Weather disasters will be more frequent and costly, TD says

As a return on investment, Duff's Ditch has been a spectacular success.

Manitoba's Red River Floodway, built by premier Duff Roblin for just under $63 million in the mid-1960s with the federal government covering 60 per cent of the cost, has spared the city of Winnipeg an estimated $30 billion in flood damages in the nearly half century since it was completed in 1968.

Now, with severe weather events becoming increasingly frequent and costly, economists are urging government policy-makers to consider the long-term benefits of major infrastructure investments.

A new report Monday from TD Economics lays out the confluence of factors that is dramatically hiking the cost of natural catastrophes — and the economic indicators that tend to mask the true toll of such disasters.

Toss in crumbling public infrastructure that is increasingly likely to fail under severe conditions and experts say it's high time for a clear-eyed assessment by governments and business.

"There is an infrastructure deficit in Canada to begin with," Craig Alexander, TD Bank Group's chief economist, said in an interview Monday.

His report with economist Connor McDonald notes that storms in Canada that used to come along only every 40 years are occurring every six years in some regions.

"As a consequence, not only do you need more infrastructure spending to replace the aging infrastructure and to meet the needs of a growing population, but you also need infrastructure that helps mitigate the consequences of severe weather," Alexander said.

The Harper government has been working on a national mitigation strategy for natural disasters for more than five years, but funding has been slow to materialize. The latest Conservative budget delivered in February provided no money this year for the initiative, but promised a modest $200 million spread over five years starting in 2015-16.

However, Ottawa did shell out more than $2 billion last year under the Disaster Financial Assistance Arrangement, most of it for the flash floods in Calgary. That's more in one year than the program had spent in total since it was created in the 1970s, according to the Parliamentary Budget Office.

The PBO has just started work in an effort to estimate how much the federal government should be setting aside each year for the unfunded disaster assistance program, given the new climate reality.

"We were asked, 'Geez, is this something as parliamentarians we should be aware of?' because $2 billion is a big bill to walk into Parliament with," said Peter Weltman, the assistant parliamentary budget officer.

TD Economics says natural catastrophes could cost Canadians $5 billion per year by 2020 as more frequent severe weather combines with an increasingly urban population.

But the report suggests the way we measure economic growth masks the cost of severe weather events and the need for major new infrastructure spending.

Signposts such as gross domestic product and financial market movements may tell us nothing about a major natural disaster. All the frenetic rebuilding is not weighed against the cost of what was lost.

"You end up with a perverse situation where we have a terrible flood in Calgary that actually comes with a very high toll in terms of economic, social and personal fall-out, and the economic numbers actually mean we have to upgrade our growth forecast for Alberta," said Alexander.

"It leads to an under-appreciation of how disruptive increased severe weather is."

A catastrophic flood in Winnipeg in 1950 spurred the move to build the massive floodway bypassing the city, but it took more than a decade for someone to find the political will to pull the trigger.

When Roblin, the Progressive Conservative premier, convinced fellow Conservative prime minister John Diefenbaker to share the cost, some called it a massive waste "approximating the building of the pyramids of Egypt in terms of usefulness."

Within a couple of years of completion, the floodway had been pressed into use and it has been used more than 20 times since — including during the 1997 "flood of the century" that ravaged Grand Forks, N.D., and much of southern Manitoba, but largely spared the capital city.

"The challenge that policy-makers have is there's a big upfront cost to investing in upgraded infrastructure," said Alexander.

"The savings may be farther down the road than the next electoral cycle. And even if you do the infrastructure and avoid the damage from the severe weather, you're going to have a tough time going to your constituents and telling them how much money you saved."