Kyle Fawcett, Calgary-North Hill

Infrastructure versus Operational Spending

After having participated in the main estimates of the Ministry of Infrastructure last night I figured I would dedicate this blog to some thoughts around infrastructure and capital planning. As Minister Danyluk so passionately indicated last night public infrastructure is very important to what our government is trying to accomplish. The Premier has laid out a vision of having the most developed and modern Infrastructure capacity to facilitate economic recovery and growth, and Minister Danyluk has clearly supported endeavor wholeheartedly.

I have long talked about and advocated that infrastructure development is an important issue here in Alberta and in all open economies. I am glad that our Premier has also recognized that this issue has the potential to be a game changer or competitive advantage for Alberta. However, we must be honest capital infrastructure is expensive. Recognizing this reality is important as we can only accomplish the objective of having the most advanced infrastructure if we can develop innovative financial and policy mechanisms to plan, develop and build the infrastructure.

We need to take a serious look at everything from project design and management, integrated planning, alternative financing, P3’s, and capital bonds. I know that most people will say we are already doing these things, and I wouldn’t disagree. However, I would suggest we need to be more strategic and focused about our use of these different mechanisms. Some of these initiatives might work better for certain projects, but not for others. What we need is a transparent process to determine how these decisions are made, a process that allows for better public engagement in how are communities our planned and built.

In my experience as a school board trustee and as an MLA has led me to the conclusion that people are passionate about their public buildings and roads. Not only are people passionate about this, they also view it as core to what their government should be doing – building the infrastructure that we all enjoy and contribute to our collective and individual quality of life and economic competitiveness. All citizens would benefit from greater clarity around when and how these projects get built and how these decisions are made. Over the last 15 years Alberta has been a haven of innovation and an envy of prosperity, however I really believe we have learned the hard way that a shot gun approach to planning and building infrastructure is dangerous and does not meet the requirements and desires of citizens and the public.

Over the last 4 years much has been done on developing steps to get to where we need to be, the 20-year strategic capital plan was a good exercise in this. However, the next step would be making this a living document that is updated on an annual basis much like the 3-year capital plan. The point is that capital infrastructure projects usually are initiated well in advance of three year window that the threeâ��year capital plan accommodates. Beyond this, the 20-year strategic capital plan must be detailed and provide information about the opportunities and possibilities of different means of bringing these projects to completion. No project is the same and each presents a unique opportunity for citizens and tax-payers and we must address these well in advance.

This will provide the public with greater understanding of the costs and dynamics of developing a project.

Finally, I would hope that the government will eventually go back towards establishing a capital account, which would be separate from the general revenue account. Again, I believe this would provide great clarity and understanding about the costs of capital infrastructure. The financial considerations and parameters surrounding capital expenditures fundamentally differ from operating spending. Inherently, the cost of a capital project is intensive in one or a few years yet the direct benefits last a lifetime and often across generations. With operational spending, on the other hand, benefits are primarily accrued only at the point that the money is spent. Therefore, it is imperative that we do not pass on expenses for benefits that we receive today to future generations. As such, it makes sense that we should look at capital expenditures differently because the direct benefits are enjoyed over a much lengthier time. A significant barrier for the approval of capital projects is the intensity of the upfront costs. If we follow the logic I just laid out, we would be well served in exploring the costs and benefits of initiatives that spread this cost over the life use of the project. By establishing a capital account, we can provide a mechanism and “space” for these discussions to occur.

I want to qualify my comments here with a warning. While I have suggested we might look at capital infrastructure expenditure differently then operational expenditures, make no mistake that each project that is approved is going to impact the operating budget in some way. For example, if it is a new school in a developing suburban community, the completion of the project would mean that there would be a less of a need for busing funds, in a addition should enough capacity of new schools be built its likely result would mean the closure of much older and inefficient schools. All of this would mean that there would be specific savings to operational expenditures on a go forward basis. Consequently, paving a new road would require ongoing maintnence such as snow removal and ongoing policing. As such, this would mean it would increase operational expenditures. My point here is that we need to do a much better assessment of the ongoing operational costs of each individual project and our ability to meet those costs moving forward. Obviously this is a very complex issue that I believe will be prominent moving forward as we discuss a long term fiscal framework for Alberta.

Budget After Thoughts

“Too much is never enough and Too little is never enough” were lyrics from Pop Evil’s “100 in a 55” single that was a hit this past summer. It also can be used described the reaction to Budget 2010 – Striking the Right Balance. After digesting the release of the budget and subsequent reaction, I want to share some of my thoughts.

First, many have suggested that the government is a) continuing to spend too much and b) running a deficit that is unhealthy and unsustainable. I want to explore these two concerns in this blog.

The total amount of increased government spending over last year’s budget is $2.3 billion. Of this increase $759 million is a onetime expenditure to pay off the AHS accumulated operating deficit. In addition AHS and school boards received operating increases of $1.7 billion and $247 million respectively. By adding all three of these expenditure results, the total is $2.7 billion. What this means is that, outside of these three increases, the overall total government budget was reduced by $400 million from last year’s budget. Consequently, fifteen government departments saw reductions in their budgets.

I am pretty sure most Albertans didn’t need a fortune teller to figure out that a majority of future spending increases were going to go towards health care. Most experts have been telling us this was going to be the case not just in Alberta but right Across Canada. Well with Budget 2010 we have inched closer to the 40% threshold for health care spending as a percentage of the total budget. When it comes to the long-term fiscal picture for Alberta, health care costs are going to continue to drive the agenda. Solutions to this challenge are much more long term and cannot be implemented through a onetime budget correction without significantly impacting the delivery of health care services to patients in Alberta. I will be dedicating a blog later this week to address this concern.

My point here is that, if you leave healthcare out of the equation on account of it being much longer-term budgetary issue, it then becomes very evident that this was a fiscally prudent budget.

Finally, I want to address the issue around the projected deficit of $4.7 billion. If you look strictly at operating expenses which are at $33.2 billion (including municipal infrastructure support) and revenue which is at $33.9 billion, you would see that in fact the government is operating with a $700 million operating surplus. The $4.7 billion deficit results from $5.5 billion dollars of capital/infrastructure investment.

This breakdown is important, as it provides an important lens to look at the deficit through. First, it shows that the deficit is going towards capital investment which, I would argue, is productive investment. Second, it shows that the deficit is covered in whole by a withdrawal from the sustainability fund, our short-term savings. I know that I, like many other Albertans, have a short-term savings account to utilize for one time capital expenses such as replacing my roof or front side walk, building a garage, or painting my walls. If Albertans see it prudent to maintain their personal finances in this way then it would only make sense that such a practice would also be reasonable for their government. While there are some potential pit falls of looking at government operational and capital spending this way (again this is a topic for a future blog later this week), many Albertans could benefit from having the budget deficit portrayed in this manner.

With all of this being said, I believe that our government can do more to reduce and control spending. By no means do I advocate a “slash-and-burn” approach, but rather a rational and systematic approach to increasing government efficiency and looking at areas of program irrelevancy. Over the last year the Treasury Board has done an admirable job in finding approximately $1.3 billion in savings through its value reviews. However, I will continue to push, like I did in QP this last week, for ongoing reviews of programs to see if they are relevant and meeting the outcomes they have been set out to achieve.

Response to the Throne Speech – A Promising Road Ahead

Response to the Throne Speech – A Promising Road Ahead With the delivery of the Throne Speech by the Honourable Lieutenant Governor Norman Kwong (it is always a pleasure being in the company of such a distinguished and humble Albertan), I am launching my new foray into the world of blogging. My goal will be to provide some commentary, insight and thought for discussion on issues we are facing in Alberta. I am looking forward to sharing my thoughts with anyone who wants to listen, agree or criticize!

I thought I would use my first blog post to share my thoughts on the Speech from the Throne. I want to touch on how it relates to me and the fiscal principles that I, among others, stand for. If it is not obvious by now, renewing Alberta’s competitiveness is the main focus of the government. Most notably it appears the government is very serious about reducing the amount and cost to business of regulations and red tape. Indicating that ”government regulation must accomplish our collective goals, while at the same time promoting business entrepreneurship, individual liberty, and creativity” is, in my opinion, a step in the right direction - admitting that, currently, we may not be striking the right balance. Going further, the Throne Speech committed to making Alberta “the most competitive jurisdiction in North America” by “minimizing the cost of doing business here, including the cost of regulation”.

The Throne Speech also recognized the fiscal challenges we have with the most “volatile revenue stream in North America”. While the details of a long-term fiscal framework will be laid out in the days ahead, it was acknowledged in the Throne Speech that we are in the enviable position we are in today because of such fiscal foresight and hard work. For me this is encouraging, as this recognition is an important stepping stone to renewing the government’s commitment to a long term fiscal vision – a vision that will ensure “Albertans will continue to enjoy the highest incomes, the lowest taxes and the most advanced public infrastructure.”

All in all, the Throne Speech was a good recognition of some of our biggest challenges and opportunities that we have in Alberta today. It doesn’t provide all the answers to these challenges and opportunities; however, it is the first step of what will be a lot of hard work and heavy lifting to make sure Alberta is the best place to live, work, play and invest. We should never take this for granted as Albertans; it is this conscientious approach that has made Alberta what it is today.