Evidence of meeting #98 for Transport, Infrastructure and Communities in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was projects.
A recording is available from Parliament.
4 p.m.
Liberal
Gagan Sikand Liberal Mississauga—Streetsville, ON
Jason, I read your report prepared in November 2015 titled “Why Does the Government Lapse Money and Why Does It Matter?” In your executive summary, you wrote, “Each year, billions of dollars approved by Parliament are not spent.” You wrote that “this unspent funding totaled $9.3 [billion]” in 2013-14.
I want to focus my question on infrastructure capital projects. The parliamentary budget office stated that these projects “have a lapse rate of up to five times that of other spending”. Why does it take longer to spend infrastructure money than money for other programs?
4 p.m.
Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer
I'm gratified that you read the report. I think that's you, my mom, and probably my supervisor in the office who have.
4 p.m.
Voices
Oh, oh!
4 p.m.
Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer
In particular, the reasons that infrastructure money lapses and federal infrastructure transfer programs tend to lapse at a higher rate have been identified by your colleagues around the table.
First, with standard programs, the government will come to Parliament, and Parliament will provide them with the legal authority to spend. That will happen with infrastructure, but the next step out of the gate is to actually sit down and negotiate something with other levels of government, recognizing that the federal government isn't implementing on their own.
If there's a new piece of public transit infrastructure being built in Vancouver, the federal government isn't taking the money into its own budget, letting a contract, and going out the door. It actually needs to sit down with the Province of British Columbia and the City of Vancouver, make sure there's matching money brought to the table, and move forward on it. That certainly complicates things.
As well, by their nature, many infrastructure projects are more granular than other types of government spending, so you're looking at potentially larger projects, which take more time for the federal public service to perform due diligence in regard to. You'll have a situation where, internally, within the system, once the money is appropriated by Parliament, the federal public service needs to go out and negotiate the agreements. Then, in turn, in the case of infrastructure, the partners for infrastructure need to come back and sit down with the federal public service to work out the details around that.
I think the key takeaway coming out of our 2015 report—just to put a really blunt point on it—is that there's nothing untoward when the government lapses money. It's not as if there's any malevolent intent on the part of the government. It's simply that what was originally planned from a budgeting perspective has not come to pass. In this particular situation, for us, that ends up being important as part of our fiscal forecast. The timing around spending will affect the level of deficits over a set period of time, as well as the stimulus effects, and, last but not least, the actual overall impact.
4:05 p.m.
Liberal
Gagan Sikand Liberal Mississauga—Streetsville, ON
Thank you for mentioning that last bit. I have just a quick follow-up question, and then I'm going to give the remainder of my time to my colleague.
Since 2015, has there been any progress made on the use of infrastructure funds?
4:05 p.m.
Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer
Vis-à-vis the lapsing?
4:05 p.m.
Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer
I would go back to a point made by your colleague, Mr. Hardie, with respect to the historical funds or infrastructure programs that existed prior to budget 2016, the government did make a commitment that, to the extent those funds were going to lapse, they'd be rolled into the gas tax transfer. Again, whether it's progress or not, I can say that for accounting purposes, it makes my life easier as a forecaster knowing when the money is actually going to be spent. For a parliamentarian, it's potentially equally as challenging, because the government comes to you with a plan; you guys approve the plan; and then you probably want to know what it's actually going to be spent on and whether objectives are going to be achieved.
4:05 p.m.
Liberal
Gagan Sikand Liberal Mississauga—Streetsville, ON
Thank you.
Unfortunately, I'm going to cut you off because I'm going to share my time here.
4:05 p.m.
Robert Nault Kenora, Lib.
Thank you, Madam Chair.
I'm not one of those people who's as worried about delays and/or stimulus. I think infrastructure development as a nation is a time-consuming process that increases productivity over generations. Since my time in Parliament, beginning in the 1980s, we have moved to put a lot of federal infrastructure dollars into the hands of municipalities and provincial governments, but in that time, we've never changed the system of how we deal with risk.
We continue to suggest that we have to have three sets of accounting, which of course is partially the rationale for delays. More interestingly, since you're now in this business of making sure it has a stimulus effect on the economy, have you ever done an historical analysis of what benefits it has productivity-wise for Canada since Canada has become a big player on the infrastructure side?
4:05 p.m.
Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer
In terms of the productivity benefits of infrastructure, while we do account for that as part of our macroeconomic forecast, we haven't actually gone back and done the retrospective analysis. Again, from our perspective, where it ends up being useful and interesting is on the forecasting side going forward, recognizing that we, as the parliamentary budget office with 20 people, don't want to move into the Auditor General's territory by looking backward and trying to determine the efficacy of what was and what was not done.
4:05 p.m.
Kenora, Lib.
On the other side, I come from the north. The best time to do infrastructure projects from your perspective would be in the winter when the economy is slow, but of course that's not possible.
When you do your analysis as an accountant, do you base that on Canada's weather patterns, its geography, and its issues, because you skew the whole report. The slowest time for the economy in my region is January and February, but as far as you're concerned that would be the best time for stimulus.
How can I see this as encouraging when in fact it's not possible in regions like mine?
4:10 p.m.
Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer
The short answer is that as part of our forecasting, we are the federal parliamentary budget office and we look at things on a national basis.
April 16th, 2018 / 4:10 p.m.
Conservative
Michael Chong Conservative Wellington—Halton Hills, ON
Thank you, Madam Chair.
I think there are two issues that you've identified in the reports you've done for us over the last number of months. First is that there is no plan. Your office put a request to the government, asking 32 different departments, agencies, and crown corporations for information relating to infrastructure projects. You only got back information on projects identifying half of the monies committed by the current government.
I think more evidence of a lack of a plan is the fact that the government is lapsing money at a much higher rate than the previous government. In your most recent report, you indicated that the lapse rate for legacy infrastructure programs was approximately 24%, but for new infrastructure programs it is 33%. That, to me, points to the fact that there is a lack of a plan in place.
There seems to be different information and different plans, if I can call them that, coming from the government every six months or so when it comes to infrastructure. It seems to be a constantly changing goal. Last year, we were told that the federal-territorial-provincial agreements would be completed by the end of last month. They've not happened. They're not all yet in place, so it seems that there is the lack of a plan.
I think the second problem is that they're not spending the money they've committed to.
Since 2002, as you pointed out, government have allowed money to lapse, from a range of 15% to 40%. You indicated that in your testimony. The current government knew it was an issue, and that's why they promised the following:
Near the end of the fiscal year, we will automatically transfer any uncommitted federal infrastructure funds to municipalities, through a temporary top-up of the Gas Tax Fund. This will ensure that no committed infrastructure money is allowed to lapse, but is instead always invested in our communities.
Clearly, that has not happened. There was a half-hearted attempt at it last year, which you can maybe speak to when I finish my opening comments. They transferred some money into the supplementary estimates to top up the gas tax fund. My reading of the supplementary (C)s that went through the House most recently is that there was no top-up this year to the gas tax fund, despite the fact that you've identified lapsed money.
The other comment I want to make is that lapsed money is not without consequence—and maybe you could comment on this as well. A million dollars spent on infrastructure today is going to produce far more economic benefits over the next 20 years than a million spent dollars 10 years from now, because of the wonders of compounding. Maybe you could speak to that in your as well, about the fact that lapsed dollars spent 10 years from now are less effective than a dollar spent today. That's really the heart of the issue here, that the government is simply not spending the money it has committed to.
I'll just finish by saying that that this also has consequences for the fact that millions of Canadians today are stuck in traffic. StatsCan reported last November that commuting times are getting longer in the country's metropolitan regions. In cities large and small, commuting times are getting lengthier because of the inadequate infrastructure.
Maybe you could comment on a dollar spent today vis-à-vis a dollar spent 10 years from now. Could you also comment on the fact that the supplementary (C)s clearly are not topping up the gas tax fund to deal with these lapsed funds and that the government's new infrastructure programs are lapsing at a much higher rate than the previous government's legacy programs?
4:15 p.m.
Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer
I will start with your last question first. As I responded to your colleague at the outset, one would anticipate—based upon the historical experience around new federal programs, and in particular new infrastructure programs—that the lapse rates would be higher at the outset. That's certainly not out of the ordinary.
As well, in all humility, I will say, as someone who is paid pretty much on a full-time basis to be in the forecasting business, that it's an art, not a science. To the extent that there have been historical lapses, I'm certain that the diligent public servants who work in the office of Infrastructure Canada are certainly incorporating those into their own forecasts. In looking at our own forecasting track record, we often end up getting it wrong, but hopefully wrong for the right reasons. Hopefully, we improve upon our forecasts.
With respect to your point regarding a plan, it's always important to keep in mind that our snapshot was from December 2017. When we sent out the information request before Christmas, it asked departments to get back to us within about five weeks to tell us at a very granular level what projects were in place and what funding has actually been committed. We gave departments and agencies about five weeks to respond. The response rate was pretty low, so we gave them a bit more time. The response rate improved, but it still was a snapshot from 2017. It's entirely possible, as indicated by the minister of the crown, Minister Sohi, that there had been additional projects signed or committed to over that intervening period of time. One would imagine that's the case.
As well, owing to the delays in response from federal departments and agencies, not all of the data regarding commitments was incorporated into our numbers. There is several hundred million dollars from Indigenous and Northern Affairs, as well as ESDC. In the case of Indigenous and Northern Affairs, they responded last week to our December 2017 request, and we weren't able to incorporate that into the overall report. That said, I will say it doesn't change the overall findings. Out of $14.4 billion, we're looking at a couple hundred million.
4:15 p.m.
Liberal
The Chair Liberal Judy Sgro
Thank you very much, Mr. Jacques. If you have something else to add, maybe you can slip it in with the rest of the questions.
Mr. Badawey.
4:15 p.m.
Liberal
Vance Badawey Liberal Niagara Centre, ON
Thank you, Madam Chair.
I want to expand on what I was speaking about earlier. When you look at the possibility of sustainable funding, it makes it a lot more advantageous for the municipalities. Let's face it: at the end of the day, any dollars that come down from the province and the feds are offsetting dollars that would otherwise have to be paid for by property taxpayers and by wastewater ratepayers. With that, it does lend itself to community improvement planning with respect to economic, social, and environmental strategies, etc.
I know that in my riding we recently had an announcement of $81 million for transit alone. In talking to the mayors, they haven't expressed, as I did in my past life, on many occasions, frustration with the funding models coming in—from the federal government at least. Recently, they haven't expressed any concern whatsoever. It's been exactly the opposite: they're quite appreciative of the funds they were getting from both the province and the feds. Of course, those gave them the ability to leverage the funds they're budgeting on an annual basis.
Can you explain to me what you mean? You mentioned earlier that your definition of “delays” didn't lend itself to project delays, or invoicing, or receipts not being submitted. What are you actually defining as a delay in the infrastructure, and the overall funding of the infrastructure projects?
4:15 p.m.
Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer
With respect to the delays, we are comparing them against the government's original forecasts from budget 2016. We're using the numbers from the fall economic statement from 2016 against the updates the government provided most recently, in budget 2018. We also triangulate or cross-reference that against what we see at the provincial level. Of course, provincial governments are publishing their budgets and their economic updates as well with respect to the revenues they anticipate coming in from the federal government, the spending they expect to do on their own assets, and the transfers to municipal levels of government. We're comparing what the government is forecasting against what the recipients of the funding, the people doing the work on the ground, anticipate that the actual spending will be.
4:20 p.m.
Liberal
Vance Badawey Liberal Niagara Centre, ON
How does reporting from the departments work when you are compiling numbers for your PBO reports?
4:20 p.m.
Senior Director, Costing and Budgetary Analysis, Office of the Parliamentary Budget Officer
In terms of the information requests?