It is my pleasure to be here today on behalf of PPP Canada to speak about P3s and the Canadian market.
As members of Parliament, you are acutely aware that Canada faces a great need for infrastructure. As a consequence, governments across Canada are pursuing ways of getting better results for their infrastructure dollars. Many have recognized the value of engaging private sector expertise and innovation through public–private partnerships, more commonly known as P3s. P3s are a means to inject greater accountability, whole life-cycle cost optimization, and financial discipline into governments’ contractual relationships with the private sector.
P3s can refer to an umbrella of concepts related to the role of the private sector in procuring public infrastructure. In Ontario, these types of arrangements are known as AFP, or alternative financing and procurement. In the United Kingdom they are known as PFI, or private finance initiatives.
PPP Canada defines P3s as a long-term, performance-based approach for procuring public infrastructure where the private sector assumes a major share of the responsibility in terms of risk and financing for the delivery and the performance of the infrastructure, from design and planning to long-term maintenance.
[Translation]
In practice, this means that governments only pay for the infrastructure once it has been completely built. A substantial portion is paid for during its life cycle, if it is well maintained and if its performance is adequate. The costs are known in advance for the entire life cycle of the asset in question. This means that taxpayers are not financially responsible for cost overruns, delays or performance issues during the life cycle of the infrastructure.
Imagine for instance that the business that built your house were also responsible for all of the repairs and maintenance for the duration of your mortgage loan of 25 years. Since the amount you would pay each month would be determined before the construction of your house, your payments would not increase if there were some breakdown or some components in your house had to be replaced. For that reason, the builder would consider the most financially effective way of building something. He might choose a metal roof rather than tile. Moreover, if your air conditioner broke down and was not repaired in the agreed upon time frame, you could deduct that from the next payment you owed him.
Concretely, P3s do not mean privatization; they are, rather, a contractual relation with the private sector in order to design, build, fund and maintain public infrastructure. The public sector continues to own the infrastructure.
[English]
P3s, quite simply, are a tool in the tool box to deliver the public infrastructure investments Canadians need. They are not always the right solution, but when applied to the right projects, they can provide many benefits, including greater value for money for taxpayers, on-budget and on-time delivery of public infrastructure, greater consideration of the whole life cycle of a project, and fiscal planning certainty. The involvement of private sector finance is critical to achieving the benefits as it ensures risks are transferred, and the disciplines and incentives to achieve better results exist.
There are benefits and there are costs to P3s, but P3s are the right solution when the benefits exceed the costs. This requires thorough analysis. Our experience is that this up-front work produces better projects even if a P3 approach is not the preferred option, as it requires a more systematic consideration of costs, risks, and performance expectations. In general, P3s are more suitable for larger, more complex projects where performance expectations can be clearly specified and are stable over time.
Canada is recognized as a global leader in P3s. Increasingly, people everywhere are looking to the Canadian experience. It has a diverse and growing pipeline. The strong historical deal flowing from leading provinces in the areas of health care, education, and highways is now being supplemented with projects at the federal and municipal levels.
The use of P3s is also broadening to new asset classes, such as water and waste water treatment facilities, local roads and bridges, public transit, and solid waste disposal. This growing and diverse pipeline is increasing in experience and is attracting more competition, which results in lower costs for taxpayers.
[Translation]
PPP Canada's mandate is to improve the delivery of public infrastructure while increasing the rapidity of execution, strengthening accountability and obtaining more for taxpayers' money. PPP Canada is committed to working with all levels of government to ensure the best value added for Canadian dollars invested into infrastructure. Our organization is knowledge-based; we have developed tools and equipment to support our work and the work of our clients.
The organisation has established relationships with the procurement authorities at all levels of government so as to share lessons learned and experience.
PPP Canada is looking for opportunities to increase knowledge and capacity while working to mold the P3 Canadian market by promoting a culture that encourages P3s and the sharing of best practices.
[English]
PPP Canada has hands-on experience reviewing and providing advice on more than 300 projects for the P3 Canada fund, the federal P3 screen, and the new building Canada fund P3 screen. We work with our clients to assess projects for P3 suitability and advise on P3 procurement practices to assist in delivering quality public infrastructure assets on time and on budget that meet the needs of Canadians and deliver better value for tax dollars.
To date, over $1.3 billion in P3 Canada fund investments have been announced to support more than 20 P3 projects across eight provinces and territories, including 13 municipalities. These investments will in turn leverage more than $6.5 billion in public infrastructure investments across the country.
In addition, economic action plan 2015 proposed the creation of a new public transit fund to be managed by PPP Canada. While the government intends to announce further details on the program parameters at a later date, we do know that the fund would provide $750 million over two years, starting in 2017-18, and $1 billion per year ongoing thereafter to public transit projects. Federal support would be allocated based on merit to projects that would be delivered through alternative financing and funding mechanisms involving the private sector that demonstrate value for money.
PPP Canada's experience is also facilitating the consideration of P3 procurements at the federal level. Our most established federal advisory engagement to date is the new bridge for the St. Lawrence project.
Throughout 2014, PPP Canada played an important advisory role, collaborating with Infrastructure Canada and Public Works and Government Services to ensure the successful procurement of the government's largest infrastructure project.
As the Government of Canada's source of P3 expertise, we'll continue to lead federal efforts in encouraging use of P3s where they can generate better value for money.
Thank you. I look forward to your questions.
:
Mr. Chair, members of the committee, first I want to thank you for the invitation to appear today before the Standing Committee on Transport, Infrastructure and Communities.
We are very pleased to have this opportunity to express our views in the context of your study on updating infrastructure in Canada.
[English]
The Canadian Urban Transit Association is the collective and influential voice of public transportation in Canada, dedicated to being at the centre of urban mobility issues with all orders of government. We represent that vast majority of Canada's urban transit systems from coast to coast to coast, from small-town bus services to 21st century commuter rail and intermodal metropolitan transit networks.
CUTA also represents some of North America's most innovative transit manufacturers and suppliers of high tech buses and trains, as well as world-class engineering and information technology companies.
I would like to begin by recognizing the government's commitment to provide dedicated, long-term funding for public transit in the 2015 federal budget. By committing an additional $1 billion per year of federal money, the government is setting the wheels in motion to unlock funding for major infrastructure projects across the country. Investments will be made through the new public transit fund and will be on top of current funding programs already included in the new building Canada plan.
Public transit ridership continues to show strong growth in Canada. Year after year we have observed an upward trend, with ridership growing significantly faster than Canada's urban population. This higher demand for public transit mixed with the growing need to tackle traffic congestion in our densely populated cities has led to a surge in government investment over the past decade. In 2013 the amount of transit infrastructure capital funding from all orders of government reached $4 billion. Over the last decade, the federal government has invested or committed more than $8 billion in funding for transit infrastructure across the country, nearly $1 billion per year.
A closer review of recent federal contributions shows funding coming from a variety of programs. For example, $2.5 billion from the federal gas tax fund has been accessed by Canadian municipalities for transit projects over the last 10 years. In fact, five of Canada's largest cities—Toronto, Vancouver, Ottawa, Calgary, and Edmonton—have directed most of their federal gas tax fund allocations to public transit.
In addition to the gas tax fund, there have been three funds dedicated specifically to public transit, totalling $1.8 billion, between 2004 and 2010. Furthermore, the federal government has established Canada's first long-term infrastructure investment plan, which will have injected more than $80 billion in provincial, territorial, and municipal infrastructure through the two building Canada plan funding programs over a 17-year period.
These federal investments in public transit are collaborative in nature and are incremental to local, provincial, and territorial funding. In fact, on average, every federal dollar invested in transit generates at least two additional dollars in co-funding. For example, Ottawa's Confederation Line, a new 12.5-kilometre electric light rail system, will provide fast, frequent, and convenient transit service to Ottawa residents. This project was made possible through a partnership between the Government of Canada, the Province of Ontario, the City of Ottawa, and the private sector.
[Translation]
The investments required and injected into public transit do not all amount to billions of dollars. Federal investments made possible the purchase of buses in Cornwall, Prince Edward Island. They have also meant that Whitehorse, Yukon was able to acquire a fleet of buses that are completely accessible to persons with reduced mobility.
These investments have a real impact and lead us in the right direction. However, we all know public transit projects in small, medium and large cities that do need additional investments before they can move forward. Moreover, CUTA regularly surveys its members so as to determine infrastructure needs, both for systems management and for new projects to increase ridership.
[English]
Our data show that the total five-year need for transit infrastructure is estimated at about $56 billion. Two-thirds of this amount is already covered through current funding programs. That leaves about $18 billion worth of projects for which the industry needs additional funding, which in turn represents $1.2 billion per year for each order of government over the next five years.
The case for governments to invest in urban transportation is straightforward: job creation; economic growth and productivity; support to the transit manufacturing sector; environmental and health benefits; and most important, quality of life. All these aspects contribute to the well-being of Canada and the people living in all communities across the country.
While the greatest share of transit infrastructure need is in large urban areas, mobility needs of Canada's small and medium-sized cities remain critical in keeping our communities vibrant and ensuring that no one is left behind. Transit investments required in these communities are relatively small but their impact is huge, which makes for a real return on investment, on quality of life, and builds vibrant communities.
To give you an example, Transit Windsor has buses from the 1980s still in operation. These buses are not accessible to people with disabilities. They pollute more, and they are becoming very costly to maintain. Unfortunately, Windsor is not alone. In fact, 28% of Canada's transit infrastructure needs are for rehabilitation or replacement.
While the needs related to maintaining our infrastructure in a state of good repair may not be as attractive as building new light rail transit projects, they are nonetheless critical to ensuring the efficiency of our systems and offering high-quality service to our customers.
[Translation]
We understand quite well that the government cannot by itself meet all of the infrastructure needs throughout the country. A partnership-based approach, and collaboration with all orders of government and the private sector is essential if large infrastructure projects are to be brought to fruition.
And in fact, this approach is increasingly present in the funding and execution of large public transit projects. Alternate funding methods such as public-private partnerships bring a whole new dimension to the design and execution of projects.
[English]
The urban transportation industry is open to alternative funding and financing sources such as P3s; in fact, we are seeing more and more projects being implemented through P3s in our sector. However, it is critical that the P3 projects and models remain flexible in their implementation and in sync with the project needs and the context in which the project takes place.
One component of the current P3 model that we believe could be improved is the 25% limit to the federal contribution to the total cost of the project. While participation from the private sector is really important, P3s are a financing and not a funding tool. Capping the federal contribution to 25% instead of 33% leaves municipalities, provinces, and customers with a more substantial share of the project costs in the long term.
As the federal government works on the program parameters of its newly announced public transit fund, it can count on our full support and collaboration in making this fund a great success.
In conclusion, Mr. Chair, Canadians strongly support transit investment. They understand and experience the real benefits of efficient public transit and integrated urban mobility, and based on several polls on the increasing demand for transit, they want more of it. Optimizing the economic, environmental, and social benefits of public transit will require continued investment in these systems through long-term and sustainable investment streams from all orders of government.
With secure funding in place, our members can go about their business of effectively planning and building transportation systems that will serve not only our generation, but most importantly, the generations to come.
Thank you, Mr. Chair.
:
Mr. Chair, ladies and gentlemen members of the committee, thank you very much for this invitation.
I'm accompanied by Mr. Patrick Robert-Meunier, who works in my office, as well as by Mr. Gilles Carpentier, who is the chair of the Société de transport de l'Outaouais, vice-chair of the executive and municipal councillor; and by Mr. Denis Tassé, chair of the capital assets and budget committee of the City of Gatineau. He has been a municipal councillor for many years and has been closely involved in the infrastructure dossier during his political career. Do not hesitate to put questions to them during the question period. They know the file as well as I do.
The state of municipal infrastructure is one of the main threats to the financial health of all of the cities of Quebec and Canada. The cost to be paid for years of negligence is huge. The repairs are going to cost more and more, and the retrofit work to be done is increasing constantly. The weight of this budget item is increasingly strangling other essential municipal missions such as libraries, social development, leisure activities, sports or economic development. The objective of today's presentation is to give you a picture of the situation in Gatineau, and especially of Gatineau's reaction to this fundamental issue.
Some five years ago now, the City of Gatineau completed a rigorous and well-documented project to identify and precisely quantify its infrastructure needs. We prepared master plans for each of the relevant areas, that is to say waterworks, sewage, asphalt, the water purification plant and buildings, which exercise allowed us to assess our infrastructure deficit at $1.1 billion. This means that in Gatineau alone, we need to invest $1.1 billion to bring our infrastructure up to an acceptable level.
We are going to table a certain number of documents with the committee, that is to say our long-term financial plan, which was prepared at that time and sets out our needs specifically and rigorously. To deal with this situation, Gatineau made some massive investments. We allocated 100% of all new sources of city revenue since 2005 to infrastructure. Every year since 2012, we have levied a special 1% infrastructure tax. This tax is added to the usual taxation so that we maintain our services. This was a courageous decision on the part of the council. In 2017, the envelope created by that decision will represent a recurring fund of $20 million a year that will be allocated once again only to infrastructure.
We also implemented a strict policy to increase the debt, essentially to take advantage of federal and provincial infrastructure programs. The greatest part of the increase in our debt since the municipal fusion which took place 12 years ago is due to that decision. Our public works department is the only department whose budgets are automatically indexed on a yearly basis because its workload increases considerably every year. We put in place a committee to review expenditures and services and we want to realize recurrent budgetary savings. However, that only involves our other mandates because we want to protect our investments in infrastructure.
In order to stop what we call a hemorrhage, we have created a life-cycle reserve where we take 2% of the cost of each new infrastructure. We put this in a fund so that we can maintain them when they begin to age. We don't want to repeat what was done in the past, that is to say build infrastructure without having any means to maintain them.
We also imposed development charges on all new developments. This is a type of fee that is well-known in the rest of Canada but that is not used much in Quebec. Gatineau is on the cutting edge of that debate in Quebec. The principle of these charges is that growth pays for growth. When a new neighbourhood is built, we impose charges that allow us to expand our plants and do the work related to that new development.
With regard to infrastructure, the necessary catch-up work in Gatineau alone was quantified five years ago at $1.1 billion. We did an update in 2014 and today, despite our massive investments, the cost of the retrofit has increased to $1.3 billion. We are good students. We shoulder our responsibilities and we make sacrifices. I would add that we have shown political courage. Despite all of that, the gap is growing. For instance—and this is a figure I constantly have in mind—the number of kilometres of streets in an unacceptable condition has gone from 195 kilometres in 2005 to 356 kilometres in 2011. I'm talking here about our entire road network.
All of the catch-up work to be done on our infrastructure basically monopolizes all of our fiscal capacity. This has negative consequences. Almost all of the increase in our debt is also allocated to infrastructure.
All of the tax increases on new investments are channelled into our infrastructure. Over the past years our taxation level has often been below the rate of inflation. Our recent tax hikes were limited to the rate of inflation, plus the infrastructure tax. For a growing city like ours this means that the increase in our service offer has to be accomplished through a compression of the services we already offer or through efficiency gains.
These rigorous principles have major repercussions on municipal mandates aside those that are infrastructure-related. For instance, for 12 years now we have made no investments in our library network. Although the population of Gatineau is growing steadily, and knowledge and culture lead to innovation, and we know quite well that our economic and social future depends on our children's grey matter, we have had to neglect our libraries in order to meet immediate infrastructure needs.
To illustrate the gap between that budget item and the others, over the next four years we are going to invest $67 million in projects for parks, bicycles paths, the downtown area and our libraries. During the same period, we will invest $480 million in our infrastructure.
The choices that the state of our infrastructure imposes on us are jeopardizing our capacity to prepare for the future. We feel that that is not an overstatement. Although investing in infrastructure allows us to reduce maintenance expenses, those same infrastructures do not create long-term wealth, do not stimulate innovation and do not contribute to quality of life, as do for instance our libraries or our downtown core.
There are several possible solutions. The fundamental problem is that the urban design of our city is in a way a fiscal error. We have low density, and that low density means that for each street we do not have sufficient tax revenue to pay for the property services and individual services that come with urban development. We have adopted a new development project. We are trying to tighten up construction in our city. We are also grappling with that reality. Our development charges are also a response to that because those fees force densification.
There is also a problem with funds and revenue. In Quebec, cities manage 58% of public infrastructure—that is the other figure I never forget— but they only have access to 8% of the taxes paid by Quebeckers as a whole. The math is implacable. Even with the best will in world, as we have in Gatineau, and even if we invested all of the budgets allocated to other municipal mandates, it is impossible to meet the needs.
Moreover, when federal and provincial governments invest in infrastructure, they obtain a significant return on their investment, which is not the case for municipalities. According to the general perception, governments contribute one third each. However, a study carried out by Deloitte in 2012 on the state of municipal infrastructure in Quebec revealed that taking into account the tax income the other governments enjoy, the net contribution by municipalities to the maintenance of infrastructure and construction is on the order of 76%. This has nothing to do with our capacity to pay.
The financial problem is even greater because the only thing we control is our own budget. There is a great temptation to invest more to solve the problem, which can in some ways be a mistake. We cannot expect today's Gatineau residents to carry the full weight of a problem that was created over several decades. There is also a limit to property taxes and that is our main revenue in Gatineau. It represents 87% or our revenue. It is a tax that is less fair than income tax and that we cannot avoid, as opposed to consumption taxes that we may avoid by consuming less.
The dedicated tax, our life cycle reserve and our policy to increase the debt already weigh heavily on our fiscal capacity. It would be ill-advised to add to the tax burden of Gatineau residents. However, the problem has to be solved, and in my opinion the solution has to come from a better sharing of the resources at the disposal of municipal, provincial and federal governments
I do in fact want to take advantage of this opportunity to highlight the important progress made by cities thanks to the help of the federal government. By putting in place infrastructure funding programs and making them more predictable and permanent, the federal government has greatly facilitated things for us.
I will conclude by saying that we have to build our cities differently, and that is what we are trying to do. We also have to invest massively in public transport because this contributes to reducing the pressure on our infrastructure. M. Carpentier could give you some details regarding our needs in that area.
Finally, we do indeed need greater financial resources. You have already heard that type of comment. This ratio of 58% of the responsibilities and 8% of the income has to be changed. It is a ratio that puts cities in an impossible situation. If the proportions stay the same, the substance of the problem will not change.
Thank you.
:
Mr. McBride, if there are a lot of questions on P3s, I guess it's because many of us are not quite familiar with how they might work.
From a conceptual point of view, I note that some small communities undertake to develop their own lots, service them, and attempt to sell them. Some get developers to do them. In the normal course of events, they're more practised at doing them. Of course, you might be able to get the cost down by using the private sector.
If the risk gets passed to the private sector in P3s, and if they have to raise their initial capital, I guess there's a cost to that. Is there some sort of formula that say, on a given project of x dollars you have to allow a certain rate of return or percentage to the private sector for (a) assuming risk, (b) raising financing, and (c) contributing funds to the project? I have a number of questions in there.
At the tail end of it, if you're going to operate it for 20 or 25 years, there's a certain amount of risk, a certain amount of management fees, and a certain rate of return that it would be reasonable to get. There must be something you factor in for that when you're going through a project. When you add all that up, it must be less than the risk assumed and then the overall cost, because you've never done it before, or for any variety of reasons, such as, you haven't thought about the design, or you haven't thought about maintenance. I mean, you're thinking about all these things, but there's a cost to them.
Can you answer those questions? You don't necessarily have to answer them in that order, but you get the drift.
:
I do. In fact, it sounds like you would make a great employee at my organization.
Voices: Oh, oh!
Mr. John McBride: It's exactly the kind of analysis you need to go through, because there are costs and there are benefits. There are benefits of them taking on the risks of cost overruns, of them taking on the risks of design flaws, of them taking on the risks of catastrophic issues or operating problems, all of those risks that in another way would be the government's. You have to do a risk evaluation of those kinds of things.
Against that you have to put the cost, because there will be a premium to the private sector finance. If they're going to take on risk, they're going to expect return. The question in a P3 is to allocate the risk to those who are best able to manage it. In that way, you have to do an evaluation. We do what we call a value for money evaluation on what is the right model on every single project that we would consider. We would not do it unless our analysis, which is very rigorous, concludes that it's the right thing. That's why I said that only in about 15% of the cases do you conclude that.
Are there rules of thumb? We will do a deep dive, but are there rules of thumb where we say that we wouldn't even do a deep analysis on one, but on another one, probably. You need to have something that has scale. It has to be $50 million to $100 million, depending on the sector. Why is that? You need to attract the private sector interest. If the private sector is going to bid on one of these things, that means they need to do design work. They have to invest millions of dollars in the bid process in order to think through how they will handle this, to get that innovation—
:
It does focus it, for sure.
Now I'll move to the mayor.
I'm not sure if I have a lot of time or not, but it's interesting to see that you've at least taken the time to see what your infrastructure needs may be going forward and what your deficiencies might be. You're taking some measured steps to try and overcome it, although maybe not to the degree that you would like.
It was interesting to hear both from the transit side and from something you said, that there are needs you have priorities for and you'd like to have addressed. I noticed the gas tax fund, along with the GST rebate, runs in significant dollars. It would be in billions of dollars.
What's your view of the fact that there's almost no strings attached to a fund that gives you the decision-making process as to where you put it?
I know the cities have asked for it. We've increased it and we've tagged it to inflation, so there's an inflation factor to it. Is that a good way of using a set amount of dollars by saying to the municipalities, “You don't have to apply for the project, but here's what you'd get based on your population”?
Perhaps the mayor could make a comment and Mr. Leclerc.
:
Thank you, Mr. Chair, and thank you to the witnesses.
I'm not a fan of P3s, in part because I believe what we're doing is just turning infrastructure into a profit centre for some in the private sector. Let me give you an example of something that happened in Toronto and that happened in my riding. It was originally to be a P1, in that it was to be private sector completely owned, operated, and managed. It's the airport rail link that David Collenette announced in 2003 would not cost the taxpayer one nickel. Now, $1.4 billion later, the private sector partner pulled out because they couldn't make a profit, or for whatever reason, I'm not sure, because they weren't telling us why, but they did pull out. The provincial government pulled in.
Now the project is going to be produced and the trains are apparently going to run in June. They're incompatible with GO trains, so they can't be on the same platform as a GO train, even though they're running on the same tracks as a GO train. They're not electric; they're diesel. For whatever reason, the fares are going to be much higher than the private sector was going to charge. The fare will be $27.50 a ride. It's public money, the $1.4 billion, but the public won't be able to afford to ride it. This is an example of a project gone completely screwy. The private sector clearly wasn't prepared to do it. The trains are going to run only one-tenth full, but that's going to be termed a victory.
Where is it in Canada that we should be building transit like this? Should this have been something that should have been done in a different way? Does anybody have an opinion?
No. Okay, I'll leave that.
I believe it was Regina, but somewhere in Saskatchewan, there was a city that wanted access to federal funding, but could only get it if it was a P3 project. They had to convert their project into a P3 in order to have access to federal funding, even though they might not have been desirous of using the P3 model.
Is that one of the difficulties of what you have to administer, Mr. McBride? Is it that the money is only available if it is a P3?
[Translation]
The taxation is different in each city. Every city makes choices with regard to the construction of infrastructure. Essentially, all cities have the same mandate, which is to build roads, waterworks, sewers, parks and sports centres. Their municipal mandate was given to them when the Canadian Constitution was agreed upon. At that time, it was determined that those would be the roles cities would play.
Unfortunately, taxation has not followed suit. The taxation regime is two centuries old. At that time, almost 100% of the services provided by cities were property services such as waterworks, sewers, asphalt and roads. Today, cites organize leisure activities and are the main disseminators of culture. They try to fight the isolation of seniors and organize activities for them. Cities are the ones that offer sports and leisure.
The cities have developed these services for residents, but their taxation has not changed. You have identified a major problem. Can the cities have access to part of the taxes, either the GST or the QST? May they have access to a part of income tax revenues? Such solutions would be appropriate in order to offset the fact that they now offer more essential services. May I remind you that municipal governments do not fund anything frivolous. In my opinion, we are facing an emergency. We have to change municipal taxation as it is no longer adapted to today's needs.
The decision could be made to tell cities to no longer offer leisure or cultural activities. Libraries have been a municipal responsibility forever. Cities have to invest in them, but they no longer have the means to do so, particularly because infrastructure is weighing too heavily on their finances.
I don't know if I answered your question.
:
For years now, upper levels of government have been giving us responsibilities. We did not use to have responsibilities regarding housing but we have some now. Gatineau is the 17
th largest city in Canada, and in the area of social development we must now intervene with the homeless. We have a role to play with homeless people now through our police services.
In Gatineau alone for the past 12 years, 40% of new jobs have been for firemen or police officers we have been forced to hire because the Government of Quebec requires that we respect more stringent standards. We have no real choice in the matter, obviously, in that regard, whether we are talking about homelessness, housing or a multitude of other areas. The other governments ask us to broaden our field of action, but our tax revenue does not increase for all that. However, 87% of our income comes from real estate taxes. So the cities are trapped in a dead end.
Let me repeat that we are not talking about superfluous, expendable activities. In light of the income at our disposal currently, how are we going to fund infrastructure? Are we going to close soccer fields or arenas, stop snow removal, or clean less? The municipal governments deal with essential needs. Our leeway is quite limited as compared to provincial and federal governments. For instance, 8% of the taxes paid by all Canadians go to municipalities, whereas provincial and federal governments get 92%. However, we manage 58% of infrastructure.
I don't want to shut down roads or a water treatment plant. It is in that sense that the cities are trapped in dead ends.
:
First of all, we are not entirely familiar with these.
Yesterday, I was at a meeting of some of the members of the Big City Mayors' Caucus of Canada. They have certain serious concerns, for instance with regard to the size of projects.
Gatineau is the 17th largest city in Canada. If we are talking about very large projects, it could mean that only five or six cities in Canada will be able to benefit from that fund. We do not often have projects of more than $100 million. However, we have some important problems to solve. There are also the criteria to be considered. What is a P3? As a previous speaker said very well, the definition of the P3 is quite vague.
In principle, each of the projects will be studied. If we can obtain a contribution from the private sector, in whatever form, we are going to consider it. This isn't an ideological question, but what we know so far does not allow us to offer a very specific opinion on the substance.
We are pleased that there is a fund. We are talking about $1 billion a year for public transit. Right now, we have to seek funds from the Building Canada Fund to invest in public transit.
The amount of money available is interesting, but we have some serious reservations about the mechanics of it all. We really fear that only five or six large cities in Canada are going to be able to have access to it. As someone said before, the criteria apply to large complex projects, and we don't do that very often. This will not be happening in Gatineau.
:
Well, I haven't been in one yet that's gone badly, but I know of ones that have gone badly, that people thought were P3s. I guess that goes a bit to the definition. If you have a properly structured thought-through P3, what does it mean to go badly? If you had a problem, the private sector might have to pay more, but I think that's not a problem for me as long as I know what I'm paying and they don't pay more. I'm not actually in this to see the private sector make money. I'm in this to make sure the public sector gets best value for taxpayers.
I can give you an example of things that people trot out as failures. The Government of the Northwest Territories entered into an arrangement with the private sector to build a bridge. The private sector was going to provide the financing, but the government promptly turned around and guaranteed all their financing. What happened to the risk transfer? Where's their money on the line? When the contractor couldn't build the bridge and walked away from it, the Government of the Northwest Territories was sitting having guaranteed all the debt. I wouldn't call that a P3, because the private sector didn't put up their financing.
If you think you're doing a P3, but you don't understand clearly the concepts or you don't contractually translate into the legal documentation the idea of wanting them to take that risk, and if in fact the financing doesn't actually get lost.... There are lots of ways in the process for the value for money to leak away if you don't know what you're doing.
That's why governments, led by the Government of British Columbia, started creating agencies like Partnerships BC, with expertise to make sure the public sector was getting good value out of those deals. The whole country learned from British Columbia, and then the whole country learned from Ontario and what it's done through Infrastructure Ontario. I'm a beneficiary of what those two provinces started, and now we're sharing it with the rest of the country. Saskatchewan has created SaskBuilds.
You need to be very careful when you're doing these things. Can you negotiate yourself a bad deal? Absolutely you can. Do we do a lot of hard work to make sure we don't? Absolutely we do, but if you make sure their money is at risk, it's almost impossible to have a “bad deal”. It might end up being a bad deal for them, because they may lose their shirts, but that doesn't bother me too much.
:
There are two others that I would know. They're sort of in the sphere of risk, or at least one is.
One is contractual interface risk. In the normal process you would issue a contract for somebody to design it. Then you would take that design and you would issue another contract to build it. Who takes the contractual interface risk between the design contract and the build contract? It is the government. If the design is wrong, and something happens with the build, they both point at you. Package them together, and you reduce risk because you're not taking the contractual interface risk.
The thing that people miss most is the innovation potential that you get. I mentioned that a bit, but in a P3 you can tell them what you want them to achieve, for example, to carry passengers from downtown Vancouver out to the airport, or to build a road from here to there.
I've been in the public sector a long time. The public sector is really great. Its core mandate, in my view, is to figure out what citizens need and how to pay for it, but leave it to the people who are the experts to figure out how to deliver it. I have thousands of little anecdotes ranging from the small to the very large that if you give them the freedom to bring their expertise to bear, it's amazing the results you can get. I'd be happy to share some of those anecdotes.
Governments tend to over-specify in their contracts: they want the bolt to be this big, or they want something to be that size. That disables the ability of the private sector to innovate.
:
For both CUTA and you, Mr. Mayor, or your councillors, I have essentially the same question.
Infrastructure Canada was here the other day. In terms of the amount of funding that is put into the building Canada fund or to the new public transit fund, it seems very much that these are arbitrary numbers without a view to any policy objectives, except the notion that it's all good for the economic competitiveness of Canada. But the actual quantum, or the number, the funding level that comes out of this process, doesn't seem to have any particular relation to any policy objectives.
Let me start with CUTA. I understand you're at $18 billion now. As the urban affairs critic, infrastructure critic, and deputy critic for transport for our caucus, I talk to a lot of your members, and you've facilitated some of those conversations. The ones I talk to all say, “Well, that's not enough money”.
I understand you've picked this five-year notion of what's unfunded over the next five years, projects that are backlogged. If you were free to think and provide advice to the federal government—and this question is for you, Mr. Mayor, about infrastructure generally—what kind of policy objectives would you put in place to determine the amount of funding that ought to be provided by the federal government?
Does that question make sense to you?
:
It does, and thanks for the question.
When we refer to closing the gap, this is when we ask our members what they need and what their plans are. This is the what will be, not what could be. We know there are visions for Vancouver, Montreal, and Toronto. There is long-term planning. This is not actual planning. These are all the projects we'd like to implement. The survey covers actual planning over the next five years, so that's what we're looking at.
It's about striking the right balance. Allowing municipalities to have flexibility is very important, and we understand that. It's a key aspect for them and for municipalities. At the same time, we're looking at the policy objectives we're trying to reach. Let's look at the new dedicated public transit fund, for instance. Considering criteria or considering factors such as land use planning or thorough integration of public transit with an overall urban design to make sure it's at the forefront, so you're not building something and at the same time developing other projects that may reduce the impacts, are the things we'll be looking at and engaging in.
As we all mentioned, we don't know much about the new public transit fund, so we don't know what the criteria will be. Certainly we have to know what we want to achieve. If it's strictly to reduce traffic congestion, for instance, then we would not necessarily have an investment in Gatineau, but what about the needs of the citizens there? This is where we need to engage in a thorough policy discussion as well to see what we want to achieve and how we will achieve our goals.
:
There are two parts to my answer.
First of all, we quantified our needs very precisely and that is in the document we are going to table. The amount of $1.3 billion represents the catch-up work that must be done and that figure is derived from the study we carried out with great precision for each of our activity sectors, waterworks, sewers, asphalt and buildings. This $1.3 billion amount is the cost of catching up. That is the amount needed to repair the damage.
For years taxes were collected to build roads, but there were no taxes levied for repairs. We continued to build and today we have a deficit. Among all the cities in Canada that have this type of need, the amount we need is the best substantiated one.
More generally, we have to change the picture of municipal taxation. I reiterate that cities shoulder 58% of the cost of managing infrastructure, but only receive 8% of the revenue. You don't have to be a rocket scientist to understand that we have a serious problem there.
In short, if we change this ratio of responsibility to revenue, we could choose to invest in public transit without having to go and beg in Quebec or in Ottawa. Through the Canadian Federation of Municipalities, the cities are asking whether they could be partners, in fact. They wonder if they could be considered like real governments, local governments, rather than as entities that go and beg for money whenever there is an election. There has to be a better balance between our responsibilities and the income at our disposal.
:
That would help us enormously. Thank you.
[English]
Could I turn to Mr. McBride.
Mr. McBride, yesterday we also asked the ADM of policy a number of questions about the criteria that is applied before other orders of government get access to federal infrastructure money. One of my colleagues asked about job creation, for example, and the reply was frankly, inconclusive.
I want to ask about sustainability criteria. Then I want to open it, if I could, to the panel.
We don't seem at all federally to be saying to recipients of federal dollars that we are interested in funding, participating, whether it's in a PPP format or a government-only investment, but we want to make sure that the construction conforms to the highest efficiency standards. For example, if you're going to build a building, we want the highest energy efficiency standards available in the marketplace today. We set that as a criteria. If you're going to use water, we want the lowest water intensity metrics available on the market today. If you're going to build with materials, we want the most efficient use of materials and material intensity today.
It's surprising, because in another life for a previous government, we struck a process that actually devised the first efficiency metrics for this country. They were then taken over to Stats Canada where they were supposed to be implemented, and then the project was killed by the government.
We're not making any progress. The OECD has moved ahead of us. In fact, the work we did in Canada was the baseline for the OECD.
Can you help us understand, should the federal government be requiring recipients of federal moneys for infrastructure to abide by the highest efficiency standards in the marketplace? Would you agree that in so doing, it would pull Canada's sustainability performance forward?