The Alberta Budget - Abbreviated Edition

Today is "Budget Day" in Alberta.

At a wild guess, I suspect it's going to boil down to this:

We have more money than we know what to do with, but Health Care is still unsustainable.

I'm no financial genius - I count myself lucky to have a few investments that have grown in the last year or two - but I do have some concept of what a buck is worth, and how a little bit of strategic investing can make it grow.

The constant refrain from the Ralph Klein government is that Health Care is "unsustainable", and they love to trot out a graph that shows a straight line growth in spending between 1996 or so and today. Projecting that line forward, they claim that Health Care will simply grow to exceed all reasonable proportion of provincial expenditures.

This is one of the most ridiculous bits of illogic ever put forward. Two points on a graph is not enough data to even begin making a best fit curve approximation. Using that theory, back around 1979, Health Care must have been making the government money! (after all, if the costs can escalate in an unbounded fashion, I must point out the converse of that analysis)

The fact is that Health Care, along with Education, are investments in the people. A healthy, educated population is simply capable of being much more productive. People who aren't worrying about what happens if they fall ill have less stres in their lives - and hey guess what? - less stress = less illness.

We have to remember that the current state of both the Health Care and Education systems is not purely a matter of money added in the last ten years. The decline started under Don Getty, with funding to both domains slashed enormously. When Ralph Klein became Premier in 1993, he embarked on an even more vicious round of cuts to public funding of anything - more or less stalling any significant investment in public services and infrastructure for almost a full decade.

Calgary lost not one, but three, hospitals, and the one new hospital that was built in the NorthEast sat mostly mothballed for the first years of its existence. Yes, there have been expansions and renovations to the Foothills and Rockyview facilities recently, but that is relatively recent spending that has happened since 1998.

This line of increased spending is nothing more than the short-sighted thinking of the Klein government coming home to roost. In his party's zeal to wipe out first the deficit and then the provincial debt, they lost sight of something called infrastructure, and we are now paying the costs of neglecting our infrastructure for such a long period of time.

On "sustainability", the government has a number of tools at its disposal that would help to manage the ongoing costs:

1) Distinguish between capital costs (buildings, equipment etc.) and operating costs (salaries, consumable materials etc.) in the numbers.

2) Put in place a policy that treats operating costs as a % of government revenues. (Please note, this must factor in the changing population)

3) Similarly, amortize capital expenditures over the useful life of the equipment and finance with a variation on what used to be called a 'sinking bond fund'. Again, capital expenditures should be planned for and carefully managed as a % of revenues.

4) Put into place endowment funds to feed the "day to day" operating needs. With multi-billion dollar surpluses, taking a few billion and putting it into a well-managed endowment fund (which the government can't cannibalize for other purposes) should create a financial foundation upon which the public health (and education) systems can run for decades with minimal additional drain on variable government revenues. (Please note that Ivy League universities in the states have demonstrated that such a model can be made to work quite effectively)

Whether I am talking about education or health care, we must move away from the language of "expenditure" and "cost" and towards the language of "investment" and "return". To talk of these areas as "expenses" is misleading and disingenuous, as it overlooks the intangible returns that come from investing in people.