Finance Committee on Oct. 6th, 2011

[Michael Roschlau, President and Chief Executive Officer, Canadian Urban Transit Association]

Thank you very much, Mr. Chair.

Bonjour. My name is Michael Roschlau and I'm the president and CEO of the Canadian Urban Transit Association, which represents public transit systems, suppliers, and affiliates across the country. With me is Penny Williams, CUTA vice-chair of finance and general manager of Transit Windsor. We'll be sharing our time.

I would like to thank you for this opportunity to appear before the committee today as part of the 2011 pre-budget consultations and to provide CUTA's recommendations for the next federal budget.

It's no secret that much has been made of the worsening international economic picture and potential fallout from events beyond our shores in Canada. We're all well aware of this.

We're also aware of the increasing commute times of Canadians, traffic congestion, and mobility challenges facing our communities. In that context, public transit continues to contribute positively to the quality of life of millions of Canadians. Not only does transit support access and mobility needs, it's also emerging as a key solution to a number of issues affecting the everyday lives of Canadians, especially economic competitiveness, climate change and clean air, and healthy living.

However, recent transit investments have been just that, investments that are yielding real returns. As Canada looks to build a strong economy as a defence against global turmoil, transit is an important part of the policy mix.

In September of last year, CUTA released a report entitled The Economic Impact of Transit Investment in Canada. The report highlights the impressive economic return for investment in public transit. Some highlights are as follows.

The economic benefit of Canada’s existing transit systems is at least $11.5 billion annually. The transit industry directly employs 50,000 Canadians and indirectly creates an additional 25,000 jobs. Transit reduces vehicle operating costs to Canadian households by about $5 billion per year. Transit reduces the economic costs of traffic collisions by almost $2.5 billion annually. And transit reduces annual greenhouse gas emissions by 2.4 million tonnes, valued at $110 million.

[Penny Williams, Vice-Chair, Finance, Canadian Urban Transit Association]

Canadians are choosing transit at an unprecedented level, and more and more people understand the importance of their travel choices in improving the quality of life, reducing emissions, and easing traffic congestion. Ridership across Canada showed very strong growth in 2010, with an increase of 4.1% nationally over the previous years. This represents an all-time record, with 1.9 billion trips taken in communities of all sizes.

Indeed, it's worth noting that the increases were spread across the country in communities large and small, with many smaller Canadian communities showing remarkable growth. Much of this is thanks to the recent federal investment, which had been supported by members of Parliament from all parties and which has reached about $1 billion annually in recent years.

Indeed, it is this commitment that has enabled the renewal and the expansion of transit systems and allowed for service improvements to accommodate surging demand. Sustaining this growth and continuing to respond to the shifting transport patterns requires predictable, sustained, and targeted investment. In order to adequately respond to increasing demand, transit systems are in need of sustained infrastructure renewal, and communities where transit has not kept pace with development need a greater focus on investment.

As one example, a recent economic review by the Toronto Board of Trade concluded that traffic congestion was costing the Toronto economy $6 billion a year. In this context and as part of the finance committee's pre-budget consultation, CUTA proposes the following three recommendations in the development of the 2012 federal budget.

Number one: The federal government should develop a Canadian transit policy framework as part of the 2011 budget commitment to establish long-term infrastructure plans.

Secondly, the federal government should give tax-exempt status to employer-provided transit benefits. This would complement the current federal government tax credit for transit pass purchases and encourage employers to financially support transit commuters.

Lastly, there is a need for permanent, stable, and predictable funding dedicated to transit, and that's key. It needs to be dedicated to public transit.

By recognizing challenging fiscal environments, there are a number of different ways to accomplish this, moving forward. One way is to dedicate the equivalent of an additional cent of the excise tax to the gas tax fund, specifically to transit capital investment. This would represent a stable, predictable investment of about $400 million annually and would be supplementary to existing transit allocations.

[The Chair, Conservative, James Rajotte]

You have ten seconds.

[Michael Roschlau]

In conclusion, the transit industry fully recognizes our significant economic challenges. The challenge for policymakers here is that while spending constraints are real, transit is a key economic driver for the Canadian economy and has very tangible impacts on our economic competitiveness.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much.

We'll now hear from the European Aeronautic Defence and Space Company Incorporated.

[Pierre Delestrade, President and Chief Executive Officer, European Aeronautic Defence and Space Company Inc.]

Thank you, Mr. Chair, for giving us the opportunity to speak before this standing committee, and thank you to all the members.

I didn't prepare a speech, but I would like to address two programs where we consider governments can make some savings.

For people who are not familiar with EADS, we are a large company, a European company, where you will find Airbus, Eurocopter, Astrium, and Cassidian. It is a company that is making a turnover of 45 billion euros every year, and we are based in Canada, so we have 1,600 people working in addition to that.

Regarding the two programs that I would like to address, one of them is Mercury Global and the second one is the coast guard helicopter.

Mercury Global is a satellite communications program where the Canadian government is looking to have satellite communications capabilities for the Canadian Forces when they are operating in country and overseas. They are looking for satellite communications capabilities for a 15-year base. We consider that the direction the federal government is taking today is certainly not the right one, if you wanted to have a cost-effective solution and value for money for the taxpayer.

We have a large experience regarding satellite communications services worldwide. Particularly, we are providing such services to 14 NATO countries to date. We are operating overseas and also in countries. You have to bear in mind that in providing such services you need to give flexibility, because the demand for satellite communications capabilities is increasing and you need to have this flexibility in order to cope with it.

Today, DND foresees spending $550 million in the purchase of one satellite for the WGS constellation, which is the U.S. constellation, in order to be aboard to have satellite communications capabilities provided by the U.S. Today, if you look at all of the countries in the world, they are focusing more on going through commercial satellites to deal with their satellite communications capabilities. It's what Astrium, one of the divisions of EADS, is providing to these NATO countries.

Based on the requirements of the Canadian government and the Canadian Forces that they are foreseen to have within 15 years, we consider that you can make some savings. We have estimated, based on the worst-case scenario, that you will spend only $370 million for covering these satellite communications capabilities. And what we are providing for the Canadian government is pay as you go. This means that you don't have to pay up-front payments, which is the case for participating in the WGS constellation that has $550 million that has to be paid up front now.

We consider that the Canadian government can make some savings paying services on a 15-year basis with no up-front payment, and in the long term it will make a huge saving for you. So our recommendation regarding this program is to have a fair competition, to open the competition, and not to have a sole-source process toward the U.S. That's the first thing.

The second program is addressing the coast guard helicopter. This program is the replacement of the BO-105 helicopter, which is what the coast guard is operating today. We are considering helicopters that were manufactured 25 years ago. We consider it is time for the Canadian Coast Guard to change their helicopters in order to make some savings, because they are operating in very harsh conditions and the in-service supports will be very costly, and becoming costlier, for the Canadian government.

We are recommending, if this program is launched, to provide alternative service delivery, as we did for the...[Inaudible--Editor]...project. Going for ASD, you will drastically reduce your costs by reducing the number of public servants who will have to deal with the in-service support of the helicopters. That's the experience we have in some of our countries.

You have some experience in Canada with Top Aces, who today are operating helicopters and aircraft for the training services they are providing for the Canadian Forces.

[The Chair, Conservative, James Rajotte]

Thank you for your presentation.

We'll now hear from Fair Pensions for All.

[William Tufts, Founder, Fair Pensions for All]

Good morning. Thank you for having me out. It's nice to be here with this group and to see you going about your important business for the country.

I'm from Fair Pensions for All. I work as an independent employee benefits consultant for generally small and medium-sized business. Over the past several years I've been an advocate looking into public sector pensions.

The system of pensions that has been developed for the Canadian public sector has been developed with the idealistic goal that public sector workers in Canada should have a disposable income close to their final salaries. The system has turned out to be a retirement bonanza for public sector employees. However, with today's current demographic reality, the pension system that is based on final salary is no longer sustainable. Successive governments have failed to make necessary changes to ensure that the system will be sustained over the long term.

With pension shortfalls in most public sector pensions across Canada, long-term solvency is in doubt. Public sector employees might appear to have little incentive to push for reforms, yet they will pay a price for inaction. Doing nothing to control current pension obligations will cost public sector employees everything.

The current system is providing employees with pensions for longer than many will have worked over the course of their lifetimes. As well, many retire with a higher disposable income than they had over the greater part of their working careers. Options need to be examined that provide for relief for taxpayers and at the same time provide for a reasonable retirement plan for public sector employees.

Public sector pensions have traditionally been defined benefit pensions. This is consistent across Canada and across the western world. In the past decade, these pensions have started to create serious financial distress for many levels of government. Canada is no exception.

There has been a serious lack of discussion in Canada about public sector pension reform, but other governments have begun to address the issue. The U.K., California, and Rhode Island this year have finished in-depth reports to uncover systemic problems in public sector pensions and identify the best options to correct pension-related problems going forward.

The pension system in Canada is at risk, as was cited in the recent Quebec budget in the 2011 report called A Stronger Retirement Income System. The report investigated the Québec Pension Plan system, which is an identical mirror to the CPP program, but had some relevant points that applied to the public sector pension system as well.

There are several key risks that are due to a few key factors, to quote from the Quebec pension report:

The rapid increase in the number of people age 65 or over combined with improved life expectancy will generate significant financial pressure on pension plans that not only will have to pay a pension to more retirees but also have to pay these pensions over a longer period. This additional financial burden will be accentuated by a reduction in the number of individuals of working age who can contribute to pension plans.

Governments across Canada have four choices: they can change pension provisions going forward; they can raise additional revenues to meet these obligations, which we would call taxes; they can cut spending on other government goods and services to meet these obligations; and they can increase government borrowing.

These are hard choices, but the government has to face them and decide. To date, the status quo has been to make cuts in spending, increase taxes, and raise borrowing to cover public sector pension costs.

We urge the government to reform public sector pensions now.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We will begin members' questions with Mr. Masse, please, for five minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

I thank my colleague; I owe him a Windsor-made beverage later on.

I'd like to start off by recognizing Ms. Williams. The work you've done on transit here is remarkable. I can get into a Transit Windsor bus and take it over to the Tigers game, to the playoffs. I think it's the only place in North America where we have that, where we actually have a bus system going into a foreign country. So congratulations on those efforts.

I'd like you to talk a little bit about the investments that took place most recently. One thing that doesn't get talked about a lot, but that I think is really important, is that transit systems that are strong can prevent urban sprawl. We see what has happened in this region where, for example, some of the best farmland in North America--this was all under water, under a glacier, for many years--has been gobbled up for housing and other projects that probably didn't have to take place, or shouldn't have.

I'd just like you to highlight, if you can, what's taken place with your investments in modernization over the last number of years.

[Penny Williams]

Thank you, Mr. Masse.

Certainly it's been very critical for us to have the investment that we receive from both the provincial and the federal governments. We've been able to build a new $7.2 million transit terminal, and it is called the Windsor International Transit Terminal, because we do welcome guests from across the nation. Recently the average age of our fleet went from 14 years and it's now down to nine years. We actually are in the process of receiving 11 more buses. This will combine with 18 that we already have; they're all hybrid buses. So we're not only looking at doing the environment protection and reducing the age of our fleet. We do have very serious challenges facing us. We have one bus that we use every day. It's a 1979 vehicle. Those are the types of investments that we need to try to maintain and keep the age of the fleet down.

But land use planning, as you said, is really critical to transit and we need to have some strong policies with that as well. Land use planning with the density is very important to public transit, and those are some of the issues that we need to address.

[Brian Masse, NDP, Windsor West, ON]

I know that you're purchasers, not manufacturers, but perhaps you can shed some light on some of your purchasing that took place across Canada. Did that increase Canadian employment and jobs? Were some of those buses manufactured in Canada?

[Penny Williams]

Certainly all of the buses that we've received of late are manufactured in Canada. We do insist on a Canadian content. We have a 25% requirement provincially. Certainly for the manufacturing jobs I think the direct investment, as Michael quoted, was 50,000 jobs with 25,000 indirect jobs. So there's certainly a significant Canadian job investment here. That's something very significant.

[Brian Masse, NDP, Windsor West, ON]

Before I move on to Mr. Sinclair, I just want to note as well something on the U.S. hire restrictions with regard to the purchasing of Canadian-made buses. They have certainly greater restrictions, as they legislated that as part of the North America Free Trade Agreement as well as with ships. That restricts Canadian manufacturing from getting into the United States, and that barrier has significantly affected employment and competition.

[Penny Williams]

Certainly my understanding is that the Buy America provision is 60% and they are looking at some changes to that. They are looking at different scenarios on that right now. But the Buy America provision is 60%.

[Michael Roschlau]

I might just add to that, we do have a very strong Canadian-based public transit vehicle manufacturing industry in this country with the world's largest rail rolling stock manufacturer and three of the largest bus manufacturers in North America based here in Canada. You're quite right, Mr. Masse, with regard to the differences in national approaches to country of origin requirements. In the U.S., they're now talking about increasing that 60% U.S. content to 100%, and if that happens, it's a huge threat for the entire Canadian transit rolling stock manufacturing industry.

[The Chair, Conservative, James Rajotte]

Thirty seconds.

[Brian Masse, NDP, Windsor West, ON]

Mr. Sinclair, quickly, as a Laurier alumni, I would like to know what particular things Laurier or the K-W region is looking at in terms of skill sets that are missing that the chamber supports so strongly?

[Art Sinclair]

Obviously in the information technology sector--the firms in the community like RIM, OpenText, and some of the smaller firms--there are probably about 2,500 job openings right now. Again, we're talking with people with incredibly high skill sets, master's degree minimum, sometimes PhDs. These are people who you recruit on a global level. You're not looking at the Canadian market; you're looking at a global market to recruit a lot of the people who we have coming in to work in software development. So we have that.

There is another component that is just as important as well, and this is where the community colleges fit in. We're having all these people come in and work for the IT companies. That increases the demand for housing. Our construction industry, the local Waterloo region home builders' association, like most other home builders' associations across Canada right now, have a shortage of skilled construction trades. So we've identified that as being a key area for Conestoga College to increase their capacity, and they are.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Van Kesteren, please.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Chair.

Thank you all for appearing this morning. I want to welcome the Chamber of Commerce from Kitchener. From Sarnia Kitchener, of course, Harold Albrecht represents you as well as Peter Braid, our colleagues in Sarnia. There's Pat Davidson, a fine friend and colleague to us here. I should have mentioned the last meeting as well, that Jeff Watson would have loved to have been here. We're very happy to be here in Windsor. I send my greetings from our colleague Jeff Watson as well.

Very quickly, Mr. Sinclair, the recommendation was made by the Canadian Urban Transit Association for the one cent gas transfer to go to transfers. The Conservative government has made that gas tax, has increased it to two cents and has made it a permanent fixture, something you can rely on.

Do you agree with that, that one cent of that would go to transit?

[Art Sinclair]

Yes. I believe the Federation of Canadian Municipalities has been a supporter of that as well.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Understanding as well that you have two cents, so one cent of that would go to the transit....

[Michael Roschlau]

Five cents from excise tax goes to municipalities for local infrastructure, and we're recommending one more.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

So you're in agreement? That's good.

You also mentioned the projects that you saw with the post-secondary education, with KIP, with some of the federal granting systems, how important that is to your riding. Of course you're right, we don't normally invest in bricks and mortar, but with the 2008 crash in the markets and resulting job losses that we saw, the government saw fit to invest in those areas. Maybe if you could just quickly tell us some of the exciting projects that were made possible by that announcement.