Tax cuts + ensuing loss of revenue = a deliberate financial crisis…and a reason to introduce the P3 method of building

I  have never seen more senators express discontent with their jobs. … I think the major cause is that, deep down in our hearts, we have been accomplices to doing something terrible and unforgivable to this wonderful country.

Deep down in our hearts, we know that we have bankrupted America(British Columbia-l.y.) and that we have given our children a legacy of bankruptcy. … We have defrauded our country to get ourselves elected. ~ John C. Danforth.

A powerful quote by yet another American politician, because I can’t seem to ever find anything as good that a Canadian politician has ever said. ( should we be concerned?)

To me, it merely takes a quick swap of the words British Columbia for America and MLA for senator, and you have a very good perception of where 10 years of Liberal policy have brought us.

In all of the examination of the P3 projects I have been investigating, I have yet to take the time to sit and determine how it was the conditions became ripe to introduce the contentious idea of inviting private partners into public projects.

British Columbia has long been a province of labour driven markets, union built and strongly possessive of that. P3’s are one of the top threats to unions, because the private partners building and financing them here are for the most part, foreign offshore companies that hold massive portions of their respective markets.

Peter Kiewit and Sons- American, Macquarie- Australian( although the appear to own a good portion of BC assets), Bilfinger-Berger- German, ACS infrastructure/Dragados-Spanish.

How did we get to a point in this province when the major builders of our largest public assets are under direct administration of non-Canadian corporate interests? Why are our tax dollars hard at work padding the pockets of these companies while our smaller Canadian contractors are relegated to the lowly sub-contractor status?

A bit of research put the pieces together in short order – pieces that indicate a calculated and dedicate strategy of privatization of nearly all of British Columbia’s infrastructure -now and in the future.

Let’s begin… and take a jaunt back to 2001,when Campbell first stepped into the captain’s chair:

In May 2001, the voters of  British Columbia, went to the polls and swept away a decade of social democratic public policies instituted by the New Democratic Party. The Liberals won virtually every seat in the provincial legislature (seventy-seven of seventy-nine), as well as a strong majority of the votes in every region of the province.

The new government, which emphasized its leadership capabilities, quickly settled down to a short-term agenda of increasing business confidence by implementing, among other reforms, an across-the-board twenty-five-per-cent cut in personal income tax (the provincial government’s single largest revenue source).

The resulting financial crisis was then used as a driver to not only cut government activity but to encourage a re-thinking of what the responsibilities of the provincial state should be and how the public sector should go about meeting these responsibilities. 

It was within the context of a majority government enjoying strong popular legitimacy and determined to make the province more business-friendly, a financial crisis, and a deeper drive to “re-invent government” that public-private partnerships (P3s) were introduced into British Columbia as an important option for executing large infrastructure projects.

Aha. Bingo. It makes one look at all the tax cuts to income tax Campbell has brought in, in an entirely new light. Sure, they  tell us that it give us more money to spend, in theory anyways, but certainly they also cut revenue from the governments bottom line.

Hence, the public began to see other ways to increase the government coffers, such as increase in user fees, msp premiums, university tuitions… But I digress, let’s go back to how the government forged ahead with its plan to thrust P3’s into play when building public projects, and how far they went to make sure they happened – no matter what.

The Government of British Columbia ran into substantial difficulty in developing P3s. This was at least in part due to failure in the early days of the initiative of moving beyond transactional leadership.

As a result of the government’s failure to provide transformational leadership on this issue, there was confusion as to whether the government’s interest in P3s was a product of a sincere desire to re-invent the role of the state along New Public Management lines or whether it was merely an attempt to deal with the fiscal crisis it had invented for itself.

This was problematic: saving money is not generally something P3s can do for government, other than over the very short-term.  

Yet, as we will see, for many it became the key reason to either engage in P3s or not to engage in them. Meanwhile, other critics began to question whether the government’s embrace of P3s had more to do with ideology than a sincere commitment to better public-sector management. 

In the second section of this article, I will look at two early flagship projects that ran into trouble: the Abbotsford Regional Hospital and Cancer Centre (Abbotsford Hospital), with an approximate public-sector cost of $1.6 billion, and the Richmond-Airport-Vancouver rapid transit, transportation system designed to allow passenger travel within or throughout an urban area, usually employing surface, elevated, or underground railway systems or some combination of these.  Line (RAV Line), with an approximate public-sector cost of $1.5 billion.

Difficulties were only overcome when the government undertook extraordinary efforts to intervene in the decision-making processes of local officials.

This author is right on the money – literally.

The P3 projects undertaken in our province will not, I repeat, will not, save the government or taxpayer any money.

In fact, it would be in publics best interest for the auditor general to call an immediate halt to the P3 method of building right now, and for him to undertake a meticulous audit of every single project that has been built-in this manner.

There is a far bigger story here than the shadow tolls, which are just part of the secrecy involved in not telling the public the whole story. The real issue is the total cost of the project, however paid.

And of course the fact that the cost of the project is not recorded entirely as part of the provincial debt as such, is lost on most of the public. Because the government doesn’t have to finance the job, the billions of dollars of P3 debt needn’t be carried on the books as debt – at least that is how the BC government sees it. They call this debt a contractual obligation and keep track of it separately.

There is no doubt that the government could have continued its efforts to introduce P3s without alteration. Holding all but two seats in the legislature, it could have easily bulldozed several into place, regardless of opposition.

However, such an effort would have undermined its efforts to re-invent government along the lines and patterns associated with the New Public Management.

If P3s were going to be accepted in British Columbia as more than an ideological project or a piece of financial sleight-of-hand, a different approach was required both for P3s and other forms of alternative service delivery, one that shifted leadership on the issue from a transactional to a transformative basis.

Much of this new approach was codified  in a collection of documents released roughly around the government’s first anniversary in office, the Capital Asset Management Framework, or CAMF .

At the same time, the government also created Partnerships BC.  This agency has several functions. It acts as a champion for the P3 model within government and as a consulting agency and adviser

Ah yes, Partnerships BC,that government created entity that is not only in charge of promoting and facilitating the growth of the Public-Private partnership in BC, they conveniently are the ones in charge of evaluating those same projects – using  faulty and many would call, highly deceptive accounting methods to ensure each project gets a passing grade on their Value for Cost reports.

These reports are ridiculous at best and would not pass muster in any legitimate business practice outside of the P3 industry because of the sleight of hand manner in which they are crafted.

Time to get back to the origins of P3’s in British Columbia. Clearly, there had to be a first, and Abbotsford Hospital was forced to be the first project on the books. Some might say forced is a strong word,but the facts support that description:

According to those interviewed, members of the Fraser Health Authority board–some of whom had substantial expertise in private-sector finance and real-estate development–found problems with the consultant’s report and the arguments made in favour of a DBFO P3.

One interviewee indicated that the FHA board instead preferred a design-build contract, with more traditional public financing and operation. In addition to their scepticism regarding the consultant’s work, members of the FHA board were also seriously concerned that the savings usually achieved through competitive bidding would not be realized.

 The FHA board felt that the facility being contemplated would be too small to generate returns on a scale sufficient to attract widespread interest among firms with expertise to execute such contracts, given the risks and costs involved in bidding. At this point, the provincial government ordered the board to accept the project as a P3 or face removal.

Either way, the province had lost confidence in the ability of the FHA board to lead the project and transferred some FHA staff members and responsibility for executing the project to Partnerships BC.

Subsequently, an operating company  was set up to manage the relationship with the successful proponent, which would be at arm’s length from both the FHA and the Provincial Health Services Authority.
Some insight into why the government made the decision to override the Fraser Health Authority can perhaps be gained in an interview given to a trade journal by then-finance minister Gary Collins regarding the Abbotsford Hospital.

He said that the project was not only important as an individual health facility but also for the future of the P3 model in British Columbia. Some projects had to be first, and the Abbotsford Hospital was seen as a good candidate. This was not only because of its attributes but also because of the strong support that voters in the area had shown for the government.

He told the reporter that this reduced the political risks involved, since there was little likelihood that voters would change allegiances if the project were to turn out badly. In other words, the new Abbotsford Hospital would be built as a P3 because it was feasible both economically and politically, not necessarily because it was the best way to build this particular hospital.

In the end, the fears expressed by the FHA board did come to pass when one of the two finalist consortiums declined to submit a bid, leaving Partnerships BC with an uncontested “best and final offer” stage of the proposal process.

Since 2001–when the present attempt to build a hospital in Abbotsford was set in motion–costs have increased substantially to the present $424 million up front, plus total lease payments of $1.2 billion over thirty years, excluding various adjustments.(2008 $$)

You may recall, there were issues to be worked out with the RAV line as well, in which the project was nearly stalled several times. It took a great deal of negotiation, debate and financial inducements to sweeten the deal -all of which I won’t rehash for the sake of space,but can be read by clicking on the link at the end of this post. Clearly, there are more than a few issues with P3 projects in this province, and I am not the first to harp about it by far, but I may perhaps end up being the one who won’t let it go. Read on:

The government’s inability to offer a clear answer to the question of why it decided to undertake each of these projects as a P3 helps to explain why these two projects (Abbotsford Hospital and RAV line ) became so controversial and were a symptom of its failure to demonstrate transformational leadership on the issue.

When it could not produce a coherent answer rooted in its desires to reform and improve public management, the quality of public projects and other such beneficial aims linked to values, the government fell back on the stock answer that employing the DBFO P3 model would save money. However, this is a difficult claim to justify.

As an example, the government found itself stumbling for answers when a report prepared by a prominent accounting firm questioned whether undertaking the Abbotsford Hospital as a P3 would produce any savings over the lifetime of the anticipated contract (the goal traditional procurements are meant to emphasize).

When confronted with the opinion of the accountants–who had to piece their evidence together using forensic techniques because of the government’s lack of disclosure–the province’s health minister admitted the case in favour of building the Abbotsford Hospital as a P3 was not fully established.

The situation provoked the following rebuke from Vaughn Palmer, British Columbia’s most widely read political columnist:

“The Liberals have articulated only the vaguest notions about public-private partnerships. And they have deliberately, systematically withheld key information about the Abbotsford P3…. Now we have the spectacle of one of B.C.’s most respected accounting firms being forced to rely on cloak-and-dagger methods to try to get some measure of the project…. The case for a P3 to build the hospital in Abbotsford is “not proven,” to quote the health minister. Until the case is proven, the Liberals should not be risking tax dollars on this adventure. “
( from Vaughn Palmer, no less! ~LY)

This shouldn’t be surprising, since it is very difficult to reduce costs simply by converting a proposed project into a P3. This is why proponents have to delve into attaching values to “risks” transferred to private parties in order to justify such projects on a cost-to-the-taxpayer basis. Such valuations are highly subjective and opaque.

They also hide at least one important fallacy: while it is theoretically possible to successfully transfer the risks related to a project to one private partner and allow the state to save money, it is probably impossible for the state to do so over the long term if it wishes to undertake more than one project.

This is because such transactions only save money if the private partners mis-calculate the costs of the risks they have assumed (in other words, the private partners accept a greater risk than they are being paid to take).

It stretches credulity to believe that the powerful pension funds and transnational financial institutions that finance P3s will not learn from such mistakes and re-price their services to both re-coup their losses and improve the profitability when subsequent projects are developed. At some point, enough cycles of the game are completed that the province will end up paying exactly the same amount as if it did not transfer risks, but it will be out of pocket for the higher tendering costs associated with a P3.

The theoretical difficulties involved in saving money through the use of risk-transferring P3s (especially in the hospital sector) are matched by the concrete evidence from the United Kingdom, noted above.

That the province’s motivation for using P3 models was at best, unclear, bred suspicion among stakeholders.

 There is always a risk that a government will use the P3 model to “Enronize” its books: in other words, turn capital costs (which count as debt) into lease payments (which don’t count as debt) in order to claim it is reducing deficits and debts when in fact it is not doing so. This possibility was raised by consultants hired by unions opposing the RAV Line P3 after they reviewed some important correspondence between the premier’s top public servant and the CEO.

Preventing this requires a great deal of vigilance on the part of accountants and other watchdogs, such as credit-rating agencies. The suspicion of unions and other civil society stakeholders was only compounded by the government’s use of the term P3 in association with transactions that were clearly privatizations.

These included the sale of BC Rail (through a ninety-nine-year renewable lease) and a similar scheme that would have involved the Coquihalla Highway in the interior of the province. This latter deal was scrapped due to near-unanimous protests from communities along the highway. Meanwhile, trade unions in British Columbia came to see P3s as a threat and something to be opposed on principle.

This suspicion was further strengthened by provincial legislation (now ruled unconstitutional by the Supreme Court of Canada that abrogated a number of clauses in union contracts so as to facilitate the contracting-out of support services, such as would occur through the construction of a P3 hospital.

Even some prominent investors were unclear as to why the provincial government wanted to embark on the construction of infrastructure using P3 models and proved hesitant to commit capital to the province.

This all came from a  2008 report written by Daniel Cohn  in which he clearly answers some of the many questions I, and others, have had.

The Liberals have since completed the Sea to Sky highway, the Golden Ears Bridge, and started the South Fraser Perimeter Road. The Port Mann, of course, tanked as a P3. From  research and investigation, and from what I can see of the few documents made public in these projects, the Liberal government has definitely “Enronized” the books in a manner befitting a full audit of all the p3 projects in the province, every single one of them.

Partnerships BC is in a clear and substantiated conflict of interest in its designated roles of promoting and furthering P3’s development in BC, as well as monitoring, advising and fairly evaluating those same projects. The so-called independent fairness advisors have previous relationships with the government, which calls into question how independent they really are. Campbell decreed every project over a certain amount must be considered as a P3 first and foremost.How much do you want to bet he ends up on the board of directors of perhaps one or more of the companies involved in these deals?

Like Enron, the Liberal government has used accounting loopholes, special purpose entities( Partnerships BC, Transportation Investment Corporation) and poor financial reporting to hide billions of dollars of debt as a result of these projects.  And also like Enron, at some point it’s all going to come crashing down around Kevin Falcon, Shirley Bond, and the rest of the Liberal team in the finance department.

I just hope Campbell is still around when it happens.


Bits and Bites – Wednesday April 15th, 2009

Good morning to everyone, sorry for the late posting but if you had 4 kids from 10 months to 17 years, you might understand…

I was sitting in the chair at my surgeons office yesterday afternoon, which overlooks the new Canada line along Three road in Richmond. A gorgeous sunny day, the view through his floor to ceiling windows afforded me the opportunity to see why this line is not going to make enough money to break even. The  roads and parking lots below the  Canada line are filled, bumper to bumper, with luxury cars, and within them are people who will never step onto any form of transit in their lives. The people who currently take the bus will be the same ones who take the skytrain, and rest assured, it will not entice any new users simply because it’s there. And realistically- how many people are likely to haul their luggage down into  the horrifically steep  bowels of the Burrard, Granville and Waterfront stations, to connect to this line,  when they could simply take the shuttle or a taxi? Really, the access points are not travel laden tourist friendly.  This is clearly not a case of ” If you build it, they will come.”  My question is, how long will it be before the government admits defeat on this world class, worst case scenario decision?

Talking about worst case scenarios… the reason why I was at the surgeons office again was to check on the periapical cyst in my jaw, which is still giving me grief. Despite having the best dental insurance, I’ve spent enough on this one tooth to have been able to take a long cruise, a vacation to the Bahamas, or buy a good used car-  possibly even all three. You heard me. It started with a filling that fell out of a molar ( Cha-ching$). Then, the remaining tooth was not suited to a re-fill, so I had a crown put on(cha-ching$). The root canal abcessed( cha-ching$ on meds), so another root canal had to be done ( double  cha-ching$, because Blue Cross only covers one root canal per tooth!). This lead to the episode entitled ” When Good Root Canals Go Bad…” meaning, something happened that shouldn’t have and a cyst developed around the root. So, off to the surgeon, ( Cha-Ching$) who removed the growth and part of the offending root. Despite the best efforts, that tooth continues to be a problem and the lump is back, leaving me with some options to have more surgeries – that in the end may not work ( Cha- Ching$) – or have the tooth removed and get an implant. ( BIG Cha-Ching$$)

So, in two weeks, I’m having the freaking tooth pulled out, and will be forced to go toothless back there for about 8 months while my jaw bone heals itself so that I can have the implant done. Lesson here? Sometimes it’s better to listen to your inner voice saying ” Just pull the damn thing.” rather than the dentist who needs to pay for his Mercedes…

For those of you following the BC Rail/ Basi-Virk Hearings, please go over to  blog of my dear friend BC Mary and read some riveting new posts she has up on the link between Accenture and Enron( WOW!! Who knew?) , as well as a wonderful guest blog by Paul Nettleton, the former MLA for Prince George – Omineca. In his post, Paul addresses the need for everyone to fight for honesty, openness, transparency and accountability in the government- and how that related to his own experiences with Premier Gordon Campbell…

As many of you know, my eldest is graduating highschool this year, and with that accomplishment comes the never-ending flow of money out of my wallet to cover all associated costs. I’m lucky in two ways though. First, she is a very un-demanding and simple girl who doesn’t go for the designer gowns and expensive accoutrement’s that are likely to be worn only once. Secondly, I can afford to pay for the items she does need, like her grad gown.

So many of us take things like that for granted, but what about if you are a single parent on a limited income- or maybe, no income? Paying for even the most basic dress or suit rental would be an impossible dream. There are many, many kids out there in homes like this right now, contemplating not going to their grad gala because they have nothing to wear, and I consider this to be a shame. High school graduation is not only a wonderful achievement, it is also a right of passage for every kid, and one that should never be denied.

That is why I want to bring something special to your attention: Surrey’s Cinderella Story. This is an annual, one day, non-profit event that provides formal wear and pampering to some of Surreys high school graduates who need it most.  They are looking for donations of new or slightly used men’s and women’s formal wear, so these kids can attend their grads with pride and honour.  Specifically, they need dresses, suits, dress shirts and ties, shoes and purses and jewellery. In addition, they also need volunteers to solicit donations, help organise the event and assist students in picking their items, and be part of the post event crew.  I’m not sure what the current wish list is, or how its changed but give them a call to find out.

I urge anyone looking for a good cause to step up and help out. These young men and women deserve it. You can contact  the following people for more information:

Parm Brar: 604-595-8890  or email:

Laurie McMurtry: 604-614-6642 or email:


Like Hockey? Love the Canucks?  Ready for the opening round game tonight? Can you actually afford to go to tonight’s game? Not I, my friends- there is no way to justify the cost of those tickets when you have 4 kids around…. Recession or no recession, beer sales will rocket during this playoff run, especially in light of all the band-wagoners out there. You know who you are. You don’t watch all season, you make fun of the devoted fans who stick through thick and thin, and now that the Canucks have actually made it this far? You suddenly go get a jersey and car flag so you don’t look like the only geek not cheering on the Canucks. But don’t worry. We still know who you are because you stick out like a sore thumb. Don’t ask how we know, we just know.

That’s it  everyone – short today because the baby is wrapped around my ankle right now, teething yet again,my four year old is trying to get his inside out underwear, back the right way out, and some Jehovahs Witnesses are knocking on my door…I think I must be on the ‘still not converted’ list this week.