Why did Ontario borrow more short term during the pandemic year?
Chapter 4 of the 2021 Ontario Budget is about borrowing and debt management. This topic rarely gets political attention, but it deserves attention nonetheless.
We know that Ontario will be running a budget deficit this year and for many years to come. It matters how we borrow, how much interest we pay, and what interest rate risk we take because those interest payments come from the same pot that pays for other things the province needs.
First of all, we have borrowed more money this year than ever before:
As you can see, borrowing by the Ontario government has jumped from about $40b to $60b a year and is projected in the budget to remain at that level for at least several years. This number is a combination of the yearly budget deficit, plus government debt which matures and needs to be refinanced. It means that every year, for the next few years, we will have to borrow $50-$60 billion and pay whatever the prevailing interest rate is.
Fortunately, interest rates were at historic lows this past year. As you can see, Ontario could lock in long term interest rates between 1.2% and 1.4% for much of the pandemic year.
The Ontario budget also showed what the average term of government borrowing was. Here I was intrigued by the fact that the term decreased. That means that the Ontario treasury decided to borrow more short term instead of long term. I’m not saying that was the wrong decision. After all short term interest rates in Canada went down below 0.2% for much of the year. Clearly Ontario saved money up front by borrowing short term. But I think what is important for people to realize is that we are taking more refinancing risk. When those short term borrowings mature, you may find that interest rates are higher, and you end up paying more interest.
Sure enough, in early 2021, long term interest rates went up. You can imagine a pension fund manager saying, well, now that vaccines are coming and we can see the end of the pandemic, if central banks are all targeting 2% inflation or more, why should I be stuck getting 1% interest for 10-30 years?
My question is, couldn’t the finance ministry have anticipated, before the end of 2020, that there would be years of borrowing to come and asked the treasury to increase the average term of borrowing to lock in more funding at long term interest rates?
The budget actually gives a prediction of average borrowing rates we expect to pay in the coming years. As you can see, the government is expecting the interest rates it pays to go up substantially, from 1.6% in 2020-21 to 3.2% in 2023-24:
And, quoting the budget again,
“A one percentage point change in interest rates, either up or down, from the current forecast is estimated to have a corresponding change in Ontario’s interest costs by over $750 million in the first full year.”
That’s $750m for just the first year, from the same pot that we pay for housing, long term care, or schools. It’s the same pot of money that pays for child care, hospitals or public health.
Granted, it’s not an easy decision to make - trading off short term gain for long term risk.
But the federal government in its April 2021 budget decided to significantly lengthen the average term to maturity of its new debt issuance including re-opening the ultra-long 50 year bond. Why didn’t the Ontario government do the same?
Unfortunately, just before long term interest rates started heading back up in January and February of 2021, a new finance minister was only just settling in. Premier Doug Ford’s previous finance minister had to resign suddenly after he was discovered to be vacationing in the Carribean, undermining the government’s message to avoid travel during the second wave of COVID. In the wake of that unforced error, I expect the government couldn’t move to make a multi-million dollar adjustment to our debt refinancing risk. Or, to be generous, maybe the brand new minister just didn’t think of asking the question. Ontario will likely be borrowing some more money at higher interest rates.
Financing is not top of mind, politically, but getting good financing terms matters enough that politicians and voters should care. So my question to Premier Ford is, why did the average term of Ontario government debt decrease in 2020?
This week, May 2-8 is International Compost Awareness Week which began in Canada in 1995.
Here in Ontario, the previous government launched the Food and Organic Waste Framework in 2017 with an ambitious goal of eliminating organic waste from landfill by 2022.
Composting improves the soil, reduces landfill costs, and reduces methane emissions from landfills. Methane is a strong greenhouse gas.
I remember when Kingston's Green Bin program began in 2009, when I was the co-chair of the Kingston Enrivonmental Advisory Forum. Even then we knew that two areas which need work are the institutional/commercial/industrial (ICI) sector and highrise buildings, as well as overall composting capacity.
New highrises in Ontario are now required by the building code to have green-bin infrastructure. Older ones will require extra work and promotion of organics recycling by residents. Many high rises handle waste through private companies, not the municipal waste stream, so the provincial government has to get involved.
Of course there are practical problems to overcome but I hope to help move Ontario's Food and Organic Waste Framework forward so that we can divert more or less all organics from landfills as soon as possible.
Recently a member of Ontario Premier Ford's cabinet, solicitor general Sylvia Jones, was asked why they delayed issuing a stay-at-home order to control the third wave of COVID.
The Ford cabinet misunderstood how scientific models should be used. Scientists use data and knowledge to put together a model, they test it on historical data. When it seems to work, they offer it up to help our leaders make decisions, based what could happen, before people get sick and hospitals get overwhelmed.
I think that Premier Ford has made the mistake of waiting too long to act as this third wave of COVID has taken off.
BUT, there is another chance to use models at the end of this third, and hopefully last, wave. Models can be used to tell us when we can reopen our economy, and how to reopen so that businesses can be confident that they never have to shutdown again. This is the confidence that businesses need to put time and money into reopening and rebuilding. This is the confidence that we need to rebuild a strong economy so we can pay for all the social supports that we needed and will need. This is the confidence that models, used properly, can help provide.
I don’t know how many people who would have ended up in the STEM field are instead flipping houses. It’s so lucrative right now you can’t blame them, but I don’t know if, from a longer term perspective, that enhances productivity in our country.
We must improve productivity so that our economy can handle the costs of the pandemic, for example so we don't have too much inflation without economic growth, and so that governments can service the debt they have incurred and continue to pay for the things society needs.
This quote is worrisome because it suggests that people who could be innovating and contributing to economic growth are instead getting involved in the housing market. I believe the same could be said for financial resources. In my experience with small start-up companies, the amount of extra capital which would make a significant difference is comparable to what you'd put into buying a house. If the housing market is so lucrative, why would you consider investing in a risky start-up company that takes extra effort to understand?
We were dealing with the human and social cost of the housing crisis before the pandemic. The post-pandemic economic recovery must include actions to solve the housing crisis.
A statement on the recent rise in anti-Asian racism
The March 16th mass shooting near Atlanta, Georgia, and other attacks this past year, have galvanized public attention to the documented rise in anti-Asian racism here in Canada.
Many people are feeling anger and fear, if not for themselves, then for where our society could be headed. Supportive, public expressions of solidarity from across society have been appreciated as many from Asian backgrounds have been rethinking their own responses to racism.
But there is more we need to do to address all forms of racism.
Canada is a nation of indigenous and immigrant peoples. We live together, so we should take advantage of the strength that comes from our diversity. We can’t harbour hatred towards those who are different.
But not only must we live together, we must thrive together, and so when it comes to harbouring racism or any discrimination, we cannot even afford indifference. For Canada to be a truly successful country, different communities must look out for each other’s well-being and feel that others are looking out for them. Ultimately, all people must feel that our institutions and social structures are protecting them. Solidarity is built on more than equality and justice, it is built through bonds of responsibility for each other.
Some may disagree about the importance of solidarity, but I adamantly believe that if our society is to survive and thrive, no-one can be set apart, no one can be left behind. It means saying no to class wars, no to culture wars, no to dividing the nation into us and them, haves and have-nots.
To stop racism or discrimination from dividing us and growing to become hatred, we must stand in solidarity with all of our fellow citizens. That means not only speaking out and standing with targets of racism, but also building human connections across ethno-cultural, socio-economic and political divides, reconciling with those others whom it is easier to disparage or shun because of their attitudes.
Let’s build Canadian solidarity so that we can all enjoy lives with dignity, hope, and joy. Canada asks no less of us. We are all part of the Canadian family.
I would like to express my respect for members and staff of the United States Senate and House of Representatives who re-assembled and worked through the night to complete the election of president and vice-president.
I was angered by yesterday's violent and ugly assault on Capitol Hill and democracy.
These officials carried on when they could have gone home and reconvened the next day. Their actions speak to the world about the relentless need to struggle for democracy on every front.
Around the world or close to home, democracy is being challenged as people choose to accept lies or conspiracies over facts. Truth can be elusive, but we need to continually seek it, promote it, and defend it in support of our precious democracy.
This event also reminds us that our elected officials and staff should never have to fear violence while working for the people, whether it’s a lone gunman on Parliament Hill, an armed mob on Capitol Hill or trolls on social media.
I do not, not for housing in Kingston.
Our Mayor’s Task Force on Housing used the term, “A Housing Affordability Crisis” to describe where we were last year. Things have not gotten better.
Here are five points about housing in Kingston today:
1. The housing situation is not improving. One indicator is the fact that this summer, after the initial shock of the pandemic hit, average prices of residences have increased about 15% from a year ago while residential inventory on the market is at a low. This is partly because of the lack of supply and increased demand, and partly because of lower interest rates. This indicator does not directly reflect the situation for lower income households, but it doesn't offer any hope either.
The following figures apear on the Kingston and Area Real Estate Association website:
2. Visible tent communities should be a political wake-up call. The tent community at Belle park this summer was a visible reminder of the harsh housing market as well as the need to improve social support structures, but we should not be surprised by it. Tent communities have popped up in other cities in the region. And, with very little effort while I was doing research for the Task Force, I was able to hear about Kingstonians living in tents in Woodhaven, Montreal Street near the train tracks, John Machin Park, deeper within Belle Park and even a backyard near Princess and MacDonnell. These are real people who need homes in their price range, and social supports, whatever they may be.
3. Building enough affordable housing requires public funding. This conclusion is not a political statement -- it is based on looking at numbers behind the economics of building housing in Kingston today. This is what the Mayor’s Task Force did through a study of an actual affordable development in Kingston and a separate consultant’s financial viability analysis for different parts of the City. In the longer term, land use policy changes are needed to increase housing supply. For affordable housing, right now, public funding is needed.
4. Recovering means innovating. To recover from the pandemic, rebuilding our economy and our society, will require us to invent and innovate - we can’t just go backwards, right? One innovative way of building housing quickly is to use modular, factory-built, housing. The Housing Task Force noted that modular affordable housing was quickly built by an Alberta company, Horizon North, for flood victims in Grand Forks, B.C. Another company which built modular factory-built housing in London, England produced housing 20-40% below market prices. In Vancouver, a plan to build 98 units of temporary modular housing to address their homeless crisis was announced in August.
5. We need to be able to act as quickly as possible. The City of Victoria, considering the use of temporary modular housing, says in its housing strategy that Victoria should, “streamline development processes so they can be operational as soon as possible.” Separate from this modular housing idea, there was word in the news recently of a new federal program to help cities acquire distressed properties for affordable housing. A crucial aspect of this program is how to roll it out and provide shelter before winter comes.
School starts in two weeks. If you are like our family, you are both very excited to have the kids out of the house and back to learning, and at the same time very nervous about what the fall will bring. Will students and teachers be safe inside schools? Will there be another outbreak as kids mix and mingle beyond the bubbles we have become accustomed to? Will school close again in another month? There are some families who simply don’t have a choice about sending their kids back to school, and must do so. There are other families who, after weighing the risks, have decided that their kids need to stay home and learn online.
I think everybody agrees that for the sake of our kids’ development, mental health, for their families’ work and financial situation, and for safe workplaces, back-to-school has to work for everybody -- kids, families, teachers and other staff.
Since March, our local Chief Medical Officer of Health, Dr. Kieran Moore, has led an effort which has successfully contained outbreaks of COVID-19. Dr. Moore has said publicly that KFL&A public health has the resources (testing, contact tracing and, of course, public cooperation) to cope with the expected increases in COVID-19 cases after schools re-open. Public Health is working with the school boards and post-secondary institutions on plans for school re-opening. This is worth keeping in mind.
The bottom line is that we’re still in the middle of the pandemic. Since schooling is an essential activity, it has to be protected in the same way we have tried to protect the rest of our society and economy -- by deploying one-time, substantial government resources to facilitate physical distancing and to limit the extent of social circles.
Two Week Time Bubble
Whatever the final plans are for re-opening, and we all realize there are not limitless resources, there are steps each of us can take to help, starting now. The charts attached are taken from our local KFL&A Public Health website. Note the peaks for the initial outbreak in April and the “nail salon” outbreak in July. With isolation, contact tracing and community cooperation, both peaks were flattened out in about two weeks.
It seems to me that the ultimate backstop for any back-to-school plan in Kingston, which would give me confidence as a parent, is to have a low incidence of COVID-19 to start off the school year.
What we all can do to help
This year, the back-to-school to-do list will include extra items to address the pandemic, but let’s all try to make the very first item a renewed focus on social distancing during the two week bubble before school starts. We can try our best to stamp out any embers of COVID-19 by careful social and physical distancing starting now, two weeks before the doors open.
What better way for the whole community to contribute to the safest possible back-to-school season?