‘It’s Unsustainable’: Special report: The public service falls under scrutiny as government wrestles with a fiscal crisis

Frontier Centre, Media Appearances, Taxation, Uncategorized

As the province confronts its biggest fiscal crisis in history, the phenomenal growth of New Brunswick’s public service has landed in the spotlight. 

With the government buried in more than $9 billion of debt and facing pressing budget shortfalls, the steady rise of the public service over the last several decades is now under scrutiny.

Although many New Brunswickers have demanded more frontline workers such as teachers and nurses at the government’s pre-budget consultation sessions, the ballooning bureaucracy is raising questions about how effectively taxpayers’ money is being spent.

The growth in the province’s public service has skyrocketed over the past 50 years – from about 3,000 public servants in 1960 to about 56,000 today, according to Statistics Canada figures.

A stagnating population and faltering economy only exacerbate concerns about how taxpayers will carry the burden of the seemingly inexorable expansion of the public service, never mind the shrinking tax revenues the government faces as an aging workforce moves into retirement.

"It’s unsustainable," says Kevin Lacey, Atlantic Canada director of the Canadian Taxpayers Federation, a non-profit group dedicated to lower taxes, less waste and accountable government.

"The budget deficit is so big that you have to deal with the size of government and spending," he says. "The province will have to undertake some pretty significant cuts in the public service."

As he heads into his first budget on Tuesday, Finance Minister Blaine Higgs is wrestling with an $820 million deficit. To this point, he has asked for a two per cent cut in spending by departments for the coming year – that amounts to a $150 million trim in government expenditures.

But his maiden budget could be a lot tougher, even on the public service. Higgs, who worked in the private sector for three decades before being elected last fall, has openly talked about "right-sizing" government and the need for better efficiency in its ranks.

There is little doubt the swelling of the public service has increased the burden on taxpayers, Lacey says.

New Brunswick has the largest civil service per capita of any province in Canada, according to an Atlantic Institute of Market Studies report that used data from Statistics Canada.

For every 1,000 people living in New Brunswick in 2008, the provincial government employed 12.9 public administration workers, the report found. That figure includes only workers in provincial departments and agencies, not public employees such as teachers and nurses.

The number is high compared to provinces such as British Columbia (4.4 per 1,000), Ontario (4.9) and Alberta (7.8). Even when measured against one of its closest counterparts, Nova Scotia (9.3), the province’s bureaucracy is relatively plump.

Yet public service growth is not just a New Brunswick phenomenon, says AIMS president and chief executive Charles Cirtwill.

"If you look at the federal public service it has grown exponentially under the Conservatives," he says. "The last number I saw was a 56 per cent growth in the overall budget in five years. They’re hiring people like it’s going out of style."

Since the recession began in 2008 until last month, public-sector job growth was nearly four per cent, Statistics Canada reports. Nearly 3.6 million workers are now employed by either federal, provincial or local governments.

"As private-sector people were losing their jobs or having their wages frozen," Cirtwill says, "the public sector was actually expanding and their wages were increasing."

In New Brunswick, the size of the provincial public service has far outpaced that of the private sector.

Over the last five years, public administration employment – the number of bureaucrats working in government departments across the province – has increased 22 per cent, according to Statistics Canada.

That’s nearly eight times the job growth in the private sector, which only increased three per cent during the same timeframe and has even declined slightly in the past three years.

Although the increase in the public sector’s ranks may be harder to swallow for taxpayers during an economic downturn, it is not a new trend.

New Brunswick’s public service increased by 5,000 employees between 2002 and 2009 to now more than 56,000 employees, according to Statistics Canada. And that may not even reveal the true picture: Tory insider Bill Thompson told the Telegraph-Journal in January that the former Liberal government had added 7,000 new civil servants while it held power from 2006 to 2010 – 2,000 in health care management jobs.

The Liberals dispute this, saying the real increase was nearly half that. And the province’s official numbers seem to back this up. But Higgs, who has oversight of the public service as human resources minister, admits even he doesn’t understand the government’s accounting of its workforce.

Whatever the numbers, they’ve been on the rise. So have the salaries, wages and benefits public-sector workers are paid.

A new study by the Frontier Centre for Public Policy found average weekly wages of provincial public servants across Canada grew on average by 55 per cent over the 12 years ending in 2009.

Private sector employees, however, saw an average wage growth of only about 30 per cent over the same period.

The Frontier Centre, an independent Prairie-based think tank, also found that taxpayers are providing public-sector workers with pensions, benefits and job security that few in the private sector enjoy.

James Pierlot, a Toronto-based pension lawyer, stated in a recent C.D. Howe Institute commentary that 80 per cent of public-sector workers participate in pension plans with guaranteed payouts. Yet, less than 30 per cent of Canada’s private sector workers have a pension plan at all.

"There is a major gap there," says veteran pollster and political observer Don Mills. "Many public-sector pensions are underfunded as well, which means taxpayers are on the hook for that unfunded liability."

New Brunswick’s auditor general released a report last month indicating that the pensions of teachers, judges and public servants went from a credit of $51.1 million in 2001 to a $321 million expense on the province’s bottom line in 2010.

"Private sector workers have seen their holdings diminished significantly and in some cases have even postponed retirement because they’ve lost so much equity in the markets," says Mills, the president and CEO of Halifax-based polling firm Corporate Research Associates.

"At the same time, they are asked to fund the increasing wages and pensions of public-sector jobs, which are basically jobs for life without any accountability related to performance."

Mills says the public sector needs to find ways to measure productivity and increase efficiency.

"When they have more work than they think they can handle the first thing they do is hire more people," he says. "They don’t look at efficiencies or new processes or hardware that can do the work quicker or faster."

Mills says it’s difficult for the private sector to compete.

"Backstopped by taxpayers, government can afford to pay out higher wages and better benefits that the private sector can’t always match," he says. "The competition for talent is now heavily weighted to the public sector and that really shouldn’t be the case."

The taxpayers federation’s Lacey agrees, noting that "private corporations can’t compete with the salaries and benefits of public servants. As a result, it hurts the progress of the province."

The better salaries and benefits of public-sector workers are largely attributable to unions, he says.

"Powerful public sector unions make these gun-to-the-head demands of politicians and more often then not they get their way," Lacey says.

"There was actually a case just last week where the city of Moncton gave its outside workers about an 11 per cent wage hike over four years, or about 2.75 per cent a year," Lacey notes. "Considering the inflation rate is about 1.6 per cent in New Brunswick right now, that is a large increase, especially since it’s funded by tax dollars."

A report by the Canadian Federation of Independent Business stated that 74 per cent of public-sector employees are represented by collective bargaining agreements, compared to 20 per cent in the private sector.

"With no incentive to keep costs in check, such as the market mechanism, upward pressure on wages can succeed and the increases passed on to customers – in the case at

hand, taxpayers," says Wage Watch: A Comparison of Public-Sector and Private-Sector Wages, released in Dec. 2008.

Meanwhile, there aren’t many more people to help foot the bill in New Brunswick. The population hovers around 751,750 – just 1,200 more than lived in the province in 2000. And with thousands of baby boomers set to retire in the next decade, the government’s tax revenues are about to slide while costs for health and senior care reach higher.

All this worries Higgs, the finance minister.

"The public service has grown significantly while at the same time our population has remained relatively stagnant," he says. "That relationship alone says we need to look at whether we’ve got the right trends here.

"We want to look at that trend and see how we can right-size government," Higgs says, who came to government after more than three decades working at Irving Oil. "We need to develop an efficient model for the delivery of service."

Last fall, citing New Brunswick’s debt and worsening fiscal state, one of the top bond rating agencies shifted its outlook for the province from "stable" to "negative."

The move by Standard & Poor’s signalled a possible rating downgrade and an increase in borrowing costs for the province in the future.

The Dominion Bond Rating Service indicated at the same time that it would wait for the Tory government’s first budget, expected to be tabled next week, before shifting New Brunswick’s rating.

Jo-Ann Fellows, a former provincial civil servant for nearly 20 years and a columnist on public policy issues, says the New Brunswick government has grown beyond the province’s means.

"We’ve spent 100 years living off the dole of the federal government," she says in an interview at a downtown Fredericton coffee shop. "The people in the rest of Canada are paying for us to live in the style of which we’ve become accustomed, which includes a much too large public service."

The proliferation of government departments, secretariats, agencies, commissions, legislative assembly organizations and Crown corporations is excessive, Fellows argues.

"At the moment, there are 24 departments, four secretariats, eight agencies, 16 commissions or corporations, and eight organizations listed under the Legislative Assembly," she says.

The Population Growth Secretariat, for example, formed in 2006 under then premier Shawn Graham.

"It started out with one part-time secretary and one full time bureaucrat and it now has 42 people," she recalls. And it has a budget of $4.35 million.

While she was encouraged by Premier David Alward’s commitment to reduce the number of ministers in his cabinet to 16, she says the impact is negligible.

"The government has left everything else intact," she says. "They should merge similar departments together, such as agriculture and fisheries, and just have separate branches under one ministry."

Pierre-André Hudon, associate professor in the public administration department at the Université de Moncton, says the real question is how big New Brunswickers want their government to be.

"The debate shouldn’t be about whether public servants are paid too much or too little or if there are too many or too few," he says. "The debate right now should be about the size of the state and where do we want the public sector to stop and the private sector to start."

Hudon says there is a backlash brewing against public workers across North America.

Civil servants, he says, have become scapegoats for cash-strapped governments struggling to balance the books.

Rather than debate the number of bureaucrats or their wages, Hudon says New Brunswick needs to reexamine what is considered "collectively important."

Hudon says governments have drifted away from the core function of hiring frontline education and health care workers to hiring more managers.

"Governments have moved away from the core of what people really need or value, such as education and health care," he says. "You can make a really strong argument for government to be involved in economic development or population growth, but that’s not necessarily an essential or core function of government."

The Liberals, faced with the Tory claims of a 7,000-job hiring spree, argued that the hirings they did make were for front-line workers like nurses and teachers. But the province can’t – or won’t – break down the hires.

Hudon argues the public sector has become over-managed.

"One of impacts of this is there are more managers and less frontline workers. That could be why the government’s wage bill has gone up but outcomes in education and health have remained the same."

Hudon says Atlantic Canada has more public-sector workers per capita than the rest of the country partly because it lacks the critical mass needed to deliver services more cheaply.

"You don’t benefit from the economies of scale in New Brunswick," he says.