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Yukonomist: The squirrel, the husky and the rope

The squirrel is political popularity.

Picture a husky tied with a rope in the backyard when a squirrel makes a dash for a spruce cone on the lawn.

You know how it almost always ends: a squirrel with heart palpitations, and a husky with a sore neck.

The rope is usually unfazed.

Today, let’s have the squirrel be political popularity. The husky is the Yukon government. And the rope is the borrowing limit imposed on the Yukon government by the feds.

I haven’t written very often on our federal borrowing limit. For the last decade and more, the Yukon had lots of cash in the bank. If the federal borrowing limit came up when Yukon fiscal policy cognoscenti gathered, it was usually just to exchange jokes at the expense of the N.W.T. or Nunavut if those territories looked like they were going to hit their limits.

“The other territories get so much cash from Ottawa,” Yukon economists would snigger, “and they still can’t manage to stay out of debt!”

Well, the Yukon’s rainy day fund has now been spent. You can expect to hear more about our debt limit in the future.

In the last few weeks, the Yukon’s Fall supplemental budget came out as well as the final accounting for the last fiscal year (called the 2018-19 Public Accounts if you want to look them up).

The Yukon government husky was already chasing the popularity squirrel. The husky was stimulated by over a billion dollars of caffeine from Ottawa in the Spring budget, which also included an extra cash deficit of $47 million to buy the husky a few more Monster Energy drinks.

In last month’s supplemental budget, the cash deficit was increased by another $21 million to a total of $68 million. This means injecting more fiscal stimulus into a local economy already straining its limits. Unemployment is historically low and housing demand outpaces supply. Maybe just one more can of Redbull and the husky will catch that squirrel.

The government said the higher cash deficit was primarily because of unexpectedly high costs fighting forest fires. I suppose this means that none of the other 20 departments had projects that came in significantly below budget, and that the government decided not to reduce any other budgets to make up for the unexpected expense.

The extra spending also means borrowing another $21 million.

Which brings the rope back into the story. Our federal borrowing limit is $400 million. It applies to the entire Yukon government apparatus, including Yukon Development Corporation (owner of Yukon Energy), the hospital, Yukon College and Yukon Housing. Government agencies often borrow to build things like dams, new buildings or housing, so even back in 2017 when the rainy day fund still existed the Yukon government was responsible for debt outstanding from such previous projects.

At the end of fiscal 2017, total debt was $194 million and we had $206 million of remaining borrowing capacity before hitting our limit of $400 million.

Now that the rainy day fund is gone, however, every extra can of Redbull the husky guzzles has to be paid for with borrowed money. At the start of this fiscal year on March 31, our debt was up to $209 million with borrowing headroom down to $191 million.

The cash burn planned for this fiscal year will use up about a third of our remaining headroom. It won’t be exactly that much. There are accounting technicalities, and one government corporation or another may also borrow more or pay back old debt.

But, in the big picture, the husky is running out of rope.

Debt isn’t automatically bad. It can be used to stimulate the economy, although as noted above the economy doesn’t need stimulating these days. It can also be used to pay for big long-term infrastructure to be enjoyed by future generations. However, you aren’t seeing any big renewable energy projects being built by the government today. The energy portion of the capital budget this year is $14 million, a small sum compared to the scale of our energy needs. And the Public Accounts show Yukon Housing actually paid back debt in the last fiscal year rather than borrowing to build more housing.

What does all this mean for Yukoners?

For banks, investors, First Nations investment funds, lawyers and consultants, it means the Yukon government will probably be getting more interested in public private partnerships (PPPs). These include projects where public infrastructure is partially or wholly financed by investors instead of the government capital budget picking up the whole tab. The N.W.T.’s Stanton Hospital project was a PPP and so was Nunavut’s Iqaluit airport upgrade. Both projects helped those territorial governments manage their debt limits.

For younger Yukoners, it means that the Yukon government will need to save part of its transfer payments in future years to pay back loans taken out today. We’re already leaving you the multi-century Faro mine clean-up project and a warming planet, so why not some debt too?

Of course, the Yukon government may convince the feds to lengthen the husky’s rope by increasing our debt limit. In that case, the borrowing and spending can happily go on for years.

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 and received the bronze for Outstanding Columnist in the 2019 Canadian Community Newspaper Awards.