Canada: 2016 Ontario Budget: C$160-Billion Boost To Infrastructure Paves Way For Job Creation

On February 25, 2016, the Ontario government (Province) released its 2016 budget, titled "Jobs for Today and Tomorrow" (Budget). The Budget focuses on economic growth and job creation across Ontario. Investments in infrastructure are intended to play a large role in these goals by stimulating job creation today, and supporting jobs in the future. As the Budget details, the Province plans for infrastructure renewal to further economic growth by moving goods more competitively, attracting investment and expanding opportunities. 

GROWTH IN INFRASTRUCTURE INVESTMENTS

In the Budget, the Province has committed to invest C$137-billion in public infrastructure over the next 10 years. This is over C$3-billion more than announced in the 2015 Ontario Economic Outlook and Fiscal Review and will result in an allocation of C$160-billion from 2014 to 2026, representing the largest investment in public infrastructure in Ontario's history. 

The Province has maintained its funding level for the Moving Ontario Forward plan for investments in public transit, transportation and other priority infrastructure projects. Of the C$31.5-billion allocated to these initiatives, C$15-billion is available outside the Greater Toronto and Hamilton Area (GTHA) and almost C$16-billion is available inside the GTHA over the next 10 years. 

KEY PROJECTS

Although there were relatively few new announcements on large projects, the Budget provides further detail on a number of initiatives and proposals to expand infrastructure development and renewal across the province. A few key projects continue to be of note. 

Through Moving Ontario Forward, the Province will continue to build transit projects aimed to increase ridership and reduce travel times. The Province plans to invest C$13.5-billion in the GO Regional Express Rail. This investment is expected to quadruple the number of weekly trips from 1,500 to almost 6,000. A portion of the funding will be used to support planning, design and construction on GO rail corridors, including funding a number of ongoing projects. 

Funding for other previously announced projects was also further formalized, including the Hurontario- Main Light Rail Transit (LRT) project, which will receive C$1.4-billion to bring 20 kilometres of new, rapid transit to Mississauga and southern Brampton. It is expected that construction will begin in 2018, and the LRT will be in service in 2022. 

As well, the Hamilton LRT will receive up to C$1-billion in order to provide service from McMaster University to Queenston Traffic Circle. Construction is expected to start in 2019, and the LRT will be in service by 2024. 

Mention was made of the Eglinton Crosstown LRT, the Mississauga Transitway and the Finch West LRT; however all of these are already either in the construction or procurement stages.  

While specific funding commitments were not included, the Budget does set out the Province's intention to continue working with regions, communities, other levels of government, and private partners to design and select the next generation of infrastructure investments, including London rapid transit and Phase 2 of the Ottawa LRT project.

Turning to roads, the Province has also announced significant investments in a number of major highway projects to support economic growth and improve mobility. One such initiative includes the introduction of high-occupancy toll (HOT) lanes on a section of the Queen Elizabeth Way between Oakville and Burlington. Information collected through this pilot project will be used to support future planning of HOT lanes. Other initiatives include the widening and extension of major highways to relieve congestion, including the expansion of Highway 401 from six to 10 lanes from Hespeler Road easterly to Townline Road in Cambridge, including high-occupancy vehicle (HOV) lanes. Construction is anticipated to start in 2018.

Outside of transportation, the Province has committed up to C$1-billion for strategic transportation and infrastructure development in the Ring of Fire region, which is located 540 kilometres northeast of Thunder Bay. The Budget lacks detail about where the funds will be spent specifically, but the Province continues to work closely with First Nations to help inform infrastructure planning in this area. 

The Province is also developing programs to help remote First Nations communities reduce diesel use, by connecting them to Ontario's electricity grid. However, the Province notes that the federal government will be required to play a key role in order to fulfil this commitment. 

Additional project-based initiatives include expanding the Ontario Community Infrastructure Fund (OCIF) to support local communities. Through OCIF, the Province provides small, rural and northern municipalities with access to C$100-million per year to build and repair critical infrastructure. The Budget announced that the OCIF will be expanded to C$300-million per year by 2018-19. This expanded fund will be relaunched in late spring 2016.

The Budget also discusses the Province's existing and proposed investments in education, health, and energy infrastructure, including plans for new post-secondary education facilities in Thunder Bay and Ottawa, with the hopes of creating good jobs and building the Ontario economy. 

CONTINUED ASSET OPTIMIZATION

The Province details that it is making significant progress with its asset optimization strategy, through which the proceeds from the sale of "qualifying assets" will be invested in the Trillium Trust to help further fund investments in transit, transportation and other priority infrastructure as part of the Moving Ontario Forward plan. 

The Province has completed the Hydro One Ltd. initial public offering (IPO), which raised approximately C$1.83-billion in gross proceeds and C$116-million from related share sales. This IPO was the first phase in broadening the ownership of Hydro One, and the Province confirms it will continue with future offerings over time, eventually reducing its stake to 40 per cent. The Province is also moving forward with its strategy to optimize its real estate assets, including the sale of the LCBO's head office lands, and the Seaton lands. 

The Province is continuing with proposed regulations under the Trillium Trust Act, 2014, which will prescribe net revenue gains from the Hydro One IPO. This will ensure that all fiscal benefits associated with the broadening of Hydro One's ownership are credited to the Trillium Trust and are invested in initiatives under the Moving Ontario Forward initiative. 

CONTINUED REFINEMENT OF AFP

The Budget reaffirms the role of Alternative Financing and Procurement (AFP) in delivering some of the province's largest and most complex infrastructure projects. All major public infrastructure projects valued at C$100-million will be assessed for delivery under the AFP model. This initiative demonstrates the Province's strong commitment to this funding model. 

The Province notes, however, that it continues to refine the AFP model in line with the auditor general's recommendations, after its assessment in 2014. Recent refinements include enhanced local knowledge, stronger health and safety requirements and a pilot project aimed to encourage apprentices on projects. As well, Infrastructure Ontario has released a best practices guide in evaluating the business case for AFP project delivery and made adjustments to reduce long-term financing costs. 

OTHER MEASURES OF NOTE

In addition to setting out the Province's spending and capital raising plans, the Budget also details various proposed legislative changes. Worth mentioning is the introduction of the Infrastructure for Jobs and Prosperity Act, 2015 (Act), which was passed in June 2015 and will come into force on May 1, 2016. This Act aims to align infrastructure investments with Ontario's economic development priorities. When fully implemented, the Act will aid in the evaluation and prioritization of infrastructure investments. A major component of the Act is the requirement that the Province establish a long-term infrastructure plan within three years, with subsequent plans tabled at least once every five years. 

CONCLUSION

The Budget provides an ambitious plan for the Province's infrastructure development, with the aim of creating jobs and promoting economic growth. The Province also presents a clear focus on expanding economic growth to rural and northern communities through investments in transit infrastructure and initiatives directed towards these communities. While asset optimization has supported and funded a number of large scale projects, other sources of funding, including the capital markets and funding solutions involving the private sector such as AFP, will no doubt be necessary in order to reach the goals outlined in 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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