Skip to content


by Daniel Gloade on February 27, 2015

The Region of Waterloo is an example of the controversy arising from Private-Public Partnerships.  In essence, private businesses will deal with the Light Rail Transit including its construction and management.  The Region of Waterloo will pay for this service.

The disadvantage comes from financing.  If a private company takes on such a large project it needs to secure financing.  Private companies are more insecure creditors than governments.  The private companies therefore pay more in interest expense than if the government was financing it.  Private companies pass this expense to taxpayers.  In the L.R.T. example, the extra interest cost is $48 million.  You can find out more about the Light Rail Transit costs in this article from the Record.  You can read it here.  Private companies also have to pay taxes and insurance.

The advantage that is offered, however, is that the private company takes on the risk.  I question, however if that is true

First, only the taxpayer is exposed to the ultimate risk of the project failing to meet expectations.  That risk cannot be transferred to any other entity.  For example, let us say that the construction of the L.R.T. is overdue.  Kitchener-Waterloo taxpayers that held off buying a car or building a parking lot have to absorb the loss whether the construction was done publically or privately.  The only risk that is transferred is the financial risk.

Second, private companies are much smaller than local governments.  They are less able to absorb large losses.  In fact, most companies are incorporated for the sole purpose of satisfying one part of the government contract.  If it fails, so does the company.  If the company goes bankrupt then the K-W taxpayers are just another creditor for a bankrupt company.

It seems to me that the transfer of risk is something that gives Municipal governments peace of mind (“It’s not my fault”) and the budgets are balanced.  It does not really help the taxpayers, however.

Perhaps the best private-public partnership is infrastructure publically financed and owned.  Governments can hire contractors for their expertise using public tenders.

This method is old fashioned but it seems effective.  The Auditor-General of Ontario seems to suggest that there is merit to my argument.  You can find a much more comprehensive discussion about the advantages and disadvantages of these partnerships in her article found here.

Comments are closed.

Translate »