Transport Committee on May 21st, 2013

[Michael Buda]

For sure, thank you.

In fact, our submission to budget 2013 outlined what we believe is our prescription for that. The principles are pretty simple. One is that we need to improve the ability of municipalities to plan their infrastructure in the long term. The best way to do that is to actually marry the funding provided from other orders of government with that long-term interest. So increasingly, time horizons of federal infrastructure investments massively increase the predictability of those funds, which improves planning. In fact, that's what the economic action plan 2013 did. It increased the building Canada plan term from seven years to 10 years. The seven-year, which is the current building Canada plan, was also the longest term time horizon. So that alone reduces costs, increases competition, without actually increasing annual investment. It's a great value for money proposition.

Long-term funding and predictable funding are the most important ones, and then ensuring that you're balancing, as I said in my remarks, investments in infrastructure with maintaining your existing infrastructure. It's always a really difficult balance municipalities face when you're faced with fiscal constraints. On the operating side, you need to keep the water running, you need to keep the streets plowed, you have to balance your operating budget by law. If your finances are such that it becomes a challenge, you end up underinvesting in rehabilitation, which of course ends up costing you manyfold down the line. It's the adage that if you don't fix a pothole for a dollar, you can fix a major structural repair down the road for $2,000.

In fact, economic action plan 2013 actually achieves that balance with the gas tax fund, including the index—it's been permanent—as well as the application-based funds like the building Canada fund. Then the third is, as I mentioned earlier, really being clear as to what the objectives of each order of government's investment are, and then tying reporting to those objectives so we can actually mark progress.

In fact, FCM worked with three other organizations to develop an infrastructure report card that really sought to evaluate the current condition infrastructure. Our plan is to repeat that infrastructure report card every three years so that all Canadians can see the progress that all governments are making towards improving infrastructure and then hold all of us accountable for that progress or lack thereof.

[Mark Adler, Conservative, York Centre, ON]

It seems to me then that we have in essence lived up to our end of the bargain. Would you say therefore that municipalities have to share some of the blame, too? We've given the municipalities long-term funding, long-term predictable funding. There's only one taxpayer at the end of the day. Do you not agree that municipalities need to share some part of the responsibility, that perhaps they're just not spending their money as wisely as they should be?

[Michael Buda]

I work for them so I'm not sure I would agree with that, but for some specific reasons.

First of all, up until just a couple of years ago municipalities spent 90% of what Canada spends in municipal infrastructure in the country. The rest was coming from provincial and federal governments. Up until very recently, the federal government was a welcome but fairly minor player. That picture has changed significantly in the last two or three years, especially with budget 2013.

So the federal government's role in local infrastructure is actually quite significant now, but it's a very recent one. It comes on the heels of about 30 years of underinvestment and disinvestment by all orders of government, including municipal orders of government. So we've never suggested the municipal governments don't have.... If you want to point fingers, they definitely deserve to have fingers pointed at them. But the reality is that the problem has roots in 30 years of disinvestment by orders of government.

If, as a country, we agree this core local infrastructure is in fact a foundation of our economic growth, we can either choose to point fingers and lay blame, or work together to solve the problem. While we put the plans in place to solve that problem, we obviously have to make sure we're not creating new ones down the road, and we're holding our governments to account so that the problem doesn't recur.

We believe that's happening, but it's not a short-term solution and the investment levels that are currently being invested are making up lost ground. As our reaction in the budget showed, we think it's a really important foundation. The light at the end of the tunnel is there, but we still have a way to go.

[Mark Adler, Conservative, York Centre, ON]

Thank you for that.

We're reversing a 30-year trend here, so we are moving in the right direction. We're reversing 30 years of neglect in a lot of instances, so we're doing the right thing.

We're interested in outcomes. In terms of getting the proper outcomes, is it not wise to perhaps look at solutions we haven't looked at in the past? One of those solutions that has been offered in some of our previous sessions, from Merit Canada and Cardus today, is that perhaps we should be looking at utilizing labour that is not unionized, because municipalities may be getting better outcomes as a result of that.

Is that not something municipalities should be encouraged to do?

[Michael Buda]

Absolutely. I think the question is: how big of a problem is it? Also, is the size of that problem large enough to offset the costs of trying to solve that problem?

By Cardus' own research in the province of Ontario, which seems to have the most significant challenge in this regard, 91% of Ontario municipalities follow open tendering for those projects, and make up 70% of the population.

So is that 100%? Obviously not. What is the cost of getting to 100%?

Then, the last thing I'd say to that is, of course, it sounds like Ontario has the most significant challenges, partly as a result of provincial rules. But does it make sense for the federal government to solve a problem that appears to be more localized in one province or region? That will, as I said, have unintended consequences elsewhere, and add delay and red tape to federal programs that already have a tendency towards that.

[Mark Adler, Conservative, York Centre, ON]

Mr. Dijkema, do you want to try that?

[Brian Dijkema]

We've done a review of the municipal budgets at stake in Ontario alone, and our estimates suggest that if the region of Waterloo—we're talking about the whole region—is subject to closed bidding, that will be almost $942 million at stake. I think that is a big problem.

That's just in the province of Ontario. That doesn't include some of the Red River projects that are going on, the floodways, which have taken $324 million of federal funding alone.

That $942 million is from the cost of the projects themselves, but the federal government is investing hundreds of millions of dollars in these projects. Some Canadians are being barred from working on these projects because of their private choices, and that's simply not fair. It's not fair, and it doesn't provide good value for taxpayers' dollars.

So you have a situation where it's not fair. It's not providing any value for the taxpayer. I'm not sure why the status quo should be continued.

[Mark Adler, Conservative, York Centre, ON]

Why is that, Mr. Buda? Why is that continuing?

[Michael Buda]

Well, as I said, several anecdotal examples have been raised, and I don't have the information because we're not experts in tendering.

Again, we're a national organization representing municipalities from across—

[Mark Adler, Conservative, York Centre, ON]

The municipalities aren't getting into this reckless manner with taxpayer money.

[The Chair, Conservative, Larry Miller]

Go ahead and answer, Mr. Buda.

[Michael Buda]

I hesitate to describe it as reckless since I believe closed tendering is employed by other orders of government, including the federal government. I think there are lots of reasons for closed tendering. The City of Montreal is one example. Provincial regulations certainly play a pretty big role and were enacted in the late eighties. There are many reasons to do this. Some of the reasons are definitely no longer valid, as Mr. Dijkema suggested, and they need to be reviewed.

I'm not sure that federal regulation is the most efficient way of doing that in every case. One of Mr. Dijkema's recommendations was that the federal government work with the provinces to ensure that provincial procurement rules ensure that federal infrastructure dollars are invested as efficiently as possible. To me, it feels like a more flexible and targeted approach than a one-size-fits-all federal regulation.

I'm not suggesting that FCM is in favour of rules that are going to drive up costs. That's a leap of logic that isn't necessarily borne out by quantitative evidence, which there doesn't seem to be a lot of.

[The Chair, Conservative, Larry Miller]

Thank you very much.

Mr. Aubin, you have five minutes.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you, Mr. Chair.

Welcome, and thank you for being here with us.

My first question is for the representatives of the FCM.

For several months now, we have been hearing a comment at these committee meetings that has now become infamous: people say that the municipalities have never received so much money from the federal government. That may be true, but are these increased federal funds accompanied by new responsibilities for the municipalities? Do these new responsibilities mean that the deficit remains the same? And has the situation gotten worse, considering the amounts you have at your disposal and the work to be done? Are we really experiencing just a momentary decrease?

[Michael Buda]

Certainly the needs facing municipalities on infrastructure in particular have grown through things that are outside anyone's control, such as the need to adapt to a changing climate. That's a reality municipalities face. There are other things like new federal waste water regulations. Municipalities welcome any requirement to improve the quality of our natural water bodies, but at the same time they come with very significant costs: $20 billion to $40 billion. As I said earlier, these are new costs that are added on top of the already significant costs of 30 years of disinvestment by all orders of government.

Again, this speaks to Mr. Poilievre's point that municipalities may well be spending more on infrastructure, probably because they haven't been spending enough for the last 30 years, but probably because of significant new costs. This doesn't include non-capital costs that are increasing because of downloading from other orders of government. This could be provincial downloads, for instance housing responsibilities in some provinces or indirect federal downloads like reductions in federal policing, which require municipalities to undertake border patrols on the Great Lakes.

These costs aren't traditionally meant to be borne by property-tax-based municipalities, but nevertheless are. We believe it's those kinds of areas we're working with the federal government to solve. We're working very productively in some areas. It definitely drives up costs, and it makes it more difficult for municipalities to invest the kind of money and energy to ensure our infrastructure is there for the entire economy.

[Robert Aubin, NDP, Trois-Rivières, QC]

Thank you very much.

My next question is for Mr. Dijkema.

I received the Cardus study over the noon hour. Unfortunately, I did not have time to read it all. Despite that, I was struck by certain points. I would like to hear your reaction. First, I read in the document that “this paper is the first in a series of attempts to encourage broader discussion”. How many will there be? When will these other analyses become available?

In addition, could you give us a brief overview of the methodology used to give as much credibility as possible to this study?

[Brian Dijkema]

Right.

There are a number of other studies. The closed tendering issue also affects school boards in Ontario. This one was a provincial focus on school boards. It also affects major energy producers, and so on. We are going to be looking at that. Those should be released this year.

As far as the methodology is concerned, this paper in particular was a survey of the estimates available from a variety of sources. You'll note we cited the City of Toronto study. We cited the building trades who cited the City of Toronto study. We looked at the City of Hamilton study and a number of others. None of them has shown anything but increases. That's a concern, obviously, and we have applied that.

As far as looking for the amount of funds that are subject to that, as noted in our paper, we reviewed the various budgets. I don't want to get too technical here but the labour law suggests that certain projects would fall under those closed tendering practices and certain things wouldn't. We reviewed the city budgets line by line and that's how we came up with our total.

[Robert Aubin, NDP, Trois-Rivières, QC]

From the beginning of this study, we have been hearing approximately the same figures about the costs related to competition. If there is no open tendering process, the cost increase will range from 2% to 40%. That is quite a broad range, and I have trouble making sense of it.

On page 13, you say that there is a lack of empirical data, and I quote:

But what are the actual cost increases, if any? Unfortunately, none of these estimates can be considered scientific and none of the calculations on which they are based—if any ever were conducted—are publicly available.

So no empirical study justifies this cost increase ranging from 2% to 40%. In my opinion, this requires a far more thorough explanation.

[Brian Dijkema]

We are hoping to undertake such a study. What is needed is a counterfactual, of course—and I don't want to get into scholarly debate in this.

What's key to note is that there are two things at play here. One is that the City of Hamilton estimate, which was 40%, for instance, is based on comparing the number of bids that it used to receive for a similar project and for other ones. It is thus not a perfect, counterfactual study that would gain peer review, but neither is it a study that we can just ignore, because it's the city that actually has to pay for this work at the end of the day.

The cost increase on their water treatment plant, for instance, came in 83% over budget as a result of this. The standard is not what we would like to see as a think tank, but I don't think we can ignore that. The preponderance of evidence would suggest that it's over.

The second point is that if you're looking for value, the question of justice and whether this is a question of justice for all Canadians actually matters in this case. Why is it that a taxpayer who chooses to join the CEP or another affiliated or alternative union, or who decides that he or she would prefer not to be unionized, should be disqualified? I have not yet heard a good response to that.

So there are the economic issues, and then there are the democratic issues. I think the two are married.

[The Chair, Conservative, Larry Miller]

Thank you very much.

Mr. Poilievre is next, for five minutes.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I'm looking at page 11 of your report, Mr. Dijkema. It says, in figure 6, that the percentage of taxpayers in restricted municipalities is 62%. Does that mean the combined population of Toronto, Hamilton, Kitchener, and Sault Ste. Marie?

[Brian Dijkema]

Yes. That has been updated now.

Would you like me to answer?

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

Yes, go ahead.

[Brian Dijkema]

If Waterloo remains open, as it currently is.... Its case is in front of the OLRB. Without Waterloo, 26% of Ontarian taxpayers—and I think that's about 11% of all Canadians, because Ontario is so populous—are subject to closed bidding. It's the 26% number there. Among all Ontario municipalities, 26% are subject to closed bidding. If Waterloo becomes subject to closed bidding, it's 28%.

It's one-quarter of Ontario's population. It's more than 10% of the country's population. That's a big chunk of taxpayers.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I see 38% and 62% in that figure. What do those numbers refer to?