The territorial debt has not traditionally been top of mind in the Yukon.
As recently as 2018, the core Yukon government (excluding government-owned companies) had the opposite of debt: positive net financial assets.
In Yellowknife, however, things are different. Earlier this month, the Northwest Territories’ territorial debt drove its pickup up on the lawn, through the front window and into the living room of Joe Public.
As discussed last week, newly installed Premier RJ Simpson proposed spending cuts and $150 million in debt repayments. The N.W.T. government is rapidly approaching its federal debt limit of $1.8 billion.
Most Yukoners have not lived through a period of territorial fiscal austerity. The Ostashek government’s hiring freeze happened back when Boyz II Men were top of the pops and audio cassette tapes were still outselling compact discs.
So, could what happened in Yellowknife happen here?
Before we can answer that, we must embark on an adventure into the baroque world of government accounting. Math will be involved.
It is also important to remember that debt is not necessarily bad. Used wisely and in moderation, it allows a government to invest in useful long-term assets like bridges and hospitals. Excessive debt, however, can force governments into painful cuts.
So, how is the Yukon government doing?
The figures below are taken from the most recent Public Accounts, published last November covering the fiscal year ending March 31, 2023 (Canadian governments face laxer rules than public companies in terms of timely reporting).
At the time, the consolidated Yukon territorial government (including Yukon Energy and other government-owned companies) had financial assets of $837 million. It had liabilities, or debt to the layperson, of $826 million. Subtracting one from the other left net financial assets of $11 million.
So far so good, although net financial assets have been declining steadily from a peak of $389 million in 2015.
Cold-hearted analysts always like to look into the nature and quality of your financial assets. The Yukon government’s biggest such asset at $227 million was its ownership stake in those government-owned companies. Yukon Development Corp., owner of Yukon Energy, accounted for $224 million of this. The government’s second-biggest asset was expected payments from the feds at $174 million. The other assets include cash, accounts and loans receivable and similar items.
One thing to note is that in the event of a cash crunch only a portion of the $837 million in assets, such as the cash and the shares in Yukon Energy, can easily be sold for ready money.
On the liability side, the biggest item is accounts payable and accrued liabilities. This has shot up from around $125 million four years ago to over $275 million last March. This includes things like unpaid carbon tax rebates, wages due government employees and bills payable to Yukon contractors. It is unclear why the liabilities here have risen so quickly; theoretically delays in paying major contractors could contribute.
The second biggest liability is post-employment benefits and compensated absences.
The third biggest liability is retirement benefits, such as pension plan and health liabilities.
Environmental liabilities are fourth at $93 million, with the $43 million Wolverine mine mess being the biggest part of this.
External borrowings are also included in the liabilities. In the N.W.T., these are large. They have, for example, issued major bonds and debentures which must be paid back. In the N.W.T. 2020-21 Public Accounts, there was a $180 million bond, $205 million in debentures and $175 million still owing on Deh Cho Bridge bonds.
In the Yukon, on the other hand, the external borrowings line item is relatively small at just $25 million. However, for complex accounting reasons, this figure does not include debt to federal agencies or the gross debt of Yukon Energy.
Which means we must turn to another section of the Public Accounts on the Yukon’s debt limit. One thing that makes a territory different from a province is that Ottawa can set a borrowing limit to keep the territories from getting into too much fiscal trouble. The Yukon’s limit is $800 million.
The Public Accounts tally up the items that count against this, this time including Yukon Energy’s debt. The total debt on the list is $233 million, which leaves (as the people writing expensive campaign promises for the next election will know) $567 million in “available borrowing capacity.”
A debt figure of $233 million sounds like a big number. It’s about $5,000 per Yukoner. The good news is that $11 million positive net financial assets number mentioned earlier. The Public Accounts say that only the Yukon and Nunavut had positive net financial assets in 2021 while the provinces and N.W.T. were in net debt situations.
In addition to having more debt than us, the N.W.T. also has the perverse risk created by being more successful than us in building a private sector. The N.W.T. generates 20 per cent of its revenue locally versus about 15 per cent for the Yukon government. This means it is more vulnerable to the upcoming closure of the Diavik diamond mine.
Thus the new N.W.T. government has been driven to austerity because they have borrowed more than we have, so far, and are closer to their debt limit at the same time a major mine faces closure.
Yukoners will be asking, however, if we need to be worried about being in the same place in a few years.
The Public Accounts stop at the end of last fiscal year. So for the current year we need to switch back to the budget documents for the core government, excluding government-owned companies. In last Spring’s budget, the core’s net financial assets at the beginning of the current fiscal year were minus $298 million. In October’s supplemental budget the figure for the end of the fiscal year was minus $424 million.
That suggests a cash burn of about $125 million during the current fiscal year. This is not a Yellowknife-style fiscal bender, but we have been popping economic stimulants to the tune of about $2,750 per Yukoner.
Unless some very good news happens with our government owned companies, that reassuringly positive net financial assets number above will go negative this year and eat into the $567 million of borrowing capacity.
Nonetheless, the bottom line is that the Yukon government is in much healthier financial shape than the N.W.T. government. With its federal debt limit farther away, it can in theory keep spending and running large cash deficits for several years before it gets into an N.W.T.-style crisis. Whether it would be wise to do so, of course, is another question.
Next week we will look at the latest Yukon budget, which came out after the submission deadline for this column, and see where it takes the territorial debt.
Keith Halliday is a Yukon economist and the winner of the 2022 Canadian Community Newspaper Award for Outstanding Columnist. His most recent book Moonshadows, a Yukon-noir thriller, is available in Yukon bookstores.