Transport Committee on March 11th, 2021

[The Chair, Liberal, Vance Badawey]

I call the meeting to order

Before I get into my usual introduction, can I receive consent from the committee that when the bells do start ringing, we can continue with our meeting up until about five or 10 minutes beforehand? Do I have the consent of the committee?

[Some hon. members]

Agreed.

[The Chair, Liberal, Vance Badawey]

Thank you.

With that, I will start this meeting.

Welcome, everybody, to meeting number 21 of the House of Commons Standing Committee on Transport, Infrastructure and Communities. Today's meeting is taking place in a hybrid format. Pursuant to the House order of January 25, 2021, the proceedings will be made available via the House of Commons website. As all of you are aware, the webcast will always show the person speaking rather than the entirety of the committee.

To ensure an orderly meeting, there are a few points I do want to highlight. Members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. You have the choice at the bottom of your screen of either the floor, English or French. For members participating in person, proceed as you usually would when the whole committee is meeting in the committee room. Keep in mind the directives from the Board of Internal Economy regarding masking and health protocols. Before speaking, please wait until I recognize you by name. If you are on video conference, please click on the microphone icon to unmute yourself. Those in the room, your microphone will be controlled as normal by the proceedings and verification officer. A remind everyone that all comments by members and witnesses should be addressed through the chair. When you're not speaking, your mike should be on mute.

With regard to a speaking list, the committee clerk and I will do the best we can, as always, to maintain the speaking order of all members, whether they are participating virtually or in person.

Pursuant to Standing Order 108(2), and the motion adopted by the committee on Thursday, October 29, 2020, the committee is meeting today to continue its study on the Canada Infrastructure Bank.

It's my pleasure to introduce and welcome all our witnesses. From Canadians for Tax Fairness, we have Toby Sanger, executive director. From CUPE, we have Robert Ramsay, senior research officer; and Mathieu Vick, researcher. From the First Nations Major Projects Coalition, we have Chief Sharleen Gale, chair; and Niilo Edwards, executive director. From the National Trade Contractors Coalition of Canada, we have Sandra Skivsky, chair. From Queen's University, we have Dr. Ryan Riordan, associate professor, Institute for Sustainable Finance.

Welcome to all the witnesses.

Mr. Sanger, you have the floor for five minutes.

[Toby Sanger, Executive Director, Canadians for Tax Fairness]

Thank you very much, Chair and members of the committee, and thank you for inviting me to this meeting.

I'm going to start by talking about how the initial idea for the Canada Infrastructure Bank was fundamentally flawed. It involved low-cost public financing to leverage much higher-cost private financing to fund public infrastructure. The CIB's initial model was a version of a public-private partnership. However, not one of Canada's P3 projects has transparently demonstrated its value for money. Instead, they've relied on inflated calculations of risk avoided and inflated discount rates to minimize future costs in order to justify what is essentially a much more expansive off-book financing of public infrastructure.

In her review of 74 Ontario P3s, the Ontario auditor general concluded that these value-for-money assessments were fundamentally flawed and that the P3 projects cost about 28% and $8 billion more than publicly financed alternatives would. It makes no sense for public infrastructure to be financed with expensive private financing at rates of 7% and higher when governments can borrow at a fraction of that, now less than 2% over 30 years. No homeowner or business would do that. It is especially absurd now for governments to use much higher-cost private financing for public infrastructure when the federal government is so widely using low-cost public financing to lend to private businesses through the BDC, EDC, CMHC and now the CEBA program.

The only purpose that P3s fill is to engage in some off-book financing and provide private finance with lucrative low-risk investment opportunities that taxpayers will cover for decades to come. If these projects are really privatized, we will undoubtedly end up with some really inadequate infrastructure, as the U.K. has. A recent survey of U.K. businesses found that three-quarters were unhappy with the state of infrastructure there and that they have started renationalizing it.

In a report I wrote four years ago, I argued that the CIB model was flawed and that the federal government should establish a truly public infrastructure bank instead, similar to the BDC, EDC and CMHC. I’m relieved to say that the past four years have shown that the critics of the CIB were right. Even Bay Street and Canada’s financial sector were highly skeptical of the CIB, and it struggled to find any projects beyond the REM to invest in. It hasn’t come close to leveraging the additional $4:1 ratio in private finance initially proposed.

After four years, the REM is the only project with a realization somewhat consistent with its original vision, and it can hardly be considered a success. It is controversial—the environmental review raised big concerns—and despite forging ahead, it will be delayed for a number of years and likely go significantly over budget. However, I'm very happy to say that I don't see these failures of the CIB to achieve its original vision as negative. Instead, I think this government and the CIB are on their way to turning a sow’s ear into a silk purse.

Many of the projects the CIB is involved in haven’t involved private financing, at least not yet. Instead, they use federal dollars to leverage projects in the broader public sector, leveraging additional public funds, and that’s a very good thing. They seem to be reinventing the CIB into a bank that operates more along the lines that I had suggested, and I’d like to commend the government and the minister for doing that. Other planned initiatives appear to be excellent ideas, including the zero-emission bus initiative and commercial building retrofit initiatives. These will harness low-cost public financing to help both the public and private sectors make major strides in the transition to a more sustainable economy.

I strongly urge the government to go further and remake the CIB into a truly green infrastructure bank for Canada. The bank should also set up funds and programs in other areas to provide low-cost public financing for things such as community renewable energy projects and energy retrofitting of public infrastructure buildings: schools, hospitals, public and low-income housing, municipalities, indigenous communities and some private and non-profit projects as well. As the CIB has a high threshold for consideration and approval of projects, it could partner with regional development agencies to deliver these financing programs more broadly. The CIB could also make a virtue out of these projects by issuing green bonds with a federal government guarantee to raise additional funds for the many investors interested in impact investing.

One thing the bank shouldn’t do is use high-cost private financing to privatize public infrastructure. Instead, there are a lot of really important and exciting things the bank could and should do to help Canadians recover from the pandemic and build back better.

Thank you very much. I look forward to your questions and discussions.

[The Chair, Liberal, Vance Badawey]

Thank you, Mr. Sanger. You did a great job.

Now we are going to move on to our second speaker, Mr. Ramsay from CUPE.

Mr. Ramsay, the floor is yours for five minutes.

[Robert Ramsay, Senior Research Officer, Research, Canadian Union of Public Employees]

Thank you for the invitation to speak.

First I'll say that CUPE agrees that infrastructure investment is one of the best ways to drive economic growth, and I think we all share that understanding.

Next, I’ll say this. The Canada Infrastructure Bank is not what we were told it would be. In 2015, many of us from across the political spectrum got very excited about the idea of a public infrastructure bank. The purpose of this proposed public bank was to provide low-cost financing for infrastructure projects. There are very good examples of public infrastructure banks, both internationally and domestically. These entities provide low-cost loans in both the public and private sectors for infrastructure projects on many scales. They are public entities that pool assets and share risk. The state can guarantee the bonds it issues on the capital markets, so they are stable and highly attractive investments.

In Canada, the Municipal Finance Authority of British Columbia provides a good example of what a national infrastructure bank could achieve. Originally seeded with public money, the MFA has evolved to offer not only long-term capital financing but also a range of financial tools to municipalities, some of these in partnership with private financial institutions.

I could also mention, as Mr. Sanger did, the Canada Mortgage and Housing Corporation, the Business Development Bank of Canada and the EDC, all lending institutions that provide low-cost loans well below the private sector borrowing rate. The CIB, on the other hand, provides Canadians with less value for money. The federal government can borrow at significantly lower rates than the private sector, almost historically low rates, making any CIB project financed with private equity much more expensive. This is not consistent with best practices.

Here are three things the CIB could do immediately to become a more effective financier of public infrastructure.

The first is to fund projects directly. This is the fastest and most effective way to get infrastructure built and to begin addressing the infrastructure gap. The government already does this via the gas tax fund with great success. As I mentioned, we have other good examples of public financing institutions right here, so why not look to a model that works rather than one that clearly doesn’t?

The second is to scrap the P3 mandate. Privatization and P3s do not work for public infrastructure or public services. Countries that went down this road over previous decades are reversing course. Indeed, a 2019 study by the Transnational Institute, which we contributed to, found over 1,400 cases in 58 countries where privatized or P3 public infrastructure and services were brought back into the public sector. Why? Because privatization and P3s have failed. It’s a dead-end model for the public sector and wholly inadequate in this moment to address the prevailing challenges of our time: climate change, inequality, escalating public health crises and more. Only a strong public sector can do this.

The third is to amend the governance model so that provinces and municipalities have a seat at the table. A governing model that includes rather than excludes the municipal stakeholders will better ensure that the CIB keeps the public interest at the fore.

Thanks for your attention. I'm going to give the rest of my time to my colleague Mat.

[The Chair, Liberal, Vance Badawey]

Mr. Vick, the floor is yours. You have two and a half minutes.

[Mathieu Vick, Union Advisor - Research, SCFP-Québec, Canadian Union of Public Employees]

Hi. Thanks for having me.

As Bobby said, this bank could do a lot of good for municipalities, and CUPE would like this to work well. The problem is that you can’t build public projects in the public interest while also letting investors take control of the asset and make decisions based on profit. If you try to do that, what you get are some of the problems we've been having with the bank. There's a huge trade-off as the public loses control over the asset, loses oversight and loses accountability, and the infrastructure is no longer built where and how it makes the most sense for the public, but where and how it will make the most money for the investor.

The Réseau express métropolitain, or REM, in Montreal is a perfect example. And don't get me wrong, the Canadian Union of Public Employees, or CUPE, is pro more public transit, and I honestly hope I'm wrong about the REM because I live in Montreal.

Here are some of the perverse things that can happen when you try to make money at the expense of the public interest.

The first phase of the REM was announced as 24 new stations, but in reality, 12 of those stations were for a commuter train that was already electrified and was basically almost new and worked very well. It was the best-performing commuter train we had, and we're going to bulldoze this commuter train and spend $1.2 billion to rebuild this new REM in exactly the same place. I think most would say that it's not money well spent when we could have used that $1.2 billion to go into areas where there's not enough transit and where people have been asking for transit for many years.

There was also a law that was created whereby the REM and the construction along two of the antennas were carved out completely from past and future environmental assessments. I don't think there are many people here who could tell me that is in the interests of the environment or the public—

[The Chair, Liberal, Vance Badawey]

Thank you, Mr. Vick. You've reached your limit.

[Mathieu Vick]

Thank you.

[The Chair, Liberal, Vance Badawey]

We're now going to move on to Chief Gale and Mr. Edwards.

Welcome.

Chief Gale, you have the floor for five minutes.

[Chief Sharleen Gale, Chair, First Nations Major Projects Coalition]

Good afternoon, everyone.

I want to begin by acknowledging that I'm speaking to you from the unceded Treaty 8 territory of my home, Fort Nelson First Nation, located in the northeast corner of British Columbia.

With me today is coalition executive director, Niilo Edwards, who leads our organization's service delivery to our members.

The coalition is a first nation-led, non-political, not-for-profit business capacity organization. Our mandate is to provide impartial and independent business capacity to our members and support their ability to make informed business decisions regarding their participation in major natural resource and infrastructure projects.

We have roughly over 70 first nations located across Canada that have become members of the coalition. Our services are active on five major projects, which represent a combined total capital cost of $7 billion.

We see a role for the Canada Infrastructure Bank to play in filling a critical gap concerning capital access to first nations and all indigenous people. Access to capital at competitive rates is a barrier to achieving broad-based economic participation by indigenous people in major projects. Capital markets require a certain level of equity to be placed at risk in order to lend at normal commercial terms. The requirement for at-risk capital is a barrier to most indigenous communities across Canada, which do not have the financial standing to meet the basic terms set by the capital markets.

For Canada, inaction poses a risk to the investment climate, in addition to the stagnation of economic growth that would otherwise see a boost from unlocking new activity. For indigenous communities, inaction means a continuation of the status quo, no increase to standards of living and no advancement towards achieving self-determination.

In 2019, the First Nations Major Projects Coalition put our tools to the test on a real-time commercial equity opportunity at the request of 12 first nations. From the beginning, the First Nations Major Projects Coalition supported our members' ability to form a limited partnership. We submitted a bid, formed a bidding partnership with two other institutional investors and conducted a commercial market sounding—all in a matter of five months.

This exercise resulted in an opportunity cost for the first nations when they were forced to forfeit their equity interest late in the project due to uncompetitive cost of capital. This result validates the coalition's position that capital markets remain a challenging place for first nations to raise competitive cost of capital without credit enhancements from the government or third parties.

We understand that the CIB was established in part to serve the financial needs of projects that are commercially viable, but which may not qualify for traditional financing through the capital markets. Canada has no national strategy to support indigenous capital access, so expanding the CIB'S mandate to include equity-style loans to support indigenous ownership of major projects would correct that gap.

Doing this does not involve setting up more government bureaucracy and it does not come at an increased cost to taxpayers. What does have a cost is the opportunity of not expanding access to capital for equity ownership by indigenous communities. Delays and increased costs of achieving the informed consent of indigenous people concerning major project development within their territories has an impact on the economic future of indigenous and non-indigenous Canadians alike.

A recent analysis by National Bank of four major projects concluded that the average increased cost per project was 28.5% and the average construction timeline was delayed nearly three years due to delayed timelines and various lawsuits.

At the same time, the way in which the world invests is changing. Sustainable investing with a focus on ESG standards is rising. Investors want to know what the socio-economic impacts of their investments will be on indigenous and non-indigenous populations before they decide whether they are going to invest or not.

Canada must act to support a national strategy on indigenous capital access. Not doing so will increase investors' risk in Canada and will lead to trends of capital flight and capital avoidance.

Our coalition finds that including indigenous nations as equity owners is a very effective way to get our informed consent while ensuring that we benefit from resource development and have control over environmental and social impacts.

The bottleneck right now is for our nations to access that capital. There is a natural role for the Infrastructure Bank to play that will remove that bottleneck and unleash economic growth.

I look forward to your questions.

Mussi cho.

[The Chair, Liberal, Vance Badawey]

Meegwetch, Chief Gale. Well done.

We're now going to move to our next speaker, Ms. Skivsky.

Ms. Skivsky, the floor is yours for five minutes.

[Sandra Skivsky, Chair, National Trade Contractors Coalition of Canada]

Thank you for having me here today.

My name is Sandra Skivsky and I am the current chair of the National Trade Contractors Coalition of Canada, also known as NTCCC, a group of like-minded national organizations that represent about 12,000 firms across Canada. We work on issues common to the interests of those trade contractors.

Trade contractors are a tier or two away from the planning and design of major projects. A lot of other partners are in the discussions. We come in at the tail end, but it's important to remember that 80% to 90% of the people you see working on a job site are employed by these trade contractors.

[The Chair, Liberal, Vance Badawey]

Ms. Skivsky, if I may interject, can you just lift your mike up a bit so that it doesn't making a popping sound for the interpreters?

[Sandra Skivsky]

All right.

When the Canada Infrastructure Bank was created in 2017, we looked forward with anticipation to the new private-public partnerships to bolster infrastructure spending on projects across Canada. These investments are instrumental to job creation and growth for our sector, and for the economy. However, we're disappointed with the delay in committed infrastructure dollars making their way to projects, including the $35 billion that was initially allocated to the CIB. Detailed data is either not readily available or I couldn't find it, but it appears there are 12 or 13 projects that the CIB was involved with. Only five have financial commitments of about $4 billion, and only a small portion of that—I think $1.2 billion, as I heard mentioned earlier—has been forwarded to an active project.

It would seem that the benefits flowing from these investments are really long-term considerations. Long-term, large-scale projects are important for updating and transforming Canada's infrastructure for the future. However, they do not address the more immediate issues faced by communities and that the construction industry is currently experiencing.

The construction industry performed well in 2020, but there are signs that 2021 could be a far more difficult year for the sector, based on a number of issues related to supply chain, workforce development and limited access to the public and private funding that begets projects. The CIB has very specific target sectors for investment, and while all of them are critical to Canada, work in those sectors only applies to a portion of the construction industry. Other sectors of construction are equally important to sustaining and creating growth in communities of all sizes and should be part of an infrastructure plan.

CIB's growth plan may address some of the gaps being faced by trade contractors, which are obviously involved in building new transport facilities, in broadband, in retrofitting and in green infrastructure. However, again, it's only a benefit if those projects are at the shovel-in-the-ground stage, which is not quite the same as shovel-ready. Getting investments to the construction industry now is imperative for ensuring economic growth and prosperity as we recover from the COVID-19 pandemic. However, given the systemic lags between the planning stages and the project start dates, it is unlikely that the infrastructure spending, even if accelerated, will reach the stage where it will aid the industry in navigating the impacts of the pandemic by the end of 2021.

There is a perceived shortfall of work that's looming on the near-term horizon for the industry. When the industry's view of the market is uncertain, it tends to curtail investment and workforce development, even in light of long-term forecasts of labour shortages. Without investments in new construction projects, trade contractors will be reluctant to hire in the short term, as they will be cautious about expanding and maintaining their workforces. This hesitancy created by the uncertainty around future work has significant impacts on training regimes and creates difficulty in supporting initiatives that bring more people into the trades. Without the ability to create jobs and facilitate workforce development, the industry faces significant challenges in meeting Canada's future infrastructure demands.

There needs to be some short-term adjustment to the deployment of infrastructure funding to bridge the uncertain waters that the industry is treading. There also needs to be a clear and long-term vision of future work—and I believe a 25-year plan was mentioned in one of the presentations—that will instill confidence and allow the industry to optimize its role in Canada's recovery. We look forward to seeing how the CIB evolves into supporting that role. The construction industry has historically led Canada's economic growth, and we are ready to help rebuild that economy again.

Thank you. I am happy to take questions.

[The Chair, Liberal, Vance Badawey]

Thank you, Ms. Skivsky.

Dr. Riordan, you have the floor for five minutes.

[Dr. Ryan Riordan, Associate Professor, Institute for Sustainable Finance, Queen's University]

Thank you.

Good afternoon, Mr. Chair, and members of the committee.

My name is Dr. Ryan Riordan. I'm a distinguished professor of finance at the Smith School of Business at Queen's. I'm also, and probably the reason I'm here, the director of research for the Institute for Sustainable Finance. It's a first-of-its-kind collaborative hub that fuses academia, the private sector and government. Our sole focus is increasing Canada's sustainable finance capacity.

I'd like to thank you all for the opportunity to appear here today on behalf of the institute, and to contribute to the study of the Canada Infrastructure Bank.

I would like to make two proactive disclosures. First, the Institute for Sustainable Finance is supported by Queen's University, the Ivey Foundation, the McConnell Foundation, the McCall MacBain Foundation and the Chisholm Thomson Family Foundation. Importantly, in November 2020, Canada's five largest banks—TD Bank, Scotiabank, CIBC, BMO and RBC—announced $5 million to support the ISF. Second, and more pertinent to the conversation, I want to disclose that Ehren Cory, CEO of the Canada Infrastructure Bank, is a member of the Institute for Sustainable Finance advisory board, effective as of February 2021.

In furtherance of the institute's goals, we established a Canadian sustainable finance network, which is a national independent research and educational network that consists of nearly 73 academics and 23 universities from across Canada.

If I could return to the focus of the committee's study, I'd like to highlight a report from September 2020 that the ISF released called “Capital Mobilization Plan for a Canadian Low Carbon Economy”. It was a landmark research report that provided a concrete, data-driven capital blueprint for Canada's low-carbon transition. In the study, we looked at regional and sectoral investments necessary to reduce carbon emissions in line with the Paris accord 2030 target of a 30% reduction over 2005 emissions.

The most salient conclusion from our report was that Canada requires an investment of roughly $128 billion over the next 10 years to achieve these targets. It's substantial, no doubt, but far from insurmountable. For a bit of context, and I'll get to the private sector soon, the $12.8 billion annual investment represents 0.62% of Canada's 2018 GDP or 2.7% of annual provincial tax revenues.

If you use a private sector comparator, this is less than 10% of annual capital expenditures for TSX-listed firms. In fact, if our large publicly traded Canadian firms devoted just 5% of their annual capital expenditure to GHG abatement projects over the next decade, that would provide more than half of the investment that we require to meet our 2030 goals. Importantly, there is already significant evidence to suggest that private capital is committed and already flowing.

As outlined in our report, the Canada Infrastructure Bank will be an effective avenue to encourage, and stimulate public-private partnerships as one of the many avenues to help mobilize private capital.

The report highlighted four sectors as critical: buildings, transportation, oil and gas, and electricity. Importantly, these make up 70% of Canada's emissions.

The building sector is Canada's lowest hanging fruit. It's the only sector that we identified where reducing carbon emissions is less expensive than maintaining them, so a small financial or behavioural nudge in this sector will help us to unlock large environmental but also economic benefits.

Transportation is important, of course, in a country as large as Canada. It's our highest stakes play. Public-private partnerships can be an effective way to mobilize capital.

Electricity and oil and gas are the big bets that we need to get right. Co-operative efforts between these two sectors will help to accelerate our capital, and our expertise shifts from oil and gas to electricity.

We expect capital flow to continue and accelerate over the next decade, not only despite the unique economic challenges brought on by the pandemic but as a result of it.

Financing mechanisms such as green bonds, transition bonds, green investment trusts, and blended finance models in the form of public-private partnerships will help form the basis for these new financing vehicles.

Finally, both the ISF and I think that Canada must invest in a robust data and reporting infrastructure that will allow our public and our private firms to publicly display their successes in reducing their environmental impact. Timely, granular, and accessible environmental data will support the government and the CIB in identifying opportunities for investment programs with the most impact. Importantly, it will also help to attract the required domestic and international private capital to Canada to finance the Canadian transition to a low-carbon economy.

Mr. Chair, and members of the committee, thank you once again. I look forward to answering any questions that you may have.

[The Chair, Liberal, Vance Badawey]

Thank you, Mr. Riordan. I appreciate it. Great job.

Members, we do have 15 minutes left before we have to vote. I'm not sure if any members have to shoot over to the House from your offices in Ottawa. Is that the case for any members? Does everyone have some flexibility here to go a bit further? I was thinking about running it right down to five minutes. Is that fine?

[Some hon. members]

Agreed.

[The Chair, Liberal, Vance Badawey]

Great.

We have our list of speakers in our first round of six minutes each.

Starting off for the Conservatives, we have Mr. Scheer, followed by the Liberals' Mr. Sidhu, the Bloc's Mr. Barsalou-Duval and, finally, Mr. Bachrach for the NDP.

Mr. Scheer, you have the floor for six minutes.

[Andrew Scheer, Conservative, Regina—Qu'Appelle, SK]

Thank you very much, Mr. Chair.

Once again, I'd like to thank all of the witnesses for some very thoughtful presentations. While there may be different perspectives expressed, I certainly do appreciate all of the time and effort you've put into this as the committee tries to understand exactly what is wrong with the Canada Infrastructure Bank. This institution that was supposed to lead to billions and billions of dollars of private sector money rushing in to help get big projects built has, of course, delivered zero completed projects in the four years it has been in existence. Its recent quarterly report shows that it has lost over $110 million in taxpayers' money without anything to show for it.

That's what this committee is all about. It's great to hear some perspective from those who may object philosophically to P3s—public-private partnerships—and those who support them as a concept but understand that the bank itself has a flawed model. That's what this committee is trying to get to the bottom of.

I'd like to start with Ms. Skivsky about some of the comments she made, in particular, the perception that there could be a looming shortfall of work. What we hear from a lot of municipalities is that there are a lot of shovel-ready projects and that many applications have been put in for work, so what is causing this perception that there's going to be a shortfall of work? Is it that the dollars aren't working out? Maybe you can delve into that a little bit.

[Sandra Skivsky]

There have been a lot of projects that have been delayed. Shovel-ready is a strange concept. There's—

[The Chair, Liberal, Vance Badawey]

Ms. Skivsky, I apologize. Could you adjust your mic?

[Sandra Skivsky]

There are projects that are shovel in the ground, which means they're being built. Shovel-ready means a delayed project, because nobody's going to plan a project, put it together and then have it sit there and wait for something to happen with it.

Coming into 2020, the industry had a lot of backlog. The year 2019 was a really good one for construction. There was a lot of backlog that carried them through. That backlog isn't there. Even though they're working and doing things, when they look out a few months, there isn't that confidence that the level of work will stay with them. Talking with the engineering groups, when the designers start seeing gaps in their workflow, you know that's translating down to real construction in a matter of months. That is the weakness. Even when they look at Q3 and Q4 of this year, there isn't that flow of projects.