C.D. Howe paper urges Liberals to abandon 'infrastructure bank'
Clouds form a backdrop for the buildings on Parliament Hill in Ottawa on Tuesday, Oct. 22, 2013. (CP / Sean Kilpatrick)
Jordan Press, The Canadian Press
Published Wednesday, January 13, 2016 12:28AM EST
OTTAWA - The authors of a new research paper are urging the federal Liberals to break two infrastructure-related election promises, arguing both proposals could saddle taxpayers with unexpected costs as the years drag on.
The first is a promised federal "infrastructure bank," serving as middleman between lenders and cities so local and provincial governments could benefit from the lower interest rates the federal government commands on loans.
The money would then help finance new infrastructure projects that local governments can't afford on their own.
The second promise would eliminate the requirement of cities to look for a private-sector partner to share the financial risks and windfalls of any project.
A paper being released Wednesday by the right-leaning C.D. Howe Institute argues the Liberals should scrap both ideas.
Combined, the two ideas would shift the financial risk solely onto taxpayers, who would be on the hook if a project goes over budget, the paper warns. The cost to the economy could negate any of the economic benefits the Liberals hope to gain from billions in infrastructure investments, it adds.
Benjamin Dachis, the paper's author, said the government shouldn't give up on trying to "crowd-in" private sector funding for projects, either through a public-private partnership or through a private sector loan.
The public purse simply can't finance every single infrastructure project needed in Canada, Dachis said, arguing that the government should only fully fund a project if it is socially worthwhile, but of zero interest to the private sector.
"There's a lot of focus right now on 'stimulus,' but what the government should really be focused on is the right projects for the overall economy in the long-term," says Dachis, a senior policy analyst with C.D. Howe.
Those projects, he said, may not necessarily be the shovel-ready ones the government wants to target to get infrastructure funds out the door quickly.
Although the paper doesn't go into detail about what projects the government should fund, it does recommend making "international gateways" that expand trade a particular area of focus.
The government has promised to spend an extra $6 billion a year, on average, over the next 10 years on infrastructure like roads, bridges, water and sewer systems and green energy projects, as well as "social" infrastructure like child care facilities and affordable housing.
By the end of the 10 years, the plan would see federal spending on infrastructure reach about $16 billion per year.
All that spending is meant to boost a lagging Canadian economy and, under the Liberal plan, create enough economic spinoffs and new federal revenues to help balance the budget by the end of the government's four-year mandate.
Dachis said the government may have to relax its promise to split the increase in spending three ways, with one-third of the boost going to public transit, green infrastructure and social infrastructure.
"They need to be thinking more of a bottom-up approach where the right projects with the highest rate of return, the highest long-term economic return gets selected and that means that they need to have a judicious, cost-benefit analysis across the economy."
The Liberals should also place no conditions on spending grants because they force local governments to spend more on "low value for money projects" lest they lose federal cash, the report says. Loosening the strings on those grants would also make it easier for citizens to know what level of government is responsible for any tax changes - up or down - that arise from a project.