The deficit is $1.655 billion (more than $125,000 per teacher) even though governments have over the years made almost as much in extra payments to the Teachers Plan as the $536 million gratuitous bailout provided two years ago to the Public Service Superannuation Plan. The Teachers Plan is only 71% funded and there is now even less chance of this problem being fixed by investment results.

Further delay will only add to the burden in the future. This will ultimately be heaped on future taxpayers and younger teachers who will find themselves paying much larger contributions for smaller benefits. A teacher retiring this year may have had a salary of only $10,000 when she started and may have as many future retirement years as past working years. A plan where teachers can expect to receive more dollars in retirement than during their working career is simply not sustainable.

Government’s effective response to the PSSP challenge points the way forward for the Teachers Plan. A new governance model is needed under which:

1)The only funding responsibility of government is to match member contributions up to the Canada Revenue Agency maximum, and

2)The jointly appointed trustees are required to bring the plan into a break even position by a combination of funding and benefit adjustments.

This model is not something that will be achieved by negotiation. It must be implemented by legislation, as has been done for the PSSP.

Getting to balance will not be easy. It will require some combination of restrictions on inflation adjustment, gradual increases to the minimum age to retire with unreduced pension, and increased contributions.

The trustees need to be given time to consider alternatives. If they cannot reach agreement the initial choice may need to be made by binding arbitration (currently in vogue), but always within the constraint of the two conditions listed above.

If investment results exceed expectations and interest rates rise the trustees will have the enjoyable experience of  providing improvements to members.

As with the civil servants this will still leave the teachers with one of the very best pension plans in the province.

The government should have dealt with this as part of the 2010 contract negotiations. As has been shown further delay just makes things worse. The government should follow its own lead as well as those of Ontario and Canada. The time to act is now.

Finance Minister Steele’s vague reference to the public sector pension issue in his budget address was much too modest. Following on the Federal and Ontario examples the proposed legislation represents extraordinary progress.

The draft legislation establishes a new jointly sponsored governance model for the Public Service Superannuation Plan (PSSP) with trustees split evenly between the employers and employees, including representation from non-unionized employees and retirees. Employee contributions will be matched by employer contributions with no requirement for extra lump sum funding from taxpayers if problems arise.

Benefit improvements will be allowed if actuarial valuations show favourable results, but only after extra provisions for future adversity have been set aside. If valuations are adverse the trustees will have to either increase contributions (equally between employers and employees) or adjust benefits or eligibility provisions so that the plan’s valuation is restored to a satisfactory level.

Employee and employer contributions will be capped at the level allowed by the Canadian Revenue Agency. As a practical matter the cap is likely to be lower because employee trustees will be hesitant to ask members for more contributions.

This is the right formula. Employees will continue to have one of the very best pension plans in the province and will be intimately involved in the challenges and opportunities to make the plan work well. Taxpayers will have something very close to cost certainty. The need for enormous “pension adjustment” costs in the public accounts will greatly diminish. (For excruciatingly complex reasons they may not go away entirely, but should average at zero in years after 2017).

The above comments assume that there will be no more ad hoc contributions on behalf of taxpayers (which the Minister calls “refinancing” while most others call it “bailout”) before the new regime comes into effect. And it would be better if future surpluses, which could arise if interest rates revert to historically normal levels, were first applied to repay taxpayers for the $536 million extra payment that the Minister chose to make two years ago. But in total this puts the plan on a sound footing for the future.

The same thinking must be applied to the Teachers Pension Plan for which the most recent valuation shows a deficit of $1.14 billion. The present governance regime leaves this very large and growing problem to be solved in the distant future by taxpayers and younger teachers.

The government has correctly identified the issue. Taxpayers look forward to an equally effective solution.

The previous provincial and current federal governments deserve much of the credit.  Income from federal sources will increase by $220 million.  Equalization is up sharply because of the success of other provinces which have been exploiting their natural resources and was further enhanced by a special arrangement negotiated by the MacDonald government. Federal health transfers are going up far more rapidly than provincial spending. The same is true for social transfers.

Debt servicing costs are well below previous expectation because of historically low interest rates. The province has done well to lock these in by increasing the proportion of its debt financed by long term bonds.

Cuts to schools and universities persist, and health care spending is severely restrained, although not cut as previously forecast.

The prospect of deficit elimination and gradual phase out of the HST increase are both welcome, even if substantially aided by events over which the current government had no influence.

But in two areas this budget is an admission of failure.

Previous budgets had forecast a reduction through attrition of 1,000 civil service positions. In fact there are more civil servants today than when the government took power. There appears to have been no plan to achieve  this reduction, which would save perhaps $100 million per year.

Secondly a large and growing pension adjustment is forecast. This is the additional amount taxpayers are providing for civil servant and teacher pension funds, even after the recent $536 million bailout. Over the next four years the budget forecasts a further $420 million of expense to taxpayers with no corresponding employee contribution. Meanwhile the Ontario and Federal governments are moving to a 50/50 cost sharing arrangement. And the former says that benefits will have to be reduced if current funding is insufficient.

Astonishingly the Minister’s self-congratulatory speech and hundreds of pages of supplementary information included barely a word about this enormous problem. The one brief mention is a move toward joint sponsorship of the civil servant plan which could actually make things worse if it takes away the Minister’s right to make unilateral changes as he did two years ago.

Fulfilling the promise to reduce staffing and taking the volatility out of pension costs could free up perhaps $200 million per year for health care and education, while maintaining the path to balance and HST reduction.

Surely these should be the priorities.

For the past ten years Ontario has had the worst financial management in the country. The McGuinty government has until recently shown no interest in balancing the books. But after the last election they commissioned a report by Don Drummond on how to get back to balance. Almost all of Drummond’s well considered recommendations were ignored in the subsequent budget which was full of rosy assumptions and short on details. The one clearly evident direction was a hard freeze on civil servant compensation and a commitment to cap the cost of public sector pensions. In particular this otherwise weak-kneed government has said that it will insist, by legislation if necessary, that public sector employees share equally in the cost of their pensions.

The federal government’s effort has earned better reviews. Rather than vague references to hiring freezes it has specified for each department the cost savings that are to be achieved and provided a sensible period over which to achieve them. A reduction of 19,000 public sector positions will be effected over three years

It forecasts a less onerous approach to civil servant compensation than Ontario, but has a far more credible track record in sticking to its plan.

Where the two are well aligned is on pensions. The federal government also says that both elected representatives and civil servants will be asked to pay fully 50% of the cost of the benefits and has raised the retirement age to 65 for future hires.

So where should we pay particular attention when Minister Steele presents his budget on Tuesday?

(1) Previous budgets have called for reductions of 1,000 civil service positions, to be achieved entirely by attrition and retirements. This hardly ever works unless government specifies which departments are to experience the decrease. A comparison of current numbers to last year’s will be instructive.

(2) Government has called for 3% reductions in funding for district health authorities but has not dealt with the fact that there are too many of them. Reducing the number of DHA’s , and outsourcing functions not related to health care such as cafeteria and laundry, represents the best way to realize savings in health care costs while minimizing the impact on patient care. Will government step up to the plate?

(3) The current government has made some enormous investments in economic development, most recently $300 million in grants and forgivable loans for Irving. The history is not good: $4.5 million wasted on Scanwood, $60 million for DSME where a small workforce is doing maintenance while they wait for orders to show up, tens of $millions for Bowater and Newpage with no indication that they will succeed.

We should all be enthusiastic about the ships project. But unlike the government, the Irvings know a thing or two about negotiating deals. Was Halifax’s proposal so weak that we had to offer $250 million more in subsidies than Vancouver ? One has to wonder how well government has served us on this one. A much more disciplined process is needed.

(4) Most importantly, the cost of public sector pensions has to be brought under control. Both MLA’s and public sector workers, including teachers, must  be required to pay fully 50% of the cost of benefits. Where necessary the benefits must be amended to make this happen. To quote from the Ontario budget:

“We do not think it is fair to ask a single mother who earns $14 an hour and who has no pension plan, to pay even more of her hard-earned tax dollars into the pension funds of others.

We want to work with our broader public-sector partners to limit taxpayer exposure when a pension fund is in deficit …

By reducing future benefits, rather than asking taxpayers to contribute even more.”

The Dexter government has shown considerable mettle in its commitment to balancing the books. Health care and university funding have been cut. Schools are being closed. To get to the finish line without further damaging public services the government has to deal with public sector staffing and pension costs.

1. The port is operating at less than a third of capacity. Either one of the terminals could easily handle all of the traffic we have received in any year. The Fairview cove terminal had most of the traffic in 2011 including two thirds of the largest ships.
2. Many ports suffered during the recent recession. But most continued to rebound last year while Halifax experienced another decline. It lost market share again as it has over the last decade.
3. The bias in the container trade is for larger ships. The largest cannot get through the Panama Canal today, but when it is widened in 2014 they will be able to. This will considerably improve the competitiveness of southern US ports at the expense of those further north.
4. Rail miles are more expensive than sea miles. So any carrier will be inclined to choose ports with the most sea miles and the fewest rail miles. Halifax is the first port of call for trans-Atlantic ships, making it the port with the most rail miles. In fact much of the traffic we receive today is from ships partly unloading so that they can get into the shallower ports of New York/New Jersey.
5. Commute times into Halifax from Bedford, Sackville, and the South Shore are disgracefully long for a city our size and likely to get worse. Traffic out of the south end terminal includes 500 trucks a day clogging up Water Street. Meanwhile the rail cut is used once a day for container trains.

None of this is a criticism of the efforts of port workers and management, who have been energetic and creative in their efforts to maximize traffic.

Based on these facts, which are far from being a business case, I have advocated that a proper study be done of possible alternate uses of the port lands and the rail cut. It seems it is very unlikely that there will ever be enough traffic to justify having both terminals. A consolidated terminal, which would mean very little job loss if the same number of containers are being handled, might be better able to compete. Either terminal would be very valuable real estate if used for other purposes. The rail cut could be used with little amendment as a much faster way for buses and cars to get downtown, and as a viable bicycle corridor. Or for commuter rail.

There may be serious economic, environmental, or legal problems with any of these ideas. That is why a study is needed.

But the entire idea of having a thoughtful discussion has been precluded by Mayor Kelly’s hysterical piece published last week in which he argued that those advocating such a position were seeking to”destroy the port of Halifax”, and that mayoralty candidate Mike Savage must immediately declare a position on the topic because of the views of some of his supporters.

It is extremely unlikely that the many diverse Mike Savage supporters all have the same opinions on the future of the port. But few of them would object to a thoughtful fact-based discussion of the topic.

Mayor Kelly’s polarizing style is neither thoughtful nor helpful. Haligonians should look forward with enthusiasm to his retirement.

Several early comments understood the article to advocate sale to a single buyer. This article has been amended to clarify that this is not the intent.

Superficially, he is right. The NSLC’s profits ($223 million or 38% of sales in 2011) service a great deal of provincial debt at today’s low interest rates. Any purchaser is almost certain to pay higher interest rates than the province, so it would be unwilling to adequately compensate the province for the lost revenue.

But there is a version under which the Minister could keep his revenue and still make a profitable sale. The province could sell retail outlets with the condition that:

1) the NSLC would continue to set wholesale and retail prices in the same manner that it does today
2) the purchaser would continue to pay to the government as a tariff the same % of sales that the province presently receives
3) the pay and benefit levels of existing NSLC staff will be protected.

The retail outlets would be sold one at a time to a variety of bidders so as to eliminate the current near monopoly. Those smaller stores, particularly in rural areas, which did not receive attractive bids should be retained by NSLC.

Who would bid on such an arrangement? Actually any organization that thought they could do a better job of retailing than NSLC. For example, consider Sobey’s and Superstore, who are already landlords to a number of NSLC stores. By integrating inventory management, storage, and checkout (which would also be a convenience to customers) and applying their merchandising knowhow they could add to the profit margins and would be willing to pay for the right to do so. Note that the retail outlets would be sold individually so as to not continue the monopoly.

Minister Steele is smart enough to know this but he is unlikely to pursue the opportunity. The problem is that although the province would benefit and individual employees be protected the public sector unions would be adversely impacted. Apparently this is a no-go zone for this government.

For evidence look at the health care sector. The district health authorities have been instructed to reduce spending by 3% after a freeze the prior year. Government then made the absurd suggestion that this could be done without affecting patient care. Doing the best they could, the authorities found that they could make savings by outsourcing things like cafeteria and laundry. Again this could be done and savings achieved while protecting the pay and benefits of existing employees. Nevertheless, the province vetoed the proposal. So the savings will instead have to be made in areas that more directly affect patient care. This appears to rank lower in the government’s priorities than the interests of public sector unions.

It is the responsibility of government to use our limited financial resources to get the best possible education, health care, community services, and regulatory environment. Selling booze, doing laundry, or running restaurants are not exactly core functions. Outsourcing these can free up more funds for the things that matter.

The strike at Electro-Motive Diesel in London, Ontario has been a sorry spectacle. Caterpillar asked employees to take a 50% wage cut. After a one month lockout produced no result it announced that the plant would close with the loss of 450 direct jobs and many more in the community. There is widespread disgust with the behaviour of Caterpillar, which has been immensely profitable.

Less attention has been paid to the actions of the CAW which represented the workers at the plant. Caterpillar has a newly opened plant in Muncie, Indiana at which workers were being paid the same rate as workers in London were being asked to accept. And Indiana has just become the 23^rd state to enact “right to work” legislation which prevents employers from being required to deduct union dues from employees who do not want to be part of the union. All this was well known. So exactly what did the CAW think they were going to accomplish? It was a labour dispute they had no chance of winning.

The demands from Caterpillar were harsh, though not much greater than the cumulative cuts that have been experienced by Nova Scotian workers at NewPage and Bowater Mersey where, even after the cuts in pay, there will be substantial workforce reductions.

It would have been very difficult for the CAW to recommend acceptance to the employees. But given Caterpillar’s reputation and the new capacity in Indiana, the CAW had to know that their stance would result in the plant being shut down. Had they accepted the bitter medicine the employees would at least be making $16.50 per hour. They could still look for jobs elsewhere which is what they will be doing anyway, with no pay in the meantime. The CAW’s stance may have served a larger agenda for the union but it did not serve the best interest of the employees in London.

The argument against “right to work” legislation is that all employees should have to pay for the “benefit” of union representation. Those benefits are harder to see if the employer goes bankrupt or a plant shuts down.

Every major unionized airline in North America has commenced restructuring proceedings in the last few years. So have General Motors and Chrysler. So have all the big steel companies. In every case the unions found it impossible to make concessions sufficient to keep the businesses viable. Meanwhile employees at Westjet, Porter, and the Japanese branch plants have had much less turbulent lives.

Unions sometimes have great difficulty adapting to change. Metro Transit union president Ken Wilson was quoted as saying, without apparent irony, that the current highly inefficient roster system for drivers should be kept because it had worked well for the last century. Of course in the public sector this sort of nonsense may work because there is no risk of the jobs moving to Indiana. But even there the employees of the city of Toronto has recently been able to reach an agreement that allows for greater efficiency.

In the private sector unions must begin to care about the competitiveness of their corporate employer and of individual plants. Rather than contesting changes that will improve efficiency they should welcome them. They need to keep their plants competitive not only with China or eastern Europe, but also with a growing number of US states, the ones where all the job growth is happening.

The same is true for the public sector. Cities and provinces with effective and efficient public sectors will tend to have lower tax rates, better economic growth, and more liveable communities.

Unions are important players in determining whether our province will succeed. They need to deal realistically with economic challenges even when dealing with an uncaring and confrontational employer such as Caterpillar.

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.