The following article was published in the National Post – Editorial Section (A10) – on Monday, April 8, 2013

A win-win for Canadian infrastructure

Pierre Poilievre, National Post

April 8, 2013

Like Canada’s baby boomers, many of our roads and bridges are getting older and will need to retire in the next 20 years.

That means the country has two expensive, simultaneous problems. The number of people in Canada over 65 will double from 4.7 million to 9.3 million within two decades, just as we must pay to replace or reconstruct numerous big-city thoroughfares and bridges that are between four and six decades old.

Perhaps there is a way for each to help fund the other. Pension plans have investment capital but need income. Infrastructure needs capital and can provide income. Why not allow the pension funds to profit from investments in building, maintaining and operating roads, bridges and transit?

Indeed, this is already happening — to the benefit of retirees, taxpayers and commuters. Those living in the Greater Toronto Area are already familiar with the success of Highway 407, a private highway that runs 108 km between Burlington and Pickering. The electronic billing system allowed 114 million trips in 2010 to be completed with no inconvenient tollgate stops. So successful is this 400-series highway that its owners are now expanding it east to Oshawa, with two new links south to Highway 401.

The highway is not only good for drivers, but also for retirees. Pension plans, mutual funds and others have purchased $4-billion in bonds in Highway 407, and the Canada Pension Plan — with a 40% stake — is one of its largest shareholders. So when Canadians drive this private highway, they are contributing to their retirement. With $174.4-million in net earnings in this year, the highway can offer lucrative interest and dividends that will help fund the golden years of Canadians.

Pension funds are also invested in the transit business. A private-sector consortium designed, built, and partially financed the 19.5 km Canada Line in British Columbia and will operate it for 35 years. The Line links Vancouver to Richmond and the airport. It has vastly exceeded ridership projections, after opening on budget and more than three months ahead of schedule. With $720-million from the private sector, it is the biggest capital project in British Columbia’s history. The province saved an estimated $92-million with this market-driven approach, as compared with normal government procurement. One of the lead shareholders in the project is the British Columbia Investment Management Corporation, which invests on behalf of the pension plans of 500,000 people. Another is the Caisse de dépôt et placement du Québec, which manages the province’s public sector pensions.

Smaller, targeted arrangements can also attract pension funds. The planned Evergreen Line between Coquitlam and Vancouver was originally to have only six stations. Then a pension fund offered to help finance a seventh at the site of a shopping centre it owns. Pensionfund Realty Limited will contribute $12.7-million in land and cash to build the station, so that commuters can conveniently shop at the mall before or after using the train. The result is a reduced burden on taxpayers, another transit station for commuters, additional business for mall retailers and better returns for pensioners.

Market competition in infrastructure has support across the ideological spectrum. Witness U.S. President Barack Obama’s former chief of staff, Rahm Emanuel, now the mayor of Chicago. The Wall Street Journal recently explained his plan to secure private money to fix up government buildings, replace hundreds of miles of sewage systems, and construct dozens of parks and playgrounds, all part of Emanuel’s plan to build a “new Chicago.” The newspaper also noted that Emanuel, a Democrat, has already removed 600 positions from the city payroll by privatizing administrative functions.

For this model to work, policy makers must do three things. First, before each major project, they must ask: can the private sector build, finance, own and/or operate the asset better and more affordably than government?

If the answer is yes, the second step is an open and fair competition among bidders. That means non-unionized contractors have the same rights and opportunities as their unionized counterparts. Limiting competition to favoured interest groups only drives up project cost, leading to higher taxes, tolls and fares for taxpayers and commuters.

Third, the government should resist any temptation to play matchmaker. While large pools of capital make pension funds a perfect fit, tendering processes should not be biased towards them. Nor should politicians intervene to force public plans like the CPP or the Caisse to invest in particular projects.

All Canadians will benefit when pension funds and infrastructure projects come together to both build needed infrastructure and generate investment returns. This is a win-win solution that we should embrace.