Canada: 2015 Federal Budget: Infrastructure And P3s On The Move

INTRODUCTION

On April 21, 2015, Finance Minister Joe Oliver tabled the 2015 federal budget (Budget). The Budget reaffirmed several of the government's past commitments to infrastructure renewal and introduced some new measures of interest to those involved in infrastructure projects across Canada, particularly under the alternative financing and procurement and public-private partnership (P3) models.

NEW PUBLIC TRANSIT FUND

One of the government's key announcements in the Budget is the creation of a new Public Transit Fund "to promote public transit infrastructure investment in a manner that is affordable for taxpayers and efficient for commuters." Through the fund, the government will provide new time-delayed funding of C$750 million over two years, starting in 2017-18, and C$1 billion per year thereafter for transit infrastructure projects across the country.

Although it is the Budget's largest targeted infrastructure program, the funds available through the Public Transit Fund are dwarfed by the publicly stated spending requirements of Canada's major population centres. Accordingly, other sources will be required to fund Canada's transit infrastructure needs, most notably from the provinces. The Ontario Liberal government, for example, has promised to spend C$31.5 billion on infrastructure projects across Ontario over 10 years, including C$16 billion on transit and transportation in projects in the Greater Toronto Area and Hamilton and C$15 billion on roads, bridges, transit and other critical infrastructure in the rest of the province. In British Columbia, the Mayors' Council, which includes representatives from each of the municipalities across the Metro Vancouver transit and transportation system, recently proposed a 30-year, C$7.5-billion regional transportation vision for investment in roads, rail, bus, SeaBus, cycling and walking infrastructure.

But even the combination of both federal and provincial funding is unlikely to be sufficient to finance the full-scale transit build-out required in Canada's urban areas. It is therefore unsurprising that in the Budget the government clearly states that it intends for the Public Transit Fund to be implemented through financing and funding mechanisms involving the private sector, thus maximizing the impact of what is in practical terms a severely constrained pool of funds.

Of particular note, funds allocated to the Public Transit Fund will be made available entirely through PPP Canada Inc. (PPP Canada), the federal body charged with responsibility for involving the private sector in the design, building, financing and operation of infrastructure projects through P3 arrangements. It is expected, therefore, that such funding will be allocated primarily to projects featuring alternative financing and funding mechanisms involving the private sector, including P3s. Accordingly, this additional funding is likely to accompany the continued expansion of the P3 model across Canada to fund urban transit infrastructure, but will come with attendant challenges in managing the involvement of the federal, provincial and municipal governments in both procuring and financing projects in the country's largest cities.

BROAD FEDERAL SUPPORT FOR P3S

Beyond the creation of the Public Transit Fund, the Budget emphasizes that the Government of Canada remains committed to P3s as a tool for improving the delivery of public infrastructure more generally. The federal government last renewed the P3 Canada Fund in 2013, with C$1.25 billion over five years, but in the Budget the government describes that it intends that PPP Canada "will continue to lead federal efforts in encouraging the use of P3s where they can generate value for money."

The Budget highlights a prior announcement that PPP Canada launched round 7 of its call for applications under the P3 Canada Fund on April 13, 2015. Projects will be announced over the course of 2015 and 2016, but as a general matter we would expect to continue to see PPP Canada adding value both in the development of large-scale federal infrastructure projects in its capacity as a national procurement advisory body, and in the development of projects at the municipal level, where it will supplement the funds and/or expertise required to implement complex infrastructure projects involving various stakeholder interests. Key projects highlighted in the Budget in this regard include the Edmonton Light Rail Transit project, a P3 project where the government is contributing C$400 million in aggregate through both the P3 Canada Fund and the New Building Canada Fund, and the City of Winnipeg's Southwest Rapid Transitway project, which includes an investment from the P3 Canada Fund of C$137.3 million.

CONTINUED NATIONAL INFRASTRUCTURE COMMITMENTS

In terms of additional infrastructure spending over and above the targeted Public Transit Fund, the Budget promises that C$5.8 billion will be available over the next six years for new investments to continue to build and renew federal infrastructure across the country. An additional C$5.35 billion per year, on average, will also continue to be provided for provincial, territorial and municipal infrastructure under the New Building Canada Plan (some of which may also be allocated to projects in conjunction with funds from the P3 Canada Fund).

Other smaller—though still important—Budget initiatives include C$1.33 billion over six years to the Canada Foundation for Innovation to support advanced research infrastructure at universities, colleges and research hospitals and C$100 million over five years for a new Automotive Supplier Innovation Program to support the auto parts industry.

Finally, the Budget also announced a new dedicated infrastructure fund to support the renovation, expansion and improvement of existing community infrastructure as part of the Canada 150 celebrations. However, new funding was not announced for this fund.

OTHER INFRASTRUCTURE-RELATED MEASURES

In terms of geographic-specific measures, the Budget also authorized the federal government to increase the borrowing limits of the governments of Nunavut and the Northwest Territories to C$650 million and C$1.3 billion, respectively, consistent with the federal government's Northern Strategy. These funds are expected to expand the capacities of governments in the North to carry out significant infrastructure projects.

Although not a measure having immediate effect, the Budget also announced that the federal government will launch a public consultation on the usefulness of the rule that restricts federal pension funds from holding more than 30 per cent of the voting shares of a company. If changes are ultimately implemented, it may become easier for federal pension funds to hold significant equity stakes in infrastructure assets.

CONCLUSION

Overall, the proposed new infrastructure spending in the Budget will raise total federal infrastructure spending from over C$53 billion to around C$60 billion over the 10-year period of the New Building Canada Plan. Although the promised funding will continue to fall far short of fulfilling Canada's need for infrastructure in terms of both timing and scope, by proposing to continue to leverage the involvement of private capital generally—and P3s in particular—in the renewal and build-out of public assets, the Budget demonstrates a continued commitment to the renewal, development and maintenance of Canada's infrastructure.

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