Procedure and House Affairs Committee on June 7th, 2007

[The Chair, Conservative, Gary Goodyear]

Colleagues, let's start our meeting this morning. I want to advise members right off the bat that the meeting will be held in public.

As well, I want to advise that you have received this morning the information from the Chief Electoral Officer and Elections Canada. That was circulated this morning. Hopefully, you've had an opportunity to read that. A second copy is being circulated to members right now, just in case that might drum up some questions for our witness this morning.

Colleagues, the order of business today will be to pose any questions we may have regarding Bill C-54 to our witness today, who I'll introduce in just a moment. At the conclusion of these questions, and I'm certainly hoping we will have time, we have two other pieces of business.

The first one, following the witness, will be dealing with the subcommittee's report on the conflict of interest code.

On the second one Monsieur Guimond has just approached me and we will give him some time at the end of that, following that, if in fact we still need the time. I will offer that to Monsieur Guimond.

Colleagues, pursuant to the orders of reference of Monday, May 28, the committee will now resume its consideration of Bill C-54, An Act to amend the Canada Elections Act (accountability with respect to loans) 2007.

I want to advise the members that we did in fact contact all the witnesses that the steering committee, and ultimately the committee itself, agreed to, and as the committee agreed, those witnesses who could appear would appear here on Thursday. Those witnesses who could not appear would be requested to submit something in writing, so that we could review that for our Tuesday meeting, and then we would start clause-by-clause on Tuesday.

I have to tell members that Equal Voice was in fact e-mailed. We do have acknowledgment that the e-mail was received. However, we have had no response whatsoever from Equal Voice.

The Supreme Court judge we were trying to reach was not reachable, and the other gentleman is simply not available.

Elections Ontario has accepted our offer to appear here and has sent to us this morning a witness whom we can question.

As to the other witnesses who have responded or we've been in touch with, again, I just want to repeat that they've been asked to submit so that we can get their opinions on this issue.

Without further delay, colleagues, let me introduce Mike Stockfish. He's the director of election finances for Elections Ontario.

Madam Redman, please.

[Karen Redman, Liberal, Kitchener Centre, ON]

Sorry to interrupt, but I have had correspondence with the National Women's Liberal Commission, and my understanding is that they too will be submitting a report. If you are not in receipt of it yet, it's coming.

[The Chair, Conservative, Gary Goodyear]

Excellent. Thank you very much, Madam Redman.

Again, just let me introduce and thank Mr. Stockfish for coming this morning.

We certainly appreciate your being able to be here this morning. Perhaps I could offer you the floor for a few minutes, if you'd like to introduce yourself and then make an opening statement, and then we'll go to our rounds of questions.

Mr. Stockfish, please.

[Mike Stockfish, Director, Election Finances, Elections Ontario]

Thank you, Mr. Chair.

Thanks to the committee for the opportunity to appear before you today.

My name is Mike Stockfish. I'm the director of election finances at Elections Ontario.

I understand that I have approximately five minutes to give you a bit of an overview of the current requirements under Ontario's Election Finances Act as they relate to loans.

Loans and guarantees are regulated by sections 35 and 36 of the Election Finances Act of Ontario. The chief electoral officer of Ontario also provides guidelines to help our stakeholders interpret the legislation; G36 is the one that's specific to loans and guarantees.

I'll provide you with a very brief overview of the rules and regulations within the Ontario system overall.

First, I thought I'd take a couple of minutes to talk about borrowing. A registered political party, a constituency association, candidates, and leadership contestants can borrow money from one of the following groups: a chartered bank or other recognized lending institution, a registered party, or a registered constituency association. Those are the three that those groups can borrow moneys from.

Loans from eligible sources made at a market interest rate and for which payment has not been waived are not contributions; they're loans. However, if the interest rate the lender charges is below the market rate, the difference between that actual interest rate that's charged and the market rate does become a contribution and is subject to the contribution limits.

In addition to actual loans, any delay in paying suppliers or other liabilities could be considered a loan outside the intent of the Election Finances Act. Other payables could turn into loans; for example, suppliers' accounts must be paid within the suppliers' normal credit terms. Also, the repayment of any prohibited contributions that would be required to be forfeited cannot be delayed and ultimately become a loan.

That's the overview of borrowing.

In terms of guarantees and forgiveness, only a person, a corporation, or a trade union eligible to make a contribution under the Election Finances Act can guarantee a loan. In Ontario, those who are eligible to contribute moneys to those political entities would include those groups: individuals, trade unions, and corporations.

Any payment made by a guarantor for forgiveness by the lending institution of a loan—i.e., the guarantor or lending institution forgives or waives all or any part of the borrower's indebtedness—is considered to be a contribution for the purposes of the Election Finances Act and may be forgiven or waived only to the extent of the contribution limits. However, a payment by a guarantor for a guarantee is not a contribution unless the guarantor waives the right to recover the loan. In that instance, the loan becomes a contribution that is subject to contribution limits.

In terms of candidates, any existing campaign deficit, which would include unpaid loans left over at the end of the official candidate's campaign, becomes the responsibility of the constituency association; if it's there at the end of the campaign, by default it becomes the obligation of the association. Independent candidates are responsible for their own debts, but any surplus at the end of the campaign needs to be forfeited to the chief electoral officer of Ontario.

In the event that the borrower defaults on a loan and a guarantor has to make payment to the lending institution, the guarantor may choose to treat the payment as a contribution, subject to the limitations under the Election Finances Act, so in the case of default, the guarantor pays that. As a result, it is possible for the guarantor to forgive the indebtedness over several years. However, once this procedure has begun, it must continue without interruption until the debt is cleared, and that would be up to the contribution limits for that entity.

In the area of disclosure, the chief electoral officer has prescribed forms for reporting financial activity on an annual basis, a campaign basis, or a leadership contest period basis.

Contained in these forms are schedules that require full details of the name and address of the financial institution, the terms of the loan, including the amount borrowed, the name and address of each guarantor, and the amount guaranteed, and the amount outstanding at the end of the reporting period.

That's just a very quick, five-minute overview of the rules in Ontario. There clearly are a lot of other differences that you may want to delve into in terms of contribution limits.

I guess the one closing remark I'd make before taking questions is that there clearly is a distinct difference between the framework in Ontario and the federal one in terms of who's eligible to make contributions.

I think this looking at loans as a separate piece needs to be taken into context. It's part of the bigger framework; it's a piece of the puzzle. One needs to be careful about looking at it just as one separate piece, without taking into consideration the whole package.

I'm open for questions.

[The Chair, Conservative, Gary Goodyear]

Thank you very much, Mr. Stockfish.

Colleagues, I want to remind you that you have in front of you a preliminary financial analysis from the Chief Electoral Officer for Canada. That may initiate some questions as well for our witness today. I just provide that information for you. I'm sure you've come with your own questions regardless.

We will start our first round of questioning, colleagues. It will be seven minutes again, as per the usual format. Our first questioner is Mr. Owen, and then Madam Redman.

Mr. Owen.

[Stephen Owen, Liberal, Vancouver Quadra, BC]

A central concern that has been raised, certainly by the official opposition, is that this could limit access to the political process in leadership contests and nomination contests for people who are of limited means, compared with access for people with high personal means, because they would not be able, without a guarantor, to receive the consideration and loans from financial institutions that someone of means would have. The concern, of course, is that this could create a barrier to democratic participation.

First of all, could you let us know the contribution limits under the Ontario system and how they might compare to the current federal ones, which as you know permit no unions or corporations, but only individuals and only up to $1,100 a year, for various purposes.

I wonder whether, in your scheme—after you tell us about the difference in contribution levels—you have had the experience of there being a barrier to entry, at least a relative lesser access to participation, for people who didn't have the personal means to receive a loan from financial institutions without guarantors.

[Mike Stockfish]

In terms of contribution limits, I indicated in my comments who's eligible to make contributions: individuals, corporations, and trade unions based in Ontario. As to contribution limits, to a political party you can contribute up to $8,400 per year, and on top of that, if there's an election or an event during the year, there'd be an additional $8,400 that could be contributed.

I'll give this year as an example, where we have had by-elections in 2007 and we have a general election that's scheduled for 2007. You could contribute $8,400 to the party on an annual basis, for the by-election, and a third $8,400 through the general election. So it's $8,400 for parties.

For constituency associations, the contribution limit is $1,120, and it's the same for a candidate, $1,120. Any contributor can only contribute to a maximum of five constituency associations—so $5,600 in total—and similarly for candidates, up to a maximum of five candidates.

Those are the contribution limits in Ontario. Clearly, it's a different environment from that in place federally.

As to the experience we've had or what has come to our attention with respect to barriers to entry, it's not our experience, and I have no evidence indicating that there are systemic barriers in our system for candidates to run or for parties to be created. Obviously, all eligible contributions receive a tax credit receipt, so there's some opportunity for smaller parties and entities to raise funds, not necessarily through borrowing money, but in fact through the normal contribution process.

[Stephen Owen, Liberal, Vancouver Quadra, BC]

On the loans, though, do you have any evidence—maybe you have no experience with it—of financial institutions rejecting loans to individuals who don't have guarantors or significant resources themselves to pledge as collateral.

[Mike Stockfish]

Through feedback, we certainly have experienced that associations, and candidates in particular, have some challenges when it comes to dealing with financial institutions. Primarily they don't really know how to treat them and who they are. In terms of opening bank accounts and lending money, the practices of financial institutions are dictated in terms of what they need for collateral or guarantees to issue and grant those loans. I can't give you a direct answer.

By the nature of that banking relationship, I suspect there will potentially be some challenges to those who may not have the security, collateral, or the guarantors to support them. Again, there's no indication that this has been problematic on a regular basis. I suspect that—

[Stephen Owen, Liberal, Vancouver Quadra, BC]

But that is an inherent restriction in the financial services business.

[Mike Stockfish]

That's true. It's probably not a whole lot different from a small business trying to get money versus somebody who is well-heeled.

[The Chair, Conservative, Gary Goodyear]

There are two minutes left, if you'd like to go ahead.

Madam Redman, please.

[Karen Redman, Liberal, Kitchener Centre, ON]

I don't want to usurp anybody else's spot, but I know I have more questions than two minutes—

I'm wondering what the incidence of borrowing for nominations is in Ontario. If this has been in place for a while, notwithstanding the different thresholds of donations, has Elections Ontario tracked the incidence of the loans at all? I'm wondering if you've had any feedback from institutions as to what their criteria is and whether or not they grant the application for a loan.

[Mike Stockfish]

To answer the first question with respect to the nomination process, our legislation does not have us play a role in the nomination process, so there are no reporting requirements. There are no financial rules around the nomination process under the Election Finances Act of Ontario.

In terms of the incidence of loans, I apologize; I didn't have enough time to do a lot of research with respect to how many loans and their values. But I can give you a general anecdotal summary of our experience. Certainly as you'd expect, the large parties are the ones who borrow money most consistently from financial institutions. The larger and more active associations would do that as well. Certainly candidates do borrow money in some instances to help finance their campaigns. What we see is a very cyclical nature of the loans, as you'd expect.

As they're heading into a campaign or going through a campaign, parties in particular will borrow money. That will be part of what they use in their campaign spending. Over the course of the subsequent four-year period, those loans will be repaid. When they get to the next event, then they start to build their bank accounts again for the purposes of supporting their campaign activity.

I did look at it quickly before I left, and certainly the size of the loans for the large parties in Ontario at the end of 2006 was dramatically lower than coming out of the 2003 election.

[The Chair, Conservative, Gary Goodyear]

Thank you.

At least we got one of them out there, didn't we, Madam Redmond? Good for you.

Next on the list is Mr. Lukiwski, for seven minutes, please.

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

Thanks.

I have a couple of quick questions, Mr. Stockfish. I think I heard you say in your presentation--correct me if I'm wrong--that Elections Ontario has a provision that if loans are to be forgiven they can be forgiven over several years but that the loans become contributions to the yearly limit. Is that correct?

[Mike Stockfish]

I can give you a more detailed explanation of that. In the event that a loan is called by the financial institution—it is defaulted—and it falls to the guarantor to pay that loan, at that point it becomes a liability or a loan from the political entity to the guarantor. The guarantor has a choice to continue to have that loan. That political entity would be required to repay the loan, or they have the option of using the contribution limit on an annual basis to repay that loan.

So it would be in the event that it was called by the financial institution. It falls to the guarantor. The guarantor could use the contribution limit, year after year—the $8,400 a year—to receive payment for that loan.

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

Over how many years could he extend that?

[Mike Stockfish]

That's not written in the legislation. Depending on the size of the loan, we would certainly monitor that from year to year. You need to remember that our constituency associations and the parties report to us on an annual basis, and we have the ability in that compliance review to track the progress they're making in that regard.

Depending on the size of the loan, there would need to be a reasonable period, but I can't say whether that would be two years or five years. I think we'd have to look at each situation based on the merits of what's there and what's reasonable.

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

So it would basically be up to the discretion of Elections Ontario.

[Mike Stockfish]

We would work with the political entity to determine what was reasonable. We would certainly look to that party or association to make some effort to raise funds and repay that debt.

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

Thank you for that.

I have another question, and perhaps you can validate this. I know this normally happens federally—and I assume this happens in Ontario as well—when candidates or constituency associations try to take out loans to finance campaigns.

Normally they put their anticipated rebate up as security to the financial institution. Of course, one has to be confident that they will get the minimum—10% or 15%, in some jurisdictions—number of votes to get a rebate. Has that been your experience as well? Do most electoral district associations or constituency associations assign that rebate to the bank?

[Mike Stockfish]

In the case of the rebate--the Ontario system is similar in that there is a public funding model—there's a reimbursement for campaign expenses if you meet the threshold of receiving more than 15% of the popular vote. But it's the candidate who's entitled to that.

It's not uncommon for parties and candidates, indirectly through their associations, to use the rebate to repay those loans and as collateral.

[Tom Lukiwski, Conservative, Regina—Lumsden—Lake Centre, SK]

They use it as leverage, right? If you receive 50% of your eligible expenses in a rebate, you're talking about 50-cent dollars. So if a constituency association has $20,000 in the bank, borrows $20,000 from a financial institution, and assigns that to the bank, it ends up spending $40,000. If $20,000 comes back as a rebate, it goes directly to the financial institution to pay off the loan, which is normally what happens in my neck of the woods.

Is that what you've seen in Ontario as well?

[Mike Stockfish]

Yes, that is quite common.

It's important to note, as I'm sure you're all aware, that the banks are financial institutions. They will lend money to whomever based on their standards, lending practices, and criteria.