Wanted: adults

Former Bank of Canada David Dodge laid it out in stark terms for anyone who wants to listen.

“It” is the challenge facing all Canadians of continuing to provide public services like health care in the face of shifts in the workforce among other things.

But the hard choices for any prime minister go beyond energy. Former Bank of Canada governor David Dodge spelled it out in bleak terms, saying Canadians need to have the courage to engage in an "adult conversation" about what governments can afford at a time of a shrinking workforce, ageing population and slowing economy.

"We kind of are wishing the problem away by assuming that we can curtail expenditures without curtailing the real services that governments are providing to you and me as citizens," he said after addressing 250 convention attendees.

Adult conversation has been missing from what public discussion there has been of major issues in this province for the past seven years.  Around these parts, the challenge of having a substantive discussion is greater given the prevalence of magical thinking throughout society.  Magical thinking in this case would be any suggestion that there are no problems at all or that they will be easily solved.

Let’s see if there is continued magical thinking in Monday’s budget.  Bet the farm on a “yes” and you won’t make much:  everyone who has been paying attention is expecting just that.

They likely won’t be disappointed.

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Delusion or Disconnect? Overtime

“The Williams Government has been unwavering in its commitment to managing provincial programs, services and financial resources in a responsible and prudent manner.”

and

“Sound governance and responsible management have been the cornerstones of how our government runs the affairs of the province and administers programs and services to meet the needs of our residents."

Sure.

That’s easy enough to write in a release, but it sure doesn’t hold up to scrutiny. 

Take, for example, the issue of overtime which led off pretty well every conventional news story on the Auditor General’s report released last week.

The coverage and commentary thus far took cues from the Auditor general and focused on some fairly simple and obvious points. Overtime both in its paid and time-off varieties has mushroomed  - up 55% - since 2001.

That’s despite the work of a committee struck in 2001 to come up with ways of controlling overtime. The climb has been steepest since 2004 when the current crowd of sound fiscal managers took over and started spending public cash in what Paul Oram and other cabinet ministers have described since as an unsustainable manner. 

The official response: these people are making way more money than before, there may be problems recruiting in some cases and the work demands for public safety all may make it necessary to run up the over-time bill.

That first one would matter if the amount was the concern. 

It really isn’t, though, if you look beyond the simplistic stuff the AG fixated on and look at the rates of change for specific departments.  It’s easy to focus on  Works and Transportation but the change in overtime paid out has actually been relatively modest.  It’s gone from $9.3 million to about $11.9 million in a little less than a decade.

But what about Executive Council and Finance?

The numbers there show stunning increases:  from $74,000 to $602,000 in Finance and comparable jumps – on the order of nine or 10 percent  - in Executive Council. The explanations offered for the transportation or Justice departments’ overtime expenses just don’t apply here.

They also don’t fit with the pattern for most of the departments listed on page 12 of that section of the AG report.  The changes, over time, just don’t match that rate of increase.  Even in Justice, the overtime paid out in 2008 is only slightly less than three times higher than that paid in 2000. That’s bigger than it should be but the amount is potentially justified – pardon the pun – if there are issues of staffing or public safety involved in some years.

The sort of comparison done here – as relatively unsophisticated as it is – just can’t be found in the AG report.  There is much talk of amounts and the shares of the total held by one department or another.  But at no point does the AG zero in on the departments which seem to have some fairly obvious problems and ones that have – on the face of it – much more significant implications for management or the manageability of the problem.

If a department has a fairly consistent amount of overtime, then that’s one thing.  But if the amount starts small and then grows exponentially?  Well, that suggests there are people problems or an organizational problem that needs to be addressed with something more substantial than the “keep an eye on things” advice coming from the AG report.

You might forgive the Auditor General for the simplistic approach to this issue taken in the report if the amount of overtime accumulated through the “time-off in lieu of” system  - called TOIL - wasn’t equally as dramatic as the paid overtime in a couple of cases as well.

That chart isn’t distorted.  Finance went from a TOIL of $68,000 in Fiscal Year 2000 to almost $1.1 million in FY 2008. Justice numbers are about the same.  TOIL is time off in lieu of overtime.

What makes these numbers stand out all the more is the comparison with departments where you might expect the overtime bill to be huge. 

Take Health, for example.  Big department.  Plenty of demands.  However, both the TOIL and paid overtime costs in the study period remained about what they were before.  Now the paid overtime numbers for Health fluctuated wildly over time, but they did not experience the sort of dramatic sweep upward seen with the departments noted here.  And in the case of TOIL, the Health tally was about $27,000 for 2008 compared to $25,000 about a decade ago.

It would take way more information that the AG makes available to figure out why these three departments are experiencing the rather dramatic changes in overtime over time.  As a result, it would be hard to say what is causing the problems and therefore make some useful suggestions on how to fix things. 

One thing that is for certain, the AG report makes some pretty lame recommendations that don’t really amount to much.  Tracking the overtime and making sure it is warranted both count as penetrating insights into the managerially obvious and they are about as useless an exercise as faking your own recommendations.

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Massive cost overruns, delays now normal for provincial government?

Once upon a time, not so very long ago, you really didn’t hear very often about a provincial government construction project in Newfoundland and Labrador going for almost double the original cost estimate.

You’d hear stuff about other places, like say one involving a nuclear power plant in New Brunswick. Or there might be one involving transportation – always a rat’s nest of problems – like say the streetcar line in Toronto or another light rail one in Ottawa.

That was then, as they say.

This is now, where the provincial government in Newfoundland and Labrador seems to have a huge problem with construction projects of all kinds.

The latest is the health centre in western Labrador.

Promised originally as a juicy bit of pork for the January 2007 by-election, the project seems stuck like an excavator in winter snow. Other than that, not much has happened.

Not much except watching the cost estimates balloon like an embolism.  According to The Aurora, what was once estimated to cost about $56 million is now estimated to be in the range of $90 million.

That number will get bigger almost certainly.  And at some point, as in Lewisporte and Flower’s Cove, there will have to be an intervention to reduce the sorts of health stuff that happens in the health care centre so that the construction costs don’t go completely off the charts.  

The Aurora report says provincial government officials put the cost spiral down to a construction boom in briefing notes prepared for health minister Jerome Kennedy last fall.

Okay.

Theoretically, that could be the case. There’s just so much construction going on in the province right now that everything is at a premium.  Boom times and all that.  At least, so the idea goes.

There are a couple of problems with that notion. 

First of all, this is a recession and Newfoundland and Labrador hasn’t escaped the recession at all.  Far from it.  Even the provincial government is forecast a huge drop in the value of goods and service sin the province.  Everything is down from oil to newsprint to minerals. 

And if you look around, like say in Alberta, you can see what happens in a recession.  Like most places in the developed world, and even in an Alberta which is still chugging along well ahead of other provinces in economic activity,  a recession in Alberta means costs are dropping. Businesses – like Total SA and Conoco  - are actually increasing their spending on oil sands development because of costs that are as much as 40% less than they were in 2008.

That Labrador health centre is already estimated to cost 40% more than first forecast, incidentally. That’s pretty much on par with what happened to the one in Lewisporte.

So it doesn’t really make a lot of sense – at first blush – that Newfoundland and Labrador in a recession would see costs go up while everywhere else – like Alberta – costs are dropping.

Second, the sort of delays and cost over-runs for the Labrador west hospital is typical of the pattern of delays on provincial government construction projects – upwards of three and four years in some cases – and massive cost over-runs (40% is the half of it) people in this province have seen for the past five or six years. It didn’t just start.  And it isn’t confined to hospitals.

On delays, we have things like a 2004 court security law that still isn’t in effect. There’s a 2006 law creating a health research ethics board that still isn’t in place.  From 2007, there’s a major piece of legal work and a centrepiece – supposedly – of the Tory big blue plan called the sustainable development act.  Three years and not so much as a peep.

Let us not forget three years on Grenfell to deliver nothing that couldn’t have been done without all the fuss and the promises when the idea was first announced.

Nor can we ignore the land claims deal with the Innu on the Lower Churchill that happened and then unhappened.  Now it roams the Earth periodically cropping up in some news story in which it claims to be alive.  The reality is that it is undead, trapped by internal political wrangles within the Innu community in a world between life and death.

In the background, there is the program review, a response to a supposed budget crisis in 2004 the premier gave to Ross Reid.  No one knows what happened to it.   similar initiative – a 2006 economic program review – likewise disappeared.  The guy looking after it went back to Memorial in 2008.  What is Doug House doing these days?

On the construction front, there are cases like the sports centre slash conference hall in St. Anthony that doubled in price before the provincial government cut the whole thing down to a size that would fit inside the ballooned budget.  Two years after it was first announced, there was much less for way more.

We also can’t forget the aquaculture centre in St. Alban’s.  Two years later the thing is just starting to get underway  - we were originally told it would actually be finished by now - for 71% more than the original estimate.

Ferries. Schools. Hospitals.  Roads. You name it and the thing has been announced - in some cases many, many times - the costs have skyrocketed and there’s not a sign of anything tangible.  As noted here last winter, about half the economic stimulus projects the provincial government announced consisted of projects that had been announced, some of them as long ago as 2005.

Massive cost overruns and inordinate delays seem to be the norm in the provincial government these days.

The interesting question is why that is so.

We can be pretty sure it doesn’t have anything to do with just the normal cost of doing business. The pattern started before costs really skyrocketed and it affects things besides construction work.

And it really doesn’t have anything to do with outdated ceremonies and rules.  One of the things Tory supporters in this province should point out is that all the time the current administration doesn’t spend in the legislature gives it more time to get things done.  These guys are much more efficient than other administrations, so the talking point would go. 

Notice that they don’t say that sort of thing, though.  Despite having a legislature that sits about half the number of days it sat two decades ago, the usual complaint lately is about all the distractions. 

Nor can there be any complaint about requirements to have the legislature approve things.  The Fishery Products Act amendments a couple of years ago gave cabinet the right to make decisions on its own without reference to the legislature ever again. That follows a pattern in other bills where the decision on when laws come into force is left entirely to cabinet. 

Call it a sort of low-rent rule by decree, the idea behind this approach is that things can be done more quickly if all it takes for is a cabinet conference call and then a quick printing of The Gazette. No messy debates in public.  No question period.  Just a nice clean agreement behind closed doors.  Job done.

Except it hasn’t seemed to work that way.

Now this is the sort of thing we old political science types call “interesting” or “curious”.  It goes to the heart of what we love:  how government works in practice. 

The theory is fine.  All the bumpf from the departmental bumpf factories keeps the news media full.  And some people think they can change the budget by going to a consultation session.  People who are genuinely interested in this sort of thing, though, love trying to figure out how things actually get done.

In the case of the current provincial administration, those types have got their work cut out for them.  The current crowd should be performing much more efficiently and effectively than they actually are.  Put another way, they should be accomplishing things on par with what - as their polls show -  people think they are doing.

So how come they aren’t?

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Unsound financial management, the stunning Oram admission

In Budget 2009, we invested $2.6 billion in health and community services.  This is no doubt a significant amount.  This represents a billion dollar increase in the past five years.  While we would like to do everything and meet every demand, that investment is simply unsustainable.

Paul Oram, Minister of Health and Community Services, September 21, 2009 [video file]

Note the date.

Health minister Paul Oram admitted today that the provincial government’s financial management since 2003 has produced a level of government spending that is - in his words -  “unsustainable.”

That is not just Paul Oram’s word.

His remarks were approved at the highest level.

That word  - unsustainable - is the word that the Premier’s Office chose to describe the financial state of the provincial government.

Until now, the Williams administration has prided itself on exactly the opposite. This is a remarkable admission for the Williams administration, an administration that has prided itself on what it claimed was sound management of the public treasury.

Regular readers of Bond Papers have known it for some time.

The earliest use of the word “unsustainable” in connection with provincial government spending was 2006:

What no one knew was that oil would hit US$70 a barrel and the cash would be pouring in at a rate no one in the province had ever seen before. That allowed Danny Williams to avoid making a whole bunch of good decisions and to crank up spending to unprecedented and, and in light of the economic slowdowns, likely unsustainable, heights.

The word turned up again a few months later in a quick look at the 2007 budget:

The current and forecast spending increases are based on optimistic projections for the price of oil in the medium term. Any downward trend in commodity prices (oil, minerals etc) will quickly make the consistent spending increases since 2003 unsustainable. Fiscal reality in those circumstances - taking less money in than is flowing out - would require program cuts, job losses and/or tax increases to correct.

Take a second and go read that post.  You’ll find the “unsustainable” again:

That level of per capita spending [second only to Alberta] is unsustainable in the long run. As a recent Atlantic Institute for Market Studies assessment concluded:

“If the province fails to reign in its whopping per capita government spending (about $8800/person [in FY 2006]) and super-size me civil service (96 provincial government employees /1000 people) it will quickly erode any gains from increased energy revenues.”

That is exactly the situation Paul Oram described today.

Look through Bond Papers and you will see repeated warnings about the unsustainable growth in government spending since 2004/05. 

This is not an exercise in “I-told-you-so”;  let’s clear that out of the way at the start.

This is about something much more significant.

Point One:  The issues are not new and the implications of the issues aren’t new.

Go back further than 2006.

Go back to the early to mid 1990s and you will see forecasts that showed the demographics in the province for the time period we are currently in and that mapped out the implications for health care costs.  Some of those same ideas turned up here in several posts throughout 2007 and 2008 that discussed the very serious financial state facing the provincial government.

Point Two:  Fail to plan;  plan to fail.

The current situation is a direct result of a series of short-term decisions made by the current administration since 2003.  The short-term spending decisions took place in every aspect of spending;  health care just happens to be the one place in the budget where the demand for more spending is greatest and where the implications of spending are also proportionately great..

How do we know the decisions have been made on an ad hoc basis?

Well, the indicators are littered throughout the correspondence released today by the provincial government.

For starters, just look at the dates on the e-mails to the regions.  The provincial government only settled on its spending allocations in late February and even then, the decisions were preliminary.  

Since 2003, the budget process has slipped further and further back in time such that crucial decisions – like gross spending – are not made until a few weeks before the end of the fiscal year. The reality of these letters suggests that budget decisions were not made until well into the current fiscal year. 

Throughout the 1990s and into the early part of this century,  the big picture spending decisions were made before Christmas.  By the time late February rolled around, the individual line items had been settled such that there was very little to decide.  In those days, the only adjustments that came after February would be cuts based on any changes to federal spending.

But in a provincial government where cash hasn’t been an issue, there is really no reason why the annual budget process should be so far out of whack that major budget decisions are still not settled four weeks before the end of the fiscal year.

Secondly, notice that the direction from the department to the regions is simply to freeze spending at 2008 levels.  That’s a short-term decision if ever there was one, not the sign of a decision taken within the context of a longer-term plan.

Thirdly, take a look at the list of options offered up by the boards.  In Central, there is a wide and unconnected list.  On  the one hand there are major program shifts.  On the other, there is an inconsequential cancellation of a single position for a few thousand dollars.  In Western, the increased costs forecast include substantial amounts that have to be annualised.  That is, the initial amounts increase over time as with any program spending. 

None of this is a sign of planning either at the regional or provincial level.  Rather it suggests a series of ad hoc decisions being made in response to ad hoc direction from central authorities.  As can be seen particularly in the letter from Western region and Labrador-Grenfell, significant new projects were started in 2007 and 2008 which need to be continued.  Yet, in preparing for 2009, the long-term implications of these projects are called into question by a predicted downturn in the economy.

In truth, this inconsistent management situation matches up with what we have seen from the provincial government across the board.  Capital works projects take inordinately long times to get start.  Significant legislative measures get lost for upwards of two years and more before they are implemented.   All the delays cost money. 

Point Three:  The solution cannot be more of the same.

One of the most obvious implications of analysis done for the Strategic Social Plan approved by cabinet in December 1995 was that government needed to fundamentally change how it delivered some services if it was going to balance the demand with the ability to supply.

Unfortunately, one of the first acts of the Tobin administration in 1996 was to scrap the SSP and replace it with a pale imitation. Gone were the needed reforms.  What has occurred since 2003 has been a continuation of the situation post-1996, with predictable results.  Until now, the Williams administration has steadfastly refused to acknowledge it faced a very serious problem.

But acknowledging that a problem exists is the first step to setting things right.

With all that as the basis, the next few posts will lay out some ideas for producing fundamental changes aimed at providing a financially sound future for the province.

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Shuffle-up-a-gus

How often are there cabinet changes and shifts in the senior bureaucracy?

While there is no text-book solution to that question, aside from elections, resignations and political meltdowns, there usually aren’t a lot of shakeups in a team government.

The reasons are pretty simple.  Cabinet ministers and senior officials (deputy ministers and assistant deputies)  are expected to get to know their departments and the people in them, to form good working relationships and then get on with the business of running their respective shows.  cabinet will send down some instructions.  Departments are expected to come up with new ideas.

In order to do that, people have to spend time working together.  They need time to learn the issues and figure out what happens when you pull the lever over there in the corner.

All of that applies equally to both the political side of departmental management (the cabinet minister) and the public servants (deputy ministers and assistant deputies). 

In the eight years between 1996 and October 2003, successive Liberal premiers changed their cabinets (major and minor changes) 11 times. 

In the five and a half years since the fall 2003 election, the current administration has made changes to cabinet 12 times. The bulk of that shifting came in the first term, with at least two changes in assignments involving some ministers roughly every six months.

Over on the public service side, the relative numbers are even more dramatic.

Liberals:  24 appointments over eight years.

Progressive Conservatives:  37 in five and a half years or so.

Now some of these announcements were onesies and twosies, that is one appointment at a time.  In other cases, like the one made today, the changes have involved seven or eight people in different departments. 

Two of the appointments made Tuesday were for people filling jobs in an acting capacity while the person normally in the job is one some form of leave.  In some instances, there have been times when the top two positions in one department have both been acting simultaneously.  That hasn’t happened a lot but it has happened.

While changes at the cabinet level have been relatively infrequent since 2007, the same can;’t be said on the executive side.  Eight changes in 2005, but 11 in 2007, five in 2008 and four already in 2009. 

Beyond the frequency, your humble e-scribbler hasn’t finished a detailed assessment yet to see who has been moving and if there are any departments that have been the focus of the changes.

Still…

the numbers are striking.

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