Infrastructure: The provinces key role in a shared jurisdiction and Quebec s recent experiences

Transcription

1 Infrastructure: The provinces key role in a shared jurisdiction and Quebec s recent experiences Marcelin Joanis Associate Professor and Head of the Groupe GMT, Polytechnique Montréal Vice-President of Research Government Partners, CIRANO AGSP, Québec, 4 juin 2018 Crédit photo: CDPQ-INFRA

2 Photo credit: Toronto Star Shared responsibilities

3 Infrastructure in Quebec: shared responsibilities Federal Government (%) Government of Quebec (%) Municipalities(%) Teaching services (%) Health, defense and other public services (%) Value of the total administrative public stock (B$) Share of fixed capital stock according to public administration type in Quebec, 2013 Buildings Engineering works Table 4-2 Source: Data compiled from Statistics Canada table CANSIM on fixed non-residential capital stock. Note: The federal government does not include the defense sector, and the government of Quebec does not include the health or education sectors. Total

4 The challenge of infrastructure in Quebec A report published in January 2017 A collective work (26 researchers) in Cirano s series Le Québec économique by the Presses de l Université Laval (PUL) A focus on the role of the government of Quebec

5 The challenge of infrastructure Portrait of Quebec infrastructure 4 major concerns 1. Economic effects of investment in infrastructure 2. Funding, maintenance and prevention 3. Public procurement and governance 4. Technological infrastructure

6 A unique global context Interest rates are (still) quite low Economic growth is still low, since the Great Recession There is a significant need for infrastructure repair Now is the time for public investment! Everywhere in the world Crédit photo: RFI

7 IMF Recommandations (2014) increased public infrastructure investment raises output in both the short and long term, particularly during periods of economic slack and when investment efficiency is high. This suggests that in countries with infrastructure needs, the time is right for an infrastructure push Debt-financed projects could have large output effects without increasing the debt-to-gdp ratio, if clearly identified infrastructure needs are met through efficient investment.

8 The methods and criteria for the design of buildings... built between the 1950s and the 1980s did not assign enough importance to sustainability and to how the environment could affect a structure. - Beaulieu, Charron, Desmettre, Gagné and Joanis (Chapter 12) Quebec Context and challenges Crédit photo: Pixabay

9 High capital stock in Quebec Quebec has infrastructure stock (public + private) that is relatively high (in GDP %) compared to Ontario but lower than the West The differences between the provinces are especially due to the energy sector The infrastructure stock reflects first and foremost the economic needs of the regions. It depends on their production structure, their geography and their resources. In Quebec: Vast territory Maritime character Hydroelectricity

10 Fixed capital stock higher in Quebec than in Ontario Fixed capital stock by type of asset for Quebec, Ontario, and Canada, 2013 Share of GDP (%) Per inhabitant ($) Share of GDP (%) Per inhabitant ($) Share of GDP (%) Per inhabitant ($) Institutional buildings Engineering work Transport Water and sewers Electricity Communications Petrol and gas Mines Table 4-1 Source: Data compiled from Statistics Canada table CANSIM on fixed non-residential capital stock. The GDP and the population come respectively from CANSIM and Note: The transport sector includes maritime infrastructure.

11 A very developed road network per resident Length of road network per inhabitant for 10 States with a winter road management plan States Roads (km) Canada (incl. Quebec) Quebec United States Norway France Sweden Japan The Netherlands Germany United Kingdom Table 12-1

12 Potable Water Wastewa ter Storm water Roads Bridges Buildings Sport & Rec. Public Transit About a third of infrastructure require immediate measures* Average physical condition of public infrastructure in Canada Excellent Good Fair Poor Very poor Graph 6-1 Source: Canadian Infrastructure Report Card * Infrastructure in fair, poor, or very poor condition

13 Particular climate conditions among the most demanding in the world, in particular for sustainable infrastructure. Technical causes that led to the ageing of structures in the case of the concrete: The corrosion of reinforcing steels The freeze-thaw cycle The alkali-aggregate reaction The design methods and requirements

14 Perceptions and concerns: results of the CIRANO Barometer Salient fact 1: Quebeckers perceive a significantly higher level of risk for transport infrastructure (roads, bridges and viaducts) with the most visible state of deterioration, than for underground infrastructure (aqueducts and sewers). Salient fact 2: Quebeckers do not feel sufficiently consulted at the municipal level in regard to infrastructure projects. This sentiment is not perceived by elected officials, many of whom underestimate the citizens desire to be consulted. Salient fact 3: It is necessary to better equip elected officials in the management of infrastructure projects, in particular in relation to the aspect of communication with the public. There could be multiple resulting benefits: promote a better comprehension of the population s needs and concerns, a better prioritization of projects, a better social acceptance of projects.

15 Ageing infrastructure (1) Public investment achieved and required to sustain capital Achieved Required GDP Percentage Graph 6-5 Source: Statistics Canada, table CANSIM and the author s calculations.

16 Ageing infrastructure (2) Infrastructure investment by GDP percentage, 1961 to 2013, Quebec, Ontario, and Canada Graph 4-1 Source: Data compiled from Statistics Canada table CANSIM on fixed nonresidential capital stock and on CANSIM tables and for the GDP. Note: Investments in institutional buildings and in engineering works for all economic sectors.

17 Ageing infrastructure (3) Evolution of the infrastructure asset stock in Ontario and Quebec, 1961 to 2013 Graph 4-2 Source: Data compiled from Statistics Canada table CANSIM on fixed non-residential capital stock.

18 Networks to complete Road network: Still several shortcomings with connections With Ontario (many sections of A50 are one lane); With the United States (A35 does not reach A89 in Vermont; A73 does not reach the American border); With the cargo flight network (A13 does not reach Mirabel airport, Montréal s all-cargo airport) Airline network: Montréal offers 3 times fewer direct destinations to passengers than Toronto (Pearson); No rail network (2 projects are planned, including the REM in the short term) In Quebec, still no American preclearance (announcement made in the federal budget of February 2018) Riopel, Chapter 3

19 A response to these challenges: the QIP Photo credit: ipolitics

20 Québec Infrastructure Plan (QIP) The investments of the QIP are established at billion dollars, which represents an increase of 9.3 billion dollars from the QIP. The objective of the QIP is: To respond to infrastructure needs; To accelerate the implementation of major structural projects, including in the sectors of education, health, and social services, in the road network and in public transit. To give priority to public safety, the replacement of old infrastructure and economic development; To respect Quebecker s ability to pay and to achieve the debt reduction objectives.

21 Priorities Additional investment of 2.3 billions of dollars in public transit (to improve citizens mobility and reduce traffic congestion). Investment of 1.2 billion dollars in the education sector, including more than 1 billion to renovate schools and to add new premises and buildings. In the context of the deployment of Quebec s digital strategy, investment of 1.2 billion dollars will be made to accelerate digital migration in all regions. The acquisition of reliable and secure digital infrastructure is not only essential to the growth of our businesses, but also to the development of the digital skills of our youth and of workers called to perform new jobs.

22 Several important projects for all of Quebec Réseau express métropolitain (REM); Extension of the Montréal metro s blue line; Establishment of a public transit tramway-trambus structure in Québec; Third connection between Québec and Lévis; Construction of a new hospital in the Vaudreuil-Soulanges region, in the Montérégie; Extension of route 138 in the Côte-Nord; Establishment of a project office for a bridge between Baie-Sainte-Catherine and Tadoussac; Extension of Highway 19 in the Laval region and the Laurentians; etc.

23 Investments in the QIP by sector (contribution of the Government of Québec) 19.9% 30.2% 7.3% 9.0% Réseau Road network routier Transport Public transit collectif Health and social Santé et services sociaux services Éducation Education Enseignement Higher education supérieur Municipal Infrastructures municipales infrastructure Autres Other secteurs sectors 6.1% 8.9% 18.6%

24 QIP Investments by type of investment (contribution of the Government of Québec) Infrastructures municipales Municipal infrastructure Culture Culture Higher education Enseignement supérieur Education Éducation Health and social services Santé et services sociaux Public transit Road network Transport collectif Réseau routier 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Bonification Subsidized service de l'offre offering de service Maintien de l'offre de service Continued service offering

25 QIP Investments by type of beneficiary (contribution of the Government of Québec) 4% 6% 17% Organismes Reporting entities au périmètre comptable Municipalités Municipalities and et other organismes municipaux municipal organizations Universités Private universities privés 74% Autres Other About 74% of billion dollars in investment under the QIP will be allocated to infrastructure that belongs to the government. The remaining 26% will be invested in other infrastructure offering services to the population.

26 Investments that favour economic development A country may have the most qualified labour and expertise, if they are not easily accessible through reliable quality infrastructure, businesses will not be able to use them. -- Diane Riopel (chap. 3) Photo credit: Brookings Institution

27 Infrastructure connects us to the rest of the world This is the role of our logistics infrastructure, i.e. the infrastructure that enables us to do business with Canada and the world. They must facilitate doing business with our commercial partners: Road network Aviation network Maritime network Rail network Map: Kiln

28 Effect of the QIP on the economy 0,65 0,55 0,45 debt tx tym tye QIP : 41.8 billion $ over 5 years or about an additional 1 billion $ every year for 5 years. 0,35 0,25 0,15 The effect of the QIP on the GDP is significant: 0.6% of the GDP per year 0,05-0,05 t t+1 t+2 t+3 t+4 t+5 t+6 t+7 t+8 t+9 t+10 Source: Boccanfuso, Joanis, Richard and Savard (2014)

29 Two key elements 1. Efficient investment 2. Control of growing public debt If these conditions are joined, the infrastructure expenses could be a powerful economic policy tool when monetary and budgetary policies are very limited.

30 Funding investments In Quebec, public investment is essentially funded by public debt. Can we reconcile growing public investment with sustainable public debt?

31 Investments that increase public debt Public debt and public investments in the Canadian provinces Gross debt Gross debt Previous public investment Graph 5-1a Source: The authors calculations. Note: Public investment in infrastructure are measured in percentage of GDP.

32 But what is the optimum level of public infrastructure? Public capital improves economic potential; increased production as well as reduced costs for businesses and households. In theory, it is possible to define an optimum level, namely the level that maximizes the value of the total consumption. The optimal level of public capital is established at the point where the marginal return equals that of the private capital. Empirically, the optimum level is difficult to quantify (challenges to measure are enormous). Fortin, chapitre 6

33 Percentage Higher return in the 2000s Rate of return on capital With the collapse of the prices of basic commodities since 2014, it is likely that the rate of return on private capital is now lower in Canada, a context that favours the expansion of public capital if this return were to continue Graph 6-2 Source: Fortin and Paquet (May 2015) The rate of return was lower in the 1990s (8.7%) than in the 1980s (9.2 %) and higher in the 2000s (10.7 %).

34 To be able to optimize public expenses dedicated to the maintenance and repair of the road network..., it is essential to develop databases, information systems and tools to help manage structures.» -- Beaulieu, Charron, Desmettre, Gagné and Joanis (chap. 12) Toward more efficient Public procurement and governance Photo credit: Life Of Pix

35 Doing things properly after the Commission Charbonneau incident Setting ambitious goals Infrastructure management Seek to develop a database, information systems and tools to help manage the structures Build for a life expectancy of more than 100 years Optimize environmental performance Reduce industrial emissions and waste, reduce GHG emissions and maximize the reuse and recycling of material

36 3 key words: Competition, innovation, quality How to ensure healthy competition without weighing down the already complex bidding process? How can Public procurement support innovation in Quebec? How to take into account aspects other than price quality without compromising the objective of competition and without unduly making it more complex? A few recommendations

37 A depoliticized process for prioritizing and realizing infrastructure projects The forward-looking assessment and the strategic selection of projects Project selection and budget preparation Management and implementation, the assessment and review of the project to maximize the economic effect of the investments while controlling the growth of public debt.

38 Efficient investments require a sound procurement system Elements that make up a public procurement system that functions well, according to the World Bank (2013) A clear, detailed, and transparent legal framework Clearly defined responsibilities and accountability An institutional context that differentiates those who are responsible for procurement operations from those who have oversight responsibilities Efficient implementation mechanisms Sound training for people responsible for Public procurement Source: Boulenger et Joanis (CIRANO, 2015)

39 Best practices and support for work providers Ongoing assessment of public contract awards to identify best practices Development of tools to support all public work providers, particularly the smallest ones

40 Conclusion: 4 key messages 1. The role of infrastructure in globalization: infrastructure connects us to the rest of the world in a globalized economy. 2. Continue to invest in infrastructure to upgrade infrastructure (maintenance deficit) as well as to respond to new needs. 3. Adequate funding and control of public debt arising from new investments. 4. governance: encourage better transparency and better management by establishing steps, processes, or institutions that favour the achievement of these objectives.

41 Marcelin Joanis Associate Professor and Head of the Groupe GMT, Polytechnique Montréal Vice-President of Research Government Partners, CIRANO