[We’re delighted to have Rosemary Frei back with us, this time reporting on a global transformation: once, infrastructure was created efficiently with cheap central bank funding and now it’s done with public-private partnerships, at much higher price-tags, creating massive transfers from taxpayers to the biggest businesses and private equity funds in the world. As we get ready for huge infrastructure buildouts to address climate change, the super-rich stand to reap trillions – money we could be spending on saving our lives and even our planet. -Cory]
Trillions of dollars are being plowed into high-tech hospitals, zero-emission public transit and other megaprojects around the globe. Shiny new infrastructure is popping up virtually everywhere, from Australia to Appalachia.
Yet leaders aren’t disclosing what taxpayers’ bills will be for this in the coming years.
They aren’t even determining the maximum affordable amount for the infrastructure projects, the majority of which are being delivered via public-private partnerships (‘P3s’).
Nor are any of the major political parties in Canada or the U.S. calling for objective value-for-money analyses, including studies of what the best greenhouse-gas-reduction bang is for each scarce public buck spent on green projects.
In addition, government agencies don’t always take such basic money-saving steps as offsetting the cost of new subway or LRT stations by finding developers that will build and pay for extensive retail, commercial and residential spaces on top of those stations.
This is despite already-unprecedented levels of government debt. And there are many other budget pressures: just one example is the impending loss, due to the switch to electric cars and trucks, of the more than $16 billion of gas and diesel tax collected annually by the feds and provinces in Canada.
The pressures will increase geometrically with the proliferation of infrastructure projects.
“We never got into the world of P3s to solve a funding problem… They [infrastructure projects] aren’t off [government] balance sheet[s]. … We don’t kid ourselves [about] who’s funding infrastructure. It’s either users or taxpayers ultimately that are funding [it],” Infrastructure Ontario President and CEO Ehren Cory candidly commented Nov. 18 during a panel discussion at the Canadian Council for Public-Private Partnerships’ (CCPPP) 2019 annual conference. (Cory also is a CCPPP director.)
But while taxpayers are usually the ultimate payer for these projects, money from non-government sources increasingly is being used to finance construction. This is paid back to the financiers at interest rates that while relatively low at the moment, are higher than the governments themselves could get the money for — and add up to huge amounts over the long durations of the projects’ contracts. As result, infrastructure and real estate can provide (together with private equity) the most solid and safe rates of return in the world.
So there’s plenty of private financing available. For example, the $500-billion Brookfield Asset Management has a large portion of its portfolio invested in these alternative investments. The Ontario Municipal Employees Retirement System (OMERS) holds more than half of its $110 billion in them. Other major pension-fund managers such as the $400-billion Canada Pension Plan Investment Board are following fast.
Priming the pump for very-high-cost infrastructure renewal are international organizations with tight connections to financiers.
For example, the board president of C40 – a group pushing major cities around the world to quickly take steps such as switching their public-transit fleets to ‘zero-emission’ vehicles – is Michael Bloomberg, the billionaire owner of Bloomberg News and former New York City mayor, currently making a bid for the US presidency. The UN announced a few days ago that the UK’s central banker Mark Carney will be its special envoy on climate action and climate finance. And in October the International Monetary Fund – the same agency that saddles countries with crippling debt and forces them to privatize their formerly public assets — focused its 2019 Fiscal Monitor report on mitigating climate change.
Boing Boing asked Shoshanna Saxe, Assistant Professor, Dean’s Spark Professor, Sustainable Infrastructure, Department of Civil and Mineral Engineering, University of Toronto, for a comment about the very high cost of the new infrastructure.
“We as a society have to pay for our infrastructure and there is no way around that. The myth that we can have good infrastructure for free/cheap is just that — a myth,” Saxe replied via email. “So we have to take seriously coming up with funding, including higher property taxes proposed by the [Toronto] mayor [John Tory on Dec. 4].” (Property taxes and service charges to home owners also are poised to rise sharply in Vancouver.)
(Boing Boing also asked Toronto Region Board of Trade and CCPPP’s media relations for comment but no one was available.)
However, a vital fact that Saxe and virtually everyone else either don’t know or won’t mention is that from 1938 to 1974 Canada and other western countries did in fact get very good infrastructure for very cheap.
As documented by journalist Murray Dobbin, during those four decades the Bank of Canada loaned massive amounts of money, virtually interest-free, to all levels of government. This same central-bank function was exercised in the U.S. and the other G7 countries.
That’s how we got massive projects like the war effort, the Trans-Canada Highway and the St. Lawrence Seaway — as well as pools, schools, government buildings, roads, subways, etc. – all without significantly increasing government deficits or debts.
Then in 1974 under then-Prime Minister Pierre Trudeau the central bank’s issuance of very-low-interest bonds to fund federal and provincial governments slowed to a trickle. That’s because private lenders in Canada and abroad took over that function. The result was a significant slow-down in the building and maintenance of infrastructure. (A Charter of Rights and Freedoms challenge to reverse this went all the way to the Supreme Court; however, in mid-2017 the Supremes declined to hear the case.)
And governments had to pay much higher interest for the money they needed. Canada’s national debt leapt from just over $20 billion in 1971 to more than three-quarters of a trillion today. This is accompanied by very high provincial debts, such as Ontario’s $325 billion (the largest sub-national-level debt in the world). Servicing the debt consumes the biggest single chunk of both provincial and federal budgets.
Yet this historic very-low-cost Bank of Canada lending is being erased from our collective memory banks. For example, when an audience member at the Toronto Region Board of Trade’s November 27, 2019, “Delivering Mega Projects” conference asked panelists why the City of Toronto’s megaprojects were much more cost-effective in the 1950s and ‘60s than today, the question was treated as a joke.
“Is that actually true?” Pierre Lavallée, President and CEO of the Canada infrastructure Bank, asked rhetorically, eliciting laughter.
“I think it may be more of a perception than a reality,” said Dale Clarke, Executive Vice President for Strategy and Growth at SNC-Lavalin.
Who benefits from this reframing of reality?
There are already hundreds of billions of private dollars being invested across the continent on everything from new water and wastewater-treatment facilities to new airports and schools.
Alberta alone is spending more than $24 billion on infrastructure P3 projects between now and 2023.
Not to mention tens of billions more for similar clean-energy and green projects in cities and town from coast to coast to coast — including approximately $4 billion for electrifying the City of Toronto’s bus fleet.
Another heavy hitter is nuclear. The Ontario government is spending $26 billion to refurbish some of its nuclear facilities. Ontario residents pay the difference between the low wholesale-market price for electricity and the high price the provincial government pays nuclear and other power generators for their electricity. That difference is rising fast, with the single largest component of this rise being the high price of nuclear power, including the refurbishments. (OMERS is financing part of the cost of the refurbishment of the Bruce nuclear plant; it is getting repaid, with interest, by the public.)
(On Dec. 1 the Ontario, New Brunswick and Saskatchewan governments agreed to work together to develop ‘small, modular reactors’ as a way to produce “clean and low-cost energy.” However, these small reactors are much more expensive to build, per unit of electricity produced, than large reactors. They also remain unproven. And taxpayers will very likely be on the hook for this very expensive experiment.)
On top of that, Ontario has the biggest new-infrastructure pipeline of any sub-national jurisdiction in North America if not the world: for example, tens of billions of dollars in transit projects alone – including the highly controversial Ontario Line and Scarborough Subway Extension projects in Toronto.
“Over the next 10 years our government is investing – and these are staggering numbers, it’s absolutely mind-boggling – … $144 billion in strategic infrastructure projects. Ninety billion dollars of that is on transportation alone, [comprising] an incredible investment of $67 billion in public transit and $22 billion in a provincial highway network,” Ontario Premier Doug Ford said at the CCPPP meeting in describing the P3 projects planned for the province.
Something’s got to give.
Taxes are already going up and they’re likely to climb much higher.
The public also will have to pay much more to use this infrastructure, coughing up more coin for everything from more expensive public-transit fares to tolls on every highway. (Cory dubbed this “user pay” in his address at the CCPPP meeting.)
And you can bet that more and more infrastructure will be fully privatized. There are plenty of precedents for this, including the selling off of Highway 407 and of a large portion of Ontario Hydro.
Ask probing questions about this your politicians, or you may well regret not speaking up.
(Image: Gone Coastal, CC BY-SA, modified)