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If the proposed accounting standards mean the full costs of P3 accounting schemes will have to be reported, it will be a major step forward. Unfortunately, there is good reason to be worried that won’t happen.
Ottawa (12 Mar. 2020) ― In a submission to the Public Sector Accounting Board’s Public Private Partnerships Task Force, the National Union of Public and General Employees (NUPGE) is calling for accounting standards that recognize the full cost of P3 privatization schemes.
The privatization industry has used lack of accounting standards for P3s to keep all or part of the cost of P3 privatization schemes off governments’ books. This ability to keep the money borrowed to build new infrastructure off governments’ books helps explain why P3s are one of the most popular forms of privatization. P3s allow politicians who reduced government revenues by cutting taxes for the wealthy to borrow money for new infrastructure, while hiding the fact they are doing so.
Standards need to address ways cost estimates for P3s manipulated
There are a number of ways that the privatization industry has tried to make P3 privatization schemes appear to be better value than they really are. The National Union’s submission calls for the standards to address two of the most common ways that the real costs are distorted.
The most common is the claim that P3s transfer the cost of many of the risk associated with infrastructure projects to the private sector. In practice, when unforeseen problems occur, the public usually end up paying. As well, auditors general in five provinces have raised serious questions about the way the value of risk is calculated.
Unfortunately, the proposed standards would allow for some value to be attached to risk transfer. In its submission, the National Union suggested that the standards should recognize that the claims of the privatization industry about risk transfer do not reflect the reality of the P3 privatization schemes.
Another way P3 privatization schemes are made to appear less expensive than they really are is by using an unrealistically high discount rate. Discount rates are intended to allow for the impact the timing of payments on the debt has on the costs to governments. However, a discount rate that is higher than what governments pay to borrow money gives an inaccurate impression of the real cost of P3s. For that reason, the national union is recommending that the discount rate reflect what it costs governments to borrow money.
Fears new accounting standards will be inadequate
If the proposed accounting standards mean the full costs of P3 accounting schemes will have to be reported, it will be a major step forward. Unfortunately, there is good reason to be worried that won’t happen.
Several members of the Public Private Partnerships Task Force are employed by businesses or organizations that have a vested interest in seeing an increase in the use of P3 privatization schemes. These include accounting firms that provide consulting services for P3s, a law firm that does legal work for P3s, and a public agency that has aggressively promoted the use of P3s.
Accounting standards that recognize the full cost of P3 privatization schemes will result in fewer P3s. As the National Union pointed out in its submission, “this puts some members on the PSAB P3 task force in an awkward position.” What’s good for the public and what’s good for some employers of task force members are two very different things.