N.L. in financial crisis of its own making, time to rein in public spending: report

ST. JOHN'S, N.L. -- Poor management and a culture of indifference toward debt have brought Newfoundland and Labrador to a financial breaking point, according to a long-awaited economic report released Thursday.

The report titled The Big Reset says the province's overspending and debt-servicing burden put it at risk of being unable to pay public sector salaries and keep hospitals running. To correct course, the report says the government needs to rein in public sector spending, re-evaluate its contracts with unions and dismantle the provincial energy corporation.

"We have been shocked as a panel to talk to very senior managers ... who just think that deficits don't matter," said Moya Greene, who chaired the team behind the report. "We were pretty surprised that we don't evaluate any of our programs, we just keep adding to (them). Those are ordinary principles of management."

As for government complacency with debt, Green said she doesn't know where it came from. "But we certainly have a long history of it," she said.

Greene, who presented the report by video from her home in the United Kingdom, is a St. John's-born businesswoman known for privatizing Britain's mail service. Premier Andrew Furey appointed her last fall to lead the economic recovery team of business and community leaders, mandated with steering the province away from a looming fiscal crisis.

In a livestreamed speech, Greene said the report proposes a "gradual but deliberate set of measures" to balance the provincial budget over five to six years.

Newfoundland and Labrador has the highest per capita revenues in the county, but the government overspends, the report says, leaving it with the highest deficit and net debt per capita of any province. When debt carried by the province's liquor, energy and lottery corporations are considered together with other liabilities and borrowing, the province's total debt sits at $47.3 billion, the report says.

That works out to about $91,000 for every person in the province or, as the report points out, about $215,000 per household.

In March of last year, then premier Dwight Ball wrote to Prime Minister Justin Trudeau saying his government couldn't borrow any more money and was in danger of not making payroll. The COVID-19 pandemic hit just in time, forcing Ottawa to offer assistance to all provinces and allowing Newfoundland and Labrador to squeak by, Greene said. But Ottawa is unlikely to pitch in again, she said, noting that Newfoundland and Labrador's problems are entirely self-made.

Instead, Greene and her team have made a series of sweeping recommendations to reorient spending, which includes a move to abolish Nalcor Energy, which she said is far too large and complicated for a small province. When Nalcor's borrowing is factored in, Greene said the province is spending more than $1.5-billion a year in debt-servicing costs. "We get nothing from these interest payments," she said. "But it is twice as much as we spend on (kindergarten to Grade 12) education."

Her report also suggests the government seek federal and private sector partners for its hydro assets, and perhaps bundle them as a package deal. That includes the controversial, Nalcor-led Muskrat Falls hydroelectric project in Labrador. Its ballooning cost -- now at $13.1 billion -- threatens to double electricity bills in the province.

The package could also include the Upper Churchill resources, which are currently under contract with Quebec until 2041, the document says.

As for public sector employees, the report outlines about $8 billion in pensions and other benefits that will come due. The report proposes a wage freeze, work-from-home policies and a four-day work week for certain positions in order to cut staff costs.

The document also calls for a 30 per cent cut to the operating grants offered to Memorial University and the College of the North Atlantic, and a reduction in funds offered to the four regional health authorities.

Funding for the education of students in kindergarten to Grade 12 should not be cut, Greene said, though expenses should be scrutinized to ensure more money goes to the classroom and not to administration. She recommends that the government get rid of the province's stand-alone francophone school board and sell off its liquor corporation.

Greene's report was a thorn in the side of Liberal Premier Andrew Furey throughout the recent provincial election, with his opponents regularly accusing him of trying to hide looming cuts from voters by having them vote before the report was released.

Furey on Thursday called the report's conclusions "sobering" but promised his government would consult the public before acting on its recommendations.

"Overall the theme is that we're in a tough spot," he said. "But there is a path forward, and there's reason for optimism." His hope comes from the report's emphasis on a transition to a green economy and the opportunities that provides, he said.

This report by The Canadian Press was first published May 6, 2021.