The looming debt problem

The government’s favourite economist is sounding alarm bells about the provincial government’s financial health.  The finance minister, on a local talk radio program, sounding stressed as more and more people start talking about what has been obvious to readers of this corner for some years now:  the provincial government is in a financial jam and the current crowd running the place have no idea what to do about it. 

Well, if they do have an idea, they have no intention of doing anything, at least within the next four or five years.

Part of the charade they’ve been relying on the past few years is the perception that not only are happy days here but they aren’t ever going to leave.  In some years, the finance minister hasn’t been above presenting completely laughable forecasts during the Christmas season to keep consumer spending going through one of the most tax-rich seasons of the year.

Just as the proverbial chickens are coming home to roost in Tom Marshall’s office, it may not be too much longer before a fewer fowl start fouling other bits of the province.

Last week local news media mentioned a report on consumer debt.  Newfoundland and Labrador saw the largest jump in the country last year – along with Quebec – at 7.8%.  As CBC reported, the average consumer in the province owes $23, 372. That doesn’t include household mortgages.

Flip back to March and you’ll find a red flag on that issue. It was a report by the Bank of Montreal that warned Canada’s housing prices were getting perilously close to a “correction”: especially in places where prices were outstripping incomes or if inflation rates changed rapidly.

Marketwatch.com’s Bill Mann summarised it this way:

The cautionary Bank of Montreal report  says average home resale prices compared with personal incomes are 14 per cent above the long-run trend, up from last summer, although still below the 21-per-cent peak that preceded the 1989 crash.

But that is not the case in all Canadian real-estate markets. Five provinces are currently in the danger zone, led by Saskatchewan, where the ratio is 39 per cent above historic norms. That province has a booming commodities industry, centered around potash and oil.

Also well above the long-run levels is Newfoundland, 34 per cent higher; British Columbia and Manitoba, 31 per cent, and Quebec, 23 per cent above.

Overall in the province, debt servicing costs are the lowest in the country according to the most recent report from the Certified General Accountants Association of Canada. But that doesn’t mean there aren’t pockets of risk.  The CGAA also reported that incomes in the province fell short of previous growth:  problem is the year they are referring to isn’t clear, even though the report was issued in 2010.

Just thinking about it for a second, one could easily imagine there are a couple of potential hot spots in the province.  The northeast Avalon and western Labrador are experiencing particularly strong growth and that’s where you’d be more likely to see heavy debt loads and high debt to income ratios.

Not surprisingly, personal debt is one of three issues Bank of Canada deputy governor Jean Boisvin, right, highlighted in a speech in March that Canadians needed to watch as the country emerged from the global recession:

Let us start with household debt. Since the beginning of the recovery, household credit has increased at twice the rate of personal disposable income. In the autumn of 2010, Canadian household debt climbed to an unprecedented level of 147 per cent of disposable income (Chart 7).

The relatively healthy financial condition of Canadian households at the beginning of the “Great” Recession helped the Canadian economy to better withstand the initial shocks of the crisis. However, going forward, it is essential to maintain the necessary room to manoeuvre to keep household spending on a viable path. This leads us to believe that the rate of household spending will more closely correspond to future earnings, and certain signs to that effect have already been observed.

Here’s Chart 7 from the speech:

The other two issues were international competitiveness and productivity and investment.

There’s a parallel between the condition of the provincial government’s books and the household accounts in some areas of the province. Just as the provincial government has grown increasing susceptible to small shifts in economic circumstances, so too may more and more households in the province be vulnerable to shifts in the provincial economy.

If the province’s politicians scarcely recognise their own financial problems, it makes you wonder if they might be aware of the issues looming for consumers in the province.

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Locke warns of financial problems

Wade Locke’s been making the rounds of local media in advance of his talk tonight at the Harris Centre of Memorial University.  Your humble e-scribbler posted the details of it on Monday.

Some quick observations on this Telegram version:

1. There is nothing new in Locke’s presentation that hasn’t been in the public domain  - in some cases – for a couple of decades.
2. That said, the fact that the government’s favourite economist is now undermining the economist’s favourite government might be enough to get these issues into wider discussion.
3. Once that happens it should be fairly obvious the current crowd have helped shape the current mess and their intention is to make a bad situation even worse.
4. Locke’s solution – we need a plan – is a penetrating insight into the obvious. The current crowd got us into this mess precisely because they had no plan.
5. Unfortunately, there’s no sign of any pressure to create a plan in the near term.
6. Politicians – like some of the people on the panel with Locke tonight - will continue to deny there’s anything here that needs attention.  others, like the current administration will talk about doing something constructive and then either do nothing or make the situation worse.
7. There’s no sign any of the political parties in the province are ready to deal with the provincial government’s financial mess.

Put all that together with the volatile political environment and you have the potential for one of the most dramatic political years in the province’s history.

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The perils of polling stories

Not surprisingly, local media reports of Corporate Research Associates’ most recent quarterly poll got the news spectacularly wrong.

For example, the Telegram reported that “[s]upport for the provincial Conservatives has dropped to 57 per cent of those polled…”.

That’s not true.  The CRA release tells you that 57% of decided respondents to their poll felt that way.  There’s a difference between the people they polled and the people who they polled who made a choice about which party they’d support.

Meanwhile, CBC correctly described the party support numbers as being about decided respondents but for some reason they felt the need to add these gratuitous and unfounded editorial interpretations into their story:

The poll suggests the NDP could pose a considerable challenge to the Liberals in the Opposition benches, as the Oct. 11 general election draws closer.

…

Voters remain comparatively cool to Liberal Leader Yvonne Jones, who had an approval rating of 16 per cent, down from 18 per cent in March.

NDP Leader Lorraine Michael, by contrast, saw her approval jump from five per cent to 14 per cent.

So how does this happen? 

Well, for starters, CRA reports numbers as a share of decided responses, not all responses.    CRA doesn’t  explain what that means and reporters and editors typically wouldn’t know if it was fit to eat.  As a result the reports go off into the trees.  Not their fault, by the way.  The obligation is on CRA to accurately present its own information and ensure people know what it means.

Professional pollsters in the Untied States specifically reject this approach because it creates a false impression of what the poll found.  Not only does it artificially inflate some results, it actually discounts entirely a perfectly valid choice. 

People who are undecided have actually made a choice that, for the moment, doesn’t include one of the choices offered.  it’s like saying “none of the above.”

If you want to see this sort of misrepresentation in action, take a gander at the CBC report on CRA’s quarterly poll for New Brunswick.  Almost identical numbers to the ones in Newfoundland and Labrador.  Ruling Tories with a supposedly “commanding lead” of 56% and the Liberals and New Democrats in a “statistical tie” at 20% or thereabouts.

Small problem.

Look at the undecided number in New Brunswick and then look at the poll results as a share of all responses, not just “decided” voters.

Suddenly the Tories aren’t at 56%.

They are at 35%.

And the other two?  Somewhere in the low teens.

More people in New Brunswick are undecided than expressed a choice for the provincial Conservatives.  As for the opposition parties,  you’d have to use your imagination to see anything there other than a pair of parties that voters are barely noticing.

In Newfoundland and Labrador, a look at the unadulterated CRA numbers still tells you that the Tories are in front of the other parties.  You can also see a major league slide going on.  They were at 62% in August 2010, down to 51% in November, back up to 56% in February and now at 44%.

But the other parties?  As in New Brunswick, neither Yvonne nor Lorraine have captured any great attention yet.

But yes, sez you, there’s been this orange surge from eight percent up to 20%.

Yeah, not really.

For starters, the numbers are more like six percent to 15%. 

Still more than double, right?

Maybe.

Consider that the margin of error for this poll is 4.9%.  That means you can shift any number on the page up or down by five percent and still be within the range of possible numbers you’d get if you polled every eligible voter in the province.

So when you hear a reporter talk about a statistical tie or an NDP surge, odds are you have someone who learned everything they know about polls from being spun by masters of the torque.  Either that or they just read a badly distorted news release and relied on their own abilities to surmise what it means.  Doesn’t mean the reporter’s a boob:  just means the reporter doesn’t really understand what is going on.

But still, the NDP surged ahead, right?

Negative, again, there Ghost Rider.

The unadulterated CRA poll number puts the NDP at 15%, give or take five percentage points.  The Dipper machine could be at 10%, up a mere four percent from the February result. 

By the same token, they be at 19-ish%.  You can slide the Liberal or Conservative numbers up and down likewise and still be right. That’s what the margin of error means.  Plus when you consider that CRA results over the past seven years have been notoriously wide of the mark even without using the margin of error, you can pretty well bet these numbers are only vaguely close to what’s actually going on.

To give you a sense of what the results could be – take a breath for this one -  consider that at 20% of all respondents, either the Liberals or the NDP would be close to 30% of decideds in this recent survey. 

With the Tories at 44% of all respondents and 57% of decideds.

Not quite so commanding now, is it?  A pretty easy slide of another 10 percentage points, in other words, the kind of shifts we’ve already seen in the past six months, and the Tories could be looking at the shortest time in government since Confederation for any political party.

When you look at those sorts of possibilities,  it gets pretty clear to see that any  comments about the Tories having a a “commanding lead” are nothing more than total hogwash.  A relatively small shift in votes up or down for either of the parties and you’d be looking at Kathy Dunderdale potentially headed for the opposition benches come the fall.

Then there’s the second bit, namely the editorialising.  There’ll be a few New Democrats who’d love you to believe they are on the verge of a miracle here, but these numbers don’t support any such idea.  The reasons are pretty simple.

For starters, you can’t tell anything with one single point.  You need a couple of points to start making a trend. 

Beyond that, there is absolutely no sign of a gigantic shift of voter support to the NDP anywhere provincially, let alone in the metro region, despite federal electoral success over the past couple of years.  Provincial Conservatives are not happy with their Kathy but there’s a big difference between voting against Stephen Harper and voting against their local Tory candidate. 

That takes a major league piss-off of metro voters the sort you saw in the late 1980s.  St. John’s and the surrounding areas have gone anything but Tory for only about seven or eight years in the past decade.  In 1989, the Liberals took seven of eight St. John’s seats and 11 of 13 metro seats.  They did just about as good in 1993 and 1996 but after that things started to swing back toward the blue guys. Those sorts of changes don’t come easily;  it took the Tories a lot of misery after 1985 to fry townie voters to the point where they picked a bunch of red candidates in huge numbers. 

But let’s suppose for a second that we are seeing exactly what some people are claiming.  Slam the swings into the swing-o-meter and you won’t see any seats changing hands in St. John’s.  That’s because the Tories are still running so far ahead, it would take vote shifts of a magnitude out beyond what we have seen yet in order for the Tories to start sweating bullets about losing their base in town.

Come the fall you might be able to start musing about that sort of thing.  But that would be only if the NDP can somehow keep up momentum in a way they never have before, pull in way more money than they have and get tons of candidates and volunteers like they never have before.  They’d also have to run a provincial campaign using their provincial resources that rivals the federal one.  That’s a mighty tall order.

And even if the Dippers started to make some headway against the Tories in St. John’s, out beyond the overpass, the fights that will shape up would be between the Liberals and the Conservatives except in Labrador West.

Thing is voters don’t appear to be cool to Yvonne and potentially hot for Lorraine as the CBC writer imagined.  Voters haven’t warmed to either of the opposition parties and their leaders.  Lorraine’s at a amazing level of 11% while Yvonne’s at 13%. 

That could change and there’s plenty of room for change.

We just aren’t there yet.

Still, allowing for all the vagueness of these poll results, if you were Kathy Dunderdale, these poll results would be causing you a few sleepless nights in addition to the ones you are already feeling.

That’s the ongoing story in all this, just as it has been for the past six months or more.

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Dunderdale disapproval doubles; Tory vote drops to 44%

What a difference a federal election can make to provincial poll results.

According to the latest Angus-Reid poll,  43% of respondents are satisfied with Kathy Dunderdale’s performance as premier down from 55% in February and 67% for her predecessor last November.

Undecided remains at 35% of those polled.

But here’s the thing:  Those who said they were dissatisfied with Dunderdale’s performance went from 10% in February to 23%.

That trending is bad news for Danny Williams’ hand-picked replacement.

News for the Tories doesn’t get any better from Corporate Research Associates who conducted their quarterly omnibus poll from May 11 to May 28.  Margin of error for the poll is 4.9%. CRA polling seems to inflate Conservative vote in the province by anywhere up to 15 or 20 percentage points and deflate the undecided and will not vote categories by a comparable percentage.

Forty four percent (44%) of respondents said they would vote for Dunderdale’s provincial Conservatives if an election were held tomorrow. That’s down from 56% in February and 51% from last November.

“Undecided” (including refused to state and won’t vote) in the CRA poll reportedly held at 23%. It hit 31% in November just before Danny Williams announced his resignation.

So where did those ex-Tory voters go in the CRA poll?  Liberal support increased from 11% in November 2010 to 16% in the most recent poll.  The New Democrats picked up the most, going from 6% in February to 15% in May.  But here’s the thing:  before that they were hovering at 5%. 

Kathy Dunderdale and the Conservatives were already trending downward anyway.  Hitching her star to Stephen Harper didn’t seem to help the Premier’s standing with voters.  Meanwhile, the strong showing of the New Democrats in the metro St. John’s area federally seems to have been carried over in CRA’s polling.

While local media and the New Democrats will likely be torquing these results based primarily on CRA’s misleading way of reporting its research, whether the New Democrats can hang on to those numbers without help from Jack Layton remains to be seen.

What you can say is this:

1. Kathy Dunderdale and the provincial Conservatives are in serious political trouble.  Voter support for her and her party is on the way down, continuing trends that go back about a year.
2. At the very best, voters remain uneasy about Kathy Dunderdale. At the very worst, Angus-Reid numbers suggest there is growing opposition to her leadership. If the trending in that poll continues, Dunderdale’s satisfaction numbers will be 31% with 35% unsatisfied and another 35% unsure.
3. At the same, voters are unsure about the opposition parties.  While the NDP seem to be having a small flourish, the numbers are nothing to write home about, especially after a prolonged period below 10%.  Meanwhile, the Liberals under Yvonne Jones have shown some modest progress over time. In CRA’s poll, both Michael and Jones are neck and neck which is pretty much where they have been for most intents and purposes for years.  Dunderdale is in a sad spot:  41% of respondents think she is the right leader for the province.

Bottom line:  People aren’t sure about Dunderdale and the Conservatives but they also aren’t sure about the other two leaders and their parties.

There’s a long time to October and any of a number of things could change the political landscape in the province dramatically one way or the other. 

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Quentin Jurgens he ain’t

Bloc NDP member of parliament Ryan Cleary had the chance to make his first remarks to the House of Commons on Monday.

He didn’t speak about anything of concern to any of constituents.

There wasn’t even a reference to his pet project, namely having taxpayers fund an investigation into something everyone else knows but which Ryan can’t figure out.  He wants to know what happened to the fish.  Hint:  a whole bunch of people – including Newfoundlanders and Labradorians – fished cod to near extinction.

All Ryan needs to do is ask his old pal Gus Etchegary some of those hard journalist type questions Ryan supposedly likes to ask.  Maybe, for once, Etch – e - sketch won’t give one of his usually sketchy answers.  maybe under some of Ryan’s penetrating cross examination Gus will explain how Gus’ company, like so many others, high-graded and otherwise fished illegally until their were no fish left to catch.

In any event, after thanking his constituents for having the good sense to elect him, Cleary felt the need to let everyone know that this is all about him:

For the first time since Confederation in 1949, Newfoundland and
Labrador is represented by two New Democrat MPs in this esteemed
Chamber. We may not have the raw MP numbers of the other provinces, but the way I like to see it, the member for St. John's East and I make up for it by being from Newfoundland and Labrador.

You can practically feel the methane alarms going off in the chamber as the fart clouds gather.

Then he started in on the pitcher plant that adorns a stained glass window in the Commons.

The stained glass window also faces toward Newfoundland
and Labrador. I ask members to look to the pitcher plant when they
speak of my province. But be warned,   the --

Yes, they’ve been warned.

Of what exactly no one is sure, but there you have it.

A warning.

Probably a warning to watch out for the next time he takes to his hind legs to have at the art work in the Railway Committee room. 

No Newfie Bullet, you see.

By the by, the sentence ends rather abruptly for one simple reason:  The Speaker just cut to the next member of the House.

Now before the tin-foil hat brigade takes up arms, let’s understand something they likely covered in noob MP school on the Hill.

These statements have a time limit on them.  Members get cut off no matter where in their drone they are.  Those familiar with Cleary’s august radio hosting career will likely already understand what happened here.

The idea is to get in. 

Make the point. 

Get out.

Cleary’s ace journalistic skills should make him good at that.

Well, apparently not.

And thus ended the honourable noob’s maiden comments in the House of Commons.

We can only look forward to the next instalment.

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Building permits down in April

The value of building permits issued in the province in April fell by 16% compared to the same month in 2010 according to information released on Monday by Statistics Canada.

Permits in April 2010 were valued at $94 million and $79 million in April 2011.  permit values in February 2011 were more than $85 million and $61 million in March 2011.

Building permits in St. John’s were up for the second straight month.  However, April permits were down 8.6% compared to April 2010.

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Nightmare on Muskrat Falls #nlpoli

The intrepid labradore takes yet another slice at the official government rationale for Muskrat Falls by showing the electricity rates Nalcor has been charging for the period 2005 to 2009.

He’d probably have used more recent information but – as labradore notes in this post – Nalcor stopped releasing the information as part of its annual report.

Funny that, given that the last year they gave information is the year Nalcor signed a deal with Emera to ship excess power to the United States through Quebec.  Yes, that’s right:  Hydro-Quebec will gladly ship power across its lines to real customers.

In any event, the rate chart undermines the provincial government’s claim that Muskrat Falls is the insurance against wildly uncontrollable increases in rates because oil prices will drive the cost of electricity on the island to astronomic heights.

The “utility” rate went up by 25% from 2005 to 2009 but if you look more closely the largest jump was before oil prices spiked in 2008.  In the period 2007 to 2009, when oil prices shot up so dramatically, prices went up by about 1.3%.

Rub the sleep out of your eyes and read that again if you must.

Then look at those export rates. 

Little better than half the domestic rates.

And it certainly is not making any profit for Nalcor.

Things won’t be any better lucrative if Nalcor builds Muskrat Falls and starts trying to sell the power it generates at a cost of something around 14.3 cents per kilowatt hour.  One Vermont utility signed a deal with Hydro-Quebec recently for 25 years of power at less than six cent’s a kilowatt hour. 

Sure that’s double what Nalcor got in 2009 and likely gets in early 2011 under the Emera deal but it is less than half of the cost of Muskrat power.  of course that’s the current estimated cost of Nalcor power.  If Muskrat costs more than the $6.2 billion the current Tory administration predicts then the cost per kilowatt hour will be more than 14.3.

And that Vermont utility – now owned by Fortis, incidentally – will still be paying less than six cents per kilowatt hour.

Keep rubbing those eyes until they bleed and the Muskrat math doesn’t get any better. Bit like being in a dream, isn’t it? 

But no matter what you do and where you go, the figure with the bendy arms, tattered shirt and knives for fingers just won’t go away.

“One, two, Kathy’s coming for you…”

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Williams ex-chief of staff lands at Muskrat project

Not surprisingly, Brian Crawley - Danny Williams’ former chief of staff  - is now a manager with the Muskrat Falls project.

Williams announced the project last November as a prelude to his retirement a week or so later. His successor – Kathy Dunderdale – is pushing forward with the project despite mounting evidence that it is unnecessary and will burden taxpayers of the province with heavy costs to subsidize any export sales that the province’s energy company may make.

In testimony at the public inquiry into problems at the province’s largest health care authority, Crawley suffered from repeated lapses of memory. Commissioner Justice Margaret Cameron grew exasperated at Crawley’s inability to recall significant events.

The position reportedly pays $165,000 per year with benefits.

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Mythbusting: Not Kari, but still worth a look

labradore charts the total electricity output from Nalcor, less Churchill Falls, Menihek and a few other bits and pieces.

Note that thermal generation – mostly Holyrood has been less than 20% of the total in four of the past five years.  Total generation in 2010 was about 5,000 gigawatts compared to more than 6,300 in 2002.

That would mean – for those who are a little slow on a Monday – that demand has dropped dramatically in the past eight years.

That is most definitely not what Nalcor and the current provincial government have been pretending in their obsession with building an Empire of Public Debt.

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Harris Centre: A prosperity plan for Newfoundland and Labrador

Mark this one on your calendar:

“Over the past ten years, Newfoundland and Labrador has gone from poverty to prosperity, all due to revenues from non-renewable natural resources, especially petroleum. How should we spend this new-found – but temporary – wealth? Should we pay down the debt, invest in infrastructure, increase program spending in health, education and other sectors, or create a heritage fund for future generations?

Join Dr. Wade Locke, professor of Economics at Memorial University, in a lively discussion about how we should invest our new wealth for the greatest benefit of all citizens. He will be accompanied by three panellists representing each of the public, social and business sectors:

• Lana Payne is the president of the Newfoundland and Labrador Federation of Labour
• Bruce Pearce is the community development coordinator with the St. John's Community Advisory Committee on Homelessness
• Jo Mark Zurel is the chair of the St. John's Board of Trade

Free parking in Lot # 18 (immediately west of the Clock Tower, Building 12 on the map)

Free admission, reception to follow.”

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Unite the Left

Some members of the Bloc NDP think the party needs to take a turn to the left in order to capitalise on the gains from May’s general election.

As the Globe and Mail reports:

Its wish list of convention resolutions include calls to close “the Alberta Tar Sands,” legalize marijuana, boycott “apartheid Israel,” nationalize the auto, bank and insurance companies and repeal the Clarity Act.

The chair of the socialist caucus, Barry Weisleder, says they’ve succeeded in getting some of the resolutions endorsed by riding associations and youth clubs.

Interesting thought.

On the right, the federal Conservatives are the result of first a marriage of the ideological and non-ideological bits of what people regarded as the political right wing.  as they got closer to power and especially after Stephen Harper became prime minister, the Connies have gradually repressed the more staunchly right-wing elements within the party.

Meanwhile over on the left, the New Democrats united with the other left wing party – the Bloc – and became the official opposition. Now they’ll basically face the same sort of question the Conservatives already addressed.  There’s no guarantee how they’ll answer it nor is there a correct answer.

But now that the left in Canada is politically more united than it was a few months ago, Jack Layton and his gang will have to finally come to terms with the fundamental question.

Do they head toward the centre, as other successful left-wing parties have done, or will they continue to embrace their ideological base and potentially kiss power good bye?

Put another way:  Is Jack Layton going to emulate Tony Blair or Michael Foot?

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In the Brownies

Manitoba-mooseless Traffic

All the stuff people were reading at Bond Papers rather than getting excited about a hockey team.

Or maybe it was in addition to.

In any event, here’s the list for may 30 to June 3.

1. Well she asked for one… 
2. Dundernomics 101:  All your toasters are belong to us
3. Give Danny the money
4. Crude price forecasts don’t support Dunderdale’s empire of debt
5. The Galaxy Quest for Relevance
6. Tiny Tories love their leader:  Danny Williams
7. Fortis buys Vermont power utility
8. If this is Friday, it must be “yes”
9. Monday?  Back to “No!”
10. Muskrat Fails and Your world.  Your choice.  Your future.  (tie)

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Dundernomics 101: the promise of problems ahead

Take a look at this picture. 

It comes from Wade Locke’s presentation at a conference of the province’s credit unions in Gander in the latter part of May.

The blue line is government income (revenue).  The red line is government spending (expenditure).

When the blue lie is above the red line, you have a surplus.  When the red line is above the blue line you have a deficit.  The distance between the blue and the red line is the size of the surplus or deficit in any given year.

Let’s zoom in on the last bit there because it shows a period where government spending is going to outstrip income in every single year.  yes, despite being a have province and pulling in billions in oil money every year, the current administration is forecast to rack up the public debt by plain, old-fashioned overspending.

Now there are a couple of things to note here. 

First of all, Locke is allowing for constant spending.  As he notes in the text under the slide, it is actually different from the provincial government version that claims a drop in spending three years out.

Given that the current budget shows a sizeable increase in spending you can safely forecast a five percent increase in annual government spending in every single one of those years.  That’s actually much less than what the Tories have done since 2003 but let’s be  - no pun intended – conservative in our forecast of their overspending.

Second of all, let’s look at Locke’s explanation for this problem:  “growth in oil royalties does not offset loss of $540 million in Atlantic Accord monies in 2011-2012” 

There are two words for this:  pure crap.  In more polite terms, this is where Locke’s economics proves woefully unable to contend with a  fundamental problem in government policy. His comments, as a result, are simplistic in the extreme and – at the very best – misleading. 

What you have here – in simplest terms – is a government that has no control whatsoever over public spending.  The reason spending outstrips income is because the provincial government lacks a policy that would allow it to establish spending priorities and to stick with them.

What’s more, those big blue spikes there in the middle and the surpluses they represent are purely accidental.  The only reason they exist is because the money flooded in so fast that the finance ministry ran out of places to spend the money during the year.

Sound fiscal management – spending public money wisely – is the most fundamental responsibility that a responsible government has.  If a government doesn’t control spending it can wind up, in the extreme, in the situation newfoundland found itself in the early 1930s.

All Locke does here is offer an excuse by trying to shift responsibility from the government responsible for the mess to one that isn’t. What’s more, even if the federal government agreed to continue sending $500 million annually to St. John’s any provincial government that cannot control public spending will always be running up deficits.

What is truly chilling in this slide is that last bit.  It ends in 2017, the same year the current administration forecasts it will have finished building the multi-billion dollar Muskrat Falls project. 

Locke has a good chart of the debt over the next six years.  What you have to realise is that he is basing it, apparently, just on the growing deficits on annual spending.  Locke rightly notes that any changes in spending or in oil prices will make the deficit in any one year bigger or smaller than he has shown it.

If you can’t pick out the numbers there, the last one is $10.5 billion.  That’s the same number it was in 2003 when the provincial Conservatives took power.  And as Locke notes, things don;t get better after that point.

Things also aren’t really going to be as rosy as those numbers might appear to some.  Locke left out – apparently – the debt resulting from the Muskrat Falls project. 

Conservatively, you can add another $5.0 billion to that figure.  That’s because the $6.0 billion the Dunderdale crowd say that Muskrat will cost is laughably low.  It will likely wind up costing closer to $10 billion than not.  Even if they can somehow use cash reserves or other money to keep the borrowing down, the provincial government and Nalcor won’t be able to avoid borrowing about half of the total cost of the project.

And if all that doesn’t leave you cold, just remember that Wade Locke usually makes comments that pout the current provincial administration in the best light possible.  The fact he delivered a talk recently that suggests there are serious problems is a sign things are nowhere near as rosy as some would have you believe.

There are problems ahead.

Serious problems.

The current administration helped create the problems.

They have no intention, let alone a plan, to deal with the problems.

That is Dundernomics at work.

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Can Len Simms be far behind?

Ross Reid quit his job as deputy minister of the Penny Rowe department and a short time later picked up a new gig as the provincial Conservatives’ campaign manager for the fall general election.

No one saw that coming, for sure. 

That’s exactly what Ross did in 2007.

Can Len Simms be far behind?  He’s the former Tory party leader running the housing corporation.  In 2007, Len quit to handle a campaign job and then took up his old gig again after the election was over.

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Dundernomics 101: All your toasters are belong to us

labradore does yet another fine job exposing the completely ludicrous claims of those backing Kathy Dunderdale’s Empire of Debt, doing business as the Muskrat Falls project.

Specifically, labradore tackles the idea that electricity demand in the province is growing such that the only sensible alternative to the current situation is to build this super expensive project and force local ratepayers to pay the full freight for it.  Excess power – and there’ll be lots of it – would be sold outside the province at huge discounts, courtesy of the fine folks in what noob Bloc MP Ryan Cleary calls Newfoundland Labrador. 

There are no conjunctions in his world-view apparently.

In any event, labradore offers up two charts compiled from official government figures.  They show energy demand in two different ways.

See if you can spot a growth in demand.

Unlike Nalcor’s open house propaganda sessions, there won’t be a hundred bucks as a door prize for showing up to this little exercise. 

You could, however save yourself from doubling your own electricity rates so other people can profit by Kathy Dunderdale’s folly.

Oh and to understand the title you have to read the quote from Hansard over at labradore.  make sure you turn away from the screen when you do the spit-take.  no need to get the computer all mucked up.

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Give Danny the money

Your humble e-scribbler is no fan of handing public cash to private sector companies for any reason.

And make no mistake: when Danny Williams claims the provincial government would make its money back 20 fold on the hockey team, he is as full of shite as he has ever been.

But here’s the thing:  giving taxpayer cash to private business is what Danny and his crew love to do. It is not new government policy but since 2003, the Conservatives have handed out money hand over fist in a way the province hasn’t seen in maybe 50 years or more. 

Few project, if any, have been unworthy of their dole and more often than not the cash goes with no strings attached.

The provincial Conservatives have been generous with everyone’s money:

• A boot company pocketed $8 million on a promise to expand its production and hire more people in the province.  They chopped workers instead and so far there’s no word on whether or not they will have to pay any of the cash back.
• A bankrupt paper company that government was still willing to talk to even after their financial state made the news.
• How about half a million in cash, free, for setting up a marine engine service centre in a land-locked city?
• Cash and tax breaks for a television show.
• Cash and grants totalling $4 million for a shelter-making business on the Burin Peninsula.
• The provincial government stepped in to pay $30 million so AbitibiBowater didn’t have to pay their pensioners in this province.
• Emera and Muskrat Falls:  free power up front and a huge discount on any extra power they buy.
• Any place other than Newfoundland and Labrador will be able to get Muskrat Falls power for less than cost:  Dunderdale said so.
• A software company got an interest free loan for $325,000 on the promise it would create work.  18 months later the company shut its local office.
• SAC Manufacturing:  $675,000 four months before the company closed.

With that litany of give-aways a half million for Danny Williams is absolutely nothing.  Surely Williams or one of his companies can qualify for programs under Williams’ old business department or the aptly-named InTRD crowd Dunderdale used to run.  There are so many pots of cash with so many vague or non-existent rules that the provincial government could actually underwrite a substantial part of Danny’s plan.

The only serious question is why Dunderdale won’t do give Danny the cash he wants.

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Dundernomics 101: the cost of doing business

Premier Kathy Dunderdale, displaying her keen awareness of mathematics – among other things -  in the House of Assembly on Monday, May 9:

Mr. Speaker, Hebron costs are driven by reserves, as are most projects in the offshore. So as we do our delineation work and we find out exactly how much oil is there, then capital costs increase or decrease accordingly.

Mr. Speaker, as a result of this work on Hebron, reserves have gone up by 11 per cent. Our costs in capital construction have increased from $360 million to $480 million, Mr. Speaker, and it will also mean an increase of over 50 per cent to the Treasury of Newfoundland and Labrador in royalties and benefits.

Erm.

Not exactly.

Finding more oil in a field doesn’t necessarily increase the capital costs up front.  At Hibernia, for example, the capital costs didn’t jump as they found more and more oil.  The reason is that they could pump the oil out of the ground by drilling wells from the GBS or by using another cheap method.

Operating costs will change, of course.  That’s because they will have to run the production facility in order to get the oil out of the ground.  But day-to-day costs of keeping the wells going is not the same as capital cost, as in construction costs for new facilities to get the oil out of the ground.

In this case, it seems that the Hebron partners have decided to exploit this new oil with tie backs. Odds are that this new oil is some of the light sweet crude in the field. That stuff is easier to get at than the heavier stuff that comprises most of the oil at Hebron.  Plus it also commands a higher price for the crude and yields more reined products out the other end of the refinery.

Tie-backs are essentially pipes that run along the seabed.  They are a relatively cheap way to pump oil since you are not building a new ship or gravity structure to get at the oil.  Instead you just run these giant straws from the existing platform out to the oil.  Bob’s yer uncle.

So this idea that more oil drives up capital costs is just whack.

Then there is the math on the jump in costs.

Used to be the share of costs for Nalcor was $360 million.  Now it is $480 million. That is not an 11% increase.

That’s a 33% jump.

Curious.

Curiouser, it becomes when you realise that while the House of Assembly was closed for a lengthy Easter break, the public found out that costs for the Hebron project had jumped by not 11% or 33% but 66%. 

From $5.0 billion to $8.3 billion.

Something does not add up here.

And it really does not add up when you look at the Premier’s claim that the provincial government’s royalties and benefits will jump by more than 50% as a result of an 11% increase in the oil reserves.

Let’s put some hard numbers on this. 

Let’s say, for argument sake, that the total amount of oil in the field was originally supposed to be 500 million barrels.

An 11% increase would give you a new total of 55 million barrels more oil.

According to the Premier, it cost $360 million for the province’s share of getting the 500 million barrels out of the ground. Finding 55 million more barrels didn’t lower the cost overall or the cost per barrel.  According to Kathy Dunderdale that small amount of oil will cost  - relatively speaking  - more than twice as much per barrel as the original oil.

That’s not a very attractive prospect.  The more oil you find, the more expensive each new chunk takes to produce it.  In fact, it makes no sense to keep finding more oil at Hebron if that is the case.  It won’t take too long before you have boosted costs to the point where the project would never be profitable.

Ah-ha sez you.

But those tiny extra amounts of oil actually produce more profit than the entire Hebron field.

After all, that’s what Kathy Dunderdale said and, Pakled that she is, Kathy is smart.

So it must be true.

Yeah, well, no.

What Kathy said was that this 11% more oil, the stuff that costs twice as much per unit to produce will actually return to the public treasury 50% more royalty and benefits.

To quote a famous politician, nothing could be further from the truth.

Simply put, royalty is a function of the quantity of oil, the price per barrel and the cost of getting it out of the ground. 

Let’s say that those original $500 million barrels produced royalty for the province of $500 million dollars.  According to Dunderdale, the 55 million new barrels would produce more than $250 million or roughly five times the return per barrel of any other barrel of oil.

Theoretically that could happen if the 55 million barrels were somehow handled differently than any other.  But they aren’t.  They are all barrels of oil sold at the same time as others for the same price and under the same royalty regime.

Clear?

Between you and Kathy Dunderdale that makes one of you.

That concludes today’s lesson in Dundernomics.

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Well, she asked for one…

PREMIER DUNDERDALE: Mr. Speaker, if somebody can name a reason why this government would not want Kiewit to be successful in this contract earning thirty-five years of work for people of the Province, Mr. Speaker, I would like to know what it is.

Condition for a loan guarantee?

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The Galaxy Quest for Relevance

Where is Jason Nesmith when you need him?

The fictional commander of the fictional star ship Protector at least took a firm stand when delivering a stock line:

Never give up! 

Never surrender!

Noob Bloc NDP member of parliament Ryan Cleary could only deliver a weak-assed line among a string of other superficial comments when he told CBC’s Debbie Cooper that in his new lifestyle as a politician, “there’s give and take, there’s compromise, but I’ll only compromise so far.”

Compromise on what, one might ask?

Clearly not spending public money.

Cleary promises to fly to his home in St. John’s every weekend.

Beyond that Cleary is not very clear on most things.

And why should he?  The guy knew nothing about politics before he got into, nothing about the Commons and the role it plays and after four weeks of MP school he is barely scratching the surface of what he doesn’t know. 

Heck, Cleary is stuck at the “it’s too hot up here, give me the ocean breeze and snow” kinda folksy bullshit that people haven’t heard in 60 odd years.

Folksy bullshit.

That and another piece of folksy bullshit in his royal commission to figure out what happened to all the fish.   (Hint:  Ask people  - like Gus Etchegary  - who helped slaughter them all). 

Radio host Randy Simms asked him what process Cleary would use to get his beloved royal commission on the cod fishery going. 

Process? Cleary asked, as Simms talked.  You could practically see his head cocking to one side like the confused canine.  After a couple of seconds he launched into a list of things that made it pretty obvious that Cleary had no idea what he needed to do in order to accomplish anything in Ottawa beyond the most basic stuff.  

Cleary is clearly in way over his head.  What’s worse, Cleary hasn’t realised he is in over his head.  Instead he is ready with the pledge to follow all courses, wherever they may lead and blah blah and then blah blah some more until blah and blah.

Cue the folksy bullshit, again.

Being a member of parliament is not the greatest thing in the world but it is also not a great backwater where a guy can while away his days sending in “True Facts” submissions to National Lampoon like Dave Rooney used to do.

You can do a lot of good for people in Ottawa as a member of parliament.  The kinds of people who write crap about Jackie Layton and spotting him a hundred seats never understand that because they are too wrapped up in themselves to appreciate how fundamentally ignorant they are. 

Now that he’s on the other side, Cleary thinks MPs are put on pedestals, as he said a couple of times during interviews over the past 24 hours.  That complete lack of insight into anything, including himself apparently, is a recipe for disaster for Cleary, his party and for his constituents.  It’s why your humble e-scribbler offered the view that this guy could be a disaster waiting to happen.   Four weeks later and nothing has changed.

Still, it’s early days.

Free advice is worth what you pay for it but here goes anyway:  what Ryan should be doing is keeping his head down and his mouth shut.  Spend the summer listening, asking questions and learning. 

He’s got four years.  If Cleary applies himself, he could turn out to be a half-decent member of parliament.  He might get some good done along the way.

If he keeps going along his current path, he can join a litany of ex politicians who remain long after their careers are over where Ryan is today:  on a quest of galactic proportions for relevance.

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