TVO: What is the Canada Infrastructure Bank, anyway?

Why the federal government is banking on infrastructure in its budget bill — and what that could mean for Ontario

  The Canada Infrastructure Bank could help fund the expansion of Ottawa’s O-Train network. (shankar s./Creative Commons)

The Canada Infrastructure Bank could help fund the expansion of Ottawa’s O-Train network. (shankar s./Creative Commons)

These two words might not inspire excitement on their own, but together they’ve stirred up considerable controversy: infrastructure bank. As the federal government pushes its omnibus budget bill, C-44, through committee hearings this week, here’s a primer on what the bank is, how it’ll work, and why it matters to Ontario.

What is the Canada Infrastructure Bank?

It’s an idea that was first proposed in the 2016 fall economic statement: the feds put $35 billion toward major new infrastructure projects and use their position to leverage further investment from the private sector. Finance Minister Bill Morneau has said that that for every dollar the government invests through the bank, private companies and other institutions, like pension funds, will invest four or five bucks.

Of the $35-billion pot, $15 billion will come from federal funds over the next 11 years; that amount will be split evenly between public transit, green infrastructure, and trade and transportation projects (like airports and bridges). The other $20 billion will be repayable capital — the bank will hold assets in the form of equity or debt — and won’t have any fiscal impact on the government.

The bank is meant to help fill our infrastructure gap: the difference between what should already have been spent on maintaining and improving public infrastructure, and what has actually been spent. That gap is almost $400 billion wide — 20 per cent of Canada’s GDP — according to a report by TD Economics.

Prime Minister Justin Trudeau hopes to have the bank up and running by the end of 2017. To that end, he’s included legislation for it in this year’s budget bill.

How will the bank be governed?

It’ll be a Crown corporation, with a CEO and a board of directors, and while the Liberals use the term “arm’s length” in describing the governance structure, they also note that “the government would be responsible for setting the overall policy direction and high-level investment priorities.”

“The government doesn’t want it to be too far away, so that the government can still have an influence on the decision process,” says Craig Alexander, senior vice-president and chief economist at the Conference Board of Canada. "That runs some risks. And it will also affect the way the private sector thinks about engaging with the infrastructure bank.

“If you can attract private sector investment, you can get more infrastructure investment done and free up funds for other social priorities,” he adds. “But if you don’t actually get the governance structure right, you might not get the results you wanted.”

Why the controversy?

The NDP argued in a motion before Parliament last week that “the Bank will leave taxpayers with an unacceptable burden of fees, tolls, and privatization that will only make private investors wealthy, to the detriment of the public interest.”

But not everyone buys that assessment. “Canadian infrastructure may not just be increasingly owned by private-sector players, but also foreign players,” write Azfar Ali Khan and Randall Bartlett, of the University of Ottawa’s Institute of Fiscal Studies and Democracy, in a blog post. “Importantly, increased foreign ownership of Canadian infrastructure is not necessarily a bad thing, particularly if that is where the expertise lay.”

The House of Commons standing committee on transport, infrastructure, and communities held a hearing on the bank Tuesday. Dianne Watts, opposition critic for infrastructure and communities, asked why new public-private partnerships couldn’t be managed by PPP Canada, a Crown corporation the Conservatives launched in 2008. Government representative Glenn Campbell responded, arguing the bank will require a greater level of expertise than PPP Canada can offer, particularly when it comes to underwriting complex projects.

Although many economists agree Canada has an infrastructure gap (even if they can’t agree on its size), and that infrastructure investment is usually good for the economy, Khan and Bartlett argue “the case for establishing the CIB is not compelling, as it has the potential to increase overall costs to taxpayers while privatizing the most high-return, low-risk infrastructure assets.”

A KPMG report commissioned by Infrastructure Canada also listed potential problems: the CIB could encroach on provincial jurisdiction, slow projects down by introducing new layers of bureaucracy, and cause “public relations disasters and embarrassment,” if the government doesn’t thoroughly assess the viability of projects, the Globe and Mail reported last week.

The Liberals want all budget-related committee hearings completed by the end of this week. Opposition parties have complained that the government is pushing the bill through without allowing for sufficient debate — and contend the bank should be created via standalone legislation.

What does all this mean for Ontario?

To start with, the CIB would be headquartered in Toronto. “The concept is to attract investment by Canada’s largest money managers — and the largest pension funds are based in, or have large presences in, Toronto,” Alexander says. International investors visiting the city may also be enticed to invest in Canadian infrastructure, he adds.

And projects that offer a good return for private investors are more likely to be completed. The Liberals highlighted two Ontario initiatives in particular: the expansion of Ottawa’s O-Train light rail network, and the SmartTrack regional express rail project in Toronto. Federal infrastructure minister Amarjeet Sohi has also suggested high-speed rail projects, such as the proposed Toronto-Windsor line, might be good candidates for bank funding.

“There’s a real need to expand a lot of infrastructure,” Alexander says — including traditional infrastructure (highways, bridges, ports) and new infrastructure (the GTHA transportation grid). “The grid at the moment is completely unacceptable,” he says, “But it goes beyond that. If you had the Kitchener-Waterloo region plugged into the GTA transit system, you could actually create additional economic opportunities.

“But that’s just one example,” Alexander says. “There’s an enormous number of different projects.”

Photo courtesy of shankar s. and licensed for commercial use under a Creative Commons licence. (See the uncropped version.)