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March 30, 2009

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Memo to the Privanator: P3s are a rip-off

BURNABY—During his appearance on NBC’s “Meet the Press” last weekend, California Governor Arnold Schwarzenegger caught my attention when he began promoting public-private partnerships, or P3s, as the latest fix for the flagging U.S. economy.

“It’s like when you look at British Columbia or other places where they have a public-private partnership, where everyone is happy,” said the former action movie star. “Businesses are happy, the people are happy, labour is happy, the politicians are happy. I mean, everyone is happy.”

Has the Governator been spending a little too much time in Disneyland lately? Or does he think we’re all high on “B.C. Bud”? Whatever “British Columbia” he was referring to couldn’t have been Canada’s westernmost province. In fact, if Mr. Schwarzenegger talks with anyone from B.C. outside Premier Gordon Campbell’s inner circle—even to his former finance minister—he won’t find a lot of happiness about P3s. All across this country and especially here in B.C., people are becoming more aware of just how big a taxpayer rip-off these deals really are.

In other parts of Canada, provincial auditors general who serve as financial watchdogs have time and again been clear that no such magic exists with these deals. In B.C., it was my union that hired Ron Parks, one of the country’s most respected and independent forensic auditors, to look at four major P3 projects.

What Mr. Parks found did not make a lot of people feel warm and fuzzy about P3s. Not only are P3s costlier for taxpayers than if the projects were done publicly, Parks found. In the case of B.C., he also found a consistent pro-privatization bias in the way that the B.C. government (through Partnerships BC) compares costs when assessing major projects. And he found that the Campbell government routinely denies access to critical information, thus limiting the public’s ability to know that its interests are protected on P3 projects.

I don’t think that the people of California are any more naive than we British Columbians. Once they find out what is really going on, they too will go from happy-happy-happy, to outraged by the inappropriateness of wasting taxpayer dollars this way.

There have been others, including from the U.S., who have tried to make people aware of what the P3 type of procurement model is all about.

James McKinney, head of debt capital markets at William Blair and Co.—a lead advisor to Chicago when the city leased 36,000 parking meters to a private consortium—made it clear who benefits from P3s: “These things give investors steady earnings over a long period of time.”

Pat Andrews, editor of, says: “The devil is in the details – as future generations to come will learn. That’s the most irritating thing about this – the sheer short-sightedness of it. It’s money now and who the hell cares about three generations from now, and that’s not right.”

Mr. Andrews makes an often overlooked point. We continue to say that our youth are our future—and then turn around and sign a 35-year contract on infrastructure for their community libraries, recreation centres, water treatment, et cetera. Our kids, from the day they start work until the day they retire, will not have any input on what was once a public service.

Columbia University professor Elliot Sclar sees P3s as just the latest product Wall Street bankers have dreamt up to make a bundle – and one that taxpayers will pay to clean up.

“Just watch,” news reports quote Mr. Sclar as saying, “this is going to be the sub-prime mortgage scandal for the next generation.”

Nor are U.S. bankers all that happy about P3s. Dennis Enright, a principal and founder of NW Financial Group, a regional investment banking group in New Jersey involved in municipal underwriting, has raised a good point. If private investment funds are willing to buy the bonded debt of a decaying road like the Chicago Skyway, based on the expected cash it will generate over the next 99 years, then doesn’t it make more sense – from a strictly financial standpoint – for governments to do the deal?

That’s certainly the lesson that B.C.’s transportation minister, Kevin Falcon, learned when private financing for one of his favourite P3 pet projects, the Port Mann bridge, collapsed recently. Falcon was forced to admit that “a traditionally financed arrangement is the better way to proceed” to replace the Port Mann, which will be a toll bridge. Even Larry Blain, B.C.’s P3 enforcer as CEO of Partnerships BC, has estimated that $200 million in financing costs will be saved by switching from private to public borrowing.

Only weeks before private financing for the Port Mann fell through, Minister Falcon was trashing CUPE for criticizing P3s and challenging us “to find one example” of one “that doesn’t work out like we said it would.”

Mr. Governor, my advice to you is: don’t put yourself in a position where, like our Mr. Falcon, you will have to eat your words. Think twice about privatization.

Barry O’Neill is president of CUPE British Columbia, the province’s biggest union with 75,000 members.