Politicians need guts and smarts

By: Graham Lane

Published: Winnipeg Sun, November 25, 2016

Let’s hope Manitoba’s maxi-weight public sector is on its way to diet. Pallister’s throne speech acknowledges that Manitoba’s perennial government gravy-train needs to be reined in.

But don’t hold your breath, the task is immense.

Of Manitoba’s 515,000 full-time jobs, about 200,000 are in core government, health, education, social and municipal services, and Crown corporations. New Frontier Centre research finds Manitoba’s public sector, as a proportion of the workforce, 31% larger than the Canadian average. That’s roughly an extra 33,000 folks. If Manitoba had an average-sized public sector, taxpayers could save $2 billion annually.

How to explain Manitoba’s rampant public sector feather-bedding?

A deadly confluence of things; government monopolies have little incentive to control costs, managers are paid more if they expand staffs, and, the sector is heavily unionized, flourishing in Kafkaesque work environments both comically bureaucratic and expensive.

Politician paymasters can be overwhelmed by the system’s extraordinary complexity. They pretend to run the place, but, lacking independent public policy capacity, bureaucracies typically run circles around them. Paranoid of bad publicity: much easier to go with the flow, “Yes Minister”-style following the system’s ‘talking points’ while throwing money at the public sector blob (instead of making transformational reforms to provide better services at lower cost).

Much different in the private sector: bad service means lost customers if not bankruptcy. No bottomless budgets to paper over poor service while paying big salaries. Over 50% of private sector employees live paycheque to paycheque, with few reserves and constant worry about security and retirement.

Canada’s federal budget watchdog recently rang an alarm bell over growing government debt; steady growth in public payrolls being the major problem. Few politicians have the courage to refuse to give in to union demands. The result: unionized public sector employees are paid more, fear less about their security, have shorter hours, and enjoy gold-plated benefits and pensions compared to the average private sector worker.

Public sector workers are fortunate being in government monopolies that negotiate with powerful unions, prospering unduly in the continuing absence of smart structural reforms. Unions succeed in ratcheting up pay and benefits through comparisons with other similarly unionized jurisdictions, regardless of differing states of economies. Finally, governments have become addicted to borrowing and delaying accounting tricks before boosting rates and taxes to fund ever-rising public sector compensation.

Manitoba’s Tories have the misfortune of being stuck with cleaning up the immense fiscal wreckage left by the NDP. And, the historical experience in Canada with public sector reform is not good.

Politicians are either afraid or just not clever enough to effectively tame the public spending blob. They need to implement smart structural reforms lowering costs and improving services. The task is not helpless: such policy innovations have been applied very successfully around the world.

Yet, new governments can get flummoxed into saving nickels instead of moving on real reform. The risk is they slip into a maximum pain, minimum gain type theatre of so-called austerity – vacancy management of non-existent positions, token bans on out-of-province travel, reducing the number of government departments, holidays without pay, etc etc..

Hopefully, Pallister will understand the risk; if not it will be knives to the gunfight – as usual.

Graham Lane leads Manitoba Forward (manitobaforward.ca).

Deny Premium Hike for MPI

By: Graham Lane

Published: Winnipeg Sun, November 18, 2016

Despite a valiant effort by the Consumers Association, a mandate-challenged Public Utilities Board readies to grant MPI an unnecessary premium increase before Christmas.

Twenty-five years ago, a PC government shocked motorists by doing something the then-Minister responsible for MPI had said he would never do: change the monopoly crown insurer’s approach to compensating those injured in motor accidents. Total no fault came into being. The reason for the dramatic switch: fear that court awarded settlements would drive up insurance premiums and upset voters.

Now, a quarter century later, MPI’s questionable investment strategy under the no fault system and a handicapped review mandate for PUB is behind MPI’s application for a 4.3% premium hike. Total no fault is a system that results in a massive investment base and bureaucracy – a claim can continue for a lifetime. The increase sought is unwarranted and should be rejected.

MPI claims its Rate Stabilization Reserve is inadequate and needs to be boosted to protect motorists. Motorists do need to be protected, but from MPI. If MPI’s request is granted, the monopoly insurer’s premium revenues will grow next year by almost double the sought-after rate hike. MPI would get not only a rate boost but also a 3.5% premium revenue jump from more and newer insured vehicles.

MPI’s investment returns have been too low because of MPI and the former NDP government’s choice of investments. MPI relies way too much on bonds, provincial and municipal, which generate very low yields. And, as to the expense side of the insurer’s operations, its claim adjusting practices need a stringent review including benchmarking against private sector as well as other government insurers. Average time on claim is way too high. Whether WCB or MPI, both public monopolies, when the NDP is in power claim cost control fails. As well, MPI’s personnel complement remain bloated.

Overall, MPI’s financial position is beyond secure: a very conservative estimate of claim liabilities, a ‘pad’ (provision for adverse deviation) plus reinsurance. Beyond that, MPI enjoys the ultimate security of a mandatory monopoly – motorists can’t escape MPI, ever.

As MPI’s premium revenues rise so does the ‘take’ for the provincial government – by way of cash (premium taxes, registration fees and a chunk of drivers’ licences. Too often through the recently ended 16 years of NDP government, government reached into the pockets of MPI’s policyholders to fund actions and expenses that should have been government’s.

MPI lost well over $100 million in the first five years of the government’s Driver and

Vehicle Licensing branch being transferred to MPI. Likely the benefit gained by the Province continues. If this wasn’t bad enough, policyholders are obliged to provide government-favoured donations; fund police, Justice and corrections’ operations; pay long-haul truckers’ no fault benefits; meet trucking firms’ training costs; and, cover off other governmental objectives.

Excessive premiums benefit both MPI personnel and government’s summary results, not policyholders. Now, with a new government and board of directors, a clear-eyed review of MPI is needed, one seeking cost reductions, an effective investment approach, and a comprehensive review mandate for PUB.

For now, no premium hike should occur. Enough is enough.

Graham Lane, a retired chartered accountant and former PUB chair, was MPI’s Acting President during turbulent times. He leads Manitoba Forward.

Call a real inquiry into Hydro’s actions

Ahead of the election, Brian Pallister promised that on taking government he would halt Bipole III and call a review by the Public Utilities Board. He also pledged that he would create a new body to drive energy efficiency (one without Hydro’s conflict of interest – needing to maximize consumption to support dam construction).  And, he said nothing about a carbon tax on Manitobans heating by natural gas.

Pallister’s new Hydro board is now directed to make all Hydro decisions. Hydro’s continuing executives greeted their new board with a promising, aggressive energy efficiency plan, which, if implemented, reduces the need for new power by the equivalent of two Keeyask dams. Since then, however, Hydro spending has continued at $10 million a day and no external public review has been planned or held. As for the promised new independent energy conservation agency and new efficiency plan: nowhere to be seen.

Hydro has long been a powerful entity, a monopoly that gets its own way even when wrong.

Hydro executives convinced its new board that the expansion should proceed and Hydro, should keep its control over energy efficiency measures. No doubt, Hydro realizes this conflict of interest could reduce Manitoba’s need for new dams. If the need is reduced while the expansion goes ahead the new generation from Keeyask would be sold to Americans at below cost bargain prices. For Hydro it is better to have a controlled low-performance energy efficiency plan resulting in higher demand by Manitobans than to dump the electricity at a massive losses for export.

Hydro doesn’t want its expansion to be stopped, even a pause allowing for the possibility of a better long-term rate outlook for ratepayers. Along with getting its way to finish wasteful expansion, shelving an arm’s length energy efficiency body yet another victory for the executives. The new board blames the excessive expansion and higher rates it will bring on the prior NDP government. While blame is justified, by letting this boondoggle continue the new government continues to benefit from a growing flow of money to its pocket from Hydro bills.

Winners from this boondoggle of historic proportions will cash in big – Hydro executives, suppliers to Hydro, contractors, First Nations, American utilities, and the government. Losers  are Hydro’s  customers.

What is wrong with this picture? For one, promises that helped Pallister gain power have been broken. He leaves decision-making to a new board with limited utility experience listening to Hydro executives wanting to maintain control. What else is wrong? Despite an economic disaster likely to strangle ratepayers and the overall economy for decades, we are not even be allowed to know the what, why, cost, implications and options of this sorry saga. We are left just to PAY.

The most costly mistake in Manitoba history has been made, money squandered and even crimes likely committed. Knowledgeable ratepayers demand a proper inquiry. The recent standing  legislative committee’s review of Hydro’s annual reports didn’t get beyond the ‘skin’ while raising the possibility of a new provincial carbon tax pushing up natural gas heating bills.

With a proper mandate and knowledgeable interveners, PUB has the legislative tools to hold a thorough inquiry. The public deserves to know what has been done with their money.

Graham Lane leads Manitoba Forward (manitobaforward.ca).

Smarter Government Spending Key to Growth

By: Graham Lane

Published: Winnipeg Sun, November 4, 2016

Canada haven’t recovered from the global credit crisis of 2008-09, the collapse of oil and gas prices made our situation worse. What lies ahead? What can we do to get back to growth?

Bank of Canada Governor Stephen Poloz supports the federal government’s plan to add $150 billion to Canada’s debts over five years. While ‘investing’ in infrastructure should aid future growth if done prudently, more billions owed risk a further collapse of the Loonie and higher interest rates.

Canada has seen major changes through globalization. As hundreds of thousands of manufacturing jobs were automated away or moved to lower-cost countries, challenges in resource industries exacerbated our plight. Too many stupid wasteful actions by a succession of federal, provincial and municipal governments hasn’t helped.

Check out the global economic tables included in each week’s Economist magazine: our problems are discernible. Industrial production, flat or declining. Canada’s current account (a measure of money coming into and out), negative. When oil and gas were doing well our exports were higher than our imports. Governments’ accounts are in deficit, and our unemployment rate is higher than that of the US, Mexico, the U.K. and many other countries. Job growth along with wage gains are sluggish, and our dollar relative to the American dollar is floundering.

There is an increasing divide between the rich, skilled and politically-organized and the poor, less educated, and politically unorganized.. A globalizing economy exists where borders matter less driving up the income of knowledge workers and senior management of large companies. Professionals (physicians, dentists, lawyers, CPAs, engineers) benefit from laws that restrict entry and competition with each other. Teachers, nurses, paramedics, police, firefighters, tradespersons are protected by monopolies, unions and legislated wage levels. Against this, the vast majority – the rest of the working population – struggle to make a decent living.

The average household now owes over 160% of disposable income: imagine the carnage when interest rates rise. The Bank of Canada, colluding with other central banks or simply following their lead, hold interest rates down well below what conditions suggest. Low rates have whacked savers and retirees while driving up house prices beyond the means of young people and new families.

Here in Manitoba, our economy remains dominated by the public sector. Those working outside of the public sector are affected and influenced by it. Crown corporations operate monopolies (electricity and natural gas, motor vehicle insurance, liquor and lottery distribution, workers compensation, etc.), and services from education to water, bus, healthcare through to nursing homes and childcare have been comfortably accommodated by a constantly rising stream of tax revenues and subsidies.

What needs to be done?

The public sector component of our economy needs to be re-invented. It needs to be smaller, smarter and dramatically more effective. Public sector pay, benefits and pensions need to be aligned with average private sector levels. Taxation, government fees and regulation need to be reduced as smartly as possible, to grow the private sector. The provincial and municipal governments, along with the education, healthcare and social services ‘industries’, should do more with less like the rest of us – so we can end the irresponsible borrowing we are piling on our children and grandchildren.

Graham Lane leads Manitoba Forward (manitobaforward.ca).