Background

In the September 25 referendum, residents of Regina voted 57% to reject THAT the Council of the City of Regina publicly finance, operate and maintain the new waste water treatment plant for Regina through a traditional Design, Bid, Build (DBB) approach. The City of Regina now has the mandate to proceed with the construction, operations and maintenance of the new wastewater treatment plant through a design-build-finance-operate-maintain (DBFOM) public-private partnership (P3) with a private consortium.

Below are the reasons why Regina Water Watch encouraged residents to vote YES to keep Regina’s wastewater system public, and frequently asked questions during the referendum.

Why Vote YES

Here are some of the reasons to vote YES to keeping our waste water system public.

1. Secrecy and accountability

Voting no to keeping our waste water system public would lock us into a 30-year secret deal with a private corporation or consortium. Key details of the contract will be kept secret from citizens and perhaps even from city council because of the “commercial confidentiality” of the corporations involved.

City Council has already refused to release the full Deloitte report it is using to justify the P3 model, withholding essential financial and operational details from the public. An analysis of the report prepared by economist Hugh Mackenzie stated, “all of the relevant detail behind Deloitte’s Delivery Model Assessment has been redacted from the material that has been disclosed.”

In fact, of the 70 page report, the City has released to justify its decision, 51 pages had information removed because of “commercial confidentiality” before it was released to the public, and 20 of the pages were completely deleted. Not counting the table of contents and index pages, just 8 pages in the entire report were released to the public with no information removed.

And it doesn’t get any better once the P3 is signed. The Association of Chartered and Certified Accountants in the UK, where these kinds of secret deals have a long history, concluded:

[I]nformation is not easy to obtain, even in some cases where it is intended to be in the public domain. Much remains hidden behind the cloak of ‘commercial confidentiality’. … This lack of transparency exists at the Treasury, departmental, purchaser and contractor level.

Would you sign a 30-year mortgage on your home without reading it? That’s what City Council and others telling you to vote no are asking Regina citizens to do.

2. Regina’s entire water system should be kept public

Water is a shared resource and a shared responsibility. It’s essential for everyone, now and into the future. Regina’s waste water becomes someone else’s drinking water, and making sure that it’s safe shouldn’t be trusted to an unaccountable corporation whose primary responsibility is to make profit for its shareholders. Water is a precious public resource, which is why we’ve always kept it in public hands, including the funding, day-to-day operations and management of our waste water treatment plants.

That’s why we need to vote YES on September 25 and keep our entire water cycle – including our waste water treatment system – in public hands.

Proponents of the no vote know that the citizens of Regina value their public water system, which is why their PR advisors told them to start referring to the upcoming vote as a “sewage referendum” in the advertising campaign that City Council is spending $340,000 of taxpayers’ money to run.

3. P3 privatization will cost more

While the City of Regina claims that the P3 will save money (based on figures that the public isn’t allowed to see), the city won’t say what private sector borrowing will cost or what profit margin the private corporation will receive.

The independent report “Flushing Money Away: Why the Privatization of the Wastewater Treatment Plant is a bad idea,” prepared for Regina Water Watch by economist Hugh Mackenzie, found that higher private sector borrowing costs will significantly inflate the overall price tag of the P3 privatization project.

Because the city refuses to release the financial information behind its claims, Mackenzie has made a number of calculations about the possible cost of private borrowing. His most conservative assumption is that private financing under P3 privatization will cost $95.9 million more than public financing, before federal funding. Even after receiving the $58.5 million federal P3 grant*, the cost will be a whopping $37.4 million more for private financing.

Mackenzie also made calculations based on assumptions of PPP Canada, the federal agency that promotes P3s. Using PPP Canada’s own assumptions, the P3 privatization model is even more expensive: $135.7 million more before the P3 Canada grant and $77.2 million after taking the federal grant into account.

For a full explanation and side-by-side comparison, you can read the full details of Mackenzie’s financial analysis.

In other words, it would be significantly cheaper to say “no thanks” to the federal grant and keep the waste water treatment plant public, saving taxpayers between $37.4 to $77.2 million.

As Mackenzie put it in an interview in the August 22 edition of Prairie Dog magazine, “This is actually just about the numbers. And the numbers speak for themselves. They say clearly that it will be more expensive to carry out the project through a P3 than through conventional procurement. More expensive by enough to more than offset the P3 tied funding from the Federal government.”

In an interview with the Financial Post, even John McBride, the CEO of PPP Canada, a federal Crown corporation which exists to promote P3s admitted, “The answer to that is, yes, the private sector costs more.”

* In nominal dollars. Mackenzie’s original calculations in the report “Flushing Money Away” were based on net present value figures in the Deloitte summary report which showed the value of the P3 Canada grant as $44.3 million. The City of Regina is using the nominal figure of $58.5 million for the federal grant, so Mackenzie has revised his analysis to show his calculations in nominal dollars.

4. P3 privatization is risky

The City argues that the advantage of a P3 is that it transfers the “bulk of the risk” to the corporation or corporations it pays to build and operate the waste water system. Simon Enoch, Director of the Saskatchewan Office of the Canadian Centre for Policy Alternatives, debunks the value of “risk transfer” in an article on the topic.

As Enoch points out, “the one risk that can never be transferred is statutory risk, or the ultimate risk for the project being completed. No matter what, the public sector is ultimately responsible for the provision of essential infrastructure and services undertaken by the P3 partner. Should the private partner decide to terminate the contract or declare bankruptcy, the government is obligated to finish the project – whatever the cost.”

Hamilton took the risk, and in 2004 decided not to renew the disastrous 10-year contract it had entered into with Philip Utilities Management Corporation (PUMC) for the maintenance and operation of its water and waste water treatment plant. A 2012 book entitled Remunicipalisation: Putting Water Back into Public Hands looked at Hamilton’s gamble with P3 privatization, and summarized what happened as follows:

In April 1996 the workforce was cut in half, from 120 to 60. In January 1996 the worst wastewater spill in the plant’s history sent 180 million litres of raw sewage into the Hamilton harbour and surrounding areas, affecting homes and businesses alike. Yet PUMC avoided any liability thanks to the contract’s wide exemptions, and the cleanup costs were borne by the city. Several other spills reported in the following years were accompanied by similar hands-off responses from PUMC. These accidents should not be seen as unfortunate exceptions but as part of an organised risk management practice: PUMC simply adapted to its legal, institutional and technical environment to extract as much profit as possible from the yearly C$18 million it received from the city to operate.

If the city tries to get out of the contract early because of problems, it could find itself in the same boat as Indianapolis, which had to pay Veolia a $29 million contract-termination fee to get out of its P3. And they’re not the only ones who have learned from experience that P3s aren’t worth the risk; check out our backgrounder on failed and flawed P3 projects in water and waste water to find out about others.

Are you willing to take the risk and sign a contract you’re not even allowed to see?

Frequently Asked Questions

Here are some of the most frequently asked questions from the referendum campaign.

1. Why should I vote YES to keep Regina’s waste water system public?

Citizens of Regina have many reasons to vote YES on September 25.

Many residents are worried about signing a 30-year deal that we won’t even be able to see based on a financial details that City Council can’t even show us because of “commercial confidentiality.” Of the 70-page report the city used to justify its decision, only 8 pages were released without information deleted. The secrecy and lack of accountability in the P3 is just too much of a risk for such an important service.

Many are also concerned about the higher costs associated with P3 privatization. Because governments can borrow money for less than private corporations, the financing costs in a P3 are much higher than the public option. Then there’s the profit that the corporation that gets the contract will make over the next 30 years of running the plant.

But most of all, the citizens of Regina recognize that water is a shared resource and a shared responsibility, and that it’s safest and cheapest if we keep the entire system public – including waste water treatment. After all, Regina’s waste water becomes the drinking water for other communities in our province.

2. Aren’t P3s cheaper than the public option?

The City of Regina and other proponents of the no vote claim it’s cheaper, but they refuse to release the full details and financial information they’re basing their claim on. An independent analysis prepared for Regina Water Watch by economist Hugh Mackenzie found that it would be significantly cheaper to say “no thanks” to the federal grant (see below) and keep the waste water treatment plant public, saving taxpayers between $37.4 to $77.2 million.

For a full explanation and side-by-side comparison, you can read the full details of Mackenzie’s financial analysis.

That means that even if the federal government refuses to respect a YES vote on September 25 and provide the funding it has promised, it would still be cheaper to keep the plant public through a traditional design-bid-build process.

Even John McBride, the CEO of PPP Canada, admitted in an interview with the Financial Post on P3s, “The answer to that is, yes, the private sector costs more.”

3. Will voting YES mean my annual utility bill will go up by $276 per year?

The short answer is no.

Of all the city’s fuzzy math on the P3 question, this claim is the most ridiculous, and one that’s been designed to scare ratepayers into voting no. After all, nobody wants higher utility bills. But like most of the city’s claims, this one doesn’t stand up to scrutiny.

First, City of Regina spokespeople can’t even agree how they arrived at $276. Some say it’s the $58.5 million in federal funding tied to the P3 divided by the number of ratepayers. Others claim it’s actually the $79.6 million the city’s secret report claims they will save by going with their proposed P3 privatization plan divided by the number of ratepayers. Or maybe it’s divided by the number of utility hookups. Or maybe by the number of households. Like all the city’s numbers, the math is intentionally fuzzy.

The Regina Chamber of Commerce, which is running an ad campaign that parrots the city’s talking points, goes to even more absurd lengths in a September 11 fundraising letter to its members. The Chamber of Commerce claims “a large utility rate increase which could cost individual property owners between $276 up to a high of $8000 per year for 4 years or more.” So, somewhere between $276 and $8000 per year … obviously some pretty solid math behind those numbers.

Second, there’s the fact that independent financial analysis by economist Hugh Mackenzie shows that even if the federal government doesn’t give us a penny, voting YES to proceed with a traditional Design-Bid-Build model would cost between $37.4 million – $77.2 million LESS than the proposed P3 privatization, because of higher private financing costs and the need for the corporation involved to make a return on investment. Voting no will actually mean higher costs, and therefore higher utility fees.

Finally, the taxpayer-funded advertising campaign by the city is intentionally misleading, saying, “Vote no to paying $276/year more for utilities.” But what the city ads don’t say is that their claimed increase in rates is spread over just four years. Why four years when we’re talking about a 30-year project? Nobody at the city can say.

In fact, in an email response to us from the City of Regina on this very question, they admit that the decision hasn’t even been made yet, writing, “Whether it is four years, less or more, that decision will be left to Council to approve.” Another email from the city states, “The four year amortization is an illustration that was used as an example.” The Mayor has even said the number isn’t real, as a Newstalk 980 article on the issue states, “the Mayor has admitted that was essentially an arbitrary selection.”

In other words, the City chose four years simply because $276 was a big enough number to scare voters with. Any change in utility fees – and again, according to independent economic analysis a no vote will actually increase the cost of the project and lead to higher utility fees – could be spread over one year, or four, or 10 or 30. And the decision hasn’t even been made by Council yet.

To sum up: claims by the City of Regina that your utility bills will go up by $276 per year is just more … sewage.

4. Won’t we lose federal funding for the new waste water plant if Regina citizens vote YES?

The City of Regina is running ads (paid for with your tax dollars) saying we’ll lose out on $58.5 million in federal funding unless we take a chance and accept a P3. Some economists disagree, and say that new federal funding in the 2013 budget means the federal government could fund the project under the public model.

It’s a simple question of democracy: the citizens of Regina should have the right to decide how they want their city to run, not the Harper government. The Federation of Canadian Municipalities (FCM), which isn’t necessarily opposed to P3 projects, says that infrastructure support from the federal government shouldn’t be contingent of privatization, writing in a report, “When to use the P3 model should be up to individual municipalities” and that it is important that “all programs support and encourage consideration of P3 options but do not mandate a P3 approach.” If a strong majority of Regina citizens vote YES, City Council will have a strong mandate to demand federal funding.

Of course, because of higher private sector financing costs and the need to make a profit for shareholders, even if the federal government refuses to pay their share Regina would still save money by saying YES to staying with the public option.

5. How much profit will the company make to run the plant over the 30-year contract?

It’s a simple question that Mayor Fougere has been unable or unwilling to answer, so we still don’t know how much money we’ll be handing over to the corporation to cover its profit margin under the P3 model. In an interview on CBC Saskatchewan’s The Morning Edition, Mayor Fougere was asked directly how much profit the corporation would make and he said he didn’t have the information with him, and has yet to provide it.

The City’s so-called “financial analysis” only mentions that the P3 corporation will make a profit during the building of the facility. The cost-comparison chart they released doesn’t indicate any profit margin at all for a corporation controlling and running the plant for the next 30 years! And, of course, like almost all other information in the Deloitte report, any information about profit has been deleted.

All the City has said in its taxpayer-funded information campaign is that a private corporation can make the profit it needs to and still save the city money because of “economies of scale,” “innovation,” and “experience.” The City claims that a corporation will have “lower facility and operation costs” but at the same time promises that there will be no changes to staffing levels or terms of employment for current city employees, and that the city will continue to set utility rates. Sound a little too good to be true? It just doesn’t add up.

We can, however, take a guess at how much extra residents will be paying to ensure a healthy corporate profit. According to PPP Canada’s P3 Business Case Development Guide, the required equity return (ie. profit) is likely to be somewhere between 12.5% and 15% per year. That’s a lot of money that should be going to improve service or keep utility rates low that will instead be going directly into the pockets of shareholders.

6. I’ve heard that City Hall has been playing games on the P3 issue. What exactly have they been doing?

The City has done almost everything it can to ensure that Regina residents don’t get to decide the future of their waste water system.

First, just a week before the petition deadline the city tried to move the goalposts on the number of signatures needed with it “requested the Minister of government relations, Jim Reiter, change the threshold. Instead of using ten percent of the population based on the 2011 census numbers, which is outlined in The Cities Act, they’ve asked to use Saskatchewan Health information, which would bump the required signatures from 19,301 to 20,750.”

When Regina Water Watch delivered more than 24,000 signatures by the deadline, the City Clerk rejected outright 4289 signatures for not including the year, and said “it’s believed no more than 90 per cent of the remaining names are valid.” They then declared the petition invalid. Fortunately, widespread public outcry compelled City Council to hold the referendum anyway.

Residents were shocked again when they discovered that the City of Regina planned to spend $340,000 of taxpayers money to take a position and tell citizens to vote no in the referendum, three times the amount they’re spending to encourage residents to vote in the referendum and almost seven times the amount a mayoral candidate can spend. City staff began lobbying for a no vote, a move which Arthur Schafer, director of the Centre for Professional and Applied Ethics at the University of Manitoba, called “not just questionable, (but) an unethical practice,” saying, “It’s a clear-cut violation of professional ethics for civil servants. The role of administrators is to administer. It’s not to behave as if they are a lobby group. They are supposed to provide services for the elected council and the mayor in a politically neutral way — not to have their own political position.”

Even a city councillor has problems with the City of Regina’s advocacy of the no vote. Ward 3 Councillor Shawn Fraser told Metro that “There is a subtle difference between informing people, educating people and engaging people on what the ramifications are of either side winning and explicitly telling people how to vote. Had the council voted on it, it’s not an approach I would support.”

And, of course, the city still refuses to release the full Deloitte report that it says justifies the P3. Out of the 70 page report, citizens have only been allowed to see 8 pages without any deleted information. Despite its undemocratic actions over the past three months, Regina residents are being told, “Just trust us.”

Throughout the referendum campaign, Regina Water Watch raised concerns about irregularities reported by scrutineers at advance polling stations, and alerted Minister of Government Relations Jim Reiter about worsening irregularities during the referendum voting.

The City of Regina “Vote No” campaign even gave taxpayer money to Ohio-based public relations firm Front Porch Strategies, a pro-Republican, pro-Conservative, anti-choice PR firm whose website blatantly states “our passion is helping Republican candidates, elected officials, and conservative causes win.”

7. Isn’t Regina Water Watch just a front for special interest unions?

Supporters of P3 privatization, like the Regina Chamber of Commerce (which is spending its members’ money on billboards and other advertising promoting P3 privatization, and is even turning the no campaign into a fundraiser), say that Regina Water Watch is nothing but a front group for the Canadian Union of Public Employees (CUPE), and can’t be trusted.

In reality, Regina Water Watch is a citizens’ coalition made up of ordinary people who are concerned about privatization of our vital municipal services. Some belong to community organizations, some are union members, some are small business owners, and some have no affiliation with any group. Over 24,000 citizens signed the petition calling for the referendum, many times more members than CUPE has in Regina.

But if the Chamber of Commerce wants to talk honestly about special interests, they could point out that Deloitte, which wrote the secret report that City Council based its decision to privatize on, is a member of the Canadian Council for Public Private Partnerships, whose mandate is to encourage and promote P3s. AECOM, another of the city’s “independent consultants” that recommended the city proceed with the P3 is also a member of the Canadian Council for Public Private Partnerships. And so is the City of Regina! And so is the Conference Board of Canada, which recently released a predictably glowing report on P3s, which was funded by – wait for it – the Canadian Council for Public Private Partnerships, PPP Canada and other pro-P3 funders.

And while John Hopkins of the Regina Chamber of Commerce is busy sending out fundraising letters for his organization making accusations about the “national water watch agenda,” he doesn’t mention the organized national pro-P3 push by the Chamber of Commerce. Official policy of the Canadian Chamber of Commerce is that “Canada must examine other funding options such as increasing the usage of public-private partnerships (P3s)” and local branches of the Chamber of Commerce across Canada, from Mission Abbotsford to Campbell River to Edmonton to Moncton have all — just like the Regina Chamber of Commerce — come out as cheerleaders for P3s in their communities.

But the Regina Chamber of Commerce apparently isn’t interested in telling you about those special interests or its own national agenda.