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Offshore supply ship the Atlantic Griffon leaves St. John’s harbour on April 17, 2020 as fishing boats remain tied up at Fort Amherst due to COVID-19.

Paul Daly/The Globe and Mail

A strange, uneasy quiet has settled on the government wharf outside Florence Parsons’s window in Leading Tickles, N.L., where the boats are finally back on the water after a long winter.

Crab season in this part of Newfoundland and Labrador normally starts at the end of April and has always marked the beginning of the fishing calendar in a place where work is still tied to the bounty of the sea. This year, the four-person longliner boats left the harbour two weeks late, delayed by physical-distancing rules imposed to prevent the spread of COVID-19.

But now that their crab pots are in the water, the crews aren’t sure if they can collect them. The pandemic has cut the price of crab in half, and fishermen are worried about confrontations at the wharf with larger boat operators who can’t afford to go to sea with such deflated prices.

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“It looks like when someone has died and you’re just waiting around to see what’s going to happen. The men are down on the wharf, but they don’t know if they should go or shouldn’t go, and what they should do once they get it,” said Ms. Parsons, 60, mayor of Leading Tickles and one of the first women on Newfoundland’s rocky northern coast to earn a living from the sea.

“This pandemic has thrown everything out of whack.”

Leading Tickles, population around 300, is like a lot of small coastal communities in Newfoundland – full of senior citizens, with few young families, and largely reliant for income on a fishery that has been crippled by COVID-19.

Ms. Parsons, and many other Newfoundlanders, worry about the long-term damage of the pandemic on the province’s $1-billion fishery, while they wait on a $469-million federal bailout announced for Canadian fish harvesters last week. The collapse of global seafood prices has them wondering what life will be like when their province emerges from the COVID-19 shutdown only to enter another, even deeper crisis – an economic downturn the likes of which has not been seen here since the Great Depression.

Family-run O’Brian’s Boat Tours in Bay Bulls, 30 minutes from St. John’s, is in limbo due to restrictions of COVID-19.

Paul Daly/The Globe and Mail

Her province’s economy was in dire straits long before the pandemic, with high unemployment, low growth and debt reaching nearly 75 per cent of GDP, compared with an average of 35 per cent in other provinces. The past few months have only cranked up the pressure.

“I worry about the future. I don’t see too much here for anybody,” Ms. Parsons said. “Growing up, we never had a reason to go anywhere else. But that’s all changed. I think it’s going to be really hard for that next generation coming up.”

A new deal

Without a new deal from Ottawa, Newfoundland’s political leaders warn the province risks falling off a fiscal cliff into bankruptcy. The pandemic has amplified its financial troubles, as plunging oil royalties have erased an estimated $700-million to $800-million from the province’s annual revenues – about 10 per cent of total government income.

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As oil prices have collapsed, so have revenues from key industries such as tourism, forestry, mining and the fishery because of the continuing COVID-19 fallout. Personal income and sales tax streams have shrivelled.

The pandemic also shut down megaprojects such as the Voisey’s Bay mine and the Muskrat Falls hydroelectric dam, and closed the province’s only oil refinery. Future offshore projects, including the $6.8-billion deep-water Bay du Nord oil field, have been put on hold.

Before the Bank of Canada stepped in to help with the economic fallout from the pandemic in March, Newfoundland was only a few weeks away from running out of money to pay government employees. Private banks were shutting off the tap and refusing to lend the province any more money.

“It’s going to come to the point where we’re not able to borrow to finance our debt. I don’t think we’re too far away from that," said Scott Lynch, an associate professor of economics at Memorial University of Newfoundland.

Newfoundland’s net debt has nearly doubled since 2009 to almost $30,000 a person, according to Ben Eisen, a senior fellow at the Fraser Institute. The last time a Canadian province was that indebted was in 1993 when Saskatchewan was on the brink of insolvency – a situation that forced the closing of dozens of hospitals, deep cuts to public services, tax hikes and a multi-million dollar bailout from Ottawa.

As it staggers under its growing debt load, Newfoundland is facing the most difficult fiscal challenge of any Canadian province, Mr. Eisen said.

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The Economic Development Tourism and Culture office on Water Street in St. John’s, seen here April 17, 2020, is closed due to COVID-19.

Paul Daly/The Globe and Mail

Political leaders of all stripes are sounding the alarm.

"Everyone should be utterly concerned,” said Ches Crosbie, leader of the opposition Progressive Conservative party. “We’ve run out of money and we’ve run out of ability to borrow. ... This pandemic has simply brought us to the edge of insolvency earlier than we otherwise would have.”

Both the opposition and governing parties say Newfoundland is in urgent need of a new transfer formula from the federal government that recognizes the extra challenges to come with delivering government services to an aging population spread across a difficult-to-access region.

The economies of every Canadian province have been hurt badly by the COVID-19 pandemic. But the problems in Newfoundland go deeper than anywhere else in the country. Its population is older, shrinking and more heavily indebted than other oil-producing provinces such as Alberta or Saskatchewan.

“We need a joint plan with the federal government to address problems that have been festering for years now,” Mr. Crosbie said. “We have challenges that no other province has. … It’s simply a matter of fairness. We’re not being treated fairly within the system of transfer payments that Canada has.”

Under the current equalization formula from Ottawa, Newfoundland gets nothing while Quebec, Manitoba and the Maritime provinces split $19-billion. Until last year, Ontario also received billions under this program. Newfoundland, with the worst finances in Canada, is still considered a “have” province under the equalization rules because of its resource base. But while oil revenues have evaporated, neighbouring provinces with growing populations and balanced budgets are getting billions.

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Mitchell Denty, left, and Ken Ryan onboard The Ragen Tide fishing boat, docked in St. John’s harbour on April 17, 2020.

Paul Daly/The Globe and Mail

No easy fix

Newfoundland’s Minister of Finance Tom Osborne says the challenge is that other provinces are unlikely to agree to getting smaller equalization payments so that his province can get a share. Newfoundland hasn’t received an equalization payment since 2008.

“We are the province who needs equalization the most, and we’re not getting it. That formula has to change," he said. “But when you’re talking equalization, each province wants to protect that turf, and will argue against changes because the pot is only so big.”

Alberta and Saskatchewan, which have contributed billions of dollars to equalization payments, are also calling for an amendment to the equalization formula. As oil prices have plunged, they’re asking for rebates from Ottawa – which has so far focused its efforts on a bailout for the oil and gas industry, not the provinces themselves.

The federal government, which renewed the equalization program in April, 2019, has said the formula won’t be revisited until 2024.

But some argue no deal with Ottawa can fix Newfoundland’s main problem: spending far more than it brings in through government revenue. Only the province can address that itself, Mr. Eisen said.

“I think it would be a mistake to view that as the likely source of salvation or the fix to the problem. Newfoundland and Labrador is not going to be able to maintain some sort of new arrangement with the federal government that will solve their problems for them," he said.

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“It’s going to have to be done at the [provincial] government level to be sustainable. The problem-solving is going to have to be done at home."

Shops along Water Street in downtown St. John’s are closed due to COVID-19.

Paul Daly/The Globe and Mail

Mr. Osborne says the Liberals inherited a financial mess from the Progressive Conservatives when they took power in late 2015, and were nearly unable to make payroll before their first budget. They needed an emergency release of treasury bills just to pay government employees, he said.

The government has slashed spending, he said, reducing the deficit from $2.4-billion that first year in office to less than $600-million last year. But the double-barrelled impact of COVID-19 and collapsing oil revenues has hammered the province’s ability to balance its books, he said.

“We were anticipating $1-billion in oil revenues this year. We’ll be lucky if we see $400-million to $600-million of that," Mr. Osborne said. “But we won’t have a full understanding of the impact until we come out the other side of the pandemic.”

A province under pressure

Newfoundland’s population reached a peak of 580,000 in 1992, the year the government announced a moratorium on cod fishing. The economic fallout from the closing of the province’s largest fishery still lingers today.

It’s lost 60,000 residents since then, many of them younger, working-age Newfoundlanders who left for jobs in the oil patch, in mainland factories and elsewhere in Canada. One Statistics Canada report projects Newfoundland could shrink by 90,000 more people in the next two decades.

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The worry is that the painful cuts and taxation needed to help Newfoundland stay afloat may only speed up its demographic problems, sending more people away.

“The real problem is who’s leaving. It’s typically the most productive,” said Memorial University’s Prof. Lynch. “So we’ll age faster. That has implications for health care costs.”

Newfoundland’s health care spending, at $8,190 per capita, is already the highest in Canada, well above the national average of $7,068. Difficult geography only inflates government spending, the Finance Minister said. Mr. Osborne points out it costs the province as much to run its network of local ferries connecting sparsely inhabited islands as it does the entire provincial highway system.

Labrador, a territory nearly half the size of Manitoba, has fewer than 30,000 people spread across it – a population smaller than the town of Orangeville, Ont.

Dozens of rural Newfoundland schools are teaching to only a handful of students, as the province’s birth rate shrinks, immigration stagnates and towns struggle with an exodus of working-age families. Permanent school closings have become a constant debate for trustees around the province.

Some shops along Water Street in downtown St. John’s were closed because of a dwindling economy before the pandemic even started.

Paul Daly/The Globe and Mail

In Leading Tickles, parents have fought for years to keep their community’s school open. This September, just three children will attend Leading Tickles Primary School. When Ms. Parsons, the mayor, was a student there five decades ago, more than a hundred students filled the place.

“Those kids, they haven’t got anybody to play with,” she said. “There’s nobody having babies any more. The rest of us, we’re all senior citizens here.”

At the same time, Newfoundland’s public sector is swollen to unsustainable levels, Prof. Lynch argues. The average number of provincial public-sector jobs per 1,000 population in the province is 94, compared with 67 in the rest of Canada. Yet, the government has favoured wage freezes instead of job cuts, he said.

“The government talks about cutting expenditures, but they don’t do it. They freeze wages, but they don’t deal with the size of the public sector in a prudent way," he said.

The oil boom that briefly turned Newfoundland into a wealthy province only fuelled a government spending spree that doubled per capita expenditures between 2000 to 2010. But when oil prices crashed, the government didn’t stop depleting its bank account, Prof. Lynch said.

In March, private banks balked at buying Newfoundland and Labrador bonds, prompting Premier Dwight Ball to write an urgent letter to Prime Minister Justin Trudeau, telling him “our province has run out of time.”

Mr. Ball, who triggered a leadership race in February when he announced his plans to retire after less than five years as premier, can’t step down until the party picks a new leader – a process that was halted March 23 as the province went into a public-health emergency. Two candidates, John Abbott and Andrew Furey, have paused their campaigns until the pandemic is over.

Searching for hope

Before the pandemic, one of the biggest sources of provincial debt was Muskrat Falls, the hydro-megaproject in Labrador that was supposed to provide stable electricity rates and revenues for provincial coffers. Instead, cost overruns saddled the province with an additional $12.9-billion in debt it can’t afford. More than 18 per cent of Newfoundland and Labrador’s budget now goes to paying the interest on its ballooning debt – its second-largest expenditure next to health care.

Jamie Fowlow, a Corner Brook businessman who briefly entered the race to replace Mr. Ball, has an idea he thinks could help the province shed that debt. He wants Newfoundland to take over the operation of Marine Atlantic, the federally owned ferry system linking the island to the rest of Canada.

Mr. Fowlow argues in exchange for taking over the cost of operating the ferry, Newfoundland would give Ottawa an ownership stake in the Muskrat Falls project, and the federal government would assume the debt entirely. While the idea hasn’t received much support in St. John’s political circles, the businessman says it’s critical the province assert control over a such critical transportation link.

“It’s like we’re living in mom and dad’s basement, and mom and dad are Ottawa. We’re afraid to move out, because we always get bailed out when we’re in trouble,” Mr. Fowlow said.

“We’re afraid to stand on our own two feet. We need to keep borrowing the car, and that’s Marine Atlantic.”

O’Brian’s Boat Tours in Bay Bulls, 30 minutes from St. John’s.

Paul Daly/The Globe and Mail

He argues what Newfoundlanders need now is hope.

In the province’s Bonavista Peninsula, entrepreneur John Norman, who has helped create an economic revival that’s an anomaly among rural areas, says there are reasons for optimism.

Prior to the pandemic, the Bonavista Peninsula was booming – young entrepreneurs and artisans were moving in, snapping up old heritage properties and launching small businesses. Dozens of new enterprises were started and housing prices were climbing.

Mr. Norman, who is also mayor of the Town of Bonavista, argues postpandemic stimulus spending can help rural communities and not-for-profits build small infrastructure projects, which could get people back to work.

That might allow for a bit of a reset, but he acknowledged business leaders are bracing for an extended and difficult downturn. The province has slowly begun lifting some restrictions, including reopening golf courses and recreational fishing, as it emerges from the coronavirus crisis that killed three and infected more than 260 people.

“The economic fallout from all this, it’s comparable to the early 1990s after the cod moratorium. That was a catastrophe, and that’s what people are worried about,” said Mr. Norman, who is also on the board of the regional chamber of commerce.

Stimulus spending after the fishery collapsed set the foundation for the Bonavista Peninsula’s economic growth, he argues. Funding from the Atlantic Canada Opportunities Agency and other economic development bodies helped the area attract startups, lured by cheap property, subsidized business spaces and a more affordable quality of life, he said.

That revival can continue after this downturn, he said. Still, Mr. Norman agrees the coming months will be very challenging.

“We’re very aware this is going to be a year unlike any other in our recent history,” he said. “We’re kind of being hit from all sides. We’ve been completely blasted.”

Editor’s note: (May 19, 2020): An earlier version of this article included an incorrect number for the federal bailout of Saskatchewan. The original version also incorrectly said Ontario received equalization payments.
Globe health columnist André Picard examines the complex issues around reopening schools and businesses after the coronavirus lockdown. He says whatever happens as provinces reopen, there's also a second wave of COVID-19 illnesses looming in the fall. André was talking via Instagram Live with The Globe's Madeleine White.

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