Category Archives: Water Infrastructure

P3 versus a Partnership with Mission – The $$$ Numbers

P3 versus a Partnership with Mission

The $$$ Numbers

Summary:

Going with a Partnership with Mission would save the taxpayers just over $96 million dollars ($96,366,367).

The best plan the mayor, council and staff have stated they could devise will cost the taxpayers $96 million more than abandoning the P3 approach to continue in Partnership with Mission would have.

Given that Mission was to pay 33% and that the federal grant represents a recovery of only 22.5% one would think that one of: two retired school principals, a current school principal, a retired banker, a real estate agent would have recognized that 33% is higher than 22.5%.

There are no engineering plans drawn, no company (or companies) chosen to design and build the P3 project that mayor, council and staff are obsessed with using to the point they are using fear, intimidation, threats, statements that are so inaccurate that they fall apart with the most basic examination with logic, irrational statements and claims – not to forget $200,000 taxpayer dollars – to scare Abbotsford voters into approving using a P3 as they want – even though the P3 will be significantly more costly to use while delivering an inferior product compared to other methods available to accomplish the water system upgrade.

The one area in which the P3 clearly stands above other choices is that it requires no real effort or work of mayor, council and staff other than paying whatever it costs (with no regard to what it should cost) and raising the tax and water rates to whatever stratospheric levels will be required to cover the bloated final cost.

If voters elect new councillors who are competent and looking to the best interests of voters, the water system infrastructure can be upgraded at least as quickly, if not quicker, using a more cost effective and efficient approach. Numerous studies have shown that a well managed public project achieves significant cost savings over a P3.

 

P3:

  • Project type: P3 – design build
  • The cost:        $291 million
  • Contribution: Government Grant1 $65.7 million 23% (65.7/291)

Partnership with Mission:

  • Project Type: Public managed – Project designed, then tendered to construct.2
  • The cost:        $291 million3
  • Contribution: Missions share of the cost 33% (1/3)

 

Cost to Taxpayers

 

Partnership with Mission:

Total cost – Mission share = Abbotsford’s Taxpayers share

$291,000,000 – $97,000,000 (291,000,000/3) = $194,000,000

 

P3:

Total Cost – Federal Grant + (-) I = interest costs (interest savings) + (-) A additional costs (savings) = Cost to Abbotsford Taxpayers

$291,000,000 – $65,700,000 + $35,066,367 + $30,000,000 = $290.366,367

 

Cost (Savings) to Abbotsford Taxpayers of using P3 instead of Mission Partnership  = Cost of P3 – Cost of Mission Partnership

$290,366,367 – 194,000,000 = $96,366,367

I – Interest cost:

Payment: Monthly; Amortization Period: 25 years; Interest Rate 7%

Principal borrowed: $31,300,000.00            Regular Payment amount: $221,221.89

Total Repaid: $66,366,567.00                             Total Interest Paid: $35,066,367.00

Total interest paid as a percentage of Principal: 112.034%

 

A – Additional Costs:

P X C = 30 X $1,000,000 = 30,000,000

P :       The project period of operation is 30 years

C:        The consultant’s report commissioned by the City noted that it would cost an additional $1,000,000 per year to operate the project as a P3 than it  would if the project were a public project.

 

It is Important to Note: Michael Maschek, PhD, from the University of the Fraser Valley’s department of economics stated in the local newspaper interview asking him about using a P3 for the water upgrade:

Maschek believes the contract is the key to any successful P3 plan. “If you could write the perfect contract, there would be no problem.”But it is unlikely that every possible situation can be accounted for in the agreement and because of the lengthy term, the contract  is usually reworked.“Renegotiation is highly likely for two highly related reasons: One, the long duration of the contract period, and two, the fact that PPPs are prone to contractual incompleteness. The contract itself is very difficult to negotiate; economists refer to this as a high transaction cost,” he explained.”

Translated from economic speak Dr Maschek stated that it is highly likely any P3 contract will need to be renegotiated. This renegotiation results from the nature of P3s where the original contract is based upon words which results in renegotiation when the drawings/design/drafting plans emerge and what it is that will actually be built becomes tangible plans rather than imprecise words.

Which means the price is highly probable to rise when the ambiguity of words as the defining element are replaced with the precision of engineering plans.

If the cost rises above $291 million under a P3 there will be no additional federal funds forthcoming. Under a Partnership with Mission, if the costs rise Mission will cover 33% of the cost increases.

********************************************************

1 On October 25, 2011 Ed Fast was quoted in the local papers as saying the Abbotsford would qualify for up to $65.7 million dollars in federal P3 funding.

2 From ‘Abbotsford’s Water Infrastructure Upgrade’ :  an examination of the type of project to use to upgrading the water infrastructure.

That we do not use current councils preferred method of design/build. Under this system the builder maximizes their profit by delivering the least project they can at the lowest cost they can at the highest price they can.

Water is far too important a resource to go with a design build. We need to be able to ensure the upgraded infrastructure meets not just current but future needs, is robust enough for the years of service it will need to deliver and delivers the highest quality water.

To do that council and the public need to have an opportunity and sufficient time to study the plans to discover and correct any errors and omissions.

It has been my experience that the skills, knowledge and insights a group of people such as the citizens of Abbotsford and Mission possess, can be surprising and serve to ensure nothing gets missed in the plans for the water infrastructure upgrade. Letting people share their thoughts and ideas can lead to valuable insights. At least for a council willing to actually listen with an open mind, accept and act on good ideas.

Going with this approach requires far more of council than simply saying build me one of these. But if the mayor and council are not willing to put in the time and effort required to ensure the needs and best interests of taxpayers are met – exactly why are they in or running for office?

3  Reality does not care what you want to be fact, reality does not care what you believe to be fact, Reality simply is what IS fact. Tao of James

In their attempts to scare, intimidate, mislead voters into approving a P3 plan, mayor, council and staff have all inaccurately, falsely, claimed that using another approach than a P3 would be more expensive.

The use of P3s is part of  the ideology the federal Conservatives operate on in spite of the considerable differences between that ideology and the real world.  In order to serve their ideology and bring about the use of P3s the federal Conservatives had to make infrastructure grants available exclusively through the use of P3s.

Without a financial incentive large enough to offset the additional costs that arise from the very nature of P3s no competent municipal management would choose to use a P3. At a grant level covering 25% of the cost of the P3 the project will save a small amount, break even or cost a small amount more. As the percentage the federal grant contributes to the project falls below 25%, the extra costs the P3 inflicts on those who are mathematically and financially challenged to the point they do not comprehend that the P3 is, rather than reducing the cost, increasing the cost to those who must pay the bill.

Your Abbotsford Tax Dollars at Work

It would appear that the $200,000 taxpayer dollars City Hall is spending to hire PR and sell the P3 to the public is working.

Friday’s Global News Hour Final’s unbalanced reporting on the water system upgrade issue in Abbotsford was not only a one sided promotion of the current mayor and council’s position on the P3 issue, but did a great disservice to the taxpayers of Abbotsford by implying that the Mayor and Council are correct in their assertion that the P3 is the most cost effective way to upgrade Abbotsford’s water system.

Several people have performed and written about calculations that document that only under the most optimistic assumptions (everything goes perfectly and not a single tiny thing fails to go according to assumptions) does the cost of the P3 – possibly – come in under the cost of proceeding with the upgrade as a public project.

Failing to inform the citizens of Abbotsford that there are analysis that show a P3 is not the most cost effective way to accomplish the water upgrade (even with a $65 million grant from the federal government) gave Abbotsford’s citizens the impression that City Hall’s financial claims are correct is a great disservice to the citizens of Abbotsford.

The knowledge that there is serious doubt as to whether the City’s proposed P3 is the most cost effective (lowest cost) way of proceeding with the water upgrade is vital to citizens making an informed choice on November 19th.

The report also failed to note that the federal Conservative government is ideologically wedded to the idea of P3s and that the purpose of the grants is to make the cost of proceeding with P3’s competitive with the cost of a public project. And to tempt financially challenged politicians into fixating upon the idea of all those $millions$ of federal dollars and ignoring any evidence that demonstrates the cost of the P3 exceeds the cost of a public project – even after you subtract the federal grant dollars.

It is also important to know that as the cost of the water upgrade increases the savings to be found in using public financing increase. Given the nature of P3’s and Abbotsford’s mayor and council’s record of pie in the sky financial forecasting and cost overruns…..the probability of the cost soaring past the current number of $291 approaches certainty.

However, all those arguments are based on Abbotsford’s mayor and council’s insistence on going  it alone on the water upgrade.

As I point out as part of my platform in seeking election to Abbotsford’s council if we return to the original partnership with Mission and the announced 2/3 and 1/3 split of the cost of the water upgrade Abbotsford Mayor and council plan to spend an additional $127 million in order to get a $65 million dollar federal grant. (see http://www.jameswbreckenridge.ca/?p=2176 for the calculations).

Would anyone – other than Abbotsford’s mayor and council – give someone $127 in order to get $65 back?

Jay’s Words of Extortion and Nonsense.

General Manager Economic Development and Planning Services Jay Teichroeb had this to say about the referendum on the proposed P3 water project:

“It’s important that the public understands what is in front of them. It is not an either/or question … The choice is the model proposed or nothing,” said Teichroeb.

That means the public either says yes to the P3 water supply or no. The traditional design/build is not one of the options. He said if people don’t understand this then “we have not served the community.”

“It is the best of 19 potential options we examined, and were closely analyzed by teams of engineers and financial experts.”

If the public says no to the P3 proposal, Teichroeb said the city would have to “limit new development” and “use water rates to create a financial motivation to conserve.”

If this was the best of 19 options that city staff could come up with, it is time to do a thorough housecleaning and hire some competent staff.

If Mr Teichroeb actually believes what he says above and is not merely using threats, intimidation and scare tactics (old favourites of City Hall staff, mayor and council) to stampede taxpayers into panicking and doing what staff, the mayor and council want them to – vote for the excessively expensive, flawed and problematic system, the City’s inept P3 proposal – that would explain why the City derives at best minimal benefit from the $892,000 it budgeted for Economic Development and Planning Services.

Rather than accepting Mr Teichroeb’s Chicken Little ‘the sky is falling’ routine let us proceed in the matter Mr Teichroeb, city staff, mayor and council clearly don’t want the public to, by thinking about what he said rather than being intimidated.

The choice is the model proposed or nothing,” It is not “ or nothing,” It is a choice of overpaying for a flawed and problematic system by $100,000,000+ (a Hundred Million Plus dollars – a phenomenal waste of taxpayer dollars even by current staff, mayor and council’s standards of waste, waste, waste) OR saying ‘enough’ and demanding a financially responsible and operationally sound plan for upgrading the Abbotsford/Mission water supply system.

“we have not served the community.” OK, I cannot dispute that. Plan A and the numerous costs staff and council were aware of and did not reveal to the public until after the referendum; Plan A with its massive cost overruns; not obeying the law (Community Charter) which was designed to protect taxpayers from being saddled with multi-million dollar subsidies to private business, which staff, mayor and council worked to circumvent so they could burden already overburdened taxpayers with ten years of million(s of) dollar(s) subsidies to the Heat’s owners; usury fees for the use of city facilities to subsidize a professional hockey team; and so on and so on….

Clearly Mr Teichroeb is correct in stating “we have not served the community.”

“It is the best of 19 potential options we examined, and were closely analyzed by teams of engineers and financial experts.”

The public is certainly entitled to have a list of the 19 options as part of evaluating the “best of the 19 options.” It is vital to a proper evaluation of the options for the public to have the list of names of those who were members of the “teams of engineers and financial experts.” and their analysis.

Please none of this ‘we cannot give out the names’ usual city claptrap and excuse mongering. Unless the City is saying the members of these “ teams of engineers and financial experts.” are not willing to stand behind their analysis. Which would inform the public just what that analysis is worth – nada, nothing, less than the paper it was written on.

The public is entitled to the 19 options, the names of the engineers and financial experts and the analysis of each of the 19 options. Or Mr Teichroeb’s resignation.

“If the public says no to the P3 proposal, …… the city would have to “limit new development” and “use water rates to create a financial motivation to conserve.”

Really? This is the best staff, mayor and council can come up with? They are going to take their ball and go home and sulk?

Clearly, if giving up and sulking is the best option that city staff, the mayor and council could come up with, it is time to do a thorough housecleaning and hire some competent staff and elect a competent and effective mayor and council

On November 19th, save your pocketbook and Abbotsford’s water future.

Vote NO to the P3 – another mayor and council debacle in the making.

Vote YES to elect James W Breckenridge. You can examine James W Breckenridge’s proposed approach to upgrading the water infrastructure at: http://www.jameswbreckenridge.ca/?p=2176 http://www.jameswbreckenridge.ca/?p=2176

Feedback and ideas are welcome. I never have met a good/better idea I was not willing to….ummmmmm….adopt.

Abbotsford’s Water Infrastructure Upgrade

Here is the James W. Breckenridge plan to upgrade the water infrastructure supplying Abbotsford’s water.

On November 19, 2011 – the day of municipal elections across BC – the voters of Abbotsford vote NO on the P3 referendum, defeating the P3 proposal.

On November 19, 2011 – the day of municipal elections across BC – the voters of Abbotsford vote for James W. Breckenridge and elect him to council.

The new council passes a resolution apologizing to the mayor, council and citizens of Mission for the bullying, intemperate words and unacceptable behaviour of the prior mayor and council on upgrading of the water supply infrastructure.

Abbotsford and Mission turn their attention to working together to upgrade the current water infrastructure, a shared water infrastructure. That, as originally planned Abbotsford pay 2/3 of the cost and Mission pay 1/3 of the cost of the water infrastructure upgrade.

That we do not use current councils preferred method of design/build. Under this system the builder maximizes their profit by delivering the least project they can at the lowest cost they can at the highest price they can.

Water is far too important a resource to go with a design build. We need to be able to ensure the upgraded infrastructure meets not just current but future needs, is robust enough for the years of service it will need to deliver and delivers the highest quality water.

To do that council and the public need to have an opportunity and sufficient time to study the plans to discover and correct any errors and omissions.

It has been my experience that the skills, knowledge and insights a group of people such as the citizens of Abbotsford and Mission possess, can be surprising and serve to ensure nothing gets missed in the plans for the water infrastructure upgrade. Letting people share their thoughts and ideas can lead to valuable insights. At least for a council willing to actually listen with an open mind, accept and act on good ideas.

Going with this approach requires far more of council than simply saying build me one of these. But if the mayor and council are not willing to put in the time and effort required to ensure the needs and best interests of taxpayers are met – exactly why are they in or running for office?

We share a bus system, waste management and the Norrish Creek water supply with Mission. Abbotsford and Mission will need to continue to work together managing these systems into the future.

Mission and Abbotsford share many issues jointly, a sharing of issues complicated not just by the fact they are linked by transit bus but by their proximity. Issues such as homelessness and affordable housing are not specific to one city but flow between the cities as the homeless and those in need of affordable housing do.

Abbotsford’s mayor, council and staff should be seeking ways to improve the working relationship between the cities. Not seeking to drive a wedge between the cities.

Undoubtedly Abbotsford’s mayor, council, staff and $200,000 sales pitchmen will seek to drown Abbotsford voters in numbers as well as confuse the voters and the issue with Abbotsford City Hall doublespeak.

Here are several important items to remember and question.

Abbotsford will continue to need to work with Mission even if Abbotsford proceeds alone, rather than in partnership with Mission on upgrading the water infrastructure. Abbotsford needs permission to run a new water pipeline across Mission to get water to Abbotsford. If Abbotsford wants to tie into the current shared water delivery system, would not such an action require permission from Abbotsford’s partner in that system – Mission?

The working relationship between Abbotsford and Mission is too important to act in a way that negatively affects the working relationship, merely because Abbotsford’s mayor, council and staff insist on getting their own way.

Why should the taxpayers of Abbotsford once again be forced to pay millions of dollars extra in order to feed the mayor, council and staff’s egos? Are not the friendship garden and the sports and entertainment complex sufficient City Hall ego taxes on taxpayers?

City of Abbotsford’s cost estimate for cost of water infrastructure upgrade $291 million, less the maximum (we do not know the actual amount) of federal subsidy $61 million, leaving Abbotsford ‘s best case cost at $230 million.

City of Abbotsford’s cost estimate for cost of water infrastructure upgrade $291 million, less Missions 1/3 share $97 million, leaving Abbotsford’s cost as $194 million.

The City of Abbotsford needs councillors and a council who comprehend (as the current mayor. council  and staff continue to demonstrate they do not, and seem incapable of learning) that increasing the cost to Abbotsford taxpayers from $194 million to $230 million is a net cost to Abbotsford’s taxpayers of $36 million. That the $61 million dollars ‘savings’ (federal grant) our current mayor, council and staff are chasing is only an illusion of ‘savings’, an illusion that will cost taxpayers $36 million more than they have to pay. Actually $66 million extra when you add in 30 years of $1 million per year increased  operating costs that result from  using a P3, as set out in the report prepared for the city.

The taxpayers of Abbotsford cannot afford to spend $66 million extra because mayor, council and staff cannot grasp basic financial reality.

On November 19, 2011 vote NO to the P3 and the $36 million more than necessary the P3 proposal will cost taxpayers in upgrading the water infrastructure.

On November 19, 2011 vote to elect James W. Breckenridge to council; vote to pay (actually save) $66 million less to upgrade our water infrastructure.

P3 – the Public Speaks

I wrote that I thought it only fiscally responsible for Abbotsford and Mission to cost out a P3 – as long as they were also costing out a public project and that there was full disclosure on the terms of the P3 as well as addressing ownership and control issues.

I see nothing wrong with a city council that explores all its options when a financial commitment the size of the water project is in the process of being made – as long as council does due diligence on ALL the options .

However it is clear that the public, the people who pay the bills, are opposed to the P3 option.

Since the public’s concerns are understandable and not unreasonable, the public being opposed to the P3 should be the end of considering the use a P3 for the water project.

I salute the District of Mission for their quick recognition and acceptance of the public’s position on the matter and their listening to their citizens and voting not to waste time, resources and taxpayer’s money pursuing the P3 any further.

What can one say about Abbotsford council except – business as usual.

A recent example of council’s business as usual: the residents of Clayburn Village and area are at council – new housing development isn’t approved. Two weeks latter without the residents present and one of the councillors opposed to the housing development not present – the decision is reversed and the development is approved.

Deferring a decision until the public isn’t there, or out and out reversing a decision when the public is no longer there in numbers, is the established modus operandi for Abbotsford council in ignoring the public, the people who pay the bills, and doing as council wants.

Hopefully the District of Mission’s ‘No’ decision will prevent Abbotsford council from ignoring the public’s wishes on the matter. A sad state of affairs when Abbotsford’s citizens must depend on the District of Mission council sticking to its guns (there is little doubt Abbotsford will be pressuring Mission to ignore the public and do what Abbotsford council wants) to deny their own Abbotsford council the ability to once again ignore citizens and do as they please.

Abbotsford council’s actions make it clear that their intention was P3 or nothing to try to force voters to vote yes to the P3 in November – no matter how bad a choice it may have been for taxpayers. Again behaviour we have seen before and that has saddled taxpayers with the money devouring black hole that is the AESC and has Abbotsford taxpayers buying a profession hockey team for a few wealthy and well connected Abbotsford residents.

So it is imperative the public turn out in force at the next council meeting to prevent council, in business as usual mode, voting to proceed with the P3.

In a way the public weighing in and speaking so strongly against the P3 is a relief. While I do think it is due diligence for a city council to explore a P3 option, we are not dealing with just any council but Abbotsford city council. Typical Abbotsford council behaviour is to proceed with the P3 as the only choice and sell it to the public – branding as naysayers those who dare to suggest that the P3 was a bad choice.

For council a P3 represents a ‘get out of jail free card’ since they avoid the need to deal with the consequences of their financial mismanagement of the City’s resources with the added bonus that it is easy – the P3 private partners do all the work.

A public project will force council to deal with the consequences of the financial decisions it has made and it requires a lot more work on the part of council and staff.

Let me amend that – in a well managed municipality a public project requires a great deal of work and attention to detail in order to maximize taxpayers bang for their buck.

Which means that if the public keeps the pressure on council and prevents Abbotsford council from sneaking back to the P3, the real hard and long work for the public begins – to keep Abbotsford staff and council’s noses to the grindstone on the matter of the public project.

If taxpayers are lucky November elections will present voters an opportunity to elect financially responsible councillors to ensure the cost of the water project does not become another albatross around the necks of taxpayers.

P3 or NOT P3?

“…it’s been proposed we’re going to privatize the water system. It’s deceitful and it’s absolutely untrue,” said Peary

Deceitful and untrue? Not really……

As a P3 is this a traditional public project? No. As a P3 is there private involvement? Yes. Does the private sector take the lead in construction and operation of the project? Yes. Is a P3 privatization?

That very much is a matter of definition. A public project has no private sector participation beyond being the constructor. A P3 has private sector participation well beyond simple construction into operations.

The mayor is using the meaning of ‘privatization’ that existed prior to the rise of P3 projects. Those who call P3s ‘privatization’ are referring to the dominant role private sector organizations play in P3s: adding the private sector into what were public sector projects is by definition privatizing.

The important point is not what you call it but what differences there are in the terms of the agreement and ownership between a strictly public project and a P3.

‘…the cost efficiencies of a P3 operation…” Studies of P3 projects have shown that P3s cost both more to build and to operate than a well managed public project. All other things being equal a P3 water project will cost taxpayers significantly more than building a well managed public water project.

I use ‘all other things being equal’ because of the existence of the conservative governments P3 Canada funding that provides funding of up to 25% for P3 projects.The fund exists to provide funding to make P3 projects competitive with well managed public projects, promoting P3 projects in keeping with the federal Conservative government’s ideology.

Without the 25% federal (P3 Canada) funding Abbotsford and Mission should not consider, much less go with, using a P3 to build the water project because without the 25% funding a public project will provide appreciable savings to taxpayers.

Even a full 25% subsidy, given the congruence of current economic conditions with the state of affairs in the construction business, may not make a P3 the best choice.

Despite the previous council’s insistence that construction costs would continue to skyrocket and that those who called for Plan A construction be delayed until the post Olympic construction boom lowered prices and saved taxpayer $$$$ were idiots……now is a time when significant savings can be realized on construction costs.

The downward pressure on construction starts created by the economy together with the end of federal stimulus construction projects translates into significant reductions in construction costs for public projects.

Should Abbotsford/Mission explore the costs of a P3 water project – yes.

Is that all Abbotsford/Mission councils should do? Of course not – it would be irresponsible not to do due diligence to ascertain the cost of a well managed public project. A thorough and accurate determination of the water project, its timelines, its management and its costs if it is built as a public project must be made.

As to the referendum question in November – we don’t even know what the question should be at this point and won’t until we know whether the P3 will get the 25% funding, the costs of proceeding as a P3 project and the costs for a public project.

The water project is a financial decision that represents an extensive and long term commitment of City/taxpayer resources/dollars.

The effect the project will have on City/taxpayer resources/dollars necessitates an accurate and full understanding of the costs of both the P3 and public build options, the specifics and details of both options as well as the ownership implications of going with a P3.

Only when they are in possession of all the facts can voters make an informed decision in November on how to proceed with the construction of the water project.