THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, February 7, 2017
The Standing Senate Committee on National Finance met this day at 9:30 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: Welcome to the Standing Senate Committee on National Finance, colleagues and members of the viewing public. The mandate of this 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 the committee, including, of course, a list of new members with us today, some whose faces we've known over time and some new faces.
First, we have Senator Douglas Black, from Alberta, who is a lawyer by training. He has been a senator since 2013. He also sits on the Banking, Trade and Commerce Committee and the Energy and the Environment Committee. Welcome, senator.
[Translation]
Senator Éric Forest, from the beautiful province of Quebec, is a real hockey player. For over 10 years, he was the mayor of Rimouski, Quebec. His engagement helped bring together the municipal world. He worked, and he’ll no doubt continue to work, on developing eastern Quebec. Welcome, Senator Forest.
Senator Lucie Moncion, from North Bay, Ontario, brings us a wealth of knowledge and expertise from the co-operative sector, along with a wide range of practical experience from the Franco-Ontarian community. Welcome, Senator.
[English]
Senator Yuen Pau Woo, from British Columbia, brings a rich experience in strategy, policy for business, government and not-for-profit organizations. He is a leading thinker on international economic issues in Canada-Asia relations.
[Translation]
Jean-Denis Fréchette, Parliamentary Budget Officer, is here with us today.
[English]
Of course, he talks to some of our regular senators, led by Elizabeth Marshall from the Rock, Newfoundland, where she is a former Auditor General.
[Translation]
We also have here with us today, from Quebec, Senator Ghislain Maltais, a veteran of Quebec politics.
Last week, Mr. Fréchette, the Parliamentary Budget Officer, and his group published a report that’s very relevant to the infrastructure study we’ve been conducting for almost a year.
[English]
To discuss his most recent report, entitled Canada's New Infrastructure Plan: 1st Report to Parliament - Following the money, we welcome Jean-Denis Fréchette, Parliamentary Budget Officer. He is accompanied by members of his team: Chris Matier, Senior Director, Economic and Fiscal Analysis and Forecasting; Peter Weltman, Senior Director, Costing and Program Analysis. Welcome. We don't have Jason with us, do we?
Jean-Denis Fréchette, Parliamentary Budget Officer, Office of the Parliamentary Budget Officer: Jason he will be here later. I'm sorry for that. He wants to bring crystal clarity this morning so he will be here, believe me.
The Chair: Most of you remember that Mr. Frechette appeared before this committee back in October to discuss with us the flow of infrastructure spending, as well as estimating the economic benefits of infrastructure spending.
[Translation]
Mr. Fréchette, you can start your presentation.
[English]
Did I forget Senator Andre Pratte? I did, and I read about you all throughout the Christmas holidays. I'm sorry.
Senator Pratte: Should I read something into this?
The Chair: No, it's all positive. I shook your hand earlier, André, and I do apologize.
[Translation]
Senator André Pratte is very well known as a result of the journalistic expertise he acquired throughout his exemplary career at La Presse.
[English]
Do you forgive me?
Senator Pratte: Yes, I forgive you.
The Chair: Thank you. I landed a few days ago and as you can see, my head is still in the clouds but I'm honoured to be back with our committee.
Infrastructure spending study is one of the main platforms we are looking at, but it is a critical platform to the future economic growth of our country.
If I can frame attitudes, I think what's most important is that when we look at tracking and finding the money and where it is being spent, we look at the positives of whether there is anything this committee can do to help improve the delivery of what is going on with infrastructure. I think that should be our objective. I don't think it's beneficial for us as we go through witnesses and as we go through evaluations to find fault in who does what. I think we should try to look at how we can make this system better because it is so important to our country.
In that frame of mind, I hope, Mr. Frechette, you would support that thought process. It's good to be vigilant, but at the same time we have to make sure we discover what can improve. I think that's part of your role as the Parliamentary Budget Officer.
I welcome another senator, Senator Omidvar, who is my partner right across the street. Thank you very much, senator, for coming in today. It's great to have you.
Mr. Fréchette, it's up to you now.
[Translation]
Mr. Fréchette: Thank you, Mr. Chair.
Honourable senators, thank you for inviting me to appear before you to continue our discussion on Canada’s new infrastructure plan.
I note that your committee now has new members. Therefore, I’ll mention that two meetings have already taken place, on June 8 and October 5, 2016, since the Office of the Parliamentary Budget Officer team committed to supporting your committee’s work on infrastructure funding.
We’re happy to present you with our first report to Parliament. Its purpose is to assist parliamentarians in understanding infrastructure program outcomes and expectations, as well as the associated potential risks.
[English]
It will be challenging for parliamentarians to monitor the $12 billion in infrastructure spending — that is, the $11.3 billion announced in Budget 2016 and the $700 million announced in the Fall Economic Statement — since this funding will be allocated over two years among a variety of programs and will be delivered by 31 departments and agencies.
Therefore, this PBO report on following the money is the first in a series of infrastructure reports that we plan to publish. Of course, these upcoming reports will be in addition to and should be used in conjunction with our regular reports, such as the Expenditure Monitor, which is in the process of being revamped to be even more timely, and, of course, the biannual Economic and Fiscal Outlook.
In the same context, to facilitate the discussion this morning, we prepared for your committee a summary table based on our expectations of the progress of Canada's New Infrastructure Plan and its potential economic impact.
[Translation]
Before concluding, Mr. Chair, I can assure you that my colleagues and I are very aware of the fact that, as senators, the regional component of infrastructure spending is very important to you. In the next few months, we’ll continue our study while taking into account this component of project distribution in our analysis, especially if certain trends are identified.
I want to take the opportunity to introduce my colleague, Jason Jacques, who is here today.
[English]
As I said, he was looking to talk about crystal clarity this morning.
The Chair: I thought he was bringing doughnuts from Tim Hortons. Jason, take care of us now.
[Translation]
Mr. Fréchette: My colleagues and I are now ready to answer your questions.
[English]
The Chair: Thank you very much.
Senator Marshall, would you start the questioning, please?
Senator Marshall: I have a number of questions. Thank you very much for the chart. I do have to compliment you on your reports; they were very informative.
I see how much has been approved for projects, but I was interested in knowing exactly how much has been spent to date. I note that you've indicated in the chart that you handed out that you expect $2.7 billion to be spent this fiscal year, but do you know how much has been spent to date or as of the most recent date for which you would have that information?
Mr. Fréchette: Thank you for the question. Before I ask Peter to walk you through it, just a short summary of the table in front of you. As you can see, Table 1 mentions what was announced in the budget, as the senator mentioned, the 3.9 and the 7.3 billion over two years. In April, if you remember, the PBO made estimates of the economic impact, which is, again, just the bottom part of Table 1.
Table 2 is what we expect to be our own expectations based on our analysis of what would be spent in 2016-17 and what would be the impact of that $2.7 billion that should be spent this year. You can see the impact on the GDP and the impact in terms of jobs.
If I may, Mr. Chair, I will ask Peter to answer the other part of your question.
Peter Weltman, Senior Director, Costing and Program Analysis, Office of the Parliamentary Budget Officer: Thank you. Jason and I will both answer this question.
This report doesn't identify what has actually been spent, as you rightly pointed out. It is simply what has been identified. The data that we're collecting on this side is simply project data, so what has been identified and the stages of the project. The Expenditure Monitor that Jason heads up actually tracks federal government spending.
Can I turn that question back to you, then?
Jason Jacques, Director, Economic and Fiscal Analysis, Office of the Parliamentary Budget Officer: Following up on what Peter indicated and based upon the tables, we are currently monitoring actual spending by the Government of Canada, so going through the Government of Canada's accounting system, as well as tracking in detail what provincial governments and some municipal governments are also spending. There is also a rich source of data on that front with respect to looking at the major municipalities as well as the provincial governments and, of course, most importantly, looking at Statistics Canada’s system of National Accounts because, of course, as part of the annual GDP numbers, we track that as well.
In terms of, down to the final dollar, what has been spent on infrastructure up to February 7, 2017, unfortunately we can't tell you that precisely. What we can tell you is what we currently expect to be spent. In the first six months of the year, based upon the data at our disposal, we estimate that approximately a half billion dollars probably hit the economy of the announced federal infrastructure spending from Budget 2016. You mentioned $2.7 billion for the year. In the first six months of the year, roughly $500 million. We currently expect that there's going to be a vertiginous increase in the last six months of the year in terms of the reported spending actually going out the door.
Senator Marshall: In your Expenditure Monitor report, you noted that grants and contributions had increased significantly, by 10 per cent. Is infrastructure money always paid out of grants? Is there a correlation there?
Mr. Jacques: There should be. Actually, the infrastructure money goes out through various mechanisms, not exclusively grants and contributions. Going back to the Expenditure Monitor, you're bang on in terms of the growth in grants and contributions. But when you drill down to additional detail and specifically look at the transfer payments coming from Infrastructure Canada, within the first six months of the year there was barely any growth whatsoever. What growth was in place was from pre-existing programs and timing differences associated with pre-existing programs as opposed to the new programs.
Senator Marshall: When I look at the chart in your infrastructure report, on page 9, where you've got all of the departments and agencies listed and are comparing the allocation approved by Treasury Board with the value of the projects that have been identified, some of the departments and agencies really don't have very much approved yet. Did you just look at the numbers or would you have spoken to the departments to find out why there is such a lag?
Take, for example, Indigenous and Northern Affairs. Their allocation is $1.9 billion, but they've only got projects approved for $239 million. So we know that there are many worthy projects in that department that could be funded, but they don't show up as being identified. Would you have spoken to the departments as to why that is so?
Mr. Weltman: Yes. We collected information from all of the departments, and in some cases they would explain to me why there was the discrepancy. In the case of Indian and Northern Affairs, there were two reasons. First, frankly, they're not used to collecting the project data in this manner, to be reported on this sort of a frequency. Most of these are pre-existing programs, and they run them the way they've always run them. Then they report at the end of the year, in their Departmental Performance Report, about amounts spent.
Because now we're asking for in-year information, it took them a little while longer to coordinate with all of their regions and the program and project officers and bring everything together. They are updating that, and we should be getting an updated list of projects, probably in the next two or three weeks.
I might say, too, looking at the history of these programs, that generally speaking Indian and Northern Affairs doesn't lapse too much money on these programs. The money tends to get out, but we will know better, hopefully, in a few weeks' time, when we get an updated list of projects.
If would add a couple points. Some of the regional development agencies haven't spent all of their allocation because they generally get a list of proposals and then have to go through and approve them. In many cases, they had a large list of proposals but hadn't yet approved projects, which is why they're showing as not having spent their allocation. In some cases, they've spent over their allocation because they reallocated money.
Senator Marshall: I saw that.
Why would Treasury Board only allocate the $10.8 billion and not the full $13.6 billion? Why would that be? Why are they holding on to some?
Mr. Weltman: That 10.8 was approved at the Treasury Board meeting following the budget, so there might have been subsequent approvals. Since I first drafted the report, I have been back and forth with Treasury Board and Finance to try to get answers to exactly those questions.
Senator Marshall: Okay. We'll see.
Mr. Weltman: It may have been approved at this point, but I don't know yet.
The Chair: Let's go to Senator André Pratt from Montreal.
[Translation]
Senator Pratte: I want to reconcile the data in the various departments’ tables, which are on page 9 of the English version and page 10 of the French version, and the table in your presentation today.
Your report seems to show a very significant gap between the allocation of funds and the approved projects. We understand that part of this depends on how the departments compile data or on the type of program. Some programs use an allocation method where money is paid only when all projects have been approved. There still seems to be a significant gap. Let’s look at the expectations and your office’s estimates. After two years, you’re expecting 92 per cent of the amounts to be spent. Is that correct? You’re expecting 92 per cent of the $11,283 billion to be spent, give or take $800 million, and the impact on the creation of full-time equivalent jobs to more or less correspond to the target. This means almost 8,000 full-time equivalent jobs.
When I look at all this closely, and assume that your estimates are accurate and that they achieve the goal, doesn’t it seem quite good?
Mr. Fréchette: Thank you for your question. Regarding the reconciliation between today’s table and the report’s table, I’ll ask Mr. Weltman to answer that part of your question. However, I can tell you that you read the table presented today properly. It’s essentially our estimate.
The $700 million announced in the fall update appears in today’s table, but not in the other table for 2017-2018. This amount is behind the $7,688 billion increase announced for 2017-2018. It’s our planned spending.
If we compare our April estimates to our current figures, we’re a bit pessimistic. In 2016-2017, the $2,731 billion corresponded to the amounts we estimated would be spent of the total amount announced in the budget. Based on our estimates, we still fall short. Our estimates are relatively accurate, and obviously they must be made. We’ll monitor them during the period.
The table dates back to the fall. Therefore, there’s a gap. As Mr. Weltman said in his response earlier, we don’t have all the information in real time. There’s always a delay in obtaining information from departments, which makes it difficult to reconcile everything. Our estimates are based on our own estimates, as Mr. Jacques said.
Will the amount be huge by the last quarter of the year? We think so, but we won’t reach the $3.9 billion target.
Senator Pratte: I want to clarify my point. When I read your report, I’m inclined to worry. There’s a significant difference between the allocation of funds and the approved projects. When I look at the table, I basically see a gap. However, according to the Parliamentary Budget Officer, the gap will be significantly smaller by the end of the year and in 2017-2018. Therefore, I shouldn’t be so worried. Should I be worried?
Mr. Fréchette: You read our table properly. There’s less reason to worry than in November, when the data was published. As we said, the departments tend to issue funds quickly. I think all those who are familiar with the grants and infrastructure program field know very well that funds tend to be issued in the last months of the period.
You should be slightly less worried when reading today’s table than when reading the report’s table.
Senator Maltais: Mr. Fréchette, are the provinces ready to receive the $11.7 billion?
Mr. Fréchette: You’re asking me a difficult question, especially since I know senators around the table who are well aware of the facts.
You know it very well, and the report indicates as such. The funds are approved. The Treasury Board has approved the amounts. Obviously, there’s always a delay between when the funds are approved and when the projects can start. Is it the provinces or the municipalities? I can’t really answer this question.
Senator Maltais: I know the answer. Today is February 7. Normally, in the next 60 to 70 days, the provinces across Canada will table their budget.
Essentially, the provinces know what amounts they’ll request through the infrastructure program. Infrastructure is capitalization in a province, and is not included in the current shopping list. For the provinces, it affects the budget, because they must fund this section through bonds. Municipalities, a creature of provincial governments, must also include their participation and the amount of their participation in their budget. They must have the authorization of their province’s municipal affairs department. They must also use the bond market to fund it. It’s the normal chain of events. At the end of the process, it’s October or November. How do you think money can be spent?
Mr. Weltman: When the provinces and municipalities sign the agreement, they provide assurance that they’ll spend money and start these projects. They’re really the ones that must meet the requirements.
If you’re asking us how they’ll spend the money by the end of March, I think that, as we said before, the data isn’t up to date and we may not know how the projects are progressing.
Senator Maltais: That’s not exactly my question. The provinces must fund the projects through their own budget. The municipalities must prepare to fund the projects.
Senator Forest: No, no, no.
Senator Maltais: It takes a certain amount of time for the projects to be carried out. The Environment Department is also involved. Many people make things difficult. I want to know when the projects will be launched. At the end of the summer…in November, in Quebec, it’s difficult to dig. For example, as of the end of May or early June, will the work sites be running in Quebec and the other provinces? In May and June, will we see the impact of the work firsthand?
The Chair: Maybe Mr. Fréchette and his team could answer the question. Therefore, we can benefit from the presence of the former mayor of Rimouski, who could provide his comments.
Mr. Fréchette: The prospect of the former mayor of Rimouski giving his comments on the issue is exactly what I was afraid of.
Senator Maltais raised an interesting point regarding the provinces’ fiscal management. Some provinces wait until the end or wait for their budget to be tabled to have revenues they will have funded, as you said before.
It’s true that infrastructure programs in general carry a certain moral risk. I see you nodding. In other words, sometimes the provinces are inclined to wait for an incentive from the federal government. It’s the same thing for the municipalities. They wait for a signal to move forward.
It’s not new. This concept has always existed. Does it help the provinces? As I told you, the Parliamentary Budget Officer focuses more on the economic impact and the job creation implications at the federal and national level than on the preparation of the provinces and municipalities.
That said, everyone around the table knows that the implementation delays for some of these programs, at the regional and municipal level, are longer. Perhaps Mr. Jacques wants to add something?
[English]
Mr. Jacques: I only want to add that, as mentioned earlier, as part of our current monitoring of Budget 2016 and the rollout of the infrastructure spending, we are in touch with the four largest provinces across the country just to have a good sense of any delays on their end and their assessment with respect to implementation. Based upon consultation with the provinces, as well as previous experience, the numbers in the table assume that as soon as the federal government is ready to implement the programs, there will be no additional delays at the sub-national level.
Right now, the numbers do not include an assumption that there will be additional delays potentially, as in your example, from the Province of Quebec or the Municipality of Rimouski with respect to implementation.
Being a numbers person and an accountant, I like numbers; they put things in context. It's always important to remember that over 85 per cent of public infrastructure spending is actually spent by the provinces and municipalities across the country. So while the federal government is the largest entity across the country, and while it is a substantial increase in Budget 2016 with respect to infrastructure spending, there is a tremendous amount of capacity at the sub-national level within provinces and municipalities. They manage these projects, and by and large, when the federal government isn't anteing up additional spending, such as in Budget 2016, the sub-national governments are still spending over $70-odd billions a year on these types of infrastructure projects. So there is a fair amount of pre-existing capacity in place.
[Translation]
Senator Forest: Thank you, Mr. Chair. I’m pleased to be here today to speak about infrastructure as part of this first meeting. For your information, Quebec municipalities are responsible for 55 per cent of all public infrastructure in Quebec. I was at the other end in terms of the infrastructure program. To give you an example, Quebec has 120,000 km of roads, including 100,000 km under municipal responsibility and only 20,000 km under provincial responsibility. When you carry out a project, your figures take into account the projects announced and not the project signed. I’ll take the Rimouski example. Projects in the neighbourhood of $38 million have been signed by the minister but haven’t been announced. Therefore, your figures don’t take those projects into account. Is that correct?
Mr. Weltman: The Infrastructure Canada contributions are not included in the figures, namely, the projects that haven’t been announced. Our figures take into account other projects, among the other departments, that haven’t been announced and that are included here. However, in your case, it wouldn’t be included.
Senator Forest: The way it works is that the project is announced by the provincial government and the federal government. The municipality receives the project and the work is carried out, but the bond market isn’t used until the project is finished. Funding is provided on a temporary basis, but the project isn’t placed on the bond market until it’s finished. This allows for much more freedom in terms of how things will work, and there’s no disbursement by the department as such. This gives us room, instead of slowing progress.
I think your remarks were very relevant. That clearly is not a part of your primary duties, but I think we all have the same concern, which is to make our infrastructure programs more efficient. If you remember the first phase, we saw cost overruns in Quebec. What I want to say this morning is that in our report on infrastructures, we need to insist on more involvement, more proximity on the part of municipalities. They deliver the vast majority of projects. If you look, for example, at the fuel tax, municipalities are the ones that deliver the work. In the context of GST refunds, municipalities deliver the results. They deliver the goods for many projects under the Building Canada Fund. They are the executive arm, but there is no link.
Our colleague, Senator Maltais, mentioned earlier that aqueduct and sewer work cannot be done in December, January and February in Canada, with very few exceptions. That was one of the important elements in the first 2007-2013 phase, when work began almost two years late in Quebec, on projects that had to be delivered by March 31. So people completely missed a window that would have made the work doable.
Supply and demand were out of balance in terms of deadlines, and in addition people who made bids said things such as: “I have to deliver this for March 31, and so I’m going to create a buffer for myself, because I may be obliged to do work on aqueducts or sewers in the month of February, with the resulting exorbitant costs.” I think there is a concern because there are three levels of government, municipal, provincial and federal, but there is also the taxpayer to be considered, the one who pays taxes to the three orders of government.
There is a first phase that amounts to a small percentage of the program over ten years, and in my opinion, we have to think about a more favourable environment, one that would be much more conducive to efficiency in spending public funds, and allow for a better partnership between the three orders of government that have the responsibility of delivering programs at the best cost and as efficiently as possible.
I wanted to follow up on what was said previously and explain how we function with the bond market. I especially wanted to suggest that our committee needs to reflect on how the government can be more efficient and avoid creating an environment that could encourage cost creep; we need to see how we can obtain more for the money we spend.
Senator Maltais: What you say is very clear, Senator Forest, that is true. I have worked in another level of government where we had to prepare forecasts to fund projects. Money was supposed to come in at the beginning of the year for these projects but if the money did not arrive, we had to get ready to fund the projects ourselves first. If the expected funds did not arrive for one reason or another, we still had to be ready to pay our part and to pay the municipality’s part because the provinces fund the municipalities, when you get right down to it. The government’s hands are clean in all this, but this affects the municipalities. But you are entirely correct, the same taxpayer pays at all levels.
[English]
Senator Woo: Thank you, Mr. Fréchette, for your presentation. I have two sets of questions. The first has to do with project selection and the second is on the proposed Canada infrastructure bank. I will start with the first.
To my mind, the most important part of any major infrastructure spending program is project selection. I know it's not your responsibility, but I wonder if you can tell us what you know about the project selection process in the different responsible agencies, particularly if there's any consistent use of cost-benefit analysis. I don't want to get too wonky about this, but I'm curious about the kinds of methodologies used in the cost-benefit analysis.
Mr. Fréchette: It's a great question and is a good segue to what the previous senator mentioned about not only the efficacy or efficiency of projects, but also the productivity and economic impact those projects can have.
I'm taking some time for Peter to organize his thoughts.
When you build a sewer or bridge, at the end of the day it's still just a bridge or a sewer if you don't use any new technology and so on. This is really what this committee should look at; namely, not only the efficacy or the efficiency of these projects but also the choice. Basically your question is about the accountability of taxpayers' money going from the federal government to the provinces and the municipalities.
Mr. Weltman: We've done a few studies on infrastructure. It's on that basis in which we offer comments, but that's all they are; they aren't analyses of the manner in which projects are selected.
There's a little piece in the report that a talks about a McKinsey study, which is a nice analytical tool as to how to drive productivity growth through infrastructure. Because of the federal nature of the country and because most of the payments are transfer payments, it's a lot less clear in terms of accountability for project selection. At the provincial level, it's the provinces, and at the municipal level, it's the municipalities and their elected officials do that.
What I've noticed in my research is that unitary forms of government tend to have a little more centralized strategic, national priority lists. Australia is one example; the U.K. is an example; Chile is another example. We don't have that, per se, at the moment. I don't know if that's coming.
That's all I'm really comfortable talking about. That's a great question, though, for those who are intimately involved in project selection.
Senator Woo: Do you know if cost-benefit analyses are used on any of the projects selected? To the extent that some of the projects are initiated federally because of allocated funds — I think they're called — do federal departments use cost-benefit analysis when they decide on a major investment project? It's a standard tool; there's nothing magical about it.
Mr. Weltman: No, there's nothing magical. The questions we often ask — not necessarily in an official capacity — as we're doing our costing work is the sort of analysis that is undertaken to support a budget ask or a project.
In terms of these projects, if I look at some of the departments, it's not a question that we ask specifically, but it's certainly a good question we might want to put in for our next report.
Senator Woo: There is a reference to the planned establishment of a Canada infrastructure bank. It's a very interesting idea. I know it came out of the growth advisory council's report. I wonder if you know any more about the structuring of this bank, particularly where the balance of $20 billion in capitalization is coming from, what sources, and how is it to be raised? More important, is it going to function as an infrastructure investment fund or as a lending institution?
Second, is it going to have social objectives associated with its lending or its investment operations along the lines of multilateral or international financial institutions that have developmental objectives, development banks? Is there any information you can give us on the status, structure and direction of the proposed Canada infrastructure bank?
Mr. Fréchette: Thank you for the question. We don't have many answers to your questions about the infrastructure bank, but Peter can explain how the bank may operate.
Mr. Weltman: These are all questions that we've been trying to get answers to.
All I can tell you now, and it may help the committee, is that the Department of Finance and Infrastructure Canada have a joint responsibility for developing this infrastructure bank. There is a gentleman with the Department of Finance whose name escapes me at the moment who is heading this up. I am in Toronto tomorrow morning at an infrastructure conference, and I'm hoping to get more details on some of the questions you've been asking. That's as far as I can go.
Senator Woo: Any sense of a timeline for the establishment of the bank?
Mr. Weltman: It will be somewhere around the announcement of the budget. That's the latest information I've gotten.
Senator Omidvar: I have two sets of questions, and they're quite different, so please bear with me.
I'm curious about page 7 of your report. The last paragraph talks about the social infrastructure program embedded in the infrastructure funding goals. You talk about projects for housing and health facilities and renovations to a variety of local community buildings, community cultural centres and outdoor recreation.
I come from a region where there is a huge backlog in repairs to social housing. Is that element of the social infrastructure program going to be dealt with solely by funding municipalities, or is there something embedded in that latter part of the sentence that I'm not understanding? Is there anything to do with social housing?
Mr. Weltman: Yes. CMHC is delivering all of that. There's been a doubling of the funds allocated to affordable social housing. That's the name of the program. From my understanding, those are typically delivered by a variety of different groups, whether they are landlords, municipalities, non-profit organizations or community associations. CMHC sets aside the funding and writes cheques as those projects get completed.
Senator Omidvar: What about day care? Because when the funds were announced, social infrastructure was talked about as part of the deliverable. It's not just hard infrastructure but people infrastructure as well. Where is day care in all of this?
Mr. Weltman: Day care is included.
Senator Omidvar: Under which agency?
Mr. Weltman: There is some money at Indian and Northern Affairs for childcare on reserves. There is some money with CMHC. I'm going from memory, but I believe ESDC has money set aside for day care, too.
Senator Omidvar: I notice with some interest that in your handout you talk about employment and the full-time employment impact of the infrastructure plan. I realize it's not your responsibility. Is it someone's responsibility to disaggregate the employment impact by region, by province, by gender, by other demographics? As a senator, I would like to know who has benefited from these jobs that have been created and who is being left out.
Mr. Jacques: It's a great question. The best people with whom to speak would be at the Department of Finance. They would certainly be much better placed to have access both to the internal government data, as well as use their very sophisticated economic and financial models to answer some of the very specific regional and gender and other demographic-based questions that you ask.
Mr. Fréchette: Senator Omidvar's question is a great one. I would add the gender-based analysis of all that, just to get some people in trouble in the departments.
I had a discussion with someone who asked me that question: What about this infrastructure? Everybody talks about the economic impact and jobs. You mentioned day care and housing. My answer to that person was that as a parliamentarian it's difficult to establish that, but it's a very important point. I'm sure some people are looking at a gender-based analysis of the impact of all these infrastructure programs.
Senator Omidvar: I would note it should be GBA+ analysis, which is gender and equity analysis.
The Chair: In our notes, Infrastructure Canada is the only department to have published a list of its funded projects. How many other departments have infrastructure monies? I'm trying to understand the coordination between Infrastructure Canada and other departments. There seems to be some issue of coordination. I'm not sure that's an issue, but when you look at the number of players involved and go through organizations, you worry, from the top to the bottom, whether there's an alignment of how the operation works.
Could you comment on what other departments have infrastructure spending budgets? Infrastructure Canada is the only one that has published a list of its funded projects. Why aren't the others doing the same?
I'm trying to dig into the coordination issue because that may be an opportunity for the government to identify ways to improve its deliverable.
Mr. Weltman: I like Jason's expression of adding some crystal clarity to this. That was the motivation behind getting this report started.
In total, 31 departments have received an allocation as part of Canada's New Infrastructure Plan. Most of those departments are delivering regular programming that they've always delivered. For example, on the social housing side, on the reserve side, those are all programs that have been in existence for a while, but they have been placed into this New Infrastructure Plan. Federal infrastructure renewal is effectively recapitalization of departmental assets.
These departments aren't used to and normally don't publish a list of their projects under the current programs. When we started asking these questions, as I mentioned earlier, that's why there's been such a lag in getting the data. A lot of the data is held internally; it's never really been put together for public use.
Infrastructure Canada has been in the business of delivering infrastructure projects since 2002, roughly, so over time they've gotten better at being able to standardize their process and publish regularly the distributions that they're making. I think that explains the difference. From a coordination point of view, it's something that absent anybody else, that's what we're trying to do.
Senator Pratte: I want to make sure I understand correctly. If not for what you're doing with these reports, no one in the federal government machinery is trying to get that information together for the 31 departments plus Infrastructure Canada. That is, is no one trying to follow this $10 billion to make sure that the money is going where it should be going and to make sure it's spent.
Mr. Fréchette: Jason was waiting for that question.
Mr. Jacques: Based upon our current knowledge, obviously, tracking and coordination work is done within the various central agencies.
To a very astute point that was raised by Senator Smith, if you actually look at the most recent quarterly report of the Office of Infrastructure Canada, they identified the precise point that you made and the challenges that they're facing with respect to coordinating the infrastructure program. They actually identify it as a key operating risk for the organization in the successful implementation of the Budget 2016 policy commitment.
But there is certainly work being done within the public service right now because in the same way that we prepare these reports for you to ensure and support your deliberations, obviously internally, around the cabinet table, they need similar types of information to support their decision making around additional allocations as part of Budget 2017 or potentially making a mid-course correction.
Senator Pratte: So there is work being done, but we don't know where that information is or will be?
Mr. Jacques: There's certainly work being done within the Department of Finance and there's certainly some work being done also within the Treasury Board Secretariat. Whether it's identical to the work that we presented to you last week we can't say, but certainly, again, it answers the same types of questions. The questions that you're asking today are the same questions that members sitting around the cabinet table and Minister Morneau need answers to when they actually formulate and develop the budget.
[Translation]
Senator Forest: I would like to ask an additional question. It’s tricky, because if we look at the first two programs to reimburse the GST to municipalities, the GST refund depends on how the municipalities spend the funds. As for the fuel tax, there is a proportional reimbursement. According to the work plans submitted by the municipalities to their respective governments — in Quebec, for Quebec — it is clear that this group of envelopes is divided proportionally and the people focus on the projects. The first two levels are specific with regard to what is spent on GST and what fuel is consumed. Afterwards, the municipalities are responsible for work on their own infrastructures.
What is important to my mind this morning is examining the first two years out of the ten, which account for 20 per cent of the target period, for which a budget of 17.3 per cent of the total envelope was worked out. It’s like training; during the first two years, we have to make sure that these programs function efficiently because the remaining 82.7 per cent — some $180 billion — represent a lot of money.
That is the portion which comes from Infrastructure Canada; to that we must add the amounts provinces will invest, and the amounts municipalities will also contribute. In the context of programs divided into thirds, when we invest $80 billion, the Government of Quebec also contributes $80 billion, and a third amount of $80 billion is invested by the municipalities of Quebec. This produces an important leverage effect, and that is an enormous amount of money coming from the public purse.
[English]
Senator Moncion: I want to go back to Senator Woo's question about the infrastructure bank.
[Translation]
I know that the Canadian Infrastructure Bank has not been set up yet and you’re working to do that, but I’d like to talk about a problematic situation in Canada. When the government is a lending institution that competes with the financial institutions, this creates an imbalance between the advantageous funding offered by the federal government, and the funding offered by financial institutions.
For instance, when the Canada Development Bank awards loans to small and medium businesses, it is competing directly with financial institutions. It is the same thing for agricultural financing. If we are going to have an Infrastructure Bank and the same situation arises, this will once again skew competition between the free market and the federal government. This isn’t necessarily a question, but more of a comment I am making to highlight the importance of taking these elements into account when infrastructures are developed within the federal government.
I would also like to broach another point which is of concern to Senator Forest, in particular, that of municipalities investing in infrastructure projects and having to borrow from financial institutions for the bridge financing. Is the interest paid by municipalities reimbursed, is it considered part of the costs for the infrastructure projects? This is also important and has to be added to the cost of these projects.
Senator Forest: When calculating the budget for a project, contingency costs and short-term financing are included. If those costs are considered eligible, for instance by the Government of Quebec, where Quebec municipalities are concerned, they are indeed reimbursed.
Senator Moncion: This means that sums are being added to projects that could cost less because you have to pay interest at higher rates to financial institutions, as opposed to an infrastructure bank that generally gets its money from the federal government, money that costs less, which would allow us to reduce the famous interest costs. This also impacts free market competition with financial institutions. These are factors that have to be taken into account in setting up this bank.
[English]
Senator Marshall: Would you know whether this is the first time infrastructure funding has been allocated out to all the departments, or is it ordinarily done through Infrastructure Canada? My recollection is that maybe five or six years ago, the Auditor General audited an infrastructure program, and it was actually a positive audit. It would seem that there's a template in place for the accountability for performance information, which you say is deficient now. I'm curious: If a template already exists, why would they not be using it for the current infrastructure program?
Mr. Weltman: The audit wasn't really a performance audit; it was a financial audit. It was a grants and contributions program, and I think it was around some of the stimulus programs. It was testing whether funds were being paid properly, whether invoices were being submitted properly and whether there was a process in place to have some assurance as to the admissibility of the expenses.
Performance can be measured in different ways. If you're measuring it against the Financial Administration Act, yes, it got a clean bill of health. Coming back to some of the questions, if you're measuring against whether this is the most effective way, that wasn't the scope of the audit, to my recollection.
The other thing is that, as I mentioned earlier, we have Canada's New Infrastructure Program, and Infrastructure Canada is delivering most of or a good half of it. The other funds are through other departments but effectively in programs that are, for the most part, pre-existing or renewals of sunsetting programs. It's just a matter of how that funding has been positioned. Whether they're using the same template or not depends on the nature of the programs they're delivering within the departments.
Mr. Jacques: You referred to a previous Auditor General's audit. The most relevant comparison might be the performance audit they performed of the Gas Tax Fund. That directly relates to some of the observations we made in the report issued last week.
Senator Marshall: Is that the one carried out by the commissioner?
Mr. Jacques: It was. Thank you for correcting me.
Senator Marshall: I wanted to make sure.
Mr. Jacques: Again, there is good concordance with respect to the point we made last week regarding the lack of clear outcomes and outcomes data. That was a similar finding.
As someone who read it and had an opportunity to watch her testimony before the committee, I believe it was a similar finding from the commissioner with respect to the audit.
Senator Marshall: Yes, she testified at the committee. Thank you very much.
[Translation]
Senator Maltais: I have two brief questions. On page 10 of your table there is an amount of $2.144 million earmarked for the Secretariat of the Treasury Board. Who is submitting an infrastructure program to the Treasury Board of Canada?
Mr. Weltman: This amount is part of the sums going to Shared Services Canada, and it is intended for the renewal of the technological infrastructure in departments.
Senator Maltais: I think that Senator Forest has an excellent comment on that: they just moved the vault.
Mr. Fréchette, does that cover all of the Canadian agencies included in the federal budget? Would it, for instance, include the CMHC? Does it include the income from the Canada Pension Plan?
Mr. Fréchette: You are taking about the infrastructure program?
Senator Maltais: No. Everything we see in the federal budget.
Mr. Fréchette: Simply to make sure I understand your question, do you mean when we analyze the budget as such?
Senator Maltais: Yes.
Mr. Fréchette: We include all government measures, all programs.
Senator Maltais: I’d like to make a comment on that, and Senator Pratte will back me, since we are both members of the Standing Senate Committee on Agriculture and Forestry. Do you know that the Canada Pension Plan is the organization that acquires the most agricultural lands, for speculative purposes? I don’t see any public servants from the Canada Pension Plan going to grow soy, carrots or potatoes in New Brunswick. If we are looking for money in Canadian banks, perhaps we could invest in infrastructures that provide long-term yields.
Do you know what damage this causes? Young people can no longer purchase farmland because of the speculative investments by that organisation, which belongs to all Canadians, because the Pension Plan is purchasing land for appreciation, and not to farm it. The members of the committee have asked themselves some serious questions about this, because to our great surprise, we all learned together that the Canada Pension Plan was the largest acquirer of agriculture lands and that it purchased more farmland than all of the banks put together. However, its only objective is speculation, which prevents young farmers from taking up farming and expanding. So, rather than investing in farmland, we could invest in the future banks. Let’s not look for money, because we have it; all we have to do is put it in the right place.
Mr. Fréchette: You raise an interesting point. All of these big investment agencies are looking for the best investments for their funds so as to obtain yields that will eventually benefit others.
The Montreal infrastructure program, such as for the REM, is a very good example. I’m not talking solely about Canadian investment agencies. Pension funds are managed throughout the world. They look for this kind of investment, like agricultural land, because they perform well. We know now that the performance of investments in farmland is very good. Will it also be very high for infrastructures like the Champlain Bridge or other large infrastructure projects that will be executed in Canada? That is really at the heart of the debate, and it comes back to what we were discussing earlier and mentioned in the report, not only as regards effectiveness, but also in terms of productivity and performance for these large investment agencies.
Senator Maltais: However, this has a perverse effect. Yes, it provides better performance for those who will be drawing a pension in the next five years, but the perverse effect is that there will not be a new generation of farmers, because the farmers will no longer be able to purchase the land and they will become simple employees. That is not acceptable. Someone in the government absolutely has to realize what is going on. It’s all well and good to make money but it can’t be to the detriment of our capacity to grow food — it’s that simple. If we are trying to make money so as to have a better pension fund in 10 years, bravo! But if we are making money and preventing a new generation of farmers from coming up, that is not at all commendable.
That’s the comment I wanted to add. Like Senator Pratte, my colleagues who are members of the committee can confirm what I am saying.
The Chair: Do not forget that the mandate of the Parliamentary Budget Officer and his colleagues is to analyze and not to make political comments.
Senator Maltais: But he can’t attend all of the committee meetings.
[English]
Senator Woo: I want to pick up on Senator Maltais' question on the allocation of funds to departments, particularly to Shared Services, which has the fifth highest allocation of funds but no project values identified at this time.
I think one of the witnesses mentioned that perhaps most of these funds are for upgrades of technology or internal upgrades, in other words. This begs the question: Would these kinds of expenditures not be part of the normal capital budgets of these departments? If that is the case, how do we distinguish between what would be the normal capital spending of a department to buy new furniture or get a new server versus this one-off special infrastructure? Are we putting this in the wrong box? That's essentially the question I'm asking.
Mr. Weltman: The answer I gave before is that this New Infrastructure Plan includes a lot of programs that are pre-existing. I'm looking for the total that has been allocated — I know it's in here somewhere — to the federal infrastructure renewal. That is effectively capital assets, recapitalization. That's what it is, and it is the same thing with infrastructure funding. It's recapitalization, or adding new capital or repair, that type of thing.
Should it be in the regular budgets? It is in the regular budgets.
Should it have been presented as an infrastructure plan? That's not at all for me to decide, but that is what the money is.
The Chair: Excellent question, senator.
Are there any other questions from our group?
[Translation]
Senator Forest: I have two questions to ask. Out of the $182 billion envelope, approximately 44 per cent is new money, and the rest is allocated to existing problems.
In your analyses, have you calculated the percentage devoted to federal, provincial and municipal infrastructures out of the $186.7 billion for the program as a whole? What percentage of these federal funds for Canadian infrastructure falls under the responsibility of federal, provincial or municipal governments?
Mr. Fréchette: I knew that members of the committee were going to have some excellent questions.
Currently, we are focusing on the first phase, that is to say the first two years. As for the $182 billion envelope that will be allocated over the next 12 years, we have not examined all of the amounts.
As for the federal infrastructures as such, you are not only talking about expenditures on departments. The previous question concerned funds allocated to improvements to departmental infrastructure. You are talking about federal infrastructures such as the Champlain Bridge or the Windsor Bridge.
Senator Forest: Out of all the infrastructures in Canada, some are the property and responsibility of the federal government. This could be the Champlain Bridge, port facilities, airports or buildings; I am talking about infrastructure as a whole. I’m trying to determine the commensurate, proper allocation amongst federal, provincial and municipal government infrastructure.
Fifty-five per cent of all Quebec infrastructure falls under municipal responsibility. However, when I look at the Quebec municipal infrastructure program (PIQM), only 8 per cent of the budget is devoted to municipalities. There is something unfair there which does not stand up very well. Have you thought about it?
Mr. Fréchette: We have not done that analysis as of yet. In the budget, we have 961 projects for a total of $1.5 billion, allocated among 21 departments and agencies. As you mentioned, I do not address infrastructure. These amounts are essentially allocated to departmental modernization projects, such as improving the research capacity of Agriculture and Agri-Food Canada laboratories.
[English]
Jason, would you like to add anything?
Mr. Jacques: Only that, by way of reference, when you go back to Budget 2016 — and I'm looking at page 257 of the budget plan — of the total federal infrastructure investment of $3.9 billion or close to $4 billion this year, approximately $1.2 billion is associated with federal assets. That's the amount of money for 2016-17 that was targeted toward assets actually owned or controlled by the Government of Canada.
The residual amount of roughly $2.8 billion would be money going out the door for assets that we don't directly control, which are the provincial and municipal assets, as well as those assets that are on reserve.
[Translation]
Senator Forest: As an example, in several places in Canada, port facilities have deteriorated, and they fall under the responsibility of Transport Canada. I was looking at the target of $145 million for the first two years of the program. Currently, $18 million is earmarked for that. We need to put the question to the Minister of Transport, but I’m having trouble understanding this. If you look at the number of port facilities in Percé, the Maritimes or on the West Coast that are in poor shape and are problematical in terms of safety and use, I have trouble understanding this large divergence between the needs and the target investment.
I looked into the previous budget, regarding infrastructure, and less than $1 million was earmarked for all of the ports in Canada, which is incomprehensible. The collective effort the Prime Minister wants to get underway by asking all of these public entities to invest massively in infrastructure is incomprehensible to me, because this department, which has enormous needs, has not been assigned any more money than that.
Mr. Fréchette: I really don’t have an answer for you. Everything rests with the choice of projects, and this is what we mentioned in the report. Since the senators of this committee and the other parliamentarians are in contact with people in the department, it also becomes a matter of accountability. Are some projects more justified than others? The overall objective is to improve things for the middle class, but there are choices that need to be made to improve infrastructure investments.
As I said in my presentation, our report was not done on micro-projects but rather on the final impact of the program, its effect on job creation and the GDP. There is work to be done by the committee if it wishes to raise issues involving accountability and the selection of projects.
[English]
The Chair: Thank you. Unless there are other questions, I will ask one question to wrap up your presentation, Mr. Fréchette.
What lessons can be learned from phase one and perhaps what should be done differently in phase two? Is there any comment you can make from your initial analysis that could help us as a committee? I know that you're more of an analysis group, but is there some simple feedback that you could give us from your observations about phase one that could be helpful in phase two that could be tied to better execution?
Mr. Fréchette: My first comment is that we would prefer to have more time — another six months — to see where phase one is going.
This morning, many of these questions about the accountability choices and departments monitoring where the money is going and at what stage all these investments for the federal government are at, it's about following the money. No wonder the title of our report is exactly that: Following the Money. It is not only to help Parliament to do that, but it also sends a strong message to the department.
That would be part of my answer. I don't know if Jason, who likes these types of questions, would like to add something.
Mr. Jacques: The only other thing I would add is to bring it back to what I think is a consistent question raised by many members around the table: project selection and outcomes, and, most importantly, how those actually link back to the budget.
Within the budget, the government had two broad outcomes. They said in the short term they were going to stimulate the economy with infrastructure spending, spent in an expeditious manner, to boost economic growth immediately over the next two years. But there was also a secondary objective and that was to boost productivity over the longer term.
We're in a very good position to measure the economic impacts, as are most people, because we have a world-class national statistical agency. We're less well placed to look at the productivity benefits. To get at the productivity benefits, everyone needs answers to the questions you're asking: How were these projects selected? Was a cost-benefit analysis performed? Were there projects that fell off the list? Who is actually measuring the outcomes in a timely way? That last one informs not only the first 7 to 10 per cent of funding, but it's going to set the framework for the residual 80 per cent of funding that's going to go out the door over the subsequent years.
Linking the micro questions that you're asking, from our perspective, those are certainly the right questions, because unless they're answered, no one will ever know whether the objectives set out in Budget 2016 were actually achieved.
The Chair: I'd like to thank your department, Mr. Fréchette, for coming in and presenting to us today. In the process for our new members, we're at the point where you have clearly marked a checkpoint, and we're at that point where we want to initiate our first preliminary report in our mandate. I think it's important that we have a preliminary report, and then we'll be able to continue to study what's going on with the actual execution, which is tied to many of the questions we've asked today, so that within a few more months we'll come up with a secondary report or, depending on where we feel we're at, we'll come up with a final report.
I thank you very much for coming in and discussing and sharing with us your activities and efforts. We truly appreciate your time.
(The committee continued in camera.)