Alberta's Fiscal Bump - Moving Forward

There are three ways in which a government can balance expenditure against revenue and ensure a balanced budget. The first is to ensure that the revenues (taxes, royalties, returns from investments, fees for service) match or exceed expenditure. The second is for expenditure to be managed in such a way as to ensure that it matches the available revenue. Finally, the government can use a variety of instruments or techniques to take expenditures hitherto "on the books" off the books for the future, making it look like the expenditure is less.

There is a conservative philosophic position that "debt is bad" and "deficits, because they create debt, are bad". This is nonsense. Some debt - like debts incurred because investments have been made in the future - are smart debts. Some other debts - incurring debts by killing contracts that should never have been signed in the first place (think Ontario and energy) are inappropriate.

Alberta has debt but there is a second philosophic position taken by our politicians that gets in the way of a solution. That is that the idea of raising taxes is "out of the question". This too is nonsense, though it is the kind of non-sense we hear from both the Wild Rose and the Progressive Conservatives. It is driven by the idea that Alberta needs to be a low tax economy so as to be competitive with other jurisdictions. This would be fine if we managed an operating surplus or managed within our means. We don't and haven't done so for some time.

Also, competitive advantage has a number of components of which taxation levels is just one. Key is the quality of health, education and infrastructure – all of the things we spend taxes on.

So we are left with two options, given our own fiscal bump we have to deal with. The first is to cut services and better manage those we retain so that they consistently deliver needed services within budget. The language of this is "austerity".

Alberta is used to austerity - it was a characteristic of the first period of the Klein administration - and it doesn't like it. On the scale needed to balance the budget and allow for contingencies (fires like Slave Lake or flooding as in Medicine Hat), cuts alone will not meet with general acceptance, especially since they would need to apply to key expenditures - social services, health, education and post-secondary education. Our finance Minister, Doug Horner, has initiated a review of all services and activities based on results. It is a flawed process, but it is a start. What is needed now is some rigour in this process and some real teeth given to the "expert" panels formed to analyze the results.

The second strategy is to remove some capital expenditure normally undertaken by government and to move it into a public finance initiative known as public:private partnerships, or P3's. This is when a private company incurs the capital costs of building a road, a school, a library or a hospital and the Government then leases this. The building is owned by the company not the people and what shows on the books is not a capital asset, but a lease cost.

Such activities are common - P3's have been part of the UK landscape for some time. Here is what we know:

• ·       P3's cost the taxpayers more than if the government builds the building or the road - the private companies secure premiums. While all governments will tell you that they will "negotiate tough", they don't. It is more expensive.

• ·       If buildings are no lingers required - demographics shift and the school or hospital we thought we needed is no longer needed, for example - the building still has robe paid for. It's up to the owner to determine use.

• ·       The ongoing costs of the P3 are rarely fully accounted for in planning. The costs of "changes and modifications" (e.g. when school enrolments is higher than anticipated and adjustments need to be made to the building) are frequently more expensive, take longer and are begrudged by the owner.

• ·       Staff who work in P3’s are surprised at the extent of "permissions" they need to do routine things - hang a new picture on the wall, for example.

• ·       Maintenance and cleaning of a P3 facility is usually the responsibility of the owner, who usually contract this work out to non union employees. We would have school and health care systems with different standards of maintenance and cleaning in the same zone or district. 

• ·       When the community lease ends, the building can be used by the owner for any purpose. It is their building. The government usually owns the land, what normally happens is that the owners bargain tough for higher lease rates.

So this is how Doug Horner is thinking he can make it look like the "books" are getting into balance when in fact we are paying more for less.

The real solution here involves these components:

• .         Undertake a comprehensive, thorough results based review of the performance of all services and identify which services should be kept and what measures of performance should be used to ensure quality of service for Albertans. Cost these services for scale and growth. Cut services which are no longer "fit for purpose".

•       Agree that a certain % of debt is acceptable for a growing economy - something like 20% of GDP, but that this should relate to investments in our future - education, infrastructure, innovation and not for maintenance (health, social services etc). 

•      Tax appropriately even if it means increasing taxes.

•      Only use P3's when these are demonstrably cost competitive over the life of the contract with the private provider. This should be rare and not the norm. Use independent contract review to determine that this is the case and to recommend completion.

•     Take the time it takes to sell a different financial philosophy - investing in the future with modest debt is better than balancing the budget and mortgaging the capital infrastructure for future generations. 

It's tough to sell when for twenty five years we have heard that debt is bad and being debt free is good, but few believe this anymore. Most Albertans would pay a little more for quality services for which there is a demonstrable need when it can be shown that the delivery of these services are efficient and effective.

The Grand Old Party and its Future

Despite some of the pundits who seem to be in denial, the US Republican Party - the Grand Old Party (GOP) - didn't just lose the election, they lost it big time. Obama took most of the swing states and won a handsome majority in the electoral college – he won by 126 votes, a much bigger margin than even the Obama team had hoped for. The question is why?

The current answer you are hearing is that the GOP misunderstands the new demography of the US. Demography is destiny in terms of the voting behaviour of the electorate. This is certainly part of the reason - now just Latino's but also women (binders full of them) influenced this election. The suggestion is that the Obama team had a much stronger understanding of the new demography of the US - much better than that found in the GOP.

A second part of the answer you are hearing is that the GOP's election team put too much belief in rumour and pundits and not enough in data. This is evidenced by the fact that six hours before the vote closed they were still hiring people for the transition to the White House (over 200 were hired) and had the fireworks on a barge ready to go. They didn't believe the data that suggested the race was lost or even that it was close. There are linked suggestions that their election "machine" was lacklustre and not fit for purpose - they couldn't get the vote out. They didnt worry about this as much as they should - they were over confident of winning.

The real issue is vision. Mitt Romney thought that his business experience and the challenge of the US economy was enough - he found out that it wasn't. His vision for America was as clear as his understanding of women. The GOP has a vision based on fiscal accountability and responsibility, less government and a strong focus on family value.  But this has morphed into weird policy positions - no new taxes, tax breaks for the rich, cutting social and health programs, all debt and deficit is bad, favouring white males over all females and other ethnic groups and so on. For serious minded policy analysts, the GOP policy book is becoming more and more confusing and less and less driven by evidence, especially when it comes to economic matters.

As the race for 2016 begins - Rubio is already planning trips to Iowa - the key for the GOP is to develop its vision for America and then to document and detail its policies to get the country nearer to that vision. Romney's refusal to spell out detail (e.g. which tax loop holes he would close and what else he would do with the tax code) was a mistake.

What the GOP thinks matters. At some point they will get the chemistry of ideas and people right and they will win.

Dancing with Obama

The elaborate courtship between the President, democrats and republicans has begun with the background music being more like Schonberg than a baroque minuet.

The President is sticking to his position of tax, loop hole closing, budget cuts and possibly a tax on CO2 as replacing the automatic "fiscal cliff" (no relation to Cliff Richard) which would cut 4-5% of US GDP over the next eighteen months. Republicans are making it clear that spending, loop holes and putting on smiles to lure the confidence fairy is what is needed. For them, taxes are a no-no. The republican spirit of compromise in the face of defeat lasted less than twenty four hours. The democratic "mandate" argument is already in play.

So let us begin by understanding the problem. Apart from the technical fact that the fiscal cliff is a self-imposed form of Hari-Kari, the real challenge of the US economy is the lack of growth and the fact that there are in excess of 9 million unemployed (not to mention massive underemployment of those in work). The challenge is "how do we stimulate growth"?

The republican answer is to cut taxes to create a competitive fiscal climate, especially for the wealthy, which would create confidence so that they feel inclined to invest. This is a theory within economics and the evidence is very clear: it doesn't work. Economies, now global and integrated, nimble and responsive to even inaccurate news (e.g. the idea that Romney might have won) or development, are much more complex. It is clear signals that there are opportunities for growth and that the regulatory climate is such that it favours growth are more important than balances budgets or tax structure. The scale of taxes Obama is talking about for those earning $250,000 or more is modest - not a barrier to growth.

Republicans adopt a different view - fiscal responsibility requires, they say, substantial cuts in spending so as to move towards deficit elimination.  This also supports their view that the US is "over governed" and that "the people" (meaning the rich people) should have more say and control over their affairs. Their belief in the market is such that they oppose ideas based on equity in health, education and social services - they call it "socialism". This despite being the biggest spenders of health and education (per capita) they cant show the world's best outcomes.

So what to do. Obama should lead the negotiations personally and put a specific detailed and costed proposal on the table. He should stare down the republicans and compromise on cuts and loop-holes but not taxes. Let them trigger the cliff (it was their idea in the first place) and let them take the blame. The President should be available every day between now and January 1st for negotiation and make it clear that this is his first order of business. Shame them and face them down. They will blink. If not, they will lose in 2016 too.

Tough love. That's the deal.

President Obama II

In an analysis of the electoral college vote it looks clear that Obama will win the Presidential election (see here). This is also the view of the Romney camp, who have taking to deceit and deception as the flay around the swing States in the hope of upsetting the trend. While reporters continue to suggest it’s a “knife edge” (they have to sell advertising), the momentum is with the President.

But so what? The challenges to be faced are quite enormous. Aside from the continuing challenges in restoring sanity to New York and New Jersey and the ongoing foreign affairs issues – Iran being the most pressing – what should the President focus on?

The single biggest issue is education. The US education system (K-12) is in peril. Teachers are demoralized, many trustees have lost the plot and the Secretary of State, Arnie Duncan, is an advocate of the global education reform movement (GERM). He sees standardized testing, core curriculum, teacher accountability, more assessment of students for learning and key investments in technology as “the answer”. But what is the question?

The key issue is the demoralization of teachers and the lack of investment in their professional development and education. A great school is about great teaching. Teachers should be driving the agenda and deciding how students will be engaged in their learning and designing appropriate pedagogy, not trustees and certainly not corporations. But teachers are increasingly demonized in US education and are “blamed” for the failure of the system.

The next President, unlike the current one, needs to put teachers at the heart of education.

A second issue that the next President needs to deal with is the broken process known as decision making in Congress. Congress needs an overhaul. It doesn’t work. It didn’t work under the last two Presidents. This may be about the President himself – Romney claims he is genuinely bipartisan (if you agree with him, that is). But the reality is that the processes of Congress are broken – business process re-engineering is needed to fix it.

A third thing that the next President needs to work on is the economy. The world needs America to be a thriving and growing economy. It currently is growing, albeit modestly, and this is good. But the engine of the worlds economy needs to be growing at 2-3% for the world to function as an effective economic engine. To do this Obama needs to push for substantial growth of the energy sector, especially shale gas, and to signal his intention to reduce the regulatory burden on energy suppliers while at the same time supporting measures aimed at environmental protection.

He also needs to signal an end to uncertainty about carbon taxes and carbon policies. There is no compelling evidence that the earth’s climate is changing to an extent that causes significant policy concerns and there is even less evidence and certainty about the role of CO2 in climate. To hinder economic growth on an unproven theory seems, well, silly. The energy spent on this topic would better be spent on budget work – securing fiscal control, reducing spending and refocusing the work of a great many public services.

Finally, the President needs to look at the extent to which health care in the US delivers value to those who need it most. Health care will continue to challenge all developed economies, no matter what the business model for delivery looks like. But the US spends more and gets less than most. A part of the reason for this is the fact that market economies for health services are problematic but the major part of this is the lack of personal responsibility for health taking by US citizens. Health is not a matter of insurance, it is a matter of working personally for wellness.

I don’t envy the winner of Tuesday’s election. I don’t envy any politician. I do think we should pay attention. It seems to me that what happens in the US matters to us all.

Teachers, Contracts and Change - Time for Courage in Alberta

Alberta's education system is generally regarded as amongst the best in the English speaking world, at least using international assessment measures such as PISA and TIMMS. While there are significant challenges - equity for First Nations, the challenge of inclusion, funding, securing and retaining teachers - the baseline from which the Province starts is strong and sound.

This is about to be eroded. The Government of Alberta, the Alberta Teachers Association (ATA) and the Alberta School Boards Association (ASBA) are engaged in bargaining to secure four years of labour peace to build on the five years of peace which ended in August. The hope has been that a framework agreement would be reached Provincially that all could agree to, within which local bargaining on implementation could take place. These talks started under two previous Ministers (Dave Hancock and Thomas Lukaszuk) and are due to be concluded under Minister Jeff Johnson by 31st October. It’s not likely to happen.

The ATA offer with respect pay, according to street talk, is  0% (2012-13), 0% (2013-14), 1% (2014-15) and 2% (2015-16). Given that inflation is running at app. 2% in 2012 (and assuming no change over the life of the deal, even though inflationary pressures are high, especially with respect to energy costs), then teachers are offering an effective reduction in the buying power of their pay by (app.) 5% over four years as well as enabling the government to budget for a predictable budget. You would think the ASBA and the Government would be leaping tall buildings and popping Champagne, but they are not.

The sticking point is not salary, but what is referred to as "the conditions of practice" or hours and nature of the work.

The ATA see changes in the conditions of practice as an essential condition for the curriculum transformation, social inclusion and pedagogy agenda both they and the Government have been working on collaboratively for some time. Going from 1,326 objectives at Grade 7 to say 150 - 200 with teachers doing more of the curriculum design work locally so as to better engage students requires more quality preparation time. This could be found by reducing the "ministrivia" (admin and paper work driven by the Government) and "administrivia" (admin work driven by the school district) teachers are asked to do and by focusing on quality time for effective preparation and professional development.

The ASBA argument is that all this costs money - more teachers would need to be hired to create system wide capacity for more PD and more preparation time. The Government appears to be supporting the ASBA with the "mantra", coming from Doug Horner, "that there is no new money". Caucus, who seems to have more authority and power than would be normal for a Government at this stage in its mandate, also does not want to “give in” (sic) to teachers. This is the same caucus that supported a 6% over three year raise for nurses.

The ATA has used a demographer, Linda Duxbury from Carelton University, to look at the work-life balance of teachers. It is not a pretty sight. Teachers are working on the basis of 1.5x their contracted hours or more (up to 62 hours a week) to support the learning needs of students and the administrative needs of the system. This is leading to faster departures from teaching as a profession and the more rapid transfer within the system of teachers - all of which is a significant real cost to the system, both financial and emotional. It is more difficult to recruit, retain, develop and sustain a teacher and to enable their appropriate role as professionals in the system.

The response of the Government is cynical. More money will be spent on health care over the next four years since it is politically unacceptable to cut health care. Yet most health care costs are sunk costs, with the exception of costs associated with effective prevention. Educational expenditures are investments in the future of the Province.

There is new money to be found. Alberta's administrative system for the support of education - the number of school boards, the size of the support infrastructure in central offices and in the Department of Education seems profligate relative to value created. The abolition of Grade 3 Provincial Achievement Testing (promised by the Premier and previously agreed to by the House in a free vote) would reduce costs as would the abolition of all provincial achievement tests.

I know Jeff Johnson, our Minister of Education, and I k now him to be a smart and intelligent Minister. I also have met the Premier on more than one occasion and see her as the best hope we have for a new kind of progressive Government in Alberta. But I don’t see courage, leadership or imagination in what is happening now.

Leading experts from around the world look at this conversation - they don't see it as just about pay or work, they see it as about the transformation of our education system. They see it as enabling major change to happen by creating the right conditions for change to occur. Transformation of our school system along the lines both government and teachers have agreed will not occur by tweaks and twists - courage and change are needed.

So, some free advice:

1. Madam Premier: do what your predecessor did and "make it so". Show courageous leadership and real foresight and agree to the ATA proposal. Simply tell the ASBA (who actually don't represent all school boards and are simply a sample of opinion) that the future is about transformation and that teachers need the quality time they are asking for.

2. Minister Johnson: reduce the number of school boards in Alberta through amalgamation (force the issue) and reduce the size of the Department of Education so as to enable transformation to take place nearer to the student. Accelerate the path for curriculum reform to begin in 2013-14 school year. Abolish immediately all aspects of Grade 3 provincial achievement testing. Use new revenues (see below) to fund a major change in the conditions of practice. Show courage.

3. Minister Horner: Raise provincial taxes. There are a variety of ways of doing this, but it must be obvious to you that you have both a revenue problem (not enough to cope with balancing health care cost growth versus the needs in Alberta for other services) and a cost management problem (profligacy and bureaucracy). Deal with both, but it is not just about costs. The current Results Based Management approach (RBM), while the right thinking, is poorly executed. Keep at RBM, but do it more rigorously and liberate substantial sums from the process. Everyone knows RBM is about reallocation. Take up the suggestion of halting any more expenditure on CO2 capture and storage and use this to fund the teacher deal. Show courage.

4. The Alberta Teachers Association - Engage the people in Alberta in understanding the opportunity that is being missed because of current conditions of practice. Champion the idea that liberating teachers from the drudgery of administrivia and restoring balance to their professional work will have benefits for students, community, employers and Alberta. Don't focus on the stress for teachers of the current situation and don't get sucked into the cost argument. Focus on what Alberta is missing by its current practices. Show courage.

5. Members of the ASBA - tell your representatives to do an analysis of the costs of recruitment of teachers, attrition, stress and health related costs and the impact of demographic changes within and on the profession (including length of stay in the profession) over the next 25 years. Suggest to your colleagues that these costs far outweigh the costs of the change in conditions of practice now proposed by the ATA, both in terms of money, time and impact on quality of learning experiences and learning outcomes. Its time for trustees to be champions for teaching and teachers not their adversaries - without high quality and focused teachers, we will have no world-class education system at all. Show courage.

6. Journalists. The coverage of the bargaining by the ATA, ASBA and the Government has focused on the costs of implementation. Wrong focus. What should be looked at is the costs of not implementing a change in the conditions of practice - on teachers, learning, students and costs - especially given the demographic shift we are in the midst of. We are in a global war for talent and teachers are front line troops in this battle. Show courage - take an in depth look.

I look at my granddaughter, who loves books and is already a critical thinker at just two (why, what, whom, where, how…) and hope that we get this right. Transforming our schools, most's agree, is mission critical for Alberta. Without enabled and empowered teachers we will not make it. Show courage and .make it so.

Obama and Romney - The End of the Beginning

Mitt Romney the Agree-er showed up at the final Presidential debate, replacing Moderate Mitt from the second debate and Angry Smart Mitt from the first. Its difficult to keep track of so many multiple personalities  - believe me, as a psychologist I know. But this is now the "substance" (sic) of US politics  - appearance.

We have just a few days to go. Those few who intend to vote have decided what they are going to do and many have already voted in the early polls. The so-called undecided are either hoping to get credit with Direct TV or some other retailer, or they are playing the pundits at their own game.

In the new politics, the last thing to be discussed are issues and policies. Mitt the Deceiver's so called five point plan is no closer to a plan than a Mars bar wrapper. Obama's plan for the future is akin to all his plans: sounds great until you ask "what will you actually do, when and how?".

The working campaign assumption is that you can fool most of the people all of the time and that those who pay attention to policies, data and trends wont vote, except on the basis of party loyalty. Opinion polling data supports this kind of assertion.

So what is this election all about? Nothing. Nothing will change but the suit and the person wearing it. In a Romney win (looking increasingly possible), expect lots of talk and a hope that the confidence fairies pour their magic dust over the economy and that 95% of economists will be proved wrong and 12 million jobs will be created in 48 months (do the math!). Climate change will stop and, best news of all, Barry Mannilow will retire.

Meantime, congress will remain dysfunctional, inept and ineffectual. Distractions will abound and the core business o government will drift just as much under Romney as it has done under Obama.

If Obama wins, expect even less. He appears to have no burning ambition to do anything other than survive and make "Obamacare" work. Not a major agenda. Yet the global economy is falling apart, Iran could go "bang"at anytime and the US economy is broken (as is Congress). Do we expect courageous leadership from Obama - no. Do we expect inspirational leadership - on the odd day, periodically, with a following wind. Do we expect the US to address its challenges - no.

It is all very disturbing. A nation who believes itself to be the strongest and most innovative nation on earth cant produce leaders who have courage, conviction and followership that will lead to change – change you can believe in.