Dermod Travis: B.C.'s fiscal tsunami (Part 1)

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      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.

      Dermod Travis is the executive director of IntegrityBC. Source material is available here. This is the first of a three-part series on B.C.'s public finances. 


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      Jan 10, 2013 at 2:37pm

      As soon as this province craps the bed economy wise im out. I would have got the best it can offer, and im not going to pay the taxes we pay vs what people in alberta pay for this crap.


      Jan 10, 2013 at 3:06pm

      This is what happens when you elect a convicted Drunk Driver and Neo-Con for Corporate Welfare Politician to lead the Province.

      The BC Fiberals are and always will be for Corporations before the People of BC.

      The Debt can be addressed if we as Voters demand and hold to account by way of legislation Accountability and Checks and Balances for ALL Politicians regardless of where they position themselves in the Political Spectrum, Left, Right or somewhere in between.

      Solutions to Fix the Mess...

      * Put Pressure on the Corporations to change or Cancel the Power Contracts for example Access to Run of River Hydro projects can be impeded Legally.

      * Government can demand higher Tax Rates upto 100% or more for Private Hydro Above Market Rate Corporate Welfare Contracted Corporations.

      * The Government can put direct and indirect pressure to correct these Gross Corporate above Market Rate Corporate Welfare Contracts.

      * the alternative is ridiculous that British Columbians pay these for Profit Corporations above Market Rate prices as Corporate Welfare in the Tens of Billions over the next 10+ Years!!!

      * Increase Royalty Rates on ALL Natural Resources like Norway and NewFoundLand have on their Resources in particular Oil & Gas, Resource Companies will pay up they have no choice plus there is a huge demand from Asia for our Resources.

      * Develope Value Add on ALL Natural Resources to maximise returns for British Columbians.

      * If Federal and Alberta Governments want access to Pipe and or Ship Oil & Gas to Asia DEMAND a 50% Revenue Share or tell them to get lost. Since they need it more than us they have little choice.

      * Look at the German Skills & Trade Model to impolement a similiar program here to give ALL British Columbians Training and Employment Opportunities.

      * Attract Skilled Immigrants & Investors who will contribute to BC not allow them to buy property and leave back to Asia without much value to us other than driving up Property Prices.

      * Stop harming the Poor increase Services that have been cut to the Poor.

      * Cut the Fat from useless Management at ALL Crown Corps, Ferries, Translink and ICBC to name a few.

      Please add your suggestions to improve our Province and don't Vote for Parties that put Corporations ahead of People.


      Jan 10, 2013 at 3:50pm

      iSheep. Hope your running for public office in my riding because you would get my vote and I think most evryone elses. As for the rest of it can't we have Gordon Camblell charged with some crime like treason. After all don't they take an oath to serve the people. I haven't seen one thing that he did to help the comon people of this province other than big business or his own bank account. The rest of us just got hosed in extra user fees and they are all still going up like no other place in Canada.Much higher than all the tax breaks they like to talk about.