Infrastructure Funding Challenges
The following blog is a summary of the section “Infrastructure Funding Challenges” from the fiscal gap report put together by City Administration. The full report can be found here:
https://pub-edmonton.escribemeetings.com/filestream.ashx?DocumentId=236515
The City of Edmonton, along with other municipalities, is historically highly reliant on other orders of government to help deliver its capital investments.
Our capital budget determines the city’s infrastructure investments such as the construction of LRT lines, bridges, libraries, and parks.
The following figure shows the City’s reliance on federal and provincial grants in its 2023-2026 Capital Budget:
federal grants comprised 15.3% of funding
provincial grants comprised 22.7%
The remaining funding sources were:
debt financing (34.6%);
reserves (12.1%);
pay-as-you-go (7.6%);
accumulated surplus and retained earnings (6.4%); and
other (1.3%)
Capital budgets are decided on every four years, this reliance on other levels of governments means that funding levels and sources can vary considerably from budget to budget.
This reliance has presented the following challenges:
Lack of Funding Certainty
Cash Flow Challenges
Changing Federal and Provincial Priorities
Changes in Government
Grants Can Lack Flexibility on Time of Use
Grants Can Come With Conditions
Canada’s infrastructure investments levels have not been stable. Despite significant investments during the 1950s and 1960s, in the late 1960s the federal, provincial and municipal governments in Canada began an extensive reduction of their public infrastructure investments.
As all three orders of government in Canada deferred this essential maintenance, municipalities accumulate an infrastructure debt. By 2007, this deficit was estimated at $123 billion for existing renewal needs, with an additional $115 billion in new infrastructure needs.
While in the late 2000s, all three orders of government began increasing their infrastructure investments, it was not to levels observed in the 1960s.
Canada’s infrastructure is increasingly municipal, the share of public infrastructure held by local governments in Canada has significantly increased over the past six decades.
The share of public infrastructure owned by the federal government has steadily decreased from 29% in 1961, to 6% in 2021.
Canada’s stock of public infrastructure being almost 50% local means cities have a large infrastructure maintenance responsibility. Despite the fact that nearly half of Canadian infrastructure is locally owned, the current transfer-funding framework does not reflect this asset distribution.
At the end of 2022, the City of Edmonton had a total asset replacement value of $34.7 billion.
The City’s inventory of capital assets means it has extensive renewal responsibilities to keep all its infrastructure in working order.
The City’s total renewal investment requirement over 2023 to 2032 is $8.37 billion, with annual requirements in the range of $721 million in 2023 to $1.015 billion in 2032. Over the 2023 to 2026 capital budget cycle, the required renewal investment is $3.12 billion
There are two reasons the City’s renewal needs are not being met:
Insufficient Unconstrained Funding: The majority of capital transfer funding is project-specific funding. Unconstrained Funding, which can be allocated to renewal, underwent significant reductions since 2019
Overemphasis on Growth Capital: Overemphasis on growth capital diverts funding from renewal and expands the City’s infrastructure inventory which grows future renewal requirements
A policy that balances infrastructure growth and renewal could provide financial guidance in periods when capital funds are constrained. Such a policy would provide a principle-based framework for decision-making around tradeoffs, prioritization, sustainability considerations, risk tolerances, and reporting metrics.
This is why groups like Alberta Municipalities, the Rural Municipalities of Alberta, and the Federation of Canadian Municipalities have been advocating to the provincial and federal government to ensure that our municipalities are receiving sustained infrastructure funding for renewal needs.
https://www.abmunis.ca/advocacy-resources/infrastructure/lets-talk-about-infrastructure
