Category Archives: Water Infrastructure

P3 – Public Pocketbook Pauperization

Reading that Abbotsford City Council is working on a P3 my first thought was ‘Hasn’t council done enough financial damage to the city and to taxpayers pocketbooks’?

My second thought was to be glad I was not a homeowner.

??? – The taxes and costs imposed by Abbotsford council have raised the cost of owning a home in Abbotsford. These costs show no sign of stopping or slowing under the current city council and staff’s demonstrated unwillingness and/or inability to get the city’s finances under control. The proposed P3 will significantly increase the yearly cost of city taxes/fees/levies when taxpayers begin paying for the P3 in a few years.

The concern is that the cost of the P3 will push the level of city taxes/fees/levies to the point where the cost will make owning property in Abbotsford unaffordable to many potential new taxpayers as well as some current taxpayers. This will have a negative effect on the real estate market; on both price and the time it takes to sell.

Knowing that the P3 is coming, that it will impose significantly higher cost and hit the real estate market – are you going to be able to afford the additional carrying costs of owning property in Abbotsford or should you be selling and getting out of town while the getting is good?

My next thought was that this time I hoped council and staff would cross all their t’s and dot all their i’s so that taxpayers would not find themselves once again, ala Plan A, promised millions of dollars in senior government funding that never materializes. Hoping that some taxpayer would not be asking Ed Fast why he did not get Abbotsford federal funds only to have him reply, as he did when asked that question about Plan A, “I was never asked.”

Finally I thought to myself ‘nice try George but no cigar’ for the mayor’s seeming attempt to suggest going with a P3 would make the project eligible for up to $50 million in federal funds. Let’s be clear that the federal funding is due to the nature of the project and has nothing to do with how the project (P3 or otherwise) is paid for.

P3’s are loved by politicians for a number of reasons, foremost among them being a total lack of accountability to the public or evaluation by the public.

Politicians can operate behind closed doors and keep the details, and thus the costs, totally secret because citizens lose their right to freedom of information about the details of an agreement when private business interests are involved. By definition a P3 has to have private business interests which means P3s are cloaked in secrecy leaving taxpayers questions unanswered.

Being veiled in secrecy as P3 agreements are, strips away taxpayers right and ability to evaluate and judge how detrimental the P3 will be to the public’s pocketbooks.

The second reason politicians have for loving P3 agreements is that spreading costs over time – a decade’s long period of time – ensures the public is unable to know what a P3 project actually cost them out of pocket until decades after the project begins at the time the project is finally fully paid out. How could politicians not love a plan that, no matter how bad the agreement is and how many millions or hundreds of millions or even a billion extra dollars it will cost taxpayers the veil of secrecy hides the details of the P3 from the public, ensuring that the public cannot know how many millions or hundreds of millions extra dollars they paid until long after the politicians are gone, retired on their golden government pensions.

Mayor Peary, following Abbotsford Council policy when someone fails to cheer council’s plans, or worse raises questions as to the wisdom of council’s plan, played the naysayer card.

“Some people have a political and philosophical objection to P3s,” he [Mayor Peary] said.

I had no political or philosophical objections to Plan A – I had financial objections and objections based on the infrastructure needs of the city. I have no political or philosophical objections to P3’s – I have financial objections.

The question is not whether a P3 will cost the public more money, extra cost to the public purse is inherent in the nature of a P3. There has to be a profit for the private partner, a profit that must be guaranteed and substantial enough to make the headaches and risks of a ‘partnership’ with the government/public worthwhile.

P3 projects also have longer time lines to ensure the private partner has no difficulty in meeting the completion date. The fact that Abbotsford’s new regional hospital was completed 108 days early is not an indication of how efficient the builder was but how effective the builder was at bargaining an overly generous completion schedule.

However, the factor that adds the millions or hundreds of millions of dollars of extra cost to the projects and to taxpayer out of pocket cost is the financing costs. Financing costs are a significant portion of the costs of any long term project (look at the financing costs of Plan A for an example of the high cost of financing).

Because the financing for P3s is provided by the private partner and interest rates for private borrowers are higher than for governments, the financing (interest) costs of P3 projects are higher than they would be for a public financed project.

These increased interest/financing costs add millions or hundreds of millions of dollars to the interest costs of P3 projects.

I would love to be able to discuss specifics of the increased costs involved in P3 projects but I can’t, no citizen can. The details of the BC governments P3s are hidden from the public until everything has been paid out decades from now.

Over his term in office Mayor Peary has made many statements that made many an accountant or manager’s blood run cold because of the negative impact these statements would have on the city’s finances and on taxpayer’s pocket books.

But “He [Mayor Peary] pointed to the Abbotsford Regional Hospital and Cancer Centre as an example of success, calling it the “poster child” for P3s” dwarfs any of those statements in its promise to deny taxpayers any ability to evaluate the agreement and in the millions of extra dollars it will cost Abbotsford’s battered and impoverished taxpayers.

Taxpayers need to keep in mind that the Abbotsford Regional Hospital and Cancer Centre P3 that mayor Peary calls a “’poster child’ for P3s” was so generous and profitable for the private sector that the agreement became a financial instrument bought and sold among international banks.

While that level of profitability undoubtedly makes the Abbotsford Regional Hospital and Cancer Centre P3 a ‘poster child’ from the viewpoint of the private sector, it makes it a pricey cautionary tale for taxpayers when politicians try to sell them more snake oil.

By the very nature of a P3, using a P3 to build the needed water system improvements will cost taxpayers millions of dollars extra in interest charges alone. How many more millions it will cost depend on negotiation ability – or lack thereof of staff and council.

The staff and council who built the Reach for $10 million; a structure that any farmer in the valley who has built a barn could have managed and built for a fraction of the cost. The staff and council who built the AESC with a promised, a sworn to $55 million cost for only $110 million – double the guaranteed ‘contracted price’.

As to Abbotsford city staff and council and P3s:

The deal between the City of Abbotsford and the Abbotsford Heat is, for all intents and purposes, a P3. So since Mayor Peary, staff and council are speaking about using a P3 – let us take a look at the deal between the Heat and the City.

Abbotsford’s taxpayers have no idea what the Abbotsford Heat are in fact costing them. Taxpayers have no facts as to the number of taxpayer’s dollars being poured directly, or indirectly (staff time spent on the Heat but paid by the city – for example. ARC where space and staff promote the Heat and provide box office services) into the Heat. Taxpayers have only rumours about the ownership of the Heat and cannot determine if the city is directly involved in/with Heat ownership. A recent Freedom of Information request to provide clarity on these questions was refused because of the involvement of private interests.

Why would local politicians not embrace a P3 to bail themselves out of the mess they have made of managing the city’s infrastructure and finances; of their inability to prioritize projects that address needs (water, road maintenance) over council and councillor’s ego projects (million dollar, unused garden; a professional hockey team and a building for them to play in); a P3 that will hide all the details of the agreement from the public.

A P3 will deny taxpayers their right to know the total out of pocket costs to taxpayers of the project – an out of pocket cost that a P3 will add millions of dollars to.

Why would Abbotsford’s and Mission’s politicians worry about the fact that a P3 will add millions of dollars to the cost to taxpayers? After all the politicians will be long, decades long, gone before the final payment is made and taxpayers can determine just how many more millions of dollars Abbotsford’s council poor financial decision making cost them.

Clearly a P3 is not a decision to be rushed into; particularly not rushed into merely so Abbotsford city council can say (during the upcoming municipal elections?) “no need for taxpayers to worry their little heads – we have taken care of the water matter” (now where have I heard that kind of line in a municipal election before?); not a decision to be made behind closed doors.

A P3 will impose not only substantial costs for decades, but the costs imposed on the taxpayers of Abbotsford (and Mission) will be significantly higher than the costs of a well managed municipal project (the most important factor affecting the cost of a public project being the level of management skill available to bring to the project).

Indeed, considering the secrecy involved, the inability of taxpayers to evaluate the P3 as a result of being denied the details by that secrecy and the millions of dollars that a P3 will cost the taxpayers of Abbotsford and Mission……

……if Abbotsford council and staff are determined to forge ahead with a P3 it is a decision that should be deferred to give the taxpayers, who will be paying for the P3, a chance to have their say on whether to use a P3 in November’s upcoming municipal election.