The Free Ride Is Over: Why Cities, and Citizens, Must Start Paying for Much-Needed Infrastructure

34 Pages Posted: 31 May 2014

See all articles by Philip Bazel

Philip Bazel

University of Calgary - The School of Public Policy

Jack Mintz

University of Calgary - The School of Public Policy; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 20, 2014

Abstract

Canada’s roads, bridges, wastewater treatment centres and sewer systems are already past their prime. On average, and across the country, these key elements of municipal infrastructure are now past the halfway point of their useful lifespans. In the next 10 to 15 years, Canadian cities will face some very expensive bills for replacing critical infrastructure. But there are better means of funding needed infrastructure than raising local taxes or pleading with the provincial and federal governments for more transfers. A better solution, for many reasons, is user fees.

Municipal governments have already managed to extract a great deal of infrastructure funding out of higher levels of governments. In the last 50 years, the portion of municipal revenues provided by federal and provincial transfers has increased from under 30 per cent to roughly 45 per cent, while the portion of revenues representing local property taxes has fallen from over 50 per cent to roughly 35 per cent.

Yet, federal-provincial government funding is a seriously flawed means of funding local infrastructure. Money gathered at the federal and provincial level is placed in municipal coffers, breaking the chain of political accountability for the outcomes. This alters the spending priorities of municipal governments as they are inclined to favour those projects with federal or provincial subsidies attached. Such subsidies lower the political costs for local governments allowing municipalities to maintain artificially low taxes for their constituents by spending federal or provincial tax revenue. This is essentially having their cake and eating it too, and on a policy level, we are left to wonder how decision making surrounding municipal priorities is affected. These projects come at a discount to local governments, but not their constituents who will ultimately pay through federal or provincial income taxes. Most importantly, this kind of funding results in unpriced infrastructure access and contributes to the over-usage of infrastructure. It is only rational for residents to live further from work by taking full advantage of underpriced highways, bridges, transit and other infrastructure that someone else pays for, exacerbating congestion and commuting times in Canada’s major cities.

If Canadian cities are serious about replacing aging infrastructure and, just as importantly, alleviating the evergrowing problem of traffic congestion and urban sprawl, then cities must begin making proper use of user fees, and charging citizens for the use of the infrastructure they value. As it stands, while urban centres around the world increasingly embrace user fees, Canadians remain stuck in their old ways. Aside from international crossings, in 2012, Canada had only eight tolled bridges, and less than 0.25 per cent of Canada’s paved public roads were tolled. In Alberta, across the five largest cities, user fees (combined with sales) only make up an average of less than 25 per cent of municipal program operational revenues.

User fees would bring a predictable and dedicated revenue stream that would allow municipalities to responsibly take on the debt required to invest in much-needed infrastructure projects. Canadian city governments already have the tools they need to keep up with their pressing infrastructure needs; they need only find the creativity and political will to make use of them.

Keywords: Municipal infrastructure, user fees, infrastructure development

JEL Classification: H54

Suggested Citation

Bazel, Philip and Mintz, Jack, The Free Ride Is Over: Why Cities, and Citizens, Must Start Paying for Much-Needed Infrastructure (May 20, 2014). SPP Research Paper No. 7-14. Available at SSRN: https://ssrn.com/abstract=2443585

Philip Bazel

University of Calgary - The School of Public Policy ( email )

Calgary, Alberta
Canada

Jack Mintz (Contact Author)

University of Calgary - The School of Public Policy ( email )

Calgary, Alberta
Canada
403-220-7661 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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