Back in November Arnold Schwarzenegger announced that he was going to undertake a new initiative to privatize more of the building and management of public works projects here in California. Known as “public-private partnerships” or “P3,” they’ve been employed around the world with poor results. At the time I denounced it as a dangerous giveaway, and Democratic candidate for AD-27 (should Prop 93 fail) Emily Reilly added her perspective on the failure of outsourcing design/build projects.
As the LA Times article on the announcement explained, Arnold was taking his cues from our neighbors to the (far) north, British Columbia in particular:
The Schwarzenegger administration is contemplating a plan, probably requiring state legislation, to create a California agency to oversee state and local public-private partnerships, aides said. Modeled after one in British Columbia, it would be staffed by professional financiers and other experts who could oversee the structuring of deals by both state and local governments.
But in reality, the BC model is NOT one we want to follow, as it instead proves that P3 is a costly waste that gives us nothing but higher costs and poorer quality services. So argues Bill Tieleman, one of the province’s leading left-of-center voices. Tieleman claims BC Premier Gordon Campbell, a right-wing champion of P3, has “pulled the wool over the terminator’s eyes” on these projects:
Here’s why: Despite Campbell’s boasts, public-private partnerships don’t work.
In the vast majority of examples here in B.C. and elsewhere, the costs are higher as the public gets hosed to provide private corporations with substantial profits.
Look at some of B.C.’s own bad examples.
The Abbotsford Hospital and Cancer Centre was to cost $211 million under the original P3 budget and open in 2005 – the current estimated cost is $355 million, a 68 per cent jump, and it will open this year instead.
The William Bennett Bridge in Kelowna – priced at $100 million, now estimated at $170 million, up 70 per cent.
The rapid transit Canada Line to the airport was budgeted at $1.55 billion but will now cost $2 billion, or 29 per cent more.
Or look to Brampton, Ont., which was promised a new P3 hospital with 608 beds for $350 million. It now has a hospital with just 479 beds for $550 million.
Read on for more details and examples of how this is already being implemented, without a vote of the Legislature…
As Tieleman explains, the fundamental architecture of a P3 means that it has no hope of being a good deal for Californians:
The higher costs only makes sense because can any corporation, even the world’s largest, borrow money at lower interest rates than a government? Of course not, but these enormous capital projects require significant loans to be completed.
The real reason governments use P3s is to take public infrastructure costs off their books and falsely claim they are balancing budgets and reducing debt. In reality they are borrowing money at higher rates over longer periods of time than if they had done them as public projects.
Read that again. To undertake a massive public works project, like a new Bay Bridge or high speed rail requires massive borrowing. Government can almost always borrow more cheaply than the private sector. Further, credit is becoming very difficult – and expensive – to come by in the current credit crunch. The low interest rates of the last 25 years are not likely to be seen again, certainly not on a consistent basis. Yet even before the current crunch, P3 projects have run into serious financial problems and cost overruns.
All P3 accomplishes is an accounting gimmick. The claims of savings to public budgets is Enron accounting at its finest.
Sadly, these plans are already being implemented at the state level. From notes taken at a recent meeting of the California Transportation Commission by RailPAC:
Deputy Secretary James Bougart from the California Department Business, Transportation and Housing announced the formation of a performance based infrastructure group that will form private public partnerships. The mission and methods partnerships will contain elements found in British Columbia and Ontario Canada. Commissioner Zarian asked if there was a list of private providers, but Mr. Bougart replied that some capital fund managers are interested in such partnerships and once the CTC has ‘real authority’ to lead, private contractors will be contacted.
So even though, as Tieleman noted, P3 in BC and Ontario has been a colossal failure, we’re plowing right ahead? And I assume it’s just happenstance that “some capital fund managers are interested.”
Over twenty years, California expects to spend $500 billion on infrastructure, formerly called public works.
Ah, newspeak rears its lovely head. When exactly did we all agree to this name change?
California has over a century of success with using public agencies to build public works. Our freeways are one of the world’s great engineering marvels, as is the California Aqueduct, BART, the Port of Los Angeles-Long Beach, etc. But because Arnold isn’t willing to properly fund public works, we’re going to go down a path that brings us a lower quality service for a higher cost. Taxes are never fun, but they are FAR more affordable to Californians and bring much better, effective projects than P3.
Hopefully we’ll listen when friendly British Columbians point that out to us, and not let our government repeat the mistakes of theirs.
