Canada: Change Orders: Analyzing Proposed New Infrastructure Spending In 2016 Budget

Shortly after the election of Prime Minister Justin Trudeau, we summarized the infrastructure promises made on the Liberal campaign trail in our October 2015 Blakes Bulletin: Under Construction: Infrastructure Plans and Promises of the New Canadian Government. Now that the 2016 federal budget, titled "Growing the Middle Class" (2016 Budget), has been tabled in the House of Commons by the Minister of Finance, William Morneau, we evaluate how such plans and promises stack up to the budget reality. 

In the 2015 Liberal campaign platform, titled "A New Plan for A Strong Middle Class" (Liberal Platform), the Liberals proposed to add over C$5-billion in new infrastructure spending in each of the next two fiscal years, tapering down to approximately C$3.5-billion in new infrastructure spending in the third and fourth fiscal year. Over the course of the next 10 fiscal years, proposed new infrastructure spending was to be nearly C$60-billion, split evenly among three categories: public transit infrastructure, social infrastructure and green infrastructure. 

Like the Liberal Platform, the 2016 Budget indeed proposes that almost C$60-billion in new infrastructure funding be spent over the next 10 fiscal years. However, the scale of the new infrastructure funding that will be immediately available under the 2016 Budget is notably less than what was proposed in the Liberal Platform. In the 2016 Budget, the federal government proposes a short-term "Phase 1" spending plan consisting of C$11.9-billion in new infrastructure funding over the next five fiscal years (compared to nearly C$17-billion over the first four fiscal years as proposed in the Liberal Platform). 

Unlike the Liberal Platform, the 2016 Budget does not evenly distribute new infrastructure funding among public transit infrastructure, social infrastructure and green infrastructure. Phase 1 spending plan is instead focused specifically on modernizing and rehabilitating public transit, water and wastewater systems, providing affordable housing and protecting existing infrastructure from climate change. The 2016 Budget provides that Phase 1 new infrastructure spending is to be allocated as follows: 

  • ​Approximately C$3.4-billion over three years will be provided through a new Public Transit Infrastructure Fund to upgrade and improve public transit systems. Funding will be allocated to the provinces according to public transit ridership levels, including approximately C$1.5-billion to Ontario, C$924-million to Quebec, C$460-million to British Columbia and C$347-million to Alberta. Up to 50 per cent of eligible project costs can now be federally funded, in contrast to prior funding formulas that required an equal share of provincial and municipal funding to stand alongside funds committed at the federal level. Projects receiving specific mention in the 2016 Budget in this regard include upgrades to the Montréal Metro, fleet replacement for the Toronto Transit Commission and new light rail transit lines in Greater Vancouver and Ottawa, although given the above dollar caps during Phase 1, substantial spending for large scale projects may need to wait until Phase 2 (see below).
  • Approximately C$3.4-billion over five years will be provided for social infrastructure, including affordable housing (approximately C$1.5-billion), early learning and child care (approximately C$400-million), cultural and recreational infrastructure (approximately C$342-million), and social infrastructure investments in First Nations, Inuit and northern communities (approximately C$1.2-billion).
  • Approximately C$5-billion over five years will be provided through various funds, including a new Clean Water and Wastewater Fund, for investments in water, wastewater and green infrastructure projects such as "electrical vehicle and alternative transportation fuel infrastructure, initiatives to foster regional electricity cooperation and the development of building codes and standards that integrate climate resiliency requirements." 

Chart 2.2 below, excerpted from the 2016 Budget, provides a further breakdown of funding available in Phase 1 of the federal government's new infrastructure spending plan: 

Generally, previously committed infrastructure spending and existing infrastructure funding programs will continue to operate. These include approximately C$3-billion each year in funding for municipal infrastructure projects through the Gas Tax Fund and the incremental Goods and Services Tax Rebate for Municipalities, approximately C$9-billion under the New Building Canada Fund's Provincial-Territorial Infrastructure Component and approximately C$3.4-billion over the next five years earmarked for the maintenance and upgrading of federal infrastructure assets such as national parks, small craft harbours, federal airports and border infrastructure. 

The C$11.9-billion of Phase 1 new infrastructure spending announced in the 2016 Budget includes approximately C$3.5-billion over five years to specifically support green and social infrastructure investments in First Nations communities. This includes C$1.8-billion to support clean drinking water and the treatment of wastewater on reserves, C$409-million to improve garbage and waste management on reserves, C$732-million to address housing needs, C$270-million to enhance health facilities and C$129-million for early learning and child care facilities in First Nations communities. The development of strong working relationships and partnerships with First Nations will play an increasingly important role in infrastructure projects within this funding category. 

Phase 2 of the federal government's infrastructure spending plan has not been released, and is slated to be presented next year. The 2016 Budget states that Phase 2 spending will be focused on a broader range of long-term infrastructure investments to support the government's goals of "a more modern, cleaner economy; a more inclusive society; and an economy better positioned to capitalize on the potential of global trade." All of this will, of course, be contingent upon an extension of the current Liberal government's mandate. 

In summary, although the 2016 Budget contains less new infrastructure funding available in the first few fiscal years than was proposed in the Liberal Platform, it nonetheless provides for significant infrastructure spending over the short and long-term. Additional details on the proposed allocation of infrastructure funds in the 2016 Budget are available online at www.budget.gc.ca

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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