Big Idea: Re-invent Firm and Infrastructure Financing in Canada

In June, Canada 2020 launched The Innovation Project, an initiative devoted to studying Canada’s innovation agenda – the risks, the opportunities, and key factors involved in making Canada a more innovative nation.
As part of this project, we asked Mike Moffatt, Senior Associate at Canada 2020 and Director at the Lawrence Centre at Western University’s Ivey Business School and Hannah Rasmussen, Director at Projection North and Professor at Western University’s Brescia College, to consider how to foster innovative growth in Canada. 
Moffatt and the Canada 2020 team traveled to eight cities across Canada to hold roundtable discussions with key stakeholders representing sectors ripe for transformation. We are grateful for the thoughtful discussion and time these roundtable participants gave the effort. While the sectors themselves were very different, common themes emerged: talent and immigration, availability of venture capital and Canadians’ adversity to risk.
From their research and these roundtables, Moffatt and Rasmussen developed 10 Big Ideas for Canada. Canada 2020 will be releasing an idea a day on our website leading up to our 3rd Annual Canada 2020 Conference.
Each idea is thoughtful and detailed, and Canada 2020 hopes they will spur discussion and debate on the topic as we continue to explore innovation in Canada.   

Big Idea: Re-invent Firm and Infrastructure Financing in Canada

What is the idea?

Canada needs to re-think both the ways firms obtain financing and how infrastructure is financed. We will begin by examining the problems of bottlenecks to firm financing.
A common theme that emerged during our roundtable discussions this summer was the difficulty in obtaining financing, which was seen as being partly responsible for Canadian firms failing to scale-up. Problems cited included difficulty obtaining second-and third-stage venture capital, unnecessarily complicated and occasionally incoherent government funding programs and barriers to obtaining financing to commercialize innovations.
Furthermore, roundtable participants discussed how government funding programs often compete with private lenders on some dimensions, while failing to address financing market failures on other dimensions. We believe Canada needs to re-invent firm financing, with a focus on addressing the core market and regulatory failures at play. Here are our recommendations on how Canada can do so.

Recommendation: The Cooperative Capital Markets Regulatory System (CCMRS) or provincial governments should create an online finance matchmaking portal (FinMatch) where eligible small and emerging companies can be matched with both private and public providers of capital.

On the demand side for capital, entrepreneurs or companies could apply to join FinMatch, for a nominal fee, at one of three levels. FinMatch would vet applications and successful applicants that met the “listing requirements” for that level would be entered into the system:

  • Level 1: Pre-startups looking for pre-seed capital for businesses they would like to start.
  • Level 2: Startups that have been in business less than two years.
  • Level 3: Established companies that have been in business two or more years.

On the supply side of capital, accredited investors could apply to join the portal with a modest yearly subscription fee. These accredited investors would include individuals, financial institutions, businesses and government entities, such as the Business Development Bank of Canada (BDC) and Export Development Canada (EDC).(1) Furthermore, all firms that met the Level 3 “listing requirements” would also be given the option to obtain accredited investor status, which would allow them to act as suppliers of capital.
FinMatch would act as a matchmaking service between suppliers of capital and entrepreneurs needing funding. FinMatch would suggest potential matches, but members of the system would also be able to view the profiles of other members.(2) Within FinMatch, firms could be matched with accredited investors and raise funds in some different ways, including (but not limited to) the following:

  1. Loans and other debt instruments;
  2. Grants and loans from government funding agencies
  3. Selling (or buying) whole companies to (or from) other accredited investors

Once a company reached a certain size, it would be able to apply for Level 4 status, which would allow shares in the company to be traded on FinMatch. The Level 4 “listing requirements” would be less onerous than those for firms wishing to list on exchanges such as the TSX Venture Exchange, but would still provide protection to potential investors. As well, the “listing fees” and “annual sustaining fees” would be set substantially lower than those of traditional exchanges.
Our equity market portion of the FinMatch recommendation is adapted from a 2013 recommendation made by the U.S. Securities and Exchange Commission Advisory Committee on Small and Emerging Companies. In their Recommendation Regarding Separate U.S. Equity Market for Securities of Small and Emerging Companies,(3) the advisory committee detailed a plan to reduce the barriers preventing high-growth firms from obtaining equity funding. While the proposal was intended for the U.S. market, the first four points of the advisory committee’s proposal are particularly relevant to Canada’s firm-financing ecosystem:

  1. The Committee believes that current U.S. equity markets often fail to offer a satisfactory trading venue for the securities of small and emerging companies because they fail to provide sufficient liquidity for such securities and because the listing requirements are too onerous for such companies.
  2. The frequent failure of U.S. equity markets to offer a satisfactory trading venue for small and emerging companies has discouraged initial public offerings of the securities of such companies, undermines entrepreneurship, and weakens the broader U.S. economy.
  3. Establishing a separate U.S. equity market specifically for the securities of small and emerging companies, where these companies would be subject to a regulatory regime strict enough to protect investors but flexible enough to accommodate innovation and growth, offers promise of providing a satisfactory trading venue for small and emerging companies, which may encourage initial public offerings of their securities.
  4. A possible feature of an appropriate regulatory regime for such a market would be limiting investor participation to accredited investors who meet a standard designed to assure that the regulatory protection afforded is appropriate given the characteristics of those investors.

We believe that the creation of such a portal would better match sources of capital with investment opportunities, increase liquidity and make it easier for Canadian companies to scale up through mergers. Canada’s lack of mid-sized firms is a commonly cited reason for the country’s lagging innovation and productivity;(4)  we believe the merger activity that FinMatch would facilitate would accelerate firm growth and assist aging business owners to receive value for their companies. Finally, FinMatch would make it abundantly clear where the holes in Canada’s firm-financing system are and where government programs are competing with private lenders (and each other).
In an ideal world, there would be a single portal at the federal level rather than separate portals in each province, though it may be possible for the five provinces and one territory that have joined the Cooperative Capital Markets Regulatory System(5) to have a single portal. However, given the lack of a national securities regulator, the portals will most likely need to be administered by the provinces.

Recommendation: The federal government should continue negotiations to create a national securities system that includes all provinces and territories.

While we believe FinMatch would be incredibly useful, we also recognize that it is not a silver bullet and would take substantial time to develop. As such, we have additional recommendations, including the following:

Recommendation: Given the positive externalities created by growing knowledge-creating firms, Canadian tendencies towards risk aversion and ultra-low interest rates on government borrowing, we recommend the federal government significantly increase the funds allocated to the Venture Capital Action Plan and implement the recommendations of the auditor general(6) as they pertain to selection process, performance measurement and reporting.

The cost of capital for the federal government is incredibly low, with nominal bond yields hovering around one per cent for 10-year bonds and under 1.7 per cent for 30-year bonds, both under the Bank of Canada’s two-per-cent inflation target.(7) Given this incredibly low cost of capital and the positive externalities created by growing knowledge-creating firms, the federal government is well-positioned to make equity investments in companies. One mechanism it already has at its disposal is the Venture Capital Action Plan (VCAP), which uses a fund-of-funds approach to leverage private-sector knowledge and capital with government investments. We recommend that in Budget 2017 the federal government allocate additional funds to the VCAP. Furthermore, we feel the results of the program can be strengthened by implementing the following three recommendations from the auditor general’s 2016 report on the program:(8)

  1. When making investments that are similar to those of the Venture Capital Action Plan, the Department of Finance Canada and Innovation, Science and Economic Development Canada should fully respect the values of fairness, openness, and transparency while meeting the purposes of the investment. Respecting these values will maintain the venture capital industry’s confidence in selection processes run by the Government of Canada.
  2. To appropriately assess the performance of the Venture Capital Action Plan and inform decision making, the Department of Finance Canada and Innovation, Science and Economic Development Canada should expand the Action Plan’s Performance Measurement Framework by considering the inclusion of performance metrics, such as exit performance of recipient companies, recipient companies’ export growth and their financial performance, new patents and patent citations, and the number of new or additional key investment personnel and lead investors. To increase transparency, the two departments should report publicly relevant information about Action Plan activities and performance.
  3. In formulating future interventions such as the Venture Capital Action Plan, the Department of Finance Canada and Innovation, Science and Economic Development Canada should allow for an early exit of the public-sector partners.

Finally, we believe firm financing should not just be top-down by large financial institutions or governments, but that community investors have a role to play. The State of California created a useful piece of legislation to give residents more autonomy when making investment decisions.
AB 2751, also known as the “California Local Economies Securities Act” (CLESA), has the express goal of making it “easier for small businesses, farms, and renewable energy projects to raise money from local investors and to enable California residents to move their money from Wall Street to their local community.”(9) In our view, the most valuable change the bill offers is to make it easier for citizens to invest in local start-ups. CLESA allows start-ups to sell equity stakes without permit requirements, provided they meet the following conditions: “The business provides basic offering and business information to the public, the total amount raised during the offering does not exceed $500,000, and no individual non-accredited investor invests more than $1,000. Accredited investors would be limited to investing no more than 5 per cent of their net worth.”(10) The California state legislature has not passed CLESA, so there is no data on its effectiveness. We believer, however, it still provides a model worth investigating.

Recommendation: The Cooperative Capital Markets Regulatory System (CCMRS) or provincial governments should adopt the “small investments” exemption in the California Local Economies Securities Act (CLESA).

We recognize that many individuals would not have the ability to make direct investments in firms, but would appreciate the ability to invest in local businesses in a broad sense, which leads us to our final firm-financing recommendation:

Recommendation: The federal government should work with financial institutions such as credit unions and social finance organizations to create investment vehicles through which individuals could invest in funds that finance local businesses.

Next, we believe the federal government can improve how it finances infrastructure investments. The prime minister’s mandate letter to the minister of Infrastructure and Communities contains the following priority:(11)

Work with the Minister of Finance to establish the Canada Infrastructure Bank to provide low-cost financing (including loan guarantees) for new municipal infrastructure projects in our priority investment areas. This new institution will work in partnership with other orders of governments and Canada’s financial community, so that the federal government can use its strong credit rating and lending authority to make it easier — and more affordable — for municipalities to finance the broad range of infrastructure projects their communities need. This should include preparing for the launch of a new Canadian Green Bond that can enable additional investments when a lack of capital represents a barrier to projects.

We would expand this proposal and create a Canadian Infrastructure Investment Bank (CIIB) that would be responsible for federal funding of infrastructure projects. We would suggest that the U.S. model created by Korin Davis and William A. Galston in Setting Priorities, Meeting Needs: The Case for a National Infrastructure Bank, be adapted to Canada, with a focus on adapting the following items:

  • Establish the bank as an independent government-owned corporation (GOC) outside of any governmental agency. This would endow the NIB with greater budgetary flexibility and not unnecessarily narrow the scope of infrastructure projects it could support.
  • The bank’s leadership structure should feature a CEO and board of directors, some nominated by the president, others by the leaders of the two parties, confirmed by the Senate, serving staggered terms of about six years. Such a leadership model would give Congress some oversight authority but would sufficiently insulate its operations from political whims and create enough of a buffer so that elected officials would neither determine strategic choices or project selection nor be called on the carpet for unpopular or controversial decisions.
  • Create a division of the bank responsible both for analyzing the viability of proposed projects and for advising those seeking support. A strong and permanent professional staff would provide financial and technical advice to further improve resource allocation.
  • To achieve leverage, the new entity would have to attract private investor-depositors as well. Its authorizing legislation should be drafted to permit such offerings, subject to the bank’s meeting specific quantitative tests.
  • Do not limit the bank’s lending to specific categories of infrastructure, such as transportation. Instead, the bank should be free to invest in a wide array of infrastructure projects, including technology, environmental and energy projects, public utilities, or the renovation of schools and hospitals.(12)
Recommendation: Canada should create a “Canadian Infrastructure Investment Bank” (CIIB) tasked
with providing financing for infrastructure projects.
Recommendation: Like the Bank of Canada, the CIIB should be at arms-length from the government. The CIIB should be given a five-year mandate by the government, but be free to pursue that mandate in the manner they best see fit, so that projects are chosen on their merits rather than on political considerations.

Who will be responsible for administering the idea?

The FinMatch portals and Canadianized versions of CLESA will be created by the federal Cooperative Capital Markets Regulatory System (CCMRS) and by each province that is not a member of the CCMRS. The creation of the CIIB and increased funding for the Venture Capital Action Plan (VCAP) will come from the federal government.

What mechanisms for accountability or measurement can be put in place for the idea?

FinMatch: One of the potential benefits of FinMatch is that it would allow the government to keep track of the performance of companies. This data could be incredibly useful for the designing of economic policy. As well, we would recommend that the government set goals for the performance of the portal (companies signed up, deals completed, etc.) and report once a year on the performance of the portal relative to those goals.
VCAP: We advise the government to put into place the three recommendations from the auditor general’s report.
CLESA: We would recommend that the program be examined once a year by provincial auditors general.
CIIB: We believe the Bank of Canada provides a useful framework that allows the CIIB to operate at arms-length but still be ultimately accountable to the federal government.

What failures is the idea trying to solve?

Our re-invention of firm and infrastructure funding is attempting to solve some failures, including the following:
Information Asymmetries: An obvious question to ask about the creation of an online financing portal is, “If it’s such a good idea, why hasn’t the private sector done it already?” In some cases, they have, as for the buying and selling of companies at sites such as and Private-sector solutions, however, suffer from an information asymmetry problem, where the owners have a great deal of information about the value of the investment that the buyer does not. The buyer can obtain much of this information through the negotiation process, but this imposes significant transactions costs. The proposed portal’s listing and reporting requirements would ensure that potential investors quickly have access to the information they need to make an informed decision, similar to disclosure requirements for publicly traded companies. It is certainly possible that government could simply establish the reporting requirements and that private-sector companies would set up portals. While we prefer this option over nothing, we believe this is an appropriate area for government because of data security concerns and the fact that network externalities and co-ordination effects make having multiple portals inefficient.
Externalities and Tech Spillovers: Governments have a role to play in the financing of knowledge-creating companies, as these firms generate positive externalities through knowledge spillovers (and, as such, will be undersupplied by the market). FinMatch and increased VCAP assist in addressing this externality.
Risk Aversion: Companies at Level 1 of FinMatch can enter the system and determine if there is an appetite for their ideas by potential sources of funding before they have committed too much of their own time and capital. We believe that if FinMatch leads to more high-growth firms in Canada, this will incent others to take the risks of entrepreneurship.
Thin Markets: Making it easier for firms to be matched with suppliers of funding should lead to the creation of more firms (and more opportunities for the creation of new firms), thus thickening markets.
Regulatory Failure: The CIIB is designed, in part, to address the issues of infrastructure projects being chosen on political considerations rather than on their merits. A successful CIIB creates experience in financing and evaluating infrastructure projects on which companies and other levels of government can draw.

What are the potential benefits of the idea and what are the costs?

Benefits: By making it easier to match sources of capital with investment opportunities (be they investments in firms or infrastructure), on both sides of the transaction, investors get more for their investments, and companies can grow faster and increase trade, benefiting the Canadian economy.
Costs and Risks: Any time individuals are granted more ways to invest their money, we risk opening
them up to fraud. As well, government digital programs like FinMatch come with potentials for cost
overruns and data breaches.

Will the idea increase economic inclusion and/or enhance autonomy? If so, how?

Economic Inclusion: One of the goals of a reinvention of firm financing is to make it easier for people with great ideas but not a lot of capital to obtain funding. Obtaining superior value along with leveraging private-sector funds when financing infrastructure projects allows the government to build more infrastructure per dollar spent, benefitting all Canadians.
Autonomy: By allowing individuals to invest in their local communities, we are giving them the opportunity to regain economic autonomy. This increase in autonomy helps “solve” the ketchup problem, where individuals are desperately looking for an outlet to assist in the economic development of their communities. Furthermore, by making it easier for people to start new businesses, we are giving them additional options.


1 The Ontario Security Commission’s accredited investor exemption includes individuals of sufficient financial means along with individuals who currently are, or once were, a registered adviser or dealer, other than a limited market dealer; financial institutions; governments and governmental agencies; insurance companies; pension funds; registered charities; certain mutual funds, pooled funds and managed accounts; companies with net assets of at least $5 million; persons or companies recognized by the OSC as an accredited investor. The accredited investor exemption, (Ontario Securities Commission, 2016).
2 Subject to the user’s privacy settings. Privacy would naturally be a concern in a system like FinMatch, but we believe dating websites provide a good template for allowing users to decide who can access parts of their profile.
3 Security and Exchange Commission, Recommendation Regarding Separate U.S. Equity Market for Securities of Small and Emerging Companies (2013).
4 What’s Happened to Canada’s Mid-Sized Firms? (Business Development Bank of Canada, 2013).
5 As of August 2016, British Columbia, New Brunswick, Ontario, Saskatchewan, Prince Edward Island and Yukon are members of the Cooperative Capital Markets Regulatory System. (Cooperative Capital Markets Regulatory System, 2016).
6 Office of the Auditor General of Canada, 2016 Spring Reports of the Auditor General of Canada, Report 1 — Venture Capital Action Plan (2016).
7 On August 26, 2016, the yield on a 10-year bond was 1.090 per cent, whereas the yield on a 30-year bond was 1.687 per cent,Market data, (Financial Post, 2016).
8 Office of the Auditor General of Canada, 2016 Spring Reports of the Auditor General of Canada, Report 1 — Venture Capital Action Plan (2016).
9 Sustainable Economies Law Centre, California Local Economies Securities Act (2016).
10 Sustainable Economies Law Centre, California Local Economies Securities Act (2016).
11 Office of the Prime Minister, Minister of Infrastructure and Communities Mandate Letter (2015).
12 Korin Davis and William A. Galston, Setting Priorities, Meeting Needs: The Case for a National Infrastructure Bank (Governance Studies at Brookings, 2012).

Crisis and opportunity: Time for a national infrastructure plan for Canada

This commentary is based on the Canada 2020 research paper ‘Crisis and Opportunity’

Infrastructure is central to every aspect of life in Canada. It’s a key driver of productivity and growth in a modern economy and it contributes to the health and well-being of Canadian citizens. It is a method for enabling communication and sharing of information between citizens. It is a means for providing core services such as water, electricity and energy and is a shaper of how our communities grow and contribute to our collective social fabric.
On a daily basis across the country, Canadians are impacted by infrastructure that has failed to be maintained or that has not been built. This can be partly attributed to a major shift in infrastructure ownership and financing over the past 50 years. In 1955, the federal government owned 44 percent of public infrastructure. Today, that number is less than five percent.
Municipalities own over 50 percent of public infrastructure, but collect only eight cents of every tax dollar. On the other hand, the federal government has 50 percent of Canada’s fiscal capacity, but contributes only 12 percent of our infrastructure fund. Experts have noted that the federal government should be spending approximately two percent of GDP on infrastructure to enhance prosperity and maintain a high quality of life. The current level of investment is 0.37 percent of GDP.
In 2013, the Canadian Chamber of Commerce estimated that Canada’s infrastructure deficit could be as high as $570 billion. I’m sure you experience this backlog of investment each day— from potholes that damage cars and act as safety hazards while cyling, to the overcapacity of public transit systems and lack of affordable housing options for Canadians. We have a lot of work to do.
Equally concerning is the fact that our existing infrastructure is not equipped to deal with the reality of climate change and extreme weather. Prior to 1996, only three natural disasters exceeded $500 million in damages. Since 1996, Canada has averaged one $500 million or larger disaster almost every year. On average, each natural disaster lowers GDP by approximately two percent.
In a paper I co-authored with Evergreen CityWorks Executive Director John Brodhead and economist Sean Mullin for Canada 2020, we called for urgent federal attention to this issue. Countries that exhibit best practices for infrastructure investment have decision-making frameworks driven by a strong central government committed to innovation and economic development. Within these frameworks, projects move forward based on multi-year forecasting and planning, establishing a platform for innovation, resiliency and prosperity. In Canada there has been an absence of a national infrastructure strategy and long decline of federal involvement in infrastructure spending has exacerbated Canada’s infrastructure deficit.
This challenge also represents a key opportunity for Canada’s federal government, as the economic benefits of investing in public infrastructure are substantial. David Dodge, former Governor of the Bank of Canada, has called on government to take advantage of the historically low interest rates as a way to provide badly needed stimulative effects in the economy in the short-term, and contribute to higher productivity and a more competitive economy in the long run. The current market conditions create a window of opportunity for decisive action by an active and committed federal government.
In the paper, we argue that it is time for the federal government to play a strong role in the planning and funding of public infrastructure in Canada. A critical starting point would be the creation of a long-term National Infrastructure Plan. We outline several components of what this plan could look like, but a central feature would be a comprehensive multi-year plan that would prioritize infrastructure projects across a number of areas of national significance. This feature would include a 10-year project pipeline prioritized by status, updated at least once a year on a rolling basis to reflect the movement of the projects in the pipeline and changes in strategy or emphasis.
A National Infrastructure Plan, respecting provincial and municipal jurisdiction, would coordinate infrastructure efforts across Canada, take advantage of the federal government’s fiscal capacity, create clear, transparent rules for infrastructure programs, enhance transparency of infrastructure planning and prioritization and share best practices across Canada. Only the federal government has the ability, authority and fiscal capacity to play this role within Canada.
The state of Canada’s infrastructure represents both a crisis and opportunity for our country. Only by taking decisive action now, can the federal government ensure we collectively seize the latter and avoid the former.

Jesse Darling is an Urban Project Designer at Evergreen CityWorks in Toronto.

Canada’s cities need more than cap-in-hand solutions

The mayors of Canada’s biggest cities have a clear-eyed focus on Canada’s challenges.   They also know that they don’t have the money to fix these challenges alone.
In meeting mayors in Toronto, I heard about traffic congestion, affordable housing and integrating new immigrants to Canada – the vast majority of which end up in cities.
A common theme to all big city mayors was the mismatch between their revenue-raising powers and the essential services and infrastructure cities must provide.
Why should Canadians care?
Simply put, well-functioning cities are drivers of economic growth and innovation.   From a domestic perspective, getting cities right is essential to getting the economy right.
Cities are also an essential part of Canada’s global value proposition to attract investment and knowledge workers.   In determining where to locate new investments and where to live, firms and skilled workers have choices that are global in scope.
The fiscal challenge is that cities have little flexibility in the forms of revenue they can raise.
Property taxes and fees form the majority of city budgets.  Even these revenue raising tools can face restrictions set out in provincial legislation.
The amount raised through these forms of revenue is also insufficient to pay for large-scale infrastructure.  Transit in cities can’t be paid for through property taxes alone, for example, or it “would cripple people”, says Toronto Mayor John Tory.
Long-time watchers of city politics have noted that mayors have a cap-in-hand approach to the provincial and federal government.  But really, what choice do they have?
Mayors are forced in to constant pitching for their personal projects, often knowing they are in competition with the mayor next door, or the mayor one province over.  This is not a winning strategy for a smart country.  Nor does it advance the needs of citizens.
It’s time to recognize that Canada’s fiscal system is broken.
This is not an argument for increasing taxes.  Rather this is an argument for aligning what level of government taxes Canadians with the responsibilities they’ve either been given or down-loaded, and examining what is taxed and at what rates.  It’s a tall order.
Let me suggest three paths forward.
One – solving a problem means recognizing it and taking the steps to correct it.  Cities need to be formally recognized and given more diverse sources for revenue.
Provinces could give cities, especially Canada’s largest cities, any taxing power the province itself has.   Not all municipalities should have such an independent power.
Giving Canadian mayors the power to set tax rates and choose the right tax tool for their local area would also make mayors politically responsible to citizens for what is spent.   As one federal politician put it to me, under the current system “Mayors want money, but let federal politicians wear the headache of justifying taxes.”   It may be time to share the burden.
A formal tax-sharing agreement between provincial and federal governments with big cities may also be a way forward.
As Dr. Enid Slack at the University of Toronto has argued, current revenue sharing practices are unpredictable.   Edmonton Mayor Don Iveson has made this point concerning the Alberta Municipal Sustainability Initiative (MSI).
At some point an archaic system doesn’t need more gears and a bit more grease, it needs a total re-think.  A formal tax-sharing agreement as a start may pave the way to longer-term solutions, such as writing cities in to the constitution as Mayor Gregor Robertson of Vancouver has suggested.
The U.S. constitution permits municipalities to conduct various forms of revenue-raising that Canada’s does not.  New York, for example, receives revenues from property tax, sales and use taxes and income taxes.
Two  – while waiting for that re-think, stable and long-term funding is required.
Problems such as water and housing can’t wait.  Cities shouldn’t have to win an Olympic bid to build mass transit.
As Mayor Naheed Nehshi has suggested, the next federal election could be fought on which party has the best urban strategy, including predictable long-term funding.
This suggests mobilizing voters in Canada’s major cities to ask local candidates and leaders what their commitments are to investing in cities, given they have the power to make a difference.
Mass transit plans, major bridge and highway construction and affordable housing funding are three areas for discussion.  Specific, concrete plans should be presented to tell citizens what, exactly, will be funded and over what proposed time horizon.
City mayors must also be clear about their proposals and costs.  Detailed identification of priorities will permit a discussion on the role of other forms of financing, such as road tolls, to make up any shortfall.
Three – cities could be using the revenue powers they do have more effectively.
User fees related to the volume of what is consumed rather than flat fees, such as on water and garbage, are one example.   Pricing private transit use more appropriately – such as through parking rates and the gas tax – would also help set fees for public transit.
As Professor Chris Ragan and the Ecofiscal Commission have pointed out, how governments raise revenue matters.  A dollar is not simply a dollar.  Fiscal structures shape incentives and behavior.  To this I would add that city governments can be a powerful source in structuring incentives to solve challenges, if they are given the choice of tools to do so.
These paths forward on a fiscal re-think for large Canadian cities could move at different speeds.  As big city mayors will tell you, the point is Canada needs to get moving.   The country’s global competitiveness depends on it.

Ailish Campbell is the Vice President, Fiscal and International Policy, at the Canadian Council of Chief Executives.  She serves on the Advisory Board of Canada 2020.  The views expressed here are her own.

Photo: Canada 2020 in Vancouver with Gregor, Nenshi & more

Canada 2020 held its first-ever event in Vancouver on October 28, 2014, hosting Mayor Gregor Robertson (Vancouver), Mayor Naheed Nenshi (Calgary), Anne Golden (Evergreen Cityworks) and R.T. Rybak (Democratic National Committee) for a discussion about the future of cities.



Coming soon!

Crisis and Opportunity: Time for a National Infrastructure Plan for Canada

1. Introduction

Infrastructure is central to every aspect of life in Canada. As a key driver of productivity and growth in a modern economy, as a contributor to the health and well-being of Canadian citizens, as a critical component of transporting goods and services across the country. It is a method for enabling communication and sharing of information between citizens, a means for providing core services such as water, electricity and energy and is a shaper of our how our communities grow and contribute to our collective social fabric.
And, yet, across the country, Canadians are impacted by infrastructure that has failed to be maintained or that remains to be built. This is apparent in the deterioration of our roads and highways, the over-capacity of our public transit systems, underinvestment in affordable housing and social infrastructure, and the increased prevalence of environmental incidents, such as flooding in our urban areas. Canada’s infrastructure, along with the institutional frameworks that fund and finance these assets, are in need of repair.
This paper attempts to set out the need for urgent federal attention to this issue. It will discuss some tools and levers the federal government has at its disposal to engage in what is a national issue, including proposing the creation of a national infrastructure strategy for the country.
This paper will start by reviewing the economic benefits of public infrastructure and highlight how current market conditions create a historic opportunity for increasing infrastructure investment. It will then review current estimates of the size of Canada’s infrastructure deficit, followed by an examination of how the federal government’s role in financing infrastructure has changed over the last 50 years. Finally, it will end by proposing an increased federal role in infrastructure planning and postulate what could be included in a National Infrastructure Plan.
As many have commented before this paper, it should no longer be a question of if we need to devote more resources to public infrastructure or if the federal government should be involved. The question for the Canada at this moment is how the federal government should engage and in what form and capacity.


Increasing Focus on Infrastructure:

In recent years, an increasing number of papers have been issued drawing attention to Canada’s infrastructure needs. A select few include:
Rebuilding Canada: A New Framework for Renewing Canada’s Infrastructure, Mowat Centre, 2014
The Foundations of a Competitive Canada: The Need for Strategic Infrastructure Investment, Canadian Chamber of Commerce, 2013
Canada’s Infrastructure Gap: Where It Came From and Why It Will Cost So Much To Close, Canadian Centre for Policy Alternatives, 2013
At The Intersection: The Case for Sustained and Strategic Public Infrastructure Investment, Canada West Foundation, 2013
Canadian Infrastructure Report Card, Federation of Canadian Municipalities, 2012


2. Economic Benefits of Public Infrastructure

The economic case for investing in infrastructure has never been stronger. In recent years – and particularly in the aftermath of the financial crisis – a consensus regarding the positive economic benefits of stronger infrastructure spending has emerged among economists and policymakers. In addition to the non-economic benefits of infrastructure, a dollar of infrastructure spending has a positive effect on economic conditions in two ways: in the short-term, by supporting jobs and businesses, leading to lower levels of unemployment and higher levels of economic growth; and, in the long-term, by boosting the competitiveness of private businesses, thereby leading to greater wealth creation and higher living standards.
Within Canada, a recent Conference Board of Canada report undertook a detailed examination of the impacts of infrastructure spending on job creation and found that for every $1.0 billion in infrastructure spending, 16,700 jobs were supported for one year1. Moreover, these jobs are not just concentrated in the construction sector, as manufacturing industries, business services, transportation and financial sector employment also benefit from the spillover effect of infrastructure spending.
Increased investment in infrastructure will not only have direct impacts on the economy but will also spread through the economic through a series of multiplier effects 2.
Examining the impact of infrastructure spending on GDP growth has found similar results. The same Conference Board report estimated that for every $1.0 billion in spending, GDP would be boosted by $1.14 billion, resulting in a multiplier effect of 1.143. Other studies have shown similar effects, with estimated multipliers ranging from 1.14 to a high of 1.78, including Finance Canada’s “Seventh Report to Canadians” estimating a multiplier of 1.64.
Critical to this analysis is that virtually all recent estimates estimate the multiplier to be greater than 1.0, implying that every dollar of spending on public infrastructure boosts GDP by more than one dollar. Thus, infrastructure spending generates a positive economic return before projects are even completed, as the construction stage alone generates enough economic activity to justify the expense.
However, the most important economic benefit of public infrastructure is the long-term effect it has on productivity and business competitiveness, which are critical components of a modern, growing economy.
In this case, investments in public infrastructure, such as roads and transportation systems, communication infrastructure, utilities, water and wastewater systems, and health and social infrastructure, result in lowered business costs and increased labour productivity.
Lower business costs result in increased private sector returns, allowing for higher rates of private investment and ensuring Canadian companies can remain competitive and grow on a global stage. Similarly, increased labour productivity results in higher wages and greater wealth creation for Canadian citizens. (See Cost of Inadequate Public Infrastructure for a discussion of the impacts of failing to properly invest in public infrastructure.)
The Conference Board has estimated that roughly a quarter of all productivity growth in recent years is a result of public infrastructure investment5. Similarly, looking over a longer period of time, Statistics Canada estimated that up to half of all productivity growth between 1962 and 2006 can be attributed to investment in public infrastructure6.
Finally, increased economic activity and higher productivity rates allow the government to recoup a portion of its initial investment through higher tax revenues. Although estimates vary, the Conference Board study estimated that governments recover between 30% – 35% of every dollar spent on public infrastructure through higher personal, corporate and indirect taxes7.
Investment in public infrastructure has an immediate, short-term benefit to the economy, while also ensuring that businesses remain competitive in the long run. The alternative is to postpone investment, allowing existing infrastructure to decay and demand for new infrastructure to accumulate, ultimately restricting Canada’s potential for future economic growth.


Cost of Inadequate Public Infrastructure:

“The literature shows that inadequate public infrastructure is a threat to long-term economic growth. Inadequate public infrastructure lowers economic potential in a direct and obvious way according to this simple progression:
• Inadequate infrastructure results in increased costs for business.
• Increased costs result in lower return on private investment
• Lower returns—profits—mean less money for business to re-invest in new plants, machinery and technology.
• Less investment means fewer jobs and less productive labour.
• Lower productivity means less economic output and lower personal incomes.
The end result is a loss of competitiveness and lower rates of economic growth.”
At The Intersection: The Case for Sustained and Strategic Public Infrastructure Investment, Canada West Foundation (2013)


3. A Window of Opportunity: The Time to Invest is Now

While the general case for investing in public infrastructure is clear, current economic conditions create an even more compelling rationale for investing in infrastructure – right now. Canada is at a unique moment in time where the need for a stimulative macroeconomic policy, historically low long-term interest rates and a large infrastructure deficit, together, combine to dictate the need to accelerate the rate of investment in public infrastructure.
While Canada has fared relatively well compared to its peers, economic recovery from the recent global financial crisis has nonetheless been slow, with employment and GDP growth rates lagging pre-recession levels8. Within this context, an increased focus on reducing fiscal deficits has resulted in a slowing of public spending just when economic conditions could most benefit from increased investment and infrastructure spending.
In a recent paper, David Dodge, former Governor of the Bank of Canada, called on governments to shift emphasis away from short-term deficit reduction to instead “expand their investment in infrastructure while restraining growth in their operating expenditures so as to gradually reduce their public debt-to-GDP ratio.”9 Dodge cites Canada’s lagging productivity growth as a justification for additional infrastructure spending, as increased investment would “enhance multifactor productivity growth and cost competitiveness in the business sector and open up new markets for Canadian exports.”10
In addition, faced with sluggish employment and weak economic growth, and with further monetary stimulus limited by near-zero interest rates11, economists are returning to the idea that targeted fiscal stimulus should be a component of government economic policy. As former United States Treasury Secretary Larry Summers writes:
In an economy with a depressed labor market and monetary policy constrained by the zero bound, there is strong case for a fiscal expansion to boost aggregate demand. The benefits from such a policy greatly exceed traditional estimates of fiscal multipliers, both because increases in demand raise expected inflation, which reduces real interest rates, and because pushing the economy toward full employment will have positive effects on the labor force and productivity that last for a long time12.
According to this recent line of research, traditional benefits of public infrastructure investment are even greater during periods of economic slowdown, as more traditional means of spurring the economy are much less effective. A 2010 paper by Berkeley economists Alan Auerbach and Yuriy Gorodnichenko estimated that the multiplier on government investment is significantly higher (as much as 3.42) in times of recession13. This finding was further supported by a 2012 paper by two economists from the Federal Reserve Bank of San Francisco, Sylvain Leduc and Daniel Wilson, which focused specifically on public infrastructure spending and found that the multiplier on public infrastructure investment had a lower bound of 3.0 14.
Long Term Interest Rates - 1974-2014
Source: OECD
Finally, historically low long-term interest rates have created market conditions that are ideal for increased infrastructure spending. As can be seen in the above chart, long-term interest rates (that is, government bonds with terms greater than 10 years) have been hovering at levels lower than any point over the past 40 years. Given the long horizon associated with infrastructure assets, long-term, fixed-rate debt financing is an ideal instrument for providing the necessary capital required to increase investment levels. Lower debt-servicing costs effectively reduce the cost of infrastructure investments, while fixed-rate financing insulates projects (and governments) from future increases in interest rates.
These macroeconomic conditions – low interest rates, a sluggish economy, and a looming infrastructure deficit – create a unique window of opportunity for the federal government. Focusing on public infrastructure investment can be a key tool for enhancing economic growth, resulting in increased productivity and employment, and improving the quality of life for Canadians.

4. Canada’s Infrastructure Deficit

Many recent studies have attempted to quantify the current size of Canada’s infrastructure needs. Determining a single number can be problematic, as various studies have focused on specific sectoral needs and have approached the challenge using different methodologies, sometimes resulting in overlap. Thus, instead of trying to determine one figure that represents the size of Canada’s infrastructure deficit, we will briefly review a number of areas that require urgent attention from Canada’s policymakers.

Urban and Municipal Infrastructure:

Since the turn of the century there has been growing interest in urban issues and the role that cities play in securing Canada’s economic competitiveness and high quality of life. Today, municipal infrastructure in Canada has reached a breaking point.
The majority of municipal investment was made when there was little understanding of the role that infrastructure plays in maintaining and strengthening social bonds, public health and the integrity of our natural environment. In many cases, these decisions have locked residents and communities into ways of life that are now perceived as unsustainable. This challenge is magnified by the lack of fiscal levers available to Canadian municipalities as they plan for the future.
Faced with the dual problems of declining investment and aging infrastructure, the Federation of Canadian Municipalities has estimated that Canada’s municipal infrastructure deficit is $123 billion and growing by $2 billion annually15. This estimate is comprised of four categories, including:

  • • Water and Wastewater Systems ($31 billion);
  • • Transportation ($21.7 billion) and Transit ($22.8 billion);
  • • Waste management ($7.7 billion); and
  • • Community, Cultural and Social Infrastructure ($40.2 billion).

Moreover, this methodology likely underestimates the size of the municipal infrastructure deficit, as it fails to incorporate other types of infrastructure that are pillars of modern cities and communities. For example, affordable housing and safe shelter, low-carbon energy systems and reliable information and communication technologies help mold municipalities into livable, resilient and economically competitive places.

Road Networks, Transportation and Electricity Infrastructure

Efficient road networks and transportation systems are critical for the functioning of a modern economy. Reducing gridlock ensures that goods can be easily transported across the country, reducing business costs and enhancing trade. Effective public transit and uncongested road networks allow for faster commute times, reducing worker stress and increasing labour productivity.
Within this context, the need for investment has been highlighted by a number of studies:
• The McKinsey Global Institute has estimated that Canada must invest $66 billion into maintaining and repairing urban roads and bridges between 2013 and 2023.16
• Transit systems across the country require $4.2 billion annually for repair and replacement of existing assets. This estimate excludes meeting unmet or future demand.17
• The Canadian Chamber of Commerce has estimated that congestion is costing the country, as a whole, $15 billion per year, which is equivalent to almost one per cent of Canada’s GDP.18
• It is estimated that upgrading Canada’s electricity infrastructure between 2010 and 2030 will cost over $300 billion, requiring an annual investment higher than any level of investment in any previous decade.19


Extreme Weather: Too Costly to Ignore

Extreme weather is becoming increasingly more prevalent throughout Canada. The recent spike in natural disasters has resulted in unprecedented social and economic consequences for residents, businesses and governments across Canada. Prior to 1996, only three natural disasters exceeded $500 million in damages (adjusted to 2010 dollars). However, beginning in 1996, Canada has averaged one $500 million or larger, disaster almost every single year.20 And, according to the Insurance Bureau of Canada, for the first time water damage passed fire damage in terms of the amount of insurance claims across the country last year.21
Property damage created by small weather events has also become more frequent. Canada’s sewage systems are often incapable of handling larger volumes of precipitation.22 This is particularly a problem for older cities in central and eastern Canada where there is great need to rehabilitate water and sewage systems to mitigate the chance of flooding. By 2020, it is estimated that almost 60 per cent of Montreal’s water distribution pipes will have reached the end of their service life.23 This is particularly concerning given that the International Panel on Climate Change determines that extreme weather, such as heavy precipitation, will become more frequent over the next 50 years.
The need to prepare for the new reality of extreme weather and climate change becomes clear when the economic consequences are exposed. The average economic cost of a natural disaster is $130 billion and lowers GDP by approximately 2 per cent.24 This is attributable to the rising occurrence of severe weather affecting urban areas that have high-density populations and high-value assets. In the aftermath of a disaster, lost tax revenue and demands for relief and reconstruction place enormous fiscal strain on governments. On average, it is estimated that natural disasters increase public budget deficits by 25 per cent.25


Global Estimates:

Finally, a number of global estimates of Canada’s infrastructure deficit – across all sectors and sub-national jurisdictions – do exist. A 2013 study by the Canadian Chamber of Commerce estimated that the breadth of investment needed to address Canada’s infrastructure deficit could be as high as $570 billion.26
Additionally, a recent study by the Canada West Foundation estimated the accumulated infrastructure debt at $123 billion for existing infrastructure, with an additional $110 billion required for new infrastructure.27 Finally, in a sobering report, the Association of Consulting Engineers of Canada estimates that 50 per cent of public infrastructure will reach the end of its service life by 2027.28
Moreover, estimates of the effect of chronic underinvestment in infrastructure have shown that the infrastructure deficit is hindering our national competitiveness. Between the mid-1990s and 2006, infrastructure investment within Canada declined, while the United States increased spending by 24 per cent. During the same period, Canada went from near parity with the productivity of the United States to 20 per cent lower.29
It is clear that, regardless of the exact size of Canada’s infrastructure needs, the various estimates show that the problem is significant in scale and that drastically increased levels of public investment are warranted.

5. Declining Federal Involvement in Infrastructure

Over the past 50 years, there has been a significant shift in the ownership and funding of public infrastructure between the three levels of government. In 1955, the federal government owned 44 per cent of public infrastructure, the provinces owned 34 per cent and local governments owned 22 per cent.30 Today, provincial, territorial and municipal governments own and maintain roughly 95 per cent of Canada’s public infrastructure.31

Chart 1: Asset Shares by Order of Government

Canadian Center for Policy Alternatives, 2013
(Canadian Center for Policy Alternatives, 2013)
Municipalities own 52 percent of public infrastructure, but collect just eight cents of every tax dollar.32 In our existing taxation structure, the federal and provincial government collect more than 90 per cent of all taxes paid by Canadians.33 Senior levels of governments benefit from sales, income and corporate taxes, which are responsive to economic growth. Local governments are increasingly dependent on property taxes, a regressive funding tool that is the least responsive to growth and impacts middle-and-low-income people the hardest.34 While transfer payments from the federal government to the provincial government increased throughout the 2000s, a corresponding increase in transfer payments from the provincial government to local governments has failed to materialize.35 The shift in responsibilities without corresponding capacity to respond has created a structural imbalance between local authorities and federal and provincial governments.

Chart 2: Intergovernmental Transfer Payments, % of GDP, 1961- 2011

Intergovernmental Transfer Payments, % of GDP, 1961- 2011
(Centre for Policy Alternatives, 2013)
Recognizing that a new approach to federal funding for provincial, territorial and municipal infrastructure was needed, the Government of Canada began to re-enter the municipal infrastructure conversation in the early 2000’s. This renewed interest led to the creation of the Department of Infrastructure and a series of shared-cost infrastructure programs.
And governments of all political stripes have recognized the importance of infrastructure and have continue to invest. The 2007 Building Canada Plan for example, divided funding between transfer payments and projects that were deemed of national significance. Municipalities would receive $17.6 billion in predictable revenue over the course of seven years derived from the federal gas tax and GST rebate. At the same time, the federal government would invest $13.2 billion in national priority projects.
While we should be encouraged by the interest the past few federal governments have taken in financing infrastructure across the country, according to the OECD our federal government continues to play a relatively small role in funding infrastructure.36 The provincial, territorial and local governments in Canada play a larger role relative to the federal government in public infrastructure funding than is the case in comparative countries like Germany, Australia, the United States and other similar OECD countries.37
The renewed interest in the role and importance of infrastructure saw public investment in Canadian infrastructure reach just over 3 per cent of GDP in 2008.38 This investment barely surpasses the annual investment of 2.9 per cent of national GDP that is required just to maintain the current infrastructure stock.39 By way of comparison, the world average expenditure on public infrastructure is 3.8 of GDP per year.40 To promote prosperity and improved productivity throughout Canada, experts have postulated that a total annual investment of 5.1 per cent of GDP is required.41
While our federal government has shown great progress over the past number of years re-engaging in the infrastructure challenge, clearly there is more work to be done. The next sections lays out the case for a National Infrastructure Plan and its potential components.

6. A National Infrastructure Plan for Canada

Given the national importance of public infrastructure and its critical effect on economic competitiveness and quality of life, it is clear that the federal government needs to assume a leadership role with respect to the coordination and financing of infrastructure within Canada.
In particular, a larger federal role is necessary, and a rebalancing of financing responsibilities is required, for the following reasons:
Better Alignment of Funding Responsibilities with Fiscal Capacity: As the previous section makes clear, while the federal government’s fiscal capacity is roughly equal to that of all the provinces and territories combined, it contributes only 12% of annual infrastructure expenditures. Municipalities are even worse off, shouldering almost 50% of infrastructure costs, while having the smallest fiscal capacity of all three levels of government.42 To correct this imbalance, the federal government should target a higher level of investment, by both increasing net infrastructure investment levels as well as assuming some of the burden for financing projects that is currently the responsibility of municipalities.
Aligning Infrastructure Spending with National Macroeconomic Policy: As argued above, fiscal stimulus and, in particular, investment in public infrastructure is an increasingly important tool of macroeconomic policy for national economies. Within Canada, only the federal government has the ability and the responsibility to set economic policy at a national level. As such, to coordinate public infrastructure spending with other macroeconomic tools such as fiscal and monetary policy, the federal government needs to take a stronger role as a coordinator and funder of public infrastructure.
Increased Investment in Federally-Owned Infrastructure: Certain areas of public infrastructure, such as ports and border crossings, airports, military infrastructure, and national rail and transportation infrastructure, are the sole responsibility of the federal government. Thus, with provinces and municipalities already strained by existing infrastructure demands, only an increase in federal funding will result in higher levels of infrastructure investment in these areas.
Champion Nationally-Significant Projects: While many areas of infrastructure investment technically fall within areas of provincial jurisdiction, it is nonetheless incumbent upon the federal government to champion – and fund – projects of national significance. Projects such as urban transit and transportation systems, high-speed rail, climate change adaptation, affordable housing and social infrastructure, electricity transmission, and communication systems and rural broadband all touch on national economic priorities, as well as impact the quality of life of all Canadians. While respecting provincial jurisdiction, the federal government should accelerate its rate of investment within these areas.
While recent federal government initiatives such as the 2014 extension of the Building Canada Plan represent a positive step for greater federal involvement in public infrastructure, much more needs to be done to address Canada’s infrastructure deficit.
It is evident that one piece that is missing from the federal landscape is a comprehensive National Infrastructure Plan that could coordinate Canada’s planning and investment decisions with respect to public infrastructure. While a complete, comprehensive plan is beyond the scope of this paper, it is nonetheless instructive to review possible components of what could be included in a National Infrastructure Plan for Canada.


UK’s National Infrastructure Plan

In 2010, the UK government introduced its first National Infrastructure Plan.
“…the Government is setting out, for the first time, a broad vision of the infrastructure investment required to underpin the UK’s growth.”
“The role of the Government in this work is clear. It is to specify what infrastructure we need, identify the key barriers to achieving investment and mobilise the resources, both public and private, to make it happen.”43
By 2013, the UK’s NIP, updated annually, included a pipeline of projects valued over £375 billion, status reports on projects valued over £50 million, detailed funding tools and mechanisms, and a comprehensive framework for evaluating and prioritizing infrastructure investment across the country.44


What Could a National Infrastructure Plan Look Like?

The need for a National Infrastructure Plan is clear. Countries that exhibit best practices for infrastructure investment have decision-making frameworks driven by a strong central government committed to innovation and economic development. Within these frameworks, projects move forward based on 50 to 100 year forecasting and planning, establishing a platform for innovation, resiliency and prosperity.45
For example, in the Netherlands, the Dutch government has been actively involved in setting strategic infrastructure plans since the 1960’s, particularly with respect to projects of national interest. A recent World Economic Forum report on global competitiveness ranked the Netherlands 1st for quality of port infrastructure and electricity supply and ranks Netherlands 5th overall out of 144 countries in global competitiveness.46
Moreover, national governments are helping cities execute visionary plans that are embedded in infrastructure as a means to enhance global competitiveness. These countries recognize that providing integrated, efficient infrastructure is essential to offering a high quality of life and business environment that prospective investors and residents find attractive and find the means to finance it.47
To help shape this concept, the authors propose that a National Infrastructure Plan could, at minimum, include the following components:
A comprehensive, multi-year plan that would prioritize infrastructure projects across a number of areas of national significance. This plan would include a pipeline of projects, prioritized by status such as completed, under construction, funded and awaiting approval. Under this structure, the plan would be updated at least once a year to reflect movement in the project pipeline and changes in strategy or emphasis.
Transparent disclosure of infrastructure planning and project prioritization. Building on the last point, any infrastructure plan would need to transparently describe the infrastructure planning and prioritization process, including publishing decision-making criteria and detailing the status of projects under consideration for funding.
Dedicated annual targets for infrastructure investment. For example, targeting a certain percentage of GDP each year would ensure that the infrastructure deficit is slowly reduced, while demands for new infrastructure are met. The plan could include flexibility to accelerate planned infrastructure investment in times of economic slowdown or recession.
A decoupling of infrastructure investment decisions from annual operating budgets. The long-term benefits of public infrastructure investment require a decoupling from the short-term incentives associated with deficit reduction. Although infrastructure spending obviously cannot be undertaken in complete isolation of the government’s fiscal situation and would need to be publicly reported in a transparent manner, it should nonetheless but somewhat insulated from the volatility of annual fiscal budgeting.
A detailed inventory of infrastructure needs, including maintenance and new build requirements. The federal government should play a coordinating role in collecting and assessing infrastructure needs across Canada. This inventory should then be used by policymakers to prioritize future infrastructure funding levels and project investment decisions.
Clear, transparent rules for infrastructure funding programs. For programs that involve partnering with provinces or municipalities, application rules should be transparent and predictable. Program funding levels should not be capped, but rather provided with annual allocations, thus ensuring that projects that are unsuccessful in one year can be prioritized in a following year.
Accounting and budgeting provisions that recognize the multi-year nature of infrastructure investment, including a separate Capital Budget. Again, as infrastructure planning operates on time horizons well beyond annual budgeting cycles, accounting rules and budget planning for infrastructure should be updated to reflect this reality. This should include separately accounting for capital spending within the government’s fiscal budgeting process and ensuring that all infrastructure investments, including projects that are partnerships with provinces or municipalities, are appropriately capitalized over the life of the asset.
Financial tools for municipalities and public sector entities who cannot efficiently access capital markets. Building on the success of P3 Canada, the federal government should create centres of excellence in financing, access to capital, project planning and infrastructure budgeting that smaller public sector entities can utilize. This centralization of expertise will result in the promotion of best practices across Canada and allow for smaller players to benefit from the economies of scale associated with a pan-Canadian infrastructure plan.
Dedicated funding mechanisms to address the misalignment of infrastructure responsibilities with fiscal capacity. This could include, among other mechanisms, transferring fiscal capacity from the federal government to municipalities, as the greatest imbalance exists between these two levels of government.
Finally, this list is not an attempt to comprehensively describe what may be included in a National Infrastructure Plan, but rather an attempt to start a dialogue on the subject. The authors invite policymakers and thought leaders to build upon this outline to develop a comprehensive vision for what should be included in a National Infrastructure Plan for Canada.

7. Conclusion

Modern public infrastructure is a crucial component of national prosperity and high living standards. But decades of neglect and underinvestment have left Canada on the precipice of a national crisis in terms of our collective infrastructure needs.
Numerous studies and analyses have shown that Canada faces a substantial infrastructure deficit, both in terms of maintaining our existing assets, as well as servicing unmet demand for new infrastructure. This deficit extends across almost all areas of public infrastructure, including transportation and transit, water and wastewater, social and cultural institutions, affordable housing, electricity transmission, environmental and climate change adaptation and many more. The long decline of federal involvement in infrastructure spending has exacerbated the problem, as the vast majority of infrastructure inventory is in the hands of Canada’s municipalities and provinces, creating a misalignment between funding responsibility and fiscal capacity within the country.
This challenge, while dire, also represents a key opportunity for Canada’s federal government. The economic benefits of investing in public infrastructure are numerous and substantial, with additional investment providing badly-needed stimulative effects in the short-term and contributing to higher productivity and a more competitive economy in the long run. Moreover, current market conditions, including historically low long-term interest rates, create a window of opportunity for decisive action by an active and committed federal government.
It is time for the federal government to play a more active role in the planning and funding of public infrastructure within Canada. A critical starting point would be the creation of a National Infrastructure Plan, following the example of other countries such as the U.K. A national strategy, while respecting provincial and municipal jurisdiction, would coordinate infrastructure efforts across Canada, take advantage of the federal government’s greater fiscal capacity, create clear, transparent rules for infrastructure programs, enhance transparency of infrastructure planning and prioritization and share best practices across Canada. Only the federal government has the ability, authority and fiscal capacity to play this role within Canada.
The state of Canada’s infrastructure represents both a crisis and opportunity for our country. Only by taking decisive action now, can the federal government ensure we collectively seize the latter and avoid the former.

8. Authors

John Brodhead is a former advisor to the Honourable John Godfrey, Minister for Infrastructure and Communities, and a former Deputy Chief of Staff for Policy for Ontario Premier Dalton McGuinty. He was Vice-President of Metrolinx and is now the Executive Director of Evergreen CityWorks, an initiative designed to build better urban infrastructure in Canada. John has a Masters Degree in Political Science from the University of British Columbia.
Jesse Darling is an Urban Project Designer for Evergreen CityWorks. She has previously conducted research and policy analysis for the Martin Prosperity Institute and Harvard Graduate School of Design in urban affairs and municipal governance. She has a Masters degree in Urban Planning from the University of College London.
Sean Mullin is an economist, policy advisor and consultant, and has previously worked in senior roles at the Province of Ontario and in the asset management industry.  Sean has a Masters degree in Economics from McGill and an M.B.A. from the University of Oxford.

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