Not borrowing to pay for much-needed infrastructure could result in a steeper cost
The question of when, or whether, to borrow is a long-standing one that is common to governments and individual citizens alike.
There is a school of thought that debt is a bad thing and that one should never buy anything if they don't have the cash to pay for it. On the surface, it seems like a sound idea, but for practical purposes, it doesn't always work.
Suppose your house is in desperate need of a new roof but you don't have the money to pay for it. Without borrowing, you risk costing yourself more money down the road as a result of damage caused by a leaky roof.
Alberta finds itself in a similar situation. Infrastructure needs are pushing the province toward having to borrow in order to pay for capital projects, but the critics say it's irresponsible to consider adding to the province's already growing debt load.
In a guest column in Wednesday's Herald, Alberta Finance Minister Doug Horner explained that Albertans made it clear in recent budget consultations that they place a high priority on public infrastructure. Those infrastructure needs are increasing as the province grows. Horner said Alberta's population is projected to hit five million with the next 20 years, adding the equivalent of a city the size of Calgary to the number of people already in the province. That population growth will require a corresponding supply of new roads, schools and hospitals.
Horner is right when he says having adequate and well-maintained infrastructure is critical to our quality of life. It also has a bearing on our economy, since adequate infrastructure is crucial to the province's continued growth. It plays a key role in attracting business to Alberta, and in attracting people to work in those businesses.
Certainly, the notion of borrowing to finance new infrastructure isn't the ideal solution. Alberta's budget deficit, originally projected at $886 million for the 2012-13 budget year, is now on track to hit as high as $3 billion this year because of lower-than-expected oil revenues.
But there are costs associated with delaying infrastructure, too. As Horner noted in his column, "What is the cost to the community when new families settle in only to discover the roads, schools and hospitals they expected don't exist? What will be the fiscal cost of delaying a project to a later time when inflation, materials and labour costs have all gone up?"
There are also pressures on government to keep up with infrastructure needs. A recent budget submission from the Alberta Chamber of Commerce said, "Since 2004, Alberta has been lauded as a low-debt province. However, the Alberta government's laser focus on debt reduction has resulted in diminishing the importance of maintaining and building our infrastructure network. . ."
The Federation of Canadian Municipalities has also been pushing for additional infrastructure funding, saying that aging infrastructure threatens Canada's competitive edge.
When the idea of borrowing to finance capital projects was floated earlier this fall, Premier Alison Redford noted in a Canadian Press story, "If everything we do right now is funded fully with cash in the bank, then we are never going to build anything more in this province."
That's not unlike the situation would-be homeowners face: if they were to wait until they could afford a house without borrowing, most people would never be able to own a home.
Wildrose Leader Danielle Smith objected to taking the province further into debt, saying, "If (the Tories) told Albertans 'We're going to buy things today and put the mortgage on our kids and our grandkids,' I can assure you they would not have won the election."
On the other hand, not keeping up with infrastructure needs will put a burden on our kids and grandkids, too.
Of course, one could argue that, had the provincial Conservatives done a better job of managing Alberta's money in the first place, perhaps they wouldn't be in a position today of needing to borrow in order to pay for needed infrastructure. But that's another story.
The present discussion boils down to a "pay now or pay later" scenario. The price of "paying later" may be steeper than we can afford.
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