B.C. ELECTION: Runner Run-Down: Public-Private Partnership
Featured / May 8, 2017
What looks good on paper ends up costing more taxpayer money in the long run
Braden Klassen, Contributor
A Public-Private Partnership—or “P3”—is a contractual arrangement between a government entity and a private company or companies that allows them to work together to invest in, create, and maintain public services or infrastructure projects like hospitals, roads, schools, and water facilities. This process is different than what is known as “traditional procurement” of public sector infrastructure because the government is able to transfer some of the upfront financial risk of the project to a corporation, which means that the government and taxpayer money is protected if anything goes wrong in the initial phases of development.
Generally, the traditional procurement of something like a bridge follows the process of “design, bid, build,” which involves the government taking responsibility for the design of the project and then hiring a private contractor to build it. Afterwards, the government resumes responsibility for operations and maintenance. This means that if there is some kind of flaw in the design of the project that leads to it costing more, the government is responsible for footing the bill with taxpayer money.
By using a P3 to finance the project, they can distance themselves from fiscal liability and lower the costs upfront, which reflects well in their annual budget. However, as Michael Mills, vice president of Investments at Public-Private Partnerships Canada, said in a 2015 interview for Advantage Magazine: “Just like a traditional model, the public sector owns the asset and will ultimately pay for it.”
Governments can secure large investment loans at a lower premium than private companies and leverage taxes to cover any other costs in order to pay off the debt quicker. Critics argue that even though most infrastructure P3s look good on paper, they end up costing the province much more money in the long run.
The Port Mann and Golden Ears Bridges are often used as examples of this. Both bridges are tens of millions of dollars behind on their initial revenue projections and will be tolled for decades until the debt is fully paid. The private partner responsible for making up the lost revenue is a little Crown corporation called Transportation Investment Corporation, or T.I. Corp.—although most people know them by their toll-operating brand name TReO.
The operation costs of the system that TReO has implemented has added millions to the price tags of the bridges, and has incurred the hidden costs of the additional burden placed on the Massey Tunnel and Pattullo Bridge as commuters use these routes to circumvent the tolls.
Another P3 venture that has attracted criticism in B.C. is the Abbotsford Regional Hospital and Cancer Centre. In her book Purchase for Profit, Public-Private Partnerships and Canada’s Public Health Care System, Heather Whiteside, an assistant professor at the University of Waterloo, examines the history of the hospital’s construction.
It was originally slated to cost $211 million when the project was announced in 2001, but those costs had risen to $355 million in 2004 when construction began. The increase was due to the addition of some improvements to the hospital’s design, but also because the P3 negotiations delayed the project until the construction market had begun to boom, which ran up the partners an extra $63 million in inflation costs.
Partnerships BC is the designated body responsible for organizing and recommending P3 projects in B.C.. However, in 2015 The Tyee published a story referencing a B.C. Finance Ministry report published on the provincial government’s website that criticized the organization. The report has since been removed from the site, but a selection of the recommendations are still available to the public.
One such section states that “Partnerships B.C. should increase transparency by ensuring that project owners fully understand the financial model and its assumptions.” Another one recommends that the government “consider reinforcing the conflict of interest guidelines for board members of Crown corporations and government agencies and ensure that those guidelines are appropriately followed.”
The organization’s impartiality has been reportedly called into question because Partnerships B.C. is as self-sustaining organization. There may be an element of self-interest in the advice they give the government when it comes to recommending the use of P3 methods of infrastructure procurement—despite the fact that it may not be the most cost effective way to proceed.