Winning isnt everything. In fact, sometimes it turns out to mean nothing.
That could be the inscription on whatever trophy is handed out as a Canadian Council for Public-Private Partnerships award. The CCPPP awards are supposed to highlight privatization initiatives that have demonstrated excellence and innovation and have enhanced [the] quality of public services and facilities.
A follow-up visit to some recent prize winners found their awards more than a little tarnished. In some cases, the award was barely gathering dust in the corporate trophy case before the trouble set in.
1998 award winners
OConnell Drive Elementary School, Porters Lake, Nova Scotia
(winner in the infrastructure category)
CCPPP claim: This P3 school was the first school in the province to have a true operating lease structure. It was developed and leased with no impact on the provinces debt. All development and residual risk rests with the developer, while the province holds the operational risk. The school has served as a model for over 30 similar projects in Nova Scotia.
Reality: The Nova Scotia government was forced to renegotiate OConnell Drives original lease after some harsh words from the provinces auditor general. In the summer of 1998, Roy Salmon told the government the school deal did not meet the definition of an operating lease and so would appear on the provinces bottom line. The auditors call for truth in accounting would have defeated the provinces attempt to hide debt from the books. The lease, the first P3 school lease to be signed, was hastily renegotiated adding a $50,000 fence and some data links to meet the operating lease accounting test.
While Salmon said the lease then passed the mathematical test, he was critical of the process, saying that accounting needs were driving other issues. He said it should not be used as a model for other operating leases. He also said the schools lease still would most appropriately be treated as a capital lease because taxpayers still shoulder the bulk of the risk.
The OConnell Drive school lease leaves the Nova Scotia government with the majority of the risks, including the cost of capital improvements, operating costs for the school and technology upgrade costs. As the auditor general points out, the private consortiums main risk was the residual value of their investment. In fact, this is a minimal risk given that at the end of the lease they will have recovered 88.9 per cent of their investment and will own both the land and the building.
In June 2000, the provincial government abandoned the expensive and unpopular P3 school scheme, and announced that 17 new schools would be publicly financed and owned (see Hammonds Plains Education Center, below).
A P3 school post-script highlights the schemes blurred accountability. In January 2001, children and staff at OConnell Drive were still drinking bottled water a year after arsenic was found in the schools well water. A water filtration system had been installed, but the Halifax school board wanted to know where the legal responsibility for supplying clean water and maintaining the system lies with the province or the corporation that owns the school before they started filtering.
Teranet Land Information Systems Inc., Ontario
(winner in the service delivery category)
CCPPP claim: Service improvements have resulted from users of the land registration being able to search titles from their own location electronically, and have legal documents faxed from an image database of 100 million documents.
Reality: Its hard to imagine what kind of service improvements there have been, given the Ontario provincial auditors damning report in November 2000. As of March 2000, only 2.5 million of the provinces approximately 4.3 million properties had been entered into the electronic database.
The public private partnerships original cost was an estimated $275 million, and the completion date was 1999. Nearly 10 years after the projects launch, the estimated completion cost had soared to $700 million, and the completion date had been pushed back to 2010. A consultant hired by the ministry overseeing the project concluded costs could easily surpass $1 billion, using other, less favourable scenarios than Teranets.
As one title searcher with the Toronto registry office told the Toronto Star, Teranet did the easiest conversions first [subdivisions, condominiums and parcels of land already in the land titles system] because as soon as the properties were computerized the bulk of the registration and searching fees went directly to Teranet. Now that they are down to the time-consuming properties, they cannot seem to get the job done in a cost-effective or timely manner
Teranet has issued $280 million in bonds to repay existing bank loans and finance further conversion of records. The auditor noted that if the Ministry of Consumer and Commercial Relations decided to end its agreement with Teranet, it would have to address Teranets obligation to the bondholders, leaving taxpayers even further on the hook.
1999 award winners
Highway 407, Ontario
(gold award for project financing)
CCPPP claim: This public infrastructure asset is unique in its size, value and strategic transportation significance. The $3.1 billion deal was concluded in record time, from concept to final sale took less than a year.
Reality: The lightning-fast sale to a multinational consortium conveniently created a one-time cash windfall for the provincial coffers just in time for the 1999 provincial election. The problems, however, linger on.
When Ontario Premier Mike Harris announced the highway sale, he promised were going to strictly control tolls, pledging tolls would increase no more than two per cent each year. In reality, tolls have shot up more than 50 per cent, and cheaper off-peak hours have been scaled back.
The highway, Ontarios Electronic Toll Route, has been nothing but an electronic troublemaker for many travellers. Amid a growing public relations nightmare of motorists being billed for trips they never took and company complaint lines that went unanswered, the company revamped its dispute resolution procedures in February 2000. According to some reports, as many as 180,000 motorists were incorrectly on file with the Ministry of Transportation for not paying their tolls.
The consequences of the electronic errors were high, with the Ministry of Transportation withholding licence renewal for alleged delinquent drivers. While the billing may now be more accurate, the ministry continues to wield the big stick of licence non-renewal on behalf of the corporation in effect becoming a collection agency. This is indeed a bizarre role for a government that claims the private sector can do things more efficiently on its own.
Drivers with unpaid toll charges must fork over a $30 administration fee on top of the charges. According to opposition critics, only $1 of that fee stays with government. The rest is handed to the consortium.
The toll road deal is being kept under strict lock and key even members of the legislature havent been able to access the agreement. Critics charge that the Tories ignored another companys bid on the highway a bid that would have seen the government recover its construction costs and have an extension built at no extra cost in order to get cash to finance their election promises. In February 2000, the opposition and the Canadian Automobile Association called for a public inquiry into the highways sale.
Hammonds Plains Education Centre, Nova Scotia
(silver award for project financing)
CCPPP Claim: Even before development of the Hammonds Plains, Nova Scotias approach to public private partnership for school construction had drawn interest both nationally and internationally.
Reality: Presumably, that interest has rapidly waned, given government admissions that P3 schools cost more than publicly-financed schools.
The provinces first lease-back school was announced in 1994. In 1997 the government without evaluating the success or failure of the first school announced every new school in Nova Scotia would be built through public private partnerships.
Three years later, the newly-elected Conservative government no great supporter of the public sector abandoned the expensive and unpopular P3 school scheme, and announced that 17 new schools would be publicly financed and owned. Education minister Jane Purves said, The former government used P3 as a blank cheque, and the P3 schools grew too elaborate and costly.
The announcement marked a return to the traditional method of building schools, where private companies design and build schools, but school boards own and operate the schools. The province will set budgets, standards, and arrange financing.
The former government tried to use accounting to push the costs of the new schools off-book, but they didnt fool our lenders or taxpayers. Debt is debt is debt, and we must account for it, said Nova Scotias finance minister Neil LeBlanc.
LeBlanc estimates the cost of P3 schools grew by another $32 million beyond the original high price, due to further changes after contracts were signed.