Thoughts and Opinions On Today's Important Issues

Monday, April 06, 2009

P3s, Government Bonds And Your Mortgage

Nice to see Brian Masse in the news again jumping head first into someone else's story! I was getting worried. Where was he for so long? He was so invisible? He may be happy to know that he and I may be on the same side on a border crossing matter for the first time over the P3 battle with the Federal and Provincial Governments.

I certainly could use his help in denouncing the concept before taxpayers get ripped off for hundreds of millions of dollars. That almost happened in British Colombia with the Port Mann Bridge where the financing costs alone were $200 million more than if the Government did it itself.

He has had a terrific opportunity to slam the P3 concept for the road and the Bridge to the border in Windsor but he has not said a word lately. Has someone told him to be quiet perhaps? Has he been threatened? Who wants him muzzled?

This is not like Brian who normally grabs an issue that taxpayers will love. And what could be better these days than greed and waste as issues?

Come on Brian, get talking. Compare Brian with his NDP colleague in British Colombia where the Port Mann Bridge P3 Project collapsed:
  • Port Mann P3 Deal Blows Up In Liberals’ Face

    VICTORIA – The Gordon Campbell government’s only defence for its costly and embarrassing financing fiasco of the Port Mann Bridge is to spread false distortions about the opposition, charged the NDP.

    “Transportation Minister Kevin Falcon staked his political reputation on building the Port Mann Bridge as a private project that would be on time and on budget,” said New Democrat Transportation critic Maurine Karagianis. “Now the private financing scheme has blown up in his face. The bridge is late, more than double the original cost estimate, and millions of dollars have been wasted pursuing a failed financing scheme.

    “The Campbell government is so embarrassed by this fiasco that instead of coming clean on the cost of their delays they are trying to attack the opposition for asking important questions.”

    A Campbell government press release this morning quoted Karagianis as saying that the Port Mann Bridge project was a “colossal waste.”

    In fact, Karagianis called the Campbell government’s obsession with a failed private financing scheme a colossal waste.

    “New Democrats know that a new bridge is part of the solution for the horrible traffic congestion that plagues commuters,” said Karagianis. “But Kevin Falcon and the Campbell government have generated nothing but delays and dramatically expanded costs.”

Brian had spoken out with respect to the P3 for the DRIC Road:

  • “Masse had opposed P3s for crucial public infrastructure projects.

    "I don't think that we need to have some consortium from China, Dubai, Russia, Spain or wherever owning public infrastructure in Ontario, especially one that connects our border and is very significant for economic trade," Masse said from Ottawa.

    Masse raised the spectre of a toll road and said an international consortium might not be sensitive to local logistical issues when planning and constructing the highway.”

Of course, his comment totally missed the point with respect to the evils of P3s. I was shocked that he did not talk about the rip off of taxpayer money by the private P3 operators. That was what I would have expected a member of the NDP to talk about.

I can remember Brian being so aggressive in Parliament over P3s when he grilled the Minister:

  • “Mr. Brian Masse:

    Why have you departed from, for example, the Blue Water experience? Maybe you can provide that. Why is it you have decided to depart from that historic, successful venture that hasn't cost public taxpayers and that has lower fares than in many other spots? Why are you departing from that? Is it based upon ideology? Is it based upon serious research? What is the reason you're departing from a practice historic to Canada?

    …My concern is whether or not this government has done its due diligence to study whether or not the most important border crossing, which you're hoisting up on the P3 platform for at least two years prior, runs counter to the minister's statements here today that there would be a due diligence process to see whether it's viable or not. You've been putting that out there.

    So what's driving this? Has there been hard research done to determine whether this crossing, the most important one for our economy, is actually going to be more successful, have lower toll rates, and be more accountable as a private entity? Because that's not the case with the current private operator. It basically holds much of our economy right now at risk…

    But your press release says you were in Toronto today “to seek a partnership with the private sector in the building of a new Windsor border crossing”. So your press release indicates that you are actually out seeking that, yet your comments today say it's going to be going through some vetted process. I'm concerned about that contradiction.”

There’s our Brian taking a dig at the Bridge Company. It would not be a Brian diatribe on the border without it. Yet he pointed out the contradiction and does not seem to have done much about it since then. This is not at all typical Brian. Something is very strange to me.

The concept of Public Private Partnership really isn’t all that well known. It is not all that hard to accomplish in a new project. But in an already built one, as in Windsor, the matter is much more difficult to achieve when someone already owns the property.

In fact you ought to be scratching your head right now and wondering why the Governments want to replace one private operator, the Bridge Company, with another private operator. I have been wondering about that for a long time too. As Brian said, the Governments have been seeking a private sector partner for our crossing.

Clearly, there is an agenda behind all of this which the Governments have seen fit not to tell us. Now you understand exactly why it will be so difficult to get a border solution.

Why would the Bridge Company give up ownership of their bridge just because the Governments want to be the new owners? It is not as if the Company has done a bad job. The Bridge Company can rightfully say that they are the ones that made Windsor/Detroit the #1 border crossing in North America. It was their money that did it, not Government money. And what did they get as thanks from the Governments for doing all of this… an effort to drive them out of business so that the Governments can buy the Bridge at a cheap price and give it to another private operator to run for anywhere from 40 to 99 years.

It would just be like the Governments threatening to build a new DRIC bakery a block away from the bakery of Mary Ann Cuderman in Sandwich if she did not sell out cheaply. If she did decide to sell out because they were much more powerful than she, then the Government would replace her with someone else who makes chocolate brownies because the Government does not want to be in the bakery business. That wouldn’t seem fair, especially because I like what she bakes.

Let us leave that for a minute and talk about the P3 for the road. The concept is the same but the way of justifying it is different now.

Those Infrastructure Ontario guys are pretty smart. Look at how they describe their taxpayer ripoff using their version of P3s. This is part of the press release for a hospital project:

  • “The Niagara Health System project will be delivered using an alternative financing and procurement model. Plenary Health Niagara will receive annual payments from Niagara Health System over a 30 year period. Payments cover construction, building maintenance, lifecycle repair and renewal and project financing. Lifecycle refers to ensuring that heating and cooling systems, windows, floors and roofing structures, for example, are kept in excellent working condition over the 30 year period. The payments are like a fixed-rate mortgage with maintenance and repair expenses included and will total approximately $1.42 billion after 30 years. In today's dollars this is equivalent to approximately $759 million…

    The annual payments are like a fixed-rate mortgage with maintenance and repair expenses included. For example, if a homeowner signs a mortgage agreement today, he commits to the cost of the house in today's dollars (this is known as the net present value). However, over the lifetime of the mortgage, the homeowner pays monthly mortgage payments plus the costs of updating and maintaining the house during that period. This cumulative cost is called the nominal cost. In the case of the NHS project, while the cost of the contract in today's dollars is equivalent to $759 million, after 30 years, this will total approximately $1.42 billion.”

There, isn’t that easy to understand. Just like your house mortgage now.

What they fail to tell you is that P3 operators generally want a 20% rate of return on their money for toll road deals. I did the calculation in a previous BLOG outlining the many billions of dollars that taxpayers will overpay if a P3 is done for the road.

Presumably those billions are the amounts necessary for “updating and maintaining the house.” If you believe that this amount that I calculated is the cost for looking after a highway for 30 years, then you believe that Greenlink make sense.

At this time, Brian and I should be shoulder to shoulder denouncing what is being proposed. Never mind doing a P3 deal that is like a mortgage. We should be doing a deal that is a mortgage! In other words, the Government ought to be issuing bonds to pay for the cost of the road and paying it down every year in the same way that a homeowner does.. There is no need to pay a superpremium of billions of dollars for maintenance to a P3 operator who probably requires the Government to help finance the deal in the first place just like in British Colombia.

Let us assume that Brian and I are successful. I think that this is where our alliance would fall apart unless we could come to an understanding. Brian would want the Governments to go out and borrow money to build the DRIC roads, plazas and the bridge or use taxpayer dollars to do it. (Doesn't that mean that we would have to give up on some other programs that might be more essential because there was no money for them?). We know that the project costs would be horrific just like in Port Huron where costs have increased 30% in only a few years to almost $600M.

My perspective would be slightly different. I would take a look at the partnership between the Bridge Company and the Governments over the last 80 years. It seems to have worked relatively well. I would suggest that the Governments do their job and build the roads while the Bridge Company does its job and be responsible for the plazas and the bridge itself.

Each of them would be responsible for financing their part of the deal. The Governments would spend less on a government financed project for the road than if it was a P3 project. The Governments would not have to waste another billion or so dollars on building a bridge and updating plazas because that would be the Bridge Company costs.

Yes I know that money is being thrown around for infrastructure these days as if deficits don’t matter. However, wouldn’t it make more sense to use that billion dollars for infrastructure projects where money ought really to be spent.

After all, Governments still have to be prudent with taxpayer money. They still have their Standard and Poor's ratings to be concerned about. There is a point beyond which they ought not to go for the sake of our children and grandchildren who will have to pay for all of this infrastructure deficit spending.

If only Brian and I could agree on that, we might be able to push forward a border solution together!