66: Planes, Trains and Automobiles

at the infecast. Hi, and welcome back to Bloomberg Benchmark, a show about the global economy. It's Thursday, December eight. I'm Kate Smith and editor for Bloomberg News in New York. And I'm Scott Landman and economics editor with Bloomberg in Washington. D Suit Scott, how are you all right? How's it going? Kate? Well, I have to say I am kind of regret I'm

not regretting, I'm dreading. My ride home. The subway that I take to get home is like you remember the pictures that they showed like post Sandy, of all the people's shoulder to shoulder in the subway. Well, it's like that, but somehow that's just like my day to day life every day in New York. But I've heard that it's even worse a d C. Well, you should be happy that you get a ride home at all, because in d C there are days when the trains aren't even

running or they're shutting down large sections of track. I mean, we don't really have the problem with overcrowding anymore because ridership has fallen significantly. But that's incredible. I didn't realize that I would like to have your problem. I'd rather have that than there not running. Do you sound like the lesser of two evils though? Yeah, Well, I think what you and I experienced that is obviously pretty reminiscent of what a lot of people experience in the US.

And that's kind of just dealing with the failing infrastructure problem that you have here in America. UM, I don't know if you're familiar with the American Society of Civil Engineers, but they gave the U S a D plus um when ranking our country's infrastructure. And that's like, you know, in an academic scale, So you can't get that much worse. You could get an F. You could get an F. So we don't have an F we have a D plus.

Does that even count just passing? Though I don't think in some places it doesn't, some it doesn't, Okay, So maybe passing depending where we are. And they also estimated to bring us to like a current, so I guess, like you know, an a perhaps it would take three point six trillion dollars by you talked about those numbers, and it's probably why Donald Trump's promised to repair UH

infrastructure in the US resonated with voters. You know, it's impossible to know exactly what he's going to do to fulfill that promise because so you know, a few different proposals have been bandied about. One thing that his nominee for Treasury secretary mentioned was doing an infrastructure bank. It's

actually an idea that the campaign criticized. So we don't really know what's going to happen, but UH an infrastructure bank is something that our neighbors to the north have announced that they wanted to implement, and that that came just recently in what they call the fall Economic Statement. So to tell us a little bit more about what we have in Canada, we have the Canadian Parliamentary Secretary to the Federal Minister of Finance, Francois Philippe Champagne. He's

joining us over the phone. Francois Philippe is a liberal politician and he represents the writing of Scott. Please try not to laugh at me, Saint Maurice, I was sound super about, Oh, you are far too kind. You truly are a politician. So France of Philip, thank you so much for joining us. It's a pleasure. It's a pleasure I was listening to you, and yes, indeed, I mean that's the thing you're talking about, you know, public infrastructure and public transit in particular. It's a challenge you find

in the number of capital around the world. And indeed, Canada tried to as you were saying in the fall autonomic statement, we we set the Canadians how we're going to do it, and um you may have seen we're going to invest hundred eighty six billion dollar UH in infrastructure. So that's an historic amount because we realized that Canadians have asked us to to obviously help them and their

families and grow the economy. So as part of our inclusive growth model, within a number of things for Canadians, reducing taxes and investing in families. But on the growth side, we decided to invest, as you could see, massively infrastructure, not only in public transit, but also in green infrastructure, in trade corridors, in rural and infrastructure. And I'm quite happy to be talking to you about that because I

think this is going to be transformational for Canada. Well, i'm happy that you're here to tell us about it. So the United States, obviously, I'm sure you've heard friendship. Um, we're like notoriously outdated for our infrastructure. We had nearly ten years ago. I think it was the Mississippi River bridge clap in Minneapolis that killed thirteen people and injured

a hundred and thirty four. Um. Here in the Northeast, do you have the am truck train that a lot of people complain about, especially those who travel from DC to New York. Um, Scott, I'm sure you've had to deal with that before. Um, the campaign trail, the Guardian Airport comes up as the as the Third World country

esque airport that we have here in New York. But you know, we know, we know all about how bad the US is, but trans maybe you can give us kind of an account of what it's like in Canada, what what's the reputation for infrastructure where you are, Well, clearly you know what we're finding in some of our cities, and you would find the same thing in the United States. We realized that the fact that people cannot transit easily

in city as a social cost and economic costs. So that's why as part of the hundred d six billion Canadian we said would be investing over twelve years, we put aside twenty five point three billion for public transit

because we realized there's a cost. You know, we want people to be able to transit in the city faster, That gives them more time with their family, more time to start a business, and so there's a social cost, economic costs, and we realized that in sort any we wanted to act because we we heard that from Canadian

Then there was the green infrastructure piece. We're putting more than twenty two billion in that this is really about clean water, clean hair because um, not just in Canada, but I think you'd find throughout North America there's probably been an under investment in terms of these type of infrastructure, and we needed to continue to invest in and make sure that people UM in Canada in particularly want to see these green infrastructure being built. And then you have

the social infrastructure, which is really about social housing. Um you mavered, We're gonna put around twenty two billion in that because this is really something throughout cities but also rural communities. Socializing is becoming an issue if you want people to be fully engaged in the economy before the engage in society, they have to be able to properly house themselves. And then the last piece and is really about the trade corridor, and that probably would be interesting

for the US. So we said we point a found a ten billion to make sure that our goods can transit faster to our ports. Our airports are bridges mainly to the United States, in order to facilitate commerce because as you know, we don't need to remind people, but you know, we have about two billion of trade going on every day between Canada and the United States. You have about two thirds of the States and the United States who have Canada as their major export partners. So

we want to facilitate commerce. We want to keep building on that extremely good relationship we have UM and making sure our trade corridors are very efficient and the last piece of fade to to the people listening to us is we put a fight two billion for our rural and northern communities, understanding probably just like in the US, that they have very particular need to make sure that we cover these people as well with a very specific program of investment. Now, now let's let's talk about what

Kate was saying about. You know, the US infrastructure getting

a D plus from the Society of Civil Engineers. When when you look at the condition of Canada's airports, roads, bridges, is water infrastructure things like that, what kind of reading would you give it on a scale of one to ten when you would say, like ten is in excellent condition and one is uh, you know, you're you're falling apart, like lookwart here, Well, I would say, you know, just like in the US, if you look across the nation, I think that the answer could be different depending on

if you go if you look north, if you look east, west, or in the middle of the country. But suffice to say that what we've seen in Canada and it may be true another we city country. Particularly over the last ten years, there's been an under investment not only a new bill, but also in maintenance so obviously when we entered government UM with the Prime Minister, true though, we found ourselves in a situation where we need to invest

massively in our infrastructure. This is also good for the economy because we said to Canadians that we want to have inclusive growth, we want to grow the economy, and clearly infrastructure investments give the right way to do because that touches about every on UM in our country. When you look at these different infrastructure you mentioned, everyone's going to benefit. And you know, I would say confident nations to the invest in their people and in their economy.

And one of the things that we've announced in the Falltonomic statement was one thing we wanted to create and we're gonna set up is an infrastructure Bank. The reason for that is for us to be able to do more and faster. This is going to be one more tool in our toolbox because we understand that UM we

want to attract global investment, global capital UM. I was just at the APEX Finance Minister's summit in li Mont, Peru recently, and when I was talking about the Canadian way in terms of infrastructure investment, you see there's a number of nation and global investments that would like to invest in countries like Canada where you have stability, predictability, rule of law, very stable banking system, and we think that the Infrastructure Bank is gonna be allowing us to

get the leverage we want in order to attract this type of global investment to help us build faster and more um with the time skill that we've given Canadians to deliver. So, first off, Philip, we have a we have an ad we're going to break for, but when we come back, I want to hear exactly how an infrastructure bank works for our those listeners who aren't policy wanks like us. Definitely be a pleasure brought to you by Bank of America Merrill Lynch. Seeing what others have seen,

but uncovering what others may not. Global research that helps you harness disruption voted top global research from five years running. Merrill Lynch, Pierce, Fenner and Smith Incorporated. Welcome back. Okay, So, first of Philip, let's take a step back here, how exactly use of our listeners. I know how an infrastructure bank works. It's actually this tool that they use in the world of municipal bonds here in the US. But can you help our listeners who aren't perhaps familiar with

kind of the basics of how an infrastructure bank works. Yeah, I mean, let me tell you why we did that in Canada. May If you look at traditional funding model, if you have a project of five millions in Canada, you would normally have fundings which would be wandered federal, wandered provincial, and one through municipal. Now with the infrastructure Bank, we think we can get the leverage to four to five.

So with the same five million project, we think we can raise private capital to the extent of about four million, and then the federal government would put one third, the municipal would put one third, and preventional would put one third. So what I was thinking is that it allows us to do more and faster. So why are we creating that first is to obviously attract global investment to help

us to do more and faster. And the reason why you want to have a structure, and like I said, other nations you mentioned it a that' um I know of the Australian model for example, but for us, it's really about making sure that we pull the expertise we would have in this country to make sure that we have all the experts in one place. Um. The second thing is that we can have projects that could be finance uh, so that you need to package these projects

into something that you can attract global investments. And the third thing is that you want to have a pipeline of projects. So when you have global investors who are looking to invest, for example, in Canada infrastructure, typically these people would want to see what kind of projects you have, what kind of pipeline of projects you have? Are they in green infrastructure, are they in public transit? Are they in wastewater and water. So by having one structure, you

actually pull the expertise. You make sure that you have bankable projects. You make sure that you have a pipeline of projects. So when you want to go to the global markets, you have indeed a place where global investor and can can call and see what type of investment if they want to invest in infrastructure in Canada, where they can go. And I think this is going to

be very successful. I mean again, I was at the APEX Finance Ministers summit in Peru just recently and I was mentioning a number of projects and um, you know, to give you an example, what I mentioned some of the projects. Some of the delegation came to see me after and say, that's the type of projects we would really want to invest. So what are the projects and my curiosities peak. Yeah, well, I gave the example in Montreal,

which is a great city. In Montreal, we're building what we call a regional electric train and this is about a four to five billion dollar projects in Canada. This is very great because we're building another public transit, a very green one. And when I mentioned that, obviously that sparked a lot of interest. Because you have a number

of delegations who have sovereign funds or others. We say, that's exactly the type of projects we want to invest because you have you know, you know that matches their liabilities. That those are projects that you can finance over thirty years. So very interesting for investors to look at. And can I interrupt a second now, let me let me turn to a couple criticisms that I've heard of infrastructure banks

and private financing. One is that what Trump and his campaign said throughout the year, which which is that an infrastructure bank creates a whole new bureaucracy, creates, you know,

kind of centralizes decision making. That's one criticism. And then kind of from the other side of the political aisle, you hear the criticism that you know, in order to make private financing work, you need you need a pretty significant flow of taxes or user fees, and you know that burden either tends to fall on the average folks using the infrastructure, or you know the project doesn't get

financed at all. How do you respond to those two issues? Well, the first one, I think by pulling the resources and the projects and an agency, I think you get economy of scale and and actually for me, I think it's a better way to market these projects if you want to attract global investments, so that people know who to call, who to talk to if they're interested in investing in transformational projects. I mean, we're looking about transformational infrastructure projects

in our nations. I think there's there's a lot of benefits of having one place where people can actually look for and also for this agency to prepare these projects, select these projects, and the best way to make sure that we're going to attract these global investments. The other thing, with respect to the user fees, I mean, if you look at regional light trains, the one that was just

talking about. I mean, people already pay for using these services, so I don't think that you can necessarily, like you said, equate that would be higher users fees. I think we know that global capital is looking at investments like these one with very long returns, and I think that people would be um. What I said to Canadians many times, and that would apply to the US. Why not put our pension money working for Canadians. So Canadian pension money

working for Canadians. So when people enter the train in the morning, they know that they're, for example, in this case, their pension has been helping them to build in that and when they pay the user fee, they're actually investing in their own pension. So there's something you know. When we went to the public with that, we really made the case that this was something good for people and that would benefit everyone, not just the users. But this

is a good way to reinvest. I mean, we know that there's um, there's a fair amount of capital um and pension funds around the world. Insurance companies that are looking for these types of projects which are going to improve our cities, are going to improve our quality of life, are going to bring greener infrastructure. And honestly, when you say to Canadians, why don't we put your pension on

money working for you? Now, that's something that people relate to and they accept willingly to say that seems to be the smart thing to do today. So this has been all very positive, but I have to imagine this is politics. There's got to have been some negative feedback. So what's been some of the criticisms of potentially implementing

an infrastructure bank in Canada. Well, the main criticism we got was, and I would say that, is there there not another agency already existing that could be doing that? And uh, you know, we had some agency looking at p p P projects, but I think that we thought that having a different agency to really with a mandate to organize these projects and market them is the best

way to do. I think there's been very few this agreement with respected the value and the merit of making sure that um uh, we can structure this project to attract global investment. I think people don't understand the leverage. People don't understand that we need to do more and faster. Uh. Some people like you mentioned question the user fees and what we've been very transparent about is that this is

not for all types of project. Like I said, you know, we're putting hundred D six billion in infrastructure over over twelve years, and we're taking only fifteen billion out of this dread a D six in the Infrastructure Bank, and we think we can raise another twenty billion on the market for the infrastructure bang. So what we're saying to people is that clearly there's some type of investment think

about social infrastructure. I don't necessarily think that we're going to find projects that would fit the bill to be fundance to the Infrastructure Bank, but by getting the leverage with the Infrastructure Bank for those projects that could attract global capital, that gives us more money to being able

to invest in social infrastructure. And when you explain to people and you take the time to say this is about doing more and faster and actually not using public funds that would otherwise be needed to build a type of infrastructure where we need we can get private capital, but using these funds too, for example, invest in social housing. People really understand that this really makes sense. So how long until this Infrastructure Bank is up and running, until

it finances it's for projects? Well as you said. We we announced that in the fall coomic statement we have in Canada. This is you know, six months after our federal budget, so you know, we're about building the blueprints of that. We want to obviously get the bank started

as fast as possible. I think based on our discussions with a number of international partners, there's a lot of interest in investing in Canada for the reasons we know, because people want to invest in North America, people have confidence in our system, people will see that these green

projects are going to attract significant investments. So we're trying to set up with you know, a small team to start as soon as possible to make sure that we can start market these projects around the world and get um, these projects built as soon as possible. So let me ask you one final question. UM. Like I mentioned before, the US does use the infrastructure bank model on a

smaller scale. UM. The idea of being you know, for our listeners who don't know about this, certain dates that have small municipalities, UM, they'll use a state level infrastructure bank model. And the way it works is that the state will borrow money on capital markets using the states

interest rate UM, which is you know, much lower. Of course, than the towns, and then the towns will go to the state, you know, saying you know, the infistracture products that they want to get done, and the state will effectively lend the money to the individual towns. The whole purpose being that small towns aren't edged out of the capital markets, you know, by either just no investor being interested or having to pay you know, prohibitively high interest rates.

And the long way of asking you, um, is there a reason why you didn't look at look at maybe perhaps doing this on a province by province basis as opposed to federal Well, I mean it's interesting you mentioned states because I'm a bit familiar with the Alaskan model.

I think in Alaska there's something similar to that which I'm familiar because I think I've met with people, Uh we're saying the great things you've been able to achieve in Alaska, which respected that in terms of infrastructure development. So clearly, like you said, there's different models and more

of it with the Alaska example. But I think for us, because we're looking at transformational national type of projects, we thought that this is the best way to to get the best leverage was really to have that at the federal level. UM, we want to make sure that we attract some of the best talent in this agency. We want to make sure that we structure these projects to be bankable, and I think to do that on a

national basis. Obviously it could be different in the United States because obviously our economy or different size, but we thought in Canada that the right thing to do was really to do that on a national basis, so that, UM, I think we can better market as a country some of these projects, whether it's the rail projects I mentioned in Montreal, or whether you would have a port expansion or you would have an apport expansion. I think from our perspective, UM, it's better to market that at the

national level. And like I said, there's been a great level of interest because people have seen probably just like you mentioned in the number of United States, but also I know in Australian and other place that once they have created that this has been very beneficial in attracting the type of global investment that we want to track to make sure that we can build these projects. UM. And I think this is the smart thing to do.

You know, today you have all this capital in in pension funds, and insurance company which are looking for these types of projects. I mean, our pension funds and our insurance company are investing abroad, so it just seems to make sense for us to create the structure that would make it possible for them to invest in our own country. Well, first, Philip, thank you so much for joining us uh this week's benfuct.

Thank you so much for making yourself available. Well, it's a great pleasure and and look forward to talk to you and very happy to to tell you how this is unfolding. And I'm sure this is going to be a model not only for Canada, but something that could be replicated in a number of places. Absolutely well, Benchmark will be back next week, and until then, you can find us on the Bloomberg terminal, Bloomberg dot com, as

well as on iTunes, Pocketcast, and Stitcher. While you're there, take a minute to rate and review the show so that more listeners can find us and let us know what you thought of the show. You can talk to and follow us on Twitter at at Scott Landman and at by Kate Smith. And of course a big shout out to our folks behind the windows, Sarah Patterson and Al McCabe. So, Scott, what do you think? Do you think we have an infrastructure bank around the corner for

the US. I'm still holding my breath. I'll believe it when I see it. Okay, there you kind of theirs first. Yeah, probably see you next week. Brought to you by Bank of America. Meryll Lynch. Seeing what others have seen, but uncovering what others may not. Global Research that helps you harness disruption voted top global research from five years running. Mary Lynch, Pierce, Fenner and Smith Incorporated,