It might be instructive to the citizens of BC to have a financial report card on their Provincial Government before casting their vote in the coming election.
A good starting point is the 2001 publication by Gordon Campbell and the BC Liberal Party titled “A Vision for Hope & Prosperity for the next Decade and beyond”. Ten “visions” were presented – numbers 9 and 10 are of particular interest:
9. The most open, accountable and democratic government in Canada.
10. Responsible, accountable management of your public resources and tax dollars.
It is generally known that our government tasked BC Hydro to contract with Independent Power Producers (IPPs) for new electricity generation. These contracts are for lengthy terms and billions of dollars in payment obligations. Contrary to “Vision 9” the government made these contracts secret as shown by a reply from the BC Utilities Commission dated December 29, 2009: “Pursuant to Section 71 of the Utilities Commission Act, we are unable to fulfill your request as the Agreement [contract] was filed explicitly in confidence by BC Hydro.”
Because these contracts have been made secret it means we can speculate as to why. The most obvious reason is that the government knows the IPP contracts are not in the best interests of the public. That in turn means they are very much in the interests of private investors who wish to get a “free ride” on the citizens of BC. It is highly likely these contracts will be with us for 20-40 years and while we pay off the cost of this infrastructure, we likely earn no ownership in the end. Nice work if you can find it.
Next, let’s take a look at what the BC Auditor General had to say about BC Hydro’s accounting practices in a letter dated October 2011:
Unfortunately, though, government is requiring BC Hydro to adopt part of an American accounting standard that allows rate regulation, abandoning the transparency that will be required by Canadian GAAP. It is my hope they will reconsider.
They have not.
It takes little imagination to understand the departure of the Auditor General after trying to get full disclosure at BC Hydro and from the government itself. There have been more than ten years of annual reporting inadequacies that the government has ignored, mostly regarding disclosures of debts.
To help readers come to grips with this deliberate pattern of non-disclosure the following graph is offered for your consideration.
The period shown is a little greater than 35 years. For the first 15 the government of the day was BC Social Credit. Reported debt in that period tripled from a low base of $5 billion. However, it should be noted that a lot of infrastructure was built in that timeframe.
The following 10 years was a period of the BC NDP having dominion in the Legislature. In that period the reported debt doubled to about $35 billion, or $8,428 per capita.
Staying with this theme the Liberals declared they would “Pass real Balanced Budget legislation, to make balanced budgets mandatory by our third full budget and to hold all ministers individually accountable.”
They also vowed to “Pass real Truth in Budgeting legislation that ensures all provincial finances are fully, accurately and honestly reported under Generally Accepted Accounting Principals.”
Since making those bold promises the record does not provide evidence of follow through. Since 2005, the government has been accumulating debt at a breathtaking pace, mostly under the heading of what the Auditor General calls “Contingencies and Contractual Obligations”.
By letter, he states that the total for fiscal year end 2011/12 in this category is “$96.374 billion and can be found on the Summary Financial Statements page 77.” Before anyone asks if there is double counting of this number, the answer, according to the Auditor General, is “They are not included in the liabilities recorded on the Summary Financial Statement’s Consolidated Statement of Financial Position.”
Virtually every person we have spoken with has had no idea that on top of the $70 billion in liabilities (debt + other liabilities), that the government disclosed a year ago, there is an additional $96.374 billion in contractual obligations. That translates into a total debt of approximately $170 billion and will be significantly more when the 2012/13 financial reports are presented. In the last eleven years under the BC Liberal government the provincial debt has increased by a factor of 5 times, or to a per capita amount of about $40,000.
Provincial Budgeting Considerations
When there is talk of the growth in provincial GDP (economy), one should realize that it happened almost exclusively because of the binge in borrowing and building, a practice that cannot continue without serious consequences for the population. Debt repayment and its attendant interest has and continues to crowd out all other funding requirements when preparing budgets.
Two years ago Standard & Poor’s Credit Rating Agency delivered a report titled “Canadian Provinces Face Tough Choices in Restoring Fiscal Balance”.
The report states, “Health care and education make up a commanding share of their [provinces] overall spending; typically health care and education spending accounts for more than 65% of a province’s operating expenditures.”
“Rising debt service burdens further limit financial flexibility because as these burdens increase as a share of total spending, they crowd out other program spending.”
Two years ago this was in the hands of the government, yet it did not curb borrowing and spending in any discernible way. Nor did the troubling news cause the government to seek new revenues from the “free riders” and those with the capacity to pay more. In stark contrast to heeding these warnings, the government resolved to further cripple budgets for health care and education.
The Liberal government of BC has prepared a financial “poison chalice” for the citizens of BC through runaway debt. The consequence of too much debt is loss of democracy – at least that is what the Greeks, Cypriots, Italians, Spanish, Portuguese and Irish have realized.
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References:
- BC Ministry of Finance, Provincial Debt Summary/ Debt Statistics
- BC Ministry of Finance, Contractual Obligations Supplemental/Public Accounts/Summary Financial Statements
Links to data sources for total provincial debt:
- http://www.fin.gov.bc.ca/ocg/pa/11_12/PA%20Prov%20Debt%20Summary%2011-12.pdf
- http://www.fin.gov.bc.ca/ocg/pa/06_07/PA_2007_ProvDebt.pdf
- http://www.fin.gov.bc.ca/debtmgmt/debtstat01-02.pdf
- http://www.fin.gov.bc.ca/debtmgmt/debstat00-01.pdf
Links to data sources for contractual obligations:
- http://www.fin.gov.bc.ca/ocg/pa/11_12/Contractual_Obligations.pdf
- http://www.fin.gov.bc.ca/ocg/pa/10_11/Contractual_Obligations.pdf
- http://www.fin.gov.bc.ca/ocg/pa/09_10/Contractual_Obligations.pdf
- http://www.fin.gov.bc.ca/ocg/pa/08_09/Contractual_Obligations.pdf
- http://www.fin.gov.bc.ca/OCG/pa/07_08/PublicAccounts.pdf
- http://www.fin.gov.bc.ca/OCG/pa/06_07/PublicAccounts.pdf
- http://www.fin.gov.bc.ca/ocg/pa/05_06/PA_2006_Summ.pdf
- http://www.fin.gov.bc.ca/ocg/pa/04_05/PA_2005_Summ.pdf
Why is this true BC debt information all over the news, newspapers, TVs, etc. All we hear is about the surplus of this government. A history of reaching this huge debt – from 2002 to 2017 should be common knowledge for all taxpayers. MAKE THIS HAPPEN………PLEASE.
Dear Mr Andersen, Would you be able to do an updated report with current numbers? It would be great to have the an article we can quote from given we are going into hyper election mode.
Many thanks!
Wednesday, 24 April 2013 10:51 posted by Steve Satow
Might I offer another method of curbing this kind of runaway and secretive spending by any government…
Introduce legislation that allows a subsequent government to assess – via open and transparent audit – whether or not the spending was invoked in the true interests of the public.
If the answer is ‘No’ then the legislation should give the new government the power to revoke the spending and/or nullify the contracts.
The effect: to make the private companies who are benefiting from these sweet deals, think twice before entering them, since they will realise that the contract could be cancelled if the audit does not go in their favour.
I realise there would be a time lag, and therefore companies will still be able to reap profits, but perhaps it will curb the worst excesses?
Tuesday, 23 April 2013 21:02 posted by erik
Thanks Lawrence for the question.
I know it is a long shot but I think politicians behave the way they do because they have no personal “skin in the game”.
As long as they do as the whip says and they can last two sessions they are financially home and dry.
This concentration of power is understood by those seeking unearned personal benefits from the public purse.
So here goes. First off if a budget turns from being in surplus or break even into a defict by greater than 10% the governemt members, not the opposition or independents, take a one year pension penalty. Secondly, if the Auditor General is unable to accept the profered financial reports by the government a simlar penalty be imposed.
Thirdly, all contracts and agreements by the government or Crown corporations that involve the committment of $500 million or greater must be discussed in the legislature and subjected to a provincial referendum.
Does this make those folks accountable? Over to you.
Tuesday, 23 April 2013 19:47 posted by Lawrence
Thank you for making finances clear.
The Liberal gov’t has proven its incompetence and dishonesty. To load debt onto the taxpayer while transferring wealth to private companies who have no intentions of benefitting BC will not be forgotten.
The big issues for me are: BC Rail scandal/theft; ruination of the judicial system (and FOI); run-of-the-rivers; salmon fish farms; and the potential decimation of our land.
Unfortunately, the graph shows the NDP were going that way, too . . . how to rectify this situation?
Tuesday, 23 April 2013 17:55 posted by SLea
What are the options if/when a new govt. is formed? Contracts have been signed — how can they be broken? If we are able to pay our way out of the promised commitments, it might be worth it. Cut or losses. Either way we, the citizens of BC pay, and the politicians involved walk away with great pensions and probably investments in these very projects which could ruin BC’s credit rating.
But would the NDP agree to do that? If they are consistent I believe they would not walk away from a bad deal. Even when there was a justifiable reason for demanding that the smart meter program be stopped, when the WHO committee declared RF a possible human carcinogen, Hydro could have cancelled the contracts. Who buys a dangerous product? But the NDP said no, there were signed contracts and they would honour them.
We need politicians with the courage to face hard times and tackle them, but are there any?
Tuesday, 23 April 2013 16:37 posted by erik
For those interested you might like to know that the huge unreported BC Hydro debt has an ugly feature that does not get disclosed because the contracts are deliberately secret.
The one contract we all got to look at more than 10 years ago was for a natural gas generation plant to be at Duke Point, Vancouver Island.
The applicant gave evidence that the cost to build would be $300 Million. Using a borrowing interest rate of 5% the present value of the net payments from Hydro was $500 million. The $200 million was what the developer, a group of lawyers in Calgary who had zero operating expirience among them, would realize in equity after putting up $2 million of start-up money, mostly their proffessional time.
As this contract was transferable these deveoplers could then sell on the package and pocket a large portion of the $200 million, off-shore of course.
Even though BC ratepayers would be paying out this contract BC Hydro would have zero owership at the end of the term.
Think of all those subsequent IPP contracts and understand, BC ratepayers will own nothing after they finish. Anyone is invited to show a contract that proves otherwise.
Monday, 22 April 2013 20:04 posted by workforfun
BC Lieberals = Incompetence and incontinence
Thx
Monday, 22 April 2013 15:21 posted by Scuffers
Thank you, Erik Andersen and Dr. Sandra Hoffman, for finally presenting a graph that even a grade 6 student can understand. You have cut through all the rhetoric and given us the facts about B.C. debt and contractual obligations. Will the new government open the books on the contractual obligations? Will the new government have the courage to invoke the “Doctine of Odious Debts” that claims odious obligations should not be honoured. A new government can amend or extinguish contracts by regulation or legislation.
The NDP have stated they will not tear up contracts but if they reveal the fact that B.C. Hydro is paying double the open market rates to Independent Power Producers and is locked into contracts for 20 to 40 years, clearly the government must take action.
The cloaked deals were made by people acting for friends, not the public interest. Therefore, the deals should be ruled invalid and the perpetrators should be held accountable. It is unethical to burden present and future generations with debt that is incurred by unscrupulous greed.
Monday, 22 April 2013 13:42 posted by Andrea M
Clearly the financial status of our province is of significant concern. Given that such a large portion of the problem can be attributed to BC Hydro, it is also clear that adding the construction of Site C to this dismal state of affairs should not even be contemplated.
The dam is estimated to cost $7.9 billion, and the World Dam Association states that projects of this magnitude typically go into 50% cost overruns.
Interestingly, BC Hydro is working on building a boat launch on the Peace River right now, about a mile downstream of the proposed dam site. They’re already into 35% cost overruns, due to “…challenging project….difficult weather and ground conditions,” http://energeticcity.ca/article/news/2013/03/06/taylor-boat-ramp-moves-further-over-budget
Monday, 22 April 2013 11:58 posted by Kevin Logan
ITs stunning, absolutely stunning that the BC Liberal party has put at the centre of its campaign, a “debt free BC.”
Such bold faced politicking is clear sign of this governments propensity to lie through its teeth while abandoning its primary responsibility of properly managing the affairs of the people of BC while acting in our best interest.
From the Equivalency Agreement that saw us abandon our provincial sovereignty and legal jurisdiction over major oil and gas developments to the TILMA that ties the hands of British Columbians, this government has proven that governance by for and of the people has been completely abandoned and replaced with a corporate juggernaut that socializes debt and privatizes profit.
A stunning expose and injection of truth during this time of overt deception and disrespect for the people of BC.
Thanks for this work.