[Recorded by Electronic Apparatus]
Wednesday, January 22, 1997
.0930 
[English]
The Chairman: Order. Let us begin. Welcome all.
Let me make a couple of comments. We have received word that Donald Macdonald and John Beck are on a plane from Toronto. I had the clerk go out and pull the fire alarm to try to buy us some time, but it hasn't been enough. So they will be with us shortly.
I appreciate everybody taking the time to be here today and to think about this topic. It is a topic that has occupied the agenda of this committee for almost a year now.
Before we get into the subject matter I'd like to to note a rather unfortunate circumstance. The critic for the Bloc, Mr. André Caron, has passed away. He was quite ill during the latter stages of this piece of work, and he passed away over the holidays. I would simply like to recognize the contribution he made to this committee. He was a very hard-working member of the committee and will be missed by us. I have asked the clerk to send a message to his family on behalf of all of us.
I would also like to note that Jim Gouk, the critic for the Reform Party, is unable to be here. Jim had booked a series of meetings in his riding long before we decided to hold this round table. Rather than delay this meeting, he agreed that it should go ahead. He will simply review the transcripts and follow up on any concerns he might have. But he has been quite supportive of this process to date.
Given the size of this issue and given the very disparate positions, both within your community and certainly within the House of Commons, the amount of consensus there has really been remarkable.
What I would like to do today, and what we want to accomplish today, is to have a thorough airing of this question of how we go about the business of financing the rather large sums that are necessary to bring about the renewal of the highway system. I think there is consensus within both the community and this committee about the need to renew, but there is not the same consensus on how we find the sums necessary to do it.
What I thought we might do today, rather than simply deal with a very large number of presentations, is that we have the representatives from the user community, from the financial community and from the builders - and bringing up the crescendo, shall we say, in this particular discussion will be the representatives from the federal Auditor General's Office, who will add appropriate notes of caution, I trust.
Perhaps we could begin by going around the table. Everybody can introduce where they are from, and then I will call upon the first group to begin the discussions.
Mr. Lahaie.
[Translation]
The clerk of the committee: My name is Jacques Lahaie and I am the clerk of the committee.
[English]
Mr. John Christopher (Committee Researcher): I am a committee staff member.
Mr. David Cuthbertson (Committee Researcher): I also am with the committee staff.
Mr. Keyes (Hamilton West): I am Stan Keyes, member of Parliament for Hamilton West, and parliamentary secretary to the Hon. David Anderson, Minister of Transport.
Mr. Cullen (Etobicoke North): I am Roy Cullen, the member of Parliament for Etobicoke North.
[Translation]
Mr. Gérard Laganière (vice-president, Groupe S.M.): My name is Gérard Laganière and I am Vice-President of the Groupe S.M.
[English]
Ms Moya Greene (Representative, Canadian Bankers Association): I represent the Canadian Bankers Association this morning, but I am actually employed by Toronto Dominion Securities.
Mr. Warren Thomson (Vice-President and Director, Newcourt Credit Group): I am a vice-president and director with the Newcourt Credit Group in Toronto.
Mr. Liam Rafferty (Assistant Director, Hambros Canada Inc.): I am with Hambros Canada in Toronto.
.0935
Mr. Harry Swain (Director, Hambros Canada Inc.): I'm Harry Swain from Hambros Canada and from Hambros Bank Limited in London. I'm delighted to be here as a friendly witness before this committee.
Mr. Michael Atkinson (President, Canadian Construction Association): I'm Michael Atkinson, president of the Canadian Construction Association.
Ms Michelle Landreville (Director of Public Affairs, Canadian Construction Association): I'm Michelle Landreville, director of public affairs for the Canadian Construction Association.
Mr. John Redfern (Chairman, Coalition to Renew Canada's Infrastructure): I'm John Redfern, chairman of the Coalition to Renew Canada's Infrastructure, from Montreal.
Mr. Jim Facette (President, Coalition to Renew Canada's Infrastructure): I'm Jim Facette, president of CRCI.
Mr. David Rattray (Assistant Auditor General, Office of the Auditor General of Canada): I'm David Rattray, Assistant Auditor General of Canada. I hope I'm bringing up the anchor position, not pulling up the rear.
Some hon. members: Oh, oh!
Mr. Hugh McRoberts (Principal, Audit Operations, Office of the Auditor General of Canada): I'm Hugh McRoberts, principal, Office of the Auditor General of Canada.
Mr. Brian A. Hunt (President, Canadian Automobile Association): I'm Brian Hunt. I'm with the Canadian Automobile Association.
Ms Debra Ward (President, Tourism Industry Association of Canada): I'm Debra Ward, president of the Tourism Industry Association of Canada.
Mr. Gilles J. Bélanger (President, Canadian Trucking Association): I'm Gilles Bélanger, president of the Canadian Trucking Association and of the Transportation Association of Canada, but I'm representing the Canadian Trucking Association here today.
[Translation]
Ms Louise Pelletier (Executive Director General, Transportation Association of Canada): My name is Louise Pelletier and I am the Director General of the Transportation Association of Canada.
[English]
Mr. John Pearson (Technical Adviser, Transportation Association of Canada): I'm John Pearson, representing the Transportation Association of Canada.
[Translation]
Mr. Crête (Kamouraska - Rivière-du-Loup): I am Paul Crête, the Bloc Québécois Member of Parliament for Kamouraska - Rivière-du-Loup and the Official Opposition transportation critic.
[English]
Mr. Jordan (Leeds - Grenville): I'm Jim Jordan, the member of Parliament from Leeds - Grenville.
Mr. Byrne (Humber - St. Barbe - Baie Verte): I'm Jerry Byrne, the member of Parliament for Humber - St. Barbe - Baie Verte in Newfoundland.
The Chairman: It's important to note that despite the fact that Mr. Byrne will talk at length about the Labrador highway, he's not from Labrador.
Some hon. members: Oh, oh!
Mr. Byrne: I'll take every opportunity to do so.
The Chairman: Perhaps we could begin with Mrs. Pelletier from TAC, who actually did an enormous amount of work that predates the work of this committee.
Ms Pelletier: Thank you, Mr. Chairman.
[Translation]
I am pleased to be here this morning to take part in this round table as a resource person.
[English]
With me today is John Pearson, technical adviser at TAC, who has participated and was excessively involved in the development of the national highway study. John is a technical adviser, and in some respects and aspects John has a lot of history and background regarding where we came from and possibly where we might want to go. So don't be surprised if on some technical aspects John Pearson takes over, because of my lack of engineering or technical background.
TAC commends the standing committee for turning its attention to the state of our transportation infrastructure and also for examining the relationship between transportation, trade, and tourism.
As outlined in the brief that was submitted last summer, TAC bears some responsibility for having continually raised the issue of the declining state of our nation's highways and for calling for collaborative action by governments on a national highway policy.
For the past 80 years the Transportation Association of Canada has been a strong advocate of an efficient, safe, and environmentally sound transportation system for Canada. It is interesting to reflect on the historical evolution of the highway system, through the period of expansion of the network in the 1960s and 1970s and the rapid growth in use through the 1980s and 1990s.
For a variety of reasons, highways have become the backbone of our transportation system, now carrying more passenger and freight than any other mode.
[Translation]
January 1997 is a significant time in the history of Canada and the history of highways. Fifty years ago, two Canadian soldiers who wanted to win a prize were the first people to cross Canada by car. At the time, this was considered quite a remarkable adventure. Thirty years ago, the Trans-Canada Highway was completed in time for Expo 67 in Montreal.
[English]
A lot has changed since 1967. Expansion of the highway system has virtually stopped and the existing infrastructure is rapidly aging. While highway-related taxes, user fees, and revenues have continued to increase, resources available for maintenance and rehabilitation of the highway system have been declining and are not keeping up with our needs.
There is a concern that the safety of our highway system is under threat. There is evidence that the congestion and deterioration of the highway system are impacting on the growth of our economy.
.0940
It is clear that, as a nation, Canada must now confront several key issues in addressing its current and future needs for highway transportation.
Can we develop and implement a responsible, sustainable financial management system for the national highway system as a vital national asset? When we say ``asset'', we also mean it implies liabilities and obligations to maintain it. In spite of pressing financial demands from many quarters, can we find the will to place priority on providing adequate funding for the national highway system, not just as a short-term infrastructure project, but as an ongoing responsibility?
There's also a need at the national level for a coordinated approach among the owners of the roads.
In its discussion paper the committee has appropriately focused on the funding issue and has laid out a range of options for discussion today. Considerable attention is given to the need for innovative thinking and opportunities for private-public partnerships.
As a public-private partnership itself, the Transportation Association is pleased to have been invited to participate in these discussions. However, neither John Pearson nor I are in a position to represent the views of our organization on the questions that have been raised for discussion today. Nonetheless we are pleased to serve today as a resource to the committee and to speak to the experience and discussions that occurred through the conduct of the national highway policy study. As you are probably aware, this study was developed and managed by TAC for the Council of Ministers Responsible for Transportation and Highway Safety.
[Translation]
That was our contribution to the committee's work. We are acting as a resource for the committee. The Transportation Association of Canada represents a wide variety of interests. A number of members of our Board of Directors are here. Although some of them are missing, we represent all the owners of the highway transportation system. We offer you our support and can assure you that the TAC is very willing to support your considerations as we move toward the year 2000. Thank you.
[English]
The Chairman: Thank you, Madam Pelletier.
I'd now like to move to Brian Hunt from the Canadian Automobile Association. Brian's organization has already begun providing the funds for highway reconstruction by sending two cents in large volume into members' offices.
Brian.
Mr. Hunt: Thank you, Mr. Chairman.
We felt it was necessary to get the fund going. It's not just from our organization; it's from our members and from Canadians across the country who have been sending their two cents to members of Parliament. We'll look upon that with great interest to see what the members do with it in terms of setting this fund up. We welcome that.
We are pleased to be here this morning to take part in this round table. We definitely believe the federal government needs to take a leadership role in our national highway system. We have spent the past year going out and talking not only to our members but to all Canadians about the need for investment in the infrastructure - investment in two areas, really.
Looking at our highways, it's not just a safety issue. The Canadian Automobile Association deals a lot with the safety of motorists on our highways. It's also an economic issue. We feel that without a strong infrastructure, Canada is not well positioned for growth and prosperity in the future. It's not just the issue of building or reconstructing the roads on the national highway system that are in desperate need of it. Once those roads are constructed, it's the traffic that goes across those roads - the economic value of that traffic - that creates long-term jobs.
Look at the investment the United States and Mexico, which are NAFTA partners, are making in their highways. They both have national highway system programs and substantial dollars being invested. The fact that 50%, we estimate, of our national highway system is in sub-standard repair and needs to be updated is a serious concern for the future of Canada.
In the campaign we've run over the past year, one of the things we have stated a number of times - and this is only a slight exaggeration - is that our roads are in such a state of deterioration that it's reaching the point where many Canadians will need a moon buggy in the future to negotiate these highways and their potholes.
.0945
We feel that the Standing Committee on Transport has produced an excellent discussion paper that identifies the need for the investment, so I am not going to spend a whole lot of time on that today. I would compliment the committee in terms of the work they have done. I think it is outstanding. They have clearly stated the need.
What we are here to talk today about is how do we get the funds to do that. We welcome that discussion. The CAA has a couple of criteria, though, that we would like to present and that we hope you will keep in mind today. They are fairly straightforward, and hopefully relatively simple.
We would trust that any proposal we would evaluate today would provide adequate funding for the national highway system. When I say ``adequate funding'', there have been a number of studies - and the funding has to be put in place for probably a five- to ten-year period to reconstruct that highway. We hope this is not an issue of next year's budget, with certain limited funds being allocated. We are looking at an ongoing effort that will not only reconstruct the national highways in this country over the next five to ten years but will also continue to maintain those highways and keep them up so that we have one of the best infrastructures in the world when it comes to highways, which we think will bode well for the future of this country.
Secondly, we are not in favour of seeing the users who use those roads today burdened with any additional form of tax, if you like. We feel that today the users pay more than adequately for the roads, and we would like to see that stay as it is.
So those are our two criteria. Rather than go through a whole list of reasons for why we should be here, I think the fact that we're all here speaks very well for itself.
I thank you for allowing me to speak. I will enjoy the conversation. We are here to contribute and we look forward to, at the end of the day, some innovative solutions to alternative funding for our roads.
Thank you.
The Chairman: Before I move to the next speaker, I'll just say that I will keep a speaker's list here. If people have questions or want to intervene, just signal the clerk or me and your name will go on the list. We will try to deal with that in some orderly fashion. First on the list is Mr. Crête.
Perhaps I can now move to another significant user of the roads. Next to automobiles it would be trucking.
Mr. Bélanger.
[Translation]
Mr. Bélanger: It is my pleasure to be here this morning to talk about the renewal, the maintenance and the improvement of Canada's highway infrastructure.
[English]
I know we are here to discuss ways to fund the renewal of the infrastructure, but I think prior to funding it we need a commitment to protect and renew the asset we have. We are in a system in which we have ten owners of the infrastructure with a non-owning, or partly owning, leader who doesn't have much clout in its leadership because of the lack of contribution to the infrastructure itself.
The infrastructure system in Canada is a $197-billion asset that has been unmanaged for years. Would we let anybody not manage a $200-billion asset for very long? That is what we are doing as a people in Canada. I think it's time the ten provincial governments and the federal government got together to make it a priority to manage that considerable asset properly.
One of the tendencies is to say that we should let the trucking industry pay for the road system. We have heard that a lot. Let me put a couple of things in perspective.
.0950
The taxes collected by the federal government alone, about half the taxes collected on fuel, represent the gross revenue of the entire for-hire trucking industry in Canada. When we look at it from that perspective, this is not a pot of money we can dig in very long.
Second, the trucking industry does not have any money and does not make any money. It's basically on the break-even point. In 1996 the average was below the break-even point. In 1995 it was a little better, and 1997 isn't starting too well.
If we want to squeeze money out of the trucking industry, what's going to happen is that these costs will have to be replaced. That's possible in some instances by improving the highway infrastructure, or else costs will have to be reduced. But where does the reduction of costs go first? Safety measures.
Now, we don't need any more flying wheels. If we keep cutting, forcing reductions in costs, that is where it's going. We can't drive trucks without drivers, and labour represents over 50% of our costs. So there is very little that can be squeezed out. Technology helps a lot, and better highways would help, but not alone.
So we have to watch the cost impact. If there is no cost replacement and there is no cost reduction possible, then it has to be compensated for by a price increase. What does a price increase do? It increases the price of Canadian goods in the global market.
Two nights ago on The National we heard that a 1¢ increase in the value of the Canadian dollar produces a reduction of $400 million in exports. The cost of Canadian goods has a direct impact on the Canadian economy. That's what happens when we increase the cost of trucking.
All that being said, it doesn't mean the industry is against any changes. Of course not. We like the suggestion of the two-cent-a-litre trust fund. It will represent the commitment that is needed toward the infrastructure. Similarly, we are not against specific situations such as the 407, which is an alternate highway paid for through tolls. In some situations that is possible.
We don't support the idea of the 104 where there is no alternative. Most of the highway system in Canada would not allow for that set of alternatives. But the industry supported the building of the 407 with the toll system.
So we're prepared to discuss all these issues, and we're prepared to the extent that the industry is capable of supporting additional costs. But we have to look at it from a Canadian economy point of view. An additional cost in transportation is an additional cost in the price of goods on the global market, and that impacts directly on the Canadian economy.
The Chairman: Thank you very much, Mr. Bélanger. You should get together with Mr. Gauthier from the railways. You could just trade notes.
Mr. Bélanger: We've had a lot of discussions, Mr. Chairman, with the railways. I think when we talk about modal shift, many studies have shown that it wouldn't happen. Look at Europe, where it has been attempted. Look at Switzerland, for instance. If we're all prepared to pay our $50 - Maybe we want to do that. But that's what happened in Switzerland.
The Chairman: Thank you, Mr. Bélanger. You raise a very important issue.
.0955
I also want to note your comment on safety. It's an issue this committee is very concerned about. Obviously there have been some very serious situations in Ontario. In fact a bus that this committee was travelling on was hit by a flying wheel - I wasn't on it at the time - and one of our staff was hospitalized. It's a very important concern and one we need to keep in mind.
Let me move now to Mr. Redfern from CRCI.
Mr. Redfern: Thank you, Mr. Chairman, for inviting me to participate in today's round table discussion.
You can imagine, as somebody who has for the last four years chaired a group called the Coalition to Renew Canada's Infrastructure, how happy I am to see this taking place and to be here with you. Congratulations to you, Mr. Chairman, and to your committee for all the good work you've done in the hearings and for today's session.
I can confirm, from driving up from Montreal last night, that the roads still do need work and that we have a job ahead of us. Today we should be able to provide a good start on getting a comprehensive, long-term national highway plan under way.
It's really unfortunate that the players, both federal and provincial, who were so actively and successfully involved in the national highway plan study in 1988 to 1992 could not have capped their excellent work with the implementation of the program at that time. Their efforts on the design, layout, and economic necessity of the project were a unique display of effective federal-provincial cooperation.
They had all the tools, information, and ammunition with regard to economic safety and environmental and unity paybacks, but could not muster the political will to carry it off at that time. Basically the stumbling block was the financing, which is why it's important that we're studying what we are today.
I would also like to congratulate those who put together today's discussion paper. It is factual and well written and draws very valid conclusions on why and how we should be going about upgrading the NHP, as well as describing the exciting returns for doing so. CRCI subscribes enthusiastically to the contents of the discussion paper.
I also would like to state that despite the comments and thoughts of many of our politicians, both federal and provincial, highways are not a discretionary expenditure. They're an essential cost of staying in business. The true economic reality is that we cannot afford not to have a proper highway system.
I'm interested in hearing today's discussions on alternate financing, particularly as it allows for the spreading out of the payments over the life of the infrastructure projects and allows us to get a quicker start. We must, however, realize, as did the national highway plan study, that much of the national highway system does not lend itself to a user-pay system. This is due to it already being in place and to the fact that there may be insufficient traffic.
Perhaps there's not another non-tolled alternate, but on the other hand, as the study has pointed out and as other people have said, there are other areas of the national highway system that could lend themselves to user-pay, particularly now that we're getting into an era when tolling systems can be effectively and efficiently carried out, as opposed to some of the old stop-and-go methods at toll booths.
What we are really looking for today, though, is for the federal government to take a leadership role in a national highway system. Make a commitment to do it as a partner with the provinces and do so in a comprehensive, long-term manner, not on a one-shot, piecemeal basis. This is what we really have to do.
Perhaps it would require that we set up some kind of body to look after a national highway system, but what we really need is to have the commitment, the leadership, and the start taken by the federal government, in partnership with the provinces and territories, to see this done in a comprehensive way.
The Chairman: Thank you, Mr. Redfern.
We were very pleased, as we went through this discussion, that several of the federal ministers came before the committee to talk about this. The trade minister sent us a letter raising some of the concerns he had about the country's ability to export, and the tourism minister also came before the committee.
Perhaps I could call upon Debra Ward from the Tourism Industry Association to talk a little bit about the importance of our national highway system relative to the tourism industry.
.1000
Ms Ward: Thank you very much, Mr. Chairman.
I echo my colleagues in thanking you for this opportunity to discuss this issue today and in commending the incredible work of this committee and others in preparing our discussion brief. I hope as a result we will make more progress today than we have been able to achieve in quite a while.
To set the tone of how tourism impacts on transportation and the national highway system and vice-versa, tourism is a $42 billion industry in Canada annually. Of that amount about $18 billion is in transportation revenues. Of that $18 billion a full half, $9 billion, is related directly to private vehicle use. That includes parts, fuel, and car rental.
So an enormous part of the tourism revenues directly impact on the highway system and the costs associated with using that highway system.
In terms of numbers, we have nothing hard, but our best estimate tells us that somewhere in the neighbourhood of 70 million to 80 million people annually travel all of our highways for tourism trips of one night or longer. So there are lots of people on the road contributing as tourists in Canada, both international and domestic travellers.
Of course as a result of that, how we develop and maintain not only our national highway system but indeed our entire road network becomes of critical importance to the tourism industry as we look for future growth and opportunities for growth.
The reality for our industry right now is we are dealing with a number of serious bottlenecks that are preventing growth. These bottlenecks take a number of forms, depending on the region. Some of them are related very much to the national highway system and its interconnectedness to provincial highway systems; others relate more to international airports.
Key for this committee to know as we go forward is that we estimate about 80% of all tourism right now happens within a two-hour drive of an international airport. We are having trouble seeing our way clear to pushing these people to other secondary and tertiary areas, because our highway system is lacking.
Of course the other thing we have to remember is that tourists can very easily in very many cases be convinced of using secondary roads, because they are often the more touristically attractive roads, and the tourist has more time and is not so concerned with getting from point A to point B at all times. So we look for a number of creative solutions on that side.
As you know, Mr. Chairman - and Mr. Keyes, I'm sure you're aware of this as well - Minister Anderson called a round table meeting of senior Tourism officials and tourism and transportation CEOs to discuss issues surrounding transportation and tourism and how in partnership we can identify some key issues and move forward to develop tourism further. It was a very broad and free-wheeling discussion, but a couple of points were common that I'd like to bring to the attention of this table, because it will be useful as we go ahead in our discussion.
The number one issue we had was if Canada does nothing to further develop its transportation network and tourism, Canadian tourism will be okay. We have a very robust product and things work reasonably well. We could limp along and continue to do okay.
It should be no surprise to anybody here that the feeling around that table, from both transportation and tourism, was that simply is not good enough. In order for tourism to prosper and for the economic and societal benefits to come as a result, tourism needs to see managed, planned growth. That managed, planned growth would be limited by or able to take off based almost strictly on transportation access issues.
So the national highway system and the subsidiary systems become very important if we really want to grow our tourism industry, become one of the two or three top rankers in the world, and create the kinds of employment and business start-up opportunities that we can with this industry.
These are just very quick observations from this day-long meeting.
The most important thing identified was the need to create real partnerships and good, long-term planning between the three levels of government. We cannot forget municipal governments in this.
.1005
The other point made that I would like the committee to keep in mind is that tourism is not only an intercity issue. It is not only a national highway systems issue in that regard. There is also a need for direct and adequate access to our tourism stars, Whistler being an example, and the 99 being an example of the importance of cooperation there.
We also have some peripheral issues on the national highway system and the Trans-Canada when the Trans-Canada goes through a national park like Banff. There are issues of usage we have around this that I think we should keep in mind.
We also have no real concern with the concept of user fees, given a couple of caveats. You can't take from both pockets all the time. If there are user fees in place, then fuel taxes, excise taxes, should be rationalized and put in a fairer light so that the user pays, but pays only once, not twice. There is no double billing or double taxation.
As well, an alternate route should be available for those who choose, for whatever reason, not to pay the toll.
Having said that, I think it's worth noting that Brewster Transportation, out of Banff, said they happily pay whatever the fee is for motor coaches - and I think it's similar to a trucker's fee, so it's higher than that for a private vehicle - for the Coquihalla. They did a cost-benefit analysis and realized that the cost of that fee was indeed a lot cheaper than the cost of extra gasoline and wear and tear and time on the motor coach. So there is an efficiency of some of those highways that we have to keep in mind when we're looking at the overall cost-benefit ratios.
In conclusion, I look forward to dealing with these issues today. I would like all of us to keep in mind that we are just starting here and that the national highway system is only one of our systems, appreciating that it is the one that the federal government can deal with today. But once we start this process I would like to see this as the beginning of a true, full, healthy network of roads and services across Canada.
Thank you very much.
The Chairman: We'll let you take that discussion further.
[Translation]
Mr. Crête.
Mr. Crête: I was very impressed by the presentations, because they pick up on a number of points mentioned in our working paper, including the government's long-term commitment.
It is important to stress the non-partisan approach that exists in this sector. We realize that this is a genuinely important choice for the country as a whole. All the recognized parties in Parliament have participated in this process, because we know that regardless of existing political structures, the economy of Canada will continue to be very important in the future.
We have all realized that we have been lagging behind strategically for three or four years, or perhaps a little longer. I will not make any partisan remarks, but once the study we refer to was tabled, we had to make some strategic choices. In light of the Free Trade Agreement, if we do not make some decisions in the next few years, we may pay the consequences for the next 10, 15, 20 or 25 years.
Many important strategic choices must be made regarding tourism and regional economic development. Since the employment insurance reform has completely transformed the relationship between workers and employers in the Maritimes and eastern Quebec, we will have to provide for some type of compensation to change the economies of these regions. I am thinking particularly of providing an attractive highway network.
For example, in my area, highway 185 is on the Trans-Canadian highway route. Twenty-five years ago, it was basically a country road, and it has now become a major highway and trucking route. Problems of safety and volume have occurred, and we must take urgent action to solve them.
I would like to discuss the issue of North-South development, because I consider it important. In the past, we made some choices about highway development. For example, since the construction of the Trans-Canada Highway, we may not have brought our strategic approach up to date. We will have to decide whether we will merely renovate what we have, or whether we will develop new highways. These are fundamental choices for the future of Quebec and Canada.
Our committee is here today first to consult you on your views, but also, in my opinion, to see what you think about the most important issue being studied by the committee, namely funding. We all have a role to play in trying to resolve this issue.
.1010
The traditional means of funding used by governments in the past to build highways or any road infrastructure are completely inaccessible because of the financial problems that have built up over the years. We have to find some solutions. For example, we proposed that 2 cents be earmarked for this purpose. That is one approach, one type of solution, but we have to come up with others. In this regard, the whole issue of a public-private partnership is important.
When each of us gets involved, we too must ask ourselves what contribution we can make. What package deal or joint effort can we make together? What contribution can each party make? I am not suggesting that we put millions of dollars on the table this morning, but rather that we consider together what contribution each party can make. What can representatives of the trucking industry, tourism, the car industry, those that provide funding and governments do together and how should they go about it?
It is important that we always work in co-operation, both as users of the highway system and as governments. I will close by asking you what you will contribute, given governments' commitment to making this a genuine priority.
[English]
The Chairman: Does anybody want to respond to that?
Mr. Atkinson: Mr. Chairman, in listening to what some of the users had to say, and what Mr. Crête had to say, I think it is very important to underline and stress some of the phrases or words we heard repeated: ``long term'', ``non-partisanship'' and ``sustained funding''.
It has been the conclusion of the Canadian Construction Association that one of the things that perhaps should happen, and certainly it is one of the questions raised by the committee's discussion paper, is the establishment of some kind of quasi-independent body - call it a national highway authority for lack of a better description - that would be mandated and have the power and responsibility to in fact manage that very valuable asset in a responsible, prudent, long-term fashion.
In saying that, however, the one caveat we would add is that we would certainly not want that particular vehicle to be something the federal government and other governments, the owners of the highways, can feel now gets them out from under as far as their responsibility for that asset. In fact, in saying that a first step may well be to establish an entity like that, we would at the same time also say that it would also be absolutely key for that group to have some kind of sustained public funding coming from the federal side in particular. Whether that be from existing motor fuel taxes, which I'm sure many of the users would argue, or from some other source, it would need some kind of sustained, continued funding.
Mr. Chairman, the other key point I think we're going to hear as we move on in our discussions, particularly when the financial community is involved, is that I think it is somewhat dreaming in technicolour to seek one single magic solution for the long-term, prudent funding and financing of our national highway system. Given the sheer size of that asset, given the varying characteristics of that particular asset, one size may not fit all. All the more better to have an authority with strong representation, hopefully, from the key stakeholders, from the users who would be involved in the decisions on the management of that particular asset.
As well, it's important to realize that while this committee's work has been excellent, while the discussion paper is certainly very thorough and accurate in its conclusions, the time for talk is done. I think one of the users mentioned the neglect that's gone on, the value of the asset we have that's dying on the vine. We must stop the talk and get on with the job that everyone knows has to be done.
.1015
Certainly our organization very much welcomes this opportunity, welcomes this discussion. We only hope this series of committee hearings, this series of round table discussions, will be the last word.
The Chairman: What was that about dreaming in technicolour?
Some hon. members: Oh, oh!
The Chairman: Mr. Hunt.
Mr. Hunt: If I could respond to that, I think clearly one of the keys today, I think from all the users, and I'm sure the other people in the room, is that the need is there. We have to invest. It has to be sustainable and it has to be long term. I think what we're here today to do, though, is look at alternative funding and maybe start to think a little bit outside the box.
The way roads are funded today - and I'm sorry to go back to the very basics - is the way most Canadians buy bread and milk. You pay for it on a cash-and-carry basis. When you look at the size of this asset, $197 billion - and I won't disagree with that number. It's $200 billion or whatever it happens to be. We estimate it will cost $15 billion to work on the national highway just to bring it back up to standard.
You can't fund it based on old-style thinking. I would hope today that we start to think in terms of how most Canadians probably buy a vehicle or buy a home. They don't go out and buy a home all cash down. Not many Canadians would own a home today if that was the case.
So I guess if I look at how government accounts for things and how business accounts for it, I think we might have to think outside the box from the government point of view and start to think in terms of how business might build an asset and then use it over a useful life. The road infrastructure in this country is the economic lifeline of this country. We cannot allow our roads to continue to deteriorate. Whether it's for tourism, manufacturing or even just for safety, we have to deal with the issue.
So I hope everyone will start to think outside the box today, and maybe we will come up with some innovative solutions.
The Chairman: Thank you, Mr. Hunt.
Let me go to someone who, it is fair to say, perhaps, sits closer to the chequebook with this government than the rest of us here.
Mr. Keyes, can I call on you?
Mr. Keyes: Thank you very much, Mr. Chairman. Maybe I should begin my remarks by first congratulating you on bringing this issue forward. It was with your innovation and your concentrated effort that we've managed to come together and put this issue on the front burner.
In congratulating you, I think all of us here on the government side - speaking of chequebooks - understand that it was Paul Martin, I think, our finance minister, who in one of his first budgets put forward the notion that government should get out of the business of running business. At that time, Doug Young, who was then Minister of Transport, certainly pursued that agenda. It's been demonstrated how transportation in particular has taken government departments, such as rail with CN, where we have commercialized and privatized CN - We looked at the airports and the national airports policy, which now develops the commercialization of airports. As well, the navigation systems in this country have gone to NAV CAN.
So I think the movement is there to understand that government doesn't do a very good job of running business, but business does, and we can move down that road.
I have to remark on Mr. Atkinson's remarks vis-à-vis creating some kind of body, quasi-judicial or otherwise, to try to run something called the ``national highways program''. Quite frankly, I think the last thing I would like to see is another group of bureaucrats or faces that come together around a table to look after a national highways program for this country.
I only say that because I just have to look as far as the infrastructure program to see how, in a non-partisan way, the federal government did take the lead, sat down with the Ontario government and sat down with municipalities. The three levels of government worked together in a very efficient manner to put across a program that I think is marked as being extremely successful at all three levels of government. In fact, it's been extended it's so well received.
So I think governments can work together. We don't necessarily need to create a body in order to carry out that agenda.
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The bigger picture can't be ignored either. While we're trying to examine ways to finance such a venture - and I think it's generally accepted that for reasons of tourism, trade and safety, a highway program is welcome and essential for this country - there are other options that also have to be at least considered or kept in mind when we're developing this. I mean, how many highway lanes are too many highway lanes? How smooth a highway is too smooth a highway?
When I was sitting in your chair, Mr. Chairman, we went across this country and abroad to examine high-speed rail in this country. We soon learned that when you look at the globe, Canadians in particular certainly have a love of their automobiles. When we look at the bigger picture, we have to examine that.
If we have 11 lanes or 15 lanes or 16 lanes going from London to Quebec City, and coming through Hamilton and Toronto they're jammed because people want to get into their cars and drive 50 kilometres up the road to go to their jobs, we should make sure we understand that we have an opportunity to inform the public of the different options available to them and to promote public transportation, to promote the GO Train service, to promote car pooling - all those things in light of not just saving the federal government money, because it's their taxpayers' money that's going to construct more and more highways and smoother highways, but also the environmental impacts of such a thing and the opportunity for them to save the money that's coming directly out of their pockets because of insurance rates, gasoline and the prices of cars, etc.
So I want to make sure we put things into perspective. I don't want to leave the public that is watching this committee's work today with the impression that we are in some kind of a crisis situation here. We haven't reached that point quite yet.
Mr. Hunt remarked that we'll soon need moon buggies to be travelling down our highways in Canada. That might be overstating the facts. We travel the 401 between London through Quebec, and quite frankly, the 401 is a pretty good highway.
As Madame Pelletier asks, can we find the will to realize and develop the financing necessary to implement the rejuvenation of a national highway program? Yes, I think it clearly is the will of this committee. It's the will of the MPs, anyway, who sit on this committee. It's the will of the ladies and gentlemen around this table. It's the will of at least four ministers of the crown who have appeared before us at this committee. It's the will, I dare say, of the Canadians watching this program today. A national highway system can better serve, support and promote domestic and international trade and tourism. Most importantly, of course, it can save lives and reduce injuries in the process.
The political will, I think, at this level, at the provincial level and even at the municipal level - although lately in Ontario I don't know if a municipality wants to hear about any more hand-me-downs from the provincial side, but even they understand that the political will is there, that the evidence is there. It all boils down to combien: how much, who pays, and who shares in the costs of this program?
Given the financial and fiscal restraints faced by this government and provincial governments across the country, and the financial constraints on the private sector, the responsibility to Canadians that this government has in terms of its promise to them of good financial management, debt management, I am very much looking forward to the discussion we will get from Liam Rafferty or Harry Swain from Hambros and other financial agencies that says, ``Here's how we can form the partnerships, and here's how we can make it happen for Canadians, because we understand that the national highway system is going to be a positive thing for this country for so many reasons''.
How do we partnership? How do we share in that cost? How do we creatively finance the opportunity to create the national highways program in this country?
Thank you, Mr. Chairman.
The Chairman: I have a number of people on the speaker's list in addition to the presenters I want to go to. I've noticed, though, that certain people have indicated their desire to get on the speaker's list in response to certain comments. So I'm going to jump around on the list a little to allow people to comment while it's fresh.
Debra.
Ms Ward: Thank you, and thank you, Mr. Keyes, for your comments.
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I want to comment on what Mr. Atkinson referred to as an ``authority''. Before we discount this idea totally - and I appreciate fully your idea that we do not need another bureaucracy, and I think you are very right - there are solutions that happen around a joint table that really are quite interesting. We have a similar set-up for the Canadian Tourism Commission, which is made up of provincial government tourism representatives, federal government representatives, and the private sector, all of whom have the job to market Canada.
Very quickly, they have $50 million in federal funding. That soon will be quickly levered to become another $70 million in private and provincial funding as well. So we now have $100 million to $120 million to promote Canada, which is a far cry from the $15 million we had in 1992.
A body of that type, the way it's structured, gives the discussion a robustness that no single organization can do on its own. This is what we found in tourism. The federal government has a very specific point of view, as do the provincial governments and the private sector. In combination, you do gather a synergy of ideas and approaches that gives you a depth of response and the ability to plan forward that I believe no single organization or group can do. I think that's the key part for this discussion. It's abundantly clear that no one institution can do this alone. We have to find common tables.
I think the other very key point is that we have to find long-term tables such that we look 20 or 30 or 50 years down the road, especially if we're looking at broadening out the funding process.
So we do not need a bureaucracy, absolutely, but we do need a friendly table where we can discuss these issues fully and in depth.
The Chairman: It's interesting, but the concept of having an entity whose sole purpose for existing would be to fund the roads and ensure that they're maintained and kept at some level of quality has been around for awhile, and brings with it some of the criteria we've talked about in terms of consistency, focus and depoliticization and all those kinds of things.
I will say, though, in support of what Mr. Keyes said, that I spoke at the TAC conference in Charlottetown, threw out this idea and did not get off the podium before I was assaulted by a number of provincial government representatives who suggested to me that I was less than possessed of my senses at that point. So it is certainly an idea that bears some discussion, but there is significant resistance to it.
I note that Mr. Beck from Canadian Highways International Corporation has arrived.
Welcome. I understand your flight here was a little rocky. I'm going to give you a few minutes to drink in the ambience of this room before I call upon you.
Perhaps I'll go to Mr. Cullen and then back to Mr. Bélanger.
Mr. Cullen: Thank you very much, Mr. Chairman.
I would like to welcome everybody here today. I think we're dealing with a very important topic. As the chairman said, everyone pretty well agrees that we have to do something about our highway renewal. The question is, how do we go about it? Rather than get into a discussion at this point of how we might structure that - for example, one idea is a national highways authority - I think that's sort of a modus operandi. There are some concepts and issues we need to grapple with before that.
I have a question later - maybe I'll do it in my second round, Mr. Chairman - for the Auditor General in terms of the issue of off-balance sheet financing and matching costs over useful lives of assets and how that might fit into a federal government context, say, or a highway authority context. But I'll come back to that.
Really, the discussion I've heard today, and the information I've seen, leads me to a simple conclusion that if we're looking at a $13 billion to $18 billion investment in our highway systems, the only way we're going to do that, it seems to me, is if we get into public-private partnerships. That's an area I would like to perhaps focus the discussion on in the next round.
When I look at the alternatives there, to my mind, there's a very simple concept - that is, how do we maximize the capturing of the private benefits, recognizing that there probably will be some residual that has to be seen as a social benefit, a public benefit? Frankly, if we can come to that point, I for one would feel more comfortable, through this committee, to go to our finance minister, Mr. Martin, and say, we've really captured all the private benefits we can; there are some social benefits here we need to finance, or need to work with the provinces and municipalities on to help us finance the social benefits.
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I've read with great interest a report that was done in terms of the experience in the United Kingdom. I have to give credit to Hambros Bank, who did the study for Transport Canada, I believe. They looked quite extensively at the experience in the U.K. I think there are some very useful lessons here for us to draw upon. I'm not going to bore the group with - The report is a matter of public record. I simply would like to highlight a couple of things in the report that I think are worthy of note.
First of all, what is mentioned here is that, again, a public sector contribution is made in the U.K. to secure the wider social benefits that cannot be calculated in financial terms. That could be highway congestion or a whole range of things.
Another point is that the whole essence of the U.K. experience is to optimize the transfer of risk. The reason today we have trouble financing these projects is that the government is absorbing the full risk. So the whole idea is to transfer, in an appropriate way, the risks that are appropriate to the private sector. In so doing you're going to bring down the cost of capital overall. I think that's what really is going to make private-public partnerships work in this area.
How do we go out there and try to capture the private benefits? This is what I would like to put out to the group, particularly to Hambros and Newcourt and the bankers, or anybody else who wants to contribute.
To my mind, there are a couple of issues here. One is the business of the high-traffic areas and the low-traffic areas, to get down to some nuts and bolts. We have areas that experience high traffic, and it is easier to capture the private benefits there. I guess the model I am thinking about is to say that if we go to any kind of user-pay concept, it seems to me we need to be looking at adding value and also having alternatives so that if a person wants to go on a road where there is no user pay in place, they have that option. The question then is to provide alternatives and to capture the full range of private benefits. It seems to me that at some point we, or some authority - someone - has to go out to the private marketplace and test this out.
I would like to put out a couple of questions to the group. Given the challenge of the low- and high-traffic volume areas, is it feasible, or even worth a look, to ask if we can try to capture those benefits on, say, a regional basis? This may be total fiction to even think about, but I'm thinking of putting out, in a concrete way, bids to say that we are looking for the private sector to come in and build, operate and maintain highways in, say, the province of Ontario or the Maritimes or the prairies or wherever. In so doing you have to base your bid on really looking at that whole system, and not just cherry-picking Toronto, Halifax, etc.
Is that feasible or are we just banging our heads against a wall? Because I think this is one of the challenges, the cherry-picking. I say that in a most positive way, because that is what the private sector is going to do, cherry-pick the areas that are going to make the most return.
So is that at least feasible to look at? I would like your comments on that.
The other thing is to capture the full extent of private benefit. We have talked about things like highway maintenance and the kind of efficiencies over the life cycle that you achieve there. The person who's building the highway is going to build it to a spec that they are going to be comfortable with if they have to maintain it for 25, 30, 40 years or into a lifetime.
The question is, what other benefits can you roll into that? There is operation and maintenance. There are things like franchising - road franchises, gas bars, and restaurants, to name a few. As well, in the U.K., I think, and perhaps in the United States, they actually look at land and real estate. When you go to the private sector, you say if you're able to design, build, operate, maintain, and finance this big stretch of highway, these are the types of of benefits you might be able to capture. We want to test the market. We want to have a benchmark for the public sector that says there is a certain price below which we really don't want to finance the public benefit. We really don't think there is that much public benefit in it, but at least test the market.
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We could go on forever, but I want to get the wisdom of this group on a couple of those points, and maybe we can carry it on further.
The Chairman: Thank you very much, Mr. Cullen.
I want to restrain the discussion on the part of the financiers at this point. I should point out that in large part it is because of Mr. Cullen's expertise in this area that I've been able to get my head around just what we are talking about. This is a concept that truly emerged from this study, as opposed to something we had on our radar when we started this study. Mr. Cullen and I have spent many hours trying to get my expertise in this area up to some level of usability.
Before we move specifically to PPPs, I would like to keep focused on this question the users have been raising about some of the problems inherent in the current system. We designed this with a collection of the users present, some of the people who build the roads. I am pleased to see the Construction Association, Groupe SM, and Mr. Beck here. Perhaps we can move into that before we go to the financiers, who are going to provide us with all the solutions to this problem and, I trust, most of the money.
Mr. Bélanger wanted to comment.
[Translation]
Mr. Bélanger: Mr. Crête spoke about the importance of looking at the north-south road system in light of the NAFTA. This issue becomes increasingly important when we consider the growth in international trade and the growth in transportation requirements along the north-south routes. It is becoming increasingly important to have a north-south highway network.
I would also like to come back to a comment made by Mr. Hunt. He spoke earlier about new financing methods and about looking outside, but we must consider the impact of such initiatives. If we are looking at longer term financing, rather than initial financing, improvements to the road system or any work along these lines would have a positive impact on the economy. The Coalition to Renew Canada's Infrastructure compiled this data in its study of the economic impact of such an initiative. Any discussion about longer term financing must take this aspect into account as well. Businesses will definitely make profits, but renewing the country's infrastructure will also have an impact on public monies, particularly in the case of long-term financing.
As Mr. Cullen was saying, if we look at the network as a whole and focus on the sections where there is little commercial transportation or commercial use of the system, we quickly see that the vast majority of the network could not be supported through the user-payer alone. Individuals would have to pay too much to make such a system feasible. Canada's road network exists o serve the needs of Canadians; it is not there to meet the needs of commercial carriers.
Obviously, there are some regions where the road system is heavily used, such as the Toronto area, but these regions make up a very small percentage of the total road system.
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We have to take all these factors into account when we look at financing. As a number of witnesses have said, the road system should be financed through a combination of a number of approaches. Otherwise, it will be impossible.
Thank you, Mr. Chairman.
[English]
The Chairman: Thank you, Mr. Bélanger. I did notice that when Ms Ward made the comment about whether it's an economic benefit, saying it's in their interest to pay, you nodded.
Mr. Bélanger: It's true. There are some trucking companies that react the same way as the Brewster bus company with the Coquihalla Highway. As a group, the industry in Ontario supported tolls on the 407. There's a question of how high the tolls are going to be, but the principle has been supported by the industry.
The Chairman: I was in Saskatchewan on Friday, meeting with a group there on this, and I noticed some of the trucking firms there have actually negotiated contracts with the government where they contribute to the ongoing maintenance of particular stretches of road they're involved with.
Mr. Bélanger: I am not aware of that situation.
The Chairman: It's an interesting question.
Ms Pelletier.
[Translation]
Ms Pelletier: We talked about a national body to manage the funds for roads. Obviously, I would like to take this opportunity to mention that that is exactly what the TAC was advocating. The research study completed in 1992 was done for the Council of Transportation ministers and recommended that this body be the one to develop and manage the funds earmarked for roads.
That's essentially what is recommended by TAC in providing its support to the Council up of ministers and deputy ministers and TAC is a neutral natural forum that includes all parties, whether tourism, construction, trucking, the Canadian Automobile Association or all of the above. If I were present at a TAC board meeting today, it would be quite similar in some respects.
Some structures already exist and have expertise in the area, especially in managing the strategic research on roads program that TAC is directing for the time being and manages for the participating provinces.
TAC has already held a symposium on the user-pay concept last year and there will be another one soon. The board has not shown any specific opposition to that subject. The concept is still being examined as are private and public partnerships. Many of these organizations have participated in the discussions and the forum that TAC is trying to manage.
[English]
The Chairman: Thank you, Ms Pelletier.
It may be helpful at this point to move to some of the builders of roads. Perhaps I can start with you, Mr. Atkinson, and then Mr. Laganière.
Mr. Atkinson: I want to respond to some of the comments that have been made.
First, we couldn't agree more with Mr. Keyes that the last thing we need is another line of bureaucrats between us and upgrading the national highway system. Certainly, the motivation for suggesting that was to try to facilitate the kind of thing Mr. Cullen was talking about - and I would certainly be interested to hear from the representatives of the Auditor General's Office - to get to a point where we can look at moneys spent, put into highways as an investment in infrastructure, in an asset, which should be looked at as being expended over the useful life of that asset. We could use the phrase ``off-balance sheet financing''. To be able to do that in some government structures requires the creation of a separate entity - to allow that entity to have the flexibility and ability to go out in the marketplace to pursue public-private partners, where it makes sense for that particular stretch or segment of the system that is being looked at as the best alternative to fund and finance that particular rehabilitation of that section; indeed, Mr. Chairman, I would say too with all due respect, to be able to plan for the funding and financing and management of a highway system beyond just the next election; to have a system where we can have, as TAC has called for, long-term planning.
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The industry that has to do that building and do that construction is the construction industry, the country's largest employer, and it is very difficult for any employer or any business to plan on a one- or two-year cycle. If you don't know what is intended, what is coming down the pipe, for more than two or three years out, it is very difficult. It just makes sense that in looking at the rehabilitation, the upgrading of an asset or physical structure that large, there needs to be much more long-term planning.
On Mr. Hunt's comments about getting outside the box, absolutely, we have to look at other ways. Certainly the suggestion on thinking about maybe what is needed to facilitate that is the creation of some kind of entity, maybe there is an existing source for that particular entity - is to allow that to happen, so you can have a committed group of people who have the expertise from all the stakeholders around that table, from the users, from the financial community, from the owner, who can sit down and look at what is the best approach to be used for a particular segment or section of that highway, given the variances Mr. Cullen referred to.
Indeed, when you look at what other countries are doing, including the U.K., which was mentioned, that is in fact what has happened. A separate authority has been established for that purpose. We can look at some of the provincial governments in this country that have gone that way with ``triple P'', as they call it. That has been one of the first steps they have taken to allow the flexibility: to give a group the ability to seek financing mechanisms and methods that are appropriate to the particular project or the particular program they have in mind at that time and not to be stuck in the box, always having to go back to the same source.
The Chairman: Thank you, Mr. Atkinson.
One thing I should say is I don't mean to suggest that those who sit at the table representing the finance community should not participate or that they should be quiet until this is done. Please feel free to jump in and comment on this. Moya will lead that off.
Ms Greene: Thank you, Mr. Chairman.
In a previous incarnation I had the good fortune to study this issue at some length. I would like to reinforce some of the points Mr. Atkinson has made.
I agree with much of Mr. Keyes' remarks about how important it has been for Transport Canada to move out of operations and to move away from bureaucratic structures that made it impossible to do the kind of capital development that transportation infrastructure requires. In fact the only point on which I would take issue with Mr. Keyes is that this is exactly the same kind of thinking that might beneficially be applied to the highway system.
In my experience Mr. Atkinson is right. The national highway system is a political orphan. In our country we are spending lots of money on roads. In fact at the federal level right now we are spending roughly $250 million a year. That is a considerable sum of money. The problem is that we are spending it one and two years at a time. As a result no one can do any sensible planning. There can be no project selection that makes sense. In the rush to complete federal-provincial negotiations there is not enough time to get anything going with the private sector.
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My thought on it, having looked at it now from several points of view, and knowing full well that there are private sector players out there who will bring a very important dynamic to both push the cost down and select and define projects that have the revenue potential to at least partially support themselves, is that Mr. Atkinson brings a lot to the discussion by suggesting that we need a way to have a group of people who are trained in finance and who understand the construction industry. It doesn't have to be bureaucrats. In fact, it ought not be.
Perhaps it ought to be modelled on the very things Mr. Young and Mr. Anderson have done in other areas of transportation, which is to bring together a body of knowledge from all aspects of the private sector to manage the current federal involvement in roads, which, at $250 million a year over the past 20 years, is not inconsequential.
Mr. Chairman, your committee has taken on a very important issue. I am going to suggest to you that if we had put in that $250 million a year over 20 years, you'd be looking at another issue today.
The Chairman: A very important point.
Mr. Redfern.
Mr. Redfern: Thank you, Mr. Chairman. I've been collecting little comments to try to make a body of notes. First, Mr. Keyes mentioned standards and what's too high and what's too wide and what's too smooth. Fortunately, in this regard we have the words of the transportation experts themselves, both federally and provincially in the national highway plan, where they set the standards as to what type of road would be adequate, how wide should it be, and where should it go. This is outside of any other persuasion. Our own experts set this up, fortunately, and laid it out for us in the plan.
I think the other thing to remember is that we are talking about a rehabilitation program over ten or twelve years. So roads that may seemingly be fine now could be up on the docket eight, nine or ten years from now and still be part of the program. This will be done not all at once but on a stage process. So we will work it in.
On the funding aspect, which I think Mr. Cullen was talking about, one of the things you have to remember is that up until about twenty years ago, or maybe a little less, the governments did fund the road system out of the general revenues. Since that time three things have happened. General revenues encompass taxes, licensing, and income tax, and since that time all three have gone up. Now seemingly there isn't money for these roads. So it's not as if this wasn't an ongoing part of the program.
I think the other aspect is that a road is a unit. You may be able to pick off little sections and say this is busy and carries a lot of traffic, but I think for the unity, for the continuation, and for the comprehension of the system you have to have these other roads as well, particularly, as some of the other speakers said, when you're saying we may cut the east-west link in the Canadian road system because we'll do as we used to do, go through Sault Ste. Marie, Ontario, cut through the States, and transport piggy-back on the U.S. side. I don't think we want to do that.
In terms of cost-cutting, I think Moya has come up with a good program or idea, that when you have an ad hoc, where you might build something this year and might not, might build it to this standard and might build it to another, you have a very hard thing to program. If we had a program that set out an ongoing construction budget where the contractors and builders could lay out their costs over an extended period of time, knowing they had this work, and if it was done not on the basis of what is the lowest first cost I can get this thing done but what is the lowest cost per year mile that I can build a road, you're looking at a little bit of a different animal.
It's unfortunate that historically, by design, the departments of transport provincially have separated the capital cost budget and the maintenance cost budget. They purposely did not put these things together. Well, you cannot do that. It is a total cost per year mile. I think by having a plan that lays this thing out and is telegraphed so the people can bid and do the work properly, you're going to get a lot better value for your dollar.
The Chairman: It has also been pointed out that in this pay-as-you-go, ad hoc way we had been proceeding, by the time you get the last kilometre fixed the first kilometre needs to be rebuilt. So you never have a system that runs smoothly from one end to the other.
Perhaps I can go to Mr. Laganière.
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[Translation]
Mr. Laganière: First, I would like to mention that I agree with Mr. Atkinson on the necessity of finding long-term funding. I would add that it's necessary not only to plan the work of Canadian construction engineering companies but also to maintain and develop business or an industrial sector that can lead to exports. Canadian exports are very important in this area.
For some ten years now I've had the opportunity to be involved in the work of the World Road Association better known as the Permanent International Association of Roads Congresses or PIARC. This matter has been under debate there for nearly ten years in most developed countries. It's also been under debate since the early nineties in developing countries where the maintenance and rehabilitation problem of the road network is even more serious than in Canada.
All across the world, privatization is being discussed. To date, network development work has been done through privatization contracts whereas most of the maintenance, rehabilitation and conservation of the road heritage has been entrusted to the public sector, the different departments and municipalities.
This dimension was not mentioned very much in the document nor around this table. Over the years, we have seen that most traffic jam problems that make it necessary to develop or expand the bigger networks actually happen around or in the major cities. These parts of the network are used even more today as city streets rather than as part of a national road network.
Some countries have settled the matter by using what is known as congestion pricing. The example of Highway 417, although not referred to in that manner, could come within that formula. There's a detour to replace congestion pricing. We could also look at congestion pricing which is an existing practice that goes against the grain of some discussions where instead of a road agency, a more global or integrating organization is used. If you're doing road pricing, you have to be able to maximize the network by maintaining the other modes of transportation, including urban transportation, while freeing up the roads by engaging in real management of the volume or through managing user trips.
On the other hand, as Mr. Cullen was mentioning, when you have parts of roads or high traffic roads, it's easy to do economic studies to establish a toll or BOT projects for network management. When you have traffic, you can install tolls that are profitable enough to attract private enterprise.
In low traffic areas, you have to take a more holistic approach. Right now, municipalities are talking a lot about privatizing the maintenance and management of other municipal infrastructures, not only roads, but also water and sewer networks. And there's also the municipal road network.
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When you are not in a major centre, where the traffic volume is 80,000 or over 100,000 vehicles a day, the only way you can make private enterprise scenarios profitable is to include more than the management or maintenance of the small regional networks. If we could arrive at a formula that would allow Canadian business to do the maintenance and management of infrastructure networks, maybe we could get pilot projects on the table that would be very interesting and that would allow for major savings. We're not talking about major contracts where we'd have to wonder if we'll favour Canadian economic development or see foreign business come into Canada and take over our road heritage instead of Canadian businesses that don't presently have the background or the capacity to set up such projects.
[English]
The Chairman: Thank you. That is an interesting point, one that has been flagged for us by a number of groups across the country.
Mr. Beck, have you depressurized now, and would you like to jump into this?
Mr. John M. Beck (President, Canadian Highways International Corporation): Thank you very much.
Good morning, Mr. Chairman and members of the committee. In today's discussions I would like to address the questions in the committee's recent discussion paper relating to highway development through public-private partnerships. In particular, I would like to touch on the appropriateness of tolls and other methods of financing our highway infrastructure, the feasibility of a shadow toll option in Canada, and public-private partnerships as a key component of our infrastructure renewal strategy.
Canadian Highways is currently developing two major toll highways in Ontario and Nova Scotia through the establishment of public-private partnerships. These two projects, Highway 407 in Ontario and Highway 104 in Nova Scotia, have created large amounts of work for hundreds of local subcontractors and thousands of construction jobs. We have found that the cooperative public-private partnership approach on these projects is delivering the highways faster and at lower cost to government than was previously the case.
These projects are evidence that we in Canada are now entering an era of greater public acceptance of user-pay facilities and private sector participation in public projects. I believe now more than ever toll-financed public-private partnerships for the development of transportation infrastructure are becoming acceptable in cases of new or upgraded facilities, such as major bypass routes and bridges, especially where these projects offer new benefits and superior service and where there are sufficient traffic levels to support the revenue requirements to finance, design, build, and operate the highway.
Both 407 and 104 are new highways, offering drivers a faster and more convenient alternative to existing, congestion-clogged highways. Many would argue, however, that tolling to repair and upgrade some sections of our national highway system is neither feasible nor acceptable, because of the absence of an alternative free route, the perceived notion of double taxation, since taxes have already been collected to build and maintain these facilities, or low traffic volumes. If this is the case, and if tolling is a feasible option only for projects that meet certain criteria, we must then turn our attention to how we might finance the balance of our infrastructure. I would suggest that projects where sufficient revenue streams cannot be generated through direct tolls or where direct tolls are not deemed appropriate can today be financed with private sector capital through lease arrangements or shadow tolls.
The $30 million Charles Wood Bridge in Winnipeg, which opened in 1995, is Canada's first bridge project where a private developer designed, built, financed, and owns a thoroughfare under leaseback arrangements with government. Rather than charging a direct toll to users, the developer receives from government a monthly fee for a thirty-year period.
Alternatively, the shadow tolling concept, which received much attention in the committee's report, is another option I believe would be entirely feasible for much of the national highway system. A public-private partnership funded through the shadow toll mechanism could provide many of the benefits found in more traditional toll operations and would be a perfectly feasible alternative for projects where the direct user-pay principle is not desirable.
As in direct toll projects, shadow toll arrangements can allow governments to spread project costs over many years rather than forcing governments to put up all the money up front. Financing projects in this manner provides governments with considerably more leverage and allows a greater number of projects to be undertaken in a given timeframe than through the traditional budgeting process.
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I would submit, then, that the question before government today is not which of these financing arrangements is the best way to finance our transportation infrastructure. Rather, the relevant question we face is, what mix of available alternatives best suits the specific challenges we face in each part of our national highway system?
The important point to note as we discuss this question is that all of the options I've mentioned - government-financed partnerships such as the 407 in Ontario, projects involving private financing such as Nova Scotia's 104, leaseback arrangements like the Charles Wood Bridge, or the shadow toll concept used in the U.K. - are based on a partnership between the public and private sectors. In each case it's the notion of public-private partnership that maximizes the benefits of the project. Through this kind of partnership the private sector can bring new technologies, design improvements and construction efficiencies to improve the delivery process, innovations that maximize quality, reduce cost, and speed up delivery.
On Highway 407, for example, we were able to introduce new bridge designs that resulted in lighter and thinner structures of the highest quality, and at significant cost savings. With a guaranteed completion schedule of 20 months, Highway 104 will be one of the fasted-designed and built highways in the country. According to the Nova Scotia government, without the public-private partnership approach the highway would have taken up to 10 years and an additional $20 million to $30 million to complete through the traditional budgeting process.
The key to success for such partnerships lies in the way risk is allocated and managed between the government and the private sector partner. In an ideal world each partner should contribute that which it can do best and most cost-effectively. Each partner should shoulder the risk for what it can most directly influence and control. If this principle is accepted, a workable and balanced partnership will result.
With the exception of the elements that can best be controlled by the political and legislative process, private sector developers can generally take on most design, construction, operating and traffic risk. For example, on Highways 407 and 104, the projects are fully bonded and insured by the private sector partner. They include a guaranteed maximum price and they have a defined completion schedule with provision for significant penalties if completion deadlines are not met.
These features transfer to the private sector most of the construction risk associated with the projects. Similarly, private sector financing can transfer much of the financing, traffic and revenue risk away from the indebted governments. Private financing can be structured to be both off-balance sheet and off-credit, and can contribute to a lower overall cost of funds to governments for all uses and allow government to focus its scarce resources on other priorities where government funding is the only viable option.
In conclusion, I would submit to this group that there is in Canada today a developing trend toward greater acceptance of user pay for public services and an increased understanding of the benefits of public-private partnerships in the delivery of these services. These trends, combined with the new financing arrangements available in the market today, give us the tools to meet the challenges faced by this committee.
Mr. Chairman, I hope you will also allow me to congratulate this committee for the open and consultative approach it has taken and for its willingness to entertain these new and innovative approaches to the important issues it is addressing.
As well, Mr. Cullen talked about cherry-picking. There are two aspects to cherry-picking. The first is the construction aspect and the second is operation and maintenance. I think we need to separate them into two different subjects, although the overall solution may link them.
Yes, the projects that are most financially viable are the ones that would naturally rise to the surface in the private sector's interest, but there is a way to combine high-revenue infrastructure with lower-revenue infrastructure, creating a package where the higher revenue obviously supports the lower revenue and creates something that is viable while at the same time giving high-level service to the low-revenue piece of infrastructure.
With respect to operations and management, it's necessary to have a minimum critical mass that supports the investment and the creative ideas, if you wish, which in some cases are only economically viable if there is a fairly large supporting system over which to distribute the costs.
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About what I call non-toll revenues and what you were referring to as other sources of possible revenue, things such as service centres, advertising signage, definitely land development, certainly within the corridor of the infrastructure, and the facilitation of fibre optics cable capacity being used or being leased out to communications users - all these things contribute over and above the toll revenues. It is possible to include them in an overall package that reduces or eliminates the need for any government participation or funding. We definitely support the idea of maximizing all possible revenues from toll highways.
The Chairman: Thank you very much, Mr. Beck.
This is an interesting process. When I became chair of this committee last year, I noted that the government had changed the rules governing committees and allowed committees to be somewhat self-directing in choosing topics they wish to go after in addition to the work that would normally flow from the department and from the work of the House. When we canvassed people in the department - Mrs. Greene was there, as well as other members of the committee and other people in the system - it was noted that there had been an enormous amount of change, with the commercialization of the railways and the airports - and we were working on ports - but one area that hadn't been adequately looked at was this question of highways. It very quickly became apparent that people wanted us to spend some time thinking about this.
We started down this road with a somewhat broader perspective. We tried to look at what would happen to the regulatory environment when we had all these other changes in all the various modes. Were there ways to tweak the interfaces to make this thing work more like a system? We got drawn more heavily into this question of roads. Being a committee exercise rather than a House exercise, we piggybacked our work on the actions of the committee that were funded by the House, which is what led us to the great port city of Winnipeg to study ports. As we did our work on ports legislation we actually looked at roads alongside of it.
What was interesting about that was how our own thinking evolved through this as we started. I was approached fairly early on by the Thomson/Thompson brothers, who are at the table here. They aren't in fact brothers, but it's hard to tell them apart. They came to my office in Winnipeg on a particularly busy afternoon - I think they had some free time to go lobby a politician - and they wanted to talk to me about the 104 and the kind of work that had happened on the 104 and how it forced a different kind of thinking about how governments do business. I listened, because I am interested in that sort of thing, wondering what two guys from Toronto were doing in my Winnipeg office. We shook hands as they walked out the door, and Warren here made a comment, which was something like this: Oh, by the way, you could apply this to the entire Trans-Canada. I thanked him, turned to Steve, in my office, questioned his sanity, and ushered them out of the office. But as this has gone on, this whole item has come back to the table.
I am saying this in part by way of introducing Warren, Harry, Liam, and others who have been really helpful to us as we try to think this through, because it is a new way for government to think about doing this kind of business. We have constantly come back to the very issue Mr. Cullen has raised, which is the question of the most difficult, least dense, longest, most expensive pieces of road. It is characterized by the road from Wawa to Winnipeg, or Sault Ste. Marie to Kenora, but extended just a little. It is solving those problems without putting such an enormous burden on Mr. Bélanger's group and tourist groups who wish to use it that it is going to defeat the whole purpose of having it.
As I have been interviewed on this at various times I have noted that question comes up publicly all the time too. Are we simply going to allow our only east-west link to degrade further?
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Mr. Thomson, do you want to start us off here? Let's get more engaged with this question of how we pay for this.
Mr. Thomson: Thank you, Mr. Chairman, for the opportunity to participate in this round table discussion.
As mentioned previously, I am a vice-president and director with Newcourt Credit Group, a leading North American non-bank lender and a key player in public-private partnerships. For more than a decade Newcourt has been tailoring innovative solutions for all levels of government to finance capital acquisitions and infrastructure projects.
Some of our more recent transactions have included: lease financing for an information system at Canada Post; advisory services for the purchase of search and rescue helicopters by the federal Department of National Defence; a sale leaseback financing structure for rolling stock for Ontario's GO Transit; and perhaps of most relevance to this group, underwriting of the term debt financing for the construction and operation of Canada's first true public-private partnership for the development of a toll highway, Nova Scotia's Highway 104. It is by virtue of this experience that Newcourt is represented here today.
Focusing on today's discussion, let me first say that at Newcourt we are very encouraged by the activities of this committee. In today's economy it is critical that government and businesses alike look to innovative ideas to finance their development and operating needs.
The first question on today's agenda asks, should governments continue to pay for highway infrastructure in the traditional way, out of general revenues? I think perhaps the more appropriate question is, can they continue to pay, and at what pace?
Public financial resources, unlike the demand for them, are not unlimited. It is necessary to look at alternative funding sources to meet Canada's increasing infrastructure needs. At the core of the debate on funding sources is the question of who should pay. User fees and designated taxes allow for a more direct link between the beneficiaries of government spending and those who pay, but user fees could be difficult to sell politically.
The idea of user fees is becoming more acceptable in Canada as citizens increasingly demand value for their tax dollar. However, it is critical that along with user fees there be a demonstrable added benefit to the user and that the user fee be commensurate with the perceived benefit.
The designated tax option is particularly attractive, given that the most frequent argument put forth against tolls on highways is that road maintenance and development is already paid for through gasoline taxes. That said, without an increase in the tax rate this option does not lead to an increase of total financial resources available to the government.
Canadians may be willing to accept a gasoline tax increase provided there is a clear link to improved service. A trust fund set up to manage the revenues from a designated tax would go a long way to providing such confidence to taxpayers.
Public-private partnerships as a funding option can assist governments in balancing the pressures of capital constraints and the taxpayers' demand for value for money.
First and foremost, private concession-based financing through public-private partnerships provides an incremental source of capital. Such financing can be structured so as not to affect the credit capacity of governments, thus allowing them to focus their limited capital resources on those areas where the private sector financing is not a viable option. This structure also eliminates essentially all project development, demand and economic risks to government and generally leads to a reduced total project cost.
Cost productions stem from economies of scale and specialization that can be realized by private partners and the increased rigour generally applied by private investors on controlling cost and time overruns.
Finally, long-term concession-based private debt structures ensure that the generation that benefits from the infrastructure pays for it.
The U.K. shadow toll model provides an innovative means to gain many of the benefits associated with private financing under public-private partnership without having to incur the political costs associated with user fees. This is particularly attractive for existing roads where this is no demonstrable value added to offset the user fees. The primary drawback of a shadow toll is that it does not explicitly lead to an increase in revenues to service the debt.
Which of these funding options is optimal as a means to finance the renewal of our national highway system? In my opinion, the optimal solution comes in combining the best features of each of these options. I do not believe any one option is sufficient to meet Canada's highway infrastructure needs and address all the government's political concerns.
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Funding for highway infrastructure should come from a combination of sources. First, a federal trust fund should be set up and financed through a designation of two cents per litre of the gasoline excise tax. If this money is used to service thirty-year term debt, these funds alone will support in excess of $10 billion of current construction.
Shadow tolls could also be used as a source of funding, with invoices to the federal and provincial governments based on traffic usage. The federal obligations for the shadow tolls could in fact be paid out of the money in the trust fund.
Third, user tolls could be used where possible, particularly for new road alignment development.
Under this structure, contributions to the federal trust fund would be based on either a cost-sharing formula or project-specific applications from the provinces. The funding source for the provincial portion would be left at the discretion of the province, which could use shadow tolls paid out of general revenues or a designated tax or user fees.
The Chairman: Thank you, Mr. Thomson.
Mr. Swain.
Mr. Swain: Thank you, Mr. Chairman.
I find myself agreeing with a great deal of what Mr. Beck and Mr. Thomson have said. As the morning goes on our discussion is shifting from the demand side to the supply. We have heard eloquent statements on the need for further investment and so on. What we are now beginning to talk about is not so much the source of funds as the way of getting the best value for money spent. It is really on that latter point that as a humble banker I would like to comment.
I would say just one thing. I think if Mr. Barry Campbell were here today, he might have, on behalf of the Minister of Finance, some views about earmarked taxes. Finance ministers and departments tend to have well-developed views on that topic, and they are not ill-founded.
On the value-for-money side, though, what we are contemplating is a variety of methods, as has been noted so far, depending on the nature of a project, for moving risk and responsibility into the hands of those who can best handle it. There is now a fair literature on this not just for roads but for the private financing of other kinds of public infrastructure. For example, in the Financial Times of London in October there was a substantial review of what was going on not just in the transportation sector, which includes notably rail there, but also in education, trade, defence, social security, heritage - all kinds of things where these novel techniques of procurement are being applied.
Recently Hambros has been working both in Finland and in Portugal on designed, built, financed, operated road projects, and as I think was made clear in my colleague Liam Rafferty's introduction last November, we were the advisers to the U.K. government on the first eight roads they did there. The general experience on roads in Britain has been that the accepted contracts have averaged 19% less than the public-sector comparator in their capital costs, 34% less in their operations and maintenance costs.
So the first big lesson in this is that novel techniques, better involvement of the private sector, can reduce the overall economic cost of road infrastructure by about 25%. The treasury in Britain is concluding, looking across all the other sectors they are involved in, not just transport, that a reasonable expectation is that something in the order of 18% to 20% cost reduction on a whole-life cycle basis is a reasonable expectation.
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There is also the possibility, depending on the way these things are structured, of moving the financing off balance sheet. Here some of the questions about shadow versus real toll begin to bear. The value of doing that to governments that are strapped for expenditure and not keen on raising taxation is obvious. That value is not entirely captured by the long-term bond rate.
I would suggest there is a third large public benefit here, besides the obvious ones of getting infrastructure built and in operation, probably with better quality, and sooner - that is, the stimulation of a whole new industry, as we have heard already this morning. Even though this is still a relatively new technique in Britain, there is now a substantial not just road-building but also road-servicing and operations industry, which is now beginning to look for export markets. There is no reason to think that the success that's already been experienced by CHIC and other Canadian companies can't be replicated on a much larger scale and become an export industry for the country.
There are some costs in getting from here to there. Some are ineluctable.
At some level, Mr. Cullen, there is a need for public expenditure on public goods. Some things just can't be financed that way. But a lot can, and some of the techniques you mentioned, adding in, as it were, some of the other values created by the existence of a new road, and bringing that within the financial structure of the contract, offer a great deal of help.
One of the costs that is involved in this is a much-improved input of thought and time and management at the front end of these contracts. I have heard some comments this morning expressing impatience with some of my old colleagues in the public service, but I have to say that doing this kind of stuff well absolutely depends on having a very wise buyer. Whether it's provincial or federal agencies that do it, you will require very high-quality public servants, with a lot of the right kind of experience, to extract the best value from this type of thing. Nothing is more frustrating for a financier or, I dare say, a road builder, than to try to carry on a complex negotiation with some folks who don't know what they're talking about.
That cost, though, is a manageable one. It does mean that the procedural steps you take toward the beginning of these arrangements have to be rather carefully laid out. The analysis needs to be very carefully done, particularly the first time people do it. It does suggest - to me, at least - that one of the tasks that might be undertaken by a joint body of the type suggested earlier this morning would be to look at some standard terms and conditions to see if these can be laid down in terms of suggested best practice. Nobody is suggesting that this is somehow regulated, but what we are talking about here, in part, is a new procurement procedure, a new way of arriving at contractual relations between the public and private sectors.
I would suggest, Mr. Chairman, that the next time you have a round table of this committee you might want to have some of our colleagues from the public works and government services department, who have a lot of experience with this.
It could well save a great deal of time and energy in the negotiation of these arrangements if we accumulate, in a systematic way, standard clauses, standard arrangements, standard ways of calculating risk, and so on. If we can share that kind of experience across jurisdictions, between the public and private sectors, there is a very useful piece of work there that can reduce the upfront cost of entering into these arrangements.
Mr. Chairman, those are my opening remarks. Thank you.
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The Chairman: Thank you very much, Mr. Swain. I also appreciate your comments on dedicated taxes. The finance committee is meeting across the hall, so Barry is unable to sit in with us today, although he is going to try to come in this afternoon. Certainly there have been extensive discussions on this, extensive discussions with CRCI and CAA. Mr. Hunt may wish to comment on that.
I do think, though, as I've heard that discussion unfold, the specifics of a dedicated tax are less important than the principle of consistency in long-term investment in quality roads, that if the vehicle is something other than a dedicated tax, as long it meets that test - and I certainly have been assaulted by, shall we say, the other side on that particular question, as you referenced. At this meeting I was at in Saskatchewan, the Minister of Highways in Saskatchewan went on at some length about how they were simply not prepared to entertain that idea. I think that is a view commonly held across the country.
However, let me turn now to Moya Greene, who is in no small way responsible for my having started down this road and is now here as the representative of the Canadian Bankers' Association, which I understand is prepared to reinvest their enormous profits in roads.
Ms Greene: Mr. Chairman, first of all, congratulations on the work of this committee. I very much enjoyed reading your reports and the work of your colleagues on this committee before Christmas. As you point out, this is an issue that has challenged me for quite a number of years. It's very nice to see many of my former colleagues around the table with you for this kind of open-ended discussion, which will draw in the best advice available on the scene for what is now a pretty complex topic. Thank you very much for taking up the challenge with your committee.
I am also very pleased to represent Canadian banks in this discussion. While I am a newcomer to banking, in the short time I have been in the industry I bring to the committee the news that the Canadian banks are very serious about funding essential infrastructure in Canada. As you probably know, in the past few years some of our Canadian banks - I am thinking of RBC Dominion Securities in the case of the NAV CANADA financing, CIBC-Wood Gundy in the case of the Vancouver airport financing - have developed the largest and in some cases the most creative approaches to financing very new entities this country has ever seen. In the case of NAV CANADA, we are talking about the biggest bond issue a corporate issuer had ever brought to market. So I think the past four years indicate that Canadian banks are very capable, very interested, in financing infrastructure not just here in Canada but all over the world. My own own firm, Toronto Dominion Securities, built on its number one private placement position to place a large portion of the Vancouver airport debt and we were very pleased to work with RBC Dominion Securities to help place a significant percentage of the NAV CANADA bond issue.
I would like to spend a few minutes talking about capital availability for these kinds of projects, because I think the news there is good. If you will allow me, Mr. Chairman, I would like to reach back to my years in the transportation sector as a public official looking at ways to bring private capital to infrastructure that historically had been paid for exclusively out of the public purse and give you some reflections on the problems my colleague Mr. Swain cites about getting from here to there. They are not inconsequential problems, and I know, Mr. Chairman, you will want to make very direct recommendations to your committee, and perhaps that will help you there.
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In conclusion, I'm going to suggest to you what my thoughts are from the private sector perspective and also from the perspective of a public servant who dealt in this issue, and where it brings me on the matter of funding.
First, in terms of capital availability, Canadian banks recognize the importance of responding to all of the needs of infrastructure clients. There are many financing needs. There is the shorter-term bank financing need and the longer-term placement issue where we're in a position to help institutional lenders realize that there is in fact an entity here that can finance itself and service its debt over the long term.
That fundamentally is the issue. Is the entity structured in a way with a revenue stream that is going to make capital markets, public or private, secure in the knowledge that this entity can pay its debt to those lenders who have moved up to finance them? That's the issue. I feel sometimes we get off that issue when we spend a lot of time talking about whether the revenue stream should be from general taxation or whether the revenue stream should be from tolls directly paid for a segment of road.
In fact, I suspect that capital markets care less about the source of the revenue stream than they do about its certainty, its stability, and its strength over time to satisfy all of the operating maintenance and debt repayment costs that this new structure is going to have to live up to.
That's where we have to convince lenders. So far I think lenders have shown that they're quite prepared to invest when that revenue stream is solid enough that the people on whose behalf they're investing - the pension funds of this country, the mutual funds of this country - are going to actually get their money back. That's pretty important.
So I think the demand for infrastructure financing is going to grow, and it is going to grow at a time when bond markets are going to become more responsive. There are several reasons for this.
This positive outlook in bond markets is something, Mr. Chairman, I think you and your committee can rely upon to help accelerate our way of thinking toward more private-public partnerships in infrastructure financing.
The most important consideration at play right now to ensure that bond markets over the next three or four years will be responsive to this kind of financing is the fact that governments everywhere in our country are reducing their borrowing. This is having a very salutary effect on bond markets as far as new corporate issues are concerned. You probably will want to keep that in mind as you go forward and discuss the many views out there about increasing government borrowings for any purpose.
As far as I'm aware, governments in Canada are disinclined to increase their borrowings. That disinclination is having a very positive impact on the market for new corporate issuers. Government borrowings had crowded out corporate issuers. As government borrowings decrease, pension funds and mutual funds must still invest their pools of capital somewhere. There is going to be less supply in the risk-free government credit field. They're going to have to place their money in more corporate issues.
Second, there is going to be more capital to invest. So not only will there be a bigger share of mutual fund and pension fund portfolios available for corporates, but there simply will be more capital that has to be absorbed over the next three years. That's partially a function of government not going to the bond markets with net new debt, but it's also a function that slowly Canadian savings rates are increasing. With that just comes a larger supply. Again, over the next two or three years that's another salutary effect in the bond markets for corporate issuers.
Finally, and probably most important, as we look at long-term financing for these kinds of projects we're likely to see attractive rates of financing, and more attractive terms for financing, persist in the next three to five years.
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The trend for corporate issues has been coming down since the early 1990s, following, as it is, the very important benchmark rates that apply for Canadian government bonds. Those interest rates for Canada treasury bills, for example, are expected to stay low in the next three years. Again, Mr. Chairman, you and your colleagues deserve a lot of credit for this, credit that governments rarely get. That is a function of managing the macro-side well, managing on the economic fundamentals.
Those benchmark rates are down. That means corporate rates are going to come down and increasingly the traditional spreads between corporate and government credits are going to start to narrow. So all told in the bond markets going forward in the next three to five years it is a pretty positive outlook for new corporate issuers, including corporate issuers that are building, owning, and operating infrastructure.
I said I would like to talk a bit more about traditional approaches to financing. I think traditional approaches to financing have thus far concentrated a little too heavily on the fact that it has been done entirely off government credit. At the end of the day, I do not think that is what is going to drive this movement toward public-private partnerships. I believe what is going to drive it are the factors my colleagues Mr. Beck and Mr. Swain have pointed to. It forces government to look on a project basis, and it forces government to look on a project basis with new players who will have an effect on how government thinks about costs, how long it takes, whether there is likely to be an overrun, whether there is any innovation that can be brought to the design and the delivery of this piece of infrastructure and that we wouldn't have thought of under the old approach.
Under the old approach we had construction people lined up, poised, ready to absorb whatever dollop of federal money we put in the market that year. If that is how you are building roads in the country, you are not applying your mind in advance to think about how we get an all-in price that is the cheapest price and how we get the best road for the money.
At the end of the day I think that is what is going to drive public-private partnerships, whatever resources government has and however government puts those resources on the table. This approach gets governments more and better road, more and better infrastructure, for that money.
Some of my colleagues have pointed out, Mr. Chairman, and I completely agree, that the national highway system cannot entirely be funded by the revenue stream that is going to be available to that private sector entity that has taken up the challenge of building it. In many cases there simply isn't a revenue stream. Even if you think about the very creative ideas Mr. Cullen has put on the table, such as development rights along the alignment, in some cases, if there are not too many people there to see the advertising or if it is not part of a communications network, you know that revenue stream is not there. So government has to think about which projects it really wants to do. I think that is a very important question.
Some people have mentioned that we need $10 billion worth of road construction to take place in Canada. That is not my understanding of the numbers. The projects that are truly cost-beneficial for the country, the ones that are going to dedicate the most to Canada's GDP, do not add up to $10 billion. My understanding is that you are talking about something in the neighbourhood of $3 billion to $4 billion for those projects.
If government starts focusing its resources - because it is already spending a considerable sum of money even at the federal level - and it starts focusing its resources on these projects that will contribute demonstrably to economic growth in Canada, it will get a lot more road done for the money it has and I don't think it will get any criticism about its share or how it put its share in, because people will understand that it's going to pay back to the economy many times over.
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So for the reasons that the traditional approach to financing, because it wasn't project-based, downplayed the merits of particular projects, it didn't really concern itself with reducing and minimizing the costs of particular projects. In fact, it didn't concern itself with projects at all. It concerned itself mostly, in my experience - and I had this experience in several incarnations over nine years - with federal-provincial contribution agreements of a specified amount, negotiations taken up in great haste - necessary to complete them in great haste, and a construction industry poised, thankfully, to do whatever it could do in the space of time - usually inadequate - to get it done. No one would argue any more for that approach if that is the traditional approach.
In terms of the new government role, first, it seems to me we have to be prepared to pay something. A lot of the discussions on roads have either concluded that they are not a priority, even though we are spending $250 million a year, which is a lot of money to spend for something that is not a priority, or that the roads themselves are not a priority; it's the spending that takes place on a regional basis that's the priority.
It is partially attributable to you, Mr. Chairman, that now in this country we have come to understand that roads per se, and particular segments of the national highway system per se, are critically important for national economic development purposes. That really signals the need for government to continue paying.
So I am not one of these people who advocates that we allocate a share of the existing fuel taxes. That would mean government would have to make up those revenues somewhere else if it were going to stay on that very positive deficit reduction track that it's now on, the same deficit reduction track that is making the bond markets very receptive to new corporate issues.
I am not one of those people who think we should simply allocate a share of the fuel tax. However, I am a person who has watched $200 million to $280 million a year get spent every year for the past 20 years with inadequate priority or planning attached to that money. I therefore believe we need a group of private and public sector people to come together and concentrate on how that $250 million is being spent.
That group of people, staffed with the knowledge and the resources Mr. Swain made reference to, people who are financially aware, who understand how capital markets work, who understand how they can construct security packages that will bring capital markets to the table, could come together to manage that $250 million expenditure, which is already there.
I know Mr. Martin likes to say that it's not their constitutional responsibility, that they don't spend money on roads. But the facts tell a different story. They do spend a lot of money on roads.
Take that $250 million, put it into an entity that is staffed properly, and give that entity the responsibility to start setting project priorities on the national highway system across the country. Not all parts of the national highway system are of the same priority. We can construct project priorities on what has been a political orphan. Allow that entity to do the new contracting approach, as Mr. Swain pointed out, with the private sector.
If that stream of revenue, that $250 million, can flow through the management entity into a plethora of really highly skilled and trained construction and development firms that are set up as special vehicles to build specific sections of the national highway system, Mr. Chairman, we will go a great distance towards solving what is becoming a very important problem.
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I thank you very much for the opportunity to represent the financial industry in Canada, bankers in Canada, and at the same time to share with you thoughts I have collected over a number of years.
Let me now conclude with a number of caveats. Negotiations on a project basis are incredibly complicated. I've been part of these negotiations. They take a long time to do. They eat up a lot of senior time. That is another reason why I think you have to have a group of people who are dedicated to managing those processes.
Secondly, we have to get over our attitude that it's somehow not appropriate for the private sector to make a profit off the management of these assets. In some of my work I have found some of my colleagues had this notion that we have these public assets and there is something wrong with a profit being made off the management of them. It's a failure to recognize that the asset is being developed in a way and in a timeframe that wouldn't otherwise be possible.
Finally, Mr. Chairman, whoever supervises these processes keeps the time line short. It's really expensive - I know that now better than I did - to participate in these processes. I used to expect the private sector to show up on a dime with fully fleshed-out proposals. Now I'm the one who has to show up on a dime and I see that it's unreasonable, and secondly, that we cannot wait around for two years to two and a half years to get a decision.
Those are my thoughts on it. Thank you very much.
The Chairman: Thank you. That alone may have made this conference worthwhile.
Might I just note that times flies when you're having fun. We are very close to lunch. I have a couple of short interventions and questions I would like to get on the table before we actually break for lunch. Then I want to give you your luncheon assignments. Let me turn quickly to Jim Jordan.
Mr. Jordan: Thank you, Mr. Chairman. It's at the level of getting here from there, which I think has been alluded to by our last two speakers.
Just from a very practical point of view, I think we could make a mistake - Although I think the need to improve our highways had general acceptance in every community in which we have been in, and there has been general acceptance for a new way of financing them, I think we would make a mistake if we gave the impression that all roads from now on - pretty soon now, one of these days - will be financed differently. As you say, Moya, that kind of money isn't out there.
I think we should at some point pretty soon clearly delineate which highways, because you can't do them all. Indeed, it has been said they don't all need doing. But it could be given some thrust - and there are a dozen good reasons for doing it this way. One is in the area of nation building - to think in terms of a national highway. From that experience, and by observing what went on in Britain, and indeed what is going on in Canada now and what is going on in other countries, you will learn. Apply it to that kind of project and the rest will follow.
But it is not going to happen immediately at the community level. First of all, you have three levels of government to deal with there. If everybody has ideas that there's going to be a new way of funding highways, I think there will be a tendency to say, well, I guess we won't do anything with our highways for a while. It will be a long, long time before all the highways - if indeed it would ever make sense to have them all built, financed, and operated this way. I don't think it would.
I think we should be a little careful there that we don't give the public the impression that from now on, pretty soon, we're going to do it all differently. Most of us won't be around when it's all done differently. Some of us may see some movement towards it pretty soon, but that will be about as far as you'll be able to go.
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So I just want to make sure that's - It's important, Mr. Chairman, that we don't go riding off in all directions at once here and then we won't be able to deliver on it, for the reason Moya gives, that there isn't that money out there to do it all at once.
The Chairman: You were highlighting the importance of that short section between Wawa and Winnipeg, I believe.
Mr. Jordan: No, the short section between Ottawa and the 401.
The Chairman: Now we are back to the discussion. Mr. Keyes, you have a quick question.
Mr. Keyes: I have a quick question for Moya, Mr. Chairman, almost by way of a supplemental to my colleague Mr. Jordan's remarks.
Moya, can you get there from here? When you spoke of the private-public body that would determine the priorities for the money spent federally or the money spent in the private sector, my concern - and I'm dovetailing with my colleague's remarks, and I suppose this is where you get to the crux of it - is if there is a determination to build certain sections of highway and if the private sector has an indication of investment in those particular avenues, they need their revenue stream in return. Put simply, hey, we are paying the bill, so this is where the priority should be.
The difficulty I see is if we are trying to construct a section of highway in northern Ontario, or in Mr. Chairman's case a stretch between Wawa and Winnipeg, and it is seen not to be a viable return on investment by the private sector, if the federal government is kicking in its $200 million and the private sector says, well, that leaves us holding the bag for what you estimate to be $3 billion, who is going to have the say in the end? If the say is going to the private sector, based on return - because there has to be a return on the money invested - are we in danger of building better, newer, cleaner, wider highways in, say, Toronto, and abandoning Winnipeg to Wawa?
The Chairman: That is a good question, Mr. Keyes.
Ms Greene: I think if you charge the entity, as we and you and Mr. Anderson and Mr. Young did in the transfer of airports and in the transfer of the responsibility for the air traffic towers - your policy addressed the issue that there were going to be a certain number of sites such that even though they were not the sites that captured the biggest share of the traffic, the capital reinvestment in those sites was going to be assured through another way of government participation. So I can conceive of an entity that is made up primarily of private sector people but has public representation on it, which would allow the government to say a certain percentage of this sum will be reserved for projects that are priority one in need to rehabilitate but may be priority four in how big the revenue stream is that can be generated from that project from other sources. It depends on how exactly you structure the entity.
Mr. Keyes: This is workable, in your opinion?
Ms Greene: Yes.
The Chairman: I will let Mr. Crête make his comment, then nobody move, because I have to give you your instructions.
[Translation]
Mr. Crête: A brief comment. A lot of elements of what the strategy should be have been presented. I for one would like to see everyone here, at the end of the symposium, go back home and think about what they can do so that the sector they represent can determine what it can do.
I'll give you some examples. Mr. Hunt, for the two-cent and ten-cent tax, we'd need some answers for Messrs. Martin and Brassard and especially the different ministers of Transport and Finance who don't seem to be in favour of a specific tax like that one.
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It's people like Mr. Bélanger, during the next elections, who are going to decide whether they'll vote for whatever project. How are the truckers doing their part for our road problem? How could we make it more digestible for the population in general? They say that a trailer represents the equivalent of 15,000 cars on any given road. Is that true? How do you react to that? Mr. Redfern addressed the matter of government commitment at the outset. How do we get it?
Ms Pelletier, speaking on behalf of the Transportation Association of Canada, said we shouldn't throw everything that already exists overboard. Maybe some tools that already exist should be used.
So what is each one of us ready to do within the next five to ten years to show that we actually did achieve progress?
[English]
The Chairman: Thank you, Mr. Crête.
We are going to break for lunch. All of our observers are welcome to join us.
This has been a fascinating process in terms of the learning both I and other members of the committee have gone through. We have been presented with a lot of new concepts and a lot of new information.
One part of that is not directly related to the problem of financing roads but is very germane to two things: one, the building of new infrastructure; and two, what Mr. Swain mentioned in the British context, the establishment of new export markets. There exists in this country a body far larger than I've ever imagined, all over the country, doing research in new technologies, new ways of building roads and surfaces, etc.
We have invited here something that Mr. Swain probably knows well - I believe it was established under his tenure as deputy minister - one of the networks of excellence, ISIS. We have representatives from the universities of Manitoba and Sherbrooke who will speak to us today about some of the new technologies being developed here in Canada, and some new Canadian patents being developed here that would allow us to build stronger, more intelligent structures, including roads and bridges, and in fact rebuild some of the existing bridges with even some cost savings. As well, it would open up Canadian access to what's estimated to be a $900-billion worldwide market for new infrastructure.
So we'll take 45 minutes for lunch and then come back in here to discuss this.
Now, before you leave, your work. Sometimes committees are creatures of their own. Being a chair of one is a little like herding cats. But sometime during the first two weeks of session this committee is going to finalize the preliminary piece of work and report to the House of Commons. In that report we are going to make a number of very specific recommendations based on the work we've done over this past year on this topic and on the results of this round table.
We did include in the annex or back page of this discussion paper a list of questions. These are not the definitive questions. They are not necessarily the only questions. I would like you to get your mind around what would be, if you were making the recommendations, the specific recommendations you would like to see this committee make to the House of Commons within the next three weeks - coincidentally, before the next budget.
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As a closer on that, I would like to read something to you. Each morning I do the bridge problem in The Globe and Mail and for some reason my eye is drawn to my horoscope, which reads as follows:
- You must be realistic about what you can achieve today. It is no good aiming for the stars if all
you have to get there is a trampoline. One day you will fly, but for now your goals must be down
to earth.
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The Chairman: Let us reconvene. I trust that over that sumptuous - and I want you to note how government defines the term ``sumptuous'' - lunch, the various actors in this drama were able to get together and solve the majority of the questions we are now confronted with.
When I was going around, as I am wont to do, to various actors around here, talking about what we were trying to do in this committee, it was pointed out to me that roads were rather boring, they lack sex appeal, and why would we want to spend any amount of time even thinking about this. This is the sex appeal. An enormous amount of work is being done in Canada on developing some very interesting new technologies. This is only one of what we have been presented with at the committee. Certainly there are far more that have come to see me privately.
I am particularly pleased, though - I don't know if I have mentioned Wawa to Winnipeg, but the ISIS group, which is one of the centres of excellence that were developed by the federal government, a network of universities across the country, has done an awful lot of work on this question of new composite materials. We have with us today Chris Lorenc, who is from ISIS at the University of Manitoba, and Sandra Martel, from the University of Sherbrooke, who are going to go together. Both are part of the network.
I should say I have known Chris Lorenc for twenty years. I knew him when he was a Veselka dancer. We will get him to dance after lunch.
Chris, we will turn it over to you.
Mr. Chris Lorenc (Chief Executive Officer, ISIS Canada (The Canadian Network of Excellence on Intelligent Sensing for Innovative Structures)): Thank you very much, Mr. Chairman.
Good afternoon, members of the committee and ladies and gentlemen. It is indeed a pleasure for me to appear before this body this afternoon as chief executive officer of ISIS Canada. I am here supported by Ms Sandra Martel.
[Translation]
Ms Sandra Martel (Development and Application Officer, ISIS Canada): Good afternoon, ladies and gentlemen, Mr. Chairman. I'm Sandra Martel and I have been working for the Canadian Network Centres of Excellence on intelligence sensing for innovative structures since last August. I'm here as the development and applications officer.
[English]
Mr. Lorenc: Mr. Chairman, if I might be allowed, I would like to make a couple of preliminary comments before we get into our presentation.
First I would like to draw to your attention that on each of your chair seats was placed a folder that provides you with not only the full text of what we are to present but additional information about ISIS Canada and the kinds of projects and technology ISIS Canada has to offer. Secondly, Mr. Chairman, while we may not be able to provide you with sex appeal, we hope we can provide you with some tech appeal.
I wanted also to refer to two comments made in the morning deliberations. I would like to make two observations.
First, it is my hope that as a consequence of your seeing this presentation you will come to the conclusion that there is a role for ISIS Canada to play as a consultant in the development of practices for the rehabilitation of bridges. In the national highway reports I believe 790 bridges are identified that as far back as 1994 were regarded as being in need of serious rehabilitation within a five-year period, which from then ends at 1999.
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Some of our technology, which will be demonstrated, can provide the owners of that infrastructure savings of anywhere from 40% to 60%. If you consider that the range and anticipated cost for the rehabilitation of bridges within the national highway system is in the range of $2.3 billion to $2.7 billion, a saving to the system of even 40% amounts to just under $900 million.
Second, in terms of the comment made by Mr. Swain that the road-building industry and the road-building service industry is poised to compete on the international market, I hope as well that you will come to the conclusion, after witnessing the technology we're going to demonstrate, that we can provide a Canadian technology that will position our industry, our road builders, our designers, our engineers, and those interests involved in servicing and maintaining systems an advantage that no one else in the world has - that is, advanced technology using advanced composite materials and integrated fibre-optic sensing systems.
Mr. Chairman, our presentation.
Intelligence Sensing for Innovative Structures, ISIS Canada, is, as you've indicated, Mr. Chairman, a network of centres of excellence, funded in partnership with the federal government with matching dollars from provincial and municipal governments and the private sector. Its mandate is to position Canadian civil engineering and construction interests in a world leadership position through the development and application of specific new technologies - that is, advanced composite materials with structurally integrated fibre-optic sensing systems.
[Translation]
Ms Martel: ISIS Canada, headquartered at the University of Manitoba, involves the collaborative research efforts not only of Canada's best, but the world's best scientists and engineers. With the three levels of government as stakeholders and solid partnerships forged with private industry, ISIS Canada is well on its way to advancing Canadian civil engineering skills to world leadership.
[English]
Mr. Lorenc: More specifically, ISIS Canada is responsible for the development and application of technology that, when harnessed properly, will lead to internationally recognized and utilized Canadian solutions to the global infrastructure crisis and will generate an impact potentially equivalent to the effect the microchip has had on the communications industry.
[Translation]
Ms Martel: A powerful new group of advanced technologies is emerging in the field of civil engineering with Canadians at the international helm, poised to lead the industry into the 21st century. In seeking to address this broad range of infrastructure challenges, the Canadian civil engineering profession has already found a powerful partner in a new and rapidly expanding technology application known as intelligent sensing for innovative structures, one which led to the creation of ISIS Canada.
[English]
Mr. Lorenc: We are proposing the application of advanced composite materials for the rehabilitation and strengthening of bridges and structures to meet the demands of aging. Solutions based upon ISIS Canada technology have numerous applications, and more are in the development stage. Generally they possess four attributes.
First of all, what are advanced composite materials? You'll notice I have a glass fibre reinforcement bar and a steel reinforcement bar. Each can be used for the same purpose. The difference is that the glass reinforcement bar is twice the strength of steel and 20% the weight of steel and not subject to corrosion.
I would like to pass this around. You will feel the difference.
The second, also an advanced composite material, is made of carbon fibre. It has up to 10 times the strength of steel, depending upon its application, and 20% the weight of steel. It is not subject to corrosion and eliminates the problem salt has in its application on our roads and bridges.
[Translation]
Ms Martel: The use of fibre optics sensors, known as ``intelligent sensors'', gives ``smartness'' to the structure by providing ongoing structural information. The information thus gathered by the sensors can be transmitted over telephone lines or by satellite transmission to a central office - in other words, remote monitoring.
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[English]
Mr. Lorenc: The need for new technologies is driven not only by domestic demands for the rehabilitation of our infrastructure, whether it's in the context of urban infrastructure or, as we are discussing today, the national highway system, and even international demands. The costs to repair or replace our rapidly deteriorating infrastructure not only in Canada but around the world ranges literally in the billions of dollars. In a recent study with McGill University the Federation of Canadian Municipalities concluded that the infrastructure deficit, the gap between what we as a nation invest in infrastructure and the level of appropriate investment in the infrastructure, falls in the vicinity of $44 billion, conservatively, just to maintain the infrastructure we now have.
[Translation]
Ms Martel: Depending on selected options, the Transportation Association of Canada has suggested the nation needs to invest approximately $18 billion to establish a national highway system using the existing Trans-Canada Highway as its starting point.
[English]
Mr. Lorenc: The Canadian Construction Association has estimated, again conservatively - that's with a small ``c'' - that the international infrastructure deficit hovers in the vicinity of $900 billion.
[Translation]
Ms Martel: The Standing Committee on Transport is faced with the task of recommending a plan to implement a national highway system.
[English]
Mr. Lorenc: As stated in your own report, commercial competitiveness is especially critical to Canada in light of the fact that trade with our NAFTA partners constitutes approximately 80% of our overall exports. Both those partners, the United States and Mexico, are making substantial and strategic investments to upgrade their infrastructure and to designate selected transcontinental routes as NAFTA trade corridors.
[Translation]
Ms Martel: With limited financial resources, governments and industry are seeking innovative technologies with which to repair or rehabilitate existing infrastructures, or build new structures, resulting in an end-product that is stronger, lasts longer, and costs less to repair, build or maintain.
[English]
Mr. Lorenc: Our presentation therefore seeks to address only one of the questions identified in your discussion paper. That is the role of technology in the context of public-private partnerships and how the merging of those two abilities can facilitate the building of a smart and intelligent national highway system.
[Translation]
Ms Martel: The standing committee's discussion paper, The Renewal of the National Highway System, makes a number of key observations that set the backdrop for discussions.
[English]
Mr. Lorenc: Your report has identified that an efficient and competitive highway system is a fundamental requirement for a healthy economy, and it draws a very important observation: highways are not an expense, they are an investment.
[Translation]
Ms Martel: Your committee has also mentioned that, clearly, we cannot maximize fully the benefits of NAFTA if our highway system is not competitive with those of our trading partners. Canada must respond to the challenge. It has no choice, since trade with our NAFTA partners accounts for approximately 80 per cent, or $370 billion, of our overall trade, and more than 30 per cent of our GDP.
Moreover, trucking accounts for at least 40 per cent of this trade.
[English]
Mr. Lorenc: In his observations made to the standing committee in your earlier hearings, the Honourable Paul Martin made a very important observation. He stated that what's clear is that the old way of doing things no longer works and we must look to innovative approaches in order to address problems. He also expressed the belief that this standing committee and this forum stand on the threshold of perhaps breaking substantial new ground.
[Translation]
Ms Martel: We've also noted that the Minister of Foreign Affairs and International Trade, Mr. Lloyd Axworthy, has stated that the corridor projects being proposed to the U.S. government will link key Canadian cities into the U.S. and Mexican industrial heartlands.
Effective land transportation infrastructure in Canada will be an important factor in the U.S. government's decision over the choice of land corridors.
[English]
Mr. Lorenc: Most importantly, Mr. Chairman, you have drawn a conclusion, cited in the report, that aptly puts the question. The question is not whether or not we need a national highway system; it is how we get the job started and how we get it completed.
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[Translation]
Ms Martel: The following list highlights how ISIS technology is relevant to the national highway system. ISIS Canada technology is here to address the problems facing a national highway system with new technologies. Through their application, they generate new business markets and opportunities.
[English]
Mr. Lorenc: The objective of our technology is to repair and rehabilitate bridges, many of which exceed 30 or 40 years and whose steel components are severely corroded, on the one hand, and worse, not built to handle the increasing weight load demands of commerce.
[Translation]
Ms Martel: I don't know if you can see this table properly. It is divided into four main sections that show the current conditions to which our bridges are subjected; the effect this has on the bridge structures; the solutions proposed by ISIS; and the benefits that can result from those solutions.
The first condition concerns the salt that is spread on our structures. Its effect is to corrode steel reinforcements, which leads to the deterioration of the concrete and of the structures. The solution proposed by ISIS is to install reinforcements with composite materials such as those we have circulated.
Their advantage is that they are non-corrosive and stronger. They make the structure stronger than conventional reinforced concrete that uses steel. This brings about a reduction in the cost of the life cycle and a significant increase in the lifespan of the bridge.
The second condition is the increased loads on our structures, which are increasing constantly. Traffic on bridges exceeds their designed load capacity.
The solution proposed by ISIS is, once again, to reinforce with advanced composite materials with smart sensors. The advantage is that existing structures can be strengthened while in operation, thus saving time and money.
Lastly, increased traffic on our bridges leads to deterioration and possible structural failure. The proposed solution is reinforcement with composite materials, which eliminates the need for visual inspections as a result of the smart monitoring systems, which in turn reduces costs and human exposure to injury during these inspections.
With regard to road surfaces and parking lots, we experience problems caused by road salt contamination. The effects are corrosion of the reinforcing of the delves and the joints, which leads to deterioration.
The ISIS solution is to use advanced composite materials to reinforce delves and surfacing materials with fibres integrated into the pavement, which makes it much more durable and rigid than traditional solutions.
Thus, the result is non-corrosive and stronger pavement, lower life cycle costs and longer lifespan for roads and parking lots.
We also see increased loads and traffic on road surfaces, with the same effect that I've just mentioned. The solution being proposed is the same, namely the use of composites.
[English]
Mr. Lorenc: In your material you will notice examples of ISIS Canada technology application that are specifically relevant to the national highway system needs. For the purposes of this presentation and in the interests of time, we will limit the illustration to three projects completed in the province of Quebec.
[Translation]
Ms Martel: Before we begin the presentation of projects, I would like to circulate the materials used on those projects. Specifically, these are small fibres.
This one is made of fibreglass woven to form the material that can be applied to the bridge; once epoxy is added to the composite, we get this kind of rigidity. Be careful, these are very small fibres.
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We have other samples. Here we have carbon. This is based on the same principle, but you can see the small fibres better. There is also another type of woven carbon.
These here are aramid fibres. They were used, among other things, in the roof of the Olympic Stadium in Montreal.
For the first project, I would like to present an overpass on Highway 10 in the Eastern Townships. There was very significant corrosion on this overpass because of the proximity of the road lanes, with snowploughs pushing snow directly against the columns, and thus creating corrosion of the steel and deterioration in the concrete.
When the concrete has deteriorated, it is no longer attached directly to the structure. This part of the concrete was therefore removed.
The first step consists in redoing the surface with mortar, quite simply. Afterwards, the column or the surface can be covered with epoxy or resin, and then the composite material is applied, as demonstrated on the first sheet I circulated.
Once this treatment is applied, you get a rigid surface. In this case, carbon fibres were applied. We can see here the first fibre optics applied on structures in Quebec. With these fibres, we can measure warping caused by temperature or the loads that the structure must bear.
The materials used in this project were all donated by the industry in order to implement certain projects. We see many types of materials that were used in the repair of this bridge. They were tested and their behaviour will be monitored for many years.
Secondly, I would like to tell you about a reinforcement and rehabilitation project. Here we see part of the Champlain Bridge in Montreal. We worked mainly on one column that was extremely deteriorated. The St. Lawrence Seaway Authority and the Jacques- Cartier and Champlain Bridges Corporation were very worried about the current resistance of the bridge. We therefore proceeded with reinforcement. The innovation in this specific project was the use of a new machine for the fibre priming.
In the project presented earlier, the application was done manually. However, here we were able to immerse the fibres in resin, put them on a roll, and then wrap them around the column. This saved a lot of time and money.
In this case, we restricted our work to the area located near the surface of the water which was more corroded.
Our last project, carried out under the Canada/Quebec Infrastructure Works Program, involved restoring a multi-storey parkade located in downtown Sherbrooke. There are a lot of problems with corrosion in the multi-storey parkades because of the salt that is brought in by the vehicles. This corrodes the columns.
We started by using composite material to protect the columns. Glass fibres were used to strengthen them. In the previous case, we used carbon fibres.
You can also see the deterioration in the beams due to several structural phenomena, including a very high stress load on the beams. We redid the surface. In this case, we used sprayed concrete and applied composite material wraps to truly strengthen the upper level of the beam, which we subsequently wrapped completely.
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This is another case of a stress load on the beams. It must be noted that not much was done to strengthen the structure vertically. That is what we had to do. We used the beam as it was and redid the surface but by directly applying the composite material.
For this project, we also strengthened the structure using conventional materials. In this case, one section had to be made roughly two inches wider. That adds weight to the structure in addition to changing its overall behaviour. Using composite materials also results in savings in that respect.
[English]
Mr. Lorenc: You have seen the material that's been handed around. You've had visually presented for you at least three projects and there are another 15 or 16 projects in the material we have. I guess the question you need to ask yourself is, what are the benefits to Canada of adopting ISIS Canada technologies in new construction and to combat infrastructure deterioration?
We submit to you that they are many-fold and include the following: development, particularly for our youth, of new, highly trained, multi-disciplined expertise in design engineering, manufacturing and construction industries; the development of new, high-tech Canadian products and expertise for domestic and export markets; and the application of cost-effective ISIS Canada technology can result in 50% to 60% savings over traditional repair methods and double the life cycle of new structures, resulting in significant capital and maintenance cost savings to owners of infrastructure.
Let me illustrate. The Maryland Street Bridge in Winnipeg is being repaired with the wrap technology. The traditional repair methods would have cost the City of Winnipeg $10 million and would have involved shutting the bridge down during the course of construction and rehabilitation. Applying the wrap technology, the bridge remains open, the cost is in the vicinity of $5 million to $6 million, and the girders and piers, which are repaired, are stronger than when originally built and can carry a higher load capacity than originally designed - this, with the smart wrap technology we have identified for you.
It can spawn development of new Canadian industries exporting Canadian solutions to address global and infrastructure needs and access an emerging international market opportunity, which exceeds $900 billion.
Lastly, expertise in ISIS Canada technologies gives Canadian industries a world-wide position of leadership and competitive advantage because they have the secret, they have the knowledge, they have the technology, and they have the know-how.
[Translation]
Ms Martel: Our economic environment dictates that we all strive to do more with less - more often than not this leads to innovative partnerships. While not overly common in Canada, there are success stories to be told with regard to private/public partnerships in highway financing.
The standing committee's report cites Ontario's Highway 407 and Nova Scotia's Highway #104 as examples that the National highway system can be built by collaborating public and private interests. In fact, we can take these examples one step further by introducing innovative technologies into the equation. And as fortune would have it, a Canadian formula for success already exists.
[English]
Mr. Lorenc: The Canada-Quebec infrastructure works program addresses the application of new technologies. It is the only province - and I congratulate Quebec for that - to do so. Its roots are in the centre for expertise and research on information and urban studies, CERIU.
CERIU serves as a catalyst and go-between for research and development in the application of new technologies. The Canada-Quebec infrastructure agreement set aside $25 million to encourage municipalities to in fact showcase new products and techniques in infrastructure rehabilitation.
Objectives that could be adopted by a national highway policy include providing a new ground for new and innovative products and techniques to be used in the rehabilitation of road surfaces, bridges and structures; demonstrate efficiency and profitability of new products and techniques not yet widely used; accelerate the transfer of technology to Canadian businesses; reduce medium-term infrastructure costs; and last, enhance Canadian business competitiveness in the emerging international infrastructure market.
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[Translation]
Ms Martel: Application of such objectives from the Canada/Quebec agreement has resulted in pilot projects in which the techniques have gained the confidence of designers and decision- makers alike. The project partners become owners of innovative technology or products that have been field-tested, evaluated, and which meet a certain standard. As owners of the new technology and application, they also become more competitive.
[English]
Mr. Lorenc: ISIS Canada has the technology and the expertise to turn Canada's infrastructure dilemma into an opportunity for Canadian businesses. Instead of Canada being regarded as the hewers of wood and drawers of water, we can have the rest of the world coming to us for innovative technology solutions.
[Translation]
Ms Martel: Canada will be the first in the world to market and profit from the new technology. Let's set our sights on securing a portion of that $900 billion infrastructure market by applying new technologies to projects at home and by using those projects to cement Canada's current international status at the vanguard of this new area of expertise.
Consider if you will, that a mere 20 per cent of this international market ($18 billion) translates into a potential of creating or sustaining 198,000 quality jobs for Canadians. This is over and above the anticipated 220,000 new jobs in manufacturing and tourism expected to be generated by the reconstruction of the national highway system. It is the result of partnering new technologies with public/private partnerships in the context of the national highway policy.
[English]
Mr. Lorenc: As demonstrated, ISIS Canada technology is available to help meet government and societal priorities. Dare I draw the comparison between the Avro Arrow and ISIS Canada technology? This truly is an opportunity for Canada to seize or lose. ISIS Canada proposes that its technology in fact be showcased in the national highway system as an effective means to create new jobs for Canadians, to generate new domestic and international economic opportunities, and, most importantly, to provide Canadian solutions to the global infrastructure crisis.
Mr. Chairman, that is our presentation. We thank you for the opportunity to make it and welcome any questions if there are any.
The Chairman: Thank you, Mr. Lorenc.
I'm going to entertain a couple of questions, but first I want to see if I have the math right. Harry said we could save 30% if we adopted public-private partnerships, and we can save another 40% by using these materials. If we keep going, this could be a free program.
Some hon. members: Oh, oh!
The Chairman: Mr. Keyes, you want to make a comment.
Mr. Keyes: Thank you, Mr. Chairman.
Thank you for your presentation. Have you gone so far as to put together the cost of, say, building a bridge with certain dimensions using the materials you've shown us here today?
Mr. Lorenc: In fact there are a number of bridges, identified in the material before you.
Mr. Keyes: I'm talking from scratch here.
Mr. Lorenc: That's right.
Mr. Keyes: Okay.
Mr. Lorenc: The Salmon River Bridge in Nova Scotia is an example. It was the first steel-free bridge deck. The Headingley Bridge in Manitoba will be the ``smartest'' bridge in the world when it's completed. It's under construction at the present time. It will showcase two technologies, the existing technology and ISIS Canada technology, to allow for field testing of it.
In terms of the individual component parts, using the advanced composite materials is, like introducing any other new widget on the market, more expensive until it enters into mainstream usage. That's no different from, for example, the small calculators Texas Instruments 20 years ago came out with, which started off costing $89 or $100 and now cost $10, if you want.
The additional cost for using the carbon fibre reinforcement is about 20% to 30%, but that's only a fraction of the total cost of the bridge. So the overall net cost, using the advanced composite materials, might be in the vicinity of 10% to 15%. The advantage of the higher cost, though, is that you don't have the life cycle maintenance costs. With the structure integrated with fibre optics sensing systems with information transmitted by satellite or phone line to an engineer's desk, that engineer doesn't have to go and visit that bridge. He or she simply logs that particular bridge on the computer and asks it some very specific questions: how are you handling sheer, how are you handling moisture, how are you handling the traffic, how are you handling that single truck crossing over your top.
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So the life cycle costs are considerably shorter. You are doubling the life cycle of that bridge, so instead of it being a thirty-year facility it's now a sixty-year facility.
The Chairman: Thank you, Mr. Lorenc and Ms Martel. I appreciate your taking the time to be here with us today.
I should say just before Christmas I was asked to brief the Prime Minister on some of the work the committee was doing on this roads program. In my enthusiasm for the new materials, I ran up to his office with two pieces of rebar. I don't have to tell you how excited the RCMP can get when you run at the Prime Minister with a piece of steel. It had them all reaching for their soapstone carvings.
You have had a chance to have some lunch and to talk among yourselves and to think a little about the problem. We have one more piece to this discussion we're going to start on right now, but I would like you all to be focusing on a broad question. A little less than two weeks from now the transport committee is going to meet. We are going to be putting the final touches on the report making specific recommendations to the government and we're going to get it printed and table it in the House of Commons. What should those recommendations be?
To help us think our way through this from shall we say a more concrete perspective - with all reference to you, Mr. Redfern - let us give the Auditor General's office an opportunity to speak. I am particularly pleased at Mr. Desautel's willingness to have the office participate. A critical issue in moving to the kind of vision Moya Greene put forward is to make sure we do it in a way that has the ongoing support of those who watch the public purse, in addition to politicians.
Mr. Rattray.
Mr. Rattray: Mr. Chairman, on behalf of the Auditor General of Canada, Mr. Denis Desautel, I would like to thank the committee, and you, for giving our office the opportunity to participate in this round table discussion on funding options for a national highway program. Accompanying me today is Mr. Hugh McRoberts, the principal in charge of the audits in the transport sector for our office.
[Translation]
The National Highway Policy Study stated that billions of dollars will be needed to finance highway construction in this country. The government is looking at new arrangements to accomplish this within existing financial constraints. Legislative auditors are particularly interested in how governments manage these contractual responsibilities and the financial requirements associated with them.
In the next few minutes, I will briefly discuss a recent audit conducted by our office that ties in very directly with the December 1996 Discussion Paper prepared for this committee.
[English]
I will deal specifically with the third option for funding a national highway program as presented in the discussion paper for this committee, that of a Canadian public-private partnership model for highways.
Chapter 15 of the report of the Auditor General of Canada to the House of Commons in October 1995 reported on several aspects of the federal government's management of the Northumberland Strait crossing project, now known as the Confederation Bridge. While each Canadian private-public project will have its own unique characteristics, the matters we reported on in this particular audit demonstrate many of the essential control features legislatures and governments will want to have in place to ensure risks are adequately covered.
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To meet its constitutional obligation to Prince Edward Island the federal government decided to build a bridge across the Northumberland Strait. The bridge was seen as a means of providing a fixed transportation link with greater efficiency and at no greater cost than the current ferry service subsidy.
In October 1993 the federal government signed a series of agreements to build a 13-kilometre bridge. The bridge will have a designed life of 100 years without a major refit. The project was undertaken by a private sector consortium. The developer contracted to design, construct, operate, and maintain the fixed crossing for a 35-year period. Ownership by the developer, currently in the form of a leasehold interest, will then be turned over to Canada.
In order to best manage the risk involved in a project of this magnitude the government had to ensure that six important features were clearly understood and adhered to. The first of these six features was performance. One of the most difficult tasks was to get the performance characteristics right. It was also considered essential to deal first with performance requirements such as design, engineering, operation and maintenance, environmental and management, and then to call for sealed bids only after the last round of bidders had met the criteria for each of these requirements.
The second feature was competition. The government's intention was to ensure fair competition that in the final bidding stage included at least three developers. In particular, the government wanted the finalists to compete on price.
The third feature was irrevocable subsidy and a set date. The government demanded a comprehensive security package from the developer in return for the government's commitment to make the subsidy payments.
The fourth feature was single-developer concept. The winning developer had to integrate design, financing, and construction and then maintain and operate the bridge for 35 years under an improved environmental management plan. These features would help force the developer to optimize the life cycle of the bridge and therefore meet the ``prudent owner test'' - that is, builder and operator represented by the same parties.
The fifth feature was environmental protection. This was a key requirement from the outset. The environmental assessment and review process was to be followed and there was to be extensive public consultation to make it an open process.
Meeting such features meant putting in place appropriate processes as well as an elaborate agreement structure. These were time-consuming and expensive undertakings on the part of both parties. But as Mr. Swain mentioned earlier, it's a critical step in a process of this size. We chose to conduct our audit reasonably early in the process to be able to provide an early warning to Parliament of any significant potential problems as well as opinions on the management of various aspects of the project. Our audit assessed whether there was due regard to economy in the planning and implementation of this project up until July 1995 for the fixed link. We also evaluated the general project monitoring and the reporting framework.
As a legislative office we were interested in concentrating on matters related to procurement, financial analyses, financing, taxation, environment, and reporting to Parliament. Specifically, we set out to determine whether: the obligations of the federal government had been identified clearly in the agreements with the developer and other participants; the procurement process had been managed properly; the security package and other measures being implemented provided reasonable assurance that the interests of the Crown and the Canadian taxpayer were adequately protected; environmental requirements were being met; and finally, stewardship, financial and operational information on the project was monitored and provided to Parliament appropriately.
There were a number of other areas that could also have been audited, but for various reasons we chose not to cover these in our initial audit. They included financial information related to the 35-year bridge operating period and certain programs or activities covered by project agreements, such as fishermen's compensation, regional benefits, or the federal-provincial agreement. We also excluded from the scope of our audit the engineering aspects of the bridge design and construction, which were the responsibility of an independent engineer, as described in the various agreements.
From our work we were able to draw a number of conclusions about this type of project and report to Parliament as well as to the other key players.
On the positive side we reported that, for example, the procurement process was transparent and reasonable; the security package was comprehensive and provided adequate protection to the Crown; advance tax rulings provided to the consortium did not violate the intent of the Income Tax Act; and the requirements of the environmental assessment review process were met.
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We also concluded that the fixed link project showed definite improvement over previous megaprojects we had audited, specifically in the protection of the Crown against potential cost overruns or any withdrawal of support by private sector contractors. In fact, not long after our report was issued one of the consortium partners withdrew and the security package was found to be sufficient to mitigate any adverse effects on the project from this action.
We also concluded, however, that the annual transport subsidy the government agreed to pay to finance the project was at the high end of a range of estimates for the present ferry subsidy. In addition, we noted that Parliament was receiving little in the way of stewardship reporting on this project.
We did note one major concern, and that dealt with the financing of the project. The complex off balance sheet financing arrangements through a provincial corporation were a more expensive departure from the practice of direct borrowing by the government for the acquisition of infrastructure assets. We observed that the government will need to weigh carefully the cost as well as the benefits of such off balance sheet financing in any future projects of this nature.
We also noted that the $661 million debt to private sector bondholders to finance the construction did not appear on the balance sheet of the federal government. After studying the matter further, the government subsequently decided to record its liability interest in this project in its 1994-95 public accounts. The Auditor General provided several comments about the government's accounting for such financing, and I hope to be able to have time later in this afternoon's discussion to visit this matter and address Mr. Cullen's comments of earlier this morning.
[Translation]
We continue to monitor the project and will conduct a follow- up audit in the future, after the bridge officially opens in May 1997 and the toll operation begins.
I trust my illustration of some of the main points covered by our audit of the fixed link project serves to highlight the kinds of matters that legislative auditors will concern themselves with as they examine any new Canadian public/private partnership arrangements for highways.
[English]
We would be very pleased to continue discussions this afternoon on any of the points dealing with either this project or, in particular, the off balance sheet financing. I would like to be able to come back to that perhaps later this afternoon.
The Chairman: Thank you very much, Mr. Rattray.
Brian, perhaps you could start us off.
Mr. Hunt: Thank you, Mr. Chairman.
I just wanted to raise a couple of points about the discussion we had this morning. Over the past year we had a campaign to dedicate two cents a litre on the federal excise tax to national highways. That was our solution to getting the federal government to take a leadership role and make a commitment, a statement.
One of the things we talked about this morning is sustainability. I can't figure out exactly how this is going to work, in the sense that we're asking for a sustainable project over a period of five to ten years. Tolls may work in some areas. They don't work across the entire national highway system.
It seems to me if the federal government - and I've heard Mr. Anderson's comments and Mr. Martin's comments about our dedicated two cents. If that's not acceptable, at some point the federal government is going to have to step up to the plate under general revenues and commit funds.
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If we can look at alternative funding and alternatives, we hope that may not be as significant in any given year, but over a period of ten years those funds are going to have to be there. When you bring in the private sector and tell them to invest in this stretch of highway, you can't come back on a budget on an annual basis and say you're sorry, but you're going to defer the payment on the loan for a period of two or three years because the funds aren't there.
So I'm not sure how you get around not having a commitment of funds on an ongoing basis. If you don't like the 2¢, I think at some point it has to come out of general revenues and it has to be a commitment on an ongoing basis for a period of at least ten years to get the job done.
The Chairman: Thank you, Mr. Hunt. Mr. Thompson.
Mr. Gordon Thompson (Vice-President and Director, Newcourt Credit Group Inc.): This is the first time I've had an opportunity to speak today, Mr. Chairman, and I want to thank you for having us here.
I want to set the record straight on your story about Warren and I when we visited you in Winnipeg. It was actually me who said, when we left your office, ``By the way, you realize we can finance the whole of the Trans-Canada Highway''. When we stepped outside Warren said to me, ``What the devil did you say that for?'', and I said, ``I don't think that guy was listening to us.''
Well, now I know you were listening to us.
Some hon. members: Oh, oh.
Mr. Thompson: I appreciate the introduction, too, on the basis that some people perhaps thought I was replacing Donald Macdonald. I don't own a bow tie, and I don't think I would be his choice to replace him today.
I want to make two quick points that do address some of the questions in the attachment. It's too bad, actually, Donald Macdonald is not here today, because there have been several discussions a number of speakers have raised that I hope we get a chance to talk about later.
Donald Macdonald, as you know, is the chairman of the Canadian Council on Public-Private Partnerships. We are members of that council. A lot of interesting debate is taking place in the council as well as all across the country on where governments are looking at the situation with respect to not just roads but also water treatment facilities and communications, the privatization of hydroelectric authorities, etc. The issue of how these things get financed and who pays is the same debate that goes on in your committee. But the one issue that is dealt with frequently - and we attended an electricity conference yesterday, at which Donald Macdonald was one of the speakers - and that is a very acute difficulty in the hydro industry is the problem of stranded assets and stranded debt.
I was glad to hear somebody this morning refer to the highway system as a national asset. The issue of cherry-picking - for example, it's great to do a toll road in Toronto but what about Kapuskasing - is the same issue hydro authorities across the country are experiencing. It's the same issue water treatment facility people are facing. If you bring the private sector in and the name of the game is only to privatize the activity, yes, you will wind up with stranded assets, because economically the private sector is not going to step in where only the government can be.
So the issue of stranded assets as it relates to highways is a very important issue that's been discussed by the council and others involved in the public-private partnership field. You're not alone in trying to solve this problem.
I think Donald could have brought to this room today - and I hope you do get a chance to talk to him before you write your report - some of the innovative solutions and how other areas of infrastructure are dealing with the issue of stranded assets.
The second point I want to make, which is more in the vein of my role at Newcourt, is the issue of private financing. I know Warren wants to add to some of the comments Moya made, so I won't steal all his thunder. But it's my view, and it's our view, that when government looks at public-private partnerships, if indeed that winds up being the recommended solution as to how we build a national highway system, the caution I would give the committee, or the flag I would put up, is that if you look at public-private partnerships that have been successful and that have been done in other jurisdictions, the one thing you find that is very different from the ones that have been done in Canada -
Canada does have some ``public-private partnerships'', such as the P.E.I. bridge, which we just heard about, and Highway 407 in Ontario. These are ``megaprojects'', billion-dollar projects. In our view, neither of those projects are true public-private partnerships, because at the end of the day, as you've just heard, the government's on the hook for the debt. There has been no fair sharing of the risk. If nobody goes to P.E.I., nobody drives down Highway 407, who's on the hook? The taxpayers of Canada.
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So when you sit down to design a true public-private partnership for the development of a national road system, we should ensure adequate private financing is part of that process. Otherwise it's the same old way. All you've done is a design-build contract with the government on the hook.
I would hope later on this afternoon we can get into that a bit more, because there are ways to structure financing that would give you gentlemen the ability to go to sleep at night, ways that are truly off balance sheet, off credit, ways such that the private partners have all the risk, and so on.
The Chairman: Thank you for clarifying the earlier record, Mr. Thompson.
Mr. Facette.
Mr. Facette: Thank you, Mr. Chairman.
I just want to make it a matter of record, in commenting on some of Ms Moya Greene's comments earlier today, that I have to confess I've never heard $250 million sound like an awful lot of money, as she put it, in terms of spending money on a national highway system. I would venture to guess that spending $250 million on a national highway system is not a lot of money. When you look at what needs to be done, it's not a great deal.
The latest information I have would seem to suggest that the $250 million is not in fact all getting spent on the national highway system. We should be clear about that. A lot of that money comes out of eight different agreements signed by Transport Canada with the provinces. Some of that money goes into parks. Some of that money goes into other beautification-type projects. It's not all going into highways.
The $250 million is getting spent - If you look out at the next two years from now, after fiscal year 1997-98, the cashflow statements out of Transport Canada would suggest there will be a 60% decrease in federal contributions to highways. Those eight agreements are coming to an end.
So Mr. Chairman, the decisions you're perhaps going to take and the recommendations you're going to make to the House of Commons in two or three weeks are critical. We don't have five or six years to spend on this. At the most we have two years to solve this problem.
The Chairman: Thank you, Mr. Facette - although at the same time, $100 million here, $100 million there, pretty soon it adds up to real money.
Mr. Facette: If it's spent in the right areas, correct.
The Chairman: It's not trivial.
Now, back to the other Thomson or Thompson.
Mr. Thomson: The point I want to address ties into some of the remarks from the Auditor General's office. It's the issue of recourse and non-recourse debt. It also ties partially into the idea of doing toll roads again in more rural areas, really drawing on the Highway 104 experience.
That was an example of a road that had about 6,000 vehicles a day. The total traffic count was around 4,500 cars, 1,500 trucks. We were able to structure that debt such that it was off credit and off balance sheet.
The important thing for people to understand in the off-credit aspect is that's really when something is meaningful, because that's where the rating agencies are going to come in, and they are the ones that really ultimately determine what the government's total debt burden is. It doesn't matter who says it's on or off balance sheet. If the rating agencies say it's on credit, it's going to be part of the total assessment of debt and have an impact on the government's credit rating.
Nova Scotia had the rating agencies as part of the discussions. They were at the table, along with their own Auditor General's office, to verify what the accounting was going to be when the road was done. They checked it throughout the piece. When we were completed, Moody's and Standard & Poor's confirmed that the debt was non-recourse to the province and was off balance sheet, and the province wanted that because they were at a triple-B credit rating. If they got a downgrade they would become non-investment grade and the cost of funds in the province would have skyrocketed.
As a consequence of doing it the way they did, the rating agencies actually said the provincial debt outlook was very favourable and in fact gave the province a credit upgrade. The end result was the cost of all borrowing for new debt went down in the province of Nova Scotia. That's really the objective if you're going to transfer risk to the private sector.
The other point that ties in with that is the term of the debt. This really goes to the point, when you have limited amounts of money available, that even if you take the number of $250 million, if you use $250 million to service debt over a thirty-year term, that can suddenly become a large sum on a present-value basis. So I think the thing you want to look at is the term of the financing when you do a public-private partnership.
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One of the specialty things that Newcourt does in terms of who it relates to in the financial community is life insurers, and life insurers are actually one of the largest purchasers of term debt in the 15-to-30-year range. They're a specialty because the annuities, pensions, and life insurance products they sell are to get this long-term type of debt out there.
If you look at projects like Charles Wood Bridge in Manitoba, that was financed by a life company. If you look at 104 in Nova Scotia, it was financed by life companies. So in some cases that's where you wind up getting your 30-year term. They can actually take that out to 50 years in terms of doing long-term funding, which can make these small annual amounts suddenly much larger present-value balances.
The Chairman: Thank you, Mr. Thomson.
I'm going to jump to Mr. Rattray. Did you want to comment on the on or off government debt?
Mr. Rattray: If I could, Mr. Chairman. I do agree with the points Mr. Thomson just made.
Just to elaborate on one point on the fixed link project, the first attempt by the government really was just to shift all the risk and the financing to the private sector. But the first call for a take-up for financing wasn't as expected, and it meant a return to the table with the federal government to say we need to have this future stream of revenue guaranteed in order to get a bond placement at a favourable rate. So that brought the financing back onto the books of the federal government in terms of what the government decided it would do.
The Chairman: And I believe, Mr. Thomson, that in the 102 project there was a significant whack of old money, traditional money, and that reduced the amount of money that needed to be financed.
Mr. Thomson: That's correct. In Highway 104 it was equity money that came in from the strategic highways initiative program. The federal and provincial governments were committing $26 million in April 1996 and $29 million in April 1998, so there was $55 million available. The balance of the money is what they needed to raise, but what they wanted was that additional money to come in non-recourse off credit.
The Chairman: I point out that we have still not solved the Wawa to Winnipeg issue. I say that because occasionally I like to mention the word ``Winnipeg''. But more importantly, it always seems to be that if you can solve the difficult ones the easy ones solve themselves. It's this issue of finding the way to structure the deal for the long, expensive, low-volume road that is part of this problem.
To add to that, perhaps I'll move to Mr. Beck.
Mr. Beck: My point was going to be exactly on this subject, and that is that there is no black and white, this is feasible and that is not feasible. Through the concept of the public-private partnership one determines the level of feasibility and one determines whether government contributions or participation may be required. There may be other sources of income, as we talked about earlier today, that are non-toll revenue related, but these will all be various shades of grey. It's through the cooperation between that private sector group and the government organization that will be formed to deal with these things that we will be able to determine whether it's $26 million or $29 million worth of contributions or $55 million or $75 million worth of government contributions that are required.
For Wawa to Winnipeg there is a number somewhere for the government's contribution, which will be lower than the total contribution. The rest will be done by the private sector, both in terms of reduction of costs through the efficiencies, etc., and through the generation of either toll revenues or shadow tolls. So there is a way of always finding the solution for the particular problem.
The Chairman: Thank you, Mr. Beck. Correct me if I'm wrong, but it also strikes me that whether the issue is on or off the government debt is important, an important advantage, but it is not the primary advantage. The different ways of building highways and financing and investing is sort of the first order of advantage, if you like.
Mr. Bélanger.
Mr. Bélanger: Mr. Chairman, my comments are a bit off the last part of the discussion, but I've been asked by some members of the committee to provide a response to two statements that have been often made to the committee. One deals with, as Mr. Crête put it earlier, the fifteen times more damage caused by a truck than an automobile.
The Chairman: I was wondering when we would hear that.
Mr. Bélanger: The other one deals with the contribution of the trucking industry to highway construction and maintenance.
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To the first question, that whole statement comes from a study that was made many years ago in the States by the American Association of State Highway and Transportation Officials. In their study of pavement impact, they attributed a certain value to the effect on the pavement of a single-axle vehicle. They established a value called the equivalent single-axle load. If you calculate these values and relate a tandem-tandem or a force-five-axle tractor trailer to a car, then the equivalency is 9,600 to one. That has nothing to do with damage. So that's the original number. Now it's been used by various people, and the numbers tend to change as you use it. I've heard as high as 42, but the original number was 9,600 to one. But this did not relate to damage; it related to a calculation.
On that basis, if we were to use the same calculation you would prohibit the use of high heels, for example, because the square-inch impact would be many thousands of times that of a truck. But it's irrelevant. It's as relevant as saying that a truck damages the road so many times more than a car.
In Canada, if the standards for road construction are respected and the regulation for loads or the weight on vehicles, distance between axles, and weights and all of that is respected, a truck does not damage the highway any more than a car - provided this is all respected. So these numbers are used without understanding where they come from. They don't mean what they are used for at all.
The second statement related to the contribution of the trucking industry to the highways. Now, the trucking industry pays 14% of its gross revenue in taxes. The manufacturing sector pays 4.9%. Why is there a difference?
From another point of view, a line haul tractor pays roughly $40,000 a year for the right to operate on the highway. The fact that this contribution is used for welfare and other reasons is somewhat irrelevant. That contribution is there. So that's why in some areas of heavier traffic the industry supports the infrastructure by itself. In lighter traffic areas of course it doesn't. And we come back to the Wawa to Winnipeg situation.
Thank you, Mr. Chairman.
The Chairman: I do think we should come back to the Wawa to Winnipeg situation as frequently as we can. I also will seek an answer to your question from the manufacturers.
Before I go on to the next person, I'd like to just note one thing. When you were invited to this meeting it was indicated that it would be a day-long meeting. There wasn't a specific end time. The clerk, as is his wont, always provides me with more time than I require to make sure that nobody comes in and tries to kick me out of the things I'm doing. So on the sheet in front of you it indicates the meeting today is from nine to five. However, given that I do not have new composite materials in my chair, and in deference to some members and presenters who have indicated that four o'clock would allow them to get out and catch some planes back and all that, I am going to bring this meeting to a close at four o'clock.
Now, I want some answers to the questions and I am going to push a little harder now to get there. I am going to ask interveners to keep their comments short and be more pointed. As those on this committee who work with us regularly know, we meet our deadlines. So if I get a little more abrupt, please be forgiving.
I have Moya on the list, followed by Roy Cullen. The list is then open, but I know Mr. Rafferty is dying to jump in and talk about shadow tolls.
Moya.
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Ms Greene: Mr. Chairman, I'd like to reinforce one point and clarify a point in relation to what I said and what others have said this morning.
The reason public-private partnerships work and have merit is not because they relieve the government of having to pay for roads. Quite the contrary. They work and have merit because they stretch the resources of the government to get more road and better road over a shorter period of time, if the government puts its contribution in properly.
And the second point is this issue of term, which I think Warren has crisply explained. In my view, it is silly for anyone to walk around thinking that the government is going to spend for two years on roads and then it all goes away. If you look back historically, that's not how it works. It only announces it two years at a time. That's the problem. If the government would announce in year one that it was going to spend x amount every year, but it was going to spend that amount every year for 30 years, we'd have a lot of financing available, would we not?
Mr. Thomson: Yes.
Ms Greene: Okay. So to look and say this agreement is over in two years, yes, legally that's true. I can look at a series of those agreements, and they're all eighteen months or two years. But I invite you to look back historically. There is no period of time when there hasn't been that amount of money on the table every year.
Finally, on the government credit, there's nothing wrong with the government credit. And I was glad that we got this issue of balance sheet and off balance sheet cleared up. If the government of the day wants to make sure that these partnerships do not reflect in any way upon their credit, then the way to go is the Nova Scotia route. But in many cases the government credit is just fine, and doing a project or not doing a project is going to have absolutely no bearing on the government's overall credit rating. There are so many other things in the piece for the government's overall credit rating.
And there's nothing wrong with the government credit supporting some of these deals from time to time, particularly your example of Wawa to Winnipeg. That's what happens now, essentially. The money is borrowed. I don't know what the deficit is this year; it's probably around $15 billion or $16 billion. The money is borrowed and it's given over to transport departments to spend. It's on the government credit. So I don't think we should belabour the government credit point of view.
Thank you.
The Chairman: Thank you. Actually, it sounds like the title of the report: ``Wawa to Winnipeg''. I kind of like that.
Mr. Beck: What's the distance from Wawa to Winnipeg?
The Chairman: A long way.
A voice: More or less.
A voice: It depends on the tailwind.
The Chairman: Mr. Cullen.
Mr. Cullen: Thank you, Mr. Chairman.
We've covered a lot of ground. I have found the discussion we've had so far very useful and informative. There are a number of areas I'd like to explore in more detail.
I was encouraged by Mr. Beck's comments that we have the potential, if we package it up in certain ways, to go to the market and see what is offered. Rolling in as many of the benefits as we can to be captured by the private sector has some potential. Frankly, at the end of the day we need to spend a little bit of time at the front end, package it up properly, and go test the market and see if it will work.
I just wanted to comment to Mr. Bélanger and thank you for your comments earlier. On this whole question of user pay, I think we should not restrict it to just tolls. And we can sugar-coat it. Tolls are clearly part of that scenario, or could be. But I think if we're looking at user pay, we can be as creative as we want to be. We shouldn't just limit ourselves to looking at tolls.
If we look at shadow tolls, and perhaps Mr. Rafferty will expand on this later, it seems to me that while it's a good kind of tool, the government is still paying in the end. So we need to be conscious of that.
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I would like to come back and clarify the numbers on this. Ms Greene talked about $3 billion to $4 billion. The number we have in our report is $13 billion to $18 billion. Clearly, $13 billion to $18 billion is a large number. Indeed, $3 billion to $5 billion is a large number. So I'm not sure that $280 million annually will do the job. I agree with the earlier comment.
I think, Ms Greene, you probably were talking about levering that money through some creative partnerships. Perhaps it has some potential that way.
In terms of the Auditor General and the comments following that, I think what it tells me is that by being creative in a positive way we can create off-balance-sheet scenarios that work. The issue really is non-recourse, and perhaps other events, and at a cost of capital that is competitive. I think Newcourt has proven that.
Maybe the Auditor General could comment on the issue of amortizing costs, and whether, within the federal government itself, that is ever going to be within the realm of possibility or whether, if you're going to do that, you're really left with going into a quango or a crown corporation or some type of national body.
With that, I think the more we can get in terms of the report, the better.
The Chairman: God, we're back to quangos.
Mr. Rattray, do you want to comment on this?
Mr. Rattray: Yes, Mr. Chairman. I'll be brief.
The current accounting practice followed by the government, which is a stated accounting practice, means that whenever you acquire an infrastructure asset you charge that directly to the deficit in the year the funds were expended. That's the current practice.
In the February 1995 budget the Minister of Finance announced the government's intention to adopt full accrual accounting. We as an audit office were pleased to see that, because it basically means that the government, like other governments, is moving more towards generally accepted accounting principles. This means setting up the asset on the balance sheet and amortizing it over the future service life.
I think within our lifetime we're beginning to see it. The P.E.I. fixed link, as a result of our audit, in fact, had an asset set up on the balance sheet, and it is being written off against the deficit equal to the amount of the annual subsidy payments being guaranteed for payment for the bondholders. So in fact it is occurring now.
We're quite supportive of the government's thrust to go to full accrual accounting and adopt generally acceptable accounting principles. It means arrangements made under the types of financing options being discussed today, should they result in the acquisition of an asset in a very short period of time, will not hit the deficit very quickly but in fact will be allowed to be amortized or depreciated as much as the private sector does with its assets.
The Chairman: Thank you, Mr. Rattray.
Mr. Rafferty, can we call upon your silver tongue to help us with this shadow toll.
Mr. Rafferty: Mr. Chairman, I was going to remark, for those in the room who've been present when I've had a chance before to address either a committee or another body, that the exercise of restraint involved in not opening your mouth until 2:05 p.m. is considerable, as you may see as I go along.
The purpose of my remarks, Mr. Chairman, is to address one question expressly posed on the afternoon agenda and to address a second question that arises from remarks you made at the commencement of the afternoon session.
My express purpose is to talk about the application of the design-build-finance-operate model for building roads in the United Kingdom, financed using a device called a ``shadow toll'', which has been mentioned many times today. The second element of that agenda item is to talk about an application of that methodology in the Canadian context, and I'll do that as well.
The secondary purpose of my remarks is to respond expressly to the question you've raised about Winnipeg to Wawa - that is, how do you finance the long-distance, low-traffic roadway? What devices are available there, and can we apply anything we've heard today to address that specific question?
With a couple of caveats that I'll note at the end, there is a model available. The important thing, as always in these cases, is to understand what element of risk attaches.
Let me talk a little bit about the U.K. model and frame it for the purposes of a discussion today of shadow tolls. In the 1970s in the United Kingdom there was an increasing need to rely on private finance to provide public infrastructure. Over the course of the 1970s, some notorious and perhaps not so notorious experiments were undertaken, and many around the table today will say to us when we come into a room that Yorkshire Water is the high-water mark, if I can use that term and that pun, of the British experience. We are here today, Harry and I, to indicate that that's not the model we're talking about, which derives from the U.K.
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By the early 1990s, with some exchange rate pressure being experienced in the U.K., there was an express decision on the policy side that public borrowing in excess of £5 million would only be available from the central treasury, where the authorizing or the commissioning department could only demonstrate that there was not a private finance appetite for that capital expenditure. So for the first time in the U.K., at the procurement level, there was a mandatory requirement that you go to the private sector and see what appetite there was to provide the necessary dollars to provide infrastructure.
Roads became an excellent candidate for that because they meet several requirements that I think we'll find, and we certainly argue, are critical to successful PPPs, perhaps the most significant of which is that you have a predictable and definable asset that is capable of being designed, is identifiable, and secondly, you also have demand. Demand is capable of calculation, it's measurable, and over time, depending on the quality of the asset, demand can grow.
Roadways provided an excellent option for the delivery of private finance. There were some specific policy requirements in the U.K. that motivated their policy approach to the use of private finance in the public regime. One of their policy conditions was the need for private finance to in fact be off balance sheet. The government was not in a position at the time to take on debt that was necessary to finance the infrastructure.
The second requirement that derived from that was that, as a condition of private finance, the delivery of the money had to be attached to a new procurement model. That really is the essence of the message today.
On the government side, the definition of that new procurement model was that instead of purchasing assets - and the remarks of the auditor are important in that regard - in the form of a road network, governments, using a new design-build-finance-operate approach, began to view the delivery of road services as the purchase of a service. Someone would provide transportation infrastructure to allow traffic to migrate to and from specific points.
The second component of this new procurement model was the idea that the concessionaire, the private financier and the operator-builders who would deliver that infrastructure, would have a responsibility not just to deposit a gift-wrapped new roadway on your doorstep as the government body, but in fact to have responsibility for that asset over its useful life. Hence, the procurement model shifted from ``build me a road, send me a bill, give me a guarantee, and then go away'' to in fact ``provide me with a road service that will require you, as the DBFO model suggests, to do the design, build the road, operate it, and undertake all necessary financing for the life of the concession period''.
As you will see, as I talk a little further about this, that requirement fundamentally changes what the private sector is going to provide you. If you are charged not only with providing a completed roadway at the end of the construction contract, but responsible for its quality over the operating life, your approach to delivering that roadway is going to be quite different. You move away from low cost and towards an investment in low operating costs, a concept that was talked about this morning.
Another requirement of the British policy was the demonstration that as much risk as could optimally be transferred to the private sector be in fact transferred. As John Beck indicated this morning, the test there is who's in the best position to manage and control risk? In many cases, you would have an absolute sequestration of risk on the government and the concessionaire side, and in certain areas people agree to assume an element of risk in each case. In some cases, demand, for example, the actual traffic over a roadway, will be one of those risks assumed.
The last of the principles behind the U.K. model is that instead of being a prescriptive design consumer as an authorizing authority, whether you're municipal, provincial or federal in the Canadian context, you in fact become a prescriptive performance consumer. That is, you say to the concessionaire ``our roadway must meet certain performance criteria, handling a volume of traffic, being open at all hours of the day and night'', and at a minimum level prescribing those standards below which contractors and concessionaires may not vary in the delivery of their infrastructure. So there are safety standards that we know about and that are minimum in Canadian roadways. Those are certainly things that apply.
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Design standards that were indicative of various levels of quality were also available to the public sector bodies to specify that they were not mandatory. So in fact the microwork on the design of the asset necessary to deliver the service rested with the private sector and not the public sector. As a philosophy, that animated the procurement model as well. If you think about a traditional road procurement using a low-cost tender, the tender documents stacked this high on the table, the public sector procurer has undertaken extensive analysis to determine every element of the project and to specify in considerable detail what must be in the final road.
If you are the purchasing authority and you have a stack of documents this high explaining your project, you're also warranting that all of the assumptions and the data, which are contained in your tender documents, are correct. The net effect of that is the moment you begin to vary from what you've told contractors they have to deal with, your costs then begin to escalate, in addition to whatever low-cost tender has been offered.
In the DBFO model that was used in the U.K., the thing that allowed the government to claim that it achieved an off balance sheet treatment and in fact allowed the national audit office in the U.K. to verify that was the fashion of payment. This is the shadow toll that everyone has talked about.
If we go back to the idea that the government had decided it was purchasing a service and not an asset, it makes sense to pay for that service as the service is delivered. In a road-building environment, that has the net effect, even in the case of an expeditious construction like 104 on CHIC's part, of delaying the commencement of the payment stream for 20 months, until the roadway is in place.
Depending on the project itself and on the length of time necessary to complete, the first payment by the government can in fact be extended three or four years, as is being estimated in the New Brunswick case today. But the point is that the payment is not because someone has completed a road project; the payment is because people are beginning to travel over that road and in fact consume it, if I can use that word.
In the U.K. environment the payment mechanism was, one, based on traffic and, two, based on a concept of lane availability. Anyone who travels the 417 in Ottawa knows what a difference one lane of availability at three o'clock in the afternoon makes to the progress either east or west, and in any other major metropolitan area of Canada the same experience is true.
So laneway availability, whether there is consumption or not, is a second component of the compensation scheme, and that does relate to the philosophy that it is the concessionaire who is providing a service, not the government buying an asset.
Laneway availability also means that you've done a good job building your road so that you're not spending a lot of time digging it up every two to three years to repair the quality of aggregate underlying it or to replace the pavement or the concrete that has been put down on top.
Those are the charging mechanisms, and the risk that is assumed by the private sector in a DBFO U.K. model, although shadow toll, is still a demand risk in exactly the same way you'll see on Highway 104.
Traffic has to be forecasted by the private sector partner who wishes to design, build, finance and operate the roadway. That traffic will be costed in the model that is ultimately agreed to between the government and the private sector body, and I'll talk a bit more about that. But in fact there is an estimate of traffic that underlies the financing of a DBFO road scheme. If in fact that traffic does not materialize, government payments do not follow. You do have in the U.K. experience a contingent payment based on traffic, a contingent payment based on minimum quality standards, in particular laneway availability.
Let's talk about what a shadow toll actually means on the government side. As Mr. Cullen mentioned, there's no doubt that the government is the paymaster. The government is the paymaster based on consumption and not on the guarantee that there will be dollars at the end of the road project or that all of the project debt at the end is guaranteed by the Government of Canada.
The shadow toll device, as it has been used in the U.K., has a feature that is important for predicting maximum government liability over the life cycle of the project, and that is something that in the U.K. experience has been called banding. There has been success in the projects that have been undertaken in the U.K. in getting the private sector to indicate a maximum level of traffic after which no shadow toll payment applies. That has served to cap liability on the part of the public sector body. That also allows you to accurately predict your life cycle costs as the financing authority.
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The last element of the U.K. model that's important if we're talking about a new approach to the national highway system here is the way in which the public sector actually responds to the private sector's proposals to undertake this new design-build-finance-operate approach. And the first key component of that is something you heard Harry Swain refer to this morning as a public sector comparator. How do you know and how can you justify to your constituents and to your own auditors that in fact the public sector or the private sector solution is demonstrably superior? That is a key criterion. If you are to elect to use private sector financing and private sector design, construction, and operation, can you demonstrate you're actually going to get ahead?
The device on the U.K. side was to design an audit-quality comparator, which incorporated historical costs of the government in road procurement as well as the pricing of risk retained over the long haul. And that risk can be demand, it can be obsolescence, it can be long-term legal liability, or a variety of risk constructs.
When you ask the private sector what their proposal is, determine your net present value, ask yourself, given the maximum rate of traffic over the life of the highway concession, what your payment will be, and add to that whatever risk you as the government must retain after the end of the contractual negotiation, if that number, using the private sector net present value and your retained risk, is lower than your own historical audit-quality cost, you can demonstrate something that's called value for money. And you heard my colleague Harry Swain mention that this morning.
The other component that relates to financing is the question Mr. Cullen proposed. If at the end of the day the government is the paymaster, how do you decide when to go ahead or not? That question, at least in the U.K. model, is called affordability. Can you over the life cycle of the project adequately raise general revenues to meet your ongoing contractual obligations? That is a question that needs to be asked, because regardless of how good the deal is, to put it in the vernacular, if you can't pay for it, it's not a good deal.
Our task, if I may be so bold today, is to talk about how you can leverage public sector investment, whether it's a one-time equity contribution, as was the case in Highway 104, or whether it's a long-term commitment to meet a shadow toll obligation. How do you leverage that to accelerate early private sector involvement in commencement of important road-building projects across the country? That technical question is probably beyond our scope today, but that is the question ultimately to be answered where a shadow toll method is applied.
If I can address briefly why people in the U.K. continue to apply this model and why in Australia, Finland, and Portugal we're now seeing this model come to the fore, one of the answers is what Harry Swain said this morning - demonstrated cost savings. Successful bids on the U.K. side for capital costs have been 19% lower than the public sector comparator. Successful bids on the operations and maintenance side have been 34% lower than the public sector comparator. The amalgamated reduced cost has been 17% for successful bids, measured against the public sector comparator.
We've heard about accelerated construction. In a PPP model, as in the U.K. side, the government also has the opportunity to influence the way in which the road is managed. You have a right as the government body not only to monitor performance but to say we think it's time for you to add a lane and we have a formula that will allow you to add that in a manner we can predict in advance and cost.
Incentives for innovation are an element of the U.K. model, both at the proposal stage where variant bids are welcomed and down the road where the private sector is incentivized to come up with performance enhancing and safety enhancing mechanisms so that the use of the roadway is in fact enhanced.
Lastly, achieving the off-balance-sheet treatment, if that's important to you as a government body - and I think Moya has indicated that in every case it may not be - and achieving that off-credit treatment on the U.K. side has been achieved because payments were truly considered to be contingent.
For the purposes of answering the question about application to Canada, let me refer to a couple of things that I think have been part of our discussion today. We need to ask ourselves about the kinds of roadway projects we're interested in talking about. Do we want to talk about new routes? Do we want to talk about the design of alternate routes to service demand already in place? Do we wish to talk about expansion of the infrastructure, taking two-lane roads and moving them to four? Do we wish to talk about improving our ability to operate and maintain? Those are all questions to be asked.
Answering your question, Mr. Chairman, about the long-distance, low-volume road, there's no doubt that tolls, at least tolls along existing right of ways, are considered today to be an impractical and perhaps improper way of financing the improvement or the expansion of existing right of ways.
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Shadow toll methodology does allow you the mechanism as a government to give effect to that goal of improving those areas of the country that require enhancement but do not have the metropolitan volumes of traffic.
The one risk that arises from using the shadow toll approach is that variance in demand, measured in the hundreds or in the thousands, may not be so significant on John Beck's Highway 407 but may well be considerably more significant, as Warren Thomson said, when you're looking at the roadway that has 4,000 to 6,000 cars per day. That is the risk on the shadow toll side. That's the economic issue that has to be answered to deal with Winnipeg to Wawa and back. But it's not an unresolvable problem, Mr. Chairman.
The Chairman: Thank you very much, Mr. Rafferty. I let you go on a little longer than I'm going to allow others now for two reasons. One is that I have found Mr. Rafferty, in his presentations, both publicly before the committee and privately, to be exceptionally clear on some of these concepts. But it has been my experience since we first started talking about this that the question of shadow tolls is one I get the greatest number of questions on publicly. I also get the largest amount of comment, like what about shadow taxes. But it's an important principle, and I think it's helpful to help people understand.
Let me turn to one of the more shy and retiring members of the committee here, Mr. Byrne.
Mr. Byrne: Mr. Chairman, I'd just like to say that I nominate Liam Rafferty for Minister of Finance.
Mr. Rafferty: Mr. Chairman, I am sure that if you were to talk to my own backers they would find that an even more hilarious suggestion than I do. That may in fact be my first qualification for this position.
Mr. Byrne: I haven't really spoken much on this because I've been extremely interested. It's not the first conversation I've had with Liam either.
From a financial point of view, I think this entire concept makes absolute sense. For the first time since we've been discussing the notion of public infrastructure and the finances we've brought the debate to a point where we can actually engage in a meaningful discussion that doesn't imply an increase in taxes but does imply an increase in services.
I haven't really said much because I've been extremely interested in this whole concept of how this, as a matter of public policy, relates to this Wawa to Winnipeg route. I think we should go Quirpon to Corner Brook, which is in my riding. And that's what I think the name of the report should be, Mr. Chairman.
Really, what it boils down to is that there is a substantial difference between an urban policy and a rural policy. Canada is a country unique in the entire globe. The models that apply to the U.K. don't necessarily apply here. Canada is a high-volume, low-population-density country, whereas the U.K. has low-volume and high-density populations. In other words, the types of roads that realistically this could apply to, without any sort of government input - public financing - would be metropolitan roads, per se.
I'm just kind of testing the waters here. Break me off whenever I say anything you fundamentally disagree with.
So there doesn't have to be any input per se into metropolitan road systems; it can be financed through the shadow toll systems or other things. But basically we can do some long-term infrastructure improvements at a very low cost, keeping the tolls under $2 per car, or somewhere around that, which is reasonable and what any consumer will pay.
But take for example the situation of a trans-Labrador highway. A trans-Labrador highway has been discussed for quite some time. But of course building a highway in an area where there is probably one of the harshest climates in the country, with the most difficult building conditions, and where a highway currently does not exist may realistically take upwards of $400 million to $500 million to complete the project. And given the fact that there are 30,000 people who live in the entire land mass of Labrador, the cost per car if there were no government financing whatsoever, no public input whatsoever, of building the trans-Labrador highway would be absolutely astronomical. The suggestion is that we can offset some of those costs because it wouldn't be a purely privately financed road. What we do is bring the cost of the toll down to $2.50 or $5 by injecting a fairly significant amount of public capital at the outset, which I think is included in some of the concepts we discussed.
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Here's the dichotomy it creates. We have a very difficult - This is not really a discussion per se that you're directly involved in, but my colleagues and I around the table will be involved in it. From a public policy perspective you have an urban constituency that will not benefit from the input of public sector funds. Their highway system will basically be paid for by their own tolls, the tolls they're prepared to pay. But for the rural constituency we're going to have an injection of public funds.
In this country we're going through a very significant and sound debate about regionality. I'm sure if I mentioned the acronym ACOA, it would send shivers up the spines of a lot of bankers, and a lot of people in southern Ontario. The bottom line is that if I said the words ``technology outreach program'', which a lot of people in Quirpon aren't going to be taking advantage of in my riding, there are not too many people here who would shudder, because the technology outreach program, which provides public sector financing to high-technology businesses, isn't necessarily a rural program; it's an urban program.
We're reaching a point in time when, as a matter of public policy in this country, we're really starting to sort out, on a user-pay basis, from a nation-building point of view, who pays and if you pay the full cost. Unless everybody pays the full cost, should anybody be subsidized?
I just want to point out that, if we proceed with the discussions, once you open up Pandora's box, in the sense that once we move with public-private partnerships, as a country we also have to be prepared to not only anticipate but deal with the fact that there are a lot of regions in this country - and I'm not just talking about Labrador; I'm talking about Nunavut - I'm talking about whether or not we would ever have had an Alaskan highway, for example, or a highway system in the north. I'm talking about whether or not we would ever have had resource development given the fact that the resource developments in most of the country would never have existed if there wasn't a front-end cost from the public sector.
If anybody wants to jump in and soothe my soul, I'd appreciate it.
The Chairman: I have one other intervention I want want to get to because Mr. Crête has to leave to catch a plane.
I just want to add to Gerry's question, Liam, before you answer it, because I think there's an issue here.
Gerry, when you asked the question about the significant public sector investment at the front end, the Highway 104 model, that same effect could be achieved by a lower initial cash payment with a longer-term commitment. So if the federal government, instead of saying they'll put in x number of dollars to this project tomorrow, say they will commit to putting in so much a year for the next so many years, that would allow you to finance the big up-front piece.
Harry, do you want to - ?
Mr. Swain: There are lots of ways of dealing with that. You can guarantee a minimum traffic level - the first car has a $10-million toll.
In the oil and gas industry, take-or-pay contracts in pipelining are financially very similar to that kind of thing. This is a fairly routine piece. You can play anywhere along that spectrum you want to be.
Mr. Byrne: But from a federal perspective, and this is really the issue, when you have those situations of perceived inequities that the rural roads would receive some sort of different financing structure, basically the bottom line is there still has to be input from the public sector versus the metropolitan-based road systems, which do not require, in most cases, any public financing.
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There seems to be the potential there to create another sense of increased regionality in Canada, something that I think we need a little less of these days - that increased sense of regionalism that we're subsidizing once again the rural regions of our country. Once we get into that sort of debate it will throw into question - The answer is that the provinces, which are a smaller political force or entity, are individually responsible for their own transportation systems and there is no role for the federal government. I don't believe that to be true. I think there is a very clear role for the federal government. That is why I want to help work out these snags before the issues become problems.
The Chairman: Thank you, Mr. Byrne. That's not a bad introduction to Mr. Crête, who may want to add to that.
[Translation]
Mr. Crête: I am sure that politicians are all the same. My understanding was that the best pilot project between Quebec and New Brunswick could be undertaken in the Rivière-du-Loup - Edmunston region, and I am probably right.
On a more serious note, I read earlier on in the document that, in the Council of Ministers of Transport's declaration, in 1990, several countries were given as examples. At that point, the only country that did not have a policy on highway development was Canada. Seven years later, nothing has been done in that respect.
It seems clear to me that if other countries have more advanced financing techniques, it is because they adopted a position, or a policy at the outset.
I will provide a partial answer to the committee chairman's question for now. However, I would also like you to be able to play your role in that respect. It is very important at the outset for the government to adopt a policy to develop a national road and highway system in Canada. That is the first thing that must be done. Bear in mind that the committee has been working on this and has taken the initiative on some aspects. That does not mean that all branches of government or society were initially prepared to go very far.
We will need support to carry out the awareness campaign. It is, however, essential that this decision be made first of all.
The English method of financing has a major advantage: it makes it possible to set projects up much earlier. Traditional modes of financing delay things almost forever. The government can decide that during a four or five-year period, it will examine the possible choices and implement certain projects.
Then, what criteria are used to determine whether the project will be retained or rejected? I am disregarding political choices, and more partisan elements that surely come into play.
In England or elsewhere, have we acquired enough experience to judge the effect of a decision on the choice of programs for the various regions of the country?
[English]
The Chairman: Paul, would you like a specific response from Liam or - ?
[Translation]
Mr. Crête: I want to know if they have the information.
[English]
The Chairman: I'm going to come back. I have Ms Pelletier now.
[Translation]
Ms Pelletier: Ms Greene stated that, according to her figures or according to certain estimates, the roads that could be proposed now would represent a cost of $3 to $5 billion.
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According to a study of the national highway network that was completed in 1992, when we talk about $13 or $18 billion depending on whether or not we expand to your lanes the national network that includes Wawa, Newfoundland, and the Lower Saint-Lawrence Region, are we to understand that the $5 billion would be for segments of the network that are profitable and economically viable?
I could assume that that is the answer, since there is some $10 billion missing from the estimates. Today's theme is renewing the national highway network. That is the issue that the Member for Newfoundland and Labrador raised. If it is a national network, what are we doing? Political will existed at some levels when the Council of Ministers approved the study. They even almost reached a consensus on sharing the costs for the most part.
We are discussing the source of funding. That is one thing, as we also have to know what the funds will be used for.
The representatives from Hambros Canada Inc. and the Member for Newfoundland have partially answered my question. I think the question is very broad. Does the system of shadow tolling apply to existing infrastructure that will only need to be repaired, upgraded, or rehabilitated? That is the question, and unfortunately we do not have the answer.
[English]
The Chairman: Let me just add one piece to that, because it's an important piece.
When we undertook this, when we began this piece of work, one of the first things we decided to do was to not go back and try to re-create what TAC had done. There had been so much work done trying to forge that consensus, and we feared that if we opened the door to redefining what the national network was then all of us would be running in with our own stretches of road. That's one fact.
The other fact, however, is the transportation environment has changed as a result of a number of policy changes. Perhaps at some point we're going to need to think about that. For example, rail abandonment has led to huge demands for feeder routes on the major trade routes in certain parts of the country. But we have avoided that.
We're focusing strictly on that consensus that was arrived at through the very important work that TAC did. I should flag that there are people coming around saying wait a minute. Gerry's raising a very important additional piece, but within that context of a national route there have been some additional pieces raised with us more recently.
I'm going now to John.
Mr. Beck: I'm not an expert on public policy, but I think one should differentiate between how the government deals or is seen to be dealing with the taxpayer and with the motorist or the user of infrastructure. If you talk about a metropolitan area where you do have user-pay infrastructure, you're not obligated to use that infrastructure. You can use the free road space, which is supported by tax dollars, as will be the expansion of the rural roads supported by tax dollars.
As a taxpayer, I could see equity in the fact that I still have a free alternative in the metropolitan area. If I do want the extra service, I'll pay for that, but I won't be obligated to.
Mr. Byrne: Good point.
The Chairman: I just want to add one other question, and you may want to respond to it, because it goes a bit to what Mr. Byrne was saying.
As I understand the TAC proposal, when they made that proposal to move to the increased road they said it was a suggestion - I'm not sure whether it was in TAC or the government's response to it - that 80% of the fund be used for improvements to the network on a 50-50 basis and the other 20% be held by the government to make strategic investments that may represent a higher percentage of federal government involvement in certain regions of the country. That consensus fell apart, and the only consensus you were able to arrive at, if I understand it correctly from talking to the finance minister, was a straight 50-50 across the board. This does create the problem of provinces that don't have the resources to bring their 50% to the table.
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It's not just in the road-building. In the national debate there's this, dare I say, lack of generosity, a lack of seeing this as a resource that is as important to - You know, the highway in New Brunswick has some importance to Toronto, if only for businesses to drive from Toronto to New Brunswick to set up.
A sense of national resource means it's important to everyone in the country, whether it's the New Brunswick stretch of road or the 407 or Wawa to Winnipeg or a road through the Rogers Pass, which is another big expensive one that gets identified that's important to everyone in the country. But there will be differential costs and therefore differential levels of involvement on the part of the federal government. It's a principle that we seem to be losing in the public sector debate.
One of the questions was if you structured a deal - I want to stick with Wawa to Winnipeg, because it is a tough one - and you add into that the roads around Toronto with one consortium, and this section of the road you could put a commercial toll on and with this section of the road you needed to have a shadow toll and government payment, but with the maintenance and operating contracts and such there were sufficient efficiencies because of the size that you got the whole thing built. Now, the person who paid the toll on this section of the road would subsidizing the person and the road-building in the other area, but you'd have a high-quality, good-for-trade road built throughout the whole system.
Moya, I know you have some of the history there, so I thought I'd flag some of those.
Ms Greene: The question that you and Mr. Byrne and Louise have put your fingers on I think is the most bedeviling issue in the whole piece. It plagues every attempt to set up anything national.
I hope you're not right, Mr. Chairman, on this one, that there is a new mood emerging in the country and we're not prepared to recognize that infrastructure costs in some parts of the country cannot be entirely supported internally to the project. I hope that's not happening, but maybe it is.
In airports, I don't think it is happening. We have people in Vancouver who are running Vancouver Airport who were really anxious to get on with running their facility, improving the facility, and were - willing is going too far, but they acquiesced in an airport improvement fee. Smaller airports in B.C. that don't have that traffic base can still rely upon a small capital improvement program that Air Canada has in place. So I think that on the airport side there's been a willingness to accept that you can put in place tolls in one area and it's not practical in other areas.
We seem to be dancing around this issue of the government paying and the government contribution and how big it should be. My number is only a subset of the tax number. You can do $18 billion worth of work tomorrow if you can find the $18 billion. Nobody would say that's going against the TAC study. That's certainly what TAC said.
My number comes out of a subset of studies that relates to which of those projects are really, really important in a cost-beneficial way. There are projects all across the country in every province that are on the national highway system today that are not being done because we haven't even gotten to first base on the money.
What I would say, Mr. Chairman, is actually something that you said to me several months ago: we have to see how far we can get; we don't have to solve 100% of it now or forgo being able to solve 10% or 20% of it in the quest for 100% of it.
The Chairman: Thank you.
Mr. Cullen.
Mr. Cullen: Thank you, Mr. Chairman.
I would just like to come back to the point my colleague made. I think Mr. Byrne talked about public policy issues. I think there are really some political issues here too. Sometimes the twain don't meet. There are political issues of regional disparities, urban-rural issues, but as a nation I think we have demonstrated that we're able to deal with that kind of challenge. I think it's incumbent upon us to ensure that that kind of spirit is not dissipated.
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I think there is also a more selfish rationale to it. That is, if you look at the national highway system as a whole, there are reasons for having a complete and comprehensive national highway system. It doesn't just extend to the borders of metropolitan Toronto, let's say, or the borders of metropolitan Montreal; it needs to be looked at on a systemic basis. I think there are some commercial reasons why that might be supported.
It might come down to questions of whether people in Ontario and Quebec or Alberta are prepared to look at this renewal as being a national issue. If that means that there is some kind of cross-subsidization that has to go on, then it seems to me it's incumbent upon us to ask how we can maximize the private sector partnership contribution. It seems to me what we've been exploring today, in part, is how you capture the private benefits and leave what needs to be funded or financed to the public good.
I appreciate Mr. Rafferty's comment on the shadow tolling. It made it a little more lucid for me. That is to say that it's a way, it seems to me, of looking at amortizing the public good over a period of time based on looking at not the asset but the service. It neatly gets around some of these other issues we've been dealing with.
It's not without its challenges, but I think that if we look at capturing some of these private benefits on a larger scale, Mr. Beck has already pointed out that there is a certain critical mass that we need, certainly on the operation and maintenance of a highway.
As the chairman pointed out earlier, maybe if we look at it on a bigger scale there are some economies and some synergies that can be obtained so that we may not have to do the amount of cross-subsidization that we've been worried about. It seems to me that at some point we need to test the marketplace and see what kind of public financing is going to be left out on the table and how we go about working on that. That's really what I wanted to say.
The Chairman: Mr. Swain.
Mr. Swain: Mr. Chairman, I want to make two points, one of them actually in response to a question on your sheet, which I thought would be novel.
I was impressed by that presentation at lunch time from ISIS. You have a question on how can we encourage R and D and bring it into practice. I think the answer is embedded in the question, in the sense that where you are asking private bidders in a competitive situation to come forward with their very best financial offers for the life-cycle cost of a highway project, they then have the strongest possible incentive to search out people like the ISIS researchers and grab hold of their technologies and license them and put them to work.
That same set of incentives does not work in conventional highway procurement. Conventional highway procurement is managed by old colleagues of Moya and me who are not paid to take risks. In fact the system of penalties and rewards for bureaucrats encourages a degree of risk aversion: you don't get a bonus if you do something particularly good, and if you do something particularly bad you meet a parliamentary committee.
I would suggest to you that the very fact of moving into any of these various techniques of public and private partnerships will do a great deal to see new technologies applied to Canadian roads. Those in turn work to make firms like Mr. Beck's ever more competitive and ever more of a contender in export markets. That's a very virtuous circle.
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The second point I wanted to make is not at all in answer to Mr. Byrne, because I don't think there is an answer to that. I think, as a wise man once said, that there are several permanent conditions of being Canadian. One is being next to the United States. One is living with the regional diversity of this country and the profound distances and the vast environment and the big splits between rural and urban Canada. But I merely offer the observation that we have as a country been extraordinarily generous in our inter-regional transfer payment schemes, some of which we know about and discuss, like equalization and so on, and some of which have long been hidden.
One thinks for example of our tolerance of telephone rates, which over the years have run into a multi-billion-dollar subsidy, actually rather larger than equalization by certain measures, in favour of rural Canada.
Now, good or bad, those are the consequences of political judgments arrived at not by technical experts but by the people who are elected by the folks out there. And I think that's the way it should be.
I do though recall hearing the Prime Minister of Canada in the 1962 election refer proudly to the program of Mr. Alvin Hamilton, the ``roads to resources'' program, possibly the last time we had a national roads policy. Mr. Diefenbaker flung his hand out and referred to the north, ``where the hand of man has never set foot''.
The Chairman: Mr. Atkinson, follow that at your peril.
Mr. Atkinson: Mr. Chairman, looking at the questions that were raised in the committee's discussion paper, what I'd like to do first is restate Mr. Beck's caution to the committee that there's no black or white answer or cookie cutter that you can use in this situation.
Look at the very first question the discussion paper cites: ``Should the government continue to pay for highway infrastructure in the traditional way, out of general revenue, or should the user pay?'' Trying to answer that question is like trying to sit on either hump of a camel: sooner or later you slide into the middle.
I really think that the committee, if your recommendation to the House is based on the answers to these questions, should tread somewhat carefully in not making it sound like you're opting only for one solution, because I think what we've heard today, if nothing else, is that given the diversity of our country and of the national highways system from Wawa to Corner Brook, it's important that there's flexibility in this approach. Certainly we have to change; we have to get out of that box Mr. Hunt spoke about. But we want to keep the box around too.
The Chairman: I would point out that going from Wawa to Corner Brook you do not go through Winnipeg.
Let me make note of this. We have now approached the final hour. I'm going to meet my deadline of getting everybody out of here by four o'clock.
The questions on this list are not the definitive questions. They are the questions that were raised by people when they came before the committee and the issues that sort of arose in that period of discussion. We have to make a report. I'd like in this last hour to get at least a final comment and/or suggestion and/or recommendation from the various actors at the table here. And that's probably all we'll have time for in the hour, given the loquacious group we have here.
For example - and I think perhaps the answer to this is self-evident - should the committee recommend something as radical as that the federal government should have a policy on the national highway system, that the federal government should have an approach in funding the system that is consistent and predictable in the long term? Those kinds of recommendations are the kinds of recommendations of that order that we can make.
An interesting thing that I take from the presentation of Mr. Redfern is that in entertaining projects it's both the capital and the operating costs that need to be seen in the development of these financing packages.
On the mandating or the involvement of new technologies, I think Mr. Swain offers a very interesting perspective: that it may not be necessary to build in a specific policy requirement, which carries with it other kinds of problems, but by driving the system through competition you will see people move to those new technologies - although given the initial high cost until the market is established, you may want a trade-off there.
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Mr. Atkinson, one issue that's been raised privately with us by some of your members is that it's fine to talk about these deals when you've got the banks and Newcourt capital and Hambros and the six or eight really large firms. Mr. Beck can come and do this. But I'm the little guy who paves these six miles, and where do I fit into all of this? Are you just going to wipe out a good chunk of your membership? How do you accommodate those? Because they're Canadians who participate in this part of the economy.
Those questions I think need to be considered in this. You have one hour. If you're eloquent and thoughtful, you words could appear. Of course you may then have to take responsibility for it.
I'm going to start this off with one of the more experienced members of our group, a man who needs no introduction, Mr. Keyes.
Mr. Keyes: Who?
Actually, Mr. Chairman, I was just going to say how much of an adventure this has been for me, because when we have our committee meetings and you hear one witness at a time, it's one strategy to hear information from your witnesses, but you bring everyone around a table like this and you've managed so agilely to ask everyone and get responses from everyone. I think so far everyone's been extremely satisfied with their input at the moment they wanted to make their intervention. So hats off to you. It's been very educational for me.
I never thought I'd ever say these words, Mr. Chairman, but I'm going to go ahead with it anyway.
I was talking to Mr. Cullen a little earlier about the idea that we could do this but this might happen, and if we do this then that might happen. Something is always going to be affected by something you attempt to do. Could the private sector work with the public sector and with individuals who have an idea of how this whole thing would eventually come together? We've had all the opinions and they're all disjointed; I can see them floating all over the room. But they have to be collected and put down into some workable - and then I thought of the word - ``model''.
What if we had a triple-P commission, a private-public partnership commission, where the private sector and the public sector sit down and take three to six months to put forward the guidelines, to run the numbers, to demonstrate the risk assessment, to show that any overall project would have as much impact in rural Canada as it would in urban Canada? We then have something tangible to say okay, here it is: here are all the ideas and how they have gelled together and here is a model that says we can achieve a national highway infrastructure program and this is how it will be financed and this is the risk to government and this is the risk to the private sector and this is how the guidelines will be set and this is where the roads will be built, etc., so that the model is there, hard and fast, for fine-tuning, complete rejection, or implementation.
It's just a suggestion in response to the questions I see on this sheet.
The Chairman: Thank you, Mr. Keyes.
[Translation]
Mr. Laganière: Based on the figures that have been mentioned, I'm of the view that more than $4 or $5 billion will be needed to upgrade the national highway network. If we consider not only the TransCanada axis, but also important roads and networks that are not perhaps in red on the map but which are very important for developing certain areas of Canada and for accessing natural resources, as the gentleman said about Labrador, it is clear that we must use government funding or taxes as a lever to invest or increase the critical mass with the assistance of the private sector, with private funding. This is even more important for the networks that are not located around large cities.
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Moreover, when talking about partnerships, we should also perhaps think about formulas that have not yet been used officially, like the one that was used for roads in certain parts of Canada.
In Quebec, the access road to James Bay was built in partnership with Hydro-Quebec. In Labrador and northern Quebec, there was a similar partnership with the mining and forestry companies. These partnerships currently exist, and we could capitalize on them. They are contributions to the highway network.
We could probably benefit even more from these examples by using the lever that the federal government or the provincial government uses.
The recent infrastructure program has proven that, without additional structure, without another institution, we can use a lever put in place by the federal government and triple it. Provincial and municipal partnerships have followed in these cases. The money has been multiplied.
In many cases, and this is not always indicated in the reports, private partners have joint businesses in the municipalities or in the cities to develop real estate that has added something more.
As for the regional highway network, I think we will have to move towards those types of solutions. It does not involve a comprehensive model, but almost a decentralization. We must ask Canadians to make their ideas known and adopt several models instead of a single national model.
[English]
The Chairman: Absolutely. I also think it's important to keep reminding ourselves that we are talking about 25,000 kilometres of an 800,000 kilometre network - that at the federal level at this point we are only prepared to talk about that 25,000 kilometres. The rest of it clearly is and always has been the responsibility of the provincial governments. But if we establish some models and some useful ways of approaching this question of providing a transportation service, if I can borrow from Mr. Rafferty, then maybe that's a model that provincial governments will also find useful.
It strikes me, though, to come back to one of the issues that was raised - I think Mr. Atkinson was the first to put it on the table; actually, he was the first today, but it was raised by TAC and it has been the subject of private members' bills and everything else around here. The issue, as I understand it - and this is my first term federally, so I'm just beginning to whet my - I'm wetting something in thinking about this. The issue is how do you bring the provinces and the federal government - because any money we're talking about is only 50% of the money to be spent on a road anyway - how do you bring those two entities together in a fashion that allows for a radical, in public policy terms, change in the way in which you finance and build assets in an environment as complex as this one gets, with ten provinces, two territories, and the federal government and the changing political environment? I think even at times when you have had consensus, one election can knock the consensus off course. How do you dechain the building and maintaining of such an important economic asset from the vagaries of election cycles and prevent myself and others who occupy this side of the table from running in with our particular priority that all of a sudden is more important than perhaps another decision?
Then you have exactly the response Mr. Keyes raised and exactly the response I got when I raised this in Charlottetown: we don't want another crown corporation; we don't want another entity. That has been sort of the anecdotal response.
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What's your feeling? Does it make sense? Would you suggest that we recommend it? Ms Pelletier has put forward the concept of using TAC or a TAC option of some sort.
Mr. Thomson: One option that might be considered, rather than having a new government agency formed to actually manage it, would be to divide the country into a number of regions. This would ultimately wind up addressing the issue around stranded assets. You'd go in and require some very significant designers, builders, and operators on an umbrella basis to take accountability for an entire region of the country. All roads that are designated as part of the national system they have to maintain to that standard.
That will deal with the high-level issues around bonding, insurance, quality delivery, and ensuring there's life-cycle costing and management techniques brought to bear. At the same time, you impose requirements around local content. So you go in and say that there's got to be 70%, 80%, 90% of the work coming out of small local construction companies. Engineering companies, who are using the big companies to do the overall project management, hold accountability.
You want the private sector to really come in and then manage it. And then within a set of guidelines that you turn around and hand to the private sector they would then have options around how they fund the various pieces of road in their region.
When they've got a piece of road that's simply just an upgrade to bring it to a national standard, maybe they have a shadow-toll option on that piece of road. If they've got another piece of road that's clearly an added benefit around a major urban area where there are going to be lots of options, maybe that's an explicit toll.
On that basis, you could at the outset establish the benefits to the government in terms of cost and all that, because you'll have an open, transparent bidding process, where obviously a number of firms have bid nationally on partnership bases for each reason, ensuring that the lowest-cost bidder wins in each region.
You would then turn around and ensure that they got the local benefits in there and that they can keep their operating costs low in the long run. You're going to have to bring in value engineering concepts using the best technologies, etc.
That quite clearly would create two, three, or four operators in Canada that would have the ability to be international bidders of consequence. That would clearly help facilitate also ultimately this whole idea around exporting of technology.
So that is an option in terms of getting the ball moving quicker and getting the private sector to really pull together its resources and deal with the stranded assets, rural regions in the country, etc.
The Chairman: You know, it strikes me that these guys are really excited about doing this, but I don't hear this end of the table talking very much. Does this make any sense to you? You're the folks who have to pay it.
Ms Ward: Yes, it makes a lot of sense. I like the idea that there is a recognition that there's more than one solution. I like the recognition that the configuration of the partners will change, depending on the local issues. I like the fact that we are slowly approaching the idea that you have to think globally and act locally and that the federal government seems willing to take on the ``think globally'' part of what a national highway system would look like within the context of provincial highway systems.
I think we're in violent agreement here. There's no disagreement. Moya has told us of a way we can fund this over the long term. The AG has told us we now have the legislation that allows us to do that. I don't see what we're going on about here; we've agreed to this. Frankly, the next step as I see it is to sit down and talk to provincial governments and get their bias.
The only other point I would like to make, just because of my own self-interest, is that when we're talking about low demand, there are always ways to increase demand of a road, and they should be looked at. Tourism is one of the many. The smaller secondary airports, as Moya well knows, are looking at tourism to increase in-bound and out-bound, some with great success, like Kelowna airport, which is a private airport.
I think we should get on with it. Should you recommend the federal government reinstitute a national highways policy? Hell yes. Done. Let's do it and go on.
The Chairman: Violent agreement is not something we're accustomed to here.
Ms Ward: I know, I can see that. But we're all agreeing.
The Chairman: I'm going to go back and forth a little bit more. Brian, let me give you a shot.
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Mr. Hunt: We're sitting here, and I think the solution is in the room. There are a number of views maybe on how to get there.
I guess I would agree with Mr. Keyes in the sense that we need a model. I'm not sure if we'd need to break it into five at this point, but maybe we need to get one model, which may come down to Mr. Thomsom's suggestion of getting into five things. I think we've got to get from here to implementation.
I would support what Mr. Keyes said every eloquently in terms of designing a model with the financing options, with the projects, what we're going to work on first and how we're going to get there. You could then address some of the things Mr. Thomson was saying in terms of is this a shadow toll in this section and an implicit toll over here. I think that's what we really need. We need a road map to get from today to when we actually start the projects.
Mr. Chairman, in terms of endeavour, you just said very eloquently that we need a national highways policy. Hell yes. We're the only developed country in the world without one. Let's get on with it. We've heard some excellent suggestions, so let's go. The issue is we can all leave the room, but if we don't have a road map to the next destination - Maybe the next destination is your report. Hopefully you'll recommend that we do come up with this model made up of people in this room or other people. And then let's move forward.
The Chairman: Moya.
Ms Greene: This is just a suggestion, Mr. Chairman. I agree with Debra that there's a lot of consensus in this room. We need a statement of policy. There's an agreement about need and there's some agreement about one model, which didn't fly. So we need a statement of policy.
My suggestion is that in the budget you announce a two-phase approach to implementation of the policy. Phase one has three elements. You signal to everybody right now that all of the money that will be spent in the future by the federal government on roads will be targeted to the national highways system. That alone is a big step. Secondly, you say that because the national highways system is so important to the federal government as a national asset, we are going to do something we haven't done since I can remember: we're going to commit an expenditure over 20 or 30 years or whatever. Then the budget says the second phase of this policy is I have asked whomever, perhaps you, Mr. Chairman, and the Minister of Transport to bring together private sector stakeholders to design a mechanism that will flow that federal funding through on either a project basis or a federal-provincial basis. That's an important distinction.
Louise and Debra, I hear you tell us to get on with talking to the provinces, and the public servant policy person in me says yes, of course. But I also know that this can be very difficult. As Mr. Alcock points out, I can't remember in my five years at Transport Canada getting any consensus on anything hard that involved all of the provinces for long enough to get it done. So you do want to try and you have to keep trying to get all provincial governments to share your goal, but you have to move at the same time.
So one big decision for our political leadership to make is how much we want to move toward a project approach to spending the federal funds and how much we want to push through the more traditional way, which is the federal-provincial contribution agreement.
That's my suggestion. Announce those two things now and set your group up and then be ready to spend your money in a different way in three or four months.
The Chairman: Thank you, Moya. Mr. Bélanger.
Mr. Bélanger: I agree with a lot of the things that have just been said. I think one of the things we need first is the enunciation of a policy. I think that's one of the big problems that created the lack of interest or the lack of actual action in the past.
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Listening to what Moya just said, there's one aspect that is very difficult in the federal-provincial relations, because the federal government says yes, we want these highways, but you guys do it and pay for it. That's the problem. Look at the U.S. model. You have a state jurisdiction over the highways, but there's enough money coming out of the feds that creates consensus in a hurry in a lot of instances. So that's a major difference with the system that we have in Canada. Of course we have to involve the provinces.
I think what we need first is a declaration or an enunciation of a policy, and we need a federal-provincial agreement of some kind. I think the suggestions Moya was making make a lot of sense in terms of getting the federal commitment forward, but we need to do something or put that in such a way that we're going to be able to get some consensus among the provinces. I think the only way we're going to be able to do that is either by supplying money or supplying funding, because the provinces will continue to do as has been done in the past: argue forever and agree temporarily on issues and disagree more often than they agree.
We haven't had any success in the past, and unless we have a strong commitment from the federal government it's going to be difficult to create the necessary consensus to build a system.
The Chairman: Although following the kind of policy structure that Moya suggested, if we offered a framework that we might partner in à la Mr. Thomson or some flavour of that and a province decided to take us up on it, the others might quickly fall in line.
Mr. Bélanger: It would help a lot.
The Chairman: If we had some money on the table. Money, as you suggest, does have a funny way of creating consensus.
Mr. Redfern.
Mr. Redfern: Thank you.
Why are we here today? Why hasn't a national highway plan already been implemented? We had the chance in 1992. What stopped it from going ahead? I believe what stopped it was a concern over financing from the federal standpoint, concern that maybe the public was not supportive to the extent that was required. So I think that if we go back and say if those were the hindrances, what has happened to take them away -
Somebody asked will the provinces follow. When we had the infrastructure program a few years ago, the word out was that provinces didn't have any money, municipalities didn't have any money, so will this thing fly? They couldn't wait to get in and put their share of the money in.
As others have said, the thing that's different is that the public support is more ready than it ever was. Conditions have deteriorated. We have around the table many examples of not only innovative financing but innovative financing that has worked in actual cases in other areas. We've heard today of new technologies. So I think what we're saying is that if the time was right three or four years ago, it's more than right now. It's maybe an advantage that we've waited, because we have better tools and better methodology and better understanding.
We are talking, as you said, Mr. Chairman, not of the highway network in total but the national highway system. If you're talking national, you're talking Canada-wide. If you're talking Canada-wide, you're saying that it's the federal government that has to take the lead. It has to take the responsibility. It has to put its name on the line now and get it started.
I agree that we seem to be ready to take the plunge now. I think the federal government puts their name on the line, but they also stand to gain the credit.
I think this is the time it should be done to make these investments. I think we have the tools. I think the basic thing is to start it. As Moya said, we can do it in a two-stage arrangement if we want to get the exact appropriate model, understanding that we've already agreed that one model will not serve all purposes. It's a variety of tools and systems that we're going to implement to come up with a national structure.
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What I think we're really telling you to do is to recommend that the government implement this thing called the national highway system and that we use the tools, infrastructure and methodologies outlined and get on. I can pretty well guarantee that the provinces - as they were prepared to do in 1992 - will come along for their share of the ride.
The Chairman: If I may, I have just one interesting variant on that. I was part of a study some years ago that looked at what produced change in government. The most profound thing was this whole process of leveraging crisis.
The reason I'm mentioning it is that because we have this enormous fiscal pressure, the old way of doing it. If we didn't have a deficit we'd probably just go on throwing a chunk of money here, throwing a chunk of money there, cutting a little deal and all that kind of stuff. But because we don't have the money, this has forced us to consider a different way of dealing with the money.
I can't help but think that even if something happened tomorrow and Canada won the lottery and paid off its debt, this is still a better way to go.
Mr. Redfern: Exactly.
The Chairman: It's a better, more efficient, more effective way to build roads. We couldn't get there if we didn't have the political pressure to force us to finally get down to dealing with this, but inherent in that are advantages to doing this in addition to just the fiscal pressure. Theoretically, it will give us better roads.
Mr. Redfern: It would force us to be more competitive and efficient with how we use our funds. I think you're absolutely right.
The Chairman: Mr. Swain.
Mr. Swain: I'm sitting here thinking of all my experiences of trying to produce provincial consensus on things that seem to be obvious. I don't recall ever seeing a provincial consensus on just about anything at all that lasted past lunch. Traditionally the federal government has attempted to bring about the willingness of the provinces by bribery, a route no longer open to us. That kind of crisis is very much on us.
Overwhelmingly, the biggest financial contribution the federal government can make to the re-funding of our infrastructure nationally is the kind of fiscal track that we've been on for a couple of years now, plus the monetary policy track, which in effect the Bank of Canada has been following for a few years longer.
That goes back to the point Moya was making earlier. We now have a fiscal climate in this country that is the envy of most other G-7 countries, including the United States. Things are much more financeable now than we could have dreamed they would be as recently as 1994.
It's worth pausing here for a minute, because we couldn't have had this discussion in 1994. We were looking at the wall, the brink, the edge or whatever you want to call it. It simply wasn't possible then. Now it is. Now Canada is a bit of a darling in the financial markets. Even The Financial Times, for heaven's sake, had a nice article on us last week and caused a nice little flutter in the bond market.
The yield curve in Canada is lower than it is for the United States for maturities. It's up to about ten years now. It's the first time in a long time we've seen that. We have upward pressure on the dollar. Gosh!
Those are some of the dividends you get from getting hold of expenditures that over the years have become promiscuous, and we should throw that away awfully carefully. At the level of a couple of hundred million dollars a year it isn't going to make any difference to Canada's status, to our borrowing ability or whatever.
At the levels necessary to fund a half or a third of the kind of numbers that we've heard today, these do not seem to me to be likely commitments for a prudent government for the next few years. I just don't think that's going to happen.
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I think we have to be awfully careful, in terms of both the availability of expenditure money and the real worries of the provinces about the illegitimate use of the federal spending power in a constitutionally delicate era, to try to make a little bit too much of a leading splash on this.
I would go back to say that there are a couple of mechanisms around that recommend themselves. One I do hear from time to time, possibly in the context of a forthcoming election, is that there might be another infrastructure program. Well, let's be opportunistic. If there is going to be another infrastructure program, and some of that money of course will go for roads, as it always does - that's what they're saying this year - let's make sure that any kind of program of that nature includes these novel mechanisms that give better value for money.
Second, we have to educate a lot of other people on what these techniques are. Yes, I am impressed by the amount of consensus in this room. I think the next bunch of folks who need to be brought into the consensus are probably the professionals on the government purchasing side, the procurement experts and probably the transport experts in the provincial governments and so on, and notably the provincial governments themselves at the political level.
In that respect, Mr. Keyes has made a very good point. We need a forum that reaches out to those other parties, reaches out to the provincial governments, in a non-threatening way and that strongly involves the private sector and the kinds of people I suppose represented on this side of the table and that focuses on success. Let's look at the successful models. Let's look at technique. Let's document it, write it down. Let's put this material in the hands of the people who can actually apply it.
It seems to me, Mr. Chairman, that something along the lines of what Mr. Keyes is thinking of is possibly the least controversial and most likely to be acceptable element of a national highways policy.
The Chairman: Demonstrating Mr. Keyes's experience with this issue.
May I, Mr. Swain, pick up on part of your comment, this question of there not being a likelihood that government is going to make significant investments. I mean, the 1.5¢ at the time TAC was dealing with this and the 2¢ Mr. Hunt's organization recommended rolls up to between $600 million and $700 million a year, which was estimated to be the level of federal involvement, matched by the provinces, to build to I think the B-level $18 billion program over a period of 10 years. That's where some of those numbers come from.
Both Moya and Jim are correct in the sense that - Although, Moya, I think in recent years $250 million a year may have been the ongoing, long-term commitment. Even though it's presented in short terms it may be the long-term effect. I think it's about $350 million this year, or in that order.
I tend to agree with what Moya is saying. If the federal government made the commitment not to spend more money on roads today but just to say we will guarantee that $250 million or $350 million for the next 20 years - no more money, with no more pressure on our deficit or fiscal plan, we'll just take what we're currently spending, which historically we've always done anyway, even though we only plan it two years out - and now we'll say it's there for the next - that would lever an enormous amount of renewal of the highway system.
At the point when our deficit is zero and we're making the decisions about tax reduction, service improvements and debt payment, there's an option then to bring it up closer to the 2¢ level. That day may not be far off. But even without that, I thought you were being a little bit cautionary in saying you don't see this moving. There's a sense here that it potentially could move more quickly than -
Mr. Swain: It's always possible, of course, but even when we get the deficit to zero we will be carrying a level of debt that nationally is in the order of one GDP. This is an astonishing amount of debt. Frankly, the debt service requirements are crushing. Moreover, a disturbing proportion of that is held abroad. We are at risk from foreign bankers more than I think is comfortable for a self-respecting country.
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I would imagine the present and any future finance minister would want to moderate debt as a proportion of GDP as one of the fundamental long-term fiscal objectives. That means, I think, we will be under real pressure on expenditures for a very long time. Are we then talking about taking 2¢ of the present fuel tax or are we talking about a new tax? Likewise, Ministers of Finance love that latter notion a lot too.
The Chairman: I'm sorry, I don't want to monopolize this discussion, and a lot of people want to jump in, but the 2¢ only comes as a level that was established. It represents a $700 million level. If we are working within the existing money, be it $250 million or $350 million, it puts no additional pressure on the government fiscal plan. It's just a continuation of what it's already spending.
Now before Warren has a heart attack -
Mr. Thomson: I have some rule-of-thumb numbers here. If the level of expenditures required were $5 billion, the federal government would have to fund $2.5 billion. If the federal government were willing to make a thirty-year commitment to funding, that would cost on the order of $250 million to $350 million. At the high end, if you go to $18 billion, at the $18 billion level the federal government's commitment would be $9 billion, and on that $9 billion the federal spending requirement would be about $900 million.
So in terms of what the range is here, the bottom-end plan would be just committing for thirty years at the existing level of spending. In the high-end plan it's about $900 million. But you have to make a thirty-year commitment.
The Chairman: Now, wait a second, Warren; $900 million is about $200 million more than I calculated on the back of the envelope, so your fees are still too high. But we'll talk about that.
Now, Mr. Patten, you're the only person who has not spoken at this table, and I appreciate that you're here. I know you had difficulty getting here. I will give you more than the sixty seconds I'm giving everybody else, but not much more.
Mr. Mitch Patten (Canadian Highways International Corporation): I'll try not to take much more than that.
First of all, I do apologize for being late. I spent the morning, starting at 6:45, investigating another aspect of our transportation industry, the various airport lounges.
I want to touch on two points. The first is to expand a little on, or emphasize, one of the points John Beck made earlier, about how this discussion really is not about what is the best way. Mr. Hunt made the point a couple of minutes ago that what we really need to do is find the model. I'm not really sure that is what this is about. I think it's about ensuring we understand what the menu of options is and then having the commitment to apply them where they will best fit.
For example, if the question is whether we should we proceed the way the Government of Ontario did on the 407, where the government supplies the initial financing and recoups it from the drivers through tolls, or the 104 in Nova Scotia, where the private sector puts up a chunk of the financing and recoups it from the drivers, or the shadow toll option, where the private sector is putting up the initial financing and recouping from government, the answer to that is probably yes. It's not a matter of choosing it, it's a matter of applying the right option in the right circumstances.
Even after we have decided for a specific project which model is going to fit best, there are a number of gradations. If, for example, in Ontario the model is being applied where the government puts up the initial financing and then is tolling it, if the government found a reasonable toll or a toll people were willing to pay and they may only be able to recoup 80% or 60%, does that make it a bad idea? I would suggest no, it doesn't. It may not be quite fully recovering it, but it's not a bad idea.
So the number of options is really virtually infinite, and I don't think it's about finding the model. It's about ensuring we understand the options and we commit ourselves to applying them - which means, at the end of the day, it's about the information gathering that has been done and then it's about leadership and momentum.
I think that's why when we ask whether we need a statement of policy I'm going to suggest yes, we do; but it's not because we need to define which of these models, or how we're going to - It's because we need to take the leadership and establish the momentum in this direction, or in these directions. I think this committee itself has started to do that. It has shown the leadership and has started the momentum, and the policy statement that Moya Greene was talking about is another example.
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The second thing I wanted to touch on was the point you raised a couple of moments ago, Mr. Chairman, in terms of the election cycles and the extent to which that's going to provide a problem. One of the interesting things we've seen on this front is the extent to which there can be a partisan consensus, if I can use that phrase. It was an NDP government in Ontario that initiated Highway 407, Liberal governments in New Brunswick and Nova Scotia initiating those projects, and a PC government that has sort of wholeheartedly adopted the NDP proposal in Ontario.
I think that while there's obviously never any guarantee in our system about partisan reactions, this may be an area where the election cycle is not going to be as much of a problem as it will be in other areas of public policy because of the consensus that I really think is developing here. The Ontario example is the perfect one. The current government has not been shy at all about jettisoning former policies and changing course, but in this one they've grasped it.
So we have examples now of all three parties, and that may not be as big a problem as one might expect.
Those are the comments I wanted to add.
The Chairman: I have Mr. Beck, Mr. McRoberts, Mr. Atkinson, Mr. Redfern, and nineteen minutes. Efficiency, gentlemen and ladies, please.
Mr. Beck: This will be quick, Mr. Chairman.
You asked Mr. Atkinson about the concerns of his membership in terms of what happens to these large organizations dealing with the local players. In Nova Scotia, where we were awarded the responsibility for developing a piece of infrastructure on a micro basis, we subcontracted over 80% of all of the work to local firms. So the idea of the larger firms being involved does not preclude the use of local content. On the contrary, where we aren't, we use those local resources everywhere.
On how to get from here to there, I agree with Mr. Keyes's suggestion that a commission of sorts be formed, and that it include both the public and private sectors. I would caution you, though, that in the selection of the members of the public sector side you should err on the side of those who have shown some openness to the idea of private sector involvement in infrastructure.
The Chairman: Is there anybody who hasn't?
Mr. Beck: I would also propose that we step up your thoughts about the commission and actually mandate that commission to challenge the private sector to come to it with proposed solutions to what we talked about today, in order to stimulate the thinking of the commission.
I wholeheartedly endorse what's been discussed here today. I think there is consensus. Let's get on with the job.
The Chairman: Thank you, Mr. Beck. Mr. McRoberts.
Mr. McRoberts: It's a very small point on the accounting that we talked about earlier, and I'll make it very quickly.
When one is looking at a menu or a set of options, in making the right decisions it is important to ensure that the options are all priced on a comparable basis. To do that, we believe it would be of value for your committee to consider recommending to the government again that it move more expeditiously on its 1995 commitment to implement the capitalization of physical assets in its accounting.
As an office, we have observed that we believe the current accounting policy actually discourages long-term capital investments because of the way they're accounted for. It also provides problems in terms of the way you compare. It provides problems in terms of the substance.
When what you're talking about is an investment and you have to consider it as an expense, that poses problems in discussion. If the accounting policies the government is committed to are implemented, they will provide a basis for a better comparison of the options - for example, a better comparison of the merits of a direct investment by the crown in building versus a shadow toll situation. It will also provide a better description of the reality for decision-makers.
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The Chairman: Thank you for that, Mr. McRoberts. I agree with you completely. We've found as a committee that it's very helpful to recommend to the finance minister to do what he's already committed to do. Our implementation rate is much higher than on other recommendations we make.
Some hon. members: Oh, oh!
The Chairman: Mr. Atkinson.
Mr. Atkinson: Thank you, Mr. Chairman. I'll be very brief.
First of all, do we need a national highway policy with the federal government showing leadership? Absolutely. It's long overdue. I also like Mr. Keyes's suggestion.
There are two things we have to remember, and I think Moya Greene mentioned them briefly. What we've been assuming all along is 50-50, at least in the tax studies, etc., and how in the world you get the federal side of that 50%.
When we go into this process, I absolutely agree with Mr. Patten, there isn't one shoe that fits all. But let's remember, what's important here is who ultimately decides the model to use on any given project. That's something the commission is going to have to think about.
Secondly, guess what? Even when there is 50% federal funding, the procurer has been normally the provincial government. So from that aspect, and to go back to Moya Greene's comment, are we going to continue to go with the 50-50 contribution arrangements, despite what might be the appropriate model, and then haggle that one later, or does the federal government really belly up to the bar, as they say, and say ``This national highway system is so important that we have to do it this way. Based on advice from the private sector, from experts in the field, from the users, etc. - from the Canadian public, if you will - this is what we've decided we have to do''?
Those are very important, key elements. Your committee, Mr. Chairman, probably should be looking in your recommendations to task the kind of commission Mr. Keyes perhaps is talking about.
The Chairman: Thank you, Mr. Atkinson. Mr. Redfern.
Mr. Redfern: I have three quick bullets.
We're talking about the deficits in dollars. We shouldn't forget the fact that we've built up an infrastructure deficit. Since we're balancing funding versus cost, to the extent we delay the timely renovation or maintenance of these highways, we can increase the cost from one to five times the cost, if we're going on basic maintenance, towards rebuilding. So there is a critical time clock going here that calls for fiscal prudence in doing it at the right time.
Secondly, talking of Mr. Keyes setting up a model group, there is a PPP group already in existence in B.C. You might look at what they did at the provincial level to see if that helps.
Thirdly, I'd like to put on the record, since we are talking figures, Michael, I think we are looking at 50-50. If we're talking of long-term commitments, we're talking about $500 million a year for 20 or 30 years, if we're looking at both halves of the equation, provincial and federal.
The Chairman: Ms Ward, did you want to comment?
Ms Ward: Yes, very quickly. Thank you.
I don't want to bring down the room, and I know we have consensus here, but I don't think it's universal once we leave this room. Outside earlier we were talking about support of the infrastructure program. I don't think it's cut and dried, and that was demonstrated by the way it was implemented in 1994, when the provinces said, ``We don't want roads. We want to work with the municipalities. We want sewers and we want a convention centre.'' The federal government said, ``Yes, you call it.''
The advantage in that system of course - and Mr. Swain and Ms Greene can correct me if I have the details wrong - was the federal government was using 30¢ for every dollar in a project, which of course went that much farther, and at that time of year, around elections, it was a very good thing politically and in terms of policy.
So we do have an advocacy job from this table. Let's not kid ourselves. It's not going to be easy. The provinces do have the say, and let's not kid ourselves; they are not going to agree. However, I feel quite confident in the fact that I have never gone as far as quickly with a standing committee in recent memory, frankly, and this bodes well for the future.
I support Mr. Keyes's idea. I'd like to see that happen quickly. If we have to use a carrot and a stick one by one with the provinces and work on a project-by-project basis, let's be realistic and start dealing with the things that have to be dealt with the quickest first.
Thank you.
The Chairman: Thank you, Ms Ward.
Before I go to the next comment, I need to say we're down to about 12 minutes. The clerk is just going to go and call a cab for one member of the committee who has to make the airport. Is there anybody else here who would like a cab called on their behalf?
Thank you.
Mr. Keyes: Cab pooling, Mr. Chairman.
Some hon. members: Oh, oh!
The Chairman: Roy, you have 60 seconds.
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Mr. Cullen: Thank you, Mr. Chairman.
I think what we're dealing with here is the art of the possible. What we've done here today is going to be very useful. The idea of forming some type of commission, as long as it doesn't end up like the Somalia inquiry or something, is an excellent idea.
An hon. member: There won't be any lawyers.
Mr. Cullen: I think the other reality is that in addition to regional disparities and urban rural issues, the other reality is that if we don't come up with some creative financing solutions, not as many of the roads that should be built will be built.
I thank you for your contributions today.
The Chairman: Gordon Thompson, you get the last word from that side of the table. I, of course, get the last word.
Mr. Thompson: The only comment I want to make, Mr. Chairman, is that I spend my entire time in the public sector financing arena with provinces and what have you. The observation I would make is that in terms of the provinces that have managed to shift their fiscal attention away from deficit reduction - in other words, they have the deficit under control or eliminated or it's gone next year or what have you - their whole attitude towards how they view these initiatives is totally different. When you shift from deficit reduction to debt management - in other words, intergenerational spending - and the pressure comes on from your constituents to deal with the debt, suddenly the ideas you've heard around this room start to have a totally different ring.
Moya said something today that sent a shiver up my spine. I'm not being critical, but when I hear somebody say Canada doesn't have a credit problem, well, the taxpayers out there have a totally different view. We have too much credit.
My observation, though, is that with the provinces that have their deficit under control and are now dealing clearly in a debt management mode, if you go to them with models from this committee that propose building a national highway system that includes some components of them not having to borrow either - not just the federal government not having to borrow, but them not having to borrow - by tapping into the private sector to do this, I think you're going to get a lot more consensus out there than you think.
The Chairman: Thank you, Gordon. We've had conversations on this with a number of the provincial highways ministers as well as a couple of premiers. I think that's a very accurate reflection of what we're hearing out there, although there is - Moya and Harry have far more experience than I do at this table. As soon as you bring them all together something very strange happens.
However, let me just talk very briefly, as we wind up here, about what happens now. You go away, we go off to caucus and think while our two very able researchers and writers here put their attention to trying to make a synthesis out of everything we've heard to date and draft up a series of recommendations that the committee will be dealing with in camera the first week we are back.
To the extent to which we can forge a consensus between the various parties of the House - I should say that this committee has worked very hard to maintain a consensus and to keep the focus off of the regional politics and onto the broader question of how do you build a very effective transportation system. We've been able to do that. I'm confident that we will be able to continue that, and to produce for the House the unanimous report. It would be my hope that we could table that report - and I don't want the clerk to have a heart attack - somewhere around the end of the second week we're back, the third week at the latest, depending on print deadlines and so on.
In the short term, as I have always found when I attend meetings of this type, my truly fine idea does not occur to me until that night, when I'm home in bed or on the plane or in the shower. If such an idea strikes you that you feel absolutely compelled to share with me, do it quickly. I'm quite serious. If there's something that you think we've missed that all of a sudden occurs to you and you want to have before us, write me a letter. We'll include it in what we're considering.
Once you get this document, when we've tabled the report in the House, to a certain extent, dare I say it, the ball is in your court. One of the things you need to understand is that this is a committee exercise, not a government exercise.
A person came to see me the other day to ask me whether he should invest in new equipment, because I was the chair of the transport committee and I was interested in roads. I informed him that basing any decisions on any belief that I have any authority to do anything could be dangerous to his economic future.
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So if this idea has legs, if it has merit - And I believe it does. In fairness, I believe the finance minister, the Treasury Board president, the trade minister, the transport minister and the tourism minister wouldn't have come to this committee and wouldn't have spent any time on this if they didn't think it was an important issue. So I'm confident that we'll see something, but it's important that you carry this argument further.
The final comment I want to make is that all of us are very busy people. We all work really hard. You guys have big jobs. I really appreciate the fact that you came here today and that you'd take the time to think about this stuff. It's an important issue. I have found this process to be fascinating, and I know my colleagues have. I hope we'll produce a report that furthers this debate.
I thank you very much.
Here endeth the meeting.