After spurning $260,000-per-family payout, a Canadian town feuds

Doris Tucker, a resident of Little Bay Islands in the Canadian province of Newfoundland and Labrador. Photo / Josh Wingrove, Bloomberg via Washington Post

On the far eastern edge of Canada sits Little Bay Islands, a beautiful, dying village divided by crisis. The fish plant was shuttered half a decade ago, and most supporting businesses-as well as the school-have closed with it. Perry Locke is among the tiny population that's left. He served as the mayor, the fire chief and now runs the power-generating station. His son was the last student enrolled in town.

Fishing villages like this one built Newfoundland and Labrador, a coastal province sent into a tailspin by a fishery collapse, oil-price slump and mounting debt that left it with Canada's most severe fiscal and demographic crisis. The provincial government now is pushing to close places like Little Bay Islands altogether rather than service them, offering Locke and his neighbors at least C$250,000 ($NZ260,000) each to leave-and spurring a bitter, three-year fight over whether to cash out or endure.

"It's like a disease. Once a community gets infected, there's no cure for it. You'll either stay sick from it, or you'll die," said Locke, 51, standing on his porch in July overlooking the bay. He voted to stay, worried he'll lose his job if everyone leaves and the power station closes. Many residents now blame him for ruining a windfall. "Nothing we can do to change it now. The damage is done. And the damage is irreversible."

Little Bay Islands is a world away from Canada's glamorous global cities: Toronto and its big banks, Vancouver and its housing boom, Calgary and its oil patch. The town, and all of Newfoundland for that matter, have come to represent the grim underbelly of Canada's economic outlook: a commodity bust, weak growth, mounting provincial debt and an aging population.

The province is closing libraries and schools, reining in health care and boosting taxes, all while International Monetary Fund Managing Director Christine Lagarde and others praise Prime Minister Justin Trudeau for using fiscal policy to drive national expansion; federal budget deficits are projected at C$118.6 billion (NZ$123.4 billion) over six years.

The question for Canada is whether places like Little Bay Islands are one-offs or harbingers of a low-growth, gray-haired future that threatens the country's cherished social programs.

"Newfoundland is a microcosm of Canada," said Zita Cobb, an entrepreneur behind Newfoundland's Fogo Island Inn, a remote, popular destination for A-list stars. While she's optimistic that the country can build a new economic base, she said it'll happen only if Canadians "stop over-relying on the extraction of resources or, even worse, selling off our land."

The North Atlantic province of 530,000 affectionately known as the Rock has long known economic malaise. It was the last to join Canada, in 1949, a process triggered in part by crushing debt accumulated a century ago. Since then, it's struggled through cycles of deficits, community relocation, resource collapse and failed diversification efforts. The oil boom that began a decade ago-triggering government spending and hiring and a once-in-a-generation sense of abundance in hard-knocks fishing towns-is all but gone.

Among Canada's provinces, Newfoundland now has the lowest birthrate and highest median age, the highest unemployment and lowest labor-force participation, the lowest literacy rate and share of those without at least a high school diploma. And as of the 2016-2017 fiscal year, it has the biggest deficit and largest debt as a share of its economy, RBC Economics Research projects.

Lenders and bond raters viewed Newfoundland's situation "in a very serious way" and the government had to act, Finance Minister Cathy Bennett said in an interview. So Premier Dwight Ball introduced a tough-love C$8.5 billion (NZ$8.8 billion) budget this spring that cut services and raised taxes. It was profoundly unpopular and didn't ward off a ratings downgrade by Moody's Investors Service in July, to Aa3 from Aa2. Newfoundland is now the lowest-rated province, and its borrowing costs are the highest. Polls show Ball has the worst approval rating among the country's premiers; his face and the word "resign" dominate posters throughout the capital, St. John's.

Despite all the turmoil, Ball's 2016-2017 deficit remains at C$1.8 billion (NZ$1.87 billion), on top of a C$4 billion (NZ$4.16 billion) cost overrun on the delayed Muskrat Falls hydroelectric dam, announced earlier this year. The provincial economy is "by far the least diversified" in Canada, according to a confidential briefing note Trudeau's government prepared this year, and the "fiscal outlook has deteriorated significantly." Trudeau threw Ball a lifeline by deferring payments on a C$266.7 million (NZ$277.5 million) federal loan and is now being asked to guarantee debt to finish the dam, or even take a stake in it. Even so, balancing Newfoundland's budget without a windfall in oil royalties will require further cuts to education and health care, key pillars of Canada's welfare state.

"You can't do it without hurting a lot of people, and hurting them badly," said Wade Locke, a Memorial University economics professor in St. John's, who isn't related to Perry Locke. "That's what people need to understand."

Little Bay Islands in the Canadian province of Newfoundland and Labrador. Photo / Josh Wingrove, Bloomberg via Washington Post

Many in Newfoundland, asked about the economic outlook, point to tourism. Cobb's inn, iconic St. John's, the province's fabled music scene and years of glitzy television advertising campaigns have stoked a strong industry, buoyed recently by a weak Canadian dollar.

But tourism will be hard-pressed to offset the provincial revenue historically generated by natural-resource development: Arts, entertainment and hospitality account for just 2 percent of Newfoundland's gross domestic product. Fishing, long the staple, represents about the same. Mining, oil and construction are 39 percent and in steep decline.

Even tourism may be a stretch for Little Bay Islands. The only public transportation to and from Newfoundland's main island is a government car ferry that takes 90 minutes and costs about C$20 (NZ$20.8) round trip. The hotel, pub and shops are long closed; a bed and breakfast is the only remaining business. The big, gray fish-processing plant that once sustained the community is now deserted at the foot of the bay.

"You weren't making a fortune, but everyone who wanted to work could. Now they're all retired," Locke said. The village closed its fire department. Summer residents-retirees, mostly-swell the seasonal population, but every winter more leave for good.

Dying communities have long eyed the provincial relocation program as a lifeline, but the initial offer of C$100,000 (NZ$104,109) per home drew tepid interest in Little Bay Islands. The policy was changed in 2013, raising the amount to at least C$250,000 (NZ$260,303) and as much as C$270,000 (NZ$281,128). Little Bay Islands then officially requested relocation-one of five Newfoundland communities to have done so since 2010.

Momentum built but the deal wasn't done: A referendum was required, and a ruckus ensued over who could vote. Many summer residents were deemed ineligible, as were people some locals deride as CFAs, or come-from-aways. After appeals were settled, a total of 95 residents received ballots. Ninety percent of them needed to approve the move for it to pass. That's 86 votes. They got 85.

"It has caused a big rift in the community," said Cavell Wiseman, who returned recently from working in the Alberta oil sands. "I more or less stay to myself now."

Those who favored taking the money try to identify the 10 opponents. Sharlene Hinz, who owns the bed and breakfast, figures she knows nine of them. Finding the 10th "makes me mental," she said. "The disappointment is huge. It's like someone ruined your payday."

Everyone knew Locke was one of the "no" voters. He'd repeatedly said the money wasn't much good if he couldn't find another job. Some are mad at him. Others understand.

Doris Tucker was another opponent, a retired nurse who proudly shows off generations of family photos and giggles with glee at mention of the vote. She says she didn't want what's left of the village to die.

"They all thought they had the money, but it was never going to happen," Tucker said. Like Locke, she also doubts the government would ever pay up. (That last point may not be so far-fetched. The villagers could hold another vote, but Bennett, the finance minister, acknowledged in the interview the government may not be able to afford relocation now.)

With another summer ended, the fair-weather residents have left. How many come back next year isn't clear, and Hinz has listed her bed and breakfast for sale. Even Locke's own family is gone; his wife and son recently moved to a town about two hours away so he could study at a bigger school. Locke now divides his time between them and his job, in the shadow of the shuttered fish plant and the fading glow of Canada's last boom gone bust.