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Finance Minister Jim Flaherty presents an update on the government’s Action Plan at the University of Winnipeg. (John Woods)
Finance Minister Jim Flaherty presents an update on the government’s Action Plan at the University of Winnipeg. (John Woods)

Stimulus gamble: How Ottawa saved the economy – and wasted billions Add to ...

Jim Flaherty had heard enough. It was December, 2008, and the minister was on the road, working his way through a heavy schedule of meetings with business executives, local and provincial politicians, and other groups.

Everything was riding on a budget he was scheduled to deliver in less than six weeks. The minority Conservative government had barely survived the autumn; it prorogued Parliament to avoid defeat in the House of Commons. Meanwhile, the global financial crisis had been gathering speed for months. With each passing week, the economic outlook got worse.

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For the Finance Minister, two days in Saskatoon drove the message home. On Dec. 17, provincial and territorial finance ministers flew in with grim reports from across the country. The next day, at the city’s Delta Bessborough hotel, Mr. Flaherty met with business leaders for several hours. All had a similar message: Their businesses were feeling the pain of a bad economy.

“A light went on in my head at about 2 o’clock in the afternoon: This is worse than I thought,” Mr. Flaherty recalls. When the second day of meetings wrapped up, he placed a call to Prime Minister Stephen Harper.

“ ‘You know, we hoped we could run a deficit of fifteen or twenty billion dollars and manage the problem at that level. But I don’t think so,’ ” Mr. Flaherty says he told the Prime Minister. “ ‘It’s deeper and darker and it’s at all levels of business.’ ”

That’s how Mr. Flaherty, a conservative who’d risen to political prominence in Ontario as a member of the cost-cutting Mike Harris government, ended up delivering one of the largest deficits in modern Canadian history. The red ink for the fiscal year 2009-10 was nearly $56-billion. When adjusted for inflation, it was on par with the federal deficits of the early 1990s, when Canada was considered a financial basket case.

“And I’m glad we did,” Mr. Flaherty says.

Five years later, the products of Canada’s massive stimulus program are still visible. Cities and towns across the country have new roads and updated hockey rinks. Many homeowners enjoy finished basements and new decks because of a temporary home renovation tax credit. Some of Canada’s native reserves now have new schools, meaning students no longer have to spend hours of their day riding a bus to a neighbouring town.

Another lingering part of the stimulus is debt.

When Mr. Flaherty’s 2009 budget announced a federal stimulus package worth $47-billion over two years, the plan was for Ottawa to be back in surplus by now. That target has since been pushed back to 2015-16.

By the time the books are balanced, seven successive years of deficits will have increased the federal debt from $458-billion in 2008-09 to $620-billion. That rise of $162-billion represents about $4,600 for every person in Canada.

Provincial finances took an even harder hit. An era of recession and unprecedented government spending is on track to add more than $200-billion to the combined provincial net debt.

Wrestling deficits back to the verge of surplus has meant several years of spending cuts. Rating agencies are watching Ontario and Quebec closely to see whether their debt can be managed. Ontario – where manufacturing took a heavy hit during the recession – saw its credit rating downgraded in 2012. In Ottawa, the government is putting its unions on notice that hard bargaining lies ahead in 2014 over sensitive issues like sick leave. A rare strike by federal public servants could be on the horizon.

The question, now that the dust has settled five years later, is was it all worth it?

The political backdrop

Conservatives now realize that Sept. 7, 2008, was a terrible time to trigger a federal election. Modern campaigns are heavily-scripted, micromanaged affairs designed to avoid improvisation at all cost. The economy did not co-operate.

By week two of the campaign, Wall Street was in crisis. Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15. The next day, Washington stepped in to bail out American International Group, the largest insurer in the world.

The American financial system appeared to be coming unglued. The Dow Jones industrial average recorded its biggest-ever one-day point drop on Sept. 29, with just over two weeks to go before the Oct. 14 Canadian election.

The prepared campaign lines were quickly tossed aside by Liberal Leader Stéphane Dion and NDP Leader Jack Layton as they jumped on the headlines, demanding a government response to the crisis. But they insisted – as did the Conservatives – that deficit spending was not required. Mr. Harper accused the other parties of being overly pessimistic about the state of the economy.

“What the opposition is demanding I do – raise taxes, increase spending, do a lot of direct intervention and bailouts – these things would demonstrably ruin our fiscal credentials and undermine the strengths that we do have in our economy,” he told the CBC on Oct. 7, one week before election day.

Conservative sources say it was clear the economy was worsening but the party did not want to change its message in the middle of an election.

Days after the election in which the Tories won 143 seats, the message changed. Mr. Harper was no longer ruling out the possibility of a deficit. A key development took place in Washington on Nov. 14 and 15, when Mr. Harper met with world leaders of the G20.

The group emerged with a call for fiscal stimulus measures. Dominique Strauss-Kahn, managing director of the International Monetary Fund, suggested that countries should approve new spending worth 2 per cent of gross domestic product. Conservatives believed the international consensus gave the Prime Minister and his party political cover to shelve the no-deficit promise.

The following week, Mr. Harper said he was considering “unprecedented” stimulus and described the economic situation as potentially as dangerous “as anything we have seen since 1929.”

In light of that talk, there was a clear disconnect with Mr. Flaherty’s ensuing fiscal update, released on Nov. 27, 2008. The document contained no stimulus plans, and argued that Ottawa had already given the economy a boost by cutting the goods and services tax to 5 per cent that year. It hinted of more spending in the 2009 budget, but presented a long-term forecast that showed no deficit. On top of that, the update contained a major surprise: The Conservatives would be eliminating the $28-million subsidy to political parties.

The Conservatives backtracked two days later, but it was too late. The Liberals, NDP and Bloc Québécois were deep into negotiations over how to defeat the government.

In retrospect, many economists say the November update would have been a better time to launch a stimulus package. But at the time, those on whom Mr. Flaherty relied on for advice say the data were not clear enough to make strong recommendations.

Bank of Nova Scotia’s chief economist Warren Jestin, who provided data and advice to Mr. Flaherty in the fall of 2008, said his “intuition” at the time was that things were getting much worse, but the economic numbers still weren’t that bad.

“The sad thing about being an economist is you’re dealing with lag data,” he said.

Mr. Flaherty had the same sense of unease. “None of the economists in the private sector gave us advice that we’re into a recession,” Mr. Flaherty said. Inside the government, the thinking was that some modest stimulus spending in the 2009 budget would be enough.

“I can look back now and say we were in recession the last quarter of 2008,” Mr, Flaherty said. “So it was a bit awkward to present what I presented and then to realize that things were getting increasingly worse.”

Jean Charest, Quebec’s premier from 2003 to 2012, said the Harper government did not want to believe that Canada was being dragged into the global financial crisis and recession.

“The speed at which they turned 180 degrees was spectacular,” Mr. Charest said. “I don’t think anyone held it against them because we had just seen the world unravelling in front of us. There weren’t many options. They did what they had to do, quite frankly.”

The bailout

On Monday, Nov. 3, 2008, Dwight Duncan, then Ontario’s Finance Minister, was flying back from an emergency meeting with Chrysler Group LLC chief executive officer Robert Nardelli and other top officials in Auburn Hills, Mich.

The ultimatum he had received from the auto maker was blunt and alarming.

Chrysler was out of cash and wouldn’t be able to pay its workers in December. Without help from the U.S. government, the company was dead. Without money from governments in Canada, Chrysler would pull out of the country.

Two vehicle assembly plants in Windsor and Brampton, Ont., along with a powertrain plant, would close or be moved to the United States. Nearly 10,000 factory and head office jobs would be gone.

Mr. Duncan stared out the airplane window at the lights of Southern Ontario below. The North American auto industry was on the verge of collapse and the global financial system was failing. He wondered what other problems might be lurking out there.

“I remember looking at those homes and thinking, ‘Those people have no idea what’s coming,’ ” Mr. Duncan said, whose hometown of Windsor would bear the brunt of the depression in auto sales. “This would have reverberated up and down the 401 [highway], between Windsor and Ottawa.”

In the end, the demise of both Chrysler and General Motors in Canada was, as Mr. Duncan put it, “too big to contemplate.”

By the end of December, Ottawa and the province would agree to help rescue both companies – a pledge that would eventually cost taxpayers $13.7-billion and make them part owners of GM.

So far, $6.2-billion has been repaid, and the government still owns $4-billion worth of GM stock.

For the Conservatives, the bailout marked a philosophical U-turn. Paul Boothe, who negotiated the bailouts for Industry Canada, said the rescue went against the free market “political instincts” of the Harper government.

“I was convinced, but we had a bunch of explaining to get them to the same place,” said Mr. Boothe, now a business professor at the University of Western Ontario.

Like Mr. Duncan, Mr. Boothe was convinced both auto makers would pull out of Canada if the U.S. rescued the companies and Ottawa didn’t participate. “Our optimal strategy was to match the U.S.”

Even if GM and Chrysler abandon Canada in 2016 when their production commitments expire, the bailout “paid off,” said University of Ottawa economist Leslie Shiell, who has studied the impact of the bailout.

The bailout saved roughly 20,000 jobs at the two companies, and many more at parts suppliers. But it hasn’t guaranteed the industry’s longer-term survival as production shifts to the southern U.S. and Mexico, said Jim Stanford, chief economist at Unifor, a union that represents thousands of Canadian automotive workers.

“We are now in a desperate battle once again to preserve our share of investment,” Mr. Stanford said. “The bailout did not solve everything. ... It gave us some breathing room for a few years.”

Infrastructure versus tax cuts

Amid the high-stakes politics of a minority government at a time of severe economic distress, Mr. Flaherty had an extremely tight window to put together a budget that would allow the Conservatives to stay in power. The opposition parties were demanding stimulus and Canada had promised the G20 it would do its part. The discussion then turned to the size of the spending package and what it would include.

Conservative sources say some cabinet cabinet ministers still thought the stimulus could be kept relatively small. Some believed the spending of the previously announced seven-year Building Canada Plan targeted at infrastructure could simply be moved up. But the economic news worsened throughout December. Statistics Canada revealed the country shed 71,000 jobs in November, marking the biggest monthly drop since the 1982 recession. The comment pages were filling up with expert opinions second-guessing Ottawa’s wait-and-see approach.

For the Finance Minister, the realization sunk in that the government would need to run a very large deficit.

“It was basically go big or stay home. There was no point in doing a half-measure,” Mr. Flaherty said. “The uncertainty was enormous. With the Americans, with the Europeans, I was talking to my colleagues all the time every day around the world and nobody had a good read on what was going on. So that was particularly frightening.”

Infrastructure spending had obvious appeal, but many economists warned that these types of projects tend to be too slow to do much good. By the time money is spent, the recession is usually over.

Brock Carleton, the CEO of the Federation of Canadian Municipalities, continued to push for a major infrastructure plan. He had made his case directly to Mr. Harper on Nov. 20 in the Prime Minister’s Centre Block Office during a meeting that was attended by Mr. Flaherty and John Baird, the minister in charge of transportation and infrastructure.

In the end, the combined federal and provincial stimulus totalled nearly $64-billion, according to a final report on the Economic Action Plan released by Ottawa in March, 2012. That figure primarily covered a two-year period, although some spending was allowed to extend into the 2011-12 fiscal year. Infrastructure was the biggest category of stimulus spending, followed by industrial support like the auto bailout. Unemployment benefits and tax cuts largely accounted for the rest.

Getting the money out the door

After the budget was tabled and the government avoided defeat, the political pressure moved from Mr. Flaherty to Mr. Baird. Infrastructure spending would be effective only if the money was spent quickly. At the same time, no government wants scandals from money spent hastily – and badly.

To speed up projects, Mr. Baird pushed for a one-page application form and demanded that municipalities submit only projects that could be completed by March 31, 2011. Long-standing rules were being sidelined, creating some concern and resistance in the public service, and fears about political embarrassment. “We just didn’t want to be lampooned,” Mr. Baird said in an interview in his Parliament Hill office.

In the weeks after the budget, ministers were frustrated at the slow pace of action. That tension between the public service and cabinet built until June, when Mr. Baird’s deputy minister, Transport Canada veteran Louis Ranger, was replaced by Yaprak Baltacioglu. The government hoped she would get things moving.

“There was a huge dynamic change when Yaprak came in in terms of co-operation,” said Chris Froggatt, who was Mr. Baird’s chief of staff at the time.

In the end, the Auditor-General tabled two reports on the Conservative government’s Economic Action Plan – as the stimulus was called – and both were positive. A third report specifically on a $50-million G8 Legacy Infrastructure Fund, which was part of the stimulus plan, criticized the government because auditors could not find documents showing how projects were selected. Auditors also discovered that G8 spending was presented to Parliament as border-related, when in fact it had nothing to do with border infrastructure.

The fact that the largesse was concentrated in the Parry Sound-Muskoka riding of then-Industry Minister Tony Clement inspired much of the criticism from the opposition that Mr. Baird was hoping to avoid.

The opposition attacked the spending as a partisan slush fund, asking why it was used to build gazebos and parks in the riding that had no obvious connection to the 2010 G8 summit.

Mr. Baird argues that in the grand scheme of things, very few stimulus projects were controversial. “People joke about the gazebo [in Mr. Clement’s riding] – I mean there’s a gazebo right there,” he said, pointing out the window to one behind the Parliament Buildings. “By and large, it was pretty good. We did some incredibly exciting things.”

Mayors across the country would certainly agree. Stimulus spending meant new cash for community centres and splash parks, as well as less glamorous projects like sewer and road work. Ottawa’s determination to receive credit for the spending remains a point of heated debate.

Extensive rules ensured that large signs promoted all spending big and small –including a new doorknob at an RCMP building in Charlottetown.

“The one thing I suppose I’d like to see less of is less advertising and billboards,” said Ottawa Mayor Jim Watson., who was an Ontario cabinet minister when the stimulus was launched. “It seemed a little overkill to have these signs plunked up everywhere.”

Measuring results

But did the government’s plan achieve its number one goal – to mitigate the worst effects of a recession that drove the unemployment rate to 8.7 per cent?

The Parliamentary Budget Office (PBO) – then led by Kevin Page – tracked stimulus spending by surveying groups on the receiving end of the government cash. Its 2010 report concluded that some projects, such as solid waste management projects, were not very good at creating jobs, while spending on public transit was “very effective” at creating employment. Spending on ports and highways was also seen as a good way to create jobs.

Pedro Antunes, an economist at the Conference Board of Canada, said Canada invested in mostly productive infrastructure and got the money out the door relatively fast. Looking back, it’s now clear that public investment infrastructure as a percentage of GDP shot up noticeably in 2009 and 2010, countering the effects of the recession.

“The timing was okay. The type of spending was okay,” he said. “Over the longer term, it’s not like we were overspending. We needed the infrastructure.”

Good infrastructure benefits the country over the longer term, he pointed out. Even hockey rinks in remote locations, he suggested, improve the quality of life in Canada.

But once the short-term jobs are gone, the lasting economic benefit of planters and arenas and gazebos pales next to cutting-edge labs or major new highways. Ottawa’s demand for shovel-ready projects created a bias for the quick-and-easy over higher-quality productive infrastructure. The Great Recession was a missed opportunity to build a better legacy.

Some experts also argue that much of the government stimulus came too late. It had almost no impact when it should have counted most – as the economy pulled out of recession in 2009.

A 2010 report by the Vancouver-based Fraser Institute, a conservative think tank, found a “negligible” benefit from government spending and a “small” boost from tax relief in the second half of 2009, based on a review of GDP data for the period. The Fraser Institute economists argue instead that a rebound in exports drove the recovery. “Government stimulus spending did not have a material impact on Canada’s economic recovery,” according to the study.

Finance Canada did not track how many jobs were created by each project. Instead, it used a broad economic model that tried to calculate the employment impact. It reported that the stimulus “created or maintained” 248,000 jobs, beating the original goal of 220,000 jobs. The government’s model was validated by outside economists at the Conference Board of Canada, National Bank of Canada and the University of Toronto.

Measuring stimulus involves a debate about what economists call multipliers. The IMF argued in 2008 that an increase in government spending equal to 1 per cent of gross domestic product would actually produce a 1 per cent increase in GDP – meaning the multiplier would be one.

Finance Canada’s model showed that some stimulus, such as spending on infrastructure, had a multiplier of 1.5 per cent in 2010, whereas business tax cuts only produced a multiplier of 0.2 per cent. Finance stated that because of the “considerable uncertainty surrounding the size of fiscal multipliers, prudent estimates have been used.”

Mr. Page said the PBO attempted to create its own economic model to test the effectiveness of having a stimulus plan versus not having one, but the project proved to be too difficult.

“You just can’t do it,” he said. “It’s almost impossible. You’re in unprecedented waters when banks are seizing up and collapsing.”

The central argument against infrastructure spending as a way to lift a struggling economy comes down to timing.

Canada’s economy had begun to recover by the spring of 2009, long before there could have been any impact from the stimulus-laden budgets of the federal and provincial governments, argued Finn Poschmann, vice-president and research director at the C.D. Howe Institute in Toronto. “Significant deficit spending after 2009-10 was certainly unnecessary from an economic perspective in Canada,” he said.

In a report this week, the Fraser Institute faulted Ottawa and the provinces for keeping the stimulus tap on and piling on debt long after the emergency was over. The federal government alone will amass nearly $70-billion in deficits between 2011 and 2015 – all of it after the recession was done.

Some argue that the government’s stimulus plan accomplished a very important goal that can’t be measured – it calmed fears of an economic collapse after the bank failures in U.S. and Europe.

“When nobody’s certain of the downside, activity kind of freezes,” said Royal Bank of Canada chief economist Craig Wright. “So in some sense, fiscal policy, not just in Canada but around the globe, kind of stepped in and to a degree underwrote the worst-case scenario. It kind of drew a line under how bad things could get and I think that had an indirect impact on confidence.”

That view gets at the fundamental problem in measuring the impact of stimulus. Those who believe it had a positive effect point to factors – like confidence – that can’t really be measured. Economists like to evaluate a policy by considering what they call the counterfactual – by trying to answer the question, what would have happened if the policy had not been there?

As a relatively small economy with deep international trade links, Canada probably could have avoided major spending programs as long as other nations stimulated their economies.

Economist Don Drummond argues such a “free rider” approach would have made Canada a pariah among the G20. Mr. Drummond was chief economist for Toronto-Dominion Bank at the time and is now Matthews fellow at Queen’s University.

He said there is no simple, easy answer to the question of whether the billions spent in Ottawa and provincial capitals made a difference.

“You can’t answer whether that would be a good or a bad thing until you can answer that counterfactual question: Would we be in a freefall and how would the Canadian economy have been different if we didn’t have that stimulus?” he said. “And I don’t care if it’s the Fraser Institute or the government, no one can directly answer that question.”

Even if there was some benefit, Mr. Drummond argues that it was short-lived and quickly reversed by several years of austerity as governments cut spending to shrink deficits. Some of the spending on infrastructure was valuable, he said, but the requirement that projects be “shovel ready” meant that projects that could have produced greater long-term benefits were overlooked.

“I think the best you can say is, if this exercise of massive stimulus had a positive payoff it was that it stabilized the economy. End of sentence,” he said. “It has not achieved any long-run goal.”

The way ahead

Five years on, the legacy of the stimulus spending survives on university campuses, in cultural centres and in thousands of kilometres of asphalt. But it also lives on in the form of a worrying and persistent debt hangover.

In a normal recovery, much of that debt would be gone. Slow growth has translated into sluggish tax revenues. Ontario and Quebec look most vulnerable, with a return to balanced books still a few years off. About 84 per cent of all provincial and territorial debt belongs to those two provinces and international rating agencies are keeping a watchful eye.

Quebec is looking at perhaps decades of pain. A recent Université de Sherbrooke report by professors Luc Godbout and Pierre Fortin warned that even before the Great Recession, Quebec’s spending and taxation patterns were on pace for chronic deficits over the coming decades. They note that the province’s demographic and financial problems demand tough choices from political leaders.

Dwight Duncan, who was Finance Minister in Dalton McGuinty’s Liberal government, has no regrets. The province did what it had to do in a time of crisis, he believes, to keep an auto-dependent province from tumbling into depression. But the province did so largely with borrowed money, leaving a legacy of debt that could hamper the province’s ability to deliver basic services when interest rates inevitably rise.

“That is a ticking time bomb, both for Ontario and Canada, because of the debt we incurred to do the things that we did,” Mr. Duncan said. “It causes me more worry now than it did at the time.” The province’s debt service costs in 2012-13 consumed $10.3-billion, 16 per cent more than in fiscal 2008.

Colin Hansen, who was B.C.’s finance minister at the time and recalls the period as “those months from hell,” said stimulus must be considered a success simply because it avoided the worst.

“If you look at how well Canada has fared coming through these last five years, I think that’s the real test,” he said. “There’s probably things that could have been done differently, but I think over all, the Canadian approach was successful.”

Few people watched the government’s spending plans as closely as Mr. Page, who was a thorn in Mr. Flaherty’s side during his five-year term as Canada’s first Parliamentary Budget Officer. But on the shape of stimulus and the government’s ability to get it out the door, he gives the Conservatives high praise.

“It did have an impact,” he said. “To me, the government’s stimulus package is probably the high-water mark of this government since it’s been in power.

“It was a time of crisis. And yeah, they got caught completely unaware that this recession was coming. It didn’t look like they wanted to do it, but then the crisis really hit and they responded appropriately.”

Municipalities say that now that Ottawa is taking a longer-term approach to infrastructure spending, cities should have more detailed plans in place should there ever be a need to move up construction schedules to give the economy a boost. Federal Conservatives aren’t so sure recent lessons will apply to more typical recessions.

“This was obviously a one-time thing and it was under extraordinary circumstances,” Mr. Baird said.

When Mr. Flaherty tables his 2014 budget on Tuesday, it will show Ottawa’s years of deficit spending are nearly over. He has promised a significant surplus by 2015-16 and some economists say Ottawa might even climb out of the red this year, when the final numbers are in.

Tuesday’s budget sets the stage for a new era of surpluses and a 2015 federal election over whether that money should go toward reducing debt, new spending or reducing taxes.

Mr. Flaherty has low-balled expectations for budget day by scheduling it during the Sochi Olympics. Opposition parties are already dismissing this as a “do nothing” budget. But in many ways, Mr. Flaherty is releasing the final chapter of a major budget he tabled five years ago.

The 2009 budget was most definitely not a do-nothing budget. Whether 2009 would have been the right time to do nothing is still hotly debated.

The decisions made five years ago will be re-examined again when future governments face the next big economic downturn. To those future leaders, Mr. Flaherty offers some advice.

“As much as we all have political principles and things we believe in, you cannot be ideological as a finance minister,” he said. “You have to be prepared to do what needs to be done to preserve jobs and the economy ... certainly in my view it was necessary to do what we did, and that was run a big deficit.

“And it’s necessary to do what we’re doing – that is, drive it back to balance.”

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BOONS AND BOONDOGGLE

Vale Living With Lakes Centre

Laurentian University’s Vale Living With Lakes Centre was the perfect candidate for federal infrastructure money.

Fisheries biologist John Gunn had been toiling for 14 years to find a home for the university’s various water ecology labs and activities. By 2008, he had commitments for $16-million from the university, nickel giant Vale SA and various levels of government. He had architectural drawings and a prominent site on Ramsey Lake near the campus entrance.

But it wasn’t enough. The centre was $5-million short, and the economy was headed south.

Enter the $2-billion Knowledge Infrastructure Program (KIP), part of Ottawa’s Economic Action Plan, announced in early 2009.

“We had already pitched it so many times that our numbers were very accurate,” explained Prof. Gunn, director of the centre. “We had costed out everything and it was ready to go.”

The federal KIP money leveraged a total of more than $5-billion in projects across the country.

Because most schools already had wish-list projects, the rollout was “remarkably quick,” according to Paul Davidson, president of the Association of Universities and Colleges of Canada. Projects were approved between January and June of 2009, with cranes popping up at universities by the summer. Most of the structures were completed by 2011.

“This was smart infrastructure,” Mr. Davidson argued. “It has created a really important legacy on Canadian campuses.”

At Laurentian, the $20-million centre and its cutting-edge labs have become a magnet for talent it never could have attracted, including a National Research Chair in environmental microbiology, along with dozens of researchers and PhD students.

Birch Narrows school

The first reserve community to receive a new school through the stimulus was Birch Narrows, a remote First Nation in northwestern Saskatchewan.

Prior to the stimulus, there was no school on the reserve for Grade 10 and up. Kids in those grades had to take a bus for more than an hour each way to attend an off-reserve school in La Loche. Only about one or two kids from the community were graduating high school each year.

Now with the new $25-million school, the community had 16 new high-school graduates this year and 45 since the new school was built.

“It went really well,” said Chief Robert Sylvester of the construction project, which he said finished ahead of schedule. Still, the chief said it’s a struggle to find the money to operate the school and pay for teachers.

“There’s never enough to keep it running,” he said.

The Bluenose II

The Bluenose is a symbol of pride for Nova Scotia and all of Canada, but the Bluenose II project announced in the early months of stimulus spending is now openly described as a boondoggle.

In Apri,l 2009, Conservative minister Peter MacKay and the then Tory Premier Rodney MacDonald announced $14.4-million to restore the Bluenose II, a 1963 vessel built in honour of the original Bluenose, which was built in 1921 and now graces the Canadian dime.

Nearly five years later, the Bluenose II is not in service and its rising price tag has yet to settle on a final number. The Nova Scotia government has said it will be more than $16-million, while the Canadian Taxpayers’ Federation predicts it will actually cost more than $20-million.

For a while, it was a ship without a rudder. Before the retrofit, the Bluenose II had a wood rudder, like the original. But regulators don’t allow wood rudders any more, and finding a replacement that works with the ship’s design proved to be a major challenge. A further problem is that descendants of the designer of the original Bluenose are suing Nova Scotia for intellectual property infringement and arguing that the government doesn’t have the right to use the term Bluenose. The ship returned to the water in Lunenburg in September after three years in dry dock for repairs, but has not yet been cleared by regulators. The new Liberal Premier, Stephen McNeil, recently called the project a “boondoggle” that should be investigated by the Auditor-General.

“Embarrassing, in a word,” said Nova Scotia Senator Wilfred Moore, who represents the region and was a volunteer fundraiser for maintenance of the Bluenose II prior to the stimulus announcement.

“Around Lunenburg, they’re embarrassed about it,” he said, listing the rising cost, delays and mistakes that needed to be fixed. “You’ve got a pretty proud community. They’re used to building boats and doing well, so it’s not sitting very well. This is too bad.”

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