[Note: This text was given as a presentation by Toby Sanger, Executive Director of Canadians for Tax Fairness, to the Standing Committee on Transportation, Infrastructure and Communities. A recording of the presentation is available via the ParlVU website here.]
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.
Watch the full presentation and committee hearing online, here.
