Last week we loosely defined public-private partnerships (a.k.a. PFI, AFP) and how the concept of risk was used to justify much higher costs to the public.
This week we look at private versus public interest.
You can just see it now. Around the board room of one of Canada’s big banks well-heeled business people are discussing how to help out government:
“Geez, that Dalton McGuinty has it tough. He’s overspent his wad trying to give all those striving common people things like health care and education, and now he’s got a big debt,” says the Chair.
Says the earnest new board member: “Didn’t our industry actually crash the world economy and create this mess in the first…”
“Johnson!” says the Chair. “We agreed not to talk about that ever again. It was people who are sending their grubby little children to school and old people who needed hospitals that did this, not our Wall Street friends. Practice that.”
“Yeah, Johnson – tow the line!” says another.
“Sorry, my Mom is in the hospital, I’m a little distracted today.”
“I hope it is not one of those public hospitals,” says the Chair empathetically. “We can give you the name of a good private facility in Florida.”
“I’d appreciate that,” says Johnson.
“Now that Dalton has this big debt, we got to thinking how can we help him out?”
“Lower our interest rates and bank charges?” asks Johnson. The room erupts in laughter.
“Oh, Johnson,” says the Chair with a big smile.
“Send our own people in to tell government how to run things?” proposes another board member.
“No, we’ve pretty much covered that off already,” says the Chair. “I was thinking we can help the government by facilitating all that infrastructure that we, um, the public still needs.”
“We can afford to do that?” asks Johnson earnestly.
“Can we afford not to?” asks the Chair. “There are huge returns on these projects, and once they are built, we continue to profit for years.”
“That sounds more like helping ourselves,” says Johnson.
“We like to portray it as being of mutual interest,” says the Chair.
“Of course, these infrastructure projects would have to serve our needs and those of our corporate friends. Now take this project here. They want to build a new school to service this growing community,” he says, tapping a map. “We could build it there and make some money, but our developer friends are building new housing way over here. A new school could bring up the value of those houses and we’d all make a killing.”
“But wouldn’t that be out of the way for all the kids that live back there in the other neighborhood?” asks Johnson.
“That’s what those orange buses are for,” says the Chair.
Think this is far fetched? There is a long history of P3s where the public interest was set aside to help the private consortiums stay profitable.
Take Nova Scotia’s Highway 104. The highway was to speed up traffic between Truro and the provincial border with New Brunswick by re-routing 45 kilometers of the Trans-Canada Highway through what is called the Cobequid Pass. The old route through the Wentworth Valley was slow and prone to accidents due to the volume of traffic on it.
That 45-kilometer stretch was developed as a public-private partnership and a toll established at the southern end of the route. What the public didn’t know at the time was the province agreed to prohibit trucks from using the old route and promised to maintain a 30-kilometer an hour difference in the speed limit to keep traffic volumes up on the new route.
Similarly Highway 407 (north of Toronto) was originally built to relieve traffic from the more southern Highway 401, but the private company that has a 99-year lease uses the price of the tolls to send drivers back to the already congested 401. Whose interest is that? On top of all that, the province serves a unique role as debt enforcer for the highway. Even if the amount you owe is in dispute, it may stop you from getting your car license plate renewed.
What about our school example? There have been numerous examples where developers insisted on moving the location of new P3 schools to “accelerate real estate sales” in their developments. This includes the P3 Auguston Traditional Elementary School in Abbotsford BC. The developer had lobbied the government to put the school in their new development, shaving $500,000 from the construction costs to win that concession on location. In the end, according to media reports, only 20 students from that new development attended the school, while more than 200 others had to come from neighbouring districts. If the school had been situated on the basis of the students who would attend, instead of what best benefited the private developer, the location would have been different. In 2003 the Alberta School Boards Association expressed concern that P3 schools will mean a loss of control where schools are built.
Next week: Fool us once, twice, fool us some more.