Transport Committee on April 23rd, 2018

[The Chair (Hon. Judy A. Sgro (Humber River—Black Creek, Lib.)), Liberal, Judy Sgro]

I call to order the Standing Committee on Transport, Infrastructure and Communities.

Welcome to the members, and our witnesses.

Pursuant to Standing Order 108(2) we are doing a study of the update on infrastructure projects and the investing in Canada plan.

On this first panel, we have with us the Association of Consulting Engineering Companies - Canada, John Gamble, president and chief executive officer.

From the Canada Infrastructure Bank, we have Janice Fukakusa, the chair. From the office of Infrastructure Canada, we have Glenn Campbell, assistant deputy minister, investment finance and innovation.

For the information of committee members, on the minister's website there is now the “Investing in Canada” report. I was going to print it out, but it is 70-some pages. I can direct you to the website if you want to print it out.

Mr. Gamble, I understand you will be going first. Please keep your comments to five minutes, so that the members can get their questions asked.

[John Gamble, President and Chief Executive Officer, Association of Consulting Engineering Companies – Canada]

First of all, thank you for the opportunity to be here with you. I should warn you that asking me about infrastructure is like trying to get a glass of water out of a fire hydrant.

The Association of Consulting Engineering Companies is the voice of consulting engineering companies across Canada. We represent more than 400 private companies, and collectively we employ about 60,000 Canadians. Our firms provide a wide range of engineering, scientific, managerial, and professional services to both public and private sector clients. As such, our member firms are involved with almost every aspect and every facet of public infrastructure in Canada.

We believe infrastructure is a core business of government and an investment in our quality of life. It connects and enhances communities, it enables commerce, and it protects the environment. We applaud the meaningful and significant commitments by several successive governments and the ambitious investments proposed by this current government. It is encouraging to us to see that all the parties are more or less rowing in the same direction on infrastructure. Commitments of seven, then 10, now 12 years provide the opportunity for owners of infrastructure to plan more effectively and manage their assets more effectively. It allows for the design and construction supply chain, including municipalities and public agencies, to more effectively manage and invest in their capital and their technological and human resources. However, there has been much discussion over the slower-than-anticipated pace at which investments are being made. This is a concern to us as well.

The government has noted that their funding regime is based on receipts received when projects are constructed. This is a fair and reasonable explanation. The government's new requirement for the provinces and territories to provide a three-year rolling forecast is prudent, and will be helpful going forward. It also appears that the bilateral negotiations with the provinces took longer than the government had initially anticipated. I suspect that the government is as frustrated as the rest of us. We are grateful and encouraged to see the recent wave of announcements of phase two funding.

However, while we remain confident that the government will eventually fulfill its current commitments to infrastructure investment, albeit much of it later than originally anticipated, it is also important that the commitments are not only long term but also timely and as consistent as possible. Both the investing in Canada plan under this government and the building Canada plan under the previous government are significantly back-end loaded, with most of the investments skewed toward the latter years of the program. The recent delays, while understandable and defensible, will even further back-end load the infrastructure commitments. This threatens to negate some of the advantages of making long-term commitments.

We are all trying to maintain our current workforce through this early period of relatively modest investment. Then, suddenly we'll all be charging up a hill with no idea of what's on the other side. Labour and materials will become more expensive because of intense competition. Approval and regulatory processes will become overwhelmed. Municipalities could have challenges with cash flow or meeting their contributions. Delays and overruns will become almost inevitable. The resultant business uncertainty may discourage private investment. The important economic and societal benefits of infrastructure may be delayed or—worse—unmet.

To help infrastructure in a timelier and more consistent manner in the short term, we recommend a re-profiling of the existing building Canada plan from the previous government so that investments can be made earlier in the program to help offset the recent profiling of the phase two investments in the last federal budget.

Our second recommendation is to begin planning and renegotiating the next generation of federal infrastructure investments prior to the expiry of the current programs. Gaps between programs result in layoffs and lost capacity and expertise, only to have to rebuild years later when a new program is announced. This applies to both us and our public sector partners. For example, after the expiry of the previous building Canada plan, there were three announcements over two governments. Each successively and legitimately claimed to be the largest commitment yet in Canadian history. However, over this same period we also saw our industry shrink by 15% as we waited for the funding to flow—a loss of much-needed expertise and capacity. Only recently have we started to rebuild that capacity.

In cases where municipalities have robust and well-considered asset management plans in place, we recommend providing funding based on their investment program rather than on a project-by-project basis. This would allow multiple strategically related projects to be approved under a single application. More importantly, it will serve as an incentive for municipalities to develop and adopt asset management plans to guide strategic investment decisions.

Finally, I would encourage you to look at the cumulative regulatory burden that can significantly delay or increase the costs of projects. Each year, all levels of government introduce new laws and regulation impacting everything from labour to licensing, from building permits to accessibility requirements. Each of these may individually be very sound policy, but there's rarely consideration of cumulative impact. In particular, you'll want to keep a very close eye on Bill C-69 regarding environmental impact assessments. Many provincial and municipal projects will likely fall subject to Bill C-69. While there is a lot more detail yet to come, there is a significant risk that unless Bill C-69 and its regulations are sufficiently clear and appropriately scoped, it may result in projects being delayed or not proceeding at all.

I would like to conclude by acknowledging that we are grateful for the significant investments by this and previous governments. It is a sound investment in Canada and Canadians. Notwithstanding the challenges of implementing and delivering programs of this magnitude, I believe we can all make it work, and the consulting engineering sector is here to work with you and help make it work.

Thank you. I look forward to your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Gamble.

Now we'll move on to the Canada Infrastructure Bank and Ms. Fukakusa.

[Janice Fukakusa, Chair, Canada Infrastructure Bank]

Good afternoon, Madam Chair and committee members. I appreciate the opportunity to be here today.

I'd like to start with some context about the Canada Infrastructure Bank and then give you a brief update on our progress.

The bank was established in June of last year. Our purpose is to bring together government proponents of new infrastructure projects with private and institutional investors to get more greenfield projects built for Canadians. With our partners, Canada Infrastructure Bank plans to expand the way that infrastructure is planned, funded, and delivered in Canada. We will do this by engaging private sector partners early in the planning and design process; advancing revenue-based business models; and co-investing, alongside private sector and institutional investors and government partners.

The bank provides an optional tool to help public dollars go further, by attracting private investments into new, revenue-generating projects that are in the public interest. This can free up government resources for other priorities.

There are three distinct aspects to our mandate.

First is our investment role. The bank can invest $35 billion over 11 years in new projects. Our shareholder, the Government of Canada, has identified three priority areas for investment: public transit, trade and transportation, and green infrastructure.

Second is our advisory role. We will provide advice to government partners on the suitability of projects for revenue models and possible financial structuring.

Third is our data role. We will work with governments and public agencies to assess what infrastructure data and information is currently being collected across Canada. We will help identify gaps and work to fill them. The goal here is to enable informed decisions about infrastructure investments, based on evidence.

Today, governments contribute to infrastructure projects through direct grants or subsidies, or in the case of P3s, governments pay the private sector through performance-based contracts.

At Canada Infrastructure Bank, we want to attract additional private investment and expertise to new projects that may be close to commercially viable but not quite there. We'll do this by making the project structure work.

As a co-investor, the bank can inject capital or support at the right times to make the overall project viable for private sector investment. In our model, payments to private sector partners will come from revenue that's linked to usage of the assets. Revenue can come in many different forms, such as fees, tolls, fares, and also mechanisms based on appreciating land values.

In projects that are supported by the bank, the beneficiaries of a new asset or service will help cover the cost. Keep in mind that this approach does not replace traditional government funding for infrastructure, nor does it replace P3s. Our model will complement the existing funding models.

With respect to progress, our independent and very experienced board of directors was appointed on November 16, just five months ago.

One of the directors, Bruno Guilmette, temporarily stepped off the board to get the bank's investment functions up and running. Bruno has put a great deal of effort into designing our investment policies.

We have established priorities and budgets in our five-year corporate plan, which will be submitted to government for approval.

We are currently recruiting for senior management, professionals, and support staff. We currently have 17 employees and contract staff, including pending hires.

The search for our first chief executive officer is well advanced, and I expect a decision will be made soon. Recruiting the right leader, with very specific skill sets and expertise, does take a lot of time.

In closing, the bank is establishing a solid foundation of people, processes, and systems. This foundation is essential if we are to make responsible, long-term investments on behalf of Canadians.

Thank you. I welcome your questions.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We're now on to Mr. Campbell for five minutes.

[Glenn Campbell]

I have no opening statement, but I'd be happy to answer any of the committee's questions.

[The Chair, Liberal, Judy Sgro]

Terrific. Thank you very much.

Go ahead, Mr. Chong.

[Michael Chong, Conservative, Wellington—Halton Hills, ON]

Thank you, Madam Chair.

Thank you to our witnesses for appearing today.

I want to provide a bit of context on why we're here today. We're here because the government knew full well last election, when it was talking to Canadians, that it's difficult to get money out the door. That's why they promised to ensure that every year, before the fiscal year ends on March 31, they would transfer lapsed money, which is money unspent, into the gas tax transfer, immediately topping it up, so that municipalities would have immediate cash to meet their infrastructure priorities. However, they didn't fulfill that requirement and not only that, they are missing their commitments on infrastructure spending in a very big way. Before we go down the path of explaining that away and saying that it's being lapsed and re-profiled, it is clear that a dollar spent today in infrastructure is far more valuable than a dollar spent 10 years from now. This is just like a dollar of GDP growth today, which is far more important than a dollar spent 10 years from now...the wonders of compounding.

We're here because the Parliamentary Budget Officer, who is an independent officer of Parliament, has pointed this out in numerous reports, most recently in the last week of March, saying that the government has drastically missed its infrastructure spending commitments. As a result, its own budget projections from previous budgets are way off the mark. Only 11,000 jobs have been created as a result of infrastructure spending and there has been one-tenth of 1% of GDP growth. In fact, by 2022, all that growth could be wiped out because of inflation and rising central bank rates. We're here to figure out why the government is not meeting its commitment to infrastructure spending and why it's not meeting its commitment to transfer money before fiscal year-end to top up the gas tax transfers.

This is not just an academic question. In its most recent review of commuting times, last November, StatsCan reported that commuting times are up in Canada and that the average commute has increased by 3%. Every day, some 16 million Canadians close their front doors and go to work, 12 million of whom are in our city regions, and their commutes are getting longer and longer and traffic is getting worse and worse. This is not just an academic question. There are real-life consequences on the ground. Billion of dollars in productivity are being lost in our large city regions. In the GTA today, the average commuting time is over an hour. It's not much of a problem for people living downtown. If you're living in Rosedale, the Annex, Cabbagetown, or Leaside, you can get downtown pretty quickly. However, if you're like the vast majority of the eight million or nine million residents in the GTA, you're spending hours in your car every day. It's really not just an academic question. It's a real challenge to understand what is going on and why the government is not fulfilling its commitments.

I would be interested to hear from you, Mr. Gamble, as to what is going on and what can be done about this. It's concerning. We're also not getting consistent plans from the government. Last month, they told the Parliamentary Budget Officer, who has the right to ask for this information on our behalf, that there were only roughly 10,000 projects to which federal money had been allocated. Last week, we were told that it's now 20,000 projects. Every three or four months, we seem to get a different plan for what is the government's largest decade-long commitment of some $180 billion. This is very concerning.

Mr. Gamble, could you comment on what you mention as the 15% shrinkage in your members' businesses over the last number of years? Could you talk about why the need is there now, rather than 10 years from now?

[John Gamble]

I won't presume to speak to the inner workings of Infrastructure Canada. It's beyond my expertise, clearly.

I would share your observation that dollars spent today are far more effective than dollars spent later. The point of the funding is not the spreadsheet; it's about actual, tangible assets creating wealth and opportunity. This is even challenged, even if they were on schedule—and with all due respect, even if your previous building Canada were on schedule.... We're still seeing those peaks and spikes, which are very difficult for us to manage.

Anything that would flatten that curve out would get more dollars into the economy quickly in the short-term stimulus, but probably more important are the benefits that last 10, 20, 30, 50, even 100 years, long after my members have gone, long after the constructors have gone, and these assets are in service.

Also, there is the economic consequence. You lose effectiveness of the investments as well if you have a doldrum, and then everybody is competing at once as we run up this ramp. It's not unique to the federal government. If somebody can figure out how to flatten out these curves and make them continuous, they should put that in a bottle and sell it. Lots of people would buy it.

What we're looking for is consistency, some level of predictability, as much as one can. As professional services, we can't put people in a filing cabinet and wait a few years while things are delayed. We have to make decisions that allow us to keep our businesses open and our doors open.

Our municipalities have to be able to manage this. I think this is often forgotten. The municipalities have to come up with the matching contributions in many of these programs. If all the availability for the assistance shows up at the same time, then we may not be able to get some projects out the door.

As I say, I am—

[The Chair, Liberal, Judy Sgro]

Thank you very much, Mr. Gamble. I'm sorry, but time is up.

[John Gamble]

I warned you; I'm like a fire hydrant.

[The Chair, Liberal, Judy Sgro]

We're moving on to Mr. Fraser.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you very much, Madam Chair.

Picking up on that issue, although I agree that investing today is a better way to approach this than kicking the can down the road, I don't share the doomsday vision that my colleague has laid out. I think that's why there was a phase one of the plan that invested in shovel-ready projects, with a plan to invest in the long term with certainty that it's going to help municipalities manage that cash flow.

On the issue of unspent funds, you specifically referenced the build Canada fund and suggested that it be re-profiled. In fact, this is a good example of money sometimes not getting spent. Could you explain that to me? You suggested it should be re-profiled. Did you suggest it should be into the existing programming of the new 10-year plan that we're discussing today?

[John Gamble]

First of all, as far as I'm concerned, there are no villains in the room. You've all made significant investments, and we're grateful for that, but we all want to do better.

To your specific point, the investing in Canada plan was basically built on top of the building Canada plan. To the credit of the current government, they continued that program, but even in its initial incarnation, it was very much back-end loaded. It started off slowly and went up the ramp. Now we have a secondary program on top of it.

If we can use some of that commitment.... That's done. That program is in place. If the finance minister, or whoever you need to speak to in cabinet, can reallocate some of the funds that are flagged for the latter half of the program and move them into the current years of the program, it might balance out some of the spikes and valleys and make up for some of the lost ground on the current programs.

[Sean Fraser, Liberal, Central Nova, NS]

Do you think there's a risk of a bottleneck with the provinces' and municipalities' ability to come up with their share of the project if we put more of the resources in the front end?

[John Gamble]

Not necessarily, if you do it in an orderly way. I think what will be a bottleneck is these two spikes coming five years out from now, when both programs are going to be ramping up to their full stride. That's when I'm more fearful of a bottleneck. At least here we have the luxury of time to manage that bottleneck.

[Sean Fraser, Liberal, Central Nova, NS]

Sure. Thank you very much.

Shifting to Ms. Fukakusa, I have a few questions about the Infrastructure Bank that I'm hoping you can offer comment on.

I recall seeing estimates in the news about a year and a half ago suggesting that the amount of private capital tied up in negative yield bonds worldwide is somewhere in the range of $16 trillion. To me, it says that, if you're looking for a reliable rate of return, this is a huge opportunity to really build out some pretty big projects.

Is this bank going to allow us to tap into that to get more built? Is the involvement of the private sector going to allow us to get more built faster?

[Janice Fukakusa]

I would say yes to both of your questions.

When you look at the amount of capital that is looking for very solid long-term returns, infrastructure is a natural asset. At the bank, early on in the process, we will look at how the project is structured, where the risks are, and where there are areas that make the investment not investable because of the fiduciary responsibility a lot of the pension funds, for example, have. We will diffuse that risk, targeting the capital that we have diffused that risk for, so that we can actually smooth out the risk and get the investors in to increase the amount of funding that's going into infrastructure, because these funds are not there now.

What I would say about the process also in terms of getting things done faster is that the intent is to get involved very early. We would have very good capability. We're building our capability and our number of people in terms of doing diligence right at the front end to identify where there could be possible turns in the road and where we could go in on it on a faster basis. With respect to the private sector investors, they will also have private sector diligence. So we'll get the benefit of a lot more diligence at the front end so that we can plan and execute on a faster basis.

[Sean Fraser, Liberal, Central Nova, NS]

Is there any limitation on who the customers are who are going to be paying the revenue essentially? I'm thinking right now that, as an example, you mentioned tolls would be one way to generate revenues. Due to certain political realities, a lot of folks in different levels of government are afraid of putting a toll on the public, but I've heard a number of different kinds of proposals around the use of a shadow toll, a financial arrangement in which, let's say, a province building, a toll bridge, or a highway could amortize the cost over time, keep track of the use, and pay back the private sector investor. Is that kind of project in theory eligible under the programming of the Canada Infrastructure Bank?

[Janice Fukakusa]

I think the revenue stream should ultimately come from the usage of the infrastructure. There may be instances in which revenue streams are not certain over a given period of time, such as right at the beginning, so we'll look at all those sorts of situations in determining where we can be of assistance in structuring.

[Sean Fraser, Liberal, Central Nova, NS]

There's a lot of talk around the transformational nature of the potential projects the bank could tackle, which is fabulous, but I'm also wondering if there's any possibility of having smaller projects that would potentially be bundled together and sold almost as a package to investors. Is that something that's even on the table with the bank?

[Janice Fukakusa]

We're looking at all of those possibilities and we have had a lot of outreach. Particularly if they're very similar and can be rolled out, that's a good way to satisfy all different types and sizes of communities.

[Sean Fraser, Liberal, Central Nova, NS]

And that would in theory help mitigate the risk on any given project as well.

[Janice Fukakusa]

Yes.

[Sean Fraser, Liberal, Central Nova, NS]

I think that's more or less my time.

Thank you very much.