Transport Committee on April 23rd, 2018

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

Mr. Gamble, you mentioned the awarding of certain projects to a municipality might be a reward for a municipality that has a very good asset management plan, if I heard you correctly. You can expand on that a little, especially for my colleague here, who has certainly lived that kind of planning process in the past, but I'm wondering if a municipality should do other planning to be similarly rewarded.

[John Gamble]

I think the asset management planning is absolutely critical because it's requiring the municipality to take a long-term view of their municipality and their needs and their vision for their own community. Then they would plan a road map, figuratively speaking, about what assets they need to put in place. These pieces all fit together. The municipality can invest with much more confidence if they know the next piece is coming because a lot of these things are interrelated. Population growth is going to create more traffic, which requires more roads, more public transit, more bike lanes, what have you. It might require more intensification. These in turn impact on water and sewage system demands, power grids, and so forth.

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

What you're basically saying is that a proper land use and population distribution plan goes above and beyond just putting money aside to replace the sewer line one day?

[John Gamble]

Absolutely. The asset management plan is the outcome of prudent planning by municipalities that are very focused on infrastructure needs. It also—

[Ken Hardie, Liberal, Fleetwood—Port Kells, BC]

If I can, though, in the time I have left I'll ask you, how does the current plan harmonize with that vision of the way to fund infrastructure?

[John Gamble]

Again, I'm not getting into the details of the application process, but traditionally, application processes at all levels of government across this country have been very project focused. It's about getting this project done and getting it in the ground, and this led to what you'll see colloquially described as somebody paving a road, and a few months later someone comes in and puts in a water main.

What we need to do is make sure that there is a longer-term vision. Some cities have very good asset management plans, and if they have a good asset management plan, let them run with it. If they don't, then maybe you have to be a little more prescriptive in the application process, and perhaps you have to be a little bit more rigorous in the screening of the project to see that they've done the due diligence.

One point that I think is important about an asset management plan is that it also makes you contemplate the life-cycle cost, or what I prefer to call the “total owner cost", of operations, maintenance, and what you do after its useful design life. Do you rehabilitate it or retire it? These things are often considerations that, under traditional granting programs, are about getting the shovel in the ground, and then instead of NIMBY we have NIMTO—not in my term of office—with respect to how it gets paid for over the next 20, 30, 40 years.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We're now on to Mr. Chong.

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

Thank you.

Congratulations, Madam Fukakusa, on your appointment to the Canada Infrastructure Bank.

In principle, I think infrastructure banks can make sense and can work, but I think they only work if one principle is abided by, which is that all the revenues and all the expenses are private sector. In other words, in return for getting a steady stream of revenue over a fixed period of time from tolls or user fees, the private sector steps in and makes the financing decisions and undertakes to finance the project. I get nervous and skeptical when we mix public sector and private sector funding, because I think that leads to risk for Canadian taxpayers, and it leads to profits for the private sector. I think you mentioned in your opening remarks that one of the things the bank is about is attracting private sector investment to projects that are not currently commercially viable, and so there's a reason why the private sector isn't funding them. I think by mixing that blend of private sector and public sector financing, we're going to socialize risk and privatize profit.

There are two examples in this town over many years, both under previous Conservative and Liberal governments, that are demonstrative of that. We privatized a portion of the Canada pension plan for Canadians through the CPPIB, and today that fund, which manages about $300 billion, has about $200 billion in MER, which is three-quarters of 1%. This is far higher than passive funds like Vanguard, which are one-tenth of 1% or maybe one-fifth of 1%. Essentially we're giving people $1.5 billion to $2 billion a year to actively manage these funds, which are Canadians' money, without evidence that they're going to do a better job than a passive fund. The evidence, the economic research that I've read, says that active managed funds underperform the market in the long run in every instance. This is an example where the private sector has stepped in to manage what was being managed by the Government of Canada, and it has cost Canadians a lot of money—$2 billion-plus a year in management fees. The average executive there is paid well over $3 million a year in compensation to manage a public pension fund.

For CMHC, we have massively privatized profit and socialized risk. In fact, arguably we've probably created one of the biggest housing bubbles in the world through this program over many decades. It's a half-a-trillion-dollar behemoth in this town that gets very little scrutiny. It underwrites about a third of all Canadian mortgages, and arguably the reason why the banks have been so eager to issue mortgages is that a lot of the risk is on Canadian taxpayers.

I'm skeptical about this blending of private and public funding for the Infrastructure Bank, and maybe you could address some of those skepticisms.

[Janice Fukakusa]

I can't speak to the examples you gave, but what I can speak to is the fact that it is not a partnership through the life of the asset. A lot of the private investors are unwilling to take the risk involved in getting the asset up to speed in generating revenues, and that's where the analysis and the risk diffusion can take place.

The intent is about getting more dollars invested in Canadian infrastructure for Canadians. We would set the conditions whereby we can attract that capital by diffusing the risk at certain instances. It's not, then, about side by side so much as looking at the risks involved in getting a particular infrastructure project up to speed and how we can facilitate that capital coming in. I would say the intent is to get more dollars of infrastructure working for the taxpayers.

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

Unless we have a commensurate amount of profit being generated by these projects, what's to offset the risk of our getting involved in projects where the private sector plays a role in financing them and where currently they don't feel it's commercially viable?

At the end of the day, unless the Infrastructure Bank is going to start operating like a private sector arm's-length crown corporation with a mandate to make money and return that profit to Canadian taxpayers, all I see here in its early days—and these are early days, and we wish you well in your endeavour—is that we are taking on risk. There are going to be profits generated, clearly; otherwise, the private sector would not get involved. Where is our profit that could be returned to taxpayers for taking on that risk?

That's really the heart of the question here. As I said, these are early days, and we'll have to see what the details of the granting and loan programs are when they are finalized.

[The Chair, Liberal, Judy Sgro]

Please give a short response, if possible, Mr. Campbell.

[Glenn Campbell]

Thank you for the question. It pertains to the policy behind the bank.

Just to reiterate, it is another tool for governments to use in partnership with other governments to crowd in private sector capital. Chair Fukakusa can talk about why we need an arm's-length entity with our own private sector experts to advise governments in that regard.

It is still a partnership about public assets, so this is not privatization. It's partnership on assets that may not have been built, or if you could attach a revenue model, there will be revenue distributed. Also, the bank is about transferring risk to the appropriate parties, including the private sector.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

We are on to Mr. Sikand.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

Janice, my questions are going to be for you. I already apologize if there is some duplication.

I understand that the Canada Infrastructure Bank was established to provide low-cost financing for new infrastructure projects. As my colleague pointed out, the Liberal side ran on this. The foresight into this implementation was for the federal government to use its strong credit rating and lending authority to make it easier and more affordable for municipalities to build the projects their communities need.

You said in your opening statement that the bank was established last June. Since then, what has been done to generate interest in the partnerships?

[Janice Fukakusa]

We have been receiving quite a lot of inbound on all sorts of projects, partnerships, and all of that. June was when the legislation was approved, so I would say we began operating and setting up the bank in the fall, setting up a pretty good and solid foundation, as I said.

We're at the point where we are looking at a lot of the inbound and where those partnerships are. All of that is happening real-time, and I'd be happy to come back to this committee after we have gotten established and speak more to the tangibles we're achieving.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

How does the bank select potential stakeholders?

[Janice Fukakusa]

In partnership with the government, we look at the public interest test. What we're finding, though, is the stakeholders are selecting themselves and coming in with partnerships, which is the best thing to do, because then you can optimize what each brings to the table.

I think there is so much demand—as you've heard about here—for an infrastructure and so many different participants that likely the velocity will increase as we become more up to speed.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

You mentioned you're getting a lot of inbound. What are the types of incentives that would actually create such interest?

[Janice Fukakusa]

There is a lot of infrastructure need, and not a lot of funding. This is another tool in the hands of the government at accelerating that investment. You've heard a lot about the demand for infrastructure, and it is about getting more funding available.

[Gagan Sikand, Liberal, Mississauga—Streetsville, ON]

Thank you very much. I'm going to provide some time to my colleague, Mr. Badawey.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you.

To all three of you, there are many programs that are available, and I'll explain it using layers. At the municipal level, there are different incentives, whether it be community improvement plans or gateway strategies. I know where I'm from, being a border community, we have a great gateway strategy, and it offers incentives. Ontario also offers us the ability to incentivize the private sector in bonusing, which is not legal under the Municipal Act.

I'll now jump to the provincial level. At the provincial level, there are other programs available: the RED program, training programs, and capital programs. There is an infrastructure bank, as well, Infrastructure Ontario. That's the second level.

Jumping to the federal level, we have different programs, whether it be infrastructure programs that can be applied for, or whether it be an arrangement through the Infrastructure Bank.

All that being said, my question to all three of you, is stacking allowed? Is it allowed for a proponent, the municipality as well as the private sector, to come in and stack the different programs, so that they can get their hands on more capital dollars as well as offering to their asset management a better environment for debt financing, and, of course, ultimately a better incentive to attract the economy here to Canada?

[Glenn Campbell]

That's a policy decision, and on a case-by-case basis, yes, that's possible. If you had a municipal asset, for example, and there was a local decision to bring it forward and applicable under this model, then it's quite possible if there was not sufficient revenue forecast to cover that particular construction and operation that the governments would need to support it.

That's where the municipal, provincial, or federal government—in this case it would be through the Infrastructure Bank—may contribute capital support or ongoing support to that project. It really is case by case, and the objective is to crowd in both private capital and government cost-sharing.

The bank, in many cases, is substituting for what otherwise would have been 100% government funding, so there's an option. The question earlier was, what's the incentive? Given that there's not a specific allocation for any municipality or province, should they use this vehicle, and be able to crowd in support, they get additional capital.

[The Chair, Liberal, Judy Sgro]

Mr. Liepert.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

Mr. Gamble, this is a little bit off topic, but I think I'm the only representative here from Alberta. I hear lots of stories, whether they're true or not, about the whole engineering industry in Alberta, and where it's at these days.

Can you give me an overview of the Canadian operation in Alberta? Are there some things we should be looking at that we're not currently looking at today?

[John Gamble]

There's no question, our members in Alberta have had a particularly difficult time because of, first of all, the fall in commodity prices, and particularly, but not exclusively, the price of oil and, to some degree, mining. A lot of firms that provide consultation to the mining sector are based in Edmonton. On top of that, you lose some of the municipal tax base that would help contribute to some of these agreements, so they really got it from all sides.

In terms of those who are doing public projects, for the first time in a long time they seem to have levelled out. For several successive years, we were seeing a decrease in their numbers and this year, they're actually projecting about a break-even. This is based on, in fairness, some of the money that's starting to come through the system, and so forth.

That will be helpful, and again, if we can flatten that curve out, instead of supercharging the economy and having the floor drop out, that will certainly help. Of course, a lot of these firms don't do municipal projects. They provide consultation to the mining sector, oil and gas, manufacturing, and what have you. Without a robust resource sector, they aren't going to come back, and we need to find sensible, pragmatic ways of supporting our resource sector.

If I can do a little commercial, and I know I've spoken to at least a few in this room, we're really trying to push this notion of a national corridor where we can pre-approve some of the macro-approvals where the resource sector, or even public proponents, can act as tenants. This was a vision that Major-General Richard Rohmer had back in 1967, so there's your heritage moment. I could certainly share our views. The University of Calgary is doing some research in that very area.