Friday, February 06, 2009

Lots of questions on Port Mann project

Eight months ago, the government said twinning the Port Mann bridge would cost about $1.6 billion, with not a penny from provincial taxpayers.
A private consortium would build the bridge and maintain it in return for the future toll revenue. Good deal.
But now, the cost is $3.3 billion.
Taxpayers are on the hook for $1.2 billion in financing.
Oh, and the bridge isn't being twinned anymore. The existing bridge will be pulled down after a new 10-lane bridge is built.
There is a good case for another bridge to get people across the Fraser River. Traffic is a mess for large chunks of the day. (Though the question of what happens to the thousands of additional cars when they get off the bridge is still largely unanswered.)
But this announcement by Premier Gordon Campbell does not inspire confidence.
The government said the soaring cost is caused by inflation, the decision to tear down the existing bridge and a more realistic look what's involved in the project, like feeder roads.
Still, a doubling of costs before the first shovel of dirt is moved is hardly reassuring. Especially from the government that stuck taxpayers with $500 million worth of surprise overruns on Vancouver's convention centre.
That's far from the only worry.
The government has said the initial toll will be $3, rising with inflation. With a modest increase in traffic, that would produce $150 million a year for the bridge operators. (Toll collection will be high-tech. Electronic devices would log regular users crossings and deduct the toll from an account.)
When the bridge was to cost $1.6 billion, $150 million in revenue wasn't bad. That's about a 9.5-per-cent return.
But at $3.3 billion, the return is down to 4.5 per cent. The consortium is not likely to go ahead - especially not with the risks of construction cost overruns, shortfalls in revenues and interest cost - without more revenue.
So what will the province - that is to say, you the taxpayers - pay to keep the private companies committed to the project? Will it be $100 million a year, on top of the tolls, or more?
And then there's the whole question of the $1.2 billion taxpayers are advancing to pay for the project.
It's apparently a loan, at commercial rates. If it's repaid, the government should make money given its low borrowing costs.
The project is being funded with $1 billion from the construction consortium, which includes Macquarie Group, an Australian investment business that has done well in its dealings with government, but hit tough times. The province is to put up $1.2 billion; other lenders another $1.2 billion.
The theory is that provincial taxpayers are protected. The consortium, with $1 billion at risk, has a big incentive to make sure the project is completed.
But no other lender, no bank or pension fund around the world, could be found to provide the $1.2 billion in financing. That's why the province stepped forward.
OK, it's a skittish time for lenders.
But does that mean taxpayers have to take on the risk? Or should the government have waited for a year, developing a clearer assessment of the risks and a realistic business plan?
Transportation Minister Kevin Falcon, who has championed the bridge and other Lower Mainland road projects, says traffic delays cost B.C. $1.5 billion a year in lost productivity. If the Port Mann cuts that problem by 25 per cent, it's a good investment.
But that's not clear. And the government's leap into this megaproject is looking a little blind. It's hard not to worry that the desire to get a deal done before the provincial election is encouraging too much haste.
It's been tough to get information about other private-public partnerships. This time, the government should recognize the legitimate public concern and answer all the questions before the deal is done.
Footnote: The project is popular, mostly, in the Lower Mainland. But Liberal candidates in the rest of the province might find it a challenge to defend going ahead with another Vancouver-area megaproject even as cost estimates soar.

Run-of-river gold rush or not?

Energy Minister Blair Lekstrom wrote the Times Colonist to argue there is no boom in run-of-river power applications in the province. The letter, published this week, said:
"Despite the claims of a "gold rush" in new independent power projects, only 46 such projects are in operation; almost half were started under the previous NDP government."
But the government handed out employee recognition awards this week and gave a Gold Award to a cross-ministry team from energy, agriculture and lands, environment and forests for their work on a flood of IPP applications.
"The team was brought together in response to a phenomenal increase over five years of 1,140 per cent in independent power project applications. Without a corresponding increase in resources, agency staff looked for new ways to do business. They came up with an integrated and coordinated inter-agency approach to application management."
Maybe a "phenomenal" 1,000-per-cent increase in applications isn't a gold rush for the minister, but the people who do the work see it differently.

The drug mire in Afghanistan

The plan for NATO troops to start attacking opium producers in Afghanistan seems a pointless step into a nasty mess. The theory that drug money helps supports the Taliban is almost certainly true; if nothing else, looking Taliban leaders can collect taxes or protection money.
But poppy production provides income for one in 10 Afghans, in a country where the average monthly income is about $30. Every effort to end the industry — which provides some 90 per cent of the world's opium - will be fought by large sections of the public.
And, as this fine piece on the fumbling and corrupt eradication efforts from a couple of years ago shows, the effort is likely to cost vast sums and accomplish little.
Drug eradication spending in Afghanistan has been running at about $650 million a year — about $55 million froom Canada — while production increases.
There are alternate approaches. The Senlis Council, an international research agency with a focus on Afghanistan, has proposed a Poppy for Medicine program. Afghan villages would be supported in growing poppies and producing morphine. The pain-management drug is in desperately short supply for medical use in much of the developing world.
Western nations could also subsidize farmers to grow other crops or simply buy and destroy the poppy harvest.

Tuesday, February 03, 2009

Campbell, thankfully, flip-flops on deficits

Heave a sigh of relief that Gordon Campbell has decided deficits aren't the ultimate horror after all.
Campbell has been an anti-deficit zealot for every one of the 16 years he's been in provincial politics. He brought in a law that made deficits illegal and denounced them as the folly of the weak and morally bankrupt.
Even in late October, when the premier went on television to announce his responses to the economic meltdown, he stuck to the claim that deficits are the tools of the devil.
"Let me be very clear, we are not going to run a deficit in the province of B.C.," he said at a press conference after the talk. "When anyone talks about a deficit, they're talking about turning their back on the next generation and sending our problems forward to them."
Less than four months later, Campbell has changed his mind. He and Finance Minister Colin Hansen called a dramatic press conference this week to confirm government revenues have plunged. Without deficits for the next two years, the government would have to cut spending on health and education. That would be worse than a deficit, Campbell said grimly.
The fact that Campbell and Hansen could only be persuaded now, two weeks before budget day, means disaster was dangerously near.
Hansen said if was only in the last couple of weeks that he accepted the impossibility of a balanced budget next year. That means the government was on the brink of a desperate gutting of spending to meet its ideological commitment to balanced budgets. Government officials have spent months looking for programs and spending to cut to bring expense in line with revenues.
The result would have been predictably terrible, with deep and damaging cuts to vital programs.
Hansen said this week that government revenue for the next three years is now forecast to be about $6 billion below the projections used in last year's fiscal plans.
Not surprising, as the resource industries struggle, tax revenues slump and home sales - and property transfer taxes - drop. But huge.
Consider the impact of building a balanced budget with that kind of revenue shortfall.
Assume a two-year freeze on health and education spending, which would mean growing waits and other problems as health authorities cut back to cover salary increases and critical needs.
The government would still have to cut 10 per cent from the rest of its spending to have a hope of delivering a balanced budget. That would mean deep cuts to services and programs, from policing to child protection to retraining.
The fact that Campbell was willing to cling to the idea that could be managed is alarming.
Deficits are, in most circumstances, to be avoided. Spending more than you take in - as an individual or a government - means racking up debt that must be repaid and interest costs. It's an easy way to put off hard decisions and leave the consequences for someone else.
But sometimes it makes sense to borrow to get over a brief period of lower income. That's especially true in a recession, when cuts would further weaken the economy and deprive people of services just when they are most needed.
It's still not clear whether Campbell accepts that reality. He said at the press conference that he only abandoned the idea of balancing the budget when it became clear that health and education cuts would be required. That raises, again, the suggestion that other government functions - children and families, forestry management - are expendable.
And he pledged to still try for a balanced budget, promising cuts to contracts with service providers, grants, contributions and government operations. Service providers - the agencies that actually do much of the work on behalf of the government - are already struggling. Cuts could be disastrous.
Still, count the flip-flop as a sign that Campbell found some common sense, in the nick of time.
Footnote: There was more encouraging news. Hansen said the panel of independent economists the government consults had knocked their growth forecast for this year down to zero. But in 2010, their average prediction is for 2.8-per-cent growth. That would point to a relatively quick emergence from the worst of the slump for the province.

Monday, February 02, 2009

If the courts don't work, what's the alternative?

When only people with money can access the legal system, what are the rest of Canadians to do when their rights are violated? What's to stop the rich and powerful from ignoring the law, knowing their victims can't fight back?
And how long before people decide if there is no legal recourse, they should feel free to take matters into their own hands. If a pushy neighbour builds a fence on your property and you can't afford to deal with the matter in the courts, pushingit over with a backhoe might seem a good idea.
The Times Colonist takes a good look at the issues in this editorial.