We enjoy good quality of life thanks to public services. Canadians know they can count on public services to be accountable, accessible, locally controlled and a wise investment of tax dollars.
Faced with funding shortfalls and urgent needs to upgrade and expand infrastructure, some municipalities have considered privatization as a quick fix. However, whether through infrastructure public-private partnerships (P3s), contracted-out services, or private finance, privatization ends up costing much more. At the same time, corporate profits are put ahead of the public interest. Quality suffers, local control is weakened and over time, inequality increases in our communities.
New report highlights municipal contracting in
Canadian municipalities are realizing there are alternatives to privatization. A growing number of municipalities around the world are remunicipalizing – or contracting in – services that were previously outsourced, including snow removal, water and wastewater operations, street and sidewalk maintenance, and public transit. Increased costs, decreasing quality of service and greater flexibility with internal resources are the main reasons that lead municipalities to contract in.
Some Canadian municipalities have recognized these risks and are choosing to bring services back in house or build infrastructure through conventional procurement. A 2016 report from the Columbia Institute, Back in House: Why Local Governments are Bringing Services Back Home, spotlights 15 recent cases where Canadian municipalities have decided to end a private contract. In 80 per cent of these cases, cost was the primary consideration. Other reasons included poor service quality, lack of transparency, and mismanagement by the private entity.
P3s don’t save money or lower risk
Virtually all P3s in Canada have been justified on the basis that they are more efficient and transfer risk to the private sector. Yet, there is no foundation to either claim.
A March 2016 paper from the University of Calgary’s School of Public Policy concluded, as have nearly all objective studies, that P3s cost as much as, or even more than, conventional fixed-price procurement arrangements. The report also found that P3 time frames, when measured correctly, are just as long as public schedules. The study finds that “risks that are supposedly transferred to private partners are never truly transferred.” This study adds to a growing body of independent evidence that the “value for money” analyses used to justify P3s are deeply flawed.
In 2014, Ontario’s auditor general undertook a comprehensive review of the province’s P3 program, and found that 74 P3 projects cost the province $8 billion more than if they had been publicly financed and operated.
Quebec’s Charbonneau Commission concluded that the lack of competition and veil of secrecy surrounding the bidding for mega-project P3s opened the door for the kick-back and corruption schemes at Montreal’s McGill super-hospital (MUHC). What’s more, Quebec think tank IRIS demonstrated that the province could save as much as $4 billion by buying back the contracts for the MUHC and another Montreal P3 hospital.
Earlier audits in Nova Scotia, New Brunswick, Quebec, British Columbia, and at the federal level have likewise uncovered examples of P3s being more expensive than the public alternative.
Economist Hugh Mackenzie says in the report Bad Before, Worse Now, “P3s waste public money because it costs substantially more to raise capital for public infrastructure indirectly through a P3 than directly through public borrowing.” P3s do not make economic sense when governments can borrow at a much lower rate than private investors. Moreover, municipalities are realizing that being stuck in 30 or 40‑year contracts with substantial payments and rising liabilities hampers their budgets and reduced their ability to make investments down the road.
As evidence mounts that P3s and contracting out do not save money or reduce risk, privatization proponents, including PPP Canada, continue to argue for municipal P3s.
While the Federal Liberals have made a step forward by eliminating the P3 screen for municipal infrastructure projects, it has yet to do the same for public transit money, and is promoting privatization through other means. These include “asset recycling” and enabling pension fund investment via the new Canadian Infrastructure Bank (CIB), which will “leverage” investment from pension funds and other private sources of finance. Both mechanisms imply adding a significant profit margin and larger private lending rates in the building costs.
To assist municipalities in exploring the myths and facts about P3s, CUPE has published Asking the right questions: A guide for municipalities considering P3s. Written by economist John Loxley, the guide is a useful resource that probes the costs and benefits of P3s, and urges municipalities to examine all the evidence before considering a P3.
Public works best for our communities
Chronic underfunding has created a crisis that is putting enormous pressure on municipalities to privatize city services and infrastructure regardless of the harm it will do to future city budgets and community quality of life.
In light of mounting evidence that privatization of public services is not in the public interest, new federal infrastructure funds – including for water and wastewater facilities, public transit and green infrastructure projects – should be allocated to support municipalities maintaining public ownership and control of facilities. However, the federal government is heading in the other direction with the recent announcement that it will only fund 40 per cent of municipal infrastructure projects in the future rather than the current 50 per cent, and with the establishment of the CIB to facilitate and encourage private investment. These developments will put even more pressure on municipal finances.
Maintaining public ownership and control of municipal utilities, services and infrastructure is essential to ensure democratic, equitable and thriving communities.
For more information, including copies of Back in house and Asking the right questions, visit cupe.ca/privatization