In my second budget post the other day, I claimed I was going to cover capital/infrastructure spending and didn't, however it doesn't really fit in with "part 3" so I will carry on where I left off in Part II first and then get in to Part III.
Traditionally we actually have two budgets in New Brunswick. The Capital Budget (i.e. construction) is introduced in the fall to allow time for tenders to go out so construction can begin at first thaw. Then the ordinary budget comes out in March. However, as was the case in 2000 after Lord took office, and again this time after the Liberals took office in October 2006, the capital budget was delayed to coincide with the main budget.
Most capital expenditures fall under two departments: Supply & Services, which builds almost all of the buildings for government, including schools and hospitals and Transportation, which builds roads.
Here is the breakdown by department with capital spending:
Agriculture & Aquaculture
Supply & Serivces
Tourism & Parks
So capital expenditure under the Transportation department accounts for 85% of all capital spending and an impressive 10% of all government spending period. Building roads is a good thing and I am glad to see this figure. However, unfortunately, this isn't all going into roads. More than half of it, $408,800,000, will be paid to the road builders of the Grand Falls-Woodstock highway upon compeletion as part of the agreement drafted by the former government.
Here is how the big ticket items break down:
General Bridges $25,000,000
General Roads $49,500,000
Rural Roads $20,000,000
Canada-New Brunswick highway agreements (TCH mostly) $573,562,000
Border Upgrades (St. Stephen-Calais bridge mostly) $38,000,000
Routes 11 & 17 $5,000,000
Urban Bypasses (Marysville/Route 8 mostly) $6,288,000
Vehicles for the government fleet (including maintenance of existing fleet, fuel, etc) $7,000,000
Supply & Services:
New construction for Agriculture & Aquaculture, Education and Health $67,569,000
Maintenance of old facilities for Education, Health, Legislative Assembly, Post-Secondard Education, Training & Labour and Supply & Services $30,979,000
Marshlands (Agriculutre & Aquaculture)
Equipment for schools (Education)
Equipment for hopsitals (Health)
Improvements in unincorporated areas (Local Government)
Musquash Watershed and NB Trails (Natural Resources)
General capital projects, funds to top of the provincial share of gas-tax funded infrastructure, and infrastructure under the Canada-New Brunswick Rural Municipal agreement (Regional Development)
General improvements (Tourism & Parks)
This all seems pretty standard and reasonable.
Now for.... Budget Retrospective, Part III
For my next installment on reviewing the budget, I will be looking at "whether or not the budget really is balanced".
When is a budget balanced?
That should be a fairly easy question, but sadly it is not. Let's take a look at the past few budgets for an example:
Stated Surplus (Deficit): $37,097,000
Stated Surplus (Deficit): $22,224,000
Stated Surplus (Deficit): $98,880,000
2004-05 (This budget had the inspiring title "Living Within Our Means")†:
Stated Surplus (Deficit): $54,281,000
Stated Surplus (Deficit): $7,464,000*
The Auditor General rejected this figure saying, regardless of any accounting measure, the best real picture was a deficit of $101,036,000.
Stated Surplus (Deficit): $21,352,000*
The Auditor General rejected this figure saying, regardless of any accounting measure, the best real picture was a deficit of $58,648,000.
Stated Surplus (Deficit): $34,756,000
Stated Surplus (Deficit): $21,291,000
Stated Surplus (Deficit): $42,245,400
As you can see, of the last 8 budgets, only 2 of them have stated their surplus/deficits with the magic formula of SURPLUS = REVENUE - EXPENDITURE. In fact, the Liberals, while in opposition, went so far as to try to embarrass the government by passing a motion which said, "a deficit occurs when expenditures in a fiscal year are greater than its revenues." By that standard, this budget is in the red and running a deficit of $355 million.
However, looking at the numbers above, you will see that in 1999-2000, 2000-2001 and 2001-2002 the budget was, more-or-less, in sync with the magic formula of SURPLUS = REVENUE - EXPENDITURE. If 2002-2003 and 2003-2004 this was true as well if you take the word of myself and the Auditor General. The Tories used some fuzzy math in these years, which the AG rejected, in which they argued that money they had paid down on the debt in previous years could instead by accounted as being carried over so, essentially, they accounted for the surpluses of previous years twice - first by calling it a surplus in the previous year and paying it on the provincial debt and second by saying that if they were not increasing the debt by more than they decreased it in previous years, they were simply carrying the money over for future use.
However, all of this changed with 2004-2005. This is when the previous PC government, under the recommendation of the Public Sector Accounting Board, an arm of the Chartered Accounts of Canada, changed the accounting of capital assets. The explanation released by the Finance Department at the time explains the justification for this.
I am much more comfortable, in general, with the magic formula of SURPLUS = REVENUE - EXPENDITURE. However, I am not an accountant and this is an accounting matter. If two New Brunswick Auditors General, a PC and Liberal government, the Chartered Accounts of Canada, the Goverment of Canada and the governments of most provinces are okay with it, I guess I should wake up and smell the coffee that has been brewed by the experts.
There is one noticable benefit to this accounting measure. In recent years, as running a deficit has become a horrible sin for governments, the amount of infrastructure construction and improvement has been cut like everything else which would, if not turned around, put us in dire straights in a few years when this infrastructure begins to fail.
Since this measure has come into place, the capital budget of New Brunswick has gone up considerably, which I think is a good thing, and this has been offset in the books by this expert designed and approved accounting method.
This in particular explains why this year their is such a difference between "SURPLUS = REVENUE - EXPENDITURE" and the stated surplus of the government; the expenditure includes A LOT of capital construction and improvement and that is offset, in part, by the accounting measure.
So, is this budget balanced? According to the experts, yes. According to arithmetic and the motion passed by both parties in 2005, no.
I think I will err with the experts and declare this a balanced budget.