Government Operations Committee on Feb. 5th, 2009

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Ms. Bourgeois spoke at length about the Laniel Dam, where we will be proceeding with reconstruction work in the order of $6.9 million. You said that the dam might be transferred to the Province of Quebec. Will that transfer be made in the near future? Will it be transferred after the repairs? Will we be delivering a dam in good condition? Can you give us more details on this matter?

[John McBain]

Yes. There are three dams involved in this transfer--the Kipawa, the Des Quinze, and the Laniel dams. The Kipawa and Des Quinze are in a condition and state that the province has accepted. Once the work is complete, which is scheduled for December 2009, the transfer to the province will be able to be completed. This will transfer the dams in terms of property, and the custodianship will be that of the province, but it also includes a certain amount of funds to be transferred to the province for the continued operation of the dams.

[Jacques Gourde, Conservative, Lotbinière—Chutes-de-la-Chaudière, QC]

Thank you, Mr. Chairman.

[The Chair, Liberal, Derek Lee]

Thank you, colleagues. We're completing our rounds well within the limit.

Mr. Martin.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you, Mr. Chair.

Thanks to the witnesses for being here.

I'm especially grateful to the ADM for real property for being here. We've been trying for a number of years to find out more details about the business case--the reason and logic behind selling off our assets and then leasing them back for 25 years. No one will ever table a business case that says this is a good idea. Now you're coming to us asking for $111 million, partly so you can pay rent for buildings that you've just sold.

I asked the Auditor General to investigate this most recent deal, where you sold off buildings that you'd just spent tens of millions of dollars renovating at what could be fire sale prices--nobody will tell us what they got. There's the Harry Hays building, the Joseph Sheppard Building in Toronto, the Thomas D'Arcy McGee Building here, and the Skyline complex here. You didn't divest yourselves of those buildings because they were surplus or because you didn't need them any more; you leased them back from this developer with a 25-year lease. We don't know if that was a good deal or not, or if it was just some neo-conservative ideology that you were directed to do. I'm glad to have you here so we can finally ask some questions.

What was the logic behind selling off our public assets, part of our heritage, our collectively owned property, to balance the budget? How much of this will be going to pay rent in all those buildings you just sold?

Second, the finance minister has booked $2 billion worth of asset sales that he hasn't even sold yet, in part of this budget. What else is on the chopping block? What else are you going to sell of our publicly owned buildings, in keeping with this policy trend of sell it all and lease it back, no matter if you have to come back to committees like this and beg for more money to keep paying more and more rent?

Some of us think this is the biggest corporate giveaway since the drug patent laws were extended. The private sector is just wringing their hands waiting to get their hands on these properties. You're not selling off the dogs; you're selling off the crown jewels half the time. These are buildings you just put tens of millions of dollars into renovating, and now you're selling them in the worst possible climate for commercial real estate in recent history, and leasing them back at sweetheart deals. Where is the business case, and where is the reason and logic behind that policy?

[John McBain]

I would like to emphasize to the committee that sale-leaseback is but one tool we use in managing an extensive portfolio of accommodations.

[Pat Martin, NDP, Winnipeg Centre, MB]

It seems to be getting more and more frequent.

[John McBain]

Since we sold those seven assets we've also bought others. We look at the business case to meet our particular need for accommodations. We own and are required to accommodate the Government of Canada from coast to coast to coast. Those market conditions vary--like the situation in Moncton compared to Edmonton and Toronto.

[Pat Martin, NDP, Winnipeg Centre, MB]

But the minister put 40 buildings up on the chopping block and sold only nine of the good ones, right?

[John McBain]

There were seven.

[Pat Martin, NDP, Winnipeg Centre, MB]

They were seven of the good ones, but nobody wanted the dogs so we're stuck with them. They wanted the good ones.

[The Chair, Liberal, Derek Lee]

Mr. Martin, try to allow the witness to complete the answer.

[Pat Martin, NDP, Winnipeg Centre, MB]

I don't think Larco developments would have bought those buildings if it hadn't been profitable to buy them, pay all the operating costs, and lease them back to the government. That means we're paying rent we never used to pay before, for buildings we used to own, at a rate higher than the cost of operating them. Otherwise there'd be no profit margin. They're not doing this out of generosity.

[John McBain]

Obviously there need to be benefits to both parties for the business case to be solid.

[Pat Martin, NDP, Winnipeg Centre, MB]

What's our benefit?

[John McBain]

With those seven buildings, we know that the federal government will require a presence in those locations for the long term, which is why we entered into a 25-year deal.

[Pat Martin, NDP, Winnipeg Centre, MB]

But why did you sell them?

[John McBain]

We are also looking at a continued augmentation in operating costs and recapitalization of those buildings over the long term. On the intent, the approach, and the success of the sale-lease factors, we have transferred--

[Pat Martin, NDP, Winnipeg Centre, MB]

You don't have to recapitalize something you own, sir.

[The Chair, Liberal, Derek Lee]

Mr. Martin, please, I have to ask you again.

[Pat Martin, NDP, Winnipeg Centre, MB]

I have seven minutes only for an issue that we've been waiting on for a long time.

[The Chair, Liberal, Derek Lee]

I know that. Your first question took two and a half minutes. If the witness doesn't want to continue the answer, that's okay, but when a member cuts off a witness in mid-sentence, the witness sometimes doesn't get a chance to complete it. So I'm asking you to allow the witness to complete some of these answers before you continue. I'm happy to give you extra time in an appropriate way.

[John McBain]

Thank you, Mr. Chair. I'll cut my answer short to answer that as effectively as I can in the short period.

The concept is that we transfer the risk, because there is recapitalization required. You are required to replace roof, mechanical, electrical systems in the life of a building. We transfer that obligation to the private sector. What the crown gets in return is cost certainty over 25 years and efficiency in the delivery of those projects by the private sector.

Would we do it for our entire portfolio? No. Were the conditions right at that particular point in time when the sale was conducted? Yes, they were. Are they now? We could debate that. We would want to test the market. But we will continue to employ a range of solutions to meet our needs, which will include crown-owned, lease, and such options and vehicles as sale-leaseback.

[Pat Martin, NDP, Winnipeg Centre, MB]

Thank you.

What buildings are next? What buildings do you think will make up this $2 billion that the Minister of Finance thinks he's going to harvest out of your property portfolio?

[John McBain]

We haven't had discussions per se. We don't have a next tranche planned, for example, along the lines of sale-leaseback. We will dispose of surplus properties when they are no longer required for our program needs, in accordance with the directions and policy of government in terms of disposal of assets. We will always seek to get fair market value for those properties.