Government Operations Committee on May 1st, 2007

[Prof. James McKellar]

No, my recommendation is, and I would say to most governments, that you have to adopt an asset management plan. You've got to begin to look at the assets you keep and the assets you dispose of. You've got to live up to the ones you're going to keep and you've got to build in a cost.

One of the biggest issues we face is the accounting system. Traditionally, governments operate year to year and then they have the gall to turn around and say they're going to have an accrual-based system. That's a joke. You come in with an accrual-based system, but you're still going to give out money on an annual basis on a cash appropriation. One of the things we're saying to governments around the world is that they have to change their accounting system. These deferred liabilities have to show up as liabilities on their books. I think it's more important to develop an overall asset management strategy so that 25 years from now we're not in the same boat.

[The Chair, Liberal, Diane Marleau]

We've put a report forward, and I think we have some recommendations in that report that over the next five years they move in that direction and they have a separate way of voting appropriations so that they take into account the longer-term need. But the government isn't there yet. I know they're interested in moving in that direction.

[Prof. James McKellar]

As I say, I'm not in any way critical of this government or previous ones. It's a pervasive issue. Everyone faces it. And as the Honourable Garth Turner said, buildings don't vote. My comment is it's a practical solution to a political dilemma.

[Raymond Simard, Liberal, Saint Boniface, MB]

Do I have more time?

[The Chair, Liberal, Diane Marleau]

We're going to be debating his motion as soon as we have it properly done. I'll go to Monsieur Nadeau--it's his turn--and we'll keep working on the motion here.

[Raymond Simard, Liberal, Saint Boniface, MB]

Was I out of time?

[The Chair, Liberal, Diane Marleau]

Yes, you were.

Monsieur Nadeau.

[Richard Nadeau, Bloc, Gatineau, QC]

Thank you, Madam Chair.

Good day, Mr. McKellar.

I'd like a bit of information and I hope you can enlighten me about certain matters. Is it not to the government's advantage to erect building on federal land where it less expensive to build, and to operate these buildings more cost-effectively than to lease buildings in more expensive locations?

Let me give you a concrete example. I don't know if it rings any bells for you. Let's suppose the government erects a building in a municipality where land is less expensive, and then remains the owner of and manages the building for a number of years, instead of leasing or erecting a building in a city where costs at year end are much higher.

[Prof. James McKellar]

The land costs are an insignificant cost of doing business. The major cost is the cost of people. You locate your asset where you can get the best people at the best price. As I indicated before, the real estate cost is maybe 5% of your cost. The land is minuscule. The major decision you're going to make is where to put the asset that will provide access to the best people. So I would not make the decision on the basis of land cost. I mean, if you want to do that, there's a lot of cheap land. But it will be a long commute.

[Richard Nadeau, Bloc, Gatineau, QC]

Take, for example, the Gatineau-Ottawa region in which departments have access to the same personnel. It's easy to cross the river and put up a building more cheaply. That's where I'm coming from when I ask you the question. However, you seem to be saying that a saving of 5% is peanuts.

[Prof. James McKellar]

Again, I don't think this should be argued as a real estate case. It should be argued more on what makes the best business decision. Also, though, I would say one of the things government should take into account in where it builds are some of the policy issues of urban regeneration, etc., that would assist.

I wouldn't necessarily say that government building buildings on cheap land that it owns might not be the best. It may be appropriate, but I don't think that would be the driver. It should put the building where it can do the best job of delivering the public service.

[Richard Nadeau, Bloc, Gatineau, QC]

On another subject, I'd like to talk about sale/leaseback agreements. In the private sector, the aim may be to acquire more cash assets in order to reinvest in the business. In the public sector, in the case of a sale/leaseback agreement, what happens to the resulting cash assets? Are they reinvested elsewhere in government? Are they reinvested in property, used to lease additional property, or what?

[Prof. James McKellar]

I think, again, this is a decision that government has to make. It has many more options as to how it uses that money. The private sector is going to use it in the wisest deployment of its capital for its business; government has many other options. It can say, we'll pay down debt, we'll do this, we'll build.... Those are political decisions, but it might be wise for the government to say some of it would go towards fixing up some old buildings. That's not a real estate decision; that's really a political decision, in the sense that government has to decide where it wants to put that money.

That's what separates it from the private sector. We know why the private sector does it; it's because it needs to redeploy its capital. Government is doing it in response to the problem of these assets, which require a substantial reinvestment.

As I say, it's a financing mechanism; it's a financing mechanism because government itself does not want to use its own money to fix up the buildings.

[Richard Nadeau, Bloc, Gatineau, QC]

At the start of your presentation, you mentioned that on average, federal buildings are thirty-nine years old. Did I understand you correctly? Did you mean to say that the average life expectancy of these buildings was thirty-nine years?

[Prof. James McKellar]

I believe the average age of federal buildings is in the order of 38 or 39 years.

[Richard Nadeau, Bloc, Gatineau, QC]

Given their age, we're talking about old buildings. Are they too old?

[Prof. James McKellar]

They would be considered very old, but again, the rate of deterioration is a function of how well they've been maintained. For example, the TD Centre in Toronto, which was built in the late 1950s, is impeccable today, so it's not age per se.

There are two issues. One is what I would call depreciation, which is just wear and tear; the other issue is functional obsolescence, meaning that the building is in the wrong location to deliver that service. A 39-year-old building is not old, but it's old when you don't reinvest.

[The Chair, Liberal, Diane Marleau]

Thank you.

We'll go to Mr. Turner.

[Garth Turner, Conservative, Halton, ON]

Thank you, Madam Chair.

I would like to make a motion, as I gave notice of doing a few minutes ago. After having conferred with the clerk, I have worded the motion to read--

[James Moore, Conservative, Port Moody—Westwood—Port Coquitlam, BC]

I have a point of order.

I'm perfectly prepared to entertain a motion, but right now we are under the business of dealing with Mr. McKellar's testimony here. We have in camera matters and we're going to be dealing with committee business at 5. That's the appropriate time to deal with motions, not now, in the middle of testimony from a witness. Those are the basic rules of Parliament.

[The Chair, Liberal, Diane Marleau]

I think the time is right, because we looked; there were very few new questions being asked, it was Mr. Turner's turn, and we're now discussing this particular topic. This is the right time in which to do it. If we wait until later, he will not be able to present his motion. It has to be at the time that we're discussing the issue; otherwise, he has to give notice of the motion.

[Pierre Poilievre, Conservative, Nepean—Carleton, ON]

I have a point of order, Madam Chair.

[The Chair, Liberal, Diane Marleau]

He can present it now.

[James Moore, Conservative, Port Moody—Westwood—Port Coquitlam, BC]

That's not how Robert's Rules of Order works.

[The Chair, Liberal, Diane Marleau]

There's nothing wrong with his presenting his motion now.