P3s for Dummies: Part III — Fool us once, twice, fool us some more

Ontario has been leading the country in pursuing private deals to finance, develop and maintain public infrastructure projects, including a significant number of major hospital redevelopments.

Last week we looked at how public-private partnerships turn projects away from the public interest. In Part I we looked at what P3s are and how the concept of risk has been used to overcome project costs that have been much higher than traditional public procurement. And along the way we poked some fun at the arguments put forward by the business community looking to get rich at our expense.

This week we debunk the myth put forward by the Conference Board of Canada that all is now well in the P3 world.

The Conference Board of Canada has suggested that Canadian P3s fall into two categories – Phase I, which we could summarize as the “we didn’t know what the heck we were doing and made a real mess of things but continued to deny it until the evidence was overwhelming” phase, and Phase II, post 2004, in which provincial and federal governments set up P3 infrastructure offices that, according to the Conference Board, now know what they are doing. Phew! Nothing to see here! Everybody go back to watching hockey.

Of course, when post 2004 P3s go off the rails, they blame it on municipalities, which apparently still don’t know what they are doing. P3s are still a great idea, they say. They just need more, well… rules. After all, this whole idea is not complicated enough already.

If the P3 agencies are now so smart, someone needs to explain the Auditor General of Ontario’s recent review of Metrolinx, which managed to procure one of the most expensive fare card systems in the world through a so-called P3. While P3s were meant to get public infrastructure projects going much faster, it also appears to have had the opposite effect when it comes to building Toronto’s much delayed rail line to Pearson International Airport.

Perhaps the recent blaming of municipalities might have something to do with Ottawa’s redevelopment of Lansdowne Park, which is turning into a textbook case about how not to pursue a P3, or at least, how not to let a P3 pursue you.

Carleton University’s Tamara Krawchenko and Christopher Stoney published a peer reviewed study in late 2011 (Canadian Journal of Nonprofit and Social Economy Research) looking at the fiasco this project became after getting bogged down in litigation over a bitter fight not only between nearby community groups and the city, but business interests who wanted their own shot at getting a sweetheart deal from the municipality.

It is important to note that the authors of the study are not P3 opponents, but recognize that P3s can leave a democratic deficit, particularly when public engagement is treated as “manipulative” or “therapeutic.”

Some may remember Lansdowne Park as the home of the former Ottawa Roughriders Canadian Football Leage (CFL) team. You knew there was a creativity deficit when the CFL had nine teams, two of which were called the Roughriders.

The Ottawa Roughriders eventually went kaput, leaving Saskatchewan as the true Roughriders, and Ottawa got stuck with a vacant stadium that was showing some significant structural cracks. The Ottawa 67’s still play in an arena on the underside of the north stands.

The stadium is located on a 40 acre parcel of land that is nestled around a bend in the Rideau Canal not far from the city center. It is considered a UNESCO World Heritage site, although we have no idea why. Maybe it had something to do with a Styx concert this author attended there in the 1980s. It was truly historic.

When cities want to redevelop a big focal point like Lansdowne, they usually start a process of public engagement, much as the Provincial Liberals did around Ontario Place (and subsequently ignored). Unlike Ontario Place, the public engagement process stopped dead in its tracks when the City of Ottawa received an unsolicited P3 proposal to redevelop the site by a local consortium that wants to bring back CFL football to the city.

The proposal included restoration of what is now called Frank Clair stadium as well as filling the space around it with condominiums (what else?) shopping and yet another multiplex where you can dump off the kids to watch Jim Carrey movies. Yup, that’s what you want to use such prime real estate for. After commercializing most of the public space, a small parcel of land near the canal would be left for the public to fight over its use. (We would recommend a parkette with a long board thrusting into the canal for the dummies who approved this proposal to walk the plank, preferably when it’s not frozen). In return, the City would provide subsidies to both the unnamed (hopefully not Roughriders) CFL team and the 67s junior hockey team. While the land would be technically public (this is always a big selling point for the P3s) 10 acres would be leased to the consortium for the grand sum of $1 per year. Further, the consortium would get a 30-50 year contract to manage the property, for which the fees have yet to be made public. Nor is it clear how much of the $285 million stadium cost (including interest) would be borne by the city, especially when senior levels of government would be prohibited from kicking in given rules around sole-sourced contracts. Whoops!

These details only became public as a result of the first legal challenge, in which the judge refused to intervene over jurisdictional issues.

Friends of Lansdowne have since highlighted some of the detailed costs of this redevelopment to the public purse. Originally pitched as costing nothing to the City of Ottawa, the known part of the bill is presently at $196.3 million (excluding interest).

That includes $129.3 million for the stadium, $35 million for an urban park, $8.5 million towards a privately owned convention centre, $2.9 milllion to relocate a community recreation facility, $14 million for site work, including moving a horticultural building by 150 metres, $1 million for the Ottawa 67’s to go play somewhere else during the two-year redevelopment, $2.8 million towards a social housing reserve and $2.8 million to a developer to manage the contracts.

The Friends say the $196.3 million does not include all environmental remediation and consulting costs, nor is it known what the legal, audit and evaluation costs to manage this 30-year deal will be.  Krawchenko and Stoney mention subsidies to the sport franchises, but they are not on this list either. While $129.3 million is the estimated stadium cost, the cost of the winning tender has yet to be revealed.

The fact that the public still does not know the full extent of its obligations is disturbing, but not unusual in the world of P3s.

Further, community groups question the viability of shops and sports in that location when there will be a significant lack of public parking, leaving open the question of who is left holding the bag if and when the whole thing fails?

“The Lansdowne case study epitomizes the conflicting motives and interests between private and public sector interests and concerns. Whereas the private sector focus will necessarily be on profit, risk minimization, and timeliness, those responsible for guarding the public interest are charged with ensuring due process, effective representation, and good governance practices in addition to value for money,” write Krawchenko and Stoney. “This will inevitable create tension between the parties about the pace, openness, transparency, and inclusiveness of the process and generate pressures to compromise the public interest to accommodate private interests. In the case of Lansdowne Park, this was evident when the City’s open and inclusive ‘Design Lansdowne’ process was cancelled in favour of an unsolicited proposal by local developers after they had indicated that they would not be prepared to take part in a competitive process.”

Ottawa City Council approved the Lansdowne Park redevelopment in October 2012. It is expected to be completed in 2015.

Have we learned our lesson about P3s yet? It appears not.

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