A new federal agency designed to fuse public and private dollars to help build infrastructure in Canada could end up building new roads and bridges south of the border.
The legislation for the Liberals’ proposed infrastructure bank would allow the arm’s-length organization to use public money to help bankroll or financially backstop projects that are “in Canada or partly in Canada.”
The key for the government is that there has to be a financial benefit and a physical connection to the country, meaning Canadian dollars won’t be building any infrastructure solely in the United States or anywhere overseas, and suggesting that the government is interested in funding projects like transmission lines and bridges that cross the border and have a revenue stream attached to them.
U.S. President Donald Trump’s transition team mused about setting up an American infrastructure bank that would use various financing tools to lure private dollars towards the construction of public assets like new transit and transportation networks, and the issue remains a topic of discussion in American political and academic circles.
Infrastructure Minister Amarjeet Sohi met high-level American officials on two separate visits to Washington, along with top officials at the International Monetary Fund and the World Bank, all of them keenly interested in how the Canadian bank will operate once it officially launches.
So, too, are observers and investors in Canada, many of whom still have questions about the bank’s operations and whether the legislation as worded could put up roadblocks to the bank’s success.
At the heart of the concerns is one of independence from political interference: Giving the government too much control over the bank’s operations could end up scaring off investors who don’t want short-term political opportunism meddling in long-term infrastructure projects. On the flip side, not enough political oversight could scare off cities and provinces that would be the ones to bring projects forward.
“We believe that the legislation to create the [infrastructure bank] strikes the right balance between creating an arm’s-length Crown corporation that would attract private capital to build more infrastructure across Canada and would ensure the agency is accountable to Parliament in its management of public funds,” said Brook Simpson, a spokesman for Sohi.
The Liberals are infusing the bank with $35 billion in government funding, hoping that the money can leverage three or four times that much in private dollars to build infrastructure in Canada.
Last year, Finance Minister Bill Morneau’s council of economic advisers envisioned a very specific decision-making process that would only allow government to step in if a project didn’t have a revenue stream attached to it, wasn’t in line with the government’s growth strategy or didn’t have a private backer.
The overarching idea was to make the bank independent, so that capital markets would view it as credible and to signal stability to private investors.
Private pension funds have pushed for months for the Liberals to make the new bank independent from government intervention. Now that the legislation is out, some are privately expressing concerns, while others are taking a wait-and-see approach, knowing that more details about the bank’s operations will come from a corporate plan later this year.
Government officials have been telling investors that the plan for the bank would be for the government to approve a project when it’s submitted to the bank for review, meaning cabinet couldn’t cancel a project later on in the process. Nor would there be any restrictions on where private backing could come from, easing concerns from some corners that only blocking foreign funds could see retaliation against domestic organizations that invest overseas.
Benjamin Dachis, associate director of research at the C.D. Howe Institute, says investors could be leery of working with the bank if they don’t feel there are strong firewalls to prevent political meddling in long-term projects.
“Private investors will be very skittish if they know that any individual decision is going to be subject to — right until the actual project is completed — that any infrastructure can just be scuttled by the government of the day,” said Dachis.
“This legislation needs to strike that balance between democratic oversight but institutional independence to make sure that projects that go ahead are the right ones and not just politically attractive ones in the short term.”