Evidence of meeting #68 for Transport, Infrastructure and Communities in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was p3s.
A recording is available from Parliament.
3:45 p.m.
Conservative
The Chair Conservative Larry Miller
We'll call our meeting to order.
I'd like to welcome our witnesses here today.
Mr. Moist and Mr. Stoney, with no further ado, we'll turn it over to you for 10 minutes or less.
3:45 p.m.
Paul Moist National President, Canadian Union of Public Employees
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 Minister Clement's 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 C-377, 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.
3:55 p.m.
Conservative
The Chair Conservative Larry Miller
Thank you very much. Your time has expired.
Mr. Larose, you have seven minutes.
3:55 p.m.
NDP
Jean-François Larose NDP Repentigny, QC
Thank you, Mr. Chair.
I also wish to thank our guests for being here with us today.
3:55 p.m.
Conservative
The Chair Conservative Larry Miller
My apologies, Mr. Larose.
I had it in my mind that you were both from the same organization, and you're not.
Mr. Stoney, you have 10 minutes, please.
3:55 p.m.
Toby Heaps Chief Executive Officer and Co-Founder, Corporate Knights Inc.
Thank you, Mr. Chairman.
Thank you kindly for having me here today. I have one minor clarification for the record. I am Toby Heaps. I am not Mr. Stoney, contrary to what my name tag states.
I head up a group called Corporate Knights, and I oversee our media, investment research, and advocacy divisions. Our mission is to empower markets to make the world a better place, and we specialize in quantifying the financial implications of sustainable business.
On the advocacy side, we coordinate the Council for Clean Capitalism. This is a CEO member group that is focused on bridging market gaps to enable Canada to be a more holistically prosperous nation. The council is comprised of nine CEO members, including the CEOs of Catalyst Paper, the Co-operators Group, Hewlett-Packard Canada, Interface, Mountain Equipment Co-op, Teck Resources—
April 25th, 2013 / 3:55 p.m.
Conservative
3:55 p.m.
Conservative
3:55 p.m.
Conservative
3:55 p.m.
Chief Executive Officer and Co-Founder, Corporate Knights Inc.
I'm with Corporate Knights.
3:55 p.m.
Chief Executive Officer and Co-Founder, Corporate Knights Inc.
I'm with Corporate Knights—knights with a k.
I was invited by Rémi, the clerk.
3:55 p.m.
Some hon. members
Oh, oh!
3:55 p.m.
The Clerk
It is on the second floor.
3:55 p.m.
Chief Executive Officer and Co-Founder, Corporate Knights Inc.
Well, it was nice to meet you all.
Thank you.
3:55 p.m.
Some hon. members
Oh, oh!
3:55 p.m.
Conservative
3:55 p.m.
Some hon. members
Oh, oh!
3:55 p.m.
A voice
This is Mr. Stoney. He was late, Mr. Chair.
3:55 p.m.
Conservative
The Chair Conservative Larry Miller
Mr. Stoney, I wish you had spoken up. It would have saved us both the embarrassment.
Mr. Stoney, if you're ready, you have 10 minutes.
3:55 p.m.
Dr. Christopher Stoney Associate Professor, School of Public Policy and Administration, Carleton University, As an Individual
Thank you, Mr. Chair.
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.
4:05 p.m.
Conservative
The Chair Conservative Larry Miller
Thank you, your time is up. I'm sure you'll be able to add more in questions.
With that, Mr. Larose, you have seven minutes.
