British Columbia could hardly have hoped for a better endorsement of its increasingly controversial strategy to harness private capital to build public works than the nod it got on Sunday.

There was California Governor Arnold Schwarzenegger, extolling the seeming utopia of Gordon Campbell's public-private partnerships, on the Sunday morning talk show institution, Meet the Press . "It's like when you look at British Columbia or other places where they have a public-private partnership, where everyone is happy," he enthused. "Businesses are happy, the people are happy, labour is happy, the politicians are happy. I mean, everyone is happy. We want to do the same thing. We should - the United States should copy that kind of a principle so that you can go out there and build."

California has already done so, with Mr. Schwarzenegger signing a bill last month that mimics B.C.'s approach. Setting aside the contention that such partnerships are universally loved - news to the NDP and other left-leaning opponents of the practice - the Governator's enthusiasm could be misplaced, if only because the recession and credit crisis has placed severe stress on the economic underpinnings of the B.C. model, known in bureaucratic shorthand as P3.

Witness the collapse of the deal to build the much-needed Port Mann bridge expansion, which would dramatically ease the kilometres-long traffic jams every day on the eastern approaches to Vancouver. Two years ago, the bridge project was a centrepiece of the P3 strategy, not to mention the Pacific Gateway initiative. Private investors would design, build, finance and operate the bridge, saving the province money even while generating a handsome return on capital. To use the Governor's phrase book, everyone would be happy.

Then, in January, the happiness eased somewhat. Macquarie Group, lead on the consortium building the bridge, struck an agreement with the province for a commercial loan to cover one-third of the costs, eventually pegged at $3.3-billion. Negotiations over a final deal continued, but collapsed late last month, meaning the province will now pay the full tab.

That is just one of the signs warning of slowing momentum for P3 projects in British Columbia. Here's another. The B.C. government is embarking on a $2-billion infrastructure spending spree as part of its effort to stimulate the provincial economy - and none of those projects are slated to be public-private partnerships. Instead, they will be built the old-fashioned way, with government money and operation. Private firms will play a part - pouring cement and the like - but it will be the public purse that pays.

Mr. Schwarzenegger may look to B.C. for inspiration in using P3s as recession-fighting tools, but the Campbell government has shied away from any such approach, preferring speed over ideological purity.

Why the change? It has less to do with any change of heart on the part of the Premier, whose enthusiasm seems not to have dimmed. The difference is in the credit crisis, both in the continuing increase in the spread between government and corporate borrowing costs and the reluctance of large financial players to collaborate.

Partnerships BC, the arm's-length government agency that administers the P3 program, isn't discussing what exactly torpedoed the Port Mann deal, but to the outside observer, it looks like both factors were at play. The amount of the bridge tolls that the public will pay never budged, meaning that revenue was largely static even as borrowing costs rose. The onset of the recession has cooled off construction costs, but not enough to keep private investors in the game.

Larry Blain, head of Partnerships BC, says the government-corporate borrowing spread has widened to 1.5 percentage points from one percentage point last year, and is continuing to rise. That means it will be even tougher for corporations to come up with P3 bids that make fiscal sense for the government, and still turn them a profit.

But for Mr. Blain, the credit crisis is also dampening P3 investment in a more subtle way.

Large projects requiring a consortium of financiers, such as the Port Mann bridge, are having a particularly rough time. It's not hard to see why - in the current toxic lending environment, financial institutions are extraordinarily wary of tumbling into a relationship with a stranger's balance sheet.

The United Kingdom is already abandoning the pure P3 model, now saying that government will help with financing.

British Columbia has made no such policy shift, at least not formally. But Mr. Blain says some government financing is now likely to be considered for large projects - a tacit admission that everyone is not, as it turns out, happy.