Why is Doug Ford's government creating a bank to finance public projects?
CBC
Premier Doug Ford's government is facing questions about why it wants to establish a bank to attract private-sector investment in such projects as long-term care homes, nuclear reactors and student housing.
The Ontario Infrastructure Bank was the showpiece announcement in the government's fall economic statement last week. The fiscal update revealed the province's current deficit sits at $5.6 billion, four times higher than projected in the budget that Finance Minister Peter Bethlenfalvy tabled in March.
Bethlenfalvy is pitching the infrastructure bank as a way to finance the construction of projects "that perhaps otherwise wouldn't get built."
Brian Lewis, a former chief economist for the province, now a senior fellow at the Munk School of Global Affairs and Public Policy, says Ontario's challenges with getting infrastructure built have always been about completing projects on schedule, never with financing them.
"The current [financing] system seems to be working pretty well in Ontario, which leads us to the question of, what's the problem this [infrastructure bank] is going to actually solve?" said Lewis in an interview.
"This could be a very good thing, but there's a lot of unanswered questions right now, and it's hard not to be a little skeptical."
The government's capital plan envisions spending $185 billion over the next 10 years to build transit, highways, hospitals, schools, long-term care homes and other infrastructure projects.
Ontario currently finances all these big construction projects by borrowing money.
Financing projects through the Ontario Infrastructure Bank would reduce the province's borrowing, a senior Ministry of Finance official told reporters in a background briefing last week.
Of course, the province's method of borrowing is significantly different from how the average person borrows money to buy a home. Ontario issues bonds that provide a long-term return to the investors who purchase them.
"Presumably that means the bank is going to have to offer a return that's a little bit — if not more than a little bit — higher than what the government already offers investors," said Lewis. "That money has to come from somewhere."
The government is also providing the bank with $3 billion in start-up funding, straight from the public purse.
The bank will be seeking what the government calls "qualified institutional investors" to put up money for its projects. While the government is emphasizing Canadian pension funds as its prime target, it is not ruling out accepting investment from foreign pension funds or private equity firms.
Sherena Hussain, a lawyer and academic with expertise in infrastructure financing, says attracting private investment in infrastructure projects would reduce the burden on taxpayers.
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