What does deleting 1,000 people do to the NWT’s federal funding?

For the first time, Canadian population estimates are using 2021 census data – a switch that knocked 1,000 people off the NWT’s total.

The NWT previously had an estimated population of 45,668 in April this year, but that April estimate has now been revised down to 44,678 using new census information.

For a territory trying to use immigration to bolster its economy, the original 45,668 figure didn’t exactly represent rocket-powered population growth. The new figure looks even worse.

The sudden change suggests estimates based on the 2016 census had drifted steadily away from the reality in the NWT, requiring a noticeable correction when the latest census data became available.

That correction comes with a big concern: what the new figure might mean for the territory’s federal funding.

Every person living in the territory earns the GNWT money from the federal government through a system known as Territorial Formula Financing, or TFF.

TFF is unconditional funding, meaning it comes with no ties. The GNWT can spend TFF revenue however it likes, which makes it extremely valuable.

In 2023-24, TFF was worth $1.6 billion in cash transfers from the federal government to the GNWT. Given the GNWT’s entire operating budget for 2023-24 is $2.2 billion, that’s a huge chunk of the money used to keep the territory running. It equates to about $37,000 per resident.

Suddenly wiping 990 people off the NWT’s population could be expected to mean magically losing $40 million in annual funding overnight, equivalent to about two-thirds of the Department of Industry, Tourism and Investment’s annual budget.

The reality, though, is more complicated.

Shock insulation

The formula used to work out how much money the NWT gets from Ottawa through TFF each year is sensitive to changes in population, but there are mechanisms built in to stop a sudden shock from a statistical reassessment like this.

The TFF payment for 2023-24 won’t change. That was calculated earlier and announced in December 2022, and subsequent changes in the components of the formula don’t affect it, said NWT Department of Finance spokesperson Todd Sasaki last week.

What will eventually have an effect is what he termed “the increasing gap between the NWT and Canadian population growth rates” – in other words, the fact that Canada is registering record growth overall while the territory’s population flatlines.

The difference between the two is a component of the formula, and that is “slowing the growth” of the TFF funding the NWT gets each year, Sasaki wrote.

If the rest of the complex formula stayed the same, changes in population alone would be expected to reduce TFF by about $4 million in 2024-25 and by $15 million annually from 2027-28.

The reason for the gradually worse impact is that all data used in the formula is turned into a three-year moving average with a two-year lag. For example, the population data released in September this year won’t enter the formula until 2025-26 and won’t be fully felt till even later.

That is designed to act as insulation from sudden changes like the revised population data. Any changes take four years to be fully accounted for in TFF, Sasaki wrote, “which provides a greater degree of predictability from revenues.”

(It’s worth noting that there is another way of looking at this sudden shift in population. The need for a 1,000-person correction suggests that the NWT had an overestimated population for years, and presumably benefited financially from that in prior TFF calculations.)

TFF still forecast to grow

Things now get even more convoluted, because the rest of the TFF formula isn’t staying the same – all the other data points are changing, too.

Population isn’t the only factor in TFF. There is also a part of the formula designed “to ensure that territorial spending can grow in line with provincial-territorial and local government spending,” to quote the federal government’s wording.

That part of the formula appears to be working in the NWT’s favour – so much so that Sasaki says any reduction from loss of population is being more than offset.

“Despite the latest population figures, the forecast has increased modestly because of upward revisions to the provincial-local government spending forecasts,” he wrote.

“The net effect on the TFF forecast is an increase of $3.5 million or 0.2 percent in 2024-25 and $17 million or 0.9 percent in 2025-26.”

So the new population figures don’t, on their own, mean the GNWT is going to face sudden extra pressure on its budget – but the territory’s inability to grow its population is suppressing its ability to maximize TFF.

Forecasts can change, too.

“The 2024-25 TFF may also change one way or another due to changes in national average tax rates or NWT taxes,” Sasaki added.

“Final 2024-25 TFF entitlement is not set in stone until mid-December 2023.”