Public Private Partnerships in Education

Public Private Partnerships in Education

Paper prepared for speech to CUPE Saskatchewan K – 12 workers, November 5th, 2008

Kathy Corrigan, CUPE Research (BCRO)

Thanks so much for inviting me. Across Canada there have been a wave of public private partnership projects (or P3s), that have recently more closely resembled a tsunami, but I am hopeful that the wave is at its highest point, and will soon ebb. I hope that P3s will soon be politically out of fashion. I say politically out of fashion because I believe that we can provide all the evidence in the world against them, and we are stacking up the evidence, but we are up against a political ideology that often is not interested in facts. We need to get past this, because P3s are bad for taxpayers, they are bad for those that work in them, and they are bad for those that use the services.

One of the biggest problems in these fights is understanding what a P3 is.

A public private partnership (P3) is a form of privatization. P3s are multi-decade contracts for private management of public services or infrastructure. They are like contracting out on steroids. They can include private financing, ownership and/or operation. The most common form is one in which the private sector designs and builds something like a hospital, school or bridge and has a very long term contract with government (20 or 30 or even 40 years) to operate the facility. The private partner usually provides some portion of the up-front money to build the project, and then is reimbursed with payments over the life of the contract.

Governments say they like P3s for a number of reasons. They say that they will save money, they SAY that they will transfer risk to the private sector, they SAY thatcompetition will foster a great blooming of innovation and efficiency. They don’t usually say, but they imply that the private sector is just better at doing things. How disrespectful and how demoralizing is that for public sector workers?

The truth is that P3s cost more, generally are lower quality, take longer to build and definitely mean a loss of public control.

The idea for P3s started in the United Kingdom under Conservative Margaret Thatcher’s government. When Thatcher came to power in 1979, she believed that the state should, for the most part, get out of the business of running public services. She was a fan of the movement towards economic globalization – the creation of a single global economy with universal rules set primarily by the private sector. The hallmarks of this free market doctrine are trade liberalization, cutting of public expenditures for social services, privatization, deregulation and debasing the concept of the public good, or community.

Public Private Partnerships in Education Paper – November 5th, 2008

So when there is talk about P3 schools in Saskatoon, it is not some unique idea that politicians in the Saskatchewan Party came up with, it is part of a world movement to privatize and commercialize, to find profit in as many human interactions as possible.

Powerful, well-organized, very well funded and patient corporate interests lead the movement, and lobby politicians and in fact dominate processes like negotiations around free trade agreements. Organizations like the U.S. Coalition of Service Industries, whose foremost goal is:

To open foreign markets to U.S. business and allow them to compete abroad. Most broadly stated, our goal is to use every available opportunity to achieve the greatest liberalization of trade in services that we can obtain.[1]

That word liberalization, when applied to public services simply means privatization. And P3s are a huge part of that push to crack open the hugely lucrative oyster of public services.

In the UK P3s were called Private Finance Initiatives, of PFIs for short.

This was seen as a new way for the Government to procure public services, paid for and operated by private companies, ranging from roads to hospitals, prisons and defense projects.

The advantage was not to save money, although that claim was made, but rather that governments could avoid paying up front for expensive, large scale projects. Instead, consortiums (or groups of companies consisting of financiers, designers, construction companies, an engineering company) would be offered 25 or 30 year contracts, and receive regular public payments throughout that term.

Critics argued that this was a "buy now, pay later" policy which, like any mortgage or lease, would be more expensive in the long run. This is a major feature that is attractive to governments. The private sector puts in some money up front, and the government agrees to pay for the next 30 years. Essentially it is taking out a mortgage, as opposed to buying the item outright.

That was particularly attractive because it allowed and allows government to keep the cost of the project off the books as debt. You still owe the money, but it isn’t called debt. In BC, for example, the debt has stayed fairly stable, but we now have about $55 billion in long term contractual obligations, stretching decades into the future. In 2007 there was a jump in the long term obligations from $34 billion to that figure of $55 billion in just one year. As reporter Craig McInnes said, “While using private sector capital to build hospitals, roads and electrical generating facilities means that government can reduce its debt, taxpayers still get stuck with the bill. It just gets put in another pocket.”[2]

In the UK there is a great debate about this – some of the P3 or PFI obligations have been forced by the Auditors to go back on the books, and more will.

You might have expected that under Tony Blair’s labour government the privatization agenda would have been abandoned, but it continued with gusto. Under their Building Schools for the Future program, the Labour government promised to rebuild essentially all the 3500 secondary schools in the country, mostly using P3s.

So how did they work out? Well, in 2003 the National Audit Commission, the government watchdog agency, produced a damning report on PFI schools. It compared 12 recent and traditionally funded schools with 17 PFI schools. It found the quality of PFI schools was not as good, and that the best examples of innovation came from traditional schools. PFI schools were not completed more quickly (this is a claim that P3 proponents often make – that with P3s you will be on time and on budget), and did not save the taxpayers money.[3] In addition the costs of cleaning and caretaking appeared to be higher in PFI schools, common building problems included classroom size, storage space and heating and ventilation and inadequate natural light. But they soldiered on, and said they would improve things.

The complaints continue. In 2006, the Commission for Architecture and the Built Environment, (CABE) the government funded architectural watchdog, raised concerns about the quality of design, and that there was a general underperformance in terms of “functionality, building quality and aesthetics.”[4],[5] One commissioner, Richard Feilden, described some PFI schools as “little better than agricultural sheds with windows.” CABE found that, nationally, 50% of the schools built between 2000 and 2005 were poor, with only 19% rated as excellent or good. 9 out of the 10 worst were built using PFI money.

The problems with PFI contract schools, of course impact the day-to-day operations. The head teacher (equivalent to our principals or administrators) often has to deal with day-to-day contractual issues. The Association of School and College Leaders (ASCL) president Malcolm Trobe said last year that, “Time and energy that should be spent on students’ education are having to be expended on continuing negotiations with contractors.” And that PFI legacy issues are proving to be a “considerable burden to school leaders, very time consuming and energy sapping.” “Unacceptably high management fees for what is often mediocre service are taking away money that should be spent on improving resources for learning… In many cases, PFI contractors have shown that they are more interested in their profit margins than the welfare of students and the community.”[6]

And this is a man who had been an early defender and supporter of PFIs.

This Association of School and College Leaders went so far as to say that “contractual issues which are so burdensome to school leaders will compromise the education of a generation of students if they are not dealt with.”

I want to finish my reference to PFI in the UK with a couple of quotes not about schools, but about other PFI projects in Britain. One of the most comprehensive economic evaluations of PFIs to date was done by the Association of Chartered Certified Accountants in the UK, evaluating PFIs in roads and hospitals.

…Our analysis suggests that PFI is an expensive way of financing and delivering public services that may, where public expenditure is constrained, lead to cuts in public services and/or tax rises. In contrast, we suggest that the chief beneficiaries are the providers of finance and some, but not necessarily all of the private sector service providers rather than the public sector.[7]

And in the summer of 2005, the National Health Service Consultants’ Association (we call them specialists) wrote an open letter to the Canadian Medical Association from British Doctors, on the eve of a discussion at the CMA Annual General Meeting, begging Canadian doctors not to go down the P3 road. They said:

“We believe that you have already experienced PFI (known in Canada as P3s or public private partnerships) for hospital construction. This is another example of governments choosing quick, politically useful results without concern for the long-term consequences. Inevitably PFI hospitals are more expensive, as borrowing is at a higher rate and there has to be a profit for the shareholders. As a result, our first hospitals were too small. Now, although PFI hospitals must be at least as large as those they replace, many defects are appearing and the repayments – the first charge on the hospital’s budget – are causing financial problems. It is difficult to find anyone in the UK now prepared to support PFI except those in government and those set to profit from it.”

They also pointed out that borrowing is at a higher rate, for the private sector, and this is certainly true. The public sector – governments – can borrow money at a significantly lower interest rate than the private sector – about 2% lower. That is because companies – the private sector – are riskier bets than government which has all that tax revenue to guarantee their loans. And right now, because of the present economic meltdown, the spread between what it will cost companies to borrow money and government to borrow money is getting wider. Over 25 or 30 years, this difference between what it costs governments, as opposed to the private sector, can add up to hundreds of millions of dollars. So it makes even less sense to use a P3, where the private sector has to put in some money.

What about P3s in schools in Canada? There haven’t been many so far, but by far the largest experiment to date has been in Nova Scotia. In 1994 the Nova Scotia government said it was going to build 30 P3 schools by 2000. The schools were financed, designed, built, owned and operated by groups of private-for-profit companies.

The P3s were first discussed at a time when there was high debt, but the newly-elected Liberal government had promised to build badly needed new schools – school maintenance budgets had been slashed, and many were badly in need of repair or replacement.

And here is a problem which you may face as well. When faced with a choice between having or not having a school, parents or Boards of Education will often say, I don’t care how you build it, just build it. Even if it is more expensive. And you can’t really blame them, especially if they believe that going the P3 route means that they will get their school ahead of someone else. This has been a problem with P3s across the country. There are too many local politicians willing to have P3s shoved down their throat in order to move to the front of the line for projects. And when you have provincial governments in a seeming frenzy of enthusiasm, drinking each others’ bath water about these things, you end up with governments saying you won’t get the money for schools, unless you agree to build it as a P3.

It doesn’t seem like the right way to set priorities for building schools or hospitals, and it takes away from another competing project that might have been farther up the list of priorities.

Robert Chisholm is the CUPE Atlantic Regional Director, and was an NDP member of the legislature in Nova Scotia at the time. He became leader of the NDP from 1996 to 1999, and he was right in the thick of the very public controversy over P3 projects. According to Chisholm,[8] the new Liberal government that was elected, and created these P3s, wanted to hand out some deals to their friends, another common element, it seems, of P3s.

And again, they were going to have these projects off the books of the province– but remember you still have to pay for them, they are just called something different. Robert says that the New Democrats would laugh in question period, and ask “So you are going to build these schools for free?” and the government would say “Yes.”

Well, in fact the Auditor General for Nova Scotia testified that, in his opinion, the motive behind the government’s P3 school initiative was entirely political – the government wanted the cost of building new schools taken off the books in order to reduce the appearance of the size of the provincial deficit.[9]

In 1997, as the first of these schools were coming on line, the Auditor General issued about as scathing a report as normally dry Auditors General do, pointing out, among other things that “the decision to enter into P3 arrangements for schools represents a fundamental shift in the way in which schools are designed, constructed, financed, owned and operated in Nova Scotia. We expected that the government would have undertaken a thorough analysis of the advantages of P3 arrangements in comparison to the traditional approach prior to making this significant decision, and that there would have been appropriate documentation prepared to support the analysis.”[10]

The Auditor General also said it wasn’t a good idea to build and start running the schools before you had signed the lease agreements for them. The Auditor General also had several other criticisms, and eventually found that the P3 schools cost $32 million more than if they had been built publicly.

The public was very unhappy as the terms of the deals became public, and there was real outrage as a litany of problems emerged. These included:

School locations were chosen to benefit the companies, not the communities;
Schools were not opened on schedule;
User fees for school rentals were hiked; - in some cases gym rental fees went from $20 to $50 an hour;
Schools were not accessible for school use in the evenings;
Maintenance was neglected;
Boards ended up in expensive and time-consuming arbitrations, including one where the arbitrator confirmed that one P3 Corporation was entitled to 35% of the monies raised from cafeteria and vending machine sales.[11]

P3 consortiums will generally not bid on refurbishing of schools (i.e. a project to fix up or add onto an existing school) because the prize is too small, and the risks associated with refurbishing an existing building are too high. You never know whether you are going to open up a wall and find mould, or even asbestos.

So inner city schools that could have been refurbished in areas of the city that needed those community hubs were not – students from inner city areas were bussed to the suburbs where the land was cheaper. So if you do get P3s, watch for the claims, possibly even before there is a formal announcement that there is going to be a P3, that smaller schools need to close. Beware of announcements that you are going to get a shiny wonderful, larger and much more elaborate, technologically fabulous school.

The only way these can work is if they are large, have lots of expensive technologies (that provide very lucrative contracts for the P3 companies), and shut down the immediate competition.

In this case, as with other P3s, the problem is that the decision making process is skewed by priorities that are not necessarily consistent with the best interests of the educational system.

Chisholm says that all of this affected the provincial election in 1998, particularly since one of the biggest new schools was in the Minister of Education’s riding, on a piece of property owned by the developer.