Jul 27, 2012

The staggering future costs of the BC government’s contracts


As usual, there has been quite a hubbub surrounding this week’s release of British Columbia’s Public Accounts. 

The provincial auditor says the provincial deficit is $520 million more than the government admits. And then there is the Auditor General’s review of finances at the legislature that found “substantial irregularities.”

But all of the above is pocket change compared to the staggering increase of the province’s contractual obligations over the last six years. Normally, the government focuses on debt as a measure of its financial performance.  In 2005/06, however, at the urging of the Auditor General, they began to publish numbers for their largest future contract obligations as well as debt. The Public Accounts describe it this way:

The government has entered into a number of multiple-year agreements for the delivery of service and the construction of assets. The following table presents the minimum amounts required to satisfy contractual obligations that are greater than $50 million, by sector, by year.

In 2005/06 those future contract obligations came to $34.013 billion.  That year total debt for the province came to $34.356 billion. The province’s future obligations totaled $68.4 billion.

This year’s Public Accounts show those contractual obligations have increased by nearly 300 per cent since 2005/06. The contractual obligations reported for 2011/12 come to $96.374 billion. The provincial debt figure reported this year is $50.193 billion.  The combined total is more than $146 billion.  Since 2005/06 the future obligations for BC’s taxpayers have more than doubled.

How did we triple our contractual obligations in six years? The lion’s share is to pay for private power contracts. In 2005/06 these obligations amounted to $13.4 billion.  This year it has risen to $54.9 billion.  That is more than half of all of our future contractual obligations.  It is more than our total provincial debt.  I leave it to others better informed than I to comment on whether betting all our chips on private power at this cost is a good idea (see here and here).

Looking forward on a year-by-year basis, the government says we will spend $8.4 billion to meet these contractual obligations in 2013. The figure falls to $4.8 billion in 2014 and in future years (up to 2017) averages $3.5 billion.

There is no question that a government needs to pay attention to its debt. But these contracts stretch decades into the future and we will have to pay for them. They look like debt to me.

The government now publishes details on these contractual obligations. You can find it at http://www.fin.gov.bc.ca/ocg/pa/11_12/Contractual_Obligations.pdf. I have spelled out the URL here rather than adding a link because by changing the date for the year you can look at earlier examples.

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