Yukonomist: A budget that glides along a well groomed ski track

The newly announced 2019-20 Yukon government budget skis in the same well-groomed tracks as the last few budgets. Like its two predecessors, this budget sets a new record for spending, sees higher revenues from Ottawa matched with higher spending, and has a cash deficit of around $50 million.

Transfer payments and capital funding from Ottawa are expected to rise 6.4 per cent next year, with locally-raised revenue rising slightly faster for an overall growth in revenue of 6.6 per cent. In turn, the government plans to increase spending by 6.5 per cent.

That leaves a planned cash deficit of about the same size as the last two years. It’s $47 million, or about $5,000 per hour if you want to visualize it a bit easier.

The feds continue to provide around 85 per cent of the Yukon government’s revenue. This coming year, 15.4 per cent will be raised locally. That’s an improving trend. Last year’s figure was 15.2 per cent and it was 14.6 per cent the year before. But it’s slow progress. If this continues, it will take until the Year 2105 for the Yukon government will generate more than half of its own revenue.

One thing that is different this year is that the Yukon government is now borrowing to finance the cash deficit rather than spending savings accumulated from previous years. In effect, we are pre-spending future transfer payments. Our rainy day fund ran out earlier this fiscal year and we have officially crossed from the black into the red.

If you account for the fact that some of the spending will be on assets like schools and roads that last for many years — the accrual rather than cash method of accounting — the deficit is smaller at just $5 million. In either case, of course, the money needs to be paid back some day.

In terms of investing for the future, there are a few big-ticket highlights in the $288-million capital budget. These include $19 million for new residential lots, which is important given our housing shortage, and $19 million for the new Francophone school. Another $14 million goes to energy retrofits. There are sizeable sums for bundles of smaller but important projects in areas from healthcare to local water and sewer.

There is also funding for some important economic infrastructure. There is $10 million for Erik Nielsen airport and $12 million for paving the Dawson City Airport runway and related improvements. There’s also $5 million towards the Dempster fibre optic cable project. This is unlikely to result in cheaper or faster internet, but it will protect our digital economy from the unpredictable backhoe operators of Fort Nelson.

There are two big economic infrastructure projects that are noticeable for their absence.

The first is major funding for the Yukon Resource Gateway, a project to upgrade roads in high-potential mining areas such as the Dawson Range and Nahanni Range. It has $8.6 million penciled in, but this won’t move much dirt on a $468 million project. As chronicled in previous Yukon News stories, construction was originally supposed to start in June 2017 but delays continue to plague the initiative.

The other item that was noticeable by its absence was major investment in renewable energy. Population and economic growth continue to cause demand for electricity to increase, and we increasingly rely on liquefied natural gas (LNG) to supplement our old dams. There are some small funding programs for renewable energy in the budget, such as $1.5 million per year for the Innovative Renewable Energy Initiative supporting small and community-led renewable energy projects.

If the Yukon wants to move more seriously to de-carbonize its economy and be able to offer low-cost renewable power to industry, much bigger government projects will be needed. To give you an idea for the size of these projects, Yukon Energy recently kicked off a process to start planning for an additional 20 megawatts of capacity. According to media reports, it is talking about a project in the $60 million range to add more diesel generators or LNG turbines to our system.

LNG is plentiful and cheap thanks to the fracking boom in Fort Nelson and beyond. My guess is that it would be the cheapest and most attractive option if we didn’t have to worry about climate change too.

The question is whether the Yukon government should use its capital budget to lead bigger investments in renewable power rather than investing in more LNG turbines with multi-decade lifespans.

If so, the numbers in the energy section of the next capital budget will need to have more digits.

And something else will have to be smaller.

Overall, there were few surprises in the budget. Skiing in well groomed ski tracks is always the easiest thing to do. But it assumes you want to go where the tracks are leading you. Right now that looks like big territorial debt and a slow transition towards more LNG.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.