Canada's public infrastructure - schools, hospitals, electric power systems, highways and water pipes - is crumbling, experts say.

"Everywhere (Canada's infrastructure) is in serious need of repair and upgrading," says Saeed Mirza, professor of structural engineering at McGill University and a leading authority on Canada's failing infrastructure.

"Unless the problem is addressed in a more concerted way by government, Canada's competitiveness, economy and eventually our quality of life will be severely undermined," he says.

But the cost is an almost incomprehensible number - Mirza estimates it could be as high as $125 billion - and it is rising. By comparison, the Ontario government's total annual expenditures are about $80 billion.

Companies stop investing where there is no infrastructure or the existing infrastructure is declining. And businesses that must contend with such things as poor roads and transportation systems become less competitive, resulting in plant closures and job losses, Mirza says.

"It (the infrastructure deficit) is like a cancer in a human being. Unless it is arrested in time, it grows and grows until it is fatal," he says.

Last year, several groups, including the TD Bank Financial Group and the Institute for Competitiveness & Prosperity (ICP), warned that Canada's level of competitiveness is continuing to fall.

The ICP report laid the blame on federal and provincial governments for "shifting their spending balance away from investment in infrastructure and post-secondary education towards consumption, mainly in health care and social services."

Government spending on public infrastructure began to drop in the late 1970s when the federal and provincial governments ran into deficit problems.

In 1962, Canadian governments allocated $22 of every $100 they spent to public infrastructure. By 2002, government spending on public infrastructure had fallen to $12 for every $100, according to the Canadian Council for Public-Private Partnerships (CCPPP).

In a report released late last month, Statistics Canada said that after 20 years of steady increases in the average age of infrastructure the tide has started to turn.

The report tracked four main infrastructure components over the period of 1963 to 2003.

In 2003, the average age of all infrastructure combined was 17.4 years, down from an average of 17.5 years in 1999, but not as good as the average of 14.7 years in 1973.

But some of the decline in the average age of all infrastructure can be attributed to the fact the agency counted large amounts of brand-new roads and sewers, built in the new subdivisions fuelled by Canada's housing boom.

"The study supports, to some degree, the widely held view that Canada's infrastructure has aged," the report concludes. "However, the aging trend has stabilized in recent years. In 2003, average age actually diminished slightly, thanks to recent increases in investment."

The infrastructure situation is worst in Canada's oldest provinces, Ontario, Quebec and the Maritimes, where roads, municipal water systems, hospitals and schools are older and more extensive because the areas were settled earlier and generally have larger populations than the Western Canadian provinces.

Older neighbourhoods and city core areas also are aging and need massive injections of government money, says James Knight, chief executive officer of the Federation of Canadian Municipalities.

The federation estimates towns and cities across the country are facing a $60-billion infrastructure tab it believes Ottawa should assist in paying.

"We can smile and say 'all our work is having an outcome,' but let's not minimize the challenges and the investments we need to make in the future," Knight says.

The Statistics Canada report says the importance of good highways, bridges, water and sewer systems in enhancing economic output is considerable.

It estimates that over the past 40 years, growth in infrastructure has accounted for about 20 per cent of productivity gains in the business sector.

CCPPP director Jane Peatch says people have difficulty grasping the magnitude of the situation "because of the size of the number.”

The CCPPP, which was established in 1993, promotes public-private partnerships as a way to rebuild Canada's public infrastructure using private-sector capital and expertise.

The council estimates the cost to rebuild Canada's infrastructure ranges from $50 billion to more than $125 billion. By comparison the Ontario government allocated $57 million in 2005 for infrastructure renewal.

It is an "enormously scary number," Peatch says. "It is all too easy when you're faced with other financial pressures to put these (infrastructure renewal projects) on the back burner."

Across Canada, governments have begun to realize that decades of infrastructure neglect imperil the economy and the country's long-term quality of life, Peatch says.

In the past few years, the federal and some provincial governments have established separate ministries to address the situation.

The federal government established Infrastructure Canada in 2002 to co-ordinate its infrastructure funding.

In October 2003, Ontario established the Ministry of Public Infrastructure Renewal. The ministry has a budget of $87 million in 2005-2006 and is responsible for co-ordinating investment.

"The federal and provincial government, especially Ontario and Alberta, have been making some progress in our infrastructure deficit," Mirza says.

Peatch says the "requirement for public infrastructure has eclipsed the ability of government to meet these needs" and financing increasingly will need to come from private financing, essentially through public-private partnerships.

In a November 2005 speech to the CCPPP, Bank of Canada governor David Dodge said: "Private financing of infrastructure through the markets tends to lead to better assessment of the risks of the investment because financial markets are better able to measure and price risk."

Says Peatch: "Private sector assumes the risk to keep the project on time and budget. This is a discipline that you will just not see in the public sector. It doesn't exist because there is no penalty in the public sector," she says.

In November, the provincial government formed Infrastructure Ontario to manage major infrastructure projects using alternative investment strategies such as public-private partnerships.

The Ontario Ministry of Public Infrastructure Renewal's five-year plan, Renew Ontario 2005-2010, is expected to generate more than $30 billion in funding from public and private financing. Priorities include $5 billion for heath care, $10 billion for schools and universities, and $6.9 billion to improve transportation and transit systems.

Over the last decade, the federal government has committed about $12 billion for infrastructure projects across the country.

Under the infrastructure program, the federal government will fund improvements to Canada-U.S. border crossings, urban transit, water-treatment facilities, roads and bridges.

In addition, the federal government announced last February a gasoline tax rebate to municipalities of $4-to-$5 billion by 2009 for infrastructure projects.

Canada is not breaking new ground in turning to the private sector for financing the construction and operation of publicly owned facilities.

Britain, France, Australia and Germany have already forged ahead in using private-sector funding to rebuild their deteriorating infrastructure, Peatch says.

The United States, which faces a herculean task in rebuilding its infrastructure, has also turned to the private sector for funding. More than 20 states now have legislation proposed or enacted permitting public-private financing.

"They have realized how fast they can move forward on projects once they engage financing from outside, " Peatch says.

One of the largest public-private financing projects in Canada's history is the Highway 407 Express Toll Route. The highway, which cost $1.5 billion to build, opened to traffic in 1997. It was to be financed with tolls paid over 35 years, at which time the operator was to return it to the province.

In 1999, the Progressive Conservative government of then-premier Mike Harris sold the highway for $3.1 billion under a 99-year lease to an international consortium.

The current Liberal government has quarrelled with the private owners over their right to raise toll rates.

Despite the public criticism of the toll-collection process, Peatch says "by world standards, this is a very, very good project."

She says no Ontario government has ever explained the concept of the toll road because of other political agendas they're trying to fulfil. "It is the users of the highway who pay for the building of new lanes, not the taxpayers.

"Without the 407 there would have been no highway for the traffic north of (Highway) 401. All the traffic would have been on the 401," Peatch says.

"Ironically, the ridership on the highway goes up every time they've raised the fees to pay for another lane. Without the highway, trucks would be sitting on the 401 with twice the traffic it has now," Peatch says.

Despite the public's sometimes negative reaction to private-public projects, Peatch says the private financing of public infrastructure is critical to rebuilding infrastructure.

Throughout the world, governments facing taxpayer fatigue have turned to the public-private partnerships for financing.

As well, rebuilding infrastructure provides Canadian companies with opportunity to develop the expertise needed to take part in infrastructure projects around the world, she says. Canadian companies such as Aecon and SNC Lavalin that have rebuilding projects in Canada are also involved in vast world-scale projects.

While Canada has been slow to embrace the private financing of public infrastructure, Peatch is concerned about moving too quickly in the opposite direction. "Too many projects flooding the market at the same will dilute the capacity. We will not be able to keep up."

- with files from The Canadian Press

(Charles Wyatt can be reached at wyatt@businessedge.ca)