Rip-off Ron's Campaign for Deputy Mayor

Deputy mayor wannabe Ron Ellsworth - he being the guy who apparently believes he has been blessed by Danny Hisself to go not just to the mayor's chair in the fall but to the 8th floor ultimately as well - is running what amounts to be a campaign of rip-offs.

1. His campaign slogan - Back to basics - is the slogan Simon Lono used in his unsuccessful bid for an At Large seat in 2005. Imitation is the sincerest form of flattery; in this case it's a blatant rip-off.
2. The Idea is also a rip-off since Ellsworth record on council isn't about basics at all. Remember when he defended dumping millions more down the Mile One money pit than when he was first elected to council? Yeah, that's Ron's idea of basics. Of course, he admitted he wouldn't sink his own money in the thing as a private business venture since it would never make money, but apparently your money and mine was fine to waste on a venture that can't turn a profit. And then the guy heralds his supposed stance for "real and practical fiscal issues". Talk about a rip-off.
3. Then there's this great line: a "no-nonsense" approach. Well, where most people come from, no-nonsense doesn't include lies. If you do a poll and a reporter asks you if you know anything about it, a no-nonsense approach would be to fess up. Ellsworth no-nonsense approach was to tell CBC he had no connection to it. And then to admit he did know all about it. That sounds pretty much like nonsense, which makes the whole claim to "no-nonsense" to be ... wait, for it... a rip-off.

If presenting rip-off after rip-off is Ron's idea of a campaign of getting back to basics, we can only wait once Ron starts filling in his blog.

-srbp-

Toward a future that works: Hebron and old people

The comments made by the Auditor General in relation to prudent fiscal management are in many ways consistent with the views of our government. It has been and will continue to be a part of our mandate to manage and build a solid financial position to achieve a self-reliant Newfoundland and Labrador.

The volatility experienced in the non-renewable resource sector has provided significant revenues for the province. However, with this volatility comes vulnerability and the responsibility to manage these resources to maximize long-term benefits for all Newfoundlanders and Labradorians.

Finance minister Tom Marshall, news release, 25 March 2008

While the Public Accounts for Fiscal Year 2006 (year ended 31 March 2007) have been available for some time, the provincial auditor general only released his commentary [Link to report in pdf format]on the accounts on Monday. [Link to Volume 1 and Volume 2.]

Not surprisingly, his comments have garnered considerable media attention.

What he said is neither new nor surprising in most respects and in general, the Auditor General's report reinforces the basic theme of this series of posts:

1. Spending increases are based almost entirely on highly volatile oil prices and are therefore not a reliable basis for high spending."The $280 million (40%) decrease in budgeted oil revenues for 2007 [actually FY 2006], along with the $562 million (54%) increase in budgeted oil revenues for 2008 [FY 2007], demonstrate the significant impact that volatility in the oil and gas sector can have on the Province."
2. Spending in some areas has increased dramatically. Funding for the Department of Health and Community Services increased from $1,260,697 (30.7% of total expenses) in 1999 to $1,990,479 (37.1%) in 2007, while funding for the Department of Education increased from $761,010 (18.5% of total expenses) in 1999 to $1,106,596 (20.6%) in 2007. Funding for health and education made up 57.7% of the total expenses in 2007. Debt expenses for 2007 totalled $777 million (14.5% of total expenses), down from $947 million (17.7%) for 2006.
3. Debt expenses consume a significant portion of annual spending. "While debt expenses have decreased, the Province still has the highest interest costs as a percentage of total revenues of any province in Canada at 14.1 per cent, resulting in fewer resources to allocate to programs and services."

The AG added some new details.  For example, while Bond Papers has already noted that the aging population will cause increased pressure on health care spending generally in the decades immediately in front of us, retirement benefits for government employees will add about $300 million in public liabilities by 2011 unless action is taken to fund them properly.

That's an interesting time period.

In that same time, the provincial government will commit at least that sum to fund the equity stake in Hebron, including acquisition costs and the energy corporation's share of expenses in getting the project to production.  It's at least that sum, since we have no idea what other costs are associated with the project for environmental and other liabilities.  We also don't know the value of the reduced royalty concessions the provincial government made for Hebron and we won't know them until the project is done.  At the same time, the provincial government will spend an additional $220 million and more for its stake in White Rose.

It doesn't take much imagination to see the scenario.  Provincial program spending has grown at pace with revenues, even though those revenues come chiefly from commodities the provincial government cannot rely on to hold up over time.  In addition to the unprecedented spending increases of the last four years, unfunded liabilities and the pressures resulting from demographic change will produce their own demands for increased spending in areas such as health care.

Now, at this point, it is worth bearing in mind that the demographic pressures are not new.  In the mid 1990s, the provincial government's analysis showed that demographic changes had three distinct facets which would have economic impact on the provincial government.

First, the population would drop in overall numbers due to outmigration, reduced fertility and death. 

Second, and related to that and to the baby boomer age cohort, there'd be a point in time where the active labour force is smaller than the dependent portion of the population.  We are at the leading edge of that period.

Third, within the province, migration was changing where people lived.

A smaller population, made up of a larger and larger group of seniors would increase demands from both acute and long-term health care.  At the same time, the provincial economy would not produce consistent revenues to pay for those added services unless there were some dramatic improvements in such things as productivity.  At the same time, government had to change the way it delivered services such as health care to avoid getting into a situation where it spent ever larger sums on one service and couldn't afford many other necessary things.  There were both challenges and opportunities, but they could be met successfully if tackled.

Undoubtedly at this point, some are pointing out that the cost of buying the equity position will outweigh the short term costs. That isn't necessarily accurate for at least three reasons.

First, the costs noted above are only the costs the provincial government has acknowledged publicly.  Other costs, such as environmental clean costs haven't even been acknowledged, let alone quantified.  The Auditor General notes that the Public Accounts already don't take full account of the environmental liabilities that already exist. 

Second, the equity stakes change the provincial governments cash flows, adding mandatory spending at a time when the provincial government may not have the cash to meet the existing, unsustainable spending commitments. White Rose and Hebron have fixed timelines and firm production targets.  They aren't hospitals where government can defer capital spending. If oil revenues drop as dramatically next year or the year after to the extent they did in 2006, the provincial government will have only three options:  cut programs, borrow or both. 

The provincial government won't be able to opt out of the capital commitments for the oil projects without, essentially, deferring the costs to the future.  If there isn't enough cash to fund the costs, then the provincial government will have to incur debt at whatever rates prevail at the time.

Third, the equity stakes actually produce relatively small net cash returns to the province, once oil starts flowing. Hebron equity will produce a gross revenue of about $1.5 billion over 20 years, bearing in mind of course that there are still unknown liabilities in the project.  Recall as well that this is an estimate, assuming an average price per barrel of oil (US$50) over the 20 years after the field comes into production.  The figure could be higher, but given past trends, the actual price  - and with it the province's revenue  - might be considerably lower.

Even if all that weren't true, the equity stake doesn't produce cash until after oil starts pumping and then only after initial costs are recovered.  cash will not start flowing, in other words until more than a decade from now, long after the added costs from the aging population have hit.  While the cash flow starts with the first barrel of oil, the initial production revenues simply go to replace the money spent already and if the provincial government actually funds the costs with bank debt, there really won't be any cash to direct to program spending or anywhere else.

All of which goes to show that the finance minister's comments in response to the Auditor General are somewhat at odds with the fiscal reality. Even a cursory reading of the AG's comments show that the province has grown increasingly vulnerable to commodity prices under the current administration due to the unprecedented spending growth.  At the same time, the debt burden continues virtually unchanged.

What the AG did not account for, nor should he, is the short- and medium-term financial impact of policies such as equity.  The current administration's election commitments called for increased spending and the introduction of new programs, like the pro-natalist policy, none of which were costed during the election. If that were not troublesome enough, the AG's observations released today merely continue the dangerous trend toward providing information to the public long after crucial budget decisions are made.

In the next post in this series, we'll take a look at an idea that may actually help to create a solid fiscal future for the province.

-srbp-

Related:

1. Toward a future that works: we live in a fiscal house of cards
2. Toward a future that works: what goes up, must come down

Next:  Toward a future that works:  a fiscal policy for responsible government

Old whine. New skins.

No small irony that on a weekend where the editor of the local daily took issue with people who make arguments without facts, two professors at Memorial University release a new paper on the Churchill Falls contract.

Signed in 1969 between Hydro Quebec and private sector BRINCO, Churchill Falls was the largest construction project in North America up to that time - if memory serves.  The projected started pumping electricity in the mid 1970s on a 65 year contract that will expire in 2041.

The contract is also the source of the largest combination of grievance and conspiracy myths based on the appallingly low price Hydro Quebec pays for power. The 40 year term of the first contract expires in 2016 and at that point, there's an automatic renewal which actually drops the price per kilowatt hour to 2 mills.  That two tenths of one cent. That's also a lot of money in comparison to what the power would cost today if Hydro Quebec bought it on the market or, as the conspiracy theorists contend a lot more money flowing to HQ which - supposedly sells the power across the border to the US.

Economist Jim Feehan and historian Mel Baker have just published "The Origins of a Coming Crisis: Renewal of the Churchill Falls Contract,"  in the spring edition of the Dalhousie Law Journal (vol. 30, no. 1).

The article deals with, apparently, the renewal clause and how it was negotiated. it's apparent because the description of the article in the official Memorial University news release is just a bit different from the story in the local myth mongers' weekly.

While it may not be subject of a great deal of general interest, it's a pretty easy affair to get someone connected to or familiar with the 1969 deal to give you a short summary of the issue.  In 1969, BRINCO was on its uppers.  The financiers who were putting up the cash for the deal wanted a performance guarantee;  that is, since BRINCO hadn't built anything this large, the people putting up the cash wanted to make sure the thing would get finished and they get their money back.

Now here's the thing, right off: Hydro Quebec stepped in and gave not only the performance guarantee for completion but a pledge of cash to cover cost over-runs.  In exchange, came the renewal clause provisions and the low rates of power, lower than those in the original term of the contract.

The issue hasn't been studied in detail, as Feehan and Baker note, but then again the entire contract and the circumstances surrounding it haven't been studied in detail.  Philip Smith's BRINCO: the story of Churchill Falls is an invaluable source to anyone seeking factual information on the entire affair but there's precious little else out there.

What we have here will be a detailed discussion of one issue in which the context and details remain largely unknown to people other than the handful who have dug into to any degree.  Perhaps 90% of the popular commentary comes from those sources.

Nonetheless, people should go out and pick up the Dal journal and give it a read.  It will be interesting to see if the economist and historian take the route of grounding their work in the context of the time or if they succumb to the temptation to reframe the issue in the current context.

Certainly Feehan's comments in the Indy, linked above, don't bode well.  For example, Feehan constantly refers to CFLCo [Churchill Falls Labrador Corporation] when he should be referring to BRINCO. Take this comment for example:

"It’s not that they were naïve on either side of the negotiating table; they knew that this price for renewal was incredibly low, yet it was pushed to the point where CFLCo had to take it or leave it."

Not only does Feehan make the mistake of identifying the wrong company (BRINCO was the majority shareholder in CFLCo with HQ having the minority), he also fixates on price  - the current issue - in a comment that suggest the overall context of the deal is being pushed to the side since the facts do not conform with the pre-conceived goal.  

There was more to the renewal than the low price and those terms aren't all as sweet for HQ as the price one. Those issues were raised again in the early 1990s and rejected by the Newfoundland and Labrador negotiators. It remains a question as to whether or not the renewal agreement was altered in the late 1990s when the complete redevelopment was laid out as a pre-election goody.

They also aren't as sweet, either, if one wants to hook onto a theoretical political controversy as a way of attracting attention rather than to examine an issue in detail and let the chips fall where they may.

-srbp-

The power of apology

"Sorry from me, what does it absolutely mean?"

Louise Jones, interim Chief Executive Officer, Eastern Health

Some public relations practitioners specialize in reputation management.  We all do to one extent or another, but in some mystical parts of the world, there is enough business to sustain an entire practice on it.

Tiger Two is a public relations firm in the United Kingdom that, among other things, has a blog devoted to online reputation management.

Follow that link and you'll find a post summarising a recent article in the Wall Street Journal on the five typical approaches corporations take to online comments that may have an effect on the corporation reputation:

1. The Do-Nothing Approach
2. Putting Lawyers on it
3. Throw Money at the Problem
4. Invite and Engage the Critics
5. Stop it before it Starts

Those five describe what most companies and individuals in Newfoundland and Labrador do when something out there is said which can adversely affect reputation. The Premier accuses you publicly of unfair trade practices without a shred of evidence?  Well, publicly traded Aliant opted to do nothing.

That pretty much is the anatomy of Eastern Health's ongoing breast cancer scandal. They opted to stay quiet - a form of doing nothing - and then when things got dicey, the lawyers wound up on the job.  The result of their approach is playing out on the Internet and in newsrooms right now as a result of a public inquiry into the mess. Before it is done, there'll be quite a lot of money thrown at the problem in various ways, including one suspects a settlement to the members of a class action lawsuit.

The list above was compiled in order of popularity.  If you check with a public relations practitioner, especially one who specializes in reputation management, the first one they'd suggest if the fifth one on the list.

That's why we've observed both here and at Persuasion Business that the entire breast cancer scandal would have turned out much differently if Eastern Health nd the provincial department to which it reports handled things differently at the outset.

Truth be told, if Louise Jones had offered a simple apology on behalf of the organization she leads, she might have started the long journey out of what must surely be a very dark place for a great many people.  One of the reasons her organization is in the mess it is in at the moment stems from the largely impersonal, bureaucratic way which the organization as a whole relates to the people who come to them for care.

That's what they are:  people who come to a hospital for care. They are weak, emotional, confused and often fragile and vulnerable, none moreso than a woman facing breast cancer.

The old word for them is patient and while it is an old word, it carries with it the old attitude of care and of a strong personal relationship between the healer and the person seeking healing.  Doesn't matter if the healer is a doctor, nurse, or pharmacist or one of a raft of other health professionals. Old isn't a bad thing, in this case.

But to Eastern Health, as an organization, they were and are clients. Jones referred to them in her scrum as clients, as cold and impersonal a term as anyone ever imagined to describe sick people. It's not Jones' fault.  Her training and her professional and work environment adopted that term some time ago,  Some people in the health care business use it instinctively and often without much consideration. 

The fact that so impersonal a word came to her so effortlessly tells a lot about where her head is, that is, as the person who singularly speaks for the entire regional care system.  It sets the tone at the top, or, in this instance, perpetuates it.  A leader sets the standard for the behaviour of those below in the organization. Even in the bits we've seen thus far, the tone at the top was often wrong.

It still is.

Impersonal and bureaucratic pretty much sums up the response thus far to the scandal. You see, to some, an apology might be seen by some as an admission of liability.  The lawyers (and the government) would scream at the prospect of what, to their way of thinking, increases the payout. Saying nothing and doing nothing is the traditional strategy designed to minimize legal risk and with it, the assumption goes that financial risk is limited as well.

Sounds logical and obvious enough, but in this instance, an apology is all many of the witnesses called to testify at the inquiry so far were looking for. They sought any indication that someone actually cared.  Cared enough to tell them up front that mistakes had been made.  Cared enough to tell them in a timely way, let alone at all what was going on.

That sounds even more logical and obvious: a patient looking for some sign of caring from a health organization.

An apology is also a sign of responsibility.  Someone apologizes and takes responsibility even if if he or she personally did not make the mistake.  Taking responsibility for other people's cock-ups comes with a leader's job.  The tone at the top of the top doesn't encourage that behaviour these days - taking responsibility -  but that's another story. 

Suffice it to say that in her poorly considered comments last week, Louise Jones set entirely the wrong tone in relation to this inquiry and the breast cancer issue. She set the wrong tone for many of the people who work under Louise Jones, diligently labouring every day to deliver care despite working environment both physical, and one suspects mental.

Again, she's not alone in setting the wrong tone. Ross Wiseman's easy condemnation of a doctor who, we learned this week threw a sheet of paper at a patient, screams Ross Wiseman's complete lack of appreciation - former health care, human resources bureaucrat that he is - for the stresses and strains physicians and others have been working under as a direct consequence of the laboratory cock-ups.

Imagine for a moment, the doctor, who is foremost in delivering care for extremely sick patients, who trusts that labs are working properly and makes a treatment recommendation based on those lab results only to find that the whole thing was wrong. He made a mistake  - not his fault - and his patient suffered, in some cases suffered grievously, as a consequence.

And if that weren't enough, because of management decisions made way above his head in the organization, a patient who ought to have been contacted by someone else is now sitting in front of him demanding answers he cannot give. 

Wiseman is lucky that all doctors, nurses and lab staff have done  - let alone patients in this case - is toss the odd piece of paper.  Wiseman is lucky too, to be so far out of touch, so distant and removed from the human issues in the breast cancer scandal that he can willingly, almost cavalierly condemn another but hold himself as somehow a model of virtue in the process.

Ask Fred Kasirye about Wiseman's virtue.

Does he forget the facilities report scandal?  A guy who all but lied about hospital facilities reports to the media and the public has nothing to be the least bit proud of. Hypocrisy just isn't a strong enough word for it and goodness knows, Wiseman and his colleagues have made "hypocrisy" a cliche these days in many cases on many issues.

A simple apology could have done so much:  changed tone, showed an acceptance of responsibility, given a sign, no matter how small, of humanity instead of cold bureaucracy.

Unfortunately, Louise Jones was right in some of her other remarks to reporters outside the inquiry hearings.  She said  "the story [of what occurred] is not going to be told for some time."  It isn't.  That's largely because the organizational culture led to a do-nothing strategy at the front end and that same impersonal management culture still pushes for doing the least at every step. 

Take Jones' comments on the value of an apology that the bureaucratic culture is firmly entrenched, despite the revelations so far. If at the end of this inquiry, the patients involved in this scandal receive an apology only after the legal bills have been tallied, then nothing will have changed at all.

At that point, "I'm sorry" will truly have no meaning.

Here's hoping that in the time it takes for the story to unfold, someone somewhere in the health ministry or Eastern Health learns the simple human value of simple human words:  "I'm sorry."

-srbp-

Saturday night quickie: Depressing economic forecast

The Toronto Star financial columnist David Olive is giving five reasons to start worrying about the economic circumstances over the next while. 

In his maiden speech last week as governor of the Bank of Canada, Mark Carney was the bearer of bad news. The high commodity prices for everything from oil to wheat that have largely insulated Canada from the early phases of the U.S. economic slowdown are due for a fall, pulling down Canada's economic growth rate in 2008.

It's not like no one saw it coming.  It's just that it took a few people a while to notice. 

Around these parts, we've been covering the economic forecasts for months now, all of which pointed to a major slowdown in the economy.

For the record, here's the most recent outlook from TD Economics.  There are some inconsistencies in the report that aren't readily explained from the text.  For example, while there is a fairly understandable statement that Quebec and Ontario are the most vulnerable to slip into a recession, there's the odd grouping of Newfoundland and Labrador with provinces  likely to weather the economic slowdown in the United States. 

Still, TD is predicting an anaemic 1.0% real growth in provincial gross domestic product this year, tied with Quebec and only a half a percentage point above that of Ontario. Notice, by the way, that 70% of provincial exports go to the United States in the form of crude oil and refined crude products.  So much for the theory that "our" resources go to enrich central Canada.

-srbp-

Hey cultists: Kush mir im tokhes

Russell Wangersky will be getting e-mails. Definitely, e-mails.

Russell's bosses will be getting e-mails.

There may even be editorial comments made at another newspaper.

There will probably be a letter from Tom Hedderson - at least Tom - for publication that will claim, without a single shred of evidence, that Wangersky is in fact wrong.

The subject under discussion?  That would be the local claim that the province is being screwed out of its "fair share" of federal jobs and the overwhelming evidence that the claim is complete drek.

Yes, it's factored in a couple of elections and yes you'll hear federal candidates from all parties pledging to right the supposed wrong.

But it's still drek.

Oh yes, Hedderson will make copious references to Jim Feehan's work for the Harris Centre on this whole federal jobs thing but frankly, Feehan's work has so many conceptual holes in it, one would be surprised he still signed his name to the bottom of it. It's a pretty clear case of framing the data to support the conclusions, rather than the other way around, and it's a bit surprising to see Feehan doing it.

By the way, you'll find one post from Bond Papers with a link to the first part of the Feehan study.  Don't use that link as the folks at mun.ca decided to change it without providing a re-direct.  Here's the link to the first Feehan piece. Incidentally, the second one didn't do what they said it would do.  It came in late and merely rehashed the same stuff from the first one using the same back-formus methodology.

Take a gander at labradore and you'll see evidence - plain and simple evidence - that the claim is drek.

And that would be Wangersky's second heresy, the first being denial of a fundamental tenet of the local cultists' religion.  Russell quotes a fellow the local cultists regard as a high priest of evil, if not the federal divil hisself.

Wangersky is right:  people should present facts to back their arguments and to refute facts with other facts.  The tendency of the local cultists is to simply claim a conspiracy and proceed from there. Public policy discussion with way too many people in this province - including elected politicians, current cabinet ministers, former cabinet ministers and candidates from all parties alike - is akin to speaking with Sasquatch Hunters or the dupes at a Uri Geller spoonbending demonstration.  They spout complete nonsense as if it were real and cannot be argued off the silliness by any means. In fact, with many of the hard core cultists, the debunking efforts only reinforce their delusions:  there must be a conspiracy, otherwise you wouldn't be an agent of the satan trying to trick me into believing lies.

So here's a tip of the Easter bonnet to Russell for stating the matter plainly and to a local Jim Randi who, it should be said, does not offer a million dollar reward to people like Agnes or Myles or Sue or Danny or Tom or Tom or Bill or Siobhan or Walter or Loyola or Loyola for proof of their federal presence argument, let alone any of their other points.

He wouldn't need to actually have a million in the bank.

You see, there is no evidence.

-srbp-

Toward a future that works: What goes up, must come down

The current increases in provincial government spending on built almost entirely on the phenomenal crude oil prices of the past few years.

Inflation is running at an average of 2% annually.  Provincial government spending will jump about 12 to 14% from this year to next (effective 01 April 2008), if the interim supply bill is any real indication and that is on top of similar increases in each of the past three years.

To illustrate this, look at the simple chart of revenues and expenses from the 2007 provincial budget speech.
Bear in mind that each of these columns represent projections only.  The experience in 2007 - the first column - has shown revenues significantly above forecast.  We'll know the actual expenditures in a couple of weeks when the budget for 2008 is tabled in the legislature.

The chart does indicate a general policy of government to keep its spending only slightly below anticipated revenues.

Before you click to another page because this is all old hat, consider that in 2003, oil was around US$25 per barrel.  The only people who predicted that within five years oil would hit US$100 a barrel within five years were either in an insane asylum, considered candidates for a straightjacket or part of a very small group of oil pundits who had been faithfully predicting predicting hundred dollar a barrel since the 1970s.  Eventually they had to be right, just like a psychic.

Ask around today and you'd have a hard time finding anyone who will tell you that we will see oil below US$50 a barrel in the near future either.

Odds are better, though, that oil will drop to US$50 and lower within the next decade.

Look around and you'll find plenty of oil experts who will tell you that the current price of crude oil is inflated by a number of factors, each or all of which will adjust  to usual trends.  There's a security premium in the price of as much as 20%.  There's a percentage attributable to the relatively weak American dollar. 

No one expects the American dollar to remain at its current value for too much longer.  Once the Americans come out of their recession, the dollar is likely to rebound, Alongside that will be a drop in oil prices.

As for the security premium, we are likely to see some changes there after the November presidential elections. No matter which of the current candidates wins, the change in administration will affect the markets.  If the new administration moves on security issues or looks like it will move to defuse some of the Middle East tensions, the price of oil will settle down to a price much lower than today.

Already, we've got oil heading towards US$70 a barrel and that didn't take much effort.

And already someone is nodding that $70 is bigger than $25 and so everything is fine.

Well, it might be fine, if the local oil supply was infinite.  The provincial government could take a boost and even a substantive hit if there were Saudi-type or even Alberta-type oil supplies offshore.

There aren't.

The chart at left is taken from a Wade Locke presentation on Equalization changes in the 2007 federal budget.  There are other versions of the slide but this one is readily available.

Notice that for the three working offshore projects, oil production hits a couple of peaks within a few years of each other and then gradually declines. Find 2008 on the timeline along the bottom.

This chart assumes no Hebron, but that really isn't important.  Even if White Rose cranks up in the fall of 2008, oil production won't start until some time after 2015.  It may even be closer than not to 2020.
Hebron won't add to production that is already booming;  it will simply fill in some of the white space - representing no production - that grows larger on the right hand side of the table.

At the same time, additional White Rose and Hibernia production fattens up and lengthens out the right hand side of he chart a bit, but it certainly doesn't keep production up at the peak levels.

The impact of those peaks on provincial revenues can be seen more readily in another Locke slide, right, from the same presentation. 

Again, Wade Locke has produced several similar versions of this chart but it all comes down to the same basic point. There's another set of slides in a 2006 presentation at Memorial University's Harris Centre.

Again, we have a sharp increase in revenues, a couple of peaks and then a drop off the back end.

Changing the assumed price of oil changes the height of the peaks but it doesn't change the overall picture. Even if we assumed some floating price at any given point in time - which doesn't change the perspective of using an assumed average oil price over time, as Locke does - the only way provincial revenue would continue at current levels, hit the anticipated peaks or actually grow would be if oil prices didn't fluctuate but grew steadily out beyond current levels.

It's a pretty simple idea.  If you make a given amount of money from a given  amount of oil, as the amount of oil drops, the only way to keep revenue up is to see prices increase for oil at the same pace as the oil quantities drop.

Sure, we could find lots more oil and gas and exploration may yield more large discoveries, but let's take a more conservative approach.  Let's work within the framework of what is commercially viable and either in production or coming into production within the next decade.

To get a sense of why current oil prices are out of the ordinary, take a look at this chart, left.  It compares prices, historically both in current dollar terms and in terms of constant December 2007 dollars.

In the first part of 2008, crude prices have already exceeded the historic peak oil prices from the 1970s. However, that doesn't mean that the historic trending must now go out the window.  Rather we should anticipate a drop in oil prices both in constant and current terms.

And just to really drive it home, bear in mind that Locke and others typically talk in terms of average pricing over time.  That's a reasonable, conservative approach.  Bear in mind though that if one assumes an average price of US$70 per barrel and oil hits US$100, then at some period, oil would have to drop below $70 by a proportionate amount - i.e. to something around US$40  - to make the average work. Averaging assumes price fluctuation and it is an historically sound approach.

The new provincial budget will be tabled in the House of Assembly within the next few weeks. That document will tell us the actual government performance in 2007 and it will forecast for the next year or three years.  If the past three years hold, the provincial government will likely boost program spending and other spending based on current oil windfalls.

That's a shaky foundation of course.

NAPE and other public sector unions may be looking for significant wage increases, along the lines of growth in overall government spending. The problem will come, as it likely will, since the wage increases are not one-off expenditures.  Adding another $100 million or more to the wage costs will come every year after.  That doesn't sound like much against a surplus of a billion dollars, but drop that billion dollars by 30% and add other increased costs and pretty soon, the annual spending could exceed revenues.

Increasing spending by something approximating the steep increase in revenues coming from one source and one can reasonably expect that the revenue and spending tumble down the other side will be just as sharp. 
The difficulty facing the current administration is that they have heralded their successes to such an extent that public expectation is for increased spending.  Public sector unions have been promised significant wage increases. Even prospective parents have been promised cash for producing children. 

Politically, they have painted themselves into a very tight spot.  How tight a spot depends entirely on the price of oil.

After all, what has gone up will, almost inevitably, come down.

-srbp-

[Techie note:  There are several charts mentioned in the text.  The links work, but for some reason the pictures cannot be uploaded (21 Mar 08).  We'll work to fix those as quickly as possible.]

Related:  Toward a future that works: we live in a fiscal house of cards

Next: Toward a future that works:  Hebron and old people (coming).  The equity positions in two offshore oil projects significantly alter government's cash flows over a time when unavoidable spending pressures hit.

Soon:  Toward a future that works:  a fiscal policy for responsible government.

The Power of Bureaucracy

One of the first initiatives of the new Williams administration, back in 2004, was to turn the Newfoundland and Labrador Centre for Health Information (NLCHI) into a Crown corporation.  Not surprisingly, it was a hold-over from the previous administration.

That capped a decade of evolution for the organization in fine bureaucratic fashion.

Now people who know might think NLCHI started in 1996 under the Tobin administration and they'd be partly right.  Tobin's cabinet put a new name on an offshoot of an earlier task force established originally to look at developing a way of sharing and consolidating health information among health care providers across the province. 

Before that - if memory serves - there had also been a technical committee of the computer guys that looked at computerizing records and creating a common set of records for the hospitals in the St. John's area.  Some may recall that in the early 1990s, hospitals in the province were run as individual sites.  Records from one weren't readily available at another and there was no common way of sharing records simply and easily using the marvels of what was then a new technology - the Internet.

If you take a look at the recommendations of NLCHI's immediate predecessor (follow the Tobin link above) and the ideas will sound very familiar. Aside from making fuzzy recommendations on how everyone needed to work together happily, the Health System Information Task Force recommended a raft of ideas from the creation of a new "unique identifier", or health card number, for residents of the province to development a provincial information technology plan.

It's that last one that's particularly interesting in light of revelations on Thursday about Eastern Health's woefully inadequate information management system. CBC's Here and Now obtained a copy of a briefing note prepared for the current health minister last November.  The briefing note detailed, among other things, the inadequate computer systems at Eastern Health that forced officials to review patient files one by one, by hand, to try and determine  how many patients had been affected by the breast cancer scandal.  They couldn't even use an electronic search function, apparently.

Look at the NLCHI site and you'll see a pile of buzzwords, chief among them the stuff that comes in the "vision" paragraph.  Heaven knows that in the "strategic" planning craze of the late 1990s  - it is still with us today - every organization had to have a vision statement and a mission statement:

The Centre's vision is the improved health and well-being of the people of Newfoundland and Labrador by making quality health information available to the public, health professionals, government, regional integrated health authorities, and other people and organizations. Working closely with these stakeholders, the Centre is responsible for the development and management of a province-wide Health Information Network (HIN). This is a tool to help achieve the best possible health for every person in the province. The HIN will help improve health by allowing health professionals to electronically share information with other health professionals. The Centre will support decision-making, planning, and research with reliable statistics and applied health research.

There have been plenty of studies and conferences but, as one may infer from the Eastern Health briefing note, there has been plenty of planning and visioning but not a heck of a lot of concrete action. There's a hefty-sized board overseeing CHI and there is a staff which now comprises about 60 people. There are a bunch of projects that are in various stages of development but aside from the diagnostic imaging project for radiology, most seem to be conceptual or otherwise not focused on the most straightforward and pragmatic approach to delivering service needed at the front-end of acute health care.

In short, the original technical committee looking to figuring out how to wire together computers and find common software standards has morphed into a bureaucracy that continues to grow apace. Participants in the ongoing CHI project will no doubt disagree strongly, but the evidence speaks pretty clearly for itself.

After discussing a unique health identifier to replace the medical care commission number, that idea was scrapped in favour of keeping the MCP number in place.  If memory serves, that study alone took three years before winding up back where it started.

The other major project which is well underway is a $15 million program to replace the existing computer systems in private sector pharmacies with a single, publicly owned one.  Doctors  - the people who actually write prescriptions and the people with primary responsibility for co-ordinating patient care - will only get access to the system in the third phase:

Phase I of the project will include the integration of the province's approximately 180 retail pharmacies and provide a viewer into the emergency departments of acute care facilities; Phase II will include integration with hospital pharmacy systems; and Phase III will provide electronic prescribing capabilities to physicians and other prescribers.

One of the issues identified in the 1995 Strategic Social Plan (approved for release in December 1995 but killed by the Tobin administration in 1996) centred on the implications of growing health care spending driven by, among other things the demographic changes taking place in the province.  Initiatives like health care re-organization in the early 1990s were intended to deliver needed health care as efficiently and effectively as possible.  It was about doing the most possible with a given amount of money, recognizing that the inertia of bureaucracy the doing the same things over and over simply couldn't be sustained.

Look at it this way:  within a decade, the change identified as necessary in 1995 hadn't taken place. In fact, the goal had been abandoned, by degrees.  In 1994 health care consumed about 25% of the provincial budget annually. Even allowing for the re-organization of health and community services, health still consumed 25% of the annual budget five years later. By 2003, that figure was up to 30% and in 2007, health care consumed 32% of the budget. 

One of the reasons for that growth has been the steady retreat from simple, pragmatic approaches toward ones that are demonstrably bureaucratic in nature.  The empire built in CHI is one example.  The 2004/2005 re-organization of health care administration is another. 

Sure the treasury has grown fat over the past five years compared to the leaner times of the 1990s and so some will justify the increased spending on that basis.  People with a vested interest in the system as it has grown will be the first to tell you of all the wonders they've achieved for all the extra money. They'll also tell you that there isn't enough money to meet all the needs, but more must be added, perhaps for more officials to plan and co-ordinate and produce vision statements.

But ask the people flipping through files - electronic or paper - by hand and you might get a different response.

We don't need to ask patients if "the system" works. 

We've been hearing from some of them this week.

Such is the power of bureaucracy.

-srbp-

Breast cancer inquiry opens

The Cameron Inquiry into breast cancer testing at Eastern Health started public hearings today, after a weather delay on Tuesday.

Hearings are being webcast (check the link above, under "Schedule and Witnesses").

The commission is interpreting its terms of reference to focus almost exclusively on the medical aspects of the issue. That's particularly interesting when it comes to Term (f):

Term (f) directs that recommendations be made as to how matters of this nature should be handled.  Though not exclusively, Part II will be largely directed to providing information to the Commission which would assist in making such recommendations.  To that end, six experts have been engaged to prepare papers. The papers, which are directed to aspects of the obligation to disclose, will be posted on the website in March, 2008.

That term relates to making recommendations for policy on any implications flowing from the other terms.

There isn't anything obvious from the schedule of witnesses released thus far or from the experts engaged for the second phase of the inquiry that would deal with Term (d):

(d) inquire into whether, once detected, the responsible authorities communicated in an appropriate and timely manner with the general public and internally within the health system about the issues and circumstances surrounding the change in test results and the new testing procedures;

That's the term which appeared, on first reading, to include Eastern Health's public relations operations. Apparently it doesn't. Most of the disclosure discussion planned for phase two examines only the legal and medical aspects of the question.

No paper appears to have been commissioned from him but the commission will hear from a journalism professor at the University of British Columbia on the role of the media in disclosure. That's interesting since the public relations function - identified in Term (d) - only becomes an issue of media ethics once a management decision has been taken on whether to disclose, how to disclose and what to disclose.

It will be hard to determine if the responsible authorities communicated in an appropriate and timely manner if no one providing evidence or opinion to the commission has experience in the the management of communications.

-srbp-

Irving and BP to partner on Saint John refinery

While the second refinery proposed for Newfoundland has hit a cash snag, the proposed refinery expansion at Saint John New Brunswick gained a new partner on Monday.

BP will contribute US$40 million under a memorandum of understanding with Irving Oil to look at the design, feasibility and engineering for the new refinery.

Irving Oil conducted initial feasibility work and informal public consultation in 2006, and has been engaged since January 2007 in permitting, public consultation, and engineering design for the proposed 300,000 barrel per day refinery. The refinery would be situated close to Irving Oil's existing 300,000 barrel per day refinery and the existing Irving Canaport deepwater crude oil terminal which receives VLCC cargoes of crude oil and is located 65 miles (105 km) from the US border.

This next phase of engineering, design and feasibility work, combined with ongoing permitting and community engagement activities represents over US$100 million of investment over the next 12-15 months.

-srbp-

Of gas prices, tourists and ptomaine

Ed Ring is right.  Having inspection reports on restaurants and other food service places accessible to the public is good.  It's a step in the right direction.

But while some people are busily patting themselves on the back, they might consider the aspects of the auditor general's report on health inspections a bit more closely.

There are a few issues that remain unresolved:

1.  The problem was with restaurants failing health inspections repeatedly and still being allowed to say open.  That hasn't changed. Some of them were serious failures, but apparently they weren't quite serious enough.

2. How many other restaurants are out there?  The six restaurants were only a sample.  CBC and the Telegram might be all over the six but, the auditors only took a sample of the thousands of inspection reports on thousands of food service establishments.

3.  Why do an inspection when the place is closed?  This whole issue is about how the inspectors conduct the inspections and enforce - or don't enforce - the rules. 

Now you have to wonder about the ministry of permits and licenses if its inspectors try to inspect a place at a time of the year when they know the seasonal establishment is closed.

In St. Lewis, Labrador in May 2006, at the Fisherman's Landing, inspectors found unsatisfactory hand-washing facilities and improper thermostats. Inspectors were unable to complete a January 2008 inspection because the restaurant was closed for [the] season.

Think about that.

Problems identified in May 2006.

Inspectors go back to the seasonal restaurant - on the coast of Labrador - almost two years later to see if the problems are still around.  It's not like these were insignificant issues.  And they can't get in because the restaurant isn't in operation at that time. 

Of course, we start to understand the depth of the problem when we consider the words of the minister responsible for health licensing. We've been operating under the assumption Kevin O'Brien and his inspectors are there to protect the public and keep it safe.

Turns out the task here is not so much the enforcement of standards  - to prevent the spread of deadly infections - but rather the education of people running food service establishments. 

In that little scenario, the people of the province O'Brien is supposed to be protecting are nothing more than the final exam in this little education process.

Call me funny, but I have a problem with being used as a test subject in O'Brien's little exercise in learning.

You see, when one of these restaurant people fail their exam in O'Brienology, my children and I wind up in hospital.

Or dead.

And if people who live here have a problem with Kevin O'Brien's bizarre view of his responsibilities, imagine how those thousands of potential visitors  - tourists - feel about being used in Kevin's lab as guinea pigs.

Gives new meaning to experiencing the local culture.

"Was that ptomaine or salmonella, dear?  Hmm, not sure.  Let's try the next place and see what develops."

Kinda makes concerns about gasoline prices and the impact on tourism just a bit trivial.

-srbp-

Living in a lost episode of Star Trek: TOS

One of the basic ideas we've been pushing around these parts is that Danny Williams is merely continuing the general policy approach of his predecessor.

Yes, it infuriates the D o' D's  (Disciples of Danny), but then again they wouldn't be disciples if they didn't fervently believe beyond all reason and evidence that theirs is the true secular messiah sent down from Heaven to deliver things like 'Pride" which have been so long denied His Chosen, but sadly Long Neglected People.

Take a look at the string of Throne Speeches from 2001 to the present.

Notice the continuation of policies and even the similar language from year to year.

The only new words:  the sudden appearance of "My First Minister", usually in he context of heaping praise on MFM, a.k.a. ODP, for his spendiferously marvellous smiting of the evil giants in the Battle of Accord.

So for your consideration, on a snowy Sunday morning, here's a news release from no less a personage than Tom Hedderson.  At the time, Hedderson was education critic.  He was taking a strip off government for knowing about mould in schools and not doing anything about it.

Sounds more than bit familiar, doesn't it?

Government knowing about a problem and doing nothing about it, or delaying doing something about for one reason or another.

Like knowing about the hospitals and yet doing nothing year after year for some completely unfathomable reason. And not just hospitals  - mind you  - in St. John's but in seven or eight facilities at least in Eastern Health region and likely more beyond that elsewhere in the province.

And then when asked about when he knew of the problems, the Premier first gives a story which turns out to be completely false.

As in not true.

Like in the middle of the scandal in the media and polling period he was suddenly struck with a memory lapse about what he knew, and when he knew it.

Oh no, he says, I only learned about it this week. 

Turns out he knew about it at least last fall, by his own admission. 

Now, given that we know he has made one false statement on the subject already, what are the odds he has known about the state of the hospitals for some time before that and just isn't telling us an accurate version of it?  And open accountable and transparent version?

And it makes ya wonder what else has he said about other subjects which isn't accurate, correct or in keeping with established facts.

Anyway, for the record, here's Tom Hedderson when he wasn't a cabinet minister accusing those that were of knowing something and not doing anything about it.

Major difference though:  Hedderson was only accused of ignoring a problem for - get this - less than a year.  The reports on Eastern Health are three years old and even now that the Premier is directly involved, he's still not promising to actually deal with the issue thoroughly.

The New Approach evidently means the old approach but longer. If Grimes took five months,  the New Improved ODP Approach will take five years. 

The New Approach:  it's like living in a province run by  Mr. Scott from some backwards Star Trek universe.  Scottie tells you something will take hours to complete.  It really takes years, if it ever gets done.

Oh yeah and  - whenever he gets caught screwing up - he promises the screw ups will never happen again.

Over and

over and

over.

 

NEWS RELEASE

--------------------------------------------------------------------


Education department knew last spring of air problems at St. Thomas of Villanova


ST. JOHN'S, November 1, 2000 — Opposition Education critic Tom
Hedderson says the Department of Education knew last spring of air
quality problems threatening students and teachers at St. Thomas of
Villanova in Manuels, yet has left the decision to begin addressing the
problem until two months into the 2000-01 school year.

The school has now been closed due to mould problems, and arrangements
are now being made to relocate students to other schools, at great
disruption to them and their teachers two months into their school
year. Reconstruction will probably not be completed until some time
during or at the end of the next school year (2001-02).

Hedderson says, "Everything that is known to the Avalon East School
Board and the Department of Education now was known to government and
the board last spring. Despite a 1998 environmental study recommending
a schedule of constant air quality monitoring in this particular
building, obviously no further monitoring was done. In other words,
despite knowing there was an air quality problem at the school that
needed attention, they neglected to do anything about it."

"The Avalon East School Board has to take some of the blame for not
confronting the Department of Education more aggressively on this issue
and forcing a showdown so proper plans could be made to start fixing
the problem and firming up alternate arrangements over the summer to
ensure minimal impact on students," said Hedderson.

"The real blame, however, rests on the shoulders of the Department of
Education for second-guessing school boards, cherry-picking on a
political basis which schools get replaced or renovated, and ignoring
not only the priority list for renovations but also the glaring
evidence of problems needing remediation," said Hedderson.

"The government has been making decisions on capital expenditures in
schools on a purely political basis. St. Thomas of Villanova is just
the most obvious and dramatic example of many situations around the
province where Liberal political patronage takes precedence over
educational interests and the health and safety of students," he said.


- 30 -
For more information:
Tom Hedderson, MHA Harbour Main-Whitbourne
(709) 729-6924

Charades

Igor: Sed-a...

Inga: Sed-a...

Igor: Dirty word! He said a dirty word!

 

The normally straightforward innovation minister looked a bit like a character out of Young Frankenstein this past week.

Dr. Fronkensteen, being strangled by his creation, tries to tell his assistants what to do to quiet the monster, but without actually saying the words.

He played charades.

Making odd gestures, tugging his ear and flashing various fingers in the air and on his forearm are about the only things Trevor Taylor didn't do this week to avoid answering a simple question.

Opposition House leader Kelvin Parsons asked Taylor for the names of three companies named recently in the Auditor General's annual report.  The companies were identified as Company A, Company B and Company C in the report.

Taylor refused to say the three names out loud.  Taylor said they weren't named by the Auditor General because "the Auditor General’s statements are usually masked somewhat in the terms of the name of the company because it would compromise their ability to raise capital or keep business."

Taylor offered to pass them on to Parsons privately, adding that public disclosure of the names and the consequences for the companies would then fall on Parsons' head.

The fact of the matter is, Mr. Speaker, I just told him that if he wants to step up here, somewhere where I can talk to him in confidence and tell him what the companies names are – now, if he wants to be irresponsible and release those names publicly and potentially compromise the companies that we have, as he said, around $1 million in, if he wants to do that and he wants to live with that and see maybe one of those companies, as a result of that, lose a customer they are after right now or, Mr. Speaker, lose another $100,000 in financing from a private lender, a chartered bank or something like that, then he can go and do it. I am not going to be that irresponsible but if he wants to he can.

He tried to deflect, by stating - incorrectly - that the Auditor General had found nothing wrong in his audit of the programs.

Taylor claimed that he couldn't say the names publicly since that might jeopardize the financial health of the companies and their ability to secure private sector financing.

The fact of the matter is, Mr. Speaker, I just told him that if he wants to step up here, somewhere where I can talk to him in confidence and tell him what the companies names are – now, if he wants to be irresponsible and release those names publicly and potentially compromise the companies that we have, as he said, around $1 million in, if he wants to do that and he wants to live with that and see maybe one of those companies, as a result of that, lose a customer they are after right now or, Mr. Speaker, lose another $100,000 in financing from a private lender, a chartered bank or something like that, then he can go and do it. I am not going to be that irresponsible but if he wants to he can.

The only problem for Taylor is that his arguments don't hold up.

For starters, the Auditor General didn't identify the companies since, for his purposes, the companies are irrelevant.  The AG was concerned with the government's administration of the program for handing out cash to private sector companies, to wit:

We are of the opinion that there is no explicit authority under the Financial Administration Act
for the Department to make direct investments in companies. During 2005-06, the Department made three such investments totalling $1,050,000 to three companies. Furthermore, there are no documented procedures for approving, disbursing and monitoring such unique investments and, as a result, these investments were not subject to the same due diligence required for investments under the SME Fund. As a result, there were deficiencies. For example:

- none of the three companies were required to repay the investment contingent on either income earned or a maximum seven year period;

- one company was not required to submit documentation to support specific expenditures;

- shareholders for one company (Knowledge-based IT Company A) who received $500,000 were not required to make new equity investments as part of their contribution to the project; instead,
previous investments were accepted;

- shareholders for one company (Knowledge-based IT Company B) who received $500,000 were not required to provide personal net worth statements; and

- Department officials were not entitled to attend any company meetings for one company (Knowledge-based IT Company B) even though the company was provided with funding totalling $500,000.

Then there's the issue of financial consequences. In answering questions about SAC manufacturing, earlier this year, Taylor that government expected 65% of the companies it invested in to go under.  He then released the names of nine other companies like SAC which his department had funded.

Apparently having the minister brand those companies as high risk investments  - such that even government expected to see two thirds go under - didn't bother him the slightest.

And if all that wasn't true, there's still the question of the names of the three companies.

If the Auditor General had concerns about damaging the financial viability of the companies, as Taylor claims, he went about hiding them in an odd way.  The Auditor General's report gives a general description of the companies, but then describes in precise detail the financial transactions, the number of shares and so forth such that any reasonably savvy person  - like say an investment officer or private investor - could match the report and the Public Accounts and come up with the names.

Nope.

There's some other reason why Taylor ducked and dodged wildly this past week about these three companies.  The reasons he offered were not so much the stuff of Fonkensteen's game-playing ability as Eyegor's abysmal success at guessing from clues. Maybe we'll get the reasons when the House opens again this week for a brief few days before closing down for Easter.

Perhaps we'll get more of the game:

Two words.

First word.

A little word.

A? The?  At?  In.

Second word.

Sounds like "bird".

Curd? Herd? Nerd?

Ahhhhh.

It's the acronym for the department.

Again.

The only real question would be: "Why?"

-srbp-

Second refinery project hits capital snag

Plans for a second refinery in the province are being affected by a tightening capital market, according to Bloomberg.com.

Design and engineering work will continue, but the estimated $5.0 billion green field project will not proceed until financing is sorted out.  According to Bloomberg, Newfoundland and Labrador Refining had planned to fund upwards of half the project with debt.

"Effectively, the debt markets are closed at the moment,'' Dalton said.

"It's not a pricing issue, it's just a general availability issue.'' The start of construction "depends very much on when the markets open. We're not going to start it unless we know we can finish it, that's for sure.''

The company's project update, issued Friday,  isn't quite as clear on the financing issue.

In April 2007, NL Refining was seeking at least one financial backer with deep pockets. In January 2007, Bond Papers noted the difficulties likely to come for anyone trying to raise cash for a green field refinery project while at the same time, an expansion project would have considerably less cost and therefore lesser difficulty accessing capital.

By contrast, Harvest Energy announced in February it was considering a $1.0 billion investment to expand capacity at its refinery at Come by Chance.

-srbp-

AG office shuts door to access request

The Office of the Auditor General has declined a request for a copy of a legal opinion cited by Auditor General John Noseworthy in support of his demand to audit the board regulating the province's offshore industry.

The official response stated that, under the Auditor General Act, "all information related to our work is confidential and cannot be released."

Under the Auditor General Act, working papers related to specific audits are confidential. Officials are also required to keep confidential information obtained in the conduct of their work.

The Office of the Auditor General (OAG) is covered by the province's Access to Information and Protection of Privacy Act under changes made in the Green bill. The OAG's sweeping definition of what is confidential could effectively keep the operations of the Auditor General's office from public scrutiny despite the clear intention of the House of Assembly and Chief Justice Derek Green.

Bond Papers requested a copy of the legal opinion since it is not an audit working paper but is central to a controversy over the offshore board. A second request, citing sections of the Auditor General Act and the access to information statute received the same response, namely that "all information related to our work" cannot be released.

The next step is to appeal the matter to the province's information commissioner, Ed Ring.

When he released his report claiming to have been blocked from an auditor of the offshore regulator, Noseworthy said he should be given access "in the spirit of openness, accountability, transparency."

“I’m only trying to get some information here that I think the assembly should have. And, yet, the door is shut, and I really don’t know if there’s a good reason why. Why would they not want me to come in?”

-srbp-

Obama camp fisks Clinton

Don't know what fisking is?

Don't feel bad.  Most people have seen it online, but never knew there was a name for systematically tearing an argument to pieces and leaving the remnants to blow in the wind.

Now you know.

Follow this link and laugh.

-srbp-

Toward a future that works: we live in a fiscal house of cards

Finance minister Tom Marshall tabled a record-setting interim supply bill on Tuesday, seeking almost $2.0 billion to cover government spending for the first third of the next fiscal year. Based on that, the provincial budget estimates will come in as close to $6.0 billion as not.

In comments last month, Marshall said that spending on health, education and social welfare will consume 70% of spending in the coming fiscal year. At the same time, Marshall has been talking up the need to deal with the provincial government's debt load.

Bond Papers has noted before that Marshall's comments on the debt, while apparently sincere, have a hollow ring about them.  After all, Marshall has served since 2003 in a cabinet that has been doing plenty of talking about the provincial debt, yet the same cabinet has done precious little about it.

In fact, a closer look at government spending over the past four years shows the extent to which the current cabinet has followed a fiscal policy built on a house of cards.

Figure 1, left,  shows the growth in provincial government spending from 2003 to 2007. Overall, spending has increased 23% and consistent with the planned spending for the current fiscal year, this figure is more than double the cumulative rate of inflation in the same time period. [Note:  Amounts shown are in thousands of Canadian dollars unless otherwise noted.]

Some specific categories of spending have increased more dramatically.  Spending on the natural resources department, tourism, innovation, and agriculture has grown by 55%.  Transportation and communications spending has grown by 43% and spending on general government operations was 53% higher in 2007 than it was in 2003.

Spending in other departments grew by lesser amounts.  For example, health - by far the largest single spending item - received $1.64 billion in 2007, up from $1.3 billion in 2003.   [Figure 2, right, below] That represents an increase of 26.4%.  Education is up by 20.5% and social welfare spending has increased by 15%.

Debt servicing, interestingly enough, has actually declined by 6% and dropped consistently from 2003 until the 2007 estimates.  For some inexplicable reason, the finance department predicted an increase in debt servicing.

It's inexplicable since the current exchange rate coupled with low interest rates would suggest that the cost of merely paying the interest on public debt would continue to decline. 

Even at an estimated $511 million for 2007, debt servicing consumes a mere 10% of the annual provincial budget. Compare that to health care,for example, at 32% of expenditure or education at about 20% of spending. Debt servicing is the only category of government expenditure to experience any decrease in the past four years.

And that reduced servicing cost isn't due to any government action.  Contrary to the popular impression, the current administration has actually increased the public sector debt load, that is the accumulated deficits and direct borrowing. [Figure 3, left]  Direct debt, that is the amount owed directly by the provincial government had been declining steadily for the years before 2005. Since then, it has been increasing.

Total debt, that is direct debt plus debt owed by Crown agencies, is $500 million larger in 2007 than it was in 2003, the last year of the Roger Grimes administration.

To make the point absolutely clear, bear in mind that the debt has increased at the same time that provincial government revenue has increased at an unprecedented pace. 

Revenue growth is driven entirely by high oil prices and mineral prices;  that point has been made repeatedly by Marshall and his predecessor. That revenue growth has permitted the spending increases from Figure 1.  That revenue growth comes from non-renewable resources and the peculiar global market situation which cannot be expected to last.

The extent of the revenue growth, though, is often lost in recent public commentary that focuses entirely on surpluses, especially the surplus of nearly $1.0 billion estimated for the current fiscal year.

Figure 4, right, compares spending growth with revenue growth.  The red line shows revenue growth as estimated in the original 2007 budget.  The purple line represents an additional $1.0 billion in revenue.  That may overstate the result this year, but if it does, then the exaggeration is not that great.

Finance minister Tom Marshall's second budget will increase the steep upward climb in public spending, fuelled entirely by anticipated growth in revenues from two economic sectors.

The provincial government's budget policy is built on a fiscal house of cards. In the next post in this series, we'll take a look at the provincial economy as a whole, with some projections as to what may occur in the near to medium term.

-srbp-

NL to boost public spending by seven times forecast rate of inflation

An interim supply bill table on Tuesday in the provincial legislature anticipates a provincial budget for 2008 of about $6.0 billion.

Finance minister Tom Marshall told members of the House of Assembly Committee of Supply that the interim supply bill increased spending by 14% over last year's interim supply bill.  The 2007 bill boosted spending by 12% over the previous fiscal year. Marshall said the increase covered inflation plus projected growth in program spending.

The Bank of Canada forecast inflation at 2% for 2008.

The Government of Newfoundland and Labrador spends more per capita in its annual budget than any provincial government in the country, except for Alberta.

-srbp-

Chevron shows Hebron project for 2012+, currently in 'evaluation'

In its most recent presentation to financial analysts, Chevron lists the Hebron project as currently being in the "evaluation" phase, with a possible start up sometime after 2012.

The company also lists planned exploration drilling in the Orphan Basin in 2008.

-srbp-

Flak Bait or CJC?

Why didn't the innovation department ever reveal anything about SAC Manufacturing until after Bond Papers and the Telegram started poking around?

According to innovation minister Trevor Taylor, it was due to some problems in "communications protocols". That's the explanation he gave on Tuesday in the House of Assembly.

Some of the communication protocols, Mr. Speaker, I have to admit, were somewhat lax in the early going of the development of these programs. I have asked our department, our communications director and our executive to review our communications protocols to ensure that that instance does not happen in the future. I can assure the House and the people of Newfoundland and Labrador, there was no attempt to try and hide this information from the people of Newfoundland and Labrador and we will be making changes, as I have said, to our communication strategy to ensure that this does not happen in the future, Mr. Speaker.

Uh huh.

Riiiiight.

So apparently, having a protocol of openness, transparency and accountability wasn't enough.  No word of the cash when it was handed out.  No word of the cash when the company hightailed it to Alberta and definitely no word to the public - or apparently the Auditor General, either - when the company went under a mere nine months after getting the provincial government cheque from Taylor's department.

Makes sense though since a protocol of releasing reports within 30 days wasn't clear enough even for the guy who wrote it to make him wonder why three year old reports were just coming to his attention in February - as he first said - or sometime early last fall as he now admits.

And just for good measure Taylor slipped in the stock response whenever this administration screws up:  "it won't happen again."

People handling communications are used to being on the receiving end of moaning and complaining from reporters.

It's called taking flak, as in the German abbreviation for fliegerabwehrkanone - anti aircraft cannon.  Turns out Trevor's comms director is taking flak from the back now too.

Honestly, though, Taylor's buck-passing probably feels a bit more like his comms director got promoted from flak bait to Chief Javelin Catcher.

-srbp-