Originally Published in Globe Series, March, 2017
CITIES OF THE FUTURE WILL REQUIRE BOTH INFRASTRUCTURE DESIGN AND DELIVERY
Quality infrastructure is necessary for communities and countries to thrive. As rapid urbanization continues globally, sound infrastructure serves as a major factor in where people decide to live, work and do business. Moreover, it attracts the capital and talent that a city’s potential depends on.
While federal governments in Canada and the United States are doing more to provide for critical infrastructure, we are still facing an overall infrastructure deficit in North America in the trillions of dollars for roads, transportation, electricity and water systems and more.
“MUNICIPALITIES AND CORE PUBLIC INSTITUTIONS GENERALLY CARRY RESPONSIBILITY FOR 70% TO 80% OF PUBLIC INFRASTRUCTURE ASSETS, YET TYPICALLY ONLY COLLECT 10% OF EVERY TAX DOLLAR.”
A key challenge in overcoming this deficit is that traditional sources of funding are on the decline. Municipalities and core public institutions generally carry responsibility for 70% to 80% of public infrastructure assets, yet typically only collect 10% of every tax dollar. As a result, much of our infrastructure remains chronically underfunded.
The emergence of infrastructure as an asset class over the past two decades is largely a response to this staggering need for capital, and the incapacity of traditional models to meet it. New patterns of infrastructure demand, use and financing are materializing, necessitating innovation in the way infrastructure is designed and delivered, and how we collaborate in this pursuit. Positioning our communities for the future likewise demands innovation in our partnerships, and transparent communication and cooperation between governments, the private sector, and local partners.
PARTNERING FORT INNOVATION: RENEWAL AND REFURBISHMENT
Urbanization poses complex demographic, technological and environmental challenges that are putting municipalities, universities, schools and hospitals (known as “MUSH” institutions) under substantial pressure to modernize and elevate the condition of their infrastructure while still meeting their core purpose. These MUSH institutions underpin the health and growth potential of our cities, bear a majority of the infrastructure burden, and are increasingly financially constrained in their ability to meet the needs of their constituents, which has clear consequences for long-term innovation and economic growth.
By collaborating with the private sector, such MUSH institutions can find new funding solutions, including through traditional public-private partnerships (P3s) or government asset sales, and also through newer contractual or alternative financing frameworks ranging from concession-like structures to green bonds. MUSH institutions are also increasingly evaluating ways to leverage and modernize existing assets, thereby realizing sustainability gains and reducing future infrastructure expansion costs.
“BY COLLABORATING WITH THE PRIVATE SECTOR, SUCH MUSH INSTITUTIONS CAN FIND NEW FUNDING SOLUTIONS, INCLUDING THROUGH TRADITIONAL PUBLIC-PRIVATE PARTNERSHIPS (P3S) OR GOVERNMENT ASSET SALES.”
For example, InstarAGF is working with partner Johnson Controls Inc. to offer energy infrastructure refurbishment, retrofit and efficiency solutions to help MUSH institutions better manage their central utility or district energy systems. This provides a long-term, fixed-price contract or concession that delivers an immediate upfront payment and material savings through lower utility costs, energy conservation and sustainability improvements over the duration of the contract. Importantly, the MUSH institution retains ownership of its energy system, but transfers the entire risk of funding and operating it to an industry leader. As a result, the institution gains new, state-of-the-art energy efficient infrastructure and technology along with cost certainty, performance guarantees and customer service commitments. At the same time, the MUSH institution can re-focus on fulfilling and funding its core purpose, whether it is academic instruction, health care or other vital community services.
PARTNERING EFFECTIVELY FOR THE FUTURE AND ATTRACTING PRIVATE CAPITAL
With institutional investors increasingly seeking infrastructure investment opportunities, there is a real opportunity for our cities to more effectively tap this growing, global pool of capital. By partnering with the private sector, governments at all levels can build higher quality infrastructure more efficiently and at a substantially lower cost — or no cost at all, in some cases — to taxpayers.
Using a local Toronto example, Billy Bishop Toronto City Airport, located on an island just south of the city’s downtown core and owned and operated by PortsToronto, is a unique collaboration between federal and municipal levels of government and the private sector. Billy Bishop Airport is a critical transportation hub for Toronto, hosting 2.7 million passengers in 2016 and delivering more than $2 billion in economic output to Toronto and the surrounding region. It is also a great example of how infrastructure, innovation and public-private cooperation work in tandem.
“IN CANADA, IN A 10-YEAR PERIOD, P3S HAVE GENERATED $92.1 BILLION IN TOTAL ECONOMIC OUTPUT AND MORE THAN 500,000 FULL-TIME EQUIVALENT JOBS.”
The airport’s terminal building is owned and operated by Nieuport Aviation Infrastructure Partners, a consortium of local and international private investors with deep aviation infrastructure expertise that runs the terminal under a long-term lease with PortsToronto. In addition, in 2015 PortsToronto successfully completed a pedestrian tunnel underneath Lake Ontario, the first P3 in Canada to be procured without a government guarantee. In both partnership models, the private sector bears full responsibility for operating and maintaining this critical infrastructure according to stringent requirements, thereby preserving the value of the asset and enabling its significant community and economic contribution.
Notably, projects delivered through public-private partnerships have been shown to consistently outperform traditional models of financing, reduce the risks of infrastructure delivery and to amplify the economic benefits generated by infrastructure investments. Here in Canada, in a 10-year period, P3s have generated $92.1 billion in total economic output and more than 500,000 full-time equivalent jobs, and saved taxpayers a total of nearly $10 billion in costs, according to the Canadian Council for Public-Private Partnerships. These statistics, and the success of infrastructure assets such as Billy Bishop Airport, clearly demonstrate how innovative partnerships can — and must — play a role in addressing our trillion dollar infrastructure deficit and accelerating infrastructure renewal.
Simply put, embracing new partnerships to deliver quality infrastructure will enable our cities to thrive and grow in the 21stcentury, resulting in more vibrant and sustainable communities, reduced income inequality, and greater opportunities for all.