The Urban Infrastructure Challenge in Canada: Focusing on Housing Affordability and Choice

Presentation by CHBA – [Name] to

The Municipal Council of [Name]

June, 2008

The Urban Infrastructure Challenge 2

Background to this presentation: Major report on infrastructure financing

prepared for CHBA by economic consulting firm Altus Clayton…The Urban Infrastructure Challenge in Canada: Perceptions and Realities.Our aim is to get key findings out.

Report analyzes municipal funding and governance in Canada in a balanced way.

Uses data from Statistics Canada and Infrastructure Canada regarding respective financial participation of different levels of government and of the private sector.

The Urban Infrastructure Challenge 3

Key questions addressed:

1. What is “basic urban infrastructure”?

2. What have patterns of urban infrastructure investment been over recent decades?

3. Who is paying for what?

4. What financing arrangements would be most suitable to enhance housing affordability and choice in the future?

1. What is “basic urban infrastructure”?

The Urban Infrastructure Challenge 5

Why we need to define this term according to Altus Clayton:

Wide range of definitions of “public infrastructure”, many of which include items better described as “amenities”.

This takes focus off basic urban infrastructure as a key component of public sector stewardship of urban growth and community well-being.

Policy development will benefit from a focus on assets most closely affecting health and safety of population.

Facilitates setting priorities and achieving measurable results.

The Urban Infrastructure Challenge 6

Priorities for inclusion in “basic or ‘core’ urban infrastructure”:

Roads and highways Bridges Public transportation system structures and

equipment Water supply systems Sewerage collection and treatment systems

(The term “core infrastructure” is used by the National Round

Table on Sustainable Infrastructure as well as Infrastructure

Canada and the National Research Council of Canada. )

The Urban Infrastructure Challenge 7

Why should these be priorities for infrastructure investment?

Focus on facilities essential to human beings functioning effectively in modern cities.

Give highest priority to public health, safety, natural environment, and future prosperity.

Stress infrastructure typically owned by municipalities/local utilities.

Recognize that such infrastructure is vital to quality of life and must be built well, operated efficiently, and maintained to a high standard.

The Urban Infrastructure Challenge 8

Risks of a lack of focus on basic urban infrastructure…

Montreal overpass collapse

Walkerton deaths due to faulty water supply system

2. What have patterns of urban infrastructure investment been over recent decades?

The Urban Infrastructure Challenge 10

Investment in basic urban infrastructure on per household basis declined after 1973:

Basic Urban Infrastructure Investment, Per Household, 1961-2006

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

19

61

19

64

19

67

19

70

19

73

19

76

19

79

19

82

19

85

19

88

19

91

19

94

19

97

20

00

20

03

20

06

Constant 2006 Dollars

Source: Altus Clayton based on data from Statistics Canada: Fixed Capital Flows and Stocks (Table 031-0002) and household statistics

The Urban Infrastructure Challenge 11

Average age of basic infrastructure has increased:

Average Age of Basic Urban Infrastructure, by Asset Types, Canada, 1963-2007

12

14

16

18

20

22

24

26

1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

Roads and Highways

Sewer Systems

Wastewater Treatment

Bridges

Average Age (Years)

Source: Altus Clayton based on data from Statistics Canada, “The Age of Public Infrastructure in Canada” (2006 and 2008) Catalogue no. 11-621-MIE

The Urban Infrastructure Challenge 12

After a period of less investment in basic urban infrastructure, it has been growing again in recent years, in part due to federal return to funding programs for local infrastructure.

Investment in Basic Urban Infrastructure, Governments*, 1961-2006

0

3

6

9

12

15

18

19

61

19

64

19

67

19

70

19

73

19

76

19

79

19

82

19

85

19

88

19

91

19

94

19

97

20

00

20

03

20

06

Billion (2006$)

Source: Altus Clayton based on data from Statistics Canada: Fixed Capital Flows and Stocks (Table 031-0002) *Including water and sewer utilities

The Urban Infrastructure Challenge 13

Users not charged full cost of infrastructure they are using:

User Fee Revenue Per Household*, Selected Cities, 2005

1,349

1,623

657

882

652

913

2,004

1,585

1,369

1,146 1,1941,243

0

400

800

1,200

1,600

2,000

2,400V

an

cou

ver

Ed

mo

nto

n

Ca

lga

ry

Sa

ska

too

n

Win

nip

eg

Ha

lifa

x

Ab

bo

tsfo

rd

To

ron

to

Ott

aw

a

Ha

milt

on

Lo

nd

on

Va

ug

ha

n

Dollars

* Based on Occupied Private Dwelling 2006 CensusSource: Altus Clayton based on data from Ontario FIRs and Various Annual Financial Statements

The Urban Infrastructure Challenge 14

Small proportion of municipal revenues comes from user charges:

Municipal Revenue by Source, 2006

Others11.4%

Government Grants17.3%

User Fees 22.4%

Property Taxes 48.9%

Source: Altus Clayton based on data from Statistics Canada (Cansim 385-0024)

The Urban Infrastructure Challenge 15

Tax bases of income, consumption and property taxes have all increased at about the same rate…

Growth in Tax Base for Income, Sales and Property Taxes in Canada, 1990-2006

100

125

150

175

200

225

250

1990 1992 1994 1996 1998 2000 2002 2004 2006

Personal Income

Personal Spending on Consumer Goods & Services

Market Value of Buildings & Land

1990=100

Source: Altus Clayton based on data from Statistics Canada

The Urban Infrastructure Challenge 16

But effective property tax rates have been declining for years now…

Effective Tax Rate for Consumption, Income and Property Taxes in Canada, 1990-2005

12

14

16

18

1990 1993 1996 1999 2002 2005

1.0

1.2

1.3

1.5

Consumption Tax (LHS)Personal Income Tax (LHS)Property Tax (RHS)

Percent of Income/Retail Sales

Source: Altus Clayton based on data from Statistics Canada

Percent of Property Value

The Urban Infrastructure Challenge 17

Especially in Ontario, pressures on local budgets arise from provincial government “offloading” of social services onto property tax base.

Provincial Program inOntario

Costs to Municipalities ($M) (Figures adapted from Association of Municipalities of

Ontario

2003 2005

Public Health 266.4 292.0

Ambulance 312.7 394.7

Social Assistance 1,330.9 1,500.6

Senior Services 242.5 302.7

Child Care 193.4 220.2

Social Housing 879.7 1,209.4

Total 3,225.6 3,919.6

3. Who is paying for what?

The Urban Infrastructure Challenge 19

Here are actual amounts provided by each investor:

Municipal* $3.0

Provincial*$4.5

Federal* $1.7

Private $5.1

Basic Urban Infrastructure Investment by Funding Source, 2005-2006

Total $14.3 BillionBillions (Annual Average)

Notes: *Net of Transfers. Source: Altus Clayton based on data from Fixed Capital Flows and Stocks (Cansim 031-0002), Transfer payments by Infrastructure Canada (Public Accounts of Canada) and National Accounts (Cansim 385-0024 and 385-0002), and consultation with StatCan staff

The Urban Infrastructure Challenge 20

Largest single proportion of investment provided by private sector through direct works, taxes, fees, levies and charges.

Private 35.7%

Municipal 21.0%

Provincial31.5%

Federal11.9%

Basic Urban Infrastructure Investment by Funding Source, 2005-2006 (Annual Average)

Source: Altus Clayton based on Figures 7&8

The Urban Infrastructure Challenge 21

Here is how the different portions break down by source:

1.7

4.5

3.0

2.11.8

1.2

0

1

2

3

4

5

6

Federal* Provincial* Municipal*(General

Revenue***)

Private DirectInvestment**

DevelopmentCharges

Other Leviesand Local

Land TransferTaxes

Notes: *Net of Transfers. **On-site infrastructure to be transferred to municipalities.***Including water and sewer charges.

Source: Altus Clayton based on data from Fixed Capital Flows and Stocks (Cansim 031-0002),Transfer payments by Infrastructure Canada (Public Accounts of Canada) and National Accounts (Cansim 385-0024 and 385-0002), and consultation with StatCan staff

Basic Urban Infrastructure Investment by Funding Source, 2005-2006

Billions (Annual Average) Total $14.3 Billion

Total Private Sector $5.1 Billion

The Urban Infrastructure Challenge 22

Development charges have been rising dramatically…

Municipal Development Charge Revenue and Direct Investment in Infrastructure, 1988-2006

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

0%

5%

10%

15%

20%

25%

30%Municipal DC Revenues (left axis)

DCs as % of Municipal Direct Infrastructure Investment(right)

Percent

Source: Altus Clayton based on data from Statistics Canada, Cansim (385-0024 and 031-0002)

$ Million

The Urban Infrastructure Challenge 23

Comments on Development Charges by Altus Clayton: Development Charges place a major burden on

new home buyers, reducing affordability and choice.

User charges and debt financing for infrastructure are more equitable and efficient.

The local property tax base has increased, but is not being used effectively.

Development Charges have detrimental impacts on urban form and efficiency.

Social services program expenditures not appropriately borne by property tax base, but basic urban infrastructure is.

The Urban Infrastructure Challenge 24

“Growth paying for itself”… the facts:

All residents benefit from urban growth.

Off-site infrastructure is used by all community residents, and by industrial concerns, not just by new residents.

Overall conclusion: Development Charges unfairly burden new home buyers, restrict affordability and choice.

4. What financing arrangements would most enhance housing affordability and choicein future?

The Urban Infrastructure Challenge 27

A rational funding model for core infrastructure would:1. Be based on long-term planning and close links

between planning and budgeting.2. Have industry fully engaged in infrastructure

planning. 3. Recognize that off-site infrastructure serves the entire

community, not just newly-arriving residents.4. Ensure federal and provincial governments contribute

to reflect their role in overall prosperity, health and safety.5. Charge appropriate user fees to maintain and upgrade

basic infrastructure.6. Use debt-financing methods to spread payments over

present and future generations of users of urban infrastructure.

7. Upload social services and social housing expenditures to provincial, federal governments.

The Urban Infrastructure Challenge 28

What the new home building industry is ready to do: Develop with municipalities alternative

models for infrastructure financing. Support municipal presentations to federal

and provincial governments seeking infrastructure funds.

Support uploading social services and programs to provincial governments.

Participate in community-wide planning processes.

The Urban Infrastructure Challenge 29

Questions?

For further information, contact:

[Local Executive Officer coordinates]