The collective agreements for all teachers in the Province of Ontario expired on August 31, 2014. Teachers’ unions have given notice to bargain. The Ontario Secondary School Teachers’ Federation (“OSSTF”) has engaged in preliminary negotiations with the Ontario Public School Boards’ Association

On August 13, 2014, Ontario Premier Kathleen Wynne told the annual meeting of the Elementary Teachers’ Federation of Ontario that the Liberal government won the recent election, but not the lottery. She confirmed that the province faces fiscal challenges. “I said there is no new money  for compensation increases. But we have no intention of bargaining in the media…and I am confident the bargaining will be fair and issues will be dealt with at the bargaining table”, Ms. Wynne stated.1

On July 14, 2014, the government retabled its May 1st budget with a spending plan that projects a deficit of $12.5 billion, more than the $11.3 billion previously projected for this year. In the budget, the government indicated that it plans to maintain the education spending that has already been promised.

Deb Matthews, Treasury Board President, recently indicated that the objective in public sector bargaining will be “net zeroes,” something approximating a wage freeze. The government believes that savings can be achieved through structural changes over the course of the contract rather than during negotiations.

Ontario’s public high school teachers have said that the Provincial budget has set the stage for “unnecessary conflict” because the government has “unilaterally extended” a wage cut imposed in 2013, which it alleges will go beyond the agreed two-year restraint period.”2

Paul Elliott, President of OSSTF, has been critical of the provincial government, which has proposed a budget that maintains the status quo on previous promises, but has nearly no new education spending beyond what has previously been announced.

The budget pledges to follow through with key policies, including the roll-out of full-day kindergarten to 265,000 children across the province commencing in September 2014 and will maintain the approximately $1.8 billion that the government spends annually on education infrastructure for a decade. Although the budget does not contain a reduction in education spending, the lack of new funding in the budget has left Mr. Elliott dissatisfied.3

“Our members have more than done their part,” he said, “but this government persists in treating public education workers in Ontario as easy targets for an agenda of restraint that even the government itself is no longer comfortable acknowledging.”4

Education Minister Liz Sandals said that it is standard practice that when collective agreements are set to expire, as the teachers’ agreements will in September 2014, provisions are “rolled forward”. The Minister also noted that the province’s relationships with teachers’ unions and school boards have improved, despite the “rhetoric”.5

“The government never announces what the deal’s going to be before you negotiate it”, she said.6

The government is caught between addressing a climate of fiscal constraint and appeasing a group that was a strong supporter in the last provincial election.

To facilitate negotiations in the education sector, on April 9, 2014, the government passed Bill 122, the School Boards Collective Bargaining Act, 2014.7

This Act put in place a two-tiered bargaining process for unionized employees employed by school boards: one for central negotiations and another for local negotiations. Big monetary issues, such as salaries and benefits, would be negotiated centrally by the government, provincial unions and school board associations. Bargaining on local issues, such as teacher workload, access to technology and training, would take place between individual school boards.8

In the present circumstances, the school boards and the teachers’ unions appear to like the idea of the legislation, but not necessarily everything that’s in it.

For example, the teachers’ unions have complained that, in their view, Bill 122 gives the Minister of Education too much power in determining what gets bargained provincially and locally and on issues such as the length of future contracts.9 Under the legislation, the Minister may reserve a matter for the central table if the Minister is of the opinion that there could be a “significant impact” on implementation of provincial education policy or expenditure for benefits.

Bargaining is just in its early stages and the tone appears tense. In early June 2014, OSSTF unanimously approved a new levy on its members to bolster its strike fund.10 The fee  will be used to enhance the strike fund and provide an increase in strike pay. The Globe and Mail recently reported that OSSTF members will receive three-quarters of their pay if they are involved in a strike.11 OSSTF has indicated that the increase in strike pay will enable the teachers’ union to “negotiate from a position of  strength.”12

Furthermore, many in the education sector are expecting a tense showdown because the government will have to grapple with a large deficit and the teachers’ unions will fight any  new reductions. With a new debt of $267.5 billion that is growing at a faster rate than the economy, the province is facing pressure from the credit agencies to get its fiscal finances in order.13 Currently, the province pays $11 billion annually in interest payments to finance its debt.

On July 2, 2014, the bond rating agency, Moody’s, issued a stark warning on Ontario’s growing deficit. Moody’s changed its outlook on the province from “stable” to “negative”, cautioning its credit rating could be downgraded if the province does not  show progress with cutting spending or increasing revenues.14

The province is pledging to balance the books in three years, but will run a far larger deficit this year than originally projected.15

Michael Yake, Moody’s lead analyst for Ontario, said, “The expected path to balance and stabilization of the debt burden, in our opinion, faces greater challenges than before.”16

It is evident that a future downgrade by the credit agencies would result in higher borrowing costs, adding billions more to the debt-to-revenue ratio.17 Ontario currently spends 9.2% of its revenues on interest payments and provincial government estimates predict that figure will rise to almost 11% in the next four years.

The cost of carrying the debt will also dramatically increase, as much as $3 billion in annual interest costs for every point increase in interest rates, according to Jack Mintz, the Palmer Chair and Director of The School of Public Policy at the University of Calgary.18 If interest rates increase, the bottom line is that more money will be earmarked for servicing the debt and less spending will be available for important public services, such as education.

“It’s been an issue that has been lingering for several years,” said Mazen Issa, Senior Canada Macro Strategist at TD Securities in Toronto. “Some very tough decisions are going to have to be made to get the books in order.”19

It will fall to Deb Matthews, as the head of the newly empowered treasury board of cabinet, to attempt to balance these competing interests.  The Speech from the Throne of July 3, 2014 made it clear that she will oversee all public sector negotiations with teachers, nurses and other public servants who have been allocated no increases in the coming years.

The challenge for the provincial government will be to find a way to manage a debt load that is larger than California’s while attempting to meet the expectations of the teacher unions and other public sector employees in current and upcoming contract negotiations.