Dermod Travis: B.C.'s fiscal tsunami (Part 1)
If the term "fiscal cliff" became part of the daily lexicon over the holidays, perhaps a new term should come into vogue in B.C. before the May election.
Call it the "fiscal tsunami"—and it could hit B.C.'s shores sooner than most think.
It's the hangover that comes from creative accounting, financial wizardry, and a little reliance on a magician's sleight of hand.
B.C.'s budgets are chalk full of household terms like “Notional Allocations to Contingencies”. What they are not is an exercise in clarity or brevity.
The B.C. government's 2012 budget came in at a mind-numbing 64,000 words—or one-third the length of the Old Testament.
In spite of this, the media still tries—in a matter of hours—to report the salient facts in stories that might run 1,000 words each or three minutes on television.
However, what's often missing from their reports is any real historical analysis of public finances, particularly when it comes to debt and future fiscal commitments.
Debt can be an albatross on any government. Just ask a college or university graduate about that student loan hanging from their neck.
It presets the amount of fiscal room a future government has to set new priorities or address unforeseen needs.
But just try to get an accurate handle on B.C.'s debt. It's like trying to grab a fistful of water.
There's the debt represented by accumulated budgetary deficits. And there's the debt most British Columbians begrudgingly accept that they are on the hook for as well, through corporations such as B.C. Hydro and B.C. Ferries.
Taxpayers also guarantee a host of other public debt from student loans to “the Columbia Basin Trust joint venture co-venturer debt”.
Some of it is "taxpayer supported", some is euphemistically called "self-supported".
But whether it's through a rate increase, a toll or taxes, the B.C. government signed the IOU and one way or the other B.C. taxpayers pay the piper.
So exactly how much is B.C. in debt?
According to B.C.'s Public Accounts, taxpayer and self-supported debt stood at $51 billion last year. Some peg it higher, others lower. It's a sum that doesn't include revenue the government has deferred—a figure that stood at $10.6 billion in 2012.
But even at the more modest $51 billion, what does that mean for an ordinary taxpayer? B.C. only counts eight billionaires among its ranks who might have some inking at what $1 billion look likes.
So knock off six zeros from $51 billion and imagine B.C. as a family home.
In 2002, the home carried a first mortgage of $35,500. Despite paying $22,711 in interest charges over the next 11 years, the mortgage still grew to $51,000 by 2012.
Put back into a provincial context, that's $22.7 billion in interest charges that couldn't be used to train a new nurse, teach a skill. or introduce measures to address child poverty.
And while personal income taxes don't pay the interest or the principal, British Columbians still pay to service most of the other debt the province guarantees on behalf of taxpayers.
For instance, B.C. Hydro's long-term debt rose from $6.9 billion in 2002 to $10 billion last year, a sum that does not include more than $2 billion in deferred costs which supposedly will be expensed in future years.
Someone has to pay to service that debt. In B.C. Hydro's case, the burden fell disproportionately on the the utility's residential users, from whom revenue increased by a whopping 65 percent, while consumption rose 21.3 percent.
But it's not just the first mortgage that should worry taxpayers. Think credit card purchases.
B.C. has made some pretty hefty contractual commitments to folks in the future.
B.C. Hydro has committed to purchasing $53.1 billion in power from private energy producers over the next 30 years, a sum greater than B.C.'s entire debt.
B.C. Ferries will soon be kicking the hulls of a few new members to its fleet. Their cost will likely be borne by new debt.
A number of Crown agencies use derivative interest swaps as a way to try to reduce interest rates. It hasn't always worked out so well. Subprime mortgages weren't such a great idea either.
The Transportation Investment Corporation—responsible for the Port Mann/Highway 1 improvement project—last year reported $112 million in losses just from its hedge valuations that have been, in the vernacular, “realized”.
These numbers are why every political party has a duty to level with British Columbians in campaign platforms about what is fiscally feasible and what is not, and how much financial room any government will have going forward.
And they need to do it well before the May 14 election.