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Thank you very much, Mr. Chairman and members of the committee.
My name is Paul Moist. I'm the president of the Canadian Union of Public Employees. We're very happy to appear in front of you and spend a few moments talking about infrastructure and its financing.
We work alongside the Federation of Canadian Municipalities. We have tens of thousands of municipal members and a total of just over 600,000 members across Canada. I was pleased to interface to some degree with the government as part of the FCM's municipal infrastructure forum.
We're going to focus today largely on public-private partnerships vis-à-vis infrastructure financing. I guess we approach it from a public policy point of view. Our overriding concern is with public finances and the delivery of services, but we don't question for a moment the historical partnership between the private sector and the public sector.
You folks are all familiar with that traditional procurement and the issuance of tenders for design and for building. For the most part, that served Canada for decades. The public sector provides financing usually, historically, because it can borrow at a lower rate, and the public sector in Canada generally delivers the services in structures that are built by the private sector.
This new realm that we're in, the so-called P3s, or public-private partnerships, sees many different functions coming open for debate and discussion now. It continues to be used as a form of, at times, off-book financing and is quite controversial in many quarters. The notion that you can spend more and do more infrastructure with little money down is one that you should examine really closely.
In our presentation, at the bottom of page 1, we talk a little bit about the United Kingdom. We note that the health minister of the current government in the U.K. talks about the health system being brought to the “brink of financial collapse” by their version of public finance initiatives. One of the witnesses who appeared before the Standing Committee on Government Operations and Estimates, Professor Siemiatycki, called the U.K. experience a kind of ”an accounting mirage”. We don't want to replicate that experience in Canada, at least in CUPE's view. The price tag in the U.K. for outstanding PFI liabilities is just over £300 billion, which is almost $500 billion in Canadian dollars, or about $20,000 per family in the United Kingdom. It rests with the public realm now to deal with this level of debt.
In comparative terms, Canada is where the U.K. was before their P3 bubble burst. We're nowhere near as exposed as they are, but I guess what we say to you, Mr. Chairman and committee members, is to take a close look at what's going around.
In the last week, the Auditor General here in Ontario gave his preliminary results on the Mississauga gas plant. That was a form of P3 to deliver energy services in southern Ontario. It cost almost four times the actual construction cost to get out of that deal. Fourteen per cent interest rates to hedge funds based in the United States and the Cayman Islands. We're nowhere near the bottom of this one yet. In my opinion, this brought down the premier of Ontario. It's a P3.
In Quebec, the provincial auditor has found the McGill University Health Centre P3 much more costly than the public option. The auditors have not finished their work yet. Just two years ago, this project received the gold award in project financing from the Canadian Council for Public-Private Partnerships. Today, warrants have been issued for the arrest of the former McGill University Health Centre CEO. SNC-Lavalin has been charged with fraud related to this project. You're all aware that the World Bank decided last week that SNC-Lavalin is in the penalty box for 10 years. The Government of Quebec has announced that there will be no more P3 hospitals in Quebec. The last chapter has not been written on the McGill health centre.
The U.K. Conservative government has moved towards restricting operations and maintenance as part of future P3s, as well as increasing transparency. We're kind of moving in the opposite direction, with PPP Canada effectively stating that operations and maintenance must be part of P3s that receive financing through the P3 Canada fund.
I met a month ago with the mayor of Regina. They're applying to the P3 Canada fund, as they've been advised it's the only way to access 25% financing of their $200 million waste water treatment plant. The mayor's in the Regina Leader-Post saying it's not his preferred option but it's the only way to access federal money.
Federal and provincial P3 agencies—not all provinces, but certainly Partnerships BC, and New Brunswick has an agency—are charged with the impossible task to promote P3s and to assess P3s. There's a conflict there. I'm not sure how you do both.
We know, when the truth comes out and the evidence comes out, that Brampton P3 hospital should have been built privately—of course—but it should not have been financed privately. The Auditor General delivered to Mr. McGuinty, when he assumed office in, I guess, 2004, the second year of his mandate, that he could have saved $200 million just by financing the Brampton hospital through conventional means, through the public realm.
I want to be clear that there's no question about who builds these things. There's no question about things being built well. There's no question about things being built on time.
Mr. McGuinty entered his premiership in 2003 questioning a very successful P3, one that's been written about, and that's Highway 407. It's a good highway. It functions very well. It's well built. It was built on time. It was a good investment for some investors. Mr. McGuinty thought the 99-year deal was a terrible investment for Ontarians. He wanted, in the public interest, to get at that 99-year deal. He went to court in his first six months in office, and was told that the deal was bulletproof from the point of view of the private consortium. It's a very good highway, built properly, built on time, and very good for certain investors, including some pension funds. But is it in the public interest for the amount of money the citizens of Ontario are paying for a highway that many don't drive on?
Lastly, Mr. Chairman—because time is running out—the committee is considering red tape reduction as well as P3s. We've read with interest comments about reducing regulations and getting the burden off of businesses doing business with government. We kind of find that ironic, because more red tape is being added to the trade union movement. Bill , which is still before the Senate, adds an extraordinary level of bureaucracy at a time when downsizing is occurring within the federal realm.
The initial transaction costs for P3s, in terms of red tape, are more than double the estimated transaction costs for traditional procurement. I know that many smaller municipalities have petitioned all levels of government that they can't afford to compete even in bidding for P3s. They don't have the capacity. If red tape is part of your considerations here, there's a lot of red tape associated with just the consideration of the P3 process.
Local governments have to put their own money forward, and they're ultimately responsible for these services. We think they know what works best. Some opt for P3s; many don't. Some feel like they're being forced to right now.
Lastly, you're to consider as well increased private sector infrastructure—the private sector investing in itself. This is not our area of expertise, but as trade union leaders we do get to meet with the Governor of the Bank of Canada on a yearly basis. He's been very open to meeting with us. We asked him about his comments earlier this year about the private sector sitting on over $500 billion in capital and not reinvesting in and retooling their physical plants. Some people have been critical of Mr. Carney for making those comments, but we think your government, and governments prior to you, have tried to create an environment for business to flourish in Canada, including cutting their taxes.
When they're sitting on hundreds of millions of dollars in capital, and there isn't really an evident labour force development strategy in the country—what's happening in the country is very controversial, including the temporary foreign worker program—we think that businesses, when you're helping their bottom line, have a responsibility to reinvest in Canada. We kind of agree with Governor Carney. Most of our comments were about P3s.
Last, Mr. Chairman, one witness who couldn't be here today is Professor John Loxley, and we've tabled, in both languages, a piece of work that we commissioned Professor Loxley to do. It's simply a guide on what questions municipalities should ask regarding P3s. We've distributed this to all local governments in Canada, and I commend that to you. I wish John were here. The value for money, the risk transference, the illusion of that is sometimes more than the reality.
We're very supportive of the Government of Manitoba bringing forward legislation to force more transparency at the front end of these infrastructure decisions.
Thank you for inviting me. My apologies for being late. I actually thought we were over in the Parliament Buildings, so a comedy of errors. But anyway, all's well that ends well.
I speak to you today, really, as an individual. I'm an academic in the School of Public Policy and Administration at Carleton University. I have also run the Centre for Urban Research and Education, which focuses, amongst other things, on areas of infrastructure investment, particularly municipal infrastructure, and obviously, the way that relates to the federal role as well. We also deal with issues of procurement. I saw that some of the questions that the committee is dealing with would be relevant to that as well, so, if I can, I'd be happy to contribute to the discussion on that.
Recently, a colleague and I were in the process of writing a report on this very topic of infrastructure investment, and in particular with a focus on the federal role. I didn't get time to write detailed talking points, but I'm happy to send in the points that I've managed to put together.
Here are a couple of things just to clarify the assumptions.
When it comes to tackling the issue of what's the best way to invest in infrastructure, it really is a question of trade-offs between different criteria. Some of the criteria that we identified were efficiency, accountability, transparency, autonomy and flexibility at the local level, equity, ease of administration, financial sustainability—the stability of that funding, that is—the risk of politicization, displacement risk, in terms of certainly private-sector investments, and environmental sensitivity as well. Those are just some of the criteria that we're dealing with when we look at infrastructure.
In terms of a definition, I listened in the other day to the discussion. One of the questions was, “What do you mean by infrastructure?” I generally use this definition: the basic facility, services, and installations needed for the functioning of a community or society, such as transportation and communication systems, water and power lines, and public institutions, including schools, post offices, and prisons. Of course, there are other definitions that include other things as well, but certainly I wouldn't at this stage include social infrastructure, cultural infrastructure, even sports infrastructure, those kinds of things.
The first question we were asked to address was red tape reduction. I think the problem here that you're facing and that we're facing is that one person's red tape is another person's due diligence. As we all know, at the moment we're seeing the evidence come out of the Charbonneau commission. Sponsorship and other similar cases are still in the public mind as well. There's always, I think, the increased focus on trying to ensure value for money.
As well, if we want to think seriously about red tape reduction, then I, along with many others, would argue the best way to do that is to actually decentralize the system rather than centralize it, either at the provincial or in this case at the federal level. I'll get to this in my recommendations, but particularly for large cities, ideally I would like to see the federal government make increased tax room for municipalities for income tax or perhaps tax sharing. That would reduce transaction costs—so oversight and audit—which we find with all transfers between governments, and certainly it would increase local accountability. It would, in a sense, reduce the tendency for the politicization of infrastructure funding.
Also it would reduce municipal dependence on what is sometimes called “free money”, and has recently been described as the sort of crack cocaine of municipal governments. They keep reaching to other levels of government for a hit of financing, but it's temporary and wears off and it's never quite enough. So I really do think we have a problem in developing a dependency culture between the governments.
I know my colleague has spoken about P3s in depth so I'll spend a little bit more time just talking about the politicization issue. The KPMG report “The Changing Face of Infrastructure” from 2010 said that the politicization of stimulus spending presents a fundamental challenge for future programs, and that in a recent international survey undertaken by KPMG, senior public leaders identified government's tendency to view infrastructure too often through a political lens as the main barrier to sustained strategic investment in infrastructure. Significantly, they also identified increased transparency in project selection as the single-most important factor in depoliticizing government spending on infrastructure.
Here's another quote. I'll just give you one more by Lafleur that actually, I think, captures this idea quite well.
Instead of attempting to craft a national transit strategy, which will inevitably entail picking winners and losers, the federal government should download fiscal capacity. That is, after all, the crux of the problem. It is hard to imagine the federal government making better local infrastructure decisions than municipal politicians. But they can alleviate the revenue problem faced by virtually every municipality by transferring the entirety of fuel taxes to the municipalities on a per-capita basis. This would give cities access to a stable additional source of revenue. It would also end the ad hoc, hyper-politicized funding agreements that often cause municipalities to make inefficient transit decisions.
I think the key issue here is the extent to which you feel that the remit can go and how realistic it is to transform that. We do know of course that the Constitution is an issue, but on the other hand, municipalities, as you know, had their income tax powers taken away by the federal government and they were never returned. They were returned to the provinces, but not to municipalities. I would say that if you're seriously looking at the costs of these transactions, they are considerable, particularly if you're going to ensure oversight. As a default position, I would ask whether you need to be in this position of funding and whether you can decentralize this or devolve powers locally. The municipalities do have tools to do that. If they need further tools, those options can be explored further.
Regarding the specifics of red tape reduction, this is a serious problem, I know, particularly for smaller contractors who cannot bid for too many things until they know the results of competitions currently under way. The complaints I hear specifically have to do with there being a lot of screening and clearance needed from several government departments. So one wonders whether that is the issue that could be centralized.
When we did the research on the gas tax, they also pointed out that quite often there were delays in putting shovels in the ground in order to allow for ministerial or MP visits and photo opportunities. I think again those issues—the politicization and the efficiency—in a sense need to be seen together. In terms of ensuring increased competition, certainly a place to begin is with notification and perhaps the time and outreach that allow companies to know what is out there.
The second issue we hear about is the unbundling of contracts. As you know, particularly with P3s, there's a tendency to bundle the whole kit and caboodle together, which in a sense makes it less attractive or less feasible for smaller companies to bid, and we're left with the sort of usual suspects in terms of some of the key players in infrastructure and particularly P3s internationally.
The other concern we hear is with umbrella contracts that favour incumbents for future work. So for those of you who are familiar with that, there is something called an umbrella agreement, one of the disadvantages of which is that umbrella agreements can be used as guidelines to any future contractual choices. Umbrella agreements are not usually concerned with immediate contract terms and conditions but with those that may occur in the future. The guidelines will act as the principal rules when it comes to setting out future contracts.
If that's an issue I think it's been raised certainly at the municipal level.
Are any other witnesses scheduled to appear?
[English]
I was just joking.
[Translation]
I thank our witnesses for being here. I am very happy to meet you.
I had the privilege of sitting on the Standing Committee on Government Operations and Estimates. In fact, our report was released recently. We did a study on public-private partnerships. and I see now that the same questions are coming up again. Unfortunately, the solutions we proposed were not taken into account.
One of the points raised was transparency. People also said that we had to consider P3s as a solution because there was a lack of expertise. That was one of the points that was raised. However, if we go off in every direction with P3s, the result is that we lose our expertise completely and have no more control over everything that happens in the field.
Mr. Moist, can you give us some further details about the situation in the United Kingdom? I find this interesting because at the Standing Committee on Government Operations and Estimates, we made some comparisons. We were told that the P3s in Canada were something completely new, but that we had learned our lesson and were not going to find ourselves in the same situation. However, I am under the impression that the United Kingdom is still used as an example. Can you give us some further details?
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I do. My position on P3s is that they're not inherently bad by any means. I think the rules of engagement are key. If you can have the framework for engagement play to a degree of transparency, then that's a huge start.
If you look on our own doorstep, we recently had the Lansdowne development in which public engagement was legitimate and yet it was essentially cut short to push something through that was sole-sourced and was also unsolicited. It seems to me that if we enter into projects like that, then the mistrust of P3s will continue. Of course a degree of commercial confidentiality is required, but we're putting in agreements here that go on for 20 or 30 years and don't come up for renewal every four years at the electoral cycle. I couldn't believe that we allowed something like Lansdowne to go ahead in a capital city that is supposedly in one of the best countries in terms of governance. Yet we've allowed that to go through.
I was looking for a quote. This is something that—if I can find it. It's essentially the Asian investment bank that says under no circumstances.... This is advice given to Pakistan and Afghanistan, that on no account should you allow a sole-sourced public-private partnership. They are absolutely streng verboten, yet that's exactly what we've allowed to happen.
I was pleased to see there are lots of examples whereby provincial governments are trying to firm up this framework so that P3s can be seen as trustworthy, transparent, and so on. With legislation, they've asked for clear and concise transparency from P3s and accountability-focused situations. In particular they ask the P3 to conduct a detailed risk and value for money analysis to determine if a P3 arrangement provides the best value for money, again something that was not done here in the city.
Consult with the public prior to initiating the bidding process. That's the key—not after the bidding process. Appoint an independent, external fairness monitor to oversee and review the bidding process. Publicly report the terms of the P3 contract. Obviously we shouldn't have to say these things, yet we do.
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You'd better give some guidance to the Library of Parliament, because they've estimated that Canada's gap in infrastructure is somewhere between $44 billion and $125 billion. Regardless, it's a fairly significant number, and I think we would all accept that.
I share that with you because you'd like to think that every city has its financial act together. I recall us having, in my city of London, Ontario—which is the tenth largest city in Canada—a sinkhole in one of the core parts of the city. It seemed the maintenance that was required was not being done. I recall that at the time, because we are going back some years, it was quite significant and the municipality was looking to see if they could get some extra financial support.
It reminded me of something that my Cape Breton mom once said to me at a point when I was struggling financially and I went to her. She said, don't let your bad planning be my emergency. I then went to my dad, who didn't help either, by the way.
If you imagine the infrastructure gap, the question is: is it necessary? I don't think anybody would disagree on who's responsibility it is.
What I haven't heard anybody talk about is what role the provinces play in this. Municipalities are creatures of the province, but somehow we as a federal government, whether it's for potential political gain or whatever other rational reason, get involved in this and then all of a sudden the federal government—not withstanding that it has a responsibility in certain jurisdictions—starts to own the problem. To me that's where I'm trying to understand that focus.
Mr. Moist, you made a really important point when you talked about the fact that it was our government that introduced the gas tax, and then doubled it. Actually I'm going to tell you we doubled it. I didn't hear that from you, but you did mention that it got indexed. In my city, that's worth $21 million a year. It's not a Toronto, it's not a Montreal, but $21 million indexed is not an insignificant amount. So if my city of London had a $100 million project, we have some confidence that over several years we will know where the money is going to come from.
Mr. Moist, did CUPE take a position on the indexing of the gas tax? Is it bad, good, or otherwise?
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Through the Chair, thank you. That's actually a very good question.
One of the issues we found when we studied the gas tax over three years, in five provinces, was the different problems that arise for municipalities. Some of them were saying they had 300 different types of funding, from either provincial, federal—various sources. Certainly for some of the smaller municipalities, this was a problem. Also, because it was really directed—again, probably a political decision—at the smaller cities or smaller communities, you had some communities receiving cheques for $3,000, which really isn't going to do much in terms of infrastructure. We felt that the biggest bang for the buck was actually in the big cities in terms of infrastructure projects.
Where would a P3 be useful? There are certain areas that lend themselves to P3s. Obviously a road is one because you can install tolls and generate revenue. They're fairly non-controversial compared with other areas.
If I could flip the question around very quickly, in our paper we actually came up with five areas where you wouldn't want to consider public-private partnerships. One is that if you have an unsolicited sole-sourced contract then you shouldn't consider it at all. I think that more or less goes without saying, but we do see it.
The other one is that I don't think public-private partnerships should be used where the use of public space is involved and it's highly controversial. Obviously, Lansdowne would fall into that, as well as the Eaton Centre in Toronto. This is where public participation is crucial. They may not be interested in a road between two cities, but they would be interested in the use of public land. Therefore, I think it's unfair to use commercial confidentiality.
Where councillors are actually funded by the private partner in the proposed P3 model in the agreement, that seems to me to go against the very notion of good governance. At least, the optics are shocking. When there's insufficient municipal capacity, very often our municipal people, as well as federal and provincial, get bamboozled by these large international corporations that have lawyers who do nothing else but come up with these deals.
The last one, and it's an important one, is sports. I don't think you should involve it in sports. Sports tends to become too emotional. It dominates the issue around sports, as opposed to the real cost-benefit analysis.
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I would like to begin by saying that I heard the government's position earlier, and I must admit that it made me feel somewhat sick.
When I sat on the Standing Committee on Government Operations and Estimates, the government at least had the decency to say that the study showed that there was indeed a problem and that the P3s were not applicable in every circumstance. Today, I am hearing that that is not the case. Whatever the consequences, some people will profit, and so it is fine to implement P3s.
We have heard about the United Kingdom, where there are consequences on the debt and on hospital services. I see some red flags. Soon the Champlain Bridge is going to be built in Quebec. There was also the construction of the A-25. I think that at a given point, we have to think about the position we adopt carefully.
When the government imposes its will by specifying that funds will be allocated to transfers on condition that P3s be in place, and doesn't even have the decency and openness needed to acknowledge the problems, there will be consequences.
In my municipality, we are talking about millions of dollars for infrastructure, and we don't have the means to make these improvements. However, now we are told that there could be funds, and that there is no problem insofar as we implement P3s despite the consequences, since no one seems to be taking them into account anymore. There is a problem. On our side, we are favourable to P3s, but we need to see some evolution. All the better if our society can evolve.
I am wondering if the witnesses have any brief comments to make regarding the consequences.