June 10, 2010
The Saskatchewan Party government's move to strip 100 per cent of the profits from all but one of the Crowns is "not sustainable'' and not good business practice, says a former senior government official.
Sheldon Schwartz, a 25-year career civil servant, who served as assistant deputy finance minister and chief financial officer of Crown Investments Corp. (CIC), says taking all the profits from the Crowns, except for SaskPower, as a dividend is "neither a commercial dividend policy nor a sustainable one.''
"If Saskatchewan were to continue the current year's practice, it would represent a large step backwards from applying best practices to the governance of Saskatchewan's commercial Crown corporations,'' Schwartz said in a paper published by the Frontier Centre for Public Policy.
In its spring budget, the Sask. Party government announced it was taking 100 per cent of profits of the Crowns (except SaskPower) in the form of a $276-million dividend. That, combined with the special dividend of $570,000 in proceeds from the sale of the NewGrade upgrader in 2007 and Saskferco fertilizer plant in 2008, brings total transfers from the Crowns in the last two fiscal years to more than $2 billion. That extra cash from the Crowns helped CIC Minister June Draude make up for the $2-billion shortfall in potash revenue in fiscal 2009-10.
But Schwartz said the government is treating the Crowns like cash cows, instead of businesses that require profits to reinvest and paydown debt. "If you're admitting you're doing something unsustainable, you should explain why you're doing it in the first place and how long you intend to be doing it and what (are) the consequences of doing it,'' Schwartz said in interview from his home in Victoria.
Schwartz said when he was CFO and vice-president of finance and administration for CIC in 1990s and early 2000s, the government's policy on Crown dividends was based on commercial practice. "The policy (the previous government) had had a commercial basis and there was predictability and the policy was stable," Schwartz said. "It did take into account, until this year, the internal requirements of the Crown corporation for reinvestment and any debt reduction it had to do.''
Schwartz, who holds a masters degree in economics and chartered financial analyst designation, said the new policy seems to be anything goes. "If you take 100 per cent of the profits, you're going to have to find the money for reinvestment or debt reduction somewhere else. And, since there's no money for debt reduction, I guess their debt's going to going up.''
In fact, CIC's debt is nearly doubling -- to $5.9 billion by fiscal 2013-14 from $3.1 billion at the end of March 2010. At the same time, government debt (versus Crown debt) is forecast to remain flat at $4.1 billion. "If you're going to keep (government debt) at the same dollar figure, it seems like some of the debt is being loaded into the Crowns.''
Schwartz said the Wall government's policy seems to be pile up the debt on the Crown side and keep the taxpayer-supported debt relatively low. The problem is that someone has to pay the debt.
"Somebody's going to have to pick it up because governments borrow money in the ordinary course of business," Schwartz said.
"Saskatchewan businesses, ratepayers and consumers will have to pay for this.''
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."