Whether the province or other levels or government should provide any form of financial assistance to a private entity such as Corner Brook Pulp and Paper is a contentious issue.
Like any such important policy question, it is critical to put the situation at the mill in its proper context and to pose the right questions to frame the issue appropriately.
I attempt to do so here.
The mill's impact on the local economy
Corner Brook Pulp and Paper is arguably the largest private sector employer on the island that is not on or adjacent to the Avalon Peninsula. Recent data and analysis indicates that the mill supports (either directly, indirectly or induced) about 1,700 full-time jobs in the province with the vast majority being in the Corner Brook area.
To put this jobs figure in context, Corner Brook employment in 2011 is estimated to be about 11,000 so the mill's jobs impact is about 15 per cent of the scale of Corner Brook itself.
Furthermore, the direct jobs at the mill are paid very well relative to other jobs in the area, with compensation being more than two times the local average even after the recently negotiated wage cuts.
Total employment income generated from mill activity is currently projected to be about $90 million. To put this figure in context, I estimate that the value of total employment income in Corner Brook in 2007 (at its economic peak) was about $350 million a year.
Given the recent economic trends, I would surmise that it is reasonable to estimate that the total employment income generated by the mill is in scale roughly one third of the size of the total employment income generated in Corner Brook.
I cannot go as far to provide an estimate of how much of the mill-related employment income is generated in Corner Brook. However, I will put forth the notion that even in its current state, the mill is a very significant part of the Corner Brook economy no matter how one characterizes it.
I should further note that these economic impacts do not include the impact of the pensions received by former mill workers residing in the Corner Brook area. I do not have an estimate of the value of this pension income, but I believe that it is very relevant to the context and overall economic impact.
How much tax revenue does the mill operations generate?
All of the economic activity described translates into tax revenues at the local, federal and provincial levels from property taxes, income taxes, sales taxes, etc.
I have conservatively estimated that the economic impacts from mill operations results in governments' tax receipts well in excess of $20 million a year, with about $10 million of that accruing directly to the province.
Is government assistance warranted?
In order to assess whether public monies should be used to help a private sector enterprise, one needs to assess the business case of investing: do the benefits to the public of such an investment outweigh the public cost of the investment? While the question sounds straightforward enough, it is not. To properly assess it, one needs to determine first what really would happen to the mill if government assistance is not provided. I don't know the answer to that question but there are clearly two possible extremes:
— Scenario 1: The mill would continue to operate without government assistance. In this situation, providing financial help to Corner Brook Pulp and Paper just serves as a transfer of wealth from taxpayers to Corner Brook Pulp and Paper without any public benefits as the mill would remain open anyway and the economic impacts would be realized. There is no business case for public investment in this case.
— Scenario 2: The mill would close without assistance from government. If the mill closed, the provincial economy would lose about 1,700 jobs, $90 million in employment income and more than $20 million in tax revenues per year. The majority of this impact would be experienced in the Corner Brook area. In addition to losing revenues, a mill closure would increase governments' costs through increases in employment insurance, social assistance expenditures, etc. In a nutshell, governments would be worse off by over $20 million a year even before considering the pensioner impact. If a mill closure meant Corner Brook Pulp and Paper bankruptcy, then pensioners may lose at least some of their existing pension income thus exacerbating the impacts.
There are those that will argue if the mill closed that the laid off workers will be able to transit back and forth to work in Alberta and maintain their families in Corner Brook.
While some existing employees will be able to do this, most won't and this lifestyle is not sustainable over the long run anyway. Others would argue these jobs would be made up elsewhere in the local economy but this not at all realistic given that there already about 1,500 people unemployed currently.
There will no doubt be some economic activity that may partially offset some of these large economic losses noted above, but it is a safe bet that the net result is still a large loss to the local economy and to government coffers. In fact, I would go as far as to say that the economic impact of a mill closure would be devastating to the local economy.
So, would it make sense for an investment of public money here given this situation to try to help ensure that the mill would stay open?
Consider the following: If a (say) $1 million public investment in the mill meant that it would not close in the near term and therefore these economic benefits would be maintained for some time into the future, then it seems like a no-brainer to invest the $1 million of public money as the benefits would obviously outweigh the costs.
For every additional year that the mill remained in operation, government(s) would net well in excess of $20 million in taxes and area residents $90 million in employment income.
If you buy into this notion, then you agree in principle that some sort of governments' investment in Corner Brook Pulp and Paper is appropriate if there is a business case for it; that is, if the public benefits outweigh the public costs.
Conclusion
In typical economist form, the ultimate answer to the question "should the public support the mill financially" is "it depends."
That is the reality. Frankly, it does depend on whether or not the mill would indeed close without government help. Unfortunately, we the public don't have that type of Corner Brook Pulp and Paper information at our disposal to make any determination as to the mill's current and future viability.
I am not a policymaker but I do believe that there is sufficient information available to demonstrate that a possible business case does exist for providing some form of governments' investment — that given the large-scale economic and fiscal benefits associated with mill operations, governments' investment may be warranted to reduce the risk of a mill closure and to maintain and/or extend these public benefits and provide tax revenues going forward and to help ensure the security of the pensions of mill retirees.
The amount of support and the type of support is something that governments' will have to ultimately decide once they have their own due diligence on Corner Brook Pulp and Paper's financial statements to assess if government support is really needed. Governments should assess the situation carefully, as forgoing the large scale economic benefits from the mill's operations is not in the best interest of the Corner Brook, west coast and provincial economies.
Dennis Bruce is a consulting economist who resides in Corner Brook.
