■ How it works: The traditional capital grant typically comes in the form of a conditional transfer from federal and provincial governments. Usually, these grants require municipalities to cost-share a portion of a specific project that meets with federal and/or provincial approval. Since 1994, most capital grants received by municipalities have been linked to a number of tri-partite national infrastructure programs spearheaded by the federal government. From 1994-2013, Canada will benefit from a total federal investment in infrastructure of $13.4 billion (Figure 11). However, concerns still exist that the amounts provided are too low. If federal investment levels are not increased in the coming years, the average federal infrastructure investment will amount to about $704 million annually over 19 years. This is often contrasted with the U.S. Transportation Equity Act for the 21st Century (TEA-21), which dedicated $216.3 billion (US) for roads and transit over a five-year period. This is an average annual investment of $43.2 billion on roads and transit alone. If one assumes that Canada should spend roughly one-tenth of what our primary competitor is investing, then the federal government's infrastructure investment would have to rise appreciably.
■ Assessing the potential: In the past, federal and provincial funding in the form of the conditional capital grant constituted a significant source of regular and ongoing support for municipal infrastructure. But, they have been significantly reduced in the last ten years, falling victim to budgetary restraint. Rather than forming an increasing and predictable source of funding, grants have become more ad hoc and limited to one-time infusions. With every federal and provincial budget, it seems cities wait with bated breath for any announcement respecting infrastructure funding.
A resurgence in capital grants and a renewed commitment to sustain them would be welcome news for Canada's cities. However, there are a number of problems with such hope. First, all of this is simply out of the hands of city governments, and prospects for a significant increase in granting levels does not appear to be forthcoming if only because urban infrastructure has to compete with increased health and education funding, both of which possess strong public support. Increases in grants also have to be factored against ongoing demands for tax reductions, which have also proven popular.
FIGURE 11: Federal Infrastructure Programs, 1994-2003 Canada Infrastructure Works Program: Announced in 1994. Program ran from 1994-1997. Federal funding totalled $2.0 billion initially, with a $425 million top-up. The top-up in funding was announced in 1996, and the program was also extended to 1999. The partnership model sees federal funds matched by provincial and municipal governments and the private sector. The purpose of the program was to stimulate the renewal of infrastructure (focus on water, sewer, roads, bridges) and to stimulate short-term job creation. Infrastructure Canada Program: Announced in 2000. Program runs from 2000-2007. Federal funding totals $2.05 billion. The partnership model sees federal funds matched by any combination of municipal, provincial, territorial and First Nations governments, and the private sector. The purpose of the program is to upgrade rural and urban municipal physical infrastructure (50% of the funds are dedicated to "green" infrastructure projects). Canada Strategic Infrastructure Fund: Announced in 2001. Program runs from 2001-2006. Federal funding totalled $2.0 billion initially, with a $2.0 billion top-up. The top-up in funding was announced in 2003, and the program was also extended to 2013. The partnership model sees federal funds matched and shared between any combination of municipal, provincial, or territorial governments, and the private sector. The purpose of the program is to fund large, national or regional projects that promote economic growth and/or quality of life (e.g. water quality, trade corridors, broadband connectivity, sustainable urban growth, and northern infrastructure). Border Infrastructure Fund: Announced in 2001. Program runs from 2002-2013. Federal funding totals $600 million. The partnership model sees federal funds cost-shared with provincial and municipal governments and private partners. The purpose of the program is to reduce border congestion, enhance security, and expand infrastructure capacity. Prairie Grain Roads Program: Announced in 2000. Program runs from 2001-2005. Federal funding totals $175 million. The partnership model is cost-sharing, but specifics vary by province. The purpose of the program is to upgrade municipal grain roads and provincial secondary highways. Green Municipal Enabling Fund: Announced in 2000. Program runs from 2000-2007. Federal funding totals $50 million. The partnership model sees cost-sharing (maximum 50%, up to $100,000) with municipal governments and their public and private sector partners. The purpose of the program is to undertake feasibility studies for innovative municipal environmental projects. Strategic Highway Infrastructure Program: Announced in 2000. Program runs from 2002-2006. Federal funding totals $600 million. The partnership model sees $500 million dedicated to highway construction (cost-shared 50-50 with the provinces and territories) and $100 million for highway system integration (cost-shared up to 50% with provinces, municipalities, and others). The purpose of the program is to aid in the development of highway construction and highway system integration including border improvements, intelligent transportation systems, planning, and modal integration. Green Municipal Investment Fund: Announced in 2000. The Program is a permanent Revolving Fund or Endowment. Total federal funding to seed the endowment was $200 million. Municipal governments and their public and private sector partners are eligible to apply. The purpose of the program is to provide loans for the implementation of innovative municipal environmental projects. Cultural Spaces Canada Program: Announced in 2001. Program runs from 2001-2004. Federal funding totals $80 million. Non-profits, arts and heritage organizations, provincial, territorial, and municipal governments, and First Nations can apply for funding. The purpose of the program is to aid in the improvement and construction of arts and heritage facilities, to undertake feasibility studies, and to help with the acquisition of specialized equipment. Affordable Housing Program: Announced in 2001. Program runs from 2002-2007. Federal funding totalled $680 million initially, with a $320 million top-up announced in the 2003 budget. The partnership model sees all funds cost-shared through individual agreements with provinces and territories. The purpose of the program is to increase the supply of affordable housing. Residential Rehabilitation Assistance Program: Announced in 1994. Program runs from 1994-2006. Federal funding totals $1.19 billion. The partnership model is a voluntary cost-sharing with eight provinces and territories, but municipalities may serve as the delivery agents. The purpose of the program is to repair and improve housing for occupancy by those with low incomes. Municipal Rural Infrastructure Fund: Announced in 2003. Federal funding totals $1.0 billion. The partnership model is the same as the Infrastructure Canada Program, but will fund smaller scale projects (at least 80% of the funding is earmarked for municipalities with a population of less than 250,000). The purpose of the program is to address infrastructure in rural and remote communities (e.g., water, wastewater, solid waste, transit, roads, culture, connectivity). Total federal funding for infrastructure initiatives is $13.370 billion. SOURCE: Infrastructure Canada. |
More to the point, it is not clear if more capital grants, as they are traditionally employed, would be desirable. Conditional grants carry the prospect of leakage - transaction costs that result from negotiating amounts and reaching intergovernmental agreements. The current system also requires municipal funding to follow the grant, but municipalities are often hard-pressed to find the funds. Of specific concern is how conditional grants can skew local priorities - they force spending on certain items only because a grant exists. For example, a city may find itself building hockey arenas when what is really needed is a new sewage treatment plant. Some have argued that this approach has also contributed to infrastructure deficits because funds have not been properly directed to needs. The last federal infrastructure program, with its focus on "green" infrastructure, has been the target of such criticism. All big western cities fund their water and sewer utilities like a business with self-funded revenues. The infrastructure initiative, with a focus on water and sewer upgrades, provided an advantage to cities that had not addressed their fundamental utilities and a disadvantage for those who had. Finally, urban finance experts wonder about the problems of accountability that can result when responsibility for raising the revenue is separated from the responsibility for making the actual expenditures.
In the final analysis, a renewed commitment to the traditional capital grant would clearly tackle some of the infrastructure problem, and it should not be snubbed. At the same time, cities themselves need to decide whether their past experience with the traditional capital grant and its downsides with respect to conditionality, local autonomy, predictability, and accountability are worth expending the effort to restore this type of funding.