In Canada, an innovative way to rebuild roads, hospitals
British Columbia's 'private-public partnerships' have been touted as a model for the US to revamp its infrastructure.
British Columbia's political leader Gordon Campbell recently stepped aboard Vancouver's new light transit system and into the world's spotlight as one of the leading proponents of a burgeoning movement to twin the public and private sectors in building everything from bridges to roads and hospitals.
The Canada Line, a $2 billion light transit system running between Vancouver's downtown waterfront and the city's airport, is the latest in a string of public-private partnerships, or P3s, built in B.C. and being touted as a model for rebuilding America's infrastructure.
Typically, in a private-public partnership, government invests in the project, along with a private sector consortium which develops, builds, maintains, and operates the asset for a contracted period. The consortium often involves multiple international contractors, a maintenance company, and bank lenders.
While not everyone believes in the successful marriage of these seemingly unlikely business partners, California Gov. Arnold Schwarzenegger, for one, is a fan of B.C's P3 model.
Governor Schwarzenegger toured the Canada Line project site two years ago alongside Premier Campbell and has since been promoting B.C.'s experience as a template for financing and building public sector projects in California. He reiterated his praise for B.C.'s infrastructure partnerships following a meeting with President Obama last month to discuss future infrastructure projects – beyond the $787 billion federal stimulus package – that also included New York Mayor Michael Bloomberg and Pennsylvania Gov. Ed Rendell.
"We have 38 million people in the state, and we don't have great infrastructure," says David Crane, special adviser Gov. Schwarzenegger on economic and job matters. "We should have the greatest rail system, the cleanest water treatment plants in the country and we don't. Californians have grown accustomed to accepting this, but they deserve better."
State-of-the-art infrastructure is vital to California's economic sustainability, and public-private partnerships are the most viable method of delivering many public services because they lower costs and shorten timelines, Mr. Crane says.
British Columbia: a leader in 'P3s'
While public-private partnerships are still a relatively new concept in the United States, British Columbia has been using the P3 model for several years.
Since 2002, British Columbia has pumped nearly $10 billion (Canadian; US$8.1 billion) into infrastructure financing – 50 percent of it supplied by the private sector. The province has been at the forefront of the Canadian scramble to team the public and private sectors – making the country a world leader in its pursuit of P3s – with projects from Alberta to Ontario, Quebec, and Newfoundland.
Larry Blain, head of the provincial arm that assesses the viability of each project in B.C., says one of the overriding benefits of these ventures is transferring taxpayer risk to the private sector.
"These projects are at the low end of risk, and they're very attractive investments for pension funds and life insurance companies," says Mr. Blain, chief executive officer of Partnerships BC. Private companies not only assume risks associated with design but with project construction, he adds.
Do P3s cost more?
But not everyone is enamored with P3s. Recently, serious questions have been raised in British Columbia about the true costs of public-private partnerships.
In a report commissioned by one of B.C.'s public-sector unions, a prominent forensic accountant concluded that the costs of P3s were higher than if the government had constructed the projects alone. For example, accountant Ron Parks pegged the cost of one project at $434 million (US$352 million)more than if the province had paid for it. Similarly, by his calculations, a hospital project will cost taxpayers double the estimate for a public procurement contract.
"There's a lot of hocus-pocus and management jargon about the projects,'' says B.C. New Democratic Party finance critic Bruce Ralston. "The government hides behind the rhetoric. A lot of the bidding and contract documents are not revealed publicly. And their response is: 'You just don't understand this.' And that makes me very suspicious that they are putting public assets at risk."
California already has a number of P3s underway – including solar power projects in San Jose and the Port of Oakland, as well as the Foothill bus transit system operating in the San Gabriel and Pomona Valleys. Few P3s have been in large transportation projects because public unions have opposed them, Mr. Crane says. But recent legislative changes in the state have set the stage for building new, large transportation projects involving both private and public sectors.