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The Eglinton Crosstown Tunnel in Toronto is an example of large pipe at right brings in fresh air to an underground tunnel dig as a conveyor belt (LEFT) removes muck and earth as a tunnel boring machine digs its way west on Feb 2 2016. With an expected completion date around the end of 2016, the Eglinton Crosstown Tunnel approaches Sutherland Dr. on Feb 2 2016. (Fred Lum/The Globe and Mail)

Fred Lum/The Globe and Mail

The federal government is ramping up plans to attract private-sector money to major infrastructure development while tightening the funding that new municipal projects are eligible for.

After pledging to spend more than $180-billion on infrastructure building and refurbishment through new and existing programs, Ottawa revealed an update to its investment targets in the 2017 budget on Wednesday. It also expanded on plans for the Canadian Infrastructure Bank, which will generate even more building in partnership with institutional investors from Canada and beyond.

One of the most significant changes in the budget is a clampdown on the amount of federal funding that new municipal infrastructure projects will be able to lock in – a maximum of 40 per cent per project for new public transit construction and expansion projects. That's down from the 50-per-cent maximum that the government pledged to fund in last year's budget for its first phase of projects.

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The move is aimed at encouraging provinces to step in with more financial support for local projects. Under the Conservatives, infrastructure building was typically funded evenly between three levels of government, with the municipal, provincial and federal layers each taking one-third of the cost. The Liberal government shook up that model last year, pledging funding of up to 50 per cent for its first phase.

The infrastructure and housing details were welcomed by Canadian municipalities, who said their focus will now shift to encouraging provinces to match Ottawa's money as part of a national infrastructure plan.

"While 50 per cent [federal funding] would have been lovely for phase 2, what really needs to happen now is the provincial governments need to step with a fair share – and ideally a matching share – so that property taxpayers in these local jurisdictions are not unduly burdened," said Edmonton Mayor Don Iveson, who chairs the Big City Mayors Caucus of the Federation of Canadian Municipalities.

Mr. Iveson said his hope is that new public transit projects will be funded with 40 per cent each from Ottawa and the provinces, with municipalities covering the remaining 20 per cent.

"We can make that work," he said.

Other mayors such as Vancouver's Gregor Robertson and Toronto's John Tory also expressed positive reactions to the budget and planned transit and housing spending.

But Mr. Tory also alluded to the challenge that some municipalities may have in agreeing on funding methods and needs with provincial governments. The Ontario Liberal government of Kathleen Wynne recently shut down Mr. Tory's plan raise millions of dollars for Toronto through road tolls. The budget did not include a provision the mayor had called for that would have forced provinces to come up with matching funds for certain projects.

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"Even greater fairness and effectiveness will be achieved if the Government of Ontario contributes to the amounts announced today," said Mr. Tory, who is on a trade mission to India, in an e-mailed statement. "A true partnership involving all governments will be required to address the critical issues of housing and transit. It's now time for the province to come to the table and make it clear that they too will fund these vital Toronto priorities."

For provincially led infrastructure projects, the federal government will still fund up to half of the costs. Projects undertaken with Indigenous partners and the territories will be eligible for up to 75 per cent in federal funding.

Ottawa also expects the Infrastructure Bank to be operational by the end of the year, staffed with a chief executive officer and board of directors. The bank is aimed at combining public and private funds for big-ticket projects, to speed construction, and take advantage of institutional investors' asset management and development expertise.

The institution will be responsible for investing at least $35-billion in cash over the next 11 years, through a combination of loans, equity stakes in projects and backstop guarantees on loans made by other investors.

Members of the country's institutional investor community, including leaders of the largest pension funds, have said in recent months that it's early days for the infrastructure bank, and have expressed that they will need to see more details on how the bank will work before they can judge the appeal of potential investments.

There were few specifics revealed Wednesday about how the bank would be run. And there was no mention of asset sales or privatizations in the works.

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Ottawa previously hired two investment banks, Credit Suisse AG and Morgan Stanley Canada Ltd., to assess ownership options for the top eight airports and 18 shipping ports, respectively.

The budget did show that of total spending planned through the Infrastructure Bank, the government will carry $15-billion on its balance sheet, split equally between public transit, green infrastructure and trade and transport infrastructure deals. The focus will be on large projects such as regional transit plans, transportation networks and electricity grid interconnections.

The Canadian Life and Health Insurance Association expressed its approval of the government's plan to move ahead with creating the Infrastructure Bank, noting that its members already hold more than $690-billion in long-term investments such as real estate, bonds and infrastructure. "We look forward to working closely with the new Infrastructure Bank and helping to fund the needed investment in Canada's infrastructure," said Frank Swedlove, the chief executive officer of the CLHIA, in a statement.

One of the infrastructure bank's secondary roles will be to work with the federal government and Statistics Canada to track and share data on the demand, usage and performance of the country's infrastructure. This new data will help determine how successful the next wave of infrastructure investments is.

The data may also be used to attract new institutional investors, which has been a major initiative of Finance Minister Bill Morneau.

Among the largest focus of infrastructure spending comes through the next wave of public transit projects, which are set to receive $20.1-billion in government investment over the next 11 years, as well as an additional $5-billion expected to flow through the Infrastructure Bank toward such projects. When the federal government is striking its bilateral agreements with provinces and territories on these projects, it will use a formula based 70 per cent on expected ridership and 30 per cent on population.

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With reports from Bill Curry and Jeff Gray

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