A new report prepared for the Residential and Civil Construction Alliance of Ontario (RCCAO) suggests that if the provincial and federal governments don’t work together to help their municipal counterparts recover from the economic effects of the COVID-19 pandemic, employment and tax revenues will take a major hit over the next 30 years.

It’s no secret that municipal governments are facing serious economic shortfalls as a result of the pandemic. Many services are on hold, staff are being laid off, and revenue streams such as transit fares and user fees have all but dried up as members of the general public observe physical-distancing guidelines.

The Federation of Canadian Municipalities recently estimated that local governments face a short-term financial gap of between $10 billion and $15 billion. Toronto Mayor John Tory has forecasted a loss of revenue of $1.5 billion by the end of this year, while Ottawa Mayor Jim Watson estimates his city loses $1 million in revenues daily.

The RCCAO report, Navigating the COVID-19 Socio-economic Shock: How Infrastructure Investments Will Facilitate Future Growth in Ontario, was prepared by the Canadian Centre for Economic Analysis (CANCEA). It suggests that growing municipal operating deficits could compromise those infrastructure investments being targeted by the federal and provincial governments as part of their plans to reboot the economy during the pandemic.

It further warns that if the Government of Ontario were to dip into its provincial capital budget to help alleviate municipalities’ deficits, it would have less money available for new infrastructure projects. Alternatively, were the federal and provincial governments to do nothing to help municipalities close their deficits, the lower levels of government would have to cut even more jobs, and further erode their abilities to serve the public.

“Governments face a stark choice as they plan for the post-COVID-19 recovery,” said RCCAO executive director Andy Manahan. “Failure to address municipal deficits and maintain infrastructure spending would have devastating economic consequences on Ontario citizens and businesses.”

The report researchers propose two scenarios over the next 10 to 30 years, based on differing levels of infrastructure spending. In a risk scenario, the federal and provincial governments’ infrastructure investments are unchanged from pre-pandemic levels—at 0.4 percent and 2.4 percent of GDPs respectively. Additionally, the province draws from its capital budget to help offset municipal deficits.

A preferred scenario sees federal and provincial infrastructure investments again unchanged, but the federal government makes an additional contribution of $3 billion to Ontario’s capital budget that covers 56 percent of municipal operating deficits.

The difference between the two models is stark.

In the risk scenario, the province loses 55,000 jobs over 10 years and more than 79,000 over 30 years. Moreover, the federal and provincial governments lose $8 billion and $12 billion in taxation revenue over the same period, and $36 billion and $51 billion over 30 years.

The preferred scenario, on the other hand, creates an additional 61,000 jobs over 10 years, while boosting federal and provincial revenues by $9 billion and $13 billion, respectively. Over 30 years, the job gain climbs to 189,000 and the federal and Ontario governments will see an increase in their taxation revenue of $86 billion and $123 billion, respectively.

RCCAO has said it welcomes the announcement of the federal government to accelerate $2.2 billion in funding from the Gas Tax Fund to support municipalities. However, it urged federal Finance Minister Bill Morneau and Infrastructure and Communities Minister Catherine McKenna to heed its report findings.

In addition, the alliance says it is concerned by the potential of the COVID-19 crisis to worsen Ontario’s already-growing infrastructure gap. While spending on state-of-good repair projects is labour intensive, and often seen as a good solution to providing immediate economic impact, the report stresses that also investing in major projects is important for boosting long-term growth.

“These are unprecedented times which demand bold measures,” said CANCEA president Paul Smetanin. “Decisions that are made today about how much to invest in infrastructure and how to address municipal operating deficits will have far-reaching impacts on our future.”