Jul 18, 2014

BC’s controversial contract obligations dwarf its debt


Most of the discussion around the delivery of British Columbia’s public accounts this week has centred on debt (Marvin Shaffer makes excellent points in the previous post on why debt is not always bad) and on how BC got the money to balance its books.

Something else worth looking at, however, is British Columbia’s non-debt contractual obligations.  This year those obligations broke the $100 billion mark – nearly $50 billion higher than the much more noticed 2013 provincial debt of $55.8 billion.

In past years these contractual obligations got lots of public attention because they had some eye-popping increases.  The 2005/06 fiscal year was the first time the province reported on them.  Back then they came to $34 billion at a time when the provinces debt was $34.4 billion.  By 2008/09 the contractual obligations were up to $52 billion while debt had gone up to $39.7 billion.  Over the next four years contractual obligations roughly doubled while debt went up another 40%.

This year, however, contractual obligations only went up by $3 billion so no one has paid much attention to them.

Just as debt can benefit the province, contractual obligations can also pay for services that play an important role for BC.  These contractual obligations go into the future to cover a wide range of things like housing subsidy agreements and program delivery agreements with health authorities and social service agencies.  Nearly $6 billion has been committed to pay for future policing costs.  Nearly $10 billion will go to pay for the Coastal Ferry Services Agreement.

And just as some of the borrowing can be questioned, some of the long term contractual obligations are also controversial.  Nearly 55 per cent of all the future contract obligations – $56.5 billion – will go to pay for independent power projects (IPPs). The government has forced BC Hydro to buy the high priced energy produced by these private power corporations.  The cost for those projects rose by an additional $1.48 billion last year.  Payments in future years for public private partnerships come to another $7.7 billion.  These payments go for mainly needed projects, hospital, roads and bridges, but growing evidence suggests the projects could have been delivered publicly more cheaply than with these decades long contracts with private corporations.

Then there are other elements of privatization in the contractual obligations such as the long term Alternative Service Delivery Agreement with Maximus ($298 million) to manage the province’s health information.  The Maximus contract was extended last year shortly before the provincial election despite questions raised by the Auditor General about the contract.

The value of these contractual obligations going into the future has dwarfed the value of future debt. And much of the spending is far more questionable than the things our debt will buy us.

You can see details of the obligations here: http://www.fin.gov.bc.ca/ocg/pa/13_14/Contractual_Obligations.pdf

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