm].

Conservative Party of Canada. 2006. Conservative Party of Canada Federal Election Platform
(2006). URL: [http://www.conservative.ca/media/20060113-Platform.pdf]

Dale, A., and J. Hamilton. 2007. Sustainable Infrastructure: Implications for Canada’s Future. URL:
[http://www.crcresearch.org/node/29#susinfrep]

Department of Finance Canada. 23 February, 2005. A New Deal for Canada’s Communities (Budget
2005). URL: [http://www.fin.gc.ca/budget05/pamph/pacome.htm]




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Centre for Sustainable Community Development – Strategic Sustainability and Community
Infrastructure – Brief: Infrastructure Crisis and Community Sustainability
Hindle, L. 2006. Update on Integrated Community Sustainability Plans. Simon Fraser University Public
Interest Research Group. URL: [ww.sfpirg.ca/arx/projects/attachments/
000153/ARX_Plus_Network_ICSP_update_paper.pdf]

Infrastructure Canada. 2008. Gas Tax Fund. URL: [http://www.infrastructure.gc.ca/ip-pi/gas-
essence_tax/index_e.shtml]

Mirza, S. 2007. Danger Ahead: The Coming Collapse of Canada’s Municipal Infrastructure. Report for the
Federation of Canadian Municipalities. Ottawa, ON.

Soberman, R. 2006. Review of Federal Gas Tax Transfer and Infrastructure Programs. Report for
the    Federation     of     Canadian     Municipalities.   Ottawa,      ON.          [URL:
(www.fcm.ca/english/documents/soberman.pdf]




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