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Maximizing the Value of Publicly Owned Assets

Archived Backgrounder

Maximizing the Value of Publicly Owned Assets

Office of the Premier

Across the globe, governments are searching for the most effective way to make continued investments in strategic public infrastructure. A slow global recovery from the most recent recession and modest growth rates have put a strain on available public revenues.

In 2014, the government received a mandate to move forward with its record level of public infrastructure investment so as to stimulate economic growth and improve people's quality of life. The province also committed to balancing the budget by 2017-18 without cutting public services or raising personal income taxes on the middle class. This has called for responsible fiscal management that makes the best use of every available public resource.

For this reason, Ontario's 2014 Budget launched an in-depth review process to identify opportunities to optimize the value and performance of the government's core assets. The Premier's Advisory Council on Government Assets was led by former TD Bank Group CEO Ed Clark. Its mandate was to recommend ways for the government to unlock the value of key public assets so as to put dollars to work where they will have the greatest public and economic benefit, which is by building modern infrastructure projects all across Ontario.

In the spring of 2015, after a year of thorough consultation, review and cost-benefit analysis by the council, the government adopted the council's recommendations to modernize the province's portfolio of government-owned assets and optimize the value of public resources.

The government recognizes that in some instances the value that taxpayers receive from owning a parcel of land or a business has diminished over time. A good historical example is the federal government's divestment of Air Canada or Petro Canada. For a period of time, it made sense for these businesses to belong to government. But as proper regulations were put in place and markets began responding appropriately to supply and demand, there was no longer a benefit to keeping these businesses under government ownership.

This was also the case with Hydro One. At the beginning of the 20th century, public ownership of electricity transmission and distribution made sense. It helped Ontario build a provincewide electricity system. In the absence of effective oversight and regulation, public ownership protected ratepayers.  

Today, however, electricity transmission and distribution is highly regulated, with rates being set by an independent regulator and many private sector businesses making valuable, essential contributions. The private sector has developed expertise in delivering low-cost and reliable power.

Ratepayers are well served by the system in place. But as a wholly government-owned entity, over time, the business case and the policy rationale for Ontario owning 100 per cent of Hydro One has disappeared. By 2015, it was no longer in Ontario's best interests to own the entire asset, particularly when part of its value could provide the province with dedicated revenues to reinvest in the 21st century public assets necessary for growth and opportunity — public infrastructure, including roads and transit.

Acting on the advisory council's advice, the broadening of Hydro One's ownership is now underway. Today, about 30 per cent of the company is owned by public and institutional investors. The government continues to exercise regulatory oversight, with rates being set by an independent third party, the Ontario Energy Board. And private sector expertise and discipline should help improve Hydro One's performance and customer service. 

A similar situation informed the province's decision to sell its shares in General Motors, which were acquired as part of the restructuring that saved the North American auto sector during the 2008-2009 financial crisis. Ontario sold its shares in GM because the value of reinvesting those dollars in necessary infrastructure was more financially and economically advantageous for the province than remaining a passive investor in a publicly traded company. For the same reasons, Ontario has sold the LCBO head office lands and is proceeding to unlock the value of the Seaton lands, Lakeview lands and the Ontario Power Generation head office properties. Acting as a landlord and trapping all that public value in these relatively unproductive assets is a benefit greatly outweighed by the modern infrastructure that the province is building with the unlocked value. 

The government is committed to dedicating all net revenue gains from qualifying asset sales to the Trillium Trust to be reinvested into new public infrastructure. In total, more than $4.5 billion has been dedicated to the Trillium Trust since 2014.

These funds are building infrastructure in every corner of the province through Moving Ontario Forward. Moving Ontario Forward is a dedicated part of the government's record infrastructure investment. As a result of $2.6 billion in additional net revenue gains from unlocking value from Hydro One and other government assets, Moving Ontario Forward has increased to $31.5 billion over a 10-year period.

To build our assets up in a way that is fair for every part of the province — to build the whole province up — Moving Ontario Forward is broken down into two separate amounts: about $16 billion is available within the Greater Toronto and Hamilton Area (GTHA) and about $15 billion is available outside the GTHA.

The distribution of funding is per capita, based on Statistics Canada data, for inside and outside the GTHA.

As a result of Ontario's decisions to maximize the value of public assets, the government is now able to assure people that it is investing every available dollar to build the vital infrastructure and transportation solutions people and the economy need.