Transport Committee on April 18th, 2018

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

I'm calling to order the Standing Committee on Transport, Infrastructure and Communities, 42nd Parliament, meeting number 99. Pursuant to Standing Order 108(2), we are studying an update on infrastructure projects and the investing in Canada plan.

Welcome to all of you. We're very happy to have you with us today.

From the Association of Municipalities of Ontario, we have Pat Vanini, Executive Director. She will be here with us via video conference.

From the Federation of Canadian Municipalities, we have Brock Carlton, Chief Executive Officer and long-time friend; and Alana Lavoie, Manager, Policy and Research.

From the Fédération québécoise des municipalités, we have Patrick Émond, Director, Research and Policies; and Yvon Soucy, Vice-President.

Everybody, please restrict your comments to five minutes in order to give the committee members sufficient time for their questions.

Ms. Vanini, would you like to lead off?

[Pat Vanini, Executive Director, Association of Municipalities of Ontario]

Thank you very much, Madam Chair and members of the committee. I'm pleased to able to join you remotely today.

My understanding is that part of the responsibility of the committee is to take a look at some of the experience of phase one and what it might mean for phase two of some of the infrastructure programs.

Before I start to provide some observations, I think you should know a little bit about AMO.

Our mandate is to support and enhance strong and effective municipal government in Ontario. We have a lot of program experience. We actually administer the gas tax program on behalf of the federal government to 443 municipal governments in this province. Just recently we've taken on the administration of a provincial program to revitalize main streets. We have that day-to-day experience that we can draw on.

I also would like to give the members a little bit of context around Ontario. I think everyone knows Toronto quite well, but there are other parts of the province.

There are 444 municipal governments. The size and the nature is different across the province—18% of those 444 municipal governments have populations under 1,000, which is fewer than some of the high school populations in my neighbourhood; and 7% have a population greater than 100,000. Most Ontario municipal governments are in the smaller and mid-size category both in the north and in the southern parts of the province.

Administratively, that capacity changes across the province, as well. Looking at full-time administrative staff, those who have mandatory requirements under different pieces of legislation federally and provincially, 43% of those 444 municipal governments have fewer than six full-time administrative staff. Then we move to 36% that have, on average, about 14 full-time administrative staff. That human capacity is a real matter for municipal governments when it comes to the statutory obligations, whether they're in transfer payment agreements or other legislation.

In terms of the financial capacity of municipal governments, I was trying to figure out how best to present some highlights in a short amount of time, so these are just a few things to think about.

In Ontario, municipal governments receive 9¢ of every household tax dollar. The federal government receives 47¢. The province receives 44¢.

Our research has identified that the annual service and infrastructure investment gap for all of Ontario's 444 municipal governments is about $4.9 billion annually. To put that into context, 1% of the Ontario portion of the HST raises about $2.5 billion. Infrastructure programs, obviously, are really welcomed, particularly when they can help us make a difference in our communities.

I will proceed to talk about phase one. I'm going to focus my comments on the clean water and waste water fund and the public transit fund. I know there is a lot more, but in this short amount of time, here are a couple of observations around the funding process.

Phase one was a really short-term program. It certainly did result, in Ontario at least, in some really interesting and very helpful synergies. We managed to have municipal governments receive an allocation, a formula-based amount. They knew up front the amount of federal-provincial funds they would receive, which meant municipalities, then, could figure out from their asset management information what projects they would see as shovel ready, or close to shovel ready, but yet not funded and able to proceed. From that angle, it was pretty good.

I think, though, the real challenge is in the time. The process just to get the agreement in Ontario took almost five months to achieve. Municipal governments, once that was signed, submitted projects in about six weeks. My understanding is that, in Ontario, there were more than 2,000 projects, which also included first nations projects.

Ontario was responsible for screening those projects. My understanding also is that, federally, there was some parallel work going on in the ministry of infrastructure to screen at the same time.

In the meantime, the review and due diligence for just the Ontario proposals, I'm told, took about four months. Then there was some other added time just to get the funding agreements in place.

At the end of the day, municipal governments that submitted projects in October of 2016 were left watching that distance to the March 2018 program deadline grow a little shorter and shorter, and then somewhere in there, apparently, there was a winter season.

In terms of the process and timing, that meant municipal governments had to figure out the risk. Should they proceed without approvals, particularly for projects that weren't funded in their capital program, and evaluate that risk? If there was a problem they would be left holding that entire risk. Some of that uncertainty and timeliness, or lack thereof, essentially made it difficult for some municipal governments to proceed. Therefore, there was this reporting lag as well.

[The Chair, Liberal, Judy Sgro]

Ms. Vanini, please just close off your comments for now.

[Pat Vanini]

In terms of the program design, I think we've also learned a lot around that. For municipal governments, there's a real cash flow challenge. I know every province and federal ministry also has to worry about cash flow, but for municipal governments, it's very real because they can't do deficit budgets. That becomes a real problem.

When you put all those things together, it develops for municipal government a slightly different picture than what one would see federally or provincially.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Ms. Vanini.

Before I go on to our next presenters, on behalf of our committee, I would just like to express our condolences to Ms. Block for the terrible accident that happened two weeks ago. Condolences from all of us, and best wishes to everybody.

[Kelly Block, Conservative, Carlton Trail—Eagle Creek, SK]

Thank you.

[The Chair, Liberal, Judy Sgro]

We go on to the Federation of Municipalities, Mr. Carlton.

[Brock Carlton, Chief Executive Officer, Federation of Canadian Municipalities]

Thank you very much.

Thank you very much for having us here today.

I am very pleased to be here to discuss progress regarding the Investing in Canada infrastructure plan.

It's important to have this conversation with this committee. We have had a few conversations with this committee over the years around important questions of infrastructure.

FCM represents nearly 2,000 municipalities serving approximately 90% of the Canadian population.

We welcome this initiative of the committee, as we think it's necessary to check in regularly on the progress of infrastructure plans to ensure that the plan is driving the outcomes Canadians deserve.

We believe the investing in Canada plan can transform our country. As you know, municipalities are responsible for 60% of Canada's public infrastructure. They have a track record of turning predictable federal investments into growth and quality of life outcomes. This federal plan helps ensure that municipalities have the long-term predictability they need to move forward.

Through phase one of investing in Canada, municipalities were able to drive rehabilitation, planning, and design work to prepare for the nation-building projects that come in phase two.

For example, during phase one, Surrey, British Columbia, is supporting the design work and the upgrades to sewers, bridges, and utility corridors. That work is generating economic benefits for that community now. It's also laying the foundation for Surrey's phase two light rail transit expansion, which will mean 24,600 person-years of employment and a more livable city to attract talent and investment. The two phases are working hand in hand nicely in some places.

We have been deeply engaged in shaping phase two. We've always known that its success would hinge on federal negotiations with provinces and territories, known as the integrated bilateral agreements. As these negotiations lead to bilateral agreements, what we see is encouraging. We see a deep recognition of local governments' role in nation-building.

I would like to draw the attention of this committee to three features of the bilateral agreements that we find particularly important.

First, there is the commitment to support a fair balance of municipal and provincial projects through funding. That means local projects aren't just “nice to haves”; they're “must haves” for Canada. We have always said that local solutions can solve many of our biggest national challenges. Better transit and roads ease local gridlock, but they also boost Canada's productivity. Scaling up local green infrastructure helps achieve Canada's climate change goals. Ensuring a fair balance between provincial projects and municipal projects is an important feature in phase two and in the bilateral agreements.

Second, these agreements enshrine meaningful cost-sharing to move local projects forward. The key value municipalities bring to the table is not just money, but expertise in delivering solutions that work. That's why FCM recommended a cost-sharing of 40-40-20—40% federal, 40% provincial, and 20% municipal—as the appropriate cost-sharing for phase two. The federal government has now adopted the 40% benchmark, and provinces are committing to 33%. Seeing three-quarters of local project capital costs covered is very significant for the municipalities. This underlines that Canada needs these local projects to move forward, and the municipalities will make the most of every tool available.

The third feature of the integrated agreements is the commitment to ensuring progress in rural and northern communities. FCM has always insisted that a credible nation-building plan must include communities of all sizes. It must recognize the financial and administrative realities of rural and northern communities. Therefore, to move projects forward, Ottawa has now boosted its cost-share to 50% for rural projects and to 60% where populations fall below 5,000. Building on that, the bilateral agreements are looking to streamline rural project administration, easing barriers to better roads, broadband, and waste water treatment.

While these are big commitments, there's more work to do to turn them into real progress and outcomes. All orders of government have learning to do as we go through the experience of closing phase one and into phase two.

In summary, over the past year, FCM took time to reflect on phase one. We had a meeting with the federal and provincial ministers of infrastructure to discuss improvements for phase two. We recommended that fair balance, cost-sharing, and special attention for rural Canada are lessons from phase one that were essential to effective delivery in phase two. We have to give credit to Minister Sohi and his team for listening, for understanding, and for following through in the bilateral negotiations on phase two.

The bottom line is we need to get phase two right. Local governments are fully committed to making that happen. Local governments will be out there delivering real outcomes long before they can file the receipts that show up in federal government spending numbers.

Local governments will be out there moving the big national needles: the economic growth, the productivity, and the emissions reductions. Local government will be building livable, competitive communities that Canada needs to thrive, the kinds of communities that will attract and support the growing businesses, the talented workers, and the innovators we need in this country.

That's the value municipalities bring to nation-building, and that's what drives us as partners for the federal government.

We would like to thank the committee for their attention to this issue, and we look forward to questions later.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Carlton.

Mr. Soucy, please go ahead.

[Yvon Soucy, Vice-President, Fédération québécoise des municipalités]

Good afternoon, Madam Chair, members of the committee, ladies and gentlemen.

First, I'd like to thank the Standing Committee on Transport, Infrastructure and Communities for this invitation.

The Fédération québécoise des municipalités was founded in 1944. It now represents close to 1,000 local municipalities and regional county municipalities, or 7,000 elected representatives.

We constantly defend municipal autonomy, and we work to further regional development. In large part, our federation represents municipalities of fewer than 15,000 inhabitants, as well as rural regions. To give you an idea, Quebec has more than 900 municipalities with fewer than 5,000 residents.

Concerning the update on infrastructure projects and the Investing in Canada Plan, the FQM today wishes to share its expectations and the priorities of Quebec municipalities.

For the small municipalities, the most important part of the first phase of infrastructure investments is the creation of the CWWF, the Clean Water and Wastewater Fund program.

Following the Canada-Quebec agreement concluded last July 5, 2016, the municipalities submitted requests under that program as of September 2, 2016. The program then became very popular. In less than three weeks, the requests submitted by the municipalities were so numerous that we had to stop project submissions.

More than 130 Quebec municipalities had their projects approved. Initially, the intent was that all of these projects be finished by March 31, 2018, at the latest. However, given the slowness of certain administrative processes, several municipalities were not able to begin their bid process before the summer of 2017. Consequently, at our annual general meeting of September 2017, we passed a resolution asking that the completion deadline for work that was eligible for reimbursement be postponed to March 31, 2019. That resolution also followed letters sent by the federal government indicating that it would place a 40% ceiling on the reimbursement of eligible expenses after March 31, 2018. Following these developments, the federal Minister of Infrastructure and Communities postponed the project deadline to March 31, 2019 for 117 projects in Quebec.

It goes without saying that postponing the project deadline for CWWF projects explains why large sums were not been spent during the first phase. Making such large investments over such a short period of time poses major challenges for municipalities of less than 5,000 inhabitants. In addition, the modalities of the program mean that work done internally and work done by regional county municipality engineering services is not eligible. Consequently, the municipalities are obliged to call on external engineers, which is a costly situation for many remote areas and also leads to additional delays.

As to the second phase of infrastructure investment, we are still waiting for the signature of a bilateral agreement between Canada and Quebec. At a meeting of our board of directors last February, a resolution asking that bilateral agreements be finalized as quickly as possible was adopted. That resolution also asks that the new infrastructure programs broaden the scope of eligible expenses so as to meet the needs of municipalities, and not increase the accountability they require from them. However, the content of agreements signed in other provinces over the past weeks have done nothing to calm our fears.

As for the Green Infrastructure Fund, investments of $1.8 billion are planned in Quebec over the next 10 years. Moreover, it has been proposed that 45% of the overall amount be allocated to mitigating the effects of climate change. Consequently, less than 55% of the fund could be used for clean water and wastewater treatment projects.

Although the FQM considers it important to prepare municipalities for climate change, we must point out that Quebec's water infrastructure needs are considerable. By choosing to allocate 45% of Green Infrastructure Fund investments to mitigating climate change, the federal government is making an audacious gesture, but it will not meet the real needs of Quebec municipalities.

The federal government initiatives, like the new 2016 infrastructure plan and the 2017 Investing in Canada Plan, are without a doubt important measures to support municipalities in the achievement of their infrastructure projects.

We hope that the points we have brought to your attention today will allow you to better understand the issues and expectations of the municipal environment.

Once again, I thank you for having invited the FQM to express its views on this topic. Mr. Émond and I will be pleased to answer your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Soucy.

Now we go to questions with Mr. Chong for six minutes please.

[Michael Chong, Conservative, Wellington—Halton Hills, ON]

Thank you, Madam Chair.

I thank the witnesses for their testimony, and I have questions for each of them.

First, I'd like to say that we are here because the Parliamentary Budget Officer published two reports criticizing government infrastructure programs.

One of the criticisms is that a quarter of the money has been allowed to lapse in the last several years since the government was appointed in November 2015. The reason this lapsed money is such an issue, even though the government has committed to “re-profiling” the investments for future years, is that they promised something very different. I quote from page 14 of their platform:

We will make sure that no money intended for investment in communities is allowed to lapse. ... 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 hasn't happened. Regardless what you think of whether the lapsed money should be re-profiled rather than automatically transferred into the gas tax fund, the point is that there was a commitment made in the last election. Millions of Canadians voted based on that commitment, and that commitment has not been upheld.

The second criticism that the PBO has given with respect to the government's infrastructure programs is that there are not enough details. This is one of the largest measures of the government: some $180 billion over roughly the next 10 years. The PBO doesn't believe there is sufficient detail from the government as to what the plans are for disbursement of this money. That's why we're here today. That's why the committee is studying this issue. We're interested in hearing your comments on it.

The other thing on which we're interested in hearing your comments is in respect of rural, remote, and northern communities. Pat Vanini mentioned in her opening testimony that there are about 440 municipalities in the province of Ontario.

You mentioned that, for the vast majority of these municipalities, a 43% plurality of these municipalities, there are fewer than six full-time municipal staff, and just over a third of them have fewer than 14 full-time municipal staff. It's a challenge for these municipalities in applying to federal programs for these grants.

I'd be interested in hearing your views on an enhancement to the gas tax, how that plays with respect to these rural and remote communities, and your comments on the money being lapsed and lack of details on what is one of the government's largest spending measures.

[Pat Vanini]

There are a couple of things. Let me start with the rural and northern communities. For those communities, I think they're really happy to see some dedicated funding and I would say, like cities, they'd always take more, not less. Roads are their transit systems and there's a lot of mileage. Someone told me the other day there are enough roads in Ontario, road kilometres, to go around the earth eight times. It's a pretty important infrastructure for a lot of our members, so having that dedication is great. Some of the other flexibilities in phase two with the change in the percentages will probably help them.

In terms of the lapsing, I'm not too sure I can give you a lot of information on that. I do not spend every day, every moment, looking at the federal website. I think what would benefit everyone immensely is probably some information around performance. Because we administer the federal gas tax, we have certain requirements of us. We do it freely because we want to support our members.

I also think the difference is in the nature of the program design. The federal program for gas tax that we administer is done on an allocation basis. They know what they will receive every year, and when they will receive it. It allows them to better plan projects. In phase one, they did step up. The fact that we had close to 2,000 projects submitted in six weeks says that they were willing to step up to the plate to try to find their own percentage of the contribution to that, but it wasn't without risk. The administration of the federal gas tax is much more predictable and sustainable, and it is easier to manage your business case. If you ask municipal governments which model they would prefer, I'm pretty sure they'd say the gas tax model.

For phase one in Ontario, we managed to work with the province to get some of those features involved, so they knew, as I said, what they were going to get under phase one. Then they could go figure out what project could, from their readiness perspective...and try to find some money themselves. This did help. It wasn't the easiest but it was better than what I would call the old grant process where you apply and hope for the best.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We go to Mr. Fraser, for six minutes.

[Sean Fraser, Liberal, Central Nova, NS]

I'll direct the majority of my questions to Mr. Carlton with FCM.

You mentioned some of the important impacts that phase two could have on small communities, given the carve-out. I heard repeatedly when talking with the municipalities in my riding.... There are 10, all of which qualify for the small communities fund in the recent bilateral signed with the Province of Nova Scotia, and about half of them qualify for the 60% cost-share.

There were two issues they raised with me that I believe are addressed.

The first is that having a specific carve-out for small communities would be important so you avoid the risk of our nation's largest cities sucking up all of the funds, despite the fact that the biggest cities definitely need very major investments.

The second issue was the inability of small communities in particular to afford their traditional one-third cost-share. Can you give me an idea of the scope of this problem? Particularly I'm interested in the cost-share and whether it was preventing small communities from actually tapping into federal money for federally funded infrastructure projects.

[Brock Carlton]

The challenges, as you've identified, of the one-third cost-share did create some limitations on the opportunities for small communities. This is why, as Pat alluded to a few minutes ago and we've said a great many times, our preference has always been an allocation-based formula so that instead of a cost-sharing arrangement, there's an allocation that municipalities can see coming, it's predictable, it's long term. They can accumulate it over time to focus on one particular project. That approach is preferable over the program base where you have application procedures and administrative procedures that are onerous on small communities and the one-third cost-share.

In the absence of going to allocation, the moves the federal government has made to reduce the administrative burden on small communities through the application process and the enhanced cost-share up to as much as 60%—in those cases of municipalities with fewer than 5,000 residents—are very important moves to reduce some of the barriers and enable more access for smaller communities to the funds that are available from the federal government.

[Sean Fraser, Liberal, Central Nova, NS]

Changing gears for a moment, you mentioned a comment in passing about the time at which projects are paid for, from the federal government's perspective. This is an issue that causes a lot of confusion with some people at home, who might see projects going forward, but see in the news that money is not being spent. My understanding is that this is because of the way that the federal government funds projects, which is usually by contributing their share as receipts come in.

Is this the ordinary practice? If so, is there a better way to get projects built faster? I'm less concerned with the time at which the federal government cuts cheques; I'm more concerned about when people are going to work and when communities have new assets.

[Brock Carlton]

It is a normal confusion. I mean, you're right: the federal dollars follow the work. What's important is that the agreements get signed and that the ability to commit to projects happens quickly enough so that the work can be done, the jobs can be created, and the economic activity can take place quickly. There's the speed with which they can get agreements, and then commitments to projects are important.

Do you want to add anything?

[Alana Lavoie, Manager, Policy and Research, Federation of Canadian Municipalities]

To build on that, the way the system is set up is such that municipalities are putting their own dollars on the line first to make sure the projects can start. They're investing, letting the contracts, and doing the procurement. Then they follow that with the receipts and hope it all goes smoothly and works out.

Again, I don't know that it's as much of a delay to projects getting out the door, as actually seeing the money flowing. I do think municipalities should be recognized for the fact that they are putting their own money out first to make sure that these things happen.

[Sean Fraser, Liberal, Central Nova, NS]

Building on that, if the interest that we share is allowing communities to build more infrastructure as they deem appropriate, is there a bottleneck here that we can help to solve, or is the bottleneck the tax base of a given municipality and having the ability to put that money up first? If there's a bottleneck elsewhere, I'd love to know where it might be.

[Brock Carlton]

Obviously one way to avoid the bottleneck is to have an allocation-based approach, but we're not talking about that in this particular case.

With respect to bottlenecks, there are the administrative requirements in this country of federal-provincial agreements, and that takes time. These are complex agreements and complex issues to deal with, so we have to take the time to make sure those agreements are right. Once we get through that, it's about ensuring that the administrative process is sufficient for appropriate governance but not excessively onerous, given the capacity, particularly of smaller communities to develop proposals and that sort of thing.

[Sean Fraser, Liberal, Central Nova, NS]

In a world right now, where some but not all of the bilateral agreements between the federal government and provinces have been signed, and the period we're talking about is a decade, it seems like in getting these agreements off the ground, that bottleneck is being removed, so to speak.

You said it's important that we get it right. What's your take on the bilateral agreements that you've seen? Are these taking the shape that FCM was hoping they would?

[Brock Carlton]

We have been encouraged by what we've seen, largely for the three reasons I outlined. We had talked about the need for a clearer cost-share, which the federal government has negotiated with the provinces in the agreements that we've seen so far. We've talked about clearer statements around the expected balance of municipal and provincial projects, which is important. The third one, as I said, is the understanding of the limitations of rural communities.

We are encouraged. As I also said, we're all in this as a learning exercise. As we go through it, we'll learn things that will help things get better as we go forward to improve the next round in this funding.

[Sean Fraser, Liberal, Central Nova, NS]

I believe that's my time.

Thank you very much.

[The Chair, Liberal, Judy Sgro]

We're now on to Madam Sansoucy.