The Infrastructure Bank: Another Taxpayer-Funded Subsidy To Big Business

There are undoubtedly those who will never accept the fact that in electing Justin Trudeau and his sunny band of men and women, they were, in fact, putting into power a group as neoliberal as the outgoing Harper regime. It is a hard truth, one that I have had to accept despite the fact that mine was one of the many votes that put the Liberals back into power.

The latest evidence of this sad truth is found in new information about the Canadian Infrastructure Bank, a scheme ostensibly designed to raise private capital to fund various projects to rebuild our steadily decaying roads, bridges, etc.

Federal investments doled out through the government’s new infrastructure financing agency may be used to ensure a financial return to private investors if a project fails to generate enough revenues, documents show.

What investors have recently been told — and what the finance minister was told late last year — is that if revenues fall short of estimates, federal investments through the bank would act as a revenue floor to help make a project commercially viable.

Experts say the wording in the documents suggests taxpayers will be asked to take on a bigger slice of the financial risk in a project to help private investors, a charge the government rejects.

The devil, as they say, is in the details:

An October briefing note to Finance Minister Bill Morneau ahead of the fall economic update where the government unveiled the financial plan for the bank, said federal funding could be structured in such a way that the bank’s “return on investment will only materialize if defined institutional investor revenue thresholds are met.”

“The infrastructure bank could enter in the capital structure to bridge the gap between reasonable returns on investment for investors and the revenue generation capacity of specific infrastructure projects,” reads the briefing note, obtained by The Canadian Press under the Access to Information Act.

In other words, if I interpret this correctly, should revenues for private investors fall below expectations, we, the taxpayers, will be propping up their profits.

Despite my aging olfactory system, I am forced to conclude that this scheme does not pass any reasonable smell test.

Just A Couple Of Questions

Given that I have no background in economics, I will leave it to more finely-tuned minds to debate the merits of yesterday's federal budget. However, there are a couple of things that, from my perspective, need to be answered, and they both relate to the Infrastructure Bank the Liberal government is touting.

Introduced in last fall's economic update, the goal of the Bank, according to Finance Minister Bill Morneau, is

to attract private sector dollars at a ratio of $4 to $5 in private funding for every $1 of federal money.

While that sounds fine on the surface, the question about the returns that will prompt private investors, including institutional ones, to invest in infrastructure projects the bank will help fund needs to be answered. And it is here that things becoming a tad murky.

In yesterday's budget, Morneau had no real details to provide about it, other than a motherhood statement:

Ottawa has said it wants to leverage every dollar it puts in its infrastructure bank into $4 of investment, the balance kicked in by private-sector investors. The government thus hopes to fund $140 billion in infrastructure projects with an upfront Ottawa investment of just $35 billion.

Sound too good to be true? Perhaps it is:

The catch here is that only infrastructure projects with revenue streams will attract private investment. To be sure, that includes a lot of infrastructure, including toll roads and bridges; alternative-energy suppliers that reap revenues from power consumers; and water and transit systems that earn back their cost of capital through mill rates and Metropasses.

One can't help but wonder, like the idea to sell off our airports, this is just another neoliberal ploy, thinly disguised, that will redirect revenue from the public to the private domain.

The Canadian Centre for Policy Alternatives has released a study that suggests we will all be paying more for this largess gifting the private sector:

This study finds that private financing of the proposed Canada Infrastructure Bank could double the cost of infrastructure projects—adding $150 billion or more in additional financing costs on the $140 billion of anticipated investments. It would amount to about $4,000 per Canadian, and about $5 billion more per year (assuming an average 30-year asset life). The higher costs would ultimately mean that less public funding would be available for public services or for additional public infrastructure investments in future years.

The full study, which you can obtain here, suggests there is a better way:

There’s no reason the federal government can’t make the Canada Infrastructure Bank a truly Public Infrastructure Bank, with a mandate to provide low-cost loans (or other “innovative financial tools”) for large public infrastructure projects. The federal government already has banks and lending institutions that provide low-cost loans, financing, credit, and loan guarantees for housing, for entrepreneurs and for exporters. So why not also provide low-cost loans and other financing for public infrastructure projects? This bank could be established as a crown corporation with initial capital contributions from the federal government (and perhaps other levels of government) and backed by a federal government guarantee. It could then leverage its assets and borrow directly on financial markets at low rates and then use this capital to invest in new infrastructure projects.

This approach would involve a slightly higher cost of financing than direct federal government borrowing, but it would be considerably below the cost of private finance.

And finally, is it simply a coincidence that one of the government's tools for borrowing at ultra-low rates is ending?

The federal government is phasing out the Canada Savings Bond, a popular savings vehicle introduced after The Second World War.

The Liberals’ 2017 budget stated the bond program peaked in the late 1980s and has been in a prolonged decline since.

“The program is no longer a cost-effective source of funds for the government, compared to (other) funding options,” the budget document reads.

Perhaps it is naive of me to suggest, but wouldn't paying a higher rate of return on savings bonds that average citizens can benefit from also be a source of much-needed cash for infrastructure?

Just wondering.

Clarity From Robert Reich

Robert Reich simply and brilliantly deconstructs Trump's construction plans. Lest Canadians feel tempted toward complacency, check out Trudeau's infrastructure bank plans, which will likely have the same effect of enriching corporate investors at our collective expense.

Meanwhile, Back At Home

While the Gong Show unfolding in the U.S. will likely continue to preoccupy a great many of us in the weeks, months and years to come, we would be remiss to ignore disquieting occurrences in our own country. Many of these occurrences are unfolding under the blinding glare of our prime minister's sunny smile; indeed, many of them are being orchestrated by Mr. Trudeau, under the not-so-subtle aegis of his neoliberal agenda.

One of these issues is the Infrastructure Bank Trudeau is establishing, one that seeks to meld public and private money to finance projects. The key question one must ask, of course, is what is in it for the institutional and consortia investors he is trying to attract. Kate Chucng, a Toronto Star reader, recently raised a very pertinent point.

So the federal government plans to start an “infrastructure bank.” But we already have one. It’s called the Bank of Canada, and it was set up for this very purpose.

The Bank of Canada exists to make low-interest loans to all levels of government. So why are they wanting to borrow at high interest rates from private investors? Could it be that the 1 per cent controls the government?

It is a question all of us should be asking.

In his column today, Paul Wells writes about a meeting the prime minister and nine of his ministers had on Monday in Toronto at the Shangri-La, where they were guests

of Larry Fink from New York’s humongous BlackRock investment firm, pitching Canada as an investment destination to some of the deepest pockets on the planet.

Around the table were all your favourite emissaries from global capital. The Hong Kong Monetary Authority, with $360 billion (U.S.) in assets. Norway’s Norges Bank, which may be the world’s largest sovereign wealth fund, though it’s hard to tell and the Norwegians hope to keep it that way. The Olayan Group from Saudi Arabia, with assets somewhere north of $100 billion. Singapore’s Temasek Holdings, closer to $200 billion. The Qatar Investment Authority. The Lansforsakringar, which is Swedish for “If you have to ask, you can’t afford it.”

Interestingly, for a government that promised openness and transparency,

the whole day happened behind closed doors and surrounded by heavy security.

This kind of secrecy and preferred access, so typical of the former Harper regime, should cause all of us concern:

The novelty of it all, and the long trains of zeros and commas following all these visitors around, has generated a very large amount of skepticism among the relatively few Canadians who’ve been following this project so far. How will the investors generate returns? Toll roads? Jacked-up hydro rates? What kind of bargain is it if Canadians pay for all this fancy new stuff through their daily out-of-pocket expenses, rather than through their taxes?

Nearby, at Nathan Phillips Square, the Ontario Public Service Employees Union was staging a protest of the whole business. “When people find out how much of their money private contractors are skimming off the top, they don’t want anything to do with it,” Smokey Thomas, the OPSEU president, said in a news release.

There is no philanthropy in business. Everything is done with an eye to the bottom line. This fact alone should give Canadians deep, deep cause for concern over the direction our 'new' government is taking us in.