Special Committee on Cooperatives Committee on July 10th, 2012

[Frank Lowery]

Of course, like any other insurance company, our group is made up of a large P and C organization, a smaller life company, and a number of other financial services enterprises. As you will know, with continuing low interest rates, most life products that were sold were sold on assumptions of higher yield. So you invest in long-term products basically to back up your obligations. Of course, what is happening is that with a persistent low interest rate, and possibly even lower interest rates, those assumptions are wrong. What that means is that you effectively have to put in more money and take money out of the bottom line and put it in the reserves. We actually are fortunate that we're not a large company.

If you look at companies like Manulife and Sun Life, which are actually stopping writing particular products at all, they're doing it for exactly that reason. It's a very trying market, and we have challenges. So yes, it will be challenging for us, just as it is for other insurance companies. We don't have a foreign parent, so we don't have access to foreign capital. But it will be challenging for us.

[Ray Boughen, Conservative, Palliser, SK]

Good. Thank you.

Thanks, Chair.

[The Chair, Conservative, Blake Richards]

I still have just over two minutes remaining. Is there anyone on that side who would like to finish the round?

Mr. Butt, I'll turn the floor over to you.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

I want to get some more clarification on how the cooperative housing sector is operating and what their role is. I believe it was in 1993, under the Chrétien government, that the federal government decided it was getting out of the housing business, essentially, so that's something we inherited, obviously, as a government when we came to power. Essentially, there are operating agreements between the federal government where we fund dollars, but basically the provinces are administering a lot of the housing.

You talked about some ways of getting more cooperative housing developed and built potentially down the road, and that could be very much a laudable goal. I think it's around a billion dollars a year or something that we're transferring to the provinces for housing. We're giving them the flexibility. Do you see that as a positive or a negative? Is there a role for the federal government, beyond the funding that we're providing, in working with the provinces to find the best ways to ensure that this money is flowing and flowing effectively? Was that decision in 1993, which is essentially that you send money to the provinces and you let each province do their own thing, a good decision?

[Nicholas Gazzard]

I think the 1993 decision was inevitable, good or bad. It was very clear post-1982 that the provinces were going to insist on cooperative housing programs, just like health, as being a provincial jurisdiction. It would be a self-serving and easy thing for me to say that I think you should go back into direct delivery and have a top-down approach, but I actually don't think that. I do think, however, and we've made this point often before, that the federal government needs to keep making sure it has accountability for housing dollars spent, and that they're spent in a way that matches spending to outcomes. The outcome we're looking at here is the reduction in housing needs in Canada.

We did actually get a mention of that in last year's federal budget and in the announcement of the continuation of the funding to 2014. It is harder for us because there are 13 different provincial and territorial doors to knock on, not to mention the 47 municipalities in Ontario that are responsible for housing, but I can understand how housing policy needs to be formulated on the basis of more localized housing need.

[The Chair, Conservative, Blake Richards]

Sorry, but time has run out. Thank you, Mr. Butt.

I now move to Madame LeBlanc.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you very much.

I want to thank all the witnesses here today.

I was very interested in your presentation, Mr. Lowery. I would like you to tell us how, in your opinion, the cooperative model helps create quality jobs and sustainable communities in Canada, from your experience.

[Frank Lowery]

The cooperative form is a form of enterprise, so it's not housing, it's not insurance, it's not...whatever else. It's a form of enterprise. The nature of the form of enterprise is that it's democratically organized. Basically, in a worker co-op, for example, the workers are actually the owners, and they all collaborate on doing something. Cooperatives have historically arisen in places where there's a need—for example, a social need. That's why oftentimes in Canada you'll see a lot of the co-ops were in rural areas, because a lot of the major institutions at that time were not prepared to provide support in those areas, so they were basically locally controlled.

I always compare it to a barn-building. To me, a co-op is like that. If someone's barn burns down and everyone in the community agrees that they will go and re-establish that barn...that's really the essence of a co-op. It's an autonomous group of people who get together for a common purpose, and it tends to be social.

I was reading an article, actually, on the plane about social trust, and it's interesting. I never thought of this concept before, but the nature of co-ops is such that they basically embed within themselves social trust. If you think about it yourself, which institutions do you really feel close to? Oftentimes, it's your day care; it's your local credit union. It's something that's very close to you in the community that you actually control. That's why cooperatives create long-term sustainable jobs in local communities.

When the banks shut their branches in western Canada, it was the credit unions that basically picked those up and said, look, we will do this business because it's in the local community. It's also why the risks have been less risky for them, because they're close to the risks, they understand the risks, and they understand the underlying obligations that are being put against the risk. That's why generally in the U.S. the only examples of organizations in the credit union movement that went for bailouts were ones that had become very large credit unions that started to emulate the banks. But among those who stayed true to the roots, there were no failures, no bailouts.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

That's very interesting because you're bringing the discussion into another arena, which leads me to my next question Do you think the credit union system could take hold in other sectors of the economy, besides those where it is already happening? I am wondering about industry and other kinds of companies. Do you see the credit union system moving forward in that direction?

[Frank Lowery]

Yes, I can, and I would say it's already evident. If you look at renewable energy, there's a big windmill in Toronto that's actually a small co-op called TREC, Toronto Renewable Energy Co-op. Co-operators, out of our development fund, gave them $10,000 or $15,000 for the original business plan.

There are other areas of society, like health care clinics, for example. You heard earlier from the CCA. In countries in Europe you can have up to 80% involvement. One of The Co-operators' members is something called the Regina Community Clinic. This is a small clinic that was started to basically provide some self-help, and it's doing very well. They've now formed a national federation in Canada for health care clinics.

I think as we move down the road.... Health care takes 50¢ of every tax dollar, they say. That's unsustainable over time. We have to look at alternative structures. I think cooperative structures are the types of structures that will help bring that need together with the ability of people to work together for a solution.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

You're confirming the fact that credit unions follow an innovative model and offer innovative solutions in response to Canadian challenges.

[Frank Lowery]

Yes.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Let's turn to the international side. This question is for all the witnesses.

A summit is going to be held in Quebec City. Do you think it would be premature for us to write our report without having heard the international speakers and without knowing the international view of credit unions? We could submit our report after the summit, one that is comprehensive and takes into account the international perspective.

I would like to hear from all of our witnesses on that.

[The Chair, Conservative, Blake Richards]

We have only about 15 seconds remaining. That's not enough time. All of you would like to answer, but.... Sorry.

[Nicholas Gazzard]

I agree with you 100%.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you.

[The Chair, Conservative, Blake Richards]

I know you asked all witnesses. Would any of the others like to make a comment on that? Be very brief, though.

[Frank Lowery]

I agree with your comments. The only other comment and observation I'd make is that for us in The Co-operators, time is a long thing. There will be another committee. There will be another time. We will do our best to present what we can to this committee, and we hope it goes forward. We would wish you would not present your work before the summit, but if you do, we will still be there and we will still be giving the same message notwithstanding that.

I agree with you generally. I would prefer you did, but if you don't, we'll still be here.

[The Chair, Conservative, Blake Richards]

Mr. Taylor, I would allow you just a very brief response as well, if you'd like.

[John Taylor]

I think there are some very exciting things internationally in the cooperative and grassroots movement that the committee would benefit from hearing.

[The Chair, Conservative, Blake Richards]

Thank you to each of you.

We now have Mr. Lemieux for five minutes.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thanks very much, Chair.

Mr. Butt's on fire with the housing issue, so I'm going to split my time.

I'd like to just make some opening comments regarding the October congress involving international co-ops and Canadian co-ops. If this committee has its five days of committee hearings, we'll have heard from close to probably 60 co-ops from across Canada in different provinces, from coast to coast to coast. Certainly what we've heard today has been extremely encouraging, just how robust co-ops are, how diversified they are, how present they are in rural communities, that they are financially stable. Their assets are increasing. Their memberships are increasing. In fact, we had a witness this morning tell us that for credit unions it's outpacing the growth of the population. The balance sheet has tripled in the past ten years. These are fabulous messages, particularly in these challenging economic times.

Another thing we heard from witnesses is not well known. In fact, I think one of the aims of this committee is to be informed on these matters but also to broadcast them to Canadians. The advantage of this report coming out before the congress is that it can be brought to the congress. In other words, look at all the witnesses the committee has heard from; look at what the committee heard in terms of the strengths and economic challenges they're overcoming; look at the recommendations the committee made. I think it's nice that the committee has actually finalized its report and can bring it to the congress and present a finished report to the congress.

My hope is that every member here on this committee will go. We don't have to be on the committee to go. We should be going to this congress. It's not that far away. We should be encouraging our colleagues to go as well. In terms of a professional education, there's a wonderful opportunity here that no one should miss. I just say we don't need to go and.... Actually, I think we should go in that capacity. If we start organizing meetings right beside a congress, I'm not sure.... Is that competing? What's going on?

Anyway, I wanted to make those points, Chair. I'll now turn it over to Mr. Butt.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

Thank you very much, Mr. Chair.

I'll go back a little bit more to some of the good things cooperative housing is doing and the success story that it is right across the country.

I have two federal cooperatives in my riding, and I've visited both of them. I've met with the boards and I've spoken to many of the members. They're very proud of these homes. They're very proud of these complexes that many of them have lived in. The complexes are coming close to their 35-year end, and some of them have lived there the entire 35 years, which is incredible.

One of the things I'm curious to know is whether the Co-operative Housing Federation has looked at...I know the non-profit housing sector to some degree tried to do it, and I don't know how successful it was. Maybe The Co-operators or the other insurance and mortgage-related guys would be interested in this. Have you looked at trying to pool assets? Have you looked at establishing a capital revolving fund so that if you do have a cooperative that needs quite a significant amount of capital improvement work—if it has to replace windows and the roof and bricks and balconies and other things, if it's an apartment building—co-ops across the country could kind of pool resources to work together in the cooperative spirit, rather than thinking that either the federal government or the provincial government, or in the case of Ontario, where housing has actually been downloaded to the local municipalities in a lot of cases, would be stuck with the bill? Have you looked at the assets you have there?

There have to be hundreds of millions of dollars of real estate assets that the cooperative community will in essence own when these mortgages are paid off. Have you looked at creating something like that so that you can make cooperative housing sustainable for another 50 years or longer?

[Nicholas Gazzard]

You kind of had me at the first sentence, actually. Yes, absolutely, very much so. We would like to see if we can change the scale of our sector.

If you look at some of the non-profit housing providers with multiple portfolios in different places, they're looking at some very dynamic business models going forward.

What we're faced with in Canada, however, typically is a housing cooperative that has about 50 units on a single site. Probably the site is largely, although not always, built out, and it's very difficult to leverage that asset.

We want to convince our members of the benefits of doing exactly what you suggest, combining in large groups. I even actually put a proposal before our federation, which is called a blue sky proposal. What if there is only one cooperative in Ottawa, instead of 40? Could we still preserve the sense of community but at the same time leverage enormous benefits of scale, and the asset value you talked about? Instead of pooling reserves individually at the project level, you'd pool them together.

This is a model that's been copied and that's been put into place in Melbourne. It's another good example of an international best practice that you might hear about.

But yes, definitely, it's something we are interested in. I think the smaller private non-profits are faced with exactly the same issues that you describe.

[The Chair, Conservative, Blake Richards]

Thank you very much.

We now move to Madame Brosseau for five minutes.