A warning for taxpayers in Nova Scotia

A shorter version of this editorial was published in the Halifax Metro newspaper special edition on unions, published April 24, 2017, along with this ad (see photo below).

Time and time again provincial governments are forced to admit they were wrong to use public private partnerships (P3s) to construct health care facilities, costing taxpayers billions of dollars. Yet here we are as the McNeill Government embarks on another foreseeable failure with the QEII redevelopment project.

Last year, the Liberal government realized their mistake to privately construct and lease 39 schools. They should have owned the schools outright from the start. They recently bought back the leases for 26 of the schools, at an additional cost of approximately $162 million. The alternative was to walk away empty handed, while developers pocket the money spent over the years ($726 million on principal and interest payments) and keep the buildings.

First P3 schools, now P3 hospitals. It was recently reported that the government paid 12 times the assessed value of land purchased for a new outpatient centre.

Similar in scope to the QEII redevelopment, a review in 2014 of the P3 used to finance Montreal’s University Health Centres found that the capital costs were at least $1.8 billion over the original price tag. See more examples at novascotia.cupe.ca/no-room-for-profit-in health-care.

Why would the McNeil Government rely on P3s with higher-cost private financing? There’s a desire by many politicians to keep borrowing costs off their books, at least in the short term.

P3s are not in the best interest of workers, our families or our communities.

Nan McFadgen
CUPE Nova Scotia President

Private financing wrong direction for Canadian infrastructure bank

A report written by CUPE Economist Toby Sanger warns that private financing of the proposed Canada Infrastructure Bank could double the cost of infrastructure projects, and shows how the bank can instead provide low-cost, public financing for much-needed projects.

The study was published by the Canadian Centre for Policy Alternatives in advance of the federal budget, where more details of the proposed bank are expected to be unveiled.

Sanger outlines the dramatic shift from Liberal election promises of a bank with low-cost financing to the current plan, which focuses on higher-priced private borrowing. The shift will increase pressure to privatize key infrastructure, and will mean less public funding is available to deliver public services and infrastructure.

“No homeowner in their right mind would commit to a loan or mortgage at a rate of 7 per cent or more when they can borrow at 2.5 per cent — especially when it involves locking in over 10, 20 or 30 years, and paying close to twice as much in total costs over the life of the project,” writes Sanger. “So why would the federal government make the Canada Infrastructure Bank rely on higher-cost private finance?”

The study outlines how the federal government could establish a Canadian infrastructure bank that works in the public interest by providing low-cost financing for public infrastructure.

Download a printable copy of the report: Creating a Canadian infrastructure bank in the public interest.

Five times provincial governments failed with P3 hospitals

A warning for taxpayers in Nova Scotia

Time and time again provincial governments are forced to admit they were wrong to use public private partnerships (P3s) to construct health care facilities, costing taxpayers billions of dollars more than they would spend if those hospitals were publicly owned and constructed. Auditor Generals, researchers and journalists across Canada continue to report on P3 failures and unnecessary waste of taxpayers money, yet here we are in Nova Scotia as the McNeill Government is about to embark on another foreseeable failure.

Let’s stop with the misleading jargon and practices and start making transparent, evidence-based decisions. Put our health care dollars into the public health care system, not into construction cost overruns and the pockets of private companies – who may not even be from our province. Keep our hospitals and long term care facilities public.

North Bay Regional Hospital – Ontario

The P3 North Bay Regional Hospital cost at least $160 million more as a P3. The project financing costs are adding millions extra each year, over 50 beds have been closed, and they’re on the third round of layoffs with over 100 jobs cut. The hospital only opened in 2011.

Royal Ottawa Mental Health Centre – Ontario

The Royal Ottawa Hospital mental health facility opened in November, 2006 – smaller than originally planned, and with fewer beds. The final cost of the P3 hospital was $146 million, a cost overrun of $46 million. Economist Hugh Mackenzie analyzed publicly-available financial details of the ROH. He concluded that private financing added $88 million to the hospital’s costs.

Montréal’s University Health Centres

In 2014, the Quebec newspaper La Presse reported that Auditor General Renaud Lachance released a review of Montréal’s University Health Centres explaining that the capital cost estimates were at least $1.8 billion over the original $5.2 billion announced for the P3 project. That’s actual P3 costs for the Center hospitalier de l’Université de Montréal, the research center, the McGill University Health Cente, and the Sainte-Justine University Hospital Center. That’s not a typo – that’s billions!

William Osler Hospital – Ontario

The William Osler Health Centre in Brampton, Ontario is another example of a P3 gone wrong. In 2008, the Ontario Auditor General found that the building of the P3 facility in cost $194 million more (in 2003 dollars) than it would have as a public hospital. Local fundraising in Brampton had to increase to more than $230 million from an original $100 million in order to try to cover the difference. In the words of Globe and Mail columnist Andre Picard “taxpayers got screwed”.

Diamond Health Care Centre, Vancouver General Hospital – British Columbia

The research found that in the case of the P3 Diamond Health Care Centre – they report that the actual nominal cost of a P3 was more than double that of a publicly procured project. In 2009, forensic accountants found that the Diamond Centre in Vancouver’s General Hospital total nominal cost (whole life cost including maintenance) could have been $89 million if it was built publicly. The BC provincial government spent $203 million – or $114 million more – on the hospital as a P3.

Back In House: Why Local Governments Are Bringing Services Home

Back In House: Why Local Governments Are Bringing Services Home, a new report from the Columbia Institute, is about the emerging trend of remunicipalization. Municipal services that were once outsourced are finding their way back home. Most often, they are coming home because in-house services cost less. The bottom-line premise of cost savings through outsourcing is not proving to be as advertised.

Other reasons for insourcing include better quality control, flexibility, efficiency in operations, problems with contractors, increased staff capacity, better staff morale, and better support for vulnerable citizens. When services are brought back in house, local governments re-establish community control of public service delivery.

The report examines the Canadian environment for local governments, shares 15 Canadian case studies about returning services, follows-up and reports back on two earlier studies promoting contracted out services, provides a scan of international findings, and shares some best practices and governance checkpoints for bringing services back in house. Many of the local governments examined employ CUPE members.

As part of our ongoing work to promote the value of publicly-delivered services, CUPE helped fund the production of the Columbia Institute report Back in House.

Order free copies of the report

This report examines shares 15 Canadian case studies, best practices and governance checkpoints for bringing services back in house. Order here.

Lessons from the Charbonneau Commission

Privatizing public services can have dangerous consequences

Most people will remember the explosive allegations exposed by Quebec’s public inquiry into corruption and collusion within Quebec’s construction industry. The Charbonneau Commission found that for years, supposedly reputable companies were awarded public road, wastewater, and other building contracts at highly inflated prices. These companies would then kick back a portion of the profits to the mafia, as well as to government officials and political parties that helped secure the contracts.

But what allowed these private companies to establish the intricate corruption schemes and highly inflated prices in the first place? Let’s take a look at some of the causes.

Austerity and outsourcing

Many of the witnesses agreed: years of austerity and cuts within the Transport Ministry created a situation where there was not sufficient internal expertise to properly monitor and inspect public tendering processes, especially in identifying a project’s needs in the design phase. The ministry was also unable to properly assess cost overruns and other invoices during the building phase.

Similarly, outsourced municipal work created conditions, which were ripe for corrupt companies to abuse the system. In Montreal alone, outside municipal workers from CUPE 301 were reduced from 12,000 in the 1970s to about 5,000 in the 2000s. Consequently, in some privatized areas like sidewalks, wastewater and paving, the lack of competition allowed mafia-linked companies to form cartels which then rigged the bidding processes and inflated prices by up to 30 per cent.

Public-private partnerships (P3s): a risky lack of transparency

The Commission focused much attention on the corruption scheme at the McGill University Health Centre (MUHC) P3 that implicated then-CEO Arthur Porter and SNC Lavalin. The report shows how the veil of secrecy surrounding P3s opened the door to corruption. MUHC managers were able to choose the members of the selection committees that oversaw the bidding, and both the managers and committee members were offered bribes to favor one bidder.

All of this could have been avoided if the province had decided to go the traditional route by financing the project publicly.

And if that wasn’t enough, Quebec think-tank IRIS released a paper in 2014 demonstrating that the province could save nearly $2 billion dollars by buying back the contract and bringing the hospital back into public hands.

What can we do about these problems with the system? The commission’s 1700-page final report, tabled in November of 2015, sets out 60 recommendations to help fight corruption and collusion, including hiring more internal expertise at both the provincial and municipal levels, more oversight and transparency in the public tendering process, and strengthening protections for whistleblowers.

“An often-suggested approach (…) to preventing collusion between stakeholders in the private sector and improving the estimation of construction costs is to strengthen the internal expertise of public sector offerors, particularly by allowing them to perform certain tasks themselves, using internal staff.” *

“Internal expertise is an effective defense against collusion.” *

*Source: Commission of Inquiry on the Awarding and Management of Public Contracts in the Construction Industry (Volume 3, pp. 134, 135)

Asking the right questions: A guide for municipalities considering P3s

In this guide, economist John Loxley takes a critical look at the case for and against using public-private partnerships (P3s) for municipal infrastructure.

His analysis goes beyond the claims made by P3 promoters to examine the costs and consequences of privatizing vital community assets. Through a series of questions, Dr. Loxley outlines the problems that accompany infrastructure and service privatization, and highlights the value of keeping vital assets and services public.

With growing financial and political pressure on municipalities to use P3s, this guide is a timely resource that answers key questions about financing and delivering infrastructure projects.

Order free copies of the guide

With this guide, municipal councillors and civic officials will be able to ask the right questions before considering entering into a P3. Order here.