EDMONTON—“City Council needs to look before they leap into a long-term contract with a private development consortium to build, own and operate the southwest recreation centre,” said Bill Moore-Kilgannon, Executive Director of Public Interest Alberta.
“There are far too many examples of other cities signing ‘Public Private Partnership’ (P3) contracts that ultimately end up costing the tax payer more, provide poor-quality service or even completely fail, leaving the cities paying out millions of dollars to rescue the projects.”
On December 18, Edmonton's City Council will be presented with three options: build the new recreation complex using public financing and a construction management model; build the non-arena portion publicly and the arena as a P3; or accept an unsolicited proposal to build and run the entire complex as a single P3.
In 1998, Guelph entered a Design Build Finance Operate (DBFO) contract with Nustadia Developments to provide a downtown arena. In 2001, the City was forced to take over Nustadia's loan when the company was unable to make payments, at a cost of almost $4 million over four years. In 2005, Nustadia walked out on the deal completely, leaving Guelph with $9 million in unanticipated debt. Ottawa built two arenas using P3s four years ago. In April 2007, city management recommended a $1.2 million bail-out for one arena, and termination of the City’s other partnership, leaving Ottawa with an additional $12 million debt.
"P3 proposals are alluring - new facilities at supposedly little cost to the City – but my advice is to be wary of P3 salespeople - what is good business for them is not necessarily good business for taxpayers,” said Ottawa City Councillor Alex Cullen. “Often they require the City to guarantee their capital costs (in reality a subsidy), and they don't always work. In Ottawa taxpayers had to pitch in $1.7 million to take back from Serco, a P3 management company, the operation of the Ray Friel Recreation Complex, because the initiative was failing. It is a lesson other municipalities should learn from.”
“While P3 contracts require the private partner to secure private financing, the government ultimately pays the entire cost of the project in the form of contractual liability. In short, P3s do not help government to avoid long-term financial obligation. They end up costing the citizens more because in a P3 contract the government’s payments need to cover the profit margins of the private company, and in any case government can always borrow at a cheaper rate than the private sector,” says Moore-Kilgannon.
"Edmontonians expect an open transparent public debate that allows us to identify who is the bidder and examine all the details in this unsolicited bid to build the whole complex as a P3. In the end, Council will see that there is a better way that that will assure the project goes ahead without long, expensive contract negotiations – wise public investments in our recreation facilities will protect the public interest,” says Moore-Kilgannon.
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