Public pension fund backs private schools

In a chilling twist on the P3 story, the deferred wages of public sector workers are playing a role in privatizing Nova Scotia schools. OMERS, the Ontario municipal employees pension plan, is Canada’s fourth largest plan and the majority of CUPE members in Ontario are members.

Borealis Funds Management Ltd., a subsidiary of OMERS, is a key player in a consortium that will finance the construction of 15 schools and the renovation of another, as well as provide money for capital and technology costs and oversee school management.

In addition to all the other concerns surrounding lease-back schools, the Borealis scheme raises several new problems. The lease arrangements made available to date shows the province paying monthly leasing and servicing fees directly to Borealis, which then turns around and allocates some money to the school board, putting the remaining "excess cash" into a reserve for capital and technology upgrades. The board is now in the role of contractor, providing the operating and maintenance services they have always provided. However, the board now has less control over how the money is spent and is directly accountable to Borealis on a monthly basis. Each school must negotiate an agreement separately with the corporation, detailing how much money they can spend on maintenance and repairs and even what repairs will be permitted.

The threat to existing jobs is clear. Even though the employer of custodial and support staff seems to be the school board, Borealis exerts an unprecedented degree of control over every aspect of the operation and maintenance of the buildings. Even more alarming, the operation and maintenance portion of the lease can be terminated on 30 days’ notice by either party. If the agreement is terminated, Borealis takes over those duties, leaving workers with no protection or job security.

Equally disturbing is the involvement of public sector pension funds in financing privatization schemes. As a wholly-owned subsidiary of a pension fund, Borealis enjoys tax-exempt status and so does not pay tax on any earnings. This provision allows Borealis to operate at a lower rate of return than any other private company, since it pays no tax on its earnings. The Income Tax Act permits pension corporations to engage in activities including "holding, maintaining, improving, leasing or managing capital property."

While pension money is only $12 million out of the total $162 million in financing raised through Borealis-issued bonds, Borealis has a key role to play in providing access to tax-exempt status. As the push to privatize through public private partnerships continues, the use of pension corporations as "rent-a-pension" funds will likely increase. Yet this type of financing is not the only option.

Public financing of public infrastructure is cheaper and far more accountable. In the long run, it is the lowest risk option. Pension funds wishing to invest in public infrastructure should do so by investing in government bonds — a stable investment with a rate of return equivalent to that of private bonds.