Government Operations Committee on Nov. 7th, 2006

[David Moloney]

In this particular model, you would only vote for the $25 million. We have actually referred to that as a weakness of all these approaches, unless Parliament is willing to provide multi-year voting authority. The fact is that for this department, in year one, you are voting $25 million, and the department is now on a train to spend $75 million next year. But Parliament has not voted that. In principal, one could be left with $25 million of disbursement. If the $75 million doesn't follow through, that $25 million may not have as much disposal value. But that is how Parliament currently votes--year by year--and not all assets can be purchased in one year. You would vote the $25 million, then vote the $75 million.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Is that the same issue we currently have? If we're spending $25 million this year and $75 million next year, this year we only vote $25 million. So we have the same problem with our existing model. Is that correct?

[David Moloney]

This is an existing problem, and this particular initiative would not resolve that.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Okay. What about model 4?

[David Moloney]

In today's estimates, you see votes, and you see items that I believe are displayed with an (S), which means statutory. So for the information of Parliament, certain amounts will be spent by a department pursuant to statutory authority in this year. It's in the estimates. It's not actually in the appropriations bill, because Parliament has already given ongoing authority under very precise circumstances.

In model 4, Parliament would vote the $25 million in year one and the $75 million in year two. In year three, for information, it would see the $10 million, and then in years four through thirteen....

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

That would be as statutory?

[David Moloney]

It would be as statutory, meaning that it's for your information. There is a fiscal consequence. It's being shown to you, but you don't actually vote on it, which means, among other things, you can't actually make a decision in respect of that asset without changing the legislation somehow.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Currently we do have a statutory portion of our votes, which is the core expenditure of the department. Is it currently considered statutory?

[David Moloney]

The Comptroller General spoke of $224 billion as being the government spending, with $132 billion of that amount statutory, major statutory in debt service and transfers to persons and provinces, and then so-called minor statutory for another $11 billion. So in fact Parliament votes for only around $80 billion of the $224 billion in spending.

[Omar Alghabra, Liberal, Mississauga—Erindale, ON]

Would it be possible to consider, under model 4, the second quotient of the acquisition if Parliament had made a commitment the year before, as in our example, for the $75 million? Could it be considered statutory since Parliament had already approved the overall project but was spending only $25 million in the first year and $75 million in the second year?

[David Moloney]

That I would consider not to mean so much in accrual appropriations but in multi-year appropriations, which is a direction that certain governments have gone--not many--and it's certainly one in which issues of accountability and parliamentary control are raised quite a bit further.

[Charles-Antoine St-Jean]

I think we would all agree that would be helpful. There's no question about it.

[David Moloney]

Madame Fraser, do you have any comment on that?

[Sheila Fraser]

I would just agree with the Comptroller General that I think that multi-year appropriations are an issue that should be looked at. I think when you get into it, many projects span over more than one fiscal year. It's hard to imagine that you're going to start to build a building and halfway through it you're going to say that you're not going to complete it.

I think it would certainly help managers as well in managing and knowing they can continue on and not have to go back through the process. Does the committee want to expand its scope of work a bit?

[The Chair, Liberal, Diane Marleau]

You're setting up an asset. You say you're going to buy or build a building for $100 million. When you make that decision, would there be a way for us, when we're voting, to be voting on the $25 million but to have a statement saying this is the contract that has been signed, and this is the projected cost, and that we're asking you for $25 million this year? Then you would know that the next year you would have to go with the $75 million without calling it statutory.

Is there some way that can be done? I don't know how Ontario does it.

[Sheila Fraser]

I'm sure there's a way to do it. I would think that government officials are probably.... But if you look at the example even that's given of the environmental liability, essentially there's a recognition of a liability that's only going to be paid several years out. It's analogous. It's always a liability rather than an asset, but there's an economic decision being made. How the cash then flows can be quite different from the actual timing of that decision. The parliamentary votes, of course, are now all based on cash, but I think you can miss some of these large decisions that are being made if you're only focusing on the cash. So in the case of the environmental liability, if there's a commitment made to fund a project or something in two or three years from now, the commitment has been signed, but the cash may not flow immediately.

[The Chair, Liberal, Diane Marleau]

It's the same thing for assets.

[Sheila Fraser]

Parliament, at a minimum, should certainly be made aware of that. I think there must be a way to resolve that.

[The Chair, Liberal, Diane Marleau]

Thank you. We're going to go to Mr. Warkentin.

Mr. Moloney, did you want to add something?

[David Moloney]

Can I very briefly speak to that?

In principle we could bring forward capital plans for departments that would in essence do, I believe, what you're saying. The real point I wanted to make, though, was that of course the fiscal planners in government, through the budget, are very careful to not allow a department to be in a position, unless Parliament should choose so, for the $25 million to be incurred without the $75 million being there.

We of course only give multi-year approvals for such major purchases, and there is a question of bringing that level of approval to a department's ongoing capital plans within its own as we move to accrual. If we have the accrual information, we should be able to potentially look at bringing that forward, but we are not, in a major situation, likely to end up where you are in that problem because the budget took care of it.

However, if Parliament disagreed, then it would be in that position that we'd get stuck. In that situation we could be stuck with the $25 million spent, and a useless hole in the ground or whatever.

[The Chair, Liberal, Diane Marleau]

That's why I'm saying it should come ahead of it, so you're not stuck like that. We wouldn't want that.

Mr. Warkentin.

[Chris Warkentin, Conservative, Peace River, AB]

Thank you, Madam Chair.

Thank you to all of you witnesses for coming. It's nice to see so many of you returning. We like you too, so come back again sometime.

Certainly there are a number of questions with regard to standards, and so if you'll allow me, I want to ask some questions with regard to standards. With regard to model 3 and model 4, in model 3 it's a double voting system, a situation where the government would determine how fast something would be amortized, obviously within guidelines--generally accepted accounting principles--or the government could simply say, with historical references, that certain things last a certain length of time and then we'll amortize it over that many years.

The federal government has the luxury of looking at past data and assessing it that way. Now, could you make a recommendation? Would it be wiser for us to look at historical data to assess and set in place our amortization duration?

[Sheila Fraser]

Could I start and then the Comptroller General will add to it.

The government does set its own policies for amortization of assets. In most cases, when we're talking about computers or automobiles or desks, people will look at the average life of those assets. There can be particular assets that, depending on the situation, can last for a very long time. I'm thinking particularly about military assets. If you're training here at home or if you're involved in overseas activities, the amortization period could be very different.

For most assets, you will take into account the general usage and you can look back historically, but then in particular cases you will have to look at what those assets are going to be used for, and the amortization policy, even if you have one, may have to be modified, given the particular circumstances.

[Chris Warkentin, Conservative, Peace River, AB]

You probably draw attention to the problem with model 4 then, specifically with regard to military equipment. If we had the opportunity to vote, would you see any problem with accelerating the amortization if the asset had been depreciated significantly in that particular year? That would probably be the benefit of the double voting.

Is that right? Am I understanding correctly?

[Sheila Fraser]

With whatever model, there would have to be some ability to adjust, depending on the circumstances within the year.