New Brunswick

'Living beyond our means': Auditor general troubled by debt growth

New Brunswick's auditor general went after the province's overall finances in her annual report Wednesday, saying the debt has reached a historic high.

Kim MacPherson says New Brunswick's net debt has reached $13.9B, while funded debt hits $17B

Auditor general Kim MacPherson presented her annual report on Wednesday. (CBC)

New Brunswick's auditor general went after the province's overall finances in her annual report Wednesday, saying the debt has reached a historic high.

Kim MacPherson said the net debt has reached $13.9 billion and the funded debt has ballooned to $17 billion, money the province is legally required to pay.

"If we were to pay today all of the bond issues that are outstanding, we have funded debt to $17 billion, so it is a higher number," she said at a news conference Wednesday. 

The report also took a closer look at the education system and the impact of frequent change on student learning, at how quickly WorkSafeNB gets injured people back to work, and at whether politicians are meddling too much in the rate-setting process of NB Power. 

This is MacPherson's eighth year producing an annual report and every time she has said the same thing: "The province is living beyond our means."

"Consecutive deficits, the pace of growth of our net debt is not sustainable for the long term."

Auditor-General Kim MacPherson said there have been five different provincial education plans in the past 15 years. 1:03

If the province put $100 million toward the debt each year, it would take 170 years to pay it off — with an annual service cost of $667 million, she said.

At a news conference, Finance Minister Ernie Steeves said the government agrees with MacPherson's evaluation of a dire debt situation.

"We plan to do more to curb spending and return to balanced budgets by March 2020 or sooner," Eves said.

Too much spending 

MacPherson said one of the main drivers of New Brunswick's growth and net debt is capital spending, a problem worsened by the maintenance that has been put off.

"With 750,000 people in New Brunswick that have to pay for it," she said "We have a huge issue with deferred maintenance of the infrastructure that we already have."  

MacPherson said she did find it encouraging that the province recorded a small annual surplus of $67 million in 2018, collecting higher tax revenues and transfers from the federal government, while underspending its budgeted expenses for the year.

But MacPherson said she is more concerned about a long-term financial picture aggravated by a growing net debt.

Compared with other provinces, she said, New Brunswick has the highest net debt per capita — $18,300 per person.

She again called on the provincial government to set targets for controlling and reducing debt.

Education lacks stability

Taking a closer look at education, the annual report found the school system lacks stability and said frequent changes have caused disruption for students and affected their performance.

MacPherson said there have been five different provincial education plans in the past 15 years.

Although she recognized 10 years is a long time, MacPherson recommended the Department of Education maintain its current 10-year education plan until it expires in 2026.

With only one year to implement, the labour market could not meet demand.-Kim MacPherson, auditor general

"You need stability," she said.

Steeves promised the government will keep its hands off the existing education plan but did not promise to completely stop making changes.

"We will not interfere with the implementation of the 10-year education plan, but we will look for ways to improve on it."

Steeves said he agreed there has been too much political interference in the education program.

French immersion changed 

She also pointed to three major changes in the French immersion program in the past 10 years, including a reversion in 2017 to Grade 1 as the early entry point to the program instead of Grade 3.

The former Liberal government of Shawn Graham changed the entry point from Grade 1 to Grade 3 in 2008.

The recent change forced school districts to hire teachers who did not meet the language requirement, MacPherson said. 

"With only one year to implement, the labour market could not meet demand," she said.

In the November throne speech, the Blaine Higgs government said it would stop "throwing out programs only because another party introduced them," promising to work within the existing 10-year education plan brought in by the previous Liberal government.

Politicians told not to interfere with NB Power

In her report, MacPherson also slams previous governments for the capping or freezing of NB Power rates, which she said violates the utility's independent rate setting role.

She said it also hurts NB Power's ability to work as a business, which could later hurt the province's long-term financial statements.  

During the 2018 provincial election, then-premier Brian Gallant said the Liberals would introduce legislation to freeze rates for some customers over the next four years and force NB Power to cut jobs and spending if re-elected. 

"History of past governments imposing rate caps or freezes impacts NB Power's authority to carry on as a business and self-sustain operations," MacPherson's report said. 

NB Power is supposed to be an independent company, so its assets, liabilities and debt are not on the province's books. (CBC)

MacPherson asked elected officials to respect the independent rate-setting regulatory process, or else there could be a significant impact on the province's consolidated financial statements in the future. 

NB Power is supposed to be an independent company, she said, and its assets, liabilities and debt are not on the province's books.

"Each time you see the government sort of intervene in the rate-setting process, it causes you to reflect on whether or not NB Power is, in fact, an independent company and whether or not it is self-sustaining," she told reporters. 

She said the utility is intended to generate profits year after year, but lately "the profits haven't been that great." 

Steeves said this government will leave decisions about rate increases up to the regulators, the Energy and Utilities Board.

"[The premier] wants to respect that process," he said.

Things slow at WorkSafeNB 

MacPherson also released her second performance audit on WorkSafeNB, saying the Crown corporation's claims management system is "reasonable" and consistent with best practice, but had not done a good job of helping injured workers return to work in a timely fashion.

Her office discovered WorkSafeNB did not properly track the medical progress of injured workers or refer them for specialized treatment fast enough. And there's no tracking of medical or recovery progress for injured workers.

MacPherson's report says claims costs have risen more than $300 million. (Canadian Press)

"There is a lot WorkSafe can do that's going to reduce the time the injured worker is off work by ingraining in their processes this focus on return to work, that will in turn reduce the duration of the claim, which should also eventually reduce the claim cost," she said. 

Claims costs have risen more than $300 million in the past five years, the report said.

New Brunswick employers were hit with another increase to their WorkSafeNB premiums this year to cover benefits for injured workers. 

Starting Jan.1, they are paying $2.65 for every hundred dollars of payroll — almost double what they were paying two years earlier.

Steeves said the government will be starting a WorkSafe task force that will try to reduce rates.

Comments

To encourage thoughtful and respectful conversations, first and last names will appear with each submission to CBC/Radio-Canada's online communities (except in children and youth-oriented communities). Pseudonyms will no longer be permitted.

By submitting a comment, you accept that CBC has the right to reproduce and publish that comment in whole or in part, in any manner CBC chooses. Please note that CBC does not endorse the opinions expressed in comments. Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time.