Are the Liberals lowballing Ontario’s debt?

Right now — according to the Ontario Financing Authority and the Liberals’ latest budget — the Province of Ontario owes $295.8 billion in debt. That’s $282.9 billion in debt to the general public and institutions and $12.9 billion in non-public debt to public sector pension funds and the Canada Pension Plan Investment Board (CPPIB).

That debt figure is pretty enormous on its own — but what if the government is lowballing it? In fact, Ontario’s debt level may be higher by billions of dollars. Here’s why:

Infrastructure Ontario (IO) is an Ontario Crown corporation which oversees the development, construction and upgrading of public institutional buildings in Ontario, such as hospitals, universities and courthouses.

According to its website, since 2006 IO has brought about $42 billion in capital projects to market. Such projects include the North Bay Regional Healthcare Centre, Sunnybrook Health Science Centre, the Roy McMurtry Youth Centre and the Durham Consolidated Courthouse.

That $42 billion has — in practice and in fact — become Ontario’s financial responsibility and, as a result, should be treated as part of Ontario’s total debt.

Under IO’s Alternate Finance and Procurement Program (AFP) — popularly known as the public/private project (P3) program — the Liberal government under Dalton McGuinty and now Kathleen Wynne set out to build hospitals, universities and courthouses by shifting the risks of construction and financing from government to the private sector.

Prior to the McGuinty/Wynne governments, Ontario would go to the public bond and institutional markets and borrow at very low interest rates to finance capital projects. These borrowed funds would be added to the province’s debt. The government would retain third parties to build the public buildings and Ontario would retain ownership and operate the buildings.

If Ontario’s true debt picture is closer to $350 billion than $300 billion, then we’re that much closer to hitting the fiscal wall.


Typically, Infrastructure Ontario, through public tender, selects a single-purpose shell company made up of finance, design, construction and operational partners. This shell company then goes out to public/private bond and institutional markets and raises financing for construction on the basis that, once the building is completed and operational, the Ontario government would issue grants to the institution to pay interest on the 30 to 35-year bonds.

Because these public/private projects have the support and authorization of the Ontario government, these shell companies are able to obtain financing without putting any skin in the game — that is, their own cash equity — and without providing corporate guarantees. Because the Ontario government is neither the direct borrower nor the guarantor of the bond, these bonds are not included in Ontario’s overall government debt. Pretty clever.

In actual fact and practice, however, the Ontario government is financially still in control of, and responsible for, these public buildings; it’s still on the hook for ongoing interest payments on the bonds and, ultimately, repayment of the bonds and of any defaults.

Whether a hospital is owned by the Ontario government or by a shell company, the interest payments on the bonds come from the same source: government revenues, collected as personal and corporate taxes. And in the event of a default, the responsibility falls to the Ontario government to take over the facility or refinance the bond — because no Ontario government would permit a bondholder to take over a public hospital, university, school or courthouse due to a default. Recall the examples of the Ornge ambulance service and the cancelled Mississauga gas plant.

Chris Mazza, when he was CEO of Ornge, set up separate private companies and went to markets to borrow about $250 million to buy helicopters and aircraft, and another $25 million to buy a new Mississauga head office building. When Mazza and his executives were terminated for cause, the Liberal government took over the payment of both loans — in order to maintain the ambulance service and Ontario’s reputation in capital and bond markets, and notwithstanding the fact that the province of Ontario was neither the borrower nor the guarantor of the loans.

Similarly, though the Ontario government was not a party to the construction loan agreement between the Mississauga gas plant developer and its American lender, the Liberal government agreed to pay the American lender well in excess of what it was owed as a result of the cancellation.

Recently, the Ontario government agreed to look into purchasing a 70-per-cent-vacant MaRS II building — purportedly to protect MaRS’ work on behalf of Ontario — notwithstanding the fact that IO was the actual construction lender.

The Ontario Auditor General is already reviewing IO loans and the suspicious MaRS II bailout. For the sake of accurate and honest government fiscal reporting, the auditor should also review the whole $42 billion AFP program with a view to properly bringing those obligations back on the books as government debt, as the AG did with $800 million in Catholic School Board debt in 2009.

If Ontario’s true debt picture is closer to $350 billion than $300 billion, then we’re that much closer to hitting the fiscal wall — and appropriate action should be taken sooner, not later.

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