UPDATING INFRASTRUCTURE IN CANADA:
AN EXAMINATION OF NEEDS AND INVESTMENTS

INTRODUCTION

Infrastructure Canada is the lead department for federal investments in provincial, territorial and municipal infrastructure. Other federal departments and agencies act as delivery partners for some Infrastructure Canada funds and also make some investments from their own budgets. Finance Canada, Transport Canada, Canada Revenue Agency, Aboriginal Affairs and Northern Development Canada, Atlantic Canada Opportunities Agency, Canadian Northern Economic Development Agency, Economic Development Agency of Canada for the Regions of Quebec, Federal Economic Development Agency for Southern Ontario, Western Economic Diversification Canada and the Royal Canadian Mounted Police are the other major federal institutions involved in infrastructure investment. According to Infrastructure Canada, approximately $1.5 billion of the total $5 billion federal contributions to provincial, territorial and municipal infrastructure in 2013–2014 came from federal departments and agencies other than Infrastructure Canada. [1] Between 2015–2016 and 2022–2023, Infrastructure Canada plans to invest more than $5 billion per year in infrastructure projects.

On 23 April 2015, the House of Commons Standing Committee on Transport, Infrastructure and Communities (the Committee) agreed to undertake a study to examine the magnitude and impacts of federal government investments on federal, provincial and municipal infrastructure in Canada as well as the preliminary progress of the New Building Canada Plan.

The Committee convened six meetings for the purposes of the study during the spring of 2015. During the discussion of the questions put forth in the motion, members also had an opportunity to hear witnesses’ perspectives on:

• municipal challenges in relation to their infrastructure;
• public transit funding; and
• public-private partnerships.

This last report of the Committee in the 41^st Parliament presents what the Committee learned about these issues from witness testimony as well as from those stakeholders who submitted briefs.

TRENDS IN FEDERAL INFRASTRUCTURE OWNERSHIP AND INVESTMENTS

The federal government’s share of public infrastructure in Canada has declined in the past 50 years. In particular, the federal stock in road, wastewater and water infrastructure declined by 70%-80% in terms of its value since 1963. Federal investments in communications infrastructure more than tripled in value during the 1980s and 1990s, but have since returned to the level, in real terms, prior to the start of the surge in investment.

The decline in the federal share of infrastructure ownership in the last 25 years was largely through divestiture and privatization and, as a result, less than 2% of core public infrastructure in Canada was federal property in 2013.[2] Infrastructure Canada prepared graphs for the Committee using Statistics Canada data to illustrate these trends, which are provided in Figures 1 and 2 below.

According to Infrastructure Canada, annual federal investments in public infrastructure increased from $400 million in 2002 to over $4.7 billion in 2013. Federal infrastructure contributions peaked during the stimulus program that followed the global financial crisis in 2009–2010, as shown in Figure 3. An overview of the major federal infrastructure programs since 2000 is contained in Appendix C.

Figure 3: Federal Spending on Provincial, Territorial and Municipal Infrastructure

Sources:           Infrastructure Canada; Department of Finance.

According to Organisation for Economic Co-operation and Development data cited by Infrastructure Canada officials, investment in public infrastructure by all orders of government — municipal, provincial and federal — in Canada currently amounts to 3.9% of gross domestic product (GDP). This represents a significant increase compared to the level of public infrastructure investment during the 1990s — a decade of underinvestment — which was estimated to be in the order of 2% of GDP.[3]

Statistics Canada data presented to the Committee indicate that the average age of core public infrastructure in Canada declined from 17.5 years in 2003 to 14.7 years in 2013. Public investments turned back the clock on road and drinking water infrastructure the most, reducing their age by almost four years on average compared to a two-year reduction on average for other asset classes.

While neither the ratio of public infrastructure spending to GDP nor the average age of infrastructure in Canada are indicators of whether the needs of the economy and residents are being met, some witnesses and Committee members noted that the trends appear to reflect that such investments are now a higher priority for Canadian policy makers than they were at the turn of the millennium.[4]

The Federation of Canadian Municipalities (FCM) recommended that the federal government target long-term public investment in the order of 5% of GDP in order to catch up on maintaining, renewing and building new infrastructure over the long term.[5]

PROGRESS OF THE NEW BUILDING CANADA PLAN AND COMPLEMENTARY FEDERAL FUNDS

The 10-year, New Building Canada Plan, which was announced in 2013, is intended to offer funding options to assist a variety of public and private sector infrastructure project proponents. Certain funding envelopes are earmarked for projects that are local in scope, while other funds favour projects of regional and national significance, as shown in Table 1. The cost-sharing conditions for funding under the New Building Canada Plan leverage contributions ranging from 66% to 75% of total project costs from other funding partners. Those public sector assets that most directly foster economic growth, a cleaner environment and a higher quality of life in Canadian communities were selected to be eligible investment categories. Job creation is expected to result from any infrastructure project. The FCM told the Committee that every $1 billion in infrastructure investment is expected to create in the order of 11,000 jobs.[6]

Table 1: Selected Components of the New Building Canada Plan

Notes:  a.         The GST Rebate is administered by the Canada Revenue Agency.

            b.         The P3 Canada Fund is administered by PPP Canada.

Source: Table prepared by the author using data obtained from House of Commons Standing Committee on Transport, Infrastructure and Communities, Evidence, 5 May 2015 (Jeff Moore, Assistant Deputy Minister, Policy and Communications, Infrastructure Canada).

As of May 2015, funding under the New Building Canada Plan has been approved for:[7]

• Two projects under the National Infrastructure Component totalling $207.5 million ($68 million federal contribution);
• 18 national and regional projects under the Provincial-Territorial Infrastructure Component totalling $5.79 billion ($1.06 billion federal contribution); and
• 1 public-private partnership public transit project ($150 million federal contribution);
• 2200 Gas Tax Fund projects ($1.97 billion federal contribution).

The Committee recommends:

1. That the federal government continue to be an important funding partner for infrastructure projects across Canada with the New Building Canada Plan.

A. Broadband infrastructure

The majority of investment categories under the New Building Canada Plan represent what is termed as “core infrastructure,” i.e., roads, bridges, transit, water, wastewater, culture, and recreation and sport infrastructure. Broadband infrastructure is one example of “non-core” infrastructure that is eligible for federal funding under the New Building Canada Plan as well as programs administered by other departments, such as Industry Canada’s Digital Canada 150 Program.

One of the five pillars of Industry Canada’s Digital Canada 150 program is Connecting Canadians.[8] It is a merit-based funding program and offers $305 million to support broadband Internet infrastructure investments in rural and remote regions of Canada, $50 million of which is dedicated to communities in northern Quebec (Nunavik) and Nunavut. Internet service providers can receive non-repayable contributions of up to 75% of costs of those serving remote or Aboriginal communities, or up to 50% of eligible project costs serving other communities. Program recipients may seek an additional 25% of the eligible project costs from other federal sources up to a maximum of 100%. Before Industry Canada’s call for applications to Connecting Canadians closed in January 2015, the Department had received more than 300 applications from Internet service providers of all sizes across Canada.[9]

B. First Nations infrastructure

The consideration of First Nations infrastructure is beyond the scope of this study, as Aboriginal Affairs and Northern Development Canada (AANDC) is responsible for providing financial and advisory assistance for the construction, acquisition, operation and maintenance of community infrastructure assets on reserves. However, it is important to note that the New Building Canada Fund includes dedicated funding for First Nations infrastructure under the Gas Tax Fund and the National Infrastructure Component. This funding will be allocated to the First Nations Infrastructure Fund managed by AANDC.

The First Nations Infrastructure Fund (FNIF) assists “First Nations in the provinces to improve and increase public infrastructure on reserves, Crown land, land set-aside for the use and benefit of a First Nation, or off-reserve in the case of cost-shared projects with non-First Nation partners such as neighbouring municipalities.”[10] The fund combines three existing federal sources: Infrastructure Canada’s Municipal Rural Infrastructure Fund and the Gas Tax Fund; and Aboriginal Affairs and Northern Development Canada’s Capital Facilities and Maintenance Program. Under the FNIF, general categories of projects that are eligible for funding are as follows:[11]

• Community planning and skills development;
• Solid waste management and recycling;
• Roads and bridges;
• Energy systems; and
• Connectivity, including high-speed transport networks, internet networks and satellite capacity.

The Kashechewan First Nation submitted a brief to the Committee explaining that, while its infrastructure is aging like that of Canadian municipalities, its problem is unique because of rapid growth in the Aboriginal population.[12] The Committee notes that Budget 2013 proposed allocating funding for the FNIF: $155 million over 10 years from the New Building Canada Fund, in addition to allocations from the Gas Tax Fund amounting to $138.9 million between 2014 and 2019.

The Committee also notes that the Standing Senate Committee on Aboriginal Peoples recently completed its study on challenges relating to First Nations Infrastructure on reserves and expects to table a report with its findings and recommendations before the end of the 41^st Parliament.[13]

MUNICIPAL CHALLENGES

As the federal share in public infrastructure fell, and public investments increased to meet growing needs, the municipal share of infrastructure has grown over the decades. According to Industry Canada, municipal governments’ shares of road and wastewater infrastructure have grown by 41.5% and 64.2%, respectively, since 1963.[14] Infrastructure Canada prepared the graphic in Figure 4 using Statistics Canada data to illustrate these trends.

Infrastructure Canada estimates that municipal infrastructure currently represents 56.8% of the total value of all public infrastructure in Canada, as shown in Figure 2.

A. Municipal revenues

All municipal representatives who came before the Committee reported that they were pleased that the federal government had made the Gas Tax Fund permanent and indexed it to inflation. The Mayor of Gatineau told the Committee that the “ability to plan into the future is priceless.”[15] Nonetheless, municipal governments report that they still cannot afford to repair, replace, or build new additional infrastructure as required. According to the FCM, municipalities receive only eight cents of every tax dollar collected in Canada, largely through property taxes. The Committee learned that some municipalities, such as the City of Gatineau and Burnaby, have created reserves to fund their infrastructure maintenance and the City of Gatineau has implemented a 1% infrastructure tax.

Some witnesses, including the FCM, recommended aligning municipal taxing powers more with their responsibility for infrastructure. According to an independent urban planning consultant, “I think the tendency to expect local governments to fund a third of such projects, which is a typical expectation, when they don't come close to collecting a third of the actual tax revenue, really fundamentally needs to be rethought.”[16] The Mayor of Kitchener told the Committee that his community supports the view of the FCM and echoed the call for a balanced model of shared responsibilities.

Some witnesses pointed out that the federal government’s new wastewater requirements impose additional costs on the municipal owners of those systems.[17] According to the FCM, one-quarter of all municipalities need to upgrade their water systems to comply with the new regulations. It is estimated that these municipalities need $3.4 billion to meet the 2020 target and an additional $14.6 billion for full compliance. The FCM recommended that the federal government introduce dedicated funding to assist with meeting the new federal wastewater obligations.[18]

B. Access to federal funds

The Community Improvement Fund under the New Building Canada Plan, which consists of the permanent, indexed Gas Tax Fund and the incremental Goods and Services Tax rebate, provides $32 billion in base funding to municipalities. A number of investment categories were added to the Gas Tax Fund including sport, tourism, and cultural infrastructure, bringing the total number of eligible categories to 17. With a few exceptions, the Gas Tax Fund usually flows to the municipalities through the provinces and territories.[19]

The provinces and territories each establish a list of their highest-priority projects for submission to the $10 billion Provincial-Territorial Infrastructure Component of the New Building Canada Plan. The Committee learned that the manner in which the provinces and territories include municipal projects on these lists varies considerably among jurisdictions. For example, the provincial and territorial decisions about which projects to submit for funding may be based on a capital plan, a minimum allocation for each municipality, or a process by which municipalities can submit applications for project funding.

Municipal proponents may apply directly to Infrastructure Canada only for projects under the $4 billion National Infrastructure Component of the New Building Canada Plan. This component of the plan is focussed on projects having a broad and significant impact on economic competitiveness and productivity, rather than projects of local importance. Eligible investment categories include highways and major roads, public transit, connectivity and broadband, drinking water, wastewater, solid waste management and green energy.

Infrastructure Canada reimburses municipalities for costs of projects approved under the National Infrastructure and Provincial-Territorial Components of the New Building Canada Plan after the agreement is in place, work has been done and expenses have been submitted. According to an official from Infrastructure Canada, “A municipality will go ahead and proceed with the project, construction will occur and take place, and they will submit the appropriate documentation to our organization, Infrastructure Canada. We do some reviews, ensure that we have the appropriate information, and we issue a payment. It's quite a simple process.”[20]

Some municipal representatives told the Committee that accessing the available federal funds was a challenge for some communities. According to the FCM, “It's hard for municipalities to understand how their projects are approved or not approved, who is making the decision, and what criteria are being used.”[21] The STO and the City of Gatineau, together, recommended that the federal government ensure that the transportation priorities for the National Capital Region are among the projects submitted by the Government of Quebec to receive federal funding.[22] The FCM recommended that the federal government:[23]

• help the provinces and territories establish the criteria for projects they will accept; and
• allocate to municipalities a proportion of federal funds that matches the municipal share of infrastructure.

The Committee received some recommendations from other witnesses on the eligibility and selection criteria for infrastructure projects under the New Building Canada Plan.

• The Canadian Public Works Association recommended that the federal government take on a role in promoting the use of a sustainability rating system for infrastructure investments and provide dedicated funding to support that.[24]
• An independent urban planning consultant recommended that “shovel-ready” road projects not be prioritized because they do not solve the problem of traffic congestion. He recommended prioritizing transit, walking and biking projects instead because they make vehicular movements of people and goods more efficient and create a better return on investment.[25] The Committee notes that “shovel-ready” projects are not prioritized under the New Building Canada Plan.

Two witnesses called for federal funding for the operations and maintenance (O&M) of infrastructure. Professor Siemiatycki, from the University of Toronto, explained to the Committee that a significant and predictable proportion — up to 80% for some projects — of the overall costs over the life cycle of an infrastructure project is O&M. He commented that “it is problematic if money is going to be spent to build these projects without necessarily having the revenue streams, the opportunities to be able to keep them up and running and in states of good repair.”[26] The Mayor of Burnaby also recommended that federal funds be given for operating purposes.

The Committee recommends:

2. That the federal government continue to provide flexible and reliable funding to municipalities across the country through the Gas Tax Fund.

3. That, once projects are identified and prioritized by provinces and territories, the federal government continue to evaluate and approve projects as they are submitted.

4. That the federal government continue to work with provinces, territories and municipalities to deliver the New Building Canada Fund.

C. Municipal asset management practices

Discussion concerning the magnitude of infrastructure needs across the country (i.e., the so-called infrastructure “gap” or “deficit”) highlighted the fact that there is little agreement on the concept except that the data required to produce an estimate are not readily available. An official from Infrastructure Canada told the Committee that “the key problem goes back to how municipalities and other asset owners collect information and if they're able to collect information. There's a bit of a capacity issue there in terms of various organizations and municipalities being able to tell us what kind of infrastructure they have, what they own, how much it is worth, what kind of deferred maintenance they are involved in, what the condition of the asset is, [and] what the remaining service life of the asset is […].”[27] The FCM and other municipal representatives referred to the 2012 Canadian Infrastructure Report Card, which had identified that nearly one-third of public roads, drinking water, wastewater and storm water facilities were between fair and very poor condition and needed significant investment immediately.[28] Some Committee members expressed the view that, with assets constantly aging and ongoing population growth, it may not ever be possible to eliminate the infrastructure “deficit.”

Some witnesses told the Committee that, although some cities (e.g., Edmonton and Ottawa) manage their infrastructure assets very well, the majority of municipal governments lack the capacity and resources to effectively track the status of their infrastructure and make informed investment decisions. Infrastructure Canada officials noted that “capacity building” is an eligible investment category under the Gas Tax Fund and that municipal associations at the provincial and territorial level can also assist municipalities with asset management. The FCM recommended to the Committee that there be “national leadership to create the national scope and perspective that says ‘here's the kind of asset management in general that we want to see in this country.’”[29]

The Committee recommends:

5. That the federal government continue to encourage capacity building in asset management for municipalities.

PUBLIC TRANSIT FUNDING

The Committee learned that public transit investments are an eligible investment category for all components of the New Building Canada Plan.

The Canadian Urban Transit Association (CUTA) told the Committee about the surge in government investment in transit in the past decade. “In 2013 the amount of transit infrastructure capital funding from all orders of government reached $4 billion. Over the last decade, the federal government has invested or committed more than $8 billion in funding for transit infrastructure across the country, nearly $1 billion per year.”[30]

The economic, social and environmental benefits of transit investment were thoroughly discussed during the course of this study. Some witnesses highlighted that transit investments reduce traffic congestion in major cities, whose impact on economic productivity was considered to be of national importance as it costs Canada billions in lost economic activity already.[31] Transit projects are also expected to attract higher-paying jobs to communities, support the development of business clusters, and reduce urban sprawl, car dependence, greenhouse gases and the cost of living for some households. Witnesses proposed that transit projects generate a return on investment, in terms of incremental economic activity, of at least 20%.

CUTA told the Committee that public transit ridership has been growing strongly and continues to grow faster than urban populations in Canada. Brent Toderian, an independent urban planning consultant, observed that huge cohorts of young adults and baby-boomers in Canada will drive demand for public transit even higher. He told the Committee that “the two largest demographic groups in human history are predisposed towards different priorities in infrastructure — transit, walking and biking.”[32]

According to CUTA, municipalities have devoted $2.5 billion of their federal Gas Tax Fund allocations to transit projects over the last 10 years. Five of Canada's largest cities — Toronto, Vancouver, Ottawa, Calgary, and Edmonton — have allocated almost all of their federal Gas Tax Fund allocations to public transit. Federal infrastructure funds have also enabled large transit projects such as Ottawa's Confederation Line as well as smaller ones, such as purchases of buses in Cornwall, Ontario, Whitehorse, Yukon and in Prince Edward Island.

The former Minister of Transport indicated in his response to the Committee’s 2012 Report on Transit in Canada, that the federal government supports “the consideration and use of public-private partnerships (P3s) by provinces, territories and municipalities in shared-cost capital infrastructure projects and acknowledges that the private sector can offer additional expertise in the provision of public transit from which many jurisdictions have already benefitted.”[33]

Budget 2015 proposes new merit-based public transit funding in the amount of $750 million over two years starting in 2017-2018, and $1 billion annually thereafter. The new public transit funding would be administered by PPP Canada, the federal P3 agency, in support of projects that demonstrate more value for money for taxpayers as public-private partnerships. The terms and conditions of the proposed new public transit funds have not been announced. Major transit P3s in Edmonton, Winnipeg, Kitchener-Waterloo, York, Toronto and Ottawa are already underway. What the Committee heard from stakeholders about P3s is discussed in more detail in the following section.

CUTA told the Committee that its members strongly support the new federal transit funding proposal and hope that the terms for accessing the funds will be flexible. By proposing $1 billion in dedicated transit funding per year starting in 2020 “the government is setting the wheels in motion to unlock funding for major infrastructure projects across the country.”[34] Although CUTA appreciates the predictability of the new funding, it told the Committee that there would still be a shortfall of $18 billion for the $56 billion in transit projects planned over the next five years. CUTA estimates that 28% of transit needs over the next five years will be for rehabilitation or replacement. 

FCM also signalled its members’ approval of the new public transit funding announced in Budget 2015. As the terms and conditions of the funds are established, however, the FCM told the Committee that it would like to ensure “that local governments retain the flexibility to determine the appropriate degree of private sector involvement.”[35] Since the proposed new public transit fund is set up to respond to big projects, which take time, the delay in disbursing those funds is not seen as a problem by the FCM as long as the approval process starts soon.

Some representatives of individual municipalities expressed some concerns about the P3 requirements of the proposed new public transit funding. For example, the Mayor of Burnaby would like to have a choice not to engage in a P3 for a large transit project, and representatives from the City of Montréal suggested that the new public transit funds for P3 projects would only benefit the transit systems in the largest municipalities in Canada. The City of Montréal recommended that public transit funding be flexible, inclusive and long term. The representatives of the City of Vancouver also recommended having flexible rules around the new transit fund.

The FCM and CUTA both requested that the federal contribution for P3 transit projects be raised to one-third of eligible projects costs, like other federal funds. The FCM told the Committee that it is critical that the federal government invests as a true one-third partner in these projects as P3s do not reduce the need for government funding for the capital costs of public goods like major transit projects.

In a brief to the Committee, the Canadian Association of Ferry Operators (CAFO) indicated that their members are not satisfied with transit funding. Only ferries that are part of an urban transit system are eligible for federal funding under the New Building Canada Plan, which makes ferry operations outside of cities ineligible. The CAFO argues that ferries that carry goods as well as passengers outside of urban areas make important contributions to the economy and should be eligible for New Building Canada Plan funds.

The Committee recommends:

6. That the federal government continue to work with provinces, territories and municipalities to deliver record levels of funding for public transit through the New Building Canada Plan, the Gas Tax Fund and the new Public Transit Fund.

PUBLIC-PRIVATE PARTNERSHIPS

The following sections summarize what the Committee learned from witnesses about using P3s to procure public infrastructure.

A. Public-private partnerships versus conventional procurement

The Committee learned that the P3 procurement model is one in which the public sector bundles the responsibilities of an infrastructure project (i.e., to design, finance, build, operate and maintain the infrastructure) into a single contract with the private sector.[36] PPP Canada explained to the Committee that, “P3 is not a single thing; it’s a family of procurement options with the private sector.”[37] When the private sector is responsible for operating and/or maintaining the infrastructure, the P3 contract may be for the entire economic life of the project. The private sector partner gets paid for the project either by charging users of the infrastructure or through payments directly from the public sector.

The P3 model was developed in order to overcome some recurring problems encountered with the conventional public procurement model, whereby the public sector would typically have separate contracts with different private parties to design and then build infrastructure. In a conventional public procurement model, the public sector usually finances the project, and operates and maintains it over its life cycle. Some witnesses told the Committee that this model often results in costly delays, greater than anticipated maintenance costs and, potentially, operational challenges.[38]

An effective P3 contract makes the private sector partner responsible for all additional costs when project timelines and specifications are not respected, when there are issues related to infrastructure performance or when there are unanticipated maintenance costs over the project life. The Canadian Council for Public Private Partnerships (CCPPP) told the Committee that “What makes P3s quite unique is that they are ensuring that an asset that's being built will be maintained to a standard agreed to by both government and the private sector at a particular level and returned to government 30 years from now in exactly the condition that was agreed to. If that isn't the case along the way, for instance if the facility is not maintained, the private sector is penalized for that.”[39] The downside of the private sector financing a project is that they borrow at a higher rate than public sector and the additional interest must be repaid by users or taxpayers.

As a result of the considerable complexity and costs of negotiating and closing a P3 deal, the model has been found to be a viable alternative to conventional procurement for only 10%–20% of all infrastructure projects in Canada.[40]

The kinds of projects that tend to be most suitable as P3s are large and complex and for which performance expectations are easily measured and expected to remain the same over the project life cycle.

B. Canada’s experience with public-private partnerships

The Canadian experience with P3s spans a few decades, many sectors and all levels of government. The CCPPP told the Committee that there are now 224 P3s operational, under construction, or in procurement across the country. Canadian P3s include hospitals, schools, prisons, highways, federal buildings and bridges, water treatment facilities, solid waste facilities, recreation and public transit projects representing a total investment of more than $72 billion.

Almost all witnesses who appeared before the Committee felt that Canadian P3s have been successful in terms of being completed on time and on budget. Professor Matti Siemiatycki, who has studied P3s extensively, noted that the P3s completed since 2000 have not resulted in any major failures, contract negotiations or bankruptcies once operational. He also observed that the public sector has largely avoided controversy with P3s in Canada by retaining operations in the public sector and paying the private partner for its services directly rather than imposing user fees.

The CCPPP told the Committee that independent analysis has demonstrated that P3s saved governments in Canada $9.9 billion in avoided costs because projects have been completed on time and on budget. According to PPP Canada, the federal P3 agency, Canadian P3s have delivered on average 5% to 15% better value for money than what was expected to be achieved through conventional procurement.

PPP Canada told the Committee that, with its diverse and growing project pipeline, international competition for contracts, and mature, low-cost, capital market for infrastructure projects, Canada is now recognized as one of the global leaders in P3 procurement.[41] The P3 market is further supported by P3 institutions established at the provincial and federal levels, which develop and share information about best practices and guide project proponents.

C. Municipal perspectives

Municipal representatives who came before the Committee demonstrated different levels of acceptance of the P3 approach. The Mayor of Burnaby was at one end of the spectrum, dismissing P3s out of hand as privatization.[42] The Mayor of Gatineau declared that his city is not too familiar with P3s and was concerned that only the largest cities in Canada would have projects big enough to be approved.[43] Based on their experiences with P3s, the representatives from the cities of Vancouver and Surrey were strongly in favour of P3 procurement when it is determined to generate better value for money. The Mayor of Surrey also underscored that ownership of the asset remains with the public sector.[44]

Some municipal representatives were concerned that the mandatory P3 screen under the New Building Canada Plan for projects over $100 million took away the choice to use conventional procurement methods, if that was the city’s preference. Some witnesses also expressed concern that the new Public Transit Fund would leave out all but Canada’s largest cities.[45] Infrastructure Canada and PPP Canada officials reassured the Committee that there is $14 billion in funding for non-P3 infrastructure projects in the National Infrastructure and the Provincial-Territorial Infrastructure Components of the Building Canada Fund.

The Committee recommends:

7. That the federal government continue to encourage the use of public-private partnerships (P3s) where an analysis proves there is value for money.

D. Reducing public-private partnership costs

Transferring financial risk to the private sector partner, and the considerable complexity and costs of negotiating and closing a P3 deal, make P3s expensive relative to conventional procurements. Professor Siemiatycki told the Committee that research in Europe has shown that P3s cost 25% more in upfront capital costs than conventional procurement projects. The City Manager of Surrey, whose city is entering the construction phase of Canada’s first biofuel P3, said that “that comes at a price where you have to pay the private consortium to take those risks, but at least you know what you're paying and what you're getting.”[46] Professor Siemiatycki described the “P3 premium” as an insurance policy against unexpected outcomes in terms of the cost or performance of the infrastructure because with a P3, the costs are known in advance for the entire life cycle of the asset.

Professor Siemiatycki suggested that paying more for private financing over the longer term operational phase of the project might not be worth it. He told the Committee that, once operational, no recent Canadian P3s have failed or required contract negotiations; he therefore questioned whether the risks beyond the construction phase were worth the cost of private financing over the life of the project. He cited a report by the Auditor General of Ontario that concluded that P3s had cost the province $8 billion more than if the projects had been effectively procured in the conventional method. While Professor Siemiatycki admitted that the public sector does not have a reputation for staying on budget and on time, he believes that there are potential cost savings that could be achieved by retaining the O&M portion with the public sector in P3s. In order to make P3s less expensive for the public sector, Professor Siemiatycki recommended that:[47]

• the bureaucracy be trained to manage O&M risks better; and
• PPP Canada should analyze the data from P3 projects in order to better quantify the value of O&M risk.

Conversely, PPP Canada suggested to the Committee that private financing is essential — even definitional — for a P3 as it incentivizes the private partner to build high‑quality infrastructure and maintain it properly over its life cycle.

Witnesses representing municipalities and public transit agencies recommended that the federal contribution to P3s be raised to 33% of eligible project costs, as is the case for other federal infrastructure funding programs.[48]

E. Delivering all infrastructure better

Professor Siemiatycki noted that 85% to 90% of public projects are procured in the conventional way, not as P3s. He suggested to the Committee that “the federal government could play a much more information coordinating role beyond just P3s.”[49] In order to improve public sector management of conventionally procured projects, Professor Siemiatycki recommended expanding the mandate of PPP Canada to advise all levels of government on all types of procurement options.[50]

RECOMMENDATION 1

That the federal government continue to be an important funding partner for infrastructure projects across Canada with the New Building Canada Plan.

RECOMMENDATION 2

That the federal government continue to provide flexible and reliable funding to municipalities across the country through the Gas Tax Fund.

RECOMMENDATION 3

That, once projects are identified and prioritized by provinces and territories, the federal government continue to evaluate and approve projects as they are submitted.

RECOMMENDATION 4

That the federal government continue to work with provinces, territories and municipalities to deliver the New Building Canada Fund.

RECOMMENDATION 5

That the federal government continue to encourage capacity building in asset management for municipalities.

RECOMMENDATION 6

That the federal government continue to work with provinces, territories and municipalities to deliver record levels of funding for public transit through the New Building Canada Plan, the Gas Tax Fund and the new Public Transit Fund.

RECOMMENDATION 7

That the federal government continue to encourage the use of public-private partnerships (P3s) where an analysis proves there is value for money.