GPC 2015 platform background paper
If only upgrading Canada’s basic infrastructure were as easy as upgrading our digital gadgets. Maybe then we would not be facing a backlog of construction and repair needs that seems insurmountable. In the real world, our economic competitiveness is slipping because our foundations are weak. No one can say when or where the next catastrophic failure will occur. Ultimately, building and maintaining world-class infrastructure grows both the economy and jobs.
How can this infrastructure deficit be eliminated? The Green Party believes that the necessary funds for improvements and repairs can best be supplied by an infrastructure bank – an iBank owned by Canadians – that leverages the ability of the federal government to provide provinces and municipalities with the funds they require at the lowest possible cost while offering private investors opportunities for profitable long-term investments. This type of system would most effectively address the infrastructure deficit. In the interim, the Green Party supports a transfer of 1% of GST revenues to municipalities for transit expansion and for repairs and improvements to streets, parks, water systems, schools, and community centres. The federal government must be held accountable for this pressing national priority and must not leave an unmanageable infrastructure deficit to our children and grandchildren.
In the summer of 2011, two major transportation arteries in Montreal were disrupted by the accelerating deterioration of the Champlain Bridge and by a 25-tonne piece of concrete falling onto a downtown expressway. These events foreshadowed the potential crisis that will result from crumbling bridges, tunnels, roads, and sewers across Canada. To run a 21st-century economy we also need to modernize our infrastructure, including better municipal transit networks and water-purification systems.
Due to neglect, our massive municipal infrastructure deficit is now estimated by the Federation of Canadian Municipalities at $123 billion. This is a conservative estimate as the impacts of a changing climate create new stresses on infrastructure, particularly on water, sewage treatment, and highways. The total investment needed to upgrade our current systems to safe levels is staggering.
Despite over 95% of Canada’s infrastructure being controlled by the provinces, territories and municipalities, the federal government plays a critical financing role in funding improvements and repairs. As the one government elected by all Canadians, the federal government has unparalleled access to capital at relatively low interest costs, compared to the high costs faced by cash-strapped provinces and municipalities borrowing on conventional bond markets for infrastructure projects.
The Conservative government has allocated a significant amount of funding to address current infrastructure problems via its New Building Canada Plan – a $53 billion plan spread over 10 years. Most recently, Budget 2015 made a vague reference to exploring how to provide a predictable stream of payments for infrastructure projects over a 20 to 30 year period – the useful life of a project – rather than through lump-sum upfront payments. This may have something to do with the operations of a Crown corporation created in 2009 – PPP Canada Inc. – which is focused on developing public-private partnerships to oversee and fund infrastructure projects. For example, Budget 2015 indicated that the new public transit fund would be run through PPP Canada and would receive $1 billion in annual funding; the catch is that this will not start until 2019-20.
The trouble is that the Conservatives’ commitments are disturbingly ambiguous and incomplete, seeming to address infrastructure problems but deferring any actual action for years to come. As a result, they fall far short of adequately addressing the massive financing and funding challenge that confronts us in terms of projects that need attention now. It is far from clear whether provinces and municipalities can fully and expeditiously access the funds they need for infrastructure, let alone how they might do so. Nor is it clear what kind of projects would be eligible for funding. For example, the Harper cabinet made the allocation of $600 million to Toronto for the Scarborough subway in secret, not through a transparent, publicly accountable process.
To avoid burdening our children with preventable catastrophes, we must find innovative financing solutions to our infrastructure problems. The traditional approaches (grants, loans, bonds, public-private partnerships, a dedicated gas tax, and municipal property taxes) cannot come close to meeting the financial needs for both building and maintaining infrastructure. Government plays an important role in both traditional and innovative financing, essentially acting as an investor in projects that lay a sound foundation for sustainable growth.
The infrastructure deficit is so enormous that the Green Party believes it is time to look to innovative funding mechanisms.
While maintaining the gas tax revenue earmarked for municipalities, the Green Party also has proposed encouraging RRSP tax treatment for investments made in municipal bonds. As well, the Green Party continues our previous commitment to funding immediately from the federal budget expanded programmes for six areas of key infrastructure needs:
- community brownfield remediation;
- water and wastewater treatment facilities;
- sports, recreational and cultural facilities;
- public transit;
- cycling and pedestrian promotion;
- community housing.
The Green Party undertakes a commitment to fund these areas immediately to a total of $3 billion ($500 million per fund per year).
Still, given the scale of the problem, even this commitment will be insufficient. The full one percentage point of GST dedicated to municipal infrastructure will generate roughly $6.5 billion per year. The Green Party supports the direct granting of these funds toward municipal infrastructure needs, without one-third/one-third/one-third financing requirements that hobble investments. Investing in infrastructure generates economic activity and jobs.
Yet even with over $6 billion per year allocated to municipal infrastructure investments, more creative financing is needed. That is why in 2015 we are advocating the creation of an Infrastructure Bank
The Green Party believes that a federal iBank set up as an independent, autonomous Crown Corporation would be a useful institution. An iBank can leverage the federal government’s expansive access to credit at the lowest possible interest rates on behalf of all municipalities. In effect this is building on the successful stand-alone Federation of Canadian Municipalities (FCM) funds created in the late 1990’s – the Green Municipal Fund and Partners in Climate Protection.
One useful model for a federal iBank is the institution proposed by former Deputy Finance Minister, Scott Clark, and former head of the Fiscal Policy Branch, Peter deVries, one modeled on the Export Development Corporation. The iBank would build its capital by the federal government’s borrowing on its behalf at a much more favourable rate than provinces and municipalities received. The government would issue long term debt for an initial capitalization of, say, $50 billion. Currently federal 30-year bonds yield 2 to 2.3 percent interest; provinces have to pay at least a full point more. The iBank would provide lower interest rates than provinces and municipalities can currently access. Provinces and municipalities could then borrow from the iBank for a designated range of projects: community brownfield remediation; water and waste treatment facilities; sports, cultural and recreational facilities; mass transit promotion; cycling and pedestrian promotion; and community housing options promotion. As long as the iBank recouped its borrowing and administrative costs, there would be no incremental impact on the federal government’s budgetary balance. In another scenario, the government could even consider providing the funds to the provinces and municipalities interest-free as soft loans and subsidize the borrowers with a minimal effect on the federal budget balance.
More generally, an iBank can also blend private and public finance. It could operate much like the World Bank and other international regionally-based development banks, directly lending money or guaranteeing loans to start up viable projects that would be financially sustainable over time. In this way, such projects as toll roads, energy plants that collect user fees, and ports that charge fees to handle incoming or outgoing goods could be financed. (See the helpful discussion of infrastructure banks in "Catching Up: The Case for Infrastructure Banks in Canada" published by The Van Horne Institute, February 2014.)
An iBank structured like this could mobilize large amounts of private capital from pension funds, private equity funds, sovereign funds, and other pools to invest in a wide range of much-needed projects. The iBank could match the massive public infrastructure needs with private investors on a case-by-case basis in order to make much greater progress towards more efficient building of advanced energy, transportation, clean water and information platforms. Because it would play such a vital role, the iBank could even create economies of scale, particularly in the cost of high-quality civil engineering services for major infrastructure projects. Private investors are normally reluctant to invest in infrastructure assets which involve huge upfront fixed costs and a long average lifespan, but with the assurance from a public agency of recovering their initial investment over time, many would find infrastructure an attractive investment.
To ensure clear accountability to Canadians for the commitment to build and maintain our national infrastructure to the highest, most-advanced standards, the management of the iBank would involve a Board of Directors of experienced qualified persons appointed though an impartial selection process. One option might be to allow the federal government to appoint one director to the Board, for example, the Deputy Minister of Finance. To assure transparency and accountability, members of the Board would appear periodically before a committee of the House of Commons or Senate dedicated to our national infrastructure needs and responsibilities.
Regardless of how it is financed, infrastructure requires long-term planning, and all governments must collaborate to come up with workable approaches to the massive investment required [Governments can get along and get things done]. Government plays an important role in deciding what infrastructure is needed and where, including systems that promote environmental sustainability by building on world-class innovations in clean energy and technology. Over two-thirds of our carbon dioxide emissions come from burning fossil fuels for transportation, manufacturing, construction, and electricity generation. Only government can assure adequate protection for the private investor through multi-year contracts and predictable regulatory regimes. For example, a government has to make credible commitments not to expropriate the assets once they are built, and it must permit the private owner to recover the initial fixed costs as promised.
Building and maintaining a world-class infrastructure will bring about enormous economic and employment benefits. This will require bold action from our national leaders. To meet immediate needs, however, the Green party supports the transfer of 1% of GST revenues to municipalities to provide substantial funds for transit expansion, streets, parks, water systems, schools, and community centres. Tolls and user fees for funding expressways, water systems, and sewage networks could be expanded. Municipal zoning should encourage more family-friendly housing development close to transit stops, tying land use and density to transportation capacity. The federal government could make use of innovative borrowing requirements, including upfront loans and guarantees, to allow cities access to billions of dollars for infrastructure and other projects that would create jobs and stimulate economic activity, instead of making them wait for sales tax revenues to flow in.