Government borrowing has limits. These are reflected through credit ratings and interest charged.
As debt servicing takes bigger slices of annual budgets, all government services are affected. When this segment of budgets gets hit with higher interest rates, as is going to happen in the future, further cuts to programs and capital projects will become necessary.
It's time to consider Manitoba's long-term debt priorities.
Manitoba Hydro has proposed borrowing some $22 billion over the next decade. But when were their estimates ever correct? This threatens Manitoba's debt capacity, especially when loans will be required for other unavoidable expenditures.
This competition for increased debt is actually going to happen. The cost of weather-related catastrophes and the long-term adaptation to a changing climate, combined with aging infrastructure are going to place huge demands on public debt.
In the last two years, major weather events have caused deadly and stunning damage all over the world. Southeast Asia has been hit with savage floods, Africa with devastating droughts, Western Europe with unusual winters and all of North America with both droughts and flooding in the same year in different places, on top of hurricanes and tornadoes. Major flooding recently devastated Calgary and nearby communities. Vancouver, hard as it is to believe, just experienced 34 days without any rain, the longest dry period since 1937, when data began to be collected. Fredericton, on the other hand, had the wettest July on record, a total of 226 millimetres.
At home, two serious tornadoes and a heavy rain event in the Pipestone area this year is testing the endurance of residents. Flooding along the Souris and Assiniboine rivers in recent years affected both Lake Manitoba and Lake Winnipeg. Lake Winnipeg is the recipient of nutrients that "normally" remain in farm fields or are absorbed in marshes. Heavy runoff has changed this pattern.
Individual major storms passing through the midwest parts of North America are now carrying a volume of water equivalent to some of the continent's largest rivers. They're like an airborne stream suspended above us, ready to dump.
Although reduction in greenhouse-gas emissions will dampen warming over the long run, there will be little impact in the next few decades. Society will need to find ways to avoid, mitigate or adapt to this inevitability.
In the case of Manitoba (at the bottom of the catch basin), the outlook is more fluctuation in climate, particularly in the form of increases in the frequency of drought as well as excess precipitation, topped off with severe weather events.
Avoidance, adaptation and mitigation will be costly and involve virtually everyone.
Homeowners, businesses, local governments, provincial governments and the federal government will all have to become involved. Some of the projects will be expensive, such as construction of new holding basins, reconstruction of old marshes, returning some portion of farmlands to a riparian state and moving some homes and facilities to higher ground or building higher ground for them to sit upon.
Initially, as is now the case in Alberta, governments need to take the lead, but after compensation is paid for either relocation or flood-proofing, individuals who have defied both nature and the warnings of governments will have to be on their own, as governments cannot afford to subsidize in perpetuity their inability to see reality. Rightly, Alberta has made this very clear. Taxpayers will have enough on their plate without rewarding the obstinate.
Funding these projects, whatever they may turn out to be, will cost considerably in excess of annual government revenues. That means going into debt.
The extent to which the Manitoba government, in particular, can move in this direction will be a direct function of how much debt it already has. Increased debt from proposed Hydro projects alone could affect its credit rating. Given recent acknowledgements by insurance companies that weather events have hit them hard, why would lenders readily accommodate governments who have not been able to take long-run factors beyond energy into account?
Some 15 years after the fact, Ontario hydro users are still being billed for "stranded debt." These are the debt costs incurred by Ontario Hydro (a utility now divided into three entities in an effort to sort out immense debt problems) that exceeded the utility's ability to pay.
Hopefully, Manitoba's Public Utilities Board will consider some of these long-term factors when reviewing the viability and need for alternatives in the case of Keyask and Conawapa.
The late Dr. Clay Gilson used to describe a cash- and debt-strapped farmer's dilemma as having to choose between false teeth and a new boar for the hog enterprise. Manitoba may not be far from a similar dilemma.
Imagine having surplus power and not enough borrowing capacity to fight a flood, let alone mitigate future threats.
Manitoba needs to give high priority to long-term debt planning, while avoiding the seductive aspects of current low interest rates.
Are Bipole III and other proposed Hydro projects really needed at this time? Will Manitoba electricity users accept a "stranded debt" line on their hydro bills while paying increased taxes for past excesses and current emergencies?
Jim Collinson is a management consultant specializing in the complexities surrounding energy, economic and environmental issues. For two terms, he was president of the UNESCO World Heritage Committee.