====================================================================== Note: The electronic version of the following Appendix D is for informational purposes only. The printed version remains the official version. All tables have been placed at the end of the file. ====================================================================== APPENDIX D PROVINCIAL GOVERNMENT AND CROWN CORPORATION FINANCING PLAN OVERVIEW The provincial government and its Crown corporations and agencies incur debt to finance operations and capital projects. The provincial government also provides certain financing to other organizations, including local government agencies. Total gross borrowing requirements during 1993/94 for the government and its corporations and agencies are estimated at $5.1 billion. This compares to total requirements of $5.0 billion in 1992/93. At March 31, 1994, total provincial direct and guaranteed debt is expected to total $26.4 billion, equal to 27.7 per cent of gross domestic product (GDP). Chart D1 shows that total provincial direct and guaranteed debt peaked at 30.2 per cent of GDP at March 31, 1986. The Investment Dealers Association of Canada estimates that at March 31, 1993, the province's net public debt as a percentage of GDP is the lowest of all Canadian provinces. FINANCING PROCESS The provincial government and its Crown corporations and agencies incur debt by one of three financing methods: þ debt issued by the government for its own purposes; þ fiscal agency debt incurred in the name of the government with proceeds re-lent to Crown corporations and agencies; and þ debt incurred by Crown corporations and others with a provincial government guarantee as to the payment of principal, premium and interest. Under its fiscal agency program, government acts as a fiscal agent by borrowing directly in the financial markets and relending the funds to Crown corporations and agencies. This program provides lower cost financing to Crown corporations due to the province's strong credit rating and its ability to borrow at lower interest rates. All Crown corporation and agency borrowing is now done through the fiscal agency program. Borrowing and financing costs remain the responsibility of the Crown corporation or agency. However, in certain cases, the provincial government provides a contribution to pay for all or part of the debt service costs. In order to provide for the orderly repayment of debt, the provincial government and Crown corporations establish sinking funds for virtually all debt with a term of five or more years. At March 31, 1993, sinking fund investments totalled $4.8 billion. Debt with a term of one year or longer will be 60 per cent covered by sinking funds at maturity, assuming that these funds earn an average of eight per cent and that scheduled sinking fund payments are made. 1993/94 FINANCING PLAN Table D1 outlines the 1993/94 financing plan for the government and its Crown corporations and agencies. Further details on net direct and guaranteed debt are provided in Table H7. Debt of the provincial public sector is issued for the following purposes: þ Provincial government direct debt to fund government operations and capital spending, including the refinancing of maturing debt and other financing transactions. The government expects that its own gross borrowing requirements will total $2.3 billion in 1993/94. þ Commercial Crown corporations, which include British Columbia Hydro and Power Authority (B.C. Hydro) and British Columbia Railway Company. These corporations generate revenue from the sale of services at commercial rates and pay their own operating expenses, including debt service charges. Gross borrowing requirements for commercial Crown corporations are expected to total $1.5 billion in 1993/94, largely for refinancing of B.C. Hydro's maturing debt. þ Economic development Crown corporations and agencies, including British Columbia Ferry Corporation and British Columbia Transit. These corporations sell services directly to the public, but their revenues may not cover their operating expenses. Because these corporations and agencies provide economic benefits to the province, the government provides grants or other forms of assistance to them. Total borrowing requirements for the economic development Crown corporations and agencies are expected to be $234 million in 1993/94, including $90 million for British Columbia Ferry Corporation, $80 million for the BC Transportation Financing Authority and $64 million for British Columbia Transit. þ Social and government service Crown corporations and agencies incur debt largely to finance construction of hospitals, schools and post-secondary educational institutions. Debt service requirements are met through provincial grants or rental payments and, for hospitals, partly through local property taxes. Gross financial requirements for these entities are expected to total $825 million in 1993/94, including $350 million for the British Columbia School Districts Capital Financing Authority, $200 million for the British Columbia Educational Institutions Capital Financing Authority and $150 million for the British Columbia Regional Hospital Districts Financing Authority. þ Other fiscal agency loans include loans made by the provincial government to other public bodies including universities, colleges and various local governments and improvement districts. Borrowing requirements for these entities are expected to total $229 million in 1993/94, including $140 million for the Greater Vancouver Sewerage and Drainage District. Debt service requirements are met through local property taxes and, for universities and colleges, through revenue raised from residence and parking fees. Direct and fiscal agency borrowing in 1993/94 will be partly offset by debt maturities, resulting in an increase of $3.1 billion in government, Crown corporation and agency debt. Through various programs, the provincial government also provides loan guarantees to private sector firms and individuals. These include student financial assistance, loan guarantees to agricultural producers and guarantees issued under economic assistance programs and the former British Columbia Home Mortgage Assistance Program. These guarantees do not represent direct obligations of the government except in the event of default by the borrowers who received the guarantee. In 1993/94, guarantees are expected to decline by $3 million, as potential new guarantees of $122 million are offset by expiring ones. Chart D2 gives a breakdown by category of estimated provincial direct and guaranteed debt at March 31, 1994. SOURCE OF FUNDS In order to minimize financing costs, the government raises funds through a variety of instruments, depending upon financial market conditions and subject to an appropriate debt portfolio mix. The terms of the instruments are selected to dovetail with existing debt maturities and to limit the risks associated with interest rate fluctuations. Canadian public sector debt has increased dramatically in recent years. (See discussion in Appendix E.) This has placed enormous pressure on domestic capital markets and has forced borrowers to diversify their borrowing programs into foreign capital markets in an effort to minimize borrowing costs. Funds borrowed by the British Columbia public sector have come from a variety of sources, including public financial markets, the Canada Pension Plan Investment Fund (CPP), private institutional lenders and provincial trusteed funds. Chart D3 shows that since 1983, borrowing sources have shifted away from private funds and toward public bond issues. Most of the provincial government's funds have been obtained through medium and long-term debt issues in public markets in Canada, the United States and Europe. To a lesser extent, private placements in North America, Europe and Japan have been a source of medium and long- term funds. In all cases the debt is payable in either Canadian or U.S. dollars. The provincial government began to actively diversify its borrowing sources in 1992. Diversification of the domestic market is emphasized because of the importance of keeping payments of interest and principal in Canada. To this end, the province introduced a domestic medium-term note program and a British Columbia Savings Bond Program in 1992. The medium-term note program is the first for a province in Canada and is designed to raise funds primarily in the one to five- year term. The savings bond program is restricted to residents of British Columbia and ensures that they have an opportunity to participate in the provincial government's financing program. The 1992 savings bond campaign raised in excess of $700 million. The provincial government has recently re-entered the U.S. and Euro- U.S. markets to take advantage of favourable market conditions. In addition, the provincial government actively promotes the use of financial instruments, such as interest rate swaps and forward rate agreements, to lower risk exposure and borrowing costs. ---------------------------------------------------------------------------------------------------- TABLE D1 GOVERNMENT, CROWN CORPORATION AND AGENCY FINANCING PLAN ---------------------------------------------------------------------------------------------------------- Forecast 1993/94 Forecast Net Debt -------------Transactions-------------- Net Debt Outstanding Outstanding at March 31, New Retirement Net at March 31, 1993 Borrowing(1) Provision(2) Change 1994 ---------------------------------------------------------------------------------------------------------- -----------------------------($ millions)----------------------------- PURPOSES: Provincial Government Direct ...... 8,964.0 2,324.1 750.1 1,574.0 10,538.0 --------- -------- -------- -------- -------- Crown Corporations and Agencies: Commercial ...................... 7,366.2 1,461.0 949.2 511.8 7,878.0 Economic Development ............ 1,752.4 234.0 41.4 192.6 1,945.0 Social and Government Service ... 4,222.2 825.0 189.2 635.8 4,858.0 --------- -------- -------- -------- -------- 13,340.8 2,520.0 1,179.8 1,340.2 14,681.0 Other Fiscal Agency Loans ......... 382.5 229.2 14.7 214.5 597.0 --------- -------- -------- -------- -------- 13,723.3 2,749.2 1,194.5 1,554.7 15,278.0 --------- -------- -------- -------- -------- Less Amounts Held as Investments/Cash Held for Relending by the Consolidated Revenue Fund........ 25.4 - 0.4 (0.4) 25.0 --------- -------- -------- -------- -------- GOVERNMENT, CROWN CORPORATION AND AGENCY DEBT TOTAL............ 22,661.9 5,073.3 1,944.2 3,129.1 25,791.0 ========= ======== ======== ======== ======== (1) Gross new long-term borrowing plus net change in short-term debt. (2) Sinking fund contributions, sinking fund interest earnings and net maturities of long-term debt (after deduction of sinking fund balances for maturing issues). ----------------------------------------------------------------------------------------------------------