Public & Private Partnerships

P3s No Solution to Infrastructure Crisis - www.EndPrivatization.ca

 

Canadian municipalities are directly responsible for much of the infrastructure and many of the services that are the foundation of our society and economy. Yet our cities and towns are in an impossible position, caught between reductions in federal and provincial funding, downloading from upper levels of government and a growing demand for vital community services and infrastructure.

Some believe the answer to these problems is to privatize the financing, operation and delivery of infrastructure and services through public-private partnerships (P3s) with the private sector. But the numbers and facts don’t add up.

P3s are bad public policy and an unwise use of tax dollars. Costs increase, accountability diminishes and opportunism can run rampant. Despite the evidence that public-private partnerships (P3s) are more expensive and risky, less effective and unaccountable, the federal government is aggressively pursuing privatization. Corporations benefit from public investments in infrastructure all while the government divests public assets and relinquishes public stewardship.

The federal government’s Building Canada infrastructure plan forces municipalities into considering privatization through a mandatory P3 review of any project receiving more than $50 million in federal funds. The plan subsidizes further privatization through a $1.25 billion P3 fund that will help corporations profit from delivering public infrastructure and services. Worst of all, the plan contains little new funding – a key requirement in tackling the $123-billion infrastructure deficit.

A review of the case against P3s helps highlight the real value the public sector provides.

P3s don’t make financial sense

  • P3s are more expensive because of higher private-sector borrowing costs and the need
to generate profits at every stage, whether in financing, delivery or operations.
  • Creative accounting, through the manipulation of “discount rates” and the exaggeration of public sector risks,
gives officials and the public a distorted and inaccurate picture of the financial costs of P3s.
  • Private sector cost overruns can reach into the millions, while taxpayers remain on the hook.

P3s are inefficient

  • The P3 process is lengthy, bureaucratic and complex.
  • Detailed proposal negotiations with consultants, lawyers and accountants create additional delays and increase costs. Payments to lawyers and consultants involved in an Abbotsford, B.C., hospital P3 reached $24 million before the 35-year contract was even signed. The total project cost rose to $355 million from an initial estimate of $210 million, and the annual cost rose from $20 million to $41 million.
  • Complex financial and procurement arrangements create further project delays.
  • Additional requirements for monitoring, audits and assessments increase bureaucracy and oversight costs.

P3s DO NOT Transfer Risk

  • Corporations resolve risk by charging a premium or reducing services.
  • Governments have not been successful in transferring risk to the private sector. Negotiations to renew Hamilton’s water and wastewater P3 fell apart when the corporation tried to charge 200 per cent more to bear additional risk. The system is now back in public hands, surpassing standards and delivering significant cost savings.
  • Taxpayers absorb the costs of failed P3 deals, since the public ‘partner’ is ultimately responsible for delivering services and infrastructure.
  • P3s are unaccountable and undemocratic
  • Corporations are secretive, protecting commercial confidentiality and concealing vital contract information.
  • Corporations are accountable to their shareholders – not to citizens and governments.
  • Higher costs and new user fees can leave community services out of reach for many people.
  • Lines of accountability can be particularly unclear when there are multiple investors and a consortium structure.
  • Freedom of information requests are time-consuming and costly, often yielding few results.
  • Public officials have fewer opportunities to influence how public funds are spent or services delivered by requiring, for example, community-supporting wage rates and local purchasing policies.
  • Lengthy contracts keep information and management out of public hands and scrutiny for decades.
  • Privatization makes public services vulnerable to the provisions of trade agreements, such as TILMA and NAFTA, further expanding corporate control of the public sphere and eroding democracy.

Public works best for municipal services Value for money

  • Municipalities typically have the best credit ratings and access to the lowest borrowing rates, making public sector borrowing the cheapest way to finance any project.
  • Public funds can be raised through mechanisms such as public bonds and pooled debt financing.
  • Public debt allows municipalities to retain ownership and control of assets.
  • Public debt is transparent on public accounts.
  • Retaining control of public services builds assets and maintains government’s capacity – the infrastructure, expertise and skilled labour – to manage public initiatives in the future.

Efficient

  • Well-managed public projects have a history of coming in on time and on budget.
  • Municipalities are best able to guarantee that projects will deliver appropriate and sustainable services.
  • Local governments will not compromise on quality.

Risk Management

  • Local governments are in the best position to plan, mitigate and manage public risk, analyzing risk broadly to include community, environmental and health and safety concerns over the long term – and not simply through the lens of profit.

Accountable, Transparent and Democratic

  • Municipal governments are accountable to the public and must make negotiations and contracts available for public scrutiny.
  • Public ownership and delivery by definition ensures a structure that allows elected officials to advance community concerns and priorities.
  • Local procurement ensure public investment in communities.
  • Public services contribute to greater social equality by increasing affordability and access to services and infrastructure.

Privatization of public services through P3s is not the answer to our infrastructure deficit. The real solution is sustained and adequate public investment. Increased federal investment of revenues raised through fair taxation is key to maintaining and building strong and vibrant communities for all Canadians. Keeping infrastructure and services public will ensure the continued strength of the foundation that Canada is built on.