Evidence of meeting #5 for Special Committee on Cooperatives in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was cooperatives.
A video is available from Parliament.
Conservative
Conservative
The Chair Conservative Blake Richards
It's only a commentary on the nature of our business, of course, that one side is always happy to have the other steal their ideas, but no one wants it the other way around.
Anyway, we will move to our questioning now. First up we have Mr. Harris for five minutes.
NDP
Dan Harris NDP Scarborough Southwest, ON
Thank you, Mr. Chair.
On that note, when they come up with ideas that we like, we vote for them.
Mr. Lahey, and Mr. Diggins, thank you for coming today.
Mr. Diggins, thank you for your candour, and perhaps confusion, on why you're here. But still, I think you made a relevant presentation about working together and, frankly, the power of economies of scale—about how, when you group together in a collective in varying forms, you're able to get better rates for yourselves, or, in the case of employees, they're able to get more favourable deals with their employers. So thank you for still coming today.
My questions are going to be for Mr. Lahey and Alterna Savings. When I was younger and treasurer of the Ontario New Democratic Youth, we were a member of the Metro Credit Union, and it was always great to deal with them. They provided services that weren't available at the big banks, and we were certainly thankful for that.
As I understand it, Alterna is part of a pilot project that's working with some housing cooperatives. Of course, housing cooperatives are dealing with a number of challenges right now—primarily with buildings that are 20 to 30 to 40 years old, with roofs that need replacing, with capital infrastructure costs. Many of them still have mortgages left over, and as a result they're looking to, in many cases, blend and extend in order to refinance and be able to pay for these capital projects.
I understand Alterna is involved in some of those pilot projects. Are you familiar with them? Could you explain a little bit about what that project is and why it's going to be beneficial to co-ops?
President and Chief Executive Officer, Alterna Savings
I'm very familiar with it. In fact, I asked one of our senior officers, who retired about eight months ago, to stay on in a consultancy arrangement to focus exclusively on this on our behalf.
There are approximately—if my numbers serve me correctly—60 housing cooperatives in Ontario. They exist right across the country, but we focus simply in Ontario, where there are about 60 in Ontario that are in the situation you very aptly described. They still have long-term mortgages on their properties, and they have significant challenges with respect to the aging infrastructure of their facilities.
We've been working with the national Co-operative Housing Federation on this pilot to establish a mortgage product. Utilizing today's record low interest rates—which certainly, if they committed today, would be committed for another five years—to allow them to take equity out of their housing co-op to pay for necessary expenses.
We're in the latter stages of putting together the first financing package for a housing cooperative in the Milton area. We haven't completed it. There are a couple of things that are still being worked out that are outside of our control. The most notable one, I believe, is that they still have mortgages with CMHC, and the national institution is negotiating with CMHC on that.
NDP
Dan Harris NDP Scarborough Southwest, ON
I believe one of the challenges they've been facing is that to break those mortgages with CMHC they're looking at possibly 8% to 10% penalties. If you have a 90-unit co-op and $1 million on the mortgage, if you have to spend over $100,000 to break the old mortgage, that's a lot of equity that could be put into those units and that building.
You mentioned there were a couple of challenges. What's the other one?
President and Chief Executive Officer, Alterna Savings
The other challenges are more within our control. They have to do with ensuring that the right controls are in place, in terms of making sure the money gets spent where it's supposed to be spent. As you may know, any kind of construction lending is fraught with risk if you're not properly controlling the outflow of the cash.
Some of the mechanics of this, if you will, are still in the process of being sorted out—the documentation—because it's a bit of a unique arrangement that we're trying to put in place. If we can get this first one done, which I'm confident we will, then we can use that as a template for as many of the other 60 co-ops that want to do it.
The total for the 60 co-ops would be somewhere in the order of $200 million to $250 million in lending, which would stretch Alterna's capacity. Once we get the pilot in place, we'll be working with the cooperative sector to look for other participants.
Conservative
The Chair Conservative Blake Richards
We were doing a count up rather than a count down, so there was no beep. But I can assure you, we gave you an extra 25 or 30 seconds.
Mr. Payne, you now have the floor for five minutes.
Conservative
LaVar Payne Conservative Medicine Hat, AB
Thank you, Chair.
Thanks to the witnesses for coming today.
Mr. Lahey, you talked about a national framework for allowing credit unions to expand across the country. Could you give us a bit more information on that, and how that is going to benefit your organization and/or other credit unions?
President and Chief Executive Officer, Alterna Savings
If you aggregate all the credit unions, together they're about the size of the National Bank. Because we're all independent institutions, our capacity to utilize that size is somewhat strained. We do some of the things that Alan identified, like working together and cooperating, but the reality is that for some of the larger credit unions, seeking out diversification of risk is probably one of the most important reasons why organizations would spread across the country. For instance, you're going to hear from Vancity tomorrow. A big chunk of their operation is in Lower Mainland, B.C. That's a major earthquake zone, so that's something they've lived with since the day they started. The major banks also operate in that, but their risk is diversified by virtue of being in other parts of the country. That's one of the reasons why organizations would do that.
In some of the other provinces the market share of credit unions is actually quite high. In Manitoba it's approaching 45% or 50%, whereas in Ontario it's about 6%. So as people move into other provinces you're more likely to see credit unions come to Ontario than to see Ontario credit unions go someplace else. It will help us in Ontario because it will raise the profile of credit unions. We're small. Our history is a little different from what it was in other parts. In a lot of cases, we grew out of manufacturers that are much smaller today or don't exist. The connection we have with the community is different in Ontario from what it is in other places. From our organization's perspective, it will drive credit union investment into Ontario and provide us opportunities to partner potentially—maybe merge, but certainly partner with other institutions—and in so doing, diversify some of our risk by being able perhaps to invest in other provinces.
Conservative
LaVar Payne Conservative Medicine Hat, AB
I may be coming back to you, Mr. Lahey, but I wanted to ask Mr. Diggins a question. You talked about the clusters and going into Alberta, working together with manufacturers there. I've certainly heard of clusters in Alberta, particularly in my riding, in Brooks, Alberta. Were you involved in that group or not?
President and General Manager, Excellence in Manufacturing Consortium
We are going out in the fall to do a kind of look-see, if you will. In our first one week out there we looked up in Fort McMurray, Grande Prairie, and the Saskatchewan border in the north, and then Edmonton and Calgary. Our understanding is that they're going to want us in Lethbridge and Medicine Hat to start with, and then grow it out.
The key to being successful out there is that there are some groups, as you mentioned, in place out there, but none of them do exactly what we do, and that is getting the people out of their buildings and working together. Our challenge is going to be to make sure that we line up with those other organizations, that we don't interfere with them, and that there's no duplication. We've worked in a lot of communities—as you know, in 55 communities—and we haven't bumped into anybody yet. Our model is such that we can be flexible.
In the northeast of the province we may actually be doing our business for the construction industry, because there's very little manufacturing up there. That may change our model a little bit, but the philosophy and how we do business can apply anywhere. John just mentioned a few minutes ago that it's working informally among the cooperatives in London.
Conservative
LaVar Payne Conservative Medicine Hat, AB
I want to go back to Mr. Lahey again. You talked about regulatory burden. I'm just wondering if you have two or three prime regulatory issues that you would see as being able to help the credit unions. In particular you mentioned the size versus the complexity of the major banks.
Do you have two or three of those that would be beneficial to hear, that could be reduced to help your organizations?
President and Chief Executive Officer, Alterna Savings
In some ways it may be as much about what might happen as about what is happening. Money laundering and terrorist financing reporting are very burdensome undertakings. It's hard to argue that you shouldn't be reporting on this stuff, so I'm reticent to even bring it up, because we all know it's important. But much of the reporting seems, from our perspective, to go into a black hole.
Conservative
The Chair Conservative Blake Richards
I'll just allow you to very quickly respond to that, but the time has expired. Be very quick, if you want to respond to that.
President and Chief Executive Officer, Alterna Savings
We think it could be simplified, but what we're particularly worried about is it becoming more onerous, if people are talking about moving the $99 to $100 limit to $5,900, or something like that. That would increase the amount reporting exponentially. So we're more worried about where it might go, rather than where it is, which we've coped with.
Conservative
The Chair Conservative Blake Richards
Thank you.
Before we move to our next, I'm just going to use my prerogative as chair here. There was something that just got my attention in your response, Mr. Lahey, to one of Mr. Payne's questions.
You mentioned the market capitalization in Manitoba of credit unions was 45% and in Ontario about 6%.
Conservative
The Chair Conservative Blake Richards
Pardon me, market share.
It caught my attention. I was thinking about Alberta, my home province, and I just was curious if you knew the number for Alberta.
The reason I ask is that, obviously, there are the Alberta Treasury Branches in Alberta and I wondered how much effect that had on the share of the credit unions.
President and Chief Executive Officer, Alterna Savings
ATB, based on what I know—and I'm certainly no expert—does have a big effect, but the market share in Alberta is significantly higher than it would be in Ontario. And part of the explanation is that every province has a different set of powers. Ontario probably has the narrowest set of powers for credit unions in the country.