May 12, 2005

Ontario Infrastructure Projects Corporation - Toronto Board of Trade
by David Caplan, Minister of Public Infrastructure Renewal

Check Against Delivery.

Good afternoon, ladies and gentlemen. And thanks very much for coming.

Today, I’d like to outline some of the strategies the government will use to make long-term investments in the province’s infrastructure

I also want to outline the new steps we will be taking to make better use of our infrastructure dollars and improve the way we manage those projects.

There are four main themes I will touch on today and I want to give them to you right up front:

One: This government intends to strengthen the economy and continue to improve the enviable quality of life we enjoy in this province, by investing in our people.

Two: Public infrastructure is essential to that plan.

Three: To truly tackle the infrastructure deficit, we need to move quickly to broaden our investment strategy – we need to find new partners to leverage the necessary investments in infrastructure and expertise in delivery.

And, Four: All public infrastructure projects – including those with private sector partners – will be guided by five key principles, which I’ll elaborate on later. In short, they are:

• The public interest is paramount
• accountability
• appropriate public ownership or control
• value for money
• fair, transparent and efficient processes.

Public infrastructure is absolutely essential to every person in this province and critical to the competitiveness of our economy. It is the means to an end - the delivery of public services.

We are talking about the schools where we learn, the hospitals where we heal, the water and sewer systems that keep us safe, the transit systems that carry us to work and home, and the roads and highways we use to get our goods to market.

That’s why we have worked to deliver smaller class sizes in the early grades, to improve access to health care – especially where there has been a shortage of doctors – and to expand public transit.

And we have made strategic investments, like using the auto investment fund to leverage more than $3 billion in new investment from Ford and GM, that will create a new generation of high-tech, high-paying jobs.

We can only prosper and grow if we put in place the modern, efficient and affordable infrastructure Ontarians need to succeed.

But here’s the challenge, and it’s a triple barrelled one:

First, our infrastructure is in severe decline.

Some of the water pipes in cities like Ottawa and Toronto went into the ground before the turn of the century ... and that’s the nineteenth century.

Some of our highways were named to commemorate Queen Elizabeth but they were built when she was still a princess.

Some of our schools were built in the 1920s. And so were some of our hospitals.

Second, we must build new infrastructure to accommodate the demographic changes coming to Ontario.

Over the next 25 years, an estimated four million new people will come to live in Ontario about 90 per cent of them in the Golden Horseshoe centred around Toronto.

This is good news. It will help sustain our economy – there will be almost two million new jobs created – and it will cement our position as one of the most important economic regions in North America.

But we have to build new infrastructure to accommodate that growth water and sewer lines to protect public health, schools to educate our children, universities to lead innovation, hospitals for the ill, and highways and transit systems to move people and goods through an increasingly congested area.

We need to repair and modernize the existing facilities we have.  We need to build new facilities for the future.  And we need to take steps to accommodate our growing and aging society.

Our government is controlling urban sprawl, thanks to policies like the Greenbelt and the Places to Grow legislation. And controlling sprawl will allow us to get more efficient use from the infrastructure that exists now.

But we will still need to invest billions more in public infrastructure over the next 30 years – And, some of it needs to be started right away.

And that brings me to our third challenge. Financial.

Where will the money come from for the massive investments we need?

We need tens of billions of dollars.  And we need it now.

Major infrastructure projects can take a decade or more to complete.

By the time the projects we start now are ready for use, the demand will be overwhelming.

The Premier and Finance Minister have said there will be no new taxes in Wednesday’s budget.

So what can we do?

First, we are coordinating infrastructure investments by all public sector partners – federal and municipal governments and public boards like hospitals and universities – so that we work with a common set of priorities, and toward a common set of outcomes.

Second, we have to have both short and long-term plans – and a planned approach for investments.

This plan must address some very simple questions: What do we need to build? Where do we need to build it? And how will we pay for it?

In the next few weeks I will release a five-year infrastructure plan that will answer these questions.

And this leads me to the third point: we need to broaden our approach to the way we build and pay for public infrastructure.

To truly begin to tackle the infrastructure deficit, we need to bring more capital and expertise to the table.

Government capital for sure, but that will not be enough. We need capital from other sources, from other sectors and from other partners.

We call this Alternative Finance and Procurement. Essentially it is a technique for encouraging investment by the private sector in public facilities, to generate long-term benefits ... and paying it off over the life of the public asset much like the way mortgage payments on a home repay the purchase price.

This is not a new idea. Governments in many other jurisdictions - British Columbia, Great Britain, Australia, and New Zealand, just to name a few - have been doing this for years.

More important, many of those jurisdictions are gaining a competitive advantage as a result.

In British Columbia, the Sea-to-Sky Highway is being built in partnership with the private sector. In Ireland, more than 40 such projects were recently announced. And, in the U.K. more than 600 public infrastructure projects have been delivered using alternative financing.

We are falling behind because we have been slow to recognize the strategic value of looking beyond government to partners in the private sector – including pension funds – to help finance and deliver the long-term infrastructure we need.

We need to start tapping into our own sources of capital, so the wealth that is generated here in Ontario helps to build the infrastructure we need here in the province.

We need public investment strategies that are more innovative and flexible.  And we are going to find new investment partners – people and organizations that will join us in investing in Ontario’s future.

In Ontario, the two major public sector pension funds have at least $120 billion in assets.

This money – which represents the savings of Ontarians  – is invested every day, year-in and year-out, on behalf of the plan members. 

Last month, the Ontario Teachers’ Pension Plan paid $651 million to buy a 25 per cent interest in a company that provides water and sewer services in the U.K.

A week earlier, the plan also paid $1.75 billion for a part interest in a power generating company in the United States.

These are investments that could have been made here in Ontario, to benefit Ontarians.

Why weren’t they?

The answer is: we have not created the opportunities.

In the past we have stuck to the traditional view that government – and only government – finances and delivers infrastructure, using current revenue.

And that’s part of the reason the infrastructure deficit has been growing: schools have been neglected; hospitals have not been built; transit is falling behind growth; and our highways and borders are becoming clogged.

All this has real implications for our economy and for our quality of life. Clogged borders are costing the provincial economy $5 billion a year; gridlock in the GTA is a $2 billion drag on the economy; hospital waiting lists are unacceptably long; and deteriorating water and sewer systems can pose a health and safety risk.

We need to turn this around. We need to bring more capital to the table to supplement government investment.  And we need to do it now.

Earlier today, Finance Minister Greg Sorbara and I explored these ideas with representatives of some of our major public sector pension funds.  And I was very encouraged by the meeting.

It was a good start, and we still have plenty of work to do.  But I can tell you that everyone at the table agreed this meeting was long overdue. We will be having more such meetings in the near future.

We intend to vigorously pursue opportunities to partner with the private sector in the delivery and financing of public infrastructure.

That statement is going to be controversial. But it shouldn’t be.

This is not a code phrase for privatizing public services. Rather it is a strategy for financing and building more public infrastructure – and building it faster.

Our government will not follow the failed attempts of the former government to build private hospitals.

But we have every intention of building the hospitals our communities need, the transportation systems our economy depends on, and the infrastructure that protects public health.

The average age of our hospitals is already 43 years, which means that many are at or beyond the end of their useful lives. They are living on borrowed time.

We will make investments in our hospital facilities to significantly reduce their average age in order to ensure that Ontarians have access to high quality health care.

We will ensure that the necessary changes occur in the water sector so that the necessary investments are made to ensure that people everywhere in the province have access to clean, safe and affordable drinking water.

And, we will invest in innovative projects like the North-South light rail transit project in Ottawa that was announced earlier this morning by my colleague Madeleine Meilleur.

This project will increase ridership on the existing O-Train pilot service nearly tenfold by 2021. That means nearly 10,000 new transit users who would otherwise be using their cars.

In short, we will leverage the expertise and capital of the private sector to help us meet the ambitious infrastructure objectives of the Five-Year Infrastructure Plan.

Our infrastructure financing plan will be guided by sound principles, not indiscriminate and expensive one-time deals.

That’s why we established a set of policies to guide private sector participation in public sector projects. It’s called Building a Better Tomorrow.

This framework establishes very clear requirements that must be met at every step of any public infrastructure project where the government has a financial interest.

The framework applies to every major project in Ontario from this point forwardprojects like the North-South light rail transit project in Ottawa, the Durham Courthouse, and the North Bay Hospital. And, in the weeks and months to come, many more.

The very first and most important principle is protection of the public interest.

Projects will be undertaken only if they will improve the delivery of public services or contribute to the province’s economic competitiveness. This is paramount.

The second is appropriate public ownership and control over our core public services. Core services like hospitals will always be publicly owned.

The third is value for money. Projects will only get the green light if a strong business case can be made to show that they will benefit taxpayers.

Fourth is accountability. Stakeholders, both the public and private sectors, will be held accountable for delivering the project. And projects will be subject to review by an independent third party.

And, finally, fairness, efficiency and transparency.  No secrets no backroom deals.

But our guiding principles must be supported by a more rigorous approach to building our infrastructure in a smarter and better way.

In the past, public projects have experienced serious cost overruns sometimes worth hundreds of millions of dollars on a single project. We simply can’t afford this anymore. We need an approach that ensures we get the job done – on time and on budget.

This is not about assigning blame. This is about working together to find solutions.

And, alternative financing and procurement strategies are one way of doing this.

AFP strategies will allow us to do far more in the next few years than we have in the past...and do it on time and on budget.  They will let us get on with the infrastructure work that absolutely needs to start now, while at the same time working to eliminate the structural deficit this government inherited.

Research done by the U.K. Treasury revealed that 88 per cent of projects pursued using AFP came in on time and on budget or early. And when there were cost overruns, they weren’t borne by the public sector.

Compare that with traditional means of procuring infrastructure, which delivered 70 per cent of projects late and over budget, according to the U.K. government.

We need to take advantage of AFP strategies because we can’t afford not to. Quite simply, I want to get better value for the infrastructure dollars we are investing. But it’s not enough to adopt new strategies if you don’t have the skills to implement them.

So today I am announcing the creation of a new agency that will apply expertise and best business practices to infrastructure financing, planning and construction management.

The Ontario Infrastructure Projects Corporation will support ministries, municipalities and the broader public sector in their transactions with the private sector. The OIPC will directly oversee new, large, alternatively financed infrastructure projects.

The agency will report to the Minister of Public Infrastructure Renewal and work at the direction of the Ontario government.

Guided by our five principles, the new agency will also help attract new pools of capital nationally and internationally, to supplement government investments in infrastructure renewal here in Ontario.

In a couple of days we will have a new Ontario Budget. I believe the budget will set forth a plan to conquer the deficit left behind by the former government.

I also know there is no government budget big enough to conquer the infrastructure deficit of Ontario – a deficit that exceeds 100 billion dollars and growing.

So we are at a crossroads with two very different destinations.

One path ahead has been traveled by past governments, struggling to meet the infrastructure needs of a growing and maturing Ontario on its own – using scarce tax resources. 

On this path, we are supposed to believe that government can borrow without limits and miraculously at low interest rates.

And we are told that the other path leads to private, for-profit hospitals and the forfeiting of public ownership of our public facilities.

I think we should all click our heels together three times and return to Kansas!

We don’t have to choose either of these options.

There is a third way, and this path – the path that Ontario needs to choose – has us gaining new allies, new financial partners, that bring more infrastructure capital and expertise to the table to supplement our tax resources. 

Without these partners, we would simply not be able to pursue all the infrastructure projects we need, in the timeframe that’s available.

I want to be clear about this. The choice is not between building the infrastructure we need by using the traditional method or building it using Alternative financing.

The choice is between building it now, using AFP, or not building it at all until some point in the indeterminate future.

The path that we choose will be guided by some important and fundamental principles, principles that spell out what needs to be publicly owned and what needs to be publicly controlled. And there is a difference.

You know, the Ontario government still owns the 407 highway lands and right-of-way. But it is clear that the previous government did not build in the right kind of provisions around tolls. We are striving to protect consumers in our dispute with the 407 and we will ensure any future contract protects the public interest.

For some core assets we need both public control and public ownership.

The McGuinty government is not going to sell off our hospitals.  We are not going to take them out of the hands of public hospital boards.

But we are determined to seek new capital investments, so these same hospital boards and the communities they serve receive new and improved health care facilities.

We are determined to follow this path, because we want our communities to have new and improved cancer care centres, and additional hospital beds. New and improved infrastructure is not just bricks and mortar.

It is about improving the learning environment for our children; improving the delivery of health care; improving our centres for world class research and innovation; and it’s about improving our communities, bolstering our economic competitiveness and improving our quality of life.

The path we intend to follow for infrastructure renewal is not the yellow brick road and it is not the answer to all infrastructure funding.

But it is a considered and strategic step towards rebuilding Ontario.  It is a step we need to take together.

Thank you.