Over at Project Alberta, I found the most surprising bit of illogic:
BTW, I see that dear leader Hinman said on Rutherford that he was against P3s for schools because that was like leasing a car instead of buying it. Take him aside and explain the benefits of P3s, and tell him to get off his tractor and head into the big city to find out how many people lease their vehicles. What era is that guy from?
Ever so briefly, I'm going to ignore the obvious problems with comparing a building with a lifespan of 30-50 years or more with a car that has a practical life expectancy of about ten years.
While there are practical and valid reasons to lease cars or places of business, cost savings isn't one of them.
Consider the following scenario: Purchase a car, and drive it for ten years compared with leasing vehicles every 3 years for that same period of time. To simplify things a little, I'm going to assume that in all cases, the amount being financed is about $20,000.
At current interest rates and lending terms, the payments on a $20,000 loan for 4 years is about $450 / month, the lease rate would be pushing around $200/month. (Pulled from an average of several manufacturer's websites)
A little basic arithmetic shows the following:
Payments: $21,600
Lease: $24,000
Not too bad at first blush, until you realize that the "slightly higher" cost of $24,000 is spread over the full ten year period. Meanwhile, the purchaser has 6 years of payment-free driving.
Even if the purchaser saves money at the payment rate of the lease, that's $9600 that they have in the bank ... and, at the end of the ten years, there's still _some_ (probably not much) residual value in the vehicle itself.
If the lessor had chosen to save the $250 per month difference in payments, then they get a little ahead of the game:
120 * 250 = $30,000
And the truly frugal purchaser that socks away the amount of their payments even while they aren't paying it to a bank?
72 * 450 = $32,450
Yes, I know people that lease their vehicles and are quite happy to do so. I'm not one of them because interest bearing payments on a depreciating asset irritate the heck out of me.
When it comes to buildings, P3's bother me in a very fundamental way. Buildings are not "depreciating assets". Basically a P3 means that the public pays not only the capital costs of the building and its upkeep, but also we are putting a certain amount into the "private partner's" pocket in terms of profit as well.
In short, while it perhaps creates the illusion of a savings (just as the lower per-month costs of a vehicle lease do), in the longer run, I'm just not so convinced that it makes sense for public infrastructure such as schools or hospitals. Both kinds of buildings have meaningful lives that long exceed the 20-30 year time period required to finance their construction; and maintenance is just that - maintenance - the public would pay that anyhow - one way or another no matter how the contract is written. ( A few years ago, renting an decent apartment in Calgary was a few hundred dollars a month less than owning a house - just enough to make the apartment superficially appealing, until you realized that at the end of ten years, you had another ten years of rent to look forward to, and the appreciation of the asset you occupied landed squarely in someone else's pocket )
P3's may have their place, but I don't think it's in the world of key public infrastructure. Government offices housing the bureaucracy perhaps, purpose built buildings like schools or hospitals ... not so much.
I certainly wouldn't endorse a P3 on the basis that "a lot of people lease their cars". Just because it is popular doesn't make it good economics.
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