Proceedings of the Standing Senate Committee on
National Finance
Issue No. 14 - Evidence - October 4, 2016
OTTAWA, Tuesday, October 4, 2016
The Standing Senate Committee on National Finance met this day at 9:31 a.m. to study the federal government's multi-billion dollar infrastructure funding program.
Senator Larry W. Smith (Chair) in the chair.
[English]
The Chair: Good morning, colleagues. Welcome to this meeting of the National Finance Committee.
Before we get to our witnesses and our discussion today, I'd like to bring to your attention that with the withdrawal of Senator Campbell from our committee membership last week, we are without a deputy chair. The question I'm asking, colleagues, is the following: Should we proceed to the election of a deputy chair?
Hon. Senators: Agreed.
The Chair: I'd like to remind honourable senators that the process to elect a deputy chair is similar to that to elect the chair. In conducting the election of the deputy chair, the chair will ask if there are any nominations. If there is more than one nomination, the chair must put the question on each motion in turn in the order that they were received. Only one question may be considered at any time. Votes are initially taken by voice; the chair shall carry the motion and make judgment of the results. I'm now ready to receive nominations. Are there any nominations?
Senator Moore: I nominate Senator Anne Cools as Deputy Chair of the Standing Senate Committee on National Finance.
The Chair: Thank you, sir. Are there any other nominations? There do not seem to be any other nominations.
Senator Tkachuk: I move that nominations close.
The Chair: I'll call the motion. All for?
Hon. Senators: Agreed.
The Chair: Any opposed? Congratulations. We have a new deputy chair, Senator Anne Cools.
Senator Cools: I remember when I was deputy chair to him.
Senator Tkachuk: That's right. I remember too.
The Chair: History has a way of repeating itself. Thank you. After our session ends, we have a couple of housekeeping issues that I'd like to bring to our colleagues. It will not take long, so we'll manage ourselves accordingly. Just give me five to ten minutes and we will do our housekeeping measures after the meeting.
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. I chair the committee. Let me introduce, briefly, other members of our committee. To my right, Senator David Tkachuk, Senator Nicole Eaton, Senator Elizabeth Marshall, Senator Anne Cools, and Senator Raynell Andreychuk. Judge, nice to see you. To my left, Senator Wilfred Moore, Senator Grant Mitchell, Senator André Pratte, Senator Jim Cowan and Senator Denise Batters. Welcome.
[Translation]
We have invited the authors of reports that were published recently and that are relevant to our study. The titles of these reports and the hyperlinks to them were provided to committee members last week.
[English]
I'd like to introduce our witnesses. First, from the C.D. Howe Institute, we welcome Benjamin Dachis, Associate Director, Research. He is here to speak to the report published by the institute in January entitled Getting More Buildings for our Bucks: Canadian Infrastructure Policy in 2016.
Then, we will hear from Ryan Greer, Director, Transportation and Infrastructure Policy at the Canadian Chamber of Commerce. Ryan, welcome. The chamber published a report in December 2013 entitled The Foundations of a Competitive Canada: The Need for Strategic Infrastructure Investment.
[Translation]
The French title is: Les bases d'un Canada compétitif: la nécessité d'investir de façon stratégique dans les infrastructures.
[English]
Mr. Greer is prepared to speak to it, but also to another more recent report that the Canadian Chamber of Commerce also published, in June 2016, entitled The Infrastructure that Matters Most: The Need for Investment in Canada's Trade Infrastructure.
[Translation]
The French title of the report is: Les infrastructures les plus importantes: La nécessité d'investir dans les infrastructures commerciales du Canada.
[English]
The report was actually penned by Mr. John Law. As former football players, we hated each other on the field, but John was part of the Blue Bombers operation. We invited the author to speak to the report. Mr. Law is President and CEO of Lawmark International.
We thank you all for being with us today. We'd like to hear from you and what you consider the main conclusions of each of the reports that I mentioned. Each of you has an opening statement. We will begin with Mr. Dachis, then Mr. Greer and finally Mr. Law, followed by a question period. Please begin.
Benjamin Dachis, Associate Director, Research, C.D. Howe Institute: Thank you very much, senators, for inviting me. As Senator Smith mentioned, I'm Benjamin Dachis, Associate Director of Research at the C.D. Howe Institute. We are a national, non-partisan, public policy think tank.
I'm going to discuss the recommendations of our recent report, Getting More Buildings for our Bucks: Canadian Infrastructure Policy in 2016. If you don't have it in front of you, I brought a few copies for some light bedtime reading.
I'm going to discuss three recommendations from the report: first, limit grants to lower-tier governments, so only those based on transparent formulas; second, improve project selection; and third, design an infrastructure agency focused on encouraging private sector investment.
First, Ottawa often does not need to give grants. Grants can lead local governments to spend more —
The Chair: Can you repeat what you just said? Just the last bit; the sound bite.
Mr. Dachis: First, Ottawa often does not need to give grants. Good to go?
The Chair: Sure.
Mr. Dachis: Grants can lead local governments to spend more on low-value-for-money projects or else risk losing access to federal funds. Federal government grants for infrastructure are best when there is some form of interjurisdictional spillover. For example, international gateways often expand trade and are suitable projects for Ottawa to support.
Another example is that the spending by a lower level of government may result in higher incomes for local residents. That then results in higher tax revenues accruing to the federal government. When designing the formula for project-specific grants, the federal government should be quantifying the extent of these spillovers for these projects and only support infrastructure to the extent that it's best placed to support these spillovers.
Second, all governments need to improve the project selection process. All major infrastructure investments should be subject to cost-benefit analysis. This seems pretty self-evident, doesn't it? But it just doesn't happen. Consistent business cases need to be in place across governments for all major investments. This should be done at a cross- governmental office, such as the federal Treasury Board. That would be a good time to calculate some of the federal funding that I just mentioned based on these spillovers that we discuss in more detail in the report.
A federal infrastructure bank could take on the combined roles of the funder for local projects but also require greater rigour of investment prioritization and cost-benefit analysis. This would differ slightly from the federal government's campaign commitment to use such a bank to lend to lower-tier governments based on the federal government's lower cost of borrowing, but such an organization could merge in the functions of, say, PPP Canada, which is a federal corporation that lends P3 expertise around the country.
This gets me to my third and final point, which builds on what we have in the report published in January 2016, which is the need to create the right federal institutions to enable more private investment in infrastructure and encourage all levels of governments to open opportunities for investments.
Canada's pension funds have invested tens of billions of dollars in infrastructure worldwide that pays for the pensions of nearly every Canadian. These pension funds need to invest abroad because Canadian governments don't open up investment opportunities here. Institutional investment in infrastructure is going to benefit the overall economy, too. We have to remember that when a government finances a project with taxes, that creates an economic harm. If governments were instead to rely on institutional investment, there would be no economic harm due to tax financing.
Keep in mind that the federal government owns few assets compared to the larger opportunities in provincial and municipal asset recycling. Although the federal government could unilaterally take action on seeking private investment in assets ranging from airports and seaports to Canada Post and VIA Rail, more than 90 per cent of user- fee-based assets that are ideal for institutional investors are in provincial and municipal hands.
Infrastructure Australia provides a potential template for a Canadian infrastructure bank. Infrastructure Australia has a prioritization and project-selection expertise and mandate. Australia's initiative also provides states with federal funding of up to 15 per cent of the sale value of an existing asset. This is sound economics to reduce the harm of taxation to finance new infrastructure, and it provides pensioners with the returns they need to have a good retirement.
The next step that this government should be thinking about is in anticipation of opening up the ownership of infrastructure to create the appropriate regulatory environment that would apply to both government and privately owned infrastructure. Creating an arm's-length regulatory agency for major infrastructure can have numerous benefits, independent of whether governments sell a stake in an asset.
In conclusion, federal infrastructure policy should have three priorities: one, limit grants to lower-tier governments to cases when Ottawa does have a clear role to play; two, improve project selection; and, three, create the conditions for institutional investment in critical public infrastructure. With that, I turn it over to my fellow witnesses and look forward to your questions.
Ryan Greer, Director, Transportation and Infrastructure Policy, Canadian Chamber of Commerce: Thank you, chair and senators, for inviting the Canadian Chamber of Commerce to take part in your study on the federal infrastructure agenda. As you can imagine, the Chamber and our network of over 200,000 businesses have a strong interest in the outcome of decisions that will be made in the coming months by the government that will really drive public sector infrastructure investment in Canada for the next decade.
As a result, we have been doing a lot of work in this space. This includes the two reports the chair mentioned in his introduction. One is The Foundations of a Competitive Canada, which is about structural decisions the government can make to make more effective and efficient infrastructure investments. It makes the case for things that Ben was talking about, including improved asset management and how the government can better make use of P3s.
We released another report just last June that John authored for us, entitled The Infrastructure that Matters Most. Here we were making the case for increased investment and focus in specifically Canada's trade infrastructure. We're also working on another infrastructure report, which we plan to release in the coming months.
Overall, the Canadian Chamber of Commerce is very supportive of the government's commitment to effectively double federal infrastructure spending to $120 billion over the next decade. Modern and efficient infrastructure is a core component of a competitive economy.
In particular, the commitment of $20 billion in new funding for public transit is much needed in Canada's large cities. Here, gridlock is not just a quality-of-life issue for those experiencing it; it is also becoming a real economic issue for the entire country.
Transit spending itself is also very egalitarian. While easing congestion can help a giant manufacturer truck their product through a city, it may also make it easier for a furnace repair outfit to get to one more job each day. As the government starts to shape phase 2 of its plan, we believe there is a need for disciplined decision making, some of which we've discussed in both of these reports, that will translate into greater long-term benefit for the Canadian economy. I'll briefly mention four recommendations, pulled from both of these reports, that we've put forward to the government that we think can help do this.
The first is that trade-enabling infrastructure should be a priority in the plan. Trade-enabling infrastructure is, of course, the roads, ports, waterways, railways, border facilities, airports, pipelines and even Canada's digital infrastructure. It enables the movement of Canadian products, services and people through our country and to global markets.
Of the different kinds of infrastructure, trade infrastructure has the highest return on investment. It is the infrastructure that makes us all wealthier by making its users more competitive. As a result, it also generates more tax revenue than other forms of infrastructure, which provides governments with additional dollars to spend on other economic and social priorities.
Second, we recommend that the government re-establish gateway and trade corridor programs. This is based on the success of previous federal programs, such as the Asia-Pacific Gateway and Corridor Initiative and the Gateways and Border Crossings Fund.
These programs help to facilitate strategic investments from all levels of government and the private sector in transportation infrastructure to help reduce Canada's supply chain bottlenecks.
The Asia-Pacific Gateway program in particular was recognized as a best practice from industry, governments and our trade partners. There is a real appetite among our members and many in the business community to see some version of this program return in phase 2 of the federal infrastructure program. We also see an opportunity to learn lessons from the Asia-Pacific Gateway program to apply to the rest of the Canadian supply chain and Canada's gateways and corridors.
Third, we recommend creating some kind of government-private sector body to help to prioritize and coordinate nationally significant infrastructure projects. Ben mentioned Infrastructure Australia. Other jurisdictions have established bodies that have some level of independence that can help to develop national infrastructure plans that provide both national and regional priorities. These bodies can help to integrate public and private supply-chain data and provide advice on relevant government policy and regulation.
This, of course, is not a new idea. The recently released Canadian Transportation Act Review, chaired by David Emerson, contained a number of recommendations in this regard that we think should be instructive to the government and to this committee. At the chamber we're a bit sheepish on this one because we don't often make recommendations that have to do with machinery-of-government issues, but we do see a real need to increase strategic policy capability on infrastructure at the national level. We also see this as providing a significant benefit to politicians as they try to balance economic and political considerations when making long-term infrastructure decisions. As I mentioned, this is a best practice that some of our competitors have adopted.
Lastly — and a point that shouldn't get lost on the government as they make their decisions — Canada's infrastructure deficit will not be addressed through public sector spending alone. Our fourth recommendation is that the government must facilitate more private sector investment. Right now, the private sector is a more dynamic infrastructure investor. It's bigger. It moves faster. It takes more risk, and it thinks longer term. These advantages should be utilized in building a more competitive Canada.
Currently a number of high-profile private sector projects are being delayed or altogether stopped because of political reasons, heavy-handed regulatory processes and/or uncertainty regarding social licence. These are projects that will generate jobs and wealth without the use of public funding.
I'll wrap up with this. Spending tens of billions of new dollars on infrastructure does not, on its own, guarantee increased economic output. However, if done right, it can really move the needle on Canada's productivity and competitiveness by focusing on projects that provide the greatest long-term benefit, institutionalizing collaboration and long-term planning, and, of course, helping to unleash the private sector. Doing so will help to usher in Canada's next era of growth and prosperity. I look forward to your questions.
John Law, President and CEO, Lawmark International, as an individual: Thank you for the opportunity to be here with you today. I appreciate it. Infrastructure is a topic around which I've had some passion for a period of time. Although I'm appearing today as an individual, I come by that passion honestly. I'm former Deputy Minister of Transportation and Infrastructure for the Province of Saskatchewan and served as the founding CEO of the Global Transportation Hub, which is our inland port in Saskatchewan. During that time, I had the opportunity to serve as President of the Transportation Association of Canada and to chair the Council of Deputy Ministers of Transportation and Infrastructure.
As such, I have an abiding interest in the policy dimension and have been able to keep my hand in through work with colleagues like Mr. Greer. I also bring today to the committee the perspective of a practitioner who has had some responsibility in the delivery of transportation and trade infrastructure.
I will not repeat the recommendations of the report I worked on with Mr. Greer and the chamber that Ryan already eloquently provided to you already, but if I could leave the committee with one message today, it would be that we need to find a way to include trade and transportation infrastructure specifically as a key part of the government's new program of infrastructure investments, not simply as an eligible category but as a strategic priority. The reason for this is very simple: It means jobs for Canadians.
This is important because our producers, manufacturers and service providers in this country rely on the trade infrastructure network that moves those products to its customers around the world as a key feature of how they operate to maintain competitiveness, for which their jobs are paid and to which they owe their prosperity and quality of life.
There is an urgency here that Mr. Greer and Mr. Dachis have also alluded to. It has to do with the increased competitiveness of jurisdictions elsewhere in the world that are spending a lot of political time and financial capital to make improvements to their trade infrastructure as a means of getting a larger share of the trade pie, internationally. These are the markets that we in Canada rely upon and that we have done a good job of serving in the past.
We're up against a tougher and more difficult environment these days in terms of international trade. As such, we need to do a better job in overcoming the geographical challenges we're all familiar with being Canadians. Thanks very much.
The Chair: Thank you, Mr. Law. We have a list of senators with questions, so we will start.
Senator Marshall: My question relates to an issue the three of you brought up, and that's with regard to making the selection of projects strategically so that we can get the best bang for our buck. Can you talk a little bit about whether you think that will happen? There is quite a large amount of pressure to get the money out the door. It's seen as a stimulus package.
There are also the political aspects in that you have all of the provinces and territories and all the organizations at the door looking for the money, so there is a risk there that not all projects will get the best bang for the buck.
Can you talk a little bit about whether you see the process in place now changing and moving in the direction the three of you are advocating?
Mr. Dachis: We at the C.D. Howe Institute late last year held a conference on exactly this topic, namely, how to build business cases and improve project selection. You will be able to see the conference report on the institute's website. It came out a few months later.
One of the things that jumped out at me is that when countries do consistent business cases — first of all, this is rare. Canada is nowhere even close to doing that, but Sweden, for example — I've always looked to Sweden — does or did a business case for every single major investment proposal that bureaucrats and politicians put forward. Once you ran the numbers on them, a stunning number of the projects that initially looked like a great idea had zero benefit, or made society worse off.
If you don't do the business cases and run the numbers, governments will invest in a lot of bad projects.
At the same time, some of these bad-economics projects are going to happen. Politicians are going to want to get their way. Other regional priorities above and beyond economics will happen. But at least when you do the business cases, you make the prioritization and the decision making and reasoning clear to the public.
Mr. Greer: I would just add that infrastructure for the sake of stimulus is a tricky proposition. If something is truly shovel-ready, that means it's probably not going to be incremental; it was probably going to be invested in anyway. That means the engineering work is probably already done. With a truly incremental investment, there will probably be 12 to 18 months of lead time to start a project that would otherwise not take place with the investment that's there.
So trying to move quickly for the sake of stimulus means that you fall into the trap of perhaps not picking the best projects. We all know the shovel-ready versus the shovel-worthy.
So a focus on the business case but also on the criteria for projects so that, as John says, it's not just about being an eligible kind of project but the type of project you want to prioritize by setting goals. So we say a certain percentage of each fund, or a certain amount of where we invest, we want to go to the most worthy trade-enabling projects, which should be evidence-based decisions as opposed to a traditional collection of wish lists that are then sort of horse-traded upon.
Mr. Law: Three quick points on the question, senator. First, to support what Ben was talking about, the recent research I did on this topic suggests not only that this kind of criteria-based selection is a good process from the standpoint of doing a better prioritization of projects but also that it's a better way to get bang for your buck. It equates to a 25 to 30 per cent improvement overall when that kind of criteria is applied to the value you get for your money. The research suggests it's a prudent thing to do in terms of getting the most out of the money you're going to spend.
Second, there is an economic spinoff that comes with that kind of work, particularly when it comes to trade infrastructure projects that have a significant multiplier effect. Lots of studies have been done about it and different multipliers assigned to it, but in the context of work we've been talking about in trade infrastructure, it's almost always positive: For every dollar you invest, you see $3 in return that comes back through the application of that kind of criteria.
Finally, to Ryan's point, there is a lot to be said for the proper establishment of priorities at the national level in this area. From my perspective, we have some great lessons to learn from some of the good work done by the federal government in the 2000s when they established supply chains and significant trade or economic corridors as a priority. It served as a catalyst for focusing investment not only at the national level but also from provincial and municipal governments and the private sector.
There is a lot of merit here. This is the way the international supply chain business world is operating. People are thinking these things through from the perspective of end-to-end delivery. If we think about that in the context of the suppliers and producers at the local level needing to get their products to destination markets around the world, it's a helpful way of organizing the thinking around how to select projects and how to manage their delivery and execution.
Senator Marshall: There has been a lot of discussion about an infrastructure bank, whereby different levels of government could tap into funding and take advantage of the federal government's low cost of borrowing. Do you think there is an opportunity there to improve the selection process with an infrastructure bank?
I'm not a supporter of an infrastructure bank, but I could be convinced if I thought there were some benefits to it besides just more borrowing. Do you see that it could be a vehicle to improve the selection of projects?
Mr. Dachis: Yes. That's the reframed infrastructure bank. The original premise of the infrastructure bank as it came out during the election campaign is economically misguided. The idea that the federal government can use its lower rate of interest to support municipal infrastructure is the wrong way of thinking about it.
That lower rate of interest is just a reflection of bond holders viewing taxpayers as the guarantors of cost overruns or late delivery of projects, whereas private borrowers really have no option. So the lower interest rates the federal government is providing are just an insurance policy to bond holders. It doesn't really make society better off.
When private investors are responsible for making sure they provide their project on time and on budget or else they're going to face the real economic consequences rather than being able to pass that cost on to the taxpayers, then you've created the right incentive for projects to come in on time and on budget. But the federal infrastructure bank, as originally proposed, does not provide any of that benefit. So if the government reframes the infrastructure bank, it would be along the lines of something that focuses on project selection and prioritization, and especially finding ways to crowd in private funding such as institutional investment. Then the government can really create a lasting and important institution.
Senator Eaton: I have several questions. You say the federal government should only invest in infrastructure when the benefits of a project may spill across jurisdictions. Are you talking about airports, seaports, sort of federally held or federally run institutions, or are you talking about public transportation? Give me a couple of examples.
Mr. Dachis: Airports and seaports are a different kettle of fish. We can get into the specifics of them if you want to. They are federally owned, non-profit airport authorities. It's a whole other question. I love talking about that.
But when it comes to federal grants to lower-tier governments, there has to be a reason, for federal taxpayers — the taxpayer, say, in Toronto — to want to see their money being used in Calgary or Montreal. There has to be a national benefit. There is a national benefit, for example, with interprovincial highways and interprovincial rail. That's one example of a spillover.
Senator Eaton: Stop right there. If that's the case, whether it's done on the Australian model, would you put federal in charge? It seems to me the biggest boondoggle right now, being a Torontonian, is our terrible transportation and the gridlock. But the governments keep on fighting amongst themselves about who will pay for this. The federal government won't raise the gas tax. They've already told us that.
Would it not be simpler, when it comes to things like interprovincial roads, if the federal government just took it in hand completely and kept the provinces and municipalities out of it?
Mr. Dachis: In many cases, yes. When the benefits are entirely local, then local governments entirely have to pay for these sorts of projects. There will be cases, though, when there is a reason for the federal government to have some sort of financial support. This then creates the justification for a clear, transparent and set formula so that there is no gaming or back and forth of lower-tier governments saying, "We need a third, a third, a third." If there is a set formula for what the benefits are that everyone knows going into these discussions, you do away with a lot of this gamesmanship.
Senator Eaton: It seems to me that every time the government changes, the whole thing has to start all over again.
Mr. Dachis: What is the right answer? Hopefully the right answer the government will stick to.
Senator Eaton: Is the Australian template completely divorced from politics?
Mr. Dachis: Nothing is completely divorced from politics.
Senator Eaton: Basically, if the government changes what they're doing — their projects, where they're directed — does it change or is it more hands-off?
Mr. Dachis: With regard to Infrastructure Australia, which is what I'm talking about, there are two points. One is that 15 per cent is for private investment, encouraging lower-tier government states to sell existing assets. Keep in mind also that in Australia the states have far less fiscal autonomy than do the provinces here, so there is a bit of a difference in context there. Also, I think the Infrastructure Australia model was introduced by the Abbott government. There has been a change in leadership, as seems to happen a lot in Australia, but not a change in the party.
Senator Eaton: I guess what I'm trying to get at is how independent is the Australian model from the change in governments?
Mr. Dachis: We'll see. We still have not had a full change in government there.
Mr. Law: I want to add to what Ben is saying. To your question, senator, when Infrastructure Australia was initially set up, it had a formal mandate that was legislatively separated from the political process, and consequently there was a degree of independence built into the structure of it. As Ben describes, there have been changes in leadership that of course have had an influence, and they have moved through different learnings. It has been around for a while now.
To your point, on the initial objective of particularly the role of the private sector, some of the front-line experience about what was happening on supply chains and delivery mechanisms for Australian product movements was formally incorporated and mandated as a separate and distinct function from the political arm of what the government was doing.
Senator Eaton: Would it be feasible to set up an arm that would be independent from the government? So the Trudeau government says, "We're going to spend money on infrastructure," and gives it to the separate entity, and hands off, goodbye; if the next government was a Conservative government, they could not come in and change the criteria or what they are doing?
Mr. Greer: I think it's unlikely any government would set up such a body when it comes to spending —
Senator Eaton: I'm aiming for the best.
Mr. Greer: But some sort of independent body, whether through a bank or an agency that can be a bit of a clearing house for public and private sector information around establishing priorities, makes it either easy or more difficult for any government to walk away from or look at certain projects that are in the national interest. A full degree of autonomy is unlikely, but some form of body that can provide that intelligence to governments will give them some cover when it comes to political decisions that may be down the line with national economic infrastructure decisions.
Senator Pratte: Good morning. I'm concerned about how we measure the impact of all those projects after the fact. But what you measure after the fact can be very useful when you set up a new infrastructure program, which is the case now.
I notice, for instance, that in its annual report Infrastructure Canada says, "We succeeded in spending so much money, and therefore we're successful," which is not really useful, because of course they succeeded in spending money, but that's not very difficult.
What is in your view the most useful way of measuring the impact of those projects? I know there are multipliers and so on, but some of the studies I've seen don't even agree on what is the exact multiplier of that project versus this project. For instance, is there a way of objectively measuring if it's better to invest in an arena versus a highway versus modernizing a railway? Are we certain that investing in a trade corridor — it seems obvious, but is there really a scientific way of measuring and comparing it versus green infrastructure, for instance?
Mr. Dachis: When it comes to multipliers, this is a decades-old and largely discredited way of thinking about the economic benefits of infrastructure. When we think about the jobs created, don't think of those as a benefit. Those are costs to the economy. It is great politics to say that jobs were created, but those are actual costs; when they come at the expense of something else, of someone working in a job in another part of society, that's a cost. The only way to think about the benefits of infrastructure should be the services that infrastructure directly provides once it's in place. Multipliers are not the right way to think about it.
You are right; one of the key things infrastructure agencies can do is look ex post at the benefits of a project. Even when the business cases are public and put out there, they often don't correspond to the project that eventually gets built. There is a lot that needs to be done in improving business cases and their use.
Mr. Greer: I'll add an example to what Ben mentioned around multipliers. If a project is launched or the justification is for stimulus, if you have hundreds of thousands of unemployed construction workers and you move an unemployed construction worker onto a Public Works project, there is some stimulus benefit to that. In the United States, in the 2008-09 crash when there were a lot of unemployed, moving house constructors into a Public Works project had a significant stimulus benefit.
If you look at the economy now and where there's a lot of infrastructure need in Toronto, there aren't a bunch of unemployed construction workers in Toronto. So if we launch a new public sector project with the goal of stimulus, you will probably just move somebody from a private sector job to a public sector job, creating few instant benefits.
You really need to look at what is the long-term benefit of any particular use. There are different ways to measure, and international organizations and others in Canada look at things around supply chain velocity: What is the impact before and after a series of projects on how quickly Canadian manufacturers and producers can get their goods to port or from port to market? Those types of measurements provide us a greater holistic picture. A lot of things go into what causes the supply chain to move quickly, but that will provide a better measure of what our long-term benefit is than necessarily just trying to look at what the instant multiplier will be on any particular project.
Mr. Law: That's an important distinction. When Ben was talking about the challenges of trying to assign particular multipliers, he is absolutely correct. Trying to assign specific numbers around which you could make future decisions is a difficult game. But when Ryan talks about the long-term outcomes associated with the investments that go into infrastructure, there are opportunities there to do a better job.
When you talk about throughput velocity, there are specific measures for supply chain projects, for example, that can tell you how quickly you can get from point A to point B or how many turns a company can make in terms of deliveries in a particular period of time. There are measures associated with that which are more long-term, which have to do with competitiveness and productivity as opposed to the short-term job creation impacts associated with the actual construction of the infrastructure itself.
The Chair: If you took a specific like the grain crisis and not being able to get our product to port, and the evolution of the Asian market and the consumption patterns that will take place in the next 20 to 30 years, could you give us some examples of specific measurements that should be easy to develop or put in place so there would be a knowledge transfer that's quick, that people could understand even in the public eye?
Mr. Law: In the case of the grain crisis, a number of factors contributed to that. We know it had a significant impact, costing the country billions of dollars in the loss of capacity and being able to move things through.
One thing not necessarily captured in that context was that had a spillover effect on small and medium-sized businesses. I think back to my home province of Saskatchewan where a number of companies in that small to medium- sized category described serious implications for own business opportunities and business development because they couldn't get into the queue.
There is a rank ordering typically by size that affects railways' influence in terms of providing some of that capacity, and I think these measures find their way all the way through the system. So these are important.
On Senator Marshall's earlier question, when we are trying to figure out how to assess and measure these things, the question about the role of an infrastructure bank is important. The senator made the comment that she is not won over by the notion that we need to add another financial institution to do this.
It is important to understand that North America is the only trade bloc in the world that does not have an infrastructure bank. Every other one does. The reason is not to deal with financial capacity. These are knowledge institutions. These are facilities that provide critical intelligence about where to put our money and the reasons for doing it.
We should figure out a way to build our thinking around that capacity. There is some work going on that I have been fortunate enough to be part of recently with colleagues from the other side of the border around what we might be able to achieve in thinking about a new version of a North American development bank or a World Bank version of what we could do for infrastructure. I think it's the knowledge and intelligence that could be brought to bear that will help us improve our decision making and our choices around the priorities for this.
Senator Pratte: In the study on trade infrastructure by the chamber of commerce, there is little mention of pipelines. The problem, of course, with pipeline projects is a very strong opposition from indigenous nations and cities. Vancouver is opposed, and the City of Montreal is opposed to the Energy East project.
Do you have any great ideas of how to convince those people that those infrastructures are necessary and probably could be safe? This is really a big political problem.
Mr. Greer: We don't talk about pipelines a lot in that report because we talk about pipelines in a lot of other work that we do on behalf of many of our members who are seized of this being their number one economic issue.
I was out in Alberta and Vancouver just a couple of weeks ago to do some round tables on the subject of the federal infrastructure program, and we said, "What should the federal government really be doing with this?" They said, "Forget about that for a second. Let us invest. We need pipelines. We need this. We need to improve the regulatory process so that we can spend, so that we can get our investors to want to come to Canada, and then we can worry about what the federal government is doing."
Where I think there is a role for all levels of government is to help address this growing disconnect that certainly worries the chamber, which is the services that citizens demand from their governments, and their lack of support sometimes for the economic infrastructure projects that actually generate the tax revenue to pay for the services. Governments do have a role in promoting the benefit of those projects and linking them to the quality of hospitals, the quality of schools and the other things that Canadians in communities across the country want.
It's not just pipelines. It's our ports, rail projects, digital communications infrastructure and electrical grid transmission to move green energy across the country. A lot of infrastructure projects are opposed — not to the same degree as pipelines, but in the same manner.
There is no easy solution to this, but all levels of government need to do a better job of trying to re-establish the connection between the services that Canadians want and the things that actually pay for those services.
Mr. Law: A quick supplementary comment, Senator Pratte. In support of this challenge that you raise, which is an important one, the social licence question is perhaps one of the most challenging parts of the work that we need to think about on the infrastructure file.
One of the important lessons that we could take from some of the earlier federal programs of the earlier 2000s is that the federal government served an important role back then. I called it a convenor role. In that context, they brought together industry people, different levels of government, other kinds of institutions, non-profit organizations and talked about the nature of the problems they were trying to solve in a way that allowed you to understand better not only the benefits of project and the business case for the project, but also the potential issues that needed to be addressed earlier in the process.
That's a leadership role that could still be an important part of the solutions going forward, that people would have opportunity for earlier engagement, a better understanding of the benefits and respective roles. Oftentimes what we see in these circumstances is individual private companies or individual levels of government not having engaged in a collaborative discussion of what the issues are, so they get blindsided or are not as prepared as they could be to deal with some of these very important issues.
Senator Andreychuk: Parts of what I wanted to talk about have already been asked. I will start with what we mean by "infrastructure."
Having seen many governments and many phases, we seem to be talking about trade. Certainly when I go internationally, infrastructure is the topic everywhere, and we are doing analysis of our competitiveness in certain products.
We're pretty competitive in the development, the research and the production of the product, but we lose off when it is the transportation. There are very few other countries that have our problem. Coming from Saskatchewan, as Mr. Law and I do, we can produce and compete, but then can we get it to market? Those costs often make it prohibitive for us.
I understand infrastructure that goes to trade and benefit analysis about whether we create jobs. Do we get a net benefit for the country? Does it improve our GDP? But when in the community I see infrastructure, I want clean water and safe roads, et cetera. The cost-benefit analysis there is not the trade and the jobs, but quality and security of life. Then there is the whole other one, certainly in my area. Infrastructure could be a stadium, could be a multiplex in a small town, and it's used for, again, quality of life, giving equality opportunity to communities, however small, however isolated.
All three, to me, have a national component. Yet, you are saying it has to go transborder, transboundary. I dispute that. I think something done locally might have national benefit. Not on a trade basis, per se, but on a national perspective of how we manage different regions. I have come from a very have-not province to now a somewhat have- more province.
How do we answer that? How do we really approach infrastructure? Because when it comes down to writing the reports, we're very good at presenting projects that fit the criteria, and so there is that disparate thing. How do we measure what infrastructure is, and has anyone done analysis, over the years, of how we changed nationally?
You pointed out the Australian example. When we go to Australia, they are contacting us to talk about how they can strengthen their states at a political level. We have pretty strong provinces. So this talk about getting it down to the municipal level in Australia is a totally different issue from what we have here in Canada, where the provinces are very assertive.
Do we have an investment bank in Canada for the knowledge base? Do we have it as a lender and guarantor, or do we look at another, more Canadian, function? How do we do something like Infrastructure Australia that takes into account our constitutional and historical makeup?
Mr. Dachis: On the first point, infrastructure has many meanings, and all kinds of projects, ranging from arenas to the highway, have some sort of spillover and benefit across jurisdictions. That's why you have to have a project ranking. Sure, the arena will have some benefits, but compared to major trade infrastructure, as you start whittling down the sorts of things that make sense for the federal government to do, you run out of available funding. All of a sudden the federal government doesn't fund the projects where local communities can finance them entirely on their own. That's why project selection and ranking is really important.
On the second point, what role a federal infrastructure bank could play is exactly the question this committee should be asking in this report. You're bang on, and we've talked about the lack of a need for financing and, in some but not all cases, information. Infrastructure Ontario, as a P3 agency, has a lot of expertise for enabling infrastructure investment in Ontario. Other provinces don't have that, so there might be a role for the federal government to lend where it's needed.
Another role has to do with tax policy. The federal government has many taxes that discourage private investment. I can take an example from Ontario electricity, if you want to go down the tax policy rabbit hole, but I won't do that. I will spare you, but there is also a role for the federal government there.
Mr. Law: Senator, I would like to make a couple of comments about the choices between different categories of infrastructure.
I would make the case that I don't think it's an either-or proposition. I think there will be value in, for example, the three new buckets that the federal government has identified. One of the other senators talked already about the significance of making improvements to urban transit for the ability to get around cities. These tend to be the places where a lot of the economic production takes place, so there is a direct relationship, in my view, between making those kinds of improvements locally, also, to the kind of things we're talking about with trade infrastructure.
My argument about trade and transportation infrastructure is that we can't afford to leave it out of the national priorities we are talking about here. I think it's excellent that we have three new buckets, and some good things will come out of that if it is managed properly and the projects are prioritized properly. I think that's good. My argument would be that we also, however, need to make investments in the infrastructure that I consider to be most critical to the economic well-being of the country, and that is the trade and transportation infrastructure.
It's not a transport industry as a separate category of infrastructure; it's a category of infrastructure work that affects all the economic works of the country. That is to say, it's a foundational element in my view, and we are a trading nation getting 60 per cent of our gross domestic product from trade and export-related activity. It strikes me we need to ensure that our ability to support, as you said, the quality manufacturing that takes place at many local levels and that is in a position to get to market. If we cannot provide that reliability quotient for our international customers, then we are going to lose the business. In fact, the evidence is that we are already seeing some of that happening now.
Mr. Greer: I will add to John's point about balance within the federal plan. Our report that we released earlier this year talks about Canada's international ranking in the World Economic Forum quality of infrastructure, which found that from 2008-09 to 2015-16, Canada dropped from tenth in the world for quality of overall infrastructure to twenty- third. This is on measures of road, rail and port, all of which have declined in the rankings. I think airports were the one area where we improved due to the significant investment that has happened in our airports.
That's driven partially by investments by our competitors, and partially, perhaps, by underinvestment in Canada and certainly by the expiry of some of the gateway programs. When you look at the international picture, it suggests that the balance is not there currently at Investment Canada, and we need to make sure we find that balance in the current program so that it hits the new buckets but also addresses the major competitiveness issue for Canada.
Senator Mitchell: Thanks, gentlemen. This has been a stimulating discussion with lots of different possibilities.
It seems to me that the focus of your presentation has largely suggested that all infrastructure should be driven by economic return, and that raises two issues. One is the question of how you evaluate the criteria, and it seems to me as well that we have not seen some sort of set agreement on what those criteria might be. We know, apparently, from your testimony that the multiplier effect isn't a criterion. It has been discredited. I think someone mentioned jobs, and someone else mentioned services. Mr. Law, you took an interesting approach with respect to the number of turns a truck makes and a high-tech kind of efficiency and flow of transportation.
Those are three criteria, but is there a set of criteria that economists and business analysts could agree on, in some kind of comprehensive way, that governments could apply? These are three quite different criteria.
Mr. Dachis: When it comes to criteria, for example, there is the value of time. When new infrastructure is put into place and reduces the amount of time it takes people to get somewhere, the Treasury Board and other lower tiers of government have set criteria for how they value an hour of time saving. That's one example where you can apply that, and the same sorts of principles of other benefits of transportation really reflect the services that transportation provides.
For example, we all came here together in this room because of transportation infrastructure. There is a reason that we're doing this in person and not by teleconference. You can get that benefit of seeing me in person and knowing if I seem like I know what I'm talking about or not. You can tell that a little better by having me here in person or by talking to me afterwards, but you can't do this by teleconference. These kinds of benefits of us all being together are actually something we can measure as economists. That's called an externality. That's one example of all the benefits that we can measure, which are a reflection of the actual services transportation provides.
Mr. Greer: I would add that it's difficult to do one-size-fits-all simply because the nature of transportation infrastructure is so broad. Even individual investments on their own that might not meet some set level of criteria for involving the speed of a corridor, when combined with other small investments along that same corridor may actually make the business case that makes them all feasible. That was one the strengths of the old Asia-Pacific Gateway program. There was some strategic policy capacity at the federal level to bring together the public-private sector along a corridor and say a business case may not have made sense for the rail operator, the municipality or the port operator to make a small investment of a few hundred thousand or a few million dollars along one corridor. You had the federal government bringing them together collectively and comparing notes on some of the actual supply chain data each of them held, and they said, "Okay, we knew the rail operator was not going to invest on their own here, and we know the municipality wasn't going to build an overpass there." But if everybody can be brought together to make their small investments, the long-term impacts on that corridor are actually quite significant.
There is no one-size-fits-all solution, but I think there is space, whether it's through a bank or re-establishing these programs, to have some strategic policy capacity at the national level that can help determine, in each case, what that is. As it stands right now, Infrastructure Canada is mostly set up as a department that monitors, arranges and signs funding agreements for other levels of government. It doesn't have that strategic policy capacity. Bringing that back into the department will make it easier to work with smart people like Ben to set the criteria that get us to where we need to be.
Mr. Law: Quick comment here, Senator Mitchell, to your question. We referred earlier to national programs that have had some success in Canada. We've talked a little bit about the Asia-Pacific Gateway and Corridor Initiative. In the report that I worked on with the Canadian Chamber of Commerce, I noted that if you were to go back and look not only at the Asia-Pacific program but at two other foundational infrastructure programs that affected trade, the first and I think still the only major reinvestment in the national highway system made since its inception, and the Gateways and Border Crossings Fund, which was a similarly focused program, they had very comparable and very common criteria that were used to help to prioritize the investments. I won't try to detail all of them for you, but there was a remarkable consistency in how those things were articulated and identified that I think still holds a lot of value and benefit today. I think they're still very much applicable. That's not to say we don't need to be aware of the changing world around us. In fact, I think the competitiveness agenda requires that we take the best practices from other jurisdictions. We talked a little bit about Infrastructure Australia. There are some other great working models in Great Britain and elsewhere that have been brought to bear in recent times that I think we should learn from, but I don't think we have to go very far to find some common criteria that people would agree upon. They tended to be ones that got away from narrower self-interest, for example, in the articulation of the national priorities. It was preceded by some work that was done in Western Canada by the four Western provinces, in which they identified investment projects and criteria on the basis of regional priorities. They weren't specific to the individual province.
As Ryan said, if you think about these along supply chains or corridors, often there are opportunities to make multiple investments to get that corridor to operate at a higher level collectively, as opposed to looking at them as individual projects. Sometimes that means two or three investments in a particular corridor can allow you to do things that will increase that efficiency. For example, you could move to a higher primary weight opportunity for the corridor to carry more weight in the trucks if you have a fully engineered pavement to get from one end to the other. If, along the way, you have two or three segments that have not been designed to carry that weight, you usually go to the lowest common denominator. Simply making some improvements along the way in that regard, I think there are some opportunities there for us to be able to do some good things.
Senator Mitchell: It sounds like you were a truck driver in your past life.
Mr. Law: I won't admit to that either, sir.
Senator Mitchell: If I can pursue that a little bit further, the criteria give us an insight into setting criteria for economic-benefit evaluations, but not all infrastructure can be or should be driven just by economics. Clearly there is social infrastructure. I think of Edmonton, where the Boyle Street co-op is a downtown drop-in centre and service provider for the homeless and now is looking to build a better facility where they can have housing and a training facility. That wouldn't necessarily be judged. It wouldn't be stimulating, perhaps, to do some construction projects in Toronto because people are already working, but Toronto just needs those projects. I'm not from Toronto; I'm from the West. I'm putting a plug in for Toronto. Toronto needs those projects.
Would you segment infrastructure, then, and say, "Okay, these are for economic reasons; these are for social reasons; these are just because they are needed"?
Mr. Greer: On the Toronto point, Toronto is where a great deal of the need is. The point is that it shouldn't be rushed out the door for stimulus reasons. It shouldn't be rushed out the door at all. It should be spent where it's needed, as appropriate and under the appropriate timeline. We're not going to put money into Toronto for the sake of creating a bunch of jobs. We're going to put money into Toronto to get the things that Toronto needs to be more competitive and productive. The goals or criteria for different categories of infrastructure should obviously be different. There are certainly economic benefits to social housing infrastructure and some of the long-term benefits to the citizenry of persons who are integrated back into society or moving a homeless person, a chronically homeless person, who costs all levels of government a great deal to continue to treat through a system that doesn't really help them, moving them into permanent housing and giving them supports. There are benefits to all levels of government and, certainly, to society, but you have to measure those differently.
Our only point with our work is that there is a category of infrastructure that is economic, where it is a little easier to measure the outcomes you should be focused on. All of those other categories need to be measured, of course, differently, and there are different goals with green and transit and social, even though some of those certainly do overlap on the economic side.
The Chair: Any other comments?
Senator Tkachuk: I think politicians should be involved in infrastructure. We wouldn't have had a national railroad if it weren't for politicians. I want you to comment on a few things.
Infrastructure is always very political, but if you're going to build a bridge from Montreal and Saskatoon, you should build all bridges. If you're going to build a transit system in Toronto, why not Vancouver, Halifax and anybody else who wants one? I think the problem is that the decision-making process is too central and that all the problems are local. I think that there has to be a formula. We have one for health care. We have one for post-secondary education. We need a formula for infrastructure so that provinces can make that decision. That's where it belongs really. They can sort out the politics of whether they should subsidize a transit system or a subway system so that the country can focus on the national stuff like having a number one highway, four lane, all across the country, to put us into the 21st century, and ports and highways to the North and airports where we don't have private airports, like municipal airports, where they already tax the hell out of us just by landing there. I don't know if there is a formula that we could use that you could talk about, but I think that would solve a heck of a lot of our problems. It just drives me crazy when I see the federal government getting involved in municipal governments and handing out cash here and cash there and not for somebody else. I think that's a misuse of taxpayers' dollars, and it's not fair to the country.
Mr. Dachis: That's bang on. The only thing I would add is that the formula should also state that, once the lower- tier government, be it the province or the municipality, gets the money, they can use it however they want.
Senator Tkachuk: Exactly, and they pay the price politically if they use it wrong.
The Chair: Mr. Greer, Mr. Law, comments?
Mr. Greer: I would just add that I agree. The real issue, outside of transfers to provinces and municipalities, is figuring out which issues are in the national interest. A collection of municipal and provincial projects may not meet the national interest of getting product to market. A collection of goods movement strategy projects from Edmonton and Calgary, some of which the province agrees with, some of which the federal government agrees with, does not make an integrated strategy to look at the complete supply chain. I agree completely, and it's about deciding what the national objectives are. If there are some, apply them to how you try to generate investments from other levels of government. Where there aren't or shouldn't be national objectives, let the lower-level government decide how and where to invest.
Mr. Law: Just quickly, I think, to your point, senator, that the current Building Canada Plan has tried to evolve, to some extent, to take into account what you're describing. The PTIC, the provincial-territorial component of the Building Canada plan, is set up in a way to essentially transfer the decision making, for the most part, to the provinces, to the local levels, to identify what those projects are.
I think what we've been talking about today is not something that would suggest that we shouldn't be doing that. I think that because we haven't seen, at least so far in the articulation of the new plan, a stated priority for what we consider to be some of these important economic issues for the country, there is a gap right now from not including trade and transportation infrastructure as part of that mix.
Senator Cools: Chair, I'm concluding that we're on pretty slippery ground, so I hope we will work hard to endeavour to get a handle on this subject matter, which is somewhat vast.
My question is for Mr. Law, on his statement that Canada is somewhat alone in not having an infrastructure bank, noting that Canada's equivalent partners in the world have such a bank.
Could you expand on that point a little bit more so that we can get a better handle on it? If you could do that, you would do a good service for this committee.
Mr. Law: No pressure. The comment I made earlier, senator, was not just about Canada but about North America as a trading bloc. It's not only Canada but our partners in the United States and Mexico who also have so far not figured out a way of putting together an institution that could provide some of the supports to ensuring that our infrastructure agenda as a trading bloc can move forward. It's in that context that we don't have this.
Some people sometimes believe that these infrastructure banks are just is there to support developing countries, but it's not the case that they're limited to one or the other; they're virtually present in all of the trading jurisdictions. You will find a few in Europe, and the same is true in China and Southeast Asia.
These institutions, as I was trying to talk about earlier, are not to be thought of in the traditional sense of a bank doing commercial transactions. Think about the World Bank or the North American Development Bank as institutions that are very useful in helping to understand the relative merits of different infrastructure projects on different criteria. These banks, oftentimes, are not involved simply in trade and transportation infrastructure; they do a variety of other kinds of work.
They become important as knowledge institutions in terms of providing that critical intelligence, but they also serve as a forum for bringing together and encouraging private sector investment by virtue of the intelligence they provide that gives you a better sense of what you're going to get for your money.
I was most impressed in the meetings that I was a part of in Washington most recently. A great body of work has been done in this area by organizations like the World Bank that talks about the significant role of the private sector in bringing dollars and expertise to the table around innovation and improvements that can be made in the delivery of this infrastructure. To my mind, this is an important avenue of pursuit for us to think about in this country.
One of the things that have been under discussion — and as a result of a small working group of Americans, Mexicans and Canadians, a paper or two will be brought forward later in November that will talk about the prospects for what an infrastructure bank of this sort could look like. I will not try and presume all of what the report will say, but within a month there will be something out there that can provide more detail than I can here for the hearing.
Senator Cools: Would I be correct if I concluded from your segments and your descriptions, which were ample and brilliant, that perhaps Canada should look very seriously at the benefits of an infrastructure bank?
Mr. Law: My short answer is yes.
The Chair: Senator Cools, any other questions?
Senator Cools: I think that Mr. Law has made a very important contribution this morning and that we should explore it more thoroughly and deeply. Perhaps we could bring him back again in the future, but I really think we should look at it. It caught my attention.
Senator Moore: Mr. Law, I'm not familiar with the North American Development Bank. I've heard the name, but I don't know what it does. It sounds to me like it might be close to the infrastructure bank that's being talked about here this morning.
Could you tell us what it does? Is Canada a member? How many people are there? How many Canadians are on it?
Mr. Law: I've had a sum total of one meeting with the North American Development Bank, senator, so forgive me if I'm short on details. I can tell you that Canada is not a member — we had an opportunity to participate some time ago — for good reason: There were some concerns about how much of the work of the bank would be focused on Canadian priorities as opposed to U.S. priorities. There are obviously ways of dealing with that, but at the time they didn't get past the political issue of how to deal with that. Consequently, we have not been involved.
The bank itself has done some very good work in identifying projects that help facilitate things like transborder movements and investments at border crossings. They've had particular categories of investment that have started to reach a point where they're looking for new things to do.
One of the observations we've made in our meetings with the Americans and the Mexicans is that, particularly in thinking about how to get something in place institutionally, we may be able perhaps to redirect the focus of a bank that already has an existing mandate and funding without having to recreate a new institution. We need to figure out ways that Canada could meaningfully participate in order to participate in the benefits of an institution like that.
I made reference to the paper that's coming out in November that's been done. The Bush Institute in Dallas, Texas, is one of the signatories that has been working with colleagues of mine at the Canada West Foundation to produce a thought piece on this. I think it will provide more details around some of the options and details associated with that.
I'm sorry I can't give you more details about that this morning.
Senator Moore: I think it was in December 2014 I was at the first Canadian delegation of Canada-U.S.-Mexico — the first ever meeting of legislators at the federal level — but we couldn't seem to get past Buy American versus Buy North American. I think that's the biggest cultural block to any of this stuff you're talking about in terms of an entity that can properly address international issues for the equitable benefit of all parties involved.
Mr. Law: I've certainly heard that concern articulated previously. The one substantive comment I would make in that regard again goes back to this notion of supply chains. In North America, it is very common that in the production cycle you will see product development go through a series of transborder transactions. In other words, something that's being manufactured in the United States will oftentimes have products come from Canada, and there will often be multiple crossings of the border. They have been articulated well. For example, in the meetings I was in with the bank in the last month, they have measures that talk about — and I'll get these wrong if I try to give you the specific numbers — a significant proportion of each American dollar that's generated from these things that come from Canada and vice versa. The same is true of Mexico.
There are important economic transactions that take place in things that we sometimes think about as being American or being Canada that are, in fact, productions that involve both nations or, in some cases, tri-nation generation of those products.
Once that becomes better understood and articulated — and again, I think the banks are doing a good job of pointing to specific projects and evidence of this — people will have a better understanding of the opportunities associated with making joint investments in a more collaborative environment.
But this takes nothing away from your comment. I agree that the biggest issue to date has been concern about the political issues associated with trying to make this work.
The Chair: Gentlemen, since we have time issues, I'd like you to think about giving us a short summary of your conclusions of what we should be focusing on, if you have three recommendations each.
I know that you have done that through the reports, but if there's anything else that's come out of today's questioning, it would be nice to have that feedback so that we can build up our bank of information for our study.
Senator Andreychuk: Senator Moore has brought up an interesting and important area. The Foreign Affairs and International Trade Committee studied the issue of trilateralism. If I understand you, Mr. Law, you're saying that what we were supporting is that too often Mexico has talked to the United States; we talk to the United States; when Mexico and Canada get together, we talk about the United States. What our report said was that there are opportunities for Mexico and Canada to reacquaint themselves and build structures.
But I think our report came to the same conclusion. First, there should be working committees or commissions, et cetera, to strengthen that before we go into institution building, because if we go into that we'll get hung up on the politics. Is that basically how you responded to the question of Senator Moore, saying not a bank now but some mechanisms to strengthen?
Mr. Law: The form that the institution could take and what label we attach to it are important. When I was commenting on the possibility of dealing with an existing institution as a basis for doing this, I was thinking about perhaps a shortcut to bypass some of those concerns that have gotten in the way in the past. Whether or not that's ultimately a solution, I would stop short of trying to address the bigger issue there. It's just one way of thinking about it.
Senator Cowan: Thank you for your contribution this morning. You make a very persuasive case for the role of the federal government in facilitating these investments, particularly in the trade and transportation fields where they are crossing boundaries, and that the federal government can play not just a funding role but a facilitation role, making sure that the individual pieces collectively produce the good we're talking about.
My question has to do with the sort of reality of Canada and the complex and political situation that we have with the federal government, provinces and municipalities. I think it's often difficult to compare our country and the realities of our political situation with other more unitary states. I think it's a caution when we look at what happens in other countries.
In the work you've done over the years, and accepting the realities of the relationships among municipalities, provinces and territories, which programs have worked best in getting those entities to work together to produce higher-quality infrastructure investments?
Perhaps this leads to your point, chair, about recommendations, what we should be looking at.
What programs from the past would you recommend we look at for those best practices for the future?
Mr. Greer: We've talked about it a little bit, and I mentioned it in my remarks, but in terms of best practices for programs that bring together all levels of government in what is a complex governing environment — the Asia-Pacific Gateway and Corridor Initiative, and John talked about the Gateways and Border Crossings Fund — these were programs that didn't involve large sums of money, but it was the federal government playing the role as a convenor, to then get a bunch of follow-on investments from the private sector, municipalities, provinces and the federal government in these trade corridors. It was seen as a best practice.
I don't think it's any accident that Canada's higher ranking in our overall quality of infrastructure coincided with the establishment and existence of these programs, and that our decline could be linked to these programs no longer existing. Simply put, this level of coordinated investment in trade infrastructure priorities is tough to do in the absence of the federal government using its role as a convenor because the priorities of B.C., the interior, Alberta, Edmonton, Calgary and Red Deer don't always align; everybody's got more pressing issues, which aren't just economic infrastructure issues, that need to be addressed. Those programs should be shining examples for this committee and for the federal government when they decide how to roll out phase 2.
Senator Cowan: My impression would be that the Pacific Gateway program was more successful as than the Atlantic Gateway program.
Mr. Greer: Your observation would be correct. What the Asia-Pacific Gateway program had — I think there was even a Continental Gateway program — was that the private sector had a lot of work to do in coming together ahead of time to think about and establish its priorities. You can't just create a program and hope that everybody will come together and align. A lot of that work had been done ahead of time, before that program was established, by the private sector and a lot of forward-thinking individuals and organizations. You can't just create a pot of money and hope it will lead to a bunch of alignment.
There is also a lot of work that we, as industry and the business community, have to do on the Atlantic Gateway or on the continental corridor through Quebec and Ontario, and that the United States has to do to align industry with priorities so that it makes it easier for the other levels of government to come to the table and for everybody to have a pretty good idea of where the priorities are.
The Chair: Gentlemen, thank you. We have 10 minutes to do three distinct lists of comments in terms of recommendations. We gave you lots of time to think about it. You gave us lots of time to read about it before in the reports you gave to us. Who wants to start?
Mr. Dachis: I jotted down a few notes. I'll give you three points. The first one is a summation of the three I presented in my earlier presentation, which is that an infrastructure bank that is kind of arm's length but should never be fully arm's length can do the three things I focused on. One is focusing on the formula of what a grant should be for lower- tier governments; two, improving project selection; and three, be an agency that can encourage private sector investment. That's what that infrastructure bank can look like. That's point number one, and that's the big one for this committee, to really think about how to design a bank.
Second would be some of the abutting things you need to think about when you have more private sector investment, and that's a need to have robust and truly arm's-length regulators for some of this new infrastructure when it comes to the municipal or provincial level — if you have more private sector investment in, say, electricity or water, as you see all around the world.
This is a very common way for infrastructure to be delivered, especially in Europe, by the private sector. They have a very robust regulator there that is seen to be there to protect the public interest against the potential effects that private sector investors can have. It's also very important to have it there for the public sector, because you do not want the same organization to be both operator and regulator. That's what we have right now in a lot of the economy.
Third, to support what Ryan said, the CTA Review Report is a really important document. The government is right now going through its own review of what that report recommended. There is a lot to be said for the recommendations in the CTA review. My particular focus is on airport policy, and the recommendation of opening up ownership in our non-profit, non-share capital airport authorities is a bang-on recommendation. Look into that in more detail.
The Chair: Thank you. Mr. Greer.
Mr. Greer: Three things. First, even though we've spent a lot of time this morning talking about trade and transportation infrastructure, it's not "let's invest there to the exclusion of everything else." I think it's recognizing that for the current federal plan as sketched out in the last budget, perhaps the correct balance isn't there. That balance needs to include some sort of strategic focus on trade and transportation infrastructure, particularly in a deficit financing environment. In a low interest rate environment, it makes sense to borrow to build assets, but you better make sure a bunch of those are productive assets. Bringing greater balance to the federal plan by ensuring there is a stated federal priority around trade infrastructure is the drum that we'll be beating following this meeting and in the coming weeks as the government prepares to make its decisions.
I think re-establishing successful programs that we were just talking about, Asia-Pacific Gateway and others — there are a lot of lessons to learn from those. There were best practices, and we can even improve on them, but re- establishing those programs I think will bring a lot of benefit.
We talked about it briefly, but I would say don't forget about the private sector, to Ben's point about regulatory processes. The private sector is the bigger, better, faster and more dynamic infrastructure investor in Canada right now, but those investment dollars which do not require taxpayer or public funding are going to go elsewhere if we don't continue to try to make Canada a more attractive place to put dollars in. They can really be complementary of the public investments that will be forthcoming in the coming years.
Mr. Law: I will repeat what Mr. Greer said in two of my three recommended priorities for the committee. The first is that I believe that trade and transportation infrastructure needs to be a meaningful part of the government's program as they think about where they want to spend money. Not as a replacement or as a competitor to the existing three buckets that have already been articulated as priorities, but as a complementary priority that needs to be a part of the program and for reasons that have an awful lot to do with Canadian jobs and our future prosperity.
The second comment I would make in that context is that we need to think about those investments around a unifying concept or principle, and I think trade corridors is the right one to use. That really helps inform the decisions that are made. It also affects not only how governments think about it, but it also has a direct bearing on how the private sector will come to the table when they understand which of those priorities are part of the national program.
The second point I would make is that I think it is, as my colleagues have spoken about, very important that we think about making these decisions prudently on the basis of informed criteria. Those obviously need to be worked out, but I suggested, in response to one of the questions earlier this morning, that we have some reference points that we can look to from previous Canadian programs that have done a very good job in that regard.
Finally, again to agree with Mr. Greer, there is an absolutely fundamental and important role for the private sector. If we're going to include them in helping us to understand what the priorities need to be, we need to give them a meaningful role.
I organized a round table in 2015 in Toronto that was focused specifically on the role of the private sector and how they could help deal with infrastructure questions. What I was most impressed by was that on a day-to-day basis, it's how they earn their money; it's their bread and butter. They have analytical tools and intelligence that we simply do not have right now to inform our public choices. We need to leverage that expertise and make it a part of how we make our decisions. Whether it is through an infrastructure bank or other such tools, there are ways that we can do that in a meaningful way that would have them anxious to be a part of the dialogue.
The Chair: Thank you, Mr. Law.
On behalf of all of us, I would like to thank our three participates today. You did a great job. We appreciate your involvement and the depth of information that you shared with us, and we thank you for your presentation here today.
We will suspend for two minutes. I will need the group for one minute when we reconvene.
(The committee continued in camera.)