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Apr 11, 2014

Governments could fund urgently needed infrastructure by ‘recycling’ outdated public assets

April 11, 2014

New approach to asset management and reinvestment protects public interest while maximizing revenue generation.

TORONTO— Despite the constraints of rising government debt and public resistance to tax increases, governments could make significant new investments in public infrastructure by ‘recycling’ government-owned assets, according to a new research paper released today by the Mowat Centre at the University of Toronto’s School of Public Policy and Governance.

The report’s author Michael Fenn says asset recycling would see governments dispose of legacy assets in order to generate the capital needed to invest in new public projects or refurbish existing infrastructure. He points to successful examples from the UK, Australia, and the US where innovative approaches to asset management have raised billions in revenue that has been re-invested for public use.

“Many of these capital investments provide ‘public goods’ that would otherwise not be available to the public,” says Fenn.

“No one doubts the urgency of the need to build new infrastructure,” said David MacNaughton, Chairman of StrategyCorp Inc., which supported the research. “From transit and water lines, to energy infrastructure and recreational facilities, the need for new investment by governments is abundantly clear. The question is how to pay for it?”

“We must either raise taxes to fund new investments or find ways of monetizing our current assets. Asset recycling is a proven option that sees government getting maximum value from the public resources it stewards,” said MacNaughton.

According to Matthew Mendelsohn, the Mowat Centre’s Director, an informed public discussion about how governments in Canada should manage public assets is long overdue. And he says the discussion goes beyond the old debates about public ownership and privatization, which have little relevance to the real choices facing governments.

“Governments around the world are re-examining how to get maximum public value from the assets they own,” said Mendelsohn. “But in Canada we often maintain public ownership when it no longer makes sense, or we privatize our assets in haphazard ways. There are better options.”

Recycling Ontario’s Assets: A New Framework for Managing Public Finances suggests a new policy framework for public assets that would increase public value. The paper makes a number of key recommendations, including:

  • Governments should develop frameworks for managing their assets that would begin by inventorying their existing assets, as they often do not know what they own. Frameworks would also identify the policy purpose for owning the asset determine whether the original purpose is still valid and whether alternatives are available to protect the public interest while increasing revenue to be used for public purposes.
  • Governments should improve their capacity to manage assets by hiring those with the expertise necessary to monetize assets. Asset planning should take place centrally, rather than be undertaken by individual ministries, as this diminishes the public value of our assets.
  • A formal policy of asset recycling should be adopted, with the proceeds from asset disposition put into an Infrastructure Trust. This trust would ensure that revenues from asset disposition would be used to invest in new, priority infrastructure.
  • Federal and provincial governments should follow the lead of municipalities and clearly separate operating from capital expenses. Debt financing to invest in capital assets like infrastructure should be acceptable, while operating deficits should be discouraged. This can only occur if budgets distinguish operating from capital expenses more clearly.

View report