The new medical residence being built beside Whitehorse General Hospital, along with new hospitals planned for Watson Lake and Dawson City, will all serve as lasting monuments to Premier Dennis Fentie’s government.
There will also be another, less visible side to this legacy: the territory will spend millions annually in interest payments to pay for this work until 2025.
The Yukon Hospital Corporation is currently finalizing its $67 million loan with CIBC. It hopes to have the deal wrapped up before Christmas, said CEO Joe MacGillivray.
“In the next week or two, we’ll have the whole thing pulled together.”
Beyond the loan’s size and term, details, such as the interest rates, are secret.
“There’s a confidentiality clause. That’s why I’m keeping it pretty high level,” said MacGillivray.
“The banks obviously want it kept that way because it’s proprietary information. It’s a competitive market.”
“This is a fairly standard arrangement we’ve entered into,” he added.
The hospital corporation had Yukon’s banks bid on financing deals for the three projects separately. In each case, CIBC won, so the three loans were consolidated into a single deal.
The new medical residence - which will offer 34 apartments to visiting nurses and doctors on its two upper floors and office space on the lower floors -Â is to cost $17 million. New hospitals for Watson Lake and Dawson City are expected to each cost $25 million.
Interest rates are at an all-time low, MacGillivray noted. Even so, the territory’s decision to privately finance these infrastructure projects is far more costly than the traditional method of having the government dip into its own coffers.
Say the loan is set at the current prime lending rate for businesses, at 2.25 per cent. That would mean the hospital corporation pays $1.67 million in interest annually. By the term’s end, the territory would have paid a little more than $25 million in interest.
Or another useful comparison could be 15-year bonds issued by provinces. Ontario issued such a bond with a yield of 4.7 per cent. With that rate, Yukon would pay $3.15 million in interest annually, totaling $47.25 million by 2025.
There’s an obvious reason why the territory doesn’t pay for these projects up front. Yukon expects to post a modest surplus this year, but it doesn’t have an additional $67 million to burn. And running up a traditional deficit would put the government afoul with the Taxpayer Protection Act.
So Fentie’s government has resorted to accounting slight-of-hand. It’s known as off-balance sheet accounting, and it’s a favourite among governments looking to hide debt.
It’s done this by putting the Yukon Hospital Corporation into the construction business. In doing so, it has shifted the cost of these big-ticket infrastructure items off the public books.
This is a political decision made by Fentie and his cabinet. Yet they won’t justify it.
Instead, when the Liberals and NDP questioned the wisdom of the government borrowing to build big-ticket items, Health Minister Glenn Hart has treated the subject like a hot potato, and tossed it into the laps of MacGillivray and Craig Tuton, the hospital corporation’s chair.
Despite this, Tuton has made it clear in past interviews that he was instructed to pursue private financing by cabinet.
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