Offshore board announces 2010 land sale

The official release:

“The Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) announced today the details of the 2010 Call for Bids in the Newfoundland and Labrador Offshore Area. Call for Bids NL10-01 (Jeanne d’Arc Basin) will consist of two parcels, which comprise 169,400 hectares.

Interested parties will have until 4:00 p.m. on November 17, 2010 to submit sealed bids for parcels offered in Call for Bids NL10-01 (Jeanne d’Arc Basin). The sole criterion for selecting winning bids will be the total amount of money the bidder commits to spend on exploration of the respective parcel during Period I (the first five years of a nine-year licence). The minimum bid for each parcel offered in the Call for Bids, Jeanne d’Arc Basin, is one million dollars.

The Call for Bids contains provisions for rentals during the term of an exploration licence and during the term of any resulting significant discovery licence. This Call for Bids contains a sample exploration licence which incorporates a sample significant discovery licence. This area has been previously assessed to identify any mitigative measures that may be required in relation to exploration activity on these parcels. Notification of any changes made to this Call for Bids will be posted on the Board’s website.

Subject to Ministerial approval, successful bidders will be issued an exploration licence for a term of nine years; however, during Period I, a well must be spudded to validate the licence for the full nine-year term.

For a complete copy of the text of the Call for Bids, visit the C-NLOPB website at www.cnlopb.nl.ca.”

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Megamania: Wacky edition

A 40-year-old hydro-electric megaproject, on a river already home to massive hydro development, estimated to cost at least $6 billion, that will add dramatically to the provincial debt load for 30 or 40 years.

Lower Churchill?

Nope.

British Columbia.

The whole thing is a throw-back to British Columbia’s longest-serving Premier.  W.A.C. Bennett  - known derisively as Wacky - served from 1952 until 1972.

The Lower Churchill dates back to the time of Newfoundland and Labrador’s longest-serving Premier.  Joe Smallwood – who many considered wacky – served from 1949 to 1972.

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Strategic Social Plan (1995) - Forward

This Strategic Social Plan Consultation Paper initiates the final phase of an intensive Provincial planning process which began more than six years ago. When this Government took office in 1989, we made a commitment to the people of Newfoundland and Labrador to review all economic and social programs and mandates and to develop strategic plans to carry the Province through the turbulent changes of the 1990s into a stronger future in the 21st century.

In the fall of 1990, Government began the first phase of this planning process through a review of economy's strengths and weaknesses, examination of the activities and policies of economic departments and agencies, and the subsequent development of a public consultation paper to provide an opportunity for the people of the Province to have direct input into the vision, guiding principles, and actions that eventually became the Strategic Economic Plan (SEP).

When the SEP was released in June 1992, however, we stressed that it was only half of the planning cess. Economic issues cannot be examined or addressed in isolation from social issues and realities, and it was imperative to move on to the second phase of our strategic planning: the development of a Strategic Social Plan. A Social Planning Group (SPG) of senior officials was established, and on March 4, 1993, the Throne Speech in the House of Assembly reaffirmed Government's commitment to the development of a Strategic Social Plan as the essential and equal partner to the SEP.

During the past three years, the SPG faced many challenges in their task of researching global trends reviewing programs and policies. Unlike economic planning activity, strategic social planning models were virtually unknown, and the Group were for the most part breaking new ground. In addition, they were caught in a maelstrom of social change and reform at both the Provincial and Federal levels, and were obliged to constantly revise data and projections to keep pace with national social reforms and in funding.

Nevertheless, the work of the SPG progressed to the point where relatively stable data could be provided to Cabinet and a consultation paper could be developed. This document is not a final Strategic Social Plan but it is a clear statement of the direction in which Government intends to proceed in terms of providing essential services for the social well-being of our citizens in as effective and efficient as possible. We now invite comment and suggestions from the people of Newfoundland and through the extensive public consultation process which will precede the development of the Strategic Social Plan.

I encourage all citizens, and especially organizations concerned with various social issues, to examine this paper thoroughly and to give serious consideration to the social challenges that are outlined and to the strategies and actions that are proposed. I look forward to receiving the thoughtful views of people throughout the Province as we continue the process of planning our social order for generations to come.

[original signed by]

Clyde K. Wells

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To come:  “Introduction and Background”

• Introduction
• Social profile
• Demographic Change and Challenge
• Living in a Different World
• Realities
• Principles
• Vision

Explanatory Note:  The 159 page Strategic Social Plan [SSP] consultation paper is being presented in a series of instalments.  A companion to the 1992 Strategic Economic Plan, it lays out both a clear statement of where the province was in 1995,  the challenges to be faced in the future and policies to deal with those challenges successfully.

Approved by cabinet for release in December 1995, the 1,000 copies of the consultation document were ordered destroyed by the Tobin administration in 1996.  Only a handful of copies survived.

The planned consultation never took place.  Instead, and while something subsequently emerged which was labelled a Strategic Social Plan, the new Tobin administration went down an entirely different road from the one envisaged in the 1995 consultation paper.

Some specific initiatives from the 1995 document did make it into action.  Others did not. Unfortunately, the fundamental approach – the integrated concept – that underpinned the strategy went out the window with the change of administration in January 1996. 

It never returned.

The current state of the provincial government – unsustainable levels of public spending in an increasingly fragile economy – are a direct result. 

In a province facing an uncertain future, where political leaders are devoid of ideas, let alone sustainable or new ones, the 1995 Strategic Social Plan remains relevant.

Taking responsibility – comments, courts and disclosure

A Nova Scotia court decision last week ordering The Coast to cough up details of people who left comments on the newspaper’s website caused a bit of a stir in some communities over the weekend.

The Telegram Saturday editorial takes up the issue, as does Telly editor Pam Frampton in her weekend column.  There’s also an editorial in Halifax’s major daily the Chronicle-Herald.

Each focuses on the the idea that people making comments online should not expect complete anonymity.  They should be expected to take responsibility for their words. As the Herald editorialist concludes:

The bottom line is that freedom of speech online has no exemption from the same legal limitations that exist everywhere else in society.

Amen to that, brothers and sisters.

But with your head suitably swollen with such lofty thoughts, go to The Coast website and look at what is actually there in the stories stories about the Halifax regional fire department and allegations of racism.

That’s where things get a wee bit more complicated.

For starters, the two people who sought the identities of the commenters were not just “two firefighters” as both the Herald and the Telegram opted to describe them. Rather they were the chief and deputy chief of the department.  Both are directly involved in a human rights case launched by a group of black firefighters that alleges not only that racism takes place with the regional fire department but also that senior officials did not act promptly to deal with the issues.

Next, take a look at the comments under the various Coast stories dating back to last spring. Unless the Coast has removed the comments – there doesn’t seem to be any sign of that -  it’s pretty hard to find one which connects the two applicants directly with alleged actions.

With that done, you should realise there might be more to this story than meets the eye.  Someone might want to take a hard look at the speed with which the judge in this case issued the order.  A similar case in Ontario – as the Herald notes – is still awaiting decision.

If nothing else,  people might want to consider the implication of any such easy order for whistleblowers, especially in a province  with no legal protection for disclosure of confidential information in the public interest. 

Again, the Herald raised that point but did nothing with it in the editorial. 

Nova Scotia provincial public servants are protected by a set of regulations but it doesn’t appear those protections extend to municipal employees. In Newfoundland and Labrador, public interest disclosure is looked upon, apparently, with the same disdain as any disclosure of information under the province’s access to information laws.  Although the current administration promised a whistleblower bill in 2007, there’s no sign one will come to the legislature while the current administration is in power.

Some commentators criticised the editors at The Coast for stating they will quickly comply with the court order.  The editors are right to do so.  If there is libel in the comments, then those defamed have the right to seek redress. No one should be able to make scurrilous, defamatory comments with impunity:  speech online ought to be subject to the same law as speech everywhere else in this country. 

At the same time, though, those same commentators ought to realise that free speech isn’t really threatened in this case.  Even in the worst scenario where now or in the future someone tries to silence legitimate speech with the chill of legal action, the Coast editors are likely to pursue that issue with the same vigour they have used thus far in tackling the allegations of racism within Nova Scotia society.

A free press stands alongside free speech as a means of ensuring that those in power are held to account.  Both are secure in this Nova Scotia example.

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Will Americans shift oil attention to own offshore?

According to figures in a 2006 study for the United States federal government, the Atlantic offshore area that may be opened soon to drilling likely contains at least 3.8 billion barrels of recoverable oil and 10 trillion cubic feet of natural gas.

That puts it on par with the Newfoundland and Labrador offshore.

But the total United States offshore potential is more than 86 billion barrels of oil and 419 trillion cubic feet of natural gas.

President Barack Obama committed last month to open up portions of the American offshore to drilling. 

Obama talked about the same issue during the election campaign in 2008 saying he was willing to consider lifting the current ban if it would mean lower prices for American consumers.

So far the major oil companies are sending positive signals about the decision.  It’s also a bit too soon to see what impact this may have on exploration offshore Newfoundland and Labrador.

This is a development worth keeping an eye on, however.  Given a choice between working at home in stable working environment and working in places where policies tend to shift erratically, the big oil companies with the deep pockets may opt for working closer to home.

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NL manufacturing nosedived in February

Manufacturing sales in Newfoundland and Labrador dropped almost 40% in February 2010 compared to February 2009, according to figures released by Statistics Canada on April 16.

Manufacturing in February was down 33% from the previous month.  No other province registered double-digit drops.

By contrast, manufacturing sector sales were up 6.4% nationally. New Brunswick registered a 26% increase in manufacturing year over year while Ontario was up 10%.

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Offshore oil production remained down in February

Oil production offshore Newfoundland and Labrador continued to trend lower in February 2010, despite continued high oil prices.

Total production from the Hibernia, Terra Nova and White Rose fields hit 8,213,115 barrels according to figures produced by the Canada-Newfoundland and Labrador Offshore Regulatory Board.

That’s down from 9.5 million barrels in February 2009 and 10.1 million barrels in February 2008.

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I thought *you* had jobs to send to *us*…

Take a look at the very limited amount coverage available on the Internet about the southern governors and Canadian premiers conference.

There are lots of platitudes about relationships.  There was plenty of interest in energy jobs. But aside from vapid comments about things like the international awareness of American business leaders – they are apparently very, very good -  there wasn’t much of substance coming from any mouths.

That’s hardly surprising:  the southern United States is looking for people to move in a create local jobs. Take, for example, the situation in Alabama, as described by an editorial in the Anniston Star newspaper:

It's a non-debatable, obvious fact. Alabama needs jobs.

Anniston – roughly the size of Corner Brook - is looking for someone to come to the state, set up a business and create jobs for Alabamans. Neal Wade, of the state economic development agency, told Associated Press [quoted in the Anniston Star]:

"What we want to see is not just the assembly jobs, but the research and development, renewable energy projects that will impact not just our state but all of the country…. I think there are tremendous opportunities not just to reduce the cost of energy in our state, but also to increase jobs."

Three years into the exercise this particular conference of governors and premiers seems to be coming up very short.  Some provinces, like Quebec, may be able to profit but it is hard to know why a province like Newfoundland and Labrador is devoting such effort as sending the premier to the meetings while other, more lucrative prospects have been either neglected or trashed.

After all, you can just hear Mississippi Governor Haley Barbour and Premier Danny Williams when they first met:  “But I thought you had jobs to send to us.”

At least, Danny didn’t have to travel far to get to Biloxi.

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Jon Lien: mensch

Jon Lien, known around the world for his work with humpback whales, died in St. John’s today, age 71.

He was a remarkable human being and anyone who had the chance to know him on any level – your humble e-scribbler did through work with a local conservation foundation – knew immediately of his energy, enthusiasm and respect for all living things. 

There will be no shortage of tributes to Dr. Lien.  One of the best you will find anywhere came from Geoff Meeker two years ago when Dr. Lien was inducted into the Order of Canada.  Like most recipients of the Order, Dr. Lien got it for one thing but his life was filled with reasons to acknowledge him and honour him. Geoff reprinted a profile he’d written 20 years ago and it still holds up today.

Few will be able to put it any better about a man few will be able to equal, let alone better.

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Interconnection key to reliable wind power

A recent study from the University of Delaware’s College of Earth, Ocean and Environment shows that a network of offshore wind sites can be managed to ensure consistent power generation from the system. [Full report in pdf]

One of the major problems with single wind farm sites is the unpredictable nature of generation.  Power only flows when the wind blows and there is no guarantee when it blow or if the wind will be strong enough to generate power.

Researchers at CEOE analysed five years of data from sites stretching 2500 kilometres along the east coast of the United States. By simulating an interconnection they demonstrated that the system could provide consistent, sustainable power.  While other studies have shown the benefit of interconnection, the key to success in this case lay in the wide geographic dispersion of the wind farms.

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Show Trial

Charges laid against one Innu hunter from events in 2009 caused a minor flurry in St. John’s when the news broke charges had been laid. This will likely wind up being a big political story but a very short legal story.

Essentially, this is a political prosecution, done for show and nothing more. The government had to hunt around for someone to charge after all the controversy earlier in the year.  If it was a real charge, the justice minister would be speaking to it and since he was nowhere to be seen, you can draw the logical conclusion.

The fact the wildlife crowd came up with one lone guy to charge – from 2009 – would cause even the most blind judge to wonder what was being tossed in front of him. 

In the end the hunter will get off for one of several reasons.  The most obvious one is the aboriginal right to pursue traditional ways.  That’s the most obvious reason and the one that is pretty hard for the Crown to refute.

They can’t play the endangered herd card for one simple reason:  if the Innu actually had been killing the herd at the rate claimed, the herd would have been killed off 25 years ago.

Second, there is the angle to use if the guy has a lawyer bent on embarrassing the living crap out of the Legal Genius(es) behind the prosecution. 

If that’s the case, the lawyer will scream that his client is being abused because he is from another province. He will have plenty of evidence to back up this line.

The lawyer will point to the treatment of his client compared to Innu hunters from Labrador who were caught red-handed killing animals of an endangered herd who had their gear and vehicles returned to them. The lawyer can point to the need to get a deal on the Lower Churchill as a motivation for the blatantly unfair treatment accorded to the Labrador Innu. He doesn’t have to prove that, mind you.  He can just allege it.  Think of it like claiming your client got a shit knocking on George Street because his old man was in a labour dispute or words to that effect. 

He can also have a go at the natural resources minister for alleging the Innu were potential murderous bastards.  Her whole line about something flung into the blades of a government helicopter seems a tad overblown. 

And if in the process the lawyer for the poor fellow facing charges can coax a characteristically intemperate outburst from the province’s Chief Lawyer, then all the better for his client.

Ginger, get the popcorn.

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Wolfe Island Wind Farm

Since last summer, pictures of the Wolfe Island wind farm have been one of the most popular search terms to drive traffic to Bond Papers.

Unfortunately, they haven’t been readily available since the site redesign. Well, by popular demand, here’s the best shot, taken from the Wolfe Islander III on the return run from the island to Kingston.

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Government-subsidised government jobs

There are two things to notice about a provincial government news release from the human resources and labour department announcing the awarding of $67,000 of job subsidies for seven jobs in the electoral district represented by the minister responsible for human resources and labour.

Well, there’s three if you include the fact that Susan Sullivan is announcing money for her own district and at no time makes reference to the fact it is her district.

But there are two other aspects of this release that scream out for attention:

Firstly, the news release gives absolutely no background whatsoever on what the seven people benefitting from the cash will be doing. In fact, aside from the first paragraph, the rest of the release pours out tons of boilerplate on the program used to pay for the jobs.

Secondly, one of the employers involved in the projects is the Nova Central School District. The money is for “the hiring of staff…” for the district.

In other words, the provincial government is using government money from one department to subsidize jobs in another line department.  Nova Central gets its funding from Darrin King, the education minister.

Talk about jobs that depend on taxes.

Talk about make-work schemes.

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Oil above $80/bbl may hamper recovery

The International Energy Agency is warning that oil prices above US$80 a barrel may jeopardise economic recovery in major countries.

From the Globe and Mail:

“Ultimately, things might turn messy for producers if $80-100 (per barrel) is merely seen as the new $60-80 (per barrel), stunting economic recovery while prompting resurgent non-oil and non-OPEC supply investment,” the Paris-based IEA said in its monthly oil market report.

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Labour Force and Employment, March 2007-March 2010

Just for the fun of it all, here’s a table showing the Newfoundland and Labrador labour force (top line and the employment, by month, from March 2007 to March 2010.

The numbers are from Statistics Canada’s The Daily.

There are a few things to notice:

1.   Employment in Newfoundland and Labrador peaked in May 2008 at 224,700. Then it dropped drastically and kept on falling until November 2009.  That’s when it seems to have started a rebound.

2.  May 2008 was two to three months before oil prices peaked and the recession started.

3. As one might have expected, all that provincial government capital spending last year kept construction workers employed but it sure as heck didn’t work any miracles in the job market. 

4. Even though there’s been a pretty steady climb in employment since later 2009, there doesn’t seem to be any particular reason for the climb, at least not in the private sector. The employment level also seems to have hit a plateau for a while.

5.  The only major private construction project due to ramp up in the near future is the Vale Inco project at Long Harbour.  The Hibernia South and White Rose work aren’t really jab-makers. Hebron is the next big one to hit and that won’t show up until 2012 at the earliest.

6.  Notice that the labour force in the province has been growing steadily since  the middle of 2007.  That matches the observation made by labradore about economic refugees who started returning home in advance of the recession.

7. Is the recession really over? Continued labour force grow suggests there is a problem elsewhere and that economic refugees continue to head back to Newfoundland and Labrador in the hopes things are easier at home.

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The Fragile Economy: …and two steps back

In 2007, the contracts manager at Metalcraft Marine, a Kingston Ontario boat builder noticed the growing number of reports from the united States that predicted a looming downturn in the American market.

The threat was potentially devastating for a company that did 95% of its business manufacturing small patrol boats for American government agencies.

The company shifted its marketing focus to South America, the Middle East and Asia.  The work paid off:  revenues in 2010 will be 50% higher than 2007 based on new customers outside North America.

Inertia

Meanwhile, since 2007, the provincial government in Newfoundland and Labrador has been working alongside the other eastern Canadian provinces to increase trade with the United States. There is now a whole trade focus on the south-eastern Untied States complete with junkets and conferences. 

Just this weekend – April 2010 -  the Premier co-hosted the latest conference for the south-eastern project.  This is the same trade venture. incidentally, that drew Paul Oram to Georgia when he was the business minister. His grasp of recent events in the province is breathtaking.  Well, breathtaking that is, if you have no idea what he is talking about.  If you do have half a clue, you’d wonder what planet he was from to have cocked everything up so badly.

Now to be fair, the whole idea for this venture seems to have been cooked up back before 2007 when it looked to some like the growth in the United States economy would know no end. By the time the bureaucrats and politicians managed to get themselves organized, the first signs of looming trouble were showing up.  And by October 2008 when Oram was in Georgia, the entire arse had fallen out of the American economy.

By then, of course, or even by 2007, the bureaucratic juggernaut couldn’t be stopped even if someone wanted to.  And now three years after the first one, a whole bunch of people get together regularly at taxpayer expense to talk about how nice it would be if the private sector companies in the respective jurisdictions did a little business with one another. 

These trade affairs never seem to do much more than talk, of course and set up permanent offices employing public servants to help co-ordinate future meetings.  That’s what happened with the Tobin-era Irish junket-fest, revived by the Williams crew or the Team Atlantic missions to anywhere that has warmth and sun in the wintertime.  But the purpose of this discussion let’s run with the assumption used by governments, namely that these trade missions and junkets actually work.

Increasing Dependence on a Single Market

Politicians who come into office without any idea of what to do usually wind up following the flow.  This American trade idea is likely no exception. 

You see, the United States has been the province’s major foreign trading partner for decades.  In 1999, two thirds of all exports from Newfoundland and Labrador  went to the States. By 2006, that proportion had climbed to 75%.  Even in 2008 – the last year for which the provincial government provides statistics – 71% of exports from Newfoundland and Labrador went into the American market.

To put it another way, take a look at the export value compared to the province’s gross domestic product (GDP):  the  total value of goods and services produced in Newfoundland and Labrador. In 2008, about half the GDP went to the Untied States. The GDP in 2009 was 22 billion.  The drop was pretty much all due to the collapse of the American market.

Now that level of dependence is not as bad as Metalcraft's problem in 2007, but it certainly should have made someone within the provincial government sit up and take notice.  After all, the provincial government’s own statistics analysts produced the figures cited above.  The level of dependence on the American economy is not a state secret.

Rather than trying to increase trade with the United States, Newfoundland and Labrador would be strategically better advised to diversify its markets. But since 2003, the provincial government has been doing exactly the opposite. 

What’s more, the provincial government  - in an apparently capricious move -  specifically rejected getting involved with a major international trade initiative aimed at diversifying the markets for local goods and services. 

Sure Paul Oram took a jet to India in 2008, but the very next year, the provincial government rejected a major national effort designed to open the European union to free trade with Canada. A few million dollars worth of seal bits trumped what had managed to become, by 2008, close to a couple of billion dollars of trade into the European Union. The prospect of more trade with the Europeans opens opportunities for new business throughout the province not to mention offering the chance to resolve some long-standing trade issues in the fishery.

However, none of that seems to have had any impact on the group of politicians and bureaucrats determining the province’s economic policy.  So it is that the European opportunity was neglected, to put it mildly, while the American continues.

Markets?  We dun need no stinking markets?

Now this is not the first or only time such a situation has occurred since 2003.

The provincial government took a hand in smashing to bits the only internationally competitive fishing enterprise based in the province.  Fishery Products International continues as a brand.  The brand, along with the international marketing arm went to a Nova Scotia-based company.  Another section, a seafood marketing arm based in the United Kingdom also wound up on the block, snapped up just as quickly by someone else with far greater vision than the provincial government and the band that sliced the company to pieces.

Now it does not matter if the provincial government actively worked to destroy FPI or if it merely went along for the ride because it lacked a coherent fisheries policy of its own.  The end result is the same:  The parts of the company that could have helped to diversify markets for local seafood are gone to others.  The unprofitable and problematic bits – the processing bits – remain in the province and continue to be highly problematic  although they are now held by a smaller company with far less global clout.

The others are doing quite well for themselves.  John Risley, vilified by the Premier during the FPI debacle, personally runs a successful company that last year turned a profit of $25.8 million despite the downturn in the American market and the high Canadian dollar.  A key part of the success is the FPI stuff Risley bought with the same Premier’s agreement.

Oh to be in that room

There is no small joke in discovering that the Biloxi conference co-hosted by Danny Williams is sponsored,in part, by AbitibiBowater. Williams’ expropriation gambit of AbitibiBowater’s and other’s assets in 2008 has turned out to be a legal disaster for the provincial government and may well prove to be as big a financial mess too.

Irrespective of that, though, there is something fitting in having Williams hosting an event designed to encourage trade while it is sponsored by a company which is the poster-child for the Williams administration’s erratic, contradictory policies. 

It is one thing to sell products in another market.  Another key component of trade missions is attracting new investors.  What could more readily turn off investors than the spectacle of a provincial government seizing control of assets, revoking permits and unilaterally quashing legal action? 

Williams did not just lay waste to AbitibiBowater’s presence in the province with his December 2008 surprise.  The expropriation bill also seized assets belonging to two other companies:  the Italian multi-national ENEL and St. John’s-based Fortis.  There is still no sign of any settlement with any of the parties affected, including those like ENEL and Fortis which appear to have been collateral damage in whatever war lay at heart of the expropriation.

One step forward and two steps back

Two decades ago, the Government of Newfoundland and Labrador recognised both the problems faced in the province and the opportunities posed by changes in the global economy. The Strategic Economic Plan aimed to make fundamental changes in the economy, diversify industries and markets.  The plan was a step forward.

Two decades later, the province is two steps back.  The SEP and all the knowledge that lay behind it are tossed aside. 

As the old adage goes:  fail to plan.  Plan to fail. 

The results are there for all to see:  increasingly, the provincial labour force is dominated by people whose jobs depend on tax dollars, rather than on jobs that generate tax dollars.

 

The provincial government now accounts for almost 25% of the employed labour force in the province.  This is not just the result of the near collapse of the forest sector and the steady decline of the fishery:  public sector employment like public sector spending generally continues to grow apace. Curiously enough, the Williams administration started out with a policy of reducing the public service.

Since 2003, the only development projects that have taken place were all either begun before the current administration took power or build modestly on existing work.  Nothing new has turned up despite the creation of an entire department supposedly devoted to generating new economic development.

More of the provincial economy in 2010 depends on exports to the United States than a decade ago. About 71% of all foreign exports now head to the United States.

Oil generated one third of the provincial gross domestic product in 2009;  that’s about seven billion dollars in a $22 billion economy. Total provincial government spending for 2010 is about seven billion.  As industries like forestry and the fishery have withered or faltered, the provincial government has stepped in to take its place.

The provincial economy is increasingly driven by public sector spending which, itself cannot be sustained at current levels.

There are ways to correct the course the provincial government has currently set.

That is where this series will turn next.

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Rosy with a chance of goofballs

Not only will the provincial government continue to make billions despite dwindling oil production, that situation will continue over the next decade with the provincial government raking in around $2.0 billion annually.

That includes 2016 when – according to the production forecast used to make these awesome predictions - production will be a mere 65 million barrels.

The source of this sunniness is none other than the local Blue Team’s favourite economist Wade Locke.

Yes, folks, the same guy who complained when he was accurately quoted (but unfortunately contradicting the official spin) is predicting sunny days ahead.

And it’s there for all to read, on the front page of the Saturday Telegram complete with a pretty graph of annual oil production.

Not surprising, is it?

And there is no reason for doubt.

Locke remains confident in his forecast, a year after he gave it:

"That what I was expecting before, and that's what I'm still expecting."

Of course, he is. 

Just like he was confident when he forecast gigantic things for Labrador at a time when the global economy was tanking.  he expected it then and he still expected it right up until it didn’t happen.

Or like 1990 when he pissed all over the economic benefit from Hibernia.

Yes, those economic boons can be hard to predict.

We just have to make sure the credit goes in the right direction.

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Let he who didn’t oppose The Deal…

cast the first stone against New Brunswick Power’s proposed 3% rate hike or any of the other proposals aimed at coping with the company’s financial problems.

The ones who worked to kill the NB Power/Hydro-Quebec deal can just suck it up end enjoy it.

(h/t David Campbell.

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Conveniently close to home

The Premier is co-hosting an international trade mission this weekend, as the provincial government’s information service dutifully tells us all on a sunny Friday.

The event will bring together a bunch of state governors and provincial premiers to talk about ways to promote trade among the states and provinces.

The conference is Biloxi, Mississippi and that, as we all now know, is just a short Citation hop across the Gulf of Mexico from the Premier’s condo in Sarasota, Florida.  It’s so nice when things take place so close to home.

Almost immediate Update:  Since his truck hasn’t been in the Premierial Parking Space, odds are the Premier’s been back in the Southern Tower since the House closed for a three week break.

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Cod farm folds only months into start-up

Cooke Aquaculture is closing an $8.5 million cod demonstration project it opened last year with financial help from the federal and provincial governments totalling $4.0 million.

The facility got its first cod fry in September 2009,

The existing stock will be raised to maturity in 2012, as planned but the company won’t breed new stock.

In a story in the regional weekly newspaper The Coaster, the company blamed higher–than-expected costs and competition from wild cod fishing for its decision.  The company also said it couldn’t attract additional investment from its partners or from the provincial and federal governments.

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Community Values

Some Newfoundlanders and Labradorians may be offended that a Pentecostal pastor received a light sentence – a suspended sentence and 12 months probation - for masturbating in a Walmart parking lot.
Put it down to community values.

Since 2005, Newfoundland and Labrador is a place where throne speeches are annual exercises in public oratorical onanism, members of the governing party routinely massage their Leader’s ego whenever they can.
Even a newspaper editor got into the public jerk-off craze before he entered politics.


If the good pastor could learn to stroke himself verbally, he might have a wonderful new career ahead of him.
Apparently the locals don’t think there is such a thing as either too much self-love or the enthusiastic public verbal display of ones self-affection.

Yes, we do love our wankers.

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Not quite #bustyhookers - Twin Peaks 20th anniversary

The first episode of Twin Peaks aired 20 years ago – April 8, 1990.

Here’s a quick clip in which SA Cooper meets the ever-lovely Audrey Horne:

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From the ridiculous to the absurd: national news quickies

1.  A Harris-Decima poll for Canadian Press confirms what most Canadians have known for a couple of years:  neither of the federal political parties is persuading Canadians that it has the stuff to govern with a majority in Parliament.

2.  Gilles Duceppe gets a few headlines by discovering there is life outside the Queensway.  He didn’t really have anything to say – new or otherwise -  mind you, but Duceppe got a few headlines largely for showing up.

3.  As others have noted, former Quebec Premier Jacques Parizeau may have thought that the ethnic vote cost him the referendum in 1995 but he was still willing to let a few “ethnics” look after his health at Montreal’s Jewish General Hospital.

As the Gazette notes in a more serious vein, though:

So we owe Parizeau not only our good wishes for a full and speedy recovery, but also our thanks for the wisdom of his choice. It serves us almost as well as we're sure it will serve him.

4.  Putting Rahim Jaffer’s name and the word “absurd” in the same headline is redundant.  Access is related to power and influence.  People who really have them don’t talk about them.

Significant Digits – oil production

In 2009, the Canadian Association of Petroleum Producers forecast a steady decline in local oil production. 

The decline is forecast to end around 2017 as new production from Hebron comes on stream, but the increased production only lasts for a couple of years before the decline sets in again

The peak once Hebron comes on stream is forecast to be about the same level as the forecast shows for 2012.  That’s slightly above 80 million barrels.

 

But hang on a sec.

Production for the current year – 2010 – is forecast by government officials at 86 million barrels.

Yessirree, that’s right.  And production last year was 97 million barrels, again a figure CAPP had down for 2011.

In other words, the decline is about two years ahead of forecast. We also know that Hebron is behind schedule as well.  How much behind schedule isn’t clear but it could be as much as a year later than the optimistic projections when the deal was announced or when it was re-announced.

So that period in the low-production trough could well be longer than CAPP’s forecast shows and the rise back up after Hebron could be much slighter.

In other words, when finance minister Tom Marshall admits that oil production is on the down-slide, he’s acknowledging that he already knows exactly what the implications are from that CAPP graph.

Let’s put it this way:  this year, if oil averages around $83 a barrel as the provincial government believes, the total value of oil production offshore will be about $7.1 billion ($83 X 86 million)

In order for the provincial treasury to bring in the same royalty as it forecasts for this year - $2.1 billion – with production at 40 million barrels (i.e. the bottom of the trough) – oil would have to average $178 dollars per barrel in that year.

No sweat, says you, oil got to $147 a couple of years ago.

Yes it did, sez your humble e-scribbler.  And look what happened right afterward.  Oil didn’t average that price:  it hit the number and then fell off quickly.

If that isn’t enough for you, consider that oil prices averaging $178 a barrel would be more than double the average price ($83) the provincial government forecast for oil this year.

So in order for the provincial government to do exactly what they are doing in 2010 in that mythical year we will call 2014 (remember everything is two years ahead of schedule) oil would have to be almost $180 a barrel all year.

For those keeping track, and just to show you how soon this is, just bear in mind that 2014 is one year beyond the period of continuing deficits forecast in the spring provincial government budget.

And just remember, as well, that this year the budget is forecast to be short by almost a billion dollars of cash.

Not only is there not enough of a cash reserve to cover that sort of a shortfall in 2014, there wouldn’t be enough cash in any secret government pockets to handle a deficit half that big.

And that’s without thinking of what tremendous pressures there’d be for higher wages and higher costs and higher priced everything else in a world where the price of oil doubled in a mere four years. 

Yes, gentle reader, that little scenario assumed spending stayed where it is predicted to be in 2010.  But as we all know, if oil prices were to shoot up that way, spending would have to go up just as radically.  The only problem is that spending would shoot up but – as we know – the major source of provincial government revenue would only come in at the level for 2010.

When oil was forecast to be half the price.

Increase your spending dramatically while holding your revenue about the same.

That’s the definition of “unsustainable”.

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Significant Digits – health care edition

In 1995, the provincial government spent slightly less than a billion dollars on health care. 

That was 26.4% of the provincial budget that year.

In 2010, a mere 15 years later, the provincial government is spending roughly 43% of the budget (not including capital works) on health care. 

That figure drops slightly – to 38% - if you add capital spending but that's only because of the disproportionate amount of spending on capital works not related to health care. 

In 2008, the provincial government spent 43% of the budget on health care.

That’s on par with spending in Quebec, for example, but the rate of change has been much greater in Newfoundland and Labrador than it has been in Quebec. Health care spending in Newfoundland and Labrador has doubled since 2003; in Quebec, health care spending grew 33% between 2003 and 2007.

Wait.

It gets better.

With health care spending at about $2.7 billion, that works out to be the equivalent of 12% of the value of all goods and services produced in the province  - the gross domestic product or GDP - in 2009.

According to the Organization for Economic Co-Operation and Development, the Untied States spent 16% of its 2007 gross domestic product on health care.  That’s the most recent year for which the OECD supplies statistics online.

Canada as a whole spent 10% of its GDP on health care.  That was slightly behind Germany and around the same amount as Austria and France. But the majority of countries in the comparison of Europe and North America spent less than 10% of GDP on health care.

Just to be sure, in 1995, Newfoundland and Labrador spent about 10% of its GDP on health spending.  

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Incidentally, those 1995 figures are from the Strategic Social Plan consultation paper.  It was supposed to have been released in early 1996 but circumstances prevented that from happening. Since copies are scarce – they were rounded up and shredded on orders from on high – your humble e-scribbler will scan his and start posting it very shortly.

Crisis at Tammany

Well, not really.

It’s really just a couple of councillors who have opted for hysterics over reason given the decision by Fortis to withdraw its proposed 15 storey high rise development in a heritage zone that had a four story height restriction.

Read that again, just to make sure you are clear.

A proposal that already violated the city building restrictions died before it got to a vote.

And some councillors are a wee bit miffed.

Like At Large councillor Tom Hann and mayor Doc O’Keefe (via CBC):

"Some of us were labelled gutless wonders, and spineless. So in the present atmosphere, why would anyone want to come here and be part of the city," said Hann.

"We slammed the door, your worship. We slammed the door in their face."

A disappointed Mayor Dennis O'Keefe agreed, saying the company had voiced similar concerns to him.

"They felt that they weren't getting a fair shake," said O'Keefe. "What they heard the loudest was the naysaying and the branding of being arrogant."

If Hann would stop with the foolishness for a moment, he’d realise that there are plenty of places in St. John’s, including in the downtown area, where a developer like Fortis can build high rise towers.

So if a developer like Fortis decides to submit a proposal for development that violates the area height restrictions, then it’s their own fault if the thing fails.

There was nothing stopping Fortis from submitting a proposal that fit within the rules and that incorporated a redevelopment of their existing 12 story property.  That one would have been grandfathered through anyway.

But there isn’t a single developer who will refuse to come build in the city of St. john’s because  - to use his own words - some people think councillors like Hann are “gutless wonders” and “spineless”.

Developers likely don’t care that much about Hann’s feelings.

As for Fortis, they did a pretty slick job early on of lobbying people like Hann and O’Keefe and putting them in the bag long before the residents of St. John’s even heard about the proposal. That’s the sort of old-fashioned crony politics that has left this city in a development mess there is. That’s the one where no one knows what the rules are.  They don’t know what the rules are because there are a few councillors who can be persuaded to toss the rules out the window if the mood strikes them.

Ultimately Fortis lost this round because of a pretty effective lobby.  Those opposed to the development just put the squeeze on the notoriously fickle councillors.

That’s the way things go in politics.

And if Hann wants to fix things  - if he wants to show he has a spine - well he can start by bringing about some changes that open up city hall to greater public scrutiny. That way people wouldn’t be worried that developers can get their way around the rules.

Who knows?  If the rules were suddenly clear and fairly and consistently applied there might be more people willing to invest.

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The Fragile Economy: reductio ad argentum

Political parties that come into power without direction tend to fall back on a couple of crutches to help them get through.

One is inertia.  They just keep going with what happened before.  Sometimes they just take ideas pushed up by the bureaucracy but that is really just another form of carrying on with the set of assumptions everyone knows.

The collapse of health regions and education districts into just a handful is just such an idea.  Faced with an apparent financial problem – which the new Williams administration should have known all about before they got to office, by the way – the novice Premier took a couple of suggestions pushed forward by bureaucrats as a way of saving cash.

Poof:  four health regions and five education districts. The changes didn’t actually deal with the problem nor does it appear they were thought through. Yet they were quite accepted quite readily as the election commitment of growing our way out of economic tough times  - “Jobs, jobs, jobs” - was replaced by the staples of cuts, freezes and re-organization.

That’s not really all that surprising.  After all, this was an administration that had not even been able to figure out what its departments were going to be called.  That decision wouldn’t arrive for another month.

The noobs elected in October 2003 took five months to get enough material together to present to the House of Assembly.  But even then, the overwhelming majority of the bills were modest amendments to existing laws that had been in train before the election. 

Those that weren’t already planned by the old administration didn’t produce dramatic changes of direction for government. Amendments to the Elections Act, for example, mandated that a by-election had to be called within 60 days when a vacancy occurred.  The old version dated from the early 1990s and set the maximum at 90 days.

For a government that supposedly had a plan and was keen to get to work on its new agenda, there wasn’t much sign of that new agenda from the first session of the legislature.

Aside from a toothless lobbyist registry, the Transparency and Accountability Act was the only major new piece of government business. Duly passed after a cursory debate the government then didn’t bother to put the law into force until two years later.  Even then, the bill only took effect two afters later still, that is, four years after it was passed.

Another new bill, the Court Security Act, is still not in force and likely won’t be implemented.

It’s only when one goes back and looks at that first session in hindsight that one can see exactly how little new material the brand new government brought to its first legislative session.

Directionless governments also have difficulty making decisions.  Most governments find decisions difficult to make because they issues involved are enormous and the opportunity to make a tragic mistake is great. Contrary to what people may think politicians are sincere people trying to do what they think is best. But in a directionless administration, all those sincere people have to struggle to agree on what “best” actually means.

Now by directionless, we mean nothing more than a group of people who have not learned how to work together effectively as a team.  Lack of direction may also arise where political power generally or on a given issue is so diffuse that no one individual or group of individuals can get enough support among colleagues to move in a particular direction.

Directionless governments tend to decide in favour of the lowest common denominator.  On some issues the LCD is no decision.  But, more often than not, agreement is easiest to reach if it involves spending money.

Take a look at the current administration and you can quickly see the prominent role money plays.  In fact, money is the only real measure of anything.  news releases typically refer to how much money will be spent and how much has been spent.  When asked about how important a subject like the fishery is, a typical Williams administration reply will focus on how much money has been spent on fisheries-related issues.

A by-election is fought based on how much money the premier and his party delivered to the district.  Puzzled at a by-election loss, the Premier will note how much money the district received and then roll his eyes up dismissively at the rejection.

The final Hibernia South agreements were not good enough in themselves. Rather, the estimated valued of the deal had to be inflated by an entirely artificial means.

Everything - not just principle - converts to cash. Indeed, so pervasive is the reference to money that you likely took it for granted.  But from this point onward, you will likely have a hard time looking at any news story from the provincial government and not seeing the focus on, the near obsession with cash.

There are other examples of how the current administration lacks focus and direction.  Equalization, the delays and cost over-runs throughout government, the health care cuts that sparked last fall’s crisis,  the break-up of Fishery Products International:  all are signs of an administration which lacks a coherent view of the problems it faces and a cohesive organization that can tackle them successfully.

Knowing how the current administration has a problem finding its way is one thing.  The consequences for the province and its people are something else.

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The Fragile Economy series:

• “Staying the course”
• Next –    “…and two steps back”.

Colonel Mustard…

in his jail cell with aluminum foil and cardboard.

Accused murderer Russell Williams tried to off himself in his cell at the Quinte Detention Centre.

Now QDC is crowded and all, but surely someone thought about putting this guy on suicide watch before now.

Next stop:  Kingston Psych, on the shores of lovely Lake Ontario.

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Seven cent nickel

How the Tories plan to balance the budget:

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Colbert doesn’t RATE

Retired at Taxpayer Expense that is.

If Gerry Colbert wants to retire after 25 years of working, then let him.  No one would begrudge him a rest after his labours.

It’s one thing to hear the rumours that Colbert spent most if not all of the last municipal election in warmer climes, but Colbert’s got another thing coming if he thinks  that time spent during council meetings is nothing more than “face time”.  Let’s not even talk about the idea that for the rest of the week Colbert thinks he can just phone in the job from the Sunshine State.

Maybe Colbert ought to just give up council altogether.  

The taxpayers of St. John’s shouldn’t have to pay him a nickel while he swans off to Florida and enjoys the condo life with the rest of the retired and soon-to-be-retired townies.

Better that than try and retire at taxpayer expense, as he currently is doing.

If Colbert won’t pack it in on his own, then maybe we - the poor sods who are foolishly paying people like Colbert to serve as city councillors -  should reconsider the contents of their pay envelope. 

After all, if being a city councillor is such a lightweight job that you can safely frig off out of the city for upwards of a third or more of the year, then taxpayers shouldn’t be forking over any payments to anyone elected to serve on city council. 

Period.

After all, it’s not like Colbert is alone in being absent from council.  There are others with dubious attendance records.

Maybe it’s time to end the gong show that is city council.  What better way than by punting the biggest gong.

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Epic Fail of The Week: prov gov loses to Abitibi… again

First, the provincial government’s Legal Genius(es) drafted the expropriation bill which seized - all, as it turned out -  AbitibiBowater assets in Newfoundland and Labrador.

They told the good burghers of Danny-ville that this meant only that the power plants and everything else belong to the people of Newfoundland and Labrador.

Everything, except that is for the mill itself, they said which would be used as leverage in negotiations over any compensation for the expropriation.

It would all be a wash, in the end.

Or so people were told publicly and in briefings before the expropriation bill turned up in public.

Then, people discovered that the same Legal Genius(es) didn’t actually exclude the mill as they’d originally claimed.

Nope.

They seized it all.

Big screw up.

Now, the people of Newfoundland and Labrador discover that trying to get some sort of court action forcing the former mill owners to foot the bill for environmental clean-up – as the legal genius(es) assured everyone – won’t work either.

Hands up anyone who is surprised at the latest failure by the provincial government?

Okay, well just stop and think for a minute: 

The Legal Genius(es) behind this latest string of expropriation epic fails would be exactly the same Legal Genius(es) who brought you the Ruelokke legal mess.

And they’d be the same Legal Genius(es) who are now betting massive chunks of the public purse on a law suit against Hydro-Quebec to try and settle a dispute over the 1969 contract.

Any bets on how good that one will turn out for taxpayers in the end?

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Medvale School for the Gifted Update:  Seems the Legal Genius(es) indeed have caught themselves in another bit of jurisprudential bother.  As Russell Wangersky astutely points out, the lovely Abitibi expropriation bill clearly gives no value to water rights and timber rights.  Yet, the scheme to funnel money to Corner Brook Pulp and Paper is based on timber rights having value.

The two things cannot live in the same space.

So either no cash will go to CBPP or, as your humble e-scribbler expects, the real legal geniuses who work for AbitibiBowater (they are 2-0 so far) will use the CBPP cash hand-over to put a much higher price on the expropriation now that they can legitimately claim cash for timber and water rights.

Not only that but AbitibiBowater can also claim – quite rightly – that the expropriation was unusual and punitive aimed specifically at one company and remains without any merit. Coupled with all the nasty words flicked by ministers toward Abitibi, they can likely show that the whole thing was prejudiced and that will only add to the poor beleaguered Newfoundland and Labrador Taxpayer’s legal misery in other places (NAFTA challenge anyone?)

Momentous Update:

Hypothetical Answer by Hard-done-by Citizen:  “Golly Gee Mr. Finance Minister, what will happen if they get more money?”

Not-so-hypothetical Answer by Finance Minister:  “The debt will go up.  We cannot stop the momentum.”

Happy Confederation Day!

Signing of the Terms of Union between Newfoundland and Canada, December 1948.

The union took effect shortly before midnight on March 31, 1949 but events marking the occasion took place on April 1, the start of the new fiscal year.

For a worthwhile perspective, one first generation Canada – your humble e-scribbler – will recommend the words of another first generation Canadian at nottawa along with some thoughts offered from this corner last year on the 60th anniversary of Confederation:

“As we mark this 60th anniversary of Confederation, it is worth considering the extent to which current government policies fail to continue those changes.  It is worth noting that in the endless wars with outsiders, there has been a steady rebuilding of the walls and barriers we have worked so hard to tear down.  We worked to tear them down because they served only to restrict us.

It is worth noting that genuine pride, innovation and self-reliance can be stifled by a late-night telephone call and by the relentless personal attacks that come from merely dissenting from official views. By choking off healthy debate about public policy issues within Newfoundland and Labrador, by strangling any alternative views we serve only to return this place to self-defeating isolation.

Confederation gave Newfoundlanders and Labradorians the tools and opportunities to make for themselves a better place in the world. In 1949, we became once more masters of our own destiny and masters of our own house.

On this 60th anniversary of Confederation, we must be mindful of how far we have come and at the same time, be aware that if we are to continue to grow and prosper we must safeguard the foundation on which our current prosperity is built.”

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The Fragile Economy: staying the course

“Obviously, I don't like to run deficits, but if I've got to fight a recession ... if we've got to get the economy booming again, then I'm not afraid to spend money and we're not afraid to lower taxes to stimulate the economy - that's good public policy.”

Finance minister Tom Marshall often speaks about one thing and does another.  He’s famous for trotting out a debt clock during one budget consultation farce only to deliver a budget that did nothing to reduce debt.

This year Marshall has been trying to pass off deficit spending as if it was something new for this administration.  It isn’t. They’ve run cash deficits in all but two years since 2004.  If their current forecast holds, they will be adding a considerable amount of debt for the foreseeable future.

Adding debt is just staying the course for the Williams administration.

Premier Danny Williams himself has dismissed balanced budgets as meaningless. Marshall explicitly rejected any action like balanced budget legislation or having a debt reduction policy.

Marshall’s predecessor as finance minister - Loyola Sullivan  - talked about balancing the books on a cash basis – he only did it once – and possibly not balancing the accrual books for a number of years.  That was back in the early days of the administration when it looked like they were actually going to deal with some of the provincial government’s financial woes. But even for all that notice debt got within the first couple of years after Williams and the Tories took office,  they were willing to rack up additional public debt.

Since we are discussing debt, let’s dispose of one of the finance minister’s more laughable claims from budget day:

“But we have cash to pay for that deficit. We will not increase our borrowing. Our debt will go up, but we don't have to borrow for that.”

On the face of it people may well wonder how you can increase public debt while not borrowing money.

The answer is pretty simple and it goes to the heart of the public debt charade Marshall and his colleagues have been foisting for the past few years.

Marshall covered the half billion shortfall in 2009 from temporary investments – extra cash – the provincial government had on hand.  He didn’t have to go to the banks and negotiate a loan but he sure as heck borrowed the money:  he borrowed it from taxpayers.

As for the debt, what he is referring to is net debt.  Now for those who may not know, net debt is a calculation of what is owed compared to assets – cash, property and so on – that could theoretically be sold off to pay down the money that is owed.

Those temporary investments that the provincial government racked up over the past couple of years helped to make it look like the public debt had been paid down. That’s because they are exactly the sort of assets that would have bee used to figure out the net debt:  liabilities less assets.

So when Tom took the cash and spent it, the net debt could only go back up.  The net debt will go up again next year and the year after and any other year Tom winds up having to cover off over-spending.

Just remember, though, that the total liabilities haven’t changed much in the past few years. You can see that from a post last December on net debt and liabilities and in another post on net borrowings.

This is not a subject the Fan Clubbers like to talk about but it is real. it also just happens to be one of the major financial problems facing the province that isn’t being addressed by the current administration.

Just to give you a sense of how much the past two budgets have followed what we could call the Williams administration debt addition policy, take a look at just the current account spending since 2003.  That’s the money that pays the heat and light and delivers the services and salaries every day of every year. 

And just to really keep it in perspective think of it this way.  You can have a great net debt because you have a nice house, an expensive car and some jewels that could possibly be sold off if the bank called all your loans. 

But since the house and the jewels don’t generate any cash each year they don’t help you pay the bills today.  If you can’t afford food without whipping out the credit card you could be in a situation of being cash poor. Lots of nouveau riche business types are leveraged to the max.  They drive flashy cars but they don’t really have a copper to their name. So without considering the cash deficit, the net debt could be a very misleading figure.

Anyway, take a gander at this table.  It shows the percentage increase in current account spending every year from 2003 to the current budget.

Fiscal Year	Percent increase from previous year
2004	Zero
2005	5.3
2006	4.6
2007	8
2008	7.8
2009	10
2010 (forecast)	7

That’s right.

Except for that first year, there’s never been a time when current account spending didn’t go up by at least twice the national rate of inflation.  In some years spending shot up three and four times the rate of inflation.

This sort of spending is unsustainable.

This sort of financial state – all that spending coupled with all that untended debt – is unsustainable.

There are other consequences to the Williams administration economic policy, consequences that will become more obvious as this new series – The Fragile Economy – rolls out in the days ahead.

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Jobs that depend on tax money: stump of forest industry edition

So the provincial government is pumping taxpayer cash to keep a paper mill in Corner Brook alive.

Gee, like that hasn’t been done before.

2006.

2007.

And that’s just the stuff we know about.

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NL economy “fragile”: Williams’ finance minister

“When there is uncertainty, when the economy is fragile, government steps into the breach.”

That’s the way finance minister Tom Marshall explained the reason behind the Williams administration’s plan for three more years of deficit spending including a projected deficit in 2010 of nearly $1.0 billion on a cash basis.

Marshall made the remarks in an interview with CBC’s Debbie Cooper Monday evening.

In his budget speech Monday, Marshall forecast accrual deficits of between $156 and $194 million to follow the accrual deficit of $294 million in 2009.  Marshall gave no forecast of when he expected the provincial government to balance the books again or return to surplus.

In the past, Marshall has explicitly rejected the idea of balanced budget legislation.  Earlier in March, Danny Williams dismissed balanced budgets saying that delivering “balanced budgets is just achieving a number.”

During the interview Marshall referred to the deficit for the year just ended as being half a billion dollars,  after a string of surpluses which he said totalled almost four billion.

But that’s an odd mixture of numbers. Since 2007, the provincial government has kept two sets of books, delivering the finance minister’s budget speech on an accrual basis and delivering the Estimates on a cash basis. Marshall and one-time finance minister Jerome Kennedy typically have referred only to the accrual numbers.

They never mention the cash numbers since they show deficits in all but two years since 2003. And last year’s deficit of $494 million was on a cash basis.  That’s the half billion Marshall mentioned.

But on a cash basis, the Williams administration only produced a cash surplus  - the same figures Marshall used - in two years since taking office in 2003.  In every other year, the Williams administration had to borrow to make ends meet.

Marshall’s 2010 budget forecast that trend to continue.

The green lines in the chart represent deficits.  In Fiscal Year 2006, the shortfall was $707 million, followed by $88 million in 2007.  There was a cash surplus in 2008 of roughly $820 million.

Marshall delivered a $494 million deficit in 2009 and forecasts a cash shortfall of $949 billion in 2010.  It doesn’t take a rocket scientist to realise that if Marshall is only half right in his deficit forecasts for the next three years, the Williams administration will add $1.5 billion to the province’s debt load over the next three years.

Even the deficit forecast for 2010 of $959 million is based on oil averaging US$83 over the next 12 months.  If oil were to average US$70 a barrel -  as it did in 2009 -  the deficit would balloon by another $500 million.  In other words, oil royalties would be only $1.6 billion compared to the $2.1 billion forecast.

And if all other projections held, the 2010 deficit would be more like $1.4 billion in a single year rather than what Marshall forecast on Monday.

None of that includes any debt incurred by the province’s energy company to pay for construction costs on its share of oil projects or the Lower Churchill. Both would show up on the provincial government’s books since NALCOR energy and its subsidiaries are owned wholely by the provincial government. At the same time, the province’s oil and gas company isn’t required to pay any royalties to the provincial treasury like other oil companies.  Instead, NALCOR will pocket the cash, pay off debt or use it to fund other projects which also likely won’t generate any money for the provincial treasury.

The apparent surpluses Marshall claimed during his interview were actually paper transactions resulting from the accounting practice of distributing the one time advance cash transfer payment from Ottawa in 2005 over the fiscal years in which the money was actually earned.  In 2008, an apparent surplus of almost $2.5 billion on an accrual basis produced an actual cash surplus of only $820 million.

The one-time transfer was used to reduce unfunded pension liabilities.

No other money was received under the 2005 deal before it expired in 2009.  The provincial government will receive one last cash download as a result of the 2005 agreement but that amount is based on the 1985 Atlantic Accord.

Approximately $1.8 billion in temporary investments apparently held by the provincial government would not be enough to cover the likely cash deficits over the next three years, based on current budget projections. 

There is no explanation for Marshall’s claim during the CBC interview that the provincial government had the cash to cover the anticipated shortfalls.

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No bubbles in sight: GDP dropped 26% in ‘09

The value of goods and services produced in Newfoundland and Labrador dropped 26% in 2009 compared to 2008.  Those figures are in an appendix to the finance minister’s budget speech delivered on Monday.

GDP in 2009 hit $22 billion compared to $31 billion in 2008. That’s only slightly above the GDP in 2005.   The single year drop erased the gains of 2006 and 2007 which together saw an increase in GDP of 27.9%.

Real GDP declined 8.9%.

In 2008, Premier Danny Williams claimed the province would be protected from the global recession by some unknown means.  He and finance minister Tom Marshall continue to claim the recession did not affect Newfoundland and Labrador as severely as it did other places.

Average annual employment in the province during 2009 remained below employment levels in 2006 and the current forecast is for negligible growth (one half of one percent) in the coming year.  Meanwhile the labour force remains swollen with returning migrants thrown out of work in other parts of the country by the recession. 

Wages and salaries in the province are higher, driven primarily by increases in the public sector.

Sales of manufactured goods (shipment value) were down 33% in 2009. Housing starts fell 6%.

Oil production hit 97 million barrels in 2009, compared to 125 million in 2008.  That’s basically the forecast production from Budget 2009.  Interestingly, the December financial update had forecast an increase in oil production to 101 million barrels.  Oil production is forecast to drop again – to 86 million barrels – in 2010.

Newsprint shipments in 2009 were down by 49% from 2008 and 66% from 2005.  The value of fish landings was down 19% in 2009, wiping out gains in the preceding two fiscal years.

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“…Jobs that pay taxes, not depend on taxes…”

From the 1996 provincial election campaign, here are the provincial Conservative commitments on managing the provincial government’s finances.

Lynn Verge must be cringing at what Tom and the boys are doing especially with that bit about using policy to create private sector jobs instead of creating jobs that depend entirely on tax money

Mandatory sunset clauses turned up again in 2003 but there’s no sign the current crowd are going to give it another thought.

Balanced budgets have never been a goal of the current administration. In fact, the finance minister and the premier have explicitly rejected the idea.  When they had money they spent it and now that they don’t have money they are spending too.

 

A PC Government will:

• balance the budget over four years, through a combination of measures to stimulate economic growth and re-order spending priorities. Deficits designed to protect funding for essential services in the lean years will be offset with planned surpluses in the growth years.
• fix the rate of growth in borrowing below the rate of real growth in GDP, thus bringing down the debt-to-GDP ratio.
• use tax policy to stimulate private sector job creation - jobs that pay taxes, not depend on taxes.
• re-establish an Expenditure Review Committee to identify areas of inefficiency in government and take early and decisive action to eliminate inefficiencies.
• set priorities for program delivery and reduce spending on expendable and low-priority programs. 
• streamline and consolidate regulations to eliminate duplication and reduce the number of regulations and regulatory bodies.
• put emphasis on patient care and high-quality education while seeking efficiencies.
• impose mandatory sunset clauses on spending programs and regulations.
• appoint a Public Service Pensions Task Force within 60 days to investigate ways to address existing liabilities while honouring our commitments.
• reform the MHA pension plan to bring it more in line with those of public employees.
• cut the number of seats in the House of Assembly to 40.

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Burdening our children with increased debt: fish centre costs escalate wildly

An aquaculture centre that was supposed to have opened in 2009 for a cost of $4.2 million will now cost $8.8 million and construction isn’t set to start until later this spring.

Cost of the project shot up 22% in 2009 alone on a project that even then was already 71% over budget. Former fisheries minister Tom Rideout announced the project in 2007 as part of government’s pre-election vote buying orgy of public spending.

The provincial economy shrank by 26% in 2009.

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Bob Fowler’s speech

The video link.

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