N.B. is still hooked on building highways
Frank McKenna began the trend of large capital expenditures with the Trans Canada Highway. He took us into the four-lane world, just like the big provinces and states. And it seemed like a good idea at the time. There were a number of deaths caused by collisions, and didn’t we deserve highways as good as Quebec and Ontario?
That’s what politics is all about – finding a leverage point with the masses and using it to lengthen your run in power. The projects were extremely expensive and one section was contracted to the private sector, with tolling as part of the annual payment. In 2000, Bernard Lord removed the tolls and arranged compensation for the road contractor. He continued down the path of road construction.
Our present premier, Shawn Graham, has proposed spending $1 billion to bring route 11 between Shediac and Miramichi to four lanes as well. But before betting the farm on highway construction, perhaps we should examine the implications of this adventure. The existing book value of our highways is now $4.2 billion and requires an annual interest payment of $394 million. The gas tax provides $199 million and motor vehicle registrations bring in approximately $100 million of annual revenue. That means that we are short of revenue to pay for highways by $95 million, if highway users are to pay for roads. As we use 1.5 billion litres of gas and diesel each year, the gas tax should be 6.3 cents a litre higher. It’s a strange twist of fate that Premier Graham removed 3.8 cents of gas tax after he was elected and now we are short of revenue.
Now supposing that the premier succeeds in persuading the feds to cost-share his billion-dollar baby of four lanes between Shediac and Miramichi, then the province will go into debt only $500 million more. That means $47 million extra in interest, which should translate to 3 cents more gas tax. So, it looks like we can expect a total of 9.3 cents per litre increase in gas tax – or perhaps we can just layoff 1,800 teachers and nurses, or increase the HST.
No matter how you slice it or dice it, there is no free ride. Federal cost-sharing programs are always popular with politicians. The funding is mostly allotted among provinces on a per capita basis. There’s an economic term “opportunity cost” meaning that choosing one alternative negates another choices. If we use the $500 million federal dollars and $500 million of our own money for an expense like highways, then we get a short-term high with employment building the road in exchange for many years of interest to be paid. Cost – $47 million every year.
A simple alternative would be using the money to pay down debt. Benefit – $47 million reduction in government’s interest expense every year. Another distinct opportunity would be investing the money in energy efficiency in homes, or perhaps installing wind turbines to get us off oil. For example, a 1 MW turbine costs roughly $2 million dollars and produces roughly 2,200,000 kWh per year. At 8 cents / kWh, that’s $175,000 per year per turbine, or $87 million per year gross revenue. Benefit – with maintenance and interest costs subtracted, it’s a $35 million return every year, and increasing as power rates rise.
The worst is yet to come as world oil production peaks in the next few years, increasing fuel costs and hence lowering gas tax revenues here in New Brunswick. If we have $4.7 billion in highway debt, we will have a gigantic problem. The economist James Hamilton suggests that oil prices are to blame for the current recession: “The evidence to me is persuasive that, had there been no oil shock, we would have described the U.S. economy in fourth-quarter 2007 to third-quarter 2008 as growing slowly, but not in a recession.” If this is true, then peak oil will cause further recessions in the near future. Without significant restructuring of the province’s finances, we risk slipping into a deficit-financing spiral. How do we cut the health and education budgets?
Unfortunately for the residents of New Brunswick, Shawn Graham has become a weapon of mass financial destruction, busily building roads to lead us into poverty. If you’ve ever been to Cuba, you may have noticed the empty roads with few private cars. There’s little chance of an accident when you pass a horse driven carriage or bicycles ambling along major highways. A similar fate awaits us when peak oil affects the world’s economies, except we’ll have four lanes.
In fact, if Premier Graham were serious about self-sufficiency, we would spend the very least possible on roads and the most we could on getting off oil and improving energy efficiency.
Is the road upgrade plan another hint from Francis McGuire for Miramichi residents to commute to Moncton jobs? Wow, that’s real energy efficiency.
Realpolitik / Energy Matters 