How a “Fiscally Conservative” Government Facing a $20 Billion Debt Delivers on its Promises

“Tonight, we begin the work of advancing and protecting sound, conservative fiscal principles.” —Future Premier Jim Prentice, victory speech, Sept 6, 2014

It hasn’t escaped Ms Soapbox’s notice that the party that bills itself as fiscally conservative has us on track for a $20 billion infrastructure debt—at a time when Alberta’s economy is booming.* Heaven help us when the economy tanks.

Mr Prentice

Mr Prentice promised on a stack of political bibles to build 90 new schools (40 more than Redford promised) and renovate 70 more. He’ll repair hospitals that were cited for health violations (and yes, Mr Drysdale, this is an infrastructure problem and yes, you are the minister of mice) and cap the infrastructure debt, estimated to be $20 billion, without touching the 10% flat tax or existing royalty structure.

How is he going to do it?

Easy.  He’s going to rely on P3s and P4s.

P3s

Public-private-partnerships are an alternative to the traditional way that government builds infrastructure.

Under the traditional model, the government designs an infrastructure project, finances it and puts it out to tender. A contractor builds it and someone else operates and maintains it. Cost overruns or performance problems are the government’s responsibility because it created the design in the first place.

Under the P3 model, the government shifts the financing, design, construction, operation and maintenance of a project to the contractor. In theory the contractor bears the risk of interest rate fluctuations, schedule slippage, cost overruns and operational problems. It is assumed that the contractor will be more efficient than the government and the overall cost of a project will be lower than under the traditional model.

As we discovered with cold-fusion, theory does not always reflect reality.

Cheaper and more efficient?

A contractor’s cost of borrowing is always significantly higher than the government’s because banks know that governments don’t go belly up whereas contractors do (with alarming frequency). A loan to a contractor is more risky. The risk is reflected in the interest rate and the contractor passes this extra cost on to the government.

The contractor also expects to make a healthy profit and builds his profit margin into the overall cost of the project.

Regardless of how carefully the lawyers draft the P3 contract to make cost overruns, schedule slippage or performance problems the responsibility of the contractor, the minute these problems arise the contractor balks. Both sides threaten litigation while at the same time trying to negotiate a resolution—which invariably boosts the government’s costs. (Ms Soapbox is a lawyer; she’s worked on countless EPC contracts and knows this from personal experience.)

The UK experience

P3s have been used in the UK since 1992. Allyson Pollock, one of Britain’s leading authorities on public private partnerships, says they’re an unmitigated disaster.

She reports that 159 hospitals, prisons, schools and roads were developed using the P3 model (called PFIs in the UK). The debt for the hospitals alone is $30.6 billion.

Instead of repaying the debt at the government interest rate of 1.5 to 2%, the public is burdened with a private sector interest rate of 10% to 20% over 30 to 60 years, plus the additional cost of delivering a profit stream to the contractors’ shareholders.

P3s have been the subject of numerous UK Parliamentary Committees.

Andrew Tyrie MP, Chairman of the Treasury Select Committee says “[P3s] means getting something now and paying later. Any Whitehall department could be excused for becoming addicted to that”. He concludes “We can’t carry on…expecting the next generation of taxpayers to pick up the tab. [P3s} should only be used where we can show clear benefits to the taxpayer.”

Ms Pollock

Returning to Ms Pollock’s hospital example, under the traditional model hospitals paid 5% of income to service debt, but under the P3 model they pay 30% of revenue to service debt. The result is a reduction in staff and quality of service and the acceleration of the privatization of healthcare —hardly a clear benefit anyone but the private sector.

Value for money

The Wildrose party agrees that financing is an issue and would use P3s for everything except project financing which would remain a government responsibility.**

This sounds reasonable at first blush, but it undermines the integrity of the Value for Money analysis used by fiscally prudent governments to decide whether to build infrastructure using the traditional model or P3s.

The Value for Money analysis compares total project costs (capital, financing, retained risks and ancillary costs) for a project under the traditional method and the P3 method.

While I’m not an economist (thank god) even I can see that pulling the financing component out of the Value for Money formula is a non-starter because it makes it impossible to assess the contractor’s risk of bankruptcy, thereby increasing the government’s risk of failure.  

Furthermore the Wildrose solution does nothing to address the fact that P3s divert taxpayer dollars into the contractors’ shareholders’ pockets.

P4s?

Apparently even the rampant use of P3s isn’t enough to cover the infrastructure budget. So the PC government is moving to P4s.

P4 are public-private-partnerships plus philanthropy. Well heeled Albertans are repeatedly tapped to contribute philanthropic dollars to various government infrastructure projects; the $50 million infusion to the Alberta Children’s Hospital is a prime example.

Altruism is a good thing, but when the people of Alberta have to rely on charity for fundamental infrastructure something is terribly wrong.

Gordon Gekko and Blanche DuBois

It’s time for our “fiscally prudent” government to explain how it intends to fund the promises that put Mr Prentice into the premier’s office. Relying on P3s which simply hide the debt and enrich the private sector (hello Gordon Gekko) and P4s which throw us onto the kindness of strangers (hello Blanche DuBois) just don’t cut it anymore.

*Calgary Herald Online Sept 7, 2014

**A Better Way to Build Alberta, Nov 18, 2013, p10 .

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20 Responses to How a “Fiscally Conservative” Government Facing a $20 Billion Debt Delivers on its Promises

  1. Linda says:

    I completely agree about the Premier Designate showing transparency, including on how he will meet his infrastructure commitments while reducing debt on new construction. In Prentice’s CIBC Vice Presidency the Infrastructure Portfolio,was also his bailiwick. It will be revealing to see how he handles infrastructure and who he puts in the Ministry. It should tell us whether the PCs have changed or are just bought a gross of lipstick.

    • Linda, bring on the lipstick! Given the composition of Mr Prentice’s transition team—Tim Hearn, former CEO of Imperial Oil who set the Kearl oilsands strategy (no upgraders) and environment minister Robin Campbell, who was shredded by the Auditor General for failing to make any progress on Alberta’s climate change strategy—I don’t expect to see any meaningful change at all.

  2. Sylvia Krogh says:

    P3s or P4s stand for Public Pays for Private Profit.

    • Sylvia…based on the “rationale” given by Fred Horne for the $3 billion SuperLab it appears that the government doesn’t understand the first thing about P3s. The Chairman of the UK Parliamentary Treasury Select Committee said P3s should only be used “where we can show clear benefits for the taxpayer”. The test of whether to proceed with a P3 or a traditional build is the Value for Money formula and yet when Fred Horne was grilled in the Legislature about his reasons for going with a P3 for the $3 billion SuperLab the best he could come up with was that there was a 6% increase in demand for lab tests. This is nowhere near a business case and certainly doesn’t answer the Value for Money question which would show whether there’s a benefit to the taxpayer or not. It does however support your definition of P3s and P4s. Pathetic.

  3. GoinFawr says:

    In my opinion the only literally “Fiscally Conservative” government ever to exist in all of North America was Saskatchewan’s Co-operative Commonwealth Federation. They ran seventeen (count `em- 17!) consecutive surplus budgets, despite inheriting a large debt and introducing cherished progressive policies and programs, including pioneering single payer health care with ‘universal’ coverage; the example that led to Canada`s beloved Health Act. 17! (It bears repeating).

    So the current ‘Conservative’ plan to save the fruits of Alberta’s labour’s efforts is to give ever more of it to unaccountable, inscrutable internationally held private industry? It begs the question: Who is providing the butter for this government’s bread?

    Apparently not the hoi poloi; Albertians might want to consider this, and the following, the next time they go to the polls:

    Alberta (and by extension Canada) have a natural resource to population ratio that would make Norway jealous. Consequently there is absolutely no reason whatsoever (beyond the pervasive ideological claptrap of the last 40 years that has been employed to rob them of their birthrights and sovereignty) that Alberta or Canada are currently so deeply in debt to foreign creditors… this state of affairs can only be by design.

    • GoinFawr, I love how you started your comment. A “fiscally conservative” government would be one that actually ran a surplus and didn’t go deeper and deeper into debt (especially when the economy was booming). With respect to your comment that our current state of affairs can only be a matter of design I go back to my earlier comment about Prentice’s transition team…the head of the transition team is Tim Hearn, former CEO of Imperial. ‘Nuff said!

      And yes, Albertans need to consider this the next time they go to the polls…bearing in mind the fact that they’ll see a repeat of the same scenario if they vote Wildrose.

      • GoinFawr says:

        So much more of the same, but even more so; doubtless. Regularly I am sadly amazed by the apparent willingness of hard working Albertans, with themselves and their families standing knee deep in diesel until three in the morning, to play along with the zero sum game where they make ever less so that the foreign creditors owning the companies that hired them can take ever more. It’s quite the trick, I have to admit; Hocus Pocus!

      • GoinFawr, it’s worked in the US for decades. Convince the voters to vote against their better interests with snappy slogans and empty promises…it has to stop.

  4. Carlos Beca says:

    It is not difficult at all to figure out where Jim Prentice is taking the province by looking at his transition team. It is definitely an improvement because at least he his not hiding his vision. The orders will still be coming from the oil interests and business is the heart of our society. Not a surprise to me but bad news nevertheless. The only surprise to me was Stephen Mandel in the team. Maybe not a surprise for those who know him well, but I had a different opinion about him. This is going to be the continuation of neo-conservatism, except that it will be more efficient and more within the law. I am sure many heads will roll and rightly so, even if just to justify a new management team. This is bad news for the Wildrose because they are pushing them aside. They are nothing else but an organized team of more efficient and more disciplined neocons with some wonderful religious extremists. Danielle Smith has a very hard job ahead of her which will be interesting to watch as she has said nothing so far about her real policies or vision. Other than saying that the PCs are deadly rotten, what do we know about their policies? They are a secret of course. Even right wing Albertans may not like them.

    • Carlos, I’d be very interested in your views of Stephen Mandel. The media describes him as a head strong individual who is not exactly a team player…more of a “my way or the highway” kind of guy. If the speculation is correct and Prentice is considering appointing Mandel to cabinet, that will be a problem for everyone in government.

      Speaking of appointing cabinet ministers, while technically this is permitted under our parliamentary system, it would be political suicide. I’m amazed that Prentice would even send it up as a trial balloon. But then again, someone convinced him that term limits were a good way to “refresh” government, so who knows.

      I agree with your take on the Wildrose. Under the veneer of becoming more socially progressive and environmentally sensitive they’re still the same old, same old.

      • Carlos Beca says:

        What you have said about Stephen Mandel is what I have heard as well but I was thinking more in political terms. He always came across to me as a right of center Liberal. He did not seem very comfortable with the very low oil royalties as well as no corporate tax world that the neo-cons have been developing for decades now. It seems I was wrong. He seems very comfortable with Jim Prentices’ known visions so far and those are clearly more of the same.

  5. Elaine Fleming, Communications for the Whitemud Citizens for Public Health, Edmonton says:

    Susan, our group sent letters to Health Minister Horne and Premier Hancock protesting the P3 proposal for Edmonton and North’s medical laboratory services. We outlined concerns about the costliness of the deal, the length of the contract, lack of integration with the public system, and the loss of public oversight and accountability this would result in. We also mentioned the history of failed experiments (in Ontario, and in Alberta during “Klein Days” involving some of the same current candidates).

    Our other concerns centred around what the back-up plan for this essential health service would be if the deal went sideways or the company failed, as companies are prone to do. We let them know that we knew that one of the companies bidding (now we know there were two- LabCorps and Quest) were charged with false billings and fraudulent claims against Medicare in the U.S. We also let them know we knew that Mr. Jack Davis, former CEO of the Calgary Health Region, is on the board of LifeLabs which is partnered with LabCorps, one of the bidders. The same Jack Davis who left the CHR in 2008 with a controversial $4.6 million severance package, while the health authority ran a deficit of $97.5 million. Interestingly, he is also (from LinkedIn) the VP at Large of the Canadian Council for Public- Private Partnerships, of which Alison Redford is the Honorary Chair.

    Our letters back from both Mr. Horne and Mr. Hancock did not address any of our concerns. They completely deflected the questions and reinforced each other with two statements: that they knew we were opposed to privatization of health care. (But they were NOT privatizing health care, they stated). Their other defense was that our current system is “not sustainable”, and that a private company can provide the service better and faster.

    As you have said, there is no business case for this private contract, and to the average citizen, there isn’t ANY reasonable case to justify it. What we see is a continuous revolving door of entitlement and back door dealings, with the creeping feeling we are being “had”. And, to agree with you, a meeting with Danielle Smith last year didn’t give us much reassurance there wouldn’t be more contracting out under her government, if she was to make one. Like the PC’s. the Wildrose considers a “public system” as one where the taxpayer finances it, but everything else is handed to the private sector to play with. Our group and most Albertans I think, realize that a true public health system requires public administration and oversight, as well as delivery of essential care.
    To quote ourselves in the last letter to Mr. Hancock, “…we feel our Laboratory Services should be integrated within and operated by our public health system to provide stable, accountable service to the citizens of Alberta. We know we have the resources-financial and human- to provide this for ourselves.”

    • Elaine, thanks for the clear overview of the effort WCPH has put into influencing the government on this issue. I’ve talked to a number of people about why anyone would think a P3 is the right way to provide lab services to Edmonton and the Northern Region. One explanation I’ve heard is that the existing system is such a mess we have to hand it over to the private sector. This reflects a blind belief in the private sector: that it is s inherently more capable of getting a project finished on time and on budget and operating it in a cost effective manner. I’ve seen enough multi-million dollar EPC (engineering, procurement and construction) law suits to know this is nowhere near the case. Add to that the temptation to breach anti-corruption laws (SNC-Lavalin and Niko Resources spring to mind) and you’ve got to wonder what this naive faith in the private market is based on.

      • carlosbeca says:

        It is based on the money that will be pipelined to those who will support them and possibly fatten their bank accounts. This is the why of P3s and anyone with other reasons is just dreaming in Technicolor. This idea that everything government is bad is nothing but a strategic way of pumping the more corrupt private sector. SNC-Lavalin is just what we know.

  6. Sam Gunsch says:

    Glad to read a post so clearly pointing up the failures of P3’s.

    And in addition to the Pollock’s take on the P3 manifestation of market fundaementalist/neoliberal dogma, there are writers such as the fellow at the link below, helping us understand how we got here.

    Only recently happened upon this… some recent historical analysis and explanation as to just how neoliberalism and market ideology and manifestations like P3’s fantasies have been visited upon, ostensibly, democratic societies.

    http://www.newleftproject.org/index.php/site/article_comments/neoliberalism_and_the_end_of_politics#When:06:59:04Z

    Will Davies is a Senior Lecturer in Politics at Goldsmiths, University of London and blogs at http://www.potlatch.org.uk. His book, The Limits of Neoliberalism: Authority, Sovereignty and the Logic of Competition, published this year, explores how economic measurements and expertise have been used to re-model society and the state along competitive lines, and argues that the neoliberal conflation of economics and politics has ultimately undermined the legitimacy of sovereign power. In the first of a two part interview, he discusses the book with NLP’s Tom Mills.
    ================

    re p3’s
    Sounds really bad in UK, and Canadian research of P3’s has found the same failure to deliver cost savings.

    But then, publication and review of evidence of market failures, that might allow government to be considered a legitimate means of serving the public good, hasn’t had much of chance since the 1970’s launch of pro-market, pro-corporate ideological counter-attack on government as the citizen’s democratic mechanism of power.

    Early 70’s pronouncements of ‘an excess of democracy’ come to mind. And in that vein, Reagan’s populist pandering that “gov’t is the problem” as a headline summary of neoliberal dogma might top my list of most successful faith-based slogans.

    I should try not to be so all doom and gloom though when blog posts like this are making the challenge the Alberta corporatist monopoly on political agendas.

  7. Sam Gunsch says:

    http://en.wikipedia.org/wiki/Winner-Take-All_Politics

    In addition to that political philosophy treatment by Davies above, I would add that this American treatment of USA politics by Hacker and Pierson is probably the best recent explanation of how our so-called pluralist politics in the West has been transformed into outright corporatist systems based openly on the corrupt interest group lobbying and effective joint-ventures of private interests with government. As John Ralston Saul has put it, by legalizing lobbying, registries and so on, we’ve effectively legalized corruption of our supposedly democratic governance system. The French court has been returned in corporate form, and actually legitimized.

    ==
    Winner Take-All Politics

    http://en.wikipedia.org/wiki/Winner-Take-All_Politics
    excerpt:

    Politics as “organized combat”
    Though this process came as part of what the authors describe as a “transformation of American government”, it has been overlooked by the public, the media, and recent political science studies.

    They focus on the more entertaining, fast-moving and easy-to-follow “electoral spectacle” of politicians and their campaigns for office, instead of “what the government actually does” — the more complex, and “frankly boring,” organization-driven making of laws and policy.[33]

    But that the latter is what is really important is reflected in how much more money is spent on lobbying (officially $3 billion a year, unofficially much more[34]) than election campaigns”,[35] and the growth in corporate public affairs offices in the nation’s capital (100 in 1968, 2500 in 1982).[36]

    These highly effective organizations include business groups like Chamber of Commerce, National Federation of Independent Business, (p. 120) anti-tax groups like Club for Growth and Americans for Tax Reform. (p. 208) Along with them came a new generation of think tanks, such as the Heritage Foundation and American Enterprise Institute. Officially non-partisan, they focused on “shifting public opinion and policy” in a conservative direction, rather than traditional `objective’ policy advice.[37]
    ===============

    The American political evolution from what Robert Dahl described as polyarchy into a form of winner-take-all blatant corporatism has been paralleled in Alberta, albeit at much less corporate expense, since Klein, as Mark Lisac first documented in The Klein Revolution (1995), Chapter 9, The Corporate Province.

    The dominant private interests of Alberta for example, the oil and gas sector won the war back in the early 1990’s against the public good and reversed Lougheed’s royalty and tax regime, mostly via Klein. And then flexed their senior partnership role in fatally wounding Stelmach with their propaganda against his royalty agenda. See the most recent Alberta Views for Steve Patten’s One-Party State for ongoing discussion of the petro-joint-venture with the PC’s and if possible Wildrose. https://albertaviews.ab.ca/

    And they’ve of course just installed their new CEO/quarterback, for the joint-venture of AB+CAPP/tarsands, of course.

    http://www.calgaryherald.com/business/energy-resources/Yedlin+Tories+choice+Prentice+bodes+well/10186517/story.html?__lsa=60c0-06c6

    But the evidence IMO demonstrates that all sectors of AB’s economy that have been dominated by larger corporations have been handed most everything they ever wished for, especially since the late 1980’s onset of market fundamentalist/neoliberal, government needs downsizing agenda.

    Coal/electricity, logging, irrigation have been among the top industry sectors that have effectively and continue to be in joint-venture governance with the PC’s resulting in subsidies, firesale prices, and outright privatization of public assets. Coal/electricity DC export powerlines funded on our utility/power bills. Water markets privatizing southern AB river flows. Tens of millions to subsidize logging for a pine beetle war that can’t won.

    Daily we’re told by pro-market corporate leaders that AB’s prosperity rests on the free-market. Good grief… e.g. It’s surreal, and tragically hilarious, to now read of ATCO CEO’s and Corbella’s concerns about selling AB’s electricity transmission system to Buffet’s corporation when in the 1990’s AB basically handed off billions of public investment in that transmission system to AB industry under Klein’s deregulation and privatization.

    http://www.calgaryherald.com/opinion/op-ed/Corbella+premier+must+block+sale+AltaLink/10178872/story.html

    • Sam, thank you for these excellent references. I read Steve Patten’s piece in AlbertaViews which appeared in the same edition as the Jay Smith’s article on the corporitization of our public school system. Smith points out that the advisory panel proposed to revamp the kindergarten-to-Grade 3 curriculum includes Syncrude, Suncor and Cenovus and that Apple, Microsoft, PCL Construction and Stantec are proposed for the larger effort to overhaul the entire curriculum for grades 1 to 12. The public was shocked, but when you consider that the government’s revamped vision for education (set out in the Inspiring Education report) is the three E’s–Engaged thinkers, Ethical citizens and Entrepreneurial spirits–and “entrepreneur” is defined as someone who runs a business, taking on greater than normal financial risks in order to do so, then it’s crystal clear what this government is doing. It’s bundling up our children and handing them over to the business sector.

      • carlosbeca says:

        Is this a surprise? The big Corp world cannot survive unless the educational system is fully controlled. They know that. With Ethical citizens and Engaged thinkers, they will never make it.

  8. Julie Ali says:

    Hi Susan,

    I have been against P3 projects since the beginning simply because we don’t get to see the total expenses. Building of P3 schools and their maintenance contracts are given to us as a lump sum figure and there are no breakdowns of costs that I can locate to tell us the costs of each aspect of the project. We are given comparison of the total cost of the P3 project versus the traditional method.

    The contracts seem to prevent full disclosure of how our money is being used. I don’t know if you can elaborate on this matter. In any case, I looked at the P3 schools that were built and I saw no benefit to giving the deals to the private sector; in some cases the schools we got back have maintenance contracts that seem to be rather onerous in terms of costs of repair of problems.
    I think the government of Alberta should build the schools using money we borrow from banks at a very good (low) rate instead of enriching the private sector which not only provides us with a more expensive product in my mind when you figure in the maintenance contracts that we are forced into with the building of the schools but does everyone realize that school boards typically get the schools back as fully paid entities that they are then responsible for maintaining–when they are old? In other words, the P3 provider builds a new school, has very little costs in terms of maintaining the school and so profits from the maintenance contract –the details of which we are not (I believe) privy to and then when things get costly in terms of upkeep, the private contractor hands the infrastructure liability (old school) back to the school board. We get shafted all ways–in the build, in the maintenance under the contractor and when we take possession.
    Who else would give us such bad deals except the worst fiscal managers of the Progressive Conservative Party of Alberta?
    And yet we have to listen to their rubbish about how P3 projects are not done unless it is cheaper.
    This is the letter I got in response to my yapping about the extra costs (and undisclosed costs of maintenance agreements) of the P3 schools that are being hatched out like turkey eggs for Thanksgiving.

    In this letter, Ric McIver says that they never use P3 unless they are cost effective.
    I don’t believe him.
    If we don’t know the maintenance agreements and their costs over time–then in my mind, we have no guarantee that the costs of the P3 are what are stated to us.
    The costs that are stated to us –do not –in my mind–take into account the costs of the maintenance agreements.
    Also I do not have any details of any single school project cost.
    So how on earth can I compare the cost of a single school produced by the P3 method to the way we did it before–where we built the schools ourselves and paid it out over time with money we borrowed from a bank?
    We can’t do this sort of cost analysis and we can’t even find out the line in the budget that is specific for the cost of the schools.
    He also says the auditor general checks for compliance. I don’t think that compliance means that he checks if the schools are cost effective. I believe compliance means that the department is following the correct procedures and so what we actually need is the auditor general to check if P3 schools are actually a better deal for us than the old way of making schools. The government of Alberta has done such a survey but I can’t find any data on the maintenance agreements and their costs.
    But first here is the letter I got which was useful as I got some information from Mr. McIver who is pretty much the only MLA who has written a substantive response in terms of fiscal information:

    From: “Infrastructure Minister”
    To: “jyali@ <jyali@
    Sent: Tuesday, March 25, 2014 2:39:05 PM
    Subject: Cost of New Schools

    Dear Julie Ali:

    Thank you for your email requesting information about the decision-making process for approving new schools in Alberta and the use of private-public partnership (P3) procurements. Over the last year, government announced that 50 new schools and 70 modernization projects would be completed throughout the province by 2016. This is in addition to 35 other school projects expected to be completed and ready for students this school year.

    New school construction and modernization projects are considered on an annual basis as part of the Alberta government’s and school boards’ capital planning processes. Looking at the needs of the province as a whole, government examines priorities as identified by school boards along with statistics on the condition and current enrollment of existing schools, health and safety considerations for staff and students, the student capacity of schools in the surrounding area and the projected future enrollment needs of the area.

    This year’s capital planning analysis determined that the overall need for school infrastructure within Calgary was greater than that of Edmonton. Information on current school capacity, enrolment and projected growth for all areas of the province can be found here: http://education.alberta.ca/parents/educationsys/factsheets.aspx. In addition, all school projects announced since May 2011 are listed here: http://education.alberta.ca/department/ipr/capitalplanning/newschools2013.aspx.

    In Alberta, we use a number of methods for building new schools, including P3s. The priority is to ensure the best method, at the best value to taxpayers, is chosen to deliver every school project.

    Alberta’s P3 process has been designed in close partnership with industry. It is open, transparent, and predictable. Every project is carefully evaluated and assessed to determine the best delivery method. In addition to savings achieved through delivery, the cost of a P3 school includes maintenance for the life of the P3 contract. This means that students and communities are guaranteed a well-cared for school for many years.

    There is not an individual line item in government’s budget for each school project, P3 or otherwise. Budget 2014 and Capital Plan 2014-17 provide $1.8 billion for school capital projects, including $1.2 billion for the 50 new schools and 70 modernizations which will be delivered using a number of methods. Nineteen of these schools, expected to be delivered using a P3, are currently in the Request for Proposal stage. The P3 will only be used if value for money is shown. In other words, the P3 proponent’s bid must be less than the cost of building the new schools using government’s traditional method.

    All P3 infrastructure projects are “on-book”, recorded as a liability on the government’s balance sheet in accordance with Canadian accounting standards. And, while the Government of Alberta can borrow at a better rate than private companies, the borrowing rate is only one factor. By bundling the design, construction and maintenance costs of multiple new school projects into a single P3 contract the cost of each individual school is reduced.

    More information explaining how value is generated by using the P3 approach for schools can be found in the Value for Money Reports: http://www.infrastructure.alberta.ca/3781.htm.

    The Auditor General of Alberta reviews value for money assessments on P3 projects and compliance has been confirmed as recently as the report of February 2014. Please see page 61 of this report: http://www.oag.ab.ca/webfiles/reports/OAGFeb2014report.pdf.

    The Government of Alberta knows how important schools are to families and communities across the province and continues to work closely with school boards on meeting school facility needs.

    Thank you again for writing.

    Ric McIver
    Minister

    *************************************************************
    So they tell me that the P3 schools won't cost more than schools we build ourselves.
    So why don't we build them ourselves?
    Why don't we own our assets right away?
    Why don't we keep the mortgage costs of our schools lower with the excellent credit rating we have at the banks?
    No one can will say to the public that government is now privatizing the entire responsibilities of government to the private sector so that the entire function of government has become to manage the message of big oil and gas.
    Or at least this is how it feels like to me.
    The government of Alberta does not represent citizens and therefore doesn't give a darn about our money.
    This is the reason Ms. Redford threw our money away—she and all the other premiers before her did not consider the public money to be anything other than a personal bank account of the Progressive Conservative Party of Alberta.
    And if they don't care about the money they spend on their own trips and expenses why would they care about the money they waste on P3 schools?
    This P3 business is major scam benefiting the Tory donors in my mind and making the Tories appear fiscally prudent to dumb citizens who can't think— the entire P3 issue is a mind boggling example of the power of myth making, spin creation and massaging by the Tories.
    The P4 projects are interesting as well.
    We have a P4 project in the Rosebud theater where we had Encana Corporation fracking the wells in the community (see Jessica Ernst's legal case) and then compensating the folks in the hamlet by creating a new business for the community. So sweet. The dumb residents under the Tory leadership at all levels love the exchange. They drink contaminated water and take the payout (sorry –corporate donation) for the Rosebud theater and that P4 project has rejuvenated Rosebud so that even the burning water is forgiven.
    Really I begin to think Albertans will accept anything in order to get the money.
    As for the corporations teaching our kids the Alberta Advantage business, that is really low.
    I heard the ATB Financial ads on the radio and I thought to myself–how low will the corporations sink to ensure obedience, stupidity and conformity? It seems they will start at 5 years of age in Alberta.
    Good thing some of us still can think.
    Maybe we can make a vaccine?
    Maybe an Ebola-type pathogen has inserted into the genomes of all of us and mutated Albertans? And we never knew it?

    P3 and P4 projects should be dumped ASAP if we cannot get all the financials.
    I also don't believe that Edmonton City Council should be able to discuss major projects like the Katz arena deals without the full details of the costs of these projects.
    We are hobbled in every way by our hires and it is time to take back control of the finances from them.

    The auditor general of Alberta has provided some information specific to P3 schools as per Ric McIver's e-mail here:

    http://www.oag.ab.ca/webfiles/reports/OAGFeb2014report.pdf

    Procurement Follow-up

    SUMMARY In 2010 we audited systems the Department of Infrastructure1
    used in applying the P3 (private-public
    partnership) framework to the Alberta Schools Alternative Procurement project. The P3 framework identifies an alternative approach to building and paying for public facilities like schools and hospitals.
    Our objective was to determine whether the department had effective systems to:
    • assess the potential value for money of the ASAP project
    • ensure procurement activities were fair and transparent

    We made two recommendations in April 2010.2
    This year, we assessed the department’s progress in
    implementing our recommendations to:
    • improve the processes it uses to challenge and support maintenance costs and risk valuations
    • publish value for money reports upon entering into P3 agreements

    The department implemented our recommendations by using its historical data on school costs to
    support its assumptions on maintenance costs and to validate its risk valuation. The department also published value for money reports for its ASAP P3 projects.

    Why this is important to Albertans
    Albertans need to know if the government’s processes to deliver P3 projects are open and transparent, and can demonstrate that value for money will be achieved.

    AUDIT OBJECTIVE AND SCOPE Our audit objective was to determine if the department implemented the two recommendations from our 2010 report.

    Our audit was not an assessment of whether value for money was achieved, but rather an audit of the systems management implemented in response to our recommendations. The assessment of whether value for money will be achieved is the responsibility of the department’s management.

    We conducted our field work from June 2013 to November 2013 and focused on the department’s actions since our April 2010 report. We substantially completed our audit on December 5, 2013. Our audit was conducted in accordance with the Auditor General Act and the Canadian Institute of Chartered Accountants’ standards for assurance engagements.
    **********************************
    There is more talk in this section but I note here that the auditor says that "Our audit was not an assessment of whether value for money was achieved" and this report was checking if recommendations made in April 2010 were followed.
    This report did say that transparency had improved so I went to the source of the data that has now been provided to Albertans here:

    http://educationalist/media/5222425/asapiivalueformoneyassessmentandprojectreport.pdf
    P3 Value for Money Assessment and Project Report
    Alberta Schools Alternative Procurement (ASAP) Project Phase II 

    September 2010

    The government signed the P3 contract, with a 32-year term, in April 2010 with B2L
    Partnership (the Contractor) to design, build, finance, and maintain the 10 new schools. The
    contract requires the schools to be ready for school boards on June 30, 2012 so they can be
    available for students in September 2012.
    *******************************************************************
    So this is a 32 year deal. There is a 2 year build time line and a 30 year maintenance deal.
    We will be paying for a mortgage for 32 years through a P3 contract–when we could have paid for it in 10 years if we had been smart and simply maintained the schools over the entire life cycle. The schools won't cost us much during the early period of use and will increase in maintenance costs as the school ages. Instead of doing the whole life school maintenance we opt for the easy way out of getting a private contractor that costs us more when the school is brand spanking new and by the time we get the school, the maintenance costs will be highest.
    Also we could have got a great interest rate that would have been less than what the contractor would have got.
    But the government tells us this is still a better deal for us because we don't have the deferred maintenance costs when we get our 32 year old schools back.
    If the government of Alberta gave the school boards enough money we would not have any deferred maintenance costs or the major infrastructure deficits we now have— and so this is not a reasonable argument to me. The government is simply not doing its job of funding maintenance and infrastructure replacement in the public sector and would rather have this problem be in the private sector where we pay more for the same problem —it is simply a transfer of the problem to the private sector for a higher payout of our tax dollars.
    This is bad fiscal management.
    We see this everywhere in Alberta.
    I think this is because the Progressive Conservative Party of Alberta does not respect the taxpayers or their money.
    The government says that this not the case because they have done cost comparisons and they prove that P3 are cheaper.
    But where are the details of the cost comparisons?
    Where are the maintenance contracts and their costs?

    They give us a graph of guesses —and some fancy explanation in this document— that is supposed to tell us what a great deal we are getting:

    http://educationalist/media/5222425/asapiivalueformoneyassessmentandprojectreport.pdf

    The cost of doing the project through P3 delivery method is tendered at $253 million, saving
    Alberta taxpayers $105 million (29%) in today’s dollars (confirmed by Deloitte & Touche LLP
    – see Appendix A). The 10 schools are scheduled to be ready about two years earlier than
    with the traditional method. As a result, the Alberta government entered into the contract to
    design, build, and finance the 10 new schools and maintain them for a 30-year term. The P3
    selection process is based on the net present value of the project or the total value of all
    aspects of the project over the life of the agreement, expressed in today’s dollars.
    The cost of doing the project through P3 delivery method is tendered at $253 million, saving
    Alberta taxpayers $105 million (29%) in today’s dollars (confirmed by Deloitte & Touche LLP
    – see Appendix A). The 10 schools are scheduled to be ready about two years earlier than
    with the traditional method. As a result, the Alberta government entered into the contract to
    design, build, and finance the 10 new schools and maintain them for a 30-year term. The P3
    selection process is based on the net present value of the project or the total value of all
    aspects of the project over the life of the agreement, expressed in today’s dollars.
    *************************************
    There is no mention here of the costs of the schools in documents where we can see the breakdown of costs. There is no mention here of first how much the maintenance contracts are costing us, there is no mention of any additional maintenance costs of the schools or the fact that communities who have these P3 schools — don't seem to be too happy with the P3 school model because they are stuck with the contracts associated with these P3 schools, While communities can negotiate with the contractor there is no incentive on the part of the contractor to modify the original contract. In contrast a school owned by the school board can be altered for use by a community because parent councils have some power in terms of their contract with the school board (we're the bosses of the trustees).

    http://ckom.com/story/community-associations-unhappy-albertas-p3-schools/140200
    Community associations unhappy with Alberta's P3 schools
    Edmonton Federation of Community Leagues says no room for community groups
    Reported by Karin Yeske
    First Posted: Oct 24, 2013 1:43pm | Last Updated: Oct 24, 2013 2:10pm
    Change text size: + –
    The provincial government said Saskatchewan's nine joint-use P3 schools will follow Alberta's model.

    However, some community associations in Alberta are unhappy with the P3 schools that have opened in that province.

    The Alberta government opened 18 schools in 2010 and 10 more in 2013. There are 12 under construction that are slated to open for the 2014-2015 school year.

    There have been downsides to trying to keep costs down, according to Allan Bolstad, executive director with the Edmonton Federation of Community Leagues (EFCL).

    "It didn't work out for us very well at all," he said.

    The EFCL is the umbrella organization for Edmonton's 156 community leagues. Each neighbourhood has a community league which typically helps build facilities, organizes family events, summer camps, courses, exercise nights, soccer programs and advocates on behalf of the residents on topics such as traffic and crime.

    Bolstad said they told the Alberta government that EFCL wanted to see the P3 designs incorporate some space for community groups to use.

    "What we were hoping for was that with the new schools that are, for the most part, going into new suburban locations where there isn't much else in the way of recreational-infrastructure and an opportunity for outside groups to have space in these schools for their programs, for their meetings, that kind of thing," he said.

    "That didn't happen with the first round of schools that were put together here. They wanted to keep it to a very bare bones concept that would focus strictly on the academic space."

    "There's not that many churches being built these days anymore. It is quite a challenge for groups to put together the kind of dollars you need now to build its own facility," he said, adding of the 156 community leagues in Edmonton, 125 have halls to use. The 31 that don't are the leagues in newer neighbourhoods.

    In older parts of the city, the leagues are using schools.

    "What's aggravating the situation is the fact that there are very few other buildings out in the newer parts of the city for groups to use," he said.

    The contract for the first round of P3 schools which opened in 2010 included joint-use agreements but did not allow third-party leasing arrangements for things like day cares or community events. That has since been amended for the first round of schools and included in the following two rounds of schools.

    Schools boards assume the risk if they choose to lease the facility.

    "It wasn't initially written into the contract that we had so it was modified so that it was allowed," Tracy Larsen, communications for Alberta Infrastructure, said. "In all of the contracts that say leasing to third parties, such as a day care is possible, but all it's all the school board's decision how they want to make use of their facilities."

    Saskatchewan's repsonse

    Don Morgan, education minister with the Saskatchewan government, said they are aware of the problems that arose in Alberta.

    "If there is community groups, community associations, that want to use the building in off hours, we want to make sure we have every process available so that can take place," he said on John Gormley Live.

    "We also are very cognizant of what's taken place in some other provinces and want to make sure that the buildings are available for public use as well."

    Larsen said since then, the Alberta government has been partnering with community groups who are looking for extra space within a school, P3 model or not. She said these community group, however, are often contributing funds to meet their needs.

    She pointed to one example where a gymnasium was made bigger to accommodate community-based sports groups. Boldstad said despite the contract amendment, there is no space for lease in the first round of schools anyway. Edmonton school gyms are rented out using the joint-use agreement and the rates are determined by the size of a school gym and any special features they might have.

    "It was a conversation throughout (the P3 planning process) and we've continued to raise it as this P3 model has been continued to be used. I think they've heard us now. I think that they've recognized that it would be better to design some flexibility into these schools," he said.

    Bolstad isn't happy with the schools 'cookie-cutter design' that he said sometimes doesn't fit the esthetic of the neighbourhood, like in the Griesbach community.

    Major General William Antrobus Griesbach is a former mayor of Edmonton and decorated soldier who died in 1945. Bolstad said the developer of the neighbourhood worked hard to created a historical esthetic to commemorate the former army barracks.

    "They've got a statue of him on his horse. They've got a statue in a traffic circle … All these old street lamps and streetlights and you know, a lot of landscaping with trees with nice boulevards sidewalks and what not. They tried to make it look real nice and they stuck this God-awful school in the middle of it," he said.

    The schools in Saskathewan will be located in Saskatoon, Regina, Warman and Martensville. The announcement means homeowners in Saskatoon's Stonebridge, Hampton Village, Evergreen and Rosewood areas will finally have a school to send their kids to.

    In an e-mail, Brad Flavell, president of the Stonebridge Community Association, said Morgan has been proactive in seeking input from the neighbourhood for years.

    "Our association will certainly investigate and leverage all opportunities once a school facility is open to the public. We currently enjoy a great relationship with surrounding schools and a local church and we are looking forward to the impending construction of a city-built recreational facility at Alexander MacGillivray Young Park to help meet our growing needs," he said.

    kyeske@rawlco.com

    Follow on Twitter: @karin
    *************************************************
    P3 contracts seem to be inflexible.
    At least the original P3 designs were inflexible because –lets face it –the builders are only interested in profits and being lean and mean about design is one way to have increased profits.
    The original P3 contracts give school boards fixed maintenance deals.
    School boards are stuck with the contracts with the schools that the government made.
    And where are the details of the building and maintenance contracts?
    I have not been able to locate details on the maintenance contracts at all.
    Even the auditor general of Alberta has some problems getting information as noted below.

    https://cupe.ca/node/33119
    Veil of secrecy

    The cloak of secrecy around the P3 schools extended all the way to the government’s top financial watchdog. In March 2009, Alberta’s Assistant Auditor General Merwan Saher told the media about problems he was having getting financial details on the six-month-old contracts. “The government would seem to be putting forward the case that revealing the sort of detail they have been encouraged to reveal would compromise the negotiations for the next batch of P3s.”

    In April 2010, Saher released a report on the P3 schools. Without all of the relevant information, the auditor general concluded the P3 savings were overstated by $20 million. The report also concluded that not enough had been done to keep Albertans informed about the process, nor had the government backed up its claims about value for money.

    In 2009, the second ASAP project began to fail under pressures of the global economic downturn. Although the education minister dubbed the change a “refinement,” all secondary schools were stripped out of the package. The project had become too large and unwieldy, and was broken down to make it more palatable for private lenders. The four high schools were publicly financed and operated.

    After the first 18 schools opened in 2010, both the public and Catholic school boards in Edmonton said they did not want any more built as P3s. The program had excluded building any new schools in low-income neighbourhoods. The Edmonton YMCA and the Edmonton Federation of Community Leagues protested against use restrictions that made it harder for families served by P3 schools to access space for childcare, community events and social programs. The restrictions and fees for after-hours and weekend use of schools meant significant losses for social groups, sports groups and the community as a whole.

    Frontline workers see the problems

    After three years of operation, CUPE members working in P3 schools have reported significant concerns with design and maintenance. In P3 schools, direct school board employees have the same cleaning responsibilities as in regular schools, but maintenance issues are the responsibility of the private contractor – including such routine tasks as replacing light bulbs, setting clocks and going up on the roof to retrieve a ball. CUPE members see this divide between contracted and in-house work creating widespread maintenance issues, cost overruns and safety concerns.

    When the lights in a gymnasium in one school came loose from the ceiling, the contractor indicated they would do repairs “in a month to six weeks.” In some schools, board staff have taken back responsibility for services like snow shovelling or re-keying schools, after significant problems with the contractor’s service quality and timeliness. In Edmonton, there were electrical problems right from the beginning. In cases where the contractor’s work failed inspection, board staff ended up making repairs. The local school board ends up paying twice to get the work done right and on time.

    General maintenance is just one of the issues raised by CUPE members working in P3 schools. The ‘one-size-fits-all’ design has created significant problems. The P3 school design does not include awnings or shades for south or west-facing parts of buildings, often leading to very high (over 28°C) indoor temperatures.

    The design has also led to flooding concerns in at least one school, with drainage problems leading to water running into the school. Delays in repairs further complicated this issue and the school board ended up paying more for repairs. Equipment installed in P3 schools has been of lower quality (e.g. PA systems) and some items which appear on the blueprints, like ceiling data plugs, were never installed. In one school, in response to a request to add an outlet for a TV, the contractor gave an extremely high quote that included an inflated amount for 30 years of future maintenance.

    As the schools become operational it became apparent that the P3 school projects did not meet the needs of local school boards.

    Repeating mistakes

    Problems with lack of accountability and loss of local control of schools continue to make headlines into 2013. Yet the Alberta Conservative government is pushing ahead with plans that will shackle future generations to contracts that don’t work for the community and will cost Albertans more.

    In September 2012, the Alberta government announced a third round of 12 new P3 schools in eight communities. The impacts of these P3 schools are far-reaching. They are more expensive than publicly-run schools, they do not meet the needs of the community, and they fail to deliver a safe place of learning for all students in Alberta.

    ************************************************
    So in my mind, until there is full disclosure and debate in the public and not behind closed doors —as in the case of Edmonton City council and the arena deal—these P3 and P4 projects are just not –at least in my mind–a good thing.

    The P3 issue is an important issue and under the Prentice guy will be another place where money will hemorrhage out of the public purse and into the private sector in amounts that we will not be able to determine —because if the Auditor general of Alberta is unable to get the entire story of waste–how can we?

    • Julie, thank you for this excellent comment! You’ve highlighted so many issues that need to be addressed in a transparent manner. There’s really nothing more for me to add to your comment other than to ask all readers to review it carefully and note all of the examples where the P3 model has failed to deliver real Value for Money.

      Your last comment was especially poignant–“if the Auditor General of Alberta is unable to get the entire story of waste–how can we?” I just read Jim Prentice’s announcement of his new cabinet. Manmeet Bhullar, Mr Opaque, is now in charge of infrastructure. Things are going to get a whole lot worse before they get any better.

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