Ontario’s misplaced and expensive fascination with...
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Dec 10, 2014  |  Vote 0    0

Ontario’s misplaced and expensive fascination with public-private schemes: Walkom

Ontario’s Liberal government has an almost pathological desire to involve the private sector in public business

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Ontario’s Liberal government has an almost pathological desire to involve the private sector in public business.

When awarding contracts for new power plants, it has favoured private electricity firms over publicly owned Ontario Power Generation.

It insists that large-scale public construction projects, such as hospitals, be handled by private firms paid from the public purse.

It is anxious to contract out the delivery of public medicare services to private clinics.

For a while, it even privatized regulation, giving industry groups the authority to charge consumers fees for handling electronic and other kinds of waste.

In one notorious case, the Liberal government established an arm’s-length public agency called ORNGE to run the province’s air ambulance service. Then, inexplicably, it allowed this agency to set up a web of privately owned, profit-making subsidiaries.

Finally, someone has blown the whistle.

On Tuesday, provincial auditor general Bonnie Lysyk zeroed in on just one element of the pathology — the government’s overweening urge to have private-sector firms design, fund, construct and manage public projects.

The government refers to these as alternative financing and procurement schemes. It says they save taxpayers money.

Do they? Lysyk looked at 74 public-private projects started since 2005 to answer that question. She found that, in total, they cost $8 billion more than if they had been built and managed by the government alone.

In one telling example, she looked at the construction of two near-identical buildings for an unnamed Mississauga college.

The first, handled by the public sector, was completed on time and on-budget.

Over the objection of the both the college and then mayor Hazel McCallion, the government decreed that the second building be funded and handled by a private project manager.

When the figures are adjusted for inflation and other variables, that second building is expected to cost taxpayers 10 per cent more per square foot.

The reason is straightforward. Big projects are always built with borrowed money. And governments can borrow far more cheaply than private firms.

Private project managers also tend to charge higher legal and management fees. As well, they must return profits to their owners.

Aficionados of public-private partnerships insist that while all of this may be true, privately managed projects are far more likely to come in on time and under budget. That is the argument used by Infrastructure Ontario, the body charged with handling public-private deals.

It says that if the 74 projects had been handled by the public sector, delays and overruns would have cost taxpayers — in net terms — about $6 billion more.

It also says that publicly managed projects are five time more likely to come in over budget than privately managed ones.

Is any of this true? Lysyk is not convinced. She points out that Infrastructure Ontario has no empirical evidence to back up its claims and instead bases them on the judgment of outside advisers who, her report says, make their case “anecdotally” and tend to cast publicly managed projects “in a negative light.”

She also notes that Infrastructure Ontario’s initial cost estimates for public–private partnerships are systematically inflated.

One result (which she is too polite to mention) is that private-public schemes usually appear to come in under budget. That makes everyone look good.

The Liberals may be the grand priests of private-public partnerships. But they are not the only ones to embrace this particular theology.

In the 1990s, Bob Rae’s New Democratic Party government famously arranged for a private consortium to finance, build and operate Highway 407, largely to avoid saddling the province with $1 billion more in debt.

Yet in the end, the Rae government had to borrow the $1 billion itself — and then pass it on to the consortium. The private-sector partners just couldn’t raise cash as cheaply.

Little has changed since then. On the face of it, public-private partnerships seem a good way to save money. In reality, as Lysyk has confirmed, they usually cost taxpayers more.

Toronto Star

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