What we don’t see won’t cost us

What we don’t see won’t cost us

by: Jamie Newman

I consider myself a realist but realistically I waver between optimism and pessimism.  I try to be optimistic but often reality sets in making me realistic and sometimes pessimistic.  I believe optimism has its place; when hard times hit, a little optimism and pro-activity are just what’s needed.  For those making the decisions on how our tax dollars are used, there is no place for optimism; realism based on objective, comprehensive and sound evidence is necessary for optimal decision-making.

Politicians make their bread and butter by espousing optimistic hopes and dreams.  ‘If you elect me you shall never have to worry again.’  Well – we shall have to worry if they plan on fulfilling all these promises when the campaign is over.   It is this myopia on the part of our decision-makers that has created severe debts and growing deficits in most developed nations.  The ‘spend now and it will be fine later’ Keynesian philosophy has been outed for what it is – passing the buck to the future.  The future is now and optimism is irrelevant.

Economic Impact Analysis (EIA) is a tool used to determine the worth of potential projects.     For those of you unfamiliar, EIA (in its many forms) identifies all the potential economic activity that will be generated from a certain investment (e.g. building a stadium).  They typically consider direct economic benefits (e.g. job creation, increased revenue for materials retailers, ticket sales, vending sales etc.), indirect economic benefits (e.g. additional revenue for the business community due to attraction of tourists) and induced benefits (e.g. improved spending power for employees).   Virtually always these studies lead you to believe investment is justified; how could they not when goods are bought, jobs are created with incomes used to buy things, which creates more jobs and the cycle of rainbows and sunshine continues.

What these studies fail to recognize is that people are currently working and buying in their communities.  The infusion of public dollars does not all of a sudden create an economy.  Businesses and people are currently looking for opportunities to make money. Government investment can actually prevent them from capitalizing on viable opportunities that would otherwise be available.

They also fail to recognize that there are thousands of other areas and initiatives where public investment is welcome and may be better utilized.  The lost opportunity of investing elsewhere is called the ‘Opportunity Cost’ and is an essential consideration for any investor.  EIA leads us to believe there is a mountain of money sitting around waiting to be plucked and will not be used for any other purpose.  Either that or they are willfully ignorant to alternative projects to justify one in particular.

A Stadium Now, Prosperity Later?

The Halifax stadium debate has prompted me to write this bit.  For those of you unaware, council is trying to get the funds in place to build a stadium to host the FIFA Women’s World Cup.  They are lobbying the Nova Scotian and Canadian governments to chip in for this project.  To provide evidence that this is a sound investment, HRM council has invested $375,000 in the report Halifax Stadium Analysis.  Phase 2 contains an EIA which describes the GDP growth, job creation and increased tax revenue associated with building and operating the proposed stadium.  All of these figures reveal overwhelmingly positive outcomes which would suggest we would be crazy not to invest.  Crazy if we weren’t aware of the exaggerations this report relays.

Starting with Job Creation, the study states 380 in-province and 98 out-of-province person years of employment will be created for construction.  There will be 131 full-time equivalent positions for ongoing operations.  If every one of these potential employees were unemployed we could then consider most of this an economic benefit.  Unemployment is not running rampant in the retail and construction industries, meaning many stadium employees will be harvested from other businesses.  I am not disputing that building the stadium will produce jobs but this study does not tell us how these jobs will impact other businesses in HRM and the surrounding region.  This is essential to determine the benefit of job creation on the community and exaggerates it to the intended audience (e.g. provincial and federal governments who are being asked to chip in).

The reported gains in GDP do not consider the impact on GDP if this money were invested elsewhere.  What if HRM were to use the stadium money to improve garbage collection and disposal? Or for establishing better practices in agriculture?  Or for our schools to better educate our children?  Or in our hospitals to provide better and cheaper care for our sick?  Who knows exactly how much benefit these investments would reveal but this study fails to recognize these opportunities exist.   Council must make tough decisions all the time on how to best to serve HRM residents.  EIA can identify some potential benefits of investment but they cannot tell us whether a project gives us the best bang for our buck.

I cringe when I think about the $375,000 spent on this study.  Good decision-makers know that Benefit-Cost Analysis is a much better tool for assessing the worth of a project.  It considers all impacts of a project, how they affect other aspects of the community (e.g. the labour market) and the Opportunity Costs.  It is baffling why HRM would choose to fund an EIA over a Benefit-Cost Analysis if good decision-making was their objective.  If advocacy is their objective, their decision becomes much clearer.  The results are often ambiguous from the get-go when conducting a Benefit-Cost Analysis.  They often reveal a project would yield a net cost which may deter decision-makers.  EIAs almost always suggest a project will create significant economic return, far and above the fiscal costs.  Maybe council is more interested in advocacy on this issue rather than cold hard facts – a rosey picture rather than a schematic diagram.

To justify writing this piece I conducted an extensive EIA of my own.  I estimate that approximately 12 people will read this.  If every one of those people is convinced that EIA should not be used for policy-decision-making, they convince two friends, and those two friends convince another two friends each and so on and so forth, there will be enough people to get our politicians ears.  If we tell them we will not accept EIA to be used to justify investment of our dollars and they listen, waste or pork-barrel spending will be significantly reduced.  Projecting these savings over say a thousand years this paper is worth approximately $100 trillion, give or take.   Now that the piece is written and realism has set in, I will settle for a couple of, ‘hmm, that’s interesting’s.

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Evidence guides the way

Progress from here! Progress from where?

by: Jamie Newman

Measured progress and accountability are keys to education success

 

For nine years, AIMS and Progress have been presenting a broad set of information about high schools throughout Atlantic Canada. We do this to keep our education providers thinking about progress using good evidence to guide the way.   It’s our intention that you use these report cards to ask tough questions of your school boards and schools. Why do students get high marks from teachers but fail provincial exams? Why aren’t students prepared for university studies? Why is it difficult to keep students coming to school?   These questions establish a greater level of accountability regarding issues that will impact us profoundly in the future. AIMS has been instrumental in influencing our education system to collect and present evidence of their performance. Every Atlantic Canadian province now has some province-wide assessment, provides public access to some performance information, and is collecting more performance information than when we started in 2002.   This year Holland College has joined the ranks of Atlantic post-secondary institutions providing performance data for students. We now receive first-year students’ academic-achievement information from 21 of the 23 post-secondary institutions in Atlantic Canada (only the University of Prince Edward Island and Université de Moncton are MIA). Also, New Brunswick Community College has improved its reporting system to allow distribution of average marks rather than just pass-fail rates.    But as we make strides in one area, we’re knocked back in others. New Brunswick’s anglophone sector eliminated its senior-level provincial assessments six years ago.  Although they currently remain for the francophone sector, they may be in jeopardy. Financial problems for Nova Scotia’s Department of Education may threaten provincial exams. The 2008/09 language arts exams were assessed by classroom teachers rather than the typical unbiased, centralized markers. This is emblematic of an assessment regime under threat.   So the battle continues, but we’re happy to carry on the fight. In these times where fiscal constraint by our public bodies is necessary to avoid bankrupting future generations, or even this generation, all spending is up for review. Some see assessment and evaluation of public services as a prime target for cuts. But the cost of knowing if and how well a public service is achieving its objectives is miniscule compared to the cost of not knowing.

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Provincial School Performance Summaries  

New Brunswick anglophone  

Provincial exams and school marks are not made available for New Brunswick anglophone schools, making post-secondary achievement the sole academic achievement indicator. This means changes in the performance of students in their first year of post-secondary studies have a significant impact on final ranks and grades.   St. Mary’s Academy took top spot. In the previous edition, no final grade could be computed because not enough graduates engaged in post-secondary studies to provide reliable post-secondary achievement results. Enough results were available for 2008/09 to include an average score for St. Mary’s Academy, which achieved second in absolute terms and fourth when adjusting for their circumstances. This, coupled with their continuing strong performance in keeping students engaged, allowed them to achieve the top spot and the only A.   Doaktown Consolidated High School moved up 11 spots and from a B to an A-, primarily due to the improvement of their graduates in post-secondary studies. Peticodiac Regional School fell from the top spot but improved from a B+ to an A-. Their fall from first to fourth is a consequence of other schools improving more significantly rather than a decline in their performance.   Chipman Forest Avenue School fell from the middle of the pack to the bottom, primarily due to newly included post-secondary participation rates; they have the third-lowest post-secondary participation rate. They also saw a decline in the average marks for graduates who did attend post-secondary studies.

New Brunswick francophone  

New Brunswick francophone schools demonstrate little variation in performance; 20 of the 22 had grades between B and C+. No school is dominating in all aspects, and no school is down and out. This means that slight variations in performance can result in significant rank fluctuations.   Saint John’s École aux Quatre Vents demonstrated slight improvements in post-secondary achievement and both provincial exams, which gave them the boost to first overall and the only B+.    A final grade and rank for École Carrefour Beausoleil was available this year due to the inclusion of post-secondary achievement. Despite relatively poor performance on this indicator, their high performance with regard to provincial exams and keeping students engaged in learning earned them third overall spot and a B. École L’Odyssée remains at the bottom of the pack, primarily due to poor performance on provincial exams and post-secondary achievement.

Newfoundland and Labrador  

For the third year in a row, J.M. Olds Collegiate in Twillingate remained in the top spot and maintained its A-. Last year’s second- and third-ranked schools, Gonzaga High School in St. John’s and Bay d’Espoir in Milltown, both dropped in rankings, from second to sixth and third to 24th, respectively. In Gonzaga’s case, this is a result of 25 more schools receiving a final grade rather than of a decline in performance; Bay d’Espoir is due to a decline in performance. For the most part, these newly included schools received a final grade and rank because the post-secondary indicator was included for more schools.   Jane Collins Academy, last year’s third-last-ranked school, improved from a C to a B-. This is largely due to their significant improvement on provincial exams and post-secondary achievement. Appalachia High School remains at the bottom for the third straight year due to poor performance in keeping students engaged and training in essential competencies.

Nova Scotia English  

After a three-year run at the top, Cape Breton Highlands Academy has been knocked off by Dr. John Hugh Gillis Regional School, driven by their greatly improved top rank on post-secondary participation accompanied by continued strong performance in most other areas. Cape Breton Highlands Academy fell only slightly to second place and still demonstrates a great ability to keep students engaged in learning and train in essential competencies.   Charles P. Allen High School fell from second to eighth but is still achieving excellence in absolute terms, ranking second in engagement and achievement. This drop demonstrates they’re performing slightly worse considering their advantaged circumstances.  Oxford Regional High School falls from a C+ to a C- to find themselves at the bottom.  Despite their overall performance, they’re ranked second in the province with regard to their math provincial exam results.

Nova Scotia Conseil scolaire acadien provincial

We were unable to include 2008/09 data for Conseil scolaire acadien provincial schools, resulting in only one school meeting the requirements for a final grade and rank. These results represent the 2006/07 and 2007/08 school years. Look beneath the final ranks and grades to see how these schools performed in specific aspects of education delivery.

Prince Edward Island

The participation of Holland College for the first time infused the post-secondary achievement indicator for Prince Edward Island. Enough graduates’ results were available to double the number of schools with post-secondary achievement results from five to 10, allowing calculation of final grades and ranks for those 10 schools.    Souris Regional School topped the ranks due to their high post-secondary achievement and school marks results. Kinkora Regional High School received the lowest grade, C-, due to having the worst post-secondary achievement and school marks results.

A deeper understanding  

While comparing schools using this resource, a number of questions may arise. For answers or to gain a deeper understanding of the results, please see the 9th Annual Atlantic High School Report Card results and supporting materials document at www.AIMS.ca. We encourage everyone using these results to read this document.   The next step is to use this resource to improve your schools. We hope you have many questions about why your school performs the way it does, and that you voice them to principals, superintendents, school board trustees, and education bureaucrats. Your concern and action is crucial to improving education in your schools and province.
Read AIMS’ Ninth Annual Atlantic Canadian High School Report card at: http://www.aims.ca/en/home/reportcards/ACHSRC/RC9.aspx

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Sustainable growth starts here

Sustainable growth starts here

A lot has been said about the tax dollars spent on the shipsstarthere campaign. Very little has been said about the $500,000 spent by the Irvings. Those funds represent the first tangible return on this opportunity, the first instance of the “multiplier” in action. Certainly the public relations firms, web designers and sign printers involved appreciated the business.

The Canadian government has been explicit about their intention to leverage our ongoing national need for ships into the base for a vibrant, sustainable, world leading ship building industry. They have done their part. First by letting a few very large long term contracts instead of a series of signficant but largely patchwork smaller deals. Second, and this was a near miracle, keeping politics largely out of the process of awarding those contracts.

Now it’s our turn. The Irvings showed the way, by putting their own money at risk to engage the community and market our skills to the world. Others are following suit. Small and medium companies alike are trying to identify the components and the likely quality standards that will be required to be sub-contractors on this project. This is a natural extension of what we learned from our offshore opportunity: that our region is small and local contracts are limited as a consequence, but that the skills and expertise built on those contracts open up a huge vista for global work. Our revenues from the offshore are declining, as will the federal spending on ships, but our offshore service industry is still here, and the goal is to ensure our shipbuilding capacity outlives this first 25 year contract. I trust the folks on the current trade mission in Israel are enquring about the age of the Israeli coast guard fleet.

What else can business do to help our province maximize this opportunity? Well, they can throw a party, as the Halifax Chamber is about to do. That is not sarcasm, boosterism is important, just ask the companies who funded Calgary Mayor Nenshi’s recent across Canada dog and pony show. Indeed, that was almost entirely what the shipsstarthere campaign was about and it was a huge success in that regard. Its success rivals that of the smartcity campaign of almost a decade ago.

Of course, the smart city energy died out, even as smart industry continued to grow in our region. That is our second biggest challenge today, sustaining the shipsstarthere enthusiasm and using it to leverage growth in other, unrelated, sectors. Gordon Stevens from Uncommon Group has suggested that two ways to do this are for consumers to spend and businesses to hire. That’s a good place to start. He would prefer you buy “local”; I am content if you just buy, but either way, get out the debit card please.

On the hiring front, yes take the leap, but while you are it lower the bar. We have a  talented workforce who may not have five years experience or who may have fewer working years ahead than they do behind them. In either case, learn from the Irving example and share some of the risk. Model successful companies who hire and grow their workforce, unafraid to lose a well trained “investment” to a competitor because they are confident in their ability to attract a similar investment away from the competition in return.

On that “skills” theme, I hope parents, young people and society alike will use the shipsstarthere resources to revaluate the skilled trades. I have always been struck by the disconnect between people complaining about the outrageous rates they pay for plumbers, electricians and carpenters and the disregard we have collectively held for these, and other, skilled trades as the basis for a prosperous and well rounded life. We have spent at least two generations pushing everyone to go to university. But such a one-track mind has predictable results: high student debt loads, high student unemployment, “education inflation” (a degree isn’t worth what it once was), and a shortage in skilled trades people. Aerospace and the offshore helped put a dent in our collective bias against skills, here’s hoping ships can torpedo it entirely.

Finally – and this will be the hardest of all – don’t demand government start spending this money. With a $25 billion contract, and talk of $600 million added to our annual GDP and $100′s of millions added to the tax take of federal, provincial and municipal governments, it seems like nothing is now unaffordable. Nothing could be further from the truth. We have deep, structural issues on all of our government’s books. This contract and its spin-offs give us a good chance of fixing those problems, but not if we keep demanding ever more spending and ever lower taxes. Business can help set an example by tempering their own expectations for new boutique tax credits or targeted incentives.

Restraint, prudence, and sustainable growth – like ships – start here.

 

Charles Cirtwill is President of AIMS, an independent economic and social policy think tank based in Atlantic Canada.

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MP should take course in Economics 101

MP should take course in Economics 101

by: Dianne Kelderman

The issues our Member of Parliament raised in the Truro Daily News  (Small Business Week, October 15th) are important issues for Atlantic Canada. They are issues of economics, vision and leadership.

Surely, our Member of Parliament is not suggesting that exporting our young talent to Alberta is good for the economy of Nova Scotia?

If he is, then I respectfully suggest that he take a course in Economics 101, and/or perhaps drink less of the Ottawa Kool-Aid.

The empirical evidence and research clearly shows that a “remittance economy”, such as the one our MP seems to be suggesting, is not an effective economic development strategy, nor is it good for families and communities. It may work , if indeed we were recruiting people to “come here” with their skills and talents, at the same or similiar rate that we are sending our people “there”. But that is not the case.

A strong economy, one based on sustainable growth, involves as a minimum, three things:

A strong Country – based on economic opportunity and diversity

Strong Regions – based on economic opportunity and diversity

Brain circulation, labour mobility & capital

Perhaps what our MP meant, is that opportunity in Alberta represents opportunity here?

Our cost of labour and capital are lower here; and accessible, cost effective transportation and infrastructure is largely in place across the country. Many of our companies are already making product here and shipping it West. More of us should follow their lead!

Creating jobs, opportunities and income “here” from opportunities “there” – that is sustainable economic growth!

Building a vibrant East by meeting the needs of a vibrant West, is an economic model worth chasing.

Simply sending home a cheque to the wife and kids (or the husband and kids), while important, dosen’t cut it as an economic development strategy.

 

Dianne Kelderman, M.A, M,ED, M. CED

President, Atlantic Economics

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After Hydro-Quebec, NB Power returns to its past

After Hydro-Quebec, NB Power returns to its past

by: Gordon L. Weil

The demise in 2010 of the proposal to sell NB Power to Hydro-Quebec left the New Brunswick government with the challenge of reforming its electric utility to operate more efficiently with less debt.

The Progressive Conservative government to which that task fell was new, having been elected in part because of the public’s opposition to the sale and the resulting loss of provincial control. Now that government has announced what it will do in its “Energy Action Plan.”

Most attention has been focused on its decision to reassemble NB Power from the various parts – generation, distribution, transmission, and nuclear – into which it had been broken. The purpose of the separation was to allow for open competition among electricity suppliers on NB Power’s wires, which alone would remain subject to regulation.

In its policy statement, the government concluded that “the competitive electricity market model has not worked for New Brunswick.” But it fails to note that the principal reason is that NB Power was dismantled only in theory not in fact. By capturing almost all transmission rights for itself, the generating company managed to limit any potential competitors. And the separate NB Power companies shared the same board and president.

So there’s less to this reunion than meets the eye. It will make little practical difference other than to signal that the promise of creating competition in electricity has been abandoned. NB Power will own all the generation and all the wires in the province.

How can people be sure that the utility will work to keep rates down? The new plan provides for improved, professional regulation and a permanent public energy advocate. But the government of the day will still be able to override them, so their independence may be limited.

The government cites the lower residential customer rates in the province compared with other areas, though this is partly due to NB Power having borrowed to pay utility costs rather than raising rates. Most customers do not care so much about rates; they care about the size of their bill. And electric bills in New Brunswick are high, because of the use of electric home heating. For example, average household use is almost three times as high as in Maine.

The government’s Energy Commission recommended that, above a certain level of usage, a higher electric rate should be applied to encourage people to shift some of their usage away from electricity. The lower rate would cover “needed use” but would be small enough to encourage conservation. Likely, as a result, less new electric heating would be installed. The government flatly rejected this proposal, thus refusing the measure most likely to promote electric efficiency.

Another reason that rates may not come down is the decision to allow NB Power to use revenues derived from any efficiency improvements in its operations to build up equity and rely somewhat less on debt, accumulated by its excessive use in the past. This should help with the debt problem.

The previous restructuring of NB Power included creating the NB System Operator (NBSO), an independent body with its own board and officers responsible for maintaining system reliability and fairness in the power market.

To sell power into the U.S. market, NB Power must meet certain American requirements. The most important is that it must provide open access to its transmission system for those who want to sell at wholesale – say, to the Saint John or Edmundston municipal utilities – or who want to transmit power across its system. The NBSO was the guarantor that would be possible. The government admits that, with its elimination, somebody other than NB Power may end up having to assure reliability and monitor open access.

The NBSO could also have provided the nucleus of a long-discussed Atlantic Canada regional market. By sharing the use of transmission resources regionally without affecting ownership, it might be possible to realize economies in what is a comparatively small electric market. This idea was gaining some ground, but it will recede because of the loss of the NBSO, one of the few real assets created when NB Power broke up.

Most of the remainder of the new plan with respect to electricity consists of expressions of good intentions about the use of renewable resources, cooperation with other provinces, and appliance and building standards. There is no mention of reducing electric heating.

After turning away from the Hydro-Quebec deal, New Brunswick seems to be turning in on itself. The general message of the plan is that the provincial power policy will be inward looking. The historic NB emphasis on power exports is absent, and regional cooperation is downplayed. The competitive effort is abandoned. NB Power returns to a distant past.

 

Gordon L. Weil is president of Standard Energy Company of Maine, and author of several studies on the regional electricity grid for the Atlantic Institute for Market Studies.

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