Dwight and Tom's legacy: more of the same #nlpoli

Herb Kitchen died last week.

He was the minister of finance in the early 1990s who brought down the difficult budgets, starting in 1991 that were part of a plan that turned the provincial government around.

The deficit at the time was about $300 million and the total budget called for spending of around $3.2 billion. 

Finance minister Tom Osborne announced on Friday that he will need to borrow $3.2 billion to close the gap between what the government will spend (about $8.9 billion, plus more money for Muskrat Falls) and its income.

Officially, Tom Osborne’s deficit of $2.1 billion for 2020 will be 25% of spending compared to less than 10 percent back in Herb’s day.  But if you wanted to compare apples to apples, then we should use that $3.2 billion cash figure, which works out to a deficit three and a half times the size of the one Herb Kitchen brought to the House of Assembly 29 years ago.

Thank God Herb didn't live to see what a mess the provincial deficit will actually be.

Facing the financial wall, again #nlpoli

Newfoundland and Labrador Hydro makes money by making and selling electricity. In 2018, the last year for which we have statistics,  Hydro made about 40 gigawatt hours of electricity and sold it for slightly less than a billion dollars. Most of the electricity went to Quebec and most of the money came from Newfoundland and Labrador.

On Thursday,  the House of Assembly gave Hydro permission to borrow $500 million in 2020 to cover losses from sales.  “Anticipated reduction in revenue during the pandemic” is the way NTV’s Michael Connors described it on Twitter.

That’s half Nalcor’s income.

No one explained on Thursday during the pantomime session of the legislature why anyone expected that half of Hydro’s business would disappear during April, May, and June.  No one nows if they will lose money,  natural resources minister Siobhan Coady said in the House.  This just allows them money if they need it.

Bank of Canada to help GNL make payroll #nlpoli

Bank of Canada
234 Wellington St, Ottawa

The Bank of Canada announced today that it will purchase up to 40% of money market securities with terms to maturity of 12 months or less that are  issued directly by Canadian provinces.

The Bank of Canada will make the first purchases on Wednesday, 25 March 2020.  The purchases will include treasury bills and short-term promissory notes. The Bank may adjust the percentage based on markets.

The program – called Provincial Money Market Purchase (PMMP) – will give help to all provinces.  It will be especially welcome news for the Government of Newfoundland and Labrador, which relies on short-term debt to fill in gaps in its cash flow. 

There is a relatively limited pool of capital for the provincial government anyway.  Its relatively low credit rating can make it harder for the government to borrow money at rates it can afford.  For about six months in late 2015 and early 2016, the provincial government came close to being unable to meet payroll due to a shortage of capital in the markets and uncertainty in the markets about the intentions of the provincial government after the 2015 general election.

Prov gov finances headed south #nlpoli

The Government of Newfoundland and Labrador is offering its bonds on the American market, according to Bloomberg News.  VOCM reported it locally on Wednesday.

The provincial government hopes that its high interest rates will attract investors.  "We are providing some of the highest yields in the country among provincial borrowers,"  deputy finance minister Donna Brewer told an investors conference in New York a couple of days ago.

Now you know what Anne Squires sounded like after someone gave her Ron Ellsworth's telephone number.

The Fan Klub, Churchill, and taxes - update

As the provincial Conservatives and New Democrats filibuster the levy bill in the House of Assembly that Winston Churchill quote about taxes popped up again.

The ones pushing the quote hard on Twitter seem to be mostly charter members of the Danny Williams Fan Klub. That's not surprising given that responsibility for the financial mess,  the chronic, deliberate overspending and the morass at Muskrat rest solely on his shoulders.

The Incrementalists #nlpoli

Today is budget day.

There's been lots of speculation flying around, most of it a confirmation that people have little real information about anything. If you have been paying attention, though, you can probably make a fairly good guess at what Thursday's budget will look like.

What follows is based entirely on what Dwight Ball and his ministers have done and said in public, combined with a general knowledge of the provincial economy, the budget process and that sort of thing.

Read this now and in a few hours you can see how close this is to the actual budget.

Record deficit in 2015-16 #nlpoli

The deficit for 2015 will be a record.

We know that because of comments at the House of Assembly by Premier Dwight Ball and finance minister Cathy Bennett.

News media are reporting that as "raising the province's borrowing capacity" but that's not quite what is going on.  The markets will determine the province's borrowing capacity.  That is, the folks lending the money will tell us how much we can borrow.  What went on in the House on Thursday was a wee bit different.

Things are THAT bad #nlpoli

David Thompson is an independent economist in the same way that Jerry Earle and Wayne Lucas are independent human resource consultants.

But the problem isn’t that CBC couldn’t make a factual statement in the first three words of a news story.

Nor is it a problem that Thompson recently visited the province at the expense of a public sector union and met with the Premier to offer some helpful “independent” advice.

No.

The problem is that Thompson simply didn’t know anything about the province and the state of the government’s finances.

If we dither, we die. #nlpoli

by Chuck Furey
________________


"Indecision becomes decision with time" someone once said.

The current fiscal nightmare in Newfoundland and Labrador is real.

One only need compare the amount of borrowing in 1933 (34%} to the borrowing today (30%) as a share of spending. The similarity is stark and raw and scary.

Sadness and desperation come to mind as the ghosts of history now stare down the new Ball government. They certainly didn't make this mess but they are now summoned to clean it up.

Politicians and Public Debt #nlpoli

Remember the debt clock?

Finance minister Tom Marshall went around the province during that year’s budget consultation – now “rebranded” as “engagement” – with this big electric counter that purported to show how much interest on taxpayers were racking up on the public debt.

$1,400 a minute back then.

“That clock is ticking away showing a tremendous amount of money on interest that I'd rather see go into programs," said Marshall,  in a CBC story about the annual budget circus.

Now here’s the real question:  what year was that?

Newfoundland government finance, 1832 to 1949 #nlpoli

Before Newfoundlanders stopped governing themselves in the early winter of 1934, they’d run a sometimes arduous course.

Newfoundland gained a limited form of self-government in 1832 and in 1855 gained Responsible Government.  That gave control of  virtually everything except defence and foreign policy to a cabinet made up of members of the elected assembly and the appointed upper chamber of the legislature. 

By the 1880s,  the government wanted to expand the economy beyond the fishery.  They started a railway project to open up the interior of the island and the western coast, much the same way that the Americans and Canadians had used the latest technology – the railway – to expand to their west.

Will DBRS re-do its rating for Newfoundland and Labrador? #nlpoli

Premier Paul Davis was proud of the fact that a bond rating agency had confirmed the province's credit rating.

Curiously, he never told anyone which rating agency it was and, as it seems,  very few if any news outlets reported on the release issued on November 19 by Dominion Bond Rating Service.

DBRS confirmed the provincial government's rating at "A" for long-term debt and "R-1 (Low)" for short-term debt.  They also confirmed Newfoundland and Labrador Hydro at 'A' for long-term debt and "R-1 (Low)" with stable trending.

What's interesting, though, is that DRBS doesn't seem to have had access to up-to-date financial information even though they issued the rating in late November 2015.  Here's the basis for the stable rating,  according to the news release:

Let's hear it for the Fraser Institute geniuses #nlpoli

A year after Kathy Dunderdale left office, the Fraser Institute said she was one of the best fiscal managers of all the Premiers in Canada.

Provincial Conservatives repeated the story anywhere and everywhere they could, just as they had done the other time the Fraser Institute said Kathy was a financial genius.

Sound fiscal management was a big thing for the crowd that just finished up their latest term running the place.  Danny Williams listed “sound fiscal management” as one of his big promises when he announced his first cabinet.

In his first budget speech,  Conservative finance minister Loyola Sullivan reminded everyone of the promises he and his colleagues made in the 2003 election.

Prior to and during the election, we outlined a number of commitments to the people of Newfoundland and Labrador. I would like to focus today on three major commitments: 

First, to balance the Budget on a cash basis in four years and restore sound fiscal management; 

Second, to expand the economy and create jobs; and 

Third, to ensure that our health and education systems meet the needs of Newfoundlanders and Labradorians and are sustainable into the future.

In hindsight, it all looks like some kind of sick joke.  And it would be finny too if we all weren’t the ones living through the awful truth of just how badly wrong the Fraser Institute and all the rest of them were.

Metrics #nlpoli

Telegram editor Russell Wangersky tried on Monday to put the government’s financial mess into some shape that people could understand.

The simple fact, to put a shortfall of $2 billion into perspective, is that if the provincial government wanted to cover those costs outside of oil revenues, it would have to not only double the province’s income tax rates, but double the provincial share of the HST as well. (Given the current five per cent federal and eight per cent provincial breakdown of the 13 per cent HST, that would bring this province’s total sales tax to 21 per cent.)

If we could do that, we’d break even, says Russell.

Well, ummm,  no.

Russell’s got the right idea.  He just missed another billion dollars of borrowing in the budget for capital spending.  The way the government reports its spending that capital works borrowing keeps getting left out but it is stuff we have to pay for. 

And that  $3.0 billion is just to cover this year.  Next year,  the problem is due to get worse again.

The Bridge to Ottawa #nlpoli

Premier Dwight Ball said everything is on the table to deal with the massive financial problem facing his administration.

And then, in a string of year-end interviews,  Ball immediately took everything off the table.

No cuts to spending as that would slow the economy.  Ditto for tax increases.  Even “efficiency” went out as Ball told the Telegram’s James McLeod that you couldn’t deliver existing services without the existing staffing levels.

Ball told NTV’s Mike Connors that we “need to find a way to bridge us [from] where we are currently until the commodities rebound and be [sic] the significant contributor we need them to be."

The bridge Ball wants to take is a familiar one.  According to McLeod, Ball is “ counting on infrastructure money from the federal government to help out some, and he’s also taking a close look at the equalization formula, to see if the province can wring any more money out of Ottawa.”

What are Ball’s options in Ottawa?

Essence #nlpoli

The Telegram has been running a series this week on the number of communities in the province where people can’t drink the water supplied by their local municipality.

Regular readers will know the issue as it first came up here in 2009, in 2011, and in 2013. 

A couple of years ago, CBC was highlighting the problem.  Your humble e-scribbler reminded the universe that giving people water fit to drink was one of those fundamental commitments the Conservatives made to the people of Newfoundland and Labrador in 2003.

And it was one of those fundamental commitments that they failed utterly and completely to honour.

There is no greater fraud than a promise not kept, their leader used to say.

He was absolutely right.

Double-down Locke #nlpoli

“I didn’t see this coming,”  Memorial University economist Wade Locke told the Telegram’s James McLeod the other day. Locke was talking about the dramatic drop in oil prices over the past week and a half.

The day before, Locke was on VOCM’s morning talk show dismissing this low oil price stuff as just a passing thing.  No biggie.  And while everyone else is figuring the government is headed farther up a financial shit creek of Amazon proportions, Locke was absolutely confident that prices would go back up and all would be right. 

Sure, government might have to do some trimming, Wade offered, but they should do it gradually over time.  Like losing weight, he said.  If I told you that you had to lose 10 pounds, it would be hard to do it quickly.  But over time, much easier to do.

There’s something truly laughable about Locke’s metaphor because basically Wade is to sound management of public money what a Double-Down from KFC is to heart-smart nutrition.

The Vision Thing #nlpoli

The St. John’s Board of Trade is about the only business advocacy group in the world that doesn’t actually believe in free enterprise.

The Board doesn’t believe that government should control public debt.  They claim they are worried about it, but in practice the Board will shout with joy the more the government spends.

That sounds ridiculous, but it is true. 

The Board of Trade supports the Muskrat Falls project, for example.  The project involves a massive increase in public debt. There’s no evidence it is the cheapest way to meet the provinces electricity needs.  The only way it can work has been to create a complete monopoly in electricity production in the province that will force locals – including businesses – to bear the full cost plus profit, so that the provincial government’s energy corporation can sell discount electricity everywhere else except inside Newfoundland and Labrador.

The Board of Trade likes Muskrat Falls for two reasons.  Above all else,  the Board’s members want a piece of the construction phase for the project.  It’s pretty simple.  Right behind that,  the Board is notoriously sycophantic. It doesn’t actually advocate for business – like you might expect - as much as follow whatever line the provincial government lays down.

Bizarre, yes.  But simple to understand.

The Board is also a pretty funny organization, too.  Not funny as in bizarre or weird, aside from that anti-free enterprise thing, but funny as in roll on the floor and pee your pants laughing.

Conservative Misinformation and the Public Sector Debt Problem #nlpoli

There is no limit to how selectively provincial Conservatives will read a document in order to find some microscopic filament that might possibly confirm that they have really been running the most magnificent administration in the history of the galaxy.

They still insist, for example,  that they are the tops in leadership and accountability even though the most recent poll shows that 77% of the people in the province don’t think so.

Conservatives also insist they have done financial miracles.  No less a personage than the party’s vice president took to the Twitter on Monday to tell everyone that:

According to Fraser Institute, SK and NL are the only provinces that reduced their public debt since 2007.

Well,  they said a lot more than that,  but evidently Mark Whiffen and didn’t need to read anything but that. Since the rest of us are not obliged or inclined to such delusions,  let’s see what the gang at the Fraser Institute actually said.

The Whizzo Quality Assortment #nlpoli

On the outside, the spring budget for 2014 looks like a delicious assortment of goodies for everyone.  You can tell it is delectable because everyone is shouting for joy and drooling over their good fortune.

There is not a single group who have had their hands out for government money that did not get something. And they are telling anyone who will listen just how happy they are. 

Once you bite into one of sweetmeats in the Conservative Quality Assortment budget,  though, the result might be a wee bit less tasteful.