The creation of a new, non-partisan Financial Accountability Office (FAO) — like the federal government’s Parliamentary Budget Officer — would be the next progressive step in promoting greater accountability and transparency in the management of B.C. public finances.
The new NDP government appears committed to a more open approach. Providing MLAs and the public with an independent perspective on key budget forecasts, economic trends, and specific cost studies would help ensure trust in the legitimacy of our public institutions.
The recent inquiry into the shifting capital and operating costs of the Site C dam project highlight the need for an independent source of verifiable financial information. The Liberal government’s deliberate suppression of the true cost of both ICBC’s compulsory insurance and electricity provided by BC Hydro have seriously weakened the financial condition of these two vital public corporations.
It is likely that an independent FAO would have brought this financial manipulation to light and provided forecasts of the possible consequences for both ratepayers and taxpayers.
The role of an FAO
The FAO, as an officer of the legislature, would provide independent, authoritative and non-partisan financial and economic analysis to the members of the legislature and the public. In doing so, the FAO supports elected members in carrying out their constitutional roles of scrutinizing the raising and spending of public monies and overseeing the government’s activities. Cabinet ministers like Bennett — and MLAs — would no longer be kept in the dark or misled.
A non-partisan FAO would present an opportunity for MLAs and the public to have available additional analysis of the budget and evaluation of fiscal policy decisions independent from the government’s perspective or the work of partisan party caucus research staff or external advocates such as the Fraser Institute or the Canadian Centre for Policy Alternatives.
Providing the legislature and the public with greater financial information and analysis would promote a deeper view of the key issues and factors affecting the government’s fiscal plans. This would improve the level of debate about alternative taxing and spending plans, and the ability of the government to achieve its financial and policy objectives. It would also promote greater budget transparency and accountability.
The FAO mandate would also include the costing of the political parties’ election platforms, thus providing a single authoritative source for comparing the costs and benefits of their proposals.
Currently, there are eight independent officers of the legislature. The Auditor General is responsible for ensuring that the government’s financial statements conform to public sector accounting standards. But the Auditor General is not a spending watchdog, as she cannot comment on the need for or the cost of government programs. The Auditor General’s Office does undertake certain value for money audits, but generally the reports are confined to past activity, not to proposed expenditures.
The FAO, by contrast, would focus on the state of the province’s finances, trends in the economy and specific matters related to future government spending and taxation.
In 2009, the opposition NDP proposed that an independent FAO be created in a private members bill that did not receive the support of the Liberal government. In April 2013, the BC Green Party called for the creation of an independent budget officer, and the initiative was included in the party’s 2017 election platform. The NDP’s 2017 election platform did not specifically mention the creation of an independent FAO.
Canadian and other examples
There are two examples of an independent budget officer in Canada. The federal government established a partially independent Parliamentary Budget Office in 2006. The Liberal’s 2015 election platform pledged to make the agency fully independent of the government, and this occurred last September.
The independent Financial Accountability Office was created by the Ontario legislature in 2015. The office has been active in providing independent financial analysis of the government’s spending plans and providing research to estimate the financial costs or financial benefits of any bill or proposal over which the legislature has jurisdiction.
The Ontario FAO reports has provided important analysis of the financial implications of the government’s sale of 60 per cent of Hydro One, the carbon cap-and-trade proposal and the financial and accounting implications of the “Fair Hydro” electricity reduction plan.
Probably the best known independent financial monitor is the Congressional Budget Office in the U.S. federal government. It plays a vital role in costing proposed budget bills, with the recent changes to the federal tax rates being the best recent example.
The federal government of Australia created a non-partisan budget office in 2013, following consideration by a select committee of the federal parliament.
Improved accountability and transparency Parliamentary governments have been criticized as a form of elected dictatorship; meaning that once a majority of seats are secured following an election there is little check on the government’s authority.
The B.C. government has a reasonably good structure for financial planning and management, including three-year service plans and performance measures. However, the government still tightly controls the information available, and even the best structure is deficient if the information is too general, the key assumptions are not stated or there is no alternative source of data interpretation or policy analysis.
In recent years, the Liberal government was able to manipulate the financial management of BC Hydro and ICBC to attempt to enhance its electoral prospects. The rates for electricity and auto insurance were deliberately set lower than that required to maintain a sustainable financial condition at the two Crown corporations.
Such actions contribute to a growing public cynicism about government’s integrity and a more general decline in trust in the legitimacy of the role of government in society.
New measures, such as the call for proportionate representation, are being advanced to provide a check on the power of the parliamentary dictatorship. Perhaps having better access to financial and planning information through an independent and non-partisan office of the legislature would do more to improve the public confidence in the role of government than diffusing the executive power to a shifting coalition of political interests.
The shifting costs of Site C
Given the cost of the Site C project, it is probable that a FAO would have been monitoring BC Hydro’s capital and operating cost assumptions as early as December 2014, when the government decided to proceed with the project, then estimated to cost $8.8 billion.
The cost and benefit of the new power dam had been an issue of public concern for many years. The NDP government’s referral of the cost estimates to the BC Utilities Commission produced much useful information, but the final report never really addressed the key issue of the impact on the new dam on BC Hydro’s annual rates. The BC Hydro numbers were unreliable, as it was not clear what key assumptions were included in each costing iteration.
Monitoring by an independent FAO would likely have ensured that the background information and assumptions used by BC Hydro was fully disclosed with each new cost forecast.
While many opponents of the dam are dismayed by the government’s decision to proceed with the dam, the arguments for and against could have been aided by an independent perspective of the various capital cost estimates and the evolving operating cost and revenue forecasts.
Financial manipulation of ICBC and BC Hydro
During the last six years, the Liberal government became adept at manipulating the books of BC Hydro and ICBC to promote its chances of re-election. This was accomplished through a series of cabinet orders that restricted the discretion of the formerly independent BC Utilities Commission to set rates based on costs, while increasing the government’s revenue take.
The price suppression of both electricity and auto insurance was made possible by increasing the debt at BC Hydro and depleting the capital reserves at ICBC.
An FAO would have been able to provide independent analysis and explanation of the former government’s manipulation of the finances of both BC Hydro and ICBC, which would have brought greater media focus and enhanced public awareness to these important developments at an earlier date.
The Ontario FAO’s criticism of the Ontario government’s gaming of electricity rates (the “Fair Hydro” plan) provided the media and public with a detailed insight into how it was moving to what David Reevely of the Ottawa Citizen called the “post truth universe” of financial management, noting “… the tricks the government is using throw doubt on all the province’s books. The government, citizens, auditors and giant institutions that lend the province money are pretty much operating in a post-truth universe, where what the Liberals say is going on with Ontario’s finances has begun to drift from any previously understood shared reality.”
Time for change
The new NDP government has made several positive statements and commitments to improving the financial management practices within the government, including a greater commitment to accountability and transparency. After 16 years in opposition, there are many challenges it faces in restoring the government as a more positive force in improving the well-being of citizens.
The establishment of an independent FAO would be an important and positive step in demonstrating that the public can and should have greater insight into the important public policy trade-offs inherent in managing the public’s finances.