Infrastructure Spending, Blueprints Pending: 2017 Federal Budget
March 23, 2017
On March 22, 2017, Finance Minister Bill Morneau tabled the 2017 federal budget, titled “Building a Strong Middle Class” (Budget 2017). While Budget 2017 did not introduce significant new infrastructure spending measures, it does provide limited additional details on a number of previously announced infrastructure initiatives and clearly reaffirms the government’s commitment to continued infrastructure investment over the coming years.
THE INFRASTRUCTURE SPENDING PIPELINE
As previously announced in the Fall Economic Statement 2016, Budget 2017 confirms that the government will be making additional infrastructure investments of C$81-billion over the next 11 years, starting in 2017-18, in support of public transit, green infrastructure, social infrastructure, transportation supporting international trade, projects that support Canada’s rural and northern communities, and now smart cities.
Budget 2017 also provides a glimpse into the implementation status of previously announced infrastructure investments from Budget 2016, revealing that only C$3.967-billion of those allocated funds have been spent to date. That figure represents 50 to 75 per cent of investment planned for the current period and is the lowest implementation factor of the various categories of Budget 2016 planned spending. Budget 2017 assures us that this “slippage” is not a signal of lagging activity but rather due to the milestone payment structure for complex infrastructure projects.
CANADA INFRASTRUCTURE BANK
Budget 2017 recaps the government’s commitment in its Fall Economic Statement 2016 to establish the Canada Infrastructure Bank (CIB). In keeping with the theme of Budget 2017, the government pitches the CIB as a vehicle to leverage expertise and capital of the private sector to maximize opportunities to create jobs needed to grow the middle class and, over the long term, strengthen the economy. Unfortunately, consistent with past announcements, the very limited additional detail provided in Budget 2017 sheds little light on the government’s actual implementation strategy.
As discussed in our November 2016 Blakes Bulletin: 2016 Federal Fiscal Update: Banking on Infrastructure, the CIB represents a potentially profound development in how infrastructure projects are funded and delivered in Canada. However, at the time of its announcement, a number of important questions about the CIB remained unanswered and Budget 2017 provides limited additional specifics on how the CIB institution will operate or what sort of investment strategy/guidelines it will follow.
Budget 2017 does confirm that the CIB will pursue a mandate to “structure, negotiate and deliver federal support for infrastructure projects with revenue-generating potential” and will be responsible for investing at least C$35-billion over 11 years, using an (as-of-yet unspecified) blend of loans, loan guarantees and equity investments. Budget 2017 also confirms that the CIB will focus on large, transformative projects such as regional transit plans, transportation networks and electricity grid interconnections. While no indication is given as to an all-in cost threshold for investment projects, Budget 2017 does stipulate that over the next 11 years the CIB will:
- Invest at least C$5-billion in public transit systems
- Make at least C$5-billion available for green infrastructure projects
- Invest at least C$5-billion to address trade and transportation priorities.
Budget 2017 commits to an “accelerated implementation” schedule for the CIB, with a stated goal of having the CIB operational in late 2017. In pursuit of this ambitious target, Budget 2017 promises that the government will “soon” propose legislation to establish the CIB and begin a process to identify the bank’s chief executive officer and chairperson of the board of directors.
Budget 2017 further proposes to invest C$256-million over five years for Canada to join the Asian Infrastructure Investment Bank (AIIB) as the first North American member, with a view to building multilateral engagement. Canada’s membership at the AIIB is intended to support economic growth in Asia by promoting investments in infrastructure projects, including in the transportation and energy sectors.
Following a commitment to upgrade and improve public transit systems as announced in Budget 2016 (C$3.4-billion over three years), Budget 2017 promises to invest C$20.1-billion over 11 years. Investment will be through bilateral agreements with the provinces and territories, with allocations to be based on a formula of ridership (70 per cent) to population (30 per cent). As mentioned above, this investment will be supported by an additional C$5-billion investment from the CIB.
Budget 2017 specifically notes Stage 2 of the Ottawa Light Rail Transit Project, the Calgary Green Line LRT, enhancement of Metrolinx’s GO Regional Express Rail program, the Réseau électrique métropolitain, and the Vancouver Broadway subway project as transformative transit projects to be completed over the next decade. However, there is no indication as to whether any of these projects — some of which are currently in the implementation stage — will be the recipient of government or CIB funding.
Contrary to the expectations of some industry watchers, Budget 2017 does not contain a general commitment to divestment of the federal government’s existing infrastructure assets. It announces that the government intends to initiate three new expenditure management initiatives, including a “three-year horizontal review of federal fixed assets” to be undertaken in stages by asset type with a view to identifying ways to enhance or generate greater value from government assets. Two examples of assets are cited: engineering assets and science facilities. There is no indication that monetization of these assets is currently being contemplated.
One of the few new infrastructure-related spending measures announced in Budget 2017 is the Smart Cities Challenge Fund. The initiative will invite cities across Canada to partner with businesses and civil society to compete and develop “Smart Cities Plans” to improve the quality of life for urban residents through better city planning and implementation of clean, digitally connected technology (i.e., green buildings, smart roads and energy systems, and advanced digital connections for homes and businesses). The Smart Cities Plans will be entered into a nationwide, merit-based competition facilitated by the new Impact Canada Fund. Canada’s Smart Cities Challenge will be funded by C$300-million provided to Infrastructure Canada over 11 years. No specifics have been released on the number or value of prizes available to winning cities under the Smart Cities Challenge.
In support of the government’s commitment to innovation, Budget 2017 announces proposed funding of up to C$950-million over five years, starting in 2017-18, to be provided on a competitive basis to a small number of business-led innovation “superclusters.” These superclusters are envisioned as Silicon Valley-like areas of business activity that will act as “engines of growth” by promoting innovation and knowledge-sharing with a view to attracting like companies from around the world. Funding for the superclusters will be awarded via some form of competition launching in 2017. We note this initiative because the stated focus of the program is on “highly innovative industries,” which includes infrastructure and transportation.
Budget 2017 also announces the upcoming launch of a new data initiative focused on providing all levels of government with more robust data to better measure the impact of infrastructure spending and improve the targeting of infrastructure investments. The as-of-yet unnamed “data initiative” will be a joint effort between the newly created CIB, the provinces, territories, municipalities and Statistics Canada.
The data initiative will support efforts to provide comparative data on infrastructure demand and usage, present a national picture of the state and performance of public infrastructure across asset classes, promote data-driven decision-making, and track the impact of infrastructure investment to facilitate accurate reporting.
Budget 2017 promises that further details on the data initiative will be announced in the coming months.
Budget 2017 demonstrates a continued commitment by the government to the renewal and development of infrastructure in Canada with its reaffirmation of a strong infrastructure spending pipeline, commitment to public transit spending, creation of the smart cities platform and the new data initiative to measure the impact of infrastructure spending.
However, Budget 2017 is also notable for the gaps in its infrastructure-related coverage, namely long-awaited details on the CIB, more specificity in its transaction pipeline, and a commitment to federal asset monetization. Industry participants will be looking forward to future announcements to shed some much-needed light on some unanswered questions as they look to develop, invest in and construct infrastructure projects in Canada.
For further information, please contact:
Catherine Doyle 416-863-4160
Mark Johnson 416-863-3318
Vivian Kung 416-863-4253
Judy Wilson 416-863-5820
Marianne Smith 416-863-3156
Alain Massicotte 514-982-4007
Jeffrey Merrick 604-631-3386
Carrie Fleming 604-631-3367
or any other member of our national Infrastructure group.
Posted in: Infrastructure
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