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Simple answers to Complex Questions and Complex Answers to Simple Questions. In real life, I'm a Greater-Toronto (Canada) Realtor with RE/MAX Hallmark Realty Ltd, Brokerage. I first joined RE/MAX in 1983 and was first Registered to Trade in Real Estate in Ontario in 1974. Formerly known as "Two-Finger Ramblings of a Forensic Acuitant turned Community Synthesizer"

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Monday, August 20, 2007

Tangible Asset Accounting ... the Road to Freedom (yup, I'm serious)

Dear Mr Solomon & Editors,

Re: Sat Aug 18 07 Comment Section, FP13, Rubble to Riches, Lawrence Solomon

It's an accounting problem, silly.

That wouldn't make much of an election slogan, but here goes ...

Believe it or not, the value of infrastructure is not generally included on the balance sheet of municipalities and provinces -although the Dominion has been recording the value of a few types of "Tangible Assets" on its Statement of Assets and Liabilities in recent years.

Capital expenditures on non-financial assets are generally considered as expenditures from the Consolidated Revenue Fund in a given year and then they disappear off the books (until recently, for some types of assets, as mentioned above).

These assets are not even carried on the books at a token $1 - they are just lost to the balance sheet (perhaps because the government(s) cannot claim and depreciation etc etc against IT'S taxes).

The upshot is, there is no accounting value attached to these Crown/government assets (think forests, rivers, lakes, fisheries etc in addition to bridges, buildings, airports as mentioned in the "sell'em to the pension funds" article by you/ the normally-excellent Mr Solomon).

Since no accounting value is attributed to these Crown/government assets ... they have no value. Or at least, they have no value upon which to base a reasonable rate of return on these hundreds of billions of dollars worth of assets when they are being used, managed, leased or sold.

For example is the 'stumpage fee' a reasonable return on the value of the acreage harvested? Yes, yes, re-forestation is touched on and there are employment, political etc benefits to be considered - but IF a Prudent-Steward Citizen owned all that timber land (ie had paid real, earnest money for it), would s/he husband that assets in the same way? or would s/he demand a better return on his/her investment?

Your/Mr Solomon's point is so close to the ultimate solution ... you/he just needs to go one more step to consider this: Since these governments are so lousy at maintaining/managing their assets AND since they have no 'value on the books' for the assets, how are they able to determine if the lease/management arrangement they grant to a private firm is a reflection of true value?(yes, yes a tender-by-auction will bring a seemingly-high bid ... but there are only a few bidders ... and they are all using the same slide-rule to calculate value)

Would the governments be better off setting a value for the asset, pairing a portion of their existing debt/bonds (of say 60% of the asset's value) TO that asset and creating a toll/user fee/etc source of revenue for that asset that would cover repair/replacement costs and the attributed-bonds' interest costs (and, for a change, principal repayments based on the life of the asset) AND simultaneously removing that portion of debt-servicing costs from general taxation ie reduce the rate of tax for everyone NOT using the asset?

Run the numbers, contrast and compare.

I'm not saying this is the be all and end all solution ... I'm just saying contrast and compare ALL the options.

In fact I say, invite proposals for re-financing Canada's all-level debt (the commercial paper syndicators, consolidators and re-bundlers will have some free time for a while) - for example should we do a re-Confederation a la 1867 where the Dominion goverment assumed the colonial debts? (yes, yes on a similar pro-rata formula)

The final determination will be made based on the overarching philosophy that is driving the process:
-short-term political expediency (witness Hwy 407);
-doctrinaire, private-ownership good & government-ownership bad thinking;
-medium-to-long term, budget problem-solving (let the user pay, let the gov't that provides the service, tax its constituents);
-or long-term, balance sheet, problem solving (planning to pay $60-80 Billion of annual revenue to interest payments -all levels country-wide - in virtual perpetuity, is ridiculous).

Until the Crown's Assets are attributed a value on the Public Accounts' Assets and Liabilities statement, the Stewards of those Assets will have no benchmark to guide them on the disposition of the Assets under their care and Canadians will have no way of judging the merits of the Stewards' actions.

Until the Canadian people awake and realise that they-the-citizens are the Crown, that these assets are their collective possessions; and that the elected/appointed/employed Stewards of these assets owe the citizens-as-owners a) an accurate accounting and b) much better asset-management based on fixed, quantitative objectives - not the maleable-at-will, qualitative bafflegab (and Public Accounts) and blundering actions of recent decades.


rce Aug 20/07


The Parable of the Prodigal Servants
Seemingly unbeknownst to Carol/Jean Canuck, in the late 60's, the 70's and the early 80's, the Stewards of the Assets of the Canadian Crown overspent their responsibilities (buying you chocolates, pensions and healthcare - in keeping with perpetual Baby-Boom demographics), paid for the overspending by mortgaging the family farm, then they re-mortgaged a portion of the overspending every year for ~30 years and increased the principal amount in most of those years.
Now the Stewards of the Crown's Assets are telling you that while you'll have to pay more taxes than ever before ... there's less chocolate for all of you because (as prudent fiscal managers) they have to set aside a princely sum each year for interest-on-interest payments, for the indefinite future.

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