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Alberta Infrastructure Debt: Borrowing Exchanges Klein Prudence For Sweetheart Union Deals

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If there was any confidence that Alberta's government would avoid imitating the failed policies of other provinces -- think of Quebec and Ontario and their massive debts -- that faint hope for continued Alberta exceptionalism was kiboshed at the recent Progressive Conservative convention in Calgary.

There, Premier Alison Redford and Finance Minister Doug Horner made clear that the prudence of the Ralph Klein years is not their Alberta. Instead, a lot more money will soon be borrowed, this for capital projects. As an excuse, Redford told her convention crowd that "if everything we do right now is fully funded with cash in the bank, then we are never going to build anything more in this province."

Meanwhile, Horner justified more borrowing with the excuse that some business executives and the public tell him debt is a good idea; also, homeowners and businesses borrow, so why shouldn't government do the same?

Let's dissect the offered-up reasons.

Alberta's Finance Minister has based the-public-wants-debt claim on survey questions his own ministry sent out earlier this year. One query was this: "When should consideration be given to borrowing for infrastructure?" In addition to "Never," other possible answers included "When borrowing makes good financial sense" and "When not borrowing means a cut in infrastructure spending."

Pollsters might recognize the two lengthier options as a "push-pull" survey, a question designed to provoke the desired feedback. After all, who disagrees with borrowing when "it makes good financial sense"? (I told the Finance Minister it makes sense in the event of a depression or war.) Similarly, if it's a choice between a school in your suburb or busing your kids, plenty of respondents will say "borrow."

Missing from all of the excuse-making for more debt is context: In Alberta (in inflation-adjusted 2012 dollars), per capita program spending jumped from $6,825 in 1996/97 to $9,594 by 2005/06. That latter year was when resource revenues flowed into the provincial treasury at their most recent peak.

Instead of keeping program spending in line with inflation and population since that latter year, the province hiked spending, to $10,619 per capita this year, a whopping 56 per cent higher than the mid-1990s lows.

Had Alberta kept program spending hikes in line with population growth and inflation since the 2005/06 budget year, such spending would be $4-billion lower this year. Even after balancing the books (the province now forecasts a $2.3-billion to $3-billion deficit this year), money would be there for capital expenditures--without borrowing.

The premier and the Finance Minister ignore the most obvious reason the Alberta cupboard is bare: because the province gave government unions wonderful access to the provincial treasury.

Over the past seven years, Alberta has negotiated sweetheart deals with public sector unions that continue to divert tax dollars from other possible uses (including, ironically, real shortages such as additional and needed general physicians). The most egregious example was to give Alberta's teachers, already the highest-paid in the country in 2007, a five-year salary hike at twice the rate of inflation. The province also committed billions when it took over the remaining one-third of a massive teachers' pension plan liability.

That is why there is no "cash in the bank". It is also why, as one writer recently noted, the premier recently received a "warm reception in the unions' lion den" for her October speech to the Alberta Union of Provincial Employees.

This is why government borrowing isn't comparable to private borrowing. In the private sector, the more expensive your mortgage, the less money is available for other expenses. Governments can and do ignore the cost of day-to-day expenses and can borrow ad infinitum, except in the direst of circumstances.

Thus, if the Premier and Finance Minister want a useful private sector analogy, consider this: few businesses allow themselves to become captive to a select few providers with monopolistic tendencies.

But in Alberta, in health and education, which constitute 64 per cent of all program expenditures, government unions have a near-monopoly on service delivery. And the government is showering yet more money on unions in those sectors.

For much of its history, Alberta paid its way and generally stayed away from debt with the exception being the late 1980s and early 1990s. Ralph Klein and his colleagues managed to do the hard work of getting Alberta back to its (normal) exceptional status. For some reason, the present premier and finance minister seem determined to turn away from that and turn Alberta into every other province, extra debt included.