If the opposition brings down the Conservatives and a Liberal-led coalition takes power in Ottawa, let's all hope Bob Rae gets responsibility for the Canadian auto bailout. Not because he's the best man for the job, but because cosmic justice demands that he witness the reckoning firsthand.
It was Mr. Rae who, as Ontario's luckless premier in the early 1990s, built an automotive time bomb that might yet explode on the province's taxpayers. The bomb is called the General Motors of Canada pension plan. And it's the current premier, Dalton McGuinty, who is being made to suffer for its existence as his government and federal officials negotiate the details of the bailout in advance of a Feb. 20 deadline.
GM Canada's pension fund, as reported recently by The Globe and Mail, is in an alarming state. In fact, from the company's point of view, it's so bad, it's good. GM executives actually used the massive pension deficit in their case for emergency government loans. Their argument was: If we go down, somebody's going to have to pick up the (very expensive) pieces for tens of thousands of GM retirees. So don't let us go down.
For that and other reasons, Mr. McGuinty and Prime Minister Stephen Harper came up with $3-billion for GM and $1-billion for Chrysler just before Christmas and attached a list of conditions ("Today's announcement is not a blank cheque," to quote the PM). Suppliers must get their money on time; executives must accept limits on their pay. In the plant, workers are likely to see their wages cut. But a resolution to GM's pension nightmare was not mentioned on the political wish list.
Why not? Three theories. Messing with retirement benefits is the third rail of Canadian politics (remember Brian Mulroney and the "Goodbye, Charlie Brown" incident?). The federal government is in control here because it's paying two-thirds of the bailout tab - and the pension isn't Ottawa's problem; it's Ontario's. And to that point, the size of the problem is so huge that Mr. McGuinty would no doubt rather punt it down the road and hope for the best.
GM's two pension plans (one each for salaried and hourly workers) had about $8.8-billion in assets at the end of 2007, or roughly $4.5-billion less than needed to meet its pension promises, if the company had to wind up the fund. The numbers are even worse today. GM's investment plan called for nearly 70 per cent of the cash to be invested in stocks, and we all know what has happened to those last year. The deficit may have grown to $6-billion or more. When the bean counters are finished with the calculations, it's possible that the largest plan, which covers hourly workers, will be only 50-per-cent funded on a solvency basis.
In other words: if GM Canada were to go belly-up tomorrow, there might be only 50 cents available for every dollar needed to pay for future pensions. The Ontario government, through its Pension Benefits Guarantee Fund (PBGF), would have to make up some (not all) of the difference. You're talking about a large amount, maybe even more than the $1.3-billion the province is paying for its share of the bailout.
You might ask how the situation could get so bad, and the answer is: Bob Rae. In the early 1990s, Mr. Rae's NDP government, under pressure from manufacturers who'd been gutted by recession, gave a few of the biggest ones an exemption from the normal pension funding rules, under the so-called "too big to fail" policy. (Harry Arthurs, the prominent lawyer who just finished a report on Ontario's pension system, has another phrase for it: "ill-advised.") GM took advantage. But it wasn't free, as GM vice-president David Paterson explained: "We have a much higher payment every year into that pension guarantee fund."
Much higher? Please. At most, GM has to pay an extra $2-million. (The rules cap GM's contribution at $10-million a year; if it didn't have the exemption, the limit would be $8-million.) This is the equivalent of paying an extra $10 on your fire insurance premium in return for permission to set off pyrotechnics in your basement. It's ludicrous. But it's the Ontario taxpayer who will pay for it if GM ultimately fails and the pension plan is dissolved. The PBGF is out of money. It's already in the red and owed $147-million to the Treasury as of last March, the residue of a run of failures in the steel industry earlier this decade.
GM has been rewarded for repeatedly holding the provincial government at knifepoint. The company (along with other firms) threatened to take its future investment elsewhere unless it got easier pension rules, and the Rae government relented. It has pushed, over and over again, for government loans and other favours in return for putting new money into its plants (as have the other auto makers). And now that it's all coming apart, and U.S. auto sales are crashing, there's the implied threat of another huge bill for the public if a bailout doesn't succeed.
Mr. McGuinty is in a box. He can hardly demand that GM Canada pour capital into its pension now. On the other hand, a lot of people - auto workers, taxpayers, suppliers - are being asked to make sacrifices to save GM. Maybe the retirees should, too. The Premier has a $1.3-billion bargaining chip to play. Shouldn't he use it to force the pension fund on to more solid ground, so that some future premier isn't left with Mr. Rae's mess?