Government Operations Committee on Oct. 7th, 2016

[The Chair, Conservative, Tom Lukiwski]

Ladies and gentlemen, we'll get going now. First, I'd like to welcome all of our panellists.

I have a couple of brief words of introduction to make before we start the proceedings. As I'm sure all of you gentlemen are aware, the minister responsible for Canada Post, the hon. Judy Foote, has initiated a very extensive consultation process on the future of Canada Post.

Phase one of that consultation process was to appoint a task force whose mandate was to examine the financial viability and sustainability of Canada Post. The task force has completed its work and submitted its report, and we have had an opportunity to speak with task force members.

Phase two of the consultation process is a cross-Canada tour during which we speak with individuals, organizations, and municipalities, both large and small, both rural and urban, both remote and on first nations to get an idea from individuals across Canada of their views regarding the future of Canada Post and, more importantly, to try to get their recommendations on the future of Canada Post. That's why we are here today.

The procedure we will follow in the meeting this morning is very simple. We're going to ask all of you to open with a very brief opening statement of no more than five minutes. If you care to look up the odd time during your presentation, when it gets to the four minute mark, I will give you a one-more-minute signal. We'll try to see if we can get you completed on time.

If you are not able to complete your five-minute statement, don't worry. Our experience has been that the question and answer period is when the information is transferred. I'm sure that all of the information that you wish to give to our committee members will be taken care of during the Qs & As.

With that brief introduction, we'll start. I have a list.

Monsieur Cusson, we have you first on the list, sir. You have five minutes. The floor is yours.

[Alexandre Cusson, Mayor, Drummondville City, Union of Quebec Municipalities]

Thank you very much, Mr. Chair.

Ladies and gentlemen members of the committee, on behalf of the Union des municipalités du Québec, I want to thank you for hearing us today.

We have filed our brief in both official languages. It seems long, but that is because we have attached the resolutions of our member municipalities.

In this consultation, the UMQ will, first, suggest measures to respect the fundamental jurisdiction of municipalities on issues of land use and urban planning. Second, the UMQ will propose diversification of Canada Post services to energize regional economies and in so doing promote land occupancy in those territories.

Under subsection 19(1) of the Canada Post Corporation Act, the corporation may, with the approval of the Governor in Council, make regulations for the efficient operation of its business.

No statutory prescription requires the CPC, in exercising its functions, to comply with municipal jurisdiction over matters of land use or urban planning. Nonetheless, in the opinion of the UMQ, the CPC has significant responsibilities towards residents as well as municipalities.

Land use is a fundamental component of the powers of municipalities. The Quebec Land Use Planning and Development Act is based on several key principles: that land use is a political responsibility, that powers over land use are shared among the various stakeholders, and that land use necessarily requires consultation over decisions and actions by those stakeholders.

In fact, because they are in charge of land use within their respective territories, municipalities have major responsibilities, including oversight for the protection and welfare of their residents. For example, through their development plans, municipalities influence the social cohesion and harmonious development within their territories by ensuring consistency between options for intervention on sectoral issues, by defining policies for intervention on site development and infrastructure, and by coordinating the policies and investments of municipal departments.

The municipal sector in Quebec is highly diversified. Every municipality or region has its own quite specific needs and challenges, and members of municipal governments are in the best position to act on these issues, since local officeholders know their areas and residents intimately.

We are concerned that bringing in a "one-size-fits-all" plan, without regard for local realities, and without consulting the municipal sector or the public, could well jeopardize any restructuring plan put forward by the CPC.

In order to establish constructive cooperation with municipalities, the UMQ desires and in-depth reform of the Canada Post Corporation Act. Its purpose would be to require the CPC by law, on one hand, to consult municipalities and residents as a matter of course, and, on the other, to respect the jurisdiction of municipalities over land use planning and development. In this way, in their planned restructuring, the CPC would have all the necessary means to generate a win/win relationship with a minimum of social, environmental, and economic impact.

These provisions, based on principles of transparency, commitment, and public interest, would target CPC undertakings that generate major impact for communities.

A similar requirement presently exists in subsection 43(3) of the Telecommunications Act, which stipulates that "No Canadian carrier or distribution undertaking shall construct a transmission line on, over, under or along a highway or other public place without the consent of the municipality or other public authority having jurisdiction over the highway or other public place."

The UMQ board of directors recently adopted a resolution to the effect that the Government of Canada should amend parts of the Radiocommunication Act respecting placement of telecommunications towers.

In fact, our recommendation is that the corporation be required by law to consult municipalities and residents respecting regulations prescribing the conditions under which items may be transmitted by post and providing for the closure of post offices and the termination of letter carrier routes, and that it also be required by law to comply with the jurisdiction of municipalities over land use planning. The idea is to reach formal agreements respecting conditions for the placement of equipment where it comes to governing the design, placement, and use of any prescribed receptacle or device. That is our main recommendation.

We also have another recommendation in which we request that Canada Post study the possibility of diversifying its services in view of the fact that it has more points of service than any other local service. That would help to maintain a strong regional economy.

I will close by simply saying that, for us, the postal service is an important and indispensable service for the entire population. By establishing a strong partnership with our communities, we will be able to preserve a connection with Canada Post and strengthen this proud tradition.

We hope that, by establishing a strong partnership, we can work together to preserve a relationship with Canada Post and continue to be proud of it.

Thank you very much.

[The Chair, Conservative, Tom Lukiwski]

Thank you.

Mr. Esch, you have the floor.

[Hervé Esch, Director General and Secretary-Treasurer, Municipalité de Ristigouche-sud-Est]

Good morning and thank you, Mr. Chair.

My name is Hervé Esch, and I am director general of the municipality of Ristigouche-Sud-Est. My testimony will focus more on observations of what I have seen in the field.

Ristigouche-Sud-Est is a small municipality of 165 inhabitants. As we have no post office, we rely on one that is located 15 kilometers away. There is another office situated seven kilometers away.

Canada Post is an essential public service for a small municipality such as ours. Our citizens are very much attached to it. I think it would be a good idea, as part of the reorganization of Canada Post, to expand the services offered by post offices that could become, for example, service points or relay points for Service Canada, which is the most widely represented service throughout Canada and across our territory.

The options under study include several that I think should be considered more closely. For example, there is the conversion of community mailboxes. The populations of remote villages are often aging populations, and we try to make their lives as comfortable as possible by enabling them to live at home as long as possible. Although there is an interest in community mailboxes, some people also need to retain home delivery service. All the points raised may be interesting ways to expand the potential range of post office services and help sustain operations and minimize costs.

In conclusion, I would say that Service Canada is an essential service that must be maintained.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. Thériault, you have the floor for five minutes.

[Louis Thériault, Vice-President, Public Policy, The Conference Board of Canada]

Thank you, Mr. Chair.

I want to thank you for inviting the Conference Board to appear before you today. I represent the institution as its vice-president for public policy.

The Conference Board is the largest independent research organization in Canada by number of employees and revenue. We are non-partisan, and we conduct fact-based analysis. We are largely known for our economic analyses.

I am here in connection with a study that the Conference Board prepared in 2013. I have examined that study once again in detail and a large part of what we did in 2013 is still relevant today. I also presented it to the task force earlier this year. The work the task force has done is, on the whole, consistent with what we did in 2013.

I will answer your questions in a few minutes, but I would simply like to say that the reason we undertook the study is that, after 16 years of budget surpluses, Canada Post felt it was under financial pressure and had to rectify the situation. The pressure is still there. Structural elements are in place, and there is a broader context. What is difficult with Canada Post, where the major questions and business models are starting to be shaken up by innovation, is to determine how to adapt and to assess the impact of the various measures possible. That would enable Canada Post to be profitable over the long term, while providing the services that Canadians expect.

Our job has been to put the various possible solutions into perspective. As part of the work done by the task force, particularly by Ernst & Young, an exercise similar to the one the Conference Board undertook in 2013 was conducted to measure the financial impact of community mailboxes, the conversion of Canada Post offices to franchises, and so on. We therefore have a series of six scenarios that involve, for example, the issue of salaries and alternate date mail delivery. In short, we are putting the potential impact of these various measures into perspective. It is an effort and an empirical and objective contribution to putting the potential of the various solutions that may be considered into perspective.

Progress and changes have been made in the past three years. I noticed that the dominant trends were already in place in the e-commerce field and in the decline in transactional mail. The Canada Post pension plan, which weighs quite heavily on the corporation's operations, is also adding pressure. These trends have accelerated in some areas, such as parcels, for example. That is the positive side of all this. In fact, there has been growth in that business sector, which has expanded more quickly than anticipated.

Internationally, we can observe trends and innovation, but we have not touched on them in our work. If there is still time and it is still possible, I would encourage the task force to explore avenues that are not necessarily those that we our observing and currently considering. There are all kinds of avenues in innovation.

The Conference Board is working on the issue of self-driving vehicles, for example. There is an ongoing debate in Canada on mail delivery using self-driving technologies on sidewalks, but these are things I have not heard talked about. There are also Canada Post's electronic services. In certain countries such as Finland, we are seeing many innovations in electronic services that are being combined with home mail delivery. These are options that I do not think have been discussed, and their potential should also be assessed.

I will stop there for the moment.

Thank you.

[The Chair, Conservative, Tom Lukiwski]

Mr. Anderson, go ahead for five minutes, please.

[John Anderson, Research Associate, National Office, Canadian Centre for Policy Alternatives]

Thank you.

I'm going to make my remarks in English, but I'm very willing to answer any questions in French.

I actually presented before the task force committee. I was very disappointed with the task force report on Canada Post, because I thought it concentrated too much on how to cut services and save money and not enough on how to expand services by Canada Post. The main role of Canada Post is to provide public services to Canadians, and that remains a valid one.

In other countries, they provide far more federal, provincial, and municipal services through the post office. My daughter who lives in the U.K. just got her passport through the post office in the U.K. and had her digital imprints taken at the post office. Other countries have broadband and mobile services, including the U.K., France, and Italy. The U.K. has broadband and land-line services. The most important one is postal banking and providing financial services. I don't think the report did justice to looking at that.

First, the report did not examine countries very similar to Canada, like the United Kingdom, France, Italy, Switzerland, all of which have postal banking. In all of those countries, postal banking is very profitable and provides a huge chunk of the revenues of the postal system in those countries. All of those countries have a concentrated banking system just like ours. Each one of those countries has several of the major banks, as I've outlined in my remarks, which you should get a copy of. Of the 50 largest banks, Canada has some, Switzerland has some, the U.K has some, etc., but they still have success of postal banking there.

The number of banks have shrunk dramatically. The report looked at the last five years, where it's gone up slightly, but if we look at it from now back to 1990, there has been a 20% drop in bank branches in Canada. We've lost a huge number of bank branches. It went down from 7,964 to 6,348 in 2015. For credit unions, it's even more disastrous with a decline of about 26% since 2002. There's been a major decline in the number of branches.

I did a study that looked at the availability of banks in communities that have a post office, and 45% of the rural communities in Canada, which have a post office, do not have a bank or a credit union branch. So when they say that the banks are doing a great job, no, the banks are retreating to the big cities, and the higher-end business. That's their job as for-profit institutions. There is a real possibility there for the post office to offer financial services.

I think the study done by the task force showed that 7% of all Canadians would open an account right away, and that 22% would probably open an account. This is a huge number. Even if just 7% of people opened an account in a postal bank, that would be a huge number of people. It would be one of the top banks in Canada, just like that, overnight. There is a big interest in it. Six hundred municipalities have supported postal banking, which is a lot, including Toronto and Victoria, big cities, as well as many smaller communities, including many in Quebec.

I'll come back to some of these points afterwards, but I would like to say that there is a real possibility for postal banking. I think it would be great if the task force looked at how to do that.

I just want to make one last point before I go to my conclusions, which is that there are only about 56 banks or credit unions on reserves out of 615 reserves, and we just updated that. There's a real possibility of offering postal banking on reserves.

I think it would be great if the post office interviewed people from France, the U.K., Switzerland, and Italy, by Skype to save money, on postal banking and other services. It would be great if the committee could get the study that Canada Post did, which recommended postal banking, but was never released. If you could get that released, that would also be tremendous.

I'll stop there.

[The Chair, Conservative, Tom Lukiwski]

Thank you so much.

Mr. Ayoub, you have the floor for seven minutes.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Thank you, Mr. Chair.

Mr. Cusson, thank you for being here with us today. I am always very happy to return to Quebec City, where I spent my early years.

Without further ado, I am going to use the seven minutes allotted to me to ask you some questions. I ask you to give me relatively short answers.

Mr. Cusson, you represent the Union des municipalités du Quebec. You are asking in particular that Quebec municipalities take part in the decision-making process on the introduction of and any changes to services that Canada Post may offer the population.

This new UMQ resolution comes in response to a decision that Canada Post made without consulting you. That is what I understand from having experienced the same thing. If you had been consulted, might the solutions and changes made have been appreciably the same, with some minor variations? The consultation might have helped explain the reasons for certain developments.

[Alexandre Cusson]

Yes, I believe the people from the municipalities have a clear understanding of their situations.

We are asking that our jurisdiction be respected. Consider, for example, the case in which Canada Post decides to install a multiple box in an area and chooses the location without consulting the city, as has previously happened.

The city may have concerns about traffic, the presence of a nearby school, and other factors of that kind. We know the dynamic of our neighbourhoods and cities, and we are convinced we can only improve the situation if we work together.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

I see that has not always been the case. There appear to have been some consultations. Canada Post tells us there have been consultations, but not consistently in all municipalities and with the various stakeholders.

[Alexandre Cusson]

We feel there have been no consultations.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

You feel there have been none at all.

[Alexandre Cusson]

Exactly.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

I see.

My next question is for Mr. Thériault.

You took part in a study in 2013. You were consulted last summer by the task force responsible for establishing the facts of the situation.

With respect to the figures we have heard about and, more particularly, the Ernst & Young study that UMQ disputes, what do you have to say about the accuracy of the figures cited?

[Louis Thériault]

Our first observation is that the challenge is enormous.

Changes are being made to the business model, which, as I mentioned earlier, promotes efficiency gains while maintaining service. Then it remains to be seen what service Canadians expect and how to adjust the business model to provide that service.

When we analyze the figures and the mathematical aspect, we see that something major absolutely has to be done. Canada Post's financial sustainability is in jeopardy. Consequently, some scenarios—

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

We have been shown figures from Canada Post for years, and, with few exceptions, there are few years when Canada Post has been profitable. How has Canada Post kept itself afloat considering its slim profits in recent years? It seems inevitable that it will have an operating loss of $700 million in 2026.

[Louis Thériault]

The 2013 year was the second year in which Canada Post incurred an operating loss. In the basic scenario that we had prepared at the time, including changes planned as part of the so-called postal transformation initiative implemented by Canada Post, the corporation posted a profit. I believe the basic scenario excluded the transformation initiative. To give you an idea of the order of magnitude of the figures, we had anticipated losses of $1.3 billion in 2020 without the initiative and $1 billion with it. The initiative helped save $300 million in losses. That is excluding the fact that the pension fund solvency deficit was set aside under a special agreement. That gives you an idea of the challenge and its order of magnitude. That was new. There was a trend, but as a result of the pressures and structural changes in the postal market, we were talking about big figures.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Did you compare collective agreements and social benefits in your study? We know that payroll is Canada Post's principal expense item. Did you compare the revenues and services of Canada Post's international counterparts? How does Canada Post compare with the postal services in other countries?

[Louis Thériault]

We did not make any comparisons of its cost structure with those of other postal services.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Should that be done?

[Louis Thériault]

In fact—

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

It might provide an idea of the critical mass and weight.

[Louis Thériault]

The challenge in that type of exercise is always to establish an order of magnitude since there are a lot of potential solutions. Here we have six scenarios, and none of them managed to fill the financial gap. We realize we have to take a broader view. There is a range of initiatives to consider.