Politicians love cutting the ribbon at new capital projects.
The politicos who write their talking points also love these events. Even before ChatGPT, it was easy to write a few bullets talking about how the inspiring leadership of their boss produced a shiny new facility that would benefit Joe and Jasmit Yukoner for years to come.
You just had to be careful if the press conference was at an active construction site in case the News’ photographer caught your minister looking weirdly goofy in an obviously never-worn-before hard hat.
Sadly, however, some fiscal infrastructure trends are making these events less fun.
We have entered the age of what accountants call “maintenance capital.”
Capital is generally what you invest to build big assets that will last for many years. Maintenance capital is when you have to invest in repairs and upgrades to capital assets you built years before.
You don’t get a new asset to expand your fleet. You are spending big money just to maintain the status quo.
It’s like when the transmission falls out of your pickup the day after the warranty ends. Your expensive new transmission will last for years, but you still only have one functioning pickup.
Maintenance capital is now consuming a hefty chunk of the Yukon government’s capital budget.
For example, the replacement of the Teslin bridge on the Alaska Highway will cost, at latest estimate, $184 million.
Yukon government communications staff called it the “most significant infrastructure project ever undertaken” in the history of the Yukon. Which, by the way, is an obviously improbable claim for a replacement bridge. It’s as if their version of ChatGPT thinks our version can’t look up significant-er projects such as the Alaska Highway, White Pass railway or Skagway road.
Between $46 million and $59 million is pencilled into the latest capital budget to replace Whitehorse Elementary School.
The figure for work at Erik Nielsen International Airport is between $115 million and $130 million.
Dawson City’s recreation centre project is similar. At the Dec. 5 meeting of Dawson City council, a $100 million design was presented. As reported in the News, it included a skating rink, curling rink and lounge, gymnasium, fitness centre, running track, bouldering wall, sauna, indoor playground, canteen, multiple-purpose rooms and offices.
This, unfortunately, would cost more than the $65 million the Yukon government allocated to the project. So it is back to the status quo for Dawson City. The new plan looks like it will have just hockey and curling rinks, like the current facility.
Maintenance capital projects are important. One doesn’t want bridges collapsing or jets landing on potholed runways.
But it does represent the Yukon maturing. When the Teslin bridge originally opened, it was a marvel. You could drive from the Yukon to the rest of North America!
The grocery store could truck milk direct from cows in Dawson Creek, instead of sending it on a leisurely sea voyage up the Inside Passage to Skagway then paying for space on the monopoly White Pass railroad.
I don’t think anyone shipped milk before the Teslin bridge. Eight hours rattling on the train from Skagway would have turned it into butter. Yukoners drank powdered milk and evap.
I spoke to a student who attended the opening classes at Whitehorse High School, as Whitehorse Elementary was originally known. Her class had previously been taught in the former Dowell Construction building, a wartime-era wooden structure with no gym or playground.
When the new school opened on what was then the edge of town in 1952, students were amazed. It had all the modern educational conveniences. A big-city gymnasium! Big playing fields! A gun range in the basement!
Today, like an old pickup with a new transmission, the benefits are real but less exciting. The 1952 school enabled physical education to be added to the curriculum. The 2025 school will be safer from earthquakes and more energy efficient — important things — but will the kids’ education be significantly improved?
The impact of maintenance capital on the budget is heightened by the timing of these projects. In the midst of a housing crisis and labour shortage, contractors are pricey.
The Yukon’s gross capital budget, including federal money, for the next five years ranges between $359-$484 million per year. Just the four projects mentioned above add up to over $400 million, or a fifth of the total spend. And that’s before any more cost overruns.
So what does this mean for Yukoners?
First, it’s not the 1950s anymore. It will be tougher to get government money for new things. For example, the new Arts and Heritage Resource Centre has been quietly taken out behind the woodshed by government capital planners and done away with. Budgeted for $28.5-40 million in last year’s capital budget, this year’s budget zeroes out the project from 2024 onwards.
Second, even getting maintenance capital will be harder going forward. We have a lot of facilities built in the 1980s, 1990s and early 2000s. These aging buildings are getting ready, like the pickup above, to have transmission problems.
Third, we can expect the government to spend even less than it already does on economic infrastructure. This is infrastructure that unleashes private-sector economic activity. Back in the 1950s, they built projects such as the Schwatka hydropower plant and the Dempster Highway to enable development.
There is still some of this in the Yukon government’s plans, but a quick flip through the capital budget shows the competition from maintenance capital projects.
Money is needed to fix up the Whitehorse Grader Station and the morgue, bridge corrosion prevention, road drainage improvements, boat dock replacements, library renovations and so on. These things are important, but they also make it tougher to find money for new social housing, new renewable power plants and new health care equipment.
A sound capital budget has money for both maintenance capital and strategic new investments. We are not yet in a capital trap, when our capital budget is entirely consumed by upkeep on stuff we already have. But we are headed in that direction.
In the future, there will be more pressure than in northern infrastructure’s halcyon days to ensure our scarce capital dollars are invested in the projects that bring the most benefits. If you are seeking government support for your organization’s capital project, you should apply sooner rather than later. And with a strong business case that impresses the cost-benefit analysts more than the next project on the list.
Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.