Transport Committee on April 16th, 2018

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call to order meeting number 68 of the Standing Committee on Transport, Infrastructure and Communities of the 42nd Parliament. Pursuant to Standing Order 108(2), we are doing a study of an update on infrastructure projects and the investing in Canada plan.

Welcome to you all. It's nice to see everyone back, smiling and happy to be here, in spite of the weather.

From the Office of the Parliamentary Budget Officer, we have Negash Haile, research assistant; Jason Jacques, senior director, costing and budgetary analysis; and Chris Matier, senior director, economic and fiscal analysis. Gentlemen, welcome. We're happy to have you here.

Who would like to lead off?

[Jason Jacques, Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer]

I have very brief opening remarks, which hopefully the translators will do justice to, given my potentially highly questionable French.

Madam Chair and members of the committee, thank you for the opportunity to appear before your committee today regarding phase 1 of the national infrastructure program.

My name is Jason Jacques. I am chief financial officer and senior director of the Costing and Budgetary Analysis team at the office of the PBO. With me are Negash Haile, the lead analyst on this report, and Chris Matier, the senior director of Fiscal and Economic Analysis.

Budget 2016 announced the creation of the government's NIP. The NIP is being delivered in two phases. Phase 1 focused primarily on infrastructure investments over 2016-17 and 2017-18, and provides a boost to economic activity in the short term. Phase 2 directed funds to the government's broader, long-term infrastructure plans.

In December 2017, the PBO submitted information requests to 32 departments, agencies and crown corporations responsible for all Phase 1 NIP projects. Based on these responses, PBO was able to build an inventory of over 10,000 projects. Of the total $14.4 billion planned budget for phase 1, federal organizations have identified $7.2 billion worth of approved projects that were initiated in either 2016-17 or 2017-18. Thus, about half of phase 1 funding is yet to be attributed to projects.

This data suggests that federal infrastructure spending for phase 1 is delayed compared to the original timelines presented in budget 2016. This delay is also consistent with the spending data published by provincial governments in their budgets, as well as the figures published by the federal government in budget 2018.

Based on the updated spending profile provided in budget 2018 and our own monitoring, we estimate that budget 2016 infrastructure spending raised the level of real GDP by 0.1% in 2016-17 and 2017-18, increasing the overall level of employment by between 9,000 and 11,000 jobs in 2017-18.

Consistent with the delays in implementing NIP phase 1, these figures also suggest that the money originally intended to be spent in 2016-17 and 2017-18 will be pushed out to 2019-20 and 2020-21. As noted in our report, it also raises the risk that some of these economic gains may now be offset by the Bank of Canada's monetary policy.

Thank you for your attention. My colleagues and I will be happy to answer any questions you may have about this report.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Liepert, would you like to lead off?

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Oh, we'll give it a go, Madam Chair.

You didn't go into any detail on some of the reasons by the bureaucracy for these delays. Can you expand a bit on that?

[Jason Jacques]

On the reasons for the delays, again, we did not specifically request that information from departments and agencies. That said, we have had conversations with provincial governments. We can also point to the historical track record and potential challenges of the federal government in implementing infrastructure projects going all the way back to 2002. I think the first reason that's always identified is that the government will announce these programs, and there often ends up being a delay in the announcement of the program and the signing of agreements with subnational governments, or provincial governments and municipalities, who of course are responsible for close to 90% of public capital and infrastructure investment across the country. There is always potentially a delay on that front.

As well, something important that we've noted in previous reports and testified to in previous committee appearances, in particular before the finance committee in the other chamber of Parliament, is that in the current context, some of the feedback we received from some subnational governments was that there wasn't necessarily the same degree of slack in the economy. The government's announcement of a significant increase in infrastructure investment was certainly potentially welcome as additional funding, but in terms of the capacity of provincial governments and municipalities to move exceptionally quickly to identify not only existing projects but also, of course, new projects.... That is something that the federal government has identified. They don't want the laundry list of what provincial governments were already planning on spending, but want new incremental projects, which in itself takes some time for subnational governments, or provincial governments and municipalities, to also implement.

Getting back to the core part of your question, after all that work has been done and the agreements have been signed and provincial governments have actually identified projects, there in turn end up being discussions with the federal government and federal public service on the nature of the projects that will actually be funded.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Just jog my memory here. Are these projects contingent on equivalent funding by provinces and municipalities?

[Jason Jacques]

Ostensibly, there should be matching funding at the very least.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Right. Did you identify that as an issue?

[Jason Jacques]

As part of the information request, we did ask for the allocations by the federal government. As well, we received information with respect to the matching funds identified by the provincial governments for those specific types of projects.

To your point, we did not actually identify it as an issue in this report per se, but we have testified in the past on the extent to which we actually see that matching of funds, which again is a federal policy objective, spilling out across the economy. If it is supposed to be dollar for dollar, with one dollar of new federal infrastructure spending begetting at least an additional dollar of spending from subnational governments. That's two dollars that should be showing up in the economy that otherwise would not have happened. Something we've identified in the past is the fact that it's challenging to actually see that pickup. That's not necessarily with respect to the list of projects identified by the federal government. As I mentioned, we have a list of 10,000 projects for which you can see the federal contribution and you can see the contribution from provincial governments and other levels of government, but in terms of the aggregate figures, we're challenged to actually see those figures panning out in terms of actual contributions.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

It seems to me that maybe we have a policy issue here. If I understand you correctly, you have provinces and municipalities who have already allocated their dollars over a period of time. I mean, any government should have a five-year plan for allocating dollars to infrastructure. Then you have the federal government coming in after that and saying, “Oh, we're going to commit all of this money, but you have to match it.” So then you're asking the other levels of government to in some cases maybe literally double their commitment. From a policy perspective, does that make sense?

[Jason Jacques]

Of course, within the PBO we never comment on policy. It's certainly not within our remit. That said, I will point out that it is a 12-year plan. Something that we've testified to in the past at other committees is that although there might be a challenge up front—as you quite correctly point out, any large municipality or any provincial government will have a multi-year plan in place well in advance—and there may be additional friction or pressure points at the outset when somebody comes to the table with new money, over a 12-year period of time, one would conceivably imagine that the additional money could actually be incorporated as part of the multi-year plans.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

In doing this study, is that something this committee should look at and possibly suggest, namely, that maybe it shouldn't be for new projects but could be blended with what the provinces and other levels of government have already budgeted for?

[Jason Jacques]

It's certainly not for us to make a recommendation with respect to what the committee should study. That said, from a technical perspective, it's a very interesting and important question from our forecasting perspective. Again, the key challenge for us at the outset was trying to determine, based upon the historical track record of the federal government lapsing between 15% and 40% of its infrastructure spending since 2002 every single year, how much money would they lapse in 2016 and on a go-forward basis. Any additional technical clarity on that point would certainly be helpful to us.

As well, something we pointed out in the past is that it would be helpful for parliamentarians, when they're deliberating on the probity of moving quickly on infrastructure, whether it's feasible to move very rapidly and in a very targeted way around infrastructure projects.

[The Chair, Liberal, Judy Sgro]

Thank you.

Mr. Badawey.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Madam Chair.

I appreciate the comments by the member opposite. As a mayor for 14 years in my former life, I found that one of the biggest frustrations was the topic that we're speaking about today. I want to dig a bit deeper and put some reality to some of the experiences that I'm sure many are going through on a day-to-day basis when it comes to the distribution of infrastructure funds.

The fact of the matter is that this has become a sustainable funding envelope for municipalities. We, as upper levels of government, depend on municipalities establishing strategic plans that make up, primarily, their community improvement plans. As the member opposite alluded to, those are expected to be there three to five years in advance. The application for funds is made both to the province and the federal level, and the province is the steward in distributing those funds.

The two questions I have are with respect to just that, the distribution of the funds.

First, has the PBO taken into consideration the provinces and/or territories taking some time in signing bilateral agreements? For example, the second phase was introduced a few months ago, and we've only had seven provinces or territories sign on to their bilaterals. It is a frustration to get those signed so that the money can start to be distributed.

Second, we often see project delays happen. Is the PBO taking into consideration that project delays do occur and, of course with that, the receipts that would otherwise be expected to then be reconciled, meaning that funds are not spent? I'll repeat myself: Funds are not spent until the projects are expensed to the upper levels of government that are financing those projects. Is the PBO taking that into account as well?

[Jason Jacques]

The short answers to your question, because I tend to be grandiloquent occasionally, is yes to one and yes to two.

With respect to the delays and the signing of the bilateral agreements, we take do take that into account. With respect to accounting for project delays, and to your point with respect to the accounting differences between cash and accrual, we also take that into account.

[Vance Badawey, Liberal, Niagara Centre, ON]

If I may say, your report speaks often about projected versus actual spending. I'm wondering if you could expand on this historically. It goes to my other question: is it common or uncommon for governments to experience this?

[Jason Jacques]

With respect to the delays or the gap between what is announced in a federal budgeting document versus what actually occurs when you look at the public accounts at the federal level around infrastructure spending, it is absolutely not new. This is something that, I think, in our first committee appearance or shortly after budget 2016, we flagged as a risk associated with the delays for the reasons that you enumerate.

Again, 90% of the money that's spent on public infrastructure across the country is spent directly by provinces and municipalities. Those organizations tend to have a plan between three and five years going out. In some situations, it can go out over a longer period of time, so their ability to turn things around very quickly and accommodate a significant material boost in federal infrastructure spending, federal infrastructure transfers, is somewhat limited, especially in comparison to 2009, when there ended up being a significant gap in the economy. There was a lot of slack, firms were going bankrupt very quickly, and people were losing their jobs very quickly.

In the current context, we don't have the same slack in the economy, so as one sizable municipality pointed out to me, it's not as if they can let a contract and there'll be 10 firms bidding on it immediately to go out and do the work, and they're able to spend the money very quickly in a competitive way. They can let a contract, and they know that the bids coming in will more than likely account for additional overtime, so the firms can certainly take on the work, but it's not part of their regular order book. They would have to take on, pay extra, and have the work done within set periods of time.

[Vance Badawey, Liberal, Niagara Centre, ON]

They may come in earlier, but about policy, of course, the PBO is not in a position to give an opinion on policy. However, there's something I always found in my former life that would be more advantageous than the one-offs. Every time a government gets into power, they announce these big, grandiose infrastructure programs, which are great, but they would be more beneficial to the beneficiaries, the people who are getting the money, if in fact these were sustainable and were on more of an annual basis, something like the gas tax fund.

I know you might be hesitant to answer this question, but would you find it advantageous for municipalities to receive infrastructure funding on more of an ongoing basis as a sustainable funding envelope, similar to the gas tax fund, versus what we've been seeing, as you say, since 2002?

[Jason Jacques]

Going back to the first part of your question, it's not for us to opine upon policy or instrument choice. That said, when you're actually looking at assets that potentially have a lifespan of between 10 and 40 years, that certainty with respect to a funding source is just a basic question. If you're an accountant, when you're looking at capital budgeting and you're actually drawing up a capital budget around your assets, you want to have a forecast of the cash flows coming in over the same period of time as the assets that you're actually managing.

[Vance Badawey, Liberal, Niagara Centre, ON]

The longer the program—five, 10, 15—the better in terms of managing the assets.

[Jason Jacques]

As well, I know one of the witnesses you're going to hear from after us, from the Institute of Fiscal Studies and Democracy, published work specifically looking at other jurisdictions and the fact that at the national level, they actually have longer-term infrastructure plans. That seems to be a good or a leading practice.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Madame Sansoucy.

[Brigitte Sansoucy, NDP, Saint-Hyacinthe—Bagot, QC]

Thank you, Madam Chair.

I would like to thank the witnesses for being here to answer our questions.

The infrastructure plan and major investments announced by the government have created many expectations in the municipal world. As my colleague said, municipalities have plans to replace their infrastructure: they know very well where they are going and they need that money.

In your most recent report, you indicated that the government does not have a plan to spend the $186.7 billion it has set aside for infrastructure over the next 10 years. I've been listening to you for a while now, and I must admit that I don't understand how it is conceivable to spend so much money without having a structured plan.

In light of your experience, do you think it would be possible to spend this $186.7 billion over the next few years?