Transport Committee on May 28th, 2015

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Watson, you have seven minutes.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

Thank you to our witnesses for appearing here today.

I think that was the most interesting line of questioning yet by Mr. McGuinty, arguing for a $12-million-a-year program—in other words, what would have paid out $36 million by now—against a $305-million program, just for the sake of claiming credit for establishing a program in 1995. It sounds pretty small-minded, not to mention small-dollared.

In terms of reaching those who have questions about affordability of their service, the incentive being provided in the program, if I understand it, favours pricing plans that come in at much greater affordability for the consumer. Is that fair enough to say about the connecting Canadians program?

[Éric Dagenais, Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Department of Industry]

Yes, there is a series of criteria against which the projects were and are being evaluated. Affordability was a factor. More points were given to projects that had greater affordability—absolutely.

[Jeff Watson, Conservative, Essex, ON]

It's also true that this isn't about the major Internet service providers gaining access to funds like these. In fact, in rural communities like mine, it's much more about the Gosfield telco type of operations. In filling in gaps or improving or enhancing service, they are the ones who are able to tap into these incentives in order to provide better broadband. It's not a program that's restricted to big names but is opened up to every player of every size. Is that correct?

[Éric Dagenais]

That's correct. Of the 300 applications, we received applications from almost everybody, from the smallest to the largest. They're all looking to partner in this program.

[Jeff Watson, Conservative, Essex, ON]

Mr. Siemiatycki, could I turn to you for a moment? I need some clarification here.

I'm listening to the testimony. There was some question earlier about whether federal funds should be expanded to include operation or maintenance of infrastructure. With 95% of the infrastructure being owned by the provinces or the municipalities, on what basis are you asking the federal government to pay for and maintain infrastructure that in fact it doesn't even own?

[Prof. Matti Siemiatycki]

I think this point is primarily related to funding. We know that municipal governments have the smallest amount of incoming revenue. We know that the federal government has much larger pools of money.

We know that the federal government provides money for capital costs. This poses a real challenge when we understand that infrastructure really has these large upfront costs, but also has these very significant ongoing operation and maintenance costs. It's problematic if money is being spent to build these projects without necessarily having the revenue streams, the opportunities, to be able to keep them up and running and in a state of good repair.

We've seen across the country incidents where our infrastructure does run into serious problems in terms of its condition. We've had bridges collapse. Just recently here in Toronto, we had facades falling off social housing buildings. These are really major infrastructure deficits, and there are huge maintenance backlogs well beyond the capacity of local governments and municipalities to pay for in regard to these assets.

I think it behooves the federal government, when thinking about where to best spend money and when we have a $54-billion or $55-billion infrastructure plan coming over the next decade, to think not only about building new stuff, stuff where you can cut nice ribbons and gain political credit—I think that's good—but also about how we're going to operate and maintain what we already have, because that has value. It creates jobs as well and it ensures that these things can encourage our productivity.

[Jeff Watson, Conservative, Essex, ON]

Perhaps to sum it up, Mr. Siemiatycki, the basis for the feds maintaining infrastructure they don't own is simply because the money's there: that's what I understand you to say.

In terms of what federal funds are available for, there are a number of things. We have a number of different revenue streams available. Some of them are application-based and grant-based. Some, like the gas tax fund, are direct transfers. We've created an incredible amount of flex. In fact, we've broadened the number of categories that are available to municipalities. That would include repairing and maintaining bridges and culverts. It would include replacing aged water systems and water mains, which a lot of municipalities are doing, particularly rural municipalities that I can speak to, even in Essex County. There's a lot of flexibility in there in order for municipalities to address some of the issues of aging infrastructure, and many of them are doing that. So I'm not sure what, when I hear....

The other thing is that when you're talking about “picking the right projects”—that's a comment I heard you say earlier relative to the choices of the federal government—I can say that the federal government is not the one out there picking the projects. They give the municipalities and the provinces the flexibilities to determine their capital spending priorities. In other words, this really isn't about ribbon-cutting. It's actually about municipalities making decisions about what kind of infrastructure.

Are you suggesting we should take the choice away from municipalities, tell them what their priorities ought to be, and be the ones selecting their projects?

[Prof. Matti Siemiatycki]

I think each municipality has its own interests and concerns, and I think we have to be very aware of that. Yes, there's a role at the local level, but surely the federal government, when allocating huge amounts of federal dollars, needs to be considering and using cost-benefit analyses and different types of evaluative tools to understand which projects they should be allocating money to.

I would pick the example of the Scarborough subway. That project—

[Jeff Watson, Conservative, Essex, ON]

Which categories of infrastructure eligibility in federal programs would you suggest the federal government eliminate, then, for municipalities?

[The Chair, Conservative, Larry Miller]

That's the last question.

Go ahead.

[Prof. Matti Siemiatycki]

I don't know if I understand the question.

[Jeff Watson, Conservative, Essex, ON]

You're suggesting that certain projects should be favoured over others. Which categories of eligibility that we've given to municipalities, then, constitute the wrong projects and therefore should be removed from eligibility criteria?

[Prof. Matti Siemiatycki]

I don't think it's on a project class, or in the programs; I think it's in the details of which projects are being selected.

Take something like the Scarborough subway. In the absence of detailed studies that show which projects.... The federal government has already approved money for that project, and it doesn't seem like there was extensive study in detailing why that was the project, over all the other various options in this region, let alone this whole country, that needed investment.

I think this is not picking which asset bundles, this is picking project by project. The federal government, as federal governments do in a lot of other jurisdictions, can play a role in supporting decision-making that picks effective projects that will deliver the most value. Infrastructure on its own is—

[The Chair, Conservative, Larry Miller]

Thank you.

Mr. Komarnicki, you have seven minutes.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Thank you.

I'll start with you, Mr. Siemiatycki. When I was listening to you, I said, “I think he likes P3s and I think maybe he doesn't.” There were some good points and some bad points. I would take it that each project is different and not all are best suited, so you have to look at the overall picture before deciding how you might go. I appreciate the fact that a lot of expertise is required at the contractor level, the lawyer level, the accountant level, and so on. Those are all important.

One witness who was here before us indicated that part of the problem with cost overruns and the huge cost of building a particular project is that you have one party doing the design work and they're not necessarily taking into account the construction. Then you have somebody else doing the construction and they don't take into account the maintenance later, or what might be involved to do that. So you don't have the optimum utilization of dollars for the project, yet if you're getting one person to see all three, there are some gains to be made by that, and some advantages.

I know you said that the architectural designs may not be quite like you or others would have liked them; maybe there are some compromises that are made there. Do you see that area as something that is advantaged if you have someone who has the expertise, capability, and gravitas to do all three?

[Prof. Matti Siemiatycki]

I would recommend design-build type contracts. They are really in many ways par for the course in a lot of infrastructure projects, so we're already bundling that. Cost overruns are a major issue on megaprojects and getting a handle on that is really important.

I would say that bundling design, build, and finance for that initial construction period is quite a sensible bundle. When you have the operation and maintenance in the bundle, and the long-term finance, private finance is much more expensive because the risk profile goes down significantly after the construction period is over. Do you need that finance in there over the whole period? I would suggest that in Canada, we've generally been more sensible in paying out what are known as milestone or substantial completion payments to try to remove some of that financing at periods earlier on so that the government is not paying the much higher borrowing cost over the entire life of the project.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

It would be fair to say, from what you're telling us, that there is a cost to management, there's a cost to finance, and anyone undertaking that project has to build that in. Presumably you'd want to calculate that somehow, or have someone crunch the numbers to say if that is advisable or not in this case. It depends, I suppose, on the capacity the municipality or city has to be able to manage long term.

[Prof. Matti Siemiatycki]

I think the part that's problematic is that we don't have detailed studies of what the alternative is.

I did a study in 2012 that tried to look into this value-for-money idea. We looked for detailed studies of risks on past projects. This is basically about risk and the cost of transferring versus managing risk. We looked for the detailed studies that were the basis for the assumption that public-private partnerships control them. Those studies have not been done, and the Auditor General just confirmed that in his 2014 report.

It's like buying an insurance policy that you don't know the cost of. You don't know what your real upside risk is if those eventualities occur.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

It's not just with respect to these types of projects that you might find lack of data or studies, but generally municipalities are not necessarily particularly good at asset management, nor do they have the capacity to do that. I know the gas tax fund has allowed for purchases to be made to track that. I know in my profession we tried really hard to make sure everyone had the tools they needed at their disposal, whether it was computers or software, and the know-how to track assets, to get details, and to have the numbers available so an analysis can be done.

Are you a proponent of ensuring that there is the capacity to at least provide data for people like you, and then secondly to track assets for the particular municipality or institution concerned?

[Prof. Matti Siemiatycki]

What I was getting at with my final point in my comments was that data is key. These projects put out a digital exhaust, a data exhaust. There is tons of information, and I think we could be using it to analyze performance and best practices. I think the federal government could play a much more information coordinating role beyond just P3s.

The idea of PPP Canada seems to suggest that P3s are the only innovative construction method. There are many others that bundle. There's alliance contracting. There's construction management at risk. There are all sorts of other mechanisms. I'd like to see their mandate broaden to be “Infrastructure Procurement Canada”, “Infrastructure Delivery Canada”, and then they could serve the role of collecting and compiling data across the whole country, so that we can be learning lessons not just about P3s, which are innovative and have the potential to deliver value under certain conditions, but across all types of infrastructure.

The final point I'd raise is that P3s are only for a small fraction of projects. What about all the other procurements that fall either below this size or don't meet the criteria. We still need to be delivering those projects effectively too, and I think the federal government could play an important coordinating, information gathering, and knowledge centre role in encouraging that.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

If I have some time left I'll move to Mr. Toderian. Do I have time, Mr. Chair?

[The Chair, Conservative, Larry Miller]

Yes, you have slightly less than a minute.

[Ed Komarnicki, Conservative, Souris—Moose Mountain, SK]

Okay.

You indicated that municipalities or cities don't necessarily prioritize what needs to be done, but are going after a program that maybe has a grant or such. The gas tax fund that was mentioned earlier has a broad range of things that municipalities can utilize. With both that and the GST rebate, a significant number of dollars is given to the municipalities, and then they decide where their priorities are and where those moneys go. Is that something you favour?

[The Chair, Conservative, Larry Miller]

You have 15 seconds.