In the process of reviewing a bunch of files and comments, though, I noticed something really interesting.
Remember the October offer from Ottawa? That's the one that had Danny Williams throwing up his hands and quickly walking out of a meeting in Ottawa [corrects my error of Winnipeg]. Mind you it wasn't such fast walking that reporters could not still get comments as he walked. That's the same one where Newsworld had a great shot of him from behind, in one cutaway, where you see his jaw muscle clenching and unclenching from the tension.
Here's a link to a little chart in pdf format that the Premier and his finance minister used in St. John's to condemn the October offer. Notice the green line at the bottom. That is the provincial view of the October 22 offer which, the Premier claimed, capped offsets at around $250 million annually until 2012. He said at the time, this was far short of the "100% " he sought.
Leap forward a few months and many jaw-clenching moments later. There is now a "monumental" deal with a lump sum payment, up front of $2.0 billion over the first eight years of the deal. With trusty calculator in hand, divide $2.0 billion by 8. Look in amazement at the little LCD screen as it shows:
$250, 000, 000 !!!
Now, of course, theoretically, this new deal, the "monumental" one, could possibly yield more cash. That is, it could if the province doesn't make so much money it goes off the Equalization rolls before 2012. That is it could if the province also stays on Equalization into the second eight-year phase. That second year phase is one of the things that changed in the federal offer in December, but if Newfoundland and Labrador likely won't qualify for it, the second eight years is a theoretical benefit only.
But think about it for a second. The key element of every federal offer has been that the 100% offsets last only so long as the provincial government receives Equalization. That's the basic principle of the deal. (Ignore the amount of cash for a second since it varies with the price per barrel of oil.)
Now put the cash back in and take another look at it. Poof! Same deal, give or take a couple of minor adjustments. I can say same deal because the October letter from federal finance minister Ralph Goodale basically laid out the principle on which the added money would come.
The formula put a cap on the offsets, which the province valued at $250 million per year, and the feds offered $1.4 billion as a lump sum settlement in place of the year-by-year approach. Now simple math would have yeilded $250 million times eight which equals $2.0 billion.
Since the $1.4 billion was based on an earlier calculation of revenues, I am just curious why no one just suggested (either in October or December) that, maybe, just for the sake of exploring the creative options here, the province might consider a lump sum settlement of say...... $2.0 billion. After all, the October formula and the current deal functionally work out to the same cash endpoint.
Just to give you further food for thought, here's a quote from the Premier in The Sunday Telegram, 30 January 2005, page A2 under the headline 'Creative' proposal bridged the gap:
"There was a genuine attempt by everyone to find a solution. And, eventually, because of the complexities of some of the issues it came down to quantifying a dollar amount, which is basically what we settled on at the end of the day." [Emphasis added]
Don't get me wrong. I still think that when everything is added up this is a good deal for the province. Big congratulations to the Prime Minister and the Premier for reaching an agreement that works for both the Government and people of Canada and the Government and people of Newfoundland and Labrador.
It's just when to take a close look at "what we settled on at the end of the day", you start to wonder why it took so long to get to back to where everyone was in October?
4 comments:
Haven't checked this yet, but I'm told the lump-sum prepayment was on the table as early as October.
No need to check, Paul, you are correct. The feds offered an eight year deal or a single payment. in fact if you follow the link to the chart and play with the URl you'll get a link to a copy of Ralph Goodale's letter That point might have gotten lost in my post but it should have been there. Oops.
What I was driving at was that in October the actual value of the eight year deal was the same as the one just hailed as stupendous. They feds had offered a lump of $1.4, but that figure was based on old estimates of revenues. had they brought them up to date it would have yielded.....wait for it..... $2.0 billion.
Here is some simple math........
$2.0 Billion up front is significantly more than $250 Million per year for 8 years. Through the magic of compound interest (assume a modest 4% interest) and you get an annual payment of $297,055,664.09 annually.
So yes, do "Look in amazement at the little LCD screen as it shows:" $297,055,664.09 instead of $250,000,000.00
Thanks, Anonymous, for supporting the Day Five message track from the Premier's Office. I heard the Premier on Open Line this morning, too.
Unfortunately, it misses the point: the same cash settlement was available in October and December.
Unfortunately, too, that message track misses another point. As I noted in another post, the potential for earned interest depends entirely on what the provincial government does with the money. If they merely draw down interest annually the government can maximize its return. If they spend all the principal in a day, they get no interest at all (well almost no interest). If they draw down a combination of principal and interest, then they will get a diminished return over time.
What your observation also misses is that the lump sum settlement, even allowing for earned interest, is still far short of the target set in the province's June 10 revamped proposal. It is also far short of even the original proposal of doubling direct revenues for a period of seven years or so.
Notice, as well, if you haven't already, that the Day Five message track is different from the first four days. Today the Premier is emphasising interest. On Friday night and as recently as yesterday, the message track emphasised that this 16 year deal would deliver cash aside from any interest.
That brings me, inevitably back to another point I made in my comment on the provincial backgrounder. I am starting to think that there are strings attached to this money such that the provincial government can only draw down predetermined amounts of the principal annually and that they actually cannot invest the money as they see fit. Only the actual agreement in principle and the legislation will let anyone see what the deal actually looks like.
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