How would provinces and cities survive if the federal government collapsed?

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How Resilient Are Canadian Provinces?

Suppose one fine day the federal government was unable to show up for work. Perhaps it wasn’t feeling well. Or maybe it had borrowed so much money that it maxed out its line of credit, defaulted on its interest payments, and just couldn’t pay its bills. What then?

Let’s say – and I’m just spitballing here – let’s say that exploding, uncontrolled public debt is a bad thing. All the smart people tell us that taking on too much credit card debt won’t end well, right? Well I can’t think of any solid reason that such logic shouldn’t also apply to governments.¹

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As you can see from the graph, our federal public debt climbed from $351 billion in 1990 all the way to $884 billion in 2024. The 50 percent leap between Q4 2019 and Q4 2021 was the generous gift of COVID. Things started to recover in mid-2023, but they’ve since nose dived once again.

Ah, but that’s just debt you say. It’s someone else’s problem.

Not exactly. You see, even if we’re not paying down the principle on the debt, you can be sure that we’re covering interest payments. Which, it just so happens, have become a lot more expensive ever since massive government borrowing drove up interest rates.

How much more expensive? As of Q1 2024, our annual interest payments totaled $11.7 billion, compared with $6.2 billion back in Q1 2022. Put differently, the interest we pay each year comes to seven percent of our total federal budget.

I’m certainly not going to confidently predict that the federal government will soon default on interest payments, lose access to capital markets, and begin laying off government workers and shutting down services. But I wouldn’t say that it can’t happen either.

Given that possibility, what can provinces and cities do right now to prepare for a sudden (hopefully brief) disruption? First off, though, what exactly is a province?

As defined by the British North America Acts, areas of the exclusive responsibility of the federal government include:

Public debt and property
Regulation of trade and commerce
Criminal law
Militia, military and naval service, and defense
Navigation and shipping
Banking, incorporation of banks, and the issue of paper money
Bankruptcy and insolvency
Naturalization and aliens
Unemployment insurance

Provinces are responsible for:

Property and civil rights
Administration of justice (including policing)
Municipal institutions
Education
Health and welfare
Natural resources

So a short-term federal disruption might not have much of an impact on most Canadians’ day-to-day activities. Federal employees and UI recipients would have to figure out how to survive without their paychecks and border entry points would shut down. But great news! Your criminal prosecution can go ahead on schedule because, while criminal law is controlled by the feds, lower criminal courts are provincial.

On the other hand, consider how federal transfers contribute between around 15 percent (Alberta) and 40 percent (Atlantic provinces) of provincial budgets. And Toronto’s municipal budget, for instance, includes around 15 percent in transfers from the province, and another five percent from the federal government. So it wouldn’t take long before all levels of government begin to feel the heat.

I’m not suggesting we change Canadian federalism (good luck trying). But a province that’s reduced or eliminated its own budget deficit and successfully weaned itself from incoming federal transfers would probably enjoy a smoother trip through a shutdown. Exploring the legality of temporarily taking over the payroll for critical federal roles (like Border Services), for instance, might also pay dividends when push came to shove.

I would suggest that thinking formally about these issues would be an important part of any government’s emergency planning preparedness. Yesterday was the best time to start. But today is the next best option.

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Post-COVID, the claims of Modern Monetary Theory proponents didn’t age well.

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Business

Have We Lost the Ability to Build Infrastructure?

Published on October 20, 2024

Todayville

David Clinton

The Empire Statue Building was, for its time, monumental. The New York landmark may not be such a big deal these days, but its construction history in often invoked as a sign that we’ve lost the capacity to do big stuff.

After all, the iconic skyscraper’s builders brought the project to completion $19 million under budget, 12 days ahead of schedule, and in just over a year.

At the height of the depression.

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By contrast, California’s High-Speed Rail project – designed to ultimately link San Diego with Sacramento – was authorized in 2008. Construction on Phase 1 didn’t being until 2015. As of now, $11.2 billion has been spent without a single train having left a single station. The total budget was originally in the $33-40 billion range, although it’s now anticipated to run past $128 billion. And no one’s expecting project completion any time in the next decade.

Closer to home, we can compare the original 7.4 kilometer Yonge Line of Toronto’s subway system (fully-functional by 1954 after just five years’ work) with its grandson, the Eglinton Crosstown LRT. The Eglinton line was announced in 2007, work began in 2011 and, 13 years later, completion is still nowhere in sight. Since I live just a few blocks from what might one day become an LRT station, I’ll be sure to let you know if anything changes.

In the grand scheme of things, North America might not even have it so bad. Lately, everyone (and by “everyone” I mean everyone besides my wife, children, or even a single person I have ever met) has been buzzing about a 17,000-word article called “Foundations: Why Britain Has Stagnated”. I strongly encourage you to ~~read the whole thing~~ have ChatGPT summarize it for you.

The main takeaway from Foundations is that the UK’s excessive regulations, high energy and labour costs, bureaucratic delays, and outdated tax incentives led to an application process requiring 360,000 pages and nearly £300 million for the Lower Thames Crossing project before any work was even approved!

The rot that lies behind Britain’s paralysis has been building since the 1990’s, through both Conservative and Labour governments.

But things might not be so bad here at home. For one thing, we probably don’t have a regulatory bureaucracy that’s quite so extreme as Britain’s. I’m aware of nothing in Canada that’s analogous to the UK’s “nutrient neutrality” requirements.

And while our energy costs are certainly not cheap, they’re a whole lot better here than in the UK. Commercial electricity, for instance, costs an average of USD 0.117 per kWh in Canada, far below the USD 0.485 per kWh they’re paying in the UK. And the cost of natural gas for home heating in Canada (USD 0.038 per kWh) isn’t even close to what they shell out across the pond (USD 0.092 per kWh).

Which might at least partially explain why, despite all the delays, cost overruns, and unexpected service failures involved, some major infrastructure projects have reached a (broadly) happy conclusion.

For every expensive failure (like the Eglinton Crosstown LRT or the Ottawa Confederation Line), there have also been successes (like Confederation Bridge and Vancouver’s Canada Line). Things are far from perfect, but it’s not all doom and gloom either.

The Foundations article ends on a positive note:

We believe that Britain can enjoy such a renewal once more. To do so, it need simply remove the barriers that stop the private sector from doing what it already wants to do: build homes, bridges, tunnels, roads, trams, railways, nuclear power plants, grid connections, prisons, aqueducts, reservoirs, and more.

Removing barriers. Or even better, resisting the erection of new barriers before they’re in place. We can always hope.

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Business

Canadians largely ignore them and their funding bleeds their competition dry: How the CBC Spends its Public Funding

Published on October 14, 2024

Todayville

David Clinton

If we want to intelligently assess the value CBC delivers to Canadians in exchange for their tax-funded investment, we’ll need to understand two things:

How CBC spends the money we give them
What impact their product has on Canadians

The answer to question #2 depends on which Canadians we’re discussing. Your average young family from suburban Toronto is probably only vaguely aware there is a CBC. But Canadian broadcasters? They know all about the corporation, but just wish it would lift its crushing hobnailed boots from their faces.

Stick around and I’ll explain.

For the purposes of this discussion I’m not interested in the possibility that there’s been reckless or negligent corruption or waste, so I won’t address the recent controversy over paying out millions of dollars in executive benefits. Instead, I want to know how the CBC is designed to operate. This will allow us to judge the corporation on its own terms.

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CBC’s Financial Structure

We’ll begin with the basics. According to the CBC’s 2023-24 projections in their most recent corporate plan strategy, the company will receive $1.17 billion from Parliament; $292 million from advertising; and $209 million from subscriber fees, financing, and other income. Company filings note that revenue from both advertising and legacy subscription pools are dropping. Advertising is trending downwards because of ongoing changes in industry ad models, and the decline in subscriptions can be blamed on competition from “cord-cutting” internet services. The Financing and other income category includes revenue from rent and lease-generating use of CBC’s many real estate assets.

The projected combined television, radio, and digital services spending is $1.68 billion. For important context, 2022-23 data from the 2022-2023 annual report break that down to $996 million for English services, and $816 million for French services. 2022-23 also saw $60 million in costs for transmission, distribution, and collection. Corporate management and finance costs came to around $33 million. Overall, the company reported a net loss of $125 million in 2022-23.

The corporation estimates that their English-language digital platforms attract 17.4 million unique visitors each month and that the average visitor engages with content for 28 minutes a month. In terms of market relevance, those are pretty good numbers. But, among Canadian internet users, cbc.ca still ranked only 43rd for total web destinations (which include sites like google.com and amazon.ca). French-language Radio-Canada’s numbers were 5.2 million unique visitors who each hung around for 50 minutes a month.

Monthly engagement with digital English-language news and regional services was 20 minutes. Although we’re given no visitor numbers, the report does admit that “interest in news was lower than expected.”

CBC content production

All that’s not very helpful for understanding what’s actually going on inside CBC. We need to get a feel for how the corporation divides its spending between programming categories and what’s driving the revenue.

The CRTC provides annual financial filings for all Canadian broadcasters, including the CBC. I could describe what’s happening by throwing columns and rows of dollar figures at you. In fact, should you be so disposed, you can view the spreadsheet here. But it turns out that my colorful graph will do a much better job:

As you can see for yourself, CBC spends a large chunk of its money producing news for all three video platforms (CBC and Radio-Canada conventional TV and the cable/VOD platforms they refer to as “discretionary TV”). The two conventional networks also invest significant funds in drama and comedy production.

The chart doesn’t cover CBC radio, so I’ll fill you in. English-language production costs $143 million (roughly the equivalent of the costs of English TV drama/comedy) while the bill for French-language radio production came in at $94 million (more or less equal to discretionary TV news production).

CBC Content Consumption

Who’s watching? The CBC itself reported that viewers of CBC English television represented only 5.1 percent of the total Canadian audience, and only 2.0 percent tuned in to CBC news. By “total Canadian audience”, I mean all Canadians viewing all available TV programming at a given time. So when the CBC tells us that their News Network got a 2.0 percent “share”, they don’t mean that they attracted 2.0 percent of all Canadians. Rather, they got 2.0 percent of whoever happened to be watching any TV network – which could easily come to just a half of one percent of all Canadians. After all, how many people still watch TV?

According to CRTC data, between the 2014–15 and 2022–23 seasons, English language CBC TV weekly viewing hours dropped from 35 million to 16 million. That total would amount to less than six minutes a day per anglophone Canadian. Specifically, news viewing fell by 52 percent, sports by 66 percent, and drama and comedy by 51 percent.

CBC Radio One and CBC Music only managed to attract 14.3 percent of the Canadian market. What does that actually mean? I’ve seen estimates suggesting that between 15 and 25 percent of all Canadians listen to radio during the popular daily commute slots. So at its peak, CBC radio’s share of that audience is possibly no higher than 3.5 percent of all Canadians.

A recent survey found that only 41 percent of Canadians agreed the CBC “is important and should continue doing what it’s doing.” The remaining 59 percent were split between thinking the CBC requires “a lot of changes” and was “no longer useful.” Those numbers remained largely consistent across all age groups.

It seems that while some Canadian’s might support the CBC in principle, for the most part, they’re not actually consuming a lot of content.

CBC Revenue sources

CBC’s primary income is from government funding through parliamentary allocations. Here’s what those look like:

Advertising (or, “time sales” as they refer to it) is another major revenue source. That channel brought in more than $200 million in 2023:

But here’s the thing: the broadcast industry in Canada is currently engaged in a bitter struggle for existence. Every single dollar from that shrinking pool of advertising revenue is desperately needed. And most broadcasters are – perhaps misguidedly – fighting for more government funding. So why should the CBC, with its billion dollar subsidies, be allowed to also compete for limited ad revenue?

Or, to put it differently, what vital and unique services does the CBC provide that might justify their special treatment?

It’s possible that CBC does target rural and underserved audiences missed by the commercial networks. But those are clearly not what’s consuming the vast majority of the corporation’s budget. Perhaps people are watching CBC’s “big tent” drama and comedy productions, but are those measurably better or more important than what’s coming from the private sector? And we’ve already seen how, for all intents and purposes, no one’s watching their TV news or listening to their radio broadcasts.

Perhaps there’s an argument to be made for maintaining or even increasing funding for CBC. But I haven’t yet seen anyone convincingly articulate it.

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