Fiscal Sustaintability Report 2016 – Clarification and Additional Information

7 July 2016

FSR 2016 – Clarification and Additional Information

In response to the 29 June 2016 commentary “Why Canada’s long-term fiscal prospects are not a hot mess” by A. Yalnizyan (available at:http://behindthenumbers.ca/2016/06/29/why-canadas-long-term-fiscal-prospects-are-not-a-hot-mess/), this blog post provides clarification and additional information related to our 2016 Fiscal Sustainability Report.

Fiscal sustainability

The concept of sustainability in our reports is based on the government’s (infinite horizon) inter-temporal budget constraint. This constraint requires that the present value of future revenues must equal the present value of future program spending and the current level of debt—the government cannot run a Ponzi scheme where the debt ultimately grows faster than the interest rate.

We would argue that this concept is tied to “affordability” in the sense of income = expenditure. Over time, in present value terms, the stream of revenues (income) must cover the future stream of program spending and the interest on the existing debt (expenditure). If the stream of future revenues does not cover the future stream of program spending and interest on the existing debt, then debt will follow an explosive path and so will debt servicing.

However, to put this concept into practice we use a finite horizon (but over a very long timeframe—75 years) budget constraint and therefore need to make an assumption about the level of debt at the end of the horizon. Based on other studies, we chose to use the level of debt that would be consistent with achieving a debt-to-GDP ratio at the end of the horizon equal to the current level. However, we do not indicate that this is the “right” level. Indeed, this is a technical assumption and we should be more careful to describe it as such.

That said, while this might seem like a crucial assumption, given the length of our time horizon, it really isn’t. Table 8-5 in our report shows our fiscal gap estimates assuming an endpoint debt-to-GDP ratio of 100%. Tripling (almost) the federal debt ratio assumption from 33.7% to 100% increases federal fiscal room from 0.9% of GDP in our baseline estimate to 1.7% of GDP. Tripling (almost) the subnational debt ratio from 32.5% to 100% decreases the fiscal gap from 1.5% of GDP to 1.0% of GDP. Under the alternative debt ratio endpoint assumptions, it is still the case that the federal (subnational) fiscal structure is sustainable (unsustainable). As the commentary rightly notes, this is all about the trajectory of the debt-to-GDP ratio—sustainability simply means that the debt ratio can’t explode over the long term.

Subnational government health spending

The commentary’s description of the approach we take to project subnational health spending is not correct. Note 9 in our report provides a brief description but it probably isn’t sufficiently clear (previous reports provided more detail). Essentially, there are 3 main drivers in our projection of health spending:  nominal GDP; “ageing”; and excess cost. We assume that there is a 1:1 relationship between growth in health spending and growth nominal GDP. The ageing component of our projection weights per capita health spending by age group (in 2013) by projected age group shares in the population. So, the first 2 drivers are indeed “forward-looking” and not based on growth rates over the past 30 years.

The excess cost component in our projection is, however, based on the average growth observed over 1982-2015. Over the historical period, excess cost is calculated residually—the growth in health care spending that exceeds growth in nominal GDP and “ageing”. In our baseline projection, we do assume that growth in excess cost will be the same as it was, on average, over 1982-2015. Our estimates suggest that there is some mean-reversion in excess cost growth. While excess cost growth has been negative since 2010, it appears to be edging higher, returning to our assumed level (Figure 1). (N.B. The commentary notes that since 2012, “things seem to be changing” with respect to trends in health care spending. While growth in health spending, based on CIHI data, decelerated in 2012 and 2013, CIHI numbers for 2014 and 2015 are CIHI forecasts (which we believe are based on governments’ main estimates/appropriations.)

Figure 1:  Excess cost growth in subnational government health spending, 1982-2015 (%)

Sources:  Canadian Institute for Health Information; Statistics Canada; and Parliamentary Budget Officer.

Like everyone else, we don’t know what excess cost growth will be over the next 30 years. Mean reversion for excess cost growth seems reasonable to us for a baseline. We do consider an alternative scenario in which excess cost growth is zero (Table 8-4), however, this does not change our conclusion about the (un)sustainability of the subnational sector.

Immigration

By construction, population growth feeds into both our revenue and spending projections.

Over the projection, our assumption about the immigration rate is taken from Statistics Canada’s medium population projection (http://www.statcan.gc.ca/pub/91-620-x/91-620-x2014001-eng.pdf) and is not simply the average observed over the past 30 years. Indeed, our assumption is very close to recent immigration rates (Figure 2).

Figure 2:  Immigration rate, 1971-2014

Sources:  Statistics Canada and Parliamentary Budget Officer.

Moreover, in our sensitivity analysis, we do consider a younger or “lower cost” population projection where the immigration rate is 9 immigrants per 1,000 persons (compared to 7.5 in our baseline). Under the lower cost population scenario, federal fiscal room increases from 0.9% to 1.3% of GDP and the subnational fiscal gap falls from 1.5% to 1.1% of gap (Table 8-1). However, our conclusion about federal and subnational sustainability is not changed under this alternative scenario.

Related posts

  • 28 June 2016

    This report extends PBO’s medium-term analysis to assess the fiscal sustainability of Canada’s federal government, subnational governments and public pension plans.

Source: Fiscal Sustaintability Report 2016 – Clarification and Additional Information

Canucks Sign Forward Michael Carcone To A Three-Year Entry Level Contract

VancouverCanucksCANUCKS BANTER     By Andrew Chernoff    July 15, 2016

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Vancouver Canucks General Manager Jim Benning announced July 15 that the club signed forward Michael Carcone to a three-year entry level contract, according to a press release.

Carone will receive:

  • a pay out in 2016-17 of $625,000 at the NHL level and $50,000 at the AHL level, with a $25,000 signing bonus
  • in 2017-18, he will receive $675,000 at the NHL level and $55,000 at the AHL level, with a $25,000 signing bonus
  • and in his final year in 2018-19, $725,000 at the NHL level and $60,000 at the AHL level, with a $25,000 signing bonus, according to generalfanager.com

Carcone, 20, appeared in 66 games for the Drummondville Voltigeurs of the QMJHL in 2015.16, where he ranked tied for the team lead in points (89) and finished first in goals (47) and second in assists (42).

His goal total on the year ranked tied for second among all QMJHL skaters while his 16 power play goals ranked third in the league and he was eighth in the QMJHL in total points.

The 5-10, 170-pound forward has appeared in 116 regular season games over two seasons for Drummondville, registering 130 points (59-71-130) and 112 penalty minutes.

Prior to joining the Voltigeurs, the Ajax, Ontario native spent the 2013.14 season with the OJHL Stouffville Spirit, where he led the club in scoring during the regular season notching 37 points (12-25-37) in 49 games.

Back on July 10, Daniel Wagner of the Vancouver Courier wrote that the Canucks may have signed Carone after Carcone stood out at the recent Canucks development camp. Wagner wrote:

One of the most intriguing names invited to the Canucks prospect development camp was Michael Carcone, who was one of the most dangerous goalscorers in the QMJHL last season. Carcone evidently made an impression at camp, as he has reportedly signed a three-year, entry-level contract with the Canucks.

This is according to J.D. Burke of Canucks Army, who apparently has sources now, which makes sense when you consider how many former Canucks Army writers now work in the NHL.

Carcone made an impact in the public scrimmage at the end of camp, showcasing his silky hands and finish around the net, scoring one goal. You can see him in the highlights from the scrimmage the Canucks posted on YouTube:

Carcone makes his first appearance at 1:22, skating through the neutral zone, then burning Lukas Jasek on the outside before evading Troy Stecher’s pokecheck and tucking the puck around goaltender invitee Rylan Parenteau. It’s a lovely goal and it wasn’t his only standout moment

He shows up again at 1:53, skating in alone on Parenteau, neatly deking past the pokecheck and forcing a nice save. He then takes a pass from fellow invitee Kyle Maksimovich, deftly chips the puck over Brock Boeser’s stick in the high slot, and forces another great save from Parenteau, who snags it with his glove.

How Much Longer Should the Canucks Keep Their AHL Franchise in Utica? | CanucksArmy

Utica Aud side entrance (600x450) (1)

Jeremy Davis      July 13 2016   Canucks Army

On Monday the Montreal Canadiens announced that they would be relocating their American Hockey League franchise from its current location in St. John’s, Newfoundland to Laval, Quebec, a suburb of Montreal. During the press conference in which the move was announced, Canadiens general manager Marc Bergevin listed the proximity of the NHL and AHL franchises as a chief reason for the move.

The Canadiens are far from the first team to do this. It’s another in a growing list of AHL-NHL partnerships that involves either sharing an arena or close proximity to each other. The benefits are clear: it would ease their ability to track the progress of their minor pro prospects as well as give feedback and instruction. Which begs the question: How long can the Canucks afford to keep their AHL franchise in Utica?

Jim Benning and the Canucks management team has been steadfast in their intention to leave their minor league affiliate in Utica, a town of a little over 60,000 people in upstate New York. This likely starts with loyalty: the Canucks have three seasons remaining on the six-year pact they made with Utica in the summer of 2013.

Beyond that, anyone who follows the Utica Comets knows that Vancouver has plenty more to like about the state of its farm team, starting with its fanbase. The city of Utica has completely embraced the Comets and has flocked to game after game providing what has been called a college-like atmosphere in the Utica Memorial Auditorium. They’re riding a sellout streak that dates back to the latter half of the 2014-15 season. Canucks management has also praised the facilities in Utica, suggesting that the workout and training areas that the prospects get to use are nearly NHL quality. Trevor Linden said this of their affiliation with Utica last summer:

“Our situation in Utica is special. It’s a great spot,” Linden said. “The one thing that we love is that we have six, seven teams within a two hour drive. The practice time and ability to rest between games is significant. The support they get in Utica, the guys love playing there. The dressing room the weight facility is NHL caliber. At this point we’re really happy there.”

That being said, Utica is still over 3,600 kilometres away from the city of Vancouver, and that is a path travelled quite frequently.

Every NHL team has its fair share of injuries, but the Canucks gruelling travel schedule has made them particularly susceptible to them – last season they were among the most affected teams in the league in terms of minutes lost (though their man games lost were closer to the middle of the pack).

It’s one of the main reasons that more and more teams are setting up affiliates in their own backyards. In the last two seasons, the AHL has seen a massive restructuring, as they added five teams in California – the first AHL teams on the west coast – belonging to the three California NHL organizations, as well as Calgary and Edmonton. San Jose formed the closest relationship with its affiliate: the NHL San Jose Sharks and the AHL’s San Jose Barracuda share the same arena.

This is not unusual: prior to the 2015-16 season, the Winnipeg Jets moved their affiliate, then located in Newfoundland, into their home arena, resurrecting the Manitoba Moose. The Toronto Maple Leafs’ AHL affiliate, the Marlies, also share a city with their parent club, though they play out of their own arena. Within the last month or so, the Arizona Coyotes moved their AHL club to Tucson, Arizona, causing the staff here at Canucks Army to reevaluate the situation.

The distance between Vancouver and Utica is not only something that NHL teams are moving on from, it’s the longest distance between an NHL city and its affiliate in the league – and it isn’t close. The 3,686 kilometres between the cities is more that one and a half times the next longest distance.

Vancouver and Utica are also the only pair that are three time zones apart (marked by a red bar), while only three others are even a single time zone apart (marked by yellow bars), with the other 26 pairs being in the same time zone.

Distance From NHL City to Affiliate

Source: Google Maps (Direct distance, not travel distance)

We’ve all heard about the effect an eastern road swing has on players, and many of us are personally familiar with the difficulties of working through different time zones. In their current situation, if the Canucks were on a homestand, or playing a series of games strictly in their division, any prospects that they call up from Utica would be forced to endure that feeling that Canucks players get when they have to go on a road trip through the Eastern time zone.

Canucks management has stated before that the Comets’ location in New York makes them convenient for call-ups while the team is out east, but the flaws in logic there are readily apparent. While the long eastern swings do seem to attract a disproportionate share of injuries, the Canucks are playing less than a dozen games a year within 500 kilometres of Utica.

Conversely, they play 41 games in Vancouver by default, another six to eight in California, and a dozen more in the next time zone over. The convenience of having call ups available in Vancouver vastly outweighs having them near the eastern metropolises.

The Canucks made 56 roster moves last year involving players going between the AHL and the NHL. We can see the distribution in the following graph, which charts the number of roster moves made within one day of a game, sorted by the time zone in which the game was played.

Roster Moves Within 1 Day of a Game

Source: Pro Sports Transactions

Lost in all of the chatter about the distance between NHL and AHL franchises is the fact that the Canucks signed an affiliation agreement with the Alaska Aces of the ECHL last month, after using the Kalamazoo Wings as their partner for the last several seasons. Alaska is a dreadful place for a franchise to be based out of at the best of times, given the travel to reach opponents, but having prospects going from Alaska to New York when transferring between the ECHL and AHL and then New York to British Columbia when transferring from the AHL to the NHL is just insanity; and it’s not like anyone ever gets called up from the ECHL to the NHL.

However, most call-ups from the AHL to the NHL result in another call up from the ECHL to the AHL to replace a missing player. Imagine if the Canucks had an AHL franchise somewhere in the lower mainland. A call up from the AHL to the NHL could be a drive across town, while the replacement player flies the 2,300 kilometres from Anchorage, Alaska (which is still admittedly inconvenient) to replace the call-up. Instead of that relatively painless process, the Canucks have to receive a Comet from 3,600 kilometres away, and then the Alaskan player has to travel a ridiculous 5,153 kilometres to Utica. That is, unless the Comets decide to just sign players to tryout contracts to avoid that hassle, which they will undoubtedly prefer to do, which also means that any prospects that find themselves relegated to the ECHL this year will have to work that much harder to get out of there.

POTENTIAL LANDING SPOTS

The Canucks have several different options if they wanted to relocate their subsidiary closer to home. Down the highway lies the Abbotsford Entertainment Center in the hometown of Jake Virtanen. The Center has been empty since the Abbotsford Heat vacated the arena following the 2013-14 season. Before moving their new purchased AHL franchise, the Peoria Rivermen, to Utica, the Canucks attempted to negotiate a deal with the city of Abbotsford that would involve the Canucks moving their franchise into the Abbotsford Entertainment Centre, and the Abbotsford Heat relocating to Utica instead.

That deal fell through, somehow. It would have been a major win for all parties – the Heat were running large deficits year after year, unable to fill the 7,000 seat arena with a bunch of Vancouver fans that had little interest in watching prospects of the Calgary Flames. Certainly a team full of Canucks prospects would have drawn bigger crowds, especially with Travis Green as the coach — the man could turn a dozen sacks of meat and potatoes into a competitive hockey club. Also among the reasons that the Abbotsford Heat struggled so mightily was the travel – of course, that was before the inclusion of five California teams. The return of the Manitoba Moose and a new team in Tucson, Arizona means there will be seven AHL teams within 2,200 kilometres of Abbotsford next season. Back when Heat were in town, Des Moines, Iowa was the closest city at 2,382 kilometres away.

Another option is the more recently vacated Pacific Coliseum. The home of the WHL’s Vancouver Giants for the past 15 seasons (who will play out of the Langley Events Center next season) and the former home of the Vancouver Canucks is certainly large enough to house an AHL team, though it could use a bit of a facelift. Finally, the farm team could share residence of Rogers Arena with the parent, as San Jose and Winnipeg are doing. Scheduling an extra 38 home games would certainly be tricky, but that’s what computer algorithms are for. The Canucks considered this option in 2013 as well, but due to AHL by-laws, they were not allowed to set up an AHL franchise that close to the Abbotsford. There are no such roadblocks at this point.

Update: Since I saw this in the comments, I thought I’d make a couple of additional suggestions that I forgot to get into the published article. While the AHL has established a western conference that includes five teams in California and one in Arizona, the north-south distant from Vancouver is still a bit of a pain. While I think having a team in the Lower Mainland is the ideal situation from the perspective of parent club interaction, there are other compromises that could be available. For instance, finding another market in California would allow travel between AHL and NHL that is shorter than the current set up and stays in the same time zone, as well as reducing day to day travel for the AHL club.

The California teams are currently playing a reduced schedule of 68 games instead of 76, with the standings sorted by points percentage rather than overall points. As more teams are added in the west (Tucson next season, and a hypothetical Vancouver affiliate would make seven teams in the Pacific/Mountain time zones), the need for this dismisses. As it is, the Western teams play an increased amount of games against each other. Between these two scheduling tweaks, the travel/game-to-rest ratio roughly equalizes to that of the Eastern conference.

Similarly, you could set up an AHL franchise in Portland, Oregon or Tacoma/Seattle, Washington, both of which could likely sustain NHL clubs let alone AHL clubs. The choice between B.C., Washington, Oregon and California gives the Canucks a lot of flexibility in terms of which type of distance they feel is more important, NHL to AHL travel, or AHL day to day travel. But in this case, all options are within the Pacific time zone and reduce the effect of time zone changes and cross continental travel for call ups.

I think it’s important to remember that while you do indeed want your AHL players to feel rested, it’s also extremely unfair for prospects like Brendan Gaunce and Alex Grenier to have to deal with jet lag while they’re on their first NHL call ups – stints that if they perform poorly in could affect the rest of their careers.

Any of these options would eliminate travel required for call-ups when the Canucks are playing at home, and lessen it in a lot of cases when they are playing on the road. All this is saying nothing of the benefit that minor pro prospects like Jordan Subban, Ashton Sautner and Curtis Valk could gain from being a stone’s throw away from the Canucks training staff when they return to AHL action this fall, not to mention new Comets like Thatcher Demko, Troy Stecher, and Carl Neill.

This Canucks management regime has been insistent that simply being around NHL players is beneficial to the development of young prospects, so being exposed to NHL players by sharing facilities would undoubtedly foster some extra development.

The Canucks’ loyalty to Utica is admirable. Surely they feel they owe the city that has grown to love their farm team to at least complete their current contract. However, there are benefits that are up for grabs as soon as the Canucks are able to move their farm team closer to home, if the Canucks could get out of the contract they made with Utica. Even if they were resigned to riding the current deal out, it makes no sense to extend it beyond its current expiration, especially as plenty of other teams in the NHL continue to take advantage of closer affiliates. I’ve been a huge fan of Utica to this point, but the distance between the cities is just too vast, and the benefits associated with a having an affiliate located within the greater Vancouver area are simply too good to turn down.

Source: How Much Longer Should the Canucks Keep Their AHL Franchise in Utica? | CanucksArmy

Canucks Have Signed Goaltender Richard Bachman To A One-Year, Two-Way Contract Extension

VancouverCanucksCANUCKS BANTER     By Andrew Chernoff    July 13, 2016

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Vancouver, B.C. – Vancouver Canucks General Manager Jim Benning announced today that the Canucks have signed goaltender Richard Bachman to a one-year, two-way contract extension.

Bachman is set to make $575,000 for 2016-17 on his present one-way contract with the Canucks, and his extension for 2017-18 is a two-way contract which he will receive a pay out $650,000 at the NHL level and $450,000 at the AHL level, according to generalfanager.com

Bachman, 28, spent the 2015.16 season with the AHL Utica Comets, posting a record of 17-12-5 along with a 2.75 goals against average and .900 save percentage. He also made his debut with the Canucks last season, registering a win on October 30, 2015 at Arizona. The 5-10, 183-pound goaltender has played in 43 career NHL games, amassing a record of 18-14-2, a 2.93 goals against average and a save percentage of .904.

On the international stage, the Salt Lake City, Utah native represented the United States at the 2012 IIHF World Hockey Championship, earning a win in his only start. Prior to his professional career, Bachman played two seasons at Colorado College. He was named WCHA Player and Rookie of the Year, NCAA Rookie of the Year and NCAA West First Team All-American with a record of 25-9-1, four shutouts, and program-record GAA (1.85) and save percentage (.931).

Bachman was signed by Vancouver as a free agent on July 1, 2015. He was originally selected by Dallas in the fourth round, 120th overall, at the 2006 NHL Entry Draft.

FireShot Screen Capture #320 - 'Eliteprospects_com - Richard Bachman' - www_eliteprospects_com_player_php_player=11987

HC Dynamo Hockey Team Bus Gets Into Accident Near Smolensk

http://izvestia.ru    July 12, 2016

The vehicle turned over on its side and overturned in a ditch, no staff or athletes were injured.

The bus of hockey club HC Dynamo Moscow got into an accident on Tuesday night on the highway M-1 Moscow-Minsk, Smolensk region. The bus was carrying the players and the staff of the capital club to the city of Pinsk, Belarus, where the team are holding training sessions.

The correspondent of Izvestia managed to contact one of HC Dynamo players Alexei Tereshchenko, who was on the bus at the time of the accident.

“Our bus was moving quietly along the road without breaking any rules of the road” Tereshchenko told Izvestia immediately after the incident.

“And then, all of a sudden, we crashed into the vehicle ahead. The bus overturned and fell into a ditch. It is difficult to understand what really happened, what led to the accident, but the most important thing is that none of the people on the bus were injured. No staff nor the players have received any injuries.” Tereshchenko added.

Some time after the accident, HC Dynamo drove another bus to Pinsk.

HC Dynamo will hold a camp in Pinsk, Belarus during July. In early August, in preparation for the season, the team is scheduled to play in a tournament in memory Chernysheva, and in mid-August – Mayor’s Cup.

The Kontinental Hockey League kicks off on August 22.

Source: HC “Dinamo” The bus got in an accident near Smolensk. VIDEO – News