Government is rushing the $35 Billion project
The Finance Minister has said he would like the new Canada Infrastructure Bank up and running by the end of 2017. Operational details for the project were only included in the recently-tabled Budget Implementation Act, and the government has already begun a recruitment drive for the Bank’s leadership.
What is it?
The Canada Infrastructure Bank (CIB) would be located in Toronto and create a one-stop shop for new infrastructure funding, pooling investments from large investors with a small amount of seed funding granted from the Government of Canada. This approach deliberately creates huge returns for private investors, while driving up the cost of public projects and giving up important public control.
Here are some of the problems:
Private financing will more than double the cost of infrastructure projects
- While the federal government can borrow at interest rates as low as 2.2 per cent, private financiers expect returns of at least 7 to 9 percent. This could have a huge impact on federal budgeting in the future.
- Using this higher-cost private financing could more than double the interest costs of infrastructure projects. That’s $153 billion more during a project’s life span than if the government borrowed directly at 2.5 per cent – equivalent to $5 billion more per year.
- There are also significant added transaction costs with private financing, including fees paid to lawyers, financial advisors, accounting firms and other consultants. These can be double what we would see in the public sector.
Private control of public projects
- Key decisions rest with private firms, even though it is a question of public investment, publicly-generated assets, and public services. Cost overruns and missed deadlines can impact the expected revenue of private investors and we might see user fees and cutbacks on services.
- The CIB has the potential to significantly increase overall costs to taxpayers while privatizing the most high-return, low-risk infrastructure assets. Why would we take our most valuable assets and sell them to the private sector?
- Documents show the bank could take on an “equity stake” in order to make a project more attractive to private investor, meaning that the public takes on all the risk.
Lack of transparency and accountability
- The public won’t know who is bidding for which projects and what the conditions of the contract will be.
- The current proposal does not include enough safeguards and checks to prevent conflicts of interest and ensure responsible management of its budget. Given the projected budget of $35 billion, this is a recipe for significant mismanagement and risk.
- We’ve seen with the Phoenix disaster how mismanaged contracts can affect the entire public service, and we can’t let that happen again.
Public services will take the hit
- As the cost of this privatization skyrockets and Canadians are on the hook for paying billions in extra interest fees, funding for important public services will be undermined.
- As more and more public services are contracted out and privatized, institutional memory disappears and drains capacity over the long run. This has a real impact on the quality of services for the public.
- When projects go to the lowest bidder, quality and accessibility suffer.
Public financing and public control are a better approach
There is certainly a need to invest in public transit, green infrastructure, social services like universal childcare, and in rural and northern communities. But the public should retain control so these projects continue to benefit everyone, and new hidden fees, costs, and cutbacks are not forced on the public.
Instead of high-cost private loans, we could use low-cost public financing for large infrastructure projects, creating more value, saving money and making sure projects actually work in the public interest.