On January 20^th the current government, which has continued the underlying strategy, was able to announce a major commitment by Shell Oil to further explore and drill wells in the deep offshore based on the work commissioned in 2008. Recent deep water successes in the Gulf of Mexico and offshore Brazil have shown that drilling in these areas can discover commercially viable deposits.

Nova Scotian taxpayers can have hopeful dreams of major oil discoveries but optimism needs to be tempered. Even at a drilling cost of $100 million or more per well the success rate is typically much less than 50%. In such circumstances a billion dollar commitment does not go very far.

Government policy needs to express the same enthusiasm for onshore opportunities in both oil and gas. The possibilities of a particular find may be smaller in scale but the cost per well is tiny by comparison. But there is a risk that a vocal minority will prevent evolution of a sensible policy framework.

Suppose a farmer were to park a supply of fertilizer (let’s say manure) too close to a watercourse. Heavy rains follow and a large part of the fertilizer washes into the river killing fish and otherwise degrading the water. If so, the farmer should be penalized and regulations examined to see if they need strengthening. But nobody would argue that we should put a moratorium on farming, or on the use of fertilizer.

Yet some activists are arguing that there should be a moratorium on drilling , in particular hydraulic fracturing  ( fracking), until it is proven to be 100% safe. In other words for ever.

It cannot be shown that fracking is 100% safe. It is not. Neither is flying in an airplane, having a vaccination, or walking down the street.  But the incidence rate of problems from fracking (chiefly by harming local water supplies) is remarkably low, and both the technology and the effectiveness of regulatory structures are improving.

In the unlikely event that a household well is damaged while fracking is occurring nearby the homeowner should be fully compensated. If the operator was not meeting standards further penalties should apply. But within that context onshore drilling should be welcomed.

No area of resource exploitation is without risk. Hydro dams prevent fish migrations and cause siltation of previously pristine rivers. The Ontario Federation of Agriculture has asked for a moratorium  on wind power development. Mining, particularly underground, is hazardous. So is commercial fishing. But Canada’s successful provinces have found a way to advance resource industries. Doing so is crucial to the prospects for rural Nova Scotia.

The Government is in the late stages of a review of hydraulic fracturing. The tone of its interim reports is constructive. It is to be hoped that the final result exhibits the same enthusiasm for development, within an appropriate regulatory regime, that has been reflected in the offshore announcement.

Locally produced gas, together with wind, provide the possibility of Nova Scotia becoming largely self-sufficient in power generation, while replacing coal plants as they reach the end of their useful lives.

(1) After a slow start the Government has engaged in serious efforts to rationalize spending. The fast ferry to Yarmouth soaked up over $20 million in subsidies in the four years before government pulled the plug. Perhaps a different ferry can be justified but “The Cat” was never a good idea. And the American tourist market to which it was supposedly catering to is drying up everywhere.

(2) The tough choices on health show a great deal of political courage. But many opportunities to save money without hurting care, such as reducing the number of regional health authorities, can only be made by the Minister of Health and Wellness. She needs to make them. If health care suffers in Nova Scotia it will be ridiculous to blame the Federal Government, which is increasing funding by 6% per year while the province is making cuts.

(3) University funding has been cut by another 3% while tuition increases are capped at 3%. This is tough but necessary. Anyone who believes that there is no room for improved productivity in the system should read one of the faculty collective bargaining agreements, available on the university websites.

(4) The Government has stated that the number of civil servants will go down by 1,000. In fact the number has gone up by 200 as of the last budget. It is time to get serious and that means identifying the departments where the reductions are to occur. Obviously hoping that attrition will do the job has not been made to work.

(5) Kudos to the Government for staying far away from the proposed Stadium. The 300 pages of reports produced at considerable expense to the HRM taxpayer do not make a cogent or compelling case.

(6) On the other hand some of the choices about “Economic Development “ spending have been ill-judged. As the expensive dredging of Sydney Harbour nears completion there is absolutely no prospect for a container operator. The  Industrial Expansion Fund, rightly criticized by the Auditor general for poor management, continues to make unwise choices. The $4.5 million loan to Scanwood that went almost immediately into default is only the most recent example. Let an arm’s length body that understands business issues (such as NSBI) make clear headed evaluations of these choices before they reach cabinet.

(7) Labour market policy that creates cost uncertainty for employers makes the province unattractive as a place to invest. Reverse the recent legislation on first contract arbitration. Review other employer-unfriendly legislation. This will make it less expensive to attract new jobs and retain existing ones.

(8) The province’s commitment to greenhouse gas reduction is appropriate. The requirement that 40% of electricity be generated by renewable sources is not. It can add to our already expensive power costs, hurting households and energy intensive employers such as paper mills and manufacturing. Eliminating this unnecessary requirement will make it less expensive to attract new jobs and retain existing ones.

(9) By far the best chance for jobs in rural Nova Scotia is in resource industries, particularly oil and gas, mining and aquaculture. Create a policy context that encourages each within a framework of environmentally responsible regulations.

Even if the Government gets all of the above right the province will be in serious difficulty if it does not satisfactorily address the two biggest issues:

(10) Our population is aging rapidly which will increase health care costs and reduce tax revenues as people progress into retirement. On present form there will be 100,000 fewer working-age Nova Scotians twenty years from now. To improve our demographics we must dramatically increase our immigrant numbers to at least 10,000 per year. Both the Government and the private sector must be energetically engaged.

(11) Frequent supplementary funding of public sector pensions have exacted a huge cost to taxpayers, approaching $1 billion dollars so far. The teachers plan deficit was still $1.2 billion as of the last valuation. With poor market performance in 2011 and record low interest rates we can anticipate a further deterioration when the next valuation reports are released in the spring. Government must move these plans to a basis where benefits are made to fit what the contributions will buy. They should start with the MLA pension plan.

We are currently a high tax province which discourages investment and  interprovincial immigration . But tax cuts should not be considered until the books are balanced.

Readers will recognize in this article a summary of many previous submissions. The rollovers above provide convenient links.

The goal of reducing annual GHG by 5 megatonnes by 2020 will have to be largely achieved in electricity generation. Most of Nova Scotia’s electricity is presently generated by burning coal. Replacing it with a renewable source such as wind, tidal, or hydro creates a 100% reduction in GHG for that amount of power. But there is another option. New natural gas fired plants reduce the GHG from coal by about 60%. So replacing ten units of electricity from coal with gas has the same GHG benefit as replacing six units of coal generated electricity with a renewable source.

Emera has proposed a power line to bring hydroelectricity to Nova Scotia all the way from Muskrat Falls in Labrador, and to provide through transmission to New England. It is likely that the Utilities and Review Board will be asked to consider this request in 2012. Here are some factors that might be worthy of consideration:

1. Emera has stated that the hydro project will be considered if the price is competitive with wind projects. But that price might be close to double the price of newly built gas-fired production.
2. Gas generation can be built in increments which, together with wind, replace coal plants reach the end of their useful life, and have been fully paid for. By contrast the power line will bring on a very large amount of power at once and will require coal plants to be shut down prematurely. The cost of writing off these assets will be an additional charge to power customers.
3. Replacing all of our coal plants (once they have been fully paid for) with gas and wind power will in due course far surpass the greenhouse gas reduction target. As well the slower timetable allows for the possibility of a viable and cost competitive tidal technology and the associated jobs to be developed. We will be much better off with renewable energy from local tidal power than distant hydro, to which we have a 35 year commitment.
4. Higher power costs are not only a burden on residential customers. They also threaten jobs, particularly in the forestry and manufacturing sectors.
5. Building and running gas-fired plants or tidal installations will create far more sustainable employment for Nova Scotians than laying a power line for a plant in Labrador.
6. Some might argue that the price of hydro power will not go up while the price of gas might. But it is generally acknowledged that new gas discoveries and extraction technologies have added a hundred year supply to proven reserves. The prevalence and diversity of  these new sources and the absence of  barriers to competition mean that prices are likely to persist at close to the cost of production.
7. If gas prices were to nevertheless rise the royalties to the Government of Nova Scotia from Sable and Deep Panuke, as well as new discoveries, would also grow. These royalties would provide more money for health care, education, tax reductions, or other public purposes. Allowing well regulated exploration and recovery of natural gas in the province can create well-paying jobs in rural Nova Scotia. The gas would provide energy security and be close to the  existing pipelines  for gas .

Given those factors one might expect the Emera proposal to have difficulty. But in fact there is substantial risk that it will be approved, and it will be the fault neither of Emera nor of the Utility and Review Board.

In addition to the entirely reasonable requirement for reduction in GHG the province has a requirement that 25% of electricity come from renewable sources by 2015 and 40% by 2020. As part of its process the UARB will look at alternatives, including transmission from Quebec, which might be more cost effective.

But any alternative, even one that reduces GHG by the same amount, creates more jobs, and saves power customers money, cannot be considered because it will not meet the entirely arbitrary and environmentally unnecessary goal for energy from renewable sources.

Government policy should require reductions in greenhouse gas emissions from electricity generation. Within that constraint we should choose whichever options minimize power costs and maximize employment. The 40% renewable energy requirement is a recipe for high cost power, lower living standards, and job losses.

In May the Auditor General produced a scathing report on the Industrial Expansion Fund. The essential conclusions are worth repeating:

“IEF has few processes, controls or documentation to support the review and evaluation of applications for loans or other assistance. The only substantial documentation consists of confidential reports to Cabinet. This enhances the risk of inconsistent or inequitable treatment of applicants, inaccurate or incomplete analysis and recommendations, and poorly informed decisions. A recently established Advisory Committee has no oversight role. Confidential Cabinet review and approval is the only significant control or oversight of this program.

Similarly, following approval of assistance, IEF has inadequate processes, controls or documentation supporting ongoing management of loans. Few procedures exist to monitor compliance with loan conditions, repayments, or arrears.”

In response the government announced that the IEF would be abolished, to be replaced by a new agency which presumably would do better. In fact nothing has changed except the name. Even the fig leaf of an independent review committee and improved documentation offered by Minister Paris seems to have been dropped.

Any suspicion that things may have improved were dispelled by the latest transaction on behalf of Bowater Mersey, which followed precisely the same route as the disgraced IEF.  Puzzled that some found this dissatisfying the Premier asked the following question: “What better place to get advice than to have all the members of the House engaged?”

This is nonsense. If and when the Premier wants advice from his own members he gets it, in private, in caucus meetings. If, surprisingly, he wanted it from the opposition parties, he would include them in the negotiations. If he wanted advice from people knowledgeable about business investments and risks he would not bypass the very mechanisms set up for that purpose.

It is thus difficult for observers to evaluate the deal.  There are fewer than 200 jobs left at Bowater Mersey. Yes, there are more in suppliers of fiber and services but for the Premier to suggest that there are 2,000 affected families is a huge stretch.

Taxpayers are spending $50 million to keep those jobs for five years. This is on top of over $200 million spent in the past four years on  other players in the forest products industry, with no doubt more to come for Newpage.

It is also on top of major concessions by workers, suppliers, and municipalities, and electricity price cuts that will have to be paid for by other NSPI customers.

The forest products employers are very important to rural Nova Scotia. Even these enormous expenditures might be justified if the end result was a sustainable industry. But paper use is continuing to dwindle and competition from South American suppliers is intense. House construction in the United States continues to be at record low levels. So the long term prospects are bleak.

It is not only the cost that is a cause of concern. Propping up unprofitable businesses postpones the day when more promising alternatives are  developed.

The track record of rescue missions, from Sydney Steel to Scanwood, is not good. The province needs a disciplined process for making choices. It is marching in the opposite direction.

As expected the primary focus is on questions of location and design. The consultant’s report, supported by the Steering Committee, has made a sensible argument that Dartmouth Crossing is the best location and has provided a design that meets FIFA requirements while allowing for possible future uses.

But the report is perhaps most noteworthy for what is not there. The more fundamental questions are ignored or are barely acknowledged:

1. Where are the other sources of capital? No sponsor has been identified and neither of the other two levels of government has made a commitment. Clearly HRM cannot do this on its own. So to keep the project alive it is proposed that the Canadian Soccer Association be asked for a six month extension on Halifax’s decision to be a candidate.
2. And what would happen if (surprisingly) this was granted? At the moment the cost to build is only estimated at a Class C level. This is useful for distinguishing alternatives but not for providing a firm sense of cost. Can the six month interval be used to improve the estimate? Yes, but it would require detailed design and materials estimates. Creating these would cost more than twice the amount of money already spent , and firms are unlikely to do the front end work needed to bid on a design/build contract on a project that may not happen.
3. If a go decision was not made until mid 2012 it would increase the already substantial risk that the facility would not be ready in time for the 2015 event.
4. The report continues to use event and attendance figures after 2015 that are highly speculative. The most useful possible resource would be experience at similar facilities in Canada but these seem not to have been researched. An inspection of the websites for those facilities reveals little event activity.
5. Inexplicably the pro forma forecasts do not include the operating projections for major events. Acquiring the FIFA games will require $2,250,000 in cash and in kind services and significant special facilities. Other national and international events will have similar requirements in proportion to their attendance potential. Are those considered in the numbers?

It is to be hoped that HRM Council will not spend any more money in pursuit of the FIFA timetable. But perhaps a good case can be made for a community facility with 1,000 to 2,000 seats in the preferred Dartmouth Crossing location.

Given the very large amounts of taxpayer money involved it is to be hoped that any decision to build would include a realistic examination of all capital and operating costs and corresponding revenues. There are reasons for pessimism.

1. Although the phase one report does not provide any estimate of capital cost a number of $60,000,000 has been used in various discussions. Any final decision should include costs for land acquisition and preparation, planning and design, construction, all furniture and finishes, access roads and parking, landscaping, and a sensible contingency amount.
2. Instead the Phase 2 report is to provide a Class C estimate. This is typically used in project management to differentiate between possible options but not to make a firm decision. It will be based on the recommended location and design sketches. Yet it appears that Council will be asked to make a decision to proceed based on this limited information.
3. To be ready for the 2015 FIFA deadline land preparation and construction would have to commence almost immediately, long before design has been completed and costs accurately projected (“Class A estimate”). If ever there was a recipe for massive cost overruns this is it.
4. Assuming that the proposal continues to be for 10,000 permanent and 10,000 temporary seats, it will be much smaller than necessary to house a CFL franchise. While this was clear from the Phase 1 report, the ensuing consultations made it easy for people to believe that this was one of the possibilities to be enabled. In fact it might more than double the original cost.
5. It has been reported that participation by a city in the 2015 FIFA event will require a payment of $2,000,000 in cash plus in kind services worth $250,000. For this Halifax might get to host six or seven games. None of these games will include Canada or the USA, which will go to the much larger facilities available almost everywhere else. Instead we will get matches like Equatorial Guinea vs. Columbia or North Korea vs. Nigeria. These may display excellent soccer but will not do much for the tourist trade. The vast majority of spending at the event will be by Nova Scotians who would otherwise spend it on local goods and services (generating just as much economic activity and tax revenue) without paying $2,250,000 for the privilege.
6. The Phase 1 report talks about prospects for other national and international events. Based on the experience of comparable facilities in Canada these are very small. And if the cost of entry is comparable to the 2015 FIFA event they will come with their own substantial price tag.
7. The province has said again on Oct 17 that it is unwilling to participate at this time. The federal government is unlikely to participate if the province does not, nor if the facility is for a professional sports franchise. Is HRM on its own?

By the time the second report is received in December the municipality will have spent $375,000 on consultants and used considerable time from able volunteers. For that investment taxpayers deserve a clear-eyed look at financial prospects of a stadium. There may well be a case for a high quality community use facility with one or two thousand seats. But the evidence so far available suggests that a project to rush construction of an expensive stadium at this time is a very bad idea.

In part this can occur because of disappointing investment results. But the present regulations make the problem worse by permitting employers to make promises without having to pay for them, and not requiring disclosure of that fact to employees. Those unfunded promises include “grow-in”(which protects early retirement benefits in the event of plan windup) and inflation indexing of retirement benefits.

Perhaps the single most important recommendation of the Province’s Pension Review Panel was the simple idea that employers would be required to fund all pension promises. Annual disclosure to employees would be required if a benefit would only be provided if funding circumstances permit or if the employer has the unilateral right to withdraw the benefit. To do otherwise perpetuates the government mandated deceit of pension plan members.

It is thus most disappointing that the proposed amendments to the Pensions Benefit Act appear to largely continue this practice. The slight exception is that inflation indexing for future accruals is to be funded, but it will take decades for that to fully work its way into the system.

Many positive changes are proposed. Members are to receive annual disclosure of plan funding status. Jointly Sponsored plans and Target Benefit plans (which retain many of the positive aspects of defined benefit plans while providing cost certainty for employers) are to be facilitated. Phased retirement is to be permitted. A cost-effective province-wide or nation-wide pension plan for those who do not have one is to be pursued.

But these are over-shadowed by the apparent refusal to insist that promises must be adequately funded, or else described as unfunded hopes.

The Minister should give this matter further thought. The draft regulations have yet to be released so there is still time to get it right.

The panel charged with reviewing MLA pensions was confronted with a regime that was opaque, unfunded, and absurdly generous. Their report has not provided a satisfactory response to any of these problems.

1. The proposed benefit accrual rate of 3.5% per annum is still almost twice the level of civil servants and teachers, who have among the most generous plans in the province. It is completely out of touch with average Nova Scotians, 60% of whom have no pension plan at all.
2. In spite of funding at close to 20% of payroll by employees and taxpayers the teacher and civil servant plans have each developed deficits well in excess of $1 billion. For the civil servants this was addressed by benefit reductions and a $536 million bailout from taxpayers. The government failed to address the issue at all in its recent contract negotiations with the teachers. Given market conditions it is extremely likely that additional deficits will appear in the next valuations. Any plan to get our province back to balance must deal with these costs. How can the MLA’s do so while lining their own pockets so richly?
3. The plan has hidden its costs from taxpayers by failing to set up any funding mechanism. The report does not provide a clear answer to the costs of its recommendations but if they were provided by a private sector employer they would be close to 50% of salary –say $40,000 per person per year for MLA’s , and much more for cabinet members and party leaders.
4. The report argues that this kind of plan is necessary to attract capable people to run for office. The facts suggest otherwise. Thirty percent of our MLA’s are from the teaching professions. They have a contractual right to return to teaching when they finish as politicians. The next largest contingents include journalists and political aides, not well paid professions. For all but a very few MLA’s $86,000 represents a considerable improvement in financial circumstances. An absurdly generous pension plan is an unnecessary extra.
5. The conservative government of Saskatchewan, the Liberal government of Ontario, and the NDP government of Manitoba have each taken steps to bring their costs for MLA pensions into line with their civil servants, either by reducing defined benefit accruals to similar rates or moving to a defined contribution plan. There is no evidence of a decline in candidate quality. These are the examples that the panel should have followed.
6. Two of the panel’s recommendations deserve support. First, any changes should only apply to future benefit accruals, perhaps from the date of the next election. It is wrong to confiscate benefits that have already been earned. Secondly, it is entirely normal pension practice for benefit eligibility commence after two years. Of course members who have only two or three years of service will have earned very small pensions.

The panel’s proposal is far too generous. It lacks transparency as to cost. And it sets the wrong tone for the urgent task of dealing with the out of control cost of public sector pensions. Each of the party leaders must reject the report and call for a plan that is within the range experienced by Nova Scotian taxpayers. Nobody outside their caucuses will disagree.

For restaurants and other employers entirely dependent on local business the possibility of an externally imposed wage settlement threatens their viability if the cost cannot be passed on to customers. The public sector award of 7.1% to nurses will make it even harder for health authorities to deal with their 3% cuts. It illustrates the separation of the arbitration process from economic realities.

But a much bigger concern is with multinational employers who have lots of choice about where to put their plants. In a globalized economy these companies must evaluate all of their future costs when choosing a location. Attracting them to Canada with its relatively high wage rates and expensive currency is not easy. It can only hurt our efforts if legislation adds considerable uncertainty to future labour costs.

The premier has argued that similar legislation is found in many other provinces. Perhaps he has not noticed that the manufacturing sector in Canada has been shrinking rapidly in those provinces. Our competition is not so much in Ontario and Quebec; rather it is in Latin America, Eastern Europe, China, and Southeast Asia.

Thus it is reported that Michelin, arguably our most important rural employer, has expressed concern about the proposed legislation and downgraded Nova Scotia in its attractiveness ratings. If there is another economic downturn where will they look first if a plant has to close? If things turn up why would they invest more here?

Attracting DSME to Trenton had to overcome the ridiculous application of successor rights to a location in an entirely different business that had gone bankrupt years earlier. No wonder buckets of taxpayer money were required to get them to set up shop.

This kind of legislation might be good for unions but not for employees. In the last decade union-friendly Michigan has become an industrial wasteland as GM and Chrysler went bankrupt and Ford nearly so. In the meantime BMW, Mercedes Benz, Honda, Kia, Nissan, and Volkswagen have all built new plants in the more accommodating environments of Alabama, Georgia, and Tennessee.

This step by Nova Scotia’s government is part of a pattern (no doubt to be continued) of union-friendly legislation. If a major industrial employer was considering the establishment of a Nova Scotian plant it might begin by talking to Michelin and DSME . They will hear that our labour legislative environment is unfriendly and likely to get worse. These are voices we will never hear from because they will invest elsewhere.

Is the proposed legislation solving a problem so big that it is worth these risks?