Rethinking (and Rebuilding) B.C. Infrastructure

B.C.’s overstressed infrastructure is forcing us to rethink how we decide on and pay for major projects.

The new 10-lane Port Mann Bridge, scheduled to open by December 2012, is one of the biggest infrastructure projects currently underway in B.C.

B.C.’s overstressed infrastructure is forcing us to rethink how we decide on and pay for major projects.

Considering all the obstacles, it’s a wonder anything gets built at all in B.C. There are strict new regulations, a furious debate over public-private partnerships (P3s), clashing regional politics, good old-fashioned NIMBYism and – of course – the question of who will pay for it all. And did we mention it all has to be green? Putting down new infrastructure in B.C. has never been more contentious. But according to the experts, infrastructure is exactly what we need more of. In fact, we’re falling behind.

Existing roads, power lines and other facilities are nearing the end of their life cycle, while at the same time a growing population is demanding more and more service. There has to be a breaking point, where the need for infrastructure and the province’s and municipalities’ will to build and pay come into balance. Despite some impressive megaprojects over the past few years (such as the Canada Line, the Golden Ears Bridge and the Sea to Sky Highway expansion), B.C. has yet to make the really tough decisions.

To discuss just how crucial those decisions are and what some solutions might be, we’re joined by Malcolm Brodie, mayor of Richmond, chair of the Metro Vancouver finance committee and vice-chair of the Municipal Finance Authority of B.C.; Alan Russell, professor of civil engineering at UBC; and David Egan, managing director of infrastructure and project finance at the Vancouver office of PricewaterhouseCoopers LLP.

Is there an infrastructure gap in B.C.?

RUSSELL: Is there a gap? Yeah, there are gaps all over the province depending on what your expectations are. If you want equivalency across the province, there is a definitive gap. You can’t have in Smithers what you can have in the Lower Mainland. We’re also getting to stuff that’s 50, 60, 70, 80 years old at the same time there’s demand for new capacity. You’ve got a double burden that you weren’t carrying before, so that’s a huge issue. But it’s a matter of perception: what expectations are versus our capacity to deliver. And there is a larger gap in terms of what people are willing to pay for.

EGAN: I do think there is an infrastructure gap; there always seems to be. Having said that, in the last few years there have been a number of large-scale projects that have addressed some significant needs, particularly on the transportation side. What we’ll see in the future is probably a shifting toward other areas: energy, I think. There are at least two or three megaprojects out there, like the replacement of the Pattullo Bridge. But if you think about the fact that the population continues to increase, you’re always going to face some kind of infrastructure gap. To the extent that it’s growing in B.C., it’s really hard to say. It continues to shift. It’s like owning a house: you never really quite get caught up.

BRODIE: If you look across the country, there’s literally hundreds of billions of dollars in infrastructure that we need. It is the result of age, the fact that we’ve certainly grown in population but also there are new regulations imposed on us. Look at the Seymour-Capilano water filtration plant on the North Shore; it’s a result of the Walkerton disaster. New regulation imposed on us by the federal government cost us $800 million. If you go through major services on the Metro Vancouver level, the basic utilities, the needs are enormous. Over the next 10 years, we will have about $5 billion in projects that we need to go through.
What’s holding us back from building the infrastructure we need?

BRODIE: The obvious one is money. If we had enough money to do everything, there would be no problem. But it’s inequities in funding and inequities between governments. You need look no farther than TransLink and the critical shortage of funding they’re being subjected to. The transportation priorities are reasonably clear, yet the resources of Metro Vancouver and the region are being pulled in every direction. I think we’ve got a real dilemma on our hands.

EGAN: TransLink has got any number of challenges. The tariffs are among the highest in Canada, the gas tax is already fairly high, there’s reluctance to raise property taxes, so there’s not an obvious fix. A number of rapid-transit projects have leveraged a lot of federal dollars, but it obviously has not solved this funding gap. It’s probably one of the biggest challenges we face here in the Lower Mainland.

BRODIE: The municipalities have eight cents out of every tax dollar, and the provincial and federal governments in the last decade have been awash in surpluses, to the point where the federal government reduced the GST by two per cent. That money could have been put into civic infrastructure, which is desperately needed. So you can see there is a difference in priority. If you solve the funding issue, you will solve most of your infrastructure issues.

Our panellists. From left: David Egan, Malcolm Brodie, and Alan Russell.

These kinds of challenges have surely always been there. Is there anything that makes them more difficult today?

RUSSELL: Yeah, we see it on the engineering side with the changing regulatory environment. You need to have new seismic standards, what’s in the drinking water input stream is totally different, you have to have more smart transportation systems, and so forth. Our ability to do things is increased in terms of technology, but our ability to fund those things and get concession on what the priorities are is becoming more and more problematic. I don’t envy the position you’re in, Malcolm. The expectation and the demand far exceed what you will ever be able to do.

EGAN: The projects that have an important environmental component to them seem to be the ones that stall out more than others. In November the Taseko mine got cancelled; it was not approved by the federal government environmental assessment process. The Deltaport berth-three project out in Roberts Bank was an extremely difficult and very expensive project for Port Metro Vancouver to get through.

BRODIE: The age of our infrastructure and the growth in sustainable initiatives make for added pressure. In the city of Richmond alone, the replacement value of our infrastructure is about $3 billion. We have a capital plan for about $30 million per year, so one per cent. We’re consistently renewing our infrastructure, but it is a constant battle to try and stay ahead of the curve on it. And if you’re going to go green, it’s going to cost extra money. That’s part of the dilemma.
If there is this imbalance between what we need and what we can build, how can we correct that and reach some good long-term decisions on infrastructure?

EGAN: That’s probably the hardest question. It tends to vary by sector. Projects requiring joint federal and provincial environmental reviews are very challenging. I think there needs to be some review of that process. Some issues revolve around getting the public onside. That seems to be a tough road on so many projects. We’ve been involved with a number of hospital P3s, but the capital portion of health-care delivery is actually relatively small. It may represent five per cent of overall funding. A big part of the solution is going to be trying to optimize the use of hospital beds and the capital you’ve invested. There’s got to be a big fix there around health-care spending that involves not just addressing infrastructure spending on its own but as part of an overall integrated model.

RUSSELL: I agree. There is no magic solution, but the issue is, Can you rethink what you mean by infrastructure and get facilities that are more flexible? But we never get a chance. Let me give an example from when I served on a provincial committee back in the late ’90s under the NDP. We were thinking about the school system and trying to get more bang for the buck with what I call multi-purposes. Can you develop schools to make them more of an 18-hour-a-day, 24-hour-a-day kind of facility? Given the makeup of the committee, there was some real opposition to that: these are sacred institutions and they have one and only one purpose; how dare you even think of doing that?

BRODIE: I am not going to hold my breath on this one, but we also need some basic rethinking on the ability of various agencies and levels of government to raise funds.

RUSSELL: At the end of the day, a good part of it’s about, How do you get the money? Is it either direct taxation or indirect taxation? Without the money, it’s not going to happen. User-pay? I’m not really thrilled about it, but it’s a reality. We’ll see what happens with the Golden Ears Bridge, because there’s one of the few examples of user-pay. It’s going to be interesting to see how much avoidance there is or whether the usage ramps up over time as people get used to it. That will be a very important message for other kinds of infrastructure because if there’s a willingness for people to realize, “I get a benefit; I’m going to pay for it,” that will help politicians an awful lot in decision-making.

BRODIE: Interesting example you raised: the Golden Ears Bridge. That was a P3. Canada Line is a P3. The private sector has a significant stake in them. They’re being paid back with the revenues from the projects over 30 or 35 years. So part of the answer on the funding side is to have flexibility. P3 is one example, but there are other examples.

Speaking of P3s, what is the role of the private sector in building some of our infrastructure?

BRODIE: That goes straight to your philosophy on how these things should work. Those on one side will say anything funded by government should be design-build. And I would agree with people who say we have far more flexibility than that. I believe that to the extent that we can bring in the private sector, we can make some really big wins, as we have with Golden Ears and the Canada Line.

EGAN: I agree. I think we will see P3s being applied in some new areas like social housing and other things we haven’t traditionally seen. It makes good sense to try and take advantage of the innovation that the private sector can provide and the efficiency of private sector financing.

Is there enough private money out there to invest in these projects?

EGAN: Oh, absolutely. There’s probably more money out there than there are good projects. Infrastructure is considered a good investment these days by all kinds of private-equity firms and funds. Especially considering the crisis we’ve just come out of.

RUSSELL: With P3s, I kind of like them and I don’t like them in some cases. It’s all about cash flow. If you are able to have a user fee on it or you get a capital grant like the Canada Line with the feds, that’s one thing. But if it’s just the government paying someone to get the financing, design the project, build it and operate it, the question is, How much money do you have coming in to pay either the lending agencies or the P3 consortia? There’s a maximum amount of cash flow you have to pay for your infrastructure, whether it’s outsourced or you do it yourself – even if the private sector is awash in money.

EGAN: That’s very true. Whether it’s P3 or not, you’re going to have to pay for it one way or another.
A lot of the issues we’ve brought up are extremely contentious: P3s, taxes, user fees, environmental concerns. Is public support a significant hurdle?

BRODIE: That’s definitely the case. I mean, look at run-of-the-river projects. I would have thought that would have universal appeal, and it’s created great controversy.

RUSSELL: I would ask the question – it may sound a bit cynical, but can you educate the general public? How do you get them to understand that there are trade-offs that have to be made? That’s a huge issue right now because the decision cycles are extremely long. The cost of the process is out of sight: it costs you almost as much to get to the starting gate as it costs you to build. The agendas are so complicated. How do you get the public to engage and say, “We’ve got to make some choices”? The issue isn’t the federal or the provincial governments, because they’re all running deficits. The issue is just getting enough money. And it comes back to those who are going to pay. How do you convince people that if you want it, reach into your jeans and pay for it? I don’t know the answer, but I think it starts with getting people to understand how the world works, and that’s a tough slog.

BRODIE: I agree with Alan that the communication challenge is very large, certainly at the local level. The Richmond Olympic Oval was a $178-million expenditure, the largest infrastructure project we ever did, and we had to make the decision to go ahead on it without any public consultation because that was the rule imposed on us. It takes, first of all, a lot of trust. It takes a lot of communication and it takes you getting out the message time and time again. But we can move through the public phases. Some will take longer than others, but they’re not insurmountable issues.

EGAN: I think of it sometimes in the context of the proposed Site C dam. I think people can get their heads around that project if you lay it out that at one point we were running big surpluses in energy production and now, with population growth and aging infrastructure, we’ve become a net importer of power and we’ve got to adjust that balance. None of the choices are easy, but the ability to have a large source of fixed power and leverage in independent power projects – wind and run-of-river – makes good sense.

Even if it increases people’s energy bill by several pennies per kilowatt?

EGAN: But you’re going to pay regardless. If anything, you’ll pay more if you have to import it. There really is not a lot of choice. Energy costs are going to continue to rise.

BRODIE: While I agree with that, it’s not always an easy message for people to accept. They want people to do magical things that will keep their costs the same. But the public very often will get fully involved in decision-making and will support the clear and proper answer. For instance, the Canada Line. Remember all the chaos surrounding TransLink? They had two votes, and the project was defeated. It was the business, tourism and retail groups getting together and reminding the public exactly how much they needed this project. And look at what a success that one has been, even though there was controversy at the time. But it’s not always a yes-or-no answer. Very often the public criticism of a project can be taken into account and a far stronger set of decisions are made. There’s a real reason to have a robust consultation for a major project.

But can you convince them that the way to make it happen is through higher taxes?

BRODIE: Well, you can’t convince them to like it.