Monday, March 31, 2014

Why BC Ferries has reduced its schedule: bond ratings

BC Ferries released their schedule for Bowen and all the other islands today today and it features several new holes where regular service used to be.  The holes don't make much sense to me, and they certainly aren't equated in any way with the feedback folks gave during the consultations last fall.

There have been protests up and down the coast as communities - most of whom are much harder impacted than we are - make their concerns known.  But it will not sway the politicians in Victoria to alter the plans because taxpayers and citizens are not calling the shots.

We are told that service reductions are necessary to save BC Ferries money but ultimately, as my MLA Jordan Sturdy told me, it's all about protecting the BC government's bond rating.  All of our public finance capital for things like new facilitates, infrastructure, transportation and other stuff comes from private money, not taxpayers dollars.  When we need new things, or when we have an operating shortfall in our provincial government, we go and borrow money from private lenders.  We do this through bond issues.  Most bonds are owned by North Americans but last November, BC floated a $500 million bond in China too - a so-called "dim sum" bond.

Somewhere near 85% of our current budget is funded by taxpayer supported debt.  Not tax dollars.  Borrowed money.  We still have a good debt to GDP ratio, meaning that if we can grow the economy at a rate faster than the interest rate we pay out on the bonds, we remain solvant.  If our economy stops growing, the price of borrowing goes up and eventually we end up like Iceland, defaulting on our public debt.  At that point our bonds become worthless, no one will lend us money anymore and we have to contract all of our public services or cut them altogether.  See Detroit, Iceland, Greece, Argentina and any other number of recent examples.

This is why protests against ferry cuts that impact taxpayers and citizens don't carry much truck in Victoria.  If you want to see who really sets the policies read what the bond rating agencies say about how the government should run it's finances.  The BC Ministry of Finance puts these on its web page.

What this means is that citizens no longer call the shots in terms of what we get from the Province.  Instead, governments are quite beholden to the bond rating agencies who are out to protect the interests of the private lenders that buy BC Government bonds.  In an era when corporate profits are going up at unprecedented rates and wages are remaining stagnant, lowering public service costs for the good of the market seems totally out of whack.  But that is what is happening.

I think that the service reductions are only the beginning in the BC Ferries battlefront.  The ferry workers are due to renegotiate their collective bargaining agreement in 2015 and mark my words - the union is firmly in the sights of this government.  Bond rating agencies always advise lowering public sector salaries.  Part of the rationale for service reductions I think is to set up a situation where fewer workers are required to run the ferry system.  The only way this ends is if the province sells off BC Ferries and makes it a private corporation or if they buck against the advice of their advisors and take it back into the public highway system.  If they do that our bond ratings will take a huge hit because the Province will also take on all of BC Ferries capital debt obligations.  the Liberals don't like that idea.

Make no mistake: the Minister of Transport is not looking after the transportation and infrastructure of the province.  He is the face of a fiscal restraint program taking place in the transportation sector.  He will do anything you want him to do as long as it doesn't affect that precious bond rating.

 Lost in all of this is greater good.  I wrote an email to my MLA Jordan Sturdy today asking him to answer the question of what greater good is served by the service reductions.  No one wants them, they don't help and by all accounts are going to damage a huge part of the economy.  So why do them?

He hasn't got back to me yet.  My guess is that he won't have anything more to say than we need to protect BC's Triple A credit rating. Our province is owned lock stock and barrel by the private market.  The only way to get away from this is to levy resources royalties on our public held assets, starting with oil, gas and minerals.  Corporations want those and they aren't going anywhere, so if we want to be more self-sufficient and have a ferry system that is based on the needs of users, we have to rely more on extracting money from those that would otherwise seek to swell their corporate profits beyond the already obscene levels they are at.  If you are someone who thinks that this is an economic crame, and that the free market and corporations should be allowed unfettered access to BC resources, then get used to more cuts.  For the rest of us, maybe it helps to understand why this is happening.

It is not a vision of the common good that I signed on to. But neither am I surprised how the private market has played the common good for a sucker.  And we shouldn't be surprised when the folks running our government bend to the will of those who fund them rather than those who elect them.  Unfortunately for citizens, those are two different groups now.


  1. Wow. This opens up a whole new understanding for me. Thank you, Chris. I'm going to share this on Facebook.