Why rent when you can buy?: The Progressive Conservatives, the Wildrose Party and their love of Private-Public Partnerships (P3s)

“To sin by silence, when we should protest,

Makes cowards out of men.”

  • Protest, contained in “Poems of Problems”, Ella Wheeler Wilcox

 

In 2010, Max Fawcett of Alberta Venture wrote the following: “Nine years ago, Dave Bronconnier campaigned for the job of mayor in Calgary on a platform built around significant new investments in the city’s infrastructure.” The quote was called “Deficit Spending: Governments have chipped away at Alberta’s infrastructure gap in recent years. Has it made a difference?”

It noted Alberta didn’t spend on infrastructure for years: the Ralph Klein years. Reports from the Alberta Urban Municipalities Association or The Alberta Association of Municipal Districts & Counties talk about similar phenomena. The Alberta Association of Municipal Districts & Counties notes, for example, that there is a “Rural Municipal Infrastructure Deficit”. So, while Mr. Klein did repay the debt that was accumulated by previous PC Premiers (about $23-billion worth of debt), he did so at the cost of future infrastructure. In order to balance the growth of the province though, Mr. Klein turned at times to Private Public Partnerships (i.e. P3s) to take some of the load. The only problem was that they were financial disasters. As CUPE noted:

“Developers in Calgary’s fast-growing suburbs were provided partial funding under the program to build and maintain schools that were leased back by school boards. Terms included 20-year leases, developer-provided blackboards, computers and phones, and little or no access for after school hour community sports and activities.

The first of these schools, the Hampton’s School, was built by Tirion Developments and was leased back by the Calgary Board of Education (CBE). Cost cutting measures during the construction, such as the use of substandard roofing materials, caused the roof to leak 6 months after the school opened. Within three years of the school opening the CBE had to pay more than $100,000 in maintenance and upgrade costs on the roof.”

This is not an isolated development. Between 2007 and 2009, the PC experimented with P3s again and two outcomes resulted: either the cost of the project more than doubled or the partners went bankrupt. In 2007, the budget for P3 projects went from $200 million to $512 million because of higher private financing costs. Or put differently, because private industry was in charge they could not depend on the province’s lower borrowing rate and solid credit history.

While in 2009, a Babcock and Brown subsidiary who won the right to build 18 P3 schools – on a 32 year contract – went bankrupt. After the project had risen three times more than the original budget, the private sector company building 18 schools in Calgary and Edmonton was sold off and the Government of Alberta had no say in the way this happened. Consequently, new managers took control of the project because the Province of Alberta essentially rented the facilities.

Experiments like these have happened in the Ontario, US, England and across the Western World and the outcomes have been the same: Higher costs, less community control and more restrictions. Yet the Tories and the Wildrose Party feel that these outcomes have been good, for this is how they propose to build more schools, hospitals and other infrastructure that the province needs. The Tories and the Wildrose Party have said that they are going to provide the infrastructure of the province using more P3s. If you need proof, one just needs to look at a Wildrose’s Press Release (“Report confirms Wildrose position on P3 debt financing”, Feb. 24, 2014). In it, Wildrose notes that the “PC government should take heed of an internal departmental report blasting the government’s stubborn commitment to P3s for building new school projects”; while also saying “Albertans need schools now, built on time and on cost. To do that, we need to restructure these P3 projects so that small and medium-sized builders can get involved.” In other words, the Wildrose Party has said we love P3s even though they don’t work and we will break the previous contracts so that we can do the projects our way. Either way, it sounds like a large price tag.

I am of a different opinion. Instead of using a leasing and buying back schools, I would argue that the province should do what most homeowners do: own the school. Most schools have a long life. My almae matres are D’Arcy McGee Catholic School, Forest Hill C.I. and York University. They were founded in 1968, 1946 and 1959. They are all going strong. I can look around my Calgary Community and see that most of the schools are well over 40 years old, for communities build up around schools and use them for years. Consequently, with more than a 40 year need, it doesn’t make sense to lease a facility for less than that.  So the more one thinks about it, the more it makes sense to own these facilities.  This is why I think that a 32 year lease at 8 to 10% doesn’t make up for a 30 or 40 year mortgage at 3 to 4% plus 40, 60, 80 or 100 years of ownership.

We are told by many that it makes more sense to buy our homes and to buy our cars. We are told that renting and leasing only makes sense in certain circumstances. I would argue that it might make sense to use a rent, lease or buyback programme to house bureaucrats in Red Deer, Lethbridge, Edmonton or Calgary. It might make sense to rent a constituency office for MLAs or for specialized programmes. Renting or leasing a building to house an FCSS facility might make sense in Vulcan or Okotoks or Rocky Mountain House. If there is a flood in Calgary or Medicine Hat, if there is a fire in Fort Macleod or Fort McMurray, or if there is a hurricane in Edmonton, one can easily argue that the Government should rent facilities for up to ten years to deal with those particular needs. But when we are talking about hospitals, schools, roads and other government infrastructure with a 40 to 100 year life span, ownership is the only thing that really makes sense. Consequently, Ownership should be the default and not the exception.

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