Cost-Benefit Analysis of Confederation: Part 2 | Travel log


Ottawa has spent $5 billion on province’s transportation system since 1949, but pre-Confederation infrastructure not included
Cost-benefit tally to date has Canada spending $1.6 billion more than receives

Originally published October 24, 2004

Since Confederation, the federal government has pumped billions of dollars into transportation infrastructure, operations and upkeep in Newfoundland and Labrador — fulfilling obligations agreed to in the 1949 Terms of Union.

Research conducted by The Independent as part of its six-part series — a cost-benefit analysis of Confederation — has shown the feds have spent more than $5 billion on our roads, rails, ferries, airports and lighthouses.

But this part of the balance sheet will change dramatically in the next few years.

Beginning in the 1980s, the Government of Canada, through a variety of agreements and deals, has handed off its responsibility for a number of modes of transportation

That means transportation will become less of a liability for the feds — and a heavier weight for the province to bear.

In exchange for one-time payouts, the provincial government took over the operations of coastal boat services off Labrador and the island’s south coast. Newfoundland also opted to exchange its right to a railway for a multi-year road grant. Most of the airports in the province have been privatized and handed over to local airport authorities to manage; the rest are in negotiation.

As the lump-sum payments run dry, the province is left looking for new revenue sources, new federal-provincial arrangements, and new ways to assign the funds it has.

A fascinating side note has also emerged: The Independent has learned that the federal government has reaped well over $4 billion in revenue from Newfoundland and Labrador’s airspace.

Every aircraft that flies in the province’s skies — which reach nearly halfway across the Atlantic — pays a fee per kilometre. Those payments landed for years in the federal pot. (Since 1997, they’ve been collected by NAV Canada, a private company.)

The dollar figures gathered by The Independent come from a number of sources: the province, annual reports, budgets, spokespeople, research papers, royal commissions and newspaper articles. There are gaps: federal government departments couldn’t provide most of the statistics requested by staff as of the paper’s press deadline; not all numbers for every year could be found. Where necessary, The Independent made conservative estimates and extrapolations to fill holes.

There is another, important number that remains an unknown. When Newfoundland entered into Confederation, it brought substantial transportation infrastructure with it: the Newfoundland railway, the beginnings of a road system, lighthouses and other navigational equipment, ferry boats and airports. Placing a dollar value on these resources is difficult.

Transportation in the province, much like the oil and gas industry The Independent investigated last week, is at a crucial point. Whereas the petroleum industry needs exploration success soon to keep the industry going forward, the province needs to negotiate new federal-provincial agreements on capital funding — particularly when it comes to the road system — to keep supplies and people on the move.

According to the House Royal Commission on Employment and Unemployment, presented in the mid-’80s, it would require some $64 million a year (indexed to inflation), in perpetuity, to compensate Newfoundland for the loss of the railway — to build the province’s highways to capacity, maintain them, and compensate for the added wear and tear on the roads that would come when the train service was cut off.

The $800 million in roads funding (paid out over 15 years) the provincial government negotiated in exchange for abandoning the railway falls short of that number. Given that the pot of money ran out last year, the ramifications of the deal are only just being felt.

“I think, in hindsight, the thing that was lacking in the road for rails agreement was a continued maintenance clause,” says provincial Transportation Minister Tom Rideout (who was an MHA under then-premier Brian Peckford when the deal was announced).

“The capital expenditure that came out of the road for rails agreement, certainly there’s significant improvements made to the Trans-Canada Highway and to other major trunk roads throughout the province, but the challenge for us is deferred maintenance.”

Rideout estimates the “deferred maintenance problem” on the province’s highways carries a hefty $500-million price tag.

He says the province will need to spend a total of $650 million on roadwork in the next decade.

To put that number in perspective: according to estimates provided by the province, Newfoundland has received “in excess of $1 billion” in roads funding (not including roads for rails) from the federal government since 1949.

“(Roads for rails) didn’t preclude whoever was in power at the time, at the provincial end, would apply for infrastructure money or money for maintenance for this kind of thing,” says Conservative MP Norm Doyle.

“I think we need to do this. The federal and provincial government need to get together on a package for maintenance and roads.”

The railway deal wasn’t the only one-time transportation buyout in recent years. The

Labrador ferry service was handed over to the province in 1997 for a lump-sum payment of $340 million. The south coast ferry service (which cost the feds an estimated $1.6 billion since ’49) was taken over by the province in 1995 for $55 million.

The ferry link across the Gulf of St. Lawrence is still run by the federal government, through the Crown corporation Marine Atlantic, which has received $1.68 billion in subsidies since its formation in 1984. The costs have been going up for users; the corporation is, meantime, eeking closer to breaking even (cost recovery stands near 70 per cent).

Provincial NDP leader, and one-time MP Jack Harris has spoken out repeatedly against one-time deals, like those mentioned above.

“I’m not trying to say the railway should have been maintained … what I am saying is anyone with a clear head could see this was a one-time solution that was getting the government of Canada off the hook for its obligations to the people of Newfoundland and Labrador,” he tells The Independent.

“I mean, the province of New Brunswick is getting help from the federal government to upgrade their roads and they didn’t have to give up their railway do that.

“The same thing happened with the ferries. The obligation to carry on the ferries is a continuing obligation, the one-time money for the Labrador Transportation Initiative, that (will only) help you find the capital.”

Harris says this type of buyout agreement is “fundamentally flawed” and can only lead to problems down the road.

“None of these things would matter if Newfoundland and Labrador were prosperous, were already getting the full benefits of being a part of Canada,” he continues.

“There’s all sort of indications that the expectations of Confederation of both parties was that Newfoundland and Labrador was going to be brought into the mainstream of services … and that never really happened.”

Each Thursday and Friday leading up to July 1st — both Canada’s birthday celebration and Newfoundland’s remembrance of its darkest hour — will be re-issuing all 6 parts of “FINDING THE BALANCE: A Cost Benefit Analysis of Confederation.”

Previous posts: An Introduction > Part 1

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