2015 Ontario Economic Outlook and Fiscal Review
Chapter I: Building Ontario Up — Progress for Prosperity

Section C: Building Tomorrow’s Infrastructure and Asset Optimization

Building and revitalizing public infrastructure are essential to strengthening Ontario’s economic growth. Ontario has committed to the largest investment in public infrastructure in the province’s history — more than $134 billion over 10 years in priority projects such as roads, bridges, public transit, hospitals and schools. The government continues to unlock the value of its assets, including through broadening the ownership of Hydro One, to support infrastructure investments under Moving Ontario Forward.

Since April, Ontario has announced support for more than 200 infrastructure projects in communities across the province that will improve the lives of Ontarians where they live, work and play. The Province, working with its partners, helped to deliver the 2015 Pan/Parapan American Games within projected budgets.

Ontario is also implementing a new beer framework to increase financial returns and create a fair and more consumer-friendly distribution and retailing system, and expects to receive recommendations from the Premier’s Advisory Council on Government Assets on the wine and spirits sectors by the end of the year.

Modern public infrastructure — including roads, bridges, public transit, high-speed rail, hospitals, schools and water systems — is a smart investment that yields a high rate of return and contributes to a strong economy and prosperous society. A recent report by the Broadbent Institute and the Centre for Spatial Economics found that, on average, investing a dollar in public infrastructure in Canada raises gross domestic product (GDP) by $1.43 in the short term and up to $3.83 in the long term.1

By investing in public infrastructure, the Province is helping to create jobs, reduce congestion, increase productivity and support public services.

The federal government has now committed to making significant infrastructure investments. This is an opportunity to create a strong Canadian infrastructure partnership (see Chapter IV: Together towards a Stronger Ontario and a Stronger Canada).

Ontario is a leader with respect to Alternative Financing and Procurement (AFP) projects, delivered by Infrastructure Ontario. Other jurisdictions often seek out information on the Province’s best practices for AFP. Almost all completed AFP projects — 44 of 45 — have been delivered on budget.

As stated in the 2014 Budget and 2015 Budget, the Province is moving forward on a plan to unlock the value of certain provincial assets, including Hydro One, the Liquor Control Board of Ontario (LCBO) head office lands, Ontario Power Generation’s (OPG) head office building, and the Seaton and Lakeview lands.

The government is also modernizing the Province’s beverage alcohol system. This includes implementing a new beer framework that introduces beer sales in grocery stores and enhances small brewer supports, all while maintaining Ontario’s high standards of social responsibility and retaining the efficiencies of the existing beer distribution and retailing system.

Building Tomorrow’s Infrastructure

2015 Budget: Building Ontario Up

As outlined in the 2015 Budget, the Province is making the largest investment in public infrastructure in Ontario’s history, which will support over 110,000 jobs on average each year. This includes a commitment to make $31.5 billion over 10 years in dedicated funds available for Moving Ontario Forward, to invest in transit, transportation and other priority infrastructure projects, with about $16 billion allocated for inside the Greater Toronto and Hamilton Area (GTHA) and about $15 billion allocated for outside the GTHA.

The following charts outline the Moving Ontario Forward commitments in the 2015 Budget:

The 2015 Budget increased the 10-year asset optimization target for dedicated funds for Moving Ontario Forward by $2.6 billion to $5.7 billion. By unlocking the value from assets, the government is able to help fund priority infrastructure projects without corresponding increases in borrowing and taxes, or reductions to public services.

These funds will help the government realize its vision for priority projects such as Regional Express Rail (RER), which will provide faster, more frequent GO rail service, with electrification on core segments of the GO rail network. Over 10 years, weekly GO train trips across the network will grow from approximately 1,500 trips to nearly 6,000.

Ontario is also helping communities grow by investing in hospitals, schools and other local infrastructure projects. Over 10 years, the Province plans to provide more than $11 billion in capital grants to school boards and over $11 billion in capital grants to hospitals.

Progress since the 2015 Budget

Since April, Ontario has announced support for more than 200 infrastructure projects in communities across the province. These projects will create jobs, keep people and goods moving, connect communities, and improve the lives of Ontarians where they live, work and play. These investments are part of the government’s plan to invest more than $134 billion over 10 years.

Priority Infrastructure Projects across the Province

Moving Ontario Forward

The 2015 Budget announced a new Connecting Links program, a $15 million annual local infrastructure program that will help municipalities pay the construction and repair costs for connecting links — municipal roads that connect two ends of a provincial highway through a community or to a border crossing. The application process began in November for the 77 municipalities that oversee 352 kilometres of connecting links, including 70 bridges.

In July, the Province invited small, rural and northern municipalities to apply for infrastructure funding to build and repair critical infrastructure, like roads and bridges, under the Ontario Community Infrastructure Fund. Eligible municipalities will have access to $100 million per year to revitalize core infrastructure and support asset management planning.

Additionally, several projects have been announced through the Small Communities Fund, as part of joint federal and provincial funding to help build and repair critical infrastructure in small municipalities. These investments include:

  • Installing new sanitary and storm sewers, as well as an upgraded water main, in Smiths Falls;
  • Upgrading and expanding the current water treatment plant in Big Grassy First Nation;
  • Reconstructing Colonization Road East in Fort Frances;
  • Replacing existing sewer lines to limit ground water infiltration and reduce wastewater treatment costs in Espanola; and
  • Expanding and renovating the Sioux Lookout Airport terminal building, to help ensure carriers, air ambulance operators and charters operate efficiently.

In October, the government appointed the Honourable David Collenette, former federal transport minister, as a special adviser to assist in bringing high-speed rail to the Toronto, Kitchener–Waterloo, London and Windsor corridor.

The Province is also moving forward with investments in transportation networks. For example, the realignment of 3.2 kilometres of Trans-Canada Highway 66 at Virginiatown is underway.

Roads, Highways and Municipal Transit Projects

The Province continues to improve roads, highways and bridges, and support municipal transit projects across Ontario, including:

  • In southwestern Ontario, work is underway to widen Highway 7 in Kitchener from Fischer Hallman Road to Courtland Avenue. Further, ION, the Region of Waterloo’s 36‐kilometre rapid transit project, will link Kitchener, Waterloo and Cambridge, and connect commuters to GO train service between the Region of Waterloo and the Greater Toronto Area. Construction is underway and is expected to be completed by 2017. The Province is investing up to $300 million towards the ION project.
  • In south central Ontario, repaving and other rehabilitation work is underway on Highway 7, between Guelph and Rockwood, including improvements to the intersection of Highway 7 and County of Wellington Road 44, west of Rockwood.
  • In northern Ontario, progress continues on the expansion of Highway 69 between Sudbury and Parry Sound. In 2015, an additional nine kilometres of four-lane highway between Highway 64 and the Murdock River entered service, and 11 more kilometres are now under construction. Work also began to realign 2.7 kilometres of Canadian National Railway tracks and construct three new bridges at Highway 522, north of Henvey Inlet.
  • In eastern Ontario, the four-laning of Highway 17 on the Arnprior bypass from Campbell Drive to Scheel Drive is underway. Additionally, major sections of the Confederation Line, Ottawa’s 12.5-kilometre Light Rail Transit (LRT) project, are expected to be ready by the summer of 2017. Studies suggest that in the first year of service, the new line could generate 4.6 million new trips and reduce the time it takes to cross downtown Ottawa by 10 to 15 minutes, on average. The project is supported by a provincial funding commitment of up to $600 million.

Other Key Infrastructure Projects

The Province continues to support other key infrastructure projects, including:

  • Extending modern fibre-optic service to more than 2,000 homes and businesses within Fort William First Nation and the Municipalities of Shuniah, Oliver Paipoonge and Neebing.
  • Investing $25 million over three years to improve routes for cyclists across the province, as part of Ontario’s 20-year #CycleON strategy, including $15 million for routes that provide key connections and linkages on provincial highways. In July, the Province launched the Ontario Municipal Cycling Infrastructure Program, making available $10 million in dedicated funds.
  • Continuing the deployment of PRESTO cards, which enable transit riders to pay their fares across 10 transit agencies in the GTHA, and in Ottawa. There are over 1.7 million activated PRESTO cards now in use.

Priority Transit Projects inside the GTHA

Moving Ontario Forward

Dedicated funding through Moving Ontario Forward is helping to get people within the GTHA to the places they need to go, effectively and efficiently.

Recent progress on Moving Ontario Forward includes:

  • Planning and design work that has commenced for the GO RER rail corridors. To prepare for RER, GO Transit is in the process of providing additional weekday rail trips. A system-wide environmental assessment for electrification will be completed by late 2017. The double-track construction on the Stouffville and Barrie corridors has begun.
  • A funding announcement of up to $1 billion for the Hamilton LRT project. The Province will cover the capital costs of building the LRT, contributing to the extensive revitalization underway in Hamilton.
  • The beginning of planning work on the future LRT line in Peel Region, running along the Hurontario corridor.

Other Transit Projects

There are other major transit projects that are underway and planned.

The Eglinton Crosstown LRT, with a provincial investment of $5.3 billion in capital costs, will run along Eglinton Avenue between Mount Dennis (Weston Road) and Kennedy Station, and include up to 25 stations and stops. Construction work began in 2011 and the line is expected to be in service by September 2021. It will provide service that is up to 60 per cent faster than bus service today.

Union Pearson Express (UP Express), which connects Toronto Pearson International Airport to Toronto’s downtown core, successfully launched in June, in time to serve visitors to the 2015 Pan/Parapan American Games. With service now in place, UP Express connects Canada’s busiest airport with the nation’s commercial and financial centre.

The Finch West LRT, a planned 11-kilometre, 18-stop line through northwest Toronto, is now in procurement and preliminary design and engineering work is underway. This represents a $1.2 billion capital investment by the Province. Construction is expected to begin in late 2016 and be completed by 2021.

Supporting Community Infrastructure

Lasting Legacy of the 2015 Pan/Parapan American Games

The 2015 Pan/Parapan American Games were the largest multi-sport event held in Canada’s history. Approximately 10,000 athletes, coaches and delegates from the Caribbean and South, Central and North America attended the Games. Athletes competed in 51 sports at more than 40 competition and training venues, spread across several municipalities.

The Games showcased Ontario to an international audience, attracting tourists, jobs and new business investment. The Province helped deliver critical projects in time for the Games, including the Athletes’ Village, Hamilton Pan Am Soccer Stadium (Tim Hortons Field), Markham Pan Am Centre, Pan Am/Parapan Am Athletics Stadium at York University, Toronto Pan Am Sports Centre at University of Toronto Scarborough, and Mattamy National Cycling Centre. Beyond 2015, the Games will provide housing, transportation, sports, education, accessibility and recreation legacies for decades to come.

Work has begun to transform the Athletes’ Village into the Canary District. It will include the first student residence for George Brown College, a YMCA facility and a range of housing options, such as accessible and affordable units. This environmentally sustainable community will transform a former brownfield site into a vibrant and diverse new Toronto waterfront neighbourhood that people will move into beginning in the spring of 2016.

Through strong financial management and oversight, the Province, TO2015 and Infrastructure Ontario helped deliver competition and training venues, as well as the Athletes’ Village, within projected budgets.

Health and Education Infrastructure

Across Ontario, nearly 40 major hospital projects are under construction or in various stages of planning, and Humber River Hospital, North America’s first fully digital hospital, opened in October. 

Ontario is continuing to invest in schools to help provide safe and healthy learning environments that support student achievement and well-being. As of the fall of 2015, approximately 170 major capital school projects are either being planned or underway across Ontario, including new elementary and secondary schools, renovations and additions.

Asset Optimization

In April, the Premier’s Advisory Council on Government Assets shared its recommendations with the Province on ways to unlock the value of provincial assets to create lasting public benefits. This includes modernizing Ontario’s beverage alcohol system.

2015 Budget: Building Ontario Up

As part of its optimization strategy, the government is broadening the ownership of Hydro One, and is committed to dedicating the net revenue gains to the Trillium Trust. As a result of the progress related to the November Hydro One initial public offering (IPO), it is anticipated that $2.7 billion in dedicated funds will be made available — $1.1 billion over the 2015 Budget asset optimization target for 2015–16. This is part of the government’s plan to generate $5.7 billion from asset optimization and will contribute to $31.5 billion over 10 years in dedicated funds for Moving Ontario Forward.

The government also outlined in the 2015 Budget a way forward for beer distribution and retailing in Ontario to increase financial returns and create a fair and more consumer-friendly retail system. The plan includes authorizing the sale of beer in grocery stores, enhancing retail and distribution supports for small and craft brewers, and negotiating a series of new agreements with the Beer Store to provide fair access to beer manufacturers and improve the consumer experience.

Progress since the 2015 Budget

Broadening the Ownership of Hydro One

The first phase of broadening Hydro One’s ownership is now complete. Strong retail and institutional demand for Hydro One shares was reflected in an IPO price of $20.50, generating $1.83 billion in gross proceeds. The government will proceed with its future offerings in a staged and prudent manner, over time reducing its stake to 40 per cent and remaining the largest shareholder.

The government is on track to generate $4 billion in net revenue gains to be invested in transit and infrastructure, and $5 billion to reduce debt.

The Province is also receiving $1 billion in special payments from Hydro One, including $800 million in a special dividend paid prior to the IPO, and $200 million in additional payments in lieu of taxes to the Ontario Electricity Financial Corporation (OEFC).

Maintaining Significant Government Ownership

Legislation has passed that restricts the Province from selling down to less than 40 per cent of the voting securities in Hydro One and ensures that the rest of Hydro One shares would be widely held, with no other shareholder or group of shareholders acting jointly allowed to hold more than 10 per cent of the voting shares. The government has also established that, by law, Hydro One’s grid control centre and head office will be maintained in Ontario, and Hydro One will be prohibited from selling all or substantially all of either the transmission or distribution businesses or assets regulated by the Ontario Energy Board (OEB).

Hydro One Oversight

The Province has ensured Hydro One oversight measures are in place. Hydro One continues to be subject to requirements of the Business Corporations Act (Ontario) and the Securities Act (Ontario). To further ensure the protection of ratepayers, the government required Hydro One to create a dedicated ombudsperson, similar to those found at other publicly traded companies. The ombudsperson is able to receive and investigate customer complaints.

Regulating Electricity Rates

Rate-setting will continue to be the responsibility of the independent regulator, the OEB — not Hydro One. The government has also introduced legislation that would, if passed, strengthen the regulatory powers of the OEB to further enhance its ability to protect electricity ratepayers with respect to cost, consumer protection and service reliability.

Ensuring Good Governance

The government has also put in place a governance agreement and registration rights agreement with Hydro One to clarify the Province’s role as investor, including the process through which the Province nominates 40 per cent of the board of directors and the Province’s rights related to future share sales by the Province or Hydro One.

Increased Revenue Generation

Broadening the ownership of Hydro One is expected to result in a more efficiently run and better performing company. Under new management, a group of diverse and accomplished leaders, there will be a renewed focus on customer service excellence, finding efficiencies and improved reliability. The Province expects to receive financial benefits from a strong and growing company.

The $4 billion in net gains that the Province expects to generate from the broadening of ownership will be reinvested in public infrastructure, improving the lives of Ontarians where they live, work and play. In turn, this will generate economic growth and additional revenue for the government, allowing long-term, sustainable funding and creating jobs. Modern public infrastructure is a smart investment that yields a high rate of return and contributes to a strong economy and prosperous society. A recent report by the Broadbent Institute and the Centre for Spatial Economics found that, on average, investing a dollar in public infrastructure in Canada raises GDP by $1.43 in the short term and up to $3.83 in the long term.2

The 2015 Budget also announced a new beer charge that will be phased in over four years. The charge came into effect on November 1, 2015, and is equivalent to 25 cents per 24-pack. At maturity, the charge will increase annual government revenue from beer sales by $100 million. To minimize the impact on consumers, the industry’s largest brewers have agreed to cap price increases to inflation for some of their most popular beer products until May 2017. This will help keep the price of beer in Ontario below the Canadian average.

Encouraging the Consolidation of Local Distribution Companies

The 2015 Budget proposed regulations to help encourage the consolidation of local distribution companies (LDCs) in Ontario. Mergers among these entities would generate greater efficiencies and economies of scale, creating more cost-effective organizations from which ratepayers will benefit. The regulations proposed time-limited tax relief and, after being posted for public comment, are now under review. Any merger or acquisition is subject to OEB review for approval.

Paying Down Ontario Electricity Financial Corporation Debt

The Province has committed to using the cash amount of the proceeds up to the book value of the Hydro One shares sold to pay down the Province’s electricity sector debt and other payables, helping to reduce the debt of the OEFC.

These cash amounts are contributing to the government’s targeted $5 billion debt paydown. See Chapter III, Section D: Borrowing and Debt Management for more details on the debt paydown.

Trillium Trust

The 2014 Budget introduced the Trillium Trust Act, 2014, which established the Trillium Trust to provide for the dedication of net proceeds from the sale of qualifying assets to support the Province’s key infrastructure priorities, such as roads, bridges and public transit.

The Province is proposing amendments to the Trillium Trust Act, 2014, that would, if passed, ensure that net revenue gains from the sale of designated assets would be credited to the Trillium Trust. The amendments include designating the Province’s shares in Hydro One and Hydro One Brampton, as well as the LCBO head office lands, the OPG head office building, and the Lakeview lands, as qualifying assets under the Act. Hydro One’s prospectus also indicated that due to the revaluation of its fixed assets as a result of the IPO, it will recognize a deferred tax benefit. This deferred tax benefit would provide a net fiscal benefit to the Province on consolidation of the results of Hydro One into the Public Accounts. The proposed amendments to the Trillium Trust Act, 2014, would also enable the Province to dedicate such fiscal benefits to the Trillium Trust.

These amendments, if passed, will ensure that all fiscal benefits related to the Hydro One IPO from the gain on the sale of shares and the deferred tax benefit would be directed to the Trillium Trust. This is in addition to the $1.35 billion that has already been credited to the Trillium Trust from the sale of the Province’s shares in General Motors in previous years.

As these transactions will unfold over the coming months, additional financial details will be reported in 2016.

Optimizing the Value of Ontario’s Real Estate Assets

The government continues to move forward with the process to sell the LCBO’s head office lands. Proponents were invited to submit development plans and a purchase price in the second stage of the Request for Proposal (RFP) process earlier this year. The second stage of the RFP closed in September 2015, and the Province is currently in negotiations with the potential purchaser, with the transaction expected to close by this spring. This sale will ensure that Ontarians realize greater value from this public asset.

The Province also continues to move forward on the sale process for OPG’s head office building.

Other real estate assets continue to be reviewed under a longer-term revitalization plan, including the former Lakeview generating station property in southeastern Mississauga and the Seaton lands in Pickering. The government is currently examining and evaluating options to maximize value from these real estate assets.

Increased Access for Ontario Brewers

Building on the framework of key principles announced in the 2015 Budget, the Province and the Premier’s Advisory Council on Government Assets have negotiated a new beer framework with the Beer Store and its owners. The new beer framework maintains the Beer Store’s low-cost, efficient distribution network, which supports lower beer prices for consumers, while also improving fairness for all Ontario brewers. For example, the agreements:

  • Return the Beer Store to its cooperative roots by allowing Ontario brewers to become shareholders;
  • Set minimum shelf space and marketing requirements for small brewers in the Beer Store network;
  • Implement a new rate sheet to deliver savings for all brewers other than current brewer–owners in the Beer Store network; and
  • Allow small brewers to pool deliveries and improve efficiencies.

The new beer framework also maintains the government’s commitment to divert materials from landfill through the Ontario Deposit Return Program (ODRP). The new beer framework extends the ODRP contract, on certain revised terms. The government negotiated a reduced fee payable to the Beer Store for running the program that will save the Province more than $1 million per year, and the fee will no longer be indexed annually to inflation.

More Convenience and Choice for Consumers

In the biggest change to beverage alcohol retailing in 90 years, the government is introducing beer sales in Ontario grocery stores. With the regulatory framework now in place, the LCBO has initiated a competitive bidding process for the first grocery store authorizations, with the first 60 grocery stores expected to be authorized to sell beer in December 2015. Up to 150 grocery stores will be authorized by May 2017. In response to consumer demand, up to 450 grocery stores in Ontario could eventually be approved to sell beer.

Ontario has also made significant progress in modernizing beer retailing since the 2015 Budget, including a pilot program to sell 12-packs at 10 LCBO stores, free listings for Ontario brewers at the Beer Store, new on-site sales outlets for small brewers, and new Craft Beer Zones planned for 25 LCBO locations across the province.

Stronger Commitment to Social Responsibility

While offering consumers more convenience and choice, the government continues to carefully regulate the sale of alcohol. The Province has mandated in law requirements for the socially responsible sale of beer in grocery stores, including:

  • Designated sales areas and restricted hours of sale;
  • Upper limits on package sizes and alcohol content;
  • Rigorous training for grocery store staff;
  • Uniform and minimum pricing; and
  • Restrictions on promotional activities.

The Alcohol and Gaming Commission of Ontario will be responsible for the authorization and ongoing regulatory oversight of grocery store operators selling beer.

Going Forward

The government is developing, and will consult broadly on, a comprehensive alcohol policy framework to support the safe and responsible consumption of alcohol. The four main pillars of the framework include outreach and prevention, social responsibility, harm reduction, and treatment.

The Premier’s Advisory Council on Government Assets has been consulting with stakeholders concerning the wine and spirits sectors, and working with the LCBO on pricing and mark-up strategies. The council hopes to provide the government with its recommendations by the end of this year.

[1] The Broadbent Institute and the Centre for Spatial Economics, “The Economic Benefits of Public Infrastructure Spending in Canada,” (2015).

[2] Ibid.

Chart 1.1: Moving Ontario Forward — Outside the GTHA

This chart shows preliminary estimated timelines for various investments outside the Greater Toronto and Hamilton Area (GTHA), under the Moving Ontario Forward initiative. These investments are supported by dedicated funds of approximately $15 billion.

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Chart 1.2: Moving Ontario Forward — GTHA

This chart shows preliminary estimated timelines for various transit projects within the Greater Toronto and Hamilton Area (GTHA), under the Moving Ontario Forward initiative. Projects are labelled according to funding source, including those supported by Moving Ontario Forward dedicated funds (approximately $16 billion) and those that could proceed if new partner funding is provided.

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