BC’s Economic Challenges and the Liberal Platform

By Marc Lee

The BC Liberal platform features many feel-good photos and proud statements taking credit for the province’s recent boom. But read between the lines, and one realizes that after eight years in power, the Liberals have effectively run out of ideas.

The platform fails to offer any vision for the future. The Campbell Liberals made some progress on climate change actions over the past couple years, but the platform offers nothing new. Meanwhile, the Climate Action Secretariat, once residing in the Premier’s office, has been relegated to the Ministry of the Environment, which recently had its budget cut.

Premier Campbell deserves credit for bringing in the carbon tax, plus a variety of other climate measures that represent the low-hanging fruit of greenhouse gas emission reductions. While the carbon tax has its shortcomings, in my view it is a positive first step, and one that carries enormous symbolic value for environmentalists.

Still, the government enters the election without a plan in place to get BC to its legislated 33 per cent reduction in greenhouse gas emissions by 2020. And there are some glaring contradictions between the climate plan and other parts of the Liberals’ platform.

One of those contradictions is the oil and gas industry. Between 2001 and 2006, oil and gas industry emissions surged by far more than the carbon tax will ever reduce come 2020. Recently, Premier Campbell was in the Northeast, promising more new investment in oil and gas extraction, which may make it virtually impossible to reach our targets. And it is not like the oil and gas patch is a huge employer – about 2,200 direct jobs in 2008 – for all that pollution.

Highway expansion and the $3-4 billion Port Mann Super-Bridge also go against the climate-action grain. This expensive mega-project will only push more unsustainable, car-oriented development further up the Fraser Valley. This threatens valuable farmland, and means that congestion will be back within a few years. No jurisdiction in the world has ever built its way out of congestion problems.

The Liberal platform offers no real vision for the economy either, now that the great boom is over. Unemployment rose rapidly through early 2009, and with housing starts down 70%, the worst is yet to come, as construction workers finish their current projects and head straight to the back of the unemployment line.

The current economic collapse is not the fault of the Liberals, but then neither was the boom their creation. BC’s economic fortunes rest on what happens outside our borders, in particular in the export markets of the US and Asia, and in Ottawa, through the Bank of Canada and the federal government.

As cheerleader-in-chief, Premier Campbell may have pumped up the home team’s confidence, but let’s face it, the cheerleaders did not win this game. Like other parts of the world, low interest rates drove a bubble in real estate, leading to a massive expansion of construction activity. And high commodity prices driven by export markets made BC’s resource industries take off.

In February’s budget, the Liberals offered little in the way of stimulus, mostly re-announcing projects already underway or relying on federal stimulus dollars. There is much more that should be done to retrofit our infrastructure to be green – like public transit and energy efficiency upgrades – and to meet long-neglected social needs, like affordable housing, addiction and mental health facilities, or residential health care.

Bad economic times mean that the small deficit projected in the budget will inevitably turn out to be much larger. The Liberal platform promises that BC will “live within its means”, but faced with a $1-2 billion deficit, will a new Liberal government pile on more spending cuts and risk making the economic picture worse, or will it accommodate a larger deficit? What does that mean for the few new promises in the platform, like all-day kindergarten or U-passes for all Vancouver post-secondary students?

In politics, as in business, marketing is everything. The BC Liberals have branded themselves as the party of good economic times, but also the party with the long-term vision to tackle climate change. At a time when families in BC are concerned about the future on both fronts, the Liberals have put forward an unambitious “devil you know” strategy to win re-election.

Even during the good times, not all British Columbians were part of the boom. Poverty rates did not drop in any meaningful way, homelessness doubled, and inequality worsened with each passing year. BC needs a plan, with targets and timelines (just like climate change) to address poverty, especially as the recession deepens its grip.

With a lack of vision and too many contradictions, the platform does not provide any sense of how Campbell the Third will govern.

In hindsight, the carbon tax was perhaps the worst-timed policy announcement ever, with prices at the pump jumping by about 40 cents per litre between the announcement in the February 2008 budget and July 1, when it was implemented. This shows both how quickly a carbon tax can be introduced (compared to years of negotiations for a cap-and-trade system) and how the intent of the tax can be subverted by market forces. The relatively puny 2.3 cent a litre carbon tax absorbed much of the public anger about rising fuel prices that were about 20 times larger in magnitude.

Thus, an important lesson is that we need more than a carbon tax, but to regulate fuel prices (so that they act like stable market prices plus a rising carbon tax). This would enable households to avoid opportunistic price increases at the pump every time a storm is headed for North American shores, and the broader problem in 2008 of a speculative bubble in energy prices. It would provide the clear market signal of rising prices that proponents of a carbon tax want. The tax would essentially become hidden and represent the difference between the wholesale and retail prices (including other federal and provincial fuel taxes, too). This mechanism could also provide a floor price for emissions under an emergent North American cap-and-trade system (price volatility is one of the downsides of cap-and-trade).

We also need more than a carbon tax in terms of complementary public investments and standards/regulations around energy efficiency, alternative power and urban and inter-city transit. The carbon tax is too small on its own to affect behaviour, and even at 7.2 cents per litre in mid-2012 (if it survives that long) it will not make a dent in BC’s greenhouse gas emissions. The tax needs to be much higher, like twenty times higher, if we are to induce shifts in people’s transportation habits (this process was underway last year but lower fuel prices have undermined those gains). However, we too often think of a driving metaphor when contemplating the efficacy of a carbon tax; large, industrial emitters will feel the pinch at lower levels of the tax.

In any event, one major problem with the NDP’s proposal to scrap the tax is that the tax could be used to finance those good things above that need a public boost. Instead, the NDP would have to borrow the money for those investments, and with the BC budget in a sea of red ink, the bias will be towards doing too little. Another problem is that any strategy to reduce greenhouse gases that is successful will lead to higher consumer prices. Even with the carbon tax, two-thirds of the tax paid by households will be indirectly embodied in the price of goods and services people buy in the marketplace. Cap-and-trade or regulatory approaches that increase costs for compliance will lead to higher prices for GHG-intensive goods and services, and overall that is a good thing. But we need to be honest about how we are going to address distributional aspects of those higher prices.

With carbon pricing alone, we just end up pricing out the lowest-income people. But addressing distributional issues is where the revenue from the carbon tax also comes in handy. The current “recycling regime” of the carbon tax dedicates about one-third of revenues to a low-income credit in year one (2008/09), which more than offsets the average impact of the tax for the bottom two quintiles. But this credit is not scheduled to grow in line with the carbon tax, and that progressive result at the bottom disappears this July, and becomes regressive as of July 2010 (on average, households will pay more in carbon taxes than they get back from the low-income credit). Toby Sanger and I crunched the numbers in a paper released last Fall.

Carbon pricing alone is also not enough because the households with the largest carbon footprints are those with the largest incomes (Hugh Mackenzie, Hans Messinger and Rick Smith detailed Canada’s ecological footprint by decile in a study last year for the CCPA). The richest households can buy their way out of change, so standards and regulations are needed to ensure that emissions from the largest-emitting households are reduced.

Fixing the tax also means that it should be applied to all GHG emissions, not just to burning fossil fuels. This means applying it to flaring and pipeline leakages in the oil and gas sector (the NDP propose something like this), process emissions in the cement and aluminum industries, and to landfills (although the current regulatory approach to this latter area may in fact make more sense than applying the carbon tax). And we should even consider applying it to exports of coal and natural gas, as these lead to massive GHG emissions outside BC’s borders that are not counted in our emission totals (only emissions associated with the extraction of the resource, which themselves are huge, are counted).

Most environmentalists are aware of these shortcomings but see the carbon tax as an important first step. But too much of the attention of climate policy has been on the carbon tax, rather than the host of other measures that need to accompany it. Rightly or wrongly, the carbon tax has become a litmus test for seriousness on climate change to the great detriment of the NDP. While I disagree with the NDP’s stance on the carbon tax, their budget platform essentially endorses the rest of the BC government’s climate action plan and does make some improvements: the royalty on flaring mentioned above; more public transit investment; and short-term caps on emissions from the largest industrial emitters. The NDP proposal for low-interest loans for housing efficiency retrofits is a weak link; we need to get beyond incentives and start mandating audits and retrofits, particularly for older building stock, and finance that through BC Hydro bills so households do not have to lay out any cash upfront but still see lower Hydro bills (a classic win-win).

So go the finer points of climate policy. There are many shades of grey, good things and bad things to be said about both the NDP and the Liberals. But by tossing the carbon tax, the NDP was won the eternal wrath of most of the enviro movement. So it is a shame to see the Pembina Insitute, David Suzuki Foundation and Forest Ethics hold a press conference to that effect, without giving credit for the good parts of the NDP platform. And given the shortcomings of the carbon tax, to fully endorse the Liberals seems a bit much, especially when there are some glaring contradictions in the Liberals’ approach, such as pressing forward with an astonishingly expensive ($3-5 billion) Port Mann Super-Bridge that will drive unsustainable suburban development further up the Fraser Valley, and that will clog up the new bridge within a few years of its opening (the NDP is silent on this one). The Liberals also want to increase oil and gas development in the Northeast – which creates few jobs but produces enormous greenhouse gas emissions – and have announced road expansion into the oil and gas patch, effectively a ramping up of subsidies to the industry (the flaring royalty notwithstanding, the NDP seems to think expansion is fine, too).

A painful bottom line is that, for all of the work on climate action over the past couple of years, and after much ado about legislated targets for greenhouse gas emissions, BC enters the election without a plan to get to its 2020 target of a 33% reduction (hello, balanced budget legislation?). The current climate action plan is estimated to get 60-80% of the way there. The remainder was considered by a Climate Action Team that reported last summer, but whose recommendations have not been implemented. And there is no plan to build these into a new climate action plan. And the kicker is that the safety valve in the CAT report that allows us to meet our 2020 targets: the carbon tax.

The problem with this question is that it allows for two options only, framing the policy decision as a choice between the proposed government investment project or the current status-quo. Yes, spending money on a new Port Mann bridge is probably better than not investing in infrastructure at all, especially during a recession. But the real question we need to ask is what is the best use of these $3.1 billion dollars of public money (the current cost estimate on the bridge construction) and would another project serve British Columbians better.

A recent article in the Tyee highlights the fact that alternatives exist with its provocative title: Want One Port Mann Bridge, or a Light Rail Metropolis. The article reports that Professor Patrick Condon and researcher Kari Dow at the UBC Design Centre for Sustainability have calculated that the money earmarked for the Port Mann construction can pay for

… a 200-kilometre light rail network that would place a modern, European-style tram within a 10-minute walk for 80 per cent of all residents in Surrey, White Rock, Langley and the Scott Road district of Delta, while providing a rail connection from Surrey to the new Evergreen line and connecting Pitt Meadows and Maple Ridge into the regional rail system.

In the end of the day, we need to balance our immediate needs for job creation with our longer-term goals, such as facing up to climate change and building a more environmentally sustainable society. Rushing to throw money at shovel-ready projects simply for the sake of increasing government spending may well be cheating us out of opportunities to restructure our infrastructure system to meet the needs of a future greener economy.

There is no substitute to carefully considering the longer-term implications of the choices we make if we want to ensure that short-term gain doesn’t leave us with long-term pain.

Case in point: as reported in the Sun, the government is announcing a $187 million road upgrade from Fort Nelson into BC’s oil and gas fields. This initiative will create 1,100 jobs, but is a blatant subsidy to the oil and gas industry, the source of 20% of BC’s greenhouse gas emissions (much more if we were to consider the emissions from burning that fuel out of province). Environmental NGOs have long been critical of subsidies to the oil and gas industry, and rightly so. What if the government lived up to the aspirations of its Climate Action Plan and put $187 million into green retrofits of buildings and alternative energy development?

Another obvious case is the $5 billion Port Mann super-bridge (well, $3.3 billion and rising). Its effect will be to create even more suburban communities up the Fraser Valley, locking in an unsustainable form of development for generations, and quite possibly at the expense of some of the best farmland in the province, which we will need down the road. The bridge will create lots of jobs but would we not be better off if we created those jobs as bus drivers by buying more buses to get people over the existing bridge more efficiently?

Yet, on the front page of the Vancouver Sun, Miro Cernetig opines that this is wonderful, and makes a sneering comparison to Gregor Robertson, arguing that the economic policies of the new Vancouver mayor amount to chicken coops in the backyard and organic veggies on the city hall lawn. Cernetig goes on to quote an anonymous provincial bureaucrat saying that “Vancouver has no economic plan”, which is ridiculous given the source – the provincial government is still officially in denial about the deepening economic crisis, and its strategy amounts to building a $5 billion super-bridge across the Fraser (officially, $3.3 million but no one believes that target will be met) and waiting for the Olympics.

Besides, the City of Vancouver has been preoccupied getting the house ready for those very Olympics, and athletes’ rooms are in a shambles. And what about eliminating homelessness? That is good for business, is it not? Cernetig’s comments are more than a cheap shot – he endorses a race to the bottom that will have the impact of further reducing municipal services so that businesses can get more tax cuts.

Cernetig points to a Microsoft office that ended up in Richmond not Vancouver (this was in 2007) as further evidence for his thesis. But does this really matter? From Microsoft’s perspective they see Vancouver as Metro not the City. And why shouldn’t Richmond get more corporate offices, as it needs greater economic diversity?

This us-versus-them frame is unfortunate. With an election coming in just two months, the real topic of discussion should be about the future of Metro Vancouver and what can be done to create greater harmony among cities, not more division. For example, most cities in Metro have “economic development” offices, such as the Vancouver Economic Development Commission, specifically tasked with finding locations for businesses that want to set up shop here (this is a very narrow conception of “economic development” but that is another blog post). What we need is a Metro-wide organization that does this function, so that individual cities are not spending our tax dollars competing against each other.

Moreover, citizens of Metro Vancouver need more say over what happens in their individual cities and in the region. The trend has been in the opposite direction, with the somewhat-democratic Translink turned into a totally undemocratic board of directors by the provincial government. Cities, and perhaps the region as a whole, need more powers of taxation so that they can address pressing issues without being reliant on property taxes. And they are very limited in terms of how they act to fight the recession.

We need some public debate, even if just among the Liberals and NDP, about a vision for the region. If we are left with beggar-thy-neighbour politics, our reputation as one of the world’s most liveable cities will be tarnished before long.

I’m all for tolling. Unless you are a fan of the queues inevitably created by what can only be described as our current Bolshevik approach to tranportation planning, you should know that tolls and other vehicle-related charges are essential if we are ever to have an efficient road system. Offer something valuable for free and chances are there won’t be enough to go around.

But it isn’t tolling for the sole purpose of paying for some (though interestingly not all) new bridges and roads that will bring some logic and discipline to the use of our road system. We desperately need a more systematic and fundamentally fairer approach.

The more systematic part is putting smaller, but more widely applied tolls throughout any corridor where major improvements are needed and made. It makes no sense to charge a $3 toll to cross the Port Mann and nothing to cross the neighbouring Patullo bridge. It is a sure way to ensure that the Patullo will always be overcrowded and the Port Mann relatively underused. Better to charge both bridges (and the Alex Fraser and new Golden Ears bridge) the same $1.50 or $2.00 toll during peak periods and little or nothing off-peak. The objective should be to encourage people to reduce peak period trips — not just shift trips from one bridge to another.

The fairer part is treating all corridors in the region the same. When we invest $2 billion to build the Canada Line, with the express purpose of reducing vehicular traffic and congestion in the Richmond/Vancouver corridor, we should put in tolls on the Oak, Knight and Arthur Laing bridges to pay for it (and encourage more people to take advantage of the new Line). And of course the same principle (and tolls) should be applied to Sea-to-Sky, a soon-to-be major suburban corridor thanks in large part to the excessive highway improvements that are being made there.

Marc would rightfully argue that first we should think more carefully about what new transportation infrastructure we build. The track record of this government certainly supports that. But once the decisions have been made to go ahead, there are sensible ways to finance the investments and sensible ways to pay for them. On those albeit secondary but still very important matters ,we are only half-way there.

Jeff Nagel already has a very interesting article in the Surrey Leader on the cancellation of the public private partnership. He includes the following quote from the Partnerships BC boss Larry Blain.

Critics have long said P3s bring higher finance costs because corporations must pay more interest than governments to borrow in order to offset the higher risk.

Partnerships BC CEO Larry Blain said that was a factor in the decision not to proceed.

He estimated $200 million in financing costs will be saved by switching from private to public borrowing.

So if they admit to saving taxpayers $200 million on this one, how much more could they save by cancelling the other planned P3 projects including six or seven hospitals?

The province has been unable to reach a finance-arranging deal with the consortium that was to build the new Port Mann Bridge, transportation Minister Kevin Falcon announced Friday.

The provincial government will now finance the entire $3.3 billion project, and is hoping to recoup the money through tolls.

It is a black eye for the Liberal government, which had touted P3s (public-private partnerships) as the way to build infrastructure without the government assuming any financial risks.

And so it is, as it should be – the government will build the bridge – well, except for the tolls. Why should this one bridge be subject to tolls, especially since it is the Trans-Canada Highway, and not others?

But that is beside the point: I think building this new super-bridge will be a colossal waste of money that will entrench unsustainble forms of development further up the valley, choking off more farmland just at the time when we need more local sources of food.

But, hey, there is an election on, and there are a lot of votes on the other side of that bridge.

He was saying that the bridge will be paid for by tolls but he seems to have forgotten that people who cross the bridge actually do pay taxes. For them, the toll on the bridge is just one more tax.

How much tax? Well if the Minister is correct and the toll comes in at $3.00 per crossing, it will cost $1,500 per year for someone to drive back and forth to work. That’s if the toll doesn’t come in above $3.00 and I’m not holding my breath on that one.

There is an interesting tie in here to an earlier change the government made in labour legislation. When employers called you into work they used to have to guarantee four hours. That was changed to a two hour minimum call in (one of the many reductions in BC’s employment standards made between 2002 and 2004).

So let’s say you make $10 an hour and get the minimum call in. You make $20 that day and you pay $6.00 to get back and forth to work. That’s a tax of 30%.

If you are one of BC’s 115,000 minimum wage earners, you are even worse off. After all, the toll on the bridge goes up by as much as 2.5% annually. Minimum wage workers don’t get a pay increase. The minimum wage has been frozen for eight years.

One side of the debate says they’re swell. They save money for taxpayers, they come in on budget and they transfer risk from governments to companies. But other people say details are kept secret from the public and that in fact they cost taxpayers lot more.

Today the Canadian Union of Public Employees released a report that looks at these questions and offers some credible conclusions. (Full disclosure here – I work for CUPE in my day job) .

CUPE engaged two prominent forensic accountants – Ron Parks and Rosanne Terhart of Blair Mackay Mynett Valuations Inc. – to examine financial information on P3s. Both have more than 20 years experience in accounting, auditing and forensic accounting investigations. Parks is perhaps the best known accountant in the province.

The information they worked with came from two years of work through Freedom of Information legislation. Even with that, it was only possible to get information on four projects: the Canada Line, the Sea-to-Sky Highway, the Diamond Centre at Vancouver General Hospital and the Abbotsford Hospital.

Parks and Terhart came to some tough conclusions:

• “The cost of P3′s exceeds traditional procurement methodology for the projects referred to”
• “The methodology used by Partnerships BC to compare the P3 projects to the public sector comparator is biased in favour of the P3 projects.”
• Critical information was denied under FOI requests. “In our view this suggests a general lack of transparency and public accountability.”

These findings have huge implications, especially because P3s tie the public to 35 year contracts. And they are especially timely in light of recent news reports that P3 financiers for projects like the Port Mann Bridge are in big trouble.