A distraction

NSW Teachers' Federation

PPPs & public schools

Introduction

The Teachers Federation is opposed to the NSW government's proposal to build nine schools using a private consortium to finance the infrastructure and transferring ownership to the consortium for 30 years.

The public ends up paying higher amounts in rent to the consortium than would be paid through direct government financing.

Private enterprise currently build, clean and maintain our schools. Hence, this new proposal is about financing not service delivery.

What is the motivation for government entertaining these deals? The motivation is twofold: to continue to be seen to be framing surplus budgets and to shift the funding from capital to recurrent funding lines within the budget.

Lack of budget transparency

Government budgets are no longer as transparent as they once were. Reporting has become more limited, and the accountancy methods (e.g.accrual accounting) have made obfuscation the norm. Recurrent costs can be hidden amongst generic program budgets. It is then impossible for the community to dissect which part of particular programs are earmarked for which activity.

A cut in one area can be masked as the government may claim an overall rise in, for example, primary or secondary education.

Surplus budgets

Our economic system relies on debt. Every commercial transaction is 'geared' towards the service of debt. If there was no debt there would be no banking industry, and no capital growth - the whole basis of the economic system.

There is no intrinsic reason why governments should not be financing infrastructure through borrowings. Such debt in fact is a driver of the economy, providing relatively safe and secure investment opportunities through the government bond market.

The prevailing view that government 'debt is bad' is merely electioneering about 'responsible fiscal management'.

Transfer of debt

What the government is doing is transferring apparent risk and ensuring that debt (at higher interest rates) is transferred to the private sector. This exposes the public to the greater risk of the private market.

Who gains?

1. The finance houses gain because they have a guaranteed low risk income stream for the life of the contract.

2. Facilities maintenance operators who have a monopoly contract. At the moment in NSW minor maintenance and even quite extensive construction and maintenance jobs are subject to competitive tenders. School Principals currently have to arrange for quotes for maintenance jobs.

3. Service companies who, based on the UK experience, eventually seek to run core services such as teaching and support staff. The first contract is a "foot in the door" to full privatisation.

The windfall benefit to private schools

If schools' capital development is to be shifted to the recurrent education budget, then potentially private schools gain. Increases in the recurrent budget for public schools mean an automatic flow-on to private schools through the '25 per cent rule' legislated in section 21 of the Education Act.

Who loses?

The public who end up paying higher amounts in rent to the consortia than they would otherwise pay through direct financing. This has been soundly established through numerous overseas examples and is acknowledged within the finance industry itself.

The public who can no longer scrutinise public financial statements and know where funding is being directed. The public who are kept outside the decision-making process as 'commercial-in-confidence' clauses are invoked to ensure that there is limited, if any, transparency about government's transaction.

What about the school communities?

The Glasgow Schools Project is often touted by the Treasury and government as an example for school communities. The apparent benefits of this project are not achievable in New South Wales, partly because many school services are already privatised.

At a PPP Conference in June, 2002, Bill Banks of Price Waterhouse Cooper said that, in contrast to Glasgow, New South Wales already enjoys strong design standards and construction that is to cost and on time. The key benefit to Glasgow in its IT contract already exists in New South Wales.

In fact, innovative design and construction in New South Wales public buildings, including schools, has already resulted in Awards. The Government Architect's Office has won numerous awards for school design, the most recent being the conservatorium. There is no need to enter into such arrangements to achieve innovative and cutting-edge design standards.

Schools are already suffering the consequences of the privatised cleaning operation. It has been demonstrated on many occasions that this privatisation has had a disastrously adverse for schools. The contractors have cutback the number of cleaners and the specifications are, in many instances, impossible to meet.

Schools' Information and Computer Technology is already contracted-out through private providers. Elected politicians must remain accountable. No matter what the 'risk transfer', ultimately government is wholly exposed to the risk of service failure. As soon as a contract is placed at risk because of a collapse in private capital markets, or corporate failure, communities will quite properly blame the politicians who took them into the process. It is not the bankers who are currently being blamed for the investment losses of superannuation funds and fund managers; rather it is successive government decisions which have made superannuation compulsory that are being held up for scrutiny.

Furthermore, in an era when the biggest and seemingly most 'stable' of accountancy firms, auditors and financial institutions are being daily exposed for corrupt and crooked practices, both in the United States and Australia, the NSW public should not be further exposed to potential collapse of private sector entities.

Conclusion

The new schools currently built in New South Wales are great. The main issue to be confronted is the refurbishment and maintenance of existing stock. Government attention needs to be focussed on this area, not PPPs.


Maree O'Halloran, the President of the NSW Teachers Federation, spoke to this position at the Evatt Breakfast Seminar on PPPs on 12 August 2002. Visit the New South Wales Teachers Federation Online.


Also on the Evatt site: