Proceedings of the Standing Senate Committee on
National Finance
Issue No. 14 - Evidence - October 5, 2016
OTTAWA, Wednesday, October 05, 2016
The Standing Senate Committee on National Finance met this day at 6:45 p.m. to continue its study of the federal government infrastructure funding program.
Senator Larry W. Smith (Chair) in the chair.
[English]
The Chair: Welcome to the Standing Senate Committee on National Finance, colleagues and members of the viewing public. The mandate of the committee is to examine matters relating to federal estimates, generally, as well as government finance. Today, we continue our study on the design and delivery of the federal government's multi- billion-dollar infrastructure funding program.
My name is Larry Smith, senator from Quebec, and I chair the committee. Let me introduce briefly the other members of our committee. To my left, our new deputy chair, Senator Ann Cools. Senator, welcome.
Senator Cools: Thank you.
The Chair: To my left is the former long-time editor of La Presse, Senator André Pratte.
To my right, a judge and a major contributor to the Senate over many years —
Senator Andreychuk: Not so many, right, Senator Cools?
Senator Cools: Quite a few.
The Chair: — Senator Andreychuk.
Senator Andreychuk: The mature senator.
The Chair: And to her right, the former Auditor General of the Province of Newfoundland, Beth Marshall.
Senator Nicole Eaton —
Senator Eaton: That's a bit of a letdown.
The Chair: Not a letdown at all.
We also have Senator Ataullahjan, who is helping us out tonight. She is a new member of our committee, too. Welcome.
In the second part of our meeting, we'll hear from independent oversight bodies as suggested in the proposed work plan for the study. First, we'll hear from the Province of Ontario.
At this point, I would like to note that the invitations have been extended by this committee to five provinces so far with sometimes follow-up calls and emails. Unfortunately, Quebec, New Brunswick and British Columbia have declined our invitation. So far we haven't heard back from Alberta.
We extended an invitation to the Ontario Minister of Infrastructure, but, unfortunately, they declined our invitation due to scheduling conflicts. However, fortunately, Infrastructure Ontario has willingly sent us its lead representative who will be giving us, we hope, a glimpse of how the operation of infrastructure programs work at the provincial level. Therefore, we welcome Bert Clark, President and CEO of Infrastructure Ontario. Infrastructure Ontario is a Crown corporation. Owned by the province, it provides a wide range of services to support the Ontario government's initiatives to modernize and maximize the value of public infrastructure and realty.
Welcome, Mr. Clark. I understand you have an opening statement, which will be followed by a question period from our senators.
Bert Clark, President and CEO, Infrastructure Ontario: Thank you for having me here this evening. I'm going to keep my remarks brief. Copies of them were sent in advance.
First, let me tell you a little bit about Infrastructure Ontario. Infrastructure Ontario is a Crown agency owned by the Government of Ontario. The government appoints its board of directors and I report to the board. Our board of directors is a group of accomplished individuals with extensive private-sector legal, engineering, finance and accounting experience. Each of them brings strong dedication to public service.
IO has three lines of business: real estate, lending and major projects. I'm going to focus on major projects this evening.
IO manages large, complex projects on behalf of the province and other public sector entities. Over the last decade, we have built 55 projects with a capital value of over $18 billion. A significant portion of that new space has been hospitals. We helped deliver new hospitals in cities such as Sudbury, North Bay, Oakville, Kingston, Hamilton, London, Ottawa and St. Catharines.
On top of that, we currently have $15 billion worth of construction work under way and $5 billion worth of projects in active procurement. We expect to add to this volume of work in the near future. This makes us one of the most active and consistent infrastructure markets in the world.
We've had a very successful decade building infrastructure, but it hasn't always been that way in Ontario. Prior to IO's creation, Ontario's experience with major infrastructure projects was similar to many other jurisdictions: Projects were often late and over budget, and assets often weren't built to last.
We made a number of changes to ensure strong project delivery and asset maintenance. First of all, there is no substitute for proper up-front planning. Early due diligence can reduce the likelihood of changes during construction. Often, there is a pressure to move forward with projects before all the proper planning has occurred, and our role is to ensure that all that planning has happened first.
Second, good project delivery requires public sector employees with specialized skills in large, complex project delivery. We have a good team of people at IO with deep project experience. They are as experienced as the private sector partners on the other side of the table, and that is key to levelling the playing field.
Third, good partners are key. We pick our private sector partners very carefully. Frankly, public procurement rules and some trade agreements don't always make that easy. But we've developed fair and transparent processes that also ensure bidders have the required local knowledge, and we're also taking into account past track records now when we select potential partners.
Fourth, we avoid the tendency in the public sector to break big projects up into smaller projects. There's probably no greater cause of cost overruns than the practice of tendering out big projects in pieces and retaining that integration risk with the public sector.
Fifth, we always hold back a significant amount of money until the project is complete. There is nothing that protects the public sector better in a dispute, or gives the public sector better leverage in negotiations, than having withheld some amount of money. However, it's important not to hold back too much money. This can result in financing costs that aren't warranted. Some amount of private finance, some of the time, makes sense. Getting the amount right is key. Too little is risky, too much is expensive.
Finally, we often hold some amount of the construction costs even after the asset has been built and pay funds out through the life of the asset. This gives us a tool to ensure that the asset is well-built. If it doesn't perform as promised, we don't pay.
Many of these ideas are described in the discussion paper that IO prepared in cooperation with the Office of the Auditor General of Ontario. I'm pleased to provide a copy of that paper to this committee.
Over the last 10 years, these practices have served us well. A review of our track record conducted as of March 2015 confirmed that 98 per cent of our completed projects were delivered on or below budget. As well, 73 per cent of those projects were delivered on time or within a month of their scheduled completion. We're always looking to improve. I'd like to highlight a number of the things we've done recently.
We are working to raise the bar when it comes to health and safety. There are a number of changes we made in that regard recently. We're always looking to minimize community disruption when it comes to large construction projects, so we've recently introduced a system that weighs competing bids in terms of their effect on traffic, and also charges builders for unplanned traffic disruption. We require all contractors to have an accounting firm certify they have internal processes in place that ensure ethical bidding practices. We've reduced the amount of private financing on all of our transactions to ensure that we're not incurring any more private financing costs than are warranted, given the risks, and we track the performance of contractors now and take that into account when we select partners in the future.
Looking forward, we expect to continue to be one of the most active and consistent infrastructure markets. Every year we release a market update so potential bidders can plan to participate in our program. This year's update will include our most work ever. We have a number of light rail transit markets in the project already and the regional express rail program in the GTA has just launched. The next decade will be an exciting time for us, and we're committed to delivering projects successfully.
I'd be happy to take any questions. Thank you.
The Chair: Thank you, Mr. Clark. Let's start with Senator Marshall followed by Senator Eaton.
Senator Marshall: Could you just clarify, do all of the government projects go through Infrastructure Ontario?
Mr. Clark: No.
Senator Marshall: Only certain projects? Which projects go through your organization and which ones don't?
Mr. Clark: Generally, projects with a construction value in excess of $100 million we deliver on behalf of the province. Those are the large, complex ones that warrant having an organization like us deliver them. That would be one group of projects.
I didn't get into the fact that we also manage the real estate portfolio for the Province of Ontario, which is second only to the federal portfolio in terms of size, about 45 million square feet. Every year in that portfolio we undertake about 1,800 small projects. So we really do all the small projects on the real estate portfolio and then the really big projects the province undertakes.
Senator Marshall: Who selects the really big projects you undertake? Are they selected by the government?
Mr. Clark: Yes.
Senator Marshall: So you don't decide that. You're just told to undertake certain projects?
Mr. Clark: Yes. We play no role in project selection when it comes to the big projects. We view that as a policy decision which is made by the Ministry of Health or Transportation. Treasury Board decides what it is they want to build. We are assigned the project with a budget, and then our obligation is to deliver it on budget.
Senator Marshall: Okay, so Treasury Board will give you the project to undertake. Who finances the project?
Mr. Clark: It's actually a mix. We were created because there were two big hospital projects in Ontario, one in Sudbury and one in Thunder Bay, which went massively over-budget. The province had a long list of projects that needed to be completed and could not keep having each project go this way. They needed someone to do things differently.
We were created and given the mandate I just described. In some of our earliest projects, the structure of our transactions was asking the private sector to put up all the money to build the project and come back to us when you've built the project. We don't want to be engaged with you during the construction project. If it goes over-budget, that's your problem. You source the financing wherever you need to and come back to us when it's done, and then we will start to pay you. We'll pay you every month for the 30 years following construction.
Senator Marshall: So you lease it?
Mr. Clark: Essentially. It wasn't a lease structure, but it looks a lot like that.
Senator Marshall: Okay.
Mr. Clark: The lease payments are contingent on performance. We said the building always has to be available. It has to be well-maintained. There is a regime of deductions imposed if pipes are leaking or the temperature isn't what it ought to be. It would be privately financed with small pension money in Canada. Canadian banks and Canadian life insurance put up the money. That was the model 10 years ago.
Senator Marshall: Would you have known back then what your leasing costs would have been? The government would know, would they?
Mr. Clark: Going into it?
Senator Marshall: Yes.
Mr. Clark: That's what we bid out. We said whoever can deliver this product for the least price wins. That's essentially what they're bidding was that price.
Senator Marshall: That was the way you were doing things. What about now?
Mr. Clark: In the last 10 years, we questioned the need to have 100 per cent of the construction costs financed for 30 years to get the risk transfer that we're looking for. What happens if we put in 50 cents of every dollar during construction so that they don't have to go out and raise that money? Those financing charges are not lease payments, but a monthly payment forever. Do you actually need 100 per cent of the construction value financed for 30 years in order to hold them accountable?
We started to reduce that amount and put in 25 cents of every dollar, and then we went to 40 cents. Now for some assets we're as high as 85 cents of every dollar we put in and the private sector finances 15 per cent of it for us. That's enough to get the risk transfer.
Senator Marshall: So for your part of the debt, who pays? Is it the government?
Mr. Clark: Yes. Ultimately, when the Ministry of Health or the Ministry of Transportation make a payment, they're making it from general government sources, and to the extent that they need to borrow to fund the deficit, they're borrowing from the centralized borrowing. They borrow at the lowest rate. That was part of the argument. We said, well, we can borrow for less than what the private sector charges us, so let's make sure we're only borrowing where we need that private capital to give us leverage and to truly transfer risk. If you don't need to have that much private debt, then don't have that much private debt.
Senator Marshall: The committee has been talking to different witnesses about an infrastructure bank. Do you see any trend that the Ontario government is moving more towards Infrastructure Ontario, or has it been more stable over the last number of years? Does it seem like they like what you're doing, they're giving you more, or is it just more constant?
Mr. Clark: I'm trying to think of a large public project that the Province of Ontario has undertaken where they haven't used us, and I can't think of any.
The truth is our track record is really good, and it's good because we hired specialists to do this.
You mentioned an infrastructure bank. I didn't talk about real estate, which is one of our mandates. I also didn't talk about lending. We actually are an infrastructure bank, and I borrow from the Province of Ontario and I lend to municipalities. The logic for that is if municipalities want to put $2 million into their water system and they're a small town, they don't have ready access to 30-year, long-term, affordable financing, but they're very high quality credits. In fact, in Ontario, I don't think there's a municipality that ever went bankrupt. There are examples in the U.S., but none has gone bankrupt in Canada. Yet it's hard for them to secure long-term, affordable financing, given the amounts they are borrowing.
If you're borrowing $100 million, there's a very efficient capital market in Canada that they can access, and so we said that doesn't make any sense because it was preventing them, frankly, from doing the work. They would say, "I can't access the funds," and then they'd ask a senior level of government to give them the money. The Government of Ontario eventually said, "Wow, you've got the balance sheet to borrow this. Why am I giving you the money?" "Well, I can't borrow it." So we now lend them the money, and we lend it to them essentially at our costs. We don't try to earn any profit. We cover the cost of that lending activity, and we have done about $6 billion in loans, and that finances everything from fire engines in a small town to hundreds of millions of dollars of affordable housing in Ottawa and Toronto where there are big renovation needs. So we're an infrastructure bank. I certainly support the concept.
Senator Marshall: And you have had good experience. Thank you. That was informative.
Senator Eaton: Mr. Clark, the federal government has said that it will spend a lot of money on infrastructure in the next couple of years to stimulate growth. Will that affect you in any way? In other words, if they have federal- provincial partnerships, for instance, for a building, more social housing or repairing social housing or building a subway, do you come into that at all? Does it go through the Ontario government to you or will it go directly to you? How do you think that will work?
Mr. Clark: Generally, Infrastructure Ontario isn't involved in the negotiations about the funding of a project. But there are examples of projects that have been funded by the Government of Ontario, the federal government and a municipality — transit projects in Ontario. That gets sorted out before they come to us. Once that funding is in place, then we would deliver the project for them.
Senator Eaton: So you're not a clearinghouse.
Mr. Clark: I wait for the people to decide what they want built, fund it, and then they say, "Get it done on time and on budget."
Senator Eaton: You were talking about their real estate. Do you manage their social housing?
Mr. Clark: No. The social housing in Ontario is municipal, for example, Toronto Community Housing Corporation.
Senator Eaton: You would have nothing to do with that?
Mr. Clark: No, but I do lend to Toronto Community Housing, but I don't manage that real estate.
Senator Eaton: You said good project delivery requires public sector employees with specialized skills in large complex delivery.
If you were going to talk to another province on how to set up something similar, what kind of things would you tell them to look for in the people they're going to have around the table?
Mr. Clark: You want to find people who look just like the people on the other side of the table.
Senator Eaton: So for instance in your case, what kind of people do you have? Chartered accountants? Engineers?
Mr. Clark: Exactly. We have engineers, project managers, architects, specialist legal folks, specialists in finance, experts in procurement. We have a big organization of people.
Senator Eaton: How many people work for you?
Mr. Clark: We have 500, but that is in all of those business lines. There are probably 150 devoted to delivering big projects. We have a real estate division, a lending division and then, obviously, the HR department and whatnot.
Senator Eaton: Thank you.
The Chair: Could you give us an org chart if we asked for it so we could understand how your organization works?
Mr. Clark: Yes.
The Chair: Would that be possible?
Mr. Clark: Yes.
Senator Ataullahjan: I am looking through your presentation. You said that you've provided loans to nearly 400 borrowers in support of projects. Typically, what kind of projects would those be that you would lend money to?
Mr. Clark: Municipal-type projects, which could be, as I say, social housing, fire engines, a hockey rink, general government office space, water-sewer — any of their capital requirements. It is the full range of municipal infrastructure responsibilities, any of those. We don't second guess what they're using it for, as long as it's being used for infrastructure. We wouldn't want to fund someone's operating deficit, but if they come forward and say, "I'm building a hockey rink," we don't ask them why they need a hockey rink.
Senator Ataullahjan: When you're saying 400 borrowers, it's mostly municipal?
Mr. Clark: Mostly, yes. About 75 to 80 per cent of our borrowers are municipal.
We have a list of eligible borrowers that's broader than that, and that would include not-for-profit housing and things like that, but the vast majority of our lending is to municipalities.
Senator Ataullahjan: Thank you.
Senator Andreychuk: As I understand it, you don't make any of the political decisions as to what will be funded, even though you get the money to then operate.
Mr. Clark: Yes.
Senator Andreychuk: Are you working on infrastructures, then, that are new projects, building new buildings? Or are you replacing infrastructures? It's hard to get a handle on what infrastructure is going on. Is it building a new community centre, hockey rink, or is it replacing a sewer? Is it replacing a courthouse or a jail, et cetera?
Mr. Clark: We build a tremendous amount of new stuff.
Senator Andreychuk: But was it replacing old stuff?
Mr. Clark: Sometimes it's the old hospital in North Bay being replaced by the new hospital in North Bay. Sometimes it's brand new. There was no Eglinton LRT. We are building an Eglinton LRT. We are extending the 407 over to Pickering. That's brand new.
There are some big renovation projects. St. Michael's Hospital would be a mix of renovation and new. Then we are responsible for, as I mentioned earlier on, the real estate portfolio for the province, which is 45 million square feet of space. There we are constantly renovating existing, but we've built an awful lot of new, particularly in the health care space.
Ten years ago, the average age of a hospital in Ontario was about 42 years. St. Michael's is much older than that. Health care has changed a lot in those 42 years; it would be 50 now. You couldn't practice modern medicine. The gurneys didn't fit through some of the hallways, so we've built a bunch of brand new hospitals in the GTA area, for example, Bridgepoint, Humber and Halton hospitals. They are, frankly, the sorts of places you would be much more comfortable having a loved one go to than some of the things 10 years ago that we were trying to work with.
Senator Andreychuk: The questions that concern me really aren't in your area. If you're going to have a new venture, are operating costs built into it? We often get into infrastructure and then we don't have the maintenance and the operating capacity. Then the life of the building is something that we should be planning for.
How do you feed information about the length and the worthiness of the projects, since you're not making the political decisions?
Mr. Clark: No, I definitely don't make the political decisions.
You're absolutely right that one of the challenges has been, historically, that it's very easy to cheat on the capital budget year in year out and to not paint something, to not oil something. It's an absolute fact that that is a more expensive way to own real estate or assets than to maintain it properly.
Different people have factors. You know, maintenance deferred — what is one maintenance dollar deferred? Is it $1, $2, $3 or $4? Everyone knows that it's multiples you end up spending rather than oiling when you replace something, so that was actually one of the things in our earliest days that we were really concerned about, which is why for many of our projects the responsibility of the private sector is to design it, build it and maintain it. So when they build it, they build it knowing they're going to need to make sure that it operates well for 30 years, and if it doesn't, they're not paid. They approach it with that mindset. It creates an incentive for good asset management.
There's also an incredible amount of innovation that goes on when someone thinks of an asset not as a construction project but as something that has to be maintained for 30 years. They start making the right tradeoffs in terms of materials.
To use a simple example, it may be more expensive to install tile than to install linoleum; however, you may never have to replace that tile but you may have to replace the linoleum five times during the life of the asset, and when you add it up, it's more than the terrazzo. They make that right choice.
So a big part of what we do is by having them take what we call "whole life responsibility," it drives that sort of thinking.
Senator Tkachuk: I have two short questions. You said you had about 500 employees; is that correct?
Mr. Clark: Yes.
Senator Tkachuk: How many people are there in your human resources department?
Mr. Clark: Don't hold me to a number.
Senator Tkachuk: Just give me a range.
Mr. Clark: Fifteen to 20, that sort of range.
Senator Tkachuk: That was helpful. Thanks.
Senator Cools: You said you are a bank?
Mr. Clark: We are a bank.
Senator Cools: Does that mean you are a chartered bank?
Mr. Clark: No, we are a bank in the sense that we are a lender.
Senator Cools: But you're not a bank in the legalistic sense?
Mr. Clark: No.
Senator Cools: I was very curious about that, because Canada has probably the best controls in the world in respect of creating banks. Canada was always very powerful in granting those charters to become banks, I understand. You do lending and so on, but I wanted to figure out how you could formally have a banking structure.
Mr. Clark: No, we're not a chartered bank.
The Chair: How long have you been with the infrastructure operation? What model did you use to set it up, or was it set up when you got there? We're just trying to understand. How were you formed?
Mr. Clark: I was employee number one in 2005. Then I worked at IO for about two and a half years. I left, and then I was an investment banker. I actually financed infrastructure in North America, and then I came back four and a half years ago as CEO.
So I was there day one setting it up. It's doable, having done it. It's totally doable. Like any start-up, you have 18 months where you're flying a bit by the seat of your pants, but I think the important thing we did from the outset was to have a separate board, a distinct entity with a staff that report to a depoliticized board. We don't do policy. We don't do politics. We just get projects built.
Once that process is done, you have to frankly hire people from the private sector, which means the pay structure probably looks somewhat different than the civil service proper. But if you don't have that, you won't be able to recruit people who can actually negotiate day in and day out with the private sector.
The Chair: Did you have a model that you used from some other place to build this?
Mr. Clark: Variations of us do exist in British Columbia. British Columbia has something called Partnerships BC. The original infrastructure delivery agency was an organization called Partnerships UK. Australia has some version of it.
I think what's unique about us is the fact that we manage the real estate portfolio, lend, and manage large projects. I'd say in the last 10 years there wouldn't be any jurisdiction — there may be a city in China that's building more than us, but no one in North America has been building more public infrastructure than Ontario. We have made a major dent in the health capital sector, and what's being planned now in transit is truly unique.
The Chair: Do you have a relationship with Partnership BC at all?
Mr. Clark: Yes.
The Chair: So you share information, cross-pollination, that sort of thing?
Mr. Clark: Yes. We meet regularly and try and share best practices.
The Chair: Are there any other provinces that have come to you to glean your expertise?
Mr. Clark: Yes. Saskatchewan set up a smaller version of us two or three years ago and has now actually successfully delivered a number of projects. So there is B.C., Saskatchewan and us.
The federal government had something called PPP Canada, but it was a lot lighter version, let's say, than us. It was more of a granting organization than a project delivery organization.
We've had something like 60 jurisdictions, frankly, come and visit us and ask, "How do you do what you do?" I've been to the World Bank and the Inter-American Development Bank to help them think about projects. So, yes, we imitated people and there are imitators of us.
The Chair: Colleagues, any other questions?
Senator Marshall: Do you make money or lose money?
Mr. Clark: I aim to do neither. Honestly. In our budgeting process every year, I want it to be —
Senator Marshall: You would prefer it to break even?
Mr. Clark: Yes, to be as close to —
Senator Marshall: So is that where you are, at a break even?
Mr. Clark: Pretty darn close, yes, within millions. At the end of the day, if I'm overcharging other public sector clients, it's a circular flow of money, so I just aim to be about —
Senator Marshall: You said you break even on the municipal ones?
Mr. Clark: Yes. We make a slight profit there. We do provision somewhat because there are the odd loans that don't work out, so the profit serves as a provision for the pool. Then on the major projects side and the real estate side, I just aim to run flat.
The Chair: Has there been any talk among the people you know, like Partnership BC and Saskatchewan, that they have to create sort of a Canadian model that you could do for transformative national projects?
For instance, we have the southern corridor that now exists through our transportation network, which is the superstructure of getting the goods throughout our country down into United States export markets. You've heard of the idea of new corridors. Is there any thought or discussion where you could put yourselves together with two or three other groups in the country to form a national organization to take care of transformative national projects? Have you ever had that sort of thing?
Mr. Clark: No. We're generally working on very Ontario-specific stuff. Anything that crosses jurisdictional borders gets done by the federal government. The federal government is doing the Detroit River International Crossing Project. I guess Champlain doesn't cross boundaries but it does cross a river. The federal government would do that kind of thing.
The Chair: Where do you see your organization going forward? You're a builder, obviously. You're an aggressive individual with a lot of skill. Where is this going? How far can you take it?
Mr. Clark: The next 10 years for us are going to be phenomenal. There is a consensus around infrastructure. There is no one saying, "I think we've got enough" or "I think our infrastructure is just fine." So when you're running an infrastructure agency that builds infrastructure, that's a wonderful thing. We know there are investments coming.
I think in typical Canadian fashion, we've tended to beat ourselves up more than we should. The truth is, we are getting on with infrastructure. We've done great things in terms of hospitals, and there are very ambitious things being planned on the transit and transportation side. There's light rail being built in Ottawa right now, and in Waterloo; the Eglinton LRT is being built as we speak and the air-rail link in Toronto has been done, in Toronto, and you can travel back and forth; LRT is coming on Finch Avenue and Hurontario in Mississauga and Hamilton.
There is no U.S. jurisdiction that would be able to rhyme off that kind of activity, so I don't have any concerns about keeping my people busy on the infrastructure side. I think we still need to do some work on the real estate side. I think, like every public organization that has an old portfolio or an old asset, there have been periods of severe underinvestment that have left the asset challenged in some ways, and so my job is to figure out how do I get that modernized.
The Chair: Senator Ataullahjan has a question, and then we have to wrap it up. Our witness has to get on the road because his wife is expecting.
Senator Ataullahjan: Are any kinds of studies done on how feasible some of the projects that you fund would be, and whether they are going to be used? I'm thinking of the link to the airport.
Mr. Clark: Right.
Senator Ataullahjan: You had to put the price down 50 per cent, and I don't know whether ridership has increased or if it's being used more.
Mr. Clark: Again, we don't make the decision as to whether a new hospital is needed, what ought to happen in it or whether there ought to be 13 emergency rooms or five. If we're building a new road, the Ministry of Transportation would decide whether or not that road is needed, and the same would be true of public transit. We don't ever question our shareholder or client. It's their role to make that decision, and our role is to deliver it well.
Senator Ataullahjan: Thank you.
The Chair: Are there any words of wisdom that you would like to share with us before you head out?
Mr. Clark: I think we actually ought to be very proud of what's going on in infrastructure. If you thought of the biggest infrastructure markets in the world, you would say our Canadian pensions are amongst the most active and sophisticated in the world when it comes to infrastructure investing. Our life insurance companies are investing in infrastructure here, and there are not many jurisdictions that have long-term debt infrastructure like we do.
Small pension funds are big investors in our program. Our contractors and engineering firms are actually going global and have leading expertise. I think we should actually feel really good about where we're at in terms of infrastructure.
There is still more to be done. The next 10 years are going to be very active, but we should feel good about it.
The Chair: Do you have any knowledge of the federal infrastructure programs and how they are administered? From an observation perspective, is there any recommendation that you would want to give to the federal government to improve their delivery system?
Mr. Clark: I think the federal government could benefit from an Infrastructure Ontario-like organization. Right now, infrastructure projects in the federal government tend to be delivered by Public Works, the department responsible for borders or the military and military housing, so it's quite a fractured approach. I think consolidating that and having one agency responsible for delivering projects using modern and best practices is something that's worked very well for us, and worth considering.
The Chair: Mr. Clark, thank you very much. We appreciate your time and we wish you the best with the newborn on the way.
Mr. Clark: Thank you very much.
[Translation]
The Chair: We will now hear from the officials from two independent oversight agencies.
First, we will hear from Jean-Denis Fréchette, Parliamentary Budget Officer. Mr. Fréchette, welcome.
[English]
He is accompanied by members of his team, Mostafa Askari, Assistant Parliamentary Budget Officer, and Peter Weltman, Senior Director, Costing and Program Analysis.
Mr. Fréchette has been involved to discuss the work his office has done with respect to monitoring the flow of infrastructure spending, as well as estimating the economic benefits of infrastructure spending.
We also have before us, from the Office of the Auditor General of Canada, Julie Gelfand, Commissioner of the Environment and Sustainable Development. She is accompanied by Kim Leach, Principal.
We are particularly interested in the commissioner's report of spring 2016, entitled Federal Support for Sustainable Municipal Infrastructure.
[Translation]
The title of the report in French is Le soutien fédéral à l'appui de l'infrastructure municipale durable.
[English]
I understand both organizations have an opening statement. Let's start with you, Ms. Gelfand, and then Mr. Fréchette will follow.
[Translation]
Julie Gelfand, Commissioner of the Environment and Sustainable Development, Office of the Auditor General of Canada: Mr. Chair, I am pleased to be here today to discuss our 2016 spring report on federal support for sustainable municipal infrastructure. The report was tabled in the House of Commons on May 31, 2016. I am accompanied by Kimberley Leach, who led the audit. If you have more technical questions, she will answer them.
[English]
When planning infrastructure today, it's critical to think beyond the here and now to consider what the country will look like in 2040, in 2050 and beyond. From our perspective, Canada must build resilient buildings, roads, bridges, water and sewage facilities, and transportation networks so that we can move around, work, keep the economy going and live in vibrant and healthy communities, and this infrastructure must be built to meet the needs of future generations.
When resilience is built into the infrastructure, it is also built into communities because they are then in much better shape and much better equipped to recover more quickly when disasters or severe weather strike.
Our audit looked at federal infrastructure programs intended to support the sustainability of Canadian communities. In fact, we looked at one fund in particular that had as its express objective to clean our water, have cleaner air and reduce greenhouse gas emissions. That's why the Commissioner of the Environment and Sustainable Development was interested in this topic, because the Gas Tax Fund had those as its objectives. We assessed whether the objectives of the Gas Tax Fund and the Green Municipal Fund were being achieved. That was our goal. We also looked at whether Infrastructure Canada, working in collaboration with others, adequately coordinated the many different federal programs under its responsibility, including the New Building Canada Fund. In our audit, you'll actually see a chart that has all of these different funds that a municipality could apply for. I'm thinking of a small municipality, wondering, "How do they swim through this labyrinth, this swimming pool of all these different funds? How do they figure it out?"
So we, again, looked at programs that funded municipal infrastructure and that were intended, among other things, to improve the environmental performance and sustainability of Canadian communities.
[Translation]
The audit did not include the infrastructure funding announced in Budget 2016; however, I believe our findings and recommendations can inform the design and delivery of the new programs under phase two of the new government's infrastructure plan. Overall, our audit found that after a decade of federal funding programs costing billions of dollars, it is unclear to what extent these programs have produced the environmental benefits they were supposed to bring.
We also found that Infrastructure Canada was missing some critical information and tools to support strategic and coordinated funding decisions addressing the long-term infrastructure challenges of municipalities. For example, Infrastructure Canada did not have sufficient information available to it on the state of infrastructure, funding needs, and sustainability challenges. Inadequate information limits the ability of the federal government to design its programs to meet the current and future needs of communities.
We recommended that the department work with Statistics Canada to build a source of standardized, reliable, and regularly updated information on the inventory and condition of core public infrastructure.
[English]
We found that, when it comes to considering infrastructure projects for funding, Infrastructure Canada had not adequately identified or managed environmental risks and that is obviously a concern to me.
The department expected proposals for major projects to include information on environmental risks, but it didn't use this information to analyze the risks of climate change, for example. When environmental risks are not considered, projects may not be designed to minimize environmental effects or to withstand the impacts of future weather events. At the same time that we tabled this report, we tabled another report on severe weather events and whether or not Canada is ready for them. This means that municipalities, in the future, could be left facing significant unexpected costs.
We found that Infrastructure Canada did not have final indicators, targets or timelines to measure environmental performance and report on project or program results.
In particular, the department did not assess to what extent money spent on projects under the Gas Tax Fund had produced, as was intended, cleaner air, cleaner water and reduced greenhouse gas emissions. So that was one of the key objectives of that fund, and, in the end, they couldn't tell us whether or not there was cleaner air or cleaner water or whether our GHG emissions had been reduced as a result of all of their spending.
By contrast, the much smaller Green Municipal Fund, which is managed by the Federation of Canadian Municipalities, did track and report the environmental benefits of the projects it funded. So it is possible to do it.
[Translation]
In addition, the federal funding programs we examined did not actively encourage the use of innovative approaches to mitigate environmental risks. Innovation is critical to addressing the future needs of Canadian municipalities, especially given the pressure on available financial resources and emerging risks such as climate change severe weather.
Infrastructure Canada informed us at the time of the audit that it had not been given a mandate to encourage innovative infrastructure projects through its project selection. This means that there is a risk that greener innovative approaches may not replace older technologies. In light of our findings, our final recommendation included that Infrastructure Canada, in collaboration with its federal, provincial, territorial, and municipal partners, should provide a long-term vision outlining federal infrastructure priorities.
With a long-term federal vision, Canadians would know what results to expect from the billions of dollars spent on infrastructure through federal programs and how well federal infrastructure programs are working to make communities more sustainable for future generations.
[English]
Infrastructure Canada agreed with this and the other recommendations in the report. Budget 2016 also reflects the government's commitment to act on elements of the recommendations. I would like to let you know that, following my appearance before the House of Commons' Standing Committee on Environment and Sustainable Development, on June 2, 2016, Infrastructure Canada officials were asked to return to the committee in one year to report on progress against the recommendations.
The federal government is committed to making significant future investments in infrastructure and to developing a long-term infrastructure plan based on engagement with partners and stakeholders.
It is important for the government to set objectives for these funds and then for the government to be able to measure whether those objectives are being met. It's also critically important that the infrastructure being built is resilient to climate change and will meet the needs of future generations.
Mr. Chair, this concludes my opening statement, and we'd be pleased to answer your questions.
The Chair: Thank you, Ms. Gelfand.
[Translation]
The Chair: Mr. Fréchette, it's your turn.
Jean-Denis Fréchette, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Mr. Chair, Madam Deputy Chair and honourable senators, thank you for inviting us to appear before your committee to discuss the federal government's infrastructure funding program.
This meeting is a continuation of our meeting of June 8, when we briefly talked about the support that the Office of the Parliamentary Budget Officer could provide to your committee in its study on infrastructure. We have already taken steps to that end, and we would like to share them with you.
[English]
Without further ado and with your authorization, Mr. Chair, I would like to ask my colleague Peter Weltman to provide the honourable members with an overview of where we are at in our work. After this short PowerPoint, Assistant PBO Mustafa Askari and I would be happy to answer your questions.
Peter Weltman, Senior Director, Costing and Program Analysis, Office of the Parliamentary Budget Officer: This is a very quick presentation, and it's simply designed to show what we have done in the past on a similar sort of file and what we're doing right now.
Again, as a reminder, this is the mandate of things that we provide to Parliament. We provide, in this case, cost proposals and for this particular project we're going to look at tracking the infrastructure spending.
Again, referring to a past project, we looked at something that was called the Infrastructure Stimulus Fund that was part of the Budget 2009 stimulus package, and we looked at how the money was flowing because the definition of "stimulus" is to get money into the economy quickly, and that was what we were measuring. The idea was to try to answer the question, if Parliament is asked to approve something similar, how long it takes for the impact to actually start happening.
This is sort of a flavour as to what we have done. We did a regular quarterly update, but this gives you a sense as to what we were able to do when we get regular data. In this particular program, we were trying to project how the project delays would impact on the program itself and what sort of lapse might occur at the end of the program. I just want to walk you through this quickly.
When projects basically applied for money, and if you take all of the 4,000 projects that were in the program and you look at their start and end dates and how much money was going to be spent, you can see that curve, that cumulative spend curve starts at zero on April 1 and ends at around $10 billion. So that was a $4 billion federal program with provincial and municipal matching.
They provided us with four quarterly updates. They provided it to Infrastructure Canada, so we did the same sort of mapping. You can see after three months that purple curve starts to drop a little bit below the green curve. We're seeing some delays starting to occur on the projects, more delays, as we see with that orange curve after six months into the program. After nine months into the program, we see the bulge getting a little deeper, and then of course that red line at the bottom, after a year in, is roughly what we're looking at.
It's interesting, too, how everything seems to end up right at the very end as having all the money been spent, whereas in reality we were starting to see slippage on a lot of projects fairly early on.
What we did is we took this information and projected forward to see how many projects might or might not get done in the future, and this is what we came up with. We did a range.
Again, this is to give you a sense as to what we've been able to do in the past. This is the sort of thing that we will also undertake on infrastructure spending in Budget 2016, as well as any other information or analysis the committee would like us to perform.
A couple lessons that we learned. The data is limited, and I think Ms. Gelfand referred to it too. It's all self-reported data. So there's no auditing how those project managers are completing the forms. A good example is one of the fields that we used to measure slippage was defined very differently by the department, and they didn't agree with our definition.
What we're doing currently is we've developed a project-tracking database already for every dollar that's been labelled in Budget 2016 as infrastructure money, whether it be social housing or public transit. Every dollar that has been announced as infrastructure money, we've developed a spreadsheet to start to identify which projects those dollars are funding.
We've requested detailed information from 28 departments. We have 19 responses so far. There are roughly 2,200 projects in the database at the moment. So we are going to undertake this sort of analysis once we have that spreadsheet complete and are able to give people a picture as to what encompasses the money that's been announced.
One consideration — and I think Ms. Gelfand referred to it — is under transfer payment programs, which most of the money gets disbursed as, there are very limited reporting requirements. They are limited to effectively ensuring that there are invoices before contributions are made. As long as the project meets the criteria, it's good to go. To be able to undertake a lot more additional analysis on whether the projects are hitting objectives, or whatever the case is, the data at the moment is not there for that. But it could be in the future.
This is an example of another tool we use. We are comparing how we were reporting on stimulus versus how the Americans were reporting on stimulus, so we could do comparables with other countries to try to assess or analyze the nature of the infrastructure programs.
That's all. Thank you.
The Chair: Can you go back to that last slide, if you wouldn't mind.
Mr. Weltman: This one?
The Chair: When I was running Ogilvie Flour Mills, I used to see reports like that from our finance people. I would get nervous because I always used to say that the smaller the numbers, the harder to see means that there's something wrong. So as you compare the U.S. to Canada, what does this graph or picture tell us?
Mr. Weltman: This is simply telling us that there was a whole lot more reporting going on in the U.S. on its stimulus program than in Canada. That's effectively what it's doing.
The Chair: What does that mean? There is more going on in the U.S.? What does that lead us to? Tie that into what Ms. Gelfand was talking about in her report, because I think there's a connection here, which is very interesting.
Mr. Weltman: It does state that if you undertake the effort and the expense — and this was an expensive proposition in the U.S. — it is possible to provide very comprehensive information on government spending, whether it is for stimulus or whether it is specifically for infrastructure. They had it down to the contractors on the projects, the executives who were in charge of the company running the projects, whether any of them had been in trouble with the federal government before, location data, regular project updates. They were actually asking people in their areas to just drive by and have a look and see if, in fact, what was listed on the website was matching what was on the ground.
The Chair: Let's put it in perspective, because the PBO's mandate is to analyze information. So we have to be fair with the PBO and respectful of what their mandate is when we ask the questions.
We have Ms. Gelfand here from the Auditor General who may have more leeway in terms of having an opinion on what's good and what's not as good. Am I getting this right? So that we keep everybody in perspective, and we have balanced questions for both of these groups, and we get the maximum amount of information from them.
So let's get into questions.
Senator Cools: I don't think it's on the board right now, but the page headed "Considerations - instrument choice." Your third bullet says, "In addition, only Cabinet sets the Terms and Conditions of all transfer payment programs."
Pray tell, who else should set those terms, other than cabinet?
Mr. Weltman: Kind of the conclusion —
Senator Cools: That's what cabinet is about.
Mr. Weltman: That's right.
Senator Cools: That's how those decisions are made, and the Minister of Finance is in there as well, and then the Treasury Board people divvy it up and so on. But that's how government runs.
Mr. Weltman: One of the suggestions that we found — and I guess this is also to the point — is that we can only analyze what we have, and if Parliament needs more specific information or wants to have different types of reporting than what is stipulated in Treasury Board rules, then there needs to be an action on behalf of Parliament to do that; it won't be automatic.
Senator Cools: So you act on behalf of Parliament to secure this information, and by what authority?
The Chair: These people do analytical work.
Senator Cools: I'm aware of that, but this is not a piece of analysis here; this is a judgment call.
Mr. Weltman: No. Actually, it comes right out of the Treasury Board transfer payments policy.
Senator Cools: I agree, but that is what cabinet does. They decide how money is spent, and there's a whole bunch of it, especially in that field.
Mostafa Askari, Assistant Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: If I can clarify, I don't think the purpose of that paragraph was to suggest that there should be an alternative. That was just a piece of information. That's the way the system works with Treasury Board policy and the cabinet. Cabinet makes the decision. That was it; there was no implication that there should be an alternative way of doing this.
Senator Cools: Okay.
Mr. Weltman: There's no judgment.
Senator Cools: I thought you were saying that those decisions should go elsewhere. I'm very pleased they are where they are.
Senator Tkachuk: This is to Ms. Gelfand. Did you address the question of why the federal government is funding a water project treatment plant in, say, Watrous, Saskatchewan? Did you address that issue?
Ms. Gelfand: The very specific one?
Senator Tkachuk: No, not that specific one, but you were talking about all the municipalities. What are all the municipalities doing accessing every federal government department? Shouldn't they be building their own water treatment plants? I mean, they have property tax. Why are we funding all that stuff?
Ms. Gelfand: I think that's a policy decision that the Government of Canada has made.
Senator Tkachuk: Exactly.
Ms. Gelfand: In the case of water treatment, they've made a regulation that municipalities will actually have to follow, and many municipalities will not be able to meet those effluent regulations that the government has put on the municipalities.
But the Government of Canada decides; it's their decision what is accessible and what isn't. I was telling you about this chart. There are all these different funds along here, and there are all these different opportunities for funding things like community services, drinking water, energy, highways, intelligent transportation systems, airports, bridges, carbon transmission and storage, brownfield remediation. The Government of Canada has said these are all eligible.
Senator Tkachuk: I understand that.
Ms. Gelfand: And we checked —
Senator Tkachuk: You're an auditor, right? You're auditing that.
Ms. Gelfand: Yes.
Senator Tkachuk: Do you make any assumption that this is a good way to do it or there might be another way to do it, which is what auditors do?
Ms. Gelfand: Right. We looked at whether or not they were achieving its objectives, whether there was any reporting on the spending that was happening, whether the objectives were smart, specific, measurable. We looked at the management process, if you may, of how the money was being spent and how the reporting was coming back to the Government of Canada.
Senator Pratte: We're here to try to see whether we can learn from the past — you've studied the past — for the present infrastructure program.
[Translation]
It's a $120-billion program, and my understanding is that there are points in common with what you found, which means that, in both cases, you did not find enough information to determine whether the objectives of the programs had been achieved. In the case of the Commissioner of the Environment, there were environmental objectives related to the carbon tax plan, but there wasn't enough information to determine whether they have been achieved. In the case of the Parliamentary Budget Officer, in the report that you had prepared on the Infrastructure Stimulus Fund —
[English]
— I saw somewhere that there was not sufficient information to see whether the objectives on jobs and so on had been reached.
[Translation]
In the current program, I have seen nothing in everything that has been presented to us so far showing that we are in a better position. Are there things that the Government of Canada and Infrastructure Canada should do to be able to obtain all the necessary information to ensure that the $120 billion will be spent and that the environmental objectives will be achieved, since there are green funds that come with economic stimulus objectives? That's what's important. The program seeks to stimulate the economy, so to create jobs, to expand the middle class and to also achieve environmental objectives. That's a long question, but that's basically the heart of the matter.
Mr. Fréchette: To answer your question, that's what we do, Senator. That's the role assigned to us. That's along the lines of the agreement we reached in June during our discussions with the committee, based on which we in the Office of the Parliamentary Budget Officer would try to follow those expenditures. We want to achieve exactly what you saw in the graph with the coloured lines. Is the money going out? Will it be spent during the next two years or not? That's the type of report we want to make to the Finance Committee on a regular basis, perhaps every three months or so. That's our role.
In terms of creating jobs, our role is not really to estimate the number of jobs that have been created, because many others do so. We will look at the use of the funds and their release. For the other part of the answer, I will give the floor to my colleague.
Ms. Gelfand: I suggest that you look at the recommendations in our report, along with the department's answer, because we asked the department to develop performance measures that we could follow with the help of information. We asked the department to ensure that it receives the information it needs, to gather reliable data on the status of basic infrastructure, and we recommended that it work with Statistics Canada and that it manage the risks of climate change. We made specific recommendations, and Infrastructure Canada has answered.
As parliamentarians, you could follow up with the department to see whether it truly intends to implement our recommendations.
[English]
Senator Pratte: If I may say so, I think these are questions that we absolutely have to ask some of the people who were before us. Maybe we have to bring them back, but I think these are questions we have to ask. When they were before us, I don't think we had convincing answers to those questions. We know they will spend the money; that's for sure. Obviously, when you spend that amount of money, it will create some jobs. But whether they are in a position to really measure those impacts, I haven't been convinced of that.
The Chair: Or what are they measuring.
Senator Pratte: And what they are measuring, how they are measuring it, and whether we can have some indication after one, two and three years.
Ms. Gelfand: To be specific, their response says that Infrastructure Canada will work with signatories to develop an appropriate and effective performance measurement strategy to measure the outcomes. You could ask them what they're doing on that.
The Department will implement a more practical performance reporting strategy for the Fund —
This is for the Gas Tax Fund, but it should be applicable to any fund.
— and will move forward with the three specific and measurable outcomes . . .
They note this below.
The Department will work with signatories to collect the results of their next outcomes report in 2018 in order to demonstrate program outcomes. . . .
In fact, for the Gas Tax Fund, there was a draft report to Parliament that was prepared in 2008 or 2009. It was never released. So there's all this information that they're gathering. They're not releasing it to parliamentarians or to the public.
So you could follow up, look at what they've said they're going to do, and ask them where they are on that. That would be great.
Senator Pratte: Thank you.
Senator Eaton: Ms. Gelfand, in your speech you said, "Our audit looked at federal infrastructure programs intended to support the sustainability of Canadian communities."
We know the present government is going to spend even more than the past government did on First Nations. In your audit, are you allowed on First Nations communities to see that what is being built there is to code, is sustainable and will withstand environmental impacts?
Ms. Gelfand: We did not do that in this audit. We didn't go into that depth. As the Auditor General's office, yes, we are allowed and we often do many audits on the issue of First Nations. I believe there's a plan in our audit planning to look at the infrastructure spending, and I think we've even done some in the past.
Senator Eaton: Yes, because there's going to be a huge new influx of money going in, and I think it would be rather interesting to see.
The other thing you pointed out which was interesting was that Canada had not adequately identified or managed environmental risks. Are you talking about towns and sewage systems, not thinking about floods? Are you talking about earthquakes? Are you talking about the fact that cities like Toronto are not burying their power lines?
Ms. Gelfand: We were looking for when they were making selections of projects, when they were thinking about what they were going to fund, whatever tools or mechanisms they had, whether they were considering environmental risk.
They asked for information on environmental risks from the people submitting projects, but when they considered which project to go with, environmental risk was not part of the analysis. The analysis included things like whether it could be done. Was it shovel ready? Was all the financing in place? Those were all their elements, not whether it is sustainable, is this going to reduce our greenhouse gas emissions? Is it dealing with severe weather events? They got the information. They didn't use it in their analysis.
Senator Eaton: It is surprising, because you look at Quebec and the ice storm, how many years ago and how many people were without power and our electrical grids, how many people two Christmases ago in Toronto were without power for 10 days? It's extraordinary.
Mr. Fréchette, what do you think of Infrastructure Ontario as a model for other provinces or Canada itself to follow?
Mr. Fréchette: I cannot answer that question. We are not comparing infrastructure from one province to another.
Senator Eaton: No, but a way of building and managing infrastructure.
Mr. Askari: That's really a government management issue. We don't really get involved in those issues, no.
Senator Eaton: I just thought you might have thoughts.
Mr. Askari: I don't think you want our private thoughts.
Senator Eaton: We could learn something from your private thoughts, I'm sure.
The Chair: What is clear coming from Mr. Fréchette and his group is that when you look at lapses, time it took to get money out, if their measurement is time to get money out, how much money do you get out over a time frame and how much money lapsed? Those are indicators. Their job is not to make editorial comment on whether it's good or bad, but those are factors that can lead us to understanding some of the conclusions that the Auditor General has drafted in terms of measurements, formal feedback, timing. These things, directly or indirectly, fall together and give us a picture.
Because we haven't discussed today, and maybe, Ms. Gelfand, you can make a comment on this: There are 12 horizontal departments that handle infrastructure, because when we were dealing with Infrastructure Canada, Senator Eaton has a specific interest in the Aboriginal development, and when asking the question, "Do you control the money that goes out to all of these areas?" and the answer was no, that there are 12 departments that handle infrastructure on their own. That gives you an indication that there's a control issue in terms of the efficiency. If there are 12 departments, do they all follow the same mode of work and path? It goes back to some of the questions.
I want to make sure we're fair to both sides in terms of the questions we ask so we maximize the information we can get.
Ms. Gelfand: We did look at the issue of coordination. We looked at how Infrastructure Canada coordinates within the government and within its own, and then whether or not it talks to the other departments.
Kimberley Leach, Principal, Office of the Auditor General of Canada: We did make a recommendation to that effect. It's one of the last recommendations in our report, 1.100. It says that Infrastructure Canada, in collaboration with its federal, provincial and territorial municipal partners, should do a number of things. Number one is to clarify federal roles and responsibilities, which is one of the key elements of coordination. They also need to better address information needs, as we've already talked about. Data is certainly a problem.
They need to provide support to municipalities for adoption of good practices for asset management. I know the committee has talked about elements of asset management here as well. And to clarify the federal roles in promoting the use of innovative approaches, as well as to provide a long-term vision outlining federal infrastructure priorities that has clear objectives, performance measures and accountabilities.
That was our overall recommendation with respect to what Infrastructure Canada could do to better coordinate.
The Chair: When did they commit to get back to you?
Ms. Leach: They agreed with that recommendation. It's a very lengthy response, and there are a number of elements to it, but they have agreed to report on progress in 2018.
As Julie explained at the beginning of the meeting, when we took this to the Standing Committee on Environment and Sustainable Development of the House of Commons, they asked Infrastructure Canada to come back to that committee a year from that date, which was June 2016, to report on their progress.
The Chair: 2018 is two years away. Will any of us still be alive by 2018? Is that the way government works, to set up whether you're going to progress? You would think you might get some checkpoints that would be sooner than two and a half years out.
Ms. Leach: I should clarify that there were a number of parts to that recommendation. The 2018 commitment was they were going to report on progress on asset management, but there were other things within that recommendation that had an earlier timeline.
Senator Andreychuk: Ms. Gelfand, what you're saying is you haven't gotten what the government is going to do the environmental performance and reporting with. You know they were going to do it, but you don't know the mechanics. We're talking about transparency, aren't we? They have not released how they're going to do anything, so we don't know whether they have not done it or they're doing it but they're not disclosing it, and therefore you're not able to assess their performance vis-à-vis these guidelines and checks.
We have absolutely no idea whether the environmental performance indicators they're using are adequate according to international standards or otherwise; am I correct?
Ms. Gelfand: I think it's worse than that. I don't think they have the information to tell us whether things are better. Is the air or water cleaner? Have we reduced greenhouse gas emissions? They don't have the data to do a wrap-up.
They spent $13 billion in the Gas Tax Fund from 2005 to 2015. One of the stated objectives was cleaner air, cleaner water and to reduce greenhouse gas emissions. I don't think I would have gone into this file of infrastructure as the Commissioner of Environment and Sustainable Development unless I heard, "Oh, my God, really, they had these objectives that were all about sustainability. Okay. I want to go in and see what's happening there."
It's not a lack of transparency. They don't have the information. They didn't set up performance measurement systems so that they could gather the data, so they don't actually know.
From my perspective, it's not that they don't have it and they're not telling us. They don't have it. They don't know.
Senator Andreychuk: Did they tell you they don't know, or did you have to ferret that out and come to the conclusion? That's what I mean by "transparency."
Ms. Gelfand: No, they said that they didn't know.
Senator Andreychuk: Did they give you a reason?
Ms. Gelfand: They never landed on performance measurement systems. It's a small department. They're set up by order-in-council. They don't have a lot of people. Their job is to get the money out and their perspective is that the Gas Tax Fund was to provide stable money for the municipalities. The problem is that the Gas Tax Fund also had this other objective and so we were auditing this other objective and they could not respond to us about whether or not that objective had been achieved. And that's my job. My job is to find out if the government says we're going to send a woman to the moon, my job is not to say whether or not we should send a woman to the moon, but my job is to tell you how well we're doing on that.
The Government of Canada set out an objective: We're going to have cleaner air, cleaner water and reduce greenhouse gas emissions, so my job is to go in and ask how did we do and they can't answer it.
Senator Andreychuk: They had other objectives rather than the environmental —
Ms. Gelfand: No, that was one of the objectives.
Senator Andreychuk: You said it's one of.
Ms. Gelfand: One of two main objectives. At least that's what they tell us. They say —
Senator Andreychuk: You were not doing the other objective?
Ms. Gelfand: No.
Senator Andreychuk: Who would do that, the Auditor General?
Ms. Gelfand: Well, I might have been.
Senator Tkachuk: Did anybody get fired?
Ms. Gelfand: Nobody got fired.
Senator Tkachuk: Of course not.
Senator Andreychuk: But you don't know whether they met the other objective, they measured it, or are you telling us they didn't do either one?
Ms. Leach: The other objective was to provide long-term stable funding.
Ms. Gelfand: They kind of did that.
Senator Andreychuk: They did that.
Mr. Fréchette, is that the same that you are getting when you're trying to do some performance evaluations? Are you finding that it's not done, or are you finding that they're not sharing it?
Mr. Fréchette: We don't really do performance evaluation.
Senator Andreychuk: Not evaluation but information from —
Mr. Fréchette: Information? We had some situation where it was more difficult. As Peter said in his presentation, in this case we sent 28 letters to deputy heads, which is the normal procedure, and we so far received 19. So the deadline is coming soon and most of them asked for an extension, which is fine. We're patient. As long as we have the information and the data, we will be happy when we get that. The situation is improving, but it was difficult at one point.
Senator Cowan: I don't mean this as facetiously as it might sound, but if they didn't measure whether the expenditures produce cleaner air, cleaner water and reduce greenhouse gas emissions, what did they measure? Was it how much money they spent?
Ms. Leach: Yes, how much they spent on what kind of projects and how much money was spent on roads or sewers or different kinds of things. They could measure outputs from the money but not necessarily outcomes. They could tell you how many roads, sewers and bridges, but they couldn't tell you whether the air was cleaner or the water was cleaner or the greenhouse gases were reduced.
Senator Tkachuk: But that didn't mean that it wasn't. They just didn't measure it.
Ms. Gelfand: You are absolutely right. It's possible that all the stuff did happen but we don't know. It's possible but their job is to report back to you. It's $13 billion of taxpayers' funds that was supposed to achieve cleaner air, cleaner water and reduce greenhouse gas emissions.
Senator Cowan: We didn't know that it didn't?
Ms. Gelfand: We don't know that it didn't; we don't know either.
Senator Andreychuk: We're such a fine-tuned machine here in the Senate that Senator Cowan asked my next question. I was asking what else was measured, but we don't know either way. We're in the dark is what we're saying, as opposed to it's good or bad. That's why my question was: Do they have it and haven't shared it with us or have they not done it? One is bad, the other is a little worse, but we still don't know whether it's good, bad or not.
We've just had the Ontario, where clearly we can see who does the project to make sure the buildings are up, et cetera, but that person wasn't in charge in Ontario as to the outcomes on anything else but structures and contracts. We still don't know whether those courthouses are necessary. We were told those were political decisions.
The Chair: One of the questions that we did ask Infrastructure Canada was: Do you have technical expertise, i.e., do you have engineers? They don't. Basically they have bureaucrats that analyze the forms. We had the Infrastructure Ontario folks here today and they have professionals who are project managers that know exactly what's going on. So if we look at our existing situation and we have bureaucratic folks who do a good job analyzing forms and applications but don't have the technical expertise to understand what's going on, then it's extremely difficult to set up measurement objectives because you don't have the competence to measure what's been done.
The other point is that Mr. Fréchette's department has given us a really excellent report. One of the things we said we want to do is measure from 2006 to 2014-15, when the cut-off took place with the change in government, because effectively it's not a $120-billion program that we have, it's $60 billion approximately of lapsed money or money that's in the fund that hasn't been put into play with another $60 billion. If you look at the graphics that we got through the latest PBO report, you will see that the new money starts kicking in sometime in 2016-17, which is quite interesting.
Is that correct? Just to put it in the perspective of what we're looking at when we look at recommendations, so just a little bit on the point.
Senator Mitchell: Thanks very much for the very stimulating presentations.
I'm not sure that this is your role, but we're talking about measurements, and clearly you have to measure the measurements that are chosen by the government. In the last meeting we had a number of experts — economists — saying there was a variety of ways to measure economic impact. Multipliers are not in favour any longer. Jobs would be one of them and possibly the level of service, which would seem to me the degree to which you would mitigate environmental impact.
If I asked you for five measurements of specific criteria for measuring the impact of these infrastructure programs, what would you say they should be? Should they just be jobs? Should it just be jobs or are there four others? Can you measure a project's impact on GDP in some way? If you were the Prime Minister for a day, what five would you pick?
Mr. Askari: I don't want to be Prime Minister, but what we do is measure economic impact, which actually includes the impact on GDP and impact on employment. However, there are some issues there. We essentially project the impact that should come from infrastructure investment. That's based on the models that we have and the multipliers that you mention. And we have a multiplier based on our own models, the Department of Finance has its own multipliers and there are many others around. On that basis, you measure the impact on GDP and then from there is a link between the GDP impact and the impact on employment and that impact is done from there. That's the way you measure.
Now, this is all ex ante; that is the projection. The challenge is to actually verify that after investment has been undertaken, because then the challenge is that you cannot separate the impact on infrastructure investment on GDP and employment from other things that are changing GDP and employment. That's the main challenge.
In fact, a lot of research has been done in the U.S., especially after the 2009 crisis and the significant amount of money they spent on infrastructure, and you get a range of results in terms of what the impact would be and what the impact was, actually, after the fact. Unfortunately, it doesn't really give you any confidence on which one is the right one.
In fact, I can say that the governor of the bank recently said in one of his speeches that we need a lot more research specifically in the area of the impact of infrastructure on the economy. It is difficult, and there could be some research done in that area. But for us, at a very high level, what we do as we did in our report after the budget, we showed how much the infrastructure investment will increase the GDP and then from there the number of jobs that could be created.
Senator Mitchell: Thank you. Do you also make some assessment of the quality of the jobs and the nature of the jobs, whether they are good and how they affect women versus men? I ask that because infrastructure jobs are biased against women.
Mr. Askari: No, because these are very high-level estimates. These are not based on a micro-assessment of each project. This is how much the government is putting into the economy through infrastructure and how that flows through the system and increases the GDP, and then the link between GDP and the employment and that would be the number. So we have no other information other than that.
Senator Mitchell: My next question is a blue sky question, if I can put it that way. I was mentioning earlier to Senator Pratte that there's something that keeps coming back to me as we're doing this study. All this infrastructure stuff seems really old, and we're in the 21st century.
You, Ms. Gelfand, say that Canada must build resilient buildings and roads. What is the country going to look like in 2040 and 2050? Are we going to need the kinds of roads we have now if we have automated cars? We think of infrastructure as just building things, but aren't there virtual infrastructures now? Isn't there a whole new realm of possible infrastructure that will create a different kind of economy? We're going back to building ring roads when we might not even need them. Are there different kinds of infrastructure that will spin more jobs and create greater long- term wealth than just building a road that employs 2,000 people for six months and then it's done?
Ms. Gelfand: Well, that's a great question. We did suggest and recommend that Infrastructure Canada, working with all of its partners, provide a long-term vision that outlines the federal infrastructure priorities with clear objectives, performance measures and accountability.
So your question is one about vision, right? What is the country going to look like? What should we be funding?
I focused at lot on resiliency because I was looking at severe weather. Look what's happening in Haiti now. We know we're getting more. We had the ice storm. In southern Ontario, there was flooding in Windsor.
If our infrastructure is not built in order to ensure resiliency, therefore taking into consideration all the environmental risks and the change in climate, then as communities, we are not resilient.
Senator Mitchell: So you're saying that climate change is really starting to cost us a lot of money?
Ms. Gelfand: We know that it's already costing us a lot of money.
Can I answer the other question about the five indicators? I'm not going to give economic indicators, but I wanted to tell you that the Federation of Canadian Municipalities actually measured developed performance indicators for the Green Municipal Fund, for the fund they measure.
The Chair: Do you have specifics?
Ms. Gelfand: They have them.
The Chair: Do you have knowledge of these measurements?
Ms. Gelfand: Do we have the specific measurements?
Ms. Leach: We talk about them in our report, but, yes. For example, if the project is supposed to reduce greenhouse gas emissions, they check to see whether it has reduced greenhouse gas emissions not only right away once it's built but they have a holdback provision, when they provide the funds, for 12 months, so they actually go back and measure 12 months later to ensure that the project met its environmental objectives.
Ms. Gelfand: This is what we wrote. We found that the federation had defined performance expectations, so I'm guessing, based on what I know about our databases before we write anything down, that we probably have seen those performance expectations. We didn't put them in here in terms of the detail but most likely our office has seen those performance expectations.
The Chair: If you have them, can you send them to our clerk? We'll follow up with the federation of municipalities. We're going to ask them to send them to us also. We had them in here and they were very professional. We've asked our senators to get out and speak to local mayors because the Gas Tax Fund is the biggest thing for small municipalities, and they love the Gas Tax Fund, but we need to find out from them exactly the questions that we've asked tonight in terms of measurements: What has it delivered?
Ms. Gelfand: Can I just add one other thing that we found in our report?
The Chair: Please.
Ms. Gelfand: Somebody was asking about the outcomes and results. One of the things we do know and we did say this in our report is that for the money that was spent on the Gas Tax Fund, a third of it was spent on roads and bridges. So does that increase our GHG emissions or not?
There was even an example of a new type of asphalt that reduces friction and therefore decreases greenhouse gas emissions. I'm not sure how. I was worried about friction and braking.
We also noted they had improvement of the drinking water systems in Lévis, Quebec. There was an organic waste processing centre built in Guelph, and we also know that five large cities have put the Gas Tax Fund towards transit. That's Vancouver, Calgary, Edmonton, Ottawa and Toronto.
So we do know some of the things they have done. They weren't able to tell us whether or not that translates into cleaner air, cleaner water and reduced greenhouse gas emissions, but we do know that the Federation of Canadian of Municipalities is able to do it. So it shows it can be done.
Mr. Weltman: It's important to keep in mind — it comes back to the slide that Senator Cools pointed out — that much of the Infrastructure Canada funding transfers to other levels of government.
So there are terms and conditions that the government lays out in terms of how those get done, and it limits, to some degree, how much one level of government can ask of the other in terms of reporting. I think that's important to keep in mind. I know there was a question last week. I attended the meeting with Infrastructure's briefing about why the federal government should determine how small provinces and municipalities should spend the money. I think that plays into this as well. It's important to keep that in mind.
The Chair: To respond to that, you're absolutely right. However, Senator Eaton has asked so many questions to the Department of Aboriginal Affairs. We had CMHC in, and CMHC is a banker that lends money for people building houses. We asked the head, "When you loan money to a nation, what guarantees do you have on your money?" They said, "None, because it's out of our jurisdiction."
There are too many programs. There are over 20 of them because Infrastructure Canada has been nice enough to give us a list of all these programs and the timing. What the PBO has shown us is that we've had since 2006 a lapse of significant billions of dollars that have not yet gone into the system to be implemented. So there's a measurement. There hasn't been the execution that's been required.
But when we look at giving out money, there should be some checks and balances to make sure that if we give you the money, you decide on the project that you're doing, but you should have some performance indicators that you give back to the person who is giving you the money. I mean, that seems to be logical.
Why can't we do that?
Mr. Askari: Just to clarify again, I think the graphs that we showed were not related to the new infrastructure, the $60 billion that you referred to from the previous government. Those graphs are only for the 2009 stimulus fund.
The Chair: I understand that, but you have the other report that you showed, which gives you the breakdown of the funds that were distributed in 2006 to 2015, and you show when the new money from the new $60 billion is going to come into place. I'm not trying to be critical of the former government, but what it shows us is that of the $60 billion of the original fund, which I think was $33 billion and then $53 billion that the Conservatives had blocked off in that period of time, there is a large chunk of that money that never got into play.
So if it didn't get into play, it's still on the books or it's lapsed. That, to me, is an indicator that you're not criticizing anyone, but you're demonstrating that the money hasn't gone into a project that has been in place or completed.
Mr. Askari: I guess I should mention that in Budget 2016, the government mentioned that any fund that is left from that fund is going to be distributed through the Gas Tax Fund to the provinces.
The Chair: Right.
Mr. Askari: It's going to go out faster than normal.
Ms. Leach: I wanted to bring to the committee's attention a document that came to our attention during the audit, which was the Australian infrastructure plan. I don't know if that's come up in the course of your discussions here, but it does a number of things that the committee has been talking about both today and in the past. It was published in February 2016, and it offers a strategic approach. So instead of an infrastructure plan being just about where the money is going, it's about a strategic approach: What are our national priorities? How are we going to measure, monitor and do performance measurement? It's focused on evidence and setting national infrastructure priorities is part of it.
It's the difference between a strategic approach that has a number of different elements to it, and a long-term infrastructure plan that is just about where you're going to put the money, which isn't the whole story.
Ms. Gelfand: I think we have a copy.
The Chair: Do you?
Ms. Leach: I have the table of contents and executive summary here.
The Chair: Could we get that?
Ms. Leach: Sure.
The Chair: That would be fantastic.
Let's have final comments before we wrap it up. Some of us have been in committee meetings and sittings all day, and we're either freezing, getting tired or having sugar lows because we haven't eaten since this morning. We don't want you to feel sorry for us, because you obviously had a nice supper before you came, but we're starving. Let's wrap it up.
Could we have a comment from you, Mr. Fréchette? Mr. Askari and Mr. Weltman, you may respond also if you like.
Mr. Fréchette: We are looking forward to working with this committee and, as we said in our presentation, provide you with additional information to help you better understand the future of these infrastructure investments. That's basically it.
The Chair: I would encourage all of our members — if you haven't had a chance, the PBO has been very efficient in terms of getting us timely information, which gives us the tracking that we are looking for. So you folks have done a great job. Ms. Gelfand?
Ms. Gelfand: I'm really pleased and thankful that you've asked us to appear on this topic. I hope you keep in the back of your heads the resiliency and the sustainability of our infrastructure as you think about your final report.
Yes, it's about jobs, but it's also about the future of our communities and whether we're going to be resilient to the change in climate that's coming.
The Chair: If you wanted to write a one-page summary where you wanted to put in some key points that could help us, we would appreciate that too. Could you do that?
Ms. Gelfand: Sure.
The Chair: That would be great.
So on behalf of our committee, we would like to thank you.
[Translation]
My thanks to the witnesses for the information they have shared with us this evening; it was very interesting. We have other work to do for our study. Thank you and good evening.
(The committee adjourned.)