Fourteen members* of the International Church of Christ Teachers Service Team met in San Antonio on March 31 and April 1, 2019, for the second Teachers Service Team Meeting of 2019. The first took place in Orange County, California, in conjunction with the innovative Hackathon conference (www.icochackathon.org), organized by members of the Teachers Service Team, February 21 – 24, 2019.
Starting our days together with worship and prayer.In San Antonio, Dave Pocta hosted us at Oblate School of Theology, where he is currently pursuing a PHD in Contemporary Christian Spirituality. Dave opened our time together with a devotional based on the story of the Samaritan woman from John 4. We sang some old hymns, written in the 1800s. It was a very inspiring morning together. On the second morning of meetings, Ron Rolheiser (President of the Oblate School of Theology) led an amazing devotional on some principles of pedagogy.
Addressing questions related to women's roles in churches today. Together we composed a letter which informs the fellowship of the fact that the Teachers Service Team is diligently working on a paper on the woman's role in ministry. That letter was completed and was posted on the ICOC Teachers' website, www.teachicoc.org on April 2, on Disciples Today, and on various social media platforms. We hope that disciples will continue to share and forward this letter as they see fit.
Valdur Koha chairs the subcommittee of teachers and others who are actively working on this paper, researching the difficult passages relating to the public role of women in the bible. The group meets monthly online and is working together to produce a scholarly paper exegeting scriptures relevant to discussions about the women's role in the church today. Steady progress is being made, despite the fact that none of the contributors are available to devote themselves on a full-time basis to the project. The target date for completion is 2020.
It was proposed that the Women's Ministry Task Force (formerly known as the Women's Service Team) could work under the supervision of the Teachers Service Team to create an online survey of our 32 regional families of churches, to learn what specific questions are being asked concerning the public role of women in our churches around the world. Steve Staten agreed to advise and help to design a survey which would ensure a properly representative sampling with appropriate questions. This proposal was given approval in the assembly of the Regional Family Chairs. The Women's Ministry Task Force will proceed with this fact-finding effort.
Strategizing to Host and Attend Various Conferences and Meetings.We agreed that the following events would be priorities for us in an annual calendar, understanding that Service Team members would pick and choose what they are able to attend.
(a) The ICOC Spring Meeting of our 32 Regional Church Family Chairs and Service Team members.
(b) The ICOC Autumn Leadership Meeting of the delegates from each Regional Family of Churches. We agreed that the Teachers Service Team would meet for two days this autumn immediately before the delegates meeting and would plan to bring younger and Next Generation teachers to that Service Team meeting.
(c) A New Annual Teachers Meeting/Conference for those interested in the Teaching Ministry. We would hope that everyone on the Service Team could attend this event: two days of meetings as a Teachers Service Team, followed by a Teaching Ministry conference. Possibly August 13-17, 2019, in San Antonio.
(d) Hackathon – type conferences — We would like to see these begin to take place in our regional families of churches. Steve Staten and Shane Engle will be working on this idea.
(e) ICOC Scholars Conference. To be held a day or two before the Annual Meetings hosted by the Society of Biblical Literature and the American Academy of Religion. The Annual Meetings this year are scheduled for November 23- 26, 2019 in San Diego.
Strengthening our churches for the future.We as a group of teachers in the ICOC are deeply concerned with the question of how we, as a movement, plan to "feed" our people long term (Hebrews 5:12). We discussed the need for further development in theological education for our ministers, in order to grow both theologically and spiritually. We want to ensure that in ten to twenty years' time, we are doing an excellent job of educating our people.
We discussed the importance of Ministry Training Academies (MTAs), which exist in several regional families of churches. We see a need to raise the standards of our MTAs. We agree that in addition to continuing to improve the MTA programs, we want to continue to encourage our ministers and other members of our churches to complete graduate study programs.
Most of our churches employ internships to educate young ministers. We want to do everything we can to develop academic as well as practical training for ministers in all our 32 regions of churches around the world. To that end, we created a subcommittee Task Force to consider Ministry Education, comprised of Gregg Marutzky (Chair), Jeremy Lefler, Robert Carrillo, Steve Kinnard, and Ed Anton.
We discussed several ways in which we could amplify the Teachers' voice in our fellowship and improve the ways in which we currently contribute to the strengthening of our churches. We discussed live streaming of teachers' lessons and events; videos; creating an online webinar and an online theological journal.
Steve Staten presented a paper that speaks to ensuring that appropriate spiritual and other necessary qualifications for leadership positions are met in the ICOC. The group gave Steve feedback on this paper. He is making a few changes, then he will forward the paper to the teachers for a last review before publication and distribution.
We discussed ways in which we could develop Teachers Service Teams in each of the 32 regional families of churches around the world. We agreed that Steve Kinnard would compile information from the regional church families, namely, where we have recognized teachers and where we do not.
We believe it's very important to accurately document our movement's history over the past forty years. Many of us agreed to write a portion of our history, so that we can begin to collect eyewitness accounts. These could be presented at the various meetings and conferences listed above, and published online.
a. Regional Teacher Service Teams.
b. Credentialing a program for ministry education.
c. Producing position papers. An online journal. Recording our history.
d. Work on our hermeneutic.
f. Provide resources for ministry training.
Present on the 1st: Steve Kinnard, Steve Staten, James Becknell, Kay McKean, Joey Harris, Diane Brown, Steve Brown, Dave Pocta, Ed Anton, Deb Anton, Robert C., Valdur Koha.


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You are here: Parliament home page > Parliamentary business > Publications and Records > Committee Publications > All Select Committee Publications > Commons Select Committees > Treasury > Treasury
Private Finance Initiative - Treasury Contents
2 Accounting and budgetary incentives
Treatment of PFI debt in the National Accounts
10. One possible incentive for the use of PFI that we explored in our inquiry was the treatment of PFI debt on an organisation's balance-sheet and in the National Accounts. Evidence we received was in agreement that PFI should not be used for off-balance sheet[9] reasons. A joint submission from KPMG, John Laing and Lloyds Banking Group explained that:
The decision as to whether to proceed with a PFI deal should be based on rigorous qualitative and quantitative value for money evaluation of all the procurement options available. Balance sheet treatment should not be a part of this evaluation.[10]
The CBI also agreed:
PFIs should be on-balance sheet and the value delivered by a scheme in terms of certainty and risk reduction should not be skewed by its accounting treatment.[11]
This is and has been the position of the Treasury for many years:
The decision to undertake PFI investment, once affordability has been confirmed, is taken on VfM [Value for Money] grounds alone. Whether the investment is on or off-balance sheet is a decision taken by independent auditors and is not relevant to the VfM of the procurement route.[12]
11. Although the official line has always been that PFI should not be used for accounting reasons, Andy Friend, who is the Chairman of InfraMed and was previously the Chief Executive of John Laing, told us that:
There were clear examples earlier in the decade—many of the written submissions to you refer to that—where there was distortion in the structuring of deals in order to achieve a particular accounting treatment.
Although he added that "Hopefully, we are moving beyond the world in which the off balance sheet tail was wagging the value-for-money dog".[13] Richard Abadie of PricewaterhouseCoopers agreed that the classification of debt had driven behaviour.[14]
12. Professor Dieter Helm of Oxford University was more explicit. He said that PFI had succeeded as "an exercise to get investment off the public balance sheet so that the debt numbers look better than they otherwise would have done".[15] As part of our request for evidence we asked whether PFI would have been used as frequently had all PFI debt been on-balance sheet. Professor David Heald told us "The answer is categorically 'No' ".[16]
13. Professor David Heald explained in his evidence that the "accounting arbitrage ended with the adoption of International Financial Reporting Standards (IFRS) from 2009-10" with the "bringing of PFI on balance sheet to the public sector client" but there were still other issues which had not been resolved:
The crucial point to note is that there are two separate types of accounting for government activity: that for financial reporting (now IFRS, as modified by the Treasury's Financial Reporting Manual and approved by the Financial Reporting Advisory Board) and National Accounts (ESA 95 being the governing regulation).
He explained that the "PFI financial reporting problem—arbitrage being rife—has now been resolved in the United Kingdom" although he did add that "alertness is required to ensure that PFI schemes are not modified to escape from the remit" of financial reporting standards. However in the terms of the National Accounts Professor Heald explained there was still a problem:
[...] the satisfactory resolution in relation to financial reporting (almost all UK projects are rightly on-balance sheet) will not be matched by National Accounts treatment.
He pointed out that
[...] the Treasury announced in June 2009 that Spending Review 2010 would be conducted on a National Accounts basis, exploiting the lax criteria in the Eurostat (2004) rules. All that is required to keep PFI projects off the National Accounts public sector balance sheet is the transfer of construction risk and availability risk to the private sector consortium.
He considered that this would create a new phase of project distortions with:
(a) PFI being preferred to conventional procurement for 'accounting' rather than VFM reasons, and
(b) PFI schemes that satisfy the Eurostat rules for off-balance sheet treatment being preferred to those which do not.[17]
Professor Ron Hodges also noted that the current fiscal environment would be likely to add to the allure of PFI:
In periods of austerity off-balance accounting may be particularly attractive to governments as a means of accessing finance without having to record the underlying obligations.[18]
The NAO also noted that the favourable treatment of PFI debt may encourage its use:
There remains an incentive to use private finance over other procurement options, however, as the rules still exclude PFI from statistical calculations of Public Sector Net Debt.[19]
14. In 1997 the Labour government stated it would have two fiscal rules. These were summarised by the Institute for Fiscal Studies as:
The golden rule: over the economic cycle, the government will borrow only to invest and not to fund current spending [...]
The sustainable investment rule: over the economic cycle, the ratio of net public sector debt to GDP will be set at a 'stable and prudent' level, defined by the Chancellor as no more than 40% of GDP.[20]
The current coalition government also has fiscal rules, referred to by the Office for Budget Responsibility as the fiscal mandate and the supplementary target. The OBR explain them as follows:
Fiscal mandate: "total public sector receipts need to exceed total public sector spending (minus spending on net investment) after adjusting for the temporary effect of any spare capacity in the economy."
Supplementary target: "public sector net debt as a percentage of GDP to be falling at a fixed date of 2015-16" [21]
The current fiscal mandate should not incentivise the use of PFI or other additional or off-balance sheet financing methods instead of direct capital spending and similarly the golden rule of the previous government should not have encouraged the use of PFI. This is because both fiscal rules allow borrowing for investment. However the current supplementary target could provide an incentive to favour PFI or similar schemes rather than spending funded directly from government borrowing and the sustainable investment rule could have also had this effect in the past. This is because in the short term a PFI scheme would result in less government borrowing and therefore a lower level of Public Sector Net Debt. PFI projects which replace direct capital investment could be used in 2015-16 to ensure that the headline level of debt reduces so that the supplementary target is met. Similarly in the case of the previous sustainable investment rule if the net public debt level was approaching 40% of GDP one way of reducing it in the short term would have been to transfer more direct capital investment towards PFI schemes.
15. As well as fiscal rules at a national level there are also rules at the European level. The Maastricht Treaty obliges member states to avoid excessive budgetary deficits. In particular it set out that governments' annual deficit and debt should not exceed certain reference values.[22] These values were defined in the Protocol on the Excessive Deficit Procedure as:
(a) 3% for the ratio of the planned or actual government deficit to gross domestic product at market prices;
(b) 60% for the ratio of government debt to gross domestic product at market prices.[23]
These European fiscal rules make no distinction between borrowing for investment and borrowing for current spending. They therefore both incentivise the use of PFI or other methods of off balance sheet financing rather than direct capital spending funded through government borrowing. One of the written submissions to the Committee noted that "Greece, Spain, Portugal and Ireland have all in recent years been very active in PFI/PPP."[24] In 2005 for example Greece introduced a new 'PPP law' and two new government bodies were set up to encourage and expand the use of Public Private Partnerships.[25] The use of other off balance sheet financing methods deployed by governments to circumvent fiscal rules have been noted. The Financial Times reported that in 2002 Goldman Sachs had helped Greece raise off balance sheet finance "by arranging a massive swaps transaction aimed at reducing the cost of financing". The press report explained:
Because it was treated as a currency trade rather than a loan, it helped Greece to meet European Union deficit limits while pushing repayments far into the future.[26]
The article added that other European Countries had used derivatives and methods such as securitisations to flatter their national accounts.
16. A recent report by the Office for Budget Responsibility notes that many PFI deals are not recognised in the National Accounts. They note that:
As well as lacking transparency, this has fuelled a perception that PFI has been used as a way to hold down official estimates of public sector indebtedness for a given amount of overall capital spending, rather than to achieve value for money.[27]
The report details the scale of the problem noting that "at March 2010, PSND [Public Sector Net Debt] included about £5.1 billion (0.4 percent of GDP) in respect of PFI deals that were recorded as on balance sheet in the National Accounts." However the OBR considered that "the total capital liability of on and off balance sheet PFI contracts was closer to £40 billion (2.9 per cent of GDP)."[28] They estimate therefore that if PFI contracts were all recognised as debt in the National Accounts this would increase the level of debt by around 2.5% of GDP.[29]
17. The introduction of IFRS (International Financial Reporting Standards) in 2009-10 has resulted in nearly all PFI debt being included in the financial accounts of government departments for financial reporting purposes. However so long as certain risks are deemed to be passed to the private sector on a PFI project then the project is, by contrast, recorded off balance sheet for National Accounts and statistical purposes. As a result, most PFI debt is invisible to the calculation of Public Sector Net Debt (PSND) and is therefore not included in the headline debt and deficit statistics. If all current PFI liabilities were included in the National Accounts then the OBR estimates that national debt would increase by £35 billion (2.5% of GDP). Therefore there has been, and continues to be, at least a small incentive to use PFI in preference to other procurement options, as it results in lower headline government borrowing and debt figures in comparison to other forms of capital investment.
18. Efforts to meet fiscal rules at a national and European level may have contributed to the misuse of PFI. Rules designed to promote fiscal sustainability have had the paradoxical effect of incentivising the use of off-balance sheet finance—which is likely to prove less sustainable. Given the salience of the public debt statistics in the current political climate, the attractiveness of the PFI method for any government has been evident whether it provides value for money or not.
Treatment of PFI capital expenditure in a Departmental budget
19. Just as the capital values of most PFIs are invisible to the national debt statistics, the capital expenditure that PFI delivers will similarly not impact on Departmental capital budgets. Depreciation charges to Departmental current budgets will also be avoided in such cases. The benefit of using PFI for capital investment which does not score in capital budgets is clear to organisations who use PFI. Kent Police noted that "capital sums do not have to be identified along with financing arrangements"[30] as the first point in their list of PFI strengths in a written submission to the Committee. A PFI deal will have a smaller (but much longer lasting) impact on the current budget of an organisation whereas a conventionally procured capital project will result in a significant one-off hit to the capital budget. In the short term the use of less of an organisation's budget will provide an incentive to use PFI rather than other forms of procurement.
20. As with the calculation of debt and deficit, the level of capital expenditure continues to be measured according to the ESA (European Standard Accounts) definition, and in most cases this means the capital expenditure incurred due to a PFI will not be included in capital budgets.[31] There is therefore a fundamental difference between the way many PFIs are scored in Departmental budgets or DELs (Departmental Expenditure Limits), compared to how they are measured in the financial accounts. For conventionally procured projects, the full investment cost of the project needs to be met from the budget when the asset is created. For projects which are off balance sheet (in National Accounts terms), unitary charges are met from the budget for the year in which they arise, and commitments against future budgets—often well beyond the period for which budgets have been set—are created, effectively constraining organisations' budgetary flexibility for many years, sometimes decades, to come. These long term commitments are not however recorded in budgets as liabilities to government.
21. Government departments and other public bodies will only plan their budgets a few years in advance—generally no longer than the period covered by the latest spending review— so will not be considering PFI payments 20 or 30 years in the future. For example, the latest Spending Review of October 2010 set Departmental budgets for the period up to and including 2014-15. From a budgetary perspective, over this period, a PFI will often seem more affordable than the alternative, although in the long term it could be much more costly. The lack of budgetary and financial control in PFI may lead to poor investment decisions being made. Andy Friend considered that this had happened in the past:
At the programme level, I believe in certain situations it encouraged over-consumption and decisions to be too lightly taken in terms of procuring very substantial capital assets, perhaps without due consideration of either the alternatives—of which there are many, much less developed in the UK market than elsewhere—or the long term obligations.[32]
22. If Departments or public bodies do not have a capital budget large enough to allow for desired capital investment, there is currently a substantial incentive to use PFIs which are not included within Departmental budgets (Departmental Expenditure Limits). A PFI deal will have a smaller (but much longer lasting) impact on the current budget of an organisation whereas a conventionally procured capital project will result in a significant one-off hit to the capital budget. In the long term, the PFI arrangement will build up big commitments against future years' current budgets that have not even yet been allocated or agreed. We are concerned that this may have encouraged, and may continue to encourage, poor investment decisions. PFI continues to allow organisations and government the possibility of procuring capital assets without due consideration for their long-term budgetary obligations.
Removing the accounting and budgetary incentives of PFI
23. As detailed above there are incentives in play which could act to encourage the use of PFI for reasons other than value for money. If PFI is to be pursued only if it provides value for money it is essential that any incentives unrelated to value for money are removed.
24. We welcome the Office for Budget Responsibility's decision to include, in their Fiscal sustainability report, an assessment of the impact of the PFI liabilities which are currently not included in the National Accounts. We believe that the Office for Budget Responsibility should also include an assessment of such liabilities in its Economic and fiscal outlook, which assesses the Government's performance against the fiscal mandate and the supplementary target. We recommend that the Treasury clarify its view of the remit of the OBR to ensure that the OBR include PFI liabilities in all future assessments of the fiscal rules. This would help prevent the use of PFI to 'game' fiscal rules.
25. International Financial Reporting Standards (IFRS) require that most PFI projects be scored in an organisation's financial accounts. Capital investment related to PFI projects rarely, however, scores in individual government Departments' budgets (Departmental Expenditure Limits). This is because Departmental budgets follow the definitions used in the European Standards of Accounts (ESA), rather than those set out in IFRS. This is not only confusing, but also creates incentives to use PFIs, rather than direct capital investment by departments. We recommend that the Treasury should consider aligning the treatment of PFIs in Departmental budgets with the treatment in financial accounts. This should mean that most PFIs score within those budgets in the same way as direct capital expenditure. If this change were made it may also require an adjustment to Departmental capital budgets.
9 Off balance sheet debt is debt that does not appear as a liability on the balance sheet of an organisation's financial accounts. Back
10 Ev w30 [Note: references to 'Ev wXX' are references to written evidence published in the volume of additional written evidence published on the Committee's website] Back
11 Ev w33 Back
12 HM Treasury, Value for Money Assessment Guidance, November 2006, p10, para1.17 Back
13 Q3 Back
15 Q 1 Back
16 Ev w130 Back
19 C&AG's report, Lessons from PFI and other projects, HC 920 2010-11, p20, para 2.17 Back
20 Institute for Fiscal Studies, The Government's Fiscal Rules, April 2001 (updated November 2006), p2 Back
21 Office for Budget Responsibility, Economic and Fiscal Outlook, March 2011, p154, para 5.5&5.6 Back
22 Office for National Statistics, Statistical Bulletin: Government deficit and debt under the Maastricht Treaty, 31 March 2010, p4, para 1 Back
23 Official Journal of the European Union, Protocol on the Excessive Deficit Procedure, Article 1,16 December 2004 Back
25 DLA Piper, European PPP Report 2009, Country Section - Greece, p55-56 Back
26 Financial Times, Athenian arrangers, 17 February 2010, p7 Back
27 OBR, Fiscal sustainability report, July 2011, p41, para 2.47 Back
29 OBR, Fiscal sustainability report, July 2011, p79, Box 3.3 Back
31 This is because Treasury has determined that Departmental budgets will follow the ESA and National Accounts definitions of balance sheet rather than those used by IFRS and in Resource Accounts. Back
Prepared 10 August 2011

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