Alternative federal budget 2026-27: Infrastructure, cities and transit

This is from a larger publication, Alternative federal budget 2026-27: Bridge to independence

Introduction

Canada’s transportation and transit systems, along with municipalities, face a growing funding crisis driven by chronic underinvestment from senior levels of government, urban sprawl, and the absence of a cohesive and integrated national transportation strategy.

Municipal transit agencies across the country face severe and chronic operating shortfalls, cumulatively in the billions of dollars. Intercity bus and passenger rail have declined dramatically over recent decades—leaving many rural, northern, and Indigenous communities increasingly isolated if people don’t have cars or can’t drive. At the same time, federal infrastructure policy continues to support urban sprawl that increases emissions, car dependence and the cost of infrastructure maintenance, undermining any positive investments in transit-oriented development and mixed-use densification.

Canada requires a new approach to transportation and infrastructure policy that treats public transit, passenger rail, intercity bus service, and sustainable urban development as critical, nation-building public infrastructure. Strategic federal investment in public transportation and sustainable land use can reduce emissions, improve affordability and mobility, and strengthen regional economic connectivity. The Alternative Federal Budget proposes major new investments in public transit operations, intercity transportation, passenger rail, sustainable urban growth, and brownfield redevelopment to help build more connected, resilient, and economically sustainable communities across Canada.

Overview

The transit funding crisis and a national transportation strategy

Canada continues to fall behind other countries on mobility. This is true in both urban and rural communities where investment from provincial and federal levels of government in local transit networks, intercity bus systems and passenger rail have steadily declined year after year. This has left us with a broken and fragmented transportation system that is expensive, polluting, and increasingly unreliable for millions of Canadians wherever they live.

As a result of the lack of investment, many municipalities have been forced to shoulder the burden themselves, pulling the costs from an already overburdened property tax base and individual fares which make up 40 to 60 per cent of total operating funding.¹ This level of funding is insufficient for sustaining reliable transit operations, and leads to the “transit death spiral” where poor service and high fares lead to declining ridership, which reduces fare revenue, forcing transit agencies to cut service, which makes the system less convenient and drives away more riders.

It doesn’t help that the money that is often announced for public transit is usually for capital funding, i.e. funding for new projects like stations or new trains. Operating funding—that is, funding to actually run and maintain service day-to-day—is far more limited and inconsistent. The result is that cities are encouraged to build new lines and expand systems, but are not given the tools to operate them at the level riders need. This fiscal deficiency has been made worse by a recent decision from the federal government to cut $5 billion from the Canada Public Transit Fund (CPTF). Despite their claims that the money would be redeployed to new funds, there are no details as to what those funds could be.

At the same time rural, remote and Indigenous communities are facing challenges that make it difficult to have any transportation at all, besides cars. Over the past decade, the country has seen a steady unraveling of services that once connected hundreds of communities, particularly across the Prairies. Between 2017 and 2021, Canada saw a significant loss of routes with the full departure of Greyhound in 2021 and the closure of the publicly owned and run Saskatchewan Transportation Company (STC).

In their stead, a patchwork of private companies have replaced them, increasingly isolating these remote and rural communities. Quebec has also faced a significant decline, losing 85 per cent of its intercity bus service since 1981.² Deregulation of the intercity transportation network in Ontario has only made the issue worse. With the dissolution of the Highway Transportation Board, operators abandoned low-revenue areas for lucrative routes, leaving remote communities stranded and increasing consumer confusion due to fragmented, uncoordinated services.³ It is clear that, when it comes to intercity buses, connectivity cannot be left to the market alone as they often leave rural, remote and Indigenous communities increasingly stranded.

A functioning national transportation network must be intentionally planned, funded, and protected as a public good one that ensures people in every region, not just the most lucrative corridors, can access essential services and remain connected to the rest of the country, especially with the onset of Canada’s prospective high-speed rail project. Without a commitment to stable funding, the gaps we see today will only continue to widen.

Undermining infrastructure investment

Federal infrastructure investments are often undermined by land-use patterns that encourage continued sprawl and low-density development. While recent federal housing initiatives have supported mixed-use densification within existing urban areas, many governments continue to subsidize outward expansion through investments that enable greenfield development on agricultural and undeveloped land. This approach increases long-term costs, deepens car dependency, and weakens the effectiveness of investments in public transit and sustainable urban infrastructure. In addition, this style of urban development is not economically sustainable for cities, which primarily rely on property taxes to fund infrastructure renewal. Without sufficient density of development, there is not the critical mass of properties paying taxes to sustain the infrastructure in many circumstances.

Canada lacks a coordinated strategy for brownfield redevelopment. Existing support through programs such as the Federation of Canadian Municipalities’ (FCM) Green Municipal Fund has provided important funding for remediation and redevelopment projects but it is quite limited, at only around $150 million out of the $550 million fund.⁴ There is currently no large-scale dedicated federal fund designed to transform contaminated and underused industrial lands. As a result, municipalities and developers often pursue easier and more profitable greenfield development despite the higher long-term economic and environmental costs. Housing sprawl may lead to cheaper sale prices, but it is not actually cheaper when you account for the underlying infrastructure. It simply ends up shifting the cost from developer to homebuyers or the municipality.

A more sustainable approach would prioritize redevelopment within existing urban boundaries and tie federal infrastructure and housing funding to clear anti-sprawl, affordable and transit-oriented development requirements. Federal funding should prioritize compact, connected, and fiscally sustainable communities by incentivizing mixed-use densification, brownfield redevelopment, and efficient land use rather than subsidizing continued outward expansion that undermines climate goals and increases future infrastructure liabilities. This fund should also prioritize the building of non-profit and affordable housing on brownfield land.

Actions

The AFB will reverse the cut to the Canada Public Transit Fund announced in the 2025 federal budget and significantly expand federal public transit funding, including permanent operating funding for transit agencies to address the growing transit fiscal crisis facing municipalities across Canada.

The AFB will make annual investments to establish and maintain a national, publicly operated intercity bus network, operated through Via Rail and integrated with passenger rail service ($250 million a year). The AFB will boost the Rural Transit Solutions Fund by $50 million a year to improve access for smaller communities and reconnect communities abandoned by private carriers.

The AFB will significantly expand federal investment in VIA Rail to improve the frequency, affordability, reliability, and connectivity of passenger rail service between communities across Canada, while supporting the procurement of Canadian-made electric trains and related manufacturing capacity. (Cost: $2 billion a year).

While recent federal housing policies have encouraged densification within existing urban areas, they have not adequately prevented simultaneous greenfield expansion that undermines these gains. The AFB will tie federal infrastructure and housing funding to anti-sprawl, transit-oriented development, and long-term municipal fiscal sustainability requirements, efficient land use, and reduced infrastructure costs rather than focusing solely on short-term economic growth and development metrics.

While some limited support for brownfield remediation currently exists through programs such as the FCM’s Green Municipal Fund, Canada lacks a large-scale dedicated federal strategy or funding stream for transforming former industrial lands into productive community assets.

The AFB will create a federal brownfield redevelopment fund to support sustainable urban growth. The fund will be used to support the remediation and re-development of contaminated and underused industrial lands for housing, clean industry, renewable energy, and transit-oriented communities. This fund would also prioritize the building of non-profit and affordable housing on brownfield land. (Cost: $500 million annually).

The AFB will provide municipalities with stable long-term infrastructure transfers and new revenue tools to reduce overreliance on property taxes and fare revenue to fund critical public transit and infrastructure services. Along with new transfers for things like stable operating funding this budget would enact new revenue tools specifically: it would replace the current unpredictable grant system with direct financial transfers indexed to nominal GDP growth and implement a revenue-sharing agreement that would authorize the Canada Revenue Agency to administer a municipal surcharge on top federal tax brackets, providing a progressive revenue stream that grows faster than property taxes.