Is three-way funding for infrastructure inefficient?

Quote: Fix the infrastructure funding model before you pour money into it.

An article in the National Post by Brian F. Kelcey on November 24 points out that the new federal government’s promises to invest heavily in transit and public housing has a hidden complication — it needs two other levels of government to invest as well. And cities are not always able to get the same favourable lending rates for funding the construction that the federal and provincial governments can muster.

Kelcey writes: “Canadian infrastructure is usually bought with borrowed money. ‘Capital debts’ (or ‘capital leases’ for public-private partnerships) spread infrastructure costs over the life of the asset…. This is normal in the industrial world. However, Canada habitually divides the costs of most major infrastructure projects equally between federal, provincial and municipal governments — which is almost unique.

“Our political system takes this 1/3rd division of costs for granted, even though it’s totally illogical. It’s politically inefficient, forcing governments to waste years renegotiating details and priorities. Given the relative credit ratings, tax bases and debt capacities of each level of government, it’s also financially inefficient — especially if you believe ‘there’s only one taxpayer.’ In contrast, in other countries, federal, national or state governments often fund a larger share of infrastructure expenses.”
Later in the article, Kelcey writes: “Plugging more infrastructure into the existing 1/3rd share model means more construction but also slower project approvals, a cascading increase in local debts, and a greater share of infrastructure debts repaid by regressive property taxes — even though Canadian property taxes are already among the highest in the world.”

To read the article in the National Post, click here.