UCP government to borrow private funds to upgrade Calgary freeway

Last week, the Alberta government announced plans to enter a public-private partnership to implement several upgrades to Deerfoot Trail, the busiest roadway in Calgary.

The partnership—also called a P3—didn’t specify concrete components of the project in the announcement, but it did outline the following as possible components:

• Ivor Strong Bridge twinning
• Anderson Road/Bow Bottom Trail Interchange
  • Three through-lanes in each direction
  • Interchange reconfiguration, including new bridges and ramps
• Twinning the bridge over Glenmore Trail Interchange
• Reconfiguring the 17 Avenue SE and Memorial Drive Interchanges and eliminating weaving traffic
• Widening between 17 Avenue SE and Airport Trail to four lanes in each direction

As part of its announcement, the government promised $210 million toward the entire project and expects about $200 million from whichever private company is selected. The requests for proposals process will begin this summer.

Ric McIver, the province’s transportation minister, said in the announcement that “Alberta’s P3 model means we double the taxpayer’s investment with private money, to upgrade twice as many bridges and intersections.”

So, let’s talk about that.

Generally speaking, P3 projects different from full public projects in that the government covers only a portion of the costs up front and a private partner covers the rest.

Here’s the thing though: the private partner doesn’t donate that money altruistically to the project. They consider it an investment and expect it to be paid back.

Sometimes, that payment might come from users (such as a toll road). Other times, it comes from the government, which pays it back in installments.

The Deerfoot project will likely be the latter, as has been the case with other P3 projects recently.

So, McIver’s comment is a bit misleading. Alberta isn’t doubling the “taxpayer’s investment” with private money; they’re effectively borrowing private money, which they will then have to pay back over time.

Alberta already has 4 main P3 partnerships:

• 18 public schools (2008)
• 10 public schools (2010)
• 12 public schools (2012)
• Evan–Thomas Water and Wastewater Treatment Facility (2014)

They’re also in the process of creating a new P3 partnership for 5 high schools, with a contract to be finalized this September.

Let’s look at the 2008 P3 contract, for example.

This project was a 32-year contract: 2 years construction and 30 years maintenance. Total cost over the life of the contract was projected at $1.157 billion.

The contract stipulated that if all the schools were built by the end of of June 2010, then the government would pay $125 million toward the capital costs of the schools, as well as an early completion bonus, based on a daily rate per school, to a maximum of $1 million.

The remainder would be paid out in monthly amounts to the contractor through 3 streams—capital, maintenance, and renewal—over 3 years.

According to a 2010 media release, the government at the time claimed that they saved $97 million over the life of the contract—a little over $3 million a year—through going through a P3. This was 13% less than what they claim they would’ve spent if the 18 schools were entirely publicly funded (although technically, they were still publicly funded).

The main causes for the “cost savings” included:

• Economies of scale
• Construction efficiencies
• Building innovations
• Risks shifted from government to the contractor
• Fixed-cost contract

They left out things like lower wages and fewer benefits for the workers who manage the maintenance responsibilities outlined in the contract.

Even so, the government is still paying for this first contract, 13 years later, and it still has 19 years left on the contract. It’s not even halfway through. When the contract ends, all 18 of those schools will be 30 years old.

And like I said, this isn’t the only P3 the government is currently still paying for. It has several P3 contracts that are costing us millions of dollars every year

According to the most recent provincial budget, the Alberta government will likely pay $17 million for all P3 contracts for schools over the current fiscal year, $1 million for the aforementioned Evan Thomas water treatment plant, and $65 million for all ring road P3 contracts.

That’s $83 million for all P3 contracts the government plans to pay this year. And the amount it has to pay back to these private contractors increases every year.

Plus, that’s just principal repayments. Debt servicing payments are even more, with $26 million this year for P3 school contracts and $103 million this year for ring road contracts.

Here, let me show breakdown these contract payments a bit more.

	2014–15	2015–16	2016–17	2017–18	2018–19	2019–20	2020–21	2021–22	2022–23	2023–24
Schools (principal)	$12	$13	$14	$14	$15	$16	$17	$17	$18	$19
Schools (debt service)	$30	$30	$30	$29	$28	$28	$27	$26	$25	$25
Ring roads (principal)	$26	$28	$37	$45	$48	$50	$56	$65	$70	$73
Ring roads (debt service)	$72	$71	$83	$94	$92	$90	$95	$103	$103	$101
Evan Thomas (principal)	$1	$1	$1	$1	$1	$1	$1	$1	$1	$1
Total	$141	$143	$165	$183	$184	$185	$196	$212	$217	$219

In the last 10 years, Alberta’s P3 payments to private contractors has gone from $141 million to $219 million. That’s an increase of $78 million, or 55%. That works out to an average increase of $7.8 million a year, and combined total of over $1.8 billion.

And I guess that amount is about to get even bigger.