Will Canada's 'New Deal' for Cities Run Out of Gas?

In response to the political movement for a "new deal" for Canada's cities, successive Federal governments have instituted a Gas Tax Fund to provide Canadian municipalities with a supposedly stable means to finance their infrastructure needs. The 2008 Federal Budget extended the fund to beyond 2013-14 to become a permanent measure. Agreements were drawn up between each of the provinces and Ottawa to set specific amounts, based on per capita need and other principles. The Fund is to be directed by the provinces towards "environmentally sustainable municipal infrastructure projects that contribute to cleaner air, cleaner water and reduced greenhouse gas emissions."

Now, however, this promise of stable funding is being undermined by the -- entirely predictable -- consumer response to high gas prices. In the United States, pump prices soaring past $4.00 a gallon have resulted in such a significant decrease in American motoring that the federal highways trust fund -- which is supported by gas taxes -- is in financial trouble. According to the Los Angeles Times,

"The fund, set to finance about $40 billion in transportation projects next year, is increasingly strained. And the problem has taken on greater urgency as lawmakers face a backlog of projects to maintain the nation's aging interstate highway system and ease traffic congestion.

The federal gasoline tax is tied to every gallon sold, not every dollar spent, so federal gas tax revenue goes up only if consumption increases. This year, consumption is projected to drop for the first time since 1991. Vehicle miles traveled on the nation's roads are trending downward for the first time since the oil shocks of the late 1970s and early 1980s, according to the Cambridge Energy Research Associates consulting firm. The shortfall was projected at $3.2 billion this year, but it is expected to be higher when the White House budget office issues a revised estimate this month."

Of course, here in Canada consumers are also scaling back their use of gas. A June 2008 poll shows that

"Canadians are also continuing to change their travel habits as a result of rising gasoline and fuel costs, with 51 per cent cutting back on use of their automobile, up marginally from the 48 per cent who planned to cut back last year. Forty-four per cent say they will likely change vacation plans as a result of both higher gas prices and airline fuel surcharges"

While most environmentalists are cheering reduced driving, Canadians need to step back and consider what this is going to mean for all the sustainable infrastructure projects that are supposed to be funded by the Gas Tax Fund. After all, Canada's cities are facing a staggering $123 billion infrastructure deficit; as the energy crisis deepens will Canadians find their infrastructure funding drying up, as it now is in the United States? If so, the provinces may eventually need to renegotiate with Ottawa some new way to financially address this deficit.

While charging social bads to pay for social goods may seem like a desireable strategy, the root problem here of course is that the social bad in question will eventually run dry. The end of cheap oil is going to force us to rethink how we plan -- and pay for -- just about everything.