Guns and butter: can the NDP government afford Site C dam and make housing more affordable?

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      Premier John Horgan has given every indication that he's serious about addressing the shortage and rising cost of housing.

      But there's a nagging question about how much fiscal room the province has to address the housing crisis in light of the cabinet's recent decision to complete the $10.7-billion Site C dam.

      Can the NDP government still afford to deliver on Horgan's pre-election promise to bring on 114,000 new rental, co-op, social, and owner-purchase housing units over the next decade?

      The NDP platform stated that this would be accomplished "though partnerships".

      Defenders of the Site C decision will say these two issues are unrelated.

      That's because a publicly owned company, B.C. Hydro, is taking on the debt for the Site C dam. 

      This debt is defined as "self-supporting" because the Crown corporation's future revenues will pay off this liability.

      Social housing, including the debts of the B.C. Housing Management Commission and the Provincial Rental Housing Corporation, are defined as "taxpayer-supported debt".

      This mean what it sounds like: taxpayers, not B.C. Hydro ratepayers, will pay down the taxpayer-supported debt.

      Of course, many of these ratepayers are taxpayers, and vice versa.

      But let's not quibble with that, for the moment. B.C. Hydro also has a capacity to generate revenue through the export of electricity.

      In the most recent unaudited provincial debt summary, commercial and other self-supported debt accounted for 37 percent of the nearly $65.9 billion in provincial liabilities.

      Taxpayer-supported debt accounted for 63 percent, or $41.5 billion.

      B.C. has a low ratio of taxpayer-supported debt to GDP.

      The debt-rating agencies are particularly concerned about taxpayer-supported debt.

      That's because this has no commercial revenues to pay it down.

      In this regard, B.C. is in excellent shape. It's taxpayer-supported debt-GDP ratio is just 15.9 percent, which puts it well below Quebec (49.9 percent), Ontario (42.4 percent), and Manitoba (37 percent).

      Only Alberta (7.8 percent) and Saskatchewan (7.6 percent) fare better, according to the provincial debt summary.

      B.C. is also not spending a great deal of its provincial budget on annual debt-service charges.

      In fact, the chart below shows that only Alberta and Saskatchewan are allocating lower percentages of overall revenue to this part of their operating statements.

      B.C. is spending a much lower percentage of overall revenues on debt-servicing costs than almost every other province.

      Site C can still affect provincial operating statement

      Horgan suggested that if the cabinet cancelled Site C, one of two things would happen:

      * About $4 billion in sunk costs and remediation expenses would be paid off through an immediate B.C. Hydro rate increase of 12 percent.

      * If these sunk costs and remediation costs were to be absorbed by taxpayers, it could cause a downgrade in B.C.'s debt rating.

      Horgan told CKNW Radio host Jon McComb that the latter option would lead to taxpayers spending $150 million to $200 million per year to pay off the $4 billion.

      That's because these expenses would be added to the level of taxpayer-supported debt, pushing it to the $45.5-billion range.

      According to Horgan, this might make it difficult for his government to afford to deliver $10-per-day childcare.

      That's because daycare, like provincial debt-service payments, is recorded on the operating side of the ledger.

      That's not to say that B.C. Hydro's debt is irrelevant.

      Problems can still arise if rating agencies conclude that the Crown utility's revenues are insufficient to meet debt-servicing costs.

      The provincial government would then have to step in to backstop the Crown utility's debt if its assets weren't sold to meet its obligations.

      That's where self-supporting debt becomes an issue for provincial taxpayers.

      Earlier this year, for instance, the Vancouver Sun's Rob Shaw reported that Moody's Investors Service had "concerns" about B.C. Hydro's growing debt.

      This occurred even as the agency reconfirmed the province's triple-A credit rating.

      Over the past year, self-supported debt rose by $1.8 billion even as taxpayer-supported debt declined by $1.2 billion.

      That's because BC. Hydro took on another $1.75 billion in new liabilities.

      That's going to worry those who believe that the high cost of Site C power won't be recovered in a far more decentralized and low-cost electricity market of the future.

      If electricity prices continue falling because of the low production cost of renewable energy, B.C. Hydro is going to have a huge problem on its hands.

      The Pacific NorthWest LNG plant has been killed, but could it be revived years in the future with higher LNG prices and deeply subsidized electricity?

      Borrowing to benefit LNG producers?

      Some environmentally minded British Columbians believe the NDP government approved Site C to keep former Christy Clark's LNG fantasy alive.

      Under this scenario, the government is betting that liquefied-natural-gas prices will stage an amazing recovery in Asia.

      That would justify massive capital investments in this industry along B.C.'s north coast.

      The massive surplus of B.C. electricity, thanks to Site C, could then be used as an inducement to lure Chevron, Shell, and other energy giants to revive earlier plans to convert natural gas into its liquid form. This could be shipped on tankers to Japan. 

      Never mind that before the election, Horgan compared the LNG gambit to a former Socred government's losing bet on subsidizing northeast coal.

      Nowadays, the NDP is looking to increase its seat count in the B.C. Interior.

      In that part of the province, doing what you can to support the natural-gas industry, including LNG production, is a political winner.

      Under this LNG scenario, B.C. Hydro would then become a tool to subsidize industrial development. And if LNG prices never recovered, B.C. Hydro's power would then likely be sold at enormous losses in other provinces and the United States.

      Presumably, ratepayers or provincial taxpayers would cover the cost through higher rates or through direct subsidies to the utility. That way the Crown utility could meet its debt obligations.

      B.C Rental Housing Coalition.

      Delivering affordable housing isn't cheap

      Earlier this year, the B.C. Rental Housing Coalition released an ambitious 24-page document called "An Affordable Housing Plan for BC".

      It offered a blueprint to address intense demand for homes that people could afford.

      The report noted that there is a minimum of 6,860 homeless people in B.C.

      There are another 117,000 households "needing help affording rent" in their current unit.

      According to the authors of the report, the province needs another 7,000 additional rental units annually in each of the next 10 years.

      Overall, it concluded, about 80,000 housing units are needed to address the backlog.

      To deal with the supply side, the coalition recommended $1.23 billion in spending per year over 10 years.

      That would be split three ways: $410.6 million per year from the province, with this matched by the federal government and the community housing sector.

      Repairing nonprofit units would cost $124.6 million per year, again split three ways.

      Another $203 million would need to be coughed up annually by the federal and provincial governments in income supports. This would add another $406 million per year to the kitty.

      With another $81.6 million per year injected to offset homelessness, and with $36 million of that coming from the province, there would be $1.8 billion per year to fix the housing crisis.

      The overall provincial contribution would be $691 million per year.

      If you multiply that by 10, it amounts to $6.91 billion.

      The payoff would be substantial, according to the report's authors. They include:

      * $177 million saved in annual homelessness-related costs;

      * $1.87 billion in additional federal GDP for every $1.23 billion in new investments in housing supply;

      * and $4.06 billion in higher disposable income.

      If the Site C dam ends up costing $12.5 billion, that's the equivalent of 114,000 new units of temporary modular housing.

      Costs parallel Site C dam expenditure

      Now, let's go back to the decision to complete the Site C dam.

      Let's assume that the sunk costs and remediation costs are accurate: $4 billion. (In fact, critics say the remediation costs are much lower, making the total closer to $3 billion.)

      Even accepting the $4-billion figure, that means the NDP government has committed to spending an additional $6.7 billion on the Site C dam.

      Throw in a $200-million cost overrun and Horgan's cabinet has decided to spend as much new money on the Site C dam as the provincial cost of addressing the housing crisis over the next decade, according to the B.C. Rental Housing Coalition report.

      So can the NDP government have both?

      To borrow from a phrase bandied about during the Vietnam War, can John Horgan pay for the cost of guns and butter?

      It's hard to see how the housing costs outlined in the BC Rental Housing Coalition report can be absorbed without significant tax increases, given what the premier has already said about the impact of a $4-billion charge on provincial taxpayers.

      But some of that would be recouped over time because developing housing stimulates so much other economic activity, which would lead to higher revenues.

      If the NDP's plan is to slap down much cheaper temporary modular-housing projects to meet the goal of 114,000 units, the government could make significant progress.

      The province has already committed $66 million for 600 temporary modular units in Vancouver. This works out to $110,000 per unit.

      Relying on the same mathematical formula, 114,000 temporary modular units would cost $12.5 billion.

      Divide that between the feds and province, and B.C. would be on the hook for $6.25 billion.

      That's slightly less than the amount of new money committed to complete the Site C dam.

      But it's still an awful lot to dump on the provincial operating statement in the absence of tax increases or other revenue measures to pay for it.

      Finance Minister Carole James will have to make some hard choices if she wants to put a dent in the shortage of affordable housing.

      Others could cover some costs

      Of course, province wouldn't be shouldering the entire cost of the housing crisis.

      The NDP government will likely amend the B.C. Budget and Transparency Act to allow postsecondary institutions to declare student-housing liabilities as self-supported rather than taxpayer-supported debt. That could stimulate more construction of units on campuses.

      This would move some of the costs of social housing off provincial books.

      It would be a clever gambit if the rating agencies didn't react negatively.

      There are also opportunities to generate more revenue to pay down the new debt-service payments through surtaxes on high-income earners.

      But with demands for rapid-transit projects, hospitals, and other critical infrastructure, there will continue to be intense fiscal pressures.

      There are also capital liabilities that have been transferred to the provincial operating statement for public-private partnerships that do not meet revenue targets.

      One example is the $3.5-billion Port Mann Bridge, where tolls were insufficient to meet annual debt-servicing costs. 

      The Christy Clark government spent nearly $100 million per year on this. TransLink used to spend another $25 million to $35 million per year to offset low toll revenue on the Golden Ears Bridge.

      The NDP government has decided to eat all the debt-servicing costs in return for votes in the northeast sector and Surrey in the last election. 

      Given all of these variables, perhaps Horgan and his cabinet could pay for the cost of guns and a fair amount of butter (i.e. Site C and taking steps addressing the housing crisis).

      But it's only going to occur if Finance Minister Carole James is willing to allocate more of the provincial budget to debt-servicing costs and not become too nervous about an increase in the taxpayer-supported debt to GDP ratio.