The Perils of Public-Private Partnerships

Private-Public Partnerships, or “P3’s” are the latest buzz talk around many governments these days. Like a herd of lemmings plunging to their deaths, the federal and some provincial governments have jumped onto the P3 bandwagon. And in Alberta, the Klein government is forcing cities to accept P3’s as well.

P3’s are made-to-order for right-wing governments who believe that they should do as little to provide services as possible and channel as much of our tax dollars into the hands of the private sector. Under a P3 contract, a private sector partner raises the funds for a public service, such as a hospital, freeway, school or park, and builds the project. The government then leases the facility back using tax dollars. P3’s thus allow governments to hide their debt in the guise of contracts for service.

On the surface, it sounds like the proverbial win-win scenario. The government avoids unattractive taxes and deficits while the community gets a needed service. Who could complain? Frankly, lots of people. Great Britain lead the way with P3’s; but it is now questioning their value. Study after study shows they end up costing the taxpayer more than if the government built the facility itself. A British cabinet minister heavily involved with P3’s in Britain gave a talk in Canada where he reported “the jury is still very much out on the value of P3’s”.

What is the problem? Well, the private sector doesn’t carry out a project out of generosity: it insists on making a profit. In the end, governments, using our tax dollars, pay every penny the private company borrowed or spent for the project, plus much more. The bottom line is that the whole concept is poorly considered and poorly thought out.

First, private sector interest costs are higher than governments’ borrowing costs – usually around 2% more. Secondly, the private companies charge the government (taxpayer) a fee for negotiating the deal in the first place. Thirdly, the private companies insist on a profit from the operation, no less than 5% and usually 15% and more. This profit is calculated on the total costs, which would include the higher interest costs, administrative fees and commissions. For the construction of the southward extension of Anthony Henday Drive in Edmonton, turning the project into a P3 added 20% or $50 million to the overall cost! All of these costs are ultimately borne by the taxpayer and do not show up as debt or liabilities on government balance sheets.

Even though the “deal” described above would have most people worried, it gets worse. Since private enterprise exists for profit, they have historically cut corners on projects to increase their profit margin. And when administering the facility or project after completion, routine maintenance, janitorial work, repairs and support services become increasingly poor as the private company tries to wring as much profit out of the project as possible.

Studies of P3’s find that the costs to the taxpayer for a P3 hospital or school are at least 10% higher and more, which means less money for health care or education. Britain’s largest medical journal, in its analysis of P3 hospitals in England has found that P3’s have actually reduced the number of beds available for patients and resulted in poorer service and care!

If all of this were not bad enough, there is the problem that P3 projects are not subject to full disclosure to public auditors for their finances and operations like all levels of government are. The management of P3’s is hidden behind the veil of corporate secrecy in the name of competitive advantage. The recent federal Liberal scandal that saw over $250 million funneled into the pockets of friends, will pale by comparison to the abuses and waste of tax dollars from P3’s.

Taxpayers have every reason to run away from P3 projects as fast as possible. And politicians of every stripe should be challenged when they speak in favour of P3’s. In the upcoming civic elections, vote for candidates who say NO to P3’s.