A recent Terence Corcoran column in the National Post argues in favour of for-profit water in Toronto and privatized city services in Fort McMurray. This argument sidesteps the true culprit. The missing link when it comes to municipal funding is downloading of costs and responsibility to local government without an adequate increase in revenues.
Canada's cities and towns find themselves in an infrastructure deficit because of massive underfunding. Federal and provincial transfers have dropped from almost 26 per cent of local government revenues in 1995 to 17 per cent in 2005. This is a decline in value of almost $5 billion over the past decade.
The federal government's gas tax transfer covers less than half of this shortfall. In fact, as the Federation of Canadian Municipalities points out, 92 cents of every tax dollar generated go to the federal and provincial levels of government, leaving cities with a scant eight cents to fund increasing expectations around everything from security to services.
Not surprisingly, this situation pits upkeep and expansion of infrastructure against a multitude of other city needs, including an ever-lengthening list of downloaded responsibilities and led to an increasing reliance on regressive forms of funding such as property taxes and user fees.
That dynamic becomes even more of a pressure cooker in municipalities experiencing runaway growth, such as Fort McMurray. The explosive growth in the oil sands is fuelled in part by federal and provincial tax subsidies to the oil and gas sector, and compounded by a lack of planning on the part of the Alberta government.
But there's no reason to believe privatization will bring order to the chaos. The increased costs and diluted accountability that are hallmarks of public-private partnerships make P3s the wrong choice for public services.
Last month the University of British Columbia's Sauder School of Business released a study analyzing 10 Canadian P3s from a variety of sectors. The study highlighted the private sector's reluctance to bear financial risk and concluded that the potential benefits of P3s are often outweighed by high contracting costs and opportunism.
Despite the evidence that P3s cost more and deliver less, groups like the Fraser Institute still promote them at every turn. The federal government and some provincial governments are backing cities further into a corner by forcing local governments into P3s in order to access infrastructure cash.
Toronto is in the same boat as countless other municipalities. Estimates peg Canada's public water infrastructure deficit at $50 billion or higher. Working to fix leaky pipes not to mention meet new standards and regulations on the same old shoestring is impossible. In 2005, Ontario's expert panel on water infrastructure argued for corporatization and privatization of the province's water services. But CUPE's analysis showed that it would increase costs to Ontarians by between $3 and $4 billion over the next 15 years. Wisely, the Ontario government hasn't acted on the panel's proposal.
In Hamilton, P3 water operations created a revolving door of corporations which saw the endeavour as a cash cow. While financing a major water and sewer pipe renewal project is a challenge for the City of Toronto, privatizing water operations won't lower the $800 million price tag. And there's a bigger question of accountability and community control. In poll after poll, Canadians reject privatized water services, and most municipal officials respect and agree with this position.
In Alberta, the push toward unchecked energy development is increasingly being questioned. Many in the province, including local governments, realize that a more balanced approach to planning is required. Further development requires a long-term plan for sustained public investment in physical and social infrastructure as well as environmental measures to contain water use and greenhouse gas emissions.. In the absence of this foresight, yet another boomtown will be doomed to go bust in ways that have serious environmental and social consequences.
Sustained public investment in infrastructure is more than possible and not just in wealthy provinces like Alberta. Despite debt hysteria, the ratio of debt to GDP is low and falling at both federal and provincial levels. Federal surpluses should be spent on infrastructure funding, not tax cuts. Governments have both the ability and the room to significantly increase their borrowing to finance infrastructure. With the introduction of accrual accounting to the public sector, governments are now able to borrow up front for capital investments and expense the costs over the life of the investment just like businesses do.
There are other cost-effective alternatives to P3s, such as public bonds and pooled debt financing. Public-public partnerships, where municipalities generate efficiencies and cost savings by working together, are another option to explore. In addition, pension funds such as the CPP have been and should again become a major source of capital for public infrastructure.
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