Cut the deficit, and keep going

By Bob Plamondon, Ottawa Citizen December 6, 2012

Read more: http://www.ottawacitizen.com/news/deficit+keep+going/7662733/story.html#ixzz2PRodQi00 minister Jim Flaherty wants our advice on what to put in his 2013 budget. He cautions us that the Harper government, “will not engage in dangerous and risky new spending schemes or endless spending that will increase deficits.” I am glad he is asking for advice and that he is emphasizing financial prudence.

Given our rising health care and pension costs we need a budget plan that is fair to young Canadians. But oddly enough I cannot recall a federal finance minister ever declaring how much debt we can reasonably pass on to our children in good conscience. We know the Harper government wants to stabilize the debt and balance the budget by 2015, but what is its long-term goal on the federal debt?

Today the $600 billion federal debt works out to 33.8 per cent of our GDP. We have been in far worse shape, but we have also been in far better.

Think back to 1975. The Greatest Generation had not only won the war but had reduced our relative debt load in each and every year from 1947 to 1975. In 1975 we were a youthful country, when the number of citizens over 65 represented only eight per cent of our population, compared with 14 per cent today. Rather than the crumbling bridges and collapsing sewers we face today, our infrastructure was relatively new and in great shape. The federal debt in 1975, at 18.4 per cent of our GDP, was a measure of the progress we had made as a nation.

That was also about the same time Pierre Trudeau ramped up spending and instituted economic policies that stifled growth. When our deficit reached its peak in 1983 Trudeau’s finance minister declared, “It would be hazardous and unwise to draw strong conclusions about the appropriate level or path for the deficit at this time.”

Over the Trudeau era the federal government spent $55 billion more on programs than it collected in revenues. On top of that was $131.5 billion in interest costs that got added to the debt. For his part Mulroney had cumulative operating surpluses of $41.5 billion. Jean Chrétien had operational surpluses of an astounding $455 billion. But the compounding nature of the Trudeau debt, made all the worse by high interest rates to squeeze out inflation, took our debt burden in 1995 to almost 70 per cent of GDP, a level not seen since the end of the Second World War. For this the Wall Street Journal called us an honorary member of the Third World.

To guide us away from our fiscal cliff Canada set a new fiscal target, best expressed by finance minister Paul Martin when he declared the federal government would balance its budget “come hell or high water.” Rather than drift and despair we had a rallying cry and a goal. As for Harper, he has reduced our relative debt burden in spite of the global financial crisis of 2008, but not by very much.

If ever there was a time to be prudent this is it. The government tells us that over the next 20 years the number of working-age Canadians for every citizen over 65 will fall from about five today to 2.7. And it’s worth noting that we don’t count future health-care expenditures or rising Old Age Security for retired Canadians in our debt calculation, but we should.

In planning for this new economic and demographic reality the most prescient decision taken by the Harper government to date was to increase the age of entitlement for OAS from 65 to 67 and to put a cap, generous as it is, on provincial health transfers. These measures are what I call a good start.

When Flaherty stands up in the House of Commons to deliver his next budget my advice is that he think about our children and grandchildren and lay out a long-term financial plan that will see us bring our debt burden down to below 20 per cent of our GDP by 2020. Let’s call it 20 by 20. That would put us in no better or worse shape than we were in 1975.

Reducing our debt by this magnitude over seven years is far from unprecedented. In the late 1990s we reduced our relative debt burden by 12 percentage points in two years so going from a debt-to-GDP ratio of 33.8 per cent to 20 per cent in seven years is eminently doable. All we need to do is grow government spending by just one percentage point below economic growth and the goal will be achieved.

As we hold the line on spending, and perhaps tighten the tax system, we should remember that handing off debt to the next generation is a moral issue as much as it is a financial impediment. As Yogi Berra used to say, “If you don’t know where you are going, you’ll end up someplace else.”

Bob Plamondon is an Ottawa consultant and author of Blue Thunder: The Truth about Conservatives from Macdonald to Harper.

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Mayor kept his promise, but the city budget still deserves scrutiny

By Bob Plamondon, Ottawa November 13, 2012 7:06 PM

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Chalk up another political win for Mayor Jim Watson. With successive increases in property taxes of 2.45 per cent in 2011, to 2.39 per cent in 2012 and now 2.09 per cent for 2013, increasingly under the 2.5-per-cent threshold, it’s hard to argue with a politician who keeps an election promise.

Given the result, and the iron grip that Watson has on City Hall, you might say why bother cracking open the 1,000-plus-page budget document the mayor released on Oct. 24 and which the city’s planning committee was reviewing on Tuesday. But there’s more to understanding this budget than what’s in the mayor’s talking points.

After “efficiency measures” and “staff reductions” have been accounted for, gross spending at City Hall in 2013 will rise by $77.3 million. To finance this 2.8-per-cent spending increase, current property taxpayers are being asked to kick in an additional $29.2 million. User fee increases, taxes on new properties and provincial uploading are also used to balance the budget.

But not everything on the spending side is going up by 2.8 per cent. When divvying up the $77.3 million, city staff came out on top. Despite claims of a cut of 139 full-time positions, wages at City Hall are rising by $53.2 million, an increase of 4.1 per cent. (For the record the reported cut in staff is something of an illusion. In 2012 the city figured out that the compensation budget did not align with the approved number of full-time positions so they decided to reconcile the figures and make a catch-up adjustment.)

After a 4.1-per-cent rise in wages and benefits, getting to a 2.09-per-cent tax increase meant flatlining the purchases of materials and services.

This is a continuation of a trend under Watson where the portion of the city budget dedicated to city employees between 2010 and 2013 has risen from 45.6 per cent to 48.7 per cent. While the mayor brags about bringing labour peace to City Hall, remember that it’s something that has been bought and paid for by taxpayers.

Perhaps one of the more interesting aspects of the 2013 budget, one that the mayor did not mention in his budget speech, relates to garbage. While picking up trash on alternate weeks was designed to encourage the use of the green bin, reducing the frequency produces a net budget savings of $5.2 million. This translates into a reduction in the solid waste fee charged to homeowners of $11 per year (from $93 to $82), some 42 cents for each garbage pickup we do without. Let’s just say we are doing this for the environment and not to save money.

We are also going to save a remarkable $8.8 million from the introduction of double-decker buses. At this rate perhaps we should change the whole fleet? Other savings come from snow clearing ($1.5 million), a better contribution from the Rideau Carleton slots and raceway ($1 million) and provincial uploading of social services ($4.9 million).

There are various targeted spending increases, many of which will come in handy when the mayor seeks re-election. This includes $725,000 in new funding for forestry services, $500,000 for Canada’s 150th celebrations, and $500,000 each for seniors and economic development. More impressive is a $5.5-million increase to the contribution to the capital fund to help deal with our aging, and sometimes failing, infrastructure.

The mayor deserves credit for boosting our reserve funds in 2013, but in at least one case it looks like it comes at the expense of those who invest in our community. Over the last three years the city took in $8.2 million more than was budgeted in building permit fees.

We now have $27.9 million in a “Building Code Stabilization Fund,” which is 1.6 times the entire 2013 budget for building-code services. We could charge nothing for building permits for about 18 months before the fund would be depleted. Perhaps it’s time the city looked at reducing these fees.

The city has also created a structural deficit in the recreation department, stemming in part from the ever-popular freezing of fees over the past three budgets. Fees for 2012 are projected to come in $4.2 million below budget. Despite freezing the fees once again in 2013, the city is budgeting recreation revenues to rise by 6 per cent over 2012 results on existing facilities. A budget deficit in parks and recreation for 2013 is an easy prediction.

In the end, a 2.09-per-cent tax increase may appear modest (it’s the lowest in six years), but it’s also close to double the recent national Consumer Price Index and triple the CPI for Ottawa.

For pensioners and federal public servants, the 2013 property tax bite will dig into their real purchasing power. Perhaps Watson will take this to heart and go below inflation for his 2014 election year budget.

I anticipate this budget will be passed with few if any amendments when it comes to council on Nov. 28. But there will be an elephant in the room. For the first time that I can remember the draft budget documents do not include a schedule of city debt. As the Treasurer noted, “The LRT capital requirements will represent the City’s single largest capital investment. As this budget and the required financing will not be considered by Council until December, it would be premature to present the debt and reserve fund schedules that would normally be included in the tabled draft budget document.”

This means that Mayor Watson may ask council to make a significant financial decision in the absence of a meaningful long-range financial plan, the most recent of which was put together by Bob Chiarelli in 2006.

I wonder if anyone will notice this elephant in the room and ask for the long-range financial projections to be tabled before voting on the budget.

Bob Plamondon is an Ottawa-based consultant.

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Getting Canada’s house in order

BY BOB PLAMONDON, OTTAWA CITIZEN OCTOBER 24, 2012

The inevitable government hype and opposition despair makes it difficult to sort fact from fiction on Budget Day. Thankfully the cold, hard audited year-end financial statements and fiscal reference tables are released each October where we can leave the spin-zone behind. And it’s the one place where we can compare actual results to the historical record.

The annual report reveals that federal finances are clearly headed in the right direction. While other countries are accumulating massive debt, the relative size of Canada’s debt declined last year. Despite being hit with the international financial crisis and our own recession, the federal debt is now at about the same relative level as it was in 2006.

For the first time in three years, federal revenues exceeded program expenses, leaving an operating surplus of $4.8 billion to partially cover interest costs. The final 2011-’12 deficit came in at $26.2 billion, about half the level of two years ago. While a $26.2-billion deficit still seems high, by comparison the Trudeau deficit from 1983 would have been $142 billion had it come in 2012.

Remarkably, relative interest charges are at a 45-year low. While this has more to do with low interest rates than low debt, it’s nonetheless good news for taxpayers. Another piece of good news is that the overall federal tax bite is at a 50-year low. To illustrate, if tax revenues in 2011-’12 were at 2006 levels, taxpayers would have coughed up an additional $34 billion. That’s about 14 per cent of what the federal government took in last year, leaving $34 million more for taxpayers to save, invest and spend.

A declining debt-to-GDP ratio and lower taxes does not mean we are out of financial danger. In an era of stubbornly slow growth and an aging population, we actually need a major inter-generational reduction of government debt. Think of Canada as a family headed by 55 year olds who should be paying off the mortgage and saving for retirement rather than dipping into a line of credit.

Given our demographic challenges we need serious structural change to lower government debt. Delaying OAS benefits by two years from age 65 to 67 starting in 2023 is a good start. So too is reforming public sector and MP pensions to delay the age of retirement and achieve a more equitable sharing of the cost. Linking federal transfer payments to the growth in the economy is not only good long-term financial policy but also follows the rules we learn in Grade3 mathematics. There is nothing sustainable about increasing transfer payments by six per cent when the economy is growing at three per cent.

While virtually every trend line for the federal government is positive, the provinces are headed in exactly the opposite direction. Last year their collective debt burden went up and now stands well above the 10-year provincial average. Either we need to get a grip on health-care costs, cut spending in other areas or increase tax revenues, preferably through economic growth. We cannot continue to accumulate debt and use hope as a strategy to fix our problems. For its part, Ontario is proving to be the weakest link among the provinces, recording successive record deficits. A recent Macdonald-Laurier Institute study warned us that Ontario is the province most likely to default on its debt in 20 years time.

Despite our problems, when compared with our G7 partners, Canada as a whole looks like a paragon of financial virtue. Our net debt is less than half the G7 average. We spend slightly less and tax slightly more than the G7 average. The Americans, on the other hand, are recording persistent deficits not seen since the Second World War. According to the Congressional Budget Office even if the U.S. eliminated the entire defence department and almost all non-mandatory spending it would still be in deficit. They may yet fall off the fiscal cliff.

But Canadian governments cannot be complacent. Our total government net debt of more than $800 billion works out to about $100,000 for a family of four. The odd part about the debt of G7 nations is that it’s the Chinese who are increasingly buying our bonds. It makes little sense that a country with a GDP per capita at about one-fifth that of Canada would be in a position to save and invest while we spend and consume.

Bob Plamondon is a public policy consultant in Ottawa.

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Op-Ed: We can fix what’s broken in municipal Infrastructure

By Bob Plamondon, Ottawa Citizen September 17, 2012

It’s bad enough that our good city occasionally dumps raw sewage into the Ottawa River. This month we’ve had to deal with a sinkhole on Highway 174 that swallowed whole a car and its driver. Traffic flow was only restored Monday, nearly two weeks later.

Is there another major asset failure on the horizon? Do we have the ability and capacity to manage our basic municipal infrastructure? The Federation of Canadian Municipalities has been warning us for years of an infrastructure deficit that will take more than $125 billion to fix. They tell us cities can’t cope and need help from senior levels of government.

The City of Ottawa long-range financial plan, a relic from 2006, referenced an infrastructure deficit of more than $1 billion, which works out to about $3,000 per household. But until the recent sinkhole incident, alarm bells have not been ringing in Ottawa, at least not like in Montreal where overpasses are crumbling and crossing a major bridge is a traumatic experience.

Ottawa has been somewhat more responsible and proactive, even instituting a temporary infrastructure levy in the last term of council. Residents have tolerated steep increases in water rates to help repair our aging pipes. And the 2012 budget included a $340-million capital program called “Ottawa on the Move” to deal with infrastructure, old and new.

What’s missing in our infrastructure equation is a comprehensive assessment of the condition of city assets and a plan to bring them up to snuff. When city council unanimously passed its Fiscal Framework in 2007, an asset management plan was promised for 2009 and the infrastructure deficit was to be eliminated by 2017. We have yet to see a plan. In response to the sinkhole catastrophe, Mayor Jim Watson accelerated a planned discussion of the city’s asset management strategy, which will now come to the Finance and Economic Development Committee on Wednesday.

To be effective, the infrastructure plan needs to be situated in a comprehensive long-range financial plan. The last time we had one of these Paul Martin was prime minister. In other words, a financial and asset management plan needs to cover not only the $30 billion in physical assets on the books today but the light-rail project, the remaking of Lansdowne Park and other city priorities.

Selling the public on a major capital investment to repair existing assets won’t be easy. Just as we prefer buying a new television to repairing an old roof, politicians get more credit for delivering something new than fixing what’s old. Of course no one seems to care about the plumbing as long as the toilet flushes, but if it doesn’t and the house begins to stink it becomes the only thing you think about. A few weeks ago few of us were concerned about the sewers under Highway 174, but now it’s the No. 1 civic priority.

Think about municipal infrastructure the way you would look at your house. You wouldn’t stay awake at night if your house was relatively new and you followed a regular maintenance program. Even if you had an older home that needed some work you wouldn’t worry too much if you had money in the bank to fix whatever problem arose.

On the financial question the city is in good shape today. We didn’t have to ask if we could afford to repair the sinkhole: we just did it. Whether it was $1.7 million, as was initially budgeted to reline the pipe, or the $5 million-plus it will cost as an emergency repair job, the reality is that we have the luxury of saying, “get it done.” There are many municipalities in the U.S. that don’t have the financial strength to respond this way.

It’s not that we had the money sitting in a bank account. The city has long ago given up the notion of “pay-as-you-go” for its capital program. Whenever development charges and federal/provincial sources are inadequate we simply borrow what’s needed. In fact the city has more than doubled its debt load over the past five years, from $469 million in 2007 to $1.1 billion at the end of 2011. But low interest rates have meant that our debt servicing costs have not risen in real terms.

Borrowing to build new assets, or extend an asset life, is appropriate since those who realize the benefit are also required to pay the debt. I doubt there are many 80-year-old property taxpayers who would accept “pay-as-you-go” to finance the new light-rail system.

The bottom line is that interest costs in 2011 consumed only 2.4 per cent of the city’s total expenses and there is no shortage of money managers who want to buy our bonds. But rising debt, and its associated interest, will inevitably squeeze the existing operating budget. It’s a tough call for the mayor and council: reduce services or maintain our assets. But if we don’t want taxes to rise this is precisely the challenge we expect them to confront. And allowing our infrastructure to deteriorate will always be a bad choice.

To a large degree the city and the FCM have raised the infrastructure deficit as a means of lobbying other governments for more money; for example asking for one per cent of GST revenues. But it’s clear that both the federal and provincial governments are in no shape to send more money to municipalities. It’s a weak strategy for cities to wait for something that is unlikely ever to happen.

For their part staff have always been on the side of investing more in deferred and preventive maintenance. City manager Kent Kirkpatrick is well versed in the subject and was a key member of Canada’s Public Sector Accounting Standards Board that compelled municipalities to report and amortize assets, as well as provide an assessment of asset condition.

If we are serious about fixing the problem we have the financial strength to repair what’s broken and bring deferred maintenance up-to-date. It is folly to think about light rail and other strategic initiatives until we have a realistic plan to deal with the infrastructure deficit that has both political and community support.

Bob Plamondon is a public policy consultant in Ottawa.

© Copyright (c) The Ottawa Citizen

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The spirit of John A. endures

When we cruise down the newly named Sir John A. Macdonald Parkway, we can find guidance and inspiration from his vision that is relevant to this day, writes Bob Plamondon.

By Bob Plamondon, Ottawa Citizen August 16, 2012

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Since it is not a new road, does it really matter that we will soon be driving down the Sir John A. Macdonald Parkway?The point of the renaming of the Ottawa River Parkway is that by invoking the memory of Macdonald, we may well inspire future generations of Canadians to learn from his example. Simply put, Macdonald is as relevant to Canada today as he was 145 years ago.Ever wonder why we are not Americans? Through Macdonald we can learn how we built upon our British traditions to fight for an independent Canada that thwarted the Americans’ Manifest Destiny.What keeps such a distinctive and diverse nation together? Through Macdonald we learn about national unity and how he treated people with tolerance and respect. Perhaps he said it best, before Confederation, with these remarks: “(We) must make friends with the French, without sacrificing the status of his race or religion, and we must respect their nationality. Treat them as a nation and they will act as a free people generally do — generously. Call them a faction and they become factious.”

Through Macdonald we learn how his design for Canada makes us strong by respecting our regional differences, while embracing our strengths as a nation.

Through Macdonald we learn how he built a platform for prosperity by extending Canada from coast to coast, against all of the odds and financial obstacles, with the largest private-public partnership in our history — the national railway.

And through Macdonald we learn how he hardened the gristle that was Canada in its precarious early days, an improbable country in many respects, into bone. He was there to see the creation of the RCMP, our judicial system, even the location of our national capital in Ottawa.

With the renaming we get much more than a tribute to Macdonald. More important than remembering his accomplishments, we can find guidance and inspiration from his vision that has endured to this day.

Perhaps the current crop of politicians can learn from his good nature and wonderful sense of humour. At the funeral of a deceased senator, Macdonald was tapped on the shoulder with the pleading, “Sir John, I would like to take that man’s place.” Macdonald’s quick retort: “I’m sorry my good man, but you are too late. The coffin is nailed shut.”

In a time when the easiest thing to do is nothing to avoid criticism and cynicism, Minister John Baird rose above on Wednesday and displayed clear leadership. He stuck his neck out because he wants future Canadians to learn about Macdonald and to be inspired by his vision. That’s why the former president of Historica-Dominion, Andrew Cohen, was an early proponent of the renaming. As was Councillor Peter Hume and former prime ministers John Turner and Brian Mulroney. And the NCC, under chair Russell Mills, CEO Marie Lemay and board member Jacquelin Holzman, helped to pave the way.

This was not an idea that came out of the Tory war room, but was hatched in the community by Citizen columnist Mark Sutcliffe and myself, and spawned in the pages of the Ottawa Citizen in a continuing series. The idea, originally to rename Wellington Street after Macdonald, inspired a national debate, caused editorial writers across the country to take a position. For me, just the debate over the idea was a victory since Canadians were talking about Macdonald. When assessing the merits of the renaming, we explored his contributions to Canada and what they mean for our future.

In some ways, the impact of this change is modest in scope. It’s probably the cheapest street renaming in Ottawa history, as only a handful of signs will be affected and no addresses impacted.

In the scheme of life, the parkway is a relatively new road, although none in Ottawa is more beautiful. But for those who believe there is merit in learning about who we are by exploring our history, the announcement Wednesday at the Deschênes Rapids lookout area is an important step forward.

Whether it is today or 145 years from now, whenever someone takes a glimpse of the sign as they veer onto the Sir John A. Macdonald Parkway, perhaps a seed will be planted where he or she will be inspired to get to know him a little better. He is not only our first prime minister but he is our greatest. But even if you disagree with my assessment, we both win by having the debate.

Bob Plamondon is the author of Blue Thunder: The Truth about Conservatives from Macdonald to Harper.

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Searching for a light-rail business case

BY BOB PLAMONDON, THE OTTAWA CITIZEN JUNE 11, 2012

Councillor Tim Tierney had a moment of great insight at a recent transit committee meeting. While grilling the new head of OC Transpo about his decision to eliminate planned technology spending, Tierney asked what had changed about the business case for the proposed investments. In other words, if this was a good investment a few months ago, what made it a bad investment today? The short answer was there never was a business case, just a road map.

“That’s an eye-opener,” said Tierney.

Here’s another eye-opener. The city does not have a business case for the $2.1-billion light-rail project, our largest infrastructure project since the construction of the Rideau Canal.

This might surprise a few councillors since they were given a 98-page document in March 2010 titled, “Business Case: Tunney’s Pasture to Blair Station via a Downtown Transit Tunnel.” The problem with the consultant’s report is that it’s a business case in name only.

Unlike most business cases, this document does not fully list, tabulate or compare the costs with the benefits of the proposed $2.1-billion investment. Just as surprising, the “business case” examines only one option. The consultants dismissed the proverbial “do nothing” scenario since it would put at risk, “the economic prosperity, environmental integrity and quality of life of Canada’s national capital.” That’s a bold statement to make without presenting the supporting evidence.

The consultant’s report reads more like a sales pitch than economic analysis. When not extolling the virtues of light rail, the “business case” warns us that failing to proceed with the project could stifle the city’s potential for future growth. To argue the merits of the tunnel, they ask us to think about how the city functioned during the transit strike. Now that’s a stark choice: a tunnel with light rail or no public transit whatsoever.

A proper business case for the light rail project would justify our capital investment and commitment to ongoing operating costs with the revenues from fares, subsidies from other governments and community benefits. Assuming the benefits exceed the costs over a period of 50 years or so, the next step is to determine how to share the costs between transit riders and property taxpayers. But none of this is evident from the “business case” put before council.

In a series of interviews I held with the deputy city manager, treasurer and city manager they pointed to an extensive body of analysis that was presented to council since the 2008 deliberations over the transportation master plan. They are correct that there have been no shortage of studies that considered issues such as various routes, the merits of tunnel versus no tunnel, using buses versus light rail, the relationship between operating savings and capital investments for various transit sections, and even an affordability assessment. But at no point are the costs and benefits of this project brought together in a way that explains to taxpayers what this project will cost them and what they will get in return.

One explanation for not preparing a traditional business case was the belief that we simply had to act because our underlying transit system was about to suffer a catastrophic failure. What we heard from city hall was that putting more buses in the downtown core would be like putting the piece of straw on the camel that broke its back. But that’s a position not everyone accepts.

Just because we do not have a business case does not mean that one does not exist. Given where the project is today, we might say, why bother? I can understand those who say let’s just get on with the $2.1-billion project. Have we not been talking about light rail for a decade? And was the mayor was not given a mandate to get on with the job in the last election?

Based on his comments early on in the 2010 election campaign, Jim Watson appeared to be lukewarm on the light-rail plan precisely because he wanted to have a careful look at the numbers. But by mid-campaign he had become a convert, promising to deliver the project “on time and on budget,” which is the mantra he is following as mayor. While we can applaud his concern for the financial bottom line, it’s a mantra better suited to a project manager than a CEO. The mayor needs to make sure that the system works and that we are getting good value for our investment, rather than being fixated on meeting a hard budget. If the business case justifies a somewhat higher or lower investment because that’s where the city gets the best payoff, we should hope that Watson will step up to the plate and lead.

Senior city staff suggest they have a project mandate and a budget so there’s no need to follow a business case approach. I disagree. While we seem to be well past the point of making a “go or no go” decision, adopting a business case approach would help us with the many decisions that will be required over the coming year and decades.

This is the first of a two-part series.

On Tuesday: Anything not worth measuring is not worth doing.

Bob Plamondon is a public policy consultant and the author of Blue Thunder: The Truth about Conservatives from Macdonald to Harper.

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Our children will pay for LRT, will they thank us?

BY BOB PLAMONDON, THE OTTAWA CITIZEN JUNE 11, 2012

Part 2 of 2

In this space on Monday I advocated for the city to adopt a business case approach to its decision-making around the light rail project.

A business case approach could have been used, for example, to assess the re-location of the transit station from Confederation Park to the Rideau Centre. It’s likely that on the surface a business case analysis would support the station relocation since anything that increases peak ridership revenues and decreases capital costs would enhance the project’s net present value. Indeed, just as the decision sparked controversy the city shifted from treating the move as simply a means of coming in “on budget” to one where the change would produce more ongoing benefits.

But what was not considered in the relocation decision was the potential cost of annoying the National Capital Commission, which desperately wants a transit station at Confederation Park. If, as a consequence, the NCC decides not to allow trains to run along the Ottawa River Parkway, the other options might make an additional investment in a station at Confederation Park seem cheap by comparison. (And how big an environmental stretch can it be for the NCC to allow trains on available land just south of the Parkway when they allow buses on the Parkway for an annual fee from the city of $750,000).

Beyond changing the existing plan there are myriad decisions that need to be made about the second phase of light rail, if there is one. Do we go west, south or east? Again, a business case can help us determine where we get the biggest bang for our buck, rather than simply rewarding the councillor who has the most clout or the community that can make the most noise.

A business case approach will also help us get a better handle on project financing, including continuing operating costs and future capital costs. The city has made some progress in this area by preparing an “affordability assessment” for the initial phases of light rail. For example, the city treasurer estimated that likely capital spending over the coming 38 years, including the initial phase of light rail, will dramatically increase city debt. Interest costs will rise from about six per cent of our own-source revenues today to about 14 per cent by 2031. The transit debt alone will rise from about $400 million today to $2.7 billion in 2028, before falling to $1.4 billion in 2048. While the treasurer concludes the debt serving and operating costs of light rail will be “affordable,” what we don’t know for certain is how other city operations will be impacted by the project.

We also have to keep in mind that after more than doubling our debt load there will still be no light rail service from Kanata or the airport to get downtown. The capital cost and associated debt for this service will takes us to an entirely different level. A business case will help us determine if these additional investments are indeed worthwhile.

Some might say that a business case approach does not work for a public sector project. This ignores the fact of life that anything not worth measuring is not worth doing. How does the United Way determine which of our social agencies to fund? How do Belinda and Bill Gates decide which of the various social agencies to support? The answer is a business case where the benefits and costs are measured and held up to account. Whether it is less time spent in traffic or cleaner air, the benefits of transit investments are readily quantified and valued. In fact the city takes a stab at estimating some of these measures in their various studies.

It may well be that the light rail project will be the best investment the city ever made. I have every expectation that our children will thank us 25 years from now for having dug the tunnel. But let’s put this project to the proper economic test to ensure we get the best payoff for our investment. We need to build the system that will hit the mark; not just for the next election but the next generation. After all, our children will not only be the ones who will get to use the system, they will also have to pay off the debt.

To help the mayor and council, perhaps an advisory group could tabulate the costs and benefits of various options and take a sober second look at the project.

Bob Plamondon is a public policy consultant and the author of Blue Thunder: The Truth about Conservatives from Macdonald to Harper.

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Harper is the anti-Trudeau

BY BOB PLAMONDON MAY 12, 2012

It seems every Canadian political columnist passed judgment on the one-year anniversary of Harper’s majority government. But, oddly enough, the punditry on the man and his vision were all over the map. To some he is an authoritarian with a bully club in his right hand, but to others just a hard-nosed PM maintaining party unity. To some he’s a principled radical and to others a moderate populist.

I have a different take. If you want to understand Stephen Harper, think Pierre Trudeau.

It’s hard to believe that Harper was once a Liberal campaign volunteer, but, somewhere in the early 1980s, Harper embraced a political mission to undo the damage that Trudeau inflicted on the country and to destroy the Liberal party in the process.

Of course, Brian Mulroney and Jean Chrétien got first crack, repudiating almost every Trudeau economic policy from unemployment insurance, runaway spending, hyper inflation, economic nationalism, and obscene levels of debt.

As a minority PM, Harper barely dented the Trudeau legacy, but in the most recent budget he was thinking about Trudeau. The funding for Katimavik, the national youth learning organization Trudeau helped establish in 1977, went from $15 million to zero in one fell swoop.

While Trudeau was instrumental in getting oilsands development off the ground, he decimated the oilpatch with the National Energy Program. He also tapped Justice Thomas Berger to head the Mackenzie Valley Pipeline Inquiry in 1974, which killed the project. Harper is a vocal advocate of not one, but two pipelines: Keystone XL to the United States and a Pacific pipeline that would bring oil to the West coast for export to Asia. It’s a safe bet that Trudeau’s Mackenzie Valley Inquiry, which involved 14 full participant groups and produced 283 volumes of evidence, is not what Harper has in mind with his “one project-one review” environmental assessment process that was announced in the recent budget.

Trudeau was never happier than when pursuing a strong central government and invading areas of provincial jurisdiction. When told in 1983 that the proposed Canada Health Act would anger the provinces, he told his health minister “That’s a sure win.” As a prime minister with a majority government, Harper didn’t even bother to negotiate with provinces when the Canada Health Transfer recently came up for renewal.

Over his 15.5 years in office, Trudeau held 23 face-to-face meetings with his provincial counterparts. In over six years in office, Harper met first ministers only once, in private, and that was in 2008.

The Constitution was a Trudeau obsession from the time he served as a bureaucrat in the Privy Council Office in 1949 until the early 1990s, when he decisively intervened to defeat the Meech Lake and Charlottetown accords. Harper would give up singing the Beatles before messing with the Constitution.

In some ways Trudeau was more comfortable in Moscow than in Washington. The animosity went both ways: Richard Nixon called Trudeau an “asshole,” and Trudeau called Ronald Reagan an “imbecile.” Harper understands there is nothing in it for Canada to insult our best customer and most important ally.

When the time comes, don’t expect Harper to attend Fidel Castro’s funeral just because the Cuban dictator was an honorary pallbearer for Trudeau. When Trudeau died, Cuba declared three days of public mourning and flags were flown at half-staff. A few weeks ago, Castro penned an 1,100-word column denouncing Harper’s policies.

Trudeau handed out taxpayer dollars to Liberal-friendly special interest and advocacy groups. Harper is cutting taxpayer-dependent advocacy groups loose, telling them to fend for themselves.

Trudeau loved the ballet and schmoozing with artsy types. Harper prefers hockey games and shuns the star-studded black-tie galas.

Trudeau moved our immigration policies away from labour and economic needs and towards “family reunification,” winning fidelity from ethnic communities in the process. Harper is shifting our immigration back toward meeting our economic needs.

Trudeau thought that unemployed Canadians should sit tight and wait for the jobs to come to them. In the most recent budget, the signal was sent by Harper that EI benefits could be impacted for those who refuse to widen their geographic job search.

Trudeau eviscerated the military. Harper restored both its pride and budget.

While the death penalty was given last rites under Trudeau, Harper has not exerted himself to patriate a Canadian on death row in the U.S.

Of course, there are similarities between the 15th and 22nd prime ministers. They are both highly political and as tough as nails. When reporters asked Trudeau if he was worried about internal dissension over his leadership he replied, “If I found in my own ranks that a certain number of guys wanted to cut my throat, I’d make sure I cut their throats first.” When Trudeau was asked about his political strategy of dividing opponents, he said, “If you couldn’t … you shouldn’t be in politics. If it’s called manipulative, then so be it.” On the desire to win, there is not much to choose between Harper and Trudeau.

Whatever remnants of the Trudeau legacy that remain are cemented in the Constitution, but, on the meaning of Constitution, a few more of Harper’s Supreme Court appointments can make a world of difference.

Bob Plamondon is the author of Blue Thunder; The truth about Conservatives from Macdonald to Harper.

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MPs Take Big Hit in Pension Reforms

Ottawa Citizen -April 3, 2012

Now that the dust has settled on last week’s federal budget it’s time to add up the damage.

Many commentators, myself included, thought that public servants and parliamentarians dodged the pension reform bullet on Budget Day. The thinking was their gold-plated defined benefit pensions plans, at least for new people coming into the system, would give way to an RRSP-style system.

More than a month before Budget Day Harper told his caucus that if the government was to be taken seriously on expenditure management that the MP pension plan had to go. Only a handful of Conservative MPs spoke up in opposition. To move on public sector pensions, not to mention introducing OAS reform, the overwhelming sentiment in the Tory caucus was that MP pensions had to be put on the chopping block.

But the axe did not come down on Budget Day. The MP and public sector pension plan will continue to pay out based on “the best five years” of earnings. Indexing remains. And the cheques will continue to flow whether the economy is strong or weak.

Only a handful of people know why Harper did not follow the example set by Export Development Canada, which nixed their defined benefit pension plans for new hires on January 1. Instead, Harper chose to ask public servants and MPs to match pension contributions with the taxpayer.

So what does it all mean?

For 2009-’10 federal public sector workers kicked in about 35 percent of the cost of their pensions. That works out to about 8.6 percent of their wages (above the level covered by the CPP plan). The straight math indicates that the amounts deducted from the pay cheques of public servants will increase to 12.3 percent of their pay. For someone earning $80,000 per year the increase works out to a little less than $3,000, significant but not life altering.

The impact on MPs is not so trivial. Officially for every dollar they put into their pension plan the taxpayer kicks in $5.80. But according to a study by the Canadian Taxpayers Federation, the contribution is closer to $23 to $1 in favour of the MPs, in part because the MP fund is guaranteed a 10 percent return.

My calculations reveal that getting MPs to a 50-50 pension contribution split will be quite a leap. The calculations are based on the career of a typical MP. According to research conducted after the 2008 election by Samara the average MP is elected at age 48 and serves in Parliament for 12 years.

After a twelve-year career it would take a fund of $1.34 million to fund a pension based on the best five years of earnings. This assumes inflation at 2 percent, an investment return of 4 percent, a base salary of $157,731, and a pension that pays out to age 85 without survivor benefits.

To amass the necessary funds an MP would each have to kick in 25.2 percent of base pay. Yes, when combined with the taxpayer’s share that’s 50.4 percent of earnings. For an MP in 2012 the employee-employer contribution would be $79,496; well above the 2012 RRSP limits of $22,970 available to ordinary Canadians.

The impact on an MPs take home pay would be substantial. Under the old rules they will contribute $11,041 into their pension fund, but $39,748 under the new rules.

If the government continued to guarantee a 10 percent rate of return this contribution would be much lower. The contribution would also be lower if the MPs accumulated benefits at the same rate as public servants (MPs accumulate at the rate of three percent for each year of service compared with two percent of wages for public servants).

The high water mark for pension equity for elected officials is Ontario where MPPs are in a pure RRSP system, like most Canadians. They not only contribute their fair share, but the value of their pensions rise and fall along with our economy.

But at least MPs are paying more. Substantially more. And under the new rules MPs would be poor cousins to federal judges and deputy ministers who have pensions that would be at least two to three times as generous. By this measure perhaps we call MP pensions only silver-plated rather than gold-plated.

A Moderate Budget

March 30, 2012

By Bob Plamondon

A finance minister typically goes underground in the week before the release of a budget. This year was different.

Last week Jim Flaherty visited a Stittsville fire hall, supposedly to talk about government support for volunteer firefighters. His real mission was to reveal the general themes for his upcoming budget. This week, while buying the traditional pair of new shoes that finance ministers wear on budget day, Flaherty went out of his way to dampen the expectations of those who hoped and feared the budget would bring deep spending cuts.

Public servants who were anxiously waiting for their world to change can breathe a sigh of relief. Life in Ottawa will carry on as it always has. Fiscal conservatives, who were hoping for a transformative budget that changed Ottawa for good, will lament a lost opportunity.

We can give Flaherty budget full marks for following the fiscal framework outlined in the 2011 Tory election platform. In other words, the Tory budget released yesterday was no tougher or generous than what the Conservatives took with them on the campaign trail. Those claiming that Harper has a hidden agenda and would remake Canada when given a majority must certainly give it a rest.

According to the budget, federal finances will be more or less balanced in the time frame that Harper promised in 2011. Rather than the $4 billion in annual strategic and operating review savings outlined in the platform, Flaherty has come up with $5.2 billion. And the government followed its commitment not to further clutter the tax system with new boutique tax credits, at least not until the after the budget is brought into balance.

The good news is that, in relative terms, government spending is decreasing. The federal debt, relative to the size of the economy, will be on a steady downward track beginning in 2013-14. The federal budget will be balanced by 2015-16.

While the trends are positive, the results are modest. After four years of majority government federal, spending will consume about the same proportion of our economy as it did when Paul Martin was prime minister. The debt load in four years will be no better than it was in 2008-09. The number of public servants, reduced by 19,200 in this budget, will remain well above the level in place when Harper came to power.

But other than a modest redesign of the Old Age Security system, the sorts of transformative change that might be expected from a government in the first year of its mandate did not make the cut in this budget.

Public sector pensions went largely unscathed, retaining the gold-plated design that is disconnected from economic reality and fundamentally inequitable when compared with those who save in the private system. The only change is that government workers will be asked to share a greater portion of the cost. Similar modest changes are in store for MP pensions.

The only genuine surprise in the budget was the abolition of the penny and the taxation of the Governor Generals salary. Such are not the makings of transformation.

As Flaherty signaled last week what is most interesting are not the fiscal changes but the subtle shifts that would alter the landscape of how our economy functions. Government support for scientific research will become more targeted. Environmental approvals for projects like the Northern Gateway pipeline will become more streamlined. The immigration system will be more strongly connected to labour needs. Employment insurance will better reflect the need for workers to move to where the demand for labour is high. Venture capital will be easier to raise. These are the shifts that Flaherty wants us talking about at the dinner table, and not whether we are getting good value for our tax dollars and whether spending is too high or too low.

But don’t look in the budget documents for specifics around these thematic changes. In these areas the budget reads more like a Throne Speech than a budget. What we see is more visionary than it is concrete.

Given that OAS eligibility rules won’t take effect for more than 10 years this is not a measure that hits the government’s bottom line in the timeline of the budget. The message Canadians need to take from this reform is that 65 is no longer be the normal age of retirement. There’s a signal that we need to take more personal responsibility for our retirement needs, which may include remaining in the workforce well into our 70’s. With the aging of our population and a longer life expectancy we can put the OAS reforms into the category of a much-needed realty check.

So overall I give the budget a passing grade for doing exactly what the government promised. But I can’t say that the 2012 budget was a turning point where we made the fundamental changes necessary to secure the economic future for our children.

A legacy-defining budget will have to pass this test

BY BOB PLAMONDON MARCH 28, 2012

Moments after Jim Flaherty rises in the House of Commons to present the federal budget Thursday, the usual suspects will step up to the microphones to pass judgment. No doubt we will hear from the public sector unions and business leaders about how the budget impacts the bottom line of their members with some well-rehearsed talking points that were probably written up sometime last week.

But we need to go much deeper than the chatter and self-interest to understand if the government is, in fact, meeting its commitments from the 2011 election. More importantly, we need to understand whether this budget is good for our children.

Given that this is the first full budget of the “strong, stable, national Conservative majority government” we should hope for the tough love that’s needed to repair our economy and strengthen our public finances. This is no time for short-term fixes that respond to the politics of today. Rather, we need to address the fundamental issues of productivity, innovation, public debt and intergenerational equity. The aging of our population, deterioration in our infrastructure and increasing global economic instability demand that we put in place a fix that respects the next generation.

Harper’s previous budgets are noteworthy for some tax cuts, some spending increases and a return to deficit financing. He has not undertaken significant change in the way that Brian Mulroney did with the GST, or Jean Chrétien with his 1995 austerity budget.

For this to be the legacy-defining budget that I believe the country needs, these will be my tests:

1. Debt to GDP

* A steadily declining debt-to-GDP ratio from this budget forward.

* A fiscal plan that takes us to a 25% debt-to-GDP ratio. We were at 33.9% in 2010-’11, but 18.4% in 1978.

2. Eliminate the deficit

* Balance the budget by 2014-15 as promised in the 2011 election with a budget surplus of $2.8 billion.

3. Pension Reform

* Place all new MPs and public sector workers into an RRSP-style system with equal contributions from employer-employee. Payouts should be determined by contributions and our overall economic performance.

* Substantial increase in the RRSP deduction limit to provide more equity and added personal responsibility in the retirement system

4. Government spending

* Fiscal plan to bring federal spending to the level that was in place when the Harper government was first elected of 12.8% of GDP; versus 14.7% in 2011-’12.

* Meet the commitment to reduce spending on government operations by $4 billion by 2014-15. As a bonus, achieve the $8 billion in spending reductions advocated by many fiscal conservatives.

* Recognize our demographic and economic realities by modifying the eligibility and benefits for Old Age Security.

* Revise public sector pay grids to bring them into better alignment with the private sector.

* Change the government’s human resources regime to address poor performers in the public sector.

* Incorporate relevant ideas and innovations from the Don Drummond report on Ontario public services.

* Incorporate the ideas for savings that we see in provincial budgets, such as ending the accumulation and payout of sick leave benefits.

5. Innovation and productivity

* Reform government support for scientific research and development with a greater focus on commercialization.

* Pursue the recommendations in the Tom Jenkins expert panel on research and development.

* Pursue the recommendations from the federal Red Tape Reduction Commission.

* Implement policies that facilitate the creation of pools of venture capital to stimulate savings, investment and employment.

* Implement measures to enhance the economic union and promote free trade within Canada.

* Strengthen the link between immigration policies and our labour needs.

* Reform the Employment Insurance system to discourage perennial claims from those that pursue only seasonal work.

* Encourage foreign investment.

* Re-profile federal spending toward our national infrastructure, particularly in the area of transportation.

* Pursue a worldwide free-trade policy.

6. Tax Reform

* Put a five-year sunset clause on all discretionary tax expenditures.

* Commit to an independent analysis of discretionary tax expenditures every five years.

* Put all business tax expenditures into a single envelope and re-profile to those areas that produce the most economic benefit.

Bob Plamondon is a public policy consultant and the author of Blue Thunder: The Truth about Conservatives from Macdonald to Harper. Look for his analysis of the 2012 budget on Thursday.

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