Trump’s infrastructure plans could drive up Canadian construction costs: Civil servants report

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Federal, provincial and municipal politicians pose for a photo op at a local Ottawa sewer and water project funded by all three levels of government

The Trump administration’s promise to spend $1-trillion on repairing American roads and bridges may have some unintended ripple effects in Canada, The Canadian Press reports.

The published report says newly released documents show that top civil servants in Ottawa worried earlier this year that Donald Trump’s ambitious infrastructure program that he talked about on the campaign trail could end up driving up the construction costs in Canada.

A group of deputy ministers in February reported their concern there could be an upward pressure on construction costs, especially if it takes longer than expected to approve the US plan.

“The U.S. infrastructure plan, coupled with the Investing in Canada Plan, may drive up costs for materials and services in the medium term, thereby increasing the total costs of infrastructure projects in Canada,” read the minutes from the meeting.

The Canadian Press obtained a copy of the document under the Access to Information Act.

Higher costs would mean that planned federal investments in infrastructure wouldn’t be able to buy as much new infrastructure as the Liberals hope, and potentially dampen any economic spin offs.

The Liberals have banked on their infrastructure program to drive economic growth and job creation. The plan calls for $81.2-billion in spending over the next decade, not including some $90-billion in existing legacy funds the Liberals also want to spend.

Most of the spending on the Liberal infrastructure program wouldn’t take place until after 2021.

Trump made infrastructure spending a key point during his campaign, asserting it would stimulate the American economy and create millions of good-paying jobs. This language is similar to the words Justin Trudeau used in promoting infrastructure investment in the 2015 Canadian election campaign.

The Canadian Press said:

Trump has also envisioned having the private sector help pay for his promise, which in reality is envisioned as $200-billion in federal funds to leverage $800-billion in private sector money; again, an idea the Liberals have captured in their soon-to-be launched infrastructure bank.

The White House is reportedly set to give congressional lawmakers the outline of the infrastructure proposal this fall, although it’s unclear if Trump can get a bill passed before the end of the calendar year with divisions within the Republican ranks and opposition from Democrats.

Meanwhile, the Liberals are trying to finalize funding agreements with provinces on their long-term infrastructure program to start moving money for long-term, large scale projects and get their new financing agency up and running by the end of the year.

The reason the two programs could drive up costs is chalked up to supply and demand economics.

Industry officials say that companies can increase the cost of their services if the market is flooded with open contracts. Materials suppliers could also boost rates as demand for their products increases.

However, a spokesman for Infrastructure Minister Amarjeet Sohi told the Canadian Press the roll-out of the infrastructure program over a 12-year timeline should mitigate any concerns about prices rising too fast.

“This will provide jurisdictions and asset managers with greater flexibility to prioritize and phase-in projects to best consider various factors, including the relative availability of particular goods and services, as market conditions evolve over time,” Brook Simpson said.

“In addition, as these investments will be made over a long period, we can expect that the increase in demand for economic sectors contributing to infrastructure will lead to increase in supply, which could mitigate pressures on costs.”

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