Transport Committee on May 16th, 2017

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Madam Chair.

I'll preface my questions by stating that we all have to understand that we are in the service business. That's what we do. We are expected to provide a certain level of service and—last and probably most important—at an affordable cost to the taxpayers.

I've lived this, in my former life as a municipal representative, trying to leverage as much money as we could from different entities, such as the private sector or the pension funds, or simple partnerships that we arranged.

My first question is for Mr. Campbell. Would you consider this infrastructure bank very similar to what the Province of Ontario put in place with respect to Ontario infrastructure?

[Glenn Campbell]

I would say that it's distinctly different from what Ontario put forward. Ontario has a plan focused on Infrastructure Ontario, an agency that deals with downstream procurement and the type of financing that leads to the construction and management of projects, which I think did demonstrate—I am not speaking for them—a lot of cost savings and efficiency.

I would officially disagree with my colleagues that this is necessarily a model that leads to an overall cost in the long run. If anything, overall average costs could be lower when you look at the amount of infrastructure that can be built, including—your example—in Ontario, which is very key. It really depends on the risk-adjusted return and what efficiencies are being accrued with respect to those projects, and those can be carefully managed and calibrated.

[Vance Badawey, Liberal, Niagara Centre, ON]

Do you find that moving forward with this bank—and I'll call it a partnership because, quite frankly, that's what it is—will put discipline into the system when it comes to public service accounting, when it comes to asset management and life-cycle costing, which I think Mr. Marchi mentioned earlier, and when it comes to ensuring that future generations don't get saddled with that life-cycle costing as well as replacement costs? Do you find that this will eliminate or alleviate those pressures on the local property taxpayers?

[Glenn Campbell]

I would say the design of the bank is intended to relieve burdens on public balance sheets. The scenario that was put out by my colleagues here largely means leverage on the public sector, where even if you were comparing apples and oranges, as is sometimes with rates of borrowing and investment, they do not take into account that the public sector absorbs all the risk in those equations.

Therefore, taking certain unique pieces of infrastructure and bringing in the private sector means you not only have alternative ways to finance it, but if you bring them in earlier, you get better project selection, you get more efficiencies on the front end, and you can get better life-cycle management on the back end.

[Vance Badawey, Liberal, Niagara Centre, ON]

Essentially it becomes more of an enabler. It enables a lot of those projects that would otherwise sit on the shelf for many years to get brought off the shelf with a fourth partner, because usually the three partners are municipal, provincial, and federal, and now you have a fourth partner—and this is the key part—participating in public assets and in public projects versus only the three levels of government participating.

Regardless, as you just mentioned, the risk then is borne, not just by the three partners—municipal, provincial and federal—but also by the contribution from the private sector. Would you agree with that?

[Glenn Campbell]

That's correct. Actually, that model responds to what we've heard from our municipal, provincial, and territorial counterparts, that the options should not be just to loan them money when they have to take on the risk or help them borrow more money. It's trying to find the solution on a risk-adjusted return basis. It's in the public interest to crowd more private financing into public infrastructure. At the end of the day, it's in the public interest. This is a better way to fund more and different projects than otherwise would have been done.

[Vance Badawey, Liberal, Niagara Centre, ON]

We're accelerating projects, which would otherwise sit on the shelf, to then create that higher level of service that people expect us to provide, whether it be with new hospitals, new roads, new health care centres, and the list goes on.

Secondly, it takes a lot of the burden off the property taxpayers who would otherwise be defaulted to pay for these projects.

Thirdly, the risk is shared now, instead of between three levels of government, between four partners, including those three levels of government and the private sector.

Lastly, I guess the returns are of a triple bottom-line nature. I think, Mr. Khan, you mentioned earlier that triple-line return: social, economic, and environmental.

Not all the time may we see the financial return, but we may see the social and environmental return with respect to some of the projects that are happening like energy, clean energy; infrastructure when it comes to water, waste water, and roads; and environment with respect to climate change. Would you agree that those returns would accrue over time with respect to some of these investments?

[Glenn Campbell]

I would concur with that tri-focus of accrued investments. Let me in my own words say that, for whatever part of a project, particularly a public project that would not have otherwise been built or would have been built with less public money, the amount of equity financing may attract a higher rate of return, and there was clearly a corresponding efficiency benefit or other accrued benefit to that amount.

Clearly, everything will be calibrated in a way to justify. If there's a higher return than just borrowing, it means you're getting something from that. If it was merely on the tax base, that means the municipality bears all the risk and it's all embedded over the long run, and it's not always comparable when you use those two figures, what I would say, inappropriately.

[The Chair, Liberal, Judy Sgro]

Thank you very much.

Mr. Morrissey.

[Bobby Morrissey, Liberal, Egmont, PE]

Thank you, Madam Chair.

My question, listening to the debate, is to Mr. Campbell. There seems to be some resistance towards an innovate approach to finance infrastructure. Governments past and present have put money towards infrastructure in this country. Have all the infrastructure needs in this country been met by the traditional method of funding them?

[Glenn Campbell]

I would say that's a subjective question. However, the analysis that we have done suggests there is a meaningful deficit between the needs and expectations and our ability to finance in this country at all three levels of government.

Unlike some other countries that are unitary, we need to have a responsive model to those lower levels of governments that are asking for alternative ways to both finance and fund infrastructure.

[Bobby Morrissey, Liberal, Egmont, PE]

So this is an innovative new approach to filling an infrastructure void that clearly has existed in this country for some time and continues to exist.

[Glenn Campbell]

That is the intent.

[Bobby Morrissey, Liberal, Egmont, PE]

The second point is that somehow projects approved through the infrastructure bank would not face the same scrutiny as traditional infrastructure programs directly financed by government. I want to be clear on this. The bank itself cannot submit a project. The projects have to be prioritized and submitted by one of the partners, and those partners can only be one of three levels of government.

[Glenn Campbell]

The mainstream option for the bank is to interface with projects sponsored by the municipal, territorial, and provincial governments. There is an avenue where the bank would be the interface for what we call unsolicited proposals, and I think one of my colleagues referred to that earlier, which would still have the test of what asset they are bringing forward and whether they have a public sponsor. If it was an electricity transmission grid, or something else—

[Bobby Morrissey, Liberal, Egmont, PE]

But it would have to have a public sponsor.

[Glenn Campbell]

It would have a public sponsor somewhere in the mix to meet the public interest test.

[Bobby Morrissey, Liberal, Egmont, PE]

Exactly. The public interest project would face debate and discussion at either the municipal, federal, or provincial level.

[Glenn Campbell]

That's correct.

[Bobby Morrissey, Liberal, Egmont, PE]

Could you elaborate a bit on the methodology that would be used to determine the rate of return on projects financed by this bank?

[Glenn Campbell]

The rate of return is a function of the rate of risk transferred to an investing party. Whether the investing party is partly the Canada infrastructure bank or a private party, the rate of return will correspond to the size of its position and the risk that it would be absorbing in that project. The whole idea is to transfer risk off the public sector, corresponding to, say, revenue or volume risk, and onto that private sector investor, so that would determine the rate of investment. It has to be the value-for-money proposition of whatever that rate tends to be.

[Bobby Morrissey, Liberal, Egmont, PE]

What would be some of the parameters that would mitigate a particular project? Obviously, your rate could not be extravagant but would have to come within a range that would stand the ultimate scrutiny and the payback on that project. Is that right?

[Glenn Campbell]

I think a way to illustrate this is that we are collectively trying to find those projects that are not quite economically viable on their own but could be close if there's a missing piece in the marketplace for some entity to come in as a bank-type function or a merchant or investment bank to help manage that risk between the two parties. An example is a municipality exploring a revenue model but not really sure what the revenue would be, it could be a water or energy tariff, or something else—it doesn't have to be toll—and it is worried about that revenue component. The private investor worries about the green phase of construction and in the long run says that, otherwise, if that were purely commercial, done through a bank, it would want a higher return.

The objective is that the government comes in through the infrastructure bank, manages down that risk for both parties, and transfers it appropriately to the investor parties. That's the way the agreement is designed to be struck. Whatever the end result of the cost of the debt or equity will directly correspond to the risk those parties are taking. Thus there is a benefit on the other side, given that you would have an asset being built without taxpayers necessarily having to build that, so it balances.

[Bobby Morrissey, Liberal, Egmont, PE]

Would it be a fair conclusion to reach that, without this bank as it is proposed, there would be economic activity that would not occur within infrastructure in small, remote, and rural communities?

[Glenn Campbell]

I would say that applies to any community in Canada.