The Agenda with Steve Paikin (Audio) - How Will Municipalities Fund the Growing Need for Infrastructure?

Episode Date: October 2, 2024

Ontario's municipalities are experiencing a lot of growth and have ambitious housing targets to match. Are the old ways of funding infrastructure still working? Ehren Cory, President, and CEO of the Canada Infrastructure Bank; Lisa Laronde, President of the Canadian Association of Women in Construction; Drew Fagan, Professor at the University of Toronto, and former Ontario deputy minister of infrastructure; and Craig Dyer, Former Chief Financial Officer, Region of Waterloo, join Steve Paikin to discuss how municipalities will finance it all.See omnystudio.com/listener for privacy information.

Ontario's municipalities are experiencing unprecedented growth and have ambitious housing targets to match. Over the next 10 years, they are planning to spend more than $250 billion in capital investments to keep up with everything. But are the old ways of funding infrastructure construction still working? Let's find out from Aaron Corey. He's the CEO of the Canada Infrastructure Bank. Lisa LaRonde is president of the Canadian Association of Women in Construction. Drew Fagan, professor at the University of Toronto and former Ontario Deputy Minister of Infrastructure. And Craig Dyer is the former Chief Financial Officer for the Region of Waterloo. And I know you want to give them a very hearty EMA welcome here in the city of Ottawa. Thank you.

Thank you. Thank you. Drew, just to get us started. I know the people in this room know this, but obviously for the television and broader audience they may not know. If you need to get infrastructure procured, how do you do it? Well, it's the simplest way, and everybody, as you say, Steve, in the audience would know this. The simplest way to do it was traditionally

through public services. But it's a very, very technically complicated process. It's different than delivering operating services. So you would contract things out sometimes to the private sector. Sometimes you would do it internally. But the risk of actually finishing the project, things out sometimes to the private sector. Sometimes you would do it internally. But the risk of actually finishing the project,

finishing it on time, on budget, on scope, and the old joke is you could only do two out of three, was on the public purse. Increasingly, and I think we're going to discuss this at some length, the private sector and their capacity is being used to discuss this at some length, the private sector and their capacity is being used to assist the public sector. In some cases, to actually take over the responsibility

through things like public-private partnerships, which have worked in some cases. And there's a bit of a re-evaluation of that and different methods of doing it. Fundamental issue is not just that we're spending a lot, and we're spending more than we ever have before, $250 million municipalities in the province, probably a billion dollars nationally or more at all orders of government.

And that should help us to catch up after 30 years of not building adequately. You don't do that overnight. But also doing it more effectively. And we all know examples where that actually hasn't happened and how we can ensure that we manage the infrastructure better, that we deliver the infrastructure better, and we manage demand as well. Not just supply, but demand. Aaron, as you see what's in the pipeline,

and when you understand what the need is, how are those two things matching up right now? Well, I think the numbers can be overwhelming, because the reality is, as Drew said, we've spent decades under-investing in a lot of our core infrastructure. And that's our social infrastructure. Think of our schools and housing.

But certainly the civil infrastructure, what we often call the enabling infrastructure. So the water pipes to get to the new subdivision. You've talked previously about housing. You can't build houses if you don't have streets to get to them, power supply to get to them, clean and efficient power supply, water and waste water, broadband.

So the challenge that we face now is we have a period of underinvestment that we've got to catch up on, and then we've got some new realities. We've got a new reality around cleaning the grid and having clean electricity supply, that as we double the demand for electricity, we also have to deal with the remaining stuff that we have to close, coal plants, for instance. So it's a problem of both underinvestment, but also new challenges. And I think what we see is, and Drew hinted at this,

but the old ways of paying for stuff just can't work. The math is impossible. We can't afford the stuff we need. And sometimes it's important to boil really complex problems down to the simple. We can't afford the stuff that we need need, that we need, excuse me, and if we don't think of different ways of financing that and over the long term paying for it, we're gonna be talking about trillion dollar deficits

and 250 billion dollar gaps forever. Having said that, Lisa, let me put this to you. I work at a television station in the, that's old fashioned talking there. I don't actually work, you know, I think I work at a television station in the, that's old fashioned talking there. I don't actually work, you know, I think I work at a television, in fact I work at a content creation place now.

There we go. My point is it's in the middle of Toronto and it's about 100 yards away from what was supposed to be an LRT called the Eglinton Crosstown that was supposed to have opened several years ago at half the price that it will ultimately come in at and it's still not working. There is a sense nowadays, I think,

that nobody can build anything, never mind two of those three, Drew, any of those three now. Are we wrong to feel that way? Well, I'm primarily in the road building industry. So one of the things, one of the difficulties that you have in the GTA or the downtown Toronto is just the ability to get around.

And so as soon as you close a lane or a road, you have to revert all this traffic. And we were actually talking earlier today about just the Bloor and Aberdeen Road and all of the road construction that's going on, all of the LRT that's going on, at the end of the day it comes down to planning. Why are we doing it all at the same time? They're closing the Gardiner. They're actually going to close 10 kilometers on the way to, on the QEW, on the way to Niagara. That's already in the plans. So why aren't we planning and

working together with the municipalities, with the province for the 401s, and the federal government to say, okay, here's our grand plan of how we need to actually roll out some of this infrastructure but let's do it smartly and let's work together let's talk to the stakeholders what happens is at the end of the day they're fast-tracking the Gardner now it's going to cost them millions of dollars to fast-track that no but I was gonna swear sorry nobody thought of that like nobody said that the all the all the stakeholders Toronto, they're gonna be fine with Gridlock for months or years upon years. No, I mean we need to actually sit down plan talk about it

Why don't we plan better? I'd like to know that answer That's the question for me Welcome to TVL. Delighted to be here. So, you know, I'll speak maybe just a little bit about my experience at the region of Waterloo and this whole notion of under-investing in infrastructure, and I can say that my experience was the absolute opposite. And I'll give two specific examples

of generational investments that were made in my time there over the last 12 years. One was the construction of the Stage 1 LRT project. And the second was a significant investment, hundreds of millions of dollars invested in wastewater treatment capacity. And this is work that was done in order to plan for growth in the future. The challenge we have going forward, in my view, is not so much about financing as it is about funding. And I'll make the distinction between the two. So funding, how do municipalities pay for infrastructure?

Property taxes, user rates, development charges, and grants from the federal and provincial governments. The financing piece is just the mechanism of how we go about doing it. Do we use money that we've collected in the past and is sitting in reserves? Or are we going to borrow and pay that off over 10, 15, 20, 30 years

in the future. The challenge we have is the funding challenge. And before we get into new and different approaches to financing, we have to answer the question of who is responsible to pay for it. And what's the answer? Well, I don't think it's the property tax and water and wastewater user that should put that burden onto the property

tax, which is already, I would say, stretched beyond belief. I think it's going to be not sustainable. It's going to be, it's going to significantly affect housing affordability when we think about the total cost of ownership. And that's the conversation that we need to have. True. Lisa talked about a systems approach, and there's a number of ways to think about that. One is, and the people in this room know this extremely well, 60% of the infrastructure in this country is at the municipal level, but it has 10% of the taxing capacity.

And that's very different than any other country in the Western world. You have fewer powers to act independently than just about any other system in the Western world. That's complicated because the federal system and the three, even four or five orders of government, regional, indigenous, that's a fundamental challenge. So you have to look to the higher orders of government for funding. And there are very few programs that have been systematized.

So many of them are too ad hoc. We were talking about the community building fund. That is what was known as the gas tax. That's $900 million to $1 billion a year for Ontario municipalities. It's now going out 10 years, and you can plan with that. But that only goes so far. So that's a fundamental point.

The other point I think that's important is the other thing that we don't do in this country to the point of planning, and why don't we plan better, we don't have the mechanisms to prioritize projects as well as we should. And that is, again, something that prioritize projects as well as we should. And that is, again, something that other countries do better than we do. If I want to think about what the infrastructure deficit is in this country or look at the studies, I'll get a number from between $125 billion and $1 trillion.

Other countries, New Zealand, Australia, Great Britain will have commissions that actually define what the deficit means. Does it mean existing infrastructure? Does it mean future infrastructure based on economic and population growth? And what do we need to meet that? And they will have a responsibility and advise political leaders who ultimately need to make the best decision with the best evidence of how they should prioritize because we need to focus on the stuff we really need. We really don't need to focus on the stuff that's secondary given that we, you know, a trillion dollars, which is what we're going to spend in the next decade, doesn't go as far as it used

to. And I think even to tie that to, you know, planning with roads. And I'm saying as we're moving into electric vehicles and that's the future this is the direction that we want to go but our roads are not set up to be able to handle electric vehicles safely. So all of the crash testing is coming out now is saying that the electric vehicles actually it's a catastrophic failure they go right through the guide rail. So in Ontario we would have to upgrade all of that but then you think about we're fund part of our road building through gas tax so now you're not going to be paying gas tax because you have

electric vehicles. So how are you going to upgrade your roads for the electric vehicles that probably will be mandated at some point in time without actually figuring out where is that funding coming from. So I think that's a really valid point. Can I just understand that Lisa, the roads we have now are not set up to handle EVs? That is correct. The crash testing data that's coming through now at TTI in the United States is a catastrophic failure. So it's the batteries. They're very, very heavy, the makeup of the vehicles.

So when they're crash tested, they were crash tested on vehicles, four wheel drives, two wheel drives. Even if you're driving like an F-150, most of the vehicles were cars that were tested. Have you put a price tag on what you think it will cost to get our roads up to code for the new EV world we're about to get into?

It's interesting. I was in a meeting and somebody just asked me that. So I think I'm going to actually try to find that out, because you have to look at the kilometers of guide rail that we have across the country. And really, when you think about that logically, at the kilometers of of guide rail that we have across the country and and and and really when you think about that logically are you going to do that in Northern Ontario where you're going to have electric vehicles you know up north of Thunder Bay I would doubt that it doesn't question any logical sense to do

that so again that's where I think it comes down to planning let's be realistic about it in the UK they have a 2030 mandate that they'll all be electric vehicles or that they're highway and electric vehicles. They've now actually have halted all new road building because they want to do everything intermodal, which I believe we're looking at as well. But again, that's great, but none of our assets that are on the road are tested for that kind of stuff. So we just have to work together. I'm going to say it. Industry, government, education, associations like Orba as well

as KWIC. We all need to work together because we are the people, we are the workers, we're the ones that are on the ground that say, yes it's great that we have all these great ideas that we're going to invest in housing, but how are people going to get to the houses? Are they in communities that it makes sense? I know in North Bay, sorry I'm digressing a little bit, but in North Bay one of the things that they did was they brought industry and businesses to North Bay. And I remember Vic Faddele, he's the MPP, I believe it's Economic Development, had said, you know Lisa when you bring industry in, you bring businesses in, and they were giving tax breaks for that.

So yes I know in the beginning it didn't look like it was monetarily successful, but he goes you bring people, they have to buy insurance, they they have vehicles they go to schools they so you bring all of these people in that's the bed Lisa that's the bed it's the hope yeah yes yes for sure we shall see Aaron you look like you want in well I'm just nervous because we came here for solutions and now Lisa's added a new infrastructure to the list of things now I'm thinking that's more to have to fun I was gonna say you know retrofitting all the roads to deal with an EV reality, is that part of your $250 billion

in costs that you anticipate? Well, certainly building networks that do allow for electric vehicle charging is. And it's a classic example of the kind of infrastructure. And I just want to go back. Craig talked about the gap difference in financing and funding. And I was getting at the same point.

It all starts from what can we afford to pay for, which the ultimate question is about funding. And Craig, I think you're right about what the sources of funding are. And obviously, we're at AMO. We're talking about municipal infrastructure. But if you just step back for a second and think about the infrastructure our country

needs, I would say that there are classes of infrastructure that actually the user pay model is exactly the right one. Like what? If we want to extract critical minerals, we should be building roads and clean power supply to regions that open up those areas for development. And the future development that happens in those areas, the critical mineral companies that come in,

should pay a toll or a user fee. And over time, if those are profitable businesses, we can get that infrastructure paid for. Electric vehicle charging would be another, right? As we install... The chicken and egg problem is, we need to install enough EV chargers across this country, even in Northern Ontario,

Lisa and I are both from the North, and I know the challenges of distance and climate, but ultimately we need to build reliable, trustworthy networks of fast EV charging so that people can have the confidence to go by vehicles. Although now they not have the confidence because they're going to be worried about going through guardrails. But so that people can have... deal with range anxiety. And today, if we're going to do that, it is not a profitable business.

And so we've got to find ways to fund it initially that might be through the tax base. They might be through public financing. Or they might be in a case like the CIB about us taking some risk upfront in building those networks. The infrastructure bank. The infrastructure bank. Excuse me. Thank you.

So the thing the infrastructure bank can do is we're a crown corporation. We're a government risk-taking capital. We can invest in those things alongside the private sector. And as they get busier and become profitable, we get paid out. In fact, we make interest. We make money if they'd go well. And we can take that money and put it

into the next infrastructure. And what I'm saying is, if you think from a Drew talked about system level, if we pick off parts of our infrastructure, our high speed internet, our broadband, our EV charging, our critical minerals access, and we pay for those with different tools than we have historically, which has also been publicly funded. We can take more of the public money

and dedicate it to the true public goods, our public schools, our health care system, our public roads, our transit. So the way we think of it as a bank is how do we find places where we can bring private capital and we as government can take risk? And by doing that, can we free the public financing, the public funding, to do the things that public funding is

best designed for. How does that sound to you? Absolutely right. And for the CIB to invest, you need revenue. Part of the rules of the CIB was set up was you invest in projects that will develop revenue. So you have a base to build on. And you also invest in areas where the private market is not

probably going to take the risk. The term is crowd-in private investment, but this looks in terms of innovation and broad economic benefit. Aaron talked about particular areas that are less well known with regard to revenue or getting the user to pay. Often when we think about the user pay, well we saw an example in New York City with the congestion charge. And you know, a number of cities in Europe have done this. It's

been discussed for cities like Toronto. We talk about the congestion. You can't get around. Here's a way to reduce, because ultimately, the people that are subsidized are actually the drivers, more than the transit users, or at least as much. But of course, it's very politically sensitive. That's why just a week or two before it was going to be implemented in New York City, it was pulled. But there's other sectors that we

can use to better effect with regard to using revenue. And the other thing that that does is rebalances properly within the market supply and demand. Much of this conversation is on supply. Build more. Build more of what? Build more of everything. We didn't build for a long time.

But we also need to manage demand. And there's ways to do that by charging what's necessary. Now, there are other areas. And politically, many of you know water and wastewater. Incredibly sensitive politically to charge market rates. And rates have been going up, but they're very sensitive to that.

But thinking about that in a systems way is fundamental to this and part of the solution. Can I just circle back with you? Because admittedly, I live in Toronto. I am, like everybody else who lives there, overwhelmed by negative stories about how poorly almost every major public sector project is procured and brought to the fore. But you're telling us you've had a good experience in your jurisdiction, and I'm I guess I want this audience and all of us to know more About why you think it worked?

Well, I think A project that comes in on budget and on time never gets any story So so tell it now right So tell it now. Right? So, and I'm certainly not saying that every project that was undertaken over that period of time was on time and on budget. Certainly even the LRT project was late, very close to being on budget, just a little bit over.

I think what we've experienced over the last few years, and I'll use the Stage 1 LRT project as an example, I think the key thing that the region did right in that project was engage all of the right expertise from financial to engineering to legal. You know, a P3, a public-private partnership, was brand new to the region at the time. We were learning about P3s as we went along.

There was a recognition early on that we needed some really, really good help from various consultants, lawyers, financial people. And we worked very closely with that team over an extended period of time. And part of the P3, of course, was a transfer of responsibility and risk

onto the private sector partner. It strikes me that, thinking back on it, that the decision that municipalities have to make is, is that risk transfer worth the higher financing costs that you'll end up paying? And what's the answer usually? Well, the answer, I think, often, municipalities become leery of dealing with, in some cases, from a private sector perspective,

this constant battle between the private sector partners' desire to make money and municipal councils' desire to deliver service. And that's the balance they're trying to achieve. And I think there's still a lot to learn about how these arrangements can be structured in order to achieve that balance. And I agree, and I think that to incentivize them,

do a lump sum, because the P3s, the problem I have with the P3s is it's always the subcontractors and the sub-trades that get screwed at the end of the day because they're the ones that don't get paid and that's the unfortunate part when you move it into the private sector. Or you have to go through the legal process and they have all this money and when you're talking about you know your subcontractors or your sub-trades, they're small businesses or they're independence and they don't have the resources to be able to withstand all of that. So I think we need to find that balance because I agree with you, you need to make money,

that's very very important, but we also need to protect the actual people that are working. One of the things we thought about was even on the Gardner is why wouldn't you say if you finish an exam, here's the price you have and here's the time frame and every day you finish early you make an extra whatever it is, $100, then I can guarantee you probably done in like half the time versus going penalizing on the other end saying every day over it's gonna cost you a hundred thousand dollars because you're into liquidated damages let's just change just change the narrative change the incentive incentive yeah because that's true we build up better than we build up is we build up better than we build

out we build buildings we build than we build out. We build buildings. We build hospitals. We build schools. Better other, you know, sort of infrastructure of that sort than we build what's called linear infrastructure. Transit in particular. We build highways better than we build transit. You know, there are global studies that have a professor in Europe's looked and made a name for himself comparing sectors. You know the sector that's the worst in the world with regard to cost overruns. They have to be on time though. The Olympics. Multi-sport games. It's the worst of all sectors. I think the average, and some of us remember Montreal. And Montreal, by the way, was the worst of all the Olympics

in being over budget. But transit is right up there. So our challenges are not completely untypical, but we do have a couple of examples that will be studied for a long, long time. We're in Ottawa, the Confederation Line. So why did the Confederation Line end up the way it did? And the line Waterloo, Kitchener, Cambridge, they were led at the same time, the same process, yours cost a little bit less by memory, this is about 2011,

2012, they were, the contracts were signed within a few months of each other. I think Craig talked exactly about why it was better planned. Some of those problems, in retrospect, you could see up front. And there's been a review that identified this by an Ontario Superior Court judge of what went wrong with regard to Ottawa. So most projects actually end up fine. We examined this at Infrastructure Ontario, and most don't get headlines,

and they do end up being on time and on budget. But there are that we don't want to minimize the fact by any means that there are ones in the headlines deservedly, Eglinton LRT, Confederation Line, a few others where things really went awry. And Aaron, given that that's your business, do you worry that the negative stories and the failures, I guess we can't say the Eglinton LRT is a complete failure yet, but let's say it's not looking great,

do you worry that that is going to affect public confidence in what you at the end of the day are trying to do? Well, I certainly do and it's funny the adage Drew is talking about we build better up than out. What we used to always say is all the challenges in construction are getting out of the ground. You know when you're building a building it's all of the what you hit in the ground. The problem with transit projects is you never get out of the ground until the day you're done So yes that I think that with linear infrastructure Sewer water and wastewater work our electricity distribution system all the linear stuff that is more challenging. I think To answer your question first, I think it's exacerbated by something

So I'll make the problem worse before I make it better and that is that I look around this room and I think of elected officials and the cycles that they work on. And most of these decisions are long-term. Their assets are going to live 50 or 75 years. Their construction periods, they're going to take five, six, or seven years. And so making long-term decisions is hard.

And so I think that also gets in our way sometimes. Hard when you have to have a consultation with the people every four years. And the benefit you will get will be between making a decision and going for that consultation will be construction mess. So I think that also adds to the problem. So public confidence and even elected official confidence. I'm going to announce a new thing. Imagine if you were the mayor of Toronto, and you said, I'm announcing a new LRT project. What's the reaction you would expect to get? So yes, I worry about that very much.

And I think the solution, and Lisa was hinting at this, I think as an industry, what we've observed, and certainly as the bank, what we try and put in place, is actually a bit less focus on risk transfer and more focus on aligned incentives and innovation. So what the private sector actually does really well is come up with different ideas of how to do things. Hey, what if we try it this way?

We could save some money or save some time if we did it this way. And if you get that innovation, it is, I think you asked the question earlier, is it worth it? Is the juice worth the squeeze? Is the higher financing cost that Craig mentioned worth it? I think the answer is absolutely. But it's all about creating the right incentives. If the incentive you create is, I've now

got a fixed budget for you. You're going to get paid this no matter what. All of your innovation is actually going to go into trying to make money. The innovation you're doing is actually innovate to profit. If I can create a different incentive system, it's innovate with shared benefit, innovate to be done faster,

innovate so that we both share in the gains of that. I think you get really different outcomes. And I think we've seen many examples of projects like that. I think of the Bruce Power and the work they've done on expanding and improving that, that's a public-private partnership that has really much more about aligned incentives. And I think the Canada Line is an example improving that. That's a public-private partnership that has really much more about aligned incentives. And I think the Canada Line is an example of that.

We've had transit projects. The REM project in Montreal, I think, is very much in that mold. So I think more and more leveraging the private sector for innovation is where we're going to have our best bet. Lisa, let me come at this from a different angle. And that is, we know what the need is. We know how expensive it's going to be.

Do we even have enough people to build all this stuff if we wanted to do it all? No. And I think that's the big thing that's out there now. By 2033, they're anticipating there'll be a shortage of about 89,000 construction workers. And that's just due to attrition. Is that Canada-wide?

Yep. OK. Yeah. And obviously, now I'm the president of the Canadian Association of Women in Construction. And women represent 50% of our population. That's just due to attrition. Canada-wide? Yep. Okay. Yep. And so, and obviously now I'm the president of the Canadian Association of Women in Construction, and women represent 50% of our population and 5% in the skilled trades. And then I'm now listening to some ads for Alberta, and they're enticing, saying, hey, if you want lower cost of housing, we'll give you a moving allowance.

Move to Alberta. We have all of these incentives for you. So now we're going to start to see people actually leaving Ontario to move to some of these provinces that have lower cost of housing, similar wages. So we need to work together. I strongly believe this. We need to work together. KWIC has a partnership right now with Mark's Commercial to do some advocacy with the government and the unions and again, industry associations so we can look at how do we attract people to our industry, how do we change the narrative. They actually have skilled trades as part of our Ontario

curriculum in the education and they didn't give teachers any tools on how to actually roll that out. So if we work together, which is exactly what you're saying, is let's bring in those experts that can actually lend their advice, their guidance, probably to some degree some funding. We can figure that out. We can allocate some of the labour training dollars to have an association or a task force that goes together to identify how do we actually get workers in. The indigenous population is one of the fastest growing ones. What are we doing to attract indigenous people and workers to our industries? And there's just, I think there's so many opportunities, but we get caught up, I think,

in policy. And I agree with the four years. You just start a program and then you have to sell it to either the new people that are coming in. It would be nice, especially at the municipal level, if we could actually work together. Let me follow up on one thing you said with Drew. When you were a deputy minister and you're meeting around that big table with your fellow deputies,

do you ever recall having any conversations with anybody about how to get the number of female workers as part of this up from 5% to something a little more resembling the population split? I actually did at the end of my time in government, just after I left government, I did a study for the previous government. And I must say the conservative government has really

taken this on as an issue. They are making progress on this in a couple areas that I'll talk about. So yes. But towards the end, and was it a fundamental priority into when I was deputy and sort of 10 years ago, no. I don't think there was the recognition that the skilled trades were going

to be such a demographic challenge. In the same way that we've, you know, the issue of demography generally has kind of exploded in the last couple of years. But there's a huge focus on it now, because we know that we need the workers. And part of that is to bring in nontraditional parts of the population.

One thing that I was really struck by when I was looking at this was if I could put it this way, the journey of a student after high school trying to get into the skilled trades was much more difficult, much more complicated than somebody who went to university or college. And in many cases, they were coming from families, not always, but stereotypically, in which their ability

to navigate that journey might have been not as strong as in others. So the percentage of students that quit, before finishing and getting their trade, was higher than it was in universities and colleges. That's been simplified to a certain extent. Nobody held your hand, I guess. The journey of what used to be known as the journeyman to really date it was incredibly difficult. And so it's become a real challenge. It's a challenge everywhere. It's part and parcel of the aging of the population.

There is a focus on it. Can I just go back to a topic? One linear infrastructure project that we haven't mentioned that will be, if it goes ahead, the biggest of all. And talking about errands, speaking about what's increasingly known as progressive contracting, which is really that the two sides, public and private, work together throughout the project as opposed

to handing off risk. You write a contract, then you fight later on if it doesn't go well. High speed rail or high frequency rail from Toronto to Quebec City, which will be multiples bigger than any other infrastructure project that the country's done in this modern age. A decision by the federal government is supposed to be taken in the fall. I've been, I should say, in tangentially involved. So the process that they've set out, and the CIB's been an advisor on it as well, is a good example of that kind of potential contracting in which you're going to work out not just the root,

everything together. And I think that will be a more sophisticated way about thinking about this and work through the decade as a partnership. That's the goal. Let me do a fast follow up with you on that, because I think I read my first study on a possible Windsor to Quebec City rail corridor 45 years ago.

We talk a lot about this. I'm not kidding you, 45 years ago. We talk a lot about this, and everybody thinks it's the shiny bottle in the window, and it's never got to first base. So I started off as a skeptic. And what's changed is, and I was in the provincial government when David Colinet did a big study,

you'll remember about 10 years ago, and he was a big high-speed rail fan, going back to when we were reading about it 45 years ago. The population density of Toronto to Quebec City, or Windsor to Quebec City, and particularly the Toronto to Ottawa to Montreal corridor, is typical, equal, or higher than most of the corridors in Europe that have high speed rail now.

So the biggest challenge with this project, in some ways, is that very perception. And it's not an unreal one. That's where I started. And then I started looking at it more deeply. And the capacity to actually invigorate economic development, you start thinking about Peterborough, in this example, or other places, Kingston, potentially.

Everybody's proposing different lines, as something closer than I don't want to say bedroom communities to Toronto, but bringing them together for economic development. It's something that's quite dynamic. Whether it happens is something else, but this has gone further than any other and it's that form of contract that I think might help bring it to the floor. And construction is looking at that integrated project delivery now so that you actually have everybody on board, which is what you were saying. You know, you get the engineers and the architects and the soil experts, so everybody gets to

put their plan together. And I think if you start with all of the experts in the room to begin with, and then you can plan from there, you'll be much, much more successful. Let's talk a little politics versus policy here. Craig, I'll start off with you again and that is, and again, apologies for bringing it back to the capital city of the province but but we saw this movie so many times where one edition of Toronto City Council votes for

LRTs and has one particular vision and then you know a number of members that council get elected out, new people come in, and suddenly it's subway, subway, subways. And then that council gets replaced and we're back to LRTs. And then, okay, you see where I'm going here, the politics changes so frequently. How do you get any consistency of decision making? How did you avoid that in the case of your region of the province? Well, I think what happened was that there was a number of counselors who were very supportive of the project and who

were able to be successful in two, three, four elections in a row and were able to convince their new colleagues on council that this was the right decision for the region to make. If several hundred thousand people are going to be added to the population, then we needed to find a way to move them from place to place. And we needed to find a way to move them from place to place, and we needed to find a way to ensure that the

community built out in a way that didn't infringe on the farmland that surrounds the cities. And so there was, I think, some very strong views that were able to be made consistently over a series of councils. One of the big challenges we had during that time was how do we put in place a financing and a funding strategy for significant new projects with so much other pressure on the property tax. And I'm not a fan of the perfect storm analogy. I find it gets used a little too often. But I used it to describe the 2023 and the 2024 budgets

to regional council. And the challenge that I think everybody in this room is facing is the extensive demand on property taxes to fund a wide range of, a very wide range of services. Municipalities, at the same time as they're trying to invest in transit and trying to invest in a whole range of services to make growth happen, municipalities have made historic, unprecedented, and utterly unsustainable financial contributions to housing and homelessness from the property tax. And that's something that has to change. If the expectation is that municipalities

are going to invest these hundreds of millions and billions of dollars over the next five, 10, 15, 20 years for housing to happen, there has to be a conversation about what is expected of the property taxpayer. So? Materially higher increases in funding for housing and homelessness Capital cost escalation something that doesn't get talked about excuse me a lot But but drew talked earlier about about purchasing power being eroded

So I'll give you an on-the-ground example the Canada Community Benefit Fund eroded. So I'll give you an on the ground example. The Canada Community Benefit Fund, a funding formula that I would put out as almost a model of how funding should work. Predictable, long term, a wide range of projects that municipalities can invest in, reasonable reporting. The problem is it's being inflated at 2% a year. Between 2021 and 2024, non-residential construction costs indices in this province increased 30%. And so you have a materially eroded purchasing power from the funding that municipalities are being given in

order to look after all the assets that they already have in and on the ground and all the assets and infrastructure that are needed to be put in place in order for all of this growth to happen. And that's the conversation that we need to have. Absolutely. No argument from this audience. Because otherwise, you know, otherwise it's simply unsustainable. And Ontario, of course, has the added challenge of having, you know, a number of what I would call programs that have a social equity or an income redistribution function that are funded in part from the property tax in almost every other province in this country they're funded using provincial and

federal revenues under the purview of the federal and provincial governments and all of that has to be looked at in order to come up with a model that's going to work to allow for these you know these generational investments in infrastructure to happen? I'm going to come back to this because I do want to follow up on it, but Aaron, I do want to hit you with the original policy versus politics question here. When Xi Jinping says we're going to build bullet trains all over China, he can be relatively confident in knowing there's not going to be a change of government and that's going

to happen. Now, we don't have that here. So when there's the possibility of governments changing every four years or less, how do you do what you do? Well, two things. I think first, this country, we do have a consensus that we need more infrastructure. It's actually not a debate between levels of government

or colors of political parties. So actually, there is a pretty decent consensus at the very highest level that infrastructure now. So why? Because infrastructure isn't about, no one wakes up in the morning and says, you know what we need to do is build some more sewers. What they think is we need more housing.

Infrastructure is an enabler to something. It's kind of like when you remodel your house, what you're excited is the new cabinets and the new cool granite countertop, but you've got to do the wiring and the plumbing first. So to answer your question, I think it's all about creating consensus around why we're doing it.

The Eglinton Crosstown is not about putting a train in the ground. It's about being able to eventually get around our city better, faster commute times. The promise of the thing is improved quality of life and economic growth. Infrastructure at its root is supposed to be driving one of those two things. It's driving better quality of life or economic productivity. I think the key, I'm not an elected official, but as the Canadian Infrastructure Bank, when

we look at making investments, we talk much more about what are we buying with our money. And I think what we're buying is when we put broadband to a home in Northern Ontario that doesn't have it, it's about telehealth, education, work opportunities. It's not maybe to watch Netflix too, but fundamentally it's about creating equal opportunity.

The broadband is just some wires in the ground to get to a thing. But do you consider political viability and political stability in the communities that are coming to you for money? Well, what I'm saying is when you start the project from what's the outcome we're buying and why do we care about it, you can actually create real consensus that does live through changes in governments. And I think of the Waterloo project, I think they did it, which I was involved in my old job

with the team at the region. What they did a great job of explaining the why. What is this thing going to give us? And then you can handle, and there's some champions, but you create community understanding of that. So I think the answer to your question is if a community is demanding the infrastructure, because they get why it matters. And they are even willing to go through some of the short-term pain

for the long-term gain then you have a durable project and so that's what I think we have to start. So there's a couple, I agree with everything and there's a couple other aspects to this I think. One, Aaron's point that there's actually a consensus with regard to the need to build and to spend more taxpayer money and focus more economy-wise on capital goods, infrastructure is absolutely true. And if you track the increase in spending, take for example federally, liberals to conservatives to liberals, it roughly tracks provincially in terms

of the degree of increase. Feds are actually a little bit faster because the province being responsible for about a third of all assets started the rebuilding process earlier, tracks the province, which has gone from conservative to liberal to conservative, the opposite, going back 25 years. And we are spending more. But again, we didn't spend for 30 years.

It's quite remarkable. If you take a count of depreciation in about the year 2000, we had negative spending on capital goods across the country. We did worse, actually, in Ontario. Remember in the early 1990s, one government bored the tunnels for subways to be built? Eglinton. And then the next government filled the holes in?

So that was Eglinton. That was Eglinton. Eglinton would have been built and that was the Harris government responding to the situation with perceived situation with the deficit fair there. So, you know, decisions like that. so that's part of it the other issue is Where we focus that infrastructure spending so to go back to the policy versus the politics You know new spending versus repair and rehabilitation is fundamental Do we have the balance right no not really and you're seeing that with regard to the water? No, not really. And you're seeing that with regard to the water headlines in Calgary and now in Montreal. And what can happen to you, and you all know this very well,

if it's not kept up? Or in both of those cases, because they were checked and it was felt that it didn't need to be done immediately and a mistake was made. The other aspect, I think, in the politics versus policy to go back to infrastructure forever and politics is to get to the weekend, is the fact that the balance is different, again, in other countries

than we have it here. And I'll give an example. There's an expectation of greater transparency about the studies that say whether a project, an individual project provides cost benefit analysis, that's the terminology. Does this project make sense? And is it the best project? And that information will more likely be public in countries that we look to. Here, I don't want to say it's suppressed, but I can cite examples where it was suppressed.

And there are exceptions, but it doesn't get the same degree of attention. So when you provide your best advice, and you say, ministers, here are the top 10 projects, and they decide, well, they're going to win elections, so they're going to choose the five at the bottom, because they're the most politically popular, that absolutely is their right, but that study is probably, is less likely to become public.

At least if there's greater transparency, there's a better chance that the best decision in the long-term interests of the province, where the country is opposed to the party, will take effect. Well said. I would add that the reason a crown corporation like us gets created, Steve, is actually in part to address this problem. So when we lend money to a project, the math we do is how many tons of GHG will this clean power investment reduce and how many will this? And so how much money should we lend it? So our decisions we look at return on

investment, the return being, I don't mean financial, but I mean outcome. So we compare projects on their benefits and we size our investment appropriately. So you create an independent, we're a crown corporation, we have a separate board, we have an endowment from the Government of Canada to invest $35 billion to invest in infrastructure projects. When we talk to a municipality about water and wastewater investments, we say, how many new housing starts can this investment enable over what time frame? And we can compare those and make loans appropriately. And so I think mechanisms like that is another tool that we actually are starting to use in this country

to put our money to best use. How much have you loaned so far? So far we've loaned just over 13 billion of the 35 across, and what's interesting is some of that's to municipalities and provinces, some of it's to private sector companies, you know, the broadband providers of this country or people providing clean fuels, developing new power solutions, so it's a mix of public and private. So let's circle back then to the original question we had, which is, okay,

35 billion dollars is real money. I don't want to take anything away from that, but you told us we need 250 billion going out the door. So, want to start us off here, Craig? Where's that money going to come from? Well, you know, one of the things we haven't spoken about today is Is development charges and there were comments made on housing about? About the future of development charges and what this is going to look like in this province They've been made out to be the culprit in some ways here, which you know I don't quite believe that to be true. But development charges are under attack, it feels, by many, by developers, by maybe by the province,

maybe by the federal government as well. I think talking to municipal CFOs, finding this balance between attempting for growth to pay for growth. People often say, well, the Development Charges Act allows growth to pay for growth. It doesn't. It never has.

And it won't, based on how it's written right now. But it certainly makes a sizable contribution to the funding of significant infrastructure investments that municipalities are putting in place. If the desire is to not have a development charge, then it goes back to the original question that I posed, which is, okay, well, who pays then? Right?

And again, that comes back to the, to me that comes back to the basic conversation that we have to have before going into individual solutions. And so again, so in the absence of development charges, what happens? Does the price of new housing go down? I would say it won't.

Probably not. Probably not. But if we not. And so, but if we've removed that funding source, what gets put in its place? Keeping in mind, development charges were put in place originally back in 1997, you know, shortly after the province got out of putting grants into water and wastewater infrastructure in particular, right? So it created a revenue source for municipalities, not a revenue source, I'd say a recovery mechanism to allow municipalities to recover the cost of growth-related capital. And if that's not desired in the future, or if something different is desired, what does

that look like? I'm not sure I have the answer. Lisa's got the answer. But I'm not sure the development charges are the culprit that people are making them out to be. Fair enough. Lisa's got... Alright. I'm sure this audience will have rapt attention at the response that you're going to give now. If... I'll just lay it right out there.

Where are we going to get all the money? I just think cut a little bit off of the infrastructure spending and allow it to be given to the municipalities for your development. You need to build roads to get there. You need emergency services. And that's all part of the municipal funding. So I just allocate the money accordingly to allow us to be able to build new homes.

Maybe you build a few less homes, but you have roads that get there. You have emergency services and schools, and you build communities. Because at the end of the day, I agree with Aaron. It's about what is it building the community? Look at the communities that have been very, very successful. What have they done?

They've thought it out from beginning to end, and so not all the funding goes into one pot. It funds everybody. Maybe everybody gets just a little bit of it, and we all win instead of one item winning. Drew, you got some thoughts on this? So, absolutely. In terms of funding, you know, the senior orders of government... They don't like that here, incidentally. They like different orders of government.

Different orders of government. I did use orders as opposed to levels. Absolutely. So, maintaining funding or in continuing to increase it, given demand, there are things you can do that are more than on the margin, revenue generation, with the impact of that to reduce demand or manage demand. Things like in big cities, land value capture, which is a fancy word for when the value of the land goes up, those who benefit from that land, developers primarily pay more

into the coffers. So, for example, the Elizabeth line in London was paid by developers to a limited but sizeable extent on the expectation that the value of their developments, their housing developments, along the line were going to go up significantly. Anybody doing that here? Very little. Very little. There are a couple of examples, you know of them, but we could do more, particularly in Toronto. Better planning with regard to housing. The model in Toronto is tall and sprawl. And we're starting to think about that. And finally, the issue of asking ourselves

why we're such an expensive builder. When we manage to build transit, we're actually expensive. Why are we so expensive? What can we do with the construction firms? Many of them are world beating, but some of them still are mom and pop shops. And the statistics show that their productivity, actually across the board in construction,

is not growing at the same extent as other sectors. Why is that? So a bunch of questions that we should be asking, not just about the funding, but getting the best value for the funding, including managing cost. You got a thought about where we're going to find all this money that we need? Well, I think Craig is so right.

There's only really one place to find it. You have to pay for stuff. Who's paying for it? Our citizens. There's lots of channels how they can do that. Development charges, property taxes, through your income tax and the central revenue fund of the federal government, which then get distributed back out,

they're all pathways back to the same person who's paying. So I think life is full of choices. And what we say at the CIB is we're very agnostic to the choice of revenue sources. So if a municipality wanted to do a wastewater system that enabled housing development, it was going to open up 10,000 new homes and they came to us, we would say, great. We would make you a loan.

Let's talk about where the revenue could come from. It's any mix for us of development charges, property tax uplift, you call that tax increment financing sometimes, the user rates of the new customers that will be on the system. And if you add all of those up together, then Craig's exactly right. Growth doesn't pay for growth, but it

might pay for 80% of growth. And then you've got a gap that's remaining. That's going to have to come from, let's call it, the general tax base. At the end of the day, what I think is municipalities, I have no opinion about which tool is better. I'm not an elected official, and I'm not the controller of purses.

I think each municipality should have a different mix of those things. It's going to depend on how much growth is happening in their community, what the development tax regime is, what water user rates have historically been, and what capacity they have to pay. So to me, the real issue is, how do you give each municipality all of the tools at their disposal,

from long-term stable federal funding through the building fund building fund all the way to their local tools development charges property taxes and have them put together ways to pay for infrastructure what I will do then is be able to lend the money against that future revenue in a way that shares risk and allows them to be bold so allows them to put in place the water for the next 30 years so that development can happen. You know the other problem, Drew talked about how expensive it is to build. One of the reasons is because we build piecemeal, because we build for how much money we have in the budget for this year and then next year and we do a little bit at a time. That's it. Everyone

knows a more expensive way to do it. One of the reasons a tool like an infrastructure bank, and Canada is not unique in this, it's happening all over the world, we do this is to help make these long-term decisions and manage for the fact that none of us really know with any great certainty will it take eight years for those 10,000 homes to get built, six years, 12 years, two years let's hope. So what's the pace of that development? And if we're gonna say that that's what's gonna pay for a significant portion of the infrastructure, you need to's the pace of that development? And if we're going to say that that's what's going to pay for a significant portion of the infrastructure, you need to be

able to manage that uncertainty. And most municipalities can't. So that's what a tool like us can do. We can help make long-term decisions and smooth whatever the funding tools are that a municipality chooses to use from their set of available tools. Craig, last word to you.

The one thing I would add to Aaron's comments is the discussion about how to pay for the infrastructure that's needed for one and a half million homes to be built in this province is we can't look at that in isolation. Right? So, when, so as we're considering what the answer is to that question, there needs to be, what would I call it, a resetting, a recalibration, if you will, of the responsibility and accountability for public services in the province, and then the funding framework that goes along with it.

Because if you think you've solved the housing enabling infrastructure problem, we're just going to go right back to, well, what about the homelessness and affordable housing problem? And what about, you know, whatever other problems are out there? So it needs to be, I believe, a broader conversation about how municipalities are funded and what services they're responsible for. Great. I want everybody in this room to help me thank these four guests for coming here to the Association of Municipalities of Ontario Conference and teaching us so much more about this subject

that we know. Thank you very much, you four. Much appreciated. Thanks.