Another day in the spin factory

The Government's Infrastructure Stimulus, announced last week by Minister for Public Expenditure and Reform Brendan Howlin, is mostly spin with little substance. By Michael Taft.

It is hard work tracking the real impact of a Government announcement, rather than relying on press handouts, departmental briefing notes and ministerial statements. Take the Government’s Infrastructure Stimulus announcement last week: €2.25 billion, 13,000 jobs, all in addition to what was announced previously. Is this the case? Really?

The Government’s stimulus is made up of two parts: non-Exchequer funding and funding from the sale of State assets. It is best to examine these separately.

Non-Exchequer funding – or Phase 1

The Government’s package of projects totalling €1.4 billion up to 2018 will be driven by public-private partnerships (PPPs) accessing private capital (pension funds, domestic banks and investors) and the European Investment Bank. This is all about 'off balance sheet financing' - that is, ensuring that the capital expenditure doesn't get included in the State's debt. However, the use of PPPs is wholly contentious – many of which have been shown to be more costly and less efficient at delivering public infrastructural projects than traditional procurement. While I don't want to dwell on this here (this will be a subject of a later post), Dr. Eoin Reeves from NUI LImerick, and a leading authority on PPPs in Ireland, had this to say about the Government's recent announcement:

“At this stage any efforts at stimulus should be welcome in principle. But ‘off balance sheet financing’ is nothing short of Enron-style accounting trickery. The government will still be on the hook for investment that is initially financed by the private sector when the PPP model of procurement is adopted. It is essential therefore that individual projects are subjected to cost benefit analysis first and then put through a value for money test. The latter is required under the PPP guidelines issued by the Department of Finance. But don't expect that these analyses will be put into the public domain thereby allowing independent scrutiny! The faith in the PPP model that underpins the Stimulus Plan is largely based on faith. Since PPP was first adopted in 1999, just two contracts have been audited by the C&AG. Neither study shed the PPP model in favourable light. In the UK, the PPP/PFI model has been undermined by a recent report by the Treasury and is likely to be reconfigured. It is not clear that any lessons from the past (in Ireland or elsewhere) will be brought to bear in this new Stimulus Plan which appears to assume that the PPP model is works efficiently. How naive?”

Enough said for the time being.

The Taoiseach said these infrastructural projects are additional to the Government’s Capital Review announced last year – their five-year capital spending plan up to 2016. But that is only to state the obvious. The Government’s Capital Review projected Exchequer spending – that is, spending that the State makes. Non-Exchequer funded projects – which comprise private investments – are always additional to State funding.

So the question is not whether the projects announced by the Government are additional to the Capital Review, but rather: are they additional to the projected non-Exchequer projects previously announced?

The answer is that many projects were already announced and already factored into spending plans going forward. Here are some examples of programmes that were ‘re-unveiled’ at the recent launch.

The Government announced the Gort-Tuam road scheme last week. This is what they said last year:

“The National Roads Authority is seeking to progress a number of projects by Public Private Partnership (PPP). The most advanced of these are...N17 Gort/Tuam...The intention is to continue to pursue the Gort-Tuam PPP with a view to the project going ahead within the framework period.”

Indeed, the European Investment Bank funding for this road was granted back in 2010.

The Government announced the New Ross-Enniscorthy bypasses last week. This is what they said last year:

“Preparation works on the New Ross/Enniscorthy PPP project will be progressed.”

The Government announced the Cork Courthouse redevelopment last week.  This is what they said last year:

“The allocation (expenditure funds) to the Courts Service will largely be accounted for by existing contractual commitments of the Cork County Council for the redevelopment of Washington Street Courthouse.”

The Government announced up to ten primary care centres last week. This is what they said last year:

"Funding will be allocated [to the primary care sub-programme]…in accordance with the commitment in the Programme for Government. The details of funding…will be set out in the HSE Capital Plan for 2012-2016… The development of primary care centres, through a combination of public and private investment, will facilitate the delivery of multi-disciplinary primary care…”

The Government announced 12 new or replacement schools last week.  This is what they said last year:

"…over 20 new schools will have to be established at primary level and another 20 new schools will have to be established at second level between now and 2017…The Government will maintain sufficient investment to expand our stock of schools. In order to accommodate the increased numbers of pupils, over 20 new primary and 20 new secondary schools will be required between now and 2017.”

Many of the new announcements were already contained within the Capital Spending review last year.  There are some genuinely new announcements: the Grangegorman campus (after the Government scrapped it last year), new and redeveloped courthouses around the country, etc.  But while they are newly announced, are they new investments?

If they were, then the capital allocations made last year in the Capital Review would be increased – to facilitate the additional PPP-related expenditure for these new projects announced.  But the Government stated:

“The Exchequer’s contractual commitments arising from this PPP Programme will be met from the capital allocations of the relevant Departments over the working life of the infrastructure assets.”

This means, no new money.

What the Government has done, apart from re-announcing some projects, is unveil projects within the current allocation, not increase the allocation.

So much for an additional boost to economic growth.

Funding Projects from the sale of State assets

The Government has set aside €850 million from the sale of state assets for funding new projects.  However, this section is vague – with no timelines, no projects, no job-creation estimates, no start-up time, etc. In one sense, this is understandable. The Government can’t be certain it can get that amount. Nor can it be certain when it can get it – especially as they said they won’t sell assets at the bottom of the market; a bottom that can last a long time.

Nor can they be certain this money won’t be needed to plug any shortfall of private capital in the non-Exchequer projects. Such is the uncertainty that we can’t be sure when, how much and for what new or existing projects this will be used for.

This €850 million is wholly aspirational.

* * *

Where does this leave us? In pretty much the same place as before the Government announced its Infrastructure Stimulus. There is little new in it, there is little additional, there is no new money allocated for the PPP-related projects. It is mostly spin with little substance.

But there are some things on the investment front that we know for certain – the planned cuts. The Government is planning to cut a total of €5.6 billion from public investment up to 2016. Had the Government, on entering office, maintained capital spending at the 2011 level, It would have been investing €22.6 billion up to 2016. However, with its cuts, it will only be investing €17.1 billion.

The only boost we get from all this is the increased energy that goes into disentangling reality from rhetoric. {jathumbnailoff}


Image top: The Labour Party.