Finance Minister Bill Morneau’s plan to transform the way big infrastructure projects are funded in Canada is facing a major test this week, as a skeptical and increasingly independent Senate weighs whether to tear his budget bill apart.
In an interview with The Globe and Mail, Mr. Morneau outlined his rationale for why critics should set their concerns aside and allow Ottawa to move ahead with a $35-billion Canada Infrastructure Bank.
Canada has a long and mostly uncontroversial history with public-private partnerships in which governments at various levels contract out the work of building and operating infrastructure such as hospitals and transit systems. These deals usually include performance bonuses or penalties based on whether or not projects are completed on time and on budget.
For the most part, these projects are ultimately paid for by governments. The proposed infrastructure bank would be different in that most of the funding for a project would come from private investors, particularly pension funds. The government would be a minority contributor. The rationale is that while many public infrastructure projects are not profitable on their own, private funds could be convinced to get involved if the government promised a negotiated rate of return that would make their investment worthwhile.
According to the Finance Minister, pension funds would get a reliable long-term investment, governments would avoid adding on additional debt and the public would benefit from infrastructure projects that would not have been built otherwise.
“From my perspective, it is a win for Canadians. It’s a win for the Canadian government in terms of risk and it’s a win for Canadian and other pension investors with long-term assets that match their liabilities,” said Mr. Morneau during an interview at his Parliament Hill office.
The bank would be a source of funding and loan guarantees for these types of large projects, but it would also be a centre of expertise that would advise governments on the best way to structure the deals with private investors.
Legislation to create the Canada Infrastructure Bank is included as part of Bill C-44, Mr. Morneau’s more than 300-page omnibus budget bill. Independent Senator André Pratte is preparing to move a motion Tuesday that would split the bill, removing the provisions related to the bank so that they can receive more detailed study in the fall.
It would be highly unusual for the Senate to hold up a budget bill, but these are unusual times in the Senate. Prime Minister Justin Trudeau has only appointed senators who sit as independents, and all senators who previously sat as Liberals are no longer part of the Liberal caucus. As a result, it is unclear whether Mr. Morneau will have enough support in the Senate to get his budget bill approved intact before Parliament rises for the summer.
Criticism of the bank has come from many directions. Some argue projects will end up costing taxpayers more in the long run than if they had been funded entirely through government debt at current low interest rates. Others have questioned whether the government is surrendering too much control over public infrastructure to private interests. Another line of criticism has focused on the bank’s governance. Unlike executives of the Canada Pension Plan Investment Board (CPPIB), the CEO and its directors can be fired by cabinet at any time. In contrast, directors at the CPPIB and the Business Development Bank of Canada can only be fired for cause, which provides an extra degree of independence.
Finn Poschmann, a long-time observer of federal economic policy in a previous role with the C.D. Howe Institute who is now president and CEO of the Atlantic Provinces Economic Council, said the “boring governance stuff” related to the bank is vitally important. He is urging the Senate to make amendments.
“They have a wonderful model to work with, which is the enabling legislation for the Canada Pension Plan Investment Board. You could cut and paste,” he said.
“You do these things exactly to take decisions out of the hands of cabinet. The cabinet’s role is to set up a framework so that you hire the right people to do the job and you hand off the decision-making to them. And if they do a good job, then the government and cabinet will get the credit,” he said.
“If you want to see how badly it can go wrong, look at Ontario’s electricity generation. They have years and years of cabinet – and quite specifically, cabinet through ministerial directives – overriding independent boards and agencies because they are able to do so … because of the political goals of some cabinet ministers.”
Federal officials say the governance structure is appropriate because the government will need to have more of a role in its work than an entity like the CPPIB. Specifically, the infrastructure bank must have a municipal, provincial or federal government partner involved in a project in order to certify that it is in the public interest.
Mr. Morneau said it is appropriate for government to have a say in the initial stages of a project in order to signal approval.
“We want to do that as early as possible,” he said. “We expect it to be quite independent of government.”