14 August 2012

Marshall’s release doesn’t match DBRS public statements #nlpoli

Simply put, Tom Marshall’s most recent news release about the report by Dominion Bond Rating Service doesn’t match what the bond rating agency said in a news release about the provincial government’s finances.

You can see that pretty clearly if you read the whole release from DBRS.

The release indicates that DBRS uses the words “prudent fiscal management” in describing the provincial government’s performance.

Here’s the full quote from the finance department’s release:

In confirming the province’s “A” and R-1 (low) Stable Trend status, DBRS highlighted the Government of Newfoundland and Labrador’s “prudent fiscal management” as playing a role in the province’s performance.

Those words do not appear anywhere in the DBRS release. Nor is there anything close to those words in the release. 

Maybe the full report – available to subscribers only – has those words in it while the release doesn’t.  That would be strange, though. For one thing, it’s a significant conclusion and one DBRS would likely want to highlight in its news release.  For another thing, the fact is that the DBRS release as issued contains a number of comments about the province’s finances that just don’t match with a judgment that the provincial government has exercised “prudent fiscal management”.

DBRS forecasts the deficit in the current fiscal year to hit $691 million with the possibility it could reach $1.0 billion. DBRS refers to the price of oil as a “significant downside risk” in the current budget.  DBRS also recalculated - and increased - forecast deficits in the next two years. DBRS puts the 2013-14 deficit at $850 million compared to the provincial forecast of $433 million. DBRS puts the 2014-2015 deficit at $400 million, not the $44 million surplus forecast by the provincial government.

Then DBRS talked about what the provincial government would need to do to meet those deficit forecasts:

In order to meet this target, spending restraint will be necessary as program expenditure growth averaging more than 8% over the last five years is incompatible with declining revenue.

In other words, spending increases of the type Tom and his colleagues have been approving, averaging more than eight percent over the past five years, just don’t go with the provincial government’s declining revenue.

That’s pretty much the perfect description of imprudent fiscal management. And it doesn’t sound anything like Marshall’s news release: “The report also noted that while spending has increased, it has not outstripped revenue growth.”

Marshall’s release leaves the impression that DBRS has blessed the Muskrat Falls project:

In discussing Muskrat Falls, the DBRS report notes that the long-term benefits of the project are substantial and it should be of economic benefit to the province especially as it relates to diversifying the economy.

DBRS’ release does say that development of the lower Churchill River offers a “balanced risk”  to the provincial government’s credit rating because it could increase debt levels while at the same time also presenting “opportunities over the longer term.”

Towards the end of the release, though, DBRS sounds a huge cautionary note:

Depending on the financing structure used and the level of recourse to provincial taxpayers, the rating could be materially affected, especially in the case of significant cost overruns.

If you go beyond the releases and put the latest rating in a wider context, it also doesn’t fit with any praise of “prudent fiscal management:”

  • The provincial rating remains among the lowest in Canada.  If the Conservatives had actually all the things they claim they had done – like reducing the debt load – the rating would be among the highest in Canada.
  • DBRS set the rating as stable. That means it isn’t going up just the same as it isn’t going down.  Again, if the provincial government’s fiscal management was as sound as they claim, the bond raters would have given the province a better score.

The provincial government pollster is in the field.  in all likelihood Tom Marshall will be on the radio talk shows on Tuesday talking up his news release.  It’s part of his quarterly contribution to goosing the polls. 

Maybe someone will release the full DBRS report so the public can see if Marshall’s news release is accurate or if the bond raters are a lot less positive than Marshall would have you believe.