Liberals, Stop Lying about BC Rail
No Minister Bond, it wasn't 'bankrupt' or debt-laden or 'in disarray'. Here's proof BC Rail was very healthy when Campbell got it.
A lie, it is said, can run halfway around the world before the truth can put on its boots. And as observers of B.C. politics know all too well, some fibs not only spread quickly, but also have incredible endurance.
One such is the ongoing falsehood that BC Rail was a money-losing, debt-laden Crown corporation -- an unaffordable burden on provincial taxpayers -- before it was privatized by Gordon Campbell's B.C. Liberal government in 2004.
In Victoria last week (Thursday, March 25), Transportation Minister Shirley Bond stood in the legislative assembly and repeated the litany of nose-stretchers she and other BC Liberals have peddled on countless occasions over the past seven years.
"We're not going to stand on this side of the House and take advice from a group [the NDP] that actually saw a bankrupt railway that was in complete disarray when they were in government," said Bond, who in June 2009 was named as Campbell's transportation minister.
She again reiterated, "We inherited a railway that was bankrupt and in disarray."
Later, responding to NDP MLA Mike Farnworth, Bond declared: "All I can say to the member opposite is that you managed to take the train and take it right off the tracks during the 1990s. In one year alone under that member's leadership, $582 million in debt -- and in fact, the only outcome, the only measure of success that that side of the House had -- was how big the bailout was going to be every single year for B.C. Rail."
Are any of those statements correct? Was BC Rail "bankrupt" and "in complete disarray" when the Campbell Liberals won election to government in 2001? Did the Crown corporation's debt soar by $582 million in a single year under the NDP? Did provincial taxpayers have to provide a "bailout... every single year" to BC Rail?
The answers are as simple as can be: No, no, no and no.
The fact is that BC Rail was a profitable company before the BC Liberals took power. The Crown corporation recorded 23 consecutive years of operating profits and 18 years with net income during the late 1970s, 1980s and 1990s. Indeed, over that period the rail company sent $137.7 million in dividends to the provincial treasury.
Yet, the BC Liberals' lies about BC Rail persist to the present time and continue to be told in the legislative assembly.
The original BC-building vision
BC Rail -- then known as the Pacific Great Eastern (PGE) -- was taken over by a reluctant provincial government in 1917 after the company's private promoters went bankrupt.
For decades thereafter, the railway had steady operating losses on a line that ran between Squamish and Quesnel -- or as critics said, from "nowhere to nowhere."
At the end of the Second World War, the provincial government unveiled ambitious plans for B.C.'s economic development, and by 1958 had extended the railway from Quesnel north to Prince George and from Squamish south to North Vancouver. Additional extensions were completed in the 1960s and early 1970s to Mackenzie, Fort St. James, Dawson Creek, Fort St. John and Fort Nelson.
The most ambitious scheme of all was the construction of a new road (the Dease Lake extension) into the province's northwest, where eventually it would connect to Alaska.
The fact is that the government's expansion projects were enormously expensive, and in 1954, W.A.C. Bennett's Social Credit government passed legislation extinguishing BC Rail's long-term debt. Victoria also gave the company the ability to borrow money on its own account in capital markets -- and by 1959, the railway's debt had reached $113 million. It thereafter grew steadily higher year after year, as rail lines were extended across the province's North.
In time, despite stunning growth in rail traffic -- car-loadings grew from just 5,000 in 1945, to more than 150,000 by the mid-1970s -- the company simply could not generate sufficient revenues to service its soaring long-term debt.
The year 1978 is illustrative of the company's dilemma. In that year, BC Rail finally posted a legitimate operating profit -- revenues were $114.3 million, while expenses totaled $105.6 million -- but interest on the debt was $54.3 million.
The small, $8.7 million operating profit was thereby wiped out, replaced with a net loss of $45 million.
Two years later, in 1980, BC Rail's long-term debt peaked at $671.2 million. But that same year, the company recorded a landmark event: for the first time, ever -- albeit because of a generous debt-servicing grant from Victoria -- a net profit ($12.6 million) appeared on the books.
'Historic' debt extinguished
Expansion continued as a new spur line was opened into Tumbler Ridge in 1983 to service the export of B.C. coal to Japan. The initial financing arrangement called for Victoria to directly pay for construction of the road, and subsequently collect a transportation surcharge on the coal shipped for export.
Instead, the government opted to extinguish BC Rail's "historic" debt and end the yearly debt assistance grants the railway received from taxpayers. The company still had long-term debt on its books, but as a result of Victoria's one-time debt payment, it fell from nearly $635.3 million in 1983 to just $196.3 million in 1984.
The year also saw a profound corporate restructuring at the railway company, and the sale of dividend-paying preferred shares on Canadian stock exchanges.
Profitable, and diversifying
A stunning transformation of BC Rail's finances took place over the last two decades of the 20th century, with the company recording net income in 18 of the 21 years between 1980 and the election to government of Gordon Campbell's BC Liberals in 2001.
The apex of profitability occurred in 1988, when earnings hit $58.3 million.
The railway even started paying dividends to its largest shareholder, the provincial government, starting with a $10.3 million disbursement in 1986. Nine such dividends were paid over the next 13 years -- including one of $40 million in 1998 -- for a total of $137.7 million.
BC Rail's long-term debt shrank every year between 1984 and 1991, when it fell to a mere $79.4 million. Thereafter it rose sharply as the NDP governments of Mike Harcourt and Glen Clark promoted diversification of the Crown corporation’s operations.
It is important to understand that the railway's debt increased not because it had operating losses -- BC Rail posted operating profits in each and every year -- but because the company was borrowing capital (primarily from the province) to purchase (and expand) marine-transportation assets such as Vancouver Wharves and Canadian Stevedoring, as well as other entities.
By 1998, the railway's long-term debt peaked at $620.7 million. When Campbell's Liberals won election to government, the debt had dipped to $562.2 million.*
(To put BC Rail's long-term debt into perspective, in 2004 when the Crown corporation was privatized, CN had long-term debt of US$4.6 billion; Canadian Pacific, US$3.1 billion; and Burlington Northern, US$6.5 billion.)
Three critical accounting decisions
BC Rail would have posted net income in all 21 years between 1980 and the turn of the century were it not for three accounting decisions.
In 1989, the company wrote off the northern section of the moribund Dease Lake extension. A charge of $80.6 million transformed a record operating profit into a loss of $16.1 million.
(Readers should understand that a write-off is a non-cash transaction that occurs when an asset is reduced in value or entirely removed from a company's books. BC Rail did not actually lose $80.6 million on the Dease Lake line in 1989 -- after all, the monies invested in the road had been expended in the 1970s. Rather, the Dease Lake assets were taken off the books, and a commensurate non-cash charge was recorded in the operating statement.)
Ten years later -- after the northeast coal mines had been closed and coal shipments stopped -- BC Rail wrote off $616.6 million for the Tumbler Ridge spur line. As in 1989, the charge meant that an operating profit was converted into a net loss, this one totaling $582.5 million. (To repeat, it was a non-cash transaction; all of the construction costs associated with Tumbler Ridge had been incurred two decades' earlier.)
Finally, in 2000, the company set aside $13 million in anticipation of future expenditures for environmental remediation. Once again the charge transformed an operating profit into a net loss.
Bond's upside down picture
Last week -- as she has done on many, many occasions since 2001 -- Shirley Bond falsely represented BC Rail's finances.
She said the railway was "bankrupt" when the BC Liberals first won election to government. Hardly. In 2000, BC Rail was a thriving concern that owned nearly $1.4 billion in assets -- including 129 locomotives and 9,500 freight cars -- employed 2,000 British Columbians, and had more than 184,000 car loadings.
It also could boast of an uninterrupted string of operating profits going back to 1978, and the railway's books showed net income in all but three of the previous 21 years. Those three years of losses, as stated earlier, were due to two accounting write-downs of non-performing assets as well as monies set aside for possible future environmental liabilities.
Similarly, Bond's assertion that BC Rail was "in disarray" when the Campbell government assumed office is not only untrue -- it is laughable.
Between 1980 and 2000, the company's revenues more than tripled, from $143.7 million to $495.7 million. In 1989, moreover, operating income hit an eye-popping record of $87.2 million.
And what can one say of her claim that the New Democrats were responsible for "$582 million in debt" added to BC Rail's books in 1999?
To repeat, the 1999 write-down was because the Tumbler Ridge extension -- built by Bill Bennett’s Socreds in the late 1970s and early 1980s -- no longer was in operation. And as a non-cash transaction, the write-down did not add a penny of debt to either the province or BC Rail.
Indeed, the railway had a $71.9 million operating profit in 1999, and its long-term debt actually fell that year by $4 million.
Finally, Bond's claim that the NDP provided a taxpayer-funded "bailout" to BC Rail "every single year" is simply moronic. True, Victoria occasionally provided grants to the railway to fund specific services (the line to Fort Nelson), but to repeat an earlier point, BC Rail sent nearly $140 million in dividends to the provincial treasury between 1986 and 1998.
Moreover, it was two different Social Credit governments that extinguished the railway's debt in 1954 and 1984, with the latter year marking the end of Victoria's debt-service grants.
Shirley Bond receives a salary and allowance in excess of $160,000 per annum, but she seems to lack either the inclination or the intelligence to learn how to read financial statements. Or, perhaps the transportation minister knows her comments about BC Rail's finances are untrue, but cares little about misleading British Columbians.
Either way, the persistent falsehoods and untruths regarding BC Rail that have been propagated by Gordon Campbell's BC Liberals in recent years are easily refuted by an examination of the railway's financial statements.
|BC Rail -- Selected Financial Statistics (in thousands of dollars)|
*Story changed at 2 p.m. on March 29, 2010.