CUPE Locals 34, 1948, 2268 & 3730
Brief to the Saskatoon Catholic and Public Shool Board
Table of Contents
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Executive Summary
Introduction
Impact on Taxpayers
Risk
Quality of Service
Accountability
No Going Back
Loss of Control
Economic Impact
A Two Tier System
Conclusion
Sources
News Release: Nova Scotia Department of Education
It was recently made public that Saskatoon’s school boards have decided to investigate public-private partnerships (PPPs) as an option for establishing much needed new schools in the community. In PPP arrangements, private corporations build, own and operate the schools, which are then leased back to the school boards.
CUPE Locals 34, 1948, 2268 and 3730 have produced this brief for presentation to the trustees of Saskatoon Public School Division and Saskatoon Catholic Schools in response to their plans to investigate lease-backs. The 1,200 CUPE members who work in Saskatoon’s K-12 education system share the school boards’ frustration about inadequate provincial funding, but are opposed to the option of lease-back schools.
In other provinces, lease-back schools have fallen short of their stated claims of higher efficiency and lower cost. Instead, lease-back schools have imposed more costs on taxpayers, and committed school boards to long-term relationships with private corporations whose values and goals are much different from those of educators and communities.
This report describes the many problems encountered when private corporations own and operate schools. The major conclusions about lease-back schools are:
- Lease-back schools are nothing but a shell game. They leave the superficial impression of a less-burdened financial position because a debt does not show on the government or board’s books. However, the taxpayer is still paying (often much more) for the construction and operation of the school through lease payments.
- Lease-back arrangements are more expensive to finance because the private sector has to borrow at a higher interest rate than what is available to the public sector. These costs are passed on to the taxpayer.
- Because lease-back arrangements are complex, boards pay a lot more in accounting, legal, engineering and financial fees in order to complete a school project.
- When governments sell land in a lease-back arrangement in order to raise quick capital, the transaction amounts to literally paying the corporation to take the land off their hands.
- There are hidden costs to the public, such as the revenue lost as a result of the huge tax breaks that private companies receive as part of most lease-back arrangements.
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In the end, taxpayers pay more than they would have had the school been financed by traditional methods. For example:
- The total cost of the lease and purchase option for O’Connell Drive Elementary School in Nova Scotia is $200,000 more; and
-Evergreen Park School in New Brunswick will have cost $900,000 more at the end of its lease.
- In Nova Scotia, a huge public-private partnership project to build over 50 new schools for $350 million was cancelled in June 2000 because it had proved too costly. The 38 lease-back schools already built under the plan cost Nova Scotia taxpayers $32 million more than was estimated. The province has reverted to traditional public sector methods for all future school construction and operation, and estimates that it will save about $2 million per school.
- Lease-backs have failed and faltered over who will take the risk. Governments have signed leases that assume more risk than is normally acceptable in a commercial lease.
- Corporations, concerned with protecting profit margins, cut corners during the construction and operational stages resulting in lower service standards.
- When the ownership and operation of schools is handed over to private companies, the issue of who is responsible for what becomes confused. Parents can encounter vague lines of authority when bringing forward issues of concern.
- There is less public accountability because, by law, some of the terms of the lease can be kept confidential to protect the business interests of the corporation.
- If problems with lease-backs arise, Canada’s trade agreements may make it difficult for boards to bring schools back in-house without huge compensation to the companies involved.
- Decisions on where to build lease-back schools are influenced by corporations and what’s best for their interests. Student and parent interests take a backseat.
- Because the public does not own PPP schools, community groups have limited access to schools after school hours and pay user fees for after-hour activities.
- The elaborate and costly extras sometimes associated with PPP schools can result in a two-tiered education system and cause splits between communities.
- Privately owned and operated schools mean fewer good jobs in the community.
In Canada, the money we spend on education belongs to all of us and benefits all people in our society. When schools are handed over to profit-seeking corporations, part of their important purpose is diverted from the public good.
Lease-back schools are not the solution for addressing inadequate provincial funding for new school construction. Instead, we must continue to pressure the province to restore its funding for education so that it covers at least 60 percent of the cost of our K-12 education system.
The Canadian Union of Public Employees (CUPE) represents over 3,500 education workers in Saskatchewan, including the approximately 1,200 support staff employed in Saskatoon’s public and separate school systems. CUPE members take great pride in their significant contributions to K-12 education in Saskatoon as caretakers, secretaries, library technicians, teacher assistants, maintenance workers, and in other classifications.
As support staff in the K-12 education system, we are reminded daily of the declining infrastructure and the sometimes overcrowded conditions in our existing schools. We are keenly aware of the need for capital improvements to our schools and of the need to construct new schools in Saskatoon. We also share our school boards’ frustration with the lack of provincial funding to meet these important community needs. As CUPE members, we continue to lobby the provincial government to restore its contribution to 60 percent of the cost of the K-12 education system.
CUPE members are deeply concerned about the Saskatoon school boards’ recent announcement that they intend to investigate the option of public-private partnerships (PPPs) where private companies construct and operate the schools, which are then leased to the school boards. Such undertakings in other provinces have been touted as being able to deliver infrastructure and services more efficiently and at a lower cost than traditional methods. Cash-strapped separate and public school boards may view such arrangements as a short term solution for meeting the public demand for new schools without driving up deficits. There may also be strong pressures from the right to invest in public-private partnerships as a means of reducing the scope of government and opening up the public sector to private profit.
However, in other jurisdictions these projects fall far short of their stated claims and impose more costs to taxpayers than benefits. Lease-back schools also undermine community control of education, restrict community access to schools, and have a negative economic impact on workers and communities. They commit our school boards to long term relationships with private corporations whose values and goals are much different from those of the community. We appreciate this opportunity to express our views on lease-back schools.
As consumers we know that leasing is more expensive than paying for something up front. This is true of lease-back schools.
Lease-back schools amount to nothing more than a shell game, where the government shuffles taxpayers’ dollars from one pot to another. They give a superficial impression of a healthier, less-burdened financial position because government can argue that they haven’t taken on any additional debt. The initial cost of a school might not show in the balance book but taxpayers are still paying for the construction and operation of the school through lease payments to the private contractor, and the government is still liable for all outstanding lease payments. In many of the examples to date, lease-backs have actually cost taxpayers more than publicly built schools.
One reason for this is that it is more expensive for the private sector to borrow money than it is for the public sector. The public sector has a better credit rating because governments are more stable and long lasting than private companies. The added cost of financing the school will be passed on to the tenant (school board) as part of the lease arrangement. In the example of Evergreen Park School, New Brunswick’s first lease arrangement with Greenarm Corporation, the Auditor General reported that financing costs through Greenarm were $400,000 more than they would have been by traditional methods. (Source: Auditor General of New Brunswick, Special Report for the Public Accounts Committee: Evergreen and Wackenhut Leases, 1998)
Another reason lease-backs cost more is that they are more complex than traditional public sector financing methods. Boards often pay a lot more to bring together the legal, accounting, engineering and financial expertise needed to complete the project. For example, Nova Scotia’s education ministry acknowledged that it had to hire ten extra staff just to evaluate the responses it received to its Request for Proposals to build 31 new schools in the province.
The Nova Scotia government had a lot of difficulty in even getting their chosen corporate partners in the O’Connell Drive School project to sign a lease. In this case the province and the consortium were unable to reach agreement on financial terms that would allow the province to finance the school “off book.” The province went ahead without a lease agreement. They hired the consortium to build the school, financed the project, sold the school to the consortium and then started to lease it back. The lease was signed more than a year after the school was opened.
In the end there were many aspects of the lease that were troubling. For example the province had to accept the building as is without protection from latent defects such as poorly installed or defective wires or pipes; and pay the rent unconditionally, even if a problem arose that would usually be the responsibility of a landlord in a commercial lease agreement. (Source: Nova Scotia Planning and Priorities Secretariat, Partnerships in School Construction: A Review, December 1997)
Governments sometimes use lease-backs as an opportunity for a quick infusion of cash, from selling the corporation the land intended for new school construction or selling existing schools which are then leased back. However, this strategy is an uneconomic way for raising capital and can amount to the government literally paying the private sector to take land off its hands. For example, New Brunswick’s Auditor General severely criticized that provincial government for transferring a parcel of land for Evergreen Park School to Greenarm Corporation for $275,000. The transaction had the same effect as borrowing $275,000 at the higher private sector interest rate instead of at the reduced rate available to the public sector. The difference in the interest rates amounted to an additional cost to government of $15,670.33. Had the government chosen to construct Evergreen Park School on its own it would not have paid anything for the land. (Source: Auditor General of New Brunswick, 1998)
The taxpayer also ends up paying for the tax breaks the private company receives. For example the private company, which builds and owns the school is entitled to a big federal tax break called the Capital Cost Allowance. This allows the company to write off up to 100% of the cost of the facility, which means taxpayers end up paying twice – once through the lease payments to the private owner and second through increased federal taxes while the company gets a tax break.
In addition to the Capital Cost Allowance, companies have proposed exemptions from municipal property tax. Exempting public bodies, like boards of education, from property taxes is justifiable, since “it’s all the taxpayers’ money”. But granting a tax break like this to private companies is a clear subsidy to profit-making businesses and further undermines the ability of local and provincial governments to meet the cost of education. In the case of Evergreen Park School, the New Brunswick government is responsible for any and all taxes levied with respect to the land and building.
Taxpayers face another major cost at the end of the lease. Either the board has paid out the value of the property (or more) through lease payments and still has to buy the property at full market value or the property reverts to the board just as major renovations and retrofits are needed. In either scenario the public would be looking at a major outlay of cash at the end of a lease. This problem is further compounded if the school board has several leases coming due at the same time.
Evergreen Park School turned out to be an unnecessarily costly project for New Brunswick taxpayers. According to New Brunswick’s Auditor General, the province paid $900,000 more than it would have if it had followed a traditional approach to building and operating the school. At the end of its 25-year lease, the province has the option of purchasing Evergreen Park for $2.5 million or leasing for another 10 years. (Source: Auditor General of New Brunswick, 1998)
In the case of O’Connell Elementary School in Nova Scotia, the purchase option at the end of the lease is almost $4 million. The total cost of the lease and purchase option would be $200,000 more than if the school had been financed by traditional methods. If the province walks away at the end of the lease, it will have paid $8 million – and have no school to show for its investment.
In June 2000, the Nova Scotia government scrapped all future public-private partnerships for school construction because it proved too costly. The over 30 schools built under the PPP arrangements cost taxpayers an additional $32 million above and beyond the original estimate of $350 million. Cost overruns were attributed to lax building standards, lack of accountability, last minute design changes and unmanaged development costs. The government said that the $32 million cost overrun could have built an additional three more schools. Education Minister Jane Purves stated, “The former government used P3 as a blank cheque, and P3 schools grew too elaborate and costly.” (Source: Government of Nova Scotia, Department of Education, New Plan for School Construction, News Release, June 21, 2000)
With the dismantling of the public-private partnerships in Nova Scotia, private companies would construct 17 more schools over the next four years, but the schools would be designed, owned and operated by the province and the school boards. The government estimates that it will save $2 million per school.
Supporters of public-private partnerships will promote the benefit of the private sector sharing the risks involved with a school project. What they don’t tell you is that a corporation will want the lease that minimizes their risk. In Nova Scotia, New Brunswick, and PEI, lease-back school deals have failed and faltered over the question of who will take the risk. The leases signed by the Nova Scotia government include provisions that would be considered risky. One is the high-priced purchase option at the end of the leases – about $4 million each. The second example, described on page 6, leaves the province on the hook for structural repairs.
Even conservative journalists have raised concerns about the risks associated with PPPs. Andrew Coyne of The Globe and Mail commented,
What interests governments…is the opportunity to reduce borrowing by shifting the burden of raising capital to private or Crown Corporations. This is where a good idea goes bad. The only way a debt may properly be transferred from public to private hands is if the whole of the financial risk of a project is borne by the corporation involved…More typically, however the debt in a public private partnership is guaranteed or even underwritten by the government, even as it is officially moved off the budget – and as the private partner collects the revenues. While public private partnerships are often said to promise ‘the best of both worlds’, for taxpayers they have come to mean public risk for private profit. (Globe and Mail, May 24, 1995)
Schools carry their own special risks – the safety and security of our children. It will always be the board of education that will be held responsible for that – and rightly so. The only way that the private sector could carry a significant share of the risk involved in running a school is if it was completely responsible for the education delivered there. This is not the kind of school system Canadians want.
Corporations will only become involved in lease-back schools if they can make a profit. As in any business venture they will look for ways to cut costs in order to ensure the highest possible return on their investment. The needs of the corporation, not the needs of the school and community will be the primary goal. There will be pressure to cut corners and defer maintenance, especially if the company will not own the building at the end of the lease.
This will lead to lower service standards – in both the construction and operational stages. The private developers will want to adhere strictly to the terms of the contract rather than take on unforeseen costs or unforeseen responsibilities. Events in Edmonton and Moncton demonstrate these points.
An independent pilot project in the Edmonton Public School Board compared the quality of work done by in-house custodial staff and contractors. The project proved that schools were cleaner, safer and more secure when staffed by in-house staff. All the work has now been brought back in-house. (Source: CUPE Local 474 and Edmonton Public School Board, Custodial Pilot Project, 1997)
At Evergreen Park School in Moncton, the private company would not unload furniture for the new school – the community had to help out. There were discussions about who should pay for damage done by students (Greenarm), and who should provide garbage cans (Greenarm in the halls, school district in the classrooms).
Currently in most provinces, elected boards of education are responsible for the delivery of quality, accessible education. Upkeep and security and safety of schools are all included in their mandate. But education governance is changing in Canada. School boards have been abolished in some jurisdictions and in others, such as Ontario, boards have been stripped of many of their powers in favour of more powers at the provincial level. The impact of these changes on the quality of education is not completely known.
When the ownership and operation of schools is handed over to private companies the issue of who is responsible for what in our schools becomes more confused. In a given school the province may be responsible for curriculum, the board for hiring teachers, the parent council responsible for extracurricular programs, and a multinational company based in the United States for the building itself, and custodial/maintenance and administrative services.
For example, a visitor to Sherwood Park School in Sydney, Nova Scotia discovered that the principal did not know who was responsible for lights and heat. Parents who bring forward issues affecting the education and well-being of their children could very well find vague lines of accountability or a lot of “passing the buck”.
At present, school boards are accountable to communities and there is a transparency with regard to financial matters. However, by law, the terms of contracts with private companies are usually confidential, to protect the business interests of the corporation. In a public-private partnership there is a strong likelihood that a private company will be less forthcoming about sensitive issues and information that relate to its own competitiveness as a company.
In the case of Evergreen Park School, Greenarm is not prepared to disclose its projected revenues and its lease agreement stipulates that information concerning operating costs will be made available to the province “from time to time” and that the information will only be used by the tenant for the purposes of the lease. (Source: An Analysis of a Public-Private Sector Partnership: The Evergreen Park School, Moncton, N.B., Salim J. Loxley, March 1999)
Companies can be bought and sold many times over the period of a lease whereas the public is tied to the contract for a long period of time. Changing corporate ownership during the life of the contract will result in continuity problems and may even raise concerns about the confidentiality of student and staff records.
Our Saskatoon schools have a familiar chain of command and a definite obligation to be publicly accountable. When problems arise in lease-back schools, publicly elected bodies may avoid responsibility and the private company is only responsible to the corporate headquarters and/or shareholders, not the community.
The decision to hand schools over to the private sector cannot easily be reversed if things go wrong. The terms of lease-back arrangements can last as long as 35 years, tying students, workers and parents to the fortunes of the corporate owners for decades. It can be very difficult and costly for a board to prove that a company has not met the terms of its contract. And the longer the school is in the hands of the company, the more dependent the board will be on the staff, equipment, and the experience of the company.
As well, provincial, federal and international negotiations on trade agreements such as the Agreement on Internal Trade (AIT), North American Free Trade Agreement (NAFTA) and the General Agreement on Trade in Services (GATS) are giving corporations more power to privatize public services. It is likely that once a service has been privatized, it will not be possible to bring it back in-house without huge compensation being paid to the companies involved.
With PPPs, the community has a lot to lose while the private company has everything to gain. Any of the so-called “opportunities” that may exist for the public sector in PPPs involve trade-offs such as the loss of some control, the loss of future flexibility, and the unequal economic development among different areas.
Governments and schools could lose their ability to control the costs of providing schools. For example, in New York City, the Board of Education learned what it was like to be held ransom by corporate landlords that raised the rent with every lease renewal. The Board, desperate for classroom space, was charged rents far above market value by its private landlords. (Source: The New York Times, Feb. 27, 1997)
When schools are built by consortia, it means that a company which could not win a contract on its own merit could become involved in a lucrative school project as part of the consortium. The board doesn’t get to put together the best or most effective group of companies to carry out the project.
The long length of PPP contracts means that control over schools is surrendered for many years to come. Currently, contractors such as ServiceMaster, Marriott, or Johnson Controls would never be guaranteed a 20 to 35 year contract, but this is what happens when they are part of a consortium that owns and operates a lease-back school.
Communities can lose the ability to control where schools are built. Corporate goals (especially corporate profit) and not community goals dictate the location of schools. Developers will want to build schools in their new subdivisions. Multinational companies will be interested in locations where they already have a base of operations, to keep their costs down, or a location that will give them a “toe-hold” in the larger market. Computer companies will be interested in guaranteed markets. The needs of students and communities will take a backseat in these deliberations.
When a private company operates a school they will look for every opportunity to increase revenue. This can include charging user fees for community use of the school or taking a percentage of the school/board’s revenue from these rentals. In the case of Evergreen Park School, the company (Greenarm) is very clear about its intention to profit from the school. The school will be rented out for private education and enrichment programs, including daycare, with revenue being shared between the school and the company.
>The principle at Evergreen Park has authority over the building only for designated school time – Monday to Friday, 7:00 am to 6:00 pm, plus one evening a week during which parent-teacher interviews, sport tournaments, etc. must be scheduled.
A technology retraining company is an additional partner in the Evergreen project. It has secondary rights to the school after 3:00 pm for children’s programs, after 6:00 pm for adults, and during school breaks.
Private ownership of our schools will have an impact on the economic health of the community. The so-called “efficiency” that a corporation brings to a public-private partnership is the ability to procure the lowest possible labour rates without any regard for the livelihood of the workers involved. Where large corporations are involved, these savings are the profits redirected from the local economy to corporate headquarters.
Lease-back schools will result in fewer “good jobs” being available for people who live in the community. In 1997, a study by the Canadian Council for Social Development looked at what was happening to jobs as more public services were shifted to the private sector. It compared similar jobs in the public and private sectors, and found wages and benefits better in the public sector. (Source: Public Sector Downsizing, the Impact on Job Quality in Canada, Canadian Council for Social Development, 1997)
When workers are paid lower wages or receive fewer benefits, there is a corresponding blow to the economic health of the community. The workers will have less money to spend in stores, at the dentist, for membership in local clubs or participation in local activities. The business community, in turn will earn less revenue from these activities.
One of the biggest problems posed by lease-back schools is the inequity they create. In Nova Scotia, privately owned schools created a two-tiered education system and caused splits between neighbourhoods and communities. For example, the Horton School (a lease-back) has an orchard, an amphitheatre, two soccer fields, air conditioning and two sets of shades for the windows, while the school in nearby Kentville had to hold a cupcake sale to buy drapes. Families moved from Kentville to the Horton area, a trend that caused difficulties for the Kentville economy.
Over the past several years, school boards have felt a great deal of pressure to keep tax increases to a minimum, even though provincial revenue sources for education have been shrinking as a percentage of overall budget. In this climate, some have suggested that private sector involvement is the solution. It is not surprising that corporations are also willing to “partner” with local school boards given that total public spending on education in Canada is about $52 billion per year. (Source: A Promise to Ontario’s Children: Public Education is Not for Sale, Elementary Teachers Federation of Ontario, 2000)
Supporters of public-private partnerships generally argue that the public will benefit through improved efficiency or lower taxes. However it has been well established in other jurisdictions that lease-back school arrangements fall short of these claims.
Profit-seeking corporations in partnership with the public sector have a strong motivation to see public spending on education increase for the wrong reasons. When private companies get involved in any business – including the business of schools – they do it for the financial benefits. Profit is what corporations put first– not the needs of taxpayers or students or society overall.
Schools are a worthy and important investment of public funds. In Canada, our publicly funded separate and public school systems exist to allow all children the opportunity to develop to their full potential. The money we spend on educating our children belongs to all of us and benefits all people in our society whether they have children or not.
Public and separate school boards bear the important responsibility of protecting the interests of everyone by overseeing education in our communities. The “profits” they are responsible for, namely an educated population, accrue to all.
We live in a market economy but that does not mean that our schools should be turned into a market activity. That’s what we do when we let corporations become school landlords. When schools belong to business, part of their purpose becomes private and is diverted from the public good.
In spite of recent, modest efforts by the provincial government to increase funding, our schools still suffer serious hardships. The solution to these difficulties is not public-private partnerships. Instead, we need to pressure the provincial government to restore funding for education and once again assume at least 60 percent of the cost of our K-12 education system.
CUPE members who work in Saskatoon’s public and separate school systems urge their boards to protect and preserve the true purpose of publicly funded education by rejecting the lease-back school concept.
- An Analysis of a Public-Private Partnership: The Evergreen Park School, Moncton, N.B., Salim Loxley, A Report Prepared for the Canadian Union of Public Employees, 1999.
- Analyzing the Cost of Contracting Out, F. Howard Nelson, Department of Research, American Federation of Teachers, 1995.
- A Promise to Ontario’s Children: Public Education is Not For Sale, Elementary Teachers Federation of Ontario, February 2000.
- Hard Lessons: Pu