Government Operations Committee on Feb. 14th, 2008

[Raymonde Folco, Liberal, Laval—Les Îles, QC]

It's for formal reasons rather than anything else.

[The Chair, Liberal, Diane Marleau]

All right?

Do you want me to read the motion or do you understand it? It just changes it from today to Thursday, the 28th.

(Motion agreed to)

I'm pleased that you were informed that that would take a little time, because certain things were going on. So I thank you for your patience.

We're now going to discuss the real estate plan of the Government of Canada.

We have two guests. We have Madame Demers, from the Professional Institute of the Public Service of Canada, and Mr. Burns.

You know the format. Give us a brief statement, and then we'll open it to questions.

[Michèle Demers, President, , Professional Institute of the Public Service of Canada]

Madam Chair, committee members, I would like to thank you for allowing us to appear today.

I would like to more formally introduce Mr. Don Burns, who is the vice-president of the Professional Institute and also a professional engineer who worked for the Department of Public Works and Government Services Canada for many years in the real property branch.

We, of the Professional Institute of the Public Service of Canada, believe that the case for selling off 40 federal buildings to the private sector and renting them back on 25-year leases is a bad idea. The level of secrecy involved, the flimsy evidence upon which the claim was made that it will benefit Canadians, the absence of any need for the sale, and the threat to Canada's cultural heritage make this an exceedingly bad plan for Canadians.

Incredible but true, in 2007, just 14 weeks were needed for nine federal buildings to be listed for sale, bid on, sold, and the $1.4 billion sale reviewed. The government has repeatedly refused requests to release the criteria for the bidding process and the study recommending the sale of the buildings.

This committee's own request for the pertinent details was refused, leading to the committee's call for a moratorium on the government’s sale/leaseback plan.

The government has repeatedly made a great deal of its commitment to transparency and accountability enshrined in the Federal Accountability Act. The government should now demonstrate this commitment by releasing the financial details of Phase 1 of the Real Estate Plan and the Deutsche Bank report recommending the sale of the buildings.

In the absence of solid evidence to the contrary, there are simply no grounds to believe that Canadian taxpayers will benefit from the sell-off. As The Globe and Mail reported last year, Department of Finance and Privacy Council Office analysts warned that the sale could wind up costing taxpayers up to $600 million over 25 years, and recommended that a full risk analysis be done before the government proceeded with the sale. The maximum potential benefits from the sale are $250 million, or less than half the potential costs—and these costs are likely to grow.

Cost control, quality, oversight, and accountability problems arising from privatization of public assets are well known in the public administration literature. A case in point is L'Esplanade Laurier, home of the Treasury Board and the Department of Finance. Soon after the private acquisition of this building, complaints arose over the upgrading of fire alarms, the quality of drinking water supplied to the building, and the timely repair and renovation of the building's exterior. Taxpayers ended up footing the bill for these repairs and upgrades, and taxpayers will undoubtedly be expected to pick up the tab for cost overruns of operations in privatized federal buildings.

Countries like Britain, Australia, and New Zealand have been at the forefront of this type of government reorganization. What underlies the idea of leasebacks is a rethinking of what a federal government's responsibility is to its citizens, moving from the role of upholding values and enhancing public good to one that is solely financial, that is, determining how money is spent.

The Australian and New Zealand experiences have been offered as examples of success in projects of this kind. There it was determined that the selling off of government holdings was more cost-effective than upgrading the buildings and assets. While economic savings was in fact the impetus for the reforms, the results have not been substantiated. Liquidating the buildings had some short-lived financial results, but no long-term benefits materialized. In fact, in the year 2000, the Australian National Audit Office concluded that the sale and leaseback agreements heavily favoured the new owners. They found that rent was set above market rates, that the sale price failed to take into account the tax benefits for the buyers, and that in some cases rent would well exceed the sale price in as little as eight years.

There's no evidence of a compelling need to sell off government buildings. The rush to sell off government buildings might be understandable if the government were facing a fiscal crisis, but this is not the case. Canada has now posted a budget surplus for 10 straight years, the only country in the G7 to do so. Canada's total government net debt burden is the lowest in the G7. The federal government's stellar credit rating allows it to borrow money more cheaply than the private sector, making it more cost-efficient to hold onto its properties and to pay for building maintenance and upkeep.

Again, we see absolutely no justification for the government's decision to sell off 40 public buildings. According to a 2003 Statistics Canada study, Public Infrastructure in Canada: Where Do We Stand?, Canada's $157 billion in publicly owned infrastructure has a tangible impact on the productivity and the economic performance of the business sector. The study goes on to report that public infrastructure lowers the cost of producing a given level of output in virtually every Canadian industry within the business sector. Each dollar invested in public infrastructure between 1961 and 2000 generated an average of 17% in cost savings each year for the private sector. The study found that the public sector was integral in helping the private sector gain wealth. This raises questions over what will be the long-term economic consequences if the government continues to privatize Canadian public assets.

The buildings potentially on the auction block include such special-purpose structures as the National Film Board building in Montreal, the Library and Archives building in Ottawa, and the Film Preservation Centre in Gatineau.

Safeguarding Canada’s cultural heritage is too important a duty to be left to private developers. Larco Investments Ltd., the company which acquired the federal buildings sold in 2007, intends to tear down Vancouver’s magnificent Graham House, designed by Arthur Erickson and a work of singular architectural importance.

The rush to offload special-purpose government buildings to private developers with no accountability to the Canadian public puts Canada’s cultural heritage at risk and is shortsighted in the extreme.

In sum, the Professional Institute of the Public Service of Canada believes the decision to sell government buildings is motivated by ideology rather than clear evidence of a compelling benefit to Canadians. We call on the government to abandon its attempt to sell off a further 31 federal properties. The Institute also calls on the government to immediately release the financial details surrounding Phase 1 of the Real Estate Plan to the Office of the Auditor General and to the Canadian public.

[The Chair, Liberal, Diane Marleau]

Thank you.

Before I go to questions, I want to make sure the committee knows we have another guest. We're sharing the time between this group and the Heritage Canada Foundation. So perhaps we can keep that in mind as we go with the questions to the witnesses, and keep some time.

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

Are we going to do five-minute rounds of questions?

[The Chair, Liberal, Diane Marleau]

Maybe we'll do five-minute rounds of questions. I'd like us to be able to get to the other guests as well.

Mr. Holland.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Thank you very much.

Thank you for appearing today.

We're going to talk more about heritage in a little bit. I just wonder, first, if you could give your understanding as to whether any public consultations took place with respect to the potential sale of heritage buildings in either phase one or phase two. Were you aware of any public meetings?

[Michèle Demers]

Not to my understanding. I haven't heard of any such consultations.

[Mark Holland, Liberal, Ajax—Pickering, ON]

One of the things that obviously we have a concern with—and we certainly saw it at the end of the last Conservative government in Ontario—is the disposition of a lot of assets, including Highway 407 and others. It was actually the disposition of those assets that has sort of tried to make the books look good in the short term, although it was really hiding a structural deficit that was underneath those selloffs of assets.

Maybe you'd like to talk a little bit more about that and about your feelings that this really does represent a bad deal for the government in the long term, although it may help to make the books look pretty in the short term.

[Michèle Demers]

I'm going to share this podium with my colleague here, but with the fact that all of this has been done so much behind closed doors in a mode of secrecy and the fact that there's a lot of evidence of crumbling infrastructure in the country, whether it's government buildings, or roads, or overpasses, the fact that private industry, in cases very close to us, have demonstrated a lack of commitment to upkeep of the federal buildings is of grave concern to us.

I don't know, Don, if you want to add anything to that.

[Don Burns, Vice-President, Professional Institute of the Public Service of Canada]

It's very difficult for us to understand the whole philosophy behind the sale. We've tried on numerous occasions to get some of the background and to try to understand the business case for doing this. It wasn't obvious to us on the surface, and we've had professionals look at this proposal. They couldn't see anything other than an ideology behind it, but it seemed that the supporting information was taking the ideology and working backwards from that to try to justify the end.

Without some background from the government, we haven't been able to see why it makes sense. It certainly doesn't appear that way to us.

[Mark Holland, Liberal, Ajax—Pickering, ON]

I think I can infer this from your comments, but I'll ask it anyway just so that we're clear. You weren't consulted as this process moved along or your opinions asked, nor were you invited to a meeting to comment.

[Michèle Demers]

No, not at all.

[Don Burns]

Just the contrary, we've tried on numerous occasions to obtain information around the sale.

[Don Burns]

We've been trying to knock down doors.

[Don Burns]

We've been stonewalled from day one with ATIP requests, a request to the Department of Public Works and Government Services Canada, and we've received very little information to date.

[Mark Holland, Liberal, Ajax—Pickering, ON]

That's current? You're still not being invited to comment on the potential of continuing forward with phase two?

[Don Burns]

That's correct.

[The Chair, Liberal, Diane Marleau]

Thank you, Mr. Holland.

I'll go to Madame Bourgeois.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

Good morning, madam, sir. I really want to understand whom you represent. I imagine you represent professionals who, among other things, have to make buildings meet maintenance standards.

[Michèle Demers]

In fact, we represent 55,000 professionals in the federal public service and, more particularly, hundreds of engineers and architects who work for the Department of Public Works and Government Services to management renovation and construction projects on behalf of PWGSC across the country.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

I imagine those engineers and architects tell you exactly how things work on the inside with regard to management, building sanitation and so on. Have they previously talked to you, for example, about inadequate budgets allocated for the rebuilding or maintenance of buildings?

[Michèle Demers]

Absolutely, and the situation today is obviously the result of what happened when the country was in deficit. There wasn't any money to put into maintaining government buildings, and they've deteriorated to the point of complete decrepitude. Today, the government's financial position is quite comfortable, but instead of investing money to fix up those buildings, it seems to be indicating that it wants to get rid of them, that it's going to make money in the short term and that it will lease them. Everything's being done without any case analysis indicating that it's a good deal for Canadian citizens and taxpayers.

[Diane Bourgeois, Bloc, Terrebonne—Blainville, QC]

You say there was a significant reduction in budgets during the so-called financially difficult period. Would you say that was spread over about 10 years, from 1990 to 2000?

[Michèle Demers]

Roughly that, yes.