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OTTAWA—Private financing of the proposed Canada Infrastructure Bank could double the cost of infrastructure projects, says a study released today by the Canadian Centre for Policy Alternatives (CCPA).
The Trudeau government promised to establish a federal infrastructure bank to provide low-cost financing to municipalities, but the Fall Economic Statement proposed that it rely largely on private institutional finance. The federal budget, to be released on March 22, is expected to provide more details of the government’s plans in this area.
According to the study, by CCPA Research Associate and CUPE Economist Toby Sanger, private financing could add $150 billion or more in additional financing costs on the $140 billion of anticipated investments. It would amount to about $4,000 per Canadian, and about $5 billion more per year (assuming an average 30-year asset life). The higher costs would ultimately mean that less public funding would be available for public services or for additional public infrastructure investments in future years.
“No homeowner in their right mind would commit to a mortgage at a rate of 7% or more when they can borrow at 2.5%—especially when it involves locking in over 10, 20, or 30 years, and pay close to twice as much in costs. So why would the federal government make the Canada Infrastructure Bank rely on higher-cost private finance?” says Sanger.
The move to private financing was likely driven by intense pressure from the private finance and capital industry, seeking lucrative profits from public infrastructure investment, combined with the federal government’s desire to keep borrowing costs off its books, at least in the short term.
“This may appear to be good politics, but it’s terrible public policy,” says Sanger. “We could build almost twice as much infrastructure through the Canada Infrastructure Bank if it was financed at the lower rates available for direct public borrowing instead of using higher cost private finance.”
The study details how the federal government could establish a Canadian infrastructure bank that provides low cost financing for public infrastructure that would have a relatively modest impact on the federal deficit.
Infrastructure spending has been subject to both considerable political nepotism and charges of corporate corruption. Many P3 agencies exhibit persistent bias and lack of adherence to conflict of interest rules. The study calls for strict conflict of interest rules to ensure any federal infrastructure bank, agency or centre of expertise doesn’t become a vehicle for private sector exploitation of public finances.
“If municipalities and other levels of government could rely on objective public sector experts to provide project advice and analysis, they’d save millions in fees, and billions overall, by making efficient and cost-effective infrastructure investments that are based on decisions that support public—not private—interests,” Sanger says.
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