City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Prepared by:
BuildForce Canada 220 Laurier Avenue, Suite 1150 Ottawa, ON K1P 5Z9
Tel: 613-569-5552 ext. 222 [email protected]
SEPTEMBER 2020 City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
TABLE OF CONTENTS Executive summary ...... 2 Methodology ...... 5 Expenditures and tax estimation ...... 5 Impact analysis ...... 6 Estimating economic impacts ...... 6 Introduction ...... 8 Provincial construction market economic outlook ...... 9 Residential ...... 10 Non-residential ...... 11 Labour market ...... 12 Project impact analysis ...... 13 Direct employment assumptions ...... 15 Project economic impacts analysis ...... 15 Construction phase impacts ...... 16 Operations phase impacts ...... 18 Summary ...... 21 Appendix A ...... 22 Appendix B ...... 24 Macroeconomic model – Alberta ...... 24 Short-term operation ...... 24 Long-term operation ...... 26
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
EXECUTIVE SUMMARY On behalf of the City of Airdrie, BuildForce Canada has undertaken an economic and construction impact analysis to quantify the benefits associated with the proposal to build the 40th Avenue bridge and accompanying Queen Elizabeth II (QEII) Highway Interchange. The study modelled the potential economic impacts of building these key transportation infrastructure assets immediately, and the induced regional economic development returns over a 30-year period, the value of which could be as high as $20 billion once fully realized.
The proposed 40th Avenue bridge and QEII Interchange is an estimated $65 million project that once completed, will improve access to the southern limits of the city and improve the flow of traffic along the QEII Highway. The highway is the principle north-south roadway corridor in Alberta and is part of the CANAMEX trade corridor. Located approximately 30 kilometres north of Calgary, the links between the two cities are very strong, with many residents of Airdrie commuting daily to Calgary and surrounding areas for employment, education, and leisure opportunities.
Based on City of Airdrie data, traffic volumes for the current city access points to the highway are growing, with significant traffic congestion now occurring during peak morning and afternoon periods. The construction of the proposed 40th Avenue bridge and QEII Interchange would not only help reduce traffic congestion in Airdrie, but also at the critical junction points between the city and the QEII Highway, thereby contributing to higher levels of motorist safety in the region.
Earlier studies1 identified the project as invaluable to the region, establishing a city population threshold of 65,000 as the critical point at which an interchange should be considered to alleviate the development of local traffic congestion and the accompanying public safety concerns. The City of Airdrie’s population exceeded 65,000 in 2018, with the population now estimated at approximately 72,000. As the city continues to grow, an interchange will eventually need to be built to accommodate the anticipated population growth in the southern end of the city.
In addition to accommodating commuter and population growth in southern Airdrie, the construction of the 40th Avenue bridge and QEII Interchange should permit land developments currently on hold due to access constraints to proceed, in addition to providing the community with the critical transportation infrastructure it requires to develop future lands. The city estimates that the project will facilitate the development of some 7,539 acres of land, which includes construction of residential units, and industrial, commercial, and institutional projects over a 30-year period.
The map in Appendix A provides an overview of the city’s growth plan for lands within the interchange catchment zone. The addition of the 40th Avenue interchange will relieve pressure on existing interchanges and allow for development to occur in the north, east, and west areas of Airdrie. The majority of these lands form part of the current city plan and fall under existing Area Structure and Neighbourhood Structure Plans.
1 QEII corridor studies identifying 40th Avenue and QEII Interchange: Morrison Hershfield Hwy 2: North of Balzac to North of Airdrie Functional Planning Study (2000); Castleglenn Hwy 2 & Twp. Road 265 Partial Interchange Functional Planning Study (2008); CIMA+ Functional Planning Study @ 56th Ave (2018) and CIMA+ QEII Corridor Study (2018)
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Based on BuildForce Canada’s analysis of the project and current labour market conditions in the province, it would appear the development of this project would come at an opportune time, both for the city and for the local construction labour force. In addition to the near-term benefits associated with construction, the project would also unlock billions of dollars in municipal and provincial government revenues stemming from the associated economic growth accompanying the development of the proposed lands. The BuildForce analysis is based on the following:
• construction of three distinct bridges, including a six (6) through lane interchange at 40th Avenue at Highway 2 (QEII) • widening of the existing bridge at 40th Avenue over the CP Railway • realignment and improvement of Nose Creek adjacent to QEII, with accompanying environmental improvements to the waterway and adjustments to accommodate the future expansion of the QEII, if required • construction of stormwater management facilities and systems to improve water quality • safety improvements of various roadworks, including lighting and safety barriers
The project analysis also includes the development of 7,539 acres of land, including anticipated required residential, commercial, industrial, and institutional projects over a 30-year period. The land allocation estimates used for this analysis were:
• residential: 3,330 acres/1,348 hectares o single family, multi family (semi-detached, row/townhouses, apartment/other) o total units: 36,030 • industrial: 2,131 acres/862 hectares – 41,771,858 ft2 o warehousing (80%), manufacturing (20%) • commercial: 381 acres/155 hectares – 4,149,090 ft2 o office building, strip plaza, supermarket, big box store, budget hotel, and suite hotel • institutional o elementary/middle schools, high schools, recreational centre
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Construction Phase Operational Impact in First Alberta Impacts (30-year cumulative Year After Completed total) Buildout (2050) Key Economic Indicators Real GDP ($2020 Millions)1 18,273 5,973 Direct Employment2 71,665 16,622 Direct Employment Per Year (Operations is the 2,389 554 incremental increase per year) Municipal Governments Indirect Taxes ($Millions)3 822 450 Sales of Goods & Services ($Millions)4 188 110 Provincial Government Personal Income Taxes ($Millions) 727 899 Corporate Income Taxes ($Millions) 95 152 Education Property Taxes ($2020 Millions)5 7.4 69.3 Federal Government Personal Income Taxes ($Millions) 1,266 1,949 Corporate Income Taxes ($Millions) 117 211
6 City of Airdrie Impacts
Direct Property Taxes ($2020 Millions) 16.2 157.8 Direct Permit Fees ($2020 Millions) 138.7 NA
1 The construction phase (2020-2049) will generate cost pressures on labour and materials that will result in a cycle in economic output in the years after construction is completed. While this cycle will be relatively small compared with the 2050 operational impact presented in this table, the presented impact in GDP and employment should be considered a peak impact level post construction. 2 The 30-year period total employment impact (direct, indirect, induced) in the construction phase is estimated at 105,711, or averages 3,524 total jobs per year. The 34,046 employment difference between the total employment impact and direct employment impact is the result of indirect and induced effects. The total operations phase employment impact in the first year after the completed buildout is 25,202. 3 Municipal indirect taxes include development levies, property taxes, special assessments, and grants in lieu of taxes. The ratio of historical municipal indirect taxes to the price adjusted value of the residential and non-residential stock of capital is used to compute the difference over the 30-year development period. 4 Sales of goods and services include building permit revenue, rents on buildings, equipment, and all personal licences other than licences to own or use vehicles, boats or aircraft and licences to hunt, shoot or fish. A price adjusted ratio of historical municipal sales of goods and services per capita is used to compute the difference over the 30-year development period. 5 Collected within the City of Airdrie from the direct construction of the City of Airdrie land developments. 6 The City of Airdrie provided municipal and education property tax mill rates for both residential and non- residential properties. The City of Airdrie also provided estimates of permit revenue per acre.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
METHODOLOGY The method employed to estimate the economic impact of the City of Airdrie land developments considered in this study involved two separate tasks. The first involves generating assumptions regarding what will be constructed on the allocated lands and the respective costs and other inputs required to build and operate these developments. Secondly, these estimates are inputted into an economic model of the Province of Alberta to quantify the impacts on key economic variables.
The City of Airdrie wishes to quantify the economic impact of developing a total area of 7,539 acres (3,051 hectares) over a 30-year period. The city has defined the allocation for these land areas amongst the categories of residential (3,330 acres), industrial (2,131 acres), commercial (381 acres), and institutional development areas. A residual area of 1,697 acres will exist outside of the residential, industrial, and commercial areas that will encompass the institutional developments and other public infrastructure such as parks and roadways. The breakdown of how the industrial and commercial areas will develop was further refined with assumptions made by BuildForce Canada and with guidance from the City of Airdrie. Furthermore, all residential, industrial, commercial, and institutional developments and their respective construction costs and labour requirements were estimated by BuildForce Canada and assumed to be built evenly over a 30-year period from 2020 to 2049.
Construction costs were estimated using the respective building type cost per square foot data sourced from the 2020 Canadian Cost Guide published by Altus Group Limited. Construction costs were then used to estimate the required number of direct construction workers and operational staff to build and operate these developments based on similar projects across the country.
Construction costs also considered the asset class expenditure of each of these development types, that is, the proportion of construction expenditures allocated to engineering construction, building construction, and machinery and equipment expenditures. These assumptions were essential to generate appropriate inter-industry demand impacts on Alberta’s economy based on the Alberta industry input- output framework. For example, machinery and equipment purchases will largely generate demands from the machinery manufacturing and computer and electrical equipment manufacturing industries, while engineering work will place larger demands on the construction and professional services sectors.
Construction employment estimates for each development are based on proprietary labour-capital ratios used for modelling projects in the BuildForce model. Operational employment estimates are generated using previous information regarding similar projects across Canada’s provinces.
The value of production (gross output) and GDP from these various developments are estimated using industry average Alberta labour productivity (GDP/employee) and industry value-added information (GDP/gross output).
Expenditures and tax estimation Site servicing costs and the expected revenues generated for the City of Airdrie from development levies and property taxes was directly provided by the City of Airdrie on a per acre basis and in the form of mill rates (taxes per $ of property value). This information guided the estimates of direct property and education taxes from the construction of the developments. Property values were estimated using
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
current year information, as such all direct tax revenues earned by the City of Airdrie are displayed in today’s (2020) dollars.
Additionally, the Alberta economic model employed in this analysis estimates the province-wide revenue impacts for the municipal, provincial, and federal levels of government for selected revenue components found in the provincial economic and government financial accounts. On an accounting basis, site servicing costs are included in residential investment expenditures, which is a component of GDP (gross domestic product). Development levies and property taxes are components of indirect tax revenue for municipal governments. Construction permit revenues are categorized as the sale of goods and services by municipal governments. As these revenue estimates are presented for the Province of Alberta as a whole, all direct revenues earned by the City of Airdrie are included in the provincial-level impacts.
Impact analysis The approach adopted to assess the economic impacts of the proposed residential, industrial, commercial, and institutional lands is to conduct an assessment of Alberta’s economy comparing the impacts generated by these land developments against a “base case” outlook scenario that assumes that the developments do not take place.
To do this, BuildForce Canada partnered with Stokes Economics (Stokes). Stokes maintains detailed national and provincial economic models that can be used to measure the economic impact of changes in investment (e.g., proposed City of Airdrie land developments) on the overall economy, including employment and government revenues. BuildForce’s construction labour model is used to assess the anticipated construction employment impacts by trade and occupation.
A more detailed description of the macroeconomic and construction models is provided in Appendix B.
Estimating economic impacts The economic impact analysis involves two stages: the first is to run the macroeconomic model for Alberta without the proposed City of Airdrie land development to establish the “base case” scenario; the second stage is to run the system including the proposed developments being assessed.
The base case acts as the reference projection against which other projections that adopt different assumptions (i.e., City of Airdrie land developments) can be compared. The base case projection is created by making assumptions about the future performance of the key inputs to the Alberta macroeconomic model. Such assumptions include the economic performance of Alberta’s major trading partners, commodity prices, and government policy.
The “base” assumptions are then revised to estimate the economic impacts for City of Airdrie land developments being assessed. The land development assumptions include the following:
• construction costs and proposed construction schedule (start and end dates) • proportion of investment that is machinery and equipment versus construction • estimated number of construction jobs • expected production start date
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
• number of operations jobs • value of production (output)
Several modifications are made to these assumptions to convert them to an accounting basis that can be used in the macroeconomic model. For example, to adjust for the effects of inflation, the macroeconomic model is based in 2012 constant dollars. This approach is used to calculate the real physical year-to-year change of expenditures, factoring out growth (change) due to increases in prices. Data provided for project expenditures and revenues are converted to this basis. Once the model is run, the estimates of real GDP impacts are adjusted to $2020 to better reflect today’s value. There are no suitable deflators that can be applied to convert tax revenue from current or nominal dollars to real $2020. For this reason, the municipal, personal, and corporate tax impacts are reported in current or nominal dollars (i.e., not adjusted for inflation).
Once the assumptions are established for the City of Airdrie land developments, they are entered into the modelling system and the model is run to create new economic projections. The results for key economic and fiscal variables in each projection are then reviewed and compared to the base case outlook to determine the incremental impacts.
The development of the City of Airdrie lands will see the construction and operations phases occurring simultaneously as the developments are gradually constructed and operated over the 30-year period. The isolation of the operations phase impacts from the construction phase were estimated by comparing the difference between a model run with both the construction and operations phases taking place (the total impact) against a model run where the entire buildout is constructed in a single year and the results allocated over the 30-year period.
In comparing the projections, a distinction is sometimes made between the direct, indirect, and induced impacts. The direct impacts are those associated directly with the project such as the number of workers hired or the value of the construction expenditures. The indirect and induced impacts are those caused by the direct impacts. For example, an increase in construction activity leads to increased expenditures in other industries or indirect impacts, while new jobs and workers spending labour income on goods and services generates induced impacts, and so on. The sum of the direct, indirect, and induced impacts represents the total impact of a development project. The results are then summed and presented as the total impacts on the Alberta economy for the combined City of Airdrie land developments.
Using the macroeconomic model for this analysis allows the economic impacts to be tracked over time, considering potential price impacts and scarcity on the factors of production – labour, capital, and energy and non-energy materials. This enables substitutability between factors of production when the costs of one factor increase relative to others. This compares to an input-output model used for impact analysis which is static, in that it does not include a time dimension and assumes no scarcity of resources, which can lead to only positive stronger and linear economic impacts, as all factors of production are assumed to be in infinite supply. In reality, when a large project or group of projects take place, the availability of workers is typically diminished, and wages are expected to grow more rapidly to attract the needed labour. When labour costs rise faster than capital costs, firms tend to invest in more productive capital and vice versa, when labour is abundantly available or labour costs are rising slower than capital costs.
With the introduction of scarcity amongst the factors of production in a macroeconomic model, investment from any given project can potentially “crowd out” other developments in the economy, as
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
the cost of capital is inflated during the projects’ construction phase. This can lead to a lower level of GDP in the immediate years after a large project completes its construction phase, as the increase in the cost of capital leads to less investment in the rest of the economy. These types of economic transitions are not captured in an input-output model analysis.
INTRODUCTION The City of Airdrie is a medium-size city located approximately 30 kilometres north of Calgary, Alberta. The city falls within the Calgary census metropolitan area and is a member municipality of the Calgary Metropolitan Region Board (CMRB). The population of the City of Airdrie is estimated at 72,000 residents; a 17 percent rate of growth since the 61,581 recorded as part of the 2016 Census and a 66 percent increase from the 43,271 residents recorded in 2011.
The city is bisected by the Queen Elizabeth II Highway (Alberta Highway 2), the principle north-south corridor connecting Edmonton, Red Deer, and Calgary, and Highway 567 to the north. There are currently only two interchanges connecting the city with the QEII Highway: one in the north and the second three kilometres to the south. Both interchanges are increasingly strained during peak traffic periods in the morning and afternoon. Moreover, neither provide ideal access to the southern parts of the city, which is where growth has been strongest over the past decade.
In order to improve access to the QEII Highway for city residents, Airdrie is proposing to build a new bridge at 40th Avenue over the QEII Highway, as well as a third interchange that would connect the south end of the city to the QEII Highway. This improved access would facilitate a flurry of development in the city, with more than 7,539 acres identified for development. While these lands have been zoned, development has slowed until improved access to the QEII Highway is secured.
Several studies2 dating back to 2008 have proposed the development of a third interchange for the City of Airdrie. The March 2008 study by Castleglenn Consultants and commissioned by Alberta Infrastructure and Transportation was a functional planning study that evaluated the design and traffic operational impacts of implementing a partial diamond interchange along the QEII Highway in the vicinity of township road 265 or 40th Avenue in the City of Airdrie. The study recommended City of Airdrie incorporate the proposed interchange, overpass, and widening of the highway into its area structure and municipal development plan. A December 2014 report, Transportation Master Plan – Connecting Airdrie, established a population threshold of 65,000 residents as the benchmark for proceeding with the development of the new interchange. Airdrie’s population now exceeds this threshold and traffic constraints have become commonplace during peak travel periods. Based on the population growth rates of the past 10 years, pressures on the city’s existing infrastructure will only continue to increase in the future.
The timing for proceeding with the development would appear opportune by comparison to conditions even just three years ago. Declines in capital investments by some of Alberta’s largest industries have loosened demand pressures on the province’s construction labour force. While there are a number of
2 QEII corridor studies identifying 40th Avenue and QEII Interchange: Morrison Hershfield Hwy 2: North of Balzac to North of Airdrie Functional Planning Study (2000); Castleglenn Hwy 2 & Twp. Road 265 Partial Interchange Functional Planning Study (2008); CIMA+ Functional Planning Study @ 56th Ave (2018) and CIMA+ QEII Corridor Study (2018)
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
ongoing major projects in the region such as the West Calgary Ring Road, the Southwest Calgary Ring Road, the Calgary Airport Trail expansion, and the Green Line LRT, these projects should have a negligible impact on the availability of the required construction firms and labour to complete the proposed project.
PROVINCIAL CONSTRUCTION MARKET ECONOMIC OUTLOOK The outlook for Alberta shows continuing near-term employment declines and overall slower growth expected over the next decade. The anticipated slower growth reflects a slow recovery in the price of oil and a moderate recovery of new oil sands capital investment over the long term, but remaining well below previous peak levels of activity.
The following overall economic conditions for Alberta are based on BuildForce Canada’s preliminary outlook scenario as of August 2020. While some of the immediate impacts of the COVID-19 pandemic have been captured, the analysis does not include the potential of a second wave of outbreaks necessitating further government measures to contain the spread of the virus. Based on the current anticipated modest recovery assumptions, the following outcomes are expected:
• Alberta’s economy is expected to contract by nearly 7% this year, the second consecutive year of contraction for the economy, which will stage a recovery over several years. Uncertainty regarding oil and gas prices and low business confidence creates a weak growth outlook over the near term.
• Collapse in oil prices in early 2020 lead to production shut-ins in Alberta and globally. These market conditions and declines in production combined with the ongoing impacts of the pandemic have contributed to slower economic growth that will linger over the medium term as new or proposed oil sands projects are delayed or cancelled, putting a damper on Alberta’s business investment outlook.
• Even with production shut-ins, pipeline capacity remains an issue. Enbridge’s Line 3 replacement is in service on the Canadian side of the border; however, the project has faced delays in the United States. Until the portion of the pipe south of the border is complete, capacity cannot be increased. The Trans Mountain Pipeline Expansion (TMX) continues to push ahead, but further delays remain possible should opposition and protests recommence in the Vancouver area. Lastly, the Keystone XL Pipeline, which began construction on the Canadian side of the border in early July, is proceeding, but ongoing environmental challenges and permit approvals in the United States are expected to delay large portions of the project.
• With the onset of COVID-19, the provincial government announced a recovery plan that includes, most notably, $10 billion in infrastructure spending, fast-tracking the reduction in the general business tax rate from 10% to 8% on July 1st, waiving the tourism levy from March 1st to the end of 2020, tax deferrals for individuals and businesses, and relaunch grants for small- and medium- sized businesses of up to $5,000 per business. This will come at a significant cost, as the deficit is now projected to increase from $7 billion to $20 billion in the 2020/21 fiscal year.
• Total employment is expected to fall by 7.6% in 2020, led by decreases in the goods-producing sectors. As businesses were forced to close their doors and spending on services declined,
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
accommodation and food employment fell by 50% from February to April. Employment increased as the economy re-opened, but the Labour Force Survey for August shows total all-industry employment remained 5% lower than February pre-COVID levels. Employment is not expected to return to 2019 levels until 2023.
• The unemployment rate is expected to average 11.4% in 2020 before tightening steadily over the remainder of the medium term. Labour force growth is expected to be held back by a suppressed participation rate, which will take several years to recover, and lower migration.
• Weaker employment prospects in Alberta relative to other provinces is expected to cause an outflow of interprovincial migrants over part of the medium term. The Alberta government has also announced plans to try to limit the number of international migrants entering Alberta over the next several years.
• Population growth will be more muted over the next five years, with a growth rate averaging 1.3% driven by weaker in-migration and an aging population.
Residential The impacts of a weaker economy and job losses in addition to construction delays due to pandemic- related constraints are expected to have a deep impact on Alberta’s residential construction sector. While new-housing starts remained robust during the first half of 2020 compared to 2019 levels, new-home construction is expected to fall by 11.7% in 2020 and remain mostly unchanged in 2021. Renovation work is expected to rise by 4.3% in 2020, though total residential investment is estimated to decline by 4.9% in 2020 and then grow modestly over the ensuing years. Figure 1 summarizes residential construction investment through to 2030.
Figure 1: Residential construction investment, Alberta ($2012 millions)
14,000 Forecast 12,000
10,000
8,000
6,000
4,000 Investment ($2012 millions*)
2,000
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 New housing Renovation
Source: Statistics Canada, BuildForce Canada (2020-2029)
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Non-residential Alberta is expected to see the sharpest declines in economic growth among provinces as it endures the effects of energy price declines and COVID-19. Non-residential construction investment is expected to decline by 10% in 2020, on top of an 11% decline in 2019.
Under low oil price projections, the oil and gas industry has announced significant reductions in both investment and maintenance expenditures. Declines are mostly notable in commercial projects (-11%) and industrial buildings (-7%). Part of these declines are the result of conditions prevailing during the height of the pandemic where investments were delayed as firms reduced the number of workers on construction sites to help halt the spread of COVID-19. For example, many of the industrial shutdown/turnaround maintenance works expected to take place in the spring of 2020 were deferred or delayed, in part due to the declines in the price of oil, as well as industry adjustments to the new required COVID-19 health and safety protocols. Revised new maintenance schedules were established, with work on many of these projects starting in July and accelerating into the fall. Much of this anticipated work will be carried out by a mostly local Alberta workforce. Some planned fall 2020 shutdown and turnaround work may be deferred to 2021.
Driven by government stimulus, institutional spending is expected to increase by just over 8% in 2020, which should help offset expected declines in other sectors. As part of a stimulus package targeted to kick-start the economy, Alberta plans to spend $10 billion on projects that will include health care facilities, pipelines, schools, drug treatment centres, and more. Of that total, $6.9 billion was already earmarked in the spring budget, with approximately $600 million allocated to new large-scale projects expected to commence construction in the summer of 2020. Key drivers of increased engineering construction in 2021 include current and proposed pipeline, transit and roadwork highway projects. Figure 2 summarizes non-residential construction investment through to 2030.
Figure 2: Non-residential construction investment, Alberta ($2012 millions)
60,000 Forecast 50,000
40,000
30,000
20,000
Investment ($2012 millions*) 10,000
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
ICI* buildings Engineering construction * industrial, commercial, institutional Source: Statistics Canada, BuildForce Canada (2020-2029)
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Labour market In Alberta, the construction unemployment rate doubled from 9.7% in February to 19.1% in April at the peak of the pandemic closures; construction employment declined by 23,000. As the economy re- opened, employment recovered and exceeded pre-COVID February levels; however, employment for August 2020 remained almost 8% lower than 2019 levels (see Table 1).
Table 1: Labour statistics, Alberta
… Feb- Aug Aug Yr Aug-19 .. Jan-20 Feb-20 Mar-20 Apr -20 May-20 Jun-20 Jul-20 Aug-20 2020 Chg. over Yr (%) Labour force ('000) 271.5 238.5 235.1 244.5 233.4 241.2 261.6 259.6 258.0 22.9 -5.0 Employment ('000) 252.4 213.7 212.2 219.9 188.9 196.1 216.0 228.9 232.7 20.5 -7.8 10.4 9.7 10.1 19.1 18.7 17.4 11.9 9.8 0.1 2.8 Unemployment rate (%) 7.0 Source: Statistics Canada, Labour Force Survey (unadjusted for seasonality)
Over the near term, residential investment should gradually recover to pre-COVID levels of activity and employment. Declines in oil sands and heavy-industrial engineering investment, however, weaken non- residential construction employment over the near term. The investment of government stimulus into the economy should help to offset deeper declines, as pipeline, transit, and roadwork highway projects add to employment opportunities.
Overall, total construction employment is expected to decline by almost 4.6% in 2020 following a 3.5% decline in 2019. Moderate employment growth is expected over the near term as overall economic conditions improve, although Alberta is not expected to require the large numbers of out-of-province workers as it did in the past. Figure 3 shows projected total construction employment.
Figure 3: Construction employment, Alberta
300,000 Forecast 250,000
200,000
150,000 Number of workers 100,000
50,000
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: Statistics Canada, Table 14-10-0023-01, Labour force characteristics by industry, annual (x 1,000)
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
PROJECT IMPACT ANALYSIS The assumptions regarding the breakdown of the higher-level development areas are listed below. A table of the key modelling inputs may be found on the following page.
Residential (3,330 acres / 1,348 hectares)
The residential development will include 24,430 single-family homes and 11,600 multi-family homes for a total of 36,030 residential units. The economic model employed for the impact analysis considers the sub- structural types of multi-family homes. As such, multi-family homes were assumed to consist of an even share of their sub-structural types, that is approximately 3,867 semi-detached, row/townhouses, and apartments and other structures (including condominiums) each.
Industrial (2,131 acres / 862 hectares) – 41,771,858 ft2
The industrial lands are assumed to consist primarily of warehousing (80%) and light manufacturing (20%) industrial activity.
Commercial (381 acres / 155 hectares) – 4,149,090 ft2
The commercial lands are assumed to be occupied by office buildings (10%), retail structures (43%), hotels (5%), and the parking space required to complement these businesses (42%).
Office buildings (414,909 ft2) are assumed to consist of class B structures in line with similar relatively low-rise buildings that currently exist in the City of Airdrie, and where the average cost per square foot is similar for any structure below five stories, or 5-30 stories.
Retail developments (1,784,109 ft2) are assumed to consist of strip plazas (30.2%), supermarkets (23.3%), and big box stores (46.5%). Information was obtained on the average size of these retail facilities to help guide these assumptions. For example, the average Walmart is estimated to be 180,000 square feet, while the average Costco is estimated to be 150,000 square feet, based on company information.
Hotel developments (207,455 ft2) were assumed to consist of a budget hotel and a suite hotel of similar size. Hotel sizes were based on similar hotel development projects across the country.
Surface parking (1,742,618 ft2) was assumed to be the primary parking choice for the above developments due to its relatively lower cost and based on similar projects in the City of Airdrie. Parking requirements were estimated using close to a 1:1 ratio on the assumed building footprints for the above commercial developments.
Institutional
Institutional developments were provided by the City of Airdrie with the requirement for several elementary and middle schools, high schools, emergency services, and a recreational centre.
School construction costs were assumed based on similar projects in other provinces and national averages for building square footage per student. For example, an elementary school with 500 students and a requirement of 175 square feet per student will require a building of 87,500 ft2 at an estimated cost of $21.6 million using cost information from the 2020 Canadian Cost Guide.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
The development of the recreational centre was assumed to incorporate facilities such as ice arenas, a community aquatic facility, and multi-use space. Total project costs were guided by similar recreational facility projects with similar interior facilities located in other parts of Canada and by cost information from the 2020 Canadian Cost Guide.
Table 2: Key modelling inputs
Summary
Total Direct Investment ($2020 Millions) $20,478 Total Direct Non-Residential GDP ($2020 Millions) - full buildout $1,251 Direct Construction Employment 71,665 Direct Operations Employment (full buildout) 16,622
Residential (3330 ac / 1348 ha)
Total Direct Investment ($2020 Millions) $12,198 Total Housing Units 36,030 Single detached 24,430 Multi-Family 11,600
Industrial (2131 ac / 862 ha) - 41,771,858 ft2
Total Direct Investment ($2020 Millions) $6,451 Warehousing - 33,417,486 ft2 (80%) $3,258 Manufacturing - 8,354,372 ft2 (20%) $2,590 Site Servicing Costs $603
Commercial (381 ac / 155 ha) - 4,149,090 ft2
Total Direct Investment ($2020 Millions) $574 Office Buildings - 414,909 ft2 (10%) $92 Strip Plaza - 539,382 ft2 (13%) $80 Supermarket - 414,909 ft2 (10%) $75 Big Box Store - 829,818 ft2 (20%) $139 Budget Hotel - 103,727 ft2 (2.5%) $19 Suite Hotel - 103,727 ft2 (2.5%) $27 Surface Parking - 1,742,618 ft2 (42%) $33 Site Servicing Costs $109
Institutional
Total Direct Investment $1,254 Elementary/Middle Schools $421 High Schools $258 Recreation Centre $101 Capital Infrastructure Investment in $ (Roads) $215 Capital Infrastructure Investment in $ (Utilities) $160 Shallow Utility Distribution Infrastructure (off-sites) $100
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Direct employment assumptions The City of Airdrie lands are expected to be developed over a 30-year period from 2020 to 2049. The timing of the distribution of this investment will inevitably vary from year to year; however, without certainty in its timing, all construction was assumed to be distributed evenly over this time frame. Figure 4 displays the horizontal distribution in construction employment activity where 2,389 direct construction jobs will take place per year from 2020 to 2049, totalling 71,665 construction jobs over the period. Direct investment associated with the buildout will likewise be expended evenly over the 30-year time frame at a rate of $682.59 million per year, totalling $20.478 billion over the construction period.
Direct operations employment is assumed to phase in evenly over a 30-year period, beginning in 2021, the first year after construction is completed. Operations jobs are therefore assumed to increase incrementally at a rate of 554 jobs per year until they reach a peak full buildout level of 16,622 by 2050.
Figure 4: Direct employment assumptions
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Construction Operations
PROJECT ECONOMIC IMPACTS ANALYSIS This section presents the combined impacts on Alberta’s economy from the construction and operation of the City of Airdrie land developments, with impacts reported separately for the construction and operations phases. The total impact is presented first to aid in describing how Alberta’s economy will be impacted as the City of Airdrie lands are gradually developed. The measures of performance used to examine the impacts include selected economic indicators, including GDP, employment (all industries), tax revenue generated for municipalities, and personal and corporate income taxes. Revenues for personal and corporate income taxes are separated into provincial and federal government totals.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Construction phase impacts The impact of constructing the proposed projects are concentrated in the construction industry, but the overall impacts span many industries through the indirect and induced impacts. The impacts from the construction of the City of Airdrie land developments are presented in Table 3.
The results report the cumulative difference and average annual change for the selected key indicators. GDP is measured in millions of 2020 dollars, while tax revenues are measured as millions of current year or nominal dollars. The estimated revenues earned by the City of Airdrie directly from the lands under development while construction is underway are presented in $2020 millions, as property values were estimated in today’s dollars and taxes were estimated using the currently set mill rates by the City of Airdrie. Employment impacts reported by the macroeconomic model used for this analysis uses Statistics Canada’s Labour Force Survey employment data, which includes both full-time and part-time employment as opposed to full-time equivalent or person years of employment. Assuming total employment impacts across the analysis period are full-time equivalent jobs may overstate the impacts and, therefore, should be understood when presenting the numbers.
The analysis shows net positive impacts from the construction of the City of Airdrie lands. Total construction expenditures for the residential, industrial, commercial, and institutional land developments are estimated at $20.478 billion in 2020 dollars. The cumulative real GDP impacts are somewhat lower than the total investment amount at almost $18.3 billion, as a share of the investment is expected to be spent on machinery and equipment and other construction materials from outside of Alberta, thereby leading to import leakages.
Employment impacts are positive over the construction phase, as an estimated 2,389 direct jobs associated with the City of Airdrie buildout generate a total employment impact of 3,524 jobs on average over the 30-year development period. These differences in employment from the base case include not only the direct construction jobs, but also the indirect employment generated from the increased spending on goods and services to construct these projects, and the induced employment generated as direct and indirect workers spend their wages on goods and services in the province.
Indirect municipal taxes are estimated to increase by $822 million over the construction phase. These taxes are primarily sourced from additional development levies and property taxes, while special assessments and grants in lieu of taxes also fall within the definition of this category based on the provincial economic accounting framework. The sales of municipal government goods and services accumulates an additional $188 million over the construction phase generated primarily from license revenue from a higher level of activity in both residential and non-residential construction sectors as overall economic activity increases. Outside of the direct construction activity that takes place in the City of Airdrie, other areas of the province will see the residential construction sector experience stronger demand for new housing and renovations, driven by higher levels of household income and additional migration to the province. The changes in income and migration also stimulate growth in the business and government sectors, resulting in further demand for new permits and licenses.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Table 3: Construction phase impacts
Construction Phase Alberta Impacts (30-year cumulative Average Annual Impact total) Key Economic Indicators Real GDP ($2020 Millions) 18,273 609 Direct Employment 71,665 2,389 Total Employment 105,711 3,524 Municipal Governments Indirect Taxes ($Millions)1 822 27.4 Sales of Goods & Services ($Millions)2 188 6.3 Provincial Government Personal Income Taxes ($Millions) 727 24.2 Corporate Income Taxes ($Millions) 95 3.2 Education Property Taxes ($2020 Millions)3 7.4 0.25 Federal Government Personal Income Taxes ($Millions) 1,266 42 Corporate Income Taxes ($Millions) 117 3.9 4 City of Airdrie Impacts Direct Property Taxes ($2020 Millions) 16.2 0.54 Direct Permit Fees ($2020 Millions) 138.7 4.62
1 Municipal indirect taxes include development levies, property taxes, special assessments, and grants in lieu of taxes. The ratio of historical municipal indirect taxes to the price adjusted value of the residential and non-residential stock of capital is used to compute the difference over the 30-year development period. 2 Sales of goods and services include building permit revenue, rents on buildings, equipment, and all personal licences other than licences to own or use vehicles, boats or aircraft and licences to hunt, shoot or fish. A price adjusted ratio of historical municipal sales of goods and services per capita is used to compute the difference over the 30-year development period. 3 Collected within the City of Airdrie from the direct construction of the City of Airdrie land developments. 4 The City of Airdrie provided municipal and education property tax mill rates for both residential and non- residential properties. The City of Airdrie also provided estimates of permit revenue per acre.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Personal income taxes for the provincial and federal government combined are projected to increase by almost $2 billion over the 30-year development period, or average about $66 million per year. The province is projected to collect $727 million of the total, while the federal government gains slightly more than $1.25 billion. These increases will be driven largely by the overall positive impact from employment and wages on Alberta’s tax base through higher labour income. Corporate income taxes for the provincial and federal government combined are projected to increase at $212 million annually, as corporate profits increase above the base case due to the additional output directly linked to supplying these land developments and the extra business activity generated from overall increased economic activity (i.e., an economic multiplier effect).
The City of Airdrie will also see direct gains from the development of the lands considered in this analysis. Education property taxes collected by the city and remitted to the provincial government are estimated to cumulate to $7.4 million while the residential and non-residential properties are under construction over the 30-year period, or just below $250,000 per year. Direct property taxes were estimated by the City of Airdrie for the 30-year buildout period and were projected to cumulate to $16.2 million during land development, or close to $540,000 per year. Direct permit fees collected by the City of Airdrie from the development of the residential and non-residential lands are expected to average $23,736 per acre, amounting to $138.7 million over the 30-year period, or $4.62 million per year.
Operations phase impacts The impacts related to the operations of the City of Airdrie land developments will be the highest in the retail & wholesale trade and transportation & warehousing industries, but span across the economy through indirect linkages to other industries such as the many private-services sectors, construction, and manufacturing, etc. The key economic indicators driven by the proposed projects are shown in Table 4.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Table 4: Operations phase impacts
Operational Impact in First Year After Alberta Impacts Completed Buildout (2050)
Key Economic Indicators Real GDP ($2020 Millions)1 5,973 Direct Employment 16,622 Total Employment1 25,202 Municipal Governments Indirect Taxes ($Millions)2 450 Sales of Goods & Services ($Millions)3 110 Provincial Government Personal Income Taxes ($Millions) 899 Corporate Income Taxes ($Millions) 152 Education Property Taxes ($2020 Millions)4 69.3 Federal Government Personal Income Taxes ($Millions) 1,949 Corporate Income Taxes ($Millions) 211
5 City of Airdrie Impacts
Direct Property Taxes ($2020 Millions) 157.8 Direct Permit Fees ($2020 Millions) NA
1 The construction phase (2020-2049) will generate cost pressures on labour and materials that will result in a cycle in economic output in the years after construction is completed. While this cycle will be relatively small compared with the 2050 operational impact presented in this table, the presented impact in GDP and employment should be considered a peak impact level post construction. 2 Municipal indirect taxes include development levies, property taxes, special assessments, and grants in lieu of taxes. The ratio of historical municipal indirect taxes to the price adjusted value of the residential and non-residential stock of capital is used to compute the difference over the 30-year development period. 3 Sales of goods and services include building permit revenue, rents on buildings, equipment, and all personal licences other than licences to own or use vehicles, boats or aircraft and licences to hunt, shoot or fish. A price adjusted ratio of historical municipal sales of goods and services per capita is used to compute the difference over the 30-year development period. 4 Collected within the City of Airdrie from the direct construction of the City of Airdrie land developments. 5 The City of Airdrie provided municipal and education property tax mill rates for both residential and non- residential properties. The City of Airdrie also provided estimates of permit revenue per acre.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
The operating impacts are presented for the same key economic indicators as those reported for the construction phase; however, the impact levels are presented for the first year after construction of the developable lands is completed, that is 2050. GDP is measured in millions of 2020 dollars, while tax revenues are measured as millions of current year dollars.
All the key economic indicators report positive impacts by 2050. These impacts will fluctuate as the City of Airdrie lands are developed and introduce a new economic cycle through changes in the cost for the factors of production – labour and capital. As the relative cost for labour increases through the tightening of the labour market during the construction phase, firms are assumed to substitute less expensive capital in place of labour, thereby increasing productivity. The substitution effect eventually reverses as the cost of labour falls relative to the cost of capital. This leads to a cycle that continues throughout the operational life of these projects and beyond.
Importantly for this analysis, it should be noted that the construction phase will generate cost pressures on labour and materials. Under the assumption that no other directly assumed land development occurs after 2050, the impact on real GDP growth would cycle downward in the first years after construction is completed at the end of 2049, as direct investment would then fall by $683 million in 2050, or one thirtieth of total construction investment of $20.478 billion. This downward cycle may be considered relatively small compared with the size of the impact presented in Table 4, as new GDP from higher economic activity offsets the decline in construction investment that year. Nevertheless, the 2050 impact presented in Table 4 should be considered the peak-level impact post construction from the development of the City of Airdrie lands considered in this study.
Similar to the construction phase, the cumulative or total employment impacts should not be considered as full-time equivalent or as person years of employment, as the economic model used for this analysis uses data that reflects both full-time and part-time employment versus full-time equivalents. Assuming that all employment impacts associated with direct, indirect, and induced impacts are full-time equivalents may overstate the impacts.
The direct employment associated with the assumed non-residential developments in the City of Airdrie are estimated to reach a peak of 16,622 workers by 2050 when all industrial, commercial, and institutional developments are fully operational. Total employment across all industries, including direct, indirect, and induced employment is projected to reach slightly above 25,200 jobs in 2050. As previously mentioned, this level will cycle in the longer run after the construction phase is completed if the model was run in perpetuity; however, the longer-run average would be expected to experience a relatively small reduction from this peak-level impact as prices and wages adjust in Alberta’s economy.
Indirect municipal taxes are projected to escalate to $450 million province-wide by 2050. These taxes are primarily sourced from additional property taxes generated directly from a higher number of businesses and households operating in the province by 2050. Additionally, development levies will contribute to the increase in indirect taxes, as a higher level of residential and non-residential construction activity is projected by 2050. Special assessments and grants in lieu of taxes also fall within the definition of this category based on the provincial economic accounting framework.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Municipal government sales of goods and services also show positive impacts by 2050 as an additional $110 million in revenue is generated. These sales would be in part driven by higher license-related revenue from the higher population and business activity in the province after the City of Airdrie land developments have made their mark. Additionally, construction permit revenues would experience gains by 2050 from the projected higher level of residential and non-residential construction activity. Changes in the level of activity in the residential construction sector are caused by changes in demand for new housing and renovations, which are driven by overall income and population growth in the province. As overall real GDP growth escalates continually over the 2020–2049 period, province-wide municipal tax revenue follows suit. The changes in overall growth also stimulate growth in the business and government sectors resulting in further demand for new permits and licenses from the non-residential sector.
Personal income taxes (PIT) for the provincial and federal government combined are projected to escalate and reach almost $2.85 billion by 2050. The province is projected to collect $899 million of the total PIT increase while the federal government gains almost $1.95 billion. These increases will be driven largely by the overall positive impact from employment and wages on Alberta’s tax base through higher labour income. Personal income tax revenues cycle up, as personal income is positively affected over the 30-year development period.
Corporate income taxes are expected to rise and reach $363 million by 2050, as corporate profits increase above the base case due to the overall increase in output and inflation. Corporate income tax revenues cycle over the forecast period in line with inflation and changes in labour income growth, which are affected by fluctuations in wages and employment growth.
The City of Airdrie will also experience revenue gains from the direct land developments considered in this analysis. Education property taxes collected by the city and remitted to the provincial government are estimated to reach $69.3 million ($2020) by 2050 once all land developments are operational. Direct property taxes are projected to increase by almost $158 million ($2020) by 2050.
City of Airdrie property tax estimates are presented in $2020 millions, as they are based on the estimated value of residential and non-residential properties in $2020, and employs the current City of Airdrie mill rates (tax revenue per dollar of assessed property value).
SUMMARY The development of the City of Airdrie lands translate into significant escalating contributions to the Alberta economy as the lands are developed over a 30-year period. When taking into account the indirect and induced spin-off effects, the impacts span well beyond the direct construction and operation of the proposed developments. Across the study period, these developments use the existing workforce, as well as drive a higher level of migration to the province to expand Alberta’s economy by creating new investment and construction and operating employment opportunities.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
APPENDIX A
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
APPENDIX B
Stokes Economics is Canada’s leading detailed occupational labour market information provider, macroeconomic model builder, and forecast data centre. Stokes maintains national, provincial, and regional economic models that are used to develop economic outlooks and customized impact studies ranging from economic and fiscal projections to occupational human resource planning. The models are updated semi-annually and calibrated to the latest economic and demographic data available. Stokes also closely tracks major construction projects for a more accurate estimate of investment and economic growth. Macroeconomic model – Alberta The projections are prepared using the Stokes Economics multi-sector macroeconomic model of the Alberta economy. The model is calibrated to Alberta’s economic, demographic, and fiscal data obtained from Statistics Canada. The economic data employs a 2012 base or reference year. The system incorporates input-output coefficients derived from Statistics Canada’s input-output tables to determine both inter-industry and intra-industry demand (i.e., total demand by each sector from all other sectors and from the industries’ own sector).
While the model involves the simultaneous decisions of various factors, its basic workings can be seen in Figure B1 on the next page. Short-term operation The main outside forces driving the economy are the influences of the rest of the world and economic policies. The rest of world refers to Alberta’s primary trading partners such as the United States, the European Union, China, Japan, and the rest of Canada, to name a few. These trading partners’ real GDP growth, inflation, and interest rates, in the case of international trading partners, drive Alberta’s economic growth through their influence on trade, domestic inflation, and the cost and availability of credit. The resulting effects shape the views of local decision-makers, including the decision to invest in the province.
Fiscal and monetary policies, both in Canada and its trading partners, are a further determinant of domestic inflation, interest rates, and exchange rates for trade purposes. Other economic policies such as trade agreements are also taken into account, as these policies would have further effects on specific industries and their short- and longer-term growth. Assumptions regarding international trading partner growth are taken from consensus forecasts such as the World Bank and used as inputs to Stokes’ modelling system.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Figure B1: Macroeconomic model
Once real output for each industry is determined, employment for all industries is set through the productivity of labour. Employment, combined with wages, other income, and consumer prices, then determines private consumption. Employment, when compared with labour force, then drives net in- migration, which in turn sets population growth. In the current version of the model, international migration is determined in a national linking model, where international migrants are determined based on national labour force requirements.
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City of Airdrie Economic Analysis of the Proposed 40th Avenue Bridge and Queen Elizabeth II Highway Interchange
Population growth, combined with personal income, then determines private consumption. Population also impacts government consumption, as a change in population leads to a change in the demand for government services and investment.
The increase in real output, combined with changes in consumption, then changes private investment decisions. Consumption and investment decisions, in turn, lead to changes in capacity utilization rates and output. This type of cycle continues until the one-year solution of the model is obtained. Long-term operation In the long term, the key determinants of changes in overall economic activity in the model are growth in fixed investment expenditures and productivity. The rate of productivity growth is determined by changes in technology and modifications to the way in which business is conducted. Productivity is an exogenous variable, set outside of the model.
Real fixed investment expenditures are a key driving factor behind economic growth in the model, as shown on the supply side of Figure B1. These expenditures are determined for each industry and then summed to obtain total investment expenditures. Such expenditures determine the rate of change in the capital stock, which determines the amount of output growth.
Investment in industries that are primarily export-oriented is set based on views regarding growth in the rest of the world and economic policies affecting the cost of investment and profitability. In industries that serve the latter sectors and the population of the country, investment is determined by the expected amount of capital that will be needed to achieve a target level of output. The latter target is determined by growth in demand for the particular industry’s product, which depends on the growth in the other industries in the domestic economy and domestic demand, along with capital costs.
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