Businesses Are Being Disrupted by Construction Projects, and They Deserve Compensation: Federation

A construction site in Montreal, on April 25, 2023. (The Canadian Press/Graham Hughes)

Canadian businesses that lose revenue from city construction projects should receive compensation, says the Canadian Federation of Independent Business (CFIB).

The non-profit organization that represents over 97,000 small and medium-sized businesses across the country issued an open letter to mayors and councillors on June 6, asking for local governments to consider implementing construction mitigation programs similar to those in Montreal and Calgary.

“CFIB recommends municipal leaders look to the examples set by Montreal, Quebec City, and Calgary, and consider implementing similar construction mitigation programs to support small businesses,” CFIB director of interprovincial affairs Keyli Loeppky and senior policy analyst SeoRhin Yoo wrote. “These programs are vital to maintaining the health of our local economies and helping small businesses survive disruptions caused by construction.”

Ms. Loeppky and Ms. Yoo referenced a CFIB report that found between 2012 and 2017, 41 percent of small businesses saw disruption from municipal construction projects. About 65,000 of those businesses were forced to borrow money, relocate, or close due to the loss of revenue, the letter said.

They noted the problem was getting worse, as 72 percent of businesses say they’ve been impacted by disruptions from construction projects in the past five years.

The disruptions have affected business sales and brought increased noise, dust, and debris to the area, they wrote.

“Operations are also disrupted by challenges with courier deliveries and accessibility for customers and staff due to limited parking,” the letter said.

The letter said Canadian businesses have lost an estimated 22 percent of revenues over the past five years and had to spend nearly $53,000 per business on expenses related to construction, such as property damage, cleaning, higher insurance premiums, and temporary relocation costs.

”Far too often, roads remain torn up and storefronts inaccessible long past planned completion dates, prolonging the period of disruption for small businesses,” the letter said, adding that city governments should reward contractors who finish early and penalize those who complete projects late.

Sixty-eight percent of small businesses say they should be financially compensated when construction projects impact operations, Ms. Loeppky and Ms. Yoo said.

Mitigation Measures Proposed

The letter calls for municipalities to put construction mitigation programs in place, like the one in Montreal, which offers financial compensation to small businesses.

Montreal offers up to $40,000 a year for businesses affected by local construction projects. How much each business gets depends on the reduction in gross profit, the city said. Businesses must prove at least a five percent reduction in revenue to be eligible.

The city also offers a lump sum of $5,000 for eligible businesses to offset the disruption costs of construction projects that last longer than six months.

Ms. Loeppky and Ms. Yoo said that Quebec City has a similar program, where businesses can claim up to $30,000 in a year if they can show a significant loss of sales.

The City of Calgary has also introduced a pilot grant program for businesses in specific communities that are affected by construction projects. The Main Streets Business Support Grants was approved by council at a March 19 meeting. Through the program, businesses can get $5,000 to help offset the costs.

The authors said municipalities do not need to provide direct compensation, but could consider “tax holidays” for businesses hurt by construction projects.

“If direct compensation is not feasible, municipalities should consider offering tax holidays (i.e. temporarily waive property taxes for affected businesses),” they wrote, adding that property taxes can be “harmful” for small businesses when sales are low as the tax is not dependent upon profit.

“Even businesses with significantly decreased revenues due to public infrastructure projects are required to pay them,” they wrote.

Communication Concerns

In addition to concerns over loss of revenue, the authors noted that communication of construction projects was also a concern, with 32 percent of businesses saying they did not receive notice before the work began and 26 percent saying they received four weeks or less notice of construction.

The letter also raised concerns about how businesses were informed about construction projects, with 24 percent saying they received government notice about construction and 39 percent saying they heard directly from the construction project team. Ms. Loeppky and Ms. Yoo say the rest of the businesses found out from street signs, local media, social media, and word of mouth.

“Municipalities should strive for better planning and communication with the local businesses ahead of construction projects,” they wrote.