Building BC for the 21st Century: A White Paper on Infrastructure Policy and Financing

This paper is about infrastructure in BC. It reviews what infrastructure is, the importance and benefits of infrastructure and some of the external and internal factors that are shaping the demand for infrastructure services in the province. It also reviews infrastructure that has been built in the province over the past decade. Despite BC having made substantial investments in large public assets that have served the province and its citizens well, we conclude that additional infrastructure investments are necessary to support residents’ quality of life and improve BC’s competitive position.

Highlights

This paper is about infrastructure in BC. It reviews what infrastructure is, the importance and benefits of infrastructure and some of the external and internal factors that are shaping the demand for infrastructure services in the province. It also reviews infrastructure that has been built in the province over the past decade. Despite BC having made substantial investments in large public assets that have served the province and its citizens well, we conclude that additional infrastructure investments are necessary to support residents’ quality of life and improve BC’s competitive position. The paper touches on some future infrastructure requirements, but is focused more on developing greater capacity in BC to build necessary infrastructure in an efficient and timely manner. To this end, the paper is also intended to build awareness that significant and sustained investment in infrastructure will be needed to keep the province competitive, grow our economy, enhance well-being, and protect the environment.

The paper covers economic and social dimensions of infrastructure assets. For discussion purposes, a broad definition of infrastructure is adopted: the set of elements, usually physical and structural, that supports the day-to-day functioning of the economy and society. Collectively it is the backbone of modern life and at the heart of both local and global commerce. Most aspects of infrastructure are touched on here: the private and public sector dimensions, social and economic infrastructure, and the infrastructure mandates across different levels of government are all covered. However, a focus on large economic infrastructure pertaining to transportation and transit emerges, as this is an area that is especially important to prosperity and our future economic development. It is also an area where the provincial government has a high degree of control in the planning and building of assets.

Many observers argue that governments in advanced countries often are not well-placed to meet growing and increasingly complex infrastructure needs. And to some degree this is true in BC. A major impediment is constrained public budgets, which have been the traditional source of most infrastructure finance. Population growth, an aging population, increased urbanization and congestion, escalating demands for healthcare and other services, slow economic growth, and environmental issues are all straining government resources. In the wake of the 2008-09 financial crisis and great recession, fiscal prudence has become a dominant focus for most governments across Canada. In BC, the provincial government has balanced its operating budget and is working to reduce the ratio of taxpayer-supported debt to GDP.

Adding to the complexity of financing large capital projects is the fact that voters seem increasingly reluctant to pay higher taxes or fees. If the value of an investment is evident, citizens may be willing to pay more, but the value proposition must be clearly articulated to secure public support. An especially important consideration for a small, trade-oriented jurisdiction such as BC is the fact the world has become more competitive. To succeed in the global marketplace, BC must have top quality infrastructure that supports the development of human capital and facilitates business operations and trade. Growing trade and increased economic integration are also fuelling the need for improved infrastructure.

A myriad of new public and private infrastructure will be required as will substantial expenditures on upgrading and refurbishing existing assets. The Asia Pacific Gateway, however, will remain an infrastructure top priority. Connecting North America with Asia has become a very significant and very strategic line of business for British Columbia. Ongoing population growth in the lower mainland region means additional investment in public transit is also a priority.

Following the review of factors shaping BC’s infrastructure requirements and some of the challenges, including a constrained fiscal environment, we identify a number of recommendations to help advance a coherent and proactive approach to making sure infrastructure is built in a timely and efficient manner. The recommendations are grouped into five themes:

Theme 1: Develop a long-term and comprehensive infrastructure strategy for the province. Such a strategy would support and enable long-term planning and prioritizing of infrastructure investments, in the process helping to make infrastructure decision-making less reactive and more thoughtful and proactive. It would also facilitate coordination of infrastructure planning and needs assessment across different levels of government and foster stronger governance. Another benefit of a long-term strategy is that it would provide a “pipeline” of projects and signal the government’s commitment to investing in infrastructure going forward. Both of these factors would help to mitigate some of the barriers to investing in infrastructure expressed by large institutional investors. Many other advanced countries have adopted long term planning strategies that help facilitate the prioritizing of projects.

Theme 2: Focus on leveraging financing opportunities to secure and maximize a stable flow of funding for infrastructure development in BC. The main objective here is to increase access to stable flows of financing for infrastructure needs and move away from badly needed projects being postponed due to a lack of financing, as has occurred in the past. An important issue in this area is to address concerns and challenges that inhibit private sector investment. The government must also re-visit the question of the capacity for additional public financing of infrastructure projected that can help to strengthen BC’s economic performance. Here we highlight the fact that historic low borrowing costs and the fact that BC has a modest debt-to-GDP ratio suggests the province should explore the potential to ramp up capital spending on priority infrastructure projects over the next 2-3 years.

Theme 3: Fully engage with the federal government and leverage federal government financial support. Here we note that the federal government has more tax raising capacity than the provinces and is better positioned than most provincial governments to fund capital projects. The role of the Asia Pacific Gateway as a national strategic asset suggests the federal government should commit to ongoing funding for capital projects related to goods movement and to improve transportation services for Canadian business sectors that depend on the Gateway.

Theme 4: Improve efficiency through use of demand management techniques and by broadening the user-pay philosophy for public infrastructure. The user-pay principle seems to becoming better understood and more accepted by the public for everything from metering of water to road tolls. It is increasingly viewed globally as an efficient and equitable way to finance infrastructure. We note that it may be appropriate to first expand the use of tolls in the lower mainland, with a focus on improving equity across the region.

Theme 5: Improve the regulatory environment to maximize private infrastructure investment