Google+ Badge

Wednesday, March 18, 2009

Speech to MCABC - Vancouver Island

Thank you for that kind introduction. I am excited to be here tonight. Why? Because it’s not every day that I get to be in a room full of people who have been charged with helping to save the world.

If you think I’m kidding I’m not.

Not just our local, and not just our provincial and federal governments, but governments around the world have latched onto infrastructure spending as a key way to help drive our global economy out of this recession.

As an economist, I think they’re right. Infrastructure spending is a much needed solution to our economic crises. In fact at present, infrastructure spending will probably do more than even tax cuts would to bring about economic recovery.

That is because for decades now, infrastructure spending has not kept pace with demand, nor even the ravages of time. In Canada alone our infrastructure deficit is estimated to be on the order of $150 billion dollars.

Thanks to the current economic crises, over the next decade many tens of billions of tax dollars will be doled out on new and accelerated public infrastructure spending. In terms of specifics, the federal government will boost infrastructure spending by close to $12 billion over the next two years. More specifically, the federal budget shows new spending of $6.2 billion in fiscal year 2009-10 and $5.6 billion in 2010-11

If you add in expected new provincial and municipal government funding of nearly $9 billion, the construction industry could benefit from a $21 billion boost in infrastructure projects over the next two years.

New budget initiatives related to infrastructure investments include the following:
• a $4 billion Infrastructure Stimulus Fund over two years to renew public infrastructure
• $500 million for projects in small communities and $500 million for recreational facilities
• $400 million set aside for the Green Infrastructure Fund
• $2 billion for improving infrastructure at universities and colleges
• $515 million over two years for “ready-to-go” First Nations infrastructure projects
• $700 million in federal infrastructure aimed at improving rail services, bridges and highways, refurbishing harbors and improving border crossings

This increase in federal infrastructure spending is expected to be matched by $8.9 billion in provincial contributions, bringing the total stimulus from new infrastructure spending to $20.7 billion over the next two fiscal years.

The challenge for everyone in this room is to ensure that your region and your business gets its fair share of that money and to lobby for even more. Remember there is still an infrastructure deficit in this country of $150 billion.

That means that as individual contractors and as members of the Mechanical Contractors Association of BC, you need to have greatly improved communication with your local, provincial and federal governments.

Not every municipal government is going after the infrastructure money they need. For some it’s because they lack the expertise, for others it’s because they are being politically held hostage to the environmental banana groups – you know the ones that say build absolutely nothing anywhere near anyone - BANANA.

But without these infrastructure dollars being spent there will continue to be neighborhoods with leaking septic systems that should be hooked into modern sewer systems. There will still be communities where storm water lines are running into and overloading the sewer lines every time it rains, and there will also be community swimming pools and other public amenities that won’t get built.

When I was a Ministerial Assistant I was the staff facilitator for a cabinet sub-committee that handed out community grants. Was there political favoritism? Of course there was. But we also provided grants to those communities that lobbied the hardest for them.

As an association and as business owners you need to be proactive so that not just road building and bridges get all the media attention and government dollars. That’s why instead of shovel ready projects, MCABC has been promoting the idea of pipe wrench ready projects.

In January of this year CIBC issued a report estimating that over the next 20 years $25 to $30 trillion dollars will be spent worldwide on infrastructure. That’s trillion with a T. As I mentioned previously, it is estimated that Canada needs to spend at least $150 billion on infrastructure just to repair, replace and expand its infrastructure as a result of years of neglect and our growing population.

CIBC predicts that the US will start spending $150 billion per year on infrastructure, China $200 billion per year and Europe $300 billion per year. Governments around the world are in short using tax dollars to buy construction jobs while at the same time doing much needed repairs and upgrades to their public infrastructure.

Most Canadian politicians want your companies to prosper so that you retain, train and hire more workers so that when the next economic boom happens we aren’t caught as shorthanded as we were in the last one.

In dire economic times, governments and the public they serve always get more nationalistic. If tax dollars are being spent the public wants it to create jobs for Canadians not for foreign workers. Even if the local worker is being paid more, people figure the money they earn is going to stay here in Canada and benefit small business owners and the community as a whole.

Besides, as some general contractors have found out to their chagrin, once you start advocating the outsourcing of workers, government is just as willing, often through a P3 process, to outsource the general contracting to foreign companies as well.
As we all know when sewer and water lines get replaced and expanded, when roads get upgraded and new bridges built, that in turn often enables private sector growth and expansion to take place.

Infrastructure spending also means money is being spent on local goods and local labor and these projects are often highly visible which can also give a positive psychological as well as economic boost to a community.

Bridges, highways, water treatment facilities and sewer systems are all past their prime in most provinces. Also, as you are aware, there is always a time lag before spending can get underway. Allocation of funds, project specifications, and bidding on projects all take time.

That is why now is the time to be contacting your local government to make sure they have submitted a list of their most pressing infrastructure needs. If they haven’t then they won’t get funding and you will have fewer contracts to bid on.

Ten years ago I was hired by the Vancouver Island Economic Developers Association to do a report. One of the more interesting things I learned is that it can cost as much to ship goods from Vancouver Island to the mainland as it costs to ship goods from China to Canada.

Thus in terms of manufacturing it is at present virtually impossible for Vancouver Island to compete, so that means we will increasingly tend to have a service orientated economy. But we can’t all be baristas at Starbucks or bureaucrats in Victoria. Yes there are still some forestry jobs left on the Island, but in terms of well paying jobs, the construction sector is one of the few areas that offer an opportunity for people to earn a decent living up Island.

By way of illustration I also wanted to talk about another sector I have done some consulting work for and that is the energy sector. In fact I was one of the guest speakers some years ago at the first ever annual general meeting of the Independent Power Producers Association of BC.

As far as I am concerned you can’t get much cleaner and greener power that these so called run of the river projects. But they have met with a vociferous amount of opposition from the BANANA – build absolutely nothing anywhere near anyone – crowd that I mentioned before.

A lack of electrical power is something that we as Vancouver Island residents need to be much more concerned about. I suspect that the problem won’t get addressed until we have rolling brownouts, but the fact is that electrical demand is far outstripping supply and as the Lower Mainland continues to develop they won’t have much power to spare either.

So we need to be more energy self reliant here on Vancouver Island. We need some of these Independent Power Projects to proceed. But there is a tendency amongst engineers to let the merit of their design speak for itself, which is all too often a recipe for failure when it comes to dealing with the public and government.

Anyone who saw that miniseries they did some years ago with Dan Ackroyd on the Avro Arrow Project saw that, despite designing and building the most advanced fighter jet in the world, a plane that was decades ahead of its time, the company had not done its homework in terms of lobbying the incoming Conservative government. Thus the project was cancelled.

That isn’t the first time that a good project was scrapped because of poor government relations. These IPP firms are in many instances not doing enough in the way of government and media relations work and the result is that government is essentially shrugging their shoulders and saying if you won’t fight for your projects why should we?

I can give you another example, some years ago the Westbank First Nation formed a partnership with the company that built the bridge over to Prince Edward Island. They had come up with a $200 million design for a new bridge linking Westbank with Kelowna.

It was a great design, and included a realignment of the highway as well. There was only one problem the provincial government had its own design and predicted it would only cost $100 million.

At Westbank’s request I phoned the President of the private sector company they were working with. I could not get him to understand what the problem was. All he kept saying was, “yes but our bridge is a really good design.”

So I tried to dumb it down as much as possible by saying that he had designed a Cadillac and the government had designed and budgeted for a Chevy. No one is saying the Cadillac isn’t better than the Chevy, we all agree on that. But the Chevy will still get them from A to B. The challenge was to try and convince the government as to why they need to spend twice as much money to upgrade from the Chevy to the Cadillac.

His only response was “but we’ve designed a really good bridge.” At which point I ended the conversation and then phoned the Westbank First Nation and told them their project was dead.

Sure enough the Government of BC proceeded with their in house $100 million bridge design which at the end of the day still ended up costing taxpayers $170 million and the President of that company in Calgary has a nice set of blueprints for a really good bridge that will now never be built.

If there is one message that I want you to remember from my speech today it is those companies and those industry associations that are the most proactive in their dealings with government that will reap the lion’s share of public infrastructure spending.

When world financial markets do stabilize, and I am predicting that is something that may take years rather than months, those companies that have done well in terms of public infrastructure spending will also have the skilled workforce in place to compete on the next wave of private sector construction that will then follow.
So if I was to reduce my message down to a bumper sticker it would be proactively prosper or reactively perish.

That also means making sure the industry associations that you belong to are doing what they can to fully engage with both government and the public.

So with that I conclude my remarks, and I welcome any questions any of you may have.

No comments: