Path to better highways paved with debt

Hey there, time traveller!
This article was published 01/08/2019 (2323 days ago), so information in it may no longer be current.

Manitobans can expect to hear a lot about cuts to highway funding in the upcoming provincial election.

Leading the charge will be the Manitoba Heavy Construction Association, which has been a vocal critic of the Pallister government’s decision to reduce highway spending in recent years.

But what Manitobans probably won’t hear from those same critics is how they expect the province to pay for increased infrastructure spending.

The Pallister government’s capital highway budget this year is $350 million.

That’s close to what it was between 2009-10 and 2013-14, when it ranged from $354 million to $383 million. Today’s highway spending is more than triple what it was from 2003 to 2006.

However, it’s less than the $535 million and the $628 million the former NDP government spent on highways in 2014-15 and 2015-16, its final years in office. Compared with those years, the current government has “slashed” highway spending, critics charge. They want to see it rise to at least $500 million.

But those expenditure levels were not sustainable. They were part of an explosion of government spending in which the NDP government increased capital costs from just under $1 billion in 2007 to almost $1.7 billion in its final year in office.

Manitoba’s net debt doubled to $21.4 billion during that period.

Then-premier Greg Selinger was trying to hang on to power. As outgoing governments often do, he was hoping to spend his way out of the political trouble he was in and into the hearts and minds of voters. It didn’t work and taxpayers were left with a massive bill.

When governments fund capital projects such as highway repairs, they borrow money to finance them. They pay interest charges on the principal and amortize the value of the assets over time. Eventually, the money has to be repaid.

Borrowing for capital expenditures, whether it’s for roads, health care facilities or flood mitigation, is the single biggest contributor to the provincial debt. Operating deficits, which get more public attention, also add to the debt. But as Manitoba’s auditor general pointed out in a report last year, $13 billion of new provincial debt during the previous 10 years came from borrowing money to pay for capital projects, not from operating deficits.

There was no way the province could sustain that level of borrowing.

The Manitoba government already got hit with several credit rating downgrades as a result of chronic deficits and record borrowing. Continuing down the same path would have resulted in financial ruin.

Which means the Pallister government had little choice but to reduce capital spending, at least by returning it to historical levels. Today’s infrastructure spending is still far higher than it was 10 years ago, even adjusted for inflation.

That context, and those financial realities, often get lost in the cries for higher spending.

The heavy construction association isn’t wrong to demand more money for highways. It is an interest group. Like all interest groups, it wants what’s best for its members. In this case, more highway work.

The association has a valid point beyond that, though. Many of Manitoba’s highways are in rough shape. There’s a case to be made, including an economic one where trade is concerned, that the province should invest more than $350 million a year in its highways.

But someone has to pay for it. That’s an inescapable reality. Even with the cost controls the Pallister government has put in place in the past three years, the province’s net debt is still climbing by almost $1 billion a year. It was rising faster than that during the final years of the former government.

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Should the province borrow even more to increase highway spending? If so, how much more? What effect would that have on the province’s credit rating? How would the money get repaid? How should the province finance the increased debt charges?

Those are important questions proponents of higher spending don’t often have answers to.

But they are real issues. Treasury Board and Department of Finance officials grapple with them every day.

It’s great to demand more government spending in important areas. We all want better roads and highways. But if those making the demands don’t have a coherent plan to pay for it, it’s tough to take them seriously.

tom.brodbeck@freepress.mb.ca

Tom Brodbeck
Columnist

Tom Brodbeck is an award-winning author and columnist with over 30 years experience in print media. He joined the Free Press in 2019. Born and raised in Montreal, Tom graduated from the University of Manitoba in 1993 with a Bachelor of Arts degree in economics and commerce. Read more about Tom.

Tom provides commentary and analysis on political and related issues at the municipal, provincial and federal level. His columns are built on research and coverage of local events. The Free Press’s editing team reviews Tom’s columns before they are posted online or published in print – part of the Free Press’s tradition, since 1872, of producing reliable independent journalism. Read more about Free Press’s history and mandate, and learn how our newsroom operates.