» Public-private partnerships have their costs.
It was originally supposed to open twelve days from now, but Vancouver’s Canada Line has already racked up millions of rides since it commenced operations in mid-August — and it’s now carrying almost 100,000 people a day on average. The 12-mile automated light metro, which was built at a cost of C$2 billion, was one of the first major works of transit infrastructure built with the help of a public-private partnership (PPP) in North America. The deal, which allows a company called InTransit BC to contribute about C$700 million to the project in exchange for the right to operate the line, was designed to lower costs for the taxpayer and bring the supposed efficiencies of the private sector into what has typically been seen as an exclusively government-controlled market.
The on-budget delivery of the project three months ahead of time was immediately hailed by supportive Liberals (center-right in B.C.; center-left elsewhere) and Conservative (right) Party members, who suggested that the PPP model was the face of future infrastructure investment. Lawrence Cannon, Federal Minister of Transport (Conservative) said in excitement that “This successful project clearly demonstrates the benefits of public-private partnerships in large-scale transportation infrastructure projects.”
Yet, faced with rising operations and maintenance costs, the benefits of such private involvement are now being put into question. Despite the fact that the Canada line will soon meet its required ridership to fulfill the contract it made with InTransit, the government will have to subsidize the project to a tune of C$14 to C$21 million a year — until at least 2025. That money will go to pay off the C$700 million put in by the private side of the exchange.
But TransLink, Vancouver’s transit operator and therefore entity responsible for those payments, is already operating under a structural deficit of C$130 million annually produced by a dysfunctional decision-making structure. An irrational chain of command on the agency’s board, which has exaggerated the conflicting interests between mayors and the British Columbia government, has prevented a stable source of funds from being committed over the years. The result? TransLink is planning increases in fares, likely cutbacks in service, and a probable delay in the construction of the proposed Evergreen SkyTrain Line, which it can no longer afford.
Though the PPP used to construct the Canada Line is hardly the cause of all of these problems, opponents of private involvement in public service provision are calling for a stop to their use. Politicians of the New Democratic Party (on the left) have argued that the government — both Liberal at the provincial level and Conservative in Ottawa — has been ideologically predisposed to favoring PPPs, and that the consequence is increased expenditures by the government for an inferior product.
There is substantial evidence for this conclusion. During the preliminary discussions over the construction of the Canada Line, the Liberal-controlled province repeatedly argued that private participation would have to be mandatory, no matter the costs, despite the fact that the TransLink board turned down the idea twice. Deputy Transportation Minister Dan Doyle wrote that “Any project constructed using provincial funding will be a public private partnership.” Only when British Columbia leaders blackmailed the board with money for the Evergreen Line and the federal government found more money for the Canada Line project (previously it was likely to be named the Olympic Line) did board members reluctantly change their votes in favor of the PPP process.
In an affront to democracy, the province reorganized TransLink substantially in the following years, putting far more provincial government appointees on the panel and continuously rejecting efforts by the localities to assemble new revenue sources.
Once the idea of a PPP was installed, the method used to implement it was deceitful and biased. A report comparing the costs of PPPs with fully public alternatives paid for by the Canadian Union of Public Employees demonstrates that the government’s justification of the use of private “risk” for the line — a British Columbia-sponsored report suggested that a public alternative would cost a full C$92 million more — ignored the fact that the public sector is able to borrow at a lower discount rate than private industry, a fact that would have saved Vancouver citizens millions of dollars. In addition, the government’s calculation showing higher costs under a public alternative was based on counting risks against the government twice. This despite the fact that in a project such as this, the “risk” is minimal to none, since a C$2 billion transit line won’t simply be abandoned; the public will keep these infrastructure assets operating, even if the private sector abandons them.
The problems with private involvement in the Canada Line project got even worse once the project reached the contracting stage, when the government was supposed to decide the preferred bidder based on the “efficiency” of offers from competing companies. Ignoring the fact that the other two SkyTrain lines operated using exclusive Bombardier technology, bidders were supposed to pretend like all forms of rapid transit were equal — so a non-compliant light metro scheme won out, meaning that the Canada Line will forever be incompatible with the rest of the SkyTrain system.
Once InTransit was in charge, it set out to minimize costs, and since it had only its profit margins to answer to and not citizen concerns, it picked a cut-and-cover tunnel for the primary section of the line instead of a bored tunnel that had originally been planned. The PPP process, based on the efficiencies of the free market, did nothing to solve the problems of the hundreds of affected merchants on Cambie Street that saw huge declines in business during years of heavily intrusive construction. Meanwhile, 19 planned stations were reduced to only 16 because of cost increases. The two southern termini of the line, shooting off to Vancouver Airport and to Richmond, were built as cheap single-track spurs, limiting capacity and making further extensions basically untenable.
The resulting line, while successfully attracting tens of thousands of users, is underbuilt. Stations are too short to accept more than two cars at a time, a huge problem if ridership increases; the fact that they’re underground means they’re unlikely to ever be expanded. Meanwhile, stops are bare, with few amenities: they’ve clearly been cost-cut.
All this, and TransLink will still be responsible for up to C$21 million in annual payments to InTransit, partially thanks to an agreement that the province forged in which it will hand back between C$152 and C$250 million in “performance” assessments. So much for the large private contribution to the project — and goodbye to the promise that taxpayers would not have to subsidize the line as long as ridership reached 100,000 a day.
This is not to suggest that the same project, under the management of a public authority, would have arrived more cheaply and without problems. There is a long history of rapid transit projects coming in at costs higher than originally planned. Very few transit lines in the world are operated without public subsidies, so it was probably unreasonable for British Columbia to have ever assumed that somehow passing an aspect of the project off to the private sector would mean profitable operations.
Rather, the difficulties with the implementation of the Canada Line are reflective of a peculiar political reality that suggests that private involvement in infrastructure should be advanced, and that the methods of promoting that view should eschew normally held views of democracy and rationality. Assuming the public sector could have built this project at a cheaper cost — quite a reasonable proposition — shouldn’t it have done so? If the locally chosen TransLink board wanted a government-controlled project, shouldn’t it have had the choice to make it so, rather than be forced into the deal as a result of the decisions made by provincial officials?
If InTransit goes belly-up because of some unforeseen economic crisis or poor investment, will the government have to assume its debts to keep the Canada Line operating? Why should a private company profit in the good years while forcing the public sector to take the hit during the bad ones?
On the other hand, would a public project, like so many before it, have been beset by the petty demands of too many local interests, or of powerful political interests? If the Canada Line is underbuilt today, would a public version, submitted to community group after community group, have been overbuilt and have represented a far more significant burden on the government’s budget?
Where is the appropriate middle ground between the two?
I don’t have a clear answer to any of these questions, but the Canada Line story suggests that the recent move towards experimenting with private involvement in infrastructure creation may be moving too quickly. Governments shouldn’t be biasing study results, intentionally expressing an unwillingness to admit the advantages of the public-sector. Nor should projects such as this one be so oriented towards meeting some predetermined return on money spent that long-term value is sacrificed. If that’s what PPP means today, it’s not worth it.