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.

More cuts. Some questions. #nlpoli

Flatter, Leaner Management Structure.

Put it all in caps like that and you have a handy acronym that bureaucrats can type over and over again without getting tired.

It's like the Government Renewal Initiative.  Internal government documents quickly started referring to the GRI.  And almost as quickly, the wags among the province's public servants started calling the regular meetings  GRIM in their schedules.

So Flatter, Leaner, Management Structure is FLMS.  Most likely folks would pronounce that with an "I" in there to make it a word:  FLIMS.

Then the wags will add a "Y" on the end.

There's your joke for the morning.

Now let's look at Wednesday's announcements.

Sovereignty #nlpoli

Newfoundland and Labrador is one of the very few countries on the planet that got itself into such a financial mess that it gave up self-government.  The people gave up their right and power to govern themselves. That is, they gave up their sovereignty.

They took it back in 1949,  no matter what sort of fairy tales some people continue to believe.  Now with massive public debt coming from chronic overspending and the crushing debt of the insane Muskrat Falls project, some people are raising the prospect that Newfoundlanders and Labradorians may once again see their sovereignty in jeopardy.

Energy analyst Tom Adams has raised the issue of sovereignty with Pete Soucy and Paddy Daly recently.  Muskrat Falls is likely to create such financial problems that the federal government will have to bail the province or Nalcor out, argues Adams.  And it is almost certain that the federal government would look for some "austerity measures", as Adams put it,  as part of whatever deal lets the money flow.

Debt servicing and revenue, 2013-2016 #nlpoli

There are lots of ways of looking the government's budget. Here's one that's a bit unconventional.

Rather than look at how much the government is spending on debt servicing as a share of all expenses, let's take a look at what it means as a share of the government's income from its own sources.

Debt servicing is the amount spent to pay the interest on public debt. Own-source revenues excludes federal transfers and borrowing.

Year	Percent of Own-Source
2016b	21
2015	16
2014	07
2013	06

The percentage is a function of the amount spent to pay interest on the public debt and the amount of money the government earned from its own sources.

Debt servicing tripled in four years, going from $360 million to more than $1.0 billion. Own-source revenues dropped by about a billion dollars, going from $5.762 billion in 2013 to $4.775 billion in the 2016 budget.

That's a really good indicator of how rapidly the government's financial situation deteriorated.

-srbp-

Behaviour Patterns #nlpoli

January 2016.

Dwight Ball tells reporters in year-end interviews that "everything is on the table" to deal with the government's financial problem.

Then, Ball took everything off the table. As SRBP put it last year:

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.

In the budget,  the provincial government boosted spending by 12%.  That was on top of the 12% boost the year before.  Ball increased taxes, largely because the bond raters and the short of cash in the markets gave him no choice.  There were some modest cuts but the cash just got shifted to spending somewhere else.

The big cuts, the serious cuts or whatever Ball hoped to achieve with the unions would come in negotiations.

All the usual suspects - opposition politicians, union activists, people dependent on government hand-outs - accused Ball and the Liberals of "austerity".

Putting the sunk in sunk cost #nlpoli #cdnpoli

Muskrat Falls is basically an $800 million tax on the people of Newfoundland and Labrador. That's roughly the amount you get using numbers Nalcor chief executive Stan Marshall made public last summer.

Muskrat Falls is a tax on the people of Newfoundland and Labrador.  Always was that.  Never was anything else.  The plan was to collect the tax by doubling electricity rates.  Regular readers have known this since *before* Danny Williams announced the scheme.

Take all that as the starting point when you hear Dwight Ball tell Anthony Germain on the CBC St. John's Morning Show that Ball is spending a lot of time trying to figure out how to keep our electricity prices from doubling.

The Tibb's Eve Accord #nlpoli

Health minister John Haggie said that the health deal signed with Ottawa on Tibb's Eve was the best deal that could be got.

Haggie's probably right.  At least, the deal contains a clause that if another province gets a better deal, we can opt for that one instead.

It's been so very long since we've seen federal-provincial rackets over money that most people in Canada seem to have forgotten what they look like.  Stephen Harper didn't run federal-provincial fiscal relations like other prime ministers so the provinces stopped squabbling publicly.  Even Paul Martin was basically about handing out cash so, aside from premiers who postured entirely for the show of it, there was never really much of the sort of disagreement and negotiation that Des Sullivan reminded us all about on Monday past.

AIMS refutes austerity hysteria #nlpoli #AIMS

From the latest Atlantic Institute for Market Studies paper:

"Measuring Austerity in Atlantic Canada investigates whether the use of the term austerity in the context of Atlantic Canada’s public finance is accurate. The author examines public accounts data from the four provinces, adjusting for inflation, to determine the annual amount of program expenditure in absolute and per capita terms. He also calculates the relative increase or decrease in spending from year to year, establishing the trend in provincial government expenditures in Atlantic Canada.

"The report offers three main findings:

• The budgets of southern European countries such as Portugal, Italy, Greece, and Spain (the so called “PIGS” nations) have experienced genuine austerity following the Great recession. These countries had to cut their government spending by up to a quarter, over as few as two fiscal years.
• Provincial governments in Atlantic Canada have increasingly spent more money on programs — in absolute and per capita terms — between 1980 and 2016. Per capita program expenditure in Newfoundland and Labrador saw the greatest increase at 113.7 percent. Prince Edward Island’s growth rate was the slowest at 61 percent over the examined period.
• A shifting demographic landscape in the region — notably its aging population — does not suffice to explain these significant spending increases. While the school-age population has dwindled in the four Atlantic provinces, education spending continues to grow, showing that spending increases cannot be a response to demographic changes.

"The report concludes that the use of the term austerity in relation to fiscal policy in the Atlantic Canadian provinces is hyperbolic, inappropriate and inaccurate.

"All governments spend more money than they did a generation ago, with only minor blips of restraint and no sustained or disciplined effort to cut spending significantly. The nature of Atlantic Canadian public finance, therefore, is not one of austerity but of consistent spending growth over a sustained period."

-srbp-

How much do we owe? #nlpoli

CBC Radio Noon had board of trade president Des Whalen in the studio on Monday.  

Board of Trade thinks the debt is about $13 billion today.  Don't talk about Muskrat Falls.  That's in the past.  Yeah, well, when your humble e-scribbler challenged Des on the numbers the best he could come up with was "it's a really big number."

Kid you not.  That was all he had.

For the record, here's a table that shows the provincial government's total liabilities, taken from the annual Auditor General's reports.

If you cannot make out the picture as it is, you can click on it or read on for the high points.

The total of everything you owe, right now,  is about $29 billion. The St. John's Board of Trade says it is only $13 billion.  Yes,  well it hasn't really been that number low 2004.  The Board of Trade's favourite project - Muskrat Falls  - adds another $15 billion onto that $13 billion right there. Whelan got hung up on the idea the other crowd actually reduced debt.  The numbers make it plain that they didn't.  There's $28 billion without batting an eyelid.

Things get worse from here.

Ball, Bennett, Williams, and Marshall #nlpoli

One of the things finance minister Cathy Bennett told NTV's Issues and Answers this weekend was that the Premier Dwight Ball scrapped the fall mini-budget in September in favour of his own Grand Strategy for Moving Forward in a Generally Advancing Fashion with Vision.

Ball scrapped the financial course laid out in the budget because of the way people reacted badly to it. If anyone asked Ball asked him about it,  he would deny the polls had anything to do with the change of plans. Then again, last week's marathon meeting had nothing to do with protesters at Muskrat Falls either.

The change of direction actually happened much earlier than September.  Dwight Ball made it pretty clear last summer he'd reverted to his old plan.  That consisted of keeping government on the strategic course the Conservatives set in 2006ish:  spend as much as possible and change government organisation and spending only by the smallest necessary to shift money from one spot and put into another.

Sunshine, lollipops, and fluffy kittens #nlpoli

Finance minister Cathy Bennett read words that tried to make the provincial government's financial situation sound better than it was forecast to be last spring.

For all the wonderful words in Bennett's scripted remarks, Bennett could not hide the truth. Her tone of voice was more sombre and depressed than if Premier Dwight Ball had been there himself - rather than in Ottawa for a Memorial University fund raising dinner - and had done his very best Eeyore impression. Bennett was so stiff and wooden in her delivery that it seemed like her motions were written down as well, in stage directions: "As you can see from the slide  [look at slide,  pause,  then look back at script]...".

Then there was the bizarre bit at the end where Bennett thanked people. The reference to her cabinet and caucus colleagues, in the back of the room, seemed like a very obvious attempt to make it appear that they were firmly behind the government's actions. It was so obvious though that it would have the opposite effect.

Truth and Reconciliation #nlpoli

Long ago, so long ago no one remembers when, they did away with Virtue in Newfoundland​ politics.  To be on the safe side, they slit the throats of her twins, Truth and Justice, and tossed the little corpses on top of their mother's still-moving body before leaving the three in a shallow, unmarked grave in the woods.

Newfoundland politics is a daily metaphor of that Original Sin. This fall, we are seeing the crime repeated everywhere with more people drawn in than ever before. Such is the power of modern media.  Such is the state of democracy that mortal sin, like political power, is no longer the exclusive domain of the rich and powerful.  Everyone can get their taste.

There is no monument to Virtue and her murdered children but if Muskrat Falls is ever finished, we can perhaps use it to remember what happened, who was involved, and why.  That is the only way you can reconcile,  the only way you can sincerely balance the accounts  - financial, historical, political - one with the other.

The Way Forward #nlpoli

Last December, Dwight Ball laid out his plan to deal with the provincial government's financial problems.

Ball made the comments to CBC's David Cochrane a week or two after he'd been sworn in.  This was after he'd been briefed on the provincial government's financial situation, so he'd had a chance to get over any shock and figure out a plan to cope with an unprecedented financial mess.

Depending on whether you go with what Ball said last year or what he said at the Liberal fund-raising dinner last Thursday,  Ball was totally shocked to find out how bad things were or didn't bat an eyelid because he knew exactly how bad things were.  Take your pick.

Either way, here's what the newly minted Premier said were his three ways to handle the unprecedented financial mess:

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.

Core Public Service Numbers #nlpoli

Somebody requested the number of public servants through Access to Information and the folks in the department answered only half the question.

But that's okay because the figures for the core public service are worth looking at anyway.

Regular readers will recognise the trend.  Starting in 2006,  the Conservatives went on a hiring spree.  They took the core public service from 6,792 in 2005 to 9,090 by 2011.  Bit of a steep drop between 2011 and 2012 and a steady decline since then.  As of the middle of May this year, there were about 7,978 people in the core public service. 

The Rasputisa and the 2016 Budget #nlpoli

The speech finance minister Cathy Bennett read in the House of Assembly on Thursday was as horrible as the reaction most of the province have been having to it.

That's not surprising given that the entire budget communications program was the product of precisely the same folks who delivered repeated political and policy disasters for the former Conservative administration.  And if that wasn't bad enough, everyone - the Liberals included  - picked the anniversary of the Titanic disaster to deliver a very hard budget.

To get a sense of the problems with Thursday's budget, take a look at two fine examples of just how politically tone deaf the speech was.

The first one:  "As our Premier has said, knee-jerk reactions have created mistakes that, unfortunately, Newfoundlanders and Labradorians are paying for now."

Bennett's speech writer didn't give an example so folks will likely fill in their own.

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.

Evidence-based decision-making #nlpoli

James McLeod had a tidy piece in Wednesday’s Telegram on the government’s effort to find a way of out of the financial mess. it's well worth your time.

The document McLeod got through an access to information request shows the extent to which the cabinet wants to cover all the bases in finding a way out of the province’s current mess.  The document, which we already knew about,  tells government officials to look not only at what they are currently doing but also how they are doing it.

What comes back to cabinet for discussion should be as wide a range of options as possible.  It’s precisely how the government should be tackling the problem it faces, despite what the Premier’s out-to-lunch messaging has suggested.