A New BC Rail Cover-Up?
The Campbell government put money from its BC Rail sale into a trust, but a shift to riskier investing likely lost $25 million. We can't know for sure, because trust directors are breaking the law by not posting statements.
Premier Campbell announces B.C. Rail deal in 2004.
When the B.C. Liberal government announced it was privatizing B.C. Rail in 2004, it put a large chunk of the proceeds into a trust that was promised to make life better for citizens in the hard-hit northern interior of the province.
Times are still tough there, but the $185 million of taxpayers' monies placed in the Northern Development Initiative Trust has almost certainly taken a big hit thanks to some risky decisions about how to invest it.
How big a hit? The Tyee estimates at least $25 million (calculations shared later in this piece).
If that sounds like the making of a political bombshell, given the already highly controversial and scandal-plagued B.C. Rail deal, one thing stands in the way of voters knowing all the facts. The 13 directors of the trust, five of them hand-picked by the B.C. Liberals, apparently are in no hurry to release their financial statements, even though they've already missed their legal deadline.
No release date promised
On Thursday, April 30, the directors of the Northern Development Initiative Trust were required by law to publish the trust's latest audited financial statements.
Those 2008 financial statements would have revealed the amount of monies lost by the trust in last year's stock-market meltdown.
The directors, however, have not met their statutory obligations.
When queried about the missing annual report, Janine North, the trust's chief executive officer, did not express concern about public accountability.
"The content for the annual report is currently being finalized," North wrote in an e-mail on May 1 -- a day after the report and the audited financial statements were required by law to have been released to the public. "I expect it will be posted on our website this month."
When then asked via e-mail if the annual report was being held until after the May 12 general election, North failed to reply.
North is key election battle zone
Prince George is ground zero in north-central B.C. during the campaign leading up to the May 12 provincial general election.
To the south are two Cariboo ridings the NDP won by 114 and 269 votes respectively in 2005, and to the west are three highly contentious electoral districts: Skeena, Stikine and Nechako Lakes.
The toughest battles may well be in the Spruce City itself, where two B.C. Liberal cabinet ministers, Shirley Bond and Pat Bell, are trying to win re-election in the face of a collapse in the region's forest sector and a sharp downturn in the local economy.
Prince George also is home to the headquarters of the Northern Development Initiative Trust. Established following the 2005 sale of publicly owned B.C. Rail, the trust was created to disburse $135 million of the privatization proceeds to initiatives promoting regional economic development.
With a board of directors recruited from the ranks of prominent business people and regional politicians, a staff of six with a yearly administrative budget of $900,000, and a mandate to annually dole out millions of dollars to worthwhile projects, it's fair to say the trust enjoys a high public-profile in B.C.'s Northern Interior.
And it's likely that confirmation of the NDIT's loss of tens of millions of dollars entrusted to it by the Campbell government would have an impact on local and regional election campaigns.
But with 10 days to go before voting day, the trust's board of directors is disregarding its legal requirements by failing to inform B.C. taxpayers about how well their money has been managed.
Trust was launched with fanfare
"The economic future of northern British Columbia is getting brighter and brighter," Kevin Falcon, B.C. Liberal Transportation Minister, gushed in the legislature when he introduced Bill 59, the Northern Development Initiative Trust Act, for second reading on Oct. 7, 2004. (See Hansard here.)
"A big reason for this is the billion-dollar B.C. Rail investment partnership, which is allowing our government to commit, out of the proceeds, $135 million to northern British Columbians."
Under the bill, the $135 million entrusted to NDIT was to be allocated between six accounts, from which monies subsequently would be disbursed to various projects and overhead expenses. Four accounts held $15 million apiece, with monies earmarked for initiatives in four sub-regions (Prince George; Cariboo-Chilcotin-Lillooet; the northwest; and the Peace).
Another $50 million was placed in a cross-regional account, from which funding would flow to projects anywhere in the northern interior. Finally, $25 million went to an operating endowment account to cover administrative overhead.
Later, in the fall of 2005, the government gave the trust an extra $30 million for a new, seventh account to fight the pine-beetle epidemic, and a further $20 million went equally to the four sub-regional accounts.
In total, $185 million of B.C. taxpayers' monies went to the trust courtesy of Gordon Campbell and his B.C. Liberal government.
At outset, a pledge of accountability
A 13-member board of directors assumed responsibility for overseeing the trust. Five of those directors were appointed by the Campbell government, with eight more coming from local governments (two apiece from each of the four sub-regions).
Not surprisingly, accountability was an important issue when MLAs debated the creation of the trust in the fall of 2004. Falcon, responding to a question by New Democrat Joy MacPhail during committee-stage debate on Oct. 21, referred to "requirements that there be an annual report issued by the trust and that there also be audited financial statements that must be made widely available, including by electronic means." (See Hansard here.)
He added: "Practically speaking too... the majority of the members on this trust are going to be elected municipal politicians, and clearly, their public will take interest in what they're up to. That is what the annual report and the audited financial statements will endeavour to provide."
Indeed, so important was public accountability to Falcon and the Campbell government that an entire chapter (Part 2.1) of the Northern Development Initiative Trust Act is devoted to the subject.
Section 2.2(1) of the act states: "Within four months after the end of each fiscal year of the Northern Development Initiative Trust, the directors must (a) prepare an annual report... and (b) prepare, in accordance with generally accepted accounting principles, financial statements for the Northern Development Trust for that fiscal year and have those financial statements audited...."
And Section 2.2(2) states: "The directors must... (c) publish each annual report in a manner that can reasonably be expected to bring the annual report to the attention of the public."
The NDIT's fiscal year is the same as the calendar year; that is, it runs from Jan. 1 to Dec. 31. Each year's annual report and audited financial statements, therefore, must be completed and made public -- by law -- no later than April 30, which is four months after the end of the fiscal period.
Shift to a riskier investment strategy
At the beginning of 2006, after its initial year of operation, NDIT's fund balance stood at $187.3 million. The gain was due to investment income of nearly $3.8 million, with disbursements limited to a few grants and loans for regional projects, and administrative overhead.
At this point, the board of directors decided to take its endowment out of a low-risk, money-market account managed by the provincial government's Municipal Finance Authority, and switch it into a variety of funds overseen by SEI Investments Canada Company, a Toronto-based investment firm.
(This decision, and the potential for investment losses in 2008, was reported in a superb piece by the Vancouver Sun's crack political columnist, Vaughn Palmer, on Jan. 29.)
According to the trust's 2006 annual report, most of the monies invested with SEI were expected to appreciate by seven per cent annually, even "while minimizing investment risk in order to support the sustainability of the trust." By the end of that year, SEI had beaten that target, with an overall return of nine per cent for the trust's investments.
Investment income for 2006 was $16.8 million, bringing the trust's balance -- after overhead and disbursements -- to $199.5 million.
Upping the gamble again, and losing big
The next year told a different story, however. In their 2007 annual report, the NDIT directors acknowledged that investment returns from SEI had collapsed to just 2 per cent for the year. That decline was attributed by the directors to "the overall market uncertainty created by the U.S. subprime mortgage issue."
Investment income had plunged to a mere $4 million, and the fund balance -- $200 million -- was little changed from the previous year.
Oddly -- and despite their acknowledgement of "overall market uncertainty" from the U.S. sub-prime meltdown -- the trust's directors then decided to adopt a much more aggressive approach to their investments. Whereas two-thirds of NDIT's SEI portfolio had been in conservative fixed-income funds, and the remaining third in riskier equities in 2006, a 56-44 per cent split between bonds and stocks was reported at the end of 2007.
It was a catastrophic decision. In the summer of 2008, stock markets around the world went into a free fall. SEI Investments Canada Company's equity funds, along with those run by other money managers, got hammered.
How Tyee calculates $25.1 million loss
Using the Globe & Mail's Globefund.com's simple annual returns for 2008, The Tyee calculates that the four SEI equity funds in which the NDIT's directors had put B.C. taxpayers' monies -- the Canadian Equity Fund, the U.S. Large Company Equity Fund, the International Equity Fund, and the U.S. Mid-Cap Synthetic Equity Fund -- fell by an average of 35.3 per cent over the year. (See SEI's annual returns here.)
From this data, The Tyee further estimates the loss of the NDIT's equity investments in 2008 at $29.4 million.
Fortunately, the trust's investments in SEI's bond, fixed income and money-market funds showed a gain of about $4.3 million over the year. The net loss for 2008, therefore, probably was in the neighbourhood of $25.1 million.
And the NDIT's year-end balance, once projected to be $203.6 million, may now sit as low as just $160 to $170 million.
Of course, British Columbians -- taxpayers and voters alike -- won't know the full extent of the loss until the trust's board of directors comply with their statutory obligation.
Directors breaking the law
Perhaps those NDIT directors -- and especially the five appointed by the Campbell government -- might take the time to consult the B.C. Board Resourcing and Development Office's website, and peruse a document entitled The Standards of Ethical Conduct for Directors of Public Sector Organizations.
"Directors should act at all times in full compliance with both the letter and the spirit of all applicable laws," states Section 1.1 of the aforementioned document. It seems as though it ought to be unnecessary to remind public officials of their legal, ethical and professional responsibilities.
Especially at so critical a moment as this, in the final days of a hard-fought provincial election.
Related Tyee stories:
- Pine Beetle, Mr. Opportunity?
The bug brings floods, fires and talk of new economies. - Gordon Campbell's $400 Million Power Line Bet
Did BC's premier juice up his claims for the Northwest Transmission Line? A Tyee special report. - Can B.C.'s North Be Saved?
Northern towns grapple with a shifting economy, government cutbacks, and doubts about whether the rural way of life is worth saving.



Skywalker
03-05-2009
How much you want to bet...
...that they won't comply with their statutory obligations until after the election. Appointed by the government what else would you expect?
DPL
03-05-2009
My gosh, are we ever lucky
My gosh, are we ever lucky to have such good money handlers using our cash. Gordo keeps telling us how great he is at handling the economy and has good business background. His schemes have lost us hugh amounts, his projects often run way over budget.Heck the new 450 million over budget convection sprung a leak after about two weeks. Non union plumbers no doubt. Arrogant little man
Peter Dimitrov
03-05-2009
Adding up the losses
what about the $80 million pay-out to health care unions due to the BC Liberal ripping up of their contracts?
what about the $30 billion plus BC Hydro will be on the hook for to private energy companies..which residential electrical rate payers will ultimately have to fork over?
what about the losses to children & families that continue to live in poverty after 8 years of this regieme?
what about the loss of dignity to workers at minimum wage who haven't seen a rise?
what about the smell over at Worksafe BC, Labor Relations Board, and Employment Standards branch...protecting workers rights - no way?
what about the losses to seniors who through the last 8 years have had to endure empty fiberal promises?
what about the losses to public revenue due to raw log exports, due to conversion of forest licensed lands to residential lands -for the benefit of private companies, the screw-ups over the Olympics, the Vancouver Convention Centre, etc?
what about the losses to our democracy due to Bill 30, the Project Streamlinig Act, the appointment of Directors to the Metro Transit Board of Directors, due to: the countless political appointments by the Premier's office, the cover-up over BC Rail, the pandering to big business, the receipt of millions of dollars in donations from big business to BC Liberal party coffers?
what about the losses to accountability, and transparency due to changes to the Freedom of Information Act?
what about the gutting of environmental protection legislation and the losses of wild salmon, wild rivers, park wardens, etc.
Losses, present..and losses future if we don't get this election straight and turf them out. Get real Greenies, this is a two horse race, presently there is no STV. Do the right thing for BC, withdraw all your candidates and throw your support behind Carole James & the BC NDP..stop the Ralph Nadersque vote splitting. Then you'll gain our respect and perhaps our vote when STV passes.
turf the fiberals out now!
Grumpy
03-05-2009
Oh yes..........
........Gordo is a businessman and he is a better manager than james.....NOT.
This sleaze bag is nothing more than a flim-flam man who is trying to leach as much money out of BC as he can until the vile stench of this government is so great that the public will demand his head.
Why do the mainstream media cower from this man? Why is the mainstream media afraid to tell the truth?
God help us all!
gamedev
03-05-2009
Another example of "buisness experience"
(cough).
This is just typical, isn't it? If they had any actual buisness acumen they would have moved the money out of the markets in early 2007. Many online financial gurus saw this coming. Apparently the BC Liberals are so good at buisness that they can't use Google.
I think the more likely scenario is that the "investment firm" was owned/controlled by a Liberal insider and the real deal was to cream off fees from the investment portfolio. What a joke! Campbell the buisnessman! Just like the "buisness wizards" at AIG, bankrupt the investors and take massive personal remuneration...lovely...
Martin
03-05-2009
Much Ado About Nothing
There a big miss in the story. What this story misses is that all Crown Corps and agencies first must table their annual reports in the legislature before (or at the same time) as they are published. It is the unconditional right of the legislature to receive the annual report first; this is a parliamentary standard developed over many years under governments of all stripes.
The legislature is dissolved at the moment. There won't be any tabling of any agencies' annual reports until the legislature reconvenes.
ME2
04-05-2009
Cowboy Capitalism
Trust funds are called such for a reason - as high-flying lawyers who've fallen into the soup for trying to skim some easy dollars by risky investment of monies entrusted to them for safe-keeping have found out.
Perhaps the rules have changed since I was involved in one (1990), but my understanding is that Trusts are required by law to invest only in such safe securities as mortgages, bonds and the like. Stocks pay off better, but they entail a considerable risk of not just paying no dividends, but of actually losing Capital investment as well.
Maybe the Northern Trust was / is just a name designed by Campell for political convenience, but what is for sure is that by 2006 even dummies like me knew that the stock maket was VERY unsettled.
Come to think of it, wasn't there a Tyee discussion last year about some other Campbell-managed agency funds that took a heavy hit in the meltdown?
Can we afford Campbell-style Cowboy Capitalism?
ME2
04-05-2009
A question for Martin
OK, but would a Trust fund qualify as a crown corporation or an agency?
jimorsheryl
04-05-2009
Bad investments??
Sooo will 20 -20 hindsight everyone KNOWS how poorly money was invested.
None of the union pensions took a hit either? How about your RRSP or those 'safe' mutuals you counted on?
Where should they have invested? In banks at 0% return, then of course all the investment geniuses would be taking them to task for getting such a poor return.
Will McMartin
04-05-2009
Wilfrid Laurier
A seat projection? What a great idea....
I think a lot of British Columbians are going to be surprised by the result on May 12.
Cheers
Will McMartin
04-05-2009
Martin
Golly, it's too bad that in your haste to post a comment you didn't click on the link to the relevant statute and read it.
Specifically, section 5(3), which states "The Northern Development Initiative Trust is not an agent of the government." Bet you feel kinda silly, now, eh?
Oh, and while you're there, do read section 10(3) on governance, and Part 2.1, "Public Accountability."
Have fun.
Tbarnston
04-05-2009
Re: jimorsheryl. Where to invest?
The premise that the trust would have had to accept a 0% risk free return is false.
In 2007 you could buy GICs for over 4%. In fall 2008 you could still get short term GICs over 3.5%.
Also, conservative government treasury bills have done very well during the stock market downturn. Anyone holding federal government debt since 2007 has done extremely well and certainly has not seen a capital loss on those investments.
G West
04-05-2009
Thanks Will
I had a little problem with my sign-on protocol this morning or I'd have beaten you to it at fisking Martin's lack of knowledge.
There's no doubt the information is due NOW - and many thanks to you and the Tyee for pointing out the particulars - and the fact the information is not in the public realm is more than a little interesting.
I'll be watching for your seat projection too.
Van Isle
04-05-2009
Was puttering around my shop
Was puttering around my shop earlier this morning and had the 'Bill Boring' program on the radio; not a peep about this great piece of investigative journalism by Will. Just wondering if the mass-media will "Pickup the ball and run with it"?
Fish-counter
04-05-2009
The liberals breaking the law? So what is new?
To the Pirates of the Caribbean and the BC Liberals, laws are just guidelines.
Like the law on drinking and driving for example. Let us never forget that.
Or the law that says the minister in charge of ICBC should drive within the speed limit. That speaks volumes for the arrogance of the man who had to give up his licence.
Or the law that says you have to exact justice when a ferry boats sinks, killing two passengers.
Or the law that protects civilians from murder-by-cop.
Our money is really theirs to play with.
They can't realy be expected to display integrity can they? We sure can't afford another four years of this government. I hate to think Carol James will be in charge. The calibre of politicians and candidates tanked a long time ago.
lynn
04-05-2009
Trust?
Well done, Will McMartin and The Tyee.
Quote:
"It seems as though it ought to be unnecessary to remind public officials of their legal, ethical and professional responsibilities."
In a perfect world maybe.
In this one, we need to end our passivity, as the flagrant abuse of our civil and human rights becomes more and more commonplace.
We are teaching our public officials that they can get away with almost anything.
If this incessant... and blatant bleeding of our rights is ever to stop, we need to apply more public pressure.
More often. And more firmly.
Skywalker
04-05-2009
frenchy mcswede
southdeltawalker posted a link on another article on this site which explains Gordon's foray into the business acumen issue.
http://communities.canada.com/vancouversun/blogs/viewfromtheledge/archive/2009/04/16/carole-james-and-that-issue-of-quot-business-experience-quot.aspx
The Blackbird
05-05-2009
Question
If the deadline for the 13 directors of the trust have already missed their legal deadline to release heir financial statements, why haven't they been charged by police?
Seems a no brainer, if the police and courts want to maintain the appearance they haven't been corrupted.
jimorsheryl
05-05-2009
Jim
I get it now, this is an official NDP blog, posing as a 'news' source.
Tbarnston .... 20 - 20 hindsight is always great. How about all those years when governments at ALL levels got a better bang for the buck by not investing in GIC's?
Are you suggesting that governments should only put money into no-risk investments with very minimal yields?
My municipality and many pensions funds would not take your advice and would be most critical of accepting a yield of even 4% when considerably greater yields were to be had.
Did the teachers unions follow this kind of advice with their members funds or did they take some of the high risk, high yield strategies to heart??
Remember stock market 'loses' are not loses until you liquidate your position.
jimorsheryl
05-05-2009
Loss of $25 million ?????
It is a little premature to declare the loss of $25 million unless the fund has been liquidated.
The stock market value is changing all the time, the TSX was up almost 400 points just yesterday. One of my own 'pet' stocks has APPRECIATED by over 100% in less than three months.
It is far too early to declare such a loss, unless of course you are campaigning for the NDP and trying to make the Libs look bad.
The value of this fund is unknown until it is liquidated. If your figures are based on old values, it is a meaningless comparison.
G West
05-05-2009
Jim or Sheryl
Nothing NDP about this, is there?
The Northern Development Initiative Trust has not met its statutory obligation to report.
It is a creation of the current administration
That's the issue surely - whether or not readers believe this negligence has something to do with the 'performance' of Gordon Campbell as a leader and a responsible money managers is only peripheral to the question.
However, in an election cycle where the incumbent is making the case that his party is the only one with business and management smarts sufficient to run the province for the next 4 years it is hardly unimportant to actually LOOK at the record of that incumbent.
I don't care what party you support, I'd have thought anyone with an interest in the future of the province and the health of its economy would be engaged enough to want that information....
Guess I was wrong.
Perhaps for Campbell supporters the FACTS don't matter a damn
Rod Smelser
05-05-2009
What kind of coverage in the Prince George media?
From Will McMartin's article:
"Prince George is ground zero in north-central B.C. during the campaign leading up to the May 12 provincial general election."
So, ... what kind of coverage has the NDIT investment fund story received in the Prince George media? What have the Prince George Citizen and the Prince George Free Press had to say about this? What have the local radio stations and the lone TV station, CKPG, had to say about this?
And another question. Who are the directors who are not appointed by the BC Govt? What are their political affiliations and motives? For what reason have they agreed to keep this report under wraps?
How do they think witholding this information will benefit the residents of their communities? Have they calculated that their cooperation in keeping this report secret will benefit their communities in as much as "going along to get along" is the name of the game in attracting government spending announcements and patronage from a Liberal Govt, the party that made "sponsorship" a household name?
SharingIsGood
05-05-2009
supplemental to GWest
GWest aptly pointed out to us:
"... in an election cycle where the incumbent is making the case that his party is the only one with business and management smarts sufficient to run the province for the next 4 years it is hardly unimportant to actually LOOK at the record of that incumbent."
I give more Proof of Campbell's Terrible Economic Decision-making:
Looking through CN Railway's financial statements a couple of months ago, I found that through the purchase of BC Rail, CN has already made huge profits. Within the reports it was stated that a good deal of CN's improved financial position and profits came through the acquisition of BC Rail. It seems to me, even if the people of BC had wanted to sell the railway (which they didn't), Campbell chose the very worst time to sell.
With record use of BC Rail lines and equipment for transporting BC resources, CN made whacks of dough! Further, CN sold off BC rail equipment and reduced staff. CN was also given huge tax breaks by Campbell on their earnings with respect to the railway. The Liberals stated they wanted to get the BC Rail debt off the books. Astute businessmen, CN found the BC Railway debt-to-assets ratio not to be anywhere near excessive. So here we have it, reduced payroll for a reduced (BC Rail) staff, reduced taxes from that payroll, and a tax break to CN. Campbell's terrible business skills were again at working against BC citizens.
Note: Bill Gates invested heavily in CN with the sale of BC Rail. He became its largest shareholder in 2006. I, for one, don't believe Gates would be buying into a losing proposition.
SharingIsGood
05-05-2009
Gates and CN
Bill Gates:
Notice that CN had an average annual earnings growth of 37.6% over the five year period: 2004 through 2008.
http://www.teamstersrail.ca/TCRC_News_March_6_2009.htm
CN Financial statements available through this link:
http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C12437280
dorothy
05-05-2009
Not in that business either
"..Are you suggesting that governments should only put money into no-risk investments with very minimal yields?"
As for me, I am suggesting no such thing. I would be suggesting that, just as government according to Gordon Campbell is not in the laundry business or the catering business, they also should not be in the investment business, particualrly not with proceeds of sale of property belonging to me and other taxpayers.
Government should take care of major infrastructure on a society-wide scale, i.e. roads, railways, bridges etc., as well as health care and education and affiliated services. All other business should be done by individual citizens or groups of citizens. The other choice is called communism, and that is not the style of governement we have in Canada.
Government should not sell out of public property and rake in huge slush funds that then need to be 'invested'. If there is a government surplus after needed spending, it can be used to pay debts or, once they are paid, returned to the owners, the taxpayers and citizens.