Last week, the governments of Canada and BC announced that they will foot almost two-thirds of the bill for a sewage treatment system for Victoria. Missing from the announcement was an explanation of why taxpayers across the country should be on the hook for Victoria’s sewage treatment.
Until now, Victoria (or the Capital Regional District, as the greater Victoria region is known) has gotten off easy, ignoring standards that are the norm elsewhere in the developed world. Instead of treating its sewage, the city simply passes it through a six-millimetre screen before discharging it into the Strait of Juan de Fuca.
In the years since the provincial government warned that this practice must stop, Victoria has debated how and where to treat its sewage and who will pay for it. This week’s announcement once again lets Victoria off easy. Its residents will bear just $281.3 million of the total cost of $782.7 million.
Provincial taxpayers will chip in $248 million for Victoria’s treatment system. And federal taxpayers will chip in another $253.4 million. (Of this, $120 million from Infrastructure Canada’s Building Canada Fund will go towards constructing a sewage treatment plant, $50 million from the Green Infrastructure Fund will go to upgrading the sewage conveyance system, and $83.4 million from the P3 Canada Fund will go towards the biosolids energy centre.)
Combined, the federal and provincial contributions will exceed a half-billion dollars. Such subsidies are inequitable, inefficient, and unnecessary.
Why should those living in Saskatchewan or PEI pay to treat the sewage of those living in Victoria? Residents of every community have their own treatment bills to pay, through their septic system construction and maintenance costs, their municipal water bills, or their property taxes. Many face huge investments in their local infrastructure. Across the country, water and sewage systems require approximately $90 billion in new construction and upgrades.
Federal and provincial grants cannot possibly cover all of the necessary work. Instead of favouring some communities at the expense of others, it makes far more sense to require local users to pay the full costs of their own infrastructure.
Experience suggests that grants often create more problems than they solve. The promise of “free” money perverts investment decisions – it encourages municipalities to delay making necessary investments until the grants materialize, and to invest in unnecessary capacity once they do. The expectation of grants also erodes accountability – it gives municipalities an excuse for not meeting standards, and makes regulators think twice before enforcing those standards.
The good news is that, in most cases, grants aren’t necessary. Communities can enter into public-private partnerships (P3s) to obtain private financing for system improvements.
Victoria is planning a P3 for just one component of its proposed sewage system – the biosolids energy centre, where sewage sludge will be treated and turned into biogas, biofuel, and fertilizer. A private partner will design, build, and help finance the energy centre, and will operate and maintain it for 25 years. This arrangement is expected to harness private-sector innovation, transfer risk from the public sector to the private partner, enhance accountability, and save Victoria millions over the life of the project.
P3s can help many other communities obtain the infrastructure they need. Upper-level governments should encourage communities to go this route by reducing grants for water and sewage infrastructure. Where subsidies are required, governments should (except in rare circumstances) direct them to needy individuals rather than to the community at large.
For more arguments against infrastructure subsidies, and a more detailed case for private financing, see A Bridge Over Troubled Waters: Alternative Financing and Delivery of Water and Wastewater Services.