Ottawa should encourage widespread investment in existing and new infrastructure by institutional investors, such as pension plans and insurers, according to a new report from the C.D. Howe Institute.
In “New and Improved: How to Bring Institutional Investment into Public Infrastructure,” author Benjamin Dachis provides Ottawa’s new infrastructure bank with a blueprint for opening up investment opportunities to some of Canada’s largest investment funds.
“Canadian governments are on the verge of the largest infrastructure spending increases in decades, to the tune of hundreds of billions of dollars,” commented Dachis. “And institutional investors, like Canada’s seven biggest public pension funds, have invested $87 billion of their $1 trillion-plus in assets in infrastructure but mostly abroad. It’s time for governments to tap into this enormous source of financing.”
The author points out that Canadian and foreign institutional investors would likely place a high value on Canadian user-fee financed infrastructure, but Canadian governments have opened few opportunities for such investment. The report also argues that government ownership of infrastructure has led to inefficient management, poor project selection, and higher risks on taxpayers disguised by low government borrowing costs.
In addition to an infrastructure bank, Canadian governments should use the following blueprint to encourage more institutional infrastructure investment:
- where necessary, create independent regulatory bodies to oversee infrastructure assets that ensure their owners, either government-owned corporations or institutional investors, act in the public interest and for long-term sustainability;
- open infrastructure investment opportunities to the highest bidder among domestic or foreign investors and not require any provincial or federal pension funds to invest. This requires the federal government to have expertise they can lend to smaller communities on business cases for institutional investors;
- seek out opportunities to “recycle” user-fee financed assets at their maximum value to taxpayers or allocate contracts to operate new non-full-user fee assets that provide the highest savings or cost-avoidance; and
- provide financial encouragement to provincial and municipal governments to work with the federal infrastructure bank since they own the vast majority of existing and potential user-fee financed infrastructure of interest to institutional investors.
Dachis concludes: “A systematic policy in which governments seek to broaden the ownership of Canada’s billions of dollars of government user-fee supported assets would address the problem of governments facing a constraint on infrastructure investments and open investment opportunities for institutional investors keen to invest in Canadian infrastructure.”