Public Accounts Committee on March 3rd, 2009

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you very much.

Thank you for your presentations today.

Having spent 13 years in my own provincial legislature, some of that time in cabinet, I'm certainly aware of being on the receiving end of federal moneys and wanting to make sure they aren't being jammed at you in a way where it's one size fits all, the “do it our way or the highway” type of thing.

It's really no different, in some ways, from when the provinces are considering programs that affect their municipalities. You want to provide as much flexibility as possible to allow for local conditions, but you also want to make sure you're achieving long-term objectives. I'm very sympathetic to the notion of the major transfers being based on...a health transfer, for instance, being based on the Canada Health Act, as long as you're upholding that. I'm cool with that. The problem for some of us, I think, is in the area of trusts.

Deputy, I think you mentioned 23 trusts and $27 billion. The whole notion of these trusts sounds good, but I think the point of the exercise today is about when the government makes an announcement that the money is going to achieve an objective. I'll just make up an objective. Let's say it's affordable housing, and the government says, “We have an objective and a goal of providing x units to house x Canadian citizens over x period of time.” Wanting to give provinces flexibility, but also wanting to achieve that objective once the time has gone and the money has been spent, requires that balance.

Well, right now they make that announcement about all the good things--please correct me when I'm wrong, Deputy--but the receiving provinces and territories also make an announcement. They make a statement of operating principles--we'll come back to that later, in detail--pretty much saying, for example in Ontario, “We agree, we're going to do this, we're going to have the same objectives, this is a great thing and a great photo op.” Then we go forward, and from there on, there's no real accountability, as I'm understanding it from the Auditor General.

When I was in the Ontario legislature receiving our public accounts, as you have said, Deputy...and I have your quote here. You said that they don't segment out the federal dollars that were in this trust fund or that. The difficulty is that we may think we're doing great, from an Ontario perspective, on achieving the objective, but if we'd known that certain dollars were actually dedicated to housing, at the end of the day that could have found itself anywhere.

So how do we at any of our legislatures--let's just say I have my provincial hat back on--know whether or not the objectives in terms of the provinces' commitment in their statement are matched up to the federal statement?

Please make it brief, because I have a few questions. I know it's not easy--especially after I took 20 minutes.

[Rob Wright]

No, no, it's a key question. It's a very important question.

[David Christopherson, NDP, Hamilton Centre, ON]

I've got it, then? Okay.

[Rob Wright]

I would say a couple of things here.

One, on the social transfers and the health transfers, we know, grosso modo, we're providing a portion--an important portion, but only a portion--of the overall spending. But as the Auditor General mentioned, in recent times we've had a specific public commitment, a purpose, for some of these individual trusts. And in provinces, with that public commitment, there has been a tracking of that individual element.

One example is the ecoTrust, which my colleague Rod Monette might be able to give you an update on.

[Rod Monette]

Thank you, Mr. Christopherson. Actually, this issue came up last year at the committee, and we did a little bit of work on what the provinces are recording. We went to the public accounts for a couple of provinces, including P.E.I., Ontario, and Quebec.

I can provide these to the committee through a letter, Mr. Murphy, at a later date.

So there's actually a pretty good accounting of how much has come in, how much is recorded in each year. It breaks it down by all the trusts.

This may not have been there when you were there, Mr. Christopherson, but it seems to be there now.

[David Christopherson, NDP, Hamilton Centre, ON]

Okay, but my difficulty is that operating principles would be the rubric under which this is generated, but it's not binding. So they may show it where it's convenient and they may not show it where it's not convenient, and they wouldn't be out of bounds.

If I can, I do want to pick up on that. In her report, the Auditor General gave examples of things that were followed up on. It's terrible. It's terrible. The example of chapter 3 in the December 2008 Report of the Commissioner of the Environment and Sustainable Development.... This is the example that's given, and I'll just read some of it here. This is for those that are followed up on in terms of the trusts and so on. And this is what we're getting:

1.) The Department does not know to what extent its environmental programs have improved the environment.

--that could be a problem--

Departmental reporting is limited because it does not monitor and report on program results beyond outputs, such as the number of completed water projects...

2.) The Department's allocation of operating resources among the Environment Chapter's contribution programs was not supported by adequate information.

3.) The development of the National Land and Water Information Service was poorly managed.

So even where they do bother to provide conditions, the follow-up doesn't seem to be that they're doing a very good job. We seem to lose when they don't give detailed commitments and we lose when they do. So how do we turn the lose-lose into a win-win?

[The Chair, Liberal, Shawn Murphy]

Please be very brief.

[Rob Wright]

That's a big question to be very brief on.

Essentially, you have to know that this ties in a policy choice, where the government makes an informed choice about how to deal with an issue that I mentioned was an urgent issue and an issue of common priority with the provinces. Obviously, we have some considerable faith they're going to be moving on the common priority.

We can establish the terms of conditions for a trust, have it signed and publicly announced before the money is transferred, but if we require ongoing conditionality over it, then the question is that it's not something that is taken out of, let's say, an unanticipated surplus in one year and transferred. So if there is additional conditionality, there's a question of whether you have to spread that over multiple years, when you may not have that flexibility available.

The government, at each occasion, takes stock of the track record. And I would say provincial governments recognize that this is.... There are none in this recent budget, but there have been trusts over the last several budgets. They recognize that if they're going to be a valued partner, they're going to be a valued partner. And they have recognized that the government has taken some steps, such as a public commitment to specific action, and they have interest in their legislatures to ensure appropriate progress is being made.

But it's almost like enhanced transfers, which were recently made to equalization and territorial financing, or enhanced growth of social transfers. Once they've gone for a common priority, the federal government does not require conditionality to that process. That's where it is with the trusts.

Now, the policy trade-off is that there are some occasions when a federal government might have an unanticipated surplus, where it could make some funding available for a priority with a partner that doesn't require long-term conditions. So if you have those conditions, you might not have that fiscal flexibility in the following few years when the money might be spent. That's the trade-off that's made.

I can only assure you that it's an informed choice that's made by government, consistent with our accounting rules—as long as I'm properly describing our accounting rules.

[The Chair, Liberal, Shawn Murphy]

Thank you.

[David Christopherson, NDP, Hamilton Centre, ON]

If the ministry doesn't know the conditions, it's of no value.

[The Chair, Liberal, Shawn Murphy]

Mr. Kramp, you have six minutes.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you, Chair.

Actually, I have a question for the Auditor General. But before that, with all respect to my colleague Madam Ratansi, she made a statement that I took a little bit of...not umbrage, but a little bit of a thought process on it.

Madam Ratansi, you mentioned—

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Factual statements.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

—that we have a need to have checks and balances. That is well understood. I think so. And yet, with all respect, you were voicing concerns about the transfers, whether they are dedicated in various forms, whether they're for health or education, and whether they are accountable. Yet just this afternoon, the combined opposition voted in favour of a massive infrastructure stimulus that would go directly to the municipalities—they would bypass the provinces, no strings attached whatsoever, no level of accountability back to the federal government. Personally, I find this just a little bit of political machination rather than good public policy. But I just throw that back on the record.

My question to the Auditor General is this. Without trying to put the Auditor General in a position where she would not, obviously, discuss policy and/or direction—which I fully understand, Madam Fraser—do you have any capacity or licence or possibility of going directly to the municipalities to audit how they spend those funds once they get there?

[Sheila Fraser]

Mr. Chair, no, my mandate is limited to the federal government. We do have some provisions to audit recipients of grants and loans and contributions, but not other levels of government.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you very much.

I'd like to talk for a second about equalization. I think everybody recognizes that an historic amount of money went to the provinces over a number of years. Could you tell me what has been spent in transfers and equalizations this year versus last year? What direction are we going in? What level of either increase or decrease has there been over the past three to five years?

[Rob Wright]

The equalization program this year is $14.2 billion. It's grown by 55% over the last five years. It will continue to grow over the next several years at the average rate of growth of the economy.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Is that due to the decision of the government to adopt the O'Brien report and recommendations as such, or is this just based on a decision reached because no more money is available?

[Rob Wright]

That is a very important question.

The O'Brien commission recommended that affordability be a key test of the equalization program. When the O'Brien report was written, the price of oil was less than $40 per barrel. Last year it climbed to $145 per barrel and then it fell by 75%. One of the things affected by that...I think people did anticipate some growth in the program, but not 55% over five years. The structure of the equalization program is based on a three-year average of GDP across the country to smooth out differences, and then there's a two-year lag. We had this large spike in resource wealth to $145 per barrel, which then fell by 75%. Under the O'Brien formula we would have been required over the next five years to equalize that revenue that no longer existed. In fact, consistent with recommendations from the O'Brien report, the government is limiting the growth of the overall program using the method for allocating within that program.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Thank you.

Obviously as a former municipal politician and, as I'll term it, a responsible business owner, what do you...? We always have to depend on some form of predictability. The last thing any business or government needs is wild cards from anywhere. It's my understanding that the equalization formula with the O'Brien process was meant to add some form of stability and predictability so the provinces would know what's coming, based on GDP growth. Would that be a fair assessment?

[Rob Wright]

They know now. They do know it's going to be growing consistently from this very high base, with the GDP growth of the economy. In fact, the revenue flow for the last several years was much higher than any provincial government expected under equalization. So it's going to grow at a more moderate pace, but it will continue to grow with the economy.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

That has been projected to grow despite the recession?

[Rob Wright]

Again, we will average it over a period of three years, so it will continue to grow, we expect, every year.

[Daryl Kramp, Conservative, Prince Edward—Hastings, ON]

Fine, thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Kramp.

I've got a couple of questions myself, but before that, I'd like to interject and seek the approval of the committee for the minutes of the steering committee. That meeting was held earlier today. Those minutes have been circulated, and the chair would entertain a motion for their approval.

So moved by Ms. Ratansi. Any discussion? All in favour?

(Motion agreed to [See Minutes of Proceedings])