On March 6th, Alberta released its 2013-2014 budget. In it, they were pleased to announce an operating surplus of 2.6 billion dollars. They are also taking on debt for capital expenditures to the tune of 5.1 billion dollars. A lot of people seem to have trouble reconciling those two facts. I don’t.
If I get a loan of $100,000 and have to pay back only $20,000 per year, then if I’m making $32,000/yr, I have a surplus of $12,000/yr, even though I’m in debt.
Now, is it smarter to use my surplus to pay that debt down faster? Well then we get into interest rates. If the interest is such that every year, another $4,000 gets put onto the debt, then maybe it is. But what if I’ve invested that $100,000, and it’s earning me $6,000 in investment income? Now, in the 6 years it’ll take me to pay off the entire $120,000 (principal and interest), I’ll have collected $36,000 in investment income, $24,000 of which goes back to service the debt, and $12,000 of which is mine, made from their money. Of course, normally this doesn’t happen, since people don’t tend to lend out money if they could just invest it themselves for higher returns, but these are banks we’re dealing with here, and they’re not allowed to just create money for themselves, they have to lend it to other people first.
So no, having a surplus and taking more debt is not the mutually exclusive thing that many people are trying to make it out to be. No, the problem with this budget is that even with this 2.6 billion operational surplus, they are still not putting in enough money to the post-secondary system to even compensate for the cuts made last year. So despite this massive surplus, post-secondary education will still not have as much funding as they head two years ago.
Yet this government claims it is investing for the future. It is building schools that will sit empty because of a lack of funding to staff them. It is putting money into helping universities build bigger campuses, at a time when online education is starting to take off and it is operating costs?not infrastructure costs?that significantly limit how many people our post-secondary institutions can reach.
In short, it is a system where what they’ve prioritized are opportunities to stand in front of people with shovels and claim, “We’re going to build this,” and while this might feel good and make for some suitable headlines, it will do very little to help future Albertans prepare for a more diversified economy. With warnings now coming out that oil prices may drop to 25% of their current value, forcing post-secondary education into a reductionist mode rather than an expansionist one seems extremely risky.
Certainly a lot more risky than the idea of taking on debt to pay for infrastructure.