Banking on Infrastructure: How the Canada Infrastructure Bank can Build Infrastructure Better for Canadians

The federal government tabled legislation as part of Budget 2017 to create the Canada Infrastructure Bank. The legislation sets the bank’s purpose as attracting private investment in Canadian infrastructure projects that generate revenue and are in the public interest. If done right, delivering large infrastructure projects through the proposed bank has the potential to significantly improve the effectiveness of infrastructure investment in Canada. It could accelerate the pace of infrastructure development by encouraging the adoption of new funding sources – projects that are self-funding through user fees can proceed to construction faster. And charging users the true cost of the infrastructure they use reduces demand and lowers Canada’s overall investment needs. The bank can also reduce the risk to taxpayers. Governments around the world have great difficulty in accurately forecasting usage for new infrastructure. Canada is no exception. For eight Canadian transit and transportation projects, actual usage was one-third lower than forecast. Inaccurate usage forecasts lead to costly overinvestment in projects or expansions Canadians don’t need. Working with the private sector can improve these forecasts – and avoid the cost for taxpayers of getting them wrong. Finally, the bank could rigorously adopt international best practice in project evaluation. With rigorous project evaluation, if the bank commits to financing a project, Canadians would know that the project is the right investment on their behalf. The bank will need to operate in Canada’s federal system – where provinces and municipalities deliver the vast majority of infrastructure. However, the information generated by engaging the private sector through the bank will benefit decisionmakers at all levels. When market feedback suggests the project may have higher costs or lower usage than expected – it provides a signal to decisionmakers to reconsider. At that point, those promoting the project would need to decide whether the project should still be prioritized over other competing proposals as the likely net cost rises. To accomplish this, the bank needs the right kinds of independence through both governing legislation and its operating practices. It needs political involvement on political questions of how much to spend and where to spend it to ensure democratic accountability. But once those decisions are made the bank needs strong independence to implement those decisions in the most effective way.