“That the Government of Canada abolish the Canada Infrastructure Bank.”
That was the striking recommendation of the Commons Transport committee in its recent report on the CIB – striking, both because of its finality (end it, don’t mend it) and because it was the only recommendation in the report.
Not that anyone should have been altogether surprised, given the predispositions of the three opposition parties in support, who together make up a majority of the committee (its Liberal members dissented).
The CIB, recall, was set up in 2017 as an arm’s-length agency with a mandate to persuade private capital to invest in public infrastructure, in exchange for a share of the returns on those investments – from user fees and the like. To sweeten the deal, the bank would kick in money from its own capital fund of $35-billion. The goal was to raise four dollars in private capital for every one dollar of public money.
So there’s something in there for everybody not to like. The NDP doesn’t like it because private money is involved. The Bloc Québécois doesn’t like it because it wants any federal money to be given to the government of Quebec. And the Conservatives don’t like it because, well, because the Liberals thought of it, one suspects.
To be fair, the bank’s performance to date has been underwhelming, to say the least. As of March, 2021, the Parliamentary Budget Office found, four years into its 11-year mandate, the CIB had committed just $4-billion of its $35-billion kitty, 80 per cent of it on two projects. No private capital had been attracted.
Since then things have picked up a bit. The CIB now claims to have “approved investments” of $7.2-billion (though just $4.2-billion of this is described as having been “closed”). It also claims to have raised a total of $7.6-billion from “private and institutional investors,” which would leave it well short of the desired four-to-one ratio even if you fell for the CIB’s trick of lumping institutional investors – public pension funds, mostly – in with the genuinely private kind.
As this suggests, the bank’s record of transparency has been less than sterling. For example, it refuses to reveal how much it pays in performance bonuses to senior managers. What little is known of its operations, however, is troubling. Turnover in the executive suite has been such that, in fiscal 2020, it paid out $3.8-million in severance to departed senior managers – more than the $3.4-million it paid to those still on the payroll.
The bank’s performance, then, is hard to defend. But the basic concept is still sound – or at least, there’s a version of the basic concept that is. It makes sense, first, to use private capital in place of public capital wherever possible, for the simple reason that that leaves more public capital to be invested in things that private capital won’t fund.
Even if private capital weren’t involved, it would also make sense, as a matter of public policy, to charge a price where possible to users of public infrastructure: road tolls are a prime example. Again, so far as a thing can be financed by means other than taxes, it leaves more in scarce tax revenues to pay for the kinds of things that can only be paid for by taxes: pure public goods like police and fire protection.
User fees also provide a good test, to a first approximation, of whether an investment is really in the public interest – whether, that is, it offers a greater return to society, measured by what people are willing to pay to use it, than it costs society to provide. It’s a lot harder to put up pork-barrel “bridges to nowhere” if the bridge has to be paid for by the people who cross it.
The problem with the CIB, rather, and what may explain why it has had such trouble attracting private capital, lies in the first part of its mandate as I described it above: it isn’t really an arm’s-length agency, with the sort of strictly commercial mandate private investors might understand. Its investment policies are set by government. Its board and chief executive officer can be dismissed by the government.
But the biggest obstacle to private investors’ participation may be the very thing the government hoped to lure them with: that juicy $35-billion dollop of public funds. It’s a bad idea in policy terms, since the subsidy, so far as it makes an investment less reliant on user fees, undermines the very market discipline that was supposed to justify it.
But it is also likely to make private investors leery, since public money always – always – comes with political strings attached. Want to save the Canada Infrastructure Bank? Make it more like an actual investment bank, and less like another government slush fund.
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