From a decade of prosperity to $2 billion deficits: What happened?

By Roger Grimes

Reflecting upon becoming the eighth Premier of Newfoundland and Labrador 15 years ago this month, I found myself chatting with a few friends and associates about where the province found itself fiscally at that time, what happened during the next decade, and where we find ourselves today.

During my tenure as Premier, we were a persistent “have not” province with a deficit problem of roughly ten percent. We ran annual deficits of roughly $500 million on a total budget of $4.5 billion. Now, after a decade of unparalleled prosperity and “have” status within the Equalization system, we find ourselves with a twenty-five percent deficit problem comprised of a $2 billion deficit on an $8 billion total annual budget.

Using data aggressively #nlpoli

These days campaigns are about collecting information on voters and using the data.

The Ted Cruz campaign has been especially aggressive in  Iowa with a mailer that highlights the poor record of some voters of participating in caucuses.

The thing came in a brown envelope (above) and consisted of  single sheet of yellow paper (below) marked like a ballot that showed a score and percentage grade for voters named on the sheet. 

These folks don’t typically turn out to vote, so Cruz was trying to goad them into participating. Voting records are public in some American states so campaigns can tell who voted and who didn't.  Your neighbours.

You can tell if it worked by the results from Monday’s caucuses.

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Newfoundland government finance, 1832 to 1949 #nlpoli

Before Newfoundlanders stopped governing themselves in the early winter of 1934, they’d run a sometimes arduous course.

Newfoundland gained a limited form of self-government in 1832 and in 1855 gained Responsible Government.  That gave control of  virtually everything except defence and foreign policy to a cabinet made up of members of the elected assembly and the appointed upper chamber of the legislature. 

By the 1880s,  the government wanted to expand the economy beyond the fishery.  They started a railway project to open up the interior of the island and the western coast, much the same way that the Americans and Canadians had used the latest technology – the railway – to expand to their west.

Junkyard wars

Syrian rebels have been using modern technology in the simplest of ways in their war against the Assad regime in Syria.

In the picture at left,  a rebel crew are shown using an angle meter app for the iPad to check the alignment of a mortar barrel before an attack.

According to a story in the Daily Mail last September,  the photo shows members of the 'Ansar Dimachk' Brigade, which operates under the Free Syrian Army, using a tablet "to help fire a homemade mortar towards a battlefront in Jobar, a suburb of Damascus."

The rebels have also been using iPads for other purposes as well, as the following video shows.

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AG reports on suspected frauds in FY 2014 #nlpoli

In his most recent report, Auditor General Terry Paddon disclosed alleged frauds identified during his review of the provincial government's accounts:

• The finance department's Professional Services and Internal Audit Division discovered a potential fraud of $42,000, less about 10% that had been repaid, that occurred in the the division's examination of the Provincial Courts bank reconciliation processes. The Department of Justice and Public Safety referred this matter to the police for investigation. 
• The same division reported a suspected fraud in the Department of Transportation and Works' depot involving thefts of automotive fuel and supplies as well as inappropriate use of employee resources. "It was concluded by the Division that due to the poor state of records and lack of effective internal controls at the depot, it was not possible to prove that any fraud had occurred. No further action was taken."
• During a routine review of travel claims, the Department of Justice and Public Safety identified irregularities that totalled approximately $1,300. The Department forwarded the matter to the police for investigation. 
• The Department of Child, Youth and Family Services reported that A foster parent may have committed fraud by submitting claims for funding for overnight babysitting when no babysitting services were provided. CYFS turned the matter over to the police and the individual is no longer a foster parent. 
• The Department of Advanced Education and Skills identified an alleged forgery of documentation submitted for reimbursement of approximately $30,000 for medical transportation costs and possible false documentation to support $27,000 in client rental payments.  Both cases are with the police.
• The Forestry and Agrifoods Agency identified an alleged misappropriation of funds by an employee of the agency that involved deliberately delaying the submission of cash remittances and personally using the funds during the intervening period.   The agency recovered the $21,000 involved,  terminated the employee but did not report the matter to the police.  
• Nalcor Energy identified a theft of petty cash of $360.  Nalcor revised its procedures for handling petty cash.
• The Provincial Information and Library Resources Board informed the AG of a fraud against the board involving a cheque that had apparently be altered.  The board subsequently recovered the $7,100 from its bank but did not report the matter to the police. 
• The Newfoundland and Labrador Housing Corporation identified an instance of improper retention of public money in which two employees were using their assigned corporate procurement cards to make purchases for personal use. Overall, the improper transactions amounted to $5,156 ($4,698 related to one employee and $458 to another). The $5,156 has been recovered from both employees and one employee has resigned. The other remains an employee of the Corporation. The Corporation has not referred the matter to the police. 

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S and P lowers NL rating, cites uncertainty of fiscal policy #nlpoli

Standard and Poor's said on Friday that the company had lowered its credit rating for the Government of Newfoundland and Labrador and Newfoundland and Labrador Hydro from A+ to A with a negative outlook.

In a news release, the company said the "negative outlook reflects our view of the uncertainty of the magnitude of the government's expected fiscal policy response to lowered offshore royalties and projected operating and after-capital deficits."

S and P's base-case forecast for 2014 to 2018 gives the government an "average operating deficit of about 7% of adjusted operating revenue and average after-capital deficits of close to 19%

of total adjusted revenues."  S and P calls this weak.  The company also said that it considers the government's "budgetary performance is subject to considerable volatility, given its high reliance on resource royalties...."

The company said it considers both the province's debt burden and contingent liabilities level to be high.  The company cited unfunded pension liability and the risk associated with Nalcor and Muskrat Falls as key issues in these areas.  "We believe the province has an incentive to provide extraordinary government support to Nalcor in the event of financial stress." Standard and Poor's also considered the government's luiqidity level to be low.

S and P  noted the strong federal-provincial financial relationship,  the provincial government's financial management history,  and strong budget flexibility as factor's working in the provincial government's favour.   "We believe that the province's economic and fiscal situation will make public acceptance of fiscal measures, such as tax increases and spending reductions, much more acceptable despite their unpopularity."  

The negative outlook reflects the uncertainty of the magnitude of the government's expected fiscal policy response to lowered offshore royalties and projected operating and after-capital deficits. We could revise the outlook to stable if the newly elected government takes the fiscal measures necessary to establish an improving trend in its budgetary performance beyond fiscal 2017, and develops a credible plan to restore budgetary balance in the medium term. Conversely, we could take a negative rating action should the province's budgetary performance show signs of weakening further beyond what we expect for fiscal 2017, particularly if projected after-capital deficits remain near 23% of consolidated operating revenues or the tax-supported debt burden reaches 270% of projected consolidated operating revenues [currently 100%].

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E.A.M.

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Moody's warns NL government on finances #nlpoli

Moody's Investor Services is the second rating agency to give the Government of Newfoundland and Labrador a negative trending  in light of the government's financial problems.

In a release, Moody's said that the "negative outlook for the Province of Newfoundland and Labrador reflects the rising risk that the province's fiscal position will deteriorate further than previously expected in an environment of protracted low oil prices and reduced economic activity. Without corrective fiscal action, this will lead to significant deficits, resulting in rapid debt accumulation across the medium-term."

Moody's expects oil to sell at US$33 a barrel in 2016 rising to US$38 a barrel in 2017 and US$43 a barrel in 2018.  The company expects that this will lead to significant deficits, with the deficit for the current fiscal year expected to reach 32% of revenue.  

"The outlook could be revised back to stable if the province introduces and implements a comprehensive fiscal plan that limits debt accumulation and debt service at levels in line with similarly rated peers, or exceeds these levels for a short period only."

Although the company describes the provincial debt level as low compared to its rating peers,  the company cautioned that "a lengthy period of consolidated deficits, along with a long-term expectation of recording debt in excess of 200% of revenues ... could result in negative pressures on the rating."

Gross debt is already more than 200% larger than anticipated revenues and net debt is almost guaranteed to hit or exceed that trigger, if the company includes consideration of the financial implications of Muskrat Falls.  

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Revelation: Labrador hydro edition #nlpoli #cdnpoli

“I wonder how I would feel if a province or a region in another province prevented Hydro-Québec from building its transmission line. I would feel exactly like the people in the West do now. I understand them.”  

Quebec City mayor Regis Lebeaume had a revelation.

Great.

Let's have a chat about another transmission line, shall we?

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Jerry Earle won't retweet this post #nlpoli

Apparently the surest way to piss off a couple of university academics a.k.a the NDP policy brain-trust is to point out how their take on the government’s financial crisis is out to lunch.

Short recap:  Math prof and Indy columnist Tom Baird got hold of an access to information response that explained the calculations behind a comment by cabinet minister Susan Sullivan on Twitter in March 2015:

In 2014 NL taxpayers will pay $744 million less as a result of tax deductions – affordable?

The ATIP request asked for a breakdown of that $744 million figure. Tom left off the cover page from the response when he posted a link to it in his Independent column in 2015.

“Tax cuts made during the Williams-Dunderdale era now cost the government $744 million in revenue each year,” Baird wrote, “ according to a recently released document from the Department of Finance obtained through an access to information request. This accounts for more than two-thirds of last year’s $1.1 billion budget deficit.”

That just doesn’t look right

Revenue problem #nlpoli

Jon Parsons  has an interesting take on the provincial government's financial mess.  It’s worth taking a few minutes to go through it.  Follow some of the links he offers as well.  Altogether they form what you might call a different perspective on things:

 The current deficit and debt…are the result of decisions that were made by a small number of people, and also because of the whims of the global trade in oil.

The key element of Parsons’ argument is that we are not dealing with a spending problem but a revenue problem.  We don’t bring in enough money largely because local elites have given away gigantic benefits to the local rich and to multi-national corporations.

The idea we have a revenue problem isn’t new and it certainly isn’t unconventional.  The province’s three political parties and the public sector unions all basically say the same thing or have made the same claim over the past year.

Turmoil tamed #nlpoli

Few people would be brave enough to start out a book on politics in  Newfoundland and Labrador with the words “Paul Lane.”

Fewer still could bring it off successfully.

Telegram political reporter James McLeod does both and more in a deftly written and insightful new book, Turmoil, as usual.

DBRS downgrades government rating #nlpoli

DBRS issued a revised rating for the provincial government on Thursday.  It remains "A" but a change to trending from "stable" to "negative" for long-term debt.  DBRS' short-term debt rating remains R-1 (Low) with a stable outlook.

In a news release, "DBRS has also confirmed the Guaranteed Long-Term Debt ratings of Newfoundland and Labrador Municipal Financing Corporation and Newfoundland and Labrador Hydro at “A” and has changed the trends to Negative from Stable."

"...DBRS believes that the Province’s ability to implement a fiscal response sufficient to slow the deterioration in the credit profile is limited. Without a material improvement in the fiscal and debt outlook supported by a credible multi-year fiscal plan, a one-notch downgrade is likely."

A chasm they can't ignore #nlpoli

That didn’t take long.

The fundamental strategic political problem Dwight Ball and his senior advisors have been busily building since last year exploded on Wednesday with the leak of a treasury board directive to departments, agencies, boards, and Crown corporations.

Ball has been promising that he would deal with the provincial government’s mess without layoffs.  As recently as last week Ball said that attrition – job vacancies due to retirements – were the only way he’d consider job reductions in the public service.

Yet,  the ministers of the treasury board have recently sent a note to departments, agencies, boards and Crown corporations asking them to come up with options to reduce spending by 30% over the next three years. There is no commitment that government will cut that much.  This is an exercise in generating options for the cabinet to consider.

Will DBRS re-do its rating for Newfoundland and Labrador? #nlpoli

Premier Paul Davis was proud of the fact that a bond rating agency had confirmed the province's credit rating.

Curiously, he never told anyone which rating agency it was and, as it seems,  very few if any news outlets reported on the release issued on November 19 by Dominion Bond Rating Service.

DBRS confirmed the provincial government's rating at "A" for long-term debt and "R-1 (Low)" for short-term debt.  They also confirmed Newfoundland and Labrador Hydro at 'A' for long-term debt and "R-1 (Low)" with stable trending.

What's interesting, though, is that DRBS doesn't seem to have had access to up-to-date financial information even though they issued the rating in late November 2015.  Here's the basis for the stable rating,  according to the news release:

Updating the Alternative Spending Plan #nlpoli

In April 2013, SRBP ran a series of posts about public spending. The goal was to show how the government could have avoided its serious financial problems by having a financial policy more sophisticated than “spend it all.”

 A couple of very dramatic years have passed since then.

 Let’s update the projections and see what we get.

Process Question #nlpoli

Finance minister Cathy Bennett told CBC that "everything is on the table and we have to make sure that we don't leave anything that potentially could help us move to the destination that we all want to get to...So, my answer would be everything is on the table."

Soooo, my question would be "where is that destination?"

‘Engagement’ can be an excuse for avoiding action #nlpoli

by Craig Westcott

The Ball administration is off to a shaky start. Actually, it seems afraid to start at all. Tuesday’s press conference announcing 15 months of public consultation on how to handle the deficit is another indication that this administration is afraid to act. To use a tired cliché, the Liberals are like the dog that caught the car and doesn’t know what to do with it.

 Granted, the party has only been in power about a month, with much of that month being down time due to Christmas and the New Year’s holidays. But the Liberals had plenty of time to prepare an action plan. It has been obvious for the past two years that they would inherit the new government. That’s why the lack of a transition plan is so perplexing.

 Ball and his ministers need to send signals, already overdue, that they are changing the way we “do government.”

Thank you, Danny Williams #nlpoli

Rob Strong has been a key player in the local oil and gas industry pretty much since the earliest days.  He knows what he is talking about.

Strong pointed out to VOCM on Wednesday that the Hebron field won’t be the cash cow for the provincial government some people hoped/pretended it would be.

Analyst Rob Strong says he fears that on the front end of a project, that will have a 25 year life, this province won't reap any benefit for being a partner in the development.
Strong says when oil was at $100, Hebron type crude was being discounted by $35. He says that means in the short term, the picture does not look as bright for Hebron owners. This province has a has a 4.9 per cent share in the development.

What Strong is pointing to is a deliberate cut in the provincial royalty offered as a gift to the oil companies by Danny Williams and Kathy Dunderdale in 2007.  Dunderdale, the natural resources minister at the time, said that she and Williams wanted to give the multi-national oil companies “some downside protection if the price of oil went very, very low.”

Clarity #nlpoli

From the announcement of "intense" public consultations to solve the provincial government's financial crisis:

Question:  Health care spending eats up as you were saying  almost 40% of the budget, you must have some idea some clue as to why that is, why are we paying more per person than on average?

Premier Dwight Ball:  Well the interesting thing about what we... Minister Bennett mentioned this in her comment, the thing about health care in particular,  I spent quite a number of years and we are certainly very pleased to have Dr. John Haggie and other many resources that we have within government and outside of government feeding into a process , Minister Bennett mentioned the aging population that we have in our province right now, so given where we are,  you'd anticipate an even higher portion of the budget but what we are not getting is as we spend money in health care we are not seeing the improvement in health outcomes aso that's going to be our focus... how we improve the health of Newfoundlanders and Labradorians...

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