Drew Fagan is a Public Policy Forum fellow and former Ontario deputy minister of infrastructure. His PPF report, 'Building the Future: Strategic Infrastructure for Long-Term Growth,' was published last fall.
What's the difference between government and a bank? As the old joke goes, they both take your money but only the bank gives it back.
But what happens if government creates a bank? If it's the nascent Canada Infrastructure Bank, controversy ensued for an organization that could catch Canada up with other countries, such as Australia.
There is much to support about the CIB, especially since Canada is accelerating into a years-long spending boom after three decades of underinvestment. The CIB can help ensure this isn't done blindly.
But let's start with what the Canadian government hasn't done well. It got the name wrong and it bobbled the process. The CIB isn't a bank. It is (or will be, assuming the legislation passes Parliament) a government agency, with a role broader and more publicly motivated than the emerging belief that it'll just sell off assets and slap on user fees.
The perception that Ottawa is in cahoots with Bay Street and Wall Street has been sowed by Ottawa's own actions. It spoke to moneyed interests, often behind closed doors, more assiduously than it explained the CIB's role to the public. How did BlackRock, the world's largest asset manager, get so close as to appear to be both pitcher and umpire?
However, this doesn't change the fact that Canada needs the CIB. It needs it for two reasons, one misunderstood, the other barely noticed at all.
First, the CIB's $35-billion in capital should attract billions more from the kinds of large infrastructure investors that now look for opportunities elsewhere, including Canada's own globe-trotting pension funds.
There will be hurdles, certainly. For one thing, these investors prefer to buy existing, less risky assets (known as brownfield) than to invest in new projects, or greenfield, which will be the CIB's focus.
And these deals will involve revenue, such as user fees. (User fees are less common in Canada than other Western countries, making it more difficult to maintain assets and manage demand, as with highways.)
Critics note that interest rates are low and argue that government should just borrow to finance new spending.
But global investors bring greater capacity than government often can muster on big infrastructure. Since they need to make a return, these investors also are more disciplined about what they do.
And that leads to the second role for the CIB, which has largely escaped notice.
Over the next decade, Canada's federal, provincial and municipal governments will spend as much as $750-billion on infrastructure, multiples of spending in, say, 2000.
The vast majority still will go to projects approved by politicians and delivered by public agencies in the traditional way. The CIB's $35-billion in seed funding represents a small share of this unprecedented investment, even if the CIB does manage to lever $4 of private money for every $1 of public money as Ottawa intends – a tall order.
But Canada has insufficient information about what should be built, where and when. The country has no national, long-term infrastructure plan, though many provinces and some cities have done their own. Return on investment analysis isn't always required even for large publicly funded projects and, in any case, such preparatory work sometimes is ignored when the results don't accord with what's wanted.
Decision-based evidence-making wins the day too often.
The legislation establishing the CIB gives it seven roles. Only three relate to the kind of deals for which the $35-billion is intended. The other four are much broader; to act as an infrastructure "centre of expertise," to foster "evidence-based decision making," to "collect and disseminate data" nationally and to "provide advice to all levels of government" on infrastructure projects.
In other words, the CIB's mandate will be to make all spending go further by advocating for better overall infrastructure planning and improved project selection, delivery and operations, based on distinct guidelines and direct evidence.
Ideally, the CIB will push back against political exigencies. Here too, there will be challenges. As noted at Parliamentary hearings, the CIB legislation doesn't give it the kind of absolute independence of, for example, the Canada Pension Plan Investment Board.
The CIB wouldn't be the first arm's-length government agency to find that arm's-length didn't mean "hands off" to political masters but, instead, meant the agency got grabbed by the throat at an arm's-length distance when politics intervened.
Furthermore, it remains to be seen how well the provinces and municipalities, which own more than 90 per cent of the country's public infrastructure, take to a big new federal role beyond just doling out money.
But these challenges likely can be overcome with experience, as has happened elsewhere. The independence of Infrastructure Australia, for example, was more deeply embedded by statute a few years ago after it had won its spurs.
The CIB, misnamed or not, should improve Canada's infrastructure record by adding a needed jolt of private sector involvement and deeper public sector expertise. It can play a valuable role as Canadian infrastructure spending makes up for lost time.