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May 2017 | Green City Issue


March 22nd bore witness to the updated federal budget. In it were the updated figures representing progress for those that compiled its details. Despite the projection of the country’s deficit increasing relative to the previous federal budget updates, Finance Minister Bill Morneau professed financial optimism: “Our approach to investing deliberately will enable us to maintain our enviable position as the G7 nation with the best balance sheet.”  

Part of the government’s approach and strategy built to match this enthusiasm is the implementation of the Canadian Infrastructure Development Bank (CIDB). Initially announced as part of the Fall Economic Statement, the Infrastructure Bank is meant – in part – to aid municipalities in shoring up their respective infrastructure deficits. According to PSD records, the majority of tax based asset categories are unfunded, while approximately 30 percent of rate based categories are unfunded. This leaves a substantial deficit in terms what is needed to provide an adequate level of service, and what type of funding is available.

The government is looking to shore up some of this disparity. Prior to taking office, the current federal government identified that a lack of capital for municipalities was a primary obstacle in building necessary infrastructure.[i] To help finance additional initiatives, the Infrastructure Bank will be designed to help municipalities access capital faster by allowing different tiers of government to borrow money for these types of projects at lower rates. The Federal Government has a strong credit rating, and as a lending authority, has the ability to issue less expensive loans to borrowers. As Chief Economist at the Conference Board of Canada Craig Alexander remarks: “The idea here is to reduce the cost of borrowing so larger infrastructure projects can get done.”[ii]

The Federal government has pledged to set up the Infrastructure Bank with $35 billion over 11 years. Of this total, $15 billion will come from money set aside for public transit, green infrastructure, trade and transportation, and rural and northern communities in the $81.2 billion long-term infrastructure plan.[iii] The remaining $20 billion will be constituted as repayable capital where the government will take equity stakes in projects, with the aim of drawing private foreign investors to further invest capital into the Bank.

While additional capital is necessary to fulfill high infrastructure financing aspirations, having private investors as part of the formula may compromise the efficacy of the Bank. In his technical paper Creating a Canadian infrastructure bank in the public interest,

Toby Sanger, economist for the Canadian Union of Public Employees (CUPE) offers a warning regarding the CIDB’s current construct, and how much it may ultimately cost:

Private financing will cost the Canadian public far more than financing infrastructure projects at much lower public borrowing rates…The federal government can now borrow at rates below 2.5 per cent over 30 years. Meanwhile, private financiers investing in infrastructure expect returns of 7 to 9 percent…The cost of borrowing $100 million at an interest rate of 2.5 per cent and repaying it over 30 years would add $42.2 million in additional interest/financing costs to the project. These interest costs more than double to $93.3 million at a borrowing rate of 5 per cent, more than triple to $151.7 million at a financing rate of 7.5 per cent, and then more than quadruple to $189.9 million at a financing rate of 9 per cent.

A second point of contention is that the government requires these investments be made in new developments (also known as ‘greenfield’ projects), instead of existing ones (brownfield). As Bloomberg dutifully notes, “It’s a preference that could hurt investor interest. Pension funds prefer the certainly of…existing…ports and roads, and would demand a risk premium…to come on board for a new development.” A large majority of these prospective private investors for the CIDB include pension funds and larger private sector asset managers. To insist on this type of investment may inevitably curtail investment appetite. These concerns related to both cost and investor interest are best summed up by a University of Ottawa report questioning the creation of the Bank: “The case for establishing the CIB is not compelling, as it has the potential to increase overall costs to taxpayers while privatizing the most high-return, low-risk infrastructure assets,” and finally concluding, “So, why the CIB? We don’t know, and ‘just because innovation’ is not a good enough answer.”[iv]

Other than a broad description of intent, location of headquarters,[v] complications of involving private investors, and intermittent announcements of advisors appointed to the CIDB,[vi]  little is known about the Bank – where it will sit within the government corporate structure and who will manage it are questions that remain somewhat unanswered. In the Fall Economic Statement 2016, it was announced that the CIDB “will be accountable to, and partner with, government, but will operate at greater arm’s length than a department,”[vii] leaving a wide vacuum for interpretation as to how the Bank will be situated – a detail the 2017 Budget update failed to address.

What the latest Budget update did reveal is that Ottawa expects the CIDB to be operational by the end of 2017, complete with a chief executive officer and a board of directors. While promising, little additional information was provided. As the calendar inches towards the end of the year, the government would be best served by illustrating the inner-workings and technical aspects of the CIDB. Intent alone is difficult to invest in.


ALEKS DZINTARS is a Research Analyst with Public Sector Digest. He graduated with a Master’s degree at the Graduate School of Public Policy and International Affairs at the University of Ottawa, with a focus on policy analysis and public policy implementation. He is currently leading applied research projects on both asset management communications and natural capital asset data management. Aleks can be reached at adzintars [at] publicsectordigest [dot] com.




[v] As of May 8th, Toronto has been named headquarters for Canada’s infrastructure bank.