Tuesday, January 15, 2008

California's Terminator can’t beat BC’s Premier Fabricator on P3s!

P3 'success' just a big hoax
By Bill Tieleman

I congratulate Governor Schwarzenegger on his commitment to public-private partnership. In B.C., public-private partnerships ... have driven millions in taxpayer benefits.

California governor Arnold Schwarzenegger may also be Hollywood's fearsome Terminator but when it comes to politics, he's met his match in British Columbia's Gordon Campbell - the Premier Fabricator!

Last week, Schwarzenegger told Californians that, thanks to Campbell, he had the solution to their massive $14-billion budget deficit and $500-billion infrastructure needs - public-private partnerships or P3s like those used in B.C.

But there's only one problem - the Premier Fabricator has pulled the wool over the Terminator's eyes about the alleged success of P3s.

And if Arnie follows Gordo's advice, California voters may say "hasta la vista, baby" on Judgment Day, the next state election.

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.

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.
Schwarzenegger admits P3s could be a problem in California.

"Right now, it's such a new concept for our legislators that they're not there yet 100 per cent," the governor said Nov. 27. "They're concerned about it, they're suspicious about it, what it means, and so I think it will take a bit of time."

Watch out, Terminator! The Premier Fabricator may not be a muscle-bound cyborg, but when it comes to using P3s to separate taxpayers from their money, he knows no equal.


Peter Lipskis said...

You are one of the few columnist/journalists addressing the Real Issues. When Governor Arnie was in Canada last year, the CanWest coverage was all about political photo-ops and 'green' plans. In contrast, the LA Times headlined "California's governor impressed by privatization he sees in Canada"
As his push for that goal flags at home, Schwarzenegger sees one of many such projects to the north.
By Evan Halper, Times Staff Writer
June 2, 2007

VANCOUVER, CANADA — In a trip across Canada this week, as local leaders jostled one another to praise him as a statesman they could learn from, there was a moment when Gov. Arnold Schwarzenegger might have taken some notes of his own.

At a Vancouver construction site that he dropped by, workers were busily boring a tunnel for the type of public works project that the governor has been unable to get off the ground at home: one owned and operated entirely by a private company.

A 12-mile rail line that will connect Vancouver's waterfront to its airport is one of dozens of ventures like it in Canada. Provinces are turning to private companies to build and operate trains, roads, public hospitals, university facilities — even local schools.

"The way they do it is, I think, the right way to go," Schwarzenegger said in an interview. "We don't have to exactly copy it, but we can learn from those ideas."

He said that Wall Street is clamoring to invest in private infrastructure projects and that California must examine ways to "benefit from all the private money that is out there."

The governor has long championed the sort of large-scale privatization seen in Canada, calling it a solution to bureaucratic inertia and inefficiency in state government. Put services in the hands of the private sector, his argument goes, and the potential for profit will bring a new urgency to providing for the public.

But as other governments in North America and elsewhere move swiftly ahead with such plans, Schwarzenegger's privatization campaign is faltering.

Days before the Vancouver visit, a legislative committee unceremoniously dumped the governor's proposal to hire a few hundred private-sector engineers to help Caltrans with the cumbersome business of designing roads. Ideas he backed for building private toll roads, enlisting private firms to construct courthouses and contracting out more prison operations have stalled. A proposal to allow businesses to run freeway rest stops has been on the shelf for years.

"All new things take time for the legislators to really get familiar with," Schwarzenegger said with characteristic optimism. "We don't want to rush it and then make mistakes."

But proponents of the projects have grown dismayed as tens of billions of dollars in private investment have found a home elsewhere.

In places such as Canada and Britain, where medicine is socialized and big government has long been part of the political fabric, private companies are doing hundreds of infrastructure projects. Most involve private interests building a project for a government and then operating it for decades through a long-term lease.

In Schwarzenegger's case, "there has been a lot of rhetoric about this, then squat. Nothing happens," said Adrian Moore, vice president of research at the Reason Foundation, a Los Angeles think tank.

Moore worked with the Schwarzenegger administration to craft privatization plans soon after the governor was elected. But he has since become critical of what he sees as Schwarzenegger's reluctance to antagonize public employee unions.

"Canada is doing it, for crying out loud. I just spent 10 days in China, a communist country, and they are creating these partnerships right and left," Moore said. "They don't see this as some kind of mystical thing. They see it as a way to get things done."

But the Democrats who control California's Legislature have sided with public-employee unions that see privatization as a threat to tens of thousands of government jobs.

"Democrats — we're not in the business of contracting out state services," said Assembly Speaker Fabian Nuñez (D-Los Angeles). "It doesn't fit well with our political diet."

The only major privatization proposal Democrats have hinted they might embrace, albeit reluctantly, is not one that will get roads or rail lines built, or provide any other major construction: the governor's plan to turn the lottery over to a private company. Democrats are attracted by the billions of dollars such a deal could generate, money that could be spent on government programs.

The last time Schwarzenegger tried to overhaul the state bureaucracy in the face of intense labor and Democratic opposition, he emerged battered. He abandoned one plan, a 2005 scheme to shift state pensions for new government workers to a 401(k)-style program — a move that could have involved private financial managers in public retirement accounts — after opponents said it threatened death and disability benefits for public safety officers.

Now, the governor says, he won't demand privatization of public works until "the state is serious about this."

He said he wants to be sure "that people are not going to put up roadblocks to show those things don't work…. We're just going to have to move forward slowly and carefully and do it the right way."
nents of privatization say it simply doesn't work. Unions point to failed experiments that ended with projects not completed on time, services deteriorating and tax dollars wasted.

One is a recent bid by Texas to privatize welfare enrollment. State officials accused a private consortium of bungling the project, which dropped more than 30,000 children from health insurance rolls in a six-month period. The state pulled the plug on the contract a few weeks ago.

In Nova Scotia, where private companies were hired to build and maintain 30 local school buildings, the government ultimately determined it could have saved tens of millions of dollars by doing the job itself.

But many governments have found ways to structure their contracts so that if a project is not completed on time or fails to provide the promised level of service, it is investors rather than taxpayers who get stuck with the bill. Most projects in Canada include such provisions.

"It is very rare that they come in late or over budget. If they do, the private company eats the costs," said Jane Peatch, executive director of the Canadian Council for Public Private Partnerships.

Among the successes is a $1-billion bridge, built by a private company, linking Prince Edward Island to New Brunswick. A hospital in Vancouver was built and is maintained by a private company; government and university doctors provide care.

A privately built water treatment facility was completed $10 million under budget, and several sections of roadway throughout the country have been built and are maintained by private firms.

At a makeshift conference table under a canopy at the Vancouver construction site Thursday, British Columbia Premier Gordon Campbell told the governor that within a decade every major infrastructure project in his province will be built and managed by private interests.

David Crane, the governor's chief economic advisor who was also at the table, said: "California is way behind."


Anonymous said...

Golly gee Bill; why don’t you for leadership of the NDP ? You have all the answers; at least according to you. I dont know how the NDP functions without; you are truly a gift from the gods. At least your ego is.

Anonymous said...

It's so easy to try to get companies to do the ehavy lifting. But they do so at a price higher than what a government can get the funds to build. And as Bill mentions it keeps the pesky tax payers at arms length taking years to find out just how badly they got shafted in the construction. We elect governments not only to tax us but show leadership by doing the job. It's not a union versus free enterprise, which is the old saw used so often. These are our workers, our resources and if a goverment can't figure a way to do things and be accountable to their electors, it's time to change governments. One look at the tb BC Ferries bought offshore to notice it's costs rose to about double the cost of buying. Even with the feds dropping the import duties. The old excuse that private developers can do better is simply not true.

Anonymous said...

Every freaking day I pass Broadway and Cambie, and every day I see minimal progress. I see people; I see an excavation; I don't see cement being poured. Businesses are closing on Cambie. Some closed enterprises were in business for 4 decades or more.

The public would have been much better served if the North Arm had another crossing at the foot of Cambie, and Express buses were run along the corridor. Too bad Big-Money stopped use of the Arbutus Corridor which has an unused rail tract that is ripe for alternate use. The public faces huge deficits because a couple of fat cats didn't want to hear back hoes at work.

And why do we need the sky train? The city of Guadalajara, Mexico has miles of underground busways that run 24-7. It takes years for a transit worker to get other than split shift work. When I lived on Eglinton St, Toronto, buses ran beside my residence every 15 minutes from 2 to 5 AM.

Anonymous said...

6:33 PM

Not very nice anon. I tend to read what Bill writes and almost always agree with his analysis. I'm not here to get told, maybe he should run for NDP leadership.I'm here to hear what's happening now.

Bill has many years experience as a communicator with a large number of contacts that we don't have. If you are trying to support Gordo in his rush to privatize most everything in the province, go start your own blog and find a few newspapers that will pay for your comments. First move would be to actually write down your name.

Bill has one and seems pretty secure in using it on stuff he writes.

I agree with him on the present governments chopping up of Agricultural Land so some band can do a side deal of renting the land out as a shipping container parking lot. Same position as his is held by folks from all spectrums of political thought.

That position alone has no doubt upset the NDP Leadership but the truth upsets some folks.

We need 3P's like a hole in the head. By the way, who do you represent in the real world where folks have real names.

I used to but no longer, represent a number of thousands of folks who live as occupiers on assorted reserves in BC who are non Indian.The same treaty that took land from the land reserve screws the rights of occupiers( sure they can leave, but where would their homes go? Nowhere)Want to argue the voting rights, migratory birds, fishing rights, wildlife preservation go ahead and plunk it down on a blog.That's my area of interest and training.

Denis Love.
Sorry Bill, I got off message somewhat but I can and do stand behind anything I write and petty comments about a fellow running for a political party sort of gets me upset.

Anonymous said...

Great job, Bill. Nice to see a journalist put some real depth and analysis behind his writing.

I thought this was most revealing from the LA article quoted in comments:

"At a makeshift conference table under a canopy at the Vancouver construction site Thursday, British Columbia Premier Gordon Campbell told the governor that within a decade every major infrastructure project in his province will be built and managed by private interests."

Pretty damn cocky of Gordo, doncha think? Not to mention completely undemocratic. How this man loves to lord about with his self-made crown on! And this is the guy who says he doesn't believe in big government! LOL Have you ever seen a more puffed-up, self-interested and arrogant government than this one - with absolutely no regard for what the people may want.

Anonymous said...

The William Bennett Bridge in Kelowna will be very close to $500M when all is said and done - Not the $100M quoted by BT.

Anonymous said...

Yeah, but to be fair, wasn't it the New Democrats during the 1990's who first proposed P3's and, on that same note, wasn't it the new Deomocrats who first allowed private health care clinics during the 1990's while in government?

As for the current P3 projects, at the date of commencement of construction, government funding has been fixed and construction cost risk as been borne by the private contractors.

The only non-P3 project that escalated in cost *after* commencement of construction has been the trade and convention centre - a non-P3 project.

Anonymous said...

The screw up of the Cambie Merchants is a given. The developers are salivating at their removal. Can you say eco-density. They are being bankrupted and driven out for the vultures who are going to move in and develop, and develop and develop. Pick up cheap the one story buildings and apartments cheap and then laugh all the way to their bank (along with generous donations to the NPA of course.)

Anonymous said...

This is the way it always works, Smoke & Mirrors politics.
Call it P3 or whatever, it is still $$$ BS !
The same "friends" (contributors) of the government/party get the contracts (public's money).
Sadly . . . "ON THE TAKE" is our democracy.
Our beloved-leaders really do represent us, since we, by continuing to elect them are as bad as they are.
Charles the First or Gordo the First, the same corrupt type of monarch and we certainly wouldn't elect an OLIVER CROMWELL. would we ?!

Anonymous said...

When was the last time a major public project, P3 or public, has been on budget? I would like to see the average budget overruns of both. You need to present the whole story instead of a propagated half of one.

Anonymous said...

Thanks so much for this post, Bill. I've been reading your weekly columns for several years now, first from Seattle, now from California, and your work has been extremely useful in helping me understand the pitfalls of P3. So when Arnold began rolling out his big P3 push, we knew what to expect and know why this is a bad idea.

I've blogged about this specific column of yours at a major California political website, Calitics. Thanks again for keeping us on the West Coast informed about these shenanigans.

Bill Tieleman said...

Thanks to the many posters - pro and con - on this P3 column.

To answer a few questions, the size and profile of P3s became huge only after Partnerships BC was established by the BC Liberal government, which then put in place a rule that ALL public funded projects $20 million or more must consider a P3 model first.

The BC NDP, to my recollection, may have tried a few P3-type ventures but nothing like the $7.8 billion in 25 different project the BC Liberals currently boast about.

And that doesn't include the privatization of BC Hydro future electricity generation, worth up to $60 billion - see my previous column on this blog.

Run for the BC NDP leadership? Thanks but I suspect your encouragement is less than sincere. I did consider it briefly in 2003 at the request of several impressive people but decided against running for that very challenging position.

My ego remains large but still more maneuverable than a small car. Having a blog and column help!

I can't provide a detailed list of P3 versus public projects on cost comparisons but even if I could, you have to look at some of the particulars to judge what's going on.

However, I did present a few of the more obvious examples of P3 costs overruns. There are many more.

What's probably telling is the number of cases where projects started as a P3 and had to be taken over by government after they ran into trouble.

Lastly, one poster says costs overruns haven't taken place after "commencement of construction" so government costs haven't increased.

The problem is - those "commencement of construction costs" are dramatically different from the proposed costs - the ones that governments bit on in the first place! Once the decision to build it P3 is made, the real costs come out and we're on the hook!

Anonymous said...

i fell this campbell gov.is not only useing p3's to drain the public purse for his freinds but for a way to hide how much money is mismanaged and/or given away all in the name of privacy.We would like to tell the public but we can't.If the convention center was a p3 we might not now how bad things are for years or after the next election.