Jobs, jobs, jobs—and other exaggerations

By David Broadland, June 2013

What do Christy Clark's LNG industry, the CRD’s sewage treatment plan and Victoria’s Johnson Street Bridge project all have in common?

Key elements of the BC Liberals’ blitzkrieg-like bombing of the NDP in the recent election campaign began coming together last February. This included delivery of a report produced for the Ministry of Energy, Mines and Natural Gas by the accounting and business advisory firm Grant Thornton LLP that seemed to provide respectable, independent verification that the province was on the verge of an explosion in jobs related to production and export of liquified natural gas. The report predicted the creation of 114,600 jobs in BC, instantly providing Christy Clark with her campaign mantra of “100,000 jobs for BC families.”

But a simple analysis of the methodology used by the Grant Thornton report suggests that it produced a 15-fold overestimation of the number of jobs an LNG industry would likely create, planting Clark’s job claims squarely in the Exaggerated Job-Claim Hall of Fame, alongside the Capital Regional District’s sewage treatment plan (10,000 jobs) and the City of Victoria’s Johnson Street Bridge project (900 jobs).

 

Unending prosperity

Instead of listening to his campaign manager, Adrian Dix might have done better if he had consulted Wikipedia under “Election Promises.” According to the planet’s deepest pool of collective wisdom, “There are strong pressures on politicians to make promises which they cannot keep. A party that does not make exaggerated promises might appear bland, unambitious, and uninteresting to voters compared to the one that does. Sometimes this can give the exaggerating party an advantage over the truthful one.”

Dix opted to be truthful and promised to deliver budget deficits for the forseeable future. Christy Clark promised jobs, jobs, jobs—and unending prosperity. Whom did you think would get the most love?

During her campaign, Clark visited a Spectra Energy (Spectra have donated $125,000 to the BC Liberals since 2007) facility in Fort Nelson and excited reporters with news that our prosperous future was starting that very day: “Today we are at the heart of one of the greatest job opportunities that BC has ever had,” she enthused, charismatically. “Liquefying natural gas means creating 100,000 jobs for BC families. Both here in Fort Nelson and in the professional services industry in the Lower Mainland.” Fort Nelson, the Lower Mainland and much of the rest of BC gave Clark the love.

Spectra had announced last fall a proposal to build an 850-kilometre pipeline across northern BC to a potential LNG terminal in Prince Rupert. They are partnering with BG Group, who announced—just four days before the election—plans to build an LNG plant that would consume as much natural gas as BC currently produces. Spectra’s project joined four others that were proposing to do pretty much the same thing, albeit on a smaller scale: build a natural gas pipeline from northeastern BC that would connect with plants at Prince Rupert and Kitimat, where gas would then be scrubbed, chilled, liquefied and finally pumped onto ships bound for China, Korea, Japan and other Asian countries.

Each of these five LNG-related proposals offered aspirational figures on production volumes and the number of jobs that construction and ongoing operations might create. But Clark’s “100,000 jobs” didn’t come from their estimates. The Ministry of Energy, Mines and Natural Gas hired two consulting firms, the Deetken Group and Grant Thornton, to contribute to the development of this number. Focus asked the ministry to show us the methodology used to derive Clark’s 100,000-jobs figure. They provided a 23-page document entitled “Employment Impact Review,” produced by Grant Thornton. That review’s executive summary notes: “Construction of the five projects is estimated to generate, on average, 39,400 full-time equivalent jobs annually for the nine-year construction period. Once all five projects are fully operational in 2021, the number of full-time equivalent jobs required to operate the projects annually is estimated to be 75,200 over the life of the projects.”

According to the report, the Ministry of Energy, Mines and Natural Gas instructed Grant Thornton to start with the assumption that there would be a total of 2400 full-time equivalent jobs to operate the five plants and the pipelines that would feed them. Was that a solid assumption? It doesn’t fit well with what the actual LNG proposals have been suggesting publicly, but let’s come back to that point later.

After assuming there would be 2400 full-time permanent operational jobs, Grant Thornton then used an econometric model (BC Input-Output Model) provided by the province to estimate “indirect” and “induced” full-time jobs. The model produced 30 indirect and induced jobs for each assumed direct job. Is this reasonable? The Natural Gas Caucus, a bi-partisan group of US members of the House of Representatives “dedicated to championing the use of clean, plentiful domestic natural gas,” estimates 3.5 indirect and induced jobs for every direct job created in the US gas industry.

In the US, 2400 direct jobs in the gas industry would create 8500 indirect and induced jobs, for a total impact of 10,900 jobs—not 75,200. 

That’s the first part of the arithmetical exaggeration lying behind Clark’s employment promise. When Spectra announced their project last year, they said they expected there would be 50 to 60 permanent direct pipeline jobs. That was to operate and maintain a pipeline that could process 4.2 billion cubic feet of natural gas a day, which works out to 14 million tonnes per year—enough to supply three of the roughly four-million-tonnes-per-year plants that are common in the LNG industry. Each of those plants could employ, according to industry standards, 120 to 140 employees.

If all five proposed LNG plants are built as per the actual proposals—and two pipelines like the one Spectra is proposing are built to feed them—940 to 1100 permanent jobs would be created. If that range is then worked through the American gas industry’s formula for total jobs created, we arrive at a bright and shiny future of 4000 to 5000 full-time equivalent jobs—not 75,200.

The accuracy of the estimate of 39,400 full-time jobs to build these plants and pipelines faces similar challenges. I’ll spare you the details. Suffice to say the report starts with an average of 11,400 direct full-time jobs and then hammers that with multipliers. I’ll have more on the art of exaggerating construction jobs later on.

The willingness of the Ministry of Energy, Mines and Natural Gas to stray some distance from reality is starkly evident in their 2012  Natural Gas Strategy: Fuelling BC’s Economy for the next Decade and Beyond, which states: “BC’s natural gas sector employs tens of thousands...” Statistics Canada, however, put that number at 3500 in 2012. That compares favourably with 3300 employed in “heritage institutions” (museums), but it’s a tiny drop in a very big bucket when compared with the 2,312,500 people working province wide.

 

Sewage treatment AND 10,000 jobs

Not long after Victoria MP Denise Savoie resigned her federal seat in 2012 and Victorians were waiting for Stephen Harper to call a by-election, the CRD began running ads in the Times Colonist promoting the benefits of their chosen treatment plan.

One of those ads (see below) seemed to say the CRD was projecting an increase of 10,000 jobs during construction, creating a massive spike in the local employment rate. Unemployment in the CRD was then running at about 5.7 percent, which meant 11,000 people without jobs. The sewage treatment project, it appeared, would be almost like having full employment thrust on us: imagine the economic benefits!

CRD jobs ad

The fine print in the ad, however, revealed the project would create 10,000 job years, not 10,000 jobs. Still, this was overwhelmingly good news, especially for the 11,000 people looking for work and the thousands of small business owners struggling to survive  in the current down economy.

As soon as the by-election was called, the ads were pulled—at the request of then CRD Board Chair Geoff Young. Young recently told Focus, “The CRD had—and has—a policy of not getting involved in public input processes during elections, and I felt that these ads violated that principle.”

The jobs ad pictured here also seemed to violate a basic principle of truthful advertising: It clearly implies there would be an increase of 10,000 jobs during construction, but at the same time, in finer print, says there would be an average of 2,000 jobs per year. It says two different things. Which is true?

As it turns out, probably neither is true. CRD Corporate Communications Manager Carla Wormald supplied Focus with the report “CRD Economic Impact Measure Analysis,” authored by their consultant Ernst & Young, which justified the “10,000 job years” claim. An examination of the report revealed that two primary figures used by Ernst & Young were, um, wrong. Their report, created just before the ads were run last fall, based the number of jobs on a project cost of $942 million. But the CRD has been saying since 2010 that the project would cost $783 million. Moreover, Ernst & Young used a multiplier in their calculations that was picked from a Federation of Canadian Municipalities’ table. They picked a multiplier for 2008/09 instead of one for 2012. The net effect of these two errors was to double the estimated job creation of the project.

As we will see in the last segment of this story, job multipliers are, in any case, essentially meaningless in terms of predicting the local impact of a construction project. Choosing the wrong job multiplier is bad enough. But getting the project cost wrong? Bring back the death penalty.

I asked both Ernst & Young and the CRD’s Wormald about how those errors could have been made. Wormald acknowledged the higher project cost was the one estimated in the 2009 “CRD Business Case” study, which, she said, “does not reflect the status at 2012.” She didn’t offer an explanation as to why the CRD used the inflated jobs figure anyway. Ernst & Young’s Public Relations Coordinator Sarah Shields had a more intriguing explanation of the higher project cost: “The project cost selected included additional costs beyond the base design and construction costs identified of $783 million. For example inflation on such costs and administration, project management etc.” Apparently an analyst at Ernst & Young thinks the CRD project will cost $159 million more than the CRD is saying. They need to talk.

I also asked Wormald if the CRD had estimated how many of the project-related jobs would be local. Her response emphasized the various jobs—design, the manufacturing of pumps, valves, electrical and electronic equipment—that would not be supplied locally, and she added, “In our view it would be naive to think that all the jobs will be local given the multidisciplinary nature of the program.” She offered no estimate of the jobs that would be local.

Even while it seems inevitable that job creation numbers attached to public projects will be manipulated unrealistically upward by someone, the negative economic impact of the expenditure of those tax dollars is never acknowledged. That bothers Harvard-trained economist Geoff Young: “I always have trouble looking at job creation numbers because, in general, creation of jobs by government spending is offset by loss of other jobs as taxes to finance the project reduce spending elsewhere. It is true that the [sewage treatment] project can be seen as an injection of some half billion dollars of spending into the local economy at the cost of spending elsewhere in the province and Canada (because of the grants we are receiving), but I would hesitate to put that forward as a benefit. Obviously, government assisted projects elsewhere, that our taxpayers help pay for, have the opposite effect.”

But it’s a wash, right? We get about as many tax dollars back as we put in. We hope. But what happens to job creation when we end up shipping most of those dollars out of our city?

 

Putting your tax dollars to work for China

Back in October 2011, 45 days before a civic election, City Manager Gail Stephens told a meeting of Victoria City Council that the Johnson Street Bridge project “continues to be within the budget of $77 million...” Stephens went on to say, “This project is garnering much interest from the local business community; as we’ve talked before, we expect 900 short-term jobs to be created through this project.”

Those kind of sounded like local jobs, didn’t they? And where did that number come from? Back in 2011 the City of Victoria’s Director of Communications Katie Josephson told Focus, “The estimated job creation is based on the Federation of Canadian Municipalities’ infrastructure formula of 12 jobs per $1 million of capital investment. $77 million would mean 924 jobs.”

Since then the acknowledged cost has risen to $92.8 million. And the jobs? On May 17 MP Ron Cannan, standing in for the federal minister, said “this important job-creating project” is “expected to create 900 jobs.”

Neither the City or Cannan offered any explanation of why the $92.8 million project would create the same number of jobs as the former $77 million project. Using the Federation of Canadian Municipalities’ formula, the City could now have claimed the project would create 1114 jobs. That they didn’t was, perhaps, an indication that the job-hyping phase for this project was winding down. Reality had already broken into Victoria City Council chambers. In mid-April, Councillor Marianne Alto had asked Johnson Street Bridge Project Director Ken Jarvela how many tradespeople would be working on the bridge. Was she hoping to hear “900”? If so, Jarvela pricked that bubble with his response of “forty to fifty” at any one time.

What happened to the 900 local jobs?

The bascule leaf, the part that can be lifted to allow marine traffic to pass below and represents about 30 percent of the construction cost, is going to be fabricated at a plant in China. That means at least 30 percent of the construction jobs have been exported out of Canada.

The approach bridges are going to be made of prefabricated concrete components manufactured near Vancouver.

Most of the design and engineering jobs are being done by companies located in Vancouver, Chicago, New York and London.

What’s left? Enough work pounding nails, pouring concrete and relocating roads to keep 40 to 50 people working for a couple of years.

There were never going to be 900 real jobs. Just like Christy Clark’s “100,000 jobs for BC families,” and the CRD’s “projected increase in jobs during construction” of “10,000,”  City Hall’s bridge-job number was simply derived from a set of formulae that are nine parts public relations and one part voodoo economics. The actual jobs don’t seem to be that important to those who claim they will be created. It’s the potential power of the impact of making those claims just before an election that compels otherwise reasonable people to act unreasonably.

David Broadland is the publisher of Focus. 

 

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Grant Thornton - LNG Employment Impacts.pdf222.16 KB
CRD Economic Assumptions memo.pdf155.83 KB
CRD jobs ad.jpg145.38 KB