The mandate of any politically elected government is to serve and protect all the people in their jurisdiction. One of the key requirements is wise use and investment of the funds, so financial competence is necessary for good stewardship. With this in mind, I thought I would look for 12 of the most costly financial decisions/mistakes over the last 10 years. Since the Ontario Provincial Liberals have been the only party in power in the last 10 years, they can be held accountable for the outcome of these decisions.
#1 Provincial Debt – Ministry of Finance – $143.35 billion increase since 2003
The projected budget for Ontario for 2014-15 is $127.6 billion in expenses with $117 billion in revenue so with deficit financing the government will add $10.6 billion to the Ontario provincial debt. This is in addition to the existing $276 billion provincial deficit, approximately $20,500 per person.
Ontario’s net debt – the difference between total liabilities and total financial assets – has more than doubled under the Liberal leadership. In 2002 -2003 the net debt was $132.65 billion but has increased to $276 billion by 2014, so the Liberal government has added $143.35 billion to the provincial debt
The negative consequences of a large debt load include debt-servicing costs which divert funding away from other government programs; a greater vulnerability to any interest-rate increases; and a potential credit-rating downgrade which could make it more expensive to borrow. Our children and grandchildren will pay more taxes and have fewer options because of this increasing debt load.
#2. Feed in Tariff (FIT) subsidy paid to multinational industrial wind energy corporations – Ministry of Energy – $1.6 billion per year for FIT contracts for wind energy plus $2 billion per year for discounted surplus hydro, so over the 20 year contracts $72 billion
The Renewable Energy Initiative as structured by Energy Minister George Smitherman will cost the rate payers of this province $1.6 BILLION per year in Feed in Tariff (FIT) contracts for wind energy for the next 20 years. We have the highest electricity rates in North America – a fact that is driving commerce and industry out of this province.
Our electricity system is transitioning from “power at cost” which was the HEPC and Ontario Hydro mandate, to “power for profit” as private for profit, frequently multinational corporations gain control of the electricity grid.
As of Sept 2014 the Ontario Power Authority was managing 5,697 MW of combined capacity from wind projects, 3,066 MW in commercial operation and 2,631 MW under development
To calculate the FIT subsidy paid to the multinational industrial wind corporations multiply the MW x efficiency x hours per year x rate. So 5697 MW x 27% operating efficiency x 8760 hrs annually x $119.35/ MW = $1.6 billion annual subsidy to be paid each year for the next 20 years! The cost is part of the Global Adjustment fee on all consumers’ electricity bills.
Renewable energy is intermittent – industrial wind turbines require wind and solar requires sunshine, so renewable energy can not be counted on to provide base load power. This means that an alternative source of base load power, frequently natural gas plants must be operating on standby, so in effect we are paying for two systems to run more or less simultaneously.
The upgrading of the infrastructure – transmission lines – will cost $2 billion so we can transport surplus energy to New York, Quebec, Manitoba and Michigan. We have been producing surplus energy in Ontario for the last 10 years due to the loss of manufacturing with the respective loss of 350,000 manufacturing jobs. This surplus energy is being sold for $2 BILLION less than the cost of production. So people of Ontario are subsidizing the power of our neighbours while we pay the highest power rates in North America.
#3 Annual Debt Service Cost –Ministry of Finance – $10.6 billion per year
The carrying charges – interest payment – on the $276 billion provincial debt are $10.6 billion per year. Debt-servicing costs divert funding away from other government programs so money we could have spent on health care, education, infrastructure, social programs, elder care, etc. must be spent on interest payments.
A large debt load creates a greater vulnerability to any interest-rate increases. If the interest rate on the provincial debt increased by one percent the annual debt service cost would increase by $3 billion per year.
#4. $9.7 billion Samsung Deal – later reduced to $6.3 billion– Ministry of Energy
Energy Minister George Smtherman signed the $ 9.7 billion deal with the Korean Consortium – Samsung – for industrial wind turbines and solar projects, BUT no due diligence – no business plan, no input from the Ontario Power Authority or the Ontario Energy Board and more importantly – no vote by the citizens of this province. (Read the Auditor General’s Report on Renewable Energy – 2011)
This deal was untendered and sole-sourced to the consortium led by Samsung. The consortium was guaranteed rates of 13.5 cents per KWH for wind power and 44.3 cents per KWH for solar power regardless of market conditions. The deal is structured with priority access to the grid and incentives of $437 million to be paid to the Consortium over the 25 year life of the deal. The cost is included in the Global Adjustment portion of the consumers’ bills.
This is the third scandal that is directly attributed to George Smitherman – EHealth and ORNGE both occurred when he was Minister of Health.
#5 Debt Retirement Charge on Hydro 2002 – 2014 – Ministry of Energy – $7.6 Billion – $15.6 Billion in interest charges.
In 2002 the residual stranded debt from the restructuring of hydro was $7.8 billion. The Electricity Act, 1998 authorized a new Debt Retirement Charge (DRC) to be paid by electricity ratepayers until the residual stranded debt was retired.
Collection of the DRC began on May 1, 2002. The rate was established at 0.7 cents per kilowatt hour (kWh) of electricity and remains the same today. Currently, the Ontario Electricity Financial Corp. (OEFC) collects approximately $950 million a year in DRC revenue. As of March 31, 2014, approximately $11.5 billion in DRC revenue had been collected. The 2013 Ontario Economic Outlook and Fiscal Review reported $3.9 billion of residual stranded debt still owing as of March 31, 2013.
Energy Minister Bob Chiarelli announced that the debt retirement charge will be removed from residential consumers’ electricity bills on Jan. 1, 2016 but non-residential electricity users, including large industries, will still have to pay the debt retirement charge until 2018. So over 12 years consumers paid $11.5 billion but only reduced this debt by $3.9 billion!
The Province has earned .67 cents for every dollar they borrowed to acquire OPG and Hydro One but the consumers pay the interest carrying costs so pay $3.00 for every $1.00 of the “stranded debt reduction”. This creative financing means that the Finance Ministry will collect $23.4 Billion from the ratepayers to pay the original residual stranded debt of $7.8 Billion.
#6 Infrastructure Ontario – $8 billion
In the Auditor General’s Report – 2014, Bonnie Lysyk was critical of the way Alternative Financing and Procurement [AFP], otherwise known as PPP (public private partnerships) was measured. The report suggests that Infrastructure Ontario (IO) overspent, costing taxpayers $8 billion in tangible costs. The following is an excerpt from the report:
“For 74 infrastructure projects (either completed or under way) where Infrastructure Ontario concluded that private-sector project delivery (under the Alternative Financing and Procurement [AFP] approach) would be more cost effective, we noted that the tangible costs (such as construction, financing, legal services, engineering services and project management services) were estimated to be nearly $8 billion higher than they were estimated to be if the projects were contracted out and managed by the public sector.”
According to the March 31, 2014 annual report IO has $4.8 billion in outstanding Loans Receivables with $1.6 billion of those having terms over 20 years. The “Loan valuation allowance” or what a bank calls “allowance for bad debts” is a meager $11 million and presumably does not include any allowance against the MaRS debt of $215 million.
The IO’s website delivers little information on those loans -“Since 2003, Infrastructure Ontario’s Loan Program has supported the development of more than $9.4 billion in local infrastructure projects – from the construction of roads, bridges, arena complexes, and long-term care homes to the acquisition and installation of capital assets like fire trucks, smart meters and energy efficient lighting.”
The IO March 31, 2014 annual report indicates Loans to “Local Distribution Corps” are $241 million (smart meters, etc) and “Loans to Power Generators” $120 million with $28 million lent to “District Energy”. The latter loans are classified by IO as “Tier 3” risks which they note are: “Tier three borrowers are organizations dependent on self-generated revenues either by market-set prices or donations and fundraising.” Considering the MaRS loan has a better loan classification (Tier 2) more public information is needed on lesser Tier 3 grade loans.
#7. The Ontario Lottery and Gaming Corporation (OLG) – $4.3 Billion
The Ontario Lottery and Gaming Corporation (OLG) scandal certainly made headlines in 2011. This dysfunctional crown corporation was the subject of damning reviews by the Ontario Ombudsman and the Ontario Auditor General and was plagued with scandals ranging from expense abuse to insider wins. Estimates in excess of $4.3 billion misplaced or misspent have been reported.
Millions of dollars, originally intended to stimulate Ontario’s economy were wasted on gym memberships, liquor tabs and car detailing. Many OLG executives, earning salaries in excess of $200,000, used taxpayer dollars to buy clothes, golf club memberships, and expensive dinners.
The Ontario Auditor General’s report can be found at http://www.auditor.on.ca/en/reports_en/OLGC_en_web.pdf
#8. Smart Meters and Smart Grid – Ministry of Energy – $3.5 billion
According to the Auditor General (2014) the Smart Metering Initiative has spent nearly $2 billion of electricity ratepayers’ money, nearly double the amount projected in 2005. The intended outcomes of significantly reducing electricity peak demand usage using smart meters and time-of-use pricing (TOU) rates, and of reducing the need for new sources of power generation, have not yet been achieved.
Under the initiative, ratepayers were supposed to use less electricity during peak times; as a result, Ontario would not need to immediately expand its power-generating capacity. Peak demand reduction targets set by the Ministry of Energy have not been met, ratepayers have had significant billing concerns, and ratepayers are also paying significantly more to support the expansion of power-generating capacity while also covering the cost of the implementation of smart metering.
The decision to mandate smart metering in Ontario was not supported by an appropriate cost/benefit study. As a result, electricity ratepayers in Ontario are paying significantly more for this initiative in their monthly electricity bills than was originally intended.
According to the Minister of Energy, the Smart Grid – electricity infrastructure that uses technology such as sensors, monitoring, communications, automation and computers to improve the flexibility, reliability and efficiency of the electricity system. A smart grid will empower Ontarians to better manage their electricity use and take advantage of conservation and small-scale generation opportunities.
(The intermittency and unreliability of wind and solar power can cause power surges, brown-outs or black-outs creating instability of the power grid. As more wind and solar power comes on line these problems will increase. Will the Smart Grid solve these problems?)
The Smart Grid initiative is not a single project, but a series of integrated initiatives by a variety of organizations that work together to create a modern electricity system aligned with the digital age. This will give businesses opportunities to provide innovative products and services to a growing market, creating jobs and sparking economic growth. Sounds like the “ugly” twin of the Smart Meter with the aroma of eHealth so we should see some creative financing with this one – cost $1.5 billion
The Smart Meters and Smart Grid costs have been down loaded onto the consumer and are both included in the regulatory line of the consumers electricity bill.
#9. Cancelling two gas plants in Oakville and Mississauga – $1.1 Billion
The document to cancel two gas plants in Oakville and Mississauga was signed on July 29, 2011 by Kathleen Wynne (Liberal campaign co-chair), Brad Duguid (Economic Development Minister), Chris Bentley (Minister of Energy) and Dwight Duncan (Minister of Finance)
According to the province’s Auditor General Bonnie Lysyck this will cost taxpayers up to $1.1 billion. The Oakville Trans Canada plant was cancelled on Oct 7, 2010 by Energy Minister Brad Duguid and will cost tax payers $815 million. The Greenfield South Mississauga plant was cancelled on Sept 24, 2011 by Energy Minister Chris Bentley and will cost tax payers $295 million. The political career of Wynne, Bentley, Duncan and Duguid is material for another time.
#10. eHealth – Ministry of Health – $1 Billion
According to Ontario’s Auditor General Jim McCarter (2009) favouritism and oversights led to $1 billion in taxpayer money spent on eHealth and its predecessor agency. McCarter blames the frequent awarding of millions of dollars’ worth of untendered contracts — about two-thirds the value of all consultant contracts — on the government having no proper strategic plan on the actual results it wanted.
Ontario Premier Dalton McGuinty blamed lack of oversight over the agency that resulted in lack of supervision and broken rules.
According to CTV Toronto examples of misspending included $2.5 million per month to maintain inactive or underutilized network circuits; a $687,000 contract got approved by someone who did not have signing authority; consultants were paid $1,500 per day; consultants were allowed to hire other consultants — who then did so from within their own firms.
Auditor General Jim McCarter concluded that favouritism surrounding the awarding of contracts was true and about two-thirds of all contracts issued were sole-sourced.
Read more: http://www.ctvnews.ca/no-value-for-1b-on-ehealth-ont-auditor-finds-1.441264#ixzz3S0Ulk9Jh
#11. ORNGE – Ministry of Health – $1 Billion plus
According to Auditor General Jim McCarter 2012 Ontario’s governing Liberals failed to sufficiently monitor the province’s air ambulance service, despite giving Ornge hundreds of millions of dollars that it used to make questionable business deals. The Health Ministry did little to oversee the $700 million given to Ornge from 2007 – 2012. Ornge also borrowed almost $300 million to buy more airplanes and helicopters than it needed and used taxpayer dollars to repay the debt, McCarter found.
Controversy existed over high salaries, questionable business practices and allegations that public dollars may have been used for personal gain. The air ambulance service, “soon became a mini-conglomerate” of spinoff companies operating with little or no government oversight. Some of these companies were owned by Ornge’s president, senior members of its management team and its board of directors, creating opportunities for potential conflict of interest.
According to Auditor General Jim McCarter Orange is a textbook example of what happens when the government does not get the information it needs to properly do its job. McCarter said he has not been given access to the paper trail from all the Ornge spinoff companies, meaning he has not been allowed to review details of a $5-million payment from an Italian helicopter maker. That payment is now the subject of a criminal probe by the Ontario Provincial Police.
One of Ornge’s for-profit subsidiaries purchased a building for $15 million to serve as Ornge’s headquarters, and then leased it back to the publicly-funded agency at a rate that was 40 per cent higher than fair-market rent. That allowed the subsidiary to obtain $24 million in financing for the building, $9 million of which was intended to flow back to a related for-profit company that was owned by a senior Ornge manager.
In addition to the criminal probe and McCarter’s report, the Ministry of Health’s emergency health services branch is also investigating 13 incidents related to air ambulance transports, three of which involved the deaths of patients.
According to the Toronto Star Chris Mazza was making $1.4 million a year, making him the most highly paid public official in the province. The salaries of other executive members were all kept off the Public Sector Salary Disclosure list of those who make over $100,000 a year, a document intended to make the government more accountable to taxpayers.
Ministers of Health and Long-Term Care – George Smitherman (October 23, 2003 – June 20, 2008), David Caplan (June 20, 2008 – October 6, 2009), Deb Matthews (October 7, 2009 – June 2014), Eric Hoskins (June 2014– )
#12. $700 million per year for outside information technology consultants
According to NDP finance critic Catherine Fife in Oct 2014 the Ontario’s Liberal government is spending over $700 million a year on outside information technology consultants. The province has $130 million worth of fee-for-service deals with nearly 1,500 IT consultants, and another $570 million in contracts with large tech companies, on top of its own staff of 3,600 IT professionals.
“Many of these private IT contractors perform the same tasks as the IT staff currently employed directly by the government, except they cost two to three times more,” Fife told the legislature.
There’s been a 63 per cent increase in the use of private IT consultants by the province in just five years, despite a government-commissioned report in 2012 that found IT services can cost up to three times as much when provided by the private sector, added Fife.
Read more: http://www.ctvnews.ca/politics/ontario-liberals-making-huge-mistake-spending-700m-on-it-consults-ndp-1.2075344#ixzz3S0JqWU90
If we look for potential future fiscal waste the Pan Am Games 2015 has a $1.4 Billion budget. In Sept 2013 the Toronto Sun disclosed that Pan Am CEO Ian Troop, made $477,000 in 2012 a $ 87,000 increase on his base salary of $390,000 a year for heading up the Toronto Organizing Committee. Plus he will receive 200 per cent of his salary if the Games are completed on budget, according to a “completion incentive plan (CIP).”
Troop is one of 64 employees with TO2015 who stand to share $7 million in potential bonus money. Troop and senior vice-presidents get 100 per cent of their base salary for sticking it out and another 100 per cent if the capital and operating budgets are met. Percentages are lower for other positions.
According to Bonnie Lysyck in the Auditor General’s Report 2014 – Decision-makers Must Have Timely, Accurate and Appropriate Information
Having timely, accurate and appropriate information is essential to making effective decisions and undertaking the right actions. Unfortunately, in the majority of our audits this year, we noted that many decisions were made without the benefit of complete and accurate information. Along with this, we saw significant investment in computer applications where the expected accuracy, quality and usefulness of information have not yet been achieved, yet the costs spent on development have exceeded their initial budgets.
As of Feb 23, 2015 Moody’s Investors Services is again warning Ontario on its debt burden. Moody’s first assigned a “negative” outlook to Ontario in July 2014.
It’s really the “magnitude of the challenge” Ontario faces in getting its fiscal house in order that makes the difference, says Michael Yate, a senior analyst with Moody’s in Toronto. Ontario aims to balance its provincial budget in 2017-18, but its debt has increased significantly since 2009. The province’s fall budget update again forecast program spending that will boost the debt further, Yate said.
He forecast the Ontario government’s debt would amount to 244 times its total revenue by the end of this year.
Ontario has a “tendency to delay” expenditure restraint until the end of the period when it expects to balance its books, Yate said in his report. The province has a backlog of infrastructure spending that could further boost its expenditures.
Ontario Finance Minister Charles Sousa says the report reinforces the challenges he has been talking about for the past two years … “What I want to do is ensure we put our house in order by looking at our spending, looking at repurposing some of our assets to reinvest in the things that make us even more competitive long-term.”
Looks like the plan is to continue as usual, sell off some of the provincial assets (which belong to the people of this province), decrease services, increase taxes, and collect equalization payments because Ontario is financially bankrupt! This is criminal.
the opinions expressed are her own and not necessarily MAWT’s policy
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