By: Clare Kirkland, Director of Strategic Development, Regina Regional Opportunities Commission, and former Deputy Minister of Highways and Transportation, Saskatchewan
Over three decades spent leading engineering and technical organizations, I am convinced that modern road science offers an enormous innovation dividend in reduced road costs and improved road quality. However, this dividend is not being pursued because our road agencies are not organized for progress. Until we organize our system so that innovation drives success or failure, we will continue to suffer with continued low quality and high cost road systems.
An earlier TOC blog post described the work of PSI Technologies of Saskatoon. I’m proud that as Deputy Minister of Highways more than a decade ago I played a role in establishing PSI. Their 21st century approach to road engineering based on mechanistic analysis and computer simulation tools highlights the folly of the outdated diagnostics, design, and maintenance methods used by most cities.
Road damage is not the simple incremental accumulation of thousands and thousands of loadings over time as traditional approaches approximate. Damage occurs unevenly—disproportionately when road structures are weakened due to moisture, excessive heat, or other irregular conditions. This means that managing road loadings during vulnerable periods to match road capacity could pay enormous cost and quality dividends. For example, “rutting” occurs when tire pressures from heavy loads exceed pavement strength. This vulnerability is extreme on hot summer days but not the other 95% of the year. Freeze-thaw cycles in spring and fall greatly reduce road durability. Yet, truck loadings on city roads are practically unregulated.
A key perspective on this is to pause and reflect on truck movements. They look random—almost chaotic. They’re not. Only a small portion of trucks in cities are actually heavily loaded, and those trucks always have a specific point of origin. These movements can be managed. Ironically, on local streets, most heavy vehicles are owned and operated by the city—garbage trucks, maintenance trucks, and buses. These movements could be the first target for innovation.
Step by step for years we’ve been increasing maximum truck axle weights. Science shows that road damage is proportional to axle loads to the fourth power. That means a doubling of axle weights causes 16 times the damage, while even a much smaller 20% still doubles the damage. If we redesign the trucks and trailers by distributing loads rather than increasing axle weights, could the existing heavy loadings be maintained without extra costs?
But our civic leaders have not been engaged by engineering organizations to understand this innovation dividend. Instead they focus on money. You’re familiar with the argument. “City taxpayers are fatigued with property tax. Senior governments have superior tax power. So…”
Recently, in Regina and Saskatoon focus groups, I confirmed that raising property taxes causes concern for the simple reason “that money just disappears.” When I sketched the option of paying directly on a neighbourhood basis for local streets, or into a dedicated fund for the busy streets, taxpayers’ responses change. “If we could trust the system to take extra money and actually spend it on roads that would be OK.” This is a trust and understanding challenge.
The City of Regina has an elegant little back alley program which charges a small footage for gravel alleys and a little more for paved alleys. The “footage rate” is calculated every year to provide a set level of service. If this works for alleys, could it also work for local streets with neighbourhoods choosing a level of service that matched their willingness to pay?
Let’s do a quick calculation. Suppose each household in your city paid $1 per day. Would that be enough to maintain local streets? At that rate every 10,000 homes contributes $3.6 million a year. I’m betting it would be more than what is required for local streets. The new revenue would go even further if heavy vehicle loadings were better managed to lower damage. Supplement this “footage revenue” with simple fees based on parking or vehicle use, and you’d have sufficient money to manage all the roads in your city.
Now the harder part—organizing to embrace innovation.
Economic history proves that long-term progress flows from innovation. Nations always progress when they find ways to manage activity so that innovative leads to the elimination of inferior alternatives.
Innovation can be dramatic, but it can also occur slowly and steadily, almost invisible to the outside observer. Suppose a road management organization was able to sustain an average 3% per year productivity advantage over it competitors. Over 10 years, the productivity advantage grows to more than 25%. In any system focused on innovation, that organization and its customers are winners.
Our modern road, telephone and electrical systems all have roots more than a century old when they were established with government funding and operated as government departments. Yet, telephone and electrical systems evolved into a range of regulated public and private utilities. Counting provinces, territories, cities, and towns, Canada has more than 1,000 separate government organizations managing the building, maintenance and operation of roads in Canada. Include villages and other categories of smaller road departments, and Canada has about 4,000 separate road entities. Is this a model for progress?
Suppose Canada moved over 10-20 years to a far different approach. Each city would manage long term contracts with perhaps three or four firms who compete regularly for market share. Each city would develop and lead a system for engaging users in what specific service level they desire, what that would cost, and how that money would be collected. Total long-run road costs would be optimized by the road service firm offering the lowest long-run cost of service. Financing necessary for success would be provided by the service firm and its bankers, or in partnership with the city it serves—whatever we learn works best. To be clear, I am sketching a design-build-manage-maintain contract model.
Imagine what a competitive system would do for innovation. We’d probably start with quite a few firms, but over time there would be a few dozen road service firms operating across Canada. Innovations that improved road durability, reduced damage, reduced costs, or improved service would win out over time.
I’m not proposing that Mayors and Council in any city cede power or asset ownership. Indeed, I foresee them gaining real power and control through management of long term contracts with world class competitors for their business.
The new science is available, the vision simply involves borrowing from experience in other sectors, and each city could blaze a path forward that best matches its goals and circumstances.
Would it be worth it? I think the potential now for roads is like it was for computers in the 1970s. A few leading companies were showing the way, but somebody needed to see the potential and take the lead. We all know the innovation which followed.
It could happen for roads. But, we need to start step-by-step with new business systems and innovation-driven organizations.
By: Casey Vander Ploeg, Senior Policy Analyst, Canada West Foundation
Our work-a-day lives tend to follow predictable patterns, and it all starts with municipal infrastructure. The alarm goes off and the lights go on. We hit the switch on the coffee maker, push the handle on the toilet, turn the tap in the shower. Whether we ride the bus or drive a car, we all use the roads, and we all stop on red and go on green. After a short stroll on the sidewalk, it’s into the office, the factory, the store, whatever.
Work at the Canada West Foundation has its own patterns. We labour intensely on a piece of research, publish and release a study, and then negotiate the inevitable bombardment of media interviews. Then comes “the tour”—speeches, presentations, meetings, and panel discussions where we share our research and expertise.
The “tour” is a welcome diversion. It’s a chance to get out from under all the data and analysis, and all the reading and writing, and meet up with those who deal with policy on the ground and in the trenches. Since launching www.letstoc.ca I’ve had a tour or two.
Saskatchewan Urban Municipalities Association (SUMA), Regina, SK (January 31, 2012)
This is mammoth gathering of mayors, councillors, aldermen, and local officials from every urban municipality in Saskatchewan is always a great event. Together with John Lee, President of Communities of Tomorrow, we presented on www.letstoc.ca. I focused on the infrastructure challenge and made the case for more innovative approaches. When John took the reins, he highlighted some of the interesting examples of innovation spurred by Communities of Tomorrow and their innovation network across Saskatchewan.
On the SUMA convention floor, I heard time and again how infrastructure is the single biggest issue for municipalities in the province. Prior to our session, SUMA delegates were asked about the biggest infrastructure challenges they face, and what innovative solutions they have pursued.
The biggest challenges were adequate funding, managing growth, and the aging and deterioration of existing assets. Innovations mentioned the most often were partnering with other municipalities and agencies, testing new technologies and starting pilot projects, and implementing a “dedicated” or “earmarked” tax levy for infrastructure.
I was pleased with the pick-up on “earmarked” tax levies. I urged that policy response in New Tools for New Times and No Time to be Timid and Delivering the Goods. As noted by Konrad Siu in his recent article, Edmonton has taken a similar approach for rebuilding neighbourhood infrastructure.
One of my “take-aways” from SUMA is the remarkable degree of cohesiveness in the municipal sector today. At the event, I met up with municipal players from across the West. While waiting on the bus to my hotel, I chatted with Joe Masi, Executive Director of the Association of Manitoba Municipalities (AMM). While on the bus, I talked with Linda Sloan, President of the Alberta Urban Municipalities Association (AUMA). Regina Councillor Fred Clipsham cornered me and we strolled the tradeshow together talking about issues in the provincial capital. At a reception hosted by Regina Mayor Pat Fiacco, a promotional video was shown for September’s National Infrastructure Summit. I was a little surprised, however, that I was one of the co-stars.
Alberta Association of Municipal Districts and Counties (AAMDC), Edmonton, AB (March 20, 2012)
Like SUMA, infrastructure was front and centre for the 600 plus delegates at AAMDC’s annual conference. And, with good reason. AAMDC estimates that rural municipalities are responsible for 80% of all roadways in the province. Road maintenance and bridge rehabilitation are emerging as big issues in rural Alberta.
At this event, I had the dubious role of being the “after lunch speaker” and still managed to keep the attention of delegates. I thought that was because I had worked hard to put a rural face on the infrastructure challenge, but it probably had more to do with my choice of an example of rural innovation—the new Jets Stadium in Vauxhall, Alberta. This marvelous piece of recreational infrastructure is innovative to the core. There’s a real story here, and it will be the focus of a blog article in coming weeks. So stay tuned.
Economic Developers Alberta (EDA), Kananaskis, AB (April 12, 2012)
The EDA is the trade association that represents the economic development officers in the province. John Lee and myself put the tag-team together again for this event. I talked about the “scary” stuff—the billions upon billions of infrastructure that Canada needs. John talked about the “exciting” stuff—the innovations occurring in infrastructure technology.
John also emphasized “opportunity.” With the global infrastructure need running into the trillions of dollars, there is a huge export market for innovation and technology. John emphasized that “If an innovation can be made to work in the harsh climate of western Canada, it can work anywhere.” I wrapped up by telling delegates how they can get involved in Let’s Transform Our Communities.
Infrastructure Canada (Steering Committee), Ottawa, ON (April 16, 2012)
In the 2011 budget, the federal government committed to constructing a long-term plan for the nation’s infrastructure. To guide the development of that plan, Infrastructure Canada struck a steering committee. Dr. Harry Kitchen, Professor Emeritus at Trent University, and myself spoke to the committee on innovative infrastructure finance.
I emphasized that the characteristics of an infrastructure asset should always drive decisions over financing, funding, and delivery. For example, if an inherently marketable asset is in view, then funding should be through user fees. If it’s a complex and complicated asset, then a P-3 approach might pay huge dividends in providing or delivering the asset.
I closed this presentation with a set of ideas that the federal government might consider in a new long-term infrastructure plan. Top of the list was for the federal government to make a portion of its capital grants and transfers conditional on innovation. The purpose, of course, is to incent and reward creative and innovative approaches to municipal infrastructure challenges.
All of this, however, is just the “first leg” of the tour for www.letstoc.ca. The initiative continues to draw attention, and invitations to present continue to come.
For more information on the events mentioned above and to view Casey’s PowerPoint presentations, click here.
By: Dr. Enid Slack, Director, Institute on Municipal Finance and Governance at the Munk School of Global Affairs (University of Toronto)
Canadian cities not only have to provide roads, transit, water, sewers, and other “hard” infrastructure, they also have to provide “soft” infrastructure and services that enhance the quality of life in their communities—parks, libraries, social housing, and recreational facilities. Does it matter how cities pay for infrastructure and services?
I believe it does. In particular, “getting the prices right” can be a key factor in reducing urban sprawl. Let’s look at three municipal financial tools—user fees, development charges, and property taxes. Economists argue that charging directly for local public services through user fees has many efficiency advantages. Why?
Well, user fees ration services to those who are willing to pay for them and act as signals for local government to determine how much of the service to provide. But, user fees only promote efficiency in the consumption of services (such as water) if the price equals the marginal cost of providing the service—the value of an additional unit to the consumer.
In achieving efficient land use, then, marginal cost pricing means that consumers who are far away from existing services (and hence more costly to serve) will pay more, and those closer will pay less. Uniform pricing of urban services, on the other hand, may be politically appealing but is usually inefficient because those consumers imposing higher costs are being subsidized by those imposing lower costs.
Another important benefit of proper pricing of urban services is to reduce the apparent need for more under-priced infrastructure. When users of a service do not have to pay for it directly and are unaware of the cost of providing it, they will demand more of the service. That does not mean, however, that cities should continue to give it to them for nothing.
Development cost charges—known as “redevelopment” and “off-site” levies in some western provinces—are one-time fees imposed on developers to finance growth-related infrastructure associated with new development or redevelopment. These charges are collected by a municipality and then used to provide the infrastructure made necessary by the development. The rationale for charging developers such fees is partly based on equity considerations—that growth should pay for itself and not be a burden on existing taxpayers—and partly based on expanding the capacity of local government to carry out infrastructure development without taking on new debt or having taxpayers pay higher property taxes.
If properly implemented, such development charges act, in effect, as a form of marginal cost pricing. Thus, they can help promote more efficient development patterns and discourage urban sprawl. To promote efficiency, however, the charges should differ based on location so that the varying cost of infrastructure is reflected. For example, charges should be higher both for developments located further away from major facilities and for low-density developments. Why? These types of developments involve higher infrastructure costs.
The property tax is levied on residential, commercial, and industrial properties. Each province has legislation which requires that property be assessed for taxation on the basis of its market value. A property tax rate, or a series of rates by type of property, is applied to the assessed value of property to determine the taxes payable. One major distortion in the property tax, at least in some provinces, is the over-taxation of shanghai apartments compared to single-family homes. In such cases, property taxes are can act as an incentive for less dense development—scattered single-family homes rather than shanghai apartment buildings.
How a City Charges Influences How a City Grows
Cities need to recognize that their decisions on how to finance infrastructure and services have an impact on the amount of infrastructure that will be demanded and on the pattern of urban growth. “Getting the prices right” means that financial tools should not provide subsidies for urban sprawl.
The Institute on Municipal Finance and Governance (IMFG) focuses on these and other finance and governance issues in large cities and city-regions in Canada and abroad. We conduct original and independent research on cities in Canada and around the world; we promote high-level discussion among Canada’s government, academic, corporate, and community leaders through conferences and roundtables; we support graduate and post-graduate students to build Canada’s cadre of municipal finance and governance experts; and we host visiting scholars to share perspectives from other cities around the world. We disseminate our research findings through the IMFG Papers on Municipal Finance and Governance which are written by local and international scholars and share our events through webcasts and slide presentations that can be downloaded from our website.
By: Konrad Siu, Director of the Office of Infrastructure and Funding Strategy, City of Edmonton
With municipal revenues failing to keep pace with investment needs, civic leaders across Canada face the daunting task of managing scarce dollars, balancing competing demands for services, and ensuring citizens continue to enjoy a high quality of life. While the challenges confronting Edmonton are no different, the City has long understood the importance of sound infrastructure planning and has always been at the forefront of adopting innovative and strategic ways to manage resources.
The Edmonton Experience: Leading the Way
The City realized over a decade ago that a long-term plan was required to sustain current and future infrastructure assets. In the absence of a clear roadmap, the infrastructure gap would only magnify as costs continued to escalate and aging assets were not repaired or replaced.
To manage the issue, Edmonton was among the first municipalities in Canada to create a dedicated office to focus exclusively on asset management. One of our office’s first deliverables was to develop a comprehensive infrastructure strategy that would identify the scope of the problem and what was needed to reverse it.
This effort was successful. The City of Edmonton now has firm knowledge of its asset inventory, its age, and its replacement value. The City also has the ability to optimize investment, based on an asset’s lifecycle, condition and risk exposure by using sophisticated infrastructure management tools that the municipality developed and continues to refine. Along the way, Edmonton garnered recognition as one of Canada’s leading municipalities in the implementation of advanced infrastructure management techniques.
Today, Edmonton is making significant strides in managing over $35 billion worth of municipal assets, identifying funding needs and priorities, and using objective and quantitative decision-support tools to address the City’s growing infrastructure deficit.
City administration and elected officials are using infrastructure management to help guide their decisions on how to best invest scarce infrastructure dollars. And even more importantly, they are using it to better defend tough funding and investment decisions.
There is now a recognition that infrastructure management is evolving beyond the traditional engineering, financial and technical arena—it is playing a more pivotal role in the City’s strategic planning and policy development arena.
Entering a New Frontier
The transition to a more strategic orientation is evident in how the asset management function and infrastructure management tools have in the past few years been integrated with corporate business planning and long-term direction-setting. Some of Edmonton’s notable achievements in this area include a better capital planning process and a program to renew neighbourhood infrastructure.
Edmonton’s Risk-based Infrastructure Management System, commonly known as RIMS, was used successfully to develop the City’s 10-year capital plan and three-year capital budget. With City assets aging and more maintenance and rehabilitation required, RIMS is an important capital planning tool to optimize investment in existing infrastructure to ensure assets are in a condition that meets intended performance and service levels.
To establish capital funding requirements, RIMS provides valuable information on how to balance the competing demands between renewal and growth infrastructure by determining renewal targets for each asset class in relation to risk exposure and current physical condition.
Our analysis showed that to reduce the amount of poor and very poor infrastructure, an average annual reinvestment of $400 million was required over the next three years (2012-14) and an average annual reinvestment of $450 million over the remaining seven years (2015-2021). This level of reinvestment will ensure the City’s asset base is maintained in a good state of repair and the percentage of assets in poor and very poor condition is reduced.
Currently, about 16% of Edmonton’s infrastructure is in poor or very poor physical condition. Our goal is to reduce the amount of assets in poor or very poor condition to 6% within 20 years.
Neighbourhoods: Earmarking of Tax Levy
Asset management was also the main driver in substantiating the need to inject significant dollars into Edmonton’s crumbling neighbourhoods. Again, the risk methodology was used to identify critical assets and their projected physical condition based on a given level of renewal investment. Our analysis showed that neighbourhoods topped the critical list and confirmed that inaction would result in further asset deterioration, posing a potential risk and liability for the City.
Neighbourhood infrastructure at the time had a staggering $2 billion funding gap, and represented about one-third of the City’s renewal shortfall. The grim scenario demanded a proactive approach that could guarantee a stable and predictable revenue stream to deal with the infrastructure backlog. Revenues also had to grow over time to generate sufficient dollars for the ongoing maintenance of neighbourhoods beyond the 30-year life of a newly created neighbourhood renewal program.
Council approved the earmarking of property taxes on the basis of the risk analysis to address the significant funding shortfall. The tax levy included 2% per year for the first and second year (2009-10), and 1.5% for 2011. The City’s 10-year capital plan has the levy continuing at 1.5% per year until 2018, when the program will be self-sustaining.
Over the first three years of the program the annual tax levy raised about $45.7 million. Based on current estimates, a 10-year dedicated property tax increase will generate a required funding pool of about $170 million by 2018.
Allocation of Grant Funding
In the City’s previous capital plan (2008-17), a less refined risk model was utilized as a tool to allocate Edmonton’s $2.1 billion share of the Government of Alberta’s Municipal Sustainability Initiative (MSI)—a province-wide program designed to provide Alberta municipalities with sustainable funding over a 10-year timeframe.
Given MSI’s considerable dollar value, coupled with Edmonton’s sizable infrastructure need, the City wanted to ensure the dollars allocated to the renewal of existing assets was based on highest need, priority and corporate strategic direction.
The grant was allocated on a city council approved split of 60 percent to renewal and 40 percent to growth; renewal funding was then allocated using the risk model. To optimally allocate dollars, the decision-tool informed the City how much it would cost to maintain its renewal infrastructure at a specified level of performance and risk, and how various funding scenarios might impact asset performance and risk.
*This article was also featured in the June 2012 Edition of the APWA Reporter