The News Rundown

British Columbia Gets Third Credit Downgrade in Three Years

BC's NDP government has made economic waves since David Eby took over as premier in November 2022. Notably, the biggest difference between him and his predecessor John Horgan is how much Eby has been spending. Of course, there are many issues these days that require government spending and attention, but it's still undeniable that Eby has taken BC from relatively balanced budgets to deep deficit after deficit.
It's something that came to a head on Tuesday this last week, as the credit ratings agencies S&P and Moody's revised their credit ratings outlooks for BC.
S&P Global Ratings blamed big government spending as it dropped its credit rating for the province and BC Hydro’s provincially guaranteed unsecured debt from AA status to AA-minus. It’s the third rating drop since 2021, when B.C. lost AAA status.
S&P said that in the next two years there was also at least a one-in-three chance the current fiscal course would result in rising debt levels and very low internal liquidity, “weaker than those of similarly rated peers.” That would mean another ratings cut, it said.
In a statement S&P said: “The Province of British Columbia’s 2024 budget outlines continued extensive investment for operations and record levels of capital spending over the next three years, which will lead to outsize after-capital deficits of more than 15 per cent of total revenues and a relatively steep increase in debt through to fiscal 2027.”
S&P said a reversal of the province’s “fiscal trajectory” is needed along with stronger economic growth for the outlook to be revised to stable.
It said the province’s commitment to fiscal discipline and stability have “wavered” recently as B.C. increases spending on operations and capital investment to what S&P calls “unparalleled levels” amid slowing growth.
“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,” S&P said.
“With operating deficits of more than five per cent of operating revenues and after-capital deficits of about 20 percent 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. Lack of a medium- and longer-term view and commitment to ensure fiscal sustainability could also affect the rating.”
In a nutshell, the BC government has a spending problem again, and it's going to result in higher debt and higher debt costs as a result of credit downgrades.
Another global ratings agency, Moody’s Investors Service, separately revised its outlook for B.C. to negative on Tuesday. Moody’s has still maintained its long-standing AAA rating for the province, its highest rank of credit worthiness. However, the agency faulted the NDP’s stubborn refusal to produce even a rudimentary plan to restore the province to a balanced budget, and warned that it could downgrade B.C. in the next year or two if the province is unable to “meaningfully improve its fiscal trajectory.”
B.C. Finance Minister Katrine Conroy blamed the slowing global economy for the S&P ratings drop, and noted that other assessors such as Fitch Ratings had found B.C. to be on stable fiscal ground. Conroy also said that the capital investments noted by S&P were needed because the NDP government “inherited a deficit of infrastructure” from their BC Liberal predecessors, now known as BC United.
Opposition BC United finance spokesman Peter Milobar said in a statement that the “dual downgrades” by Moody’s and S&P “are a clear sign of the NDP’s fiscal mismanagement.” Milobar called the downgrades a 'wake-up call' and said: “Each downgrade under the NDP brings higher taxes and tighter budgets for British Columbians. The result is higher costs for loans, as David Eby’s policies drain our wallets.”
BC Conservative member Bruce Banman said in a statement that S&P’s lower rating reflected the firm “losing confidence” in the NDP government’s ability to manage the province’s finances. He said: “The largest credit institutions in the world have taken a look into this premier’s mismanagement of taxpayer dollars, and they think he cannot be trusted. British Columbia is spending an extraordinary amount of money to get less and less and less for everyday hard-working people.”
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.
James said at the time: “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.”
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. In contrast, 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.
Interest charges on the provincial debt are expected to cost taxpayers $14.6 billion over the next three years. The provincial government plans to increase the provincial debt to $123.3 billion by the end of this year due to significant deficit spending. This year’s budget saw the biggest deficit in B.C. history at $7.9 billion. In 2017, when the NDP assumed government, provincial debt sat at $69.8 billion.
Clearly those balanced budget days are long gone, as Eby's government continues the spend trend. 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.
It's something that may end up backfiring, as recent polls have shown a wavering in support as Eby's high spending ways have not resulted in as much progress on the most dire of problems that British Columbians are hoping for. We'll see as we head through the summer towards the election in October if Eby's gambit will pay off.
Supplementals:

This week Alberta announced that the province will introduce legislation to prevent the federal government from cutting deals with Alberta municipalities without the province’s permission.
Before we get too far down the track we need to provide a refresher that as per the Canadian Constitution provinces have jurisdiction over municipalities.
As for the precedent? This exact same policy exists in Quebec.
Reaction against this potential legislation was swift from mayors Jyoti Gondek and Amarjeet Sohi as well as the opposition and traditional political pundits.
The frame they are using is one of red tape: "There is significant risk to Calgarians and the local business community if provincial legislation creates red tape, delays and uncertainty in receiving much needed funding from the federal government," said Gondek.
Danielle Smith views the situation entirely different, commenting on Justin Trudeau she said, “he is the one who punches us in the nose and we just punch back and we’re going to keep on punching back until he recognizes he’s got to treat us in a different way...” She then added, “He should go back and read his constitution.”
The Premier continued to not mince her words saying that “if he wants to be a premier then he should quit his job and go run to be a premier.”
The Prime Minister this week appeared defiant, looking for more conflict effectively saying that he, Sean Fraser, and Chrystia Freeland were going to fix the housing problems by working directly with municipalities and if the provinces had a problem they should just get out of the way.
Smith feels that BC and Quebec got better deals than Alberta, primarily because of the amount of political seats at play.
This story comes at an interesting time because recently municipalities across the country have been seeing higher than expected property tax increases.
The Alberta government has also offered help to the city of Edmonton to stabilize the situation regarding the flow of executives leaving city administration as well as the funding shortfalls.
Sohi and council in Edmonton seem committed to the almost 9% property tax increases highlighted this week.
The situation between Smith and the federal government unfortunately gives the upper hand to the municipalities as right now they look like they need more money and since Edmonton already is an NDP stronghold this weakens the UCP government’s position.
Cities have long pursued vanity and pet projects that ignore the fundamental reality of infrastructure when it comes to roads, services, and facilities.
Housing has attained a higher prominence in recent years due to the push for “15 minute cities” - more on this another time, but everything comes down to how our cities are run and our municipal officials could face a reckoning in next year’s Alberta municipal elections.
Stepping aside from inadequacies, perceived or real, in our municipal governments the through line on this story highlights one of the consistencies of the Trudeau administration.
A consistent attempt to overreach beyond federal jurisdiction in the guise of doing good for their electorate.
Canada is not New Zealand where the national government frequently makes these sorts of policy announcements.
Canada has a clear Constitution that should be followed, one where provinces are in charge of municipalities.
This jurisdictional overreach and constant blurring of lines in the Constitution has enabled Justin Trudeau to wedge so many Canadians on so many issues over the last almost 9 years.
Trudeau’s latest push on cities are just a microcosm of the entire strategy of his government and the media would be wise to realize this rather than painting Alberta and Premier Danielle Smith as the aggressors in this case with all things considered, even Quebec.
Supplementals:

PM's six-day Indo-Pacific trip cost $2M, including $200K in catering

Much has been made of the high cost of Prime Minister Trudeau's travel trips, and access to information request shows that his trip to various South-East Asian countries with the aim of 'strengthening ties' in September of 2023 cost close to $2M.
Prime Minister Justin Trudeau, his oldest son Xavier, and 51 others departed on the six-day trip on September 2 aboard a Royal Canadian Air Force CC-150 Polaris, destined for Indonesia and Singapore, plus a visit to India to attend last summer’s G20 summit. The purpose of the trip was to work with international partners to tackle “crises and challenges” including inflation and food and energy insecurity.
According to documents obtained through an access-to-information request, the total cost of the trip came to $1,908,243. Costs for the trip included $190,000 on in-flight catering, $643,000 for aircraft handling and fuel fees, $422,000 for lodging, $129,000 for ground transportation and $427,000 for RCMP security costs. The numbers contained in the documents are not final, as invoices and claims are still being processed.
The prime minister’s entourage arrived in Jakarta on September 5 to attend the ASEAN summit, where he helped launch the ASEAN-Canada Strategic Partnership and hold bilateral discussions with a number of world leaders, including Indonesian President Joko Widodo.
The group then departed for Singapore, where Trudeau met with the country’s prime minister, Lee Hsien Loong, before flying to India for the G20 summit.
The trip took a turn when the prime minister’s aircraft suffered a mechanical breakdown in Delhi as crews were preparing the three-decade old airliner to depart, prompting Air Force officials to dispatch repair crews and a second plane to India to rescue the stranded passengers. Canadian officials declined the Indian government’s offer to lend its executive aircraft, Air India One, to allow Trudeau and his entourage to return home.
While the documents don’t include what was served on the flights, there are parallels with Governor General Mary Simon’s infamous March 2022 trip to attend Expo 2020 in Dubai, where she and her 29 guests racked up a $100,000 in-flight catering bill while aboard a government aircraft over the course of a week, complete with fresh flowers, beef Wellington and $165 for an undisclosed quantity of lemons and limes.
Canadian Taxpayers Federation Federal Director Franco Terrazzano put it simply when he said “I guess one way to beat the high cost of groceries in Canada is to take a government work trip and bill taxpayers for fancy airplane food.”
He said: “The government told taxpayers it would cut down on these extravagant trips, but dropping $200,000 on airplane food doesn’t exactly scream fiscal responsibility. The government is more than $1 trillion in debt, so maybe it could cool it on these expensive international trips.”
In a statement, Global Affairs Canada said that Canada is committed to maintaining an international diplomatic presence, and that costs money: “We are committed to Canada’s presence on the world stage and advancing our national interests and values in a complex global environment. International diplomacy incurs costs, and these costs are influenced by a range of factors.”
Global Affairs said that: “In the case of India and Indonesia, a key factor was that international summits affect both the availability and cost of accommodation due to the host’s organizational prerogative and the heightened security environment.”
Canada’s attendance at international conferences typically comes with some steep price tags. Last month, it was reported the government spent $1.4 million to send 633 people to the 2023 COP28 climate conference in Dubai. The information did not detail how many of the attendees had their flight and room expenses covered by the government.
It's just yet another example of the Trudeau government spending lavish amounts of money on international jet-setting trips. Are all of the diplomatic gatherings worth the millions they cost taxpayers? That'll be up for voters to decide.

Firing Line

CSIS director testifies Trudeau government was warned repeatedly about Chinese foreign interference

The inquiry into foreign interference continues this week with testimony from the Prime Minister himself and those around him.
In addition to that we continue to learn more about what transpired and it has become clear without a doubt that China interfered in the 2021 and 2019 elections.
This means that reporting regarding the 11 or so ridings that China sought to influence, the WeChat messaging, and the findings around the nomination of Han Dong all appear to be true.
But what was most alarming was that the testimony of Justin Trudeau necessitated CSIS Director David Vigneault to be recalled for a second round of testimony.
The inquiry wanted to know what, if any, information he had specifically shared with Trudeau and his senior staff from three top-secret briefing documents.
He did not specifically discuss the documents with the Prime Minister but had shared similar information with the Prime Minister and his staff on previous visits.
The documents prepared did not represent what was discussed in the meeting but the government has been told privately and publicly a similar message to what was in the documents.
The general gist is what many have long assumed: “Canada has been slower than our Five Eyes allies to respond to the Fl threat with legislative and other initiatives, such as proactively publicizing successful disruption of Fl activities as a means of deterring future efforts. Ultimately, state actors are able to conduct Fl successfully In Canada because there are no consequences, either legal or political. Fl Is therefore a low-risk and high-reward endeavour.”
Now the reason Vigneault was summoned again? The Prime Minister himself, PMO staffers, and ministers told the inquiry that Vigneault did not discuss the actual contents of the documents in the briefings.
It raised eyebrows when it was announced that Vigneault would be returning but many in the media did not connect the dots and ask why the discussion happened in this way. It speaks volumes about the current Prime Minister’s Office.
The PMO typically has been the body that was the shield for the Prime Minister and cabinet. It would be the body that would handle issue management and anticipate where the media was going to go on a specific issue.
It’s been said this week that the government, the PMO, and most of cabinet was already aware of the general gist of what was going to be reported to them.
Had the PMO and Trudeau known more, they would have had to have acted on the intelligence presented to them.
Under Justin Trudeau the Prime Minister’s office has become a political office rather than an executive office.
The potential for votes and relations with the Chinese community in Canada was too great a risk for the PMO to risk thrusting an issue about China into the open.
Had anyone in the PMO known exact details outside the general gist, something would have had to have happened in relation to China.
The reality of the situation now is that foreign actors can send Canadians, their diaspora members, or even temporary residents to vote in Liberal party nomination races to exert their influence.
The media’s hand in 2023 fit right into this glove proving culpability.
The media outside the Globe and Mail and Global did almost nothing after the initial reports came in from independent media and maverick journalists at traditional outlets.
In a previous world that would have been the end of the story but those independent journalists and independent stories kept going and their light on the issue forced the media to cover what was emerging as a huge story.
The Special Rapporteur was an attempt by Trudeau and the PMO to white wash the issue but even a former Governor General wasn’t able to change the channel.
The PMO in concert with a lawsuit from Han Dong forced Sam Cooper to leave Global in another attempt to shut down the story.
We reach this conclusion of what the PMO was aiming for by looking at how the PMO used to work, how chief staffers used to brief, and what the PMO has become today.
In essence we have learnt that the way Trudeau gets briefed from Vigneault’s two appearances paints a picture of this government wanting the story to go away because it was decided it should not be a political problem yet it became one anyways.

Quote of the Week

“I guess one way to beat the high cost of groceries in Canada is to take a government work trip and bill taxpayers for fancy airplane food.” - Canadian Taxpayers Federation Federal Director Franco Terrazzano on Trudeau’s lavish diplomatic trips around the world

Word of the Week

Downgrade - an instance of reducing someone or something's rank, status, or level of importance

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Show Data

Episode Title: Downgrade Diplomacy

Teaser: BC gets another credit downgrade, Alberta battles the federal government over municipal control, and Trudeau’s South-East Asia trip cost $2M. Also, the CSIS director testifies that the Trudeau government did know about foreign interference.

Recorded Date: April 13, 2024

Release Date: April 14, 2024

Duration: 51:55

Edit Notes: None

Podcast Summary Notes

Duration: XX:XX