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andrew willis

As the planned $35-billion Canada Infrastructure Bank gets closer to reality, the federal Liberals are taking a carrot-and-stick approach to winning support for the concept from provincial and municipal governments who control the country's key infrastructure projects.

Prime Minister Justin Trudeau rolled into Toronto last week on a charm offensive to back the infrastructure bank, telling the Bloomberg news service the Liberals are committed to "drawing in fresh capital to build new things." Behind the scenes, Ottawa is pulling together an approach that gives every level of government a reason to tap the infrastructure bank, along with a way to punish those who don't play along.

When it comes to infrastructure, the challenge facing Mr. Trudeau is how to influence without authority: Provinces and cities continue to call the shots in deciding which of the roads, bridges, tunnels and other projects that are critical to economic growth are going to be built.

To understand what's going on, it's important to know how the government plans to launch an entity that should never have been branded as a bank. The Liberals' creation is better described as an agency that gets important projects funded by shifting the risks that come with big-ticket projects from potential private-sector backers to taxpayers.

For example, say the government wants to attract private funding to the planned $4.8-billion Gordie Howe International Bridge between Windsor and Detroit. Pension fund types who can't get dressed without consulting a spreadsheet will want assurances that the bridge gets done on schedule and earns predictable revenue from tolls. The infrastructure bank can provide these guarantees – that's what the $35-billion is for. But in return, the bank can demand minority ownership and a percentage of the upside if traffic exceeds expectations. Concrete promises on future revenues will win support for greenfield developments from institutions such as Canada's pension funds, which collectively have more than $1-trillion in capital looking for a home.

When it comes to winning support from provinces and cities, sources close to the Liberal government say it plans to keep federal grants earmarked for infrastructure at consistent levels, even if the infrastructure bank starts picking up the cost of projects. So if British Columbia and Vancouver decide to spend $3-billion on toll roads and bridges, and Ottawa commits $1-billion in grants, the funding remains in place, even if one or two projects end up being paid for by the infrastructure bank and its backers.

The idea is to get more projects done, and at a quicker pace than cash-strapped cities and provinces could otherwise afford – an approach that answers critics who complain that infrastructure funding should all come from the public purse.

The ability to get more cash for infrastructure is the Liberals' carrot. The stick Ottawa wields is the power to trim federal infrastructure grants to jurisdictions that don't invite infrastructure bank participation in their plans. And without federal funding, local politicians will struggle to turn their dream projects into reality. This real-world approach to the workings of municipal and provincial governments is being overseen in part by federal Infrastructure Minister Amarjeet Sohi, who cut his political teeth as a three-term Edmonton city councillor.

In coming months, watch for the Liberals to announce where the infrastructure bank will be based – a decision with political overtones, as Toronto seems the best place to attract talent, but Montreal and Calgary have their advocates. The next job will be to name a chairman and directors who in turn can recruit a CEO, with the appointments expected to play out over the summer.

Once the team is in place, they can start pitching for projects, knowing that deep-pocketed pension funds are ready and willing to put capital to work, and that provinces and cities have every reason to work with a newly hatched investor who can put $35-billion to work.

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The Canadian Press