The term “public private partnerships” is disarming. “Partner” suggests a mutually beneficial relationship, bringing together the best of the public sector with that of the private sector. Government and corporations claim that this combination will limit public debt and create more efficient and cheaper services.
PPPs are often another way of contracting out public services. Instead of the usual short-term contracting out arrangements, these longer-term financing, leasing and ownership agreements move public services much closer to outright privatization. PPPs are privatization by stealth.
CUPE does not oppose the private sector doing business with the government and public agencies. Corporations have often designed and constructed public infrastructure including roads, bridges, schools, and hospitals, and will continue to do so.
Governments and corporations want to expand the role of the private sector to include the financing, operation and ownership of virtually all public services. Corporations want to build, operate and own our schools, provide our food and medical services in hospitals, treat and supply our water, provide our recreational services, process our taxes and administer our social welfare system. In short, the public sector has become a new “profit centre” for the private sector.
Corporations and some public sector employers have formed the Canadian Council for Public Private Partnerships (CCPPP). The goal of the council is to promote PPPs to governments and the Canadian public. The Council’s membership includes Laidlaw, Philip Services, Serco and Price Waterhouse, all of which have been advocating – and benefiting from – privatization and contracting out. The council’s membership also includes some Canadian municipalities that employ CUPE members.
Boosters claim PPPs will:
Allow governments to avoid or eliminate debt.
Provide services and infrastructure at less cost.
Assure the newest and most efficient technology.
Speed the completion of projects.
The truth is that PPPs often have very little to do with service or efficiency. Rather they allow government to give the appearance of an improved financial situation while offering corporations reduced taxes, a captive market and a guaranteed income.
The federal and many provincial governments support the move towards PPPs. Their policies have helped to set the stage for PPPs by cutting transfer payments and downloading services. Faced with tighter budgets and downloading, many local governments and other public sector employers are receptive to the idea of PPPs.
Nowadays, more and more forms of contracting out to the private sector are being hailed as public private partnerships. Long-term contracts, leasing agreements, and even fairly short-term contracting out arrangements are commonly described as PPPs. PPPs are most closely associated with private sector financing and long-term leasing and ownership of public infrastructure. The differences among them relate to the point where ownership of assets is assumed by the private sector and when a corporation or the public sector makes lease payments for facilities and service provision.
CUPE’s concerns are shared by most Canadians, who question private sector involvement in the delivery of public services. Their own experience tells them that for-profit service delivery will increase environmental risks, increase costs, threaten good jobs and reduce access.
Private delivery of public services will lead to a reduction in the quality of service as staff and standards are reduced in a drive to maximize profits. For capital projects and infrastructure, corners are cut, reducing safety. For services and programs, access is reduced as barriers to participation increase. For example, increased user fees and reduced first language services will limit access for the poor, women, ethnic communities and persons with special needs.
When Andersen Consulting, the transnational consulting firm, revamped the welfare system in New Brunswick, hundreds of jobs were lost. The remaining workers were told they could spend no more than 4.5 minutes per month talking to each client and it became very difficult for clients to speak with welfare staff.
PPPs will make it easier for governments to evade their responsibilities and more difficult for citizens, consumers and taxpayers to deal effectively with problems related to services. Once a private corporation is awarded a contract, especially long-term ones like PPPs, the public is locked into specific arrangements for twenty years that may reduce responsiveness.
When 180 million litres of sewage backed up into 70 homes and businesses in Hamilton, it was the Regional Government that was stuck with legal and cleanup costs, not the private firm operating the facility. Total legal costs resulting from this dispute are estimated at $400,000.
The driving force behind politicians’ and bureaucrats’ support for PPPs is the desire to avoid borrowing and debt. But are public sector employers really avoiding debt with PPPs? Are they reducing the cost of financing infrastructure and service delivery? In almost all cases the answer to both these questions is NO.
PPPs do not help the public sector avoid debt. At best, they only help it defer debt. In the end, the public sector pays more under private sector financing arrangements.
The public sector borrows money at a rate of interest that is usually a half per cent or more lower than the rate available to private sector companies. Governments, including municipalities, have a better credit rating than even the largest corporations. This is because governments and public sector bodies have stability and longevity that reduces the risk that they will default on loans.
The Charleswood Bridge in Winnipeg is a clear example of the greater cost of private sector financing. The company which financed the bridge-building project paid a higher interest rate than would the City; a difference that is estimated to cost taxpayers an additional $1.2 million. Also the City normally repays loans over a 20-year period while the company chose a 30-year period, increasing costs and incurring debt for an additional 10 years. Furthermore, the lease payments made by the City on the bridge are considered financial liabilities so the City’s financial status is not improved by the PPP.
The myth that PPPs reduce debt persists because lease payments to private corporations are not usually counted as public debt. Yet lease payments are as much a financial commitment as debt repayment or service charges. For that reason, they should be considered in any assessment of a public body’s liabilities. This would make the true costs of PPPs transparent. The New Brunswick government has been accused by the opposition of using PPPs as a means of disguising debt and claiming a government surplus. The government had claimed the lease payments on projects such as the Evergreen School in Moncton and the youth services facility in Miramichi were operating expenses and not debt owed by the Province.
Some PPPs appear to reduce costs only because they centralize services, creating eonomies of scale. But these supposed savings do not take into account the negative impact such changes can have on local communities. Local services are replaced by regional services, providing fewer jobs and robbing the local community of an economic hub. Services are less accessible and responsive to local needs. Because only large corporations, most of whom are foreign-based transnationals, have the capital and systems to introduce economies of scale, PPPs often serve to transfer economic benefits to other countries. Labour and supplies are more often purchased outside the local area and projects are transferred to other regions.
Large corporations such as Sodexho, Versa and Marriott have centralized food services to a number of hospitals. The result has been a displacement of workers and reduced demand for local business.
Many PPPs promise to save the public sector money. One of the principle ways they do so is by reducing staff and cutting wages and benefits. The Philip Services operation of the water treatment system in Hamilton Wentworth is a case in point. The corporation promised that it would create 100 jobs for the municipality. Instead, Philip Services dramatically reduced the number of employees.
According to employees at the Hamilton Wentworth water treatment plant, Philip Services has relaxed maintenance standards and has reduced the number of employees from approximately 120 to 75, a decrease of more then 35%. It is estimated that this has reduced Philip’s wage bill by $2 million per year.
The private sector claims that it can provide services more efficiently and more cheaply than the public sector and yet maintain service standards. We know that this is not true. There are long-term and hidden costs with corporate involvement. Profits for corporate investors are one such cost.
The pursuit of profit compels corporate contractors to increase their market share and cut operational costs. They use “low ball” or “loss leader” bids to gain greater market share, but sometimes find that they cannot deliver on their promises.
The New Brunswick government cancelled an $8.4 million Medicare billing and administration system contract with Blue Cross of Atlantic Canada. The Minister of Health stated that “the government was not confident that Blue Cross could deliver the system called for in a reasonable time and within agreed-upon costs.”
The private sector promotes the myth that they are the ones bearing the risk of PPPs since they often provide the capital. This is false. The public sector often guarantees the private financing for PPPs. As well, it assures the developer a stable, captive market and guarantees that the price of its services may be increased over time.
Strait Crossing Inc. will receive the equivalent each year of the federal subsidiary to the ferry system ($42 million) plus the revenue from tolls. The company will also have the right to increase toll fees by 75% of the increase in the Consumer Price Index. With a million tourists estimated to visit PEI each year, the revenues to the Corporation are expected to be enormous. Risk for the company is further reduced because the government has issued bonds valued at $661 million to guarantee the debt on the bridge.
PPPs are promoted in the name of competition. The private sector claims that by breaking the public sector monopoly on service delivery, service will be improved and costs reduced. But their real objective is to secure a very profitable monopoly for themselves.
Many services to the public are “natural monopolies” because only one organization or agency can deliver them. Water and sewage treatment services are a case in point. If a “natural monopoly” exists, it makes sense that democratically controlled and accountable public bodies deliver this service, not a foreign-controlled transnational.
Full privatization, the sale of public assets to private investors with some public sector regulation is considered by most to be a step beyond PPPs. However, there is a connection between full privatization and PPPs.
PPPs can be viewed as a phase or stage in the privatization process. Once a corporation begins to play a significant role as a service provider within the public sector organization, it can more effectively promote privatization of a service.
Before embracing PPPs, politicians and administrators in Canada should heed the British experience. In the early 1990’s Britain’s Conservative government introduced its Private Finance Initiative (PFI). According to the Public Services Privatization Unit in Britain:
PFI costs more and the costs continue to escalate.
Very few PFI contracts have been signed.
PFI has caused delays that have jeopardized projects.
The public has borne the risks of projects as the government has steadily introduced more protection for the private contractor.
PFI has distorted priorities for projects and resources.
Projects are rewarded without considering whether they could be done more cheaply by the public sector.
Given the size of PFI schemes, only the largest companies have been able to bid, restricting competition.