Proceedings of the Standing Senate Committee on National Finance
Issue 2 - Evidence
OTTAWA, Wednesday, November 19, 1997
The Standing Senate Committee on National Finance met this day at 5:30 p.m. to examine the Supplementary Estimates (A) laid before Parliament for the fiscal year ending March 31, 1998.
Senator Terry Stratton (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I would welcome our witnesses this morning. I understand you do not have any opening statements, but you are here, fundamentally, to answer any questions we may have.
Mr. David Miller, Assistant Secretary, Expenditure Management Sector, Treasury Board of Canada: That is correct, Mr. Chairman.
Senator Lynch-Staunton: Were you able to get any of the information I requested at our last meeting regarding certain rental credits allowed the Greater Toronto Airport Authority?
Mr. Miller: Yes, in fact, a package of material was forwarded to the chairman's office.
The Chairman: What was contained in the package?
Mr. Miller: An extensive amount of material associated with the lease.
The Chairman: The Ground Lease?
Mr. Miller: Yes.
Senator Lynch-Staunton: That is the lease itself?
Mr. Miller: Yes.
Senator Lynch-Staunton: I was also requesting information as to what was behind the $185 million figure. What was the reason for it?
Beween meetings, I have been able to get the prospectus that was issued in conjunction with the loans which the Greater Toronto Airport Authority will issue this year in the amount of $950 million. That prospectus contains quite a bit of information on the lease itself. I have photocopied one page from the prospectus which contains details of the rent concessions which have been allowed by the government. Since so many figures are contained in this, I will have a copy distributed to everyone.
At the top of the page of this prospectus, there is a breakdown of rental concessions which amount to about $200 million. In the Estimates there is an additional figure of $1.2 million for the purchase of the Kelly property, which may not be considered a rent concession, but it is certainly an addition to amounts the government has already contributed to Pearson.
Why did the government agree to these massive rental concessions as opposed to rental deferrals? I can understand the situation where a new manager, who is taking over a property as a lessee and wanting to make massive capital improvements, would be allowed some rental deferrals for the first few years so that all of his funds would not be tied up, and then the deferred rent would be paid with interest. In this case, however, the government has agreed to forgive rentals up to $200 million over a 10-year period, most of which will be exercised in the first few years. Why is that being done?
Mr. Miller: Perhaps, senator, I can use as an example a similar leasing arrangement where it would be the responsibility of the landlord to bring the premises up to a certain level. In this case several projects were identified by the Department of Transport as being necessary for the future development of that airport. In effect, the reduction for the few years in question is to, effectively, leave the responsibility for those improvements with the Greater Toronto Airport Authority. In recognition of that, there is no future obligation on the part of the federal government to undertake those specific capital improvements which everyone realized were necessary and would have to be done had the lease remained with the federal government.
To provide the flexibility the airport authority required, the decision was taken to give them the offset for the first few years. The onus for making improvements is therefore on them but after three years, the stream of rents would resume as revenues to the federal government.
Senator Lynch-Staunton: Why did the government not provide for repayment of the forgiveness? Under the Pearson contract it was provided that, in the first three or four years there would be deferrals, and then the Pearson Development Corporation would have to repay in future years those rents that had been deferred, with interest. In this case there is forgiveness. I direct your attention to paragraph (c)(ii) of the page I have distributed which states:
a forgiveness of the obligation to repay Transport Canada the costs it had incurred in the construction of the new north-south runway. Transport Canada had incurred $72 million in costs in respect of construction of the new north-south runway which was, according to the original Ground Lease, to be repaid by the GTAA in five equal annual instalments commencing January 1, 2001.
This lease was signed in January of 1997 and suddenly, in April of 1997, this obligation was forgiven by amendment to the Ground Lease. I would like to know what happened between January and April which caused the government to forgive GTAA that obligation?
Mr. Miller: Unfortunately, senator, I do not have the specific answer to that question. We can of course pursue it now.
Senator Lynch-Staunton: When you were here two weeks ago, I asked you to bring the details of the purpose for the forgiveness of $185 million which, as it turns out, is $200 million. This is a gift to the Greater Toronto Airport Authority to be paid for by the taxpayers of Canada. The purpose of privatization, or the shifting over to the airport authority, was so that the Government of Canada would receive in rentals the same amount it was receiving as a manager of those airports. What we are seeing here is a sharp deviation of that policy. The rentals are to be about $105 million in the first year and will gradually increase based on the passenger volume level with an adjustment for inflation. Surely, Treasury Board must have been involved in this negotiation.
Mr. Miller: They were to a certain extent and I cannot comment on that because, unfortunately, I was in a different area of responsibility. However, from the notes I have received from the Department of Transport on this subject it was clearly their view that there was an obligation to complete several projects and that there was work already underway, such as the north-south runway, some de-icing facilities, and other specific capital improvements. That part of the renegotiation was in recognition of transferring the requirement to complete those projects over to the airport authority.
I am not sufficiently aware of the specific background of what happened between the December and the April to comment on the adjustment, but certainly they have indicated to us that the reason for that change was simply to recognize that the airport authority was responsible for those projects.
Senator Lynch-Staunton: I do not follow you at all and perhaps, Mr. Chairman, we should ask representatives from Transport Canada to come and assist us.
I also asked you if this kind of rental forgiveness had been applied to any other airport in Canada. Were you able to find that information?
Mr. Miller: There are some arrangements with some of the other airports. I will give you my best interpretation of what I have read on that particular item, but it is subject to clarification.
It was very clear from the arrangements with other airports that they were at a significant advantage in terms of capital constructions. Some dollar amounts were mentioned in the notes provided to me by the department. In actual fact, this particular adjustment to the lease for the Toronto Airport put them on the same footing in terms of capital expansion or capital requirements. That was the interpretation of the Department of Transport.
How that factored into the lease, I do not know; but it was clear from the information they did provide to me that this was seen as a levelling of the playing field. In fact, that was the phrase they used in the note.
Senator Lynch-Staunton: However, once Toronto had received this gift, is it not the case that the other major airports across the country felt they should get the same kind of gift?
Mr. Miller: My understanding is the arrangements in place for the other airports already provided for this kind of thing, and that the adjustment to the Toronto lease recognized what had already occurred at some other airports.
Senator Lynch-Staunton: You mean to tell me that in January, 1997 none of this was known, it only became known in April, 1997, and that all the other adjustments had been made before that?
Mr. Miller: To the best of my understanding, in negotiating the lease -- as you know the document is several hundred pages thick -- at the end of the day when they considered the implications of all of this, there may have been some consideration that there had been disparate treatment of one airport in relation to another, and that what they were attempting to do was recognize that and they did so in a manner that put the responsibility for the improvements into the new airport authority.
Senator St. Germain: Vancouver was one of the first.
Mr. Miller: That is correct.
Senator St. Germain: You are saying that this $110 million rental credit in Toronto reflected benefits that had been passed onto other airports, and the playing field was basically levelled. This just brought them in at the same level; is that correct?
Mr. Miller: In essence, that is correct. When looked at in total, the implications of some earlier leases provided several airports with benefits.
Senator St. Germain: Were there some criteria to be met in making this determination, or was this just a simple interpretation by certain individuals?
Mr. Miller: I honestly do not know, senator. I would need to find that information for you.
Senator Lynch-Staunton: Surely Treasury Board must be disturbed by the fact that the policy of this government and the previous government was that any so-called "privatization" of an airport facility would at least guarantee to the government the same revenues it was receiving when it was managing those airports. I hear you saying that many airports in Canada have received rental forgiveness which, in effect, means that the government is receiving less revenue than it was when the airports were under the administration of Transport Canada.
Mr. Miller: I should clarify that, senator. As I understand it, a table was used in the negotiations and during the discussions about expenses and revenues. That table clearly showed a revenue stream which was offset by both the operating and the capital requirements of the Department of Transport. Once the lease had been assumed, then those expenses that had been incurred by the Department of Transport were no longer applicable, they did not occur.
In effect, had it been another two years before the lease was assumed, then presumably the cost of those capital projects and the ongoing operating costs would have reduced the net benefit to the federal government. It is a question of timing in relation to when these capital improvements took place in, say, the Vancouver Airport as opposed to the one in Toronto.
Senator Lynch-Staunton: Timing is one thing but policy is another. Was Treasury Board involved in any negotiations surrounding the purchase of Terminal 3 by the Toronto Airport Authority?
Mr. Miller: Again, my understanding is that Terminal 3 was considered to be a subcontractor within the overall operation of the airport and that we always understood it was the intention of the airport authority to try to bring the entire operation of the airport under one jurisdiction. Obviously, federal officials were involved in that and the Treasury Board would be aware, but it is my understanding that it was done in the knowledge that it simply was buying out like a sub-tenant of the particular arrangement and it did not affect anything other than that.
Senator Lynch-Staunton: I can help you clarify that. Terminal 3 was built by private enterprise and eventually taken over by Pearson Development, which lost the contract for the management and operation of Pearson. It was built at a cost of $580 million, and the Greater Toronto Airport Authority, according to the prospectus, paid $855 million for it. I find it more than coincidental that, while negotiations were going on for the purchase of Terminal 3 at this huge price of $855 million, there were also negotiations going on to reduce the airport authority's rents. I want to know whether I would be right if I put two and two together and came to the conclusion that the purchase price of Terminal 3 is tied to the government repaying the airport authority through rental forgiveness.
If you have trouble following me on that I will start all over again.
There was, as you know, a lawsuit wherein the Pearson Development Corporation was suing the government for damages. In March, April or May, just before the election was called, a settlement was announced between the government and Pearson Development Corporation. Just about that time Terminal 3, which belonged to Pearson Development Corporation, was purchased by the airport authority for $855 million -- a building that cost $580 million and does not have many potential purchasers.
I am saying to myself and to you too, that I think that this rental forgiveness of $185 million is tied into the purchase of Terminal 3 and that it allowed Pearson Development Corporation to get, through the purchase of Terminal 3, the damages it would have been awarded by the courts. In order to repay the Toronto Airport Authority for the inflated price -- and this is all speculation -- it paid for Terminal 3, the government has given it the $185 million plus, nearly $200 million, in forgiveness of rentals. If you deduct that figure from $855 million, you arrive at $655 million, which may be a more reasonable price for that building.
I cannot believe that, three months after signing a lease which has taken months if not years to negotiate, the government suddenly decided that, for the first so many years they would forgive $185 million or $200 million.
Mr. Miller: Unfortunately, senator, or perhaps fortunately, I have no direct knowledge of any of the significant details of that, and I would suggest to the committee that it would be more appropriate to address those questions to representatives of the Department of Transport.
Senator Lynch-Staunton: I did not ask a question, I made a statement which I hope that you will take back to Transport Canada. Hopefully they will pursue it with us.
Senator Sparrow: It would seem to me that we require an answer from both Treasury Board and Transport Canada.
Senator Lynch-Staunton: Treasury Board were involved in the negotiations.
Senator Sparrow: I think Treasury Board should provide a more detailed answer to the question you have asked. Indeed, we should also have a response from Transport Canada on that as well.
Senator St. Germain: Am I correct that Toronto Airport, like Vancouver Airport, was a net profitable operation.
Mr. Miller: That is correct, senator.
Senator St. Germain: If that is so, why did they require rental concessions? I cannot remember any rental concessions being given to Vancouver. I know there is most likely some bureaucratic justification to this by virtue of the statement that you made, and that is why I asked you whether there was a clear-cut criteria as to how these airports devolved. This adds to what Senator Lynch-Staunton is saying. This operation was profitable and I do not think there were too many of those. If I recall correctly Vancouver and Toronto were porfitable, but Calgary and Edmonton were not, although, perhaps, one of them was marginal.
Do we have any information as to the concessions that were made to those which were unprofitable? From my recollection of the devolution of these airports there were no huge concessions made in relation to the Edmonton and Calgary airports.
Mr. Miller: Just to clarify, I was not suggesting that other rental concessions were made. I was suggesting that the development of the kinds of capital projects that would allow the airports to move forward for the next 15 years in certain airports had been undertaken or, in fact, completed prior to their transfer to an airport authority. That was not the case with Toronto. It was recognized there was at least three major capital projects that the Department of Transport, had they continued to assume responsibility, would have had to undertake. I am referring to such projects as the north-south runway and the de-icing facility. I was suggesting that, in terms of readiness for operation over the next 15 years, and future capital investment requirements, there was some levelling of the playing field in that sense, not in the sense of lease concessions. It would have been subject to the actual physical state of the assets when the lease was entered into.
Senator Forest: Mr. Chairman, I would suggest that, if we get the information on the concessions with respect to rentals, we also need to have the information on the other aspects of the lease and the other leases in order to make a comparison.
The Chairman: It may be useful to have a summary in the form of a table in order to make some comparisons.
Senator Forest: I think it would be helpful to list any offsetting conditions which might explain the situation.
The Chairman: Would that be acceptable?
Senator Forest: Yes.
[Translation]
Senator Bolduc: Mr. Chairman, if I understand your position correctly, the basic tenet in the case of privatization or devolution is that the assets or facilities must be in a state of operational readiness for the next ten years. Apparently this was not the case in Toronto. Is that correct?
Mr. Miller: Yes.
Senator Bolduc: Therefore, this was the only airport at which capital projects still needed to be undertaken at the time of devolution. Consequently, this would justify some of the concessions made.
Senator Lynch-Staunton: Yes, but this was no secret at the time of the negotiations which lasted for months.
Senator Bolduc: Exactly. However, if in addition this was a requirement for devolution because it was a real bargain, what happened suddenly over this three month period to account for this $200 million in concessions?
[English]
Senator Lynch-Staunton: This is my last comment. As I understand it, $72 million of that $185 million was for work already done. If that is so, then we might as well apply the same argument to Terminals 1 and 2 where the work was already done, and forgive a portion of that too. I believe that $72 million of the north-south runway was already done and is to be completed by the airport authority. That was part of the agreement. They took it over as part of the asset that they were called on to manage and profit from.
The Chairman: Someone from Transport should attend and assist us in that regard, but that would create a logistics problem in that, if we do not approve these Estimates this evening, then there will be a supply bill problem.
Senator Lynch-Staunton: I do not want to hold up the Estimates.
The Chairman: Perhaps we can find a way to submit our report approving the Estimates, but include a condition so that we can continue our work in this particular area. Does that meet with your approval?
Senator Cools: Yes.
Senator St. Germain: I am confused as to why this $72 million was not part of the asset base. However, I do not want to belabour this matter.
If this construction had been done, why was it not be construed as part of the asset base as opposed to being forgiven?
Mr. Miller: Senator, I was not aware of that specific provision until the senator showed me the prospectus this evening, so I have no way of dealing with that question. Obviously there was some dispute as to whether or not the money incurred for the partial construction of the north-south runway would have been part of the agreement. Out of context, I am unable to answer that question, but I am sure we can find the appropriate person who can.
Senator Lynch-Staunton: I have a question on the peacekeeping training centre which is listed on page 94 of the Estimates. The government is asking for $4,596,000, a supplementary estimate, nonetheless. For two fiscal years the centre received $2 million. Is this another nearly $4.6 million in addition to the $2 million?
Mr. Miller: Yes. In fact the explanation is that no funds were included in the Main Estimates for 1997-1998. Originally, the centre was meant to become a self-funded institution after the government assisted with some start-up costs until 1998-1999. However, a review by an auditing group revealed that the increased contributions from both the Department of National Defence and the Department of Foreign Affairs and International Trade will be required if the centre is to continue with its current mandate. The request in the Supplementary Estimates will constitute the first time a payment has been made for this year. There was nothing in the Main Estimates for this year, and it looks like that would be an ongoing requirement, given the nature of the operations that the organization is undertaking.
Senator Lynch-Staunton: Do you have any more information on the centre? Can you tell us what it does, how many people are employed, what we get for $4.5 million a year?
Mr. Miller: Unfortunately, I have no detail on the actual operations of the centre, but we can provide that by letter of course, senator.
Senator Lynch-Staunton: Is it common that a known agency or activity of the government does not have its requirements in the Main Estimates, but that they only come through in the Supplementary Estimates?
Mr. Miller: No, it is unusual. In this instance, they were waiting for a report from Consulting and Audit Canada who conducted an independent review of the operations, and the original intention was to discontinue the funding because they expected it to be self-supporting. However, the audit report indicated that would not be possible given the way the mandate and the operations were constructed. Therefore, the item was included in supplementaries to allow it to continue.
Senator Lynch-Staunton: As of March 31, 1996, it cost $2 million; as of March 31, 1997, it cost $2 million; and then suddenly we are being told it will cost $4.6 million. Why would anybody ever think it could become self-sufficient?
Mr. Miller: Obviously, there was an original plan as to how self-sufficiency would be achieved, and I would guess that the other source of funding or the ability to offset some of the costs either disappeared or was no longer available, so that in fact the operation is being totally funded out of the funds provided by the Supplementary Estimates.
Senator Lynch-Staunton: How have they been funded since the first of April? What happens when no money has been voted?
Mr. Miller: If it is a contribution, then there is authority for the minister to make the contribution under the vote. What they do not have is actual incremental funds in order to do that.
Senator Lynch-Staunton: They can take it from another item and then hope to have it approved in time.
Mr. Miller: That is exactly what happens.
Senator Lynch-Staunton: Is that only in the case of grants and contributions, or does it apply to just about anything?
Mr. Miller: It is the opposite for grants. A grant requires legislative authority which is normally done through the Appropriation Act itself.
Senator Lynch-Staunton: That is the difference between the two.
Mr. Miller: That is right. Contributions are more of a contractual arrangement where the Government of Canada will receive something in direct return, such as a report or a series of agreements, and this is why we at the Treasury Board in many ways favour a contribution arrangement. Quite simply, we can assess what is being done with the funds and know whether a particular item has been completed or an agreement reached on the results.
Senator Bolduc: Was it originally financed by Foreign Affairs or by National Defence?
Mr. Miller: I understand that it was split between the two organizations, 50-50.
Senator Lynch-Staunton: In these Supplementary Estimates, Foreign Affairs has an item for $358,000 as a contribution in support of the Foreign Affairs and International Trade Peacebuilding Program. Would that be part of the Lester B. Pearson International Peacekeeping Training Centre?
Mr. Miller: The explanation is that this particular item is a class of contributions in support of the Foreign Affairs and International Trade Peacebuilding Program, which started in the current year, 1997-1998, for disbursement of up to $2.5 million a year. In order to accomplish that, there is provision in the Supplementary Estimates to actually transfer some money from one area to another, so that in actual fact, I would assume it is not related to the item in Defence.
Senator Lynch-Staunton: This is in the Main Estimates, Canadian National Peacekeeping Training Centre, Foreign Affairs and Trade $500,000. They got $500,000 in the Main Estimates from Foreign Affairs and now we have a request for $4.6 million. Now they are up to $5.1 million, for an operation which, in the last fiscal year, cost $2 million and in the previous fiscal year cost $2 million; and you have been told to tell us that they hope to become self-sufficient.
Mr. Miller: I can only assume, given my background in dealing with these, that the original arrangement was probably set up in such a way that there were contributions from other parties and, when circumstances changed, both departments undertook an audit to obtain an opinion on the future implications for the operations and it was recognized that they may require full funding. During the time frame between when the Main Estimates are prepared in the individual departments and agencies, which is December and January, the audit report was received and, subsequently, they came back to Treasury Board to have the contribution approved and to request authority to include that item in Supplementary Estimates. The total cost of the operation, and we can confirm this, is probably similar to what it was last year. There were some external funds which assisted in offsetting that and, in the course of moving towards total self-sufficiency, some of those external funds dried up.
Senator Bolduc: I see listed here grants in aid of academic relations of $2.5 million. Since this is part of the usual business of Foreign Affairs, why it this not contained in the Main Estimates instead of a including it in a Supplementary Estimate? This spending has been occurring for years and I have difficulty understanding why it is included in a Supplementary Estimate.
Mr. Miller: Which page is that?
Senator Bolduc: It is on page 54, in the middle of the page, "Public Diplomacy, Grants in aid of academic relations."
Mr. Miller: The funds are required to finance Canadian studies initiatives in OECD countries and to strengthen federal-provincial relations.
Senator Bolduc: This is an established process. For at least the last five years we have been training people in Eastern Europe, and we have been encouraging people from those countries to attend our universities in Canada. This is not new. To me, Supplementary Estimates should deal with expenditures related to items that were not forecast and could not be included in the normal budget. This is not the first time Foreign Affairs has done that.
Mr. Andy Lieff, Assistant Director, Estimates Division, Treasury Board of Canada: Foreign Affairs used to be one of the areas I dealt with in Treasury Board. In my experience, they have a pot of contribution money for a variety of contributions and, at the beginning of the year, they try their best to project how much they will spend on a particular item. By giving departments more flexibility they some space to manoeuver in the area of contributions as opposed to grants. Occasionally they will report that they did not spend a whole allocation in one particular year and that they will move it around in the next year. We are showing that extra money is going in, but that is in recognition of the fact that they did not spend all that money in the year before.
Senator Bolduc: Every time the Prime Minister visits, there is a commitment for $5 million for this and $10 million for that. That has been going on for many years. I have been in the government long enough to know that it is not really an estimate, it is a public account we are talking about.
Mr. Miller: Senator, as you know, program review was an exercise that required many departments and agencies to reduce their spending in many discretionary areas by, in some cases, up to 60 per cent. Although there was no forgiveness in the overall target, it may have had an influence in the mechanisms they used to achieve their objective. In actual fact, we have been contributing funds towards these things. I believe in this case there was recognition that that is still a very worthwhile program, and that they can achieve their reductions in program review through another area. It was just a matter of setting this as a higher priority. It is my understanding it was the rebalancing of their priorities during the year that caused this to become a Supplementary Estimate when, in fact you are correct, it is an ongoing item that the government has helped finance.
Senator Sparrow: Would that not be a dollar transfer amount?
Mr. Miller: If this were the only item you would be correct, that would be a dollar transfer. However, in this case, they are asking for funds in addition to this particular item. Incremental funds are necessary for this. In this case we show all of the entries against the new requirement. We would not have a dollar figure for the single entry and then several million dollars in another entry that is in the same boat, we show all of the funds available. We, in Treasury Board, keep track of that by basically ensuring that the offset occurs in a different boat, that it is not necessary to transfer.
Senator Sparrow: Would the dollar adjustment show where that money came from?
Mr. Miller: Yes.
Senator Sparrow: But we do not know where that money came from.
Mr. Miller: That is correct. One of the things that has been a long-standing tradition with supplementary estimates that I personally do not agree with, and we would have tried to adjust, is the principle that we do not ask Parliament for additional funds when they are not needed. That makes sense on the surface but when you look at what trade-offs a department has made during a year and what movements they have made between votes, those items become invisible; and we do not have an opportunity to come to Parliament and express those kinds of concerns. The department will recognize an item as having a higher priority than an item in a different vote, and reduce that first vote in order to increase the second one.
We are reducing the amount we show to the incremental requirement and, in some cases, that can be very misleading. For example, if you have a new initiative that is $10 million and the department is able to offset that by $6 million or $7 million we end up showing that initiative as $2 million or $3 million and trying to explain how we managed to spend $10 million when we are only asking Parliament for $2 million or $3 million. It was something we were trying to clear up last year through a pilot project called the "End Year Update." Although we have restructured many of the documents we provide to Parliament in support of the supply process, we have not changed the format of the Supplementary Estimates for over 30 years. One of the projects we have under way for the next year or so is to work with parliamentarians in order to make these kinds of documents more meaningful.
However, you are correct that there are things netted out which make it difficult to both explain and understand the source of the funds.
Senator Bolduc: A cost system is not possible.
Senator Sparrow: Are you suggesting there will be a change in this process?
Mr. Miller: We certainly plan to work with parliamentarians to improve the way the information is presented. Hopefully, we can find a much better way to display the information.
Senator Sparrow: That is just not a sop to us, is it?
Mr. Miller: No, absolutely not. It is something that I have mentioned to parliamentarians. In fact on earlier appearances before this committee I have mentioned that we think it is essential to provide more complete information and that we change the way this works. It is just a question of finding the proper forum to discuss how we can do a better job. We tried a pilot project last year to provide information within the year, but we have a more detailed project under way now which would demonstrate some changes for the next Supplementary Estimates. We will at least have a basis for comparison. Parliamentarians will see the difference between the two and perhaps understand the directions in which we would like to move.
The Chairman: Manitoba had a fairly significant flood in the spring of 1997. I have gone through the Supplementary Estimates and identified on pages, 25, 29, 32, 83, 92, varying amounts from different departments. For example, on page 25, Industry, Western Economic Diversification, allocated $25 million; and Agriculture and Agri-Food on page 29, allocated $750,000 for Rural Prairie Rehabilitation, Sustainability and Development.
However, on page 32, we see an contribution in Canadian Heritage of $3 million to the National Ballet School, the National Theatre School and the National Circus School. I cannot believe that we are contributing substantial amounts of money to a circus school and doing little to deal with the aftermath of a flood.
On page 83, we have Industry, Western Economic Diversification, $21 million and $7,530,000; and for National Defence, Contribution to Manitoba for Natural Disasters, $27 million.
I realize that item was not identified when the budget was first established, but we do not know where that money came from. Can you provide me with a summary from each department identifying each item I mentioned?
Mr. Miller: In fact, we have that here tonight, senator. Perhaps I could just identify for the committee all of the elements that relate to what we would call "Disaster Relief Assistance." The first item of course is in National Defence. There is $27 million there for Manitoba. This is our standard financial relief. When there is a natural occurrence that is deemed to be a disaster, there is a protocol set up and all of the expenditures incurred by the province, and in some cases the municipality, are audited, verified by the Department of National Defence, and the federal government pays a significant portion of those.
In recognition of the fact that we do not know the size and magnitude of the flood, we realize that we can make a payment of this size and not get anywhere near what will ultimately be the federal government's contribution. Certainly in the Western Economic Diversification there are two elements. The first is the actual economic restoration initiative which was a payment to people affected. I believe it was made to businesses affected by the flood. It was an initial amount of money that was provided to them shortly after the flood occurred just to get them back on their feet, and not related to disaster assistance. It was an economic-related program. The second element is flood proofing and dike enhancement for $7.5 million which went to adjustments being made so that it will not occur again.
The Chairman: The International Joint Commission is presently meeting to determine what can be done in the future to prevent the severe flooding that took place, not only in Manitoba but also in North Dakota and Minnesota. My understanding is that this $7,500,000 is a drop in the bucket of what will likely be required on a joint basis to do the flood proofing required. Of course we are not addressing that tonight. However, my understanding is that the $7,500,000 is just an interim step.
Mr. Miller: That is correct. Of course, those repairs would be done during the current fiscal year, and I do not think they could do many at this time of the year. They have probably incurred all those expenditures already.
The Chairman: Once the International Joint Commission has reported and given us an outline of what has to be done, what you are reflecting here is this $7,500,000 for the construction of flood proofing that has already taken place or has been committed, and that has nothing to do with future flood proofing; is that correct?
Mr. Miller: That is correct, although these expenditures are part of a larger agreement the federal government has with the Province of Manitoba. As part of that larger agreement the amounts to date amount to about $99 million and they are shared on a 40-per-cent-federal, and 60-per-cent-provincial basis. Included in that total there is $4 million for the International Joint Commission study itself. Yes, this is part of an ongoing arrangement.
The Chairman: Will you provide that summary?
Mr. Miller: Yes.
The Chairman: You are undoubtedly familiar with the Saguenay flood. Were both situations treated on an equitable basis, realizing there were significant differences in the reasons for these floods?
Mr. Miller: I think that the experience gained with the Saguenay flood in 1996 made it much easier for the implementation of the kind of work required in Manitoba this year. From an operational and readiness perspective, there were probably differences in the way they were conducted. There were probably economic efficiencies as a result of the expertise and experience that has been gained.
In terms of the overall economic impact, my understanding is that the Saguenay flood was much more expensive in terms of restoration. During the time period of the Manitoba flood, nobody was able to completely assess the implications; they could only say that the overall damage would be less than one quarter of the Saguenay implications.
The Chairman: Is it your opinion, though, that they were equitable?
Mr. Miller: Very much.
Senator Sparrow: If want to have further clarification of the distinction between grants and contributions. A grants is made and there is, basically, no direct return to the federal government; whereas a contribution is made towards the purchase of a service or something like that. Is that a correct description?
Mr. Miller: Grants are an outright gift and, as such, they require either authority through legislation such as an appropriation act. They are individually approved by Parliament, because there may be all kinds of preconditions or requirements attached to a grant. Once you have met those requirements it does not matter what you do with the money. As an example, if a $50,000 grant were given to the Boy Scouts of Canada, that grant would be to assist the kind of work they do, but no one expects an accounting at the end of the day as to how those funds were used.
In the case of a contribution, there is a much more formal contract between the federal government and the recipient that covers not only the conditions that the individual corporation or association must meet in order to qualify, but also what will those funds be used for. In certain areas we may say that we will contribute to the operation of your organization up to 50 per cent of your requirement and, in that case, they would actually provide us with audited statements that represent the total amount of money they have spent, and we would be implicated to the extent of 50 per cent.
The more common arrangement is that, in exchange for the government giving the money as a contribution, the recipient will do something that furthers the objectives of the program. For example, community associations which receive funds may turn around and assist seniors. Normally, with a contribution, there is a definite return to the objectives of the government, although it will not necessarily take for form of a product.
Senator Sparrow: Is there no cost-benefit analyses on grants?
Mr. Miller: The cost-benefit analysis is conducted at the stage of the preconditions. In other words, when you establish a program, such as Old Age Security, there are certain requirements to be met for anyone to be entitled to Old Age Security payments; but once you receive the funds, there is no scrutiny of what you do with those funds. Of course there are tax implications attached to that item. However, to qualify for that is completely independent of how the funds are used. There are cost-benefit analyses done on the implications of the program but not in relation to the value obtained.
Obviously, in most contribution arrangements, the value is much harder to assess, otherwise you would have a contract to provide it as a service contract or as a procurement contract.
There are normally cost-benefit analyses done with all of these kinds of programs. They are just done from a different prospective for grants. They are done on the certain preconditions being met, and on the basis of the ultimate objective of a program, not necessarily on the direct return to the government.
Senator Cools: I move that the committee approve the Supplementary Estimates, and that we authorize the chairman to report at the earliest convenience, perhaps Tuesday.
The Chairman: With the recognition, however, that the questions regarding the Pearson airport carry forward to our study of the Main Estimates.
Senator Cools: Yes, that should be incorporated in the wording of any motion. I think it would be useful if some of the concerns senators have raised be reflected in the report, especially those in relation to Pearson. Perhaps the report should include a note to the effect that I raised certain questions to do with the Air Bus affair and that the answers to those questions have still not been furnished.
If the report could reflect basically the texture and flare of the discussion and concerns that were raised I think that would be very useful.
The Chairman: Is it agreed?
Some Hon. Senators: Agreed.
The Chairman: Carried.
We will now continue in camera.
The committee continued in camera.