Hon. Jerahmiel S. Grafstein:

Honourable senators, before commencing the discussion of this bill, I would like to commend Senator Lang for his opening statement. One of my first mentors in the Liberal Party was one of the greatest senators we have had in this chamber, and I was privileged to serve with him. The Honourable Daniel Aiken Lang, my senior and my mentor. If you are his namesake and half as good as he, you will make a huge contribution to this chamber. Welcome.

Honourable senators, with the current markets and the economy increasingly choppy and unpredictable, the time has come, once again, to confront a monumental economic and political task — a coherent rationale for urban infrastructure renewal and modernization of our cities.

Not since the end of World War II when the federal, provincial and municipal governments all recognized, each in their own way and in their own spheres, the pressing necessity to revamp and modernize our urban infrastructure, has the need been demonstrably greater. A recent, rather searing report from the Federation of Canadian Municipalities, entitled Danger Ahead: The Coming Collapse of Canada's Municipal Infrastructure, outlines the staggering cost estimates for decaying urban roads, transitways, waterworks, garbage incineration and better waste management across Canada, all in need of instant renovation and requiring reinvestment and modernization for our burgeoning cities.

As our cities grow, the nature of Canada's economic activity is changing. Services shaped, honed and polished in our cities are overtaking the older manufacturing jobs as growth factors in our economic growth. The aging city infrastructure, however, contributes to the loss of jobs, especially manufacturing jobs. In my city of Toronto and the GTA, the surrounding area, we have lost over 45,000 manufacturing jobs in recent years. We must reverse this slide in manufacturing value-added jobs not only in our cities but also across Canada.

If honourable senators are interested in the nature of national economies and their relationship to cities, read any recent book on economic history. I will mention a few: The Rise of the Trading State: Commerce and Conquest in the Modern World, by Richard Rosecrance; The Age of Extremes: The Short Twentieth Century, by the outstanding, rather leftist, economist Eric Hobsbawn; The Wealth and Poverty of Nations, by David Landis, to name a few. Or meander, if you will, through John Kenneth Galbraith's economic nostrums, and of course re-read Jane Jacobs' Cities and the Wealth of Nations. You will find common agreement in each of these books on economic growth.

Jane Jacobs, who lived in our city and passed away recently, noted in her classic work, Cities and the Wealth of Nations, that our cities serve as both engines of growth and creativity. One cannot divorce the nation's economic growth from the economic growth of our cities. The two are attached like Siamese twins. Cities propel our economic growth in all regions of the country. Value-added products and services are tested and marketed in our cities. New cultural products are created and distributed from our city centres and exported around the world.

Regretfully, honourable senators, our cities are now clogging our productivity. Even in this economic downturn, the inefficiencies of our urban landscape contribute to even greater lagging productivity, which is currently 15 per cent to 20 per cent less than our American counterparts, making our goods and services even less competitive in North America and in global markets.

The 2007 report of the Ontario Institute for Competitiveness and Prosperity compared our per capita GDP for workers to that of comparable states in the United States of America and showed that the range of productivity in the United States was higher by $20,000 per worker in three states, $14,000 per worker in 14 states, and $1,000 per worker even in Michigan, which has suffered a devastating economic downturn.

Honourable senators will recall that the Standing Senate Committee on Banking, Trade and Commerce had findings of the impact of economic productivity on our competitiveness. I urge the new senators, in particular, to read those reports of the Banking Committee. They withstand the test of time.

Productivity depends on speed and cost effectiveness. Each time a Canadian travels to work or within our cities pursuing their work, they are met with gridlock and our productivity goes down. A study last year noted that Canadian workers now spend 10 days a year commuting to cities. In Toronto, it is higher. It is 12 days a year — a day a month — which is totally unacceptable. Certainly, working in any city in Canada today is less healthy because of increased pollution directly due to increasing traffic gridlocks and road jams.

Our expressways, honourable senators, are misnamed. Rather than expressways, they should be called — and this applies to all cities across Canada — "moving parking lots." Traffic slowdown contributes to pollution from cars and trucks, new and old, forced to idle on our streets and highways. The increased costs to businesses and workers because of increased fuel consumption and lost time are measurable inefficiencies that we have allowed to inflate and fester within our cities.

That, honourable senators, does not take into account the cost of pollution on the health of workers or on our health budgets. As pollution rises in the city, the health hazards increase. That, in turn, is an increased cost and reduces our productivity, both in terms of loss of time and cost.

Residents of Canadian cities pay a higher percentage of real estate taxes for local services than do residents of comparable cities in the United States.

As Senator Art Eggleton, a distinguished former Mayor of Toronto, pointed out in the Senate last year, over 50 per cent of local revenue from our cities comes from real estate taxes, compared to the United States, where it is about half as much, around 25 per cent. This year, that ratio may be higher.

Some of our cities have failed to keep up with capital investments and renovations and demand more by way of help from transfer points from the federal government. Let us see what that means. It means that the federal government raises the taxes and the cities spend it. This should raise in the minds of some honourable senators the question of responsible government; the question of responsible governance.

There are varying degrees of accountability in this method and questions about clarity and transparency for taxpayers in order that taxpayers can decide whether their money is properly spent. Yet, municipal governments now estimate that at least $125 billion will be necessary to renovate old and decaying infrastructure, some 70 years old or more, such as Toronto's water system. A recent report of my own city of Toronto noted that the failure to renovate Toronto's water system or to keep up with modernization results in the loss of one third of the water due to old and leaky pipes. How efficient. Therefore, taxpayers and residents in Toronto pay 100 per cent for water but get delivery of only two thirds of that. Meanwhile, more and more people from rural areas continue to crowd into our cities. The urban-rural split is intensifying, not only in each city in Canada but around the world.

The previous federal governments' response, and I am not just referring to the current government but — and I want to make it clear — previous governments, was an episodic series of handouts, and we see it today in our action plan, which I will come to in a moment. It is difficult to get these numbers and I hope they are correct. Honourable senators will forgive me if they are not correct, because I have been trying to divine the numbers that are being spent by this government and previous governments for urban infrastructure modernization. It is hard to get these numbers.

The best we were able to judge was that the previous federal government planned to spend — and this was in the previous budget — $33 million in episodic handouts for all cities of Canada for all purposes over seven years for fixing our trade arteries, gateways, borders, corridors and infrastructure. That works out to nearly $1,000 per Canadian over seven years.

The current action plan is, I believe, roughly the same. I say roughly the same because I may be incorrect. Perhaps honourable senators on the government side can correct me, but based on my estimates on the analysis of the action plan we have been addressing today, the government has committed roughly $5 billion in the next year or so for urban infrastructure; but included in that are other elements not properly urban infrastructure, such as renovation to universities. It is hard to get the number, but for the purposes of the argument I will make it $5 billion. I hope that when the government does respond they will clarify these numbers. I have been working on them for some time and they are difficult to obtain.

In the scheme of things, $33 billion, or $5 billion in the next two years, does not come very close to the $125 billion estimated by municipal associations to be necessary for urban modernization. By the way, the $125 billion is only for current needs to repair existing systems. That is the estimate of the municipal associations. Stretching it out over 10 years, they need $230 billion in the next 10 years if one includes renovations not only for existing infrastructure projects but for new and expanded infrastructure projects for growth. It is $125 billion to $230 billion. The federal government is promising $33 billion over seven years — not nearly enough.

When confronted by the imperative choice of modernization or minginess after World War II, the federal government led with the building of the St. Lawrence Seaway and the Trans-Canada Highway, which were great objects of productivity. The provinces built province-wide expressways to line up with the Trans-Canada Highway and new commuter links and subways were built to link up with and overlap our aging rail lines and rights-of-ways. In the 1950s, Canada was put on the right path, on a fast path, on a moving escalator toward modernization.

Some cities have done better than others in managing their scarce economic resources. Some cities have not been as profligate as others. Some have a high respect for each and every one of its taxpayers' dollars. These well-managed cities should be rewarded and not penalized for their effectiveness and efficiency.

What to do? We can learn from some best practices from our American neighbours. There are municipal tax-exempt bonds, which have become a significant building block in the foundation of urban renewal and modernization. If you want to know where they are or how to invest in them, pick up The Wall Street Journal or The New York Times and you will find them listed in detail.

Financing not otherwise available or affordable on urban projects with revenue streams, such as mass transit, subways, waste management, drinking water systems, expressways and bridges, can be obtained from private market sources provided by individual investors in the United States. Studies in the United States show that for every $1 of tax-exempt bonds, 67 cents goes for reinvestment in municipalities. The other 33 cents goes to the tax-exempt bondholder. Interest costs in the market vary, as they will for each project, and they vary as well based on the city's track record of cost-efficiency, management and construction management. It forces the cities to be responsible for costs. It forces the city to be accountable for cost overlays.

Recent reports in the U.S. press note that the U.S. municipal bonds have a great value, rivalling the market for U.S. T-bills, with more attractive rates.

When I last introduced this bill in the previous Parliament, a colleague across the way asked a key question. I am prepared to answer it. Senator Murray asked a question about whether or not these municipal tax-free bonds would crowd out the public market. I will respond to that if he chooses to ask that question once again. It is more relevant today and it is more appropriate today than it was then. This time, honourable senators, I am ready with the answer.

This bill would allow average working families desperately looking for relatively secure investments to replace the loss of income trusts and other financial instruments and to receive a relatively secure and attractive rate of return. The bill's framework is simple. The Canadian Business Development Bank would be amended, reducing the costs of the new institution, to be cited as the proposed urban modernization and business development bank, to act as a vehicle of a bank style of due diligence, approvals and construction oversight. Cities would apply with a cost-effective plan for each renewal project to the urban modernization bank. Each project would be considered by the bank only after having been first approved by the province, since municipalities are creatures of provinces. Therefore, the bank would only review projects after the province has approved them.

If approved by the bank, the tax-exempt bond would be set, obviously varying from project to project and city to city, based on the market's estimate of each project's revenue stream and, of course, the infrastructure management track record of construction, supervision and management revenue by each city. It would make each city and each segment of each city accountable to a revenue stream.

In the United States, at the end of 2005, there was in excess of $2.2 trillion American municipal bonds in their marketplace. Comparing Canada at one tenth the size, that would make available to the Canadian market in excess of $200 billion from pools of Canadian investment by Canadian investors to satisfy our made-in-Canada needs.

By 2008, honourable senators, this number in the United States had climbed from $2.2 trillion to $2.7 trillion and it is still on the increase. In a time of scarcity of credit, this would open up new opportunities for banks and others to allow Canadian investors to invest in something that is relatively secure. This is a huge opportunity that was not available when I introduced the bill two years ago, because now there is a credit crunch. This would make credit readily available, I believe, by the banks and financial institutions, to investors, and they would be able to judge the security of that investment by the city in which they live. They could live and invest in their own city.

Canada's urban infrastructure continues to age rapidly.

According to Statistics Canada, Canada's waste management treatment systems have already used up 63 per cent of their service life; roads and highways have used 59 per cent; and bridges, 49 per cent. Bridge repair and replacement is becoming a necessity of safety and security.

I commend the government because I notice that its action plan includes a number of infrastructure grants to be given for bridge repair, which is desperately needed. This repair is a question of safety.

These figures are only mean averages. In many instances, the situation from city to city and project to project is worse. Only this summer, we heard reports of bridges falling apart in Canada. These bridges are dangerous health hazards and nothing is being done or will be done in the short run as those bridges continue to erode.

In the 1930s, in New York City, there arose a consensus for the construction of bridges and other infrastructure. This construction was financed by toll bridges and tunnels leading into Manhattan, and to this day that system works. It is revenue-producing and it works.

It took more than 20 years for Boston to build underground tunnels and bridges on a revenue-driven, user-pay basis. The tunnels and bridges have modernized downtown Boston, which was a traffic nightmare.

The Federation of Canadian Municipalities projects costs of up to $125 billion for renovating existing structures and another $115 billion is required for new infrastructure needs. This bill puts the onus where it should be; namely, on each municipality to come up with carefully costed, revenue-projected investments over time periods, The benefits to the city will be clear. Cities will be able to plan and time their plans more cost effectively on this basis as opposed to episodic handouts for long-term projects that could be fully funded from the outset. It will allow them to be much more cost-effective based on a market interest rate and determined by each city's record of previous economic management.

This bill will herald a rebalancing of responsible, accountable government where each level of government spending is the government that is taxed so that voters and taxpayers may judge clearly the effectiveness of their public officials — the heart of responsible government.

The federal government will forgo tax exempt revenue from these bonds, but this revenue will be much less than under the current plans for grants that never seem to start on time and have no comprehensive means of accountability.

I will give honourable senators an example. Many senators here know Toronto. For the last ten years, there has been a plan to build a rail line from Union Station to the airport to unclog the 401 and the Gardiner Expressway. I have been present at eight announcements in the last eight years. Mr. Chrétien's government, Mr. Martin's government and, most recently, Mr. Harper's government have announced that construction.

Honourable senators, let us look at that project. Union Station is there; the rail line is there; the right-of-way is there; and the airport is there. Eight times in the last eight years, successive governments have promised to build that artery. It is still not built. If that plan had been funded, it could have been on the road years ago.

As I said, the federal government would forgo tax-exempt revenue from these bonds, but the revenue would be much less than under the current grants programs under which projects never seem to start on time and have absolutely no comprehensive means of cost accountability. Honourable senators, remember that this government, we are told, unlike previous governments, is sensitive to accountability. This government wants accountability. As a matter of fact, we passed the Federal Accountability Act. I assume that this bill would be much more interesting to the government than it would be to our side because the government is obsessed with accountability.

Bill S-203 is an accountability bill. We need these programs. This plan is not a substitute for existing grants. It is an additional tool available to cities that choose to use it. There will be ample room for existing and future federal grants to ameliorate the problems in the cities that do not have a sustainable, ample or viable revenue base, or those that need extraordinary or supplemental grants by way of investment in the national interest. This plan does not replace any existing program; it gives cities an option to move ahead more quickly if they choose to do so.

In that way, the federal government's direct investments, together with those of the provinces, will be better able to focus on areas of greater need, such as poverty, which should be a pressing concern of every level of government as it is a matter of pressing national interest.

Honourable senators, let history be our guide. There were city states before nation states. Commerce, manufacturing and markets resided in the cities, which acted as a liberating gateway to freedom and to trade. As cities grew as modes of attraction, manufacturing and marketing, wealth increased. As great cities like Rome declined, new cities arose as engines of growth to take up the new opportunities for growth, productivity and ingenuity. The rise of nations — the rise of Canada — can be directly traced and attributed to the rise of productive and innovative cities. As go our cities, so goes Canada.

Honourable senators, this bill is not a panacea. Bill S-203 is but a new and additional tool to be made available to cities that wish to respond quickly and sustainably to their pressing economic needs. There is no question that cities need reinvestment in their capital plan. There are many other new, additional ways to obtain this investment. Time does not allow me to make a more fulsome analysis of other alternatives. This is but one.

This bill does not impede or change any existing federal plan or programs. It would be irresponsible for me to propose such a bill. However, Bill S-203 will provide another sound, rational, transparent and accountable economic and sustainable building block for modernizing our cities while respecting the taxpayers' dollars, improving economic efficiency and productivity, and improving the health of our cities and their citizens.

Modern cities can be healthier. Modern cities can be more productive. In the long run, healthier cities are more productive and will produce more tax revenues and reduce health costs.

Finally, I urge all honourable senators interested in economics and economic growth to read a fascinating new book by James Buchan entitled Capital of the Mind: How Edinburgh Changed the World. For honourable senators of Scottish descent — I am not of Scottish descent, but I am frugal — I believe Scotsmen can lead the way as they did in Edinburgh.

In the 17th century, Edinburgh, a small city of 40,000, decided to change from a "sink of abomination" and transform itself into the "Athens" of Great Britain and the then existing Western world. This was in the 17th century.

Senator Stollery: It was the 18th century.

Senator Grafstein: It was the 17th century.

How did this small town in the northern part of the British Isles do this? The city fathers of the day decided they would attract the best minds: the best philosophers, the best economists, the best teachers, and the best artisans, workers and scientists. In the process, Edinburgh overtook Paris, then the leading capital of Europe in every area of art, craft and science.

Therein, honourable senators, lies the lesson for civic leaders who fail to lead and fail to inspire their own citizenry and cities to reach for greatness, ingenuity and modernization. All cities can become capitals of the mind.

Honourable senators, I have taken ample time to explain this proposition to you. Now is the time to propel Canadian citizens into the 21st century, to give them a chance, an option, to compete with new and exciting cities around the globe. I urge speedy consideration of this bill on second reading in order that a committee of the Senate can be struck, hopefully in the near future, to hold hearings to gauge carefully the cost benefits of this bill and the representations I have made in support of these measures. I urge the support of honourable senators.

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