Transport Committee on Dec. 6th, 2007

[Jeff Watson, Conservative, Essex, ON]

Our government has announced, in successive budgets, funding for the Asia Pacific gateway, of about $1 billion, I think. For borders and gateways, the funding is $2.1 billion, for example.

Do the changes in Bill C-23 with respect to accessing federal money contemplate access to these funds, or are those funds already accessible to ports? In other words, are these changes necessary in order to access that money, or are these changes needed to access future funds that may be announced?

[Emile Di Sanza]

These changes that are being proposed would be necessary to access any of those funds that could be eligible for port operations.

[Jeff Watson, Conservative, Essex, ON]

In terms of the changes in the process for borrowing, I think right now—if I understand this correctly—an increase in the borrowing limit requires a recommendation by the minister. There has to be an independent financial assessment of that. Treasury Board has to sign off, as does the Minister of Finance, and finally cabinet.

The downside to this is that it takes a long time to get approval for an increase in the borrowing limit. The upside is that there is a certain amount of check and balance to it.

On the new changes that are being proposed or contemplated in Bill C-23, how many and which ports would be affected by the new borrowing code? That's my first question.

[Emile Di Sanza]

The new borrowing code would apply to those ports that have, for three consecutive years, revenues of at least $25 million. At this time, that represents Vancouver, Montreal, and Halifax.

Over time, presumably other ports could attain that level, and if they so wish, at that time they could opt for a more commercially based way of borrowing. Of course, they would be subject to specific reporting requirements, certification requirements, and various due diligence, as we've outlined clearly in the code of borrowing contained in the briefing binders.

Those are the kinds of checks and balances and the enhanced accountabilities that would apply to the board of directors who would have to make those decisions.

[Jeff Watson, Conservative, Essex, ON]

I was reading through the proposed borrowing code, and I saw that the obligations for reporting shift to various officers of the boards. I want to probe the safeguard here a little bit more.

Are there sanctions if these various officers don't in fact meet their obligations? Do they face any sanctions?

The question I want to get to is that if they default on any of their obligations, and there's any liability to be assumed, who picks up the liability? What is the safeguard ultimately that means government doesn't have to step in and assume the liability?

[Janet Kavanagh]

As you correctly noted, much of the responsibility with respect to the monitoring and certification that the port is in compliance with the code rests with the board. Should they deliberately not respect that, or mislead in any way, or not notify the ministers required, or somehow by their lack of monitoring or implementation of that responsibility.... It really could be considered a breach of their fiduciary responsibility, and that's quite a serious issue for board members and directors.

[Jeff Watson, Conservative, Essex, ON]

Maybe I can crystallize Brian's earlier question, because I want to come back to it. You've said the ports themselves have contemplated $1 billion worth of capital plans over the next five years. The proposed amendments here contemplate access to public dollars for that purpose. I think the question he was trying to get to, and maybe I'm wrong on this one, is whether that $1 billion that's contemplated over the next five years can be privately raised through increased borrowing limits.

Obviously you know what the projection is. We know what the anticipated changes are. Do they not have the capacity to privately raise that $1 billion over the next five years, or do they need access to public dollars?

[Emile Di Sanza]

Indeed, there are various ways they could get financing for their capital projects, through their borrowing capability, through private interests that would invest. As proposed in this bill, they would also be eligible, as other transportation entities are, for contribution programs.

[Jeff Watson, Conservative, Essex, ON]

I know which ways they can raise them, the question is, can it be privately raised, that $1 billion, that particular amount?

[Emile Di Sanza]

Certainly they've been doing that. Now, whether it would be the full $1 billion.... I think once again we'd have to look on a case-by-case basis, and it would have to be up to the port authority to demonstrate how they would look at that financing.

[The Chair, Conservative, Merv Tweed]

Thank you.

Before I go to Mr. Maloney, I have one question. How did you settle on $25 million?

[Emile Di Sanza]

We undertook a fairly rigorous study. The executive summary of that study is contained in the briefing binder. We hired outside experts to look at a variety of different models that exist to assess what it would represent to port authorities, in the revenue range they are in, to go to a full stream commercial regime versus to remain with the regime currently in place, which, with the streamlined process, would be clearly laid out in terms of how it would operate.

What they strongly recommended was that this would be an appropriate threshold, because operating on the global commercial market requires a certain degree of financial rigour, if you will. It helps to have a certain level of operations to be able to access those funds. They would be diversified enough to be able to operate on that basis.

So a number of different models were looked at in that respect, and it was a very thorough exercise before we arrived at that point.

[The Chair, Conservative, Merv Tweed]

Thank you.

Mr. Maloney.

[John Maloney, Liberal, Welland, ON]

Dr. Fry has to go to another committee, so I'm going to defer my five minutes to her and then I'll pick up the next round, please.

[The Chair, Conservative, Merv Tweed]

Ms. Fry.

[Hedy Fry, Liberal, Vancouver Centre, BC]

Thank you very much.

I have two very quick questions.

One has to do with the borrowing capacity and the changes in the act. I still don't get the sense that we see ports as economic generators and that competitiveness is the major issue here. I think timeliness is going to have to be the question I need to ask about on this borrowing capacity. The question then is, how do you deal with the issue of timeliness if you have to go through hoops? That's the first question.

The second question is with regard to the issuing of bonds. You know that certain ports—and I know that in my part of the world, the Port of Seattle, etc.—are able to issue tax exempt bonds. That's a quick way to generate money. That's a quick way to get ports to be able to compete and do their infrastructure as quickly as possible. Is there an ability for ports to be able to do that? Will that be allowable under this new bill? That is the second question I need to ask with regard to borrowing.

Another question I have has to do with the ability to lease or use port lands for commercial purposes, etc. I don't see any criteria written down, and I think there are many concerns here. Are there going to be requirements in order to lease or use port lands for purposes other than the port? Are there going to be requirements for environmental studies and for being able to communicate and have public hearings with the local residents and local city in that area to see whether or not it meets the requirements for that city?

I'll give you an example. The Port of Vancouver at the moment has a controversial issue. I support the port doing some of the things it's doing, but there was one issue about a soccer stadium being built in a very sensitive part of the port where there are some lands that are conservation lands for certain species. The people of Vancouver feel they have never been asked about the ability to use that port land for some use they feel is detrimental to the environment, to the city, etc., in that particular area.

I need to ask about what your criteria are for the ability to use port lands other than for ports. Secondly, I really would like to hear about the timeliness issue with regard to borrowing and on issuing tax exempt bonds, which I think is key to competitiveness for ports.

Thanks.

[Emile Di Sanza]

You have several points there.

The point you raised on tax-exempt bonds I think would fall under the purview of the Finance policies. I'll ask my legal counsel to amplify on that.

[Ekaterina Ohandjanian, Legal Counsel, Justice Canada]

Thank you.

It's the government's position that there is no impediment currently to port authorities issuing bonds, much like their counterparts in the U.S. The question of the bonds being tax exempt is an issue that relates to the provisions of the Income Tax Act, I would think, and is not addressed in this legislation. It's not a tax-related legislation, but it does enable, for corporate financing purposes, the port to issue bonds. That is provided for in the letters patent of each port authority.

I don't know if Emile wants to speak to the issue of the timeliness, but touching on the issue of the leasing or licensing of port lands and the regime and restrictions pertaining to that activity, again, the substance of that is described in the letters patent for each port authority. It's not in the act itself, but there is a cross-reference to the letters patent, which provide the substance.

[Hedy Fry, Liberal, Vancouver Centre, BC]

I know, but I wanted to say that I didn't get that information very clearly at all here, because this is a huge issue.

I have a quick question on the tax-exempt status. Surely when one decides on pieces of legislation they're not stand-alone and they're not in a silo. If the ability to have tax-exempt bonds should be discussed with Revenue Canada, shouldn't that have been discussed earlier on in some kind of horizontality?

[Emile Di Sanza]

That issue was discussed on a broad base when the national marine policy legislation went through in the late 1990s. It has been raised periodically in observations in some instances, particularly by port authorities. When the review was taking place, they were looking at the differences between port authorities in Canada and port authorities in the U.S., and a major preoccupation was access to security funding. Shortly after that review, a program was put in place to provide security funding for ports.

The other point I made earlier was on a comparison between how the governance structure applies to Canadian ports and to ports in the U.S. They have different governing structures depending on the ports in question. One observation that has been made in studies we've seen is that overall, Canadian ports are well managed, well run, and have their debt loads very much under control. In many instances other ports have to issue bonds or borrow heavily simply to maintain their debts in good standing. The Canada Marine Act of the late 1990s has demonstrated a certain financial discipline on the part of the Canada port authorities.

[Hedy Fry, Liberal, Vancouver Centre, BC]

The ports won't agree with you. They would like to issue tax-exempt bonds.

[The Chair, Conservative, Merv Tweed]

Mr. Carrier.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Thank you, Mr. Chair.

I also wanted to talk about the fact that port authorities will be able to lease land they acquire, but do not necessary need right away. This was mentioned in your presentation.

I scanned clause 38 proposed in the bill, which amends subsection 71(1) of the act and has to do with leases and licences. This clause says it is possible to lease federal real property, but that it must be approved by the Governor in Council if it is for a period of 20 years or longer.

Could you confirm whether this clause, which is on page 17, deals with the lease you are describing in the bill, and if there are other clauses dealing with it? This is just for the possibility of a lease that is for a period of 20 years or longer.

[Emile Di Sanza]

Clause 38, which amends subsection 71(1), changes only the text. It is a question of the texts matching.

[Robert Carrier, Bloc, Alfred-Pellan, QC]

Does it have to do with leasing land that belongs to port authorities?