February 24, 2004

Speaking Notes for the BMO Nesbitt Burns 2004 Ontario Infrastructure Conference
by David Caplan, Minister of Public Infrastructure Renewal

Check Against Delivery

Thank you Mike Miller, Director of Research for BMO Nesbitt Burns, for that kind introduction.

And thank you Bill Downe, CEO of BMO Nesbitt Burns, for setting the stage for this session so effectively. I think this will be an interesting and informative meeting, for all of us.

Good morning ladies and gentlemen, to those of you in the room this morning, and to those listening via the Internet webcast.

Let me begin by saying how pleased I am to have this opportunity to speak with you today, and to bring you greetings from Premier McGuinty.

Finding the right ways to finance the substantial infrastructure investments needed for the province of Ontario is at the top of the Premier’s agenda and mine.

We need the best advice of our best minds to help us determine the proper course of action. I hope some of the people attending this conference will share their insights with us.

I think it would be appropriate for me to begin with a brief overview of the new, and the first ever, Ontario Ministry of Public Infrastructure Renewal.

I, then, want to outline for you the dimensions of the infrastructure crisis we face, and the priorities we are setting to deal with this crisis.

Finally, I want to discuss some of the financial approaches that may work toward a resolution of this issue. Then I will be pleased to respond to your questions.

The purpose of this new ministry is to provide a broad framework for planning and coordinating the government’s investments in public infrastructure.

We are expected to look at the government’s capital investments through a wide-angle lens, not a telescope.

Part of our task is to develop a coherent, long-term plan for infrastructure investments, so that our investments are mutually reinforcing.

Our investments must both maintain and renew the infrastructure that exists now, and provide for the new facilities we will need to accommodate future growth.

When Premier McGuinty created this ministry, he asked us to consider potential investments across different sectors of the economy, and across government ministries.

In general terms, the ministry will focus on five strategic areas of infrastructure planning, investment, and financing:

• First, we must improve and renew Ontario’s aging public infrastructure.
   
• Second, we will use these improvements to accommodate an expanding economy, and to bring positive change to the public services Ontarians depend on.
   
• Third, we intend to improve long-term infrastructure planning within government.
   
• Fourth, we intend to improve the delivery of public services through creative and innovative infrastructure investment.
   
• Finally, we must develop creative financing solutions to meet our capital investment needs.

The very fact that there is a Ministry of Public Infrastructure Renewal signifies the importance the McGuinty government places on infrastructure investment and on managing the growth of our province.

We know that the public facilities people depend on – hospitals, highways, water and sewage treatment, schools and universities, and public transit systems – all demand high levels of public investment.

But you may not be aware of how much investment is required. So let me share with you some of the estimates that cross my desk.

The rule of thumb is that a prudent manager needs to budget about two per cent of the total value of capital assets each year for routine maintenance.

This amount just keeps what we already have in a state of good repair. It does not build anything new.

Ontario’s public infrastructure is valued at about 240 billion dollars.

Not all of that is the direct responsibility of the province, so a conservative estimate of continuing maintenance costs might be based on half of that value that’s about two and a half billion dollars a year.

But previous governments didn’t make those investments.

So Ontario is facing a significantly large and growing deferred maintenance bill.  Repairs are needed to hospitals, schools, water treatment facilities, and a host of other public amenities that have been put off, deferred and/or simply abandoned.

We don’t have accurate measurements of the true burden of deferred maintenance across all economic sectors but we know the cost of repairs, and the cost of correcting past under-investment, will reach into the tens of billions of dollars.

The infrastructure deficit covers such key areas as hospitals, schools, colleges, universities and water and sewer systems.

Then of course there are the infrastructure requirements for future economic and population growth especially in central Ontario.

Within a generation, we expect about 2.4 million more people to move into the Greater Toronto Area alone.

Across the province, our population is expected to grow by 40 per cent, mainly in central Ontario.

The triangle bounded by Oshawa, Barrie and Niagara Falls will be one of the most heavily urbanized regions in North America.

Those people will need schools, and hospitals and roads and water and sewer services.

And one way or another, governments – municipal, federal, provincial – will have to ensure they get built.

The demand is already apparent. In some parts of Peel Region, for example, the officials responsible for planning public schools are saying that the developers put up the houses faster than they can put up the schools.

Children are housed in portables, or over-crowded classrooms, and the problem gets worse with every new subdivision.

That is one reason why integrating growth and infrastructure needs is an important component of my portfolio.

Some economists estimate that over the next two decades Ontario will need $55 billion dollars for new capital investment, in the Greater Toronto Area alone.

It has also been estimated that the use of best practices to develop more compact and transit-connected communities could yield billions in savings over the next two decade.

But by any measure, we need enormous amounts of money to repair what we already have and to build what we need for the future.

And we face this challenge in the context of severe financial constraints.

This is a financially sophisticated audience, and there is no need for me to repeat the facts about the deficit we inherited from the previous government.

At this stage the question is less “what happened?” than “what are we going to do about it.”

We must regain the financial capacity to provide the public services the people of Ontario need and want.

Premier McGuinty has made it very clear that our priority has to be protecting and improving public services.

But no single approach can successfully address all of our infrastructure issues.

We must consider the full range of infrastructure financing and procurement models. These considerations include:

• More strategic, cost-effective approaches to planning and managing growth;
   
• New operating models that link users or beneficiaries, to the cost of creating and maintaining the infrastructure;
   
• Increased direct capital investments by governments;
   
• Innovation in the way we finance infrastructure investments, including participation by the private sector; and
   
• Sound asset management practices, so that we get the maximum benefit from our investments.

While we intend to have an open mind about our financing options, we will not be indiscriminate.

We will have some fundamental principles to guide our financing and procurement strategies.

This government believes it is important to bring both clarity and transparency to our infrastructure financing and procurement. Things were not done this way in the past.

Issues such as public ownership and control, when and where appropriate for public services, will be important.

Equally important will be assurances of far greater levels of accountability and value for our money then were evident or practiced by the previous government.

Within the next two months, I will engage stakeholders, including the banking, financial and investment communities, on financing and procurement policy options.

Finally, the ministry will take a long-term, strategic approach to investments in infrastructure.

The ministry is in the process of developing a 10-year strategic infrastructure investment plan for Ontario.

The 10-year plan will be guided in part by the government’s vision for strong, vital, communities.

The plan will also be guided by sound growth management principles that balance our economic, social, and environmental objectives.

Let me close my remarks today by noting that on this day in the year 1809 Charles Darwin was born.

Many of Darwin’s theories forever changed the way we view and understand the world around us. One such theory, states:

 “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”

The McGuinty government will be responsive to the need for change – real positive change for the people of Ontario.

In the context of our government’s approach to infrastructure renewal, we can’t keep doing the same old things the same old way.

We can’t walk backward into the future. There must be a plan. There must be priorities.

We also need the financial tools to build the infrastructure that will support vital communities and improve the essential public services Ontarians need and depend on.

I hope everybody here with us today will help us to develop those tools.

 Thank you.