Myth of the rainy day pot of gold

The opposition NDP wants the provincial government to dip into its rainy day fund to help pay for pandemic-related costs.

It seems like a reasonable request: times are tough, businesses are going under, and personal care homes are being ravaged by COVID-19. If there’s a savings account with hundreds of millions of dollars in it, isn’t this the time to spend it?

The problem is, the demand is based on fiction: Manitoba doesn’t have a separate pot of money that can be used as revenue during lean times.

"They’re sitting like Scrooge McDuck on a bank account with a huge pile of money and they’re refusing to spend it because of one man’s ego and political legacy," NDP finance critic Mark Wasyliw said this week.

The "Scrooge" he was referring to is Tory Premier Brian Pallister.

It’s unclear whether Wasyliw doesn’t understand how the province’s books work or whether he’s just playing politics with a widely misunderstood aspect of government finances.

Either way, it’s misleading to claim government has access to a savings account it can draw from as revenue to pay for COVID-19 costs (or any other expenditures).

What government has is something called a Fiscal Stabilization Account (FSA).

It’s an account that exists within government’s operating fund. It’s made up of designated cash and investments that can be used for unanticipated liquidity needs, such as during a natural disaster. It’s not a separate savings account.

If, for example, government were to increase spending by $500 million this year for pandemic-related costs (beyond the most recent spending estimates), the deficit would rise by that amount — unless there was a corresponding increase in revenue from taxes, fees, federal transfers or other sources.

Government can’t draw $500 million from the FSA and record it as revenue. The accounting doesn't work that way.

The same applies when government puts money in the FSA: it’s not recorded as an expense, it’s an accounting entry.

When the Pallister government added $228 million to the rainy day fund at the end of 2019-20 (bringing the balance to $800 million), it had no impact on the province's bottom line. The province posted a $5-million surplus.

So what’s the point of having a rainy day fund? It helps government manage cash flow; it’s cash-on-hand that can be used instead of borrowing.

Confusion over Manitoba's rainy day fund dates to 2009, and changes made to it by the then-NDP government.

It used to be called the "fiscal stabilization fund," created by the Gary Filmon-led PC government in 1989.

It was a separate pot of money with its own assets. It existed outside of government’s operating fund. It was a true "savings account" that could be used during lean economic times. Money deposited into the fund was recorded as an expense, and withdrawals were considered revenue.

That changed when government adopted new public-sector accounting rules.

The Fiscal Stabilization Fund Act was repealed in 2009, and replaced with the FSA. It was no longer a separate fund.

Having a cash reserve like the FSA is useful. During the early days of the pandemic, when government needed quick cash to pay for COVID-19-related costs, finance officials knew they could rely on the reserve to make purchases instead of having to borrow.

Debt markets for provincial governments were strained at the time (until the Bank of Canada intervened). Without cash reserves, the province may have been forced to borrow at higher rates.

It didn’t end up drawing from the FSA, but having the option bought it time until debt markets improved. Government eventually borrowed at lower rates.

Having adequate cash reserves is part of a sound financial management strategy.

However, there is no pot of money, just sitting there, that allows government to spend without either increasing the deficit or reducing a surplus.

tom.brodbeck@freepress.mb.ca