Let’s All Get Along
Here’s what we know: over the next 10 years the Federal government aims to deliver $120 billion of infrastructure investment. What we don’t know is how it will be spent, or how they will come up with it. And this has many in our industry worried. “Infrastructure is seen by many as the new bright hope in Canada, and the new Federal government talks a good game, but when are they going to act, especially with national infrastructure conditions reaching critical levels?”asks Ian Woods, principal of Markham, Ont.-based Fraser Woods Inc.
Media reports about frequent cost overruns on major public projects (for example, when costs on the current Toronto subway jumped about 45 per cent mid-project) certainly highlight the dilemma of how governments, especially municipalities, are going to pay for much needed core infrastructure, and University of Toronto associate professor Matti Siemiatycki of the department of geography and planning has a couple of interesting ideas. He proposes creating an Infrastructure Bank (to “provide low interest loans and credit enhancement services to provincial and municipal governments investing in priority infrastructure projects”) and establishing an arm’s-length agency to advise on how to allocate funding for the country’s largest projects.
Of course having “rigorous project planning and evaluation, procurement best practices and project financing under a single roof” (as Siemiatycki describes it) certainly sound great — and the Feds actually say they are looking into it– but the current reality requires the various levels of government to get bold and creative when looking for new ways to unlock capital and, let’s be honest, ensure that the cost of infrastructure development is borne by those that most directly benefit from it. One way to do this is for governments to focus on capturing both the current ‘ stores’ of value and the future value that they expect their projects to deliver in order to fund its development – and that’s where Land Value Capture (LVC) methods come into play, as discussed in this issue.
According to KPMG, for some, pragmatism will lead to more boldness in the privatization of assets (a.k.a. ‘asset monetization’ ). In one of their Foresight newsletters, they point out that “rather than shrinking away from the political implications of privatization, governments will increasingly see privatization as a smart way to recycle capital in order to fund new services and assets.” At the same time, KPMG expects to see new ways of ‘ value capture’ emerge and municipal authorities getting tougher and smarter with private developers who own land surrounding projects, leveraging the value that will be gained by homeowners and businesses within proximity to the asset through land taxes and development taxes. And we will almost certainly see new taxes being developed and ring-fenced to fund future infrastructure investment.
“We’re at one of the most crucial periods for investing in infrastructure in Canada’s history,” says Andy Manahan, executive director of the Residential and Civil Construction Alliance of Ontario (RCCAO), a coalition of management and labour groups representing a wide spectrum of Ontario’s construction industry (and who sponsored both of Siemiatycki’ s reports). This is true: across the world, cities are using new models of development to unlock the value of underutilized assets, build new infrastructure, and promote economic development. In Canada there is a flood of infrastructure money being rolled out from various governments with a heavy emphasis on transportation. But it seems the way we are going is that despite infrastructure being a national priority with a collective national benefit, much will depend on local politics, expectations and norms.