The Infrastructure Push

The federal government will be investing a huge amount into infrastructure — but execution will happen at the local level
For Canadian municipalities, the federal government’s “Investing in Canada” $120-billion infrastructure plan, as outlined in the March 2016 budget, is both timely and critical.

Across the country, municipalities are wrestling with patching up aging infrastructure and dealing with population growth that makes new transit not a “want to have” initiative, but a “need to have” imperative. For many urban dwellers, the workday commute has become a dreaded part of their day.

Mark Bain, head of the Public-Private Partnerships practice and co-head of the Infrastructure and Energy practice at Torys LLP in Toronto, says this massive transfer of money will have an enormous impact on the infrastructure in this country. “If you dedicate that much money at three targeted areas – according to the government, these being transit, green and social infrastructure – you’re going to move the needle quite significantly on not only catching up in terms of renewal and refurbishment but also in moving forward with new infrastructure in those priority areas.”

As to how the projects might proceed, according to Bain “the federal government clearly has signalled they want to have somewhat of a hands-off approach on decisions about the necessary spending and that these are inherently local projects and local decisions should govern.”

Essentially, the plan calls for a two-phase approach. Bain says the government started with the idea that it wanted shovel-ready projects as opposed to billion-dollar transit projects that have very long-term planning cycles and clearly are not ready to go immediately.

Hence, he says, “the first and more immediate phase of shovel-ready projects that focus more on refurbishment and repair, to expand the lifespan of municipal infrastructure such as road repairs or transit signals, to be followed by the larger shovel-worthy projects with longer planning cycles.”

Targeted Sectors

According to a survey by Nanos Research for The Canadian Council for Public-Private Partnerships (CCPPP) undertaken early in 2016, and prior to the Liberal government’s March 2016 Budget, “overall, Canadians believe that investments in economic, social and green infrastructure should all be priorities, support running a deficit for the infrastructure investments and support or somewhat support public-private partnerships [P3s].”

“It’s excellent news that the federal government is committed to long-term infrastructure and to work in a productive relationship with the provinces and municipalities; it’s especially gratifying they’re committed to moving the first phase out quickly to get the shovels in the ground,” says Mark Romoff, President and CEO of the Canadian Council for Public-Private Partnerships, based in Toronto.

In terms of phase two of the funding, “our large urban centres are feeling the pressures of increased gridlock. It drives up costs and lowers productivity. Investments in large public transit and transportation projects will be a must for most major municipalities,” says Romoff, who says P3s are already being used to build LRT lines in Ottawa, Edmonton, Vancouver and Toronto.

As but one example of great need, says Romoff, “virtually every municipality has aging water and/or waste-water infrastructure. When you consider these oftentimes creaky and leaky facilities in the context that municipalities are being required to meet new regulatory standards in this area, it’s clear the federal funds are most welcome.”

Both the $216-million Saint John Safe Clean Drinking Water Project, which is currently under construction, and the $364.7-million Regina Wastewater Treatment Plant use the P3 model, says Romoff, who is unequivocal that P3s are “just one tool in the toolkit, not a panacea.”

Given the sectors the federal government is targeting, Romoff says there are projects underway that could be replicated or provide ideas for similar projects in other parts of the country. For example, he says, think of Vancouver’s Downtown Eastside single room occupancy (SRO) renewal project.

Romoff says this was an innovative P3 solution to renovate and modernize 13 century-old buildings that might have otherwise been torn down. “Instead the province invested in a financially depressed neighbourhood and provided safe, affordable housing for 900 residents who were at risk of being homeless. The SRO initiative literally and figuratively built a community.”

Like a Destination Wedding

Paul Harricks, a partner at Gowling WLG in Toronto, says municipalities will need to be creative in putting the funds to work. He likens the massive influx of funds from the federal government, in some ways, as “being invited to a destination wedding, but you still have to pay to get there.”

The analogy is apt, continues Harricks, head of the firm’s Energy, Infrastructure and Mining Industry Group, because almost all of the potential infrastructure projects rely on municipalities having to come up with their own financial contribution to make these projects a reality.

And the reality today is that most municipalities are in financially straitened circumstances. Consequently, “municipalities may need to look at raising capital, be it through raising taxes or selling off assets,” he says.

Another way for municipalities to drive down at least some of a project’s cost is through bundling of projects, in effect sharing costs as diverse as design, consulting or legal fees. The challenge, of course, is that the projects need to pretty much be “cookie-cutter,” says Brian Kelsall, a project finance and infrastructure partner with Fasken Martineau DuMoulin LLP in Toronto.

“It’s a good idea if you can find some commonality, for example, on schools, community centres or social housing,” says Kelsall. He says this has been successfully done using the P3 model for schools in Alberta and service centres in Ontario. In Pennsylvania, 458 bridges were bundled. “But unique projects such as water/waste-water with their unique municipal requirements don’t bundle easily.”

Funding Not Seen For a Generation

On the macro level, says Kelsall, Canada is in a unique position since it’s heavily infrastructure-dependent due to the size of the country, the climate and the vast amount of resources. “If you want to develop these natural assets and move goods around the country to have the economy grow you’ve got to build a ton of infrastructure and, moreover, it has to work in the winter.

“The real issue is that this massive amount of infrastructure needs constant renewal,” says Kelsall, “and it hasn’t been renewed in a long time, in many cases half a century or more.”

Which leads to the issue of governance, in the sense of “who’s going to steer the ship?” says Bain. The kinds of municipal activities that are being explored almost always include funding from more than one level of government, he says, often a combination of federal, provincial and local investment, so in terms of the governance framework both challenges and opportunities will exist.

He thinks the signals are that these are going to be “locally procured in many cases, probably with some provincial assistance since many of the provinces have procurement expertise – both in conventional design/build procurement and through public-private partnerships agencies – that is well-respected, well-developed and not always found in depth at the municipal level, particularly in smaller municipalities.”

In Harricks’s view, given that it’s been a generation or two since municipalities have been the recipients of such a large amount of funds for infrastructure, many of the municipalities have not had the opportunity to develop the kind of procurement expertise that, for example, the provinces have gained over the years.

Ontario and British Columbia, in particular, as well as Québec and Alberta, and more recently Saskatchewan, he says, all have dedicated infrastructure agencies or governmental departments that are largely independent from the political process, “while municipalities have never really developed this expertise.”

Maybe not in the past, but going forward this expertise and the learning curve that precipitates it may not be so far off. “Some of the larger municipalities I know have been talking about maybe setting up their own infrastructure agencies,” says Harricks, “but, of course, you have to be a certain size municipality for that to make any sense at all.”

Smart Cities

The ability of infrastructure to build new economies and expand Canadians’ well-being is being redefined, says Romoff, as municipalities seek to turn their cities into smart cities. Looking northward, he highlights the Northwest Territories’ Mackenzie Valley Fibre Link (MVFL) project, with its state-of-the-art high-speed fibre optic telecommunications links as a portent of the infrastructure waves of the future.

In his opinion, this particular type of P3 project may well rival the importance of transportation infrastructure in the near future as the means of connecting communities. “Laying fibre should be part of every infrastructure project – P3 or not,” he says. “High-speed connectivity should be considered a necessity in this age of remote learning, health care and commerce and is a hugely important factor in attracting top talent, a priority all communities share.”