Ontario’s hidden debts

October 3, 2011
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At least Christina Blizzard is pointing out the disastrous state that McGuinty has left Ontario.
http://www.torontosun.com/2011/09/24/mcguinty-is-the-debt-devil-blizzard

There is a still much more debt that has been hidden from taxpayers by McGuinty. He is motivated by his reliance on the public sector unions to get reelected. This will cost taxpayers in Ontario dearly.

He started the year with a debt of another $50 billion that has not been disclosed to taxpayers. This is in the form of unsustainable pensions shortfalls that he refuses to come clean on. Instead of dealing with the shortfall and underfunding issues and making change to keep pensions sustainable he has decided to use voodoo accounting to hide the problem.

Pension shortfalls in the province are skyrocketing and instead of fixing the situation now he has implemented some obscure accounting rules that are complicated for the average citizen to understand, are risky for public sector employees and papers over the real problem.

Ontario teachers pension had a shortfall of $35 billion this spring, OMERS was short $9 Billion and the university system is short another $4 billion. The prudent thing to do was to renegotiate pension benefits to sustainable levels.

How did he hide it?

It came wrapped and with bows in something called Pension Solvency Relief. A nice gift indeed to the unions.

Pensions were highly regulated to ensure that they are viable for taxpayers and employees over the long term. They stated that pensions needed to be evaluated every three years against solvency, that is make sure they are viable over the long term. The rules were prudent and if pensions had shortfalls they either had to increases contributions or be change the benefits offered. Neither option unions like very well. So… McGuinty changed the rules. Now it is taxpayers who will pick up the bill for pensions that are severely underfunded.

The unions are off the hook and remain happy.

Previously the Pension Act ensured the orderly funding of defined benefit pension plans by requiring an employer to remit contributions to a plan on the basis of an actuarial valuation prepared by the plan’s actuary. A valuation must be filed not less frequently than every three years. If the funding was short in pensions measures had to be taken to shore them up.

McGuinty changed the rules

After the market meltdown of 2008 investments suffered and as a result big holes were ripped in public sector pensions. Rather than require pensions to make changes as required before McGuinty changed the amortization on them. He eliminated the three years solvency requirement and implemented 10 year “Solvency Relief” . It adjusted the three year accountability and amortized it over ten years. For the bigger ones he eliminated the need for solvency testeing forever.

The reasoning was that teachers pensions, those for city employees and universities are backed by taxpayers anyways so these organizations can’t really go bankrupt. They did not really work anyways as McGuinty refused to follow the previous rules and on the Ontario teachers pension website they announced that they had “funding shortfalls resolved,” in 2005, 2008, 2009 and 2011.

But now he has a problem… 2011.

Pensions count on annual returns of about 6.5% to meet the promises they have made. This year the markets are down 15% with not much prospect of recovering by the end of the year. So this means that pension will have lost another 20%, the 15% loss and the 6.5% expected returns, of their value. The top 10 pensions in Ontario had assets valued at over $200 billion at the start of the year. A loss of 20% on their actuarial value will add another $40 billion in hidden debt onto the backs of Ontario taxpayers. Combined with the almost $50 billion in debt from these pensions at the start of the year, the bill for this hidden debt is now close to $90 billion.

What will he do now?

Pension shortfalls were papered over from 2008 but the losses this year will almost double the shortfalls that existed at that time.

It is time for McGuinty to come clean on debt and protect all Ontarians, not just his union hall drinking buddies.

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