So how’s the GNWT gonna spend its devolution dollars?

It’s a problem plenty of places would love to have: millions of new dollars flowing into the treasury, courtesy of a fresh source—resource revenues.

For the NWT, that will amount to $60 million at the end of the first post-devolution year. That might seem like a pittance against projected total government revenues of $1.8 billion for the same year. But it’s been enough to trigger a debate about what to do with all that devolution money.

Tabling the first budget of the devolution era last month, finance minister Michael Miltenberger proposed setting aside five per cent of resource revenues for the NWT’s heritage fund (current balance: $500,000). That five per cent would have netted  around $2.3 million for the fund.

Miltenberger’s plan? To fund an ambitious line of projects including a fibre optic cable up the Mackenzie Valley (boosting internet speeds and bolstering an emerging satellite data industry in the struggling Town of Inuvik). At the same time, the government would maintain a $100-million gap between the NWT’s debt and its federally-imposed $800-million debt ceiling.

But then came the inevitable blowback, with some MLAs calling for 25 per cent of resource revenues to go into the fund, not five per cent. The GNWT then held public consultations across the territory last fall to quiz residents on what they thought the proper percentage of revenues for the fund was. Suggestions ran the gamut from spending everything to saving everything, with most people falling somewhere in between.

For a while Miltenberger stuck with the five-per-cent solution. “Not only do we have to save money for the future,” he told reporters on budget day, “we also have an obligation here, with devolution and building our economic base, to put in some of the long term economic infrastructure that is critical.”

Industry craves infrastructure. They’ll take anything: whether it’s an all-weather road linking the southern NWT to the (potential) shale oil riches of the Central Mackenzie Valley (which the GNWT has cited as a priority) or new, much-needed sources of cheap (or at least cheaper) power. “We just announced our 20-year power system vision,” says Premier McLeod of the $600-million plan to link the NWT’s two hydro grids and sell power to Alberta or Saskatchewan. “That will require a lot of investment. I think it’s going to make us a lot of money, so we just need some flexibility.”

But it’s a gamble. There’s no guarantee  that gold or oil prices won’t tank, or that the territory can export power profitably. Vital infrastructure can turn into a white elephant overnight.

That’s why MLAs like Yellowknife MLA Wendy Bisaro asked that a higher percentage go toward the heritage fund. Faced with this unrest, Miltenberger ultimately caved at the final hour: 25 per cent of the GNWT’s resource revenue take will go into the heritage fund—$11.5 million in the first year.

So what is the purpose of a heritage fund? Essentially, it’s to hedge against the boom-and-bust nature of commodity markets. Norway, the perceived model for this sort of thing, saves all oil revenue (less carbon taxes) and can never touch the principal, which is now worth about $575 billion.

Alberta, which never put a set amount away, averaged about 5.4 per cent of revenues. But its fund was never put off limits from sticky fingers. From 1977 to 2011, according to the Fraser Institute, Alberta put $31.3 billion into the fund, and took out $29.6 billion. The province has since changed the rules so that starting in 2016, all resource royalties will go into the fund.

The NWT’s fund adopts those best practices. According to current rules, the principal is off-limits, and the fund’s earnings are too, at least until 2032. The fund is still managed by the Financial Management Board, a committee of cabinet. Finance officials say the annual cost of third party management isn’t worth it until the fund’s grown. And there’s no way to stop some future government from changing the law and raiding the fund in a panic.

Miltenberger, a spender, has thrown a bone to the savers. One thing hasn’t changed: the NWT’s fiscal fortunes are more closely tied to resource extraction than ever before.

Up Here Business, March 2014.

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