Taxpayers Should Look A Gift Horse In The Mouth


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We are starting to learn about why P3s are like the Emperor. Both of them wear no clothes.

One was foolish if one could not see the fine clothing worn by the Emperor just like one was attacked for not being able to understand the fundamental basis of a Public Private Partnership because they were supposedly so valuable to Governments and taxpayers who have to cope with high taxes. Instead, with the help of the Ontario Auditor General, we have learned that P3s in this Province, including the DRIC road, have ripped off taxpayers for $8 billion. Moreover, the Auditor General in British Columbia told us the financing cost of P3s is double that of a government project.

If you think that is bad, just wait and keep on reading.

There is so much interesting material that can be found on the Internet that covers a variety of subjects. The problem is there is almost too much information. It can be overwhelming at times.

Here is one report that I saw recently that I think should be looked at in the context of whether it makes sense for taxpayers or not. It was prepared for The Residential and Civil Construction Alliance of Ontario: “Unlocking Ontario’s  Advantages: Building new infrastructure on the foundation of existing public assets.”

Let me just quote part of the Executive Summary and let you understand why it scares the heck out of me:

“The primary recommendation in this Study is that governments have opportunities to ‘unlock’ the wealth of public assets in order to build infrastructure. Properly structured, asset recycling can be used at each stage of the asset’s lifecycle, from asset acquisition through P3s or concessions,  through asset management by private operators, and finally, to the full or partial sale, lease or joint venture as part of a government disposition of noncore public assets.

Many of the capital investments that could be financed from asset recycling could provide ‘public goods’ that would otherwise not be available to the public, as well as delivering significant, sustainable returns for pension funds…

Queen’s Park has correctly placed a priority on making significant infrastructure investments over the next decade but clearly these cannot be financed through traditional sources of capital investment by the public sector…

To achieve these results, however, we need to mount an infrastructure  investment program of a ‘generational’ scale and breadth that exceeds anything to which we have committed ourselves now or in the recent past. It will require financial commitments that exceed the capacity of traditional tax-supported capital budgets and traditional public sector methods…

Fortunately, the capital needed to fuel a large-scale infrastructure investment program is available by leveraging existing public assets, by expanding the  scope of well-designed public-private partnerships, and by attracting patient investment capital, notably that of public sector pension plans. To realize those opportunities, however, we need to understand and to address the needs of both the public sector and the private sector.”

Do you see how nicely it works? Don’t you feel so much better that someone is looking after your interests?

Of course we all know about the bogeyman with respect to infrastructure. We know that our deficiency in Windsor alone is hundreds of millions of dollars for potholed roads, old and worn out bridges, breaking watermains and aged sewers that allow flooding. Wait until we get hit for the costs of having to fix up our electrical lines too.

We just saw this happen so we know money is tight:

“Finance ministers from across Canada issued a collective plea Monday for the Harper government to dig deeper into its pockets to help build bridges, repair roads and improve public transit across the federation.

Provincial and territorial finance ministers pressed federal counterpart Joe Oliver to consider investing more cash in infrastructure projects as a way to help further stimulate the economy.

“We will continue to hammer away on this point between now and the (spring) federal budget,” Quebec Finance Minister Carlos Leitao said after emerging from a federal-provincial meeting in Ottawa.” (Andy Blatchford Canadian Press December 15, 2014)

Aren’t we lucky that the contractors and unions involved with RCCAO produced that nice report to solve all of our problems.

Their solution is quite simple: “‘unlock’ the wealth of public assets in order to build infrastructure.” In other words let’s give away our taxpayer assets to the private sector in a variety of different ways so they can provide us with an injection of cash to solve all of our problems. How generous don’t you think! How re-assuring.

Why, we can use P3s the report tells us. It’s a shame that this Report came out as the AG slammed P3s and told us how $8 billion of taxpayer money was wasted. Oh forget about that AG report. Dismiss it out of your mind, dear reader, because we have infrastructure to build.

Why not just sell off the taxpayer assets in whole or in part to get even more money in. That is suggested too. Mind you, once an asset is sold, it is gone forever. No matter. You can trust the Government who made up numbers for P3s to show how good they are to negotiate a terrific sales price for these assets. Yup, we’re so much smarter than the private sector in matters like this. Just like in Chicago where they undersold the value of the parking meters by about $1 billion.

Of course, the private sector has to make money. If you think that rates are bad now for electricity and water or transit fares, wait until a privatized utility operation jacks them up to get a nice return on their investment! How about uncontrolled tolls as was supposed to happen with a DRIC bridge or outrageous availability payments that will pay hundreds of millions of dollars of taxpayer money to foreign P3 operator for the next 50 years or so for a DRIC bridge. Why not pay out more for a P3 DRIC road than if the MTO built it itself using the traditional method of government financing. After all, wasn’t MTO in the road building business for generations.

Sure, let us sell off the LCBO or maybe Enwin or WUC. Who needs Ontario Hydro anymore? I bet that we would get a lot of money if we sell off the casinos too.

The fallacy of all this is that somehow there is no Government money around to finance all this stuff so therefore we need to unlock the public wealth i.e. assets paid for by taxpayers, and give them to the private sector so they can give us money for us to build infrastructure. How generous don’t you think.

Of course, it’s all BS. The Government i.e. you and I as taxpayers, pay regardless as the New York State Comptroller wrote in a report in June 2013: “Private Financing of Public Infrastructure: Risks and Options for New York State:”

Private Debt Can Be Costly

Private financing could be viewed as a new form of backdoor borrowing – a financial commitment that does not directly involve the State, but draws on the same resource base or otherwise holds potential implications for the State’s finances and other interests.

It is important to recognize that private financing does not constitute a new source of funding – ultimately, the costs will be borne by the public. The Congressional Budget Office explains, “Private financing is unlikely to increase the availability of funds for highway projects because the revenues from taxpayers and from users of the highway are the source of repayment regardless of the financing mechanism chosen for the project.” Or, as the FHWA puts it, “P3 concessions do not generate revenue, they require it.”

Private financing may increase the ready availability of funds in cases where states or localities have self-imposed spending and debt limits that can be bypassed by using P3 financing. So private financing could be used, in effect, as a new source of borrowing that might never appear in any budget, on any financial plan, or in financial statements.

In addition, mechanisms currently in place to promote prudent State debt practices, such as limiting the use of debt to capital purposes and imposing reasonable terms for any debt, may be circumvented through private financing. This could potentially increase the cost of such debt above the cost of a comparable State-financed alternative.”

Oh, and by the way, we need to put all this excess money that is taken from taxpayers and put it into pension plans like OMERS that have a deficiency that they have to reduce:

“the capital needed to fuel a large-scale infrastructure investment program is available… by attracting patient investment capital, notably that of public sector pension plans.”

Yes, we do have to make sure that civil servants enjoy a comfortable retirement life even if we have to suffer as taxpayers.

You might want to know who wrote that RCCAO report. He has quite a distinguished biography. Here are the relevant parts:

Michael Fenn is a consultant and Board Director. Over the course of an
extensive career in public service, he has been an Ontario Deputy Minister
under three Premiers, municipal chief administrator in Hamilton and
Burlington, and the founding CEO of both Metrolinx and the Mississauga
Halton Local Health Integration Network (a regional health authority
serving a million residents from Etobicoke to Georgetown).

Mr. Fenn is a Board Director of the C$65 billion OMERS AC pension
fund and with the Toronto Board of Education’s realty arm, the Toronto
Lands Corporation.”

So thank you for your offer of a nicely wrapped gift, Santa RCCAO, but keep it. I don’t want any part of. This is one gift horse in whose mouth I will look very closely.

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About the Author

Ed Arditti
Ed Arditti is a retired lawyer and living in Tecumseh, Ontario. Email Ed Arditti