Politics

Vaughn Palmer: BC finance minister deflects on major credit downgrade

Opinion: S&P bemoans free spending after David Eby took over from John Horgan

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VICTORIA — The New Democrats sustained a double blow to their financial credibility this week, with a ratings downgrade from one of the major credit agencies and a negative outlook from another.

First out of the gate was S&P Global with a credit report that lowered B.C.’s rating a notch to AA-minus from AA and slapped the province with a negative outlook.

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This was B.C.’s third downgrade in a row from S&P, the largest of the three international rating agencies and the one that has been the most critical of the New Democrats on deficits, debt and spending.

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S&P went on to warn about further downgrades unless the New Democrats change their ways.

“Considering B.C.’s focus on taxpayer affordability and on capital investment when economic growth is weakening, we expect that the province’s fiscal performance will materially deteriorate in the next two years.

“With operating deficits of more than five per cent of operating revenues and after-capital deficits of about 20 per cent of total revenues, B.C.’s budgetary performance will be the weakest of its peers, both domestically and internationally.

“We could lower the ratings in the next two years if B.C. maintains its current fiscal trajectory, as reflected by operating and sizable after-capital deficits,” wrote the analysts at S&P. “Lack of a medium- and longer-term view and commitment to ensure fiscal sustainability could also affect the rating.”

The S&P report was followed by one from Moody’s Investors Service on Tuesday, which was more forgiving of the NDP performance but also critical on some points.

Moody’s did maintain the B.C. rating at Aaa, the much-sought-after “triple-A” in credit parlance. (S&P downgraded B.C. from triple-A three years ago.).

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Moody’s did downgrade the provincial outlook to negative from stable, citing the combination of growing debt and increased spending.

The agency faulted the NDP’s stubborn refusal to produce even a rudimentary plan to restore the province to a balanced budget.

Moody’s also warned that it could downgrade B.C. in the next year or two if the province is unable to “meaningfully improve its fiscal trajectory.”

Finance Minister Conroy made light of the verdict from S&P when asked about it during question period in the legislature Tuesday.

“We know there could be a rating change because of — you know, there’s a slower global economy and inflation,” said Conroy, commenting before the report from Moody’s was released.

Plus there was the legacy of the B.C. Liberals.

“S&P notes that we are making capital investments, and they point to those investments as a change,” she said. “What we’ve been telling investors is that we inherited a deficit of infrastructure when we formed government.”

She noted too that the third of the international agencies, Fitch, had reaffirmed B.C. at AA+ (plus) with a stable outlook, “recognizing our position for long-term growth.”

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Not so long ago, the New Democrats were able to boast about holding top rank ratings and stable outlooks from all three of the major credit agencies.

When S&P gave the John Horgan NDP government its triple-A seal of approval in 2019, his able finance minister, Carole James, said the rating reflected the province’s economic strengths and the NDP government’s responsible fiscal management.

“It shows that our plan to invest in people while balancing the budget is not only possible, but also fundamental to building a strong and sustainable economy,” declared James by news release.

“These high credit ratings signal confirmation from investors and financial markets that we’re on the right track. They are also a signal to investors — both within B.C. and across borders — that our province is an attractive place to do business.

“Investing in people truly pays dividends, ensuring a strong economy today and in the future.”

She also noted the favourable impact on government borrowing, making it as affordable as possible.

“B.C.’s high credit rating means that the province has lower debt servicing costs, allowing for more money to go toward investments that improve services and affordability for British Columbians.”

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The Horgan government boosted program spending and built a lot of infrastructure, too. But with James at the helm in the finance ministry, it also balanced the budget except during the crisis brought on by the pandemic.

The Horgan-led government inherited a budget surplus from the previous B.C. Liberal government. James used more than $1 billion in surplus funds to retire the remaining direct operating debt of the province.

Premier David Eby inherited a sizable surplus from Horgan. He promptly spent virtually all of it to jump start his re-election campaign. Conroy is now budgeting to drive the direct debt up to $50 billion over the next three years.

The change in approach between the two NDP governments was noted in this week’s S&P credit report.

“We believe that the province’s commitment to fiscal discipline and stability has wavered in recent years as B.C. has materially increased its spending for both operations and capital investment to unparalleled levels, while economic growth is slowing.”

Nor is there any end in sight. Conroy, pushed by Eby, seems bent on borrowing and spending whatever it takes to secure another term of government.

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