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Stimulus spending: concern grows as time runs out


August 6, 2010
By James Careless

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Sixteen billion dollars: That’s how much “stimulus spending” Ottawa has committed to repairing Canada’s aging infrastructure

Sixteen billion dollars: That’s how much “stimulus spending” Ottawa has committed to repairing Canada’s aging infrastructure. But time is running out: By March 2011, the Harper government will turn off the flow of stimulus money in order to tackle its ballooning federal deficit. And what effect will it have on Canadian roadbuilders? The answer is simple: projects that are not completed by March 2011 will not be paid for by Ottawa, leaving private contractors and their clients on the hook for the cost.

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Halting progress? Construction firms nationwide are bracing for the possible end to the stimulus boost from the federal government. “Without continued government investment, gridlock and congestion will make us uncompetitive on world markets,” says Jack Davidson, president of the B.C. Road Builders and Heavy Construction Association.


 

“Use it or lose it,” was how Finance Minister Jim Flaherty starkly addressed the question in a CBC News interview on Dec. 2, 2009. When March 2011 arrives, “The stimulus spending will stop.”

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As far as aggregate and roadbuilding companies are concerned, stimulus spending has been a lifesaver. “If you look at the employment numbers from July 2009 on, if it weren’t for stimulus projects, there would be a lot of idle equipment out there,” says Stephanie Rea, director of communications with the Canadian Construction Association (CCA). “Between October 2008 and July 2009, the construction industry experienced a net decrease in employment of more than 133,000 jobs. However, since August 2009, which coincidentally was when many municipalities began tendering federally approved infrastructure projects, we have seen consistent month-over-month increases and gained back over 90,000 jobs.”

Rob Bradford, executive director with the Ontario Road Builders Association (ORBA), concurs, stating that the infrastructure stimulus has been a tremendous boon to the industry. “Projects did not get off the ground last year as well as anticipated, but it is expected that this year a majority of the funding will hit the streets in the form of municipal infrastructure contracts,” he says.

Thousands of projects are now being paid for by Ottawa’s stimulus money. In general, it has been spent on projects “that could not be managed by municipal budgets,” adds Bradford. “The stimulus funds have been applied generally to smaller projects that can be accomplished in a restricted time frame.”

Roads are receiving a healthy share of the stimulus dollars, which is good news for all Canadians. The reason: transportation infrastructure is the key to Canada’s economic success, explains Jack Davidson, president of the B.C. Road Builders and Heavy Construction Association. “Without continued government investment, gridlock and congestion will make us uncompetitive on world markets and limit our ability to generate economic activity and jobs,” Davidson says.

Unrealistic expectations
Given how long it can take to tender and complete road projects, many municipal officials are worried that the March 2011 deadline is unrealistic and shortsighted. Moreover, with the country’s infrastructure requiring extensive rebuilding and repair, they argue that stimulus spending should continue, not end.

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The $16-billion stimulus spending package Ottawa has earmarked to repair Canada’s aging infrastructure is set to end in March 2011, forcing many companies to ramp up projects. Here, a Dynapac F1000T Rubber Track Paver gets busy for Capital Paving in northeast Guelph. (Photo courtesy of Dynapac Canada, a division of Atlas Copco).


 

Terry Willms, GM of Collingwood, Ont.-based Georgian Paving & Construction, maintains that the government’s deadline is simply unrealistic. “We believe the deadline is too tight,” says Willms, whose operation, a division of Walker Aggregates Inc., is a leading paving contractor throughout Grey and Simcoe counties.

“Our stimulus funding deadline is Dec. 15 when our work season ends, even though the official deadline is March 2011. I’d love to see it extended by a year; particularly because I don’t think private industry is going to bridge the gap and help us avoid a lag.”

It’s the fallout from the March 2011 deadline that worries Bradford. In his mind, governments miscalculated when they believed they could get the money on the streets last year and there was a lot of misunderstanding about the “shovel ready” aspect of these projects.

“Contractors are also facing very onerous, unfair municipal contract language making them responsible to varying degrees if the work is not finished by the deadline,” Bradford says. “There is huge risk in some of these contracts given the contractor’s inability to manage weather, design deficiencies, permits acquisition and many other factors.”

This last point haunts Frank Rizzardo, president and GM of Emcon Services Inc. in Merritt, B.C. Comprising several companies that specialize in highway maintenance, paving, bridge construction and equipment hauling, Emcon is working on projects throughout western Canada.

“As an industry, we are most concerned with the potential transfer of liability to contractors from owners who did not have shovel ready projects, yet expect construction completion by the March 2011 timeline,” Rizzardo said. “That said, the stimulus spending is the best way to deal with the absence of private investment in construction. Employees and equipment are being utilized by contractors across the country.”

Less work after March 2011?
Stimulus money has also motivated many municipalities to boost spending on infrastructure. As a result, the money probably “did compress longer-term city projects into a shorter build window,” said the CCA’s Stephanie Rea. “Most of the money has been targeted at small projects or rehabilitation work, so the overall impact on future municipal and provincial needs should be minor. That said, many of the projects did pull forward funds that would otherwise have been employed in later years. Therefore, it could mean less work for the industry in the years to come.”

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 The loss of stimulus funding could put a serious dent in key road projects like this one, says Chris Lorenc, president of the Manitoba Heavy Construction Association. “Canada needs a long-term infrastructure plan,” he contends.
(Photo courtesy of Manitoba Heavy Construction Association)


 

Does this mean that construction projects and jobs could dry up after March 2011? It’s a very real concern and one that the ORBA has been taking to both the federal and provincial governments. “The industry has built considerable capacity to manage the stimulus programs and concern is over this capacity not being sustainable over the short term,” says Bradford.

In lobbying government, the ORBA is trying hard not to appear ungrateful for Ottawa’s recession bailout. As a result, the industry is now emphasizing the message that the infrastructure stimulus initiatives were a welcome focus, but governments cannot now assume the infrastructure job is done.

“Continued and sustained funding is required to maintain and increase infrastructure investment levels to the point where we are both addressing massive infrastructure deficits and putting in place the new civil infrastructure needed for economic growth and development in the future,” he says.

The CCA shares a similar perspective, says Rea, pointing out that there is still “a significant infrastructure deficit in Canada.”

“There will continue to be lots of work for contractors, the question, however, is will there be sufficient money to help pay for it all,” she says. “This is why the CCA has been lobbying for a long-term infrastructure plan involving all levels of government. We believe this would help set priorities, identify sources of funding, and help provide the industry with greater stability through better planning; and reduce the peaks and valleys inherent to current infrastructure procurement practices.”

Too soon to pull the plug?
Clearly, there’s plenty of infrastructure work that can be done in Canada. The question is does the industry have the money to do it, especially after March 2011 arrives.

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Moving the stimulus deadline past the March 11 deadline would keep more projects, like this city repaving project, moving, says Terry Willms, GM of Georgian Paving & Construction in Collingwood. “We believe the deadline is too tight. “I’d love to see it extended by a year; particularly because I don’t think private industry is going to bridge the gap and help us avoid a lag.”


 

Here’s the problem: Ottawa’s stimulus spending, like oxygen administered to a very ill patient, helped stave off the most immediate effects of the recession. The danger is that removing it too soon could lead to the economy falling ill once again, with construction taking an extremely hard hit.

“Prime Minister Harper said there’s no way his government could have fought the recession without municipalities building thousands of stimulus projects and matching federal funding dollar for dollar,” notes Hans Cunningham, who was named the Federation of Canadian Municipalities president on May 31. Cunningham has a potential solution: “We need to put that partnership to work solving longer-term challenges, from homelessness to organized crime to the infrastructure deficit.”

Chris Lorenc, president of the Manitoba Heavy Construction Association says a potential solution lies in the development of a strategic plan that satisfies the needs of all parties involved. “Canada needs a long-term infrastructure plan, one that includes all orders of government in addressing both local as well as strategic national needs to ensure we remain a competitive and productive economy,” he says. “All levels of government must be involved in not only the identification of their needs, but in providing long-term funding solutions to help prevent the further erosion of our critical national infrastructure.”

Lorenc points out that governments have been investing more in infrastructure in recent years, and the federal stimulus money helps spur provincial and municipal governments to spend more. Notwithstanding, “However laudable efforts within the last five years by each of the three levels of government, maintaining and continually upgrading Canada’s key, strategic public infrastructure is not the sole domain of any one level of government,” he says. “It must be a priority focus of Canadians and all levels of government in the context of striking a balanced national New Municipal Infrastructure Deal.”

Such a long-term “deal” would finally give our crumbling infrastructure the attention it needs, especially the roads that keep Canada’s economy in motion. Says Davidson: “Stimulus spending must now be replaced by sustained investment in transportation infrastructure. Sustained investment in transportation infrastructure is investing in Canada’s future.”

But that’s not all that is required: governments at all levels need to budget for transportation infrastructure as an essential service, says Gene Syvenky, CEO of the Alberta Roadbuilders and Heavy Construction Association. “It should not be something you do only when there are budgetary windfalls, but should be a long term strategic investment,” he says.

Money needed beyond deadline
If there’s a common message that seems to permeate the industry it’s that Ottawa must keep investing in infrastructure after March 2011. It’s not just a matter of jobs: Canada’s economy will not keep pace with the world if its roads, bridges and highways are allowed to fall apart.

“The infrastructure deficit is stated to be in excess of 120 billion dollars; the total infrastructure spending does not come close to dealing with this size of need,” says Rizzardo. “The construction industry is not asking for more dollars in the plan than that which was committed by the Harper government. We just want the timeline softened to allow rational conclusion to the tendered works. No one wants to pave in the snow.”

The bottom line? Stimulus spending has been a big help to the Canadian construction industry, but its termination could prove to be a major problem. Hopefully, the Harper government – despite the fact it has other priorities such as cutting the federal deficit by reducing spending – realizes the importance of creating a new stimulus package to ensure the continued health of this important industry. . .or at the very least, extending the deadline.


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