This opinion piece appeared in the July 27 National Post.
By Paul Moist
When the facts don’t serve the privatization lobby, the privatization lobby ignores the facts.
Faced with higher costs and lower service levels, proponents of public private partnerships (P3s), such as TD Bank economist Don Drummond (“The P3-rebuilt city”, July 26), have taken to arguing that, magically, governments are off the hook for financing P3s. As if the private sector “pays” for them!
Drummond’s piece follows Gordon H. Homer’s proposal that accounting rules be changed to reduce transparency and hide P3s’ higher costs (“Why not P3?” National Post, July 6, 2006).
At first, proponents used “off-book financing” to hide the additional public debt of P3s, but then public sector accountants caught on to that trick. Then proponents claimed that P3s would cost taxpayers less, but now even they admit that costs are higher. Now they argue that P3 projects will be more responsive and accountable, but instead the public faces increased costs and reduced services. Added to that, basic accountability information remains hidden under commercial confidentiality clauses.
Even Mr. Drummond’s own bank recently acknowledged that P3s generally cost more than public sector projects. It stated that “the concern that P3s can cost more is true at face value [but] it is not the cost, but the net benefit, which is the most relevant benchmark in considering” whether to use P3s. The evidence shows that P3s in Canada, Australia and the United Kingdom consistently result in higher costs and poorer service.
One P3 hospital in Brampton, Ont., is estimated to cost an extra $124 million in private sector borrowing charges alone. A P3 agreement between Philip Utilities and the City of Hamilton took months to negotiate, and the annual administrative and legal costs of maintaining the project were budgeted at $200,000. That was about 30 per cent of total annual savings promised by the company. There are countless other examples.
The real problem for the privatization lobby is that the public is beginning to recognize that P3s cost more and deliver less. This explains the renewed P3 push, now dressed up to “solve” the municipal infrastructure deficit.
The privatization lobby has its work cut out for it. Statistics Canada recently showed that every dollar invested in public infrastructure projects generates an average of 17 cents in savings a year to Canadian businesses. This is a better return than private sector projects provide, but this is an inconvenient fact, so P3 proponents ignore it.
Ultimately, the core responsibility of the public sector should not be to subsidize private sector companies with high-return and low-risk projects or to bail out private sector companies. Yet this is what happens with P3 projects.
Most P3s really don’t transfer risk to the private sector, since government will always be there to pick up the pieces and since governments are required to cover the cost of services guaranteed to their citizens. The driving force behind P3s is that the private sector wants guaranteed higher returns with any risk falling to taxpayers.
Who carried the risk in Hamilton? Its citizens, as the company changed ownership four times. The P3 project was the site of the largest-ever sewage spill in Lake Ontario. The full cost of the cleanup and details of the city’s attempt to hold the company responsible have been kept secret. Water and wastewater systems are now back in-house.
It is true that municipalities have budget constraints, but this is mostly because the federal and provincial transfers to municipalities have dropped from 26 per cent of their revenues in 1995 to 17 per cent of their revenues in 2005. This decline in share represents about $5 billion in lower transfers and is the cause of the real fiscal imbalance in Canada – about the cost of the recent 1 per cent cut in the Goods and Services Tax.
The federal government could eliminate the infrastructure deficit in less than a decade by transferring the amounts of the GST cuts (which will be almost $10 billion a year) to the municipalities instead of implementing tax cuts that disproportionately benefit the wealthy.
But again, some facts don’t fit the privatization bill.
Before proceeding with more P3s, Canadian governments should undertake cost-benefit analyses that compare all the costs and benefits of the alternatives. They should stop relying on the inadequate and sloppy analyses conducted by pro-P3 groups such as Partnerships BC and rely on ones by objective bodies such as auditors general.
Finally, let’s drop the fantasy that P3s are open, transparent and accountable. Health groups faced a long court battle to get basic financial information about a P3 hospital in Ontario – information that should have been readily available if it was a public project. And Prime Minister Stephen Harper’s Conservatives as well as the Liberal Party recently rejected our proposals to increase the transparency and accountability of contracts, privatization and P3s deals as part of their proposed Federal Accountability Act.
Is it any wonder that Canadians are highly skeptical about P3s and their privatization agenda?
Paul Moist is national president of the Canadian Union of Public Employees (CUPE), Canada’s largest trade union.