For many years to come, the Yukon government will pay several million dollars annually to bankers to prevent three prominent building projects, collectively worth about $67 million, from appearing on the public books.
The trick is known as off-balance-sheet accounting, and it’s a favourite of governments that want to hide debt.
It works like this:
Usually, when the territory needs a new building, the work is overseen by the Department of Public Works and paid for with public money. This all shows up in the Yukon’s capital expenses.
But there’s another way to build expensive infrastructure projects without appearing to hurt the government’s bottom line.
First, the work is done by a subsidiary – in this case, the Yukon Hospital Corporation, which in the past year has expanded its mandate from managing hospital services to managing construction projects.
Second, the work is financed with private money.
That’s how the territory is paying for a new medical residence in Whitehorse, worth $17 million, and new hospitals in Watson Lake and Dawson City, expected to cost about $25 million each.
With these three projects off the public books, the territorial government has more financial wiggle-room to spend on other projects or services.
But this comes at a price: namely, interest payments.
The Hospital Corp. has secured rock-bottom rates, says Craig Tuton, its chair. Even so, interest payments for all three projects can be expected to total several million annually.
For how long? Probably about 15 years, said Joe MacGillivray, the hospital CEO.
But he wouldn’t offer many concrete details. None of these financing deals are complete yet, he said.
The deal closest to completion is a $17-million loan to build a new medical residence beside Whitehorse General Hospital, to replace an aging building referred to by staff as “the gulag.”
Because it’s not a done deal, MacGillivray would not disclose the name of the lender.
The interest rate will float an unspecified percentage above prime during construction. When the building is completed in December, the interest rate would be locked in, he said.
But even when the deal is finalized, MacGillivray isn’t sure whether that information would be made public.
“I need to make sure if there’s any confidentiality clauses in there,” he said.
Which brings us to another drawback with this method of building public works: it’s far less transparent than projects directly managed by government.
In February, Liberal Leader Arthur Mitchell wrote Tuton for details about the medical residence.
Tuton’s reply, made six weeks later, simply suggested that Mitchell ought to keep reading the hospital’s biannual newsletter.
It’s impossible to pry details from the hospital corporation with access-to-information requests because the corporation is not covered by Yukon’s Access to Information and Protection of Privacy Act.
Hospital representatives will eventually appear before the legislature, either this autumn or next spring, to answer the questions of MLAs. But this questioning will only last several hours, divvied up between two opposition
parties and two independents.
This afternoon of questioning surely won’t be adequate, said Mitchell, given how health care is always a hot-button issue with the public, and the number of questions surrounding these new construction projects.
“The government is offloading responsibilities and putting them in this lockbox. We can’t hold them accountable and ask questions,” he said.
Premier Dennis Fentie’s government is hardly the first to try off-balance-sheet spending.
In Ottawa, Jean Chretien’s Liberal government would hide massive surpluses by stuffing money into foundations that receive little public scrutiny.
Those big surpluses are long gone, but the practise of moving public money into foundations that have little public oversight continues under Stephen Harper’s government, to the dismay of Canada’s auditor general.
Even when Yukon’s infrastructure projects are kept on the books, their cost is mitigated by the accrual accounting method used by the territory’s bean-counters. This spreads the cost of capital projects over many years,
compared to cash accounting, used by previous Yukon governments, which tracked money as it entered and left the territory’s coffers.
As a result, the territory plans to post a $19.4-million surplus, while Statistics Canada is forecasting the Yukon to run a $29-million deficit.
It all depends on how you’re counting.
And why is the territory borrowing money?
It still has money in the bank – how much, we won’t exactly know until the legislature sits and the government releases a financial update.
But the territory projected in March that, by year end, it would have about $120 million in its coffers, less the $36.5 million frozen in asset-backed commercial paper.
Tuton is not in a position to say how much the Yukon has.
“You should ask government,” he said.
And Fentie, the Finance minister, isn’t returning calls.
But a little extra spending money never hurt anybody – particularly the leader of a government that will head into an election in the next 24 months.
And it has room to borrow more, if it chooses.
The territorial government and its family of subsidiaries are allowed to carry a total of $300 million in debt — the ceiling was raised by Ottawa earlier this year, up from $138 million. As of April, 2008, the territory owed $100
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