GNWT approaching $1 billion in debt
Budget to sink into red within two years without restored federal formula funding, say finance officials
John McFadden
Northern News Services
Friday, February 5, 2016
SOMBA K'E/YELLOWKNIFE
Whether or not the federal government restores formula funding lost through changes to Ottawa's accounting formula, the territorial government will still be around $1 billion in debt within four years.
Sandy Kalgutkar, deputy secretary of the financial management board, listens to a reporter's question at a technical briefing on the state of the territory's finances on Monday. Beside him is Kelly Bluck, director of fiscal policy for the territorial government. Kalgutkar says the government's debt is forecast to increase to $1.03 billion in fiscal year 2019-2020. - John McFadden/NNSL photo |
That dire financial picture was painted with glaring numbers at a briefing held by officials of the territorial government's financial management board at the legislative assembly building on Monday.
Figures provided by the board pointed to a projected decline in revenues of 1.7 per cent over the next five years. Expenditures, meanwhile, are expected to grow by 4.05 per cent.
The GNWT is pushing the federal government to restore $34.2 million expected to be trimmed this year from the annual federal grant that makes up the lion's share of the territory's budget but, with the economy flagging, falling corporate tax and resource royalty revenues are also hampering the GNWT's ability to pay the bills.
"Going forward, we have to recognize that the NWT economy is in a fairly fragile state so we have to ensure that the GNWT returns to a more stable footing over the long term," said Sandy Kalgutkar, deputy secretary of the financial management board.
"We also need to retain the financial flexibility to start investing in strategic infrastructure to facilitate economic growth - infrastructure like the Mackenzie Valley Highway and an all-weather road into the Slave Geological Province."
The Great Slave Province is a region stretching from Great Slave Lake to the Coronation Gulf in Nunavut.
The government's total debt currently stands at $715 million - just $85 million shy of the GNWT's previous borrowing limit of $800 million that Ottawa raised to $1.3 billion last year. Some of that debt includes $180 million still owing on construction of the Deh Cho Bridge and nearly $50 million in subsidies the GNWT paid to bail out power consumers for the cost of diesel required to offset low water conditions at the Snare hydro dam the past two years.
The debt is expected to rise to either $950 million or $1.03 billion in fiscal year 2019-20, depending on whether Ottawa can be convinced to restore it to what it was. The federal government is reducing the funding the territory receives due to changes in the way Statistics Canada calculates territorial government expenditures.
The government is forecasting a $69 million operating surplus for 2015-16 - meaning revenues for operating and maintaining the government are more than expenditures - but the GNWT will be $27 million in the red by 2018-29 if federal funding isn't restored.
Kalgutkar pointed out the situation could grow even worse should the GNWT be required to subsidize more diesel for power or there is another bad forest fire year as seen in 2014, which could wipe away any remaining surplus in a hurry. Kalgutkar echoed NWT Finance Minister Robert C. McLeod's statement a week ago when he said it was premature to speculate on whether the government's need for belt-tightening will include cuts to programs, services and staff.
The GNWT's fiscal responsibility policy states debt servicing payments cannot exceed five per cent of revenues. That part of the policy will present a significant infrastructure spending challenge to the 18th assembly, according to Kalgutkar. Even by holding off on strategic infrastructure spending, such as the building the Mackenzie Valley Highway, Kalguktar said significant costs are already being borne through existing projects, such as the Stanton Renewal Project and the Inuvik to Tuktoyaktuk highway.
"The alternative is to borrow more money but then you run the risk of being offside of the fiscal responsibility policy," he said.
"We have to pay that debt eventually."
Kalgutkar says unless there is more revenue or more money found in the budget, paying off the debt could exceed the allowable five per cent.
Because government policy sets out that at least half of capital infrastructure spending come from surpluses, deficits pose a problem for future spending on items such as schools and roads.
Kalgutkar was asked if the timing of Monday's briefing had anything to do with the fact that contract negotiations are now underway with the Union of Northern Workers, which represents GNWT employees, and whether the government is trying to send a message to the union.
That question was quickly answered by Shaun Dean, director of cabinet communications.
"It really is just recognizing that we are at the start of a new government ... and this is one of the first opportunities we've had since (cabinet) portfolios were assigned to sit down and explain some of the same information that we've explained to members during orientation," said Dean.
