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High School students from Vancouver Technical School head to class.JOHN LEHMANN/The Globe and Mail

B.C. finance bureaucrats warned the government early in February that its 2-per-cent cap on spending growth over the next three years would be "challenging," raising questions on how quickly the province will be able to return to a balanced budget.

The B.C. budget tabled Feb. 15 still included the ambitious targets, but a looming showdown with the province's school teachers will test those limits.

Finance bureaucrats noted that the budget plan called for annual spending to increase by an average "of only two per cent annually, much lower . . . than during the previous several years. Keeping ministry/public expectations in line with this plan will be challenging."

The comments are included in briefing notes prepared in advance of the budget – documents recently released Tuesday by the province through a new "open information" program.

Even without the added risk of a double-dip recession, they warned, education and health-care budgets were set to grow at levels well below current trends.

Education spending over the previous seven years increased by an average of 3.2 per cent every year, the document notes, while this year's spending plan allowed for an increase of just 0.1 per cent a year for the next three years.

That spending cap can't be maintained without hurting education, a spokesman for the union representing B.C. teachers said Wednesday.

"It shows public education is not a high priority," said Jim Iker, first vice-president for the B.C. Teachers' Federation. "They are just not providing the necessary funding. We had almost 12,000 oversized classes last year, and it's going to be even worse this year."

The province's teachers are without a contract and negotiations with the government's bargaining agent resumes on Aug. 23.

Jacquie Griffiths, a senior official with the B.C. Public School Employers' Association, said there is little chance of a settlement before schools open on Sept. 6 unless the BCTF accepts the 'net zero' mandate set out by the province for public sector unions.

"It shouldn't be a challenge because over half of the public sector has settled within the 'net zero' mandate," Ms. Griffiths said. "But the teachers have said they are not interested in negotiating within that envelope. If they remain unwilling to change, it's going to be difficult to reach an agreement."

The teachers will meet Thursday with the province to continue talks on another thorny – and potentially expensive – element. In 2002, the B.C. Liberal government imposed legislation that took the makeup of classrooms – the total number of students as well as the number of special needs students integrated into each class – out of collective bargaining.

Earlier this year the Supreme Court of British Columbia declared that law "unconstitutional and invalid." Now the teachers want the ability to negotiate class size and composition returned, with a potential price tag that starts at $275-million.

"We are saying government should put that funding in place for September," Mr. Iker said.

The province hasn't put any money forward so far, and Ms. Griffiths said she has no mandate to negotiate class size and composition at this time.

Education funding isn't the only point of pressure on the B.C. budget. Finance officials also warned that health care – the single largest cost to government – would be difficult to manage within the budget constraints.

Since 2004, health-care spending climbed by an average of 6.2 per cent every year, but Mr. Falcon's latest budget allocated an increase of only 3 per cent a year until 2013, financial officials noted.

Their recommendation to the minister was deleted from the document posted this week, but the note continued: "That said, the aging population will continue to place pressures on the health budget, as will wage demands from health care professionals."

Finance Minister Kevin Falcon was not available for comment but a spokesman for the ministry, Matt Gordon, said the budget is still on track.

"Identifying risks and challenges are part of the planning process when we go through our budgeting and forecasting process," he said. "That being said, the ministry forecasts remain the same."

The next financial update is expected in mid-September.

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