Friday, July 20, 2007

The premier and that gift to private liquor stores

It's nice to know the government was worried about how it would look, taking some $25 million a year out of taxpayers' pockets and handing it to private liquor store owners.
But it would be better still to know why the Liberals decided to make such a generous gift to a handful of businesses, one that will keep on giving.
I wrote about the gift back in January. The government had quietly decided to cut the wholesale prices it charged private liquor stores. It reduced prices by about five per cent, across the board.
Great news for the companies. If you can get a supplier to cut your costs, then your profits jump.
The biggest company quickly wrote investors and said the government's decision would mean a 10-per-cent jump in pre-tax profits.
Not so good for taxpayers. The price cut reduces the amount of money coming into the Liquor Distribution Branch. The branch's profits flow back to the government, to pay for health care or reduce the debt. The money was significant - up to $31 million a year.
But why would the government cut prices? It doesn't have any competition - the Liquor Distribution Branch is the only legal supplier.
And the branch has already cut prices for the stores twice since the Liberals opened the door for expanded private liquor sales.
There is no financial crisis in the liquor business. In fact, stores are still opening and the industry leaders have big plans.
It's still a mystery why the government gave the gift.
But thanks to Sean Holman at, the how of the deal is becoming clearer. (The site is mandatory reading for anyone interested in politics and policy in B.C.)
Holman filed freedom of information requests to find out what happened.
It turns out Solicitor General John Les announced the gift to private liquor stores at the B.C. Hospitality Industry Conference Exposition. There was never a news release or public notification.
Les noted the government had already "taken a number of steps" to help private liquor stores.
And then he announced that government was prepared to give up more revenue to help the private liquor stores. "This increase in the discount will help to further ensure your long-term viability in the marketplace," Les told the cheering liquor store owners.
Why the government is willing to pony up your money to ensure the success of these businesses remains unclear.
But don't blame Les for the giveaway. He was watching out for your money, or at least that's how the industry saw it. The head of their association complained in late 2005 that Les had "no appetite" for meeting the industry's demands for bigger profits.
Perhaps what matters is who the industry complained to.
Holman reports the criticism of Les came in a "Dear Gordon" letter to the premier. Former solicitor general Rich Coleman had promised the price break, they said, but Les wasn't going along.
And a year later, the industry had its $25 million price break.
The industry's letter to the premier was interesting. Alliance of Beverage Licensees president David Crown said Coleman had promised to help the private liquor.
And Crown said the companies were waiting too long "to gain the market share that was promised us."
Whoa. Who promised the investors in private liquor stores a guaranteed share of the market? Why, and when?
Those questions still aren't answered.
The owners' association urged members to tell anyone who asked that the deal would mean lower consumer prices.
But the Liquor Barn group of stores had already told its investors that the change would bring a big boost in profits. And people who shop in private liquor stores don't report any big round of discounting.
The bottom line is that the government handed up to $30 million a year in revenue it had been receiving to a group of companies. That's money that could have paid for additional surgeries, or been returned to taxpayers.
Instead, it's boosting profits for a few private businesses.
Footnote: The break for private liquor stores will hit the government's Liquor Distribution Branch's bottom-line this year. The Crown corporation - despite a booming economy - is forecasting a drop in profits for the 2007-8 fiscal year.

Tuesday, July 17, 2007

Taylor's big surplus cost the public services

Finance Minister Carole Taylor was trying too hard, I'd say. The big-time spin on this year's public accounts suggested the government is getting worried about what you think about the recurring mega-surpluses.
Sure, big surpluses are better than big deficits. But I've been a corporate guy, responsible for a few businesses.
And if a manager who reported to me kept smashing his budget numbers year after year, I'd start to wonder if he was being dishonest when he submitted his plan.
The government smashed its budget again this year. Taylor has released the public accounts for the fiscal year ending March 31 - the final accounting - and revealed that the government had a $4.1-billion surplus.
The plan at the beginning of the year called for a $600-million surplus. But the plan underestimated revenues by about $3.1 billion. Spending was $1 billion lower than the worst case forecast.
That's no surprise. Since the Liberals were elected, the government has posted very large surpluses at year-end, consistently low-balling revenue forecasts.
Here's the problem. If the government had prepared an accurate forecast - within a conservative but reasonable margin of error - than there would have been a chance for the public and the MLAs who represent them to talk about priorities.
Good news, the government could have said. It looks like, given the best forecasts, we'll finish the year having taken in $4.1 billion more than we'll spend. What should we do with the money?
That's enough for a $1,000 cut in the taxes each British Columbians pays. Or to eliminate the wait for surgery in the province, or increase welfare rates or improve home care for seniors. Or to pay down the province's already modest debt.
The government's inaccurate forecasts steal the chance for that kind of debate. By the time the surplus is revealed, the only option legally left is to plunk it down on the debt.
So far, the government has been mostly upfront about the whole business.
But not this year. Taylor said the surplus was used to pay for hospitals, schools and roads. "Fortunately, we were able to use the larger-than-forecast surplus to both pay for these projects and pay down debt by $1 billion," she said in a press release.
That's a major tweak to reality. None of those projects was started because of the surplus. None of them is directly paid for with the extra money the government collected.
And they were planned and would have gone ahead without the surplus. (Sorry kids, we budgeted too well. No school for you.)
There is just no $3.1 billion allocated to infrastructure and $1 billion to pay down the debt.
The whole $4.1 billion is going to pay down debt.
Anytime the government communications' types ramp up the spin cycle that much - and enlist Taylor to front the effort - you should be warned something is going on.
There isn't anything dramatically wrong with paying down debt. I hate debt; it always seems to take away your freedom. That's another column.
But B.C. doesn't have a debt problem. Next to debt-free Alberta, B.C. has the lowest debt per capita. That, and prudent government, is why the province has such a good credit rating.
That means there was a real choice - tax cuts, or help for people or paying down the debt.
Spending decisions would of course have to be made carefully. It would be foolish to launch programs that require long-term commitments based on a large surplus one year. (Although big surpluses are the norm for this government.)
But even the most cautious approach would have allowed major improvements in the lives of British Columbians or significant tax cuts for individuals or businesses.
When the legislature finance committee consulted British Columbians on the budget, they said improving services should be the priority.
The government's bad forecasting allowed it to ignore the priorities of British Columbians.
Footnote: The legislative committee hearings are a legally mandated part of the budget process. The committee received 8,000 submissions which overwhelmingly called for improved services - faster access to health care, efforts to deal with mental-health and addiction issues, more affordable housing, enhanced education and so on. Instead, the government plunked $4.1 billion down on the debt.