BlackRock Connections

There’s an obvious alternative to the public-private model. Canada’s central bank has a mandate to provide low-cost loans to provinces and municipalities for infrastructure. The federal government can float long-term bonds at rates of 2 percent or less.

However, the Liberals decided not to make use of this cheaper option when they created the CIB, opting for P3s instead. This drives up the costs of projects and locks the government into long-term contracts with private-sector owner-operators who expect to receive a 7 to 9 percent return on their investment.

In order to get the bank up and running, Trudeau’s government recruited an unnamed banker — who agreed to work on a pro bono basis — from Bank of America Merrill Lynch. They helped design the CIB and advised the federal infrastructure minister, Amarjeet Sohi, on the project.

Bank of America and Merrill Lynch, which merged in 2008, were both involved in the massive Wall Street mishandling of asset-backed securities and investments that led to the Great Recession. In the aftermath of the crash, these banks received more than $45 billion in bailout money from taxpayers. So why would the Liberals pick this firm to design the CIB?

The biggest shareholder in Bank of America Merrill Lynch is US asset-management titan BlackRock. In 2016, Justin Trudeau was reportedly courting BlackRock and its CEO Larry Fink, hoping that BlackRock would direct some of its cash pile toward Canadian infrastructure.

BlackRock has long promoted privatization of public infrastructure and P3s. Trudeau and the Liberals want to see $180 billion channeled into infrastructure spending by 2028, with $35 billion from the CIB to attract corporate investment and insure it against risk.

In November 2016, BlackRock hosted a private summit in Toronto to discuss infrastructure investment that involved Trudeau, some of his cabinet ministers, and a select group of major international investors. Global capital was well represented, with the likes of Norway’s Norges Bank, Singapore’s Temasek holdings, and the Olayan Group from Saudi Arabia — not to mention McKinsey & Company.

The press was not admitted to the event, and it was not immediately clear what infrastructure “opportunities” the participants were discussing. It later emerged that the federal Privy Council Office had set up working groups with BlackRock to prepare the federal presentations.

In a meeting with the Toronto Star’s editorial board, Bill Morneau “didn’t dispute the fact that rebuilding Canadian infrastructure on the public dime would be cheaper in the long run.” The Star noted that Morneau’s “real motive” for utilizing P3s seemed to be “political, a desire to show that the government can limit its borrowing.” In July 2020, the newspaper revealed that BlackRock’s Larry Fink had been secretly advising Trudeau about the CIB’s design.

The Privatization Bank

The CIB’s detractors present it as “the privatization bank,” and it has parliamentary critics on both sides of the house. Members of the Conservative Party and the New Democratic Party alike have called for it to be shut down, while the Greens want major changes to the CIB mandate, including the removal of private-sector profiteering.

By February 2021, the CIB had committed roughly $4 billion in funding for six projects and entered into memorandums of understanding on five others. Each of these projects is a P3.

The CIB’s first project was the massive privatization of transit in Quebec. The CIB stumped up $1.2 billion in finance for a new light rail transit system, the Réseau express métropolitain (REM), on behalf of Quebec’s pension fund, Caisse de dépôt et placement du Québec (the Caisse).

The Caisse will own and operate the system on a for-profit basis, so transit fares will have to rise if the pension fund is going to make its guaranteed 8 percent rate of return. On top of that, the Caisse will receive annual subsidies from municipalities to meet its profit targets.

The CIB has also signaled its interest in municipal water and wastewater treatment projects. When the publicly owned water system of Mapleton, Ontario, was in need of renewal in the summer of 2019, the CIB agreed to provide $20 million in “innovative financing.” Private consortiums were invited to bid on a contract to design, build, operate, and maintain the municipality’s water and wastewater infrastructure for a period of twenty years.

By committing its funds to the project, the CIB wanted to establish a precedent. Mapleton was supposed to “demonstrate new models for structuring and financing smaller municipal water and wastewater infrastructure projects,” setting an example for other small municipalities to follow. At the time of the announcement, the Canadian Union of Public Employees (CUPE) explained that the Mapleton project was little more than old wine in new skin:

There’s nothing new about federal programs and institutions that try to make P3s more palatable, especially to smaller municipalities. In the case of Mapleton, the CIB will subsidize the borrowing costs for corporations bidding on the 20-year deal. The bank is offering to lend the private sector money at a lower rate than corporations could get on their own. Details about the loan terms are blacked-out in public documents about the deal.

In July 2020, the Township of Mapleton decided to bring the project in-house, keeping operation and maintenance — along with the revenue stream — in public hands instead. After Mapleton rejected the deal, it found that the CIB had left the town with a $367,000 legal bill. On the one hand, Mapleton’s U-turn was a setback for the CIB; on the other hand, it saved the bank from a practical demonstration of what its deals actually involve.

The CIB’s recently announced $10 billion “Growth Plan” includes $407 million for irrigation infrastructure in Alberta. This project, coupled with the CIB’s emphasis on municipal water and wastewater systems, has led critics to speculate about plans for increased water privatization.

Municipal governments own and operate the vast majority of Canada’s water systems. It would be an alarming development if the CIB is aiming to help transform Canadian water provision — especially since water futures are now being traded as a commodity on Wall Street.

Dog and Pony Reforms

By October 2020, even an establishment voice like the Globe and Mail was voicing dissatisfaction with the CIB. The newspaper called the CIB “more bunk than bank”:

Barring an unexpected reversal of fortune, such as it becoming truly independent of its political masters, the CIB is going to be remembered as a Liberal boondoggle — which is an odd legacy for something that was supposed to improve the financing of public infrastructure.

This particular criticism must have hit home, because the Liberals are making changes in policy and governance for the CIB. During its first four years of existence, the CIB had to submit a list of recommended projects for financing to the infrastructure minister, who would then forward the list to the Treasury Board for approval.

The current minister, Catherine McKenna, is making changes to this practice. As the Financial Post recently noted:

McKenna said she’s close to signing off on a far more efficient process. The infrastructure bank would be given written instructions of the kinds of investments the government expects, and then the board of directors and chief executive will decide on their own how to deploy the money. [Chair] Vrooman and [CEO] Cory will be held accountable to the government and Parliament through an annual report.

While this might seem like an overdue step, we should remember that the CIB board is staffed entirely by corporate suits. There is not a single representative from any labor union or environmental organization, nor even an elected politician. What does it mean to give such power to the CIB board? This is an important question to consider, especially as McKenna ramps up CIB spending as part of a post-pandemic recovery.

Enclosing the Commons

Canadian cities have taken a huge economic hit from the pandemic lockdown, losing necessary income from transit fares, municipal parking, building permits, rents from civic buildings, and recreational facilities and land transfer taxes. At the same time, municipalities have had to maintain police and fire departments, ambulance and emergency medical services, garbage collection, water and wastewater systems, temporary housing for the homeless, and other services that keep our cities livable.

In March 2020, Canada’s central bank, the Bank of Canada, hired BlackRock to advise on monetary policy during the pandemic crisis. The announcement came just hours after US government officials gave BlackRock a similar role south of the border, advising the Federal Reserve and the US Treasury on the Trump administration’s corporate slush fund to bail out the economy through the CARES Act.

The Bank of Canada has been shoveling money out the door to help individuals, companies, and provinces, but municipalities have still been begging for more financial help over the past few months. Canadian cities are already laying off public-sector workers and may have to privatize services and assets.

As the Globe and Mail reported, the budget pressures on provincial and municipal governments could result in “a greater role for the infrastructure bank and its effort to attract large outside investors.” In April of last year, BlackRock executives Kurt Reiman and Daniel Donato highlighted the opportunities likely to result from the economic strains caused by COVID-19: “The Canadian market may be presenting pockets of opportunities for investors with longer time horizons.”

BlackRock’s Brian Deese is now top economic adviser to US president Joe Biden. Two other BlackRock veterans are joining the Biden administration: Michael Pyle as chief economist to Vice President Kamala Harris, and Wally Adeyemo as deputy Treasury secretary. With BlackRock in a position of strength on both sides of the Canada–US border, there’s a real danger that we may see a downsized public sector cleared away for the benefit of private-sector interests.

As Canada emerges from the pandemic, austerity apparatchiks are sure to exploit its difficulties, putting forward private-sector solutions for all utility and infrastructure challenges. The CIB offers a ready-made channel for P3 proposals as the remedy for budget shortfalls in provincial and municipal governments. To avoid this, we need to keep a very close watch on the CIB and the role it plays in Canada’s post-pandemic recovery plans.