Wednesday, December 20, 2017

Carole James’s Big Budget Problem

(Belatedly posting my recent Tyee column.)

Finance Minister Carole James put a good spin on this week’s quarterly update on the province’s finances.

But the update highlights big problems the NDP government faces in crafting its first budget, due in mid-February. Without tax increases, the government won’t be able to deliver on its election promises or provide the changes supporters expect.

The September budget update — a mini-budget — didn’t include funding for some campaign promises, like $10-a-day child care, the promised $400 a year for renters or thousands of new affordable housing units. There wasn’t enough time given the delay in forming government, James said.

But there also wasn’t enough money. And the challenge will be greater next year.

This September mini-budget set out a three-year forecast of revenue and expense.

For fiscal 2018, the government is forecasting $150 million in additional revenue — less than one-third of one per cent. (The budget numbers are easier to grasp if you knock six zeros off them. Imagine a family with an income of $52,407 and big expectations with an extra $150 to spend next year.)

Population growth is forecast at 1.2 per cent, and inflation will be about two per cent. So the government would need to spend about 3.2 per cent more just to keep providing the current services. That would be about $1.7 billion, compared to the expected $150 million increase in revenue.

And that is before introducing things like the $10-a-day child care plan or addressing real problems the New Democrats identified in opposition — actions supporters are expecting.

The September update also forecast expenses for next year. The plan calls for nine of the 20 ministries to have their budgets frozen. Two — environment and labour — would see spending cuts. Five — including the ministries of children and families, housing and education — would have spending increases of one-half of one per cent or less.

I’d thought the numbers might be just placeholders, in part because BC Liberal budgets so often underestimated revenues by huge margins. Last year, for example, the Liberals budgeted for a $264-million surplus and ended up with $2.7 billion. (If they had budgeted more accurately/honestly and spent half that surplus addressing issues that rankled voters, the Liberals would probably still be in government.)

But the quarterly update killed that kind of optimism.

The numbers for the first six months of the fiscal year weren’t terrible but neither were they great. Revenue is now expected to fall short of the projections in the new government’s September budget update by $283 million, mostly because of lower income tax payments from the federal government and ICBC’s poor financial performance. Expenses are on track with the update’s projections despite a $152-million budget overrun in fighting forest fires.

Any hope that projections for this year and next were overly conservative and the new government would have more fiscal room was snuffed.

The biggest challenge is former premier Christy Clark’s reckless pre-election move to cut Medical Services Plan premiums in half for people with a household income under $120,000, announced in the Liberals’ February budget. But it doesn’t take effect until Jan. 1, so revenues are only reduced for the last three months of this fiscal year, which ends March 31.

But next year, the change will cost the government more than $1.2 billion in lost revenue.

Cutting MSP premiums is sound policy. The premiums, which the Liberals had more than doubled, were a regressive way to pay for health care. A family with $40,000 in income paid the same amount as the richest British Columbians. Covering the costs through income taxes — like most provinces — would be more equitable.

But the Liberal budget didn’t introduce any tax increases to cover the lost revenue. It just pushed the problem into the next year and hoped no one would notice the ticking time bomb.

All of which leaves the NDP government facing three choices.

It could try to cut expenses to fit the projected revenues. In her briefing on the quarterly update, James noted, “A number of our promises are longer term and implemented over a number of years.” That leaves room to make a small start on promised affordable housing and child care. Premier John Horgan has also talked about the importance of federal funding. But really, after 16 years talking about the Liberals’ failure to spend in critical areas, the new government can’t manage in the same way.

It could choose to run a deficit, spending more than it took in and leaving the debt for future taxpayers. But beyond political expediency, there is no justification for deficit budgets when the economy is performing this well.

Or the budget could increase taxes. The September update included an increase in the corporate tax rate from 11 to 12 per cent and a bump in income tax for people being paid more than $150,000 a year from 14.7 per cent to 16.8 per cent. But that’s not enough to make up for the $1.2 billion in lost revenue from the MSP change.

The government has appointed a three-person panel to provide advice on ways to replace MSP revenue and allow the full elimination of premiums within four years.

Pragmatically, tax increases make sense. If you’re cutting MSP premiums, you need to find revenue to pay for critical public services somewhere else.

And the NDP platform, which promised the eventual elimination of the health care premiums, said a “non-partisan MSP elimination panel will advise on how to protect health care funding, while phasing out this unfair flat tax.”

The anti-tax lobby has been successful in turning the idea of any tax increase into anathema.

There are no easy choices for the government, and lots of political risks.

But British Columbians voted — barely — for change. Which means tax increases and investments in a better society, despite the political risks.

Friday, December 08, 2017

Why I'd kill Site C

I have no idea what the government will do about Site C. (I do know that anyone who claims it’s an easy choice to kill the project or go ahead is not to be taken seriously.)

But if it was up to me, I’d opt for cancellation.

The people pushing for completion rely heavily on three flawed arguments.

First, that BC Hydro has already spent $2 billion, so despite the certainty of delays and cost overruns, the government might as well keep spending. 

That’s silly. Economists call it the sunk cost fallacy. The money already spent is gone. The question is whether the money still to be spent is a good investment. Anyone who has paid too much for a new clutch for an old car because they spent money on a brake job three months earlier understands the principle.

Second, they maintain that even if forecasts show the power isn’t needed, someone will probably show up to buy it. Maybe we’ll all start driving electric cars, the dam’s backers fantasize. That’s no way to justify spending billions of dollars.

And third, they talk about jobs. About 2,000 people are at work on the site. It will be rough for them if the project is shut down. But 2.5 million people are employed in the province, and the workers on the site have skills that are in demand. They don’t need a publicly funded make-work project\.

On the other side, the government has to consider the emergence of new technologies to produce green power at ever lower costs, the BCUC’s determination that the power from Site C won’t be needed for years and the risks of soaring costs.

The latter would be the deciding factor for me.

When then-premier Gordon Campbell announced the government would build the Site C dam in 2010, it was a $6.6-billion project. The price tag jumped to $7.9 billion, then $8.3 billion and now the BC Utilities Commission says the real cost will be more — perhaps much more — than $10 billion. 

That’s why I would bail, if I was the premier. (Pause for collective shudder.)

We know the costs of cancelling the project.

But continuing means signing a blank cheque. The dam could cost $10 billion, $12 billion or $15 billion. And the NDP government, having made the decision to go ahead, would own the consequences.

I’d say no.

Friday, September 29, 2017

Sadly, not the weirdest moment in my newspaper career (Spoiler alert: Charges were stayed)

Newspaper pleads not guilty
RED DEER, Alta. (CP) — The Red Deer Advocate has pleaded not guilty to incitement to commit a criminal offence, a charge that resulted from a controversy over abstract metal sculptures one resident described as “piles of rusted out snowplow blades.” The Advocate was charged last month under a rarely used section of the Criminal Code as a result of a column June 30. The trial begins Feb. 5 in provincial court. The column, by freelance writer Ian Coleman, suggested someone load a 12-gauge shotgun with double-0 buckshot and shoot one of the sculptures. They were built for $75,000 as part of Alberta’s 75th anniversary celebrations four years ago and have long been a source of controversy and derision in Red Deer. In his column, Coleman said the sculptures “are an affront to the eye, an insult to common aesthetic sense” and “have been an embarrassment to the citizens of Red Deer since they arrived.” He said the only way to deal with the worst of the sculptures, a rusty, boxy “monstrosity” visible from the city’s main north-south thoroughfare, “is to alter its form.” “A civic-minded individual with courage, a car and a gun, could drive down 50th Avenue just before dawn, when the streets are empty, and shoot the sculpture; the shot would dent it just enough so the city would have to haul it away,” Coleman wrote. An RCMP spokesman said no shots were ever fired at the piece. Crown prosecutor Burt Skinner said the charge was laid after several complaints. The maximum penalty is six months in jail and/or a $500 fine. Skinner said the charge is rare because the public does not like to see freedom of the press infringed. But, he said, newspapers have a responsibility to monitor the opinion they print. 
   Publisher Paul Willcocks said the Advocate column was tongue-in-cheek. “It was meant to be funny.”
   He said the column was part “of a long tradition of making a point in an exaggerated way” and the charge will not change The Advocate’s policy on running columns.
   The best known similar case in Canadian law is the 1971 British Columbia conviction of Georgia Straight Publishing Ltd., which once encouraged people to grow marijuana.
   The Poundmaker, a now-defunct paper in Edmonton, was charged with a similar offence in 1974 when it ran several advertisements urging people to shoplift.
   Jim Robb, the defence lawyer in the Edmonton case, said The Poundmaker argued that the ads were a spoof and the argument ‘‘was accepted without ever having to call a defence.”
  While the pieces have not been shot at they have been physically and verbally abused since they were put up three years ago.
   Bill Bodnaruk, an unsuccessful aldermanic candidate last October, said the works are “piles of rusted out snow-plow blades, a terrible waste of money” and should be sold for scrap.

Friday, September 01, 2017

Six Things to Know about the BC Liberal Leadership Race

Here are six things you need to know about the race to replace Christy Clark, based on the rules the BC Liberal Party released Tuesday.

First, you better have money or some rich supporters if you even want to try for the job. It will cost you $50,000, payable to the party, to become a candidate. (Plus $10,000 that you’ll get back if the party doesn’t levy any fines for bad behaviour during the campaign.)
Second, it’s going to cost a lot more to win. The spending limit for candidates — on top of the entry fees — is $600,000. That’s a 33-per-cent increase from 2011 when Christy Clark won the leadership, and 71 per cent higher than the spending limit in the 2014 NDP leadership race. Candidates who jump into the race and raise enough money will be able to spend about $120,000 a month on their leadership campaigns. (Money, of course, does not guarantee success, as the BC Liberals proved in the May election. They spent $13.6 million compared to the NDP’s $7.9 million, and got just 1,566 more votes.)
Third, and further confirming the Liberals’ blindness to the public concern about its support for Wild West political fundraising, there are no limits on donations. If a developer or union or even foreign government wants to write a $500,000 cheque to try and get a friendly candidate elected, that’s OK with the Liberal party. The donation will eventually be disclosed — but not until 90 days after party members have voted to elect their new leader.
This free-for-all comes, remember, six months after the Liberals’ deathbed repentance Throne Speech pledged to ban corporate and union political donations and limit individual donations.
You can read the rest of the column at The Tyee.

Friday, August 04, 2017

Where are those Public Accounts? Delay should worry Liberals

The Liberals should be getting nervous about the long delay in releasing the Public Accounts and the Auditor General's review of government finances.

As part of the Liberals' self-destructive bid to hang on to power, then finance minister Mike de Jong broke precedent by releasing unofficial results for the fiscal year ending March 31. He claimed a $2.8 billion surplus, $1.3 billion higher than budgeted. (Showing the Liberals mean-spirited election platform was a matter of ideology, not economics.)

De Jong defended the unorthodox media event days before the government was set to lose a confidence vote, saying the real, certified numbers would be available in a matter of days. "The auditor general's office is advising they'll be in a position to issue the certificate next week," he said.

More than five weeks later, the Public Accounts still haven't been released; most years, they're public by mid-July. (Last year it was July 21.)

The province's auditor general has issued "qualified" approvals for the Liberal government's financial statements repeatedly, finding that they was not following proper Canadian accounting practices.

The delay could indicate that the Auditor General has found a more sympathetic ear in the new government or that the NDP has its own questions about Liberal financial practices and the claimed surplus.

Which would not be good news for a Liberal party that lost its way with a throne speech that abandoned any claimed principles and now may face questions about its financial competence.

Thursday, April 13, 2017

Postmedia hits the wall

Last week's quarterly report from Postmedia was predictably grim.

Canada's largest newspaper company reported revenues had fallen 13.4 per cent from a year earlier. Plunging revenues have been a hallmark of Postmedia's six-year existence.

The corporation has slashed costs, but not enough to keep up with revenue losses. Postmedia took in $181 million in the quarter, $28 million less than the previous year. It cut operating costs by $21 million.

Operating income - the actual performance of the business - fell from $13 million to $6 million.

There are two key lessons from these numbers.

First, expect deeper cuts. What's happened so far hasn't been enough to keep up with falling revenues. And, or course, the cuts will lead to further revenue losses.

And second, note that for the first time - even after last year's debt restructuring - Postmedia's operating income of $6 million was less than its interest payments of $8 million.

In the short term, Postmedia can free up some cash to pay the interest. But the fundamentals, as they say, are dismal.

And the end, according to one-time newspaper baron Conrad Black, is clear.

"The bond holders control the company and are content to bleed it dry with the complicity of management. Bankruptcy is next," he said on Twitter.

Friday, April 07, 2017

Which Christy Clark response on the health firings is to be believed?

“I did ask a lot of questions at the time. The assurances that we all received was that these were absolutely justified and the right thing to do.”
- Premier Christy Clark, responding Friday to reporters' questions on the health firings.

"Premier Clark did not recall ever being briefed about the decision to terminate the employees."
- Ombudsperson Jay Chalke on Clark's evidence, under oath, taken as part of his inquiry.

So when, exactly, did Clark ask all these questions on firings she can't recall ever being briefed on? Who did she ask, and who provided these assurances?

And what should voters make of the conflict between her public claims and testimony under oath?

Wednesday, February 01, 2017

Is Vancouver the Jalisco Cartel's 'drug portal to the Pacific'?

Vancouver is making its mark as a major export centre in at least one area — international drug trafficking.

‘Drug Portal to the Pacific,’ an InSight Crime report on the rise of the Jalisco Cartel called the city. 
Cartel's 2015 ambush that killed 15 police officers

“The key to their rapid expansion has been the strategic presence of operations on the southeast border of the United States, next to Tijuana, and the northeast border, next to Vancouver, Canada,” the report said.

The role of Mexican Cartels in Canada isn’t new. In 2015 the Vancouver Sun’s Kim Bolan wrote  about the cartels’ increasing shift to having their own people on the ground in Canada, rather than dealing with Canadian intermediaries.

But the new report by Luis Alonso PĂ©rez (originally done for Animal Politico a Mexican online publication) sets out how important Vancouver has been allowing the once-small Jalisco Cartel become “one of the most prolific and violent drug trafficking organizations in the world.”

It’s not just that Vancouver is a good place to land drugs destined for the U.S. and Canada. It’s become the transshipment point for drugs bound for the Pacific Rim, the article says.

The Jalisco ‘New Generation’ Cartel is a formidable player — combining business smarts, bribery and intimidation - it shot down a military helicopter -  and over-the-top violence, including mass murders. Last month, police blamed the cartel for 12 murders in Manzanillo, including seven people found decapitated in a taxi.

I started following InSight Crime after we moved to Honduras. It was almost the equivalent of a newspaper’s business pages in shedding light on the economy and politics of that country and its neighbours. I’ve found it consistently credible and useful over the last five years.

It’s also a journalistic success story. In 2010, two journalists launched the project with foundation funding. The focus was on crime in Latin America, from drugs to urban gangs to corruption and impunity. It’s going strong, in English and Spanish, with a broad funding base — including the Canadian government.

Saturday, January 28, 2017

Donald Trump's stupid wall and Central America

There is no wall tall enough.
Even if you can leave aside the racism and the attempt to exploit and worsen fears and prejudices, Donald Trump's plan to build a wall along the Mexican border is remarkably stupid.

Early in our stay in in Honduras, I started hearing about the huge number of people who went to the United States. It was an incredibly difficult, dangerous and expensive effort. People set out with almost no money to make a 3,100-kilometre journey through Guatemala and Mexico and across the already difficult U.S. border. They risked robbery, kidnapping, rape, extortion and a lonely death in the desert. Many travelled on La Bestia, a Mexican freight train that carried hundreds of migrants.

I wrote about the journey here and here. The idea that a wall would deter people willing to risk death and sacrifice everything they had for a chance to spend a few years in the U.S. is idiotic.

As is Trump's failure to recognize the risk to U.S. interests created by his $15-billion wall plan.

Hondurans, for the most part, didn't want to move to the U.S. They wanted to spend three or four years working at the jobs no one wanted and sending money home, to pay for a better education for their children, a plot of land to farm or to start a small business. (In countries where employment is scarce and precarious, even a tiny business offers some security.)

Remittances - money sent back by Hondurans working in other countries - equals about 18 per cent of the GDP of Honduras, according to the World Bank. It's about 17 per cent for El Salvador, 10 per cent for Guatemala and nine per cent for Nicaragua (although much of that country's remittances come from people working in Costa Rica).

For comparison, the natural resource and sectors combined contribute 16 per cent of British Columbia's GDP.

The U.S. has fretted about security risks in Central America since the 1890s. And now Trump proposes a wall that, to the extent that it works, will destabilize economies and governments in the northern triangle — an already troubled region.