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The broke city

The red-red-green capital senate wants to raise new educational institutions on a large scale. However, the “school building offensive” launched in 2017 is progressing slowly. Above all, it is the work of the integrated housing company Howoge. Because the treaties have not even been signed, a number of measures will be delayed for years. The National Audit Office is also causing trouble. The auditors complain of miserable planning and implementation, financial risks would not have been calculated in advance. This is revenge: the project costs have already doubled.

On 4/11/2020 the “Tagesspiegel” headlined: “Groups demand clarification on the risks of the school construction offensive.” These were the parliamentary delegations of the SPD, the Left party and the Green Party in the Berlin Chamber of Deputies, which have been steering the fortunes of the capital since 2016. In the case of the “Berlin School Building Offensive” (BSO), however, “steering” is a very inappropriate vocabulary. Rather, it should mean that the three Senate parties are driven to do away with one oath of revelation, bar to any control and to any insight into what disaster they are about to wreak.

In an assessment of the Landesrechnungshof Berlin, the disaster reads as: “The Senate Administration for Finance has not properly and economically prepared the fundamental decisions on this extensive construction investment programme. Neither for the programme as a whole nor for the transfer of billions of dollars of significant programme tasks to a housing association has it carried out or demanded the required economic studies. As a result, it has created significant material, financial and temporal risks for the implementation of the programme. Some of these risks have already materialised.”

Eleven billion euros

“Part” can be quantified: instead of the 5.5 billion euros once estimated for the project, the cost will at least double to 11 billion euros. However, this is only an interim assessment, which will be well received in the coming years and decades, as is customary in “prestige projects”. Nevertheless, the BSO is already loosely involved in the “elite league” of the mega-leagues called Stuttgart 21, Elbphilharmonie and BER-Hauptstadtflughafen. The latter is an erblast in which the incumbent coalition bears at most one share of the blame. The BSO, on the other hand, has grown fully on its crap, crap, which later successive governments and subsequent generations will have to bathe.

After all, the SPD, the Greens and die Linke now seem to want to take a closer look at the Senate. As the “Tagesspiegel” wrote, the red-red-green MPs were “so alarmed” that they had called for clarification in a three-hour session on Wednesday of the previous week. What became of it, the parties obviously want to keep to themselves. At the appearance of the President of the Court of Auditors, Karin Klingen, the following day in plenary, the representatives of the government factions sought refuge. This sentence has been handed down by the SPD MP Sven Heinemann: “Where there is planing, there are chips.” This is fitting: given the enthusiasm for the project that has always been on display, it can be safely ruled out that the announced renitence goes beyond a miserable fuss. After all, it is important to make the urban school landscape and the “educational location Berlin” fit for the future. Which politician with responsibility wanted to jeopardise this beautiful goal?

The truth, however, is that Berlin could also and probably build its schools much more cheaply if one of the partners at BSO were to be disposed of. For the 120 construction projects (51 new buildings, 67 renovations) the state-owned housing company Howoge was brought on board. The private-law company is to carry out the measures intended for it within the framework of an inheritance lease model and to become the owner of the properties and land in question for 37 years. In return, the districts are to rent back the buildings within that period, while the rents also serve as security, so that the Howoge can raise money on the free capital market to finance the construction projects.

Transaction costs and shadow households

The Senate justified the action in two main ways: firstly, to circumvent the “debt brake” by which the country has committed itself since 2020 to draw up its budget without borrowing income. Secondly, because it was only possible to pay four of the originally planned EUR 5.5 billion from the national treasury, the Howoge was to raise the remaining EUR 1.5 billion from the banks. At least the last argument has proved to be advanced with the explosion in costs to EUR 11 billion. But the second argument has also been overtaken by time: with the Corona crisis, the “black zero” and the “debt brake” are suspended for the foreseeable future. In any case, the term ‘debt brake’ in the context of the BSO is pure eye-washing. In fact, the burdens of construction, which are much larger, are merely shifted from the present to the future through shadow households. Taxpayers are bleeding only later, and much more.

In its report presented a month ago, the Landesrechnungshof relentlessly laid bare this: even with a term of the leases with the Howoge of only 25 years, “the rent payments to be made per school during this period would exceed the estimated construction costs by 1.5 to 2 times.” According to the financial auditors, however, the Senate simply did not care about such “little things” and “did not include this important monetary aspect in advance in a cost-effectiveness study”. This also concerns “the extent to which additional costs – so-called transaction costs – are incurred in the model compared to conventionally financed school construction.” These are ‘in particular property taxes, property transfer taxes, interest on inheritance sancing and legal advice and expert advice costs related to the model’.

The process has a whole new quality. In the case of comparable projects in a public-private partnership (PPP), the aim is to ensure that the private financing option is ultimately cheaper than a classic government procurement measure. As described elsewhere, such reports are usually embellished in such a way that in the end the private people always make the race. At the BSO, however, those responsible have not even maintained the appearance of objectivity. Because they wanted to make the Howoge commitment to thrive and spoil, they simply did not get any expertise, according to the motto: What I don’t know doesn’t make me hot.

34 pages of ripping

This and much more is plucked by the Court of Auditors on a full 34 pages. The remarks give the impression that the Senate, like an ABC shooter, must first be given the one-off in the initiation and implementation of investment projects. For example, it says that one must first analyse the starting situation and the need for action, discuss objectives, priorities and possible conflicts of objectives, identify “solutions and their benefits and costs”. It also needs a timetable and ‘success control procedures’. In particular, this applies to state infrastructure programmes. “As a rule, this entails significant expenditure and financial implications.” Who would have thought it?

Not the Berlin Senate, which is why all sorts of things went out of plan. According to the report, within two years of the BSO launch in 2017, the number of new construction measures deemed necessary has increased from 42 to 88. It is already foreseeable that not all projects can be realized within the project phase, which is actually scheduled for 2027. A project is not even due to start in 2031. If the Senate does not immediately set priorities, further “significant funding gaps and delays” could be faced, the auditors complain. Expenditure is already going through the roof. A huge additional demand of more than 30 percent can be seen, for example, in the new primary school in Chausseestraße in Mitte or at the Jeanne Barez Elementary School in Pankow (42.7 percent). A primary school and a sports hall in Friedrichshain shoot the bird: the new construction swallowed up 57.7 percent more money than planned.

Remarkable is the duck-mouse with which the state party apparatuses and the factions of the SPD, Greens and Die Linke have so far witnessed the debacle. At the base of the Left Party, only the always rebellious district association Neukölln and the one from Spandau opposed the project in principle. Like the Association of Common Property in Citizens' Hands (GiB), they fear a creeping privatization of school construction and a sell-off of schools to profit-seeking investors. GiB also explicitly compares the model with PPPs, in which, for example, in road construction, motorway sections are built by private individuals and for decades they manage them at inflated costs to the detriment of the state. The fact that a formally public limited liability company participates in the case of the BSO does not prevent the danger of handing over the schools to foreign interests. An expert opinion submitted by the initiative in May also concludes that the real estate could sooner or later end up directly in the hands of the profit industry – either through direct sales or the sale of shares in [Howoge].(/static/downloads/Studie_BSO_Kosten_2018_08_29b.pdf “Studie zu den Kosten der Berliner Schulbauoffensive und den Auswirkungen auf Beschäftigte in Berlin und Brandenburg”)

ÖÖP label fraud

The Senate parties always counter such warnings by insisting that the BSO is a public-public partnership (ÖÖP). In doing so, they are not only blinding their eyes to the fact that the Howoge has to operate with debt capital and join forces with the construction industry, banks and insurance companies, with which powerful lenders at least indirectly influence a huge government investment project and earn a lot of money from it at market interest rates. It is also misreported that the Coalition has not installed any “privatization brake” in the event of a change of power. In the event of a change in the government constellation, the Senate could easily sell the Howoge or business subsidiaries with the schools in the portfolio, and would not even have to seek the permission of the House. Seen in this way, wagging with the ÖÖP flag is nothing but label fraud. It is no coincidence that such constructs are traded by leading economic institutes as door openers for future infrastructure projects of the federal, state and local governments.

In fact, the city-state of Bremen is already a copycat. In principle, the approach is similar to that in the capital, with the difference that the school builders Gewoba and Brebau who are considered by the Senate as vicarious agents are Gewoba and Brebau. But as on the Spree, the colours red-green-red rule on the Weser. The fact that, with the active support of a party preaching “democratic socialism”, a concealed privatization of school construction is being pushed for in two federal states is not without a certain irony. On the other hand, the Berlin comrades are almost habitual perpetrators: after all, the predecessor party PDS had already increased large urban housing stock to the real estate industry and thus raised the capital’s most greedy rental shark with Deutsche Wohnen. And right now, Die Linke is on the verge, albeit reluctantly, to put the dismantling of the Berlin S-Bahn into the works.

The losses of control and access by the government and parliament associated with this kind of policy are very clear in the “school building offensive”. Initially, the Howoge was supposed to cover about a quarter of the investment. According to the Senate’s “Progress Report” on the BSO of March 31, the share has risen to well over 50 percent. On the other hand, the scope of the contract for 29 new construction projects and eleven major renovations has remained the same. A study has carried out the matter in a study: According to the calculations, the Howoge new-build schools per school place are to be twice as expensive as the national average. If built on this basis, Berlin alone could save 814 million euros, which would correspond to 1,000 well-paid jobs in the building administration over a period of ten years, the authors note.

Opposition pleads for ‘cut’

Berlin could save itself much more if the Senate had not also been wrong in calculating school space requirements. According to the GiB analysis, around 33,000 fewer students are currently expected than expected in 2016. As a result, the new construction price could fall from 2.8 billion euros to 1.79 billion euros, it is said. For GiB spokesman Carl Waßmuth, the bloated demand figures have a system. “This provided a justification for the BSO and, in particular, for the participation of the Howoge”. The GmbH is to build a total of only 17,000 places. “This performance could now be completely eliminated. In fact, you don’t need the Howoge if you were to follow the forecasts,” Waßmuth said. Education Senator Sandra Scheeres (SPD) doesn’t even think about it. In August 2019, she publicly acknowledged the lower demand for the first time, and at the beginning of the previous week her ministry announced further cuts to her model calculation from March. Nevertheless, there should be no reductions in the BSO.

The rip line could still be pulled. So far, the Senate, the districts and the Howoge have only signed the BSO framework agreement. The fixing of the inheritance, project and lease agreements is still pending. In general, howoge participation has so far cost nothing but time and money. Four years were given away for the construction alone. To date, only one project assigned to the company has been under construction – on company-owned land in the Adlershof district. GiB spokesman Waßmuth therefore appeals to those responsible: “The Senate must not sign the contracts for outsourcing the school building and must instead plan and build from public hands.”

Whether he will be heard by the “enlightenment-hungry” government factions of the SPD, the Left and the Greens remains to be seen. With the opposition in parliament, the process has already progressed: Mario Czaja of the CDU sees “no more real arguments to take the Howoge”. Instead, the districts would have to be strengthened so that they could build the schools themselves. “We have to consider whether a cut would not be the lesser evil,” says FDP MP Maren Jasper-Winter. Politics can be so crazy today: market radicals demand the state back and the left runs the big school sell-out.