Why is Doug Ford's government creating a bank to finance public projects?
Questions swirl over Ontario's plan for luring private investment to build long-term care, student housing
Premier Doug Ford's government is facing questions about why it wants to establish a bank to attract private-sector investment in such projects as long-term care homes, nuclear reactors and student housing.
The Ontario Infrastructure Bank was the showpiece announcement in the government's fall economic statement last week. The fiscal update revealed the province's current deficit sits at $5.6 billion, four times higher than projected in the budget that Finance Minister Peter Bethlenfalvy tabled in March.
Bethlenfalvy is pitching the infrastructure bank as a way to finance the construction of projects "that perhaps otherwise wouldn't get built."
Brian Lewis, a former chief economist for the province, now a senior fellow at the Munk School of Global Affairs and Public Policy, says Ontario's challenges with getting infrastructure built have always been about completing projects on schedule, never with financing them.
"The current [financing] system seems to be working pretty well in Ontario, which leads us to the question of, what's the problem this [infrastructure bank] is going to actually solve?" said Lewis in an interview.
"This could be a very good thing, but there's a lot of unanswered questions right now, and it's hard not to be a little skeptical."
The government's capital plan envisions spending $185 billion over the next 10 years to build transit, highways, hospitals, schools, long-term care homes and other infrastructure projects.
Will it be good for taxpayers?
Ontario currently finances all these big construction projects by borrowing money.
Financing projects through the Ontario Infrastructure Bank would reduce the province's borrowing, a senior Ministry of Finance official told reporters in a background briefing last week.
Of course, the province's method of borrowing is significantly different from how the average person borrows money to buy a home. Ontario issues bonds that provide a long-term return to the investors who purchase them.
"Presumably that means the bank is going to have to offer a return that's a little bit — if not more than a little bit — higher than what the government already offers investors," said Lewis. "That money has to come from somewhere."
The government is also providing the bank with $3 billion in start-up funding, straight from the public purse.
Who will invest, and will they make money?
The bank will be seeking what the government calls "qualified institutional investors" to put up money for its projects. While the government is emphasizing Canadian pension funds as its prime target, it is not ruling out accepting investment from foreign pension funds or private equity firms.
Sherena Hussain, a lawyer and academic with expertise in infrastructure financing, says attracting private investment in infrastructure projects would reduce the burden on taxpayers.
"There is a lot of private capital, particularly institutional capital, here in Ontario as well as across the country that is eager to invest in infrastructure in Ontario. But they're looking for the right projects to do so," said Hussain in an interview.
CBC News asked Bethlenfalvy if establishing the bank opens the door to big investors profiting off public infrastructure projects.
"I don't think profiting is the right way to think about it," he replied. "Think about it in terms of revenue streams."
He gave the examples of energy production, student housing and long-term care homes as instances where future revenues would give investment funds a return on their money. The bank and the investors would also take on the risk in the project "instead of the taxpayer taking all the risk and burden," said Bethlenfalvy.
What projects will the bank finance?
The fall economic statement says the bank's investments "will initially be focused on new long‑term care homes, energy infrastructure, affordable housing, municipal and community infrastructure and transportation."
Bethlenfalvy specifically mentioned Ontario's small modular nuclear reactors as the type of energy project that could be financed this way. That project is currently getting nearly $1 billion in financing from the Canada Infrastructure Bank.
Will Ontario's bank repeat federal mistakes?
Prime Minister Justin Trudeau's government announced in 2016 its plans to establish a federal infrastructure bank. It suffered in its first few years from a near-total lack of interest from investors, in large part because the government's criteria for acceptable projects was seen as too narrow.
The federal Conservative Party has described the Canada Infrastructure Bank as a "$35-billion boondoggle" and wants it scrapped. Yet Ford's PC government points to the federal bank as one of its models for the Ontario version.
Jay Goldberg, Ontario director of the Canadian Taxpayers' Federation calls the Canada Infrastructure Bank "a complete failure" and says it's concerning that the province would follow suit.
"I'd love to hear from the minister if he going to talk about ways in which they're planning to avoid the federal mistakes," said Goldberg in an interview.
"It's a complete waste of taxpayer dollars," he said. "The government could use the $3 billion on something else like giving relief to taxpayers who can barely afford to pay their bills."
What's the reaction so far?
Desjardins financial group: "When it comes to the new Ontario Infrastructure Bank, the devil will be in the details," economists Marc Desormeaux and Marc-Antoine Dumont wrote in an analysis. "To assess the efficacy that this new program may have, we'll need — at a minimum — a sense of the size of existing (infrastructure) gaps, where investment will get the biggest bang for the buck for taxpayers, and how it will attract private‑sector investment."
Ontario Teachers' Pension Plan: "We welcome opportunities to add to our $25 billion investment portfolio in Ontario and look forward to engaging with the government to learn more about new projects created by the Ontario Infrastructure Bank," said a statement from one the biggest pension funds in the world.
Ontario Long-Term Care Association: "The Ontario Infrastructure Bank will help long-term care homes access affordable financing for construction," said a statement from Donna Duncan, CEO of the group representing the vast bulk of for-profit homes in the province.
When will this happen?
The government hasn't given a specific timeline for launching the bank, which will be set up as a provincial agency with a board of directors appointed by the government.
"In the coming weeks and months we expect to announce further progress at the agency, including progress on early priorities and potential projects," said Ministry of Finance spokesperson Scott Blodgett in an email to CBC News.
"There will be an inaugural board and chair, it'll be an arms-length agency, they will set up the governance model and will make sure that whatever is invested in it is in Ontario's public interest," Bethlenfalvy told reporters.
ABOUT THE AUTHOR
