Children’s Hospital – 81% public money, with 19% private money – nice profits…

Readers may recall that Ms. Berner, a minister in the present government, has made a great deal of publicity for herself as the initiator of the Childrens’ Hospital Project in Helsinki that was meant to cost €160 million. This, like the failed Guggenheim, was meant to be a private hospital initiative that is in fact anything but a private initiative. She has taken credit for a project that is basically being financed by the public sector with her private sector colleagues taking in some nice profits.

HUS-Real Estate Plc is the public sector organization responsible for building and maintaining hospitals and medical facilities in Finland’s metropolitan for over 1 million people. It has the expertise and capacity to build and maintain all the required specialized infrastructure in a professional manner.

Ms. Berner, the present Transport Minister, heads up a foundation (Säätiö Uuden Lastensairaalan Tuki) that has been created to build a new Childrens’ Hospital (Lastensairaala) which HUS will lease from the Foundation (Säätiö). The Säätiö is financing the project with 50% public grants, 31% debt and a mere 19% from private donations.

We were told in 2015 that the rationale behind this solution was to bring forward the building in time because public funding was not available until several years down the road. But this was never the truth since almost all of the financing is from the public sector. Even the expensive €50 million loan is being repaid by HUS as a maintenance fee!

The creation of a new entrant, the Säätiö, is an expensive and unnecessary business unit for the region that creates significant costs and unnecessary complexity. The rational for the project seems to be specious because only 19% of the project funding comes from private donations and the existence of the new entities and the structures involve significant costs over the long term. This sum raised through donations could have easily been contributed by public sources and/or through increased debt funding from the government or from HUS member municipalities.

Given that at least 81% of public money is being used for the project, it could be expected that project transparency should be a top priority. However, there are no new press announcements after October 2015! Just complete radio silence… a totally unacceptable situation.

It is always possible that this project is a shining example of what the private sector can perform, but to date there is no information available to confirm this. The following matters need to be addressed:

  1. The Säätiö is an ad hoc body and has no prior experience in project management. This is a significant source of risk that can only be mitigated in part by outsourcing professional services, at a high cost. The cost overruns of the project have not been disclosed, but some press comments suggest that the final costs will be substantially higher than the €160 million.
  2. The €50 million loan agreement has not been placed in the public domain but it is clear that the cost of borrowing by the Säätiö is significantly higher than what the government or HUS pays for debt. A 1% difference in borrowing costs is around €10 million over a 30-year loan period.
  3. It is prescribed that the Säätiö is a non-profit-making body. However, no financial statements or budgets are available on its website that set out its own organization and annual administration costs. The annual costs of running the Säätiö are probably high when taking into account its 30-year existence. Assuming low annual costs of €300,000 means another €9 million. Such an extra layer of administration cannot be a very efficient way to run a new hospital wing within the largest public/university hospital organization in Finland.
  4. Financial management is being duplicated, as is legal documentation and probably consulting services, since HUS, and the Säätiö will probably all need to avail themselves of advisors. The agreements for consulting services relating to the project are not to be found on the websites of HUS or the Säätiö.
  5. The lease agreements between HUS and the Säätiö are not to be found on the websites of HUS or the Säätiö.
  6. It is unclear from the absence of documents in the public domain if HUS has to pay for the buildings in 30 years’ time when the contracts come up for renewal.
  7. It is also unclear if HUS and the public sector is bearing all the risks and costs of this long-term project. It must also absorb the time and money that is spent negotiating with a 3rdparty that is running the project without prior project experience or substantial risk-taking capacity of its own.

In conclusion, it appears that political points are being scored at the taxpayers’ expense for a project which naturally appeals to the very core or society.

If the above matters are not true, then the Minister should immediately disclose all material facts into the public domain. It is highly unusual situation where private commercial interests coldly extract extra rent under the guise of a not-for-profit project. A children’s hospital is the most basic service of a welfare state – it is not a place where politicians and businessmen queue up to make a profit or further their individual careers.

Photo: Paju – Wikipedia

 

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