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Why is Doug Ford's government creating a bank to finance public projects?

The Ontario government under Premier Doug Ford has announced its ambitious plan to establish the Ontario Infrastructure Bank, aiming to attract private-sector investments for a range of public projects, including long-term care facilities, nuclear reactors, and student housing. This move has sparked various questions and discussions among experts and the public about the rationale and potential implications of this initiative.

The announcement of the Ontario Infrastructure Bank was a focal point in the government's recent fall economic statement. The province's fiscal update revealed a current deficit of $5.6 billion, a figure four times higher than the one projected in the budget presented by Finance Minister Peter Bethlenfalvy in March.

Bethlenfalvy is promoting the infrastructure bank as a means to finance projects that might not otherwise come to fruition. The government's capital plan outlines an expenditure of $185 billion over the next decade to fund a wide array of infrastructure projects, including transit, highways, hospitals, schools, and long-term care facilities.

Currently, the province finances these major construction projects through borrowing. The Ontario Infrastructure Bank's objective is to reduce the province's reliance on borrowing. However, the nature of Ontario's borrowing is quite different from individual mortgages or loans; the province issues bonds that offer investors a long-term return.

Brian Lewis, a former chief economist for the province and now a senior fellow at the Munk School of Global Affairs and Public Policy, raises concerns about the need for such an infrastructure bank. He questions the necessity of a new financing system, as the existing one appears to work effectively. The introduction of the bank implies offering higher returns to investors than the government currently provides, potentially leading to increased costs for the province.

The Ontario government has allocated $3 billion in startup funding from the public purse to the bank. The bank aims to attract "qualified institutional investors," with a particular focus on Canadian pension funds while not excluding foreign pension funds or private equity firms. The government argues that involving private investment in infrastructure projects could alleviate the burden on taxpayers.

Sherena Hussain, an expert in infrastructure financing, highlights the potential of attracting private capital to invest in infrastructure projects, asserting that there is substantial institutional capital eager to support Ontario's infrastructure development. Finance Minister Bethlenfalvy contends that the bank is not about enabling big investors to profit from public projects but about establishing revenue streams for investors through initiatives such as energy production, student housing, and long-term care facilities.

The Ontario Infrastructure Bank's initial focus includes new long-term care homes, energy infrastructure, affordable housing, municipal and community infrastructure, and transportation. Projects like Ontario's small modular nuclear reactors are among those expected to be financed through this model, building on the nearly $1 billion in financing received from the Canada Infrastructure Bank.

Critics have drawn attention to the challenges faced by the federal Canada Infrastructure Bank, which struggled to attract investor interest in its initial years. Ontario's PC government sees the federal bank as a model for its own version, a decision that has raised concerns and criticism from various quarters, including the Canadian Taxpayers' Federation.

While some remain cautiously optimistic, others demand more details and clear objectives for the Ontario Infrastructure Bank. Desjardins financial group suggests the importance of assessing the program's efficacy and ensuring that it aligns with taxpayers' best interests. The Ontario Teachers' Pension Plan expresses its willingness to explore investment opportunities in this new initiative, while the Ontario Long-Term Care Association sees the bank as a potential source of affordable financing for long-term care construction.

The timeline for launching the Ontario Infrastructure Bank remains unspecified, but the government has pledged to keep the public informed about its progress. With the potential to reshape the landscape of infrastructure financing in the province, the establishment of this bank is likely to remain a topic of interest and debate in the coming months.