BC Liberals

Mumbling and fuzzifying

james_borenThe late James Boren, an American humorist, wrote that politicians:

…without a full briefing on dynamic inaction, decision-postponement patterns, and creative status quo cannot go very far.

To further explain, he defined dynamic inaction:

When in doubt, mumble; when in trouble, delegate; when in charge, ponder.

One of Boren’s fundamental instructions to bureaucrats was to fuzzify, which is:

…the presentation of a matter in terms that permit adjustive interpretation. Particularly useful when the fuzzifier does not know what he or she is talking about, or when the fuzzifier wants to enunciate a non-position in the form of a position.

There has been much mumbling and fuzzifying about British Columbia government debt and contractual obligations, which total close to $170 billion. Despite that inescapable reality, BC Liberals said in the pre-election Throne Speech:

your government is on track to be free of any operating debt by 2021. For the first time in 40 years, children born that year will no longer be asked to pay for the burdens that our generation has placed upon them.

Liberals argue that none of the $101 billion of contractual obligations at the beginning of the current fiscal year represents debt. Regardless of what politicians argue, the claim does not pass a test of common sense.

For example, government wanted a private consortium to build and finance the Port Mann bridge and highway 1 upgrade, in return for a stream of payments over time. The deal fell through so government built the project with public financing, using the crown owned Transportation Investment Corporation.  The public-private partnership (P3) would have resulted, according to Liberals, in no increased debt. Because the P3 deal failed, government financed the improvements and total provincial debt increased by $3+ billion and will continue to as operating losses mount.

So, if government owes $3 billion plus interest on Panda Bonds for a self-financed project, Liberals admit that is provincial debt. If government owes $3 billion, plus interest, to a P3 road builder, that is not debt. My grandmother, a  sensible Scotswoman, would disagree.

A paper by the International Monetary Fund, in consultation with the World Bank and the Inter-American Development Bank, includes a lengthy discussion about debt recognition. This is relevant:

Public-private partnerships (PPPs) involve private sector supply of infrastructure assets and services that have traditionally been provided by the government.

…it cannot be taken for granted that PPPs are more efficient than public investment and government supply of services. One particular concern is that PPPs can be used mainly to bypass spending controls, and to move public investment off budget and debt off the government balance sheet, while the government still bears most of the risk involved and faces potentially large fiscal costs.

…There is not yet a comprehensive fiscal accounting and reporting standard for PPPs. …In the absence of the internationally agreed guidance on how to do this, the known and potential future cost of PPPs …should be disclosed, and taken into account when undertaking debt sustainability analysis…

…In particular, assessments of debt sustainability are affected in the same way as if the government had incurred debt to finance public investment and provide the service itself…

This being the case, the net present value of future contract payments under PPPs …should be added to government debt when assessing debt sustainability…

In the audited financial statements for fiscal year 2016, auditors reported that contractual obligation categorized under natural resources and economic development totalled $63.165 billion, mostly to independent power producers paid by BC Hydro. Since we cannot see the contracts involved, we can only make an educated guess at the amount that reasonable accountants would consider to be debt. Treatment would depend on the buyers ability to alter the terms, as well as other factors. Take or pay contracts, for example, suggest the present value of future payments would be debt.

The IMF states there is an issue as to whether or not future contract payments should be capitalized and counted as a liability. Governments and institutions prefer not to recognize liability. Independent financial analysts mostly hold the opposite position.

Voters are mostly confused.

Categories: BC Liberals, Debt, P3

10 replies »

    • You are correct. Money borrowed by BC Hydro to build Site C is debt. Amounts paid to AltaGas over 60 years and the 100 or so other IPPs, payments which are largely to meet the initial capital costs of facilities that will deliver power almost exclusively to BC Hydro, are not debt, according to Liberals.

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  1. Colour me “mostly confused”! If the Lieberals are convinced of the fuzzification model why didn’t they build Site C under the triple P method? My confused mind’s answer to that is that any sane public-private entity would realize there would be no downstream benefits, or payback on investment and therefore would not come to the table. That being recognized, why not hose the taxpayer?

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  2. I think you’ve got it. The privateers wouldn’t do Port Mann because too much had already been promised Liberal friends like Kiewit. With Site C, no private investors would put money into a project that is bad on every level except for gas producers and they expect the public to pay for everything.

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  3. In the current e-edition of The Castlegar News there is a submitted article by Dave Conway, Community Relations Manager for Site C telling us the reasons for building Site C. I didn’t know how to forward as an attachment, but you could just go to the webpage and read it there. It;s on the Editorial page(A6).

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    • Mr. Conway circulated an article recently that included this statement:

      “…our long-term forecasts show B.C.’s electricity needs will grow by almost 40 per cent over the next 20 years.”

      In fact, they sold more power to BC’s residential, commercial and industrial consumers in 2005 than in 2016. Conway’s statement reveals the ethical depth of BC Hydro officers. They continue to tell lies that their own public documents refute and appear to not experience even a hint of embarrassment. They continue pay others to repeat mistruths. It shows contempt for citizens of BC.

      I directed a Tweet at Conway reminding him of a useful aphorism:

      “When you lie about one thing, you cannot be believed about anything.”

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  4. They have fallen for the hoax that GDP, population and power demand will grow every year, for eternity.
    It’s not possible, they’re delusional.

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