Big money for infrastructure as B.C. faces two-year deficit

 2009 BC Budget

NDP's James disputes Liberals' claim of protecting health care, education and social programs

Finance Minister Colin Hansen explains the budget to the media Tuesday. (Photograph by: Debra Brash, Canwest News Service, Vancouver Sun)

British Columbia will run a $740-million deficit over the next two years, the government said Tuesday as it released a budget characterized by belt-tightening and fiscal restraint on one hand, and big infrastructure spending on the other.

Overall, the government promised to cut $1.9 billion in administrative and other costs over three years, allowing it to protect increases to what it says are key social services.

"Our priority has been to protect the vital health care, education and social programs that British Columbians have come to rely on," Finance Minister Colin Hansen said, "and [that have] actually become even more important to us as we go through the kind of economic challenges that the province -- and indeed the globe -- is going through today."

But New Democratic Party leader Carole James said the budget makes deep cuts in much-needed areas such as crime prevention, health care and services for children and families.

"This government stood up and said they were protecting health care and education, they stood up and said crime and safety was important. Well, their budget proves they didn't tell the truth," James said.

"We know the premier is completely out of touch with what is going on in British Columbia," James said. "He's saying to the people of this province, 'I'm going to do nothing, you're just going to have to wait it out.' "

The budget projects a deficit of $495 million in 2009-10, and $245 million in 2010-11. It proposes a return to a balanced budget by 2011-12.

On the spending side, the government promised to increase health care spending by $4.8 billion over the next three years, up from an increase of $3.9 billion it had previously promised.

But the bulk of the new money -- $920 million -- doesn't arrive until the 2011-12 fiscal year, leading some critics to question how reliable such a distant projection can be.

Post-secondary institutions will get more money: an additional $228 million over three years.

Funding for K-12 education will remain at previously announced levels.

Economists reacted favourably to the plan, with most calling the budget prudent and realistic.

"It's responsible, it's conservative and in many respects it assumes a smooth transition from recession into better economic times," said John Winter, president of the B.C. Chamber of Commerce.

Winter said his only concern was that some of the assumptions -- such as housing starts -- might be overly optimistic.

Jock Finlayson of the Business Council of B.C. had a similar reaction.

"We're calling it a realistic budget for tough times," Finlayson said.

Public-sector unions raised serious concerns, saying they believe the budget will lead to cuts at school boards and will place further pressures on an already-stressed health care system.

"There is a real struggle in the health-care system on the front lines, and this budget doesn't go in any major direction to help to solve it," said Judy Darcy, business manager of the Hospital Employees' Union.

"It will mean cuts at school boards," said Irene Lanzinger of the B.C. Teachers' Federation, who predicted funding levels will not meet rising costs caused by inflation and salary increases.

"It is not even a status quo budget."

By its own reckoning, the government will be operating on razor-thin margins.

It has eliminated the forecast allowance, a financial cushion that historically has provided up to $750 million in leeway, meaning the margin for error has been significantly reduced.

The government said it will need to find an additional $250 million in cuts over the next three years, the specifics of which are unlikely to be determined until after the May 12 election.

The budget called for $1.9 billion in spending cuts over three years, an amount the government said will not cut into key services.

"The belt-tightening that we're doing in government is about ensuring we free up dollars from the administration side and the discretionary side to fund the increases we have on the program-delivery side," Hansen said.

"It's incumbent on government to tighten its belt in difficult economic times."

The budget included no money for public-sector wage increases or bonuses for contract negotiations in 2010, and clawed back $400 million previously set aside to cover contract improvements.

In an e-mail written to staff members, Jessica McDonald, head of the public service, said the additional cuts may mean layoffs of up to five per cent.

"What we know at this stage is that direct impacts will definitely be under five per cent, including both regular and auxiliary employees," wrote McDonald, adding the number "could ultimately be much lower."

One of the few cushions the government retained is a contingency fund of $385 million for the coming fiscal year, and a total of $935 million over three years.

Historically, contingencies have been used to pay for new programs. But in Tuesday's budget, the government said the fund will be used "to help ensure the fiscal targets are met."

The final cost of Olympic security was not disclosed in the budget, but Hansen said it was accounted for in the government's planning, and promised details in about a week.

Also not in the budget was any accounting for the $3-billion-plus Port Mann Bridge project, which is still being negotiated. A deal on the project is expected to be completed by march.

The government predicted a short-lived recession for B.C., with a projected contraction of 0.9 per cent for 2009. It anticipates a recovery in 2010, with an expected growth of 2.4 per cent that year.

To help stimulate a recovery, the government confirmed it is budgeting $2 billion for accelerated infrastructure-building, $1 billion of which will come from the federal government. Details on where the money goes are expected in the coming weeks. One spending announcement was planned for today, with federal Minister of International Trade Stockwell Day in Victoria.

Including $10.6 billion in previously planned construction and $1.4 billion in grants for infrastructure projects, the province is promising $14 billion in overall infrastructure spending, which it estimates will generate 88,000 direct construction jobs over the next three years.

"This budget is about three things: It's about stability for B.C. families, jobs for B.C. families, and confidence," Hansen said.

"It's a confidence that we're going to get through this difficult economic time and be a stronger province at the end of it, because we will be able to capitalize if the opportunities are there."

jfowlie@vancouversun.com

© Copyright (c) The Vancouver Sun

Finance Minister Colin Hansen explains the budget to the media Tuesday.
Photograph by: Debra Brash, Canwest News Service, Vancouver Sun

Highlights of provincial budget

-- The B.C. government will run a deficit of $495 million for the coming year and another deficit of $245 million in 2010-2011 before returning to a balanced budget the following year.

-- Provincial debt will climb to $41.9 billion this year, and continue to climb to $47.5 billion by 2011-2012.

-- Provincial revenues will rise slowly this year, from $38.5 billion last year to $38.8 billion for 2009, then to $39.8 billion in 2010 and $41.2 billion in 2011. That's $6.6 billion less than the government had projected just five months ago.

-- Employment in B.C. will decline a further 0.5 per cent in 2009, which translates into about 11,000 fewer jobs. The unemployment rate is forecast to rise to 6.2 per cent this year, and fall to 6.0 per cent and 5.6 per cent in the next two years.

-- The B.C. economy (GDP) will contract by 0.9 per cent this year, recovering to 2.4-per-cent growth in 2010 and 2.6 per cent in 2011.

-- The province is expecting housing starts to decline a further 25.6 per cent this year, with single-digit growth beginning again in 2010 and beyond. Taxes collected from property transfers will similarly drop.

-- Corporate profits in the province are projected to decline 25.6 per cent in 2009, with taxation income for the province from corporations dropping by a similar percentage.

Budget items

-- $14 billion in infrastructure investment, approximately $2 billion of which is accelerated spending on projects not originally planned to get underway within the next three years. The province claims this money will create 88,000 jobs.

-- Of this money, $1.3 billion is earmarked for renovations and upgrading of schools, $1.7 billion for post-secondary initiatives, $2.5 billion for health care facilities, and $2.3 billion for transportation projects.

-- The province has identified $1.9 billion in administrative and other cost savings within government operations, largely through reductions in travel expenses, contracted professional services, and a 76-per-cent cut to Victoria's advertising budget.

-- Approximately 90 per cent of new spending over the next three years will go to health services, targetting improved access and increasing hospital beds.

-- $351 million in new money for social services, including income assistance, programs for adults with developmental disabilities, funding for children with special needs, and more money for child care subsidies.

-- $244 million in new operating funding for post-secondary institutions over the next three years, largely money to improve access to universities and colleges, as well as expand health-care programs.

-- $546 million in revenues from the carbon tax in 2009-2010. The $10-per-tonne tax increases to $15 in July, and $20 in 2010. Carbon tax revenues will grow to $968 million by 2011-2012.

-- A new Northern and Rural Homeowner Benefit worth $200 per year, beginning in 2011 after the temporary property tax deferment program ends.

-- $365 million in previously announced money for upgrading BC Place through 2011.

-- $110 million over three years for developing the energy sector, including $94 million for the Oil and Gas Rural Road Improvement Program.

-- One-year extension to the B.C. Mining Flow-through Share Tax Credit.

-- Removal of the expiry dates for film tax credits, and the extension of those credits to all Canadian-controlled companies.

-- $16 million to help immigrants upgrade work skills.

-- $15 million in one-time arts, culture and heritage grants.

-- 50-per-cent reduction to school property taxes for all farm land, beginning in 2011.

© Copyright (c) The Vancouver Sun

B.C. heads $495-million into the red

VICTORIA — B.C. Finance Minister Colin Hansen delivered a no-frills budget on Tuesday to take into the spring election that sets up a battle with the Liberals' traditional foes in the public-sector unions.

In the face of a shrinking economy, the province is cutting $3-billion from spending over the next three years, including a clawback of money that was pegged for wage increases for health care workers and civil servants in 2010.

Mr. Hansen said British Columbia will run two years of deficits – this fiscal year the province will sink $495-million into the red. That's a smaller deficit than many had anticipated, and the government expects to return to surplus in three years – in part because it will reclaim the $400-million that had been set aside for wage increases.

“Given the challenges that average British Columbia families are facing today as we go through this difficult time, it's simply not possible to put into this fiscal plan any additional dollars for general wage increases,” Mr. Hansen said.
British Columbia's Finance Minister Colin Hansen tables the provincial budget in the B.C. Legislature in Victoria Tuesday.

British Columbia's Finance Minister Colin Hansen tables the provincial budget in the B.C. Legislature in Victoria Tuesday. (The Canadian Press)

Jim Sinclair, head of the B.C. Federation of Labour, said the Liberal government is seeking to pick a fight with unions, but individuals will be caught in the middle.

“I think we are going to see more social unrest in British Columbia, more people upset that the government didn't get it,” he said. He said the funding shift sends a bad signal to public-sector workers, and it offers little to families worried about riding out a recession. “This budget really says to the unemployed, ‘Too bad.'”

The budget allocates $50-million this year to help the public sector do more with less – a “Transformation Fund” to help government workers get “retooled to deliver quality services to citizens with fewer staff.”

The budget was welcomed by a number of business leaders as a prudent fiscal plan and was warmly endorsed by the construction industry. The province will ramp up infrastructure spending this year by roughly $1.3-billion.

“It's the construction budget,” said Philip Hochstein, president of the Independent Contractors and Businesses Association, an outspoken ally of the B.C. Liberals.

“I know they are trying to do everything they can. Certainly in the next 90 days, before the May 12 election, we'll have lots of announcements.”

The provincial budget plan cuts government spending in almost every sector except health, education and social services.

Even public-safety services such as prosecution and court services are facing cuts over the next three years, just days after Premier Gordon Campbell promised to target gangs in B.C. with more police and prosecutors.

“The Premier stood up on Friday and said that was one of the most critical issues to deal with, the gang violence we are seeing,” said Carole James, Leader of the New Democratic Party.

“But they have cut the budget for public safety. Unbelievable.”

And while Mr. Hansen said the budget protects the most vulnerable, there appears to be little new money for tackling poverty and homelessness. Funding for employment and housing services will be cut, while the number of front-line workers handling income assistance will drop.

“It's about stability for B.C. families, it's about jobs for B.C. families and it's about confidence,” Mr. Hansen said in a question-and-answer session with reporters shortly before he delivered his budget speech in the legislature.

The main economic stimulus effort is reserved for building new roads, schools and hospitals, while Mr. Hansen said he is counting on the 2010 Winter Olympics to help fuel a turnaround.

“Dollar for dollar, the Olympic Games may be the best investment we will every make,” he said in his speech. “B.C. has been through tough times before. Each time, we've risen to the challenge. And each time we've emerged stronger.”

John Winter, head of the B.C. Chamber of Commerce, said it is a “safe budget,” but he doubts whether the province will turn the corner next year.

“I don't know if they are planning for the worst – it could be a lot worse.”

There are several key pieces still missing from Mr. Hansen's fiscal plan.

The Finance Minister could not answer questions about funding for Olympic security because the federal government has yet to sign off on the cost-sharing arrangement.

Nor could he say what the cost to taxpayers will be for building the $3-billion Port Mann bridge after the private-sector consortium in charge of construction announced it could no longer finance the new toll bridge on its own. That deal is still under negotiation.

As well, the plan calls for more cuts that have yet to be found: $250-million worth that won't be identified until after the May 12 election.

The economy is now forecast to shrink by 0.9 per cent in 2009, while the government is counting on a rebound in 2010.

Last week, the legislature was recalled early to pass legislation to set aside B.C.'s balanced-budget law so that Mr. Hansen could bring in Tuesday's fiscal plan.

The Finance Minister said his government still struggled to keep spending down.

“What British Columbia families are looking for today is a sense of responsibility,” he said.

“But it's also a budget that says governments need to live within their means. There is nobody around the caucus or the cabinet table that is enthusiastic about going into deficit this year.”

The largest program spending increase is in health care. Health spending is set to increase by almost 6 per cent this year, an increase of more than $800-million.