HOW MINISTER STEEVES CAN TACKLE PROVINCE’S MOUNTING DEBT – STOP BORRWING

Les
Smith Commentary

I’m
concerned!

New
Brunswick’s Gross Debt, or Funded Debt, as of March 31^st, 2019, hit
an alarming high of $18 billion.

This
is an increase of $800 million over the previous year.

Funded
Debt is the total long-term debenture debt the Province is legally bound to
repay and has borrowed to fund its obligations.

Over
the past ten years, the Funded Debt has increased $7.5 billion, or 72 per cent.

Said
another way, New Brunswick has borrowed an average of $750 million each year
for the past ten years to meet its obligations.

In
her latest Financial Audit, Auditor General Kim MacPherson says,

“Funded
debt is like household debt which many New Brunswickers have. The Province must
make interest payments on its outstanding balance and repay principal as Funded
Debt matures. The Province’s outstanding Funded Debt balance consists mostly of
bonds issued in the financial market.”

She
goes on to say that, “If the Province repaid $100 million per year, it would
take 180 years to repay $18 billion. If we include NB Power’s debt of $4.6
billion, then we add another 46 years for a total of 226 years to repay the
debt at this rate. Also, this does not include the annual cost of interest,
also known as servicing the debt.”

In
the last fiscal year, the cost of interest hit $648 million. This amounts to an
interest payment of $1.775 million per day, or about $74,000 per hour, or
$1,233 for every minute. Think about it!

It
must be emphasized that this payment is interest only and does not reduce the
principal amount outstanding.

The
2019-2020 Provincial Budget forecasts an interest payment of $677 million, up
4.5 per cent.

If
the annual cost of interest was a government department, it would be the fifth
largest, trailing only Health, Education, Social Services, and Transportation
and Infrastructure.

Many
years ago, the Province established a Sinking Fund with annual contributions
intended to repay Funded Debt when it matures. The asset balance of the fund at
March 31, 2019, was about $4.6 billion.

But
something happened on the way to the circus. Over the past ten years, the
Funded Debt exploded leaving the Sinking Fund in the dust.

In
other words, the Sinking Fund Equity increased over the past ten years but not
at a rate consistent with the increase in the Funded Debt.

To
you and me, a Sinking Fund is similar to a savings account. As an example, if
we know that we must replace the roof on our home in 15 years, and the cost is
projected to be $10,000, then we should place $667 annually in our savings
account so that we will have the money necessary to replace the roof 15 years
hence.

But
that did not happen to the provincial Sinking Fund.

Today,
the Sinking Fund of $4.6 billion represents only 26 per cent of the total
Funded Debt of $18 billion, excluding NB Power’s debt of $4.6 billion. Not
good!

This
is due to the Provincial Loans Act requiring only annual installments paid at a
minimum rate of one per cent of the outstanding Funded Debt principal balance into
the Sinking Fund.

To
meet this requirement, the Province has simply left the accrued interest in the
Sinking Fund which this fiscal year is projected to yield approximately $205
million.

So,
what must we do?

Well,
borrowing must stop and stop now!

In December
2019, Finance Minister Ernie Steeves tabled a Capital Budget of $600 million in
the Legislative Assembly.

Believe
me when I say this, the Minister has no money to fund the Capital Budget. The
entire $600 million will be borrowed.

By
continuing this borrowing, we are simply kicking the can down the road to the
next generation of New Brunswickers, an action which, in my opinion, is
entirely irresponsible.

For
the life of me, I cannot understand why we continue to borrow when there is
sufficient revenue to support our programs and capital investments.

One
of these days, in the not too distant future, our children and grandchildren
will be in places of leadership and authority in New Brunswick, and they will
look back at our generation knowing that we did not exercise fiscal
responsibility, and they will refer to us, in the words of Don Cherry, as a
“Bunch of jerks.”

So
how can the Capital Budget of $600 million be financed without borrowing?

Well,
here is my take.

First,
the Sinking Fund yields an annual interest of about $200 million. Use it.

Second,
New Brunswick received over $200 million from Ottawa in additional equalization
payments this fiscal year. Use these funds.

And
third, draw down $200 million from the Sinking Fund, which would reduce it to
about $4.4 billion.

We
have our $600 million.

Now,
I realize that this is a one-year, stop-gap, measure.

But
use this year to restructure the finances of the province so that we live
within our means.

Auditor
General Kim MacPherson makes this observation. She says, “For the Province to
significantly improve its fiscal situation, it will need to find a way to
restrain spending, consider revenue increases or a combination of both in the
future.”

I so
agree.

I
don’t know about you but I’m sick and tired of hearing that New Brunswick is
last in the nation in, well, just about everything.

I
truly believe we can restore progress and prosperity to New Brunswick.

Let’s
be strong in leadership and united in purpose and direction.

Let’s
continue our quest to build a province where you and I can pursue our own
dreams and our children and grandchildren can chase theirs.

Les
Smith is a former President of the Fredericton Chamber of Commerce and current
member of the Coalition of Concerned Citizens led by President Daryl
Branscombe. He lives in New Maryland.

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