The Politics of the APP

 It's tough to see the political sense of the UCP's approach to the APP. We know that, of all the 'western alienation' tropes, exiting CPP is a particularly unpopular proposal. From Harper's Firewall Letter in 2001, to Kenney's Fair Deal Panel, to Rempel's Buffalo Declaration, to the Free Alberta Strategy co-authored by a member of Smith's inner circle, withdrawing from the CPP has always featured on a certain wishlist among those who flirt with separatists, other items of which usually include establishing a provincial tax collection agency and an Alberta Provincial Police service.

Neither the RCMP nor the CRA is particularly highly regarded in the public eye, though the math still suggests that both an Alberta Provincial Police and an Alberta Revenue Agency would be ways of burning massive amounts of tax money for no value except the 'message' it sends. But CPP is actually a really good system. It wins international awards for how well-managed it is, and it's well-insulated from political interference.

Independent polling - from organizations including Leger, Janet Brown, Abacus, and others - has consistently found strong majorities of Albertans opposed to exiting CPP.

For that reason, the UCP tried to avoid CPP being discussed as an election issue, and even called the NDP liars for suggesting that Smith had designs on Alberta's participation in the plan.

But the NDP wasn't lying about that: Smith's leadership platform heavily targeted the 'western alienation' side of the party, including CPP exit, and her initial set of mandate letters in fall 2022 included directions to start that ball rolling.

There's no question: Exiting the CPP is a tricky political issue. Convincing Albertans to back an APP will be no small feat.

There are reasons for that: Albertans - perhaps especially Albertan conservatives - are distrustful of government. We have a system that works, including solid protections against political interference, and the UCP's pleas to "trust us with your pensions" are unlikely to be well-received, even among many who voted for them.

Even with a wildly optimistic set of projections for the costs and assets of an APP, betting on a successful "Leave" vote is something of a long shot. In fact, I might suggest that the projections are just too good to be true, creating a kneejerk reaction among skeptical Albertans of "That doesn't sound right."

So if Leave wins a referendum, it's not going to be because large numbers of Albertans were convinced - it's going to be because political disengagement keeps lots of people at home, and because some folks vote to 'send a message', combined with an assumption that their pensions aren't actually in play.

We saw this after Brexit: Even people who voted "Leave" immediately had buyers' remorse. They never imagined that Leave would win, but they just wanted to show how mad they were at the EU.

So if Leave wins, expect it to be based on low turnout and soft support. But that's not the end of the process.

Once Alberta gives notice to Ottawa that it's implementing a comparable pension plan, a number of other things happen. One of them is that the Finance Minister has to run the numbers to determine the amount of the asset transfer. Another is that the Province has to then legislate a transition to a 'comprehensive pension plan' equivalent to CPP. (But the way the statute is drafted, the referee on whether their plan is adequate to exclude them from CPP...is Federal.)

Expect the Federal government to use a different data set and methodology from the LifeWorks report - one that yields an asset transfer more along the lines of 15-25%, not the 53% Alberta wants. So, being pretty far apart on that, off to court we go to decide whether the Finance Minister got it wrong.

For my money, Alberta's position - if premised on the LifeWorks report - is unlikely to hold the day. (The statute is ambiguous on the formula, and the Finance Minister's methodology will be entitled to deference: Alberta would need to show that her interpretation of the statute is not an available interpretation of ambiguous language. It's a long shot - a Hail Mary pass the length of three football fields.) But that's almost beside the point, in terms of the politics..

Exiting CPP is a 3-year timeline under the best of circumstances. Add litigation into the mix, and you can basically guarantee that no meaningful steps will have been taken toward implementing an APP by the time the next Provincial election rolls around.

As much as the UCP, following a successful 'Leave' vote, will want to shut down debate about APP because the people have spoken, the NDP will nonetheless come in with a 'protect your pensions' argument, and it will resonate with vast numbers of voters.

It's hard to imagine a bigger electoral gift to the NDP than making the 2027 election a do-over of a successful "Leave the CPP" referendum.

So why try to do that?

Hypothesis One: They Want to Lose the Referendum

While a part of me is reluctant to rule out either ineptitude or that those behind it are simply ideologues who are blind to the political risk calculus, the alternative bears consideration: They are planning to fail.

With political leadership deeply beholden to the separatist and hardline elements in the party, it would be difficult for Smith to openly abandon those goals. But actually pursuing a separatist agenda is toxic - the only reason they eked out a narrow victory in several urban ridings is because they ran a campaign speaking to moderates. Electorally, Smith can't afford to alienate either group.

If I put myself in her position, this doesn't seem to be the worst play: Dive headlong into a CPP debate for the first half of the term, aggressively and unapologetically promote the 'leave' position, but put it to a referendum...and once I lose, shrug and move on. Nobody can say I didn't try. It's a good way of taking wind out of the separatists' sails, being told that they're not a silent majority, and justifying a shift toward a more mainstream policy focus long before the next election.

Sure, I'll take a political beating right through that loss, but it comes a year and a half before the election, and once the "Stay" vote wins the referendum, I get to pivot to say "I respect Albertans' choice; that's off the table." Damage control, and of course the opposition has been fundraising off of this issue for two years, but if it cements my control over my party, that's probably a win, long term.

Still, that seems to me to be super high-risk, for a couple of reasons:

Firstly, the assumption that they can't win the referendum seems to be an extraordinarily dangerous one. There are highly-motivated grassroots organizations that will be very good about getting their voters to the polls for a referendum day, and turnout can be spotty, particularly in non-general elections.

It sounds like the plan is to roll the referendum into the 2025 municipal elections. Remember the referendum questions in the 2021 municipal election? Total ballots cast for those questions was a hair over a million. (Valid ballots on the Daylight Savings question: 1,068,656 - which split by a hair's width. Valid ballots on the Equalization issue: 1,041,670, of which just under 2/3 took the 'anti-Federalism' position.)

Compare that 1M turnout to the general election, with over 1.7M ballots cast. Even that wasn't a great turnout.

That DEFINITELY creates a risk of the referendum ballot skewing in a different direction than the general election would, which is exactly the risk the UCP wants to avoid - the referendum picking a course of action that's going to earn the ire of voters come 2027. A Leave vote eking out a narrow victory with some 500k-600k votes puts the UCP into the worst possible position, where the NDP spends the remainder of the term talking to the REST of Albertans about protecting their CPP, and the UCP is politically unable to back off a position that will remain unpopular, especially once the numbers come in on the Federal government's valuation of the asset transfer, and what that looks like for the benefits, contributions, and risk profiles of an APP.

Hypothesis Two: They Just Want To Fight Ottawa

Queueing up a major showdown with Ottawa is really the UCP's style, and doing so as a distraction from other Provincial policies would also be pretty consistent with their history.

But again, this is a poor issue to pick that fight on. I'd expect to see something about Federal transfer programs, or environmental regulation. Heck, Saskatchewan is going full 'Sovereignty Act' on the carbon tax - and Alberta isn't.

It's possible that this is because Alberta has a unilateral right to exit CPP, and they underestimated the strength and quality of the opposition to it. There aren't many other Federal programs that Alberta can say, "We're allowed to exit this and there's not a thing you can do about it." The Canada Health Act comes to mind, but that would probably be even worse for them than CPP.

Hypothesis Three: It's Actually Driven By Idealogues

We know that there are some fairly extreme elements with influence over the Premier's office, including her Executive Director who was a co-author of the Free Alberta Strategy.

The FAS has a certain list of items that, on their own, are within Alberta's constitutional authority.

They passed the ASA, with promises of invoking it to solve all of Alberta's problems, and it went unused for over a year (before finally being invoked to deal with proposed Federal regulations in a pretty toothless way), because - as we lawyers have pointed out - it's not constitutionally able to do anything meaningful to resist Federal jurisdiction.

Other FAS items that are not inherently unconstitutional include: An Alberta Police Service; an Alberta Revenue Service; and an Alberta Pension Plan.

Get beyond that - refusing to seat Federally appointed judges and instead appointing their own? Interfering with the collection of Federal taxes? Blocking the enforcement of valid Federal laws in Alberta? Those put Alberta on the wrong side of a constitutional crisis pretty quickly.

It's a plan with a lot of moving parts, and you can't trigger the constitutional crisis until you have all your pieces in place to be able to avoid the consequences of losing the legal battles. (The most terrifying part of the plan is that they seem to have contemplated its illegality, and tried to think of ways to avoid legal accountability.) So exiting the CPP is a priority; an Alberta Revenue Service - as Duane Bratt points out - is a necessary precondition to exiting CPP; and firing the RCMP would be the next step afterward.

Why call a referendum, though, instead of just passing a law? The answer to that is they KNOW this would be politically toxic. But dumping tax money into propaganda first to soften the blow (noting that government money actually isn't supposed to be used for referendum advertising, and they're exploiting a loophole here) would both give them political cover AND silence critics within the party, by comparison to simply doing it without a referendum.

Hypothesis Four: They Just Want the Money

Smith has spoken fairly explicitly about the kinds of things they can do with Alberta's share of CPP's assets: Using the funds to pay for the excess administrative costs of running Alberta Police and an Alberta Revenue Service, for starters. (Yes, she actually said that in a debate in the leadership race, which is just wild, planning to use pension funds to cover government spending.) Investing the funds 'in Alberta', which most people understand as being 'more giveaways to oil and gas companies'.

One of the things that likely weighs heavily on policymakers is the estimated taxpayer burden of orphan well cleanup, which most estimates suggest will at least double the Provincial debt. If you could score $334B from CPP, then you could divert $100B to clean up the oil industry's mess and still have enough left over to run a decent pension plan, right?

Let's be clear: It would be the height of malfeasance for the government to actually SPEND the pension fund. Investing it disproportionately into in-Province businesses prone to cycles of booms and busts would be incredibly irresponsible, as it would tie both Alberta's employment income AND their pension performance to the same anchor.

But Smith evidently doesn't understand those problems, from the way she's talked about an Alberta Pension Plan, and getting those kinds of dollar signs in her eyes could certainly blind her to the political risk.

The Down Side: An APP is a Cudgel for their Opponents

It's hard to imagine a bigger political gift to the embattled Federal Liberals than the Alberta government giving them a clear villain to fight. "Look, Alberta wants to take 53% of CPP assets and leave the whole plan underfunded and unsustainable! They'll endanger your pension and drastically increase your contributions! We're going to fight to protect your CPP!" They can come out on this far more powerfully than the Federal Conservatives, and even within Alberta - where, honestly, they're not really counting on seats anyways - attacking the UCP's plan and propaganda is a pretty safe political bet among everyone but the most hardened partisans.

I've seen some arguments that Federal involvement in this debate actually helps the 'Leave' side, because so many Albertans distrust the Federal Liberals. I'm not entirely convinced that this phenomenon would actually push away meaningful numbers of persuadable voters, but that doesn't change the political calculus for the Liberals anyways.

The Provincial NDP, too, is going to keep talking about protecting the CPP. And outside of a group of voters who would NEVER vote for the NDP anyways, that's going to play really well. They're going to fundraise off this, build support off this, and earn support and attention from groups who would ordinarily skew conservative, like seniors.

The folks who will vote "Leave" and mean it aren't votes that the NDP even remotely hopes to swing. But the folks who would vote "Stay", and the folks who might stay home out of complacency, are all in play. And the more the UCP pushes to try to persuade people to leave CPP, the harder these punches land.

The Changing Conversation

And there are signs that they were not prepared for the strength of the public opposition to this move. They've kind of talked out of both sides of their mouths from the start: "It's your choice, but here are all the reasons you should choose this." But there's a distinct shift away from taking a position.

Smith also announced that they would not hold a referendum until they were able to put more solid numbers to Albertans, and they've shifted their rhetoric to asking the Feds, "Okay, what do YOU say the asset transfer number looks like, then?" And a response from Neudorf seemed to acknowledge that Albertans don't really want to proceed to a referendum on this.

Freeland agreed to refer the question to the Chief Actuary, and Alberta just suspended public consultations until they get the answer to that.

That said, I'm skeptical on the likelihood of getting firm numbers here. For a few reasons.

First and foremost, I doubt the data exists in a form that the calculations, on any methodology, could be readily performed. There are a few nuances in the right data set to look at, but the biggest one is this: We're not looking at 'benefits paid in Alberta' to figure out what portion of Alberta's contributions have been paid; but rather we're looking at 'benefits paid on account of contributions made in Alberta'.

For somebody who worked their entire career in Alberta, then - regardless of where they live after retirement - that's going to be their whole pension. For somebody who worked part of their career in Alberta, it'll be a percentage of their pension. I'm not immediately sure that calculating that percentage is going to be all that uncontroversial anyways - if I worked 15 years in Ontario, averaging 2/3 of the max contribution, and 25 years in Alberta, always making the max contribution, then how do you decide what percentage of my pension is attributable to Albertan earnings?

So, to my mind, it's quite unlikely that CPP has kept a running tally of 'what benefits are paid on which Province's account', and it's far more likely that these calculations will have to be done for each individual who has ever received CPP who worked any part of their career in Alberta.

Has that information all been entered into a consolidated database that an algorithm could be programmed to extrapolate all the data and do the calculations? Eh...maybe?

But I'm not even all that sure that the data from the 1960s and 1970s would have been digitized at all - assuming it still even exists, which itself may not be a safe assumption. The root data would be contained in literally tens of millions of documents held by one or two government agencies, and if the database actually has to be constructed from those source documents to be able to align benefits paid with where the pensionable earnings were made, that's a monumental undertaking.

Secondly, while you might think that the point of this pre-estimation is to put the fight over methodology at the front end, it may not work that way.

The way the statute works is this: Alberta gives notice, triggering a statutory obligation on the Chief Actuary to calculate the asset transfer, and if Alberta doesn't think they did it right, they can seek judicial review. Judicial review is a process by which the courts oversee government officials exercising statutory authority: It's a deferential oversight mechanism, and they give a wide discretion to these government officials, but, importantly, it's only available where the action in question is done pursuant to a statutory authority.

Until notice is given, there's no statutory mandate to make the calculation - just a discretionary direction from the Minister, which has no legal impact.

The natural read of the statute is that, until the calculation is made in response to notice from a Province to exit CPP, no calculations by the Chief Actuary would be reviewable. And while I imagine the Smith government would nonetheless try, arguing that it's just a re-ordering of statutory processes and there's public policy sense to iron out these methodological questions prior to deciding to give notice, there are also compelling reasons for a court to reject those arguments: The courts don't like hearing premature arguments; they don't like deciding legal interpretation questions in a vacuum; and ultimately, because the Province is in control over the timing and circumstances of the notice and exit strategy, you'd expect the Feds to need to recalculate the asset transfer once notice is actually given.

So, from a judicial perspective, reviewing a calculation that's not legally impactful, when there's bound to be a later calculation that is legally impactful, isn't something the courts would normally do. And if the courts do hear it, don't expect the process to have fully run its course by October 2025 anyways. (I can't speak to the Federal Court's schedule. I can tell you that I just scheduled a judicial review application at the Alberta Court of King's Bench...that's further out than this referendum would be. That's a ridiculous delay, of course, but any reasonable expectation on timelines for a matter like this would be that it's going to be heard sometime in 2025 at the Federal Court, there may be a decision on it before October 2025, but the appeals will almost certainly not have been decided by then.)

So once we get numbers from the Chief Actuary, what we're most likely to see is a qualified set of calculations, based on specific assumptions of legal interpretations, timing of the notice, and possibly even guesstimating the impact of issues like interprovincial mobility and cross-border work without having fully processed all available data.

Methodologically, it's reasonable to expect that the Chief Actuary's approach following a Provincial notice will be the same as the approach taken in response to a Ministerial request. But they simply don't have the same legal significance.

Thus, by the time the referendum comes around, we're very likely to have a non-binding estimate from the Feds that's less than half the asset transfer suggested by Lifeworks, and we may (but probably won't) have a Federal Court decision going one way or the other (again, my bet is that it supports a lower valuation, if the case proceeds at all on this basis), but which will still be under appeal at best and won't be firm at all.

So this creates a range of scenarios that are likely even worse for the UCP:

(1) Having promised a firm number before the referendum, and still not having one because the court processes are ongoing, Smith delays the referendum, angering the extremists in her base, and inevitably keeping the 'protect your pensions' debate alive squarely into the next election.

(2) The court processes ongoing, Smith goes ahead with the referendum anyways, asking us to vote on it while the litigation continues as to what the numbers will look like. In the off chance she gets a favourable decision at the Federal Court level before the referendum, this might even make the referendum winnable for her - which would be a disaster if that FC decision gets overturned before the election, forcing her to either back off the referendum results and anger her base, or...not...and go into an election defending a referendum outcome that was premised on factual expectations that didn't ultimately hold up. And if she's pitching the LifeWorks valuation in the referendum without having an FC decision supporting it (either because the FC decision isn't released, or went the other way), she'll be inviting a political beating for trying to convince Albertans to vote on the basis of a contentious and overly generous valuation, despite the fact that there's active litigation where the Federal government is persuasively asking the courts to uphold their interpretation.

(3) The FC having refused to hear the case prematurely, Smith has to go ahead with the referendum - to be able to give notice, and to trigger the Chief Actuary's statutory obligations to make the calculation. At which point she's asking voters to support a contentious and generous valuation, in the face of a contrary Federal position which we know makes the APP much less attractive. Having gotten the Federal government's official position, without an opportunity to challenge it before the referendum, really solidifies the risks of the plan Smith would be promoting.

Bottom Line

My expectation is that it's going to be a while before we see a number from the Chief Actuary. When we do see a number, it's probably going to be hedged in certain assumptions.

I also expect that it will not be aligned with LifeWorks' number.

And if Alberta can get a court to hear legal challenges to the preemptive number, I'm quite confident that those challenges won't have fully run their course by the October 2025.

In the mean time, this whole thing is, and will remain, a political albatross for this government, and I don't see that getting any better in the foreseeable future.