Public private partnerships (PPPs) overseas have plunged schools and communities into debt, forced hospitals to close and cost taxpayers billions of dollars. Despite this track record the New Zealand government seems to believe it is a good idea for our schools. PPTA News, the newsletter of the New Zealand Post Primary Teachers' Association, looks at how the love affair with private investment went sour with the hope that New Zealand can learn from other countries’ mistakes.
First came the ﬂurry of press releases extolling the virtues of PPPs, then the creation of New Zealand’s ﬁrst privately built prison was announced – and now the government is poising to let the private sector loose on our schools. Cabinet papers have revealed plans to build a school on crown land, which would be owned by a private company and leased back to the school’s board of trustees - a move PPTA president Kate Gainsford believes is short-sighted and dangerous.
Limitless potential for proﬁteering and of no real benefit to the taxpayer
“Governments can always raise money at a cheaper rate than private companies so there is no real beneﬁt for the taxpayer and limitless potential for proﬁteering,” Gainsford said.
“I predict PPPs will follow on from leaky buildings and sub prime mortgages as the next taxpayer rip off.”
Under the PPP plan, private firms would design, build, maintain and own a school, while the government owned the land and the school’s board of trustees retained governance. The school’s owners could use the school outside normal school hours, and school boards would have to negotiate an “occupancy agreement” with the private owner.
Overseas experience is of extra cost to taxpayer and cuts to services
Minister of education Anne Tolley told The New Zealand Herald that similar partnerships had been successful overseas and could “cut costs, improve maintenance and allow greater community use of facilities.”
Overseas examples, however, have proved the opposite. Inadequately budgeted projects have lead to extra costs to the taxpayer, design problems, late delivery and cuts in services. In some cases loans are still being paid back to private enterprises, years after facilities have been forced to close.
In 2008 Gainsford visited the education sector’s umbrella union Education International (EI) in Belgium to look further at work being done on the “Hidden Privatisation in Public Education”. EI felt this was a signiﬁcant enough threat to require that afﬁliates actively develop policy in this area “as a matter of priority”.
“It is in the context of larger international developments that the situation in New Zealand warrants closer scrutiny,” Gainsford said.
In March 2009 the government set up a national infrastructure unit and released guidelines on PPPs.
New Zealand’s largest business broker, Craigs Investment Partners has launched a $125 million fund to invest in the government’s PPP vehicle, Public Infrastructure Partners (PIP). It is the ﬁrst chance individuals have had to enter into PPPs through building public assets that will be leased by the government.
The projects are likely to be open for tender, and at least one Australian company has said it would be interested in public buildings here.
“The risk for PIP is to build the school on time and on budget, and to maintain it to the required standard,” Gainsford said.
“The public sector can raise finance more cheaply than the private sector, and private partners need to factor proﬁ t into the equation, while the state does not.
“The possibility of a private partner failing and the taxpayer having to pick up the costs is a very real one,” she said.
“Public entities are ultimately accountable for delivering public services, and cannot transfer this responsibility to the private sector.” - Auditor General
The risks of PPPs have been known for a long time, Gainsford said. In fact, back in 2006 the auditor general published a report warning that “Public entities are ultimately accountable for delivering public services, and cannot transfer this responsibility to the private sector.” The report comments that the risks involved can adversely affect the “value-for-money outcome of the project and damage the reputation of both parties”.
Advice from Treasury the following month was also far from positive, focusing on risks such as “the private sector either going bankrupt or making inordinate proﬁts, which can make PPPs politically unacceptable”.
Despite all of these concerns, the current government appears determined to pursue PPPs.
Treasury guidelines released last year appear to assume that PPPs will be created.
“(It is) desirable to develop specialist expertise to support departments and agencies in the development of PPPs … It is also desirable to promote a high degree of standardisation, discipline and transparency in the letting of PPP contracts through guidance material for government agencies that might be involved in letting PPPs,” the guidelines read.
Gainsford was also concerned there would be little consistency in the services provided through PPPs.
Communities have been frequently constrained by the limits of what is available in their geographical area, she said.
“Fragmented groups and services have already seized the opportunity to ﬁll gaps. This does not ensure a consistent and reliable support or service. “There is potential for growing amounts of money to be made from the public education system by private companies or bodies corporate at the expense of educational needs,” she said.
Published in the PPTA News April 2010 (pdf download)
Hidden Privatisation in Public Education (2008) Education International (pdf download, 110 pages)