Canada: 2015 Ontario Budget: Full Speed Ahead For Infrastructure

INTRODUCTION

On April 23, 2015, the Ontario government (Province) released its 2015 budget, entitled "Building Ontario Up" (Budget). As the title would suggest, the Budget emphasizes Ontario's plans for the future with respect to infrastructure in terms of both projects and sources of funding to support them. More specifically, however, the Budget highlights that Ontario's focus on infrastructure over the next several years will be largely in transportation and transit renewal and development.

INCREASED INFRASTRUCTURE FUNDING

The Budget reaffirms Ontario's past commitment to invest more than C$130 billion in public infrastructure over the next 10 years, including C$11.7 billion in 2014-15 and C$11.9 billion in 2015-16.

Of note, the Budget allocates C$31.5 billion of these funds to the Moving Ontario Forward plan for use in public transit, transportation and other priority infrastructure projects. This represents an increase of C$2.6 billion to these projects from previously announced funding. Moving Ontario Forward funds will be allocated using census data, which Ontario estimates will result in an investment of approximately C$16 billion in transit projects in the Greater Toronto Area and Hamilton and C$15 billion in critical infrastructure elsewhere in Ontario over the next 10 years.

KEY PROJECTS

While many of the infrastructure initiatives highlighted in the Budget were previously announced, the Budget provides additional information on several notable projects of interest to the infrastructure industry.

Key projects to receive funding include the Hurontario–Main Light Rail Transit (LRT) project in Mississauga and Brampton and rapid transit in Hamilton (both part of Metrolinx's Next Wave projects of The Big Move). Development of this LRT—for which provincial funding was previously announced on April 21, 2015—will be led by Metrolinx and will bring 23 kilometres of rapid transit to Mississauga and Brampton, Ontario.

Although they remain in the planning stages, the Budget identifies both the Finch West and Sheppard East LRT projects as other priority initiatives. More specifically, the Budget suggests that the procurement process for the Finch West LRT project is expected to begin later in 2015, with the Sheppard East LRT to follow, presumably at a later date. Mention is also made of Toronto's extension of the Bloor-Danforth subway through Scarborough which will receive provincial support (the project assessment study for this project is in progress).

The Province also indicates that beginning in 2015 it will work with regions, communities and private sectors to design new programs and a framework to select the next generation of infrastructure investments. The Budget identifies potential investments in municipal rapid transit projects in Ottawa, Waterloo and London, Ontario as areas of future focus.

Beyond transportation and transit, the Budget confirms that the government will move ahead with plans to build a new courthouse in downtown Toronto to consolidate a number of Ontario Court of Justice and Superior Court of Justice operations from five locations into one. However, a specific procurement timetable is not provided.

While the Budget contains no new funding commitments with respect to the Ring of Fire region, it does mention the recent announcement of a joint study in the region between the Province and the federal government to examine the benefits of developing an all-season transportation corridor connecting First Nation communities in the area with existing roadways. In the Budget, the Province suggests that federal financial participation in the Ring of Fire will be key.

The Budget also touches on the Province's existing and proposed investments in education, health, social, justice and energy infrastructure, including initiatives to connect remote First Nation communities in northwestern Ontario to the electricity grid.

FINANCING THE FUTURE

As detailed in the Budget, a portion of the funding for Ontario's key infrastructure priorities will be achieved in large part from higher levels of asset optimization, through which the proceeds from the sale of "qualifying assets" will be invested in the Trillium Trust and used to support infrastructure under the Moving Ontario Forward plan.

Noteworthy plans for asset optimization detailed in the Budget include an initial public offering of 15 per cent of the common shares of Hydro One, followed by additional share sales eventually totalling 60 per cent of the utility. The Budget also indicates that asset optimization could include the sale of prime-located real estate assets.

In the Budget, the government also re-commits to the use of Green Bonds as a source of funds for infrastructure projects. The first Canadian province to make use of Green Bonds, Ontario's inaugural C$500 million issuance was launched in October 2014 to finance the Province's investment in the Eglinton Crosstown LRT project. The Budget suggests that the Province intends to issue its second Green Bond later this fiscal year, but offers few other details.

A CONTINUED ROLE FOR AFP

In a section entitled "Cost-Effective Delivery of Infrastructure Projects," the Budget underscores Ontario's experience and success using the Alternative Financing and Procurement (AFP) model to deliver infrastructure projects on time and on budget. The Budget reaffirms Ontario's commitment to the AFP model and indicates the intention for Infrastructure Ontario to continue to enhance the AFP model by "addressing the Auditor General's recommendations, applying lessons learned, developing best practices, and being open and transparent with the public and stakeholders."

OTHER MEASURES OF NOTE

In addition to setting out the government's spending and capital raising plans, the Budget also details various proposed legislative amendments. Worth mentioning on this list is the inclusion of planned amendments to the Financial Administration Act (FAA) with respect to the administration of Section 28 thereof, as well as potential changes to its application. The proposed amendments to Section 28 of the FAA would allow the minister not only to approve in writing a given financial arrangement, financial commitment, guarantee, indemnity or similar transaction or class thereof (as is currently permitted), but also to exempt such a transaction (in writing) or class (by regulation) and impose terms and conditions in relation to any such approval or exemption. While still at the early stages, these amendments, if implemented, have the potential to streamline the implementation of transactions undertaken by the Province or its government agencies.

CONCLUSION

The Budget underscores the challenges posed by the Province's continued investments in infrastructure in an era where its needs outpace available funding. While an increased focus on large-scale asset optimization will lend significant heft to the Province's spending capabilities in this regard, other innovative sources of funding, including AFP, will be key to meeting the ambitious agenda established by the Budget.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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