Bust times are back in Newfoundland and Labrador

Newfoundland and Labrador is facing a crushing deficit. EI and food banks use is on the rise. How did it turn so wrong, so fast?

Ocean-going tugboats servicing oil rigs moored in the harbour in St. John's, N.L. on Thursday, March 10, 2016. Darren Calabrese

Ocean-going tugboats servicing oil rigs moored in the harbour in St. John’s, N.L. on Thursday, March 10, 2016.
Darren Calabrese

As the snowbanks receded and Newfoundland faced its most dismal spring, fiscally speaking, in two decades, a colourful tale began circulating in St. John’s. Provincial bureaucrats, it was said, had been invited to use red pens lying around their offices when they ran out of blue ones—part of a government-wide effort to pare back discretionary spending and make the most of what was already bought. Civil servants were conserving in other ways, shelving business trips and living with the squeaks in their worn-out office chairs. But a province literally operating in the red was too good a metaphor for the media to pass up. When the newly elected Liberal government faced the House of Assembly last month for the first time, the finance minister found herself talking about writing implements.

“I have no idea who’s using what-coloured pens,” Cathy Bennett told reporters, looking wearied by the question, if not wholly displeased. For weeks, Bennett had been pleading with Newfoundlanders and Labradorians to understand their government is no better off than they are. In a blink, the province had gone from have to have-not status, burned by an oil-price collapse that has vapourized $880 million of its annual revenues while costing hundreds of its native sons and daughters their high-paying jobs in Western Canada. There’d been talk of “shared sacrifice,” and a government with limited means to fill the revenue gap left by dwindling offshore royalties and a stagnating economy. Premier Dwight Ball, whose Liberal government was elected in December, had spent considerable energy blaming his Progressive Conservative predecessors for unsustainable spending.

But the rhetoric was wearing thin, and with her own budget day approaching, Bennett sensed the symbolic potential in a $2 Uni-Ball. Newfoundland’s public servants understand taxpayers’ pain, she said, and have already found some $97 million in annual savings. While the granular details weren’t yet available, she added, “I hope one or two are using red pens.”

Related: Life at $20 a barrel

Yes, it has gotten this bad. Faster than it rose from Canada’s economic cellar—shucking off the trauma of the 1992 cod moratorium and calling its young people home—Newfoundland and Labrador has slid back downhill, waiting on the recovery of its lifeblood resource, beseeching Ottawa to preserve it from a full-blown financial crisis. The provinicial economy shrank by an estimated 3.5 per cent last year, and is expected to get still smaller in 2016. In January, overall unemployment hit its highest level in six years, 14.4 per cent, with young men as the hardest-hit demographic. Nearly one of six males in the province is out of work, with more returning each week from Alberta and Saskatchewan.

Any hope the Ball government will fill the gap would be sorely misplaced. On Thursday, Bennett will deliver one of the toughest budgets in the province’s history, featuring an expected $2.4-billion deficit, despite government plans to cut its spending by 30 per cent over the next three years. Even the harshest critic would have to sympathize with its position: with offshore oil royalties expected to decline as much as one-third, and Newfoundlanders spending less on other things the government can tax, its per-capita debt level is projected to hit $28,000 in 2016-17, blowing past Quebec for the highest in the country. “They may be forced by outside agencies to deal with this,” says Douglas May, an economist at Memorial University in St. John’s, referring to debt-holders and bond-raters worried about the province’s fiscal trajectory. “This is a deep hole to try to dig yourself out of.”

Ball and his ministers have tried gamely to spin the restructuring as “renewal.” They describe their plan as a “different way to deliver government.” But for many Newfoundlanders, it’s the latest in a string of disappointments that makes their lonely stints in the Alberta oil patch, and their long wait for prosperity, feel like pointless sacrifice. “Five years ago, they said, ‘All you young Newfies who left, come home and work here. We have jobs for you,’ ” says Grant Courtney, a 31-year-old welder laid off in September from the construction site of Vale’s new nickel-processing plant in Long Harbour. “And it happened. We had a boom. Long Harbour was going, Hebron ramped up and, offshore, there were a bunch of exploration rigs going flat-out. But then all of sudden the price of oil went down, and it feels like everything has just come to a stop. It’s crushing, really.”

A different kind of pain, to be sure, than the agony of the early 1990s. While the cod moratorium took its toll in hope, the oil downturn threatens a standard of living that, to many, had come as a pleasant surprise. Chris Lee, a 39-year-old from Petty Harbour, typifies the new paradigm—possessed of a business degree he doesn’t use, yet by most Canadians’ standards, living large.

Like many who came of age during the groundfishing bust, he imagined university as a ticket out of poverty. By the mid-2000s, however, skilled tradesmen were landing lucrative contracts in the Alberta oil patch, and increasingly in Bull Arm, where the massive base of the Hebron offshore platform was under construction. So Lee trained as a pipefitter and stayed in Newfoundland, where he’s been working steadily since 2010. “Seven to nine months a year of good work,” he says, “making six figures in that period.” Previously, he earned about $60,000 a year as a sales rep with the Philip Morris conglomerate; a few weeks ago, he paid that much in cash for a new truck.

Related: Canadians are no longer Alberta-bound

Now, for the first time in a decade, Lee’s future looks hazy. He figures he’s got another eight months of work in Long Harbour, at which point he’ll take a winter layoff and collect Employment Insurance. “But for the spring of 2017, there’s nothing there right now that’s gleaming, and oil is stuck around $40 a barrel,” he says. “That’s not enough to get Alberta back, which means a lot of us will be competing for the same jobs.” By next fall, Lee notes, the topside modules of the Hebron platform are to be towed out and attached, meaning work in Bull Arm will wind down. Worse, there’s been talk of privatizing the provincial liquor corporation, where his wife works: “She’s either going to lose her job or come down to a non-union position making minimum wage. Not good.”

While Lee believes he can fall back on his business degree, others must resort to desperate measures. In recent months, Fitzpatrick’s Auctioneers in St. John’s has seen its yard fill with trucks, snowmobiles and assorted toys their owners couldn’t afford. Down the road, at Traders Buy/Sell/Lend, Les Paul electric guitars line the floor, while a glass jewellery case is thick with gold chains of the sort seen on rappers and professional baseball players. Much of the stuff comes from Newfoundlanders laid off from jobs in Alberta, Erick Mathiasen, a buyer for the store, tells Maclean’s.

So rapidly has the decline set in that many people are living dual lives, prosperous on the outside and quietly desperate behind the scenes. At Bridges to Hope, a downtown St. John’s food bank, executive director Heather Elliott has seen “big, robust, healthy men” join her usual clientele of seniors and mothers with children. “I see two or three men every week,” she says. “They drive up in their truck, they’ve just moved into a place and they have no food. They actually have no money, because in that economy, everything gets converted to cash right away and they spend it.”

On a recent weekday morning, Elliott was scrambling to meet a demand she says suddenly spiked in the weeks following Christmas. Fully 60 people had come through the agency’s bustling pantry on the previous day, each collecting hampers that would feed a family of four for up to five days. That’s nearly double the number the food bank was serving last fall, and puts Bridges to Hope on pace to surpass the 9,000 clients it served last year. This in a province where per capita use of food banks is already highest in the country.

Elliott maintains an air of breezy efficiency while leading a tour of the food bank’s community kitchen and storage facility. But as she reflects on the challenge ahead, a note of anxiousness creeps into her voice. On this morning, she has dipped into the agency’s cash reserves so a volunteer could purchase emergency supplies at a supermarket—something she’s forced to do with increasing frequency. “I can’t keep pace with the demand,” she says. “Everything we’d brought in the previous two days was gone by yesterday afternoon. We’re used to having food on the shelves, so we’re going to talk about alternative sources.”

This is not the fate Newfoundland and Labrador’s leaders imagined after oil prices pulled it from economic stagnation in the late 2000s. Back then, its combative premier, Danny Williams, was rewriting the narrative of Newfoundland’s dependency, boasting that the province had become a net contributor through oil royalties to the federation (though he fought tooth and nail against Ottawa’s attempts to curtail its share of equalization). Upon leaving politics, Williams gave form to his optimism by launching what locals call “Dannyland,” a $5-billion development of homes, shopping centres and amenities being built in the rocky hills just west of St. John’s. It’s the sort of project that made it possible to imagine a diversified, spin-off economy of the sort that sustains a population when commodity prices drop. Construction on Dannyland continues even now.

But things are different in Conception Bay South, a once-modest bedroom community about 10 km to the west. There too, tracts of attractive new homes went up during the boom along the community’s heights and ravines—along with bars, restaurants, an arena, a town hall and a spanking new firehall to serve the expected influx of residents. These days, dozens of those homes sit waiting for buyers, and confidence is in short supply. Driving through an area known as the Upper Gullies, local resident Tim Kelly points to a row of tidy-looking homes that have languished on the market for four months. “There would have been bidding wars on half of them even a year ago,” he says. “Now I don’t know if any of them are selling.”

They’re certainly not selling for what they used to. While the number of listings in Newfoundland and Labrador has held steady, statistics show the average selling price fell 5.3 per cent in February, to $267,311, a decline that has not escaped the notice of developers. A recent forecast from the Royal Bank of Canada predicted just 1,500 housing starts annually for the next two years—a 61 per cent decline from their peak in 2012.

The weight of these facts hits Kelly hard. His employer of 22 years, Acan Windows and Doors, had been going all-out to supply a residential construction boom fed by oil money. But the company was sold in a leveraged purchase to a smaller competitor when business slowed in 2014, and then the oil bust hit. Faced with a cash crunch, Acan shut down last November, throwing Kelly and 70 others out of work. He and two partners have since launched an electrical business, but the income hasn’t replaced that of his unionized job at the factory. “I’m hurting,” he says, noting that he has two sons in university. “I was making decent money, had a fantastic benefits package. I knew every morning when I got up where I was going to work.”

In retrospect, Kelly regards the building spree as a classic case of irrational exuberance—something to which Newfoundlanders may have been particularly susceptible. To many, thrift was a cultural habit born of necessity, says Al Antle, executive director of St. John’s-based Credit Counselling Newfoundland. But when oil-related income began pouring in, and interest rates plunged, they joined their fellow Canadians in spending with a vengeance. “We borrowed to the max, bought houses and used [equity in] their homes as ATMs, often to buy an extra car or new toy,” says Antle, who finds himself counselling people with six-figure incomes. “But we were only doing what was expected.”

The construction site of the hydroelectric facility at Muskrat Falls, Newfoundland and Labrador is seen on July 14, 2015. An Innu leader is asking that protests stop at the Muskrat Falls hydro construction site in Labrador while complaints about hiring and alleged racism are discussed. Innu Nation Grand Chief Anastasia Qupee said Monday the head of Crown corporation Nalcor Energy has apologized for an incident involving an Innu worker. (Andrew Vaughan/CP)

The construction site of the hydroelectric facility at Muskrat Falls, Newfoundland and Labrador is seen on July 14, 2015. (Andrew Vaughan/CP)

Now, the province is depending on a handful of construction megaprojects to carry it through, hoping for a resurgence in oil prices. Three projects—Bull Arm, Long Harbour and a massive hydroelectric project in Muskrat Falls, Labrador—account for five per cent of the province’s employment. But Hebron is expected to be pumping oil by next year, at which point it will go down to a crew of about 220 people (last year, it employed 3,300 at Bull Arm alone). Muskrat Falls, though behind schedule, was also slated for completion in 2017, while the nickel plant at Long Harbour is already in production and nearly fully built. In operation, it will need a complete of 500 workers, down from 6,000 at the height of its construction phase.

From each of these, there will be spin-off work, but not the sort that has employed tradesmen like the welder Grant Courtney. Since his layoff from Long Harbour, he has seen his income plunge from about $4,800 per month to the $1,800 on EI. He and his wife sold one of their two cars, a 2010 Mitsubishi Lancer, while Courtney updates myriad specialty and safety certificates in hopes of finding more work. “We thought about moving away, but where are we going to go?” says the father of two young girls. “No one else in Canada is doing all that great. I’d happily pay $1.40 a litre for gas right now, because that would mean companies had money to spend and they’d build new rigs.”

Related: The death of the Alberta dream

The whole picture might be brighter if the provincial government weren’t itself a kind of large-scale candidate for credit counselling. When the money was flowing, notes Douglas May, the Memorial economist, the Progressive Conservative governments of the day took full advantage, granting generous raises to public sector workers whose pay packages had long fallen below national averages. A few weeks ago, Bennett acknowledged that some of those workers may lose their jobs as the provincial government struggles to right itself. But she was quick to point a finger at three successive Tory governments for failing to set up a rainy day fund, saying the Grits would do so at the first opportunity. “Whether we make a deposit,” she added ruefully, “has yet to be determined.”

In the meantime, Newfoundlanders are subject to indignities they hoped they’d left behind. This week, Premier Ball was to meet with Prime Minister Justin Trudeau, presumably in hopes of persuading his fellow Liberal to throw a financial lifeline (poor weather postponed the trip). Already, Ottawa has provided temporary help in the form of a $400-million payment from its fiscal stablization fund, plus a five-week extension of EI benefits to workers in oil-producing regions.

The Ball government makes no secret of its hope for more, knowing the politics of restraint will only grow more punishing. This week, provincial cost-cutting resulted in the shutdown of a website connecting employers with job-seekers—this at a time when thousands are looking for work. The government insisted the portal duplicated services provided by a similar federal website. But like the blue-pen-red-pen farce, it’s the sort of self-defeat that takes people back to a time they’d rather forget. “In my life, Newfoundland has almost always been down,” says Chris Lee, the pipefitter. “Danny Williams might have got us up to being a have-province, but we’re not ‘have’ now and I don’t see us getting back any time soon.”

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