November 19, 2015
The Role of Local Governments in Building Canada’s Economic Infrastructure Network
This paper examines successes and challenges in federal, provincial and municipal government efforts to support trade-enabling and productivity-enhancing infrastructure, with a particular focus on the value of local involvement.
Canada’s long-term economic prosperity is closely tied to the state of the nation’s public infrastructure. Infrastructure underpins trade, competitiveness and productivity. Yet Canada’s public infrastructure network has historically been overlooked and underfunded.
The World Economic Forum’s Global Competitiveness Index illustrates the perception that Canada lacks quality infrastructure, as it has recently fallen from ranking 13th in that category in 2010 to 19th in 2014. The findings underline the unaddressed needs of Canada’s large-scale, economic infrastructure — including roads and ports, which scored particularly low. The need is clear for a strong and strategic network of infrastructure across the country to fulfill the national vision of more robust trade relationships, increased productivity and enhanced quality of life.
Despite recent modest increases in infrastructure investments, need has continued to outpace available funding. Commitments by the new federal government to make major investments and double infrastructure spending are promising. But even with higher levels of investment, it is necessary to be strategic and get the most out of each dollar spent.
To ensure investments have the greatest impact, it is essential to first look inward at how Canadian governments operate and collaborate to create an integrated infrastructure network. Currently, there is no consistent strategy or alignment across governments in Canada to support infrastructure planning and investments. In particular, inadequate engagement with local governments — which own and manage the majority of Canada’s infrastructure — is a notable gap.
While there are many instances of multi-government infrastructure projects where municipalities play a key role, and some examples where they were the driving force behind major projects, our analysis finds that local governments can face challenges in having a meaningful impact on major infrastructure investment decisions. Some of these challenges are related to the following:
- Local governments now own the majority of Canada’s infrastructure but lack sufficient fiscal tools to finance their share.
- There are limited opportunities to coordinate infrastructure investment strategies focusing on economic growth among all orders of government.
- Major urban centres make significant economic contributions that, in particular, require greater levels of infrastructure investment to support.
- Local governments face constraints and are not well incentivized to incorporate infrastructure networks of national significance in local planning.
These challenges ultimately impede alignment and, therefore, the strategic value of Canadian infrastructure investments.
Federal government leadership has also lacked strategy in targeting infrastructure investments. At the heart of a strategic approach should be the inclusion of economic growth and productivity as a top consideration in prioritizing investments. Recent federal efforts have been opaque and have not gone far enough in strategically targeting funds with notable impacts on trade and productivity.
We identify three key success factors to strengthen and enhance infrastructure planning and decision-making:
- Coordination and consultation with all government partners
- Strong leadership providing direction and setting priorities
- Reliable and strategic investments from diverse sources
Our recommendations centre on providing evidence, ensuring alignment, targeting support and developing a strategy.
- Conduct a detailed economic analysis that would provide evidence on the benefits, particularly to local governments, of major productivity-enhancing infrastructure.
- Develop regional coordination forums involving federal, provincial/territorial and municipal governments, including those with expertise on infrastructure and economic development.
- Develop new mechanisms that will incentivize local governments to give greater attention to the national economic infrastructure network by providing them with a greater proportion of the financial benefits.
- Target specific project types for focused investment — particularly with notable impacts on trade and productivity — informed by priorities set by intergovernmental forums.
- Revisit the federal Gateways and Corridors Strategy.
- Incorporate economic development in subnational capital planning processes.
Involving all orders of government — and strong coordination among them — is critical to strategic decision-making, particularly for infrastructure projects that will likely have the greatest impact on economic growth and productivity. Effective coordination will also take advantage of the value of the private sector, as it can and will play a key role in many trade-enabling and economic infrastructure projects. This will ultimately help ensure that infrastructure is built to meet an over-arching purpose — rather than the prevailing fragmented and piecemeal approach — maximizing the impact of every dollar spent toward infrastructure and harnessing economic growth opportunities to ensure future prosperity.
November 19, 2015