Good morning.

Late last month, the B.C. government started receiving the first of its payments from the multibillion-dollar settlement provinces reached with big tobacco companies over health damages.

British Columbia was the first to sue big tobacco for recovery of health costs, launching the lawsuit in 1998. Other provinces eventually joined in.

B.C.’s portion of the $32.5-billion settlement amounts to more than $3.6-billion, to be distributed over 18 years. The first instalment began arriving late last month – $936-million.

In March, as details of the settlement were finalized, B.C. Attorney-General Niki Sharma said the settlement would “deliver critical funding for health care systems across Canada and establish a foundation to support treatment research.”

As of Monday, it seems the settlement is delivering critical funding to the B.C. NDP’s deeply red budget predicament.

Finance Minister Brenda Bailey delivered the province’s financial quarterly results Monday, which show the record-breaking deficit included in the budget she delivered earlier this year has ballooned. From a predicted $10.9-billion deficit, it is now projected to clock in at $11.6-billion.

When the budget was delivered earlier this year, Ms. Bailey was clear at the time that the evolving policies of U.S. President Donald Trump and his tariff threats could not be tabulated into the document.

Indeed, a Scotiabank economics report confirmed Monday that B.C. is less exposed than the provinces of Ontario, Quebec, Alberta and New Brunswick, which are all experiencing more significant downgrades as a result of the trade war with the United States.

B.C. can expect its economy to shrink only by 0.1 per cent as a result of U.S. tariffs, the economists concluded.

Instead, the province’s cratering revenue appears largely as a result of Mr. Eby’s promise during last fall’s hotly contested election campaign to eliminate the carbon tax, leading to a $2-billion shortfall.

B.C. was the first province to introduce a carbon tax. At the time, it was intended to be revenue neutral. But in 2017, the NDP reshaped the tax, retaining a portion as general revenue.

To offset the loss, the new deficit forecast uses the tobacco lawsuit windfall, almost all of it.

The province is now counting in this budget 18 years’ worth of income from the settlement, some $2.7-billion.

Bailey defended the decision to include the anticipated settlement in the current fiscal year, saying it is a standard accounting practice.

By contrast, the Alberta government is only booking roughly one-quarter of its settlement money this year, and it is putting those funds into its Heritage Savings Trust Fund.

B.C. ministry staff acknowledged that not all of the money would actually be available as cash in hand and the government would have to borrow money to make up the temporary shortfall.

“I assure you, this is a traditional accounting treatment. That was a decision made at the staff level, not a political decision,” Bailey told reporters.

“This isn’t a magical number out of nowhere.”

Magic might be something the government needs, however, to avoid what the Globe’s editorial board concluded last month will be an “inevitably painful ending.”

Bailey said a spending review has identified only $300-million in savings this year to offset not only the end of the carbon tax but also declining revenues from housing sales and natural resources.

Meantime, B.C. General Employees’ Union members are entering a third week of strike action and are asking for a wage increase of 8.25 per cent over two years, with a potential cost-of-living increase on top of that.

Union members received wage increases of at least 14 per cent in their last three-year contract.

This time, the province has established a general bargaining mandate across the public sector that offers wage hikes of 3.5 per cent spread over two years.

A wage increase of 1 per cent across the entire public sector is estimated to cost $532-million.

Union president Paul Finch told The Canadian Press on Monday the announcement about the deficit “doesn’t materially change our negotiating position.”

But as B.C.’s debt ratchets up higher and higher – almost $60-billion over the next two fiscal years, an increase of 37 per cent– the government is faced with difficult choices.

“Any serious effort to get B.C.’S finances under control will have to involve reducing the number of civil servants, outright reductions in spending outside of core services such as health and, most importantly, a plan to balance the budget,” the Globe’s editorial board wrote.

“The longer that Mr. Eby waits, the harsher the fiscal reckoning will be.”

This is the weekly British Columbia newsletter written by B.C. Editor Wendy Cox. If you’re reading this on the web, or it was forwarded to you from someone else, you can sign up for it and all Globe newsletters here.