Strengthening the Treasury

Consider the simple reality.

The current provincial administration has more money – without considering federal transfers – than any other government in the province’s history.

Most of the government’s money comes from oil.

Oil prices are at persistent record high levels.

There are fewer people in the province than in 30 years.

Yet the provincial government is going to be running record deficits for the next five years.

And if Wade Locke’s analysis is only partially true, the provincial government will run record deficits virtually every year for the next decade and more and build debt to unprecedented, unthinkable levels.

That’s all without factoring in the Muskrat Falls mega-debt project.

We got into this state because successive provincial administrations believed in overspending today and ignoring tomorrow.  Over the past seven years in particular, the scale of fundamental mismanagement has been breathtaking. Danny Williams and his associates haven’t done anything others haven’t done before. It’s just been astonishing that they have followed a reckless course despite all the experience in this province and elsewhere that warned against it.

To appreciate just how well people in this province understood what needed to be done compare the recently Alberta expert panel’s economic strategy with the the 1992 Strategic Economic Plan developed over the course of two and a half years of widespread consultation.  Allow for the difference in the two provinces and it is remarkable how similar the language is.  Both talk about the need to develop infrastructure, broaden the economic base, promote entrepreneurship and soundly manage provincial spending.

We’ll get to the economic policies in another post in this series.  For now let’s toss out some ideas that the provincial should implement in order to make sure the public treasury is definitely managed prudently to provide a prosperous and secure future.

There are at least three basic principles that underpin these ideas:

First, recognise that the role of the provincial government is to create a climate in which personal and collective innovation in the private sector can create economically and environmentally sustainable jobs.  Government just isn’t good at it and decades of experience in Newfoundland and Labrador shows it is a bad idea for government to become as heavily involved in the economy as it has become in the past seven years.

Second, recognise that while government spending can play an important role in balancing the ups and downs of the economic cycle, it is a very bad idea to make people dependent on public spending for their primary economic activity.  It didn’t work in the Soviet Union and it won’t work here.

Third, non-renewable resources won’t last forever.  As such, the government must – as a moral obligation to the people it serves – adopt strict policies that maximise the long term benefit from resource revenues.

Now the ideas:

1. Balance the province’s books every year. Mandate that all publicly owned entities follow the same policies.
2. Spend percentages of non-renewable resource revenues in one of four ways.  Put a percentage toward an annual spending increase but limit annual spending increases to the average rate of inflation for the previous three years.  If the Conservatives had merely increased annual spending increases to five percent – instead of 10% and more – they could still have stimulated the economy when they needed to,  built needed infrastructure and had provided for a steady and reliable growth despite the recession plus they would have avoided the looming debt and very real deficit problem. We’ll get to public sector issues – including wages - in another post.
3. Put another percentage into annual capital works spending that is based on a five year plan of maintenance and new construction.
4. Put another percentage into real debt reduction.   All the current administration has done so far is pay off any debt that came due anyway.  Some of that was already covered by money put aside in other years in something called sinking funds.  The current crowd haven’t made a meaningful cut to what the provincial government owes in total. That must change.
5. Put a fourth percentage of non-renewable revenues into a sovereign wealth fund as they have done in Norway.   Invested properly, this fund can provide new income for the provincial government every year long after the last barrel of oil is gone from the ground.
6. If non-renewable revenues skyrocket in any year, commit to apply the bonus to debt reduction and to the investment fund.
7. Review program spending every five years to make sure that programs meet a real need and are run as efficiently and as effectively as possible.  Scrap programs that are no longer relevant or that have outlived their usefulness.  At the same time…
8. Introduce new programs only if they can be funded within existing spending levels or if they can be financed with new money outside government.
9. Adopt the most demanding and transparent public audit and reporting policies in the world.  End the current misleading practice of reporting the public accounts on both a cash and accrual basis without explaining the difference to people.  The people deserve to know exactly how the government is handling their money.
10. Work with the federal government to eliminate duplication of services and increase co-operation as with economic development (e.g ACOA and ENL) and taxation (e.g. HST).

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The looming debt problem: update

Canadian household debt is at at record levels according to report by the Certified General Accountants Association.

The latest report adds a new twist to a discussion of the potential risks for consumer debt in this province discussed in a post last week.

Table 17 from the report shows provinces with  segments of the population considered to be highly vulnerable for debt growth and financial problems associated with heavy debt loads.

Another table (19 on page 74) shows levels of savings for Newfoundland and Labrador are relatively low.  At the same time, house prices increased at the highest average level of all provinces for the period 2007 to 2009. 

According to some thinking, the economic vulnerability represented by small savings could be offset by the relatively high level of equity that could be represented in the high house prices. That would theoretically make Newfoundland and Labrador no more risky than Alberta where the savings levels are the highest in the country while house prices have dropped lately.

Small problem.

House prices can shift dramatically while savings and investments tend to hold value over a long period of time.

The summary of that chapter’s conclusions also sounds a strong warning, even allowing that the conclusions are for the country as a whole, not just one province.  Incidentally, this is all one paragraph in the report.  The layout is changed here to make reading easier:

First, the positive signs of improving labour market conditions portrayed by the unemployment rate and the hiring intentions of firms may be deceptive. Labour market conditions continue to be fairly weak: the market’s ability to keep up with the increase in working age population recovers slowly (and even deteriorates in some of the provinces); the long-term unemployment rate continues to increase while the decline in the proportion of discouraged workers has not  yet materialized.   Weak labour market conditions may suppress the short-to-medium term growth in earnings while increased and more prolonged absence of employment may decrease individual’s life-long earnings.

Second, certain socio-economic groups (i.e. youth, workers with low educational attainment, lone parents, and self-employed) may be seen as vulnerable as they are faced with higher labour market stress due to elevated likelihood of longer-term unemployment and reduced employment options.

Third, individuals in vulnerable groups that reside in provinces having a weak labour market may be at a higher risk of elevated financial stress. 

Fourth, the recent recession and economic recovery brought only slight improvements to the conventional savings out of income; at the same time, accumulation of savings through wealth has been weakening in the past several years. Neither active savings from income, nor passive savings through equity are evenly distributed across provinces and households. The lack (or low levels) of active savings may jeopardize individual’s ability to pay and honour debt obligations in the future.

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Cross Sheila off your list

Remember the December deal and all the claims that the provincial Tories would all be standing for re-election, bar none?

Yeah, well you could take that one to the bank. Not.

As your humble e-scribbler told you a while ago there are a few Conservatives who will be cashing out rather than take another run at fattening the pension even more.

For the record, here’s the partial list from last week’s post:

The provincial Conservatives, for example, included a pledge to run again for all incumbents in the December deal that installed Kathy Dunderdale for a longer interim term than originally planned.

Before then, the slate of incumbents likely to quit included Dunderdale herself.  Finance minister Tom Marshall was reputedly headed for retirement, along with Sheila Osborne , Bob Ridgley*, Roger Fitzgerald, Dave Denine and a few others who were pensionable.

Michael Connors of NTV tweeted on Wednesday that St. John’s West incumbent Sheila Osborne is leaving.

Local rumblings also have it that minister of something or other Dave Denine will also leave a seat vacant should some Mount Pearl municipal councilor want to take a shot at a promotion and a bigger salary.

Can Sheila’s bro Tom Ridgley be far behind?  How about Fairity O’Brien and Harry Harding?

It could only be a matter of time. The Tories are a little over halfway through their list of nominations and some districts are conspicuous by their absence.

Stay tuned.

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* Corrected from Tom Ridgeley in original.

Spend ‘em if ya got ‘em: the Alberta version

In light of the suggestion the provincial government needs a blue ribbon panel of experts to decide how to safeguard the provincial economic future, take a look at what is going on in Alberta.

Conservative premier Ed Stelmach appointed just such a panel headed up by former federal cabinet minister David Emerson.

And, not surprisingly, the Stelmach government is likely to reject all of the panel’s suggestions. You can find an excellent discussion of it in a Jeff Simpson column from the end of May.

The Stelmach government’s decision is hardly surprising given the history of Conservative governments in Alberta since Peter Lougheed left office.  But it is also hardly surprising since the current Conservative administration in this province is basically following the same policy of spending that Alberta Conservatives have been following. 

What the locals haven’t adopted is the low tax, small government mantra of their western cousins.  They also don’t have the enormous oil and gas resources.

What they share with their Alberta relatives is the same fundamental attitudes that the panel identifies as being serious risks:  complacency and insularity.  As you can read on page 16 of the panel’s report:

Alberta has resources the world needs, but we cannot assume the world will beat a path to our door. Boom times can breed complacency. We can forget we are facing stiff global competition, and that our productivity lags that of competitor countries…

The report criticises the fixation with “selling stuff” to people.  There’s a parallel in this province, incidentally, in the drive to build expensive electricity projects at huge cost.  The current provincial government talks about it as a strategic investment but, in reality, it is nothing more than “selling stuff” to people.

What the Emerson panel described as a strategic approach is decidedly different:

We must take steps now to ensure we realize the full benefit of our energy resources and broaden our economic base in the new global context. As we look outward, we must expand our thinking beyond simply “selling stuff” to those who want it.

Now is the time to think more broadly about investing strategically in businesses in other parts of the world, attracting investment to Alberta, becoming part of the international networks that are creating exciting new knowledge and technology, and finding specialized niches we might fill in global supply networks. We must invest in helping Albertans engage with the world and prosper in a global economy, carefully considering how we use our current public wealth to build a legacy for future generations.

Interesting ideas; ideas worthy of further discussion, especially since they harken back to strategic ideas developed in this province almost two decades ago as the way we could move forward successfully in a highly competitive world.

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Building the fishery of the future

To look at the fishery in Newfoundland and Labrador is to see as clear an example as one may find of the fundamental bankruptcy of the sort of old-fashioned politics that has existed from the earliest of times and that persists right down to modern day Ottawa.

It is not business, as your humble e-scribbler has said before, as much as it is a Frankenstein experiment in social engineering.  Politician after politician after politician has used the fishery for his own political gain. The fishery is the heart and soul of the province, we are told.  Mention fishing and you will find politicians eager to display their passion to rise to its defence against all manner of assailants, most of them entirely fictional.

Is there fundamentally any difference between John Efford, say, and Ryan Cleary? 

Absolutely not.

Cleary with his crusade to find out what happened to the fish is merely the latest version of the old blow-hard Newfoundland politician.  Cleary’s already mounted his ass and headed off to find the missing fish.  If by some miracle, Cleary gets the crowd in Ottawa to fund the junket-commission he wants, he will look, inevitably, in all the places where the information isn’t.  If he doesn’t get the cash – as he won’t – Cleary will claim this is yet another example of Canadian exploitation of the poor benighted fisher folk who form the moral core of a long-suffering society blah blah blah blah.

Either way, Cleary will garner  column inch after sound bite from reporters at home who are always ready to spew the bullshit to the punters or from mainland scribes hard up for copy and who know as much about the eastern-most part of Canada as the average Hmong tribesman does and seem to care even less.

Passion is their thing.  After an early embarrassment and dismissal from cabinet, John Efford rebuilt his political profile as a fisheries crusader who was as full of it as Cleary is, or Tom Rideout or any of a dozen others.

For politicians, all this will be good to the last fish. Kathy Dunderdale is vowing to step into the latest problem at the Marystown plant so that fish are processed in the province and not sent outside where they can be turned into food or some such far more cost-effectively than they can be handled in places like Marystown. 

This is the same problem, incidentally, that Fishery Products International had with the same species and the same plant on a few years ago.  Kath should recall.  She and her colleagues decided the way to handle that was to smash FPI to bits.  The lucrative bits went to foreigners.  The headquarters building changed hands a couple of times within a year and now houses some lovely provincial government tenants. The other bits wound up going to Ocean Choice, the Torily-connected fish processing company that is now experiencing some sort of karmic retribution. 

What goes around, comes around, apparently and in a small province, it seems to pick up speed on the return trip.

So firmly entrenched is the political desire to interfere in the fishery that the current fisheries minister is refusing to accept a dramatic proposal from the fishermen and the processors to do the sorts of things people have been saying they needed to do for years. 

The current provincial government’s decision only further emphasises the extent to which the fishery is controlled by people who have no business in the business.

The solution is to turn control of the industry over to the only people who can decide for themselves how best to run it:  processors and harvesters.

Not surprisingly, therefore, the first bold proposal to reform the fishery is for the provincial government to accept the recent fisheries reform proposal without further delay.

The second idea is to eliminate all subsidies to the industry within two years. They drain the provincial treasury and serve only to prop up businesses that otherwise wouldn’t make it.

The third idea is for the provincial government to abolish processing licenses with the elaborate red tape restrictions that go with it.  The current system helps to keep too many people and too many plants working in an industry featuring low wages, limited capital for investment and with no prospect that new workers will enter the industry to keep it going.

Instead, license processors as businesses under occupational health and safety rules or anything similar legislation. Beyond that?  Nothing. Let processors open plants, close plants or reorganize plants as they see fit based on the business’ finances.  If a plant goes bust, then it goes bust. 

The end result will be fewer plants but fewer plants is exactly what the industry needs.  Where those plants will be and how many that will exist are not things anybody can or should predict.  What will emerge at the end of the change will be stronger companies that are more likely to survive in a highly competitive global market.  In the end there might only be one big company – looking, not surprisingly like FPI – and a bunch of small niche companies.  There could be a couple of bigger, integrated operations but the people in the industry will be able to make a decent living from their work and their industry will be more attractive than the current mess is.

Fish harvesting also needs an overhaul.

The fourth idea is to establish a system of fish auctions using internationally recognised grading systems would improve quality and the cash that fishermen get for their landings.

Processors from any province would be required to bid for landings at the auction sites in a daily competition. Alternately, processors could operate their own fleets or make supply contracts with harvesters.  The two systems could operate side-by-side but harvesters would have a choice. 

Increased competition would also ensure they wouldn’t be victimised in a system like the old one where they had no choice but sell to the handful of locals in a closed system. It would also give fishermen greater control over their own individual operations.

Changes to the harvesting side of the industry will need federal involvement, but federal politicians and bureaucrats would have good reason to support a system that reduces the political and financial headaches of the current system.

Fish harvesting businesses would also profit by the fifth idea, the elimination of the byzantine system of gear restrictions and vessel size restrictions that serve no useful purpose in a modern industry that is run as an industry. “Buddying-up”  - having several licenses on one boat – is an example of how people in the industry are already trying to make sensible changes to meet the economic pressures of the industry.  They are limited in how far they can go, however, by the inertia that keeps in place a system of rules that may have worked decades ago but that simply make no sense any more.

Something that may have worked once but that no longer makes any sense:  that is really the tale of the entire fishing industry in Newfoundland and Labrador, if not all of Atlantic Canada.

To build the fishery of the future, we have to let go of ideas that simply make no sense any more.

We must turn the industry over to the people who are trying to make a living in it.

They know best what to do.

We just need to give them a chance.

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Updated Bonus Idea: Dismantling the Stalinist provincial bureaucracy that is stifling the fishery at the provincial level will allow the fisheries department to focus on new priorities. 

The biggest of these would be encouraging aquaculture .

The next biggest would helping to promote a new identity for local seafood based on quality.  This would be a key part of ensuring the future fishery is internationally competitive.

Titanic records available from the UK National Archives

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Belize wants to buy out Fortis interest in Belize power company

From Fortis:

“The Government of Belize (the "Government") issued a media release on Friday, June 10, 2011 announcing the Government's interest, "...in purchasing majority shares in BEL so as to assume control of the company." No purchase proposal has been received by Fortis Inc. ("Fortis" or the "Corporation") (TSX:FTS).

Fortis holds an approximate 70% ownership interest in BEL, an integrated electric utility and the principal distributor in Belize, Central America, following investment at the invitation of the Government in 1999. In addition to its investment in BEL, Fortis owns Belize Electric Company Limited ("BECOL"), a non-regulated hydroelectric generation business that operates three hydroelectric generating facilities in Belize.

In June 2008 the Public Utilities Commission of Belize ("PUC") issued a rate order that has had a significant negative impact on the financial condition and operations of BEL. The order effectively disallowed the recovery of previously incurred fuel and purchased power costs in customer rates and set customer rates at a level that does not allow BEL to earn a fair and reasonable return. BEL appealed the PUC rate order to the Supreme Court of Belize. On March 15, 2011, the court rendered its judgment dismissing BEL's application and finding that, among other things, the generally accepted concept of Good Utility Practice is not applicable in Belize. BEL has appealed this judgment to the Court of Appeal of Belize; however, a hearing is not expected until the first quarter of 2012. On May 16, 2011, the Supreme Court of Belize granted BEL's application to enjoin the PUC from engaging in any rate making proceedings or taking any enforcement or penal actions against BEL pending the appeal of its judgment. BEL has been in default of covenants under its long-term lending agreements since 2008 and has had no access to credit during this period.

As at March 31, 2011, the assets of BEL represented less than 2% of the total assets of Fortis; the combined assets of BEL and BECOL represented approximately 3% of the total assets of Fortis.”

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15 ideas (and more) – Setting the Table

Our economic vision for Newfoundland and Labrador is that of an enterprising, educated, distinctive and prosperous people working together to create a competitive economy based on innovation, creativity, productivity and quality.

Strategic Economic Plan, 1992

Our social vision for Newfoundland and Labrador is of a sharing society which balances its economic and social interests, cares for its disadvantaged, nurtures its human and physical environment, celebrates its quality of life and traditional values of individual respect and community responsibility and provides opportunities for personal and collective achievement.

Strategic Social Plan Consultation Paper, 1995

 

Within a mere two decades, Newfoundland and Labrador transformed almost two centuries of economic backwardness into unprecedented growth.

And yet, as we enter the second decade of the 21st century, a number of factors, some identified in the early 1990s, threaten to rob Newfoundlanders and Labradorians of the bright future they worked to achieve through careful planning, steady work, and a steely determination to endure.

Public sector debt remains at record levels.  Rather than reduce debt, the current Conservative administration plans to increase the debt burden still further by building an economically unsound megaproject.  What’s more, the most recent economic forecast predicts that the current administration’s policies could triple the debt within a decade.  That is on top of the burden from the  Muskrat Falls megaproject.

Changes in the province’s population, forecast in the early 1990s, have started to create pressure for new government spending and more government spending.  Just paying the interest on the growing debt will rob money that could be helping to pay for those new services.

The highly competitive global economy that has emerged in the past 20 years, coupled with fall-out from the recent recession, will demand even greater inventiveness if businesses in Newfoundland and Labrador will meet the challenges these changes present. 

Yet, over the past decade government policy has fostered greater social and business dependence on government hand-outs.  The result is a fragile economy that will grow less robust and more susceptible to set-backs.

The answer to these challenges can be found in the principles that lay at the heart of the 1992 Strategic Economic Plan: 

• We must foster a change in people.  We must renew genuine pride, self-reliance and entrepreneurship. We must once more become outward-looking, enterprising, educated and innovative. 
• We must change government.   Our people do not need saviours or demigods.  They can run their own affairs.  We must introduce fundamental democratic reforms.  Decisions about education, health and economic development must be made closer to the people directly affected by them. The role of government is to create an environment in which the private sector can develop economically and environmentally sustainable  businesses.
• We must change relationships. We must replace the chaotic, secretive and highly centralised government of the past decade, with mature, professional and open government based on sound long-term planning and a genuine understanding of the province’s long-term interests.  Beyond that, we must forge new relationships among governments, business, labour, academia and community groups of the sort envisioned two decades ago. We must build a strong relationship between the federal and provincial governments in order to deliver government services as efficiently and effectively as possible while ensuring that the people who pay for those services can hold the right government to account for what they do.

The ideas that will follow in posts over the coming days and weeks are nothing more than the starting point for discussion.

Only through vigorous, free-wheeling public debate can we build a mutual understanding among all the people of the province on both the necessity of change and of the specific changes themselves.

Change is not a luxury.

Change is not merely possible.

Change is essential.

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Next:  Building the Fishery of the Future

Nalcor negotiating Muskrat transmission with Hydro-Quebec

Nalcor is currently trying to strike a deal with Hydro-Quebec on wheeling power through the province to other markets

Read all about it in the Toronto Star.

Newfoundland and Quebec are now trying to negotiate a deal in which Nalcor could get a right of way to move its power through Quebec, directly to Ontario.

It’s buried in an article in which Nalcor chief executive Ed Martin tries to play up the Muskrat project as being cost competitive.

Sounds a bit like the 1964 ploy is still on the go.  That’s the one where Smallwood talked up the Maritime route as a way to get a deal with Quebec, the real preferred option.

Makes sense:  after all, despite all the hysterics and the bullshite to distract the media and the punters, Danny Williams tried consistently via secret talks to try and get Hydro-Quebec to get involved in the Lower Churchill. Local media still haven’t reported that story almost two full years after Kathy Dunderdale blurted it out in public. 

Of course, the Star also doesn’t tell its readers that they would be getting power heavily discounted compared to the price Martin will force on the good taxpayers of Newfoundland and Labrador.

The article notes that Ontario currently pays a wholesale price of 3.15 cents per kilowatt hour for electricity.  Muskrat will cost Newfoundlanders 14.3 cents per Kwh according to current estimates.

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Offshore board recommends mediator or panel review for Old Harry drilling proposal

The  Canada-Newfoundland and Labrador Offshore Petroleum Board issued the following news release on Monday:

“The Canada-Newfoundland and Labrador Offshore Petroleum Board
(C-NLOPB), in its role as Responsible Authority pursuant to the Canadian Environmental Assessment Act (CEAA), has recommended to the Federal Minister of the Environment, the Honourable Peter Kent, that the proposal by Corridor Resources Inc. to drill a petroleum exploration well on its Exploration Licence (EL) 1105, in the Newfoundland and Labrador Offshore Area in the Gulf of St. Lawrence, be referred to a mediator or a review panel.

“In the aftermath of the blowout in the Gulf of Mexico, Canadians are particularly sensitive to the risks associated with offshore oil exploration drilling. This proposed well is in an area where there has been little public experience with offshore drilling, and it has attracted an especially high level of concern. These concerns have been expressed clearly to the C-NLOPB and we are of the opinion that a level of environmental assessment beyond a screening report is warranted,” said Max Ruelokke, C-NLOPB Chair and CEO.

On February 21, 2011, Corridor Resources Inc. filed a Project Description pursuant to the CEAA respecting its plans to drill an exploration well on EL 1105. The C-NLOPB is the Responsible Authority respecting the project since its authorization is required before the project may be carried out. Natural Resources Canada, Environment Canada, Fisheries and Oceans Canada, and the Department of National Defence indicated that they were in possession of relevant specialist or expert information or knowledge and would contribute this to the environmental assessment of the project.

On February 25, 2011, the Board published a draft scoping document respecting the assessment and invited the submission of public comments no later than March 28, 2011. The solicitation of public comments on the draft scoping document resulted in the submission of over 50 comments from individual citizens, fish harvesting groups, elected municipal government representatives, First Nations, and environmental advocacy groups. The C-NLOPB has posted all comments on its website at http://www.cnlopb.nl.ca/environment/corridorresinc.shtml.

Under the legislation, exploration wells normally require a screening level of assessment. However, paragraph 25(b) of the CEAA, enables a Responsible Authority to recommend that a proposed project be reviewed by a mediator or panel if it believes the project may cause significant adverse environmental effects, or if public concerns warrant this level of review.

Based on information available to date, neither the C-NLOPB nor the expert departments have identified evidence indicating that the project is likely to cause significant adverse environmental effects. However, the public commentary received to date is of a level and nature greater than any the C-NLOPB has received respecting environmental aspects of a proposed exploration or production project in its 26-year history. The Board believes that this level of concern warrants such a recommendation.

Letter to Honourable Peter Kent, Minister of the Environment, June 3, 2011”

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15 ideas (and more) for a stronger Newfoundland and Labrador – Introduction

In her first speech to the House of Assembly as Premier – which she and her staff erroneously and arrogantly like to call her inaugural speech – Kathy Dunderdale claimed that, since 2003, she and her party had “demonstrated an unwavering commitment to fiscal responsibility”.

The words turned up again in the Speech from the Throne and found their way into the finance minister’s budget speech for 2011.

There was nothing surprising about this.

The claim of fiscal responsibility, of having transformed the province’s finances from catastrophe to prosperity is the one thing that the provincial Conservatives claim as their singular achievement since taking power.

Last week the people of Newfoundland and Labrador learned that  - in the words of a famous politician – nothing could be further from the truth.

Through the 1980s and early 1990s successive Liberal and Conservative administrations managed to steer the provincial government successfully through treacherous financial times.  They laid firm foundations for future prosperity based on a diversified economy.  Included in that diversified economy was supposed to be an oil and gas industry that included local companies capitalising on local knowledge and experience to compete globally.

“One day the sun will shine,” Conservative Brian Peckford said, “and have not will be no more.”

“I can’t wait for the day”, said Liberal Clyde Wells less than a decade later, ”when we don’t get a penny” in federal hand-outs.

Last week, Memorial University economist Wade Locke described a future for Newfoundland and Labrador that is far bleaker than anything that either Wells or Peckford faced.  As the Telegram reported:

Unless something changes, Locke said the government’s debt could be up to $10 billion within the next 10 years. By 2020, he said the government could run a $1.6 billion deficit on the provincial budget.

“If we don’t start dealing with it, it will become quickly unmanageable,” he told reporters after the event.

The situation is far bleaker because the government is in this state despite having unprecedented income. It is far bleaker because the problem comes not as the result of global economic circumstances or forces beyond anyone’s control.  The financial mess is directly the result of actions taken by the provincial government since 2003.

Regular readers will know the story all too well.  Your humble e-scribbler first raised concerns in 2006 and each year after that as concerns grew.  Telegram editor Russell Wangersky’s column this weekend reminded everyone of his own comments over the years. As Wangersky notes, the province’s auditor general has also warned about the current administration’s spending. So too did former cabinet minister Paul Oram and at least one of the provincial government’s bond rating agencies.

With their one claim to fame now shown to be a complete fraud, the provincial Conservatives have even more problems to worry about as they head toward this fall’s general election.  The truth about their record of financial irresponsibility only compounds their dwindling public support.  Inevitably it will only add to public unease at the Conservative plan to increase the public debt beyond what Locke has forecast and at the same time saddle domestic electricity consumers with ever-increasing electricity prices while selling cheap power outside the province.

Even if the Conservatives could admit the province faces a financial mess of their making, they would be hard-pressed to do anything about it.  Election years are never good years for an incumbent government to face problems.  What’s more, Kathy Dunderdale remains a place-holder leader put in place via a backroom deal to avoid a possibly contentious leadership contest during an election year.  If voters re-elect the Conservatives under Dunderdale, they can bet on a new Premier within four years.

For their part, the New Democrats won’t be promising to do anything to clean up the mess. Federation of labour president Lana Payne already dismissed Locke’s analysis out of hand.  With the province’s labour unions taking a reactionary position, New Democratic Party leader Lorraine Michael will follow suit, first rejecting Locke’s assessment and most likely proposing policies that will make the bad situation that much worse.

While the Liberals under Yvonne Jones were quick to endorse Locke’s idea of a task force to study appropriate financial policies, it still isn’t clear what sorts of policy ideas the Liberal party will offer heading into the fall election.  They will likely be tempted to follow along with the others and offer ideas that look like what everyone else is talking about.

It wouldn’t be the first time.  Political parties in Newfoundland and Labrador seldom offer bold and innovative thinking.  They tend to rely on the hackneyed - blaming Ottawa in one way or another is a popular distraction – or the grandiosely ridiculous like Danny Williams 2003 obsession with an economically foolish stunnel to the mainland.

This post is the start of a series on some options for the future of Newfoundland and Labrador.  The next post will set the table, as it were, by describing the domestic, national and international environment in which the province must operate. Some of that will be a quick summary of other posts.  Some of that will be new.

After that, successive posts will explore a series of ideas for change.  They cover the economy,  government and society. They are offered to stimulate further discussion.

Some of you may notice that the series goes back to one started in 2008.  While the series never got beyond the first post,  the ideas didn’t die. Now that more people are seeing the situation as it is, perhaps this is a better time to talk about options and ideas.

The future is not bleak.

The future is ripe with opportunity.

We just have to be open to taking the first step toward a future that works.

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Muskrat Falls timelines “unlikely to be achieved”: external review

An external expert review of the Muskrat Falls project warned Nalcor and the provincial government that the project’s schedule is unrealistic, according to documents obtained by Canadian Press.

As Canadian Press reported on Sunday:

Provincial Crown corporation Nalcor Energy has set next October as the timeline to complete 60 to 70 per cent of required engineering and have local staff in place ahead of ground-breaking next spring in Labrador.

"Experience suggests it is unlikely this can be achieved," says the review, released by Nalcor Energy.

"If it is not, the implementation of the contract strategy gets off to a bad start based on a pattern of unrealistic objectives."

The expert panel – whose members have international experience in megaproject design, planning and risk management – also noted concerns about on-site safety.  Nalcor chief executive Ed Martin agreed that local construction projects don’t compare well to international experience in site safety. 

CP quotes Martin:

""Compared to some other parts of the world, we don't compare that well," he said in an interview at his office in St. John's.

That's a fact, so we have to improve on that."

Martin also acknowledged the project is already behind schedule although he claimed it was a matter of weeks and not months.

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Separated at birth: Rosebud edition

The One (above)  and The Other (below).

 

 

But which one was fictional?

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Traffic that doesn’t slam into houses

Here’s what Bond Papers readers found most interesting for the week June 6 to 10, 2011:

1. Dunderdale disapproval doubles; Tory vote drop to 44%
2. Unite the Left
3. Will bad Tory polls change candidate slates?
4. Nightmare on Muskrat Falls
5. Harris Centre:  a prosperity plan for Newfoundland and Labrador
6. The looming debt problem
7. The perils of polling stories
8. Quentin Jurgens he ain’t
9. Williams ex-chief of staff lands at Muskrat project
10. Mythbusting;  not Kari but still worth the look

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Chumba-dumba

Leave to the ever charming labradore to remind everyone that the financial mess Danny Williams left behind is actually something he made clear he would do in 2008.

The quote is one your humble e-scribbler completely forgot about but reading now three years later it is the kind of thing that makes chills run up and down your spine:

As you pay down the debt it also gives you the ability then to bring it back up. It’s no different than if you paid down your line of credit at the bank or pay off your car loan, it gives you the ability to go borrow a little more, take a little more if you need it. So, that money will be used, for example, that, that surplus that’s actually going on the debt, though, will also be used to fund, you know, the settlements with the unions. I think the public sector settlements are going to cost us in the range of a half-billion dollars a year forever. So, that money will sort of go, go towards the public sector workers, which is, which is good, though, from an economic perspective because now we have this whole new infusion of eight percent and then four, four, and four into the economy and that’ll help drive our own economy, as well.

You pay debt down and then rack it up again.  You’re never gonna pay it down.  That riff is shamelessly pirated from labradore but you have to acknowledge humour and genius wrapped into one.

But while he stayed on the debt thingy and noted that the public sector union’s benefits would only be a third of the total $37 billion Wade Locke talked about, there’s another angle to that which you can see if you want to open your eyes to it.

So much of what is driving the economy in the St. John’s region over the past seven years has been public sector spending.  That what an integral part of Williams’ political plan and one of the ways he helped create the illusion of some sort of economic miracle.

As we’ve seen this past week, these financial chickens are coming home to roost.  The fundamental political fraud that lay as the foundation of Williams’ political fortune is crumbling.

No wonder he practically ran from the Premier’s Office last Christmas talking about how it was important to know when to leave.

Instead of running the province into the ground he can now have someone organize rallies of school children at a local hockey rink so they can chant his name just like the old days of local politics.

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Political impotence and the little blue pills

Fish minister Clyde “The Finger” Jackman is going to fight to save a local coast guard co-ordination centre and its dozen jobs.

Well, that’s what the torqued CBC headline says. 

The provincial government he’s a part of has a financial mess of its own creation on its hands and no plan to deal with it and Jackman has been the major obstacle to serious fisheries reform in the province but that’s another issue.

But why does Jackman have to fight for anything at all with the federal Conservatives under Stephen Harper?

After all Clyde and all his provincial Conservative buddies campaigned vigorously for the federal Conservatives in the recent general election.  Well, okay some campaigned more vigorously than others but you get the idea. 

They shouldn’t have to do anything but pick up the phone and ask their friends to fix things back up again.
Jackman’s help in the last federal election apparently counted for exactly jack-shite.  He met with his federal counterpart, uttered a few choice words and left empty-handed, much like those people in the fishery who worked hard, gave Jackman a report on restructuring and then watched the minister fling it back in their faces for no good reason.

That’s likely to be as effective as what CBC’s report quotes as Jackman’s advice to other seriously interested in this issue:

"I've encouraged people, you know, to write to the minister to do what they have to get their points across," said Jackman.

Much like the fisheries reform thingy.

But why should anyone have to do anything?  Kathy Dunderdale can just call her friend Stephen Harper and the whole thing will be solved.  After all, the Premier made her choice, is proud of her choice and thinks she did a wonderful job even if the overwhelming majority of voters – including rafts of her own supporters – went with another choice.

Kath and her Krew are rapidly becoming the poster children for political impotence.

Not the cure for it mind you.

Just fine examples of political dysfunction…

And of course how this bunch of little blue pills can’t cure it.

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Harris Centre economic forum: the media coverage

The Telegram’s James Macleod had a decent front page summary of the Harris Centre’s discussion of economic issues facing the province and the subsequent discussion.

The CBC has a super short version that is already bumped off the front page of its website in favour of stories like one on a baby bear in Terra Nova park, a batch of fake 20s making the rounds on the northeast Avalon and an earth-shattering story about two idiots who stole metal for scrap and found out it was worth more than they thought when they wound up in court for the theft.  Talk about if it bleeds, leads.

Anyway, for those in tune with evidently less important issues – how does an multi-billion dollar economic mess compare to two scrap metal dorks? -  Wade Locke’s presentation isn’t on line yet but here is the slide likely to be causing a few stomach’s to turn in knots. 

It’s Locke’s deficit forecast based on current trends and current government policy:

Within a decade the current account deficit will be running at record levels if the current administration carries on with its policies. We can expect more of the same from the incumbents since finance minister Tom Marshall is already trying to pretend that the mess doesn’t exist or that he has things under control. 

Unfortunately for the rest of us,  it does and he doesn’t.

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From battalions to no cuts: how Connie promises have changed

Once upon a time, the federal Conservatives promised the good people of Happy Valley-Goose bay that their airport would once again be the scene of major military activity. 

Battalions of infantry soldiers and fleets of unmanned flying contraptions., none of which appeared despite promises and assurances and wild claims from everyone including the Pavement Putin of the Permafrost that these things were on the way.

Fast forward to a Conservative majority, including Peter Penashue as the member for Labrador and the man with a federal cabinet seat.

Now Penashue is merely assuring the people of Labrador there’ll be no more cuts at the Goose Bay base.

As Voice of the Cabinet Minister reported Penashue’s speech to a St. John’s Rotary club:

There will be no cuts to 5-Wing Goose Bay. So says the federal
minister responsible for Newfoundland and Labrador, Peter Penashue. He says the federal defence minister, Peter MacKay, told him there will
be no change this year.

But here’s the thing people in Labrador might ponder:  is that promise of no cuts as reliable as the promise of infinite riches?

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Will bad Tory polls change candidate slates?

Public opinion polls showing dramatic declines in provincial Conservative support might bring some changes in the slate of candidates.

The provincial Conservatives, for example, included a pledge to run again for all incumbents in the December deal that installed Kathy Dunderdale for a longer interim term than originally planned.

Before then, the slate of incumbents likely to quit included Dunderdale herself.  Finance minister Tom Marshall was reputedly headed for retirement, along with Sheila Osborne , Bob Ridgley*, Roger Fitzgerald, Dave Denine and a few others who were pensionable.

So far only Fitzgerald seems to be headed for the gate.  CBC’s David Cochrane tweeted on Wednesday that Ron Ellsworth has decided he won’t be running this fall.  He was reportedly looking at a challenge to incumbent Ed Buckingham in St. John’s East.  Buckingham didn’t support the Dunderdale campaign for the federal Conservatives and some provincial Conservatives thought they could get some support for a challenge to an otherwise strong incumbent. 

Sadly for her, Dunderdale’s gambit blew up in her face leaving Buckingham politically stronger.  Not surprisingly the wannabes are backing off.

Of course that doesn’t necessarily mean Ellsworth and other ambitious Conservatives wouldn’t leap forward if a seat opened up somewhere else.

That’s where the polls come in.  As support for Dunderdale’s Conservatives drops, some of the older hands may change their minds on the deal and take a comfortable retirement package before October. That could open up St. John’s North, for example, currently held by Bob Ridgley and another likely home for Ron Ellsworth.

Ditto St. John’s West where Sheila Osborne has been reportedly ready for retirement since 2007.  A couple of names popped up this past week of Tories looking at challenging Osborne for the nod – or ideally – just taking a run to replace her if she decides to gracefully walk away to look after the grandkids.

Ass for the other parties, people who had already taken a pass might change their minds.  Popular St. John’s councilor Sheilagh O’Leary has been rumoured to be resisting New Democrat efforts to recruit her as a challenger to Ed Buckingham in St. John’s East.  Will the recent CRA poll weaken her resolve to stay put or will it  give O’Leary the hope she might be able to trade up to a seat on the Hill instead of at Tammany on Gower?

Meanwhile, for the Liberals, Danny Dumaresque seems to looking beyond Menihek in Labrador to a seat on the island.  One version has Dumaresque tackling Lewisporte’s Conservative incumbent Wade Verge come October.

That’s the thing about polls.  Lots of people make decisions based on what they think they say.  Kathy Dunderdale should know that, having worked so closely with ace poll-follower Danny Williams for so long. 

When the polls were looking rosy for the Tories, ambitious people were content to sit on the sidelines. 

Now with the scent of blood in the air, they might not sit still much longer.  After all, if you look at the actual CRA numbers – not the adulterated one’s the company feeds reporters – you can see why Kathy Dunderdale looked and sounded so stressed when she spoke to reporters on Tuesday.

Shave off 10 points from CRA’s party choice number come August and the Tories are at 34%.  Even if you split that vote evenly between the two opposition parties, the swings could put more and more seats across the province in play.  Hand the whole 10% to one opposition party or the other and things look even darker for Dunderdale’s Conservatives. And that would be with a mere month and a bit to go before polling day.

Don’t be surprised if there are more than a few surprises in the days and weeks ahead.

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* Corrected from “Tom” in the original

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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