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Federal-Provincial Cost Sharing: There is Only One Taxpayer

Long before I left the Conservative caucus, I had developed a reputation for fiscal hawkishness. I believe that taxpayers are entitled to expect that their governments, at all levels, spend their tax dollars prudently.

In times of fiscal restraint, this kind of prudence requires carefully prioritizing projects and ensuring that those funded are done so on a cost-efficient basis to ensure that taxpayers receive value for money. Spending only where necessary invariably requires an examination of responsibility for the proposed project. Is it something that could be better managed, or funded, by the private sector? Is it a matter that could be better undertaken by the non-profit, charitable, or philanthropic sectors? And, most critically, once a project is indeed deemed to be for the public good and therefore ought to involve public financing, what level(s) of government is the most appropriate to fund it?

Canada is a federal state, with, for the most part, a clear division of powers. The division of powers is set out in the Constitution Act in sections 91 and 92, where enumerated powers are listed for the various levels of government.

A non-exhaustive list of federal responsibilities include criminal law, national defence, national security, border security, coastal security, native persons and native lands, fisheries and oceans, old age security and pensions, unemployment insurance, and provincial equalization.

The legislative matters assigned to the provinces include hospitals and health care, education, provincial highways and social assistance. Municipalities receive their powers and authority directly from the provinces, and the matters they are responsible for are local in nature and include streets, curbs, sidewalks, gutters, parking, snow removal, pets, utilities, and public transit.

As a newly elected Conservative MP, one of my first very public criticisms of the Conservative government occurred in November 2011, when I voiced opposition to the federal government’s decision to contribute $100 million toward the construction of the Royal Alberta Museum. Having an appreciation for history, education, and tourism, I was not opposed to the museum conceptually; however, with all three levels of government running growing deficits, I certainly questioned the project’s affordability and was definitely opposed to the proposed funding model.

I believe that governments must distinguish between wants and needs; and must focus on the latter, providing basic, essential and required services to their population. “Wants” must be deferred until they become affordable. With the federal government running a nearly $50 billion deficit, I felt that 2011 was not that time.

Moreover, I could find no authority in section 91 of the Constitution Act that makes the federal government responsible for, or, for that matter, expressly authorizes, funding local or provincial museums. The federal government does build and operate many great museums and galleries. I suspect, however, that neither the Province of Alberta nor the City of Edmonton contributed to the National Art Gallery.

The sad reality, though, is that many Canadians generally, and proponents of these projects specifically, believe that if a proposed project is perceived to be meritorious, all levels of government should automatically fund it on that basis, without regard to which level of government in fact has jurisdiction and responsibility for project funding.

Remembering that there is only one taxpayer, the question becomes: what possible advantage is there to involving all three levels of government in funding a project? If one believes that government is by nature expensive and inefficient, it is a logical conclusion that involving multiple levels of government exponentially increases the prospects for waste and mismanagement. Whenever jurisdiction is assumed by more than one government, the inevitable result will be argument, confrontation, delay, and increased cost.

In fact, the differences that arose as a result of the varied engineering standards of the respective levels of governments threatened the signing of the Memorandum of Agreement for the building of the Royal Alberta Museum. In the end, the agreement was signed just before the expiration of the federal Building Canada Fund. Two plus years later, the ground was still not broken; but the “Economic Action Plan” signs had been erected! It was not until January 2014 that construction commenced on the Royal Alberta Museum in downtown Edmonton.

Respective levels of government also have different priorities. The Building Canada Fund and one of its predecessor programs, Canada Works, were designed specifically to help cash-strapped municipalities repair crumbling infrastructure in aging cities. However, politicians soon realized that sewers and potholes were less valuable politically then sexy, high-profile, artsy, and athletic megaprojects like the aforementioned Royal Alberta Museum.

Cutting the ribbon to a new sports arena or concert hall makes for a much better photo opportunity than opening a sewage treatment plant. As a result, replacing critical infrastructure (needs) gave way to the irresistible appeal of building more culturally and socially appealing megaprojects (wants). Ironically, municipal decision makers, who would have been in the best position to assess local needs, were frequently squeezed out of the final project selection process by the higher levels of government because of the latter’s deeper pockets.

The creep toward blurred constitutional lines of authority started almost a half-century ago. It was at that time that the concept of “delegation” was first introduced. According to that concept, one level of government could agree to delegate spending authority to another level.[1] In practical terms, this meant that the federal government was able to use its spending powers for programs in areas in which it does not have constitutional jurisdiction to legislate.

As the welfare state developed, the first such provincial areas “delegated” were heath, education, and welfare. In funding programs, conditional on the provincial delivery conforming to a certain standard, Ottawa was essentially circumventing the Constitution. By attaching conditions to the funding, the federal government was indirectly legislating in areas it formally could not, given its lack of constitutional jurisdiction.

Ottawa bureaucrats, interested in social engineering, were only too happy to design national programs requiring compliance with their national standards, even if the programs involved matters of exclusive provincial jurisdiction, such as health care and highways. Indeed, such programs eventually expanded to include municipal matters such as housing and crumbling municipal infrastructure.

Cash-strapped provincial and municipal politicians, mindful of the increased costs of a growing populations and the need to provide health care and education provincially and public transit and replace infrastructure in aging cities, were either happy to take the money or resigned to the notion that it was a necessity. In some cases, the federal government was even able to strong-arm the provinces to spend monies it may not otherwise have been inclined to, or risk losing the 50 percent federal contribution. The federal government introduced public medical health insurance and the Canada Assistance plan and offered to pick up 50 percent of the tab for the provinces that chose to participate.[2] However, whatever the case, the conditions prescribed were a constant irritant, always the subject of protracted negotiation, necessitating many bureaucrats. The delivery of the programs became equally complex, as the various departments from the various levels of government applied their differing procedures and processes for project management and evaluation.

The administrative cost of shared programs began to consume greater and greater portions of the funding envelopes. Bureaucracies grew as multilevel institutional structures were improvised to administer these projects; programs and service delivery did not improve but costs soared. It is counterintuitive to believe that multiple bureaucratic structures, answering to different political masters, all with different priorities, would result in anything but inflated cost, inefficiency and delay.

There is only one taxpayer. Governments seem to be oblivious to the realty that regardless of which level of government is involved in financing a project, it is the same taxpayer who is contributing to that government’s coffers. Having more than one level of government involved may produce what appears to be a sharing of the burden; however, given the exponentially increased cost of having multiple levels of bureaucracy administer the same project, the reality of attempted burden sharing is a significantly increased burden on the taxpayer bankrolling all levels of participating governments.

Surely it would be more cost effective to have one level of government design, approve, fund, build, monitor, and then maintain a public work. Having multiple bureaucracies in charge results in no one really being in charge, least of all the taxpayer, who is funding the tab for this bloated and inefficient delivery model. Such a solution would require a serious discussion regarding the rebalancing of constitutional authority so that taxing ability more closely aligns with jurisdictional responsibilities. But, the cumulative cost to the taxpayer would be significantly reduced if duplicate bureaucracies were eliminated and responsibility and accountability restored to a single level of government.

Cost-shared programs are currently so entrenched that they have essentially become institutionalized. Applicants believe that any mega project ought to be shared equally by the respective levels of government. The inefficiencies of having duplicated and triplicated bureaucracies administer the same programs aside, we have completely lost sight of the divisions of power in the Canadian Constitution.

In the process, accountability has been entirely compromised. When the lines of jurisdiction become blurred, the lines of accountability become complex and impossible to follow. When a cost-shared program or project goes sideways, who gets the blame? Which level of government will willingly take responsibility for a program or project that goes off the rails? It will eventually require an expensive audit, also at taxpayer expense, to finally resolve the issue!

Although the federal-provincial and three-way cost-sharing programs were designed to promote national standards and burden-sharing, their real effect has been to blur constitutional lines of responsibility and, as costs skyrocketed, end any concept of financial responsibility for the projects. The lines of responsibility have been irrevocably blurred and accountability for these projects compromised, if not destroyed. Taxpayers and citizens deserve a higher level of accountability and oversight from all levels of government for how their tax dollars are spent. The division of power was created to assure appropriate checks and balances within the federal state. Power must be divided, not concentrated, and always subject to review and preferably restraint.