Thank you very much for inviting me.
I'd like to say at the outset that I welcomed this government's promise in the election and in ministerial mandate letters to establish the Canada infrastructure bank to provide low-cost financing for new municipal infrastructure projects.
I also strongly welcomed the promise to set a higher bar for openness and transparency in government and the promise to stand up for and strengthen the middle class and those working hard to join it.
I was very happy to hear the say that they'd end the undemocratic practice of using omnibus bills to prevent Parliament from properly reviewing and debating proposals. This is why I and others, I think, are so disappointed in these plans for the infrastructure bank in . They represent broken promise after broken promise.
Right from the outset, it won't provide low-cost financing for municipalities. That was the promise in the election campaign and in the ministerial mandate letters. Instead, the priority has shifted to leveraging higher-cost private sector capital. In a recent report that I wrote, I demonstrated how the higher cost of private sector finance could mean that these projects could cost twice as much. No one has disputed those figures. In fact, people have said that the rate of return on the private sector side is larger than that. This means we'll get half as much bang for our buck in terms of infrastructure—less infrastructure, not more.
The bank won't be open, transparent, or accountable to Canadians. The federal Auditor General has limited power to review the operations of crown corporations, less than direct public projects. This legislation also threatens anyone who discloses information about projects relating to proponents with a $10,000 fine and six months in jail. Investments are supposed to be in the public interest, but the legislation bars officials from being on the board.
It won't help strengthen the middle class and those working hard to join it. Yes, jobs will be created from infrastructure investments, but many more could be created if the money were to go to construction and employment and not to higher financing costs. Higher user fees associated with these projects will hurt middle and working classes the most. They'll also be bad for the economy, taking money away from other spending.
The bank was designed—as we'll find out—by a small, privileged group of financiers who stand to benefit the most from it, including BlackRock Inc., the biggest asset manager in the world, which recently hired top civil servants. As others have said, if this isn't a conflict of interest, I don't know what is. The and the say they consulted with unions and others, but we know the design for this came from the 's economic advisory council, which is dominated by CEOs.
And it's included in the budget omnibus bill.
Another concern is that the bank also won't help with the type of comprehensive national infrastructure planning that we need. Instead, private interests that dominate it will focus on what will maximize their private profits. Allowing it to entertain unsolicited proposals will mean that they'll also cherry-pick public assets to privatize for the greatest profit. It will result in a patchwork of privatized projects, driven by no other logic than private profiteering off public infrastructure. The initial $35 billion in federal public funding would just pave the way for this.
Now, I was very surprised to hear the say yesterday that cabinet would approve projects, because from my reading of the legislation—and I think that of most others—that's not the case.
Instead, the government should do what they promised and what Canadians voted for. It should establish a public infrastructure bank that provides low-cost financing—and that means public financing—for new municipal infrastructure projects. There's no shortage of financing available for the Government of Canada to borrow at low interest rates. Also, if this were done through a public bank and lending institution, such as the Business Development Bank of Canada, CMHC, or EDC, then its investments and borrowing wouldn't need to increase the deficit or net debt any more than the current proposal would.
Number two, it should also ensure much stronger accountability, transparency, and review by auditors general over the bank and its projects. It should provide full public disclosure of all details in business cases, value-for-money assessments, and contracts. It should also have public officials on the board so that it acts in the public interest. We should ensure that public infrastructure projects remain public and aren't secret deals.
You should also establish a public and transparent process, using evidence-based analysis for truly objective project planning of what should be the priority public infrastructure projects across the country. We should use this type of proposal to engage in truly sensible national infrastructure planning.
Thank you very much.
Thank you, Chair, vice-chairs, and members of the House of Commons Standing Committee on Finance. It is an honour to be with you today.
[Translation]
I'll quickly comment on Bill , in particular regarding Canada's critical infrastructure.
[English]
The Institute of Fiscal Studies and Democracy—of which I am the director of performance, and my colleague, Randall Bartlett, is the chief economist—recently published a piece on assessing the risks and opportunities associated with a Canada infrastructure bank. The key premise underlying our piece is that a national infrastructure plan and strategy is required, supported by evidence. This should be the first priority.
[Translation]
Our work in this area enabled us to identify three key factors. These factors form the basis of the steps needed to develop a work plan and national strategy for critical infrastructure.
[English]
First, a thorough assessment of our current infrastructure stock needs to be performed. Specifically, is this stock delivering, or on track to delivering, the benefits expected from it at the time it was approved? A report by the U.K.'s National Audit Office highlighted the cost and challenges of delivering major projects in government, with a number of recurring issues affecting performance.
Of the 149 major projects in the U.K. as of June 2015, with a total life-cycle cost of 511 billion pounds, successful delivery of 34% was considered to be in doubt or unachievable unless action was taken. Infrastructure investments alone are not a guarantee of infrastructure outcomes.
[Translation]
The second step is to conduct a strategic analysis of future infrastructure needs in Canada.
[English]
This analysis would identify the economic, social, and environmental benefits expected of infrastructure investments. It would consider factors such as demographic trends, population growth, current and projected economic activity, trade corridors and future drivers of economic growth, the environment, and any significant regional variations and needs.
Finally, by understanding the condition of our current infrastructure stock and our future needs, we can identify our infrastructure gap relative to the future infrastructure needs. This is the evidence base, at a minimum, that we feel is needed to develop a national infrastructure plan and strategy.
Currently, estimates of the national infrastructure gap in Canada range from zero to $1 trillion. While estimates always come with some uncertainty, this is a wide range by any measure, and not one on which to build a national infrastructure strategy.
[Translation]
It's critical to understand where we are and where we're headed. Only then can we draw a roadmap to help us reach our destination.
[English]
In fairness, budget 2017 identifies an ambitious data initiative on Canadian infrastructure to provide the intelligence to better direct infrastructure investments. Further, the budget implementation act identifies the collection and dissemination of data to monitor and assess the state of infrastructure in Canada as one of the functions of a Canada infrastructure bank.
In our view, this data initiative identified in budget 2017—and the function it gives to a Canada infrastructure bank—is precisely what is required first and foremost in order to have an evidence-based national infrastructure plan and strategy. Details on this initiative are to be announced in the coming months, and we are very much looking forward to understanding the details and timelines expected of this initiative. Let us develop the plan first, and then put in place the right strategies and instruments, such as the infrastructure bank, that are tailored to best achieve that plan.
[Translation]
Unfortunately, these initiatives are in the wrong order. We put the cart before the horse.
[English]
Thank you for your time and the opportunity to speak to you today. I look forward to answering any questions you may have.
My name is Benjamin Dachis. I'm associate director of research at the C.D. Howe Institute. We're a national non-partisan public policy think tank.
I'll be summarizing some of my recently published research that's available on the C.D. Howe Institute website. I've brought copies for anyone interested, and also some work that we're going to be publishing by Steve Robins of Harvard University next month.
The key message from our work is that the government's move to create an infrastructure bank is very much a step in the right direction, and it's now time to get the details right. We think the bank requires independent governance, a deep commitment to evidence-based decision-making, and less political involvement in negotiating with potential private sector and local and provincial government partners.
First of all, it's really important to remember the benefits of using private investment in place of taxpayer-supported debt. Government funding for infrastructure has two hidden costs on the economy. The first is greater risk on the taxpayers, and the second is the economic harm of taxation.
One of the common arguments that you're going to hear favouring government infrastructure investment is a lower borrowing rate compared to pretty much everyone else. It sounds like the government should do the borrowing, right? Well, not so fast. All this lower borrowing rate is a result of lenders viewing taxpayers as the guarantors of any cost overrun or late delivery. Sharing risk with institutional investors instead can be a better deal for everyone.
Second, every taxpayer dollar the government uses for infrastructure has to come from someone's taxes, and those taxes mean some businesses don't make an investment, and some people work less. Governments can reduce the economic harm of this by relying on users instead to pay for infrastructure rather than taxpayers, with institutional investors providing the financing in place of governments. That is the case for private investment infrastructure.
The question now is how we do it right. First of all, where necessary, Ottawa and the provinces should be creating independent regulatory bodies overseeing infrastructure assets to ensure that their owners, either governments or private institutional investors, act in the public interest and for long-term sustainability. Importantly, that should not be the role of the bank.
Our forthcoming work is going to point to a number of key design elements of the proposed infrastructure bank. First, on governance, the bank should have a single objective in its mandate clearly defining what projects the bank should pursue. Its independence should be enshrined in the legislation in a way that protects it from day-to-day political influence, and it should have an independent board with fixed terms.
Second, the federal government is going to need to create standardized project planning and create consistent cost, benefit, and risk metrics. It should also require the collection of this data receiving federal funding and having more than, say, $100 million in capital costs. Budget 2017's commitment to better data collection in infrastructure is definitely a positive step in this direction.
Finally, for the bank's analysis to be viewed as credible, rigorous, and fact based, it must be seen as independent of the political needs of the government of the day. Australia's experience with Infrastructure Australia is very instructive. When it was first established, it operated with a board with limited independence and even had members from government departments on the board. That discouraged states and municipalities there from participating. They saw the bank as being insufficiently independent. In 2014 the Australian federal government amended this mandate to create a truly independent board to address the concerns of states and municipalities. Board members now can only be replaced for cause, and one-quarter are appointed on advice of other levels of government.
Statutory independence means that the minister may not give direction to the bank on the content of any analysis nor require the bank to proceed with projects with negative net benefits. Any initial deployment of public resources should be approved by the Minister of Infrastructure and Communities or together with cabinet. That's absolutely needed to have the appropriate level of democratic oversight, but that kind of ministerial approval should happen at the very beginning of the process. Once the bank begins to procure with private or other government partners, the bank should have the ability to proceed to close the transaction without further ministerial approvals, and that will ensure market confidence in the procurement process.
In sum, the government's proposal for an infrastructure bank is an excellent idea if done correctly, and the broad strokes of a good proposal are in the legislation. More institutional safeguards are necessary. The best way to do so is an important question for this committee to consider as it investigates this bill.
With that, I look forward to your questions.
:
Thank you, Chair Easter, vice-chairs, and members of this committee.
My name is Andy Manahan. I am the executive director of the Residential and Civil Construction Alliance of Ontario, and I have been in that position for about 11 years.
Obviously, we are a provincial association so this is a rare opportunity for me to speak in Ottawa and I really appreciate it.
One of the things that's different about our organization is that we're a labour management organization. I'm not aware of any other across Canada that has both contractor associations and construction unions, so our members will be the ones who will be building some of the projects through the Canadian infrastructure investment agency or other infrastructure funding programs that are already in existence or may exist in the future.
I should say right off the top that we did commission a report independently, about 2009, and it did recommend an infrastructure bank but it didn't flesh it out, so when we heard in 2015 that the government in Ottawa was contemplating an infrastructure bank we decided to commission a report, and we actually used the “infrastructure bank” phrase. That particular report resulted in a round table where the deputy infrastructure minister and an assistant deputy minister from Ontario and many other bright lights, including Ben and others, participated in that round table to hash it out.
I should say there was certainly not a unanimous position that this is the way to go, but overall we thought that if it were done correctly the bank or agency would have a lot of merit.
As a result of that round table we commissioned Matti Siemiatycki, who will be here later this afternoon to talk about and provide more detailed recommendations on how this organization could be operationalized. I'll let Matti talk in more detail about that.
I want to keep it very simple in terms of what our organization and I think are some of the key roles of this agency. I think project evaluation, as we've heard from Ben, is a critical function.
I just got the KPMG report yesterday that talked about various things like the infrastructure funding gap or the deficit across Canada, and to my mind... You know, some people are still using the $123-billion deficit, even though that figure is about 10 years old. Some of the infrastructure modelling work that we have done is agent-based modelling, and it looks at it from a different perspective. Rather than how deep the hole is, what are we spending on infrastructure in relation to the GDP? Currently across Canada we're at 3.1% GDP. An optimal point from a macroeconomic point of view would be 5%, so it's an aspirational target.
I think where you want to get into what the dollar amounts are is when you get to local or regional-level budgets, but I find that using those sorts of assumptions in terms of engineering, full replacements, or other aspects like that, is not very helpful. I would suggest that the big boy kind of management consulting firms get off that track of talking about how big the deficit is, because it doesn't really help us.
While there exists a large infrastructure gap, there is likely a long list of projects that meet criteria, such as of social and environmental importance, but how do we determine the best sequence of projects among so many worthy projects? I think we could probably, all across your ridings, come up with projects that are really good right now, but I think it's critical that we also look at projects that have a positive ROI, return on investment, from a variety of perspectives.
Secondly, I want to talk about revenues. I think Matti will get into this as well, but it's really important that projects generate revenues. I know this is sometimes politically toxic in terms of things like road pricing, or tolling, but gas tax revenues are declining. We've seen that in the U.S. with respect to the highway trust funds, both federally and locally. It's probably not as severe in Canada, but we're heading in the same direction because cars are becoming more fuel efficient and there are more electric vehicles, so there has to be a transition.
I think May of 2016 was when I heard the talk about bold ideas and policy approaches. I'm thinking now that we're getting into an era of connected vehicles, autonomous vehicles, and more electric vehicles, and I think that's really going to link together very nicely with road pricing.
What's happening in the States—and I just found out about this on Friday at a conference I was attending—is that there are 14 western U.S. states that are looking at how to transition from gas taxes to road pricing. It's an experiment without any real dollars—it's like a Monopoly money game—but they have over 5,000 participants in this voluntary program and they're trying to figure out what's going to happen. The results aren't out yet, but I think this is something we need to watch in terms of the Smart Cities initiatives that are happening in the U.S., and now here in Canada.
I want to mention that one of the reasons Ben made some of the points that he did about the independence is that sometimes politicians do things that can send out really negative signals.
To my mind, during the 2015 campaign, when a decision was made that the Champlain Bridge was not going to be tolled, that sent out a negative signal regarding whether or not we could count on revenues in the future. I can give you many other examples, but the one I want to highlight is the Scarborough subway extension. The agencies that did the business case analysis for that alignment looked at it and said light rail transit was the way to go. Because of former Mayor Ford of Toronto and the popularity of that gentleman and the premier of the day and then the connection of Ford to former Prime Minister Harper and Finance Minister Flaherty, all of a sudden a political decision was made, despite the best evidence, that we needed to build a subway, which has now turned into a one-stop subway. Our members are probably going to build that and we're going to benefit, but, quite frankly, if you have an LRT with more stops, at each stop you're going to have residential construction. How would you do an innovative finance on that? Value capture. There are a lot of creative things that get hurt when there's that kind of negative political interference. I'm not saying it's across the board, but I just want to provide those examples.
With respect to governance, that's probably the overarching important issue out of all of this. Metrolinx had a situation in which its president and CEO, I think, was put in a position of conflict, because he had to report both to the Metrolinx board of directors and to his political masters at Queen's Park. If he had had that independence, he probably would have been more forceful in saying LRT, light rail transit, was the way to go.
I won't belabour that, but I think you get where I'm coming from. Is this an extreme example? No. I think even with further evidence that you've probably all heard, that ridership numbers are not as high as they should be and that costs continue to rise and are exorbitant, there seems to be no course correction on this particular thing.
I think as the agency evolves, there should be not a go-slow approach but an approach that looks at specific sectors. Should it be trade and transportation or transit? Should we look at water in the future for those communities that have full-cost pricing or conservation-oriented pricing? Yes. Do we need to look at green energy transmission? Yes.
There are lots of different ideas, but to ensure that we're successful as we roll this program out, we need to take those sort of evolutionary steps.
I'll end it at that. Thank you very much.
Welcome, everyone. Please excuse the delay today. I have two or three comments, and then I'll ask a quick question.
I've heard some viewpoints on infrastructure. I'm very familiar with the P3 model in Ontario. I was on a bond desk for one of the major banks, and I understand how the financing works for P3s and the different models of the build to maintain, operate, and so forth. We're having the York Spadina subway extension come up to Vaughan and, starting in a couple of weeks, we'll have a brand new hospital being built in the city of Vaughan, which is a P3 model. As well, our government here has put forward a historic plan to invest over $180 billion in infrastructure over the next 12 years.
A saying I've heard that struck me as important is this one: progress over process. We want to get projects built. We don't want to chat about them for a long, long time. I think that's been one of the causes of the infrastructure gap or deficit, however you want to measure it and whatever relative means you want to measure it by. This progress over process means basically getting the shovels going as quickly as possible.
When I tack back to the infrastructure bank, I say to myself that this is one tool to accelerate and broaden the infrastructure build and the capital that's going to be utilized to build this infrastructure. That's the way I humbly look at it. I understand the importance of governance and evidence-based decision-making for the projects, but the idea is a very powerful idea. I applaud our government for putting it forward. I applaud our government for having the flexibility in governing to look at this mechanism in addition to the other models out there in Canada. Also, I applaud ourselves for looking at process, but more importantly, looking at progress.
I have a quick question for the C.D. Howe Institute.
When you look at infrastructure build-out, you see that the role private capital can play is very powerful. I'd like you to comment on that, please.
Thank you, witnesses, for being here.
One of the things that's interesting from the area I represent is an area that actually had a $1.4 billion P3, the Herb Gray Parkway. We're in the process now of connecting it to a border crossing where we're going to do a P3 for an international border crossing, something that hasn't been done before for a bridge.
With the Herb Gray Parkway, I'd be interested to get your comments on this in terms of risk assessment. It was a P3 where basically we had what was called “girder-gate”. Five hundred girders had to be destroyed with 200 pulled from the ground and replaced because a private contractor in the P3 decided to make shortcuts and didn't do the proper welding. Interestingly enough, the reason this all became public was because of one of the workers I met at the gym I go to. That led to the entire issue.
There were also other issues with non-compliance of payment. The P3 main contractor would not pay local businesses and had to be issued into court to do so. Local businesses that were supposedly guaranteed contracts, or at least some partial competitive work around the project, weren't paid for some work. Lastly, there are some ongoing court costs that are still being litigated. With that, I'm describing a P3 process that does not seem to be unusual.
I'll ask Mr. Sanger, and I'll go across, about what he thinks with regard to this P3 element. The concern that I have is that we also add into it inefficiencies and extra costs that can take away from the fact that a design, build, and payback over a bonding system might actually provide an advantage versus that of the profit margin that's added in for a P3.
:
I'd agree with you. You raise important concerns.
One thing about the infrastructure bank proposal, and others have said this, is that it will be based on user fees as well, so there will be increased user fees. A lot of the P3s we have in Canada don't have the demand risk, and I think others have talked about that. The idea behind these projects is that they will be revenue generating, so there will be user fees. That's going to really increase the cost, as I mentioned, on middle-class Canadians.
I just have to respond to this as well. Ben Dachis talked about Infrastructure Australia. What's happened in Australia is, there's been so much privatization there that the former head of the competition bureau there said that it had been bad for the economy because costs have risen on individuals there, and it's taking money away from other things, so it's been a very regressive measure on that.
I agree with you on the P3 side that it's been difficult. There are real problems that I think people need to be concerned about regarding increasing user fees. That's one reason why the Premier of Ontario has such low popularity right now, because of higher costs for hydro.
:
Thank you all for being here.
I want to start with a couple of comments. I think someone mentioned the conversation around infrastructure and the infrastructure bank.
I think the trouble has been when we're talking about the infrastructure bank and the types of projects, we're talking about unique projects. We're not talking about the sidewalks, a park, these types of smaller community infrastructure needs that most Canadians think about. So this confusion, or sometimes fearmongering, around privatization of all infrastructure in our communities is not what this is about. That's why our government has also committed to infrastructure funding in traditional forums as well.
Then the conversation happened, and examples were given of projects associated with P3s that probably didn't go very well.
I come from a municipal background, and I can tell you about completely government-funded projects that also went horribly wrong, that also had tenders that were over budget, construction delays, employees not paid, a municipality charged twice, illegal Chinese steel used, and unqualified workers. These examples exist currently, and the taxpayers are on the hook one way or the other. Court cases also happen. In my municipality we had to go after people who didn't complete projects as they were supposed to.
The problem I tend to have is this. Where is the correlation that only bad projects can happen or bad contractors can only exist in a P3-type system? Unfortunately, we can get bad contractors with full government funding or in private partnerships.
That's my comment. I'm sure some may want to speak to that. Because I have limited time, I wanted to throw that out there and then get to a question with regard to the infrastructure gap that I'm somewhat interested in.
We're not talking about every sidewalk, every park, or every municipal need. How do you determine the gap when sometimes these projects...? We've heard a lot about transit, for example. Sometimes there are needs municipalities don't necessarily know they have, because they're too big to even contemplate when we would do 5-, 10-, or 15-year budgets. It's something you'd like to have, but you have to fix the local pool, repair a sidewalk, or resurface a road. How do we come up with that gap when these types of transformational projects...? Some municipalities may not even know what they need or where to begin to identify it.
:
If I could interject here, you're absolutely right. There have been problems in all different types of projects, and there had been a problem with what they called optimism bias in the public sector, so it's not unique.
The concern with these large private sector deals is that you also don't have that transparency, and there are also more opportunities for self-dealing, as we saw with the McGill Hospital in Montreal. There was a lot of corruption and fraud. We don't have the transparency behind that.
In terms of the infrastructure gap, I've been involved with the FCM in terms of talking about that. Ben is right about that. I think that's why it's important to have some better national planning on this, and not just a value for money, but to try to figure out the cost benefit on these different projects in that way so it's not just driven by that, but also not driven by unsolicited bids. People will want a profit from those projects.
We have the example in Montreal of the REM, which was seen as a poster child for this, but there are real problems with it. It's not integrated because they figure they are going to make more money out of it with the existing system. People are going to have to pay more.
I am really concerned about increased user fees related to this. Some people think it's a positive thing, but I think you really need to look at what's happened in Ontario and elsewhere and see how those user fees have really hurt members of the middle class, increased their costs, and they are rebelling against it. It's a real warning down the road, and you should be concerned about it.
Thank you to the witnesses for being here today.
I come from a riding in which the growth is at a pace that the infrastructure can't keep up with. Houses are being built, people are moving in, but the infrastructure trails this quite a bit in terms of schools, roads, and public transit, which is most important. The infrastructure bank would give an opportunity for the City of Brampton to apply for funding through the bank. Because of our council's decisions, we gave up $400 million in funding to fund our brand new LRT. People in my area are applauding the Canada infrastructure bank because, at the end of the day, the government would be able to build better infrastructure.
I used to be a corporate lawyer, and we did a lot of work on P3 projects. They have their benefits and their disadvantages, which we've all heard a lot about. Can all of you, with your experience in the area, let me know of P3 projects that went bankrupt?
:
Thank you very much, Mr. Easter, and thanks so much to the committee for their invitation to speak on Bill .
With any budget implementation bill there is always something interesting to say and plenty to say about it. Briefly, I would like to commend this committee on Bill C-44 for closing several of the boutique tax cuts that have been opened over previous years. I hope this committee will continue forward and tackle several of the larger and more regressive tax loopholes later on, like the stock option deduction, or the capital gains inclusion rate.
Today I would like to focus my remarks on the proposed infrastructure bank. First, it's important to note that whatever the structure of the infrastructure bank, loans are a poor substitute for federal funding, and there has been a substantial shift in infrastructure investment and responsibility over the past century. In 1955 the federal government spent 35% of every infrastructure dollar. Today it spends 15%, and it is municipalities that have picked up this slack. They used to spend one-quarter of every infrastructure dollar in 1955. Now they spend close to half. Provincial contributions have remained roughly the same over this period.
The federal government continues to pay the lowest interest rate of any level of government, and enjoys the broadest tax base. Municipalities, on the other hand, face the highest interest rates and the smallest tax base. This cost shift leads to fewer dollars spent on infrastructure, and the costs that are shifted to this lower level of government are shifted to the level of government that is least able to pay them.
As I see it, the main functions of a properly constructed infrastructure bank are, first, to lower interest rates for municipalities, and second, to facilitate the borrowing process. Smaller municipalities, or municipalities unfamiliar with larger projects, would particularly benefit from these functions. However, neither of these straightforward functions is part of the proposed functions listed in the infrastructure bank in Bill .
Municipalities do face higher interest costs than the federal government. I looked up the bond rates this morning for the City of Ottawa, which pays 2.25% on five-year bonds. Halton Region, just outside Toronto, pays 2.54% on five-year bonds. This would be compared with the federal interest rate for federal government bonds of 0.82% on five-year bonds, roughly 1.5% lower than the cities. As with a mortgage, higher interest rates mean higher costs for cities and/or higher user fees for Canadians.
An infrastructure bank could effectively lower borrowing costs close to the federal rate. For its part, the federal borrowing rate is close to a record low, given the incredible demand for federal government bonds. Put another way, investors are desperate for more federal bonds, thus driving up their price and driving down their yield. An infrastructure bank could take advantage of this and pass the savings on to cities.
However, I'm concerned that as structured, the infrastructure bank would not achieve the goal of reducing borrowing costs for cities, but in fact would do the exact opposite. The proposed infrastructure bank appears to serve the needs of investors, not those of cities. In fact, the input of any government is explicitly and oddly not necessary for accessing funds through the infrastructure bank. It appears that public-private partnerships, or P3s, and not low-cost financing will be the focus of the bank. The likely impact will be interest rates to cities of 7% to 9% on infrastructure bank projects instead of 0.08%, the current federal borrowing rate. In other words, the proposed structure will increase interest costs by a factor of 10.
As with a mortgage, substantially higher interest rates mean higher interest rate payments over the life of the project, and those higher costs will be borne by governments or by higher user fees, or both.
Municipalities are not blind to this issue, often preferring public financing due to lower costs as opposed to P3s. This is not a hypothetical problem. In 2014 the Ontario auditor general examined the 26 billion dollars' worth of P3 projects undertaken by the Government of Ontario, an amount, incidentally, similar to what the federal infrastructure bank is considering. She concluded that the P3 structure would add an additional $8 billion in costs over and above the $26 billion of the projects themselves, almost entirely due to higher interest-rate costs, and these much higher costs would be borne by the Ontario government, and ultimately, by Ontarians so that P3 consortiums could see higher profits.
I encourage the committee to refocus the infrastructure bank on driving down interest rates for municipalities while accelerating their access to infrastructure loans.
This refocusing of the bank's priorities on what cities need instead of on investors' needs will best serve Canadians by keeping costs and user fees down, while encouraging cities to use the bank due to its competitive rates.
Thank you very much for your attention, and I look forward to your questions.
Thank you, Mr. Chair, co-chairs, and committee members, for inviting me to appear here today.
I'm pleased to speak before the committee on behalf of the council, which is a not-for-profit, non-partisan, member-based organization, with broad representation from across all levels of government in Canada and the private sector. Its mission is to promote smart, innovative, and modern approaches to infrastructure development and service delivery, through public-private partnerships. The council is a proponent of evidence-based public policy, educates stakeholders and the community on the economic and social benefits of public-private partnerships, and facilitates the adoption of international best practices to make sure we continue to be the very best at what we do.
I should emphasize that the council is not a lobby group. Rather it works as a partner with governments, to enable them to achieve the best outcomes and the best value for taxpayers from their respective infrastructure investments.
The council is pleased to speak today in support of Bill , in particular the act to establish the Canada infrastructure bank.
I know committee members are well aware that, irrespective of the size of Canada's infrastructure deficit, which some estimates peg at about $1 trillion, and the fiscal challenges all governments across the country face, continued investment in infrastructure is absolutely critical, because it drives job creation, productivity, economic growth and prosperity, and global competitiveness. That's why the council has supported long-term infrastructure programs by successive governments to tackle the infrastructure deficit in this country. Notable in this regard, of course, is the unprecedented and ambitious federal investment of $186 billion over the next 12 years.
We will be the first to say government cannot do this alone. Governments at every level do not have enough money or expertise to build the world-class infrastructure needed to grow Canada's economy and improve the social well-being of our citizens. That's why the establishment of the Canada infrastructure bank is such an attractive, innovative, and timely initiative.
The bank's mission, as you know, is to deliver revenue-generating infrastructure by attracting private capital investors. The injection of private financing means government is in a position to make better use of public funding for a broader range of infrastructure projects, such as new water systems, social housing, recreational and cultural facilities, and on-reserve infrastructure.
Canada has a strong record of success when partnering with the private sector. Engaging the private sector in the design, construction, financing, maintenance, and even the operation of critical public infrastructure is not a new idea in Canada. We have a long and successful history of public-private partnerships in this country. The Canadian model has delivered high-quality infrastructure, built on time and on budget, and demonstrating exceptional value for taxpayers. This is primarily because of the rigour and discipline the private sector brings to the procurement process.
There are currently 258 P3s across Canada. Those facilities that are already in operation or under construction have a value of more than $122 billion, and include a broad range of projects, like hospitals and long-term health care facilities, roads, bridges, public transit, and water and waste-water treatment facilities. It's important to stress that these projects in every instance remain publicly owned and publicly controlled. This is in no way privatization of government assets.
The Canadian Centre for Economic Analysis has independently estimated that P3s have saved Canadians as much as $27 billion over the 25 years that they have been in play. These projects have been demonstrated to be built 13% faster than those brought to market in the traditional way, which has added a further $11 billion in value to the Canadian economy.
Most importantly, P3s are creating 115,000 jobs and generating $5 billion of additional wages on average every year. This strong track record of success has resulted in the Canadian P3 approach being recognized around the world as best in class.
Over the years, Nanos Research has shown that seven out of 10 Canadians consistently support P3s and recognize that the private sector is better equipped than government to deliver high-quality projects on time and on budget.
The Canadian P3 experience is evidence that there is no shortage of private capital waiting to be invested in Canadian infrastructure and that the private sector is willing and prepared to take on significant risk to support these projects. We have a funding problem in Canada, not a financing problem. We believe, if structured appropriately, the Canada infrastructure bank can leverage public dollars further by transferring revenue risk and reducing overall public expenditures, while ensuring projects are delivered on time and on budget and that they are well maintained over the life cycle of the asset.
When I say “structured properly”, I mean that each project that comes to the infrastructure bank must first and foremost have a strong business case, and the procurement process that follows must be competitive, efficient, transparent, and fair. It must also be recognized that not all governments have the capacity or expertise to successfully procure the large, complex, revenue-generating projects that will be the purview of the bank.
In these instances, we would urge government to establish a project preparation fund that would be available to less-experienced provinces, territories, municipalities, and indigenous communities in order to enable them to acquire the consulting services and advisers necessary to successfully take their projects to market.
The council sees the Canada infrastructure bank as another tool in the tool kit for governments to deliver more high-quality infrastructure for Canadians and greater economic stability for communities across the country. We believe the bank can draw in more private capital and build on the successful Canadian P3 model. We are the first to say that P3s are not a panacea, but when done for the right reasons and on the right projects, they deliver real results for Canadians.
Now that the location of the bank has been decided, the important next steps are to recruit a high-quality and experienced chair, a board of directors, and a CEO, who together will put the flesh on the bones of this new institution. My council is confident that under strong, capable leadership, the Canada infrastructure bank will be well positioned to continue the country down this path of success, and the council is pleased to support the act that is being considered by this committee.
Thank you very much. I'm happy to take any questions.
:
My name is Matti Siemiatycki, and I am an associate professor of geography and planning at the University of Toronto. I've spent the last 15 years studying infrastructure, with a focus on public-private partnerships. Over the last year, I've been delving into this idea of an infrastructure bank.
I've written two reports on the infrastructure bank, which go into some detail about the role and structure of this institution. Since I've been studying the infrastructure bank, the role of the bank has shifted. From low-cost financing to municipalities, this role has moved to attracting private capital and investing in revenue-generating infrastructure.
In my studies one of the questions I keep returning to is this: what is the value of this bank? When you read the public commentary and debate around the bank, there is this question of establishing the public value, assessing the benefit of proceeding with this type of institution. In particular, we want to find out what types of projects are going to be invested in. From my vantage point, let me spend a few minutes talking about these ideas, both the public value and the types of projects.
I think the place to start is by understanding a few fundamentals of the infrastructure sector in Canada. The first point is that most infrastructure assets in key sectors that Canadians are concerned about, sectors that the government has prioritized, do not support their operating costs, let alone their capital costs, through user fees. This includes public transit, most roads that have no tolls on them, many of our water systems, and our affordable housing stock. Most of those assets do not cover their revenues through user fees, and that also includes VIA Rail.
What this means is that the bank is not going to be providing new money in those sectors. This is not additional money. Any money invested through the bank is going to have to be paid back somehow, and that money is going to come either from user fees that don't exist on those asset classes, or from some other government source. With the exception of projects that generate user fees, this is not new money to expand the pie. This is a financing technique, not new funding. We have to be clear about that.
If the bank is going to be focused on revenue-generating projects, that narrows the scope of the types of projects that are really going to be viable and of interest. Keep in mind, we've been talking a lot about institutional investors. The reason institutional investors have not so far invested in Canada to a significant extent is that there's not the project deal flow. These are not the types of assets they are interested in. They are interested in very large projects, typically with a minimum value of $500 million, and often up to a billion dollars in value. They want very large projects that they can take an equity stake in. To this point, those types of projects have not often existed in Canada.
The third point to raise is that the provinces and municipalities provide most of the infrastructure in Canada. The federal infrastructure bank is going to have to be a collaborative organization. It is not going to be bringing forward projects on its own. It's going to have to work with both private investors and governments at the provincial and municipal levels, which are ultimately responsible, in many cases, for approvals and for operating and maintaining these assets.
The fourth point is that there are existing institutions across the country that provide many of these services. Provincial and first nations financing authorities already provide low-cost financing to municipalities. There are also public-private partnership agencies across the country that provide expertise and support, keeping in mind that most of the public-private partnership projects in Canada are provincial, not federal. We have to understand these organizational overlaps and make sure we're getting the collaboration right with this institution.
Finally, as Mark mentioned, we have been using P3 models widely across the country, so we already have private capital in play in infrastructure.
With that survey of the landscape, the question is this: what role can the infrastructure bank play? From my vantage point, the real opportunity is to go for unconventional projects that are innovative and of national significance. I'm talking about real big projects, the game-changers, the moon shots, the projects that are going to launch Canada in a different direction, the projects that are unconventional in the way they are financed and paid for by user fees.
This is not going to be for your typical road or transit project, from my vantage point. This is going to be for projects that are very large and long term; for projects that often involve multiple partners, and so there's a risk and requirement to bring these partners together. They will have revenues from multiple sources, not only from user fees, but, perhaps, also from a combination of sources that then together pay for both the capital and operating of the infrastructure. Finally, these are going to be high-risk projects that are high-risk for all the partners, both the private sector and, potentially, for the government, but then also have a potential for major rewards for all the parties involved.
I can give you a few examples of the types of projects I'm thinking about in order to really zero in here. One project is waterfront regeneration. We can think about a project like the Port Lands redevelopment in Toronto. By investing in the flood protection of that area in the eastern part of the downtown of Toronto, we unlock billions of dollars in land redevelopment potential. No investor will be able to come to the fore and invest in the flood protection, but they might and will become involved in the real estate, transportation, and the business opportunities once that land is in place. The bank could provide a role in catalyzing that type of development.
Transit projects are another area where we could see the bundling of transportation and land use into the same type of deal. Typically, we've seen transportation and land use done separately. There's an opportunity to bring those together to generate revenues, not only from the transit fares but also from the redevelopment potential around the stations, and potential rents that can be accrued from those developments. These are creative types of transit projects.
Community hubs are another opportunity where we're bringing together multiple uses of land into areas where we can bring together public schools or recreation centres, and try to fund and finance some of that through development. In our fast-growing communities, there are real opportunities to leverage development to pay for some of the infrastructure and build stronger and smarter communities.
In green energy, there's opportunity for waste and water. There's an opportunity for district energy type of systems in some of these fast-growing areas. There was a project in Toronto where they were going to bring forward a district energy plant, and they just couldn't get the capital to put the project in place. It would have been paid for by the redevelopment of the land and the condo units over time, but they couldn't get the money together to pay the upfront costs.
Finally, there is social infrastructure. There are some incredible examples of projects that are bringing together uses that are very creative and that you wouldn't think of. There's a project bringing together a condominium with a homeless shelter in the same building, using the condo revenue in part to pay for some of the land costs of that development.
These are the types of opportunities I think the bank can play a part in. I want to echo what everyone on this panel has said, which is that evidence-based planning has to be at the core of this. How do we prioritize and select between the different options and different projects? I ask because there will be a lot of calls on this revenue and the money in the bank. How do we pay for it?
The other point is that the bank is the centre of excellence role that's in the legislation. This could be a real opportunity.
Thank you.
Thank you, all, for your testimony.
I want to follow up on the last speaker on the question of value. I have two municipalities in my riding; next to Toronto it is suburban, and then it goes further north and becomes rural. Things like broadband, for example, are another major issue in infrastructure. We've talked a lot about transit. When it comes to value, Mr. Macdonald, you spoke about something interesting in regard to the potential increased costs.
If you're just looking at interest rates or borrowing rates, for example, my regional municipality had a AAA credit rating, so we could borrow relatively well. I think about that, and because I have a municipal background, it's interesting. That's not how municipal governments think. They tend to think this is a project and an initiative that they need.
I'll use broadband as the perfect example, because we know that if we can implement this the growth possibilities are endless. Also, if any of our municipalities had to pay for it—and the term my councillor always used to say was that it was with “hundred-cent dollars”—it would be out of the question. But even at a higher interest rate paid for with partners, if it were paid for with partners, and we had 25¢ dollars or 50¢ dollars, that made it much more doable. In the end the project might have had a higher interest rate, but we weren't paying for it alone.
Also, because there is only one taxpayer, if I went to the taxpayers in my community, and they might say, “If you you want this project, and we don't have an infrastructure bank, you'll have a lower interest rate, but we're paying 100% of the cost...”. Or, if there were private investments, the overall project might have a higher interest rate, but the taxpayers would be paying less and wouldn't bear all the risk.
That is part of the value in the price tag I can see in the grand scheme of things, but it's about adding partners and sharing that risk and sharing the costs to make something transformational happen. This isn't a sidewalk project, a park, etc.
I have limited time, so I'll leave it at that and then see if you have thoughts and any differences of opinion on that.
:
You raise broadband, which I think is an excellent example. You may be aware that in the case of the Northwest Territories, fibre is being laid right up the Mackenzie Valley through a P3 project. That's a project that went to market as a public-private partnership, and the intent there, of course, is to connect all the remote communities.
There is another project under way right now in Manitoba, bringing 57 first nations communities together. Again, it's a broadband project aimed at connecting those communities.
These are individual projects that are moving ahead as P3s. There's lots of interest by the private sector in financing thee initiatives and bringing them to fruition.
What would be interesting in the case of the Canada infrastructure bank is that if they went ahead with a national broadband strategy and took the potential of these smaller projects global, because Canada, as you may know, used to be a leader in broadband and has tumbled quite a way down now.... I think if we are serious about playing at a world standard with 5G or bigger, we need to put the infrastructure in place to make it happen.
You've raised what I think is a really interesting initiative.
I'll make just one other point. We at the council have been promoting what we're calling a “dig once policy”, by which we mean that every time the government puts a shovel in the ground, particularly for major projects, they should capitalize on that opportunity and lay fibre right then and there to ensure that we can get our gigabyte capacity up. It's a rounding error in terms of cost, relative to the main act that's taking place.