Government Operations Committee on Feb. 5th, 2009

[The Chair, Liberal, Derek Lee]

Order, please.

I call the meeting to order. I see a quorum.

Colleagues, we're here in our first full meeting as a committee. I thank members for allowing us to proceed as quickly as we have following the organization of the committee.

We're pleased to have as witnesses today individuals from Public Works and Government Services Canada. The subject matter is the supplementary estimates (B), which have been presented to the House again. These estimates were and are for the fiscal year 2008-09. I believe they were presented to the House in the previous Parliament, and we have to deal with them as expeditiously and as carefully as we can.

Having said that, I'll just acknowledge the two witnesses.

We have Mr. Mike Hawkes, chief financial officer, Finance Branch, at Public Works, and Mr. John McBain, associate assistant deputy minister, Real Property Branch.

I would invite the witnesses, if they wish, to make a brief reference or presentation to the subject matter of the supplementary estimates in question here today.

Go ahead, Mr. Hawkes.

[Mike Hawkes, Chief Financial Officer, Finance Branch, Department of Public Works and Government Services]

Thank you, Mr. Chair.

Members of the committee, good morning. Bonjour.

My name is Mike Hawkes. I'm the chief financial officer at Public Works and Government Services Canada. I'm pleased to be here today with my colleague, John McBain, the associate assistant deputy minister of Real Property Branch, as part of your review of the supplementary estimates (B) that were tabled in the House on January 29, 2009.

This year's supplementary estimates request additional funds of $111,794,000 for PWGSC. These are based on items previously approved by the Treasury Board. They include a planned increase of $95.2 million in our operating vote and a planned increase of $16.6 million in our capital vote.

As committee members may know, PWGSC accommodates more than 240,000 federal public servants across Canada, and a large part of our estimates request is related to the real property portion of our organization.

The largest portion of the funds requested, approximately $64 million, addresses an increased volume of office accommodation and inflationary pressures on non-discretionary expenditures for the real property program. The increased volume in this part of the request refers to changes in the office space inventory to accommodate the current population of federal public servants. This would include increased rental rates for leases being renewed, additional fit-up costs, and swing space, which is space temporarily required while current space is being renovated. The inflationary pressure on non-discretionary expenses would include building maintenance cost increases, utility price increases, and municipal property taxes, or their equivalent, increases.

Another approximately $30 million is needed to address the additional cost of office accommodation required for additional staff planned to be hired by government departments and agencies. As well, $3.3 million is required in our operating vote and $9.9 million in our capital vote to manage and rehabilitate aging surplus engineering assets across the country. And $6.9 million is requested for the reconstruction of the Laniel dam in the Témiscamingue region of Quebec.

There are additional smaller adjustments to the appropriations that account for the differences, but these are of a more technical nature, and I'd be pleased to provide additional details about those if you wish.

Mr. Chair, these are the major operating capital expenditures for which PWGSC is requesting additional funds. We'd be happy to answer your questions.

Thank you.

[The Chair, Liberal, Derek Lee]

Thank you very much.

I'll look to the Liberal Party, and Mr. McTeague, for an opening round of seven minutes.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. Hawkes, thank you for this. I think we all appreciate the economy prior to, certainly, the past summer.

Part of the illustration of increased requests you've made here has to do with, among other things, utility costs. I'm wondering if, in your projections for the need for greater.... Perhaps this is not necessarily specific to what has happened and what your request will be, but given the changed nature of the economy and the nature of your contracts for the rental agreements you've acquired, can you give an average estimate of how long those new leases will be? And will we see a decrease, obviously, with the changing economic climate?

[Mike Hawkes]

I'll ask my colleague, John McBain, to address that for you.

Thank you.

[John McBain, Associate Assistant Deputy Minister, Real Property Branch, Department of Public Works and Government Services]

Thank you for the question.

We have in excess of 2,000 leases in place from coast to coast, for a variety of reasons, obviously, and they all have different expiring times. So we're renewing those over different periods of time. We are targeting longer lease periods to drive a better rate, and as a result, we tend to see better costs for our accommodation in that area.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. McBain, I'm just wondering, if you were looking for longer-term leases, whether you could give us an illustration of the percentage of the 2,000 leases you have that you may have had to renew this year that would have occasioned this rather large increase.

[John McBain]

I can't provide you with a specific number, but I'd be willing to come back to the committee with the actual numbers of the renewals this specific year. We have leases in place that range from five to eight to twenty-five years, so there is quite a range, and there is a series of them rolling over every year.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Given the increase you are seeking, were these anticipated? Is this something that you could have foreseen and that you have taken into consideration for future contract lease negotiations?

[John McBain]

In terms of the requirements for our accommodation and our portfolio, we conduct an annual event with our colleagues at Treasury Board to look at the increases that come through. It's built into the lease agreements we have as are our own operating costs for the crown-owned buildings.

[Mike Hawkes]

Mr. Chair, the inflationary pressure increases that we are seeking in supplementary estimates are in fact related to fiscal year 2007-08. In the past we were required to justify all of those increases negotiated with Treasury Board. We had to determine an affordable amount for the increases to be funded and then seek it, so it was in fact related to lease increases that had already taken place.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I'll credit this one to our fine researchers here.

The estimates provide funding for the “estimated costs of office accommodation requirements provided to government departments and agencies”.

Given that funding is being requested under the supplementary estimates for this term, is it reasonable to assume that the increases to office accommodation requirements are unexpected again?

[Mike Hawkes]

They are expected. They are planned and, as I said, in terms of our inflationary increases, they are based upon the expenses that we incurred in the previous years and on what we expect the impact will be in many years in the future. So they are reflecting true and actual costs.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I have a question on real property and assets. Do you envision a decline in the value of the real assets that you own, which you use? Is there any question as to how they will be disposed of over the next couple of months? Are you in consultation regarding the amount of revenue you could anticipate generating through these sales?

[John McBain]

In terms of the crown-owned portfolio, we are regularly looking at our options in terms of acquisitions and disposals. We don't have specific plans for disposals other than for assets that are no longer pertinent to our requirement. For the short term there is no change in how we look at our portfolio. We retain assets to meet program needs.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Public Works has a number of holdings across Canada, some in part of my former riding, including the former or future Pickering airport. I appreciate there was a time when there was a suggestion that in order to meet a certain particular financial goal one would sell surplus lands.

I'm wondering if there has been an audit or at least some accounting for the real value of your entire volume of property ownership and whether there has been any discussion or anything put forward as to a valuation, given current economic circumstances, and if you could provide the committee with that information.

[The Chair, Liberal, Derek Lee]

I would just like to intervene to say that the subject matter of the meeting today is the supplementary estimates and that the witnesses have appeared on quite short notice. So, colleagues, we should not expect that the witnesses would have automatic answers to questions asked outside the frame of reference today. If the witnesses do have a response that suits, that is fine, and if a subsequent answer to the question could be provided, that would be appreciated.

I'll let the member continue with his questioning.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you, Chair. That's why I put the proviso at the end. I appreciate that.

[John McBain]

We haven't, to my knowledge, conducted a recent audit of our entire portfolio per se. We do look at the valuation of the portfolio on a regular basis, and we look at our holdings in terms of our specific needs and the decision points--the analysis on the options of whether we continue to retain, invest, dispose or seek an alternate way of looking at how we will manage that portfolio.

I would be pleased to provide the committee with information we have in that regard.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Thank you, Chair.

[The Chair, Liberal, Derek Lee]

Thank you.

We'll go to Madame Bourgeois.

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

Thank you, Mr. Chairman.

Good morning, gentlemen. It's a pleasure to have you here this morning. I'm going to try to stick to Mr. Hawkes' introduction.

Mr. Hawkes, I see you focus on the real property issue in your preamble. My impression is that this is what takes up the most funding in these supplementary estimates.

Mr. McBain, you said earlier that more than 2,000 leases were expiring and that you needed additional funding. However, I thought that, when the federal government leased a property, it established special agreements on the amount of rent it had to pay. I thought it could get special privileges or special favours since, at the federal level, the agreements are for the very long term.

[John McBain]

Mr. Chair, in a point of correction, if I may, we have 2,000 leases in place, all expiring at different periods, so they're not all coming up. They will over time. As I said, some might run 25 years.

In terms of the lease agreements themselves, we pay a fixed amount for the rent, which is stipulated in the lease. There are other aspects of the lease that are conveyed to us as a pass-through cost in terms of utilities, electrical, and what we pay in municipal taxes. As those increase or change over time, we seek to have those funds conveyed to us through estimates such as these.

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

Pardon me, but the municipal tax can't triple or quadruple. Can the agreement you reached concerning the cost of a lease vary so much that it would be impossible to predict the amounts that would be necessary in five or 10 years, for example?

[John McBain]

In terms of the cost for the space itself, we can predict, because that's specified in the terms of the lease, but there are additional costs associated with occupying the space that do increase. We are forced to adjust and react to them. When you multiply that by the number of places we have, it does come up to a large amount.