Opposition to private sector cash in infrastructure is 'stupid,' Liberal MP says

CTVNews.ca
Nov. 17, 2016
Joan Bryden

One of the architects of the Liberals' proposed infrastructure bank says opposition to the idea is short-sighted, stupid and irresponsible.

Liberal MP Adam Vaughan, parliamentary secretary to Prime Minister Justin Trudeau, says the whole idea of the bank is to make it possible for municipalities to leverage private sector cash to fund crucial projects that would otherwise be unaffordable.

And while he acknowledges there are some risks involved, he maintains they're far outweighed by the cost of doing nothing.

"The cost of not fixing aging infrastructure can be catastrophic and if you don't factor that into the cost analysis you're not being realistic," Vaughan said in an interview.

For example, Vaughan pointed to the urgent need to spend about $1 billion to upgrade the levies around the Port of Vancouver to prevent flooding from extreme weather events brought on by climate change. Those levies were almost breached three years ago, he said, coming within inches of flooding the port and the nearby Vancouver International Airport.

"The cost of losing that port and that airport? Three-quarters of our exports come in and out of that piece of infrastructure. If that isn't fortified and rebuilt very quickly, climate change will have an economic impact on this country, the likes of which will be impossible to calculate," he said.

"The idea of losing southern Vancouver and southern B.C. to a levy that was built in the 40s for weather conditions that have changed radically in the last 50 years, to put that at risk because you have a fear of the private sector being a partner is not only stupid, it's bloody irresponsible."

Vaughan is a former Toronto city councillor who helped craft the housing and urban infrastructure components in the Liberals' election platform, where the infrastructure bank was first promised.

The Trudeau government is planning to launch the bank next year, with $15 billion in direct federal investments and another $20 billion in repayable contributions, loans and loan guarantees. It hopes to leverage up to $5 in private investment for every $1 in government funding.

But both the Conservatives and New Democrats have warned that private investors' demand for a high rate of return on their investments will inevitably increase the cost of building or upgrading infrastructure and result in road and bridge tolls and other user fees.

Their objections intensified after Prime Minister Justin Trudeau's summit Monday with some of the most powerful institutional investors in the world, representing a combined capital pool worth $21 trillion. He also met with some of Canada's largest investors, including insurance companies, the big banks and pension funds.
But Vaughan says the doubters should recognize that without a private sector partner, The Daniels Corporation, the city of Toronto would never have been able to afford to revitalize Regent Park, a crime-ridden, dilapidated, inner-city, social housing ghetto.

The project required "a private sector partner, public sector assets and public borrowing to co-ordinate and create the plan that delivers new housing for people," Vaughan said.

What's more, he said the city benefits from the project in a host of other ways, with new, more energy efficient social housing that cuts operating costs and takes pressure off homeless shelters and social services.

Moreover, he said the project demonstrates that private sector involvement in infrastructure doesn't have to result in new user fees to ensure a high rate of return on investment. In the case of Regent Park, he said, "People pay a user fee. It's called rent."

The infrastructure bank is intended to leverage private investment for projects "with a natural revenue stream that people are used to paying," he added, like water systems and electricity grids.

"People are used to paying for their water bill. It doesn't matter one whit whether they pay it to the local government or to a private company as long as when they turn on the tap they get water and it's delivered to them cheaply."

The city of Toronto had a big enough asset base to borrow the money necessary to get the Regent Park project off the ground. But Vaughan said smaller municipalities don't have the fiscal capacity to float bonds to attract private investment for major projects, particularly expensive water systems.

The bank will allow communities with similar types of projects to bundle their asset bases together and, backed by the federal government, Vaughan said they'll finally be able to attract the needed private investment.

"Suddenly, small municipalities have access to capital they didn't have before and the clean water they need gets delivered and the jobs that go with it arrive in their communities."

Even big cities like Toronto stand to benefit, according to Vaughan. He said the city is losing a social housing unit every day to disrepair because it doesn't have the financial borrowing capacity anymore to bring more public-private partnerships like Regent Park on line.

Vaughan argued that every dollar leveraged out of the private sector is a dollar freed up for the vast majority of projects that will be funded 100 per cent from the public purse under the federal government's plan to sink $186 billion over the next 12 years into infrastructure.

"To be afraid of the private sector when you're trying to fix this country's infrastructure is shortsighted ... Are there risks? Yeah. There's a much bigger risk not building infrastructure."