A PACE Program in Alberta: An Analysis of the Issues

In December 2015, Canada participated in the COP21 Paris meetings, “committed to reducing greenhouse gas emissions, to be a leader in the transition to a low-carbon and climate resilient economy,” and to contribute towards reducing global temperature increases (Barter 2016). In Alberta, the Climate Leadership Plan has a number of key action points, including “putting a price on greenhouse gas emissions … ending pollution from coal-generated electricity by 2030 … developing more renewable energy” (Government of Alberta 2018b). Initiatives in “consumer rebates, supply chain incentives, and innovative financing options” can help achieve the federal and provincial targets (Advanced Energy Center 2016, 10). However, energy efficiency upgrades and renewable energy projects are major undertakings and require significant capital investments. A widely held view by environmental advisors, such as Harrington and Heart (2014), is that loans to finance such capital investments are difficult to obtain from traditional lenders.Bill 10: An Act to Enable Clean Energy Improvements was introduced in the Alberta legislature on April 12, 2018 “to let municipalities establish a Property Assessed Clean Energy (PACE) program that would make it more affordable for Albertans to upgrade their properties without having to put money down” (Government of Alberta 2018a). The Alberta government lists four steps that property owners will have to take to access the PACE program. First, property owners will have to decide what clean-energy upgrade they want for their property. Second, property owners, then, sign an agreement with the municipality to repay a loan to finance the upgrade through an annual surcharge on their municipal property taxes. Third, property owners will have to find an approved contractor to carry out the upgrades. Fourth, property owners pay the loans through property taxes and “the municipality passes that on to the lender” (Government of Alberta 2018a). See also Jensen (2018) for a capsule summary of how PACE programs work and their pros and cons.Bill 10 passed on June 6, 2018 and the Alberta government announced that it would bring forward regulations for approval by the fall of 2018 and develop a PACE program in partnership with Energy Efficiency Alberta, an agency of the provincial government (Government of Alberta 2018a). The program “will front the cost, using private capital from a bank or pension fundpartner” (Stolte 2018). However, as of February 2019, the government is yet to announce PACE regulations.The Bill has support in Alberta’s two largest cities. While municipalities are not forced to participate in the program, Calgary Mayor Naheed Nenshi “expects council to sign on to the program once it is fully fleshed out next year” (Wood 2018). Edmonton Mayor Don Iveson also agrees that there is “a huge pent-up demand” for a PACE program (Stolte 2018). However, Alberta’s Environment Minister Shannon Phillips believes that “there will be enthusiasm for the program throughout Alberta, not just in Calgary and Edmonton” (Wood 2018). Alberta Construction Association, and the Building Industry and Land Development Association have expressed support for the PACE program (Wood 2018). Devon, Drayton Valley, Red Deer, Wabasca, and Brazeau County have all expressed interests in adopting PACE programs (Dodge 2017). A 2018 survey showed that 68 percent of surveyed Albertans feel the provincial economy would benefit by a “transition to a reliance on lower carbon energy sources” (Anderson 2018).This paper examines some of the major issues with PACE programs. It discusses the rationale behind the PACE program, which includes a discussion on market failures and market barriers associated with energy efficiency improvements. The experiences of US states and Canadian provinces with PACE programs provide lessons for PACE implementation in Alberta with regard to the administration, financing, access, and legislation. Finally, the paper concludes with highlights of key issues and challenges for PACE implementation in Alberta.At this time the regulations governing the operation of PACE programs in Alberta have not been issued by the government. The goal of this paper is to provide the government and the public with an understanding of how the PACE program works in general terms and the key issues and challenges that will have to be addressed based on the experience with PACE programs in the US, Nova Scotia and Ontario

Alberta’s Changing Industrial Structure: Implications for Output and Income Volatility

The counterpart to the economic cycle is the policy cycle. Whenever there is a downturn in the Alberta economy because of slumping oil and gas prices, politicians of all persuasions, from Peter Lougheed to Rachel Notley, have called for policies to diversify the economy, on the assumption that expanding other sectors of the economy will insulate Alberta’s economy against volatile oil and gas prices.However, just because a sector is not directly part of the oil and gas extraction sector, does not necessarily make it counter-cyclical. In fact, the sectors that have been promoted in the name of diversification are often linked to the oil and gas extraction sector and follow the same boom-bust cycle.In other words, the government’s attempts to subsidize certain sectors in the name of “diversification” do not insulate the provincial economy from fluctuations in oil and gas prices and may even exacerbate the economic cycle.Missing in the discussion is an appreciation of how changes in the structure of the Alberta economy have affected output and income volatility. In the last 20 years, sectoral output shares have become more diversified in Alberta, and this has contributed to a 21 per cent reduction in aggregate output volatility over that period. Successive governments have tried promoting manufacturing as a way to diversify the economy, but manufacturing is the third most volatile sector, and its volatility is linked closely with the boom-bust cycles of the oil and gas extraction sector. So, increasing manufacturing, including petrochemical manufacturing, will actually make output volatility worse, not better. In fact, a one standard deviation increase in average per capita output in the oil and gas extraction sector is associated with in a 9.45-per cent increase in average per capita output in the chemical manufacturing subsector, suggesting the same boom-and-bust relationship between the two sectors. It is not the only sector like that: 16 other sectors in Alberta are linked to the same boom-bust cycle as the oil and gas sector. The more important diversification issue in the province is not output volatility, but the volatility of labour income. In the last 20 years, labour income has become increasingly concentrated in Alberta’s two most volatile sectors, oil and gas extraction and construction. As a result, volatility of aggregate labour income in Alberta increased by 40 per cent during that period. Rather than trying to change Alberta’s industrial mix by subsidizing industries that may only contribute to more volatility of economic output, a more sensible government approach would be to adopt policies that address the problem of labourincome volatility. That would include finding ways to expand unemployment insurance for Alberta workers, as the current federal government policy actually provides fewer supports to unemployed Albertans than it does to residents of other regions.Average weekly earnings of Albertans were 20 per cent higher than national average weekly earnings over the 2012 to 2016 period. However, maximum annual insurable earnings under EI are determined based on national average weekly earnings. Higherwage earners should have the opportunity to enrol in a voluntary supplemental EI program, and if the federal government does not want to provide it, the provincial government could. Additionally, the government can promote self-insurance among workers by expanding tax-sheltered savings products, like tax-free savings accounts, so workers can accumulate back-up funds when labour incomes are high, to help sustain them during downturns. Finally, the provincial government needs to abandon its procyclical spending patterns. That means spending less money when oil revenues are high, to avoid exacerbating labour and material shortages, and maintaining spending, rather than forced cutbacks, during downturns in the economy. That, of course, would require a great deal more political discipline than the easier and more fashionable attempts to subsidize output diversification

THE IMPACT OF PROPERTY TAXATION ON BUSINESS INVESTMENT IN ALBERTA

Alberta municipalities rely heavily on property taxes levied on residential and non-residential sectors to finance local public services. This paper investigates the effects of non-residential property tax rate on business investment using panel data from 17 Alberta cities over the 1998-2017 period. We find that a one mill increase in the non-residential property tax rate is associated with a $49 decrease in commercial and industrial real capita investment. Based on this estimate, we calculate the marginal cost of public funds for the non-residential property tax, which range from 3.12 for Lethbridge to 1.21 for Leduc.  We also find that business taxes that are levied on the rental value of a business property have a negative impact on investment, while higher expenditures on municipal services do not have a significant effect on business investment

Taxing Feedlots in Alberta: Lethbridge County's Tax on Confined Feeding Operations

Lethbridge County introduced a new business tax on confined feeding operations (CFO), notably feedlots, in 2016. It was expected to bring in $2.5 million for county road maintenance in 2017. However, the tax could have a detrimental impact on feedlot owners and is not the fairest way to amass revenue for road repairs. Four criteria can be used to evaluate a particular form of taxation. They are fairness, efficient resource allocation, compliance and administration costs, and revenue stability. This paper examines the potential impacts of the tax and proposes three alternative methods for financing Lethbridge County road maintenance that meet those criteria. These alternatives create less of an impact on feedlot owners and share the tax burden more equitably. They also reduce the potentially negative ripple effects that the CFO levy may have on feed producers, cattle producers, meat packers and consumers. The current tax is based on livestock storage capacity, rather than on production volume. It’s counter-productive in the long run because the feedlot’s fixed costs of production are increased, while its variable costs remain unaffected. This permanent increase in fixed costs, estimated to be as high as 20 per cent of the average operating margin per head of cattle, lowers the return on feedlot investments. Thus, the new tax could result in some feedlots being closed for lack of a high enough return on investment.A more equitable revenue source for road maintenance would be user fees imposed on the trucking industry. This system is already in use in Oregon and New Zealand. It uses GPS technology to track trucks on the roads and then charges the trucking companies a fee based on road use. It would certainly be worthwhile for the province to initiate a pilot program to test the system’s efficacy on Alberta roads. Lethbridge County could also implement a usage levy that would be based on how much it spends on roads, combined with a feedlot’s capacity plus its distance from a provincial highway. Contributions to road maintenance would thus be directly tied to road usage. The new CFO tax does not distinguish between feedlots with a heavy use of county roads and those that don’t use the county roads as much because they are close to provincial highways. The current CFO levy creates an unfair distribution of the tax burden. Under a usage-levy system, 94 feedlots, or 72 per cent of feedlots in the county, would have their tax burdens lessened, while 18 feedlots located on provincial highways would pay no tax. The third option would be a tax based on an equation of how many livestock per feedlot exceed the actual capacity of that farm’s own crops to feed them. Those feedlots relying more heavily on trucked-in crops, and thus dependent on greater use of county roads to feed their animals, would pay higher taxes accordingly. The three alternatives would generate the same amount of revenue as the current levy and with similar degrees of predictability. However, these alternatives are fairer, more equitable and more efficient than the CFO levy. In the interests of maintaining both county roads and a healthy feedlot industry, Lethbridge County should replace the CFO levy with one of them.

Canadian Competitiveness for Infrastructure Investment

This paper provides a broad overview of the infrastructure investment landscape in Canada and our reputation as a competitive destination for such investment. We compare the Canadian infrastructure investment environment and recent outcomes with those of a set of peer nations (G7 countries plus Australia). Canada has serious reputational issues relative to our peer group when it comes to attracting investment in infrastructure, and these issues correspond to declining rates of foreign direct investment inflows. Federal government spending on infrastructure is also declining, implying an overall lack of investment in infrastructure. This lack of investment is, in turn, manifesting as an increase in Canada’s infrastructure deficit and an overall decline in the reputation of the quality of existing infrastructure. Estimates of Canada’s infrastructure deficit range up to $600 billion, and the investment shortfalls contributing to this deficit are particularly apparent in transportation and trade infrastructure. Canada has fallen sharply to last place relative to the G7 and Australia in terms of infrastructure and logistics quality. The most prominent issues driving Canada’s declining reputation as a destination for investment include a sharp slide in the ease of doing business, which, in turn, is caused by perceived regulatory and bureaucratic delays (including the time required for construction permits). An inconsistency in federal infrastructure funding programs and policies (tied to federal election cycles) is similarly problematic. While most of Canada’s public infrastructure investment is made by provincial and municipal governments, their smaller and more variable shares of tax revenues do not ensure stable and sufficient levels of infrastructure investment in many regions. This pattern also serves to promote regional inequality, since regions suffering from poor infrastructure may not have the resources required to overcome local infrastructure deficits. Reliance on PPPs (public-private partnerships) to bolster infrastructure investment may well prove fruitless given the negative experiences Canada’s peers have had with PPPs and the already evident frustrations with Canada’s existing pursuits in this area. Falling tax rates have failed to attract foreign direct investment flows into Canada, suggesting that tax competitiveness is not a sufficient incentive to overcome the reputational issues associated with inconsistent federal investment policies and growing regulatory and bureaucratic delays. Addressing these issues will require a stable and long-term strategy (one not subject to Canada’s federal electoral cycles) and a serious look at the timeframes and delays for regulatory and bureaucratic processes. We suggest the federal government place a higher priority on infrastructure investments in critical areas such as trade and transportation infrastructure. These types of infrastructure play an outsized role in supporting national productivity and income. Further, attracting significant levels of private investment will likely benefit from a consistent and predictable trade and transportation infrastructure strategy. Canada requires an integrated and strategic national approach to infrastructure policy and investment. This approach must be based around a long-term focus and will require coordination among federal, provincial, municipal and First Nations governments and the private sector (including coordination with Canada’s large pension funds, which represent a significant untapped source of financial capital). Provincial governments have already expressed an interest and willingness to collaborate on a national infrastructure strategy based on the corridor concept, and the Senate Standing Committee on Banking, Trade and Commerce has similarly acknowledged the potential merits of applying the corridor concept. Given these endorsements and the evidence presented above, it is incumbent on the federal and other governments to act on formulating a stable, long-term and strategic national infrastructure strategy that pairs government investment and policies to attract private sector investment in all kinds of infrastructure, but most notably in transportation, warehousing and logistics infrastructure. As part of this, it is critical that Canada address its serious issue of regulatory and policy uncertainty, delays and burdens as these appear to be the most critical aspects of our declining reputation and the most pernicious impediments to achieving infrastructure investment goals and priorities

The Economics of Telecommunications in Canada: A Backgrounder

We examine the role that the telecommunications sector plays in the Canadian Economy. This examination is predominantly based on an analysis of data from Canada’s system of National Accounts. Through examination of upstream and downstream value flows we itemize direct contributions of telecom in the form of upstream production generated by the sector, value added generated by the sector as well as downstream production. We also assess recent trends in telecom service levels, prices and the resulting labour income and investment behavior in the sector. Our assessment also includes projections of the relationship between telecom capital stock and overall Canadian GDP and GNP. We close with a discussion of the policy implications of the current regime of wholesale price regulation in the telecom sector and how this relates to investment incentives and by extension the overall health of the Canadian economy

Assessing the Viability of Smaller Municipalities: The Alberta Model

A confluence of economic and social trends has created significant challenges for smaller municipalities in jurisdictions across the advanced industrial societies. Population stagnation or decline and the concentration of major industries in metropolitan centres have weakened the economies of smaller communities and frequently triggered fiscal crises. This leads to serious challenges not only for the local communities but for other levels of government. Responses to this challenge from provincial and national governments have followed a variety of paths. In some cases, governments have opted for major reorganization. This may entail a shift to regional forms of government or support for amalgamations or annexations by larger, financially stronger municipalities. In Canada, Manitoba and New Brunswick provide two recent examples of provincial governments that have chosen sweeping changes to their systems of local government. Alberta, by contrast, has elected a case-by case approach to municipal reorganization. The Ministry of Municipal Affairs has developed a process for viability reviews of municipalities facing serious fiscal challenges. This approach reflects the stronger economic state of most municipalities in the province; at this point, there is no need for a sweeping reorganization of municipal government. To date, 24 municipalities have undergone a viability review and 14 have elected to dissolve. In doing so, they become hamlets in the surrounding County or Municipal District. This process has worked well for Alberta, but challenges remain. Dissolution does not solve all of the problems that communities are facing; the problems that led to dissolution remain and become the responsibility of the absorbing entity. And more municipalities are likely to experience the difficulties that have led others to dissolve. Monitoring the health of local communities and providing support to both struggling municipalities and the counties and districts that may assume responsibility for them will be needed to ensure the sustainability of Alberta’s existing municipal framework

Managing Airbnb: A Cross-Jurisdictional Review of Approaches for Regulating the Short-Term Rental Market

Canada’s short-term rental (STR) market has grown considerably in recent years, resulting in a heightened focus by local governments on adopting regulatory approaches to manage it. Indeed, since 2018, an increasing number of Canadian governments (largely cities) have introduced regulatory frameworks to both mitigate perceived negative impacts of the STR market, as well as reap some of its benefits. In light of the gap in Canada-focused research on STR regulation, this article analyzes in comparative perspective the regulatory approaches adopted in 11 Canadian jurisdictions in response to the rise of platform-mediated home sharing. We find that aspects of regulation, such as licensing and registration, are increasingly a question, not of “if,” but rather “how” and “to what extent,” with the most promising approaches being those that reflect sophisticated understandings of the range of activity that plays out in the market and the various actors, including platforms and property managers, involved. For jurisdictions looking to introduce or tweak approaches going forward, there is potential benefit in reframing market regulation as a governance issue, rather than a technical legal problem. From this standpoint, of particular promise are joint governance approaches which involve municipalities and other local jurisdictions implementing distinct rules within the context of an overarching provincial framework

Canadian Competitiveness for Infrastructure Investment

This paper provides a broad overview of the infrastructure investment landscape in Canada and our reputation as a competitive destination for such investment. We compare the Canadian infrastructure investment environment and recent outcomes with those of a set of peer nations (G7 countries plus Australia). Canada has serious reputational issues relative to our peer group when it comes to attracting investment in infrastructure, and these issues correspond to declining rates of foreign direct investment inflows. Federal government spending on infrastructure is also declining, implying an overall lack of investment in infrastructure. This lack of investment is, in turn, manifesting as an increase in Canada’s infrastructure deficit and an overall decline in the reputation of the quality of existing infrastructure. Estimates of Canada’s infrastructure deficit range up to $600 billion, and the investment shortfalls contributing to this deficit are particularly apparent in transportation and trade infrastructure. Canada has fallen sharply to last place relative to the G7 and Australia in terms of infrastructure and logistics quality. The most prominent issues driving Canada’s declining reputation as a destination for investment include a sharp slide in the ease of doing business, which, in turn, is caused by perceived regulatory and bureaucratic delays (including the time required for construction permits). An inconsistency in federal infrastructure funding programs and policies (tied to federal election cycles) is similarly problematic. While most of Canada’s public infrastructure investment is made by provincial and municipal governments, their smaller and more variable shares of tax revenues do not ensure stable and sufficient levels of infrastructure investment in many regions. This pattern also serves to promote regional inequality, since regions suffering from poor infrastructure may not have the resources required to overcome local infrastructure deficits. Reliance on PPPs (public-private partnerships) to bolster infrastructure investment may well prove fruitless given the negative experiences Canada’s peers have had with PPPs and the already evident frustrations with Canada’s existing pursuits in this area. Falling tax rates have failed to attract foreign direct investment flows into Canada, suggesting that tax competitiveness is not a sufficient incentive to overcome the reputational issues associated with inconsistent federal investment policies and growing regulatory and bureaucratic delays. Addressing these issues will require a stable and long-term strategy (one not subject to Canada’s federal electoral cycles) and a serious look at the timeframes and delays for regulatory and bureaucratic processes. We suggest the federal government place a higher priority on infrastructure investments in critical areas such as trade and transportation infrastructure. These types of infrastructure play an outsized role in supporting national productivity and income. Further, attracting significant levels of private investment will likely benefit from a consistent and predictable trade and transportation infrastructure strategy. Canada requires an integrated and strategic national approach to infrastructure policy and investment. This approach must be based around a long-term focus and will require coordination among federal, provincial, municipal and First Nations governments and the private sector (including coordination with Canada’s large pension funds, which represent a significant untapped source of financial capital). Provincial governments have already expressed an interest and willingness to collaborate on a national infrastructure strategy based on the corridor concept, and the Senate Standing Committee on Banking, Trade and Commerce has similarly acknowledged the potential merits of applying the corridor concept. Given these endorsements and the evidence presented above, it is incumbent on the federal and other governments to act on formulating a stable, long-term and strategic national infrastructure strategy that pairs government investment and policies to attract private sector investment in all kinds of infrastructure, but most notably in transportation, warehousing and logistics infrastructure. As part of this, it is critical that Canada address its serious issue of regulatory and policy uncertainty, delays and burdens as these appear to be the most critical aspects of our declining reputation and the most pernicious impediments to achieving infrastructure investment goals and priorities

Why Existing Regulatory Frameworks Fail in the Short-term Rental Market: Exploring the Role of Regulatory Fractures

Over the past decade, home-sharing has evolved from fringe activity to encompass a booming short-term rental (STR) market of global scale. This rise has not been without criticism, as Airbnb and other STR platforms have been charged with exacerbating over-tourism, gentrification, and housing issues and engaging in anti-competitive behaviour. On the other hand, the STR market has produced benefits, sparking new activity in local economies and innovation in the travel accommodation sector. In this paper, we explore the nature, evolution, and impact of platform-mediated home-sharing to arrive at a sophisticated conceptualization of the STR market and its complications. We then use this understanding to demonstrate the ways in which existing regulatory approaches—built upon traditional ideas of market composition and dynamics—are inadequate for managing the novel STR market. In particular, we argue that attempts at regulation have been hindered in three ways: first, by a lack of attention to the diversity and complexity of the STR market; second, by a failure to conceive of STR markets as three-sided and involving the active participation of platforms; and third, by a tendency to characterize various forms of market activity as regulatory violations, when the concept of regulatory fractures—instances in which new modes of activity do not map well onto existing frameworks, disrupting regulatory effectiveness—is more apt. Ultimately, we contend that the effective management of the STR market hinges on the ability policymakers to both reconceive of the STR market and the activity that plays out within it, as well as re-imagine and innovate beyond traditional regulatory approaches. We conclude by considering ways in which regulators might begin to do so, including through a discussion of the potential of co-regulatory approaches