Proceedings of the Standing Senate Committee on
National Finance
Issue 4 - Evidence - Meeting of March 24, 2009
OTTAWA, Tuesday, March 24, 2009
The Standing Senate Committee on National Finance met this day at 9:31 a.m. to examine the Estimates laid before Parliament for the fiscal year ending March 31, 2010.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: I call this meeting to order. Thank you all for being here.
This morning, we continue our study of Budget 2009-2010 and of the order of reference concerning Bill C-10.
[English]
We have already heard from officials at the Treasury Board of Canada Secretariat, who provided us with an overview of the government's spending plans for the coming year. We are now turning our attention to specific agencies.
[Translation]
This morning, we welcome officials from the Canadian Food Inspection Agency and from the Canada Mortgage and Housing Corporation.
[English]
Our first panel is from the Canadian Food Inspection Agency. We are pleased to welcome Mr. Cameron Prince, Vice-President, Operations; Mr. Paul Mayers, Acting Associate Vice-President, Programs; and Guy Lemay, Executive Director, Financial Services. Gentlemen, we thank you for being here. For this initial meeting, we have allocated one hour for a bit of an overview, and if you feel you would like to come back to see us another time to expand on some of the issues, we would always be open to that. Likewise, if honourable senators feel they would like to follow up in more depth on some of the issues, then we will be in touch with you.
Regardless, we thank you for making the time available to be with us this morning to talk about the budget and what flows from the budget. We are particularly interested in whether there is anything in the budget dealing with your agency under Bill C-10 and also with respect to the Main Estimates for the coming year. If you could help us with that, we would certainly be appreciative.
Mr. Prince, I believe you have some introductory remarks after which honourable senators will pose questions or make comments. If they decide to make a comment, you are certainly welcome to make your own comment in relation to that.
Cameron Prince, Vice-President, Operations, Canadian Food Inspection Agency: Mr. Chair, ladies and gentlemen, I appreciate the opportunity to appear before this committee. My name is Cameron Prince, and I am the Vice-President of Operations at the Canadian Food Inspection Agency, CFIA.
Allow me to begin by giving you some broad background on the agency and its role.
[Translation]
The CFIA is a science-based regulatory agency. It is dedicated to safeguarding food, animals and plants, which enhances the health and well-being of Canada's people, environment and economy. Our policies and activities originate from 13 acts and associated regulations.
The CFIA is led by a president who reports to the Minister of Agriculture and Agri-Food.
[English]
The CFIA employees close to 7,000 people across the country. Its headquarters are in the National Capital Region. We maintain four operational centres, which can be found in Calgary, Alberta; Guelph, Ontario; Montreal, Quebec; and Moncton, New Brunswick, for the Atlantic provinces.
The agency has 18 regional offices, 185 field offices, 408 offices in non-government establishments — mostly meat processing and slaughter plants — and 15 laboratories and research centres across the country.
In terms of our resources, the CFIA has an annual budget of $663 million. These funds include a parliamentary- approved budget, supplementary estimates, carry-forward and collective bargaining funds.
In December 2007, the Prime Minister announced the Food and Consumer Safety Action Plan, and the 2008 federal budget provided $113 million over two years for the plan to strengthen food safety programs and modernize legislation. We have hired over 200 food safety inspection personnel.
Also, Budget 2009 allocated $250 million over two years to Public Works and Government Services Canada to address deferred maintenance at federal laboratories. Many of the eligible labs contribute to Canadian health and food safety. In addition, we are constantly reviewing our food safety regulatory systems and improving our procedures.
I would like to briefly outline our activities in food safety, animal health and plant protection. Broadly speaking, our food, animal and plant programs contribute to the safety and economic security of Canadians by managing risk to food safety, animal health and plant species. This is a jurisdiction and a responsibility that we share with many partners. These include federal departments and agencies such as Agriculture and Agri-Food Canada, Fisheries and Oceans Canada, the Canadian Border Services Agency, Health Canada and the Public Health Agency of Canada.
[Translation]
Provincial and territorial governments have a shared jurisdiction for many of the areas of CFIA responsibility. In addition, industry and consumers are important partners and stakeholders in all aspects of CFIA work. Food safety and the protection of Canadians from foodborne risks is the CFIA's first priority.
[English]
With respect to animal health, our policies and activities protect Canada's animals, including livestock and aquatic species, from regulated diseases such as bovine spongiform encephalopathy — BSE — and avian influenza. Our plant protection activities safeguard Canada's plant resource base from regulated plant pests and diseases, such as potato cyst nematode, and the invasive forest pest species, such as emerald ash borer and the Asian long-horned beetle.
I would now like to talk about food recalls, one of our important activities.
[Translation]
One of our priority activities is food recall. The CFIA oversees recalls of food when an unsafe product is determined to have left the control of the manufacturer or importer. The agency's activities in this area include food safety investigations, posting recall notices on the internet and on the newswire service, and recall effectiveness checks.
[English]
The steps that lead to a food recall vary according to how a particular hazard is first detected. Hazards may be identified through consumer complaints, by industry, by public health officials, by food safety officials in other countries or through CFIA staff during inspections of a manufacturing or processing plant or a shipment of imported food.
If a company is unable or unwilling to recall a hazardous product, the Minister of Agriculture and Agri-Food has the legislative authority to order the recall. However, mandatory recall orders are exceedingly rare. Typically, a company will — of its own accord — swiftly recall a potentially hazardous product. CFIA oversees this process. Recalls that pose a risk to human health are made widely known to the public and the media.
Emergency management is also an important function for the agency.
[Translation]
Another agency responsibility is emergency management. The CFIA is responsible for preparing for and responding to emergencies involving food safety, animal health, and plant protection.
[English]
The agency continues to build its multi-jurisdictional partnerships with other areas of government, foreign competent authorities and industry as it addresses emergency planning in the event of an animal or plant disease outbreak or pandemic. Food safety is a shared responsibility.
[Translation]
As previously stated, food safety is our top priority. The CFIA's work is conducted within the context of a well- established international policy framework, and features frequent contact with regulators from around the world. In Canada, food safety is an area of shared jurisdiction and responsibility. The CFIA works within a national network of food safety authorities. Food safety issues may arise at any point along the food chain and every food safety partner has a role to play.
[English]
No single group can realistically protect the safety of food on its own. The production, preparation, distribution and consumption of food are complex, and many steps and players are involved. Collaboration amongst all the players is a key component of our success in this area.
We have expanded this collaboration by convening an academic advisory panel, which will provide us with additional expert advice. The panel's members are recognized experts drawn from academia, the private sector and non-governmental organizations. They will be asked to review and advise the CFIA on a variety of topics related to food safety and public health.
Collaboration between consumers, industry and government is also fundamental to protect consumers from food safety risk.
Consumers need to be aware of and practice safe food preparation measures to protect against food-borne illnesses. The CFIA manages and supports many educational endeavours in this area.
Industry is responsible for the safety of their food products. They do this by identifying and managing key risks and by complying with regulations. The CFIA's role is to verify that industry is complying with government regulations. Government responsibility lies in setting stringent standards for industry to follow. To manage risks and threats, the agency carries out inspections and enforcement activities to verify that industry is following these standards.
In conclusion, the operating environment for food safety, animal health and plant protection is continuously changing and challenging. Managing changing risks is critical for the CFIA to effectively deliver on its mandate. Therefore, we continually review and strengthen our response to risks to Canada's food, animals and plants.
Thank you, Mr. Chair. I appreciate this committee's interest in the Canadian Food Inspection Agency. We will do our best to answer any questions that committee members may have.
The Chair: Thank you very much for those introductory remarks and overview. In your remarks, you indicated that you have a budget of $663 million for the Canadian Food Inspection Agency. When I look at page 2-13 of the Main Estimates, I do not see that figure reflected. I see $572 million. Do you obtain funds through other statutory instruments in addition to the Main Estimates?
Mr. Prince: I will ask my colleague, Mr. Lemay, to answer that.
Guy Lemay, Executive Director, Financial Services, Canadian Food Inspection Agency: Yes, you are correct. The amount is $572 million in the Main Estimates for 2009-10. The $663 million indicated in the opening remarks begins with last year's contribution from the Main Estimates of $575 million but also takes into account supplementary estimates funding granted through the year and carried forward from previous years, et cetera. The current budget for this fiscal year is $663 million.
The Chair: You have a budget of $663 million identified as expenditures. However, you are asking for parliamentary approval of $572 million knowing you will be looking for more money in the supplementary estimates later this year.
Mr. Lemay: Not necessarily. The $663 million is approved now through Main Estimates from last year plus supplementary estimates through the current fiscal year.
The $572 million that we want approved by Parliament for the fiscal year starting April 1 will be increased, of course, through approval of supplementary estimates. Again, items carry forward from this fiscal year to the next year, as well as adjustments for collective bargaining, et cetera. Although the opening number will be $572 million, we will increase to an amount in the range of $600 million again this year.
The Chair: The $663 million was last year's budget for the fiscal year just ending.
Mr. Lemay: Yes.
The Chair: Is your budget for the coming fiscal year somewhere near $663 million?
Mr. Lemay: My estimation is approximately $630 million. We know we will receive supplementary estimates for some items, and we expect to carry forward some funds from the current fiscal year to the next year.
The Chair: Should we expect to find some additional funding in Supplementary Estimates (A) that is likely to come out in April?
Mr. Lemay: Yes.
The Chair: That is helpful.
Our researchers indicated to us that you have responsibility for 13 federal budgets and 42 sets of regulations. It is certainly a complex organization. Is that information correct?
Mr. Prince: Yes, that is correct. There are 13 federal acts and 40 plus sets of regulations under those acts.
The Chair: Could you tell us about the Canada Agricultural Review Tribunal?
I noticed an ad in the newspaper looking for a chairperson of the National Capital Region in the salary range of $130,000 to $154,000. That is in excess of what each of these honourable senators earns for their Senate activities. I thought they might be interested in knowing about this particular position. Is that within your budget of $663 million or is there a separate budget for this position?
Mr. Prince: That is not within the CFIA budget. We believe that is within Agriculture and Agri-Food Canada.
The Chair: My understanding is that the tribunal is responsible for reviewing various regulatory decisions made in relation to agricultural inspection agency activities.
Mr. Prince: I am not familiar with that tribunal being involved in our work.
Senator Callbeck: Thank you for coming this morning, gentlemen.
A great deal of concern has been expressed about Canada's food safety system. You say that you will be requesting funding in supplementary estimates. However, I was looking at the capital budget on page 2-3, which is being cut by about one third. What types of capital expenditures are being reduced, or are you assuming supplementary estimates will be added to that?
Mr. Lemay: Yes, you are correct. The budget is changing from approximately $34 million this year to $23 million next year, a decrease of about $12 million.
The reason for this is a change in the cash flow for avian influenza funds approved in 2006 over a five-year period. A $20-million, one-time capital funds amount was received in the current fiscal year to build mobile incinerators for mass disposal of infected animals. That was just a one-year amount, so that removes $20 million for the coming year. Then, we add some of the money for the Food and Consumer Safety Action Plan that this agency just received for the first time. Therefore, next year there is an increase of $8 million; that equals the $12 million difference. The base capital amount remains the same with $8 million more to deal with food safety.
Senator Callbeck: In a report that the Auditor General put out last fall, she was very critical of the agency. The report stated that the plant production programs are not adequately supported with information management technology. It went on to say that the agency agreed with her recommendations.
Is anything being done about that? Is there any money in this budget to cover those recommendations of the Auditor General?
Paul Mayers, Acting Associate Vice-President, Programs, Canadian Food Inspection Agency: The Auditor General's report noted the limitations of the information management system as it related to the tracking of the plant health incidents. The agency certainly agreed in that regard.
Included in our consideration of improvements is a focused improvement on what we call our plant health tracking system, which is intended to improve, in terms of an information technology solution, our ability to track such incidents. The agency is committed to responding to that recommendation with improvements in the information technology system that supports our investigation of plant health events.
Senator Callbeck: You are responding to the recommendations of the Auditor General, and money is in the budget to cover it, is that correct?
Mr. Mayers: I cannot identify specifically what amount of funding is targeted to the improvements in the plant health tracking system, but it is included in our overall information technology plan.
Senator Callbeck: All those recommendations will be covered then. Last fall the minister said that you would be hiring another 58 new inspectors. Have they been hired? If so, where are they?
Mr. Prince: Since 2006, we have hired 200 additional inspection personnel. The number of 58 is related to the additional funds we received under the Food and Consumer Safety Action Plan. The 58 personnel would be included in that overall 200 increase since 2006.
Senator Callbeck: The 58 inspectors have been hired since last fall.
Mr. Prince: I am not sure it is exactly 58, but we have hired new food safety inspection staff since last fall.
Senator Callbeck: Where are they located?
Mr. Prince: They would be located across the country. The focus was to get more on the front line to look at food safety issues, food recalls. They would be in the major cities primarily — Toronto and Vancouver in particular, along with Montreal, and I believe some in Winnipeg — but they have been distributed across the country to the 18 regional offices that we have.
Senator Callbeck: Could you get me a breakdown of those 58 inspectors and where they are across the country, please?
Mr. Prince: Certainly.
Senator Mitchell: I have a process question first. If you know it will be $637 million now, why would not you budget for that now? Is it because some of that calculation came later? Even as I say that, I realize it did not come later because you knew you were spending it last year.
Mr. Lemay: The parliamentary process calls for approval of Main Estimates — step one is officially approved reference levels. In step two, Treasury Board ministers approve Supplementary Estimates (C) and (B) submissions that will give agencies and departments additional funding.
That is our case. Every year, we have items for Supplementary Estimates (A) and (B), et cetera. According to what I know is brewing in the system in terms of pending approvals for new initiatives, I can take the $572 million and add those upcoming items to take me to that $630 million range.
Senator Mitchell: I thought the Main Estimates carried over almost at an equal level. Correct me, given that I will be wrong, but if you started at $572 million, and you never added in what you knew you spent last year, 10 years from now you would have a $572 million base and a $572 million addition.
Why would the Main Estimates not include that money because you spent it as a base, I would presume — unless it was just a one-time increment — this current fiscal year, which is almost over?
Mr. Lemay: It is a timing issue — that is the accountant talking here. There is a base; the amount fluctuates based on every increase or decrease linked back to budget reductions, budget increases for new initiatives, et cetera. When a new initiative is approved over a three- or five-year period, usually the cash flow varies from year to year. These amounts are built into that Main Estimates amount.
The timing issue is dependent on when it is approved. The first year it is approved, it usually becomes a supplementary estimates item because we missed the approval for Main Estimates voted by Parliament. However, the budgetary process allows departments and agencies to build those out-years' adjustments and amounts into the future Main Estimates.
When we miss it for one year, we end up in supplementary estimates. After that, it is built into the Main Estimates.
Senator Mitchell: It still makes it difficult for this oversight process when you know you will spend it. What do we do when we get the supplementary estimates? We are in the glue. We cannot reverse it because it is already in process, yet you knew it would be in process. That is my point.
Listeriosis has not been mentioned. It was suggested that during that problem inspectors on the floor had been cut back, and that these inspectors were reduced from implementing the full range of regulations that were on the books and had been utilized before. They were reduced to simply reviewing paper, reviewing the reports that they received from companies.
Is that true? If so, is that a question of financial cutbacks, or is it a question of policy direction that came from senior levels or even from the minister's office?
Mr. Prince: I welcome the opportunity to explain that. This has nothing to do with financial limitations. The way it was portrayed was that under the new compliance verification system, all inspectors did was review paper; they did not have the flexibility to go on the plant floor and look at product in the plant environment.
In fact, the compliance verification system simply provides individual tasks for inspectors. It is a rigorous system in the sense that it lays out very clearly what an inspector must do in the plant.
Part of what an inspector must do is look at the records that the plant keeps — for microbiological testing, sanitation, training of employees, et cetera. All those aspects are important in getting an overall evaluation of what is happening in the plant or if any food safety hazards or risks exist. That system does not prevent inspectors from doing their job. In fact, it encourages them under some of these tasks to go and look at specific elements of the food safety regime within the plants.
For example, with respect to a compliance verification task on sanitation, the inspectors would look at the records first, which would be a desk job. Then they would go out and observe the plant staff doing the sanitation — cleaning the equipment and so on.
It is important that we clear the air on this. This new system simply brought more rigour and structure to an inspector's day. It did not in any way change their time spent on the floor.
Senator Mitchell: They did what they had traditionally been doing. Were the 58 new hires related to a reaction to that problem?
Mr. Prince: No, the new money that we are receiving — we received some last year and more this year — is under the Food and Consumer Safety Action Plan. That is a broad plan, but the primary focus is on imported foods. You will recall the melamine incident with the contaminated dairy products from China. Much of the concern is about imported foods.
We already have significant programs to inspect imported foods. These new resources are primarily focused on enhancing our capacity to look at, inspect and monitor imported foods, and also to do some work domestically in plants where we do not have a great deal of presence. It enhanced our resources on the ground.
Senator Mitchell: Two years ago, I toured Saskatchewan with another senator and Ralph Goodale. We went to Drake Meat Processors, where some of the best sausages I have ever eaten are produced. They are as good as sausages from Alberta.
The Chair: He has not been to New Brunswick yet.
Senator Mitchell: They made the point that because they are provincially inspected and not federally inspected, they cannot export their product. We are concerned about overlap. What justifies that? Do people become ill more frequently in Saskatchewan from eating provincially regulated or inspected food than Canadians do generally from eating federally regulated food? Otherwise, why would they differentiate the two?
They made the point that to have a federal inspection, they would require a slightly larger drain in the floor of their plant. Perhaps they were exaggerating.
Mr. Mayers: You raised an interesting point: Under the federal Meat Inspection Act and its supporting regulations, federal registration is required in order for a plant to be eligible to ship product internationally or interprovincially. In the context of that federal registration, there are specific requirements. When a facility makes the choice — and it is their choice — to seek federal registration, then they must meet the requirements under the federal system.
Many plants operate their market within one province only and, therefore, do not elect to seek federal registration but operate instead under the respective provincial regulations. Their fundamental basis remains the same — an interest in producing safe product for consumers. However, the system within which with they operate and the inspection oversight to which they are subjected is different. Under the federal system, the Canadian Food Inspection Agency provides the inspection oversight, whereas within a province under provincial registration, they would be subject to the oversight of that province only.
We work closely with our provincial partners because we share the same goals. However, the constraints of the legislation and regulatory system would preclude such a plant without registration from shipping product interprovincially or internationally.
Senator Mitchell: For the record, their point was that it is expensive to take that next step to meet federal standards. It seems that perhaps an opportunity exists to develop one set of standards.
Mr. Mayers: We have had discussions with our provincial colleagues over several years around greater consistency in meat inspection regulation in Canada. The most recent meeting of federal, provincial and territorial ministers of agriculture requested to officials that a plan be developed for additional work on food safety, including an interest expressed in common work around a single meat hygiene standard. We are in the process of developing a plan for ministers' consideration whereby we would further the work with our provincial counterparts in that regard.
Senator Di Nino: Obviously, the issue today is safety. I see the Canadian Food Inspection Agency as a preventive agency in place to ensure that Canadians do not become ill from our food products. Are inspections prearranged, or are they surprise inspections?
Mr. Prince: It depends very much on the inspection program. I will restrict the discussion primarily to food inspection because I believe that is your reference, not animal and plant health.
Senator Di Nino: The food inspection is my primary focus.
Mr. Prince: In the meat program, we have a constant presence in slaughter facilities by veterinarians and meat inspectors. As well, for the ready-to-eat meat processing establishments, the inspectors are present every day, but not necessarily the full day. In most of our food inspection programs, the inspectors may notify ahead, but, in most cases, they do not notify ahead that they will be arriving. Certainly, the surprise inspection is a normal way of doing business. We do not announce necessarily that we will be coming. Again, it depends on the program. Some of our programs are under a quality-management system or hazard-analysis system where the plant has a structured quality-control system. Our role is to audit that system. In those cases, we notify ahead that the audit will be done. The answer to your question is that it varies and depends on the program.
Senator Di Nino: Certainly, if a concern arose, you would not notify but would simply arrive unannounced. Is that correct?
Mr. Prince: Yes.
Senator Di Nino: With respect to the listeria issue, you have made some changes. Could you describe those changes to tell Canadians who are watching and listening to these proceedings why they should be more comfortable now than they were before?
Mr. Mayers: Thank you for the opportunity to overview the changes made. Our commitment is to continuous improvement. The recent events provided a further opportunity to look at the control requirements in place.
When investigation pointed to the harbourage of organic material in slicing equipment, we immediately issued a new directive that required the dismantling of and additional sanitation to equipment in all plants operating under the federal registration. We followed that up by undertaking work at the CFIA in conjunction with our partners at Health Canada and the Public Health Agency of Canada to review the control directives.
At the end of February, we announced a new series of directives for the control of listeria, including additional requirements for environmental testing in the plant environment of food contact surfaces for listeria; additional requirements for end-product testing; and additional requirements for environmental testing undertaken by the Canadian Food Inspection Agency. We have increased the frequency of sampling and testing by the CFIA. As well, we have added environmental testing of food contact surfaces undertaken by the CFIA, including the requirement that any positive result in the plant from an environmental test must be immediately reported to the CFIA. Previously, that was a requirement for any positive end-product test only.
Through these tests, our goal is to increase the preventive capacity by identifying any potential problems early to ensure that they are responded to effectively.
Senator Di Nino: Where you have jurisdiction, you will inspect all producers of foods who have their products for sale, regardless of size. Is that correct?
Mr. Mayers: I will answer, and perhaps Mr. Prince will want to add his comments. The Food and Drugs Act, and its supporting regulations, are administered by the CFIA in terms of inspection. That applies to all food sold in Canada.
Therefore, certainly, we focus on a risk basis because the resources are applied where the risk is most significant in terms of the level of inspection oversight. That jurisdiction does apply broadly in terms of food in Canada.
Senator Eggleton: Gentlemen, I hear your reassuring words about the inspection system, but I think the system has taken a beating in terms of public confidence over this listeriosis issue. When the first announcement came out from Maple Leaf Foods Canada that there was a problem, it appeared it was the private sector entity, Maple Leaf Foods Canada, that was uncovering the matter as opposed to your agency. In fact, it was suggested that health officials had said that there was a problem even before Maple Leaf Foods first came out publicly with it, yet we did not hear anything about your agency.
Now we are hearing that you have a very rigorous system of inspection. What happened in that instance? This particular company and other companies that make processed meat products have been doing it for many years in this country. What suddenly happened there? Did you suddenly pull back?
On top of all of that, Mr. Mayers, you talked a moment ago about the new measures you put into effect. However, then another problem came up recently at Maple Leaf Foods — a listeriosis outbreak.
Therefore, I hear all your nice words, but I am not sure that I get a comfortable feeling that you are doing much about it.
Mr. Prince: I will begin to address this and then I will ask my colleague to add to it.
With respect to Maple Leaf Foods and the events of last summer, we were certainly very involved when the information was made available to us. We worked day and night in our food recall office to make that definitive link between the product from the particular plant and the illnesses. That was done. The suggestion that we were not upfront is misleading. We were working hard and did get those recalls done.
Maple Leaf Foods went public and that is normal. Voluntary recall means that we and the company have determined that there is a problem and, 99 per cent of the time, Canadian companies voluntarily recall the product.
We ensure the public is notified on our Internet site and through media and so on and then we go out with our provincial colleagues into stores and verify that the product has, in fact, been removed from the market.
That is our role.
Mr. Mayers: I will certainly add comments about listeria. The challenging thing about that particular organism is that it is an incredibly ubiquitous organism; it is widely distributed in the environment. That means that it will occasionally contaminate product. We want to enhance the system's ability to identify it, should such contamination occur, and respond promptly in order to minimize the potential that Canadians will be exposed to the product through foods.
Therefore, when you see public recalls of product as a result of the identification of listeria contamination, it means the responsive part of the system is working to ensure that those products, if identified to be contaminated, are withdrawn. The front end, which is the preventative part, is the basis on which we have encouraged and incorporated the environmental testing so that we can identify the presence of the organism in a food-processing environment, even in advance of it having the potential to contaminate product.
Of course, you will not see recalls resulting from the early identification because we want to identify it and to apply the appropriate mitigation tools to bring the system back into appropriate control. However, should product become contaminated, we will then apply the recall strategy. You will see companies communicating that, as my colleague mentioned, because, as noted, Canadian companies have been responsible and then voluntarily recalled product. Should the situation arise where that does not happen, then the authority has been provided through the Canadian Food Inspection Agency Act for the minister to order a recall of product, as well.
Therefore, we do have that tool in our arsenal, but it is used very rarely because Canadian companies will typically respond immediately with a voluntary recall.
Senator Ringuette: In early March, we had some officials from Agriculture and Agri-Food Canada who informed us of a bureau called the Food Value Chain Bureau. What is your relationship with that program?
Mr. Prince: That program is led by Agriculture and Agri-Food Canada with the industry. We participate in it.
Senator Ringuette: How do you participate?
Mr. Prince: We attend meetings and, when we are called upon to input on the technical and inspection side and how those inspection issues impact on the whole food value chain, certainly we are players. For example, in the Beef Value Chain Roundtable, the CFIA was a major player with respect to the issue around BSE and steps that the CFIA has taken to control BSE. As technical experts, we were major players in those discussions.
Senator Ringuette: They also advised us that the program contracts out third-party audits. In your current budget estimates, do you have any amounts for contracting out, and if so, for what purpose and to whom?
Mr. Prince: I will ask my colleague to verify, but my understanding is the budgets for those value chain round tables are not held by CFIA.
Senator Ringuette: They indicated that they do contracting out of inspection or food value chain programs. Do you do any kind of contracting out from your agency, and if so, to whom and for what purpose?
Mr. Prince: Do you mean contracting out for inspection?
Senator Ringuette: Within the $663 million that we are looking into today, are you doing any kind of contracting out for inspection or whatever?
Mr. Prince: I will ask Mr. Lemay to answer this. We do contract out. We do not do so for inspection purposes but certainly for a number of things, such as advisory roles and so on. Maybe Mr. Lemay could speak about the volume of that money.
Mr. Lemay: We do have a breakdown of that amount. I do not have it here, but, yes, professional services are involved in the operating budget included in that Main Estimates amount of $572 million. It is for various professional services; it is contracting, and people bid on request for proposals from the government.
Senator Ringuette: Can you supply that to the clerk? He will send it to all the members of this committee.
Mr. Lemay: Yes.
Senator Ringuette: We would like that to include the purpose of the contracts, who receives them and the amount of money involved.
[Translation]
Senator Chaput: Thank you, Mr. Chair. My question has to do with controlling food sold in Canada. We often hear how the Canadian government relies increasingly on the industry to control food. Can you describe to us the respective roles of your agency and of the industry in controlling food quality? Is this a shared responsibility?
[English]
Mr. Prince: Thank you for the question. Certainly, this topic did arise over the past year in the media.
The industry is responsible, first and foremost, for ensuring the food they produce is safe. A large majority of industry in Canada takes that very seriously. We approach our role as regulators and enforcers in this domain in that, increasingly, we are moving to modernize inspection approaches to get the most value for the resources we have available.
In meat and fish, and on a voluntary basis in other foods, we have implemented a quality-management system called the Hazard Analysis Critical Control Point system. This system is recognized internationally. It requires companies to have their own quality system. They have to identify the hazards of their products and take interventions and mitigating measures at critical points in the production of the food.
We verify that their system is working. We audit it, check it and take samples to verify that the food is meeting all of those requirements. We firmly believe this is a much better system and way of approaching food safety regulation. Unfortunately, it has been criticized in some sectors by saying that we are turning everything over to the industry. That is not the case at all. We are forcing the industry to take that responsibility and then following up with rigorous audits.
When we find problems, we have the authority to remove the licence and registration. We also have the authority to take enforcement action, such as charges, under the various food acts available to us. We have a whole suite of enforcement tools that we can apply, and we take it very seriously. It is unfortunate that this impression exists that the industry now has responsibility and that we have stepped away. That is far from the case.
[Translation]
Senator Chaput: How often are follow-ups done to correct problems, if and when they do arise? Are follow-ups done once a year, or twice a year?
[English]
Mr. Prince: It depends on the food commodity. For example, in meat processing plants, we have a presence on a daily basis. For other commodities such as dairy, fish and seafood, inspection is done on a monthly basis. For lower- risk foods, we might go once every three months. It depends on the risk and the compliance of the plant.
We have a presence in all federally registered plants. In the unregistered sector, we try to go at least once a year. In some lower-risk commodities, visits would be less frequent. When we go, as I indicated, we have strong enforcement backing to do what we need to do.
In most cases, the food industry in Canada is very compliant. We feel that through our efforts and the efforts of industry that we have a very safe food system in Canada. When we find problems, we definitely follow up, and on a regular basis we remove the licence or stop operations of plants that do not comply.
Senator Nancy Ruth: We are all aware of the invasion of outside species, whether it is zebra mussels or avian flu. Is Canada seeing evidence of the spread of invasive species and other pests that are a result of climate change? If so, what is your agency doing to anticipate and address this?
Mr. Mayers: This has been an issue to seize us in both animal and plant health, as well as in food safety. We have not yet seen specific incursions that we would attribute to climate change. However, we remain quite vigilant in looking at what happens elsewhere in the world, in any changes in the distribution of pest species and in the ranges within which certain insect pests operate, as examples.
Canada has enjoyed the benefit of very cold winters as a means to control against many invasive insect pests. Even when we have an incursion, that incursion is time-limited as a result. We recognize that climate change may change that. Therefore, we have been paying close attention to watching what happens elsewhere and doing environmental scanning to prepare us to respond to those types of incidents.
As you are aware, we are currently dealing with certain invasive species, such as the emerald ash borer. The control of such invasive pests, particularly when they operate in the forest sector, is very challenging as we have seen with urban forests and the emerald ash borer. We are not yet at that point where we would attribute those directly to climate change.
Senator Nancy Ruth: In the summer community in which I live, the biggest pests and the cause of a great health hazard is Canada geese. Their waste product run into waters in which people swim. These people come out of the water with swimmer's itch.
Where in government could one ever get a policy passed to shoot some of these birds or feed them to the poor, which would be my preference especially in the city of Toronto? What can a citizen do about this bird, which is definitely a problem in certain areas of the country?
Mr. Mayers: You have certainly exceeded my expertise in that regard. It would not fall within CFIA's mandate; I can communicate that.
Senator Nancy Ruth: The Canada goose is a health hazard.
Mr. Mayers: Perhaps colleagues in other departments might be in a better position to help you.
Senator Nancy Ruth: Which ones?
Mr. Prince: Migratory birds are regulated federally under the Canadian Wildlife Service within Environment Canada. Hunting seasons are set by provincial wildlife authorities.
Senator Nancy Ruth: Is the Canada goose exempt from being shot?
Mr. Prince: No, there are hunting seasons.
Senator Nancy Ruth: I was told only Aboriginals can shoot Canada geese.
Mr. Prince: That is not true.
Senator Nancy Ruth: Excellent.
The Chair: We have limited time, and we are getting beyond the mandate of this particular group.
If you wish to take some time to give us a written reply to the following questions, that would be fine.
Senator Eggleton: I have a supplementary to what I was asking previously. However, before that, I have a general question about the Main Estimates. You indicated that you had hired more than 58 people. That is not reflected in the Main Estimates. Main Estimates show that in the fiscal year starting April 1, you have less money allocated. How is that possible if you have been doing this for some time?
I realize supplementary estimates come into play, but I cannot figure out why Main Estimates are showing a decrease if you are doing more measures, with more inspectors and helping build public confidence on issues such as listeriosis.
Pertaining to listeriosis, from the comments made previously, Mr. Mayers, I gather that you were on top of the issue of Maple Leaf Foods. Did you actually know about the contamination before they did or at the same time as they did? If you did, why was it not made public? People's lives are at stake with this kind of disease.
Also, how did it happen a second time if you were on top of it? I am not sure how it could happen in the first place if you were on top of everything. That is what I would like to hear about.
Senator Callbeck: I have a brief question also. Mr. Prince, you outlined a system we have now where we are relying more on industry. How does that compare to other countries? Does Canada rely more or less on industry in carrying out food safety than, for example, England or the United States?
Has there been any public input or consultation on deciding how the Canada food safety system should be handled?
The Chair: Could you reply in writing to those questions? As a supplement to Senator Callbeck, if you do have any comparative studies — reliance on industry versus government inspection — that you could share with us, that would help as well.
Mr. Prince, I would like to thank you and your colleagues, Mr. Lemay and Mr. Mayers, for being here and giving us this initial overview of this very important work that you are doing for Canada.
We are continuing our study of the Main Estimates for 2009-10, and we also have a second mandate with respect to the subject matter of Bill C-10, dealing with budget implementation. Each of the mandates that we are dealing with relate to the authority that Parliament is giving to government to spend money on initiatives outlined in this year's budget.
We are very pleased to welcome from the Canada Mortgage and Housing Corporation, the President and Chief Executive Officer, Karen Kinsley, and Michel Tremblay, the Chief Financial Officer.
The speaking notes for Ms. Kinsley have been circulated. I will ask you to make a brief presentation. Tell us a bit about your challenges and the good things that are happening and then we will go to questions and answer.
Karen Kinsley, President and Chief Executive Officer, Canada Mortgage and Housing Corporation: It is my pleasure to be here today to discuss the 2009-10 Main Estimates for CMHC, and to highlight some of our plans and priorities. As many of you know, CMHC is a Crown corporation that draws on more than 60 years of housing experience.
[Translation]
We have played a major role in the evolution of Canada's housing markets, never losing sight that our mission is to help Canadians access affordable and high quality housing.
[English]
We pursue this mandate in a variety of ways. We assist those who have the resources to find housing in the marketplace by providing mortgage loan insurance for both home ownership and rental projects. CMHC supports the creation and renovation of affordable housing for those who need assistance in finding a home.
[Translation]
We promote quality and sustainability in Canada's housing sector to support a strong economy and a healthy environment.
[English]
We produce and share leading-edge research and expertise on housing solutions. This includes working with international clients in making the best use of Canada's housing innovations. We also support the stability of the financial system by securitizing mortgages.
[Translation]
As we all know, the past year has created exceptional circumstances in global financial markets.
[English]
Even though the economic situation is contributing to a slowdown in the housing sector, Canada's system of home financing is continuing to operate. Allow me to first discuss CMHC's contributions in the housing finance system in Canada.
In 2008, the Government of Canada introduced the Insured Mortgage Purchase Program to maintain the availability of longer-term credit in Canada. Under this program, CMHC can purchase up to $125 billion of insured mortgage pools. To date, CMHC has purchased $53.4 billion of insured mortgages from Canadian financial institutions through a competitive auction process. This has provided lenders with stable, long-term financing and allows them to continue lending to Canadian consumers and businesses.
CMHC is also committed to supporting a strong mortgage system so that Canadians have access to home ownership or rental housing regardless of where they live, and at the lowest possible cost. In 2008, more than 40 per cent of CMHC's mortgage insurance business was directed toward assisting Canadians who are not served, or well served, by the private sector.
[Translation]
This includes people who live in rural or remote locations, or in certain types of housing, such as large rental projects and retirement homes.
[English]
The government, through CMHC, is also strengthening its commitment to assist those in need of affordable housing. The government committed, in September 2008, more than $1.9 billion over the next five years for housing and homelessness programs. Canada's Economic Action Plan builds on this with an additional one-time investment of more than $2 billion over two years, in both new and existing social housing.
Currently, the federal government spends $1.7 billion annually in support of approximately 630,000 social housing households. However, a considerable portion of this housing is getting older and is in need of major repair and upgrading. The $2 billion investment in the action plan includes $1 billion for the renovation of this important national asset. It also includes significant funding for First Nations and northern communities, for seniors and for persons with disabilities.
[Translation]
Canada's Economic Action Plan also includes $2 billion in low-cost loans to municipalities for housing-related infrastructure.
CMHC is working diligently to ensure that stimulus funding will be provided in a timely manner so that it can create jobs as soon as possible.
[English]
As we deliver these initiatives, CMHC is moving forward on other priorities that we believe will improve the quality of life in Canada for years to come. There are two milestones, in particular, that I would like to share with the committee.
First, CMHC's EQuilibrium Sustainable Housing Demonstration Initiative has become truly national in scope. The program brings together the private and public sectors to develop demonstration homes that are models for sustainable living. We recently announced demonstration homes in Kamloops and Vancouver, British Columbia and Moncton, New Brunswick. This brings the total to 15 projects, with every region of the country represented.
Second, the First Nations Market Housing Fund is open for business and has welcomed its first client, the Miawpukek First Nation, located on the south coast of Newfoundland. The fund is a new and innovative initiative established by the Government of Canada and CMHC to give First Nation members greater access to housing lands on-reserve and on settlement lands where appropriate. In total, we estimate the fund will help to provide as many as 25,000 home ownership units on-reserve over 10 years.
[Translation]
We look forward to working with the government and our partners on these and other priorities. Today, more than six decades after our organization was founded, the people I am proud to work with at CMHC continue striving for improvements in Canada's housing sector.
[English]
Thank you once again for the opportunity to be here and to talk about our work. I would be pleased to answer your questions.
The Chair: Thank you very much.
Before going to my list, when CMHC is involved in ensuring a mortgage, do you insure the entire amount of the mortgage or a portion of the mortgage?
Ms. Kinsley: The entire amount of the mortgage.
The Chair: When you speak about the Government of Canada program, the Insured Mortgage Purchase Program, is it possible that you might be buying mortgages from a bank that you have insured yourself?
Ms. Kinsley: Yes, that is correct.
The Chair: Who are some of your competitors who might be insuring mortgages as well?
Ms. Kinsley: There are currently two active competitors in the Canadian marketplace; one is Genworth Financial Canada, a private-sector company, and the other is AIG Canada, also a private-sector company.
Senator Ringuette: ``The'' AIG?
Ms. Kinsley: It is a Canadian subsidiary.
The Chair: When you get involved in insuring a mortgage, is it because it is a low-ratio, a small-deposit or a longer- term mortgage?
Ms. Kinsley: Under the Bank Act, any mortgage that represents more than 80 per cent of the value of the home is required to have mortgage insurance, so it would be what we would call a high-ratio mortgage.
The Chair: A high-ratio mortgage, thank you.
Ms. Kinsley: Although, we will also provide insurance to lenders on loans with a loan-to-value below 80 per cent, should they request it.
The Chair: If you provide such insurance, if I have a down payment of 25 per cent, I do not need the insurance, but if I can get the insurance from you, I might get a lower interest rate from the mortgage company, the lender.
Ms. Kinsley: No, in fact, it does not work that way. What happens is that because we provide, as do our competitors, mortgage insurance for loans over 80 per cent loan-to-value, it means that the lenders are able to offer to those Canadians the same interest rate as those in your example with the down payment of 25 per cent. Everyone gets charged the same interest rate regardless of their loan-to-value because, for the higher-ratio mortgages, the banks are protected through mortgage loan insurance. It is the same rate.
The Chair: Why would you insure mortgages where the individual homeowner has a down payment of more than 20 per cent?
Ms. Kinsley: When we provide insurance for low-ratio loans, this is not insurance that the homeowner pays for because you are absolutely right, they do not need insurance with more than the minimum down payment of 20 per cent. However, a lender may say, perhaps for capital management purposes within the financial institution, that they would like to have those loans insured to be able to manage their balance sheet. This is an insurance that the lender pays for on low-ratio loans.
The Chair: Thank you. In relation to the $125 billion that I understand CMHC has been directed by the government to get involved in this activity, as the minister has authority under your legislation to do, where do you get that money? Where do you get the $125 billion to invest in purchasing insured mortgages?
Ms. Kinsley: We, in fact, borrow from the Department of Finance Canada or the Consolidated Revenue Fund ultimately or through debt financing that the Department of Finance Canada may issue. Our money comes from the government. We, in turn, use that money to purchase the assets from lenders, those assets of course being insured mortgages.
The Chair: We do not see that $125 billion in Main Estimates, do we?
Ms. Kinsley: The Supplementary Estimates (A) that will follow this document will include those non-budgetary amounts.
The Chair: You have already spent $53.4 billion.
Ms. Kinsley: Yes.
The Chair: Will you be looking for forgiveness or approval for that in Supplementary Estimates (A), or was there approval somewhere else?
Ms. Kinsley: No, in fact, we were informed by Treasury Board that because this is borrowing, we do not have to reflect it in the mains, though we believe that for full disclosure we should. Therefore, it is not an authority issue; it is a matter of disclosure.
The Chair: This is the new provision in borrowing that allows government departments and government to borrow without getting parliamentary approval that was included in last year's Budget Implementation Act that we were concerned about at the time.
Ms. Kinsley: No, we have had the ability to borrow for many years and have been doing that. It is within our own legislation to be able to do this. We have been borrowing, for instance, for purposes of lending to social housing groups over the years; we have quite a large borrowing program outstanding for that purpose. The authorities to borrow are part of our borrowing plan that is included in our corporate plan every year. This is just borrowing for a slightly different purpose.
The Chair: Your borrowing authority in your statute is broad enough to include this, in your view.
Ms. Kinsley: It is, exactly, yes.
The Chair: Thank you. That is very helpful. It is a lot of money, and we wondered where it came from. Now we know.
Senator Mitchell: Thank you for your presentation. I noted how relaxed you look in the midst of this financial storm. I think it must be a testimony to your steady hand, and I am sure we are all grateful for that.
My concern is with that financial storm. What is your total mortgage exposure, and what percentage of that do you believe to be distressed?
Ms. Kinsley: Our annual report for 2008 will come out shortly, but at the end of 2007, our total insurance in force was around $334 billion. In terms of a level of arrears in the portfolio, which is a measure of loans that might be having some difficulty, we track the Canadian Bankers Association numbers which are right now a little less than one third of 1 per cent.
Senator Mitchell: Is that all?
Ms. Kinsley: Yes.
Senator Mitchell: How certain can you be about that, given the evidence that there seems to be huge problems? That is encouraging news, but how can you be so certain, and why would that be the case in this kind of fiscal environment?
Ms. Kinsley: If you are thinking about perhaps the United States by point of comparison, we do have a very different mortgage system. We underwrite prudently; we do not put people into homes they cannot afford, or at least we try not to. We have taken a different approach to our underwriting in this country than I believe perhaps other countries have, and that is reflected in the one third of 1 per cent that I talked about in terms of the level of the arrears.
Is that number concerning? I think that any time there is an economic slowdown, we will see that number rise; that is inevitable. We have seen a slight increase in that number over the last year. However, putting it into context, it is nothing compared to what we might have seen, let us say, in the 1990s here in Canada, where that number would have been as high as .6, almost to 1 per cent of points in time, or to the 10 per cent number you would see in the U.S.
Senator Mitchell: Do the insurance premiums that you raise cover that risk entirely; are you obliged to do that and is that the case?
Ms. Kinsley: We are absolutely obliged. We do actuarial valuations — we price our loans for the full length of the risk that is outstanding. In our actuarial valuation, we have gone through other periods of economic downturns, and we know how our portfolio performs. That is factored into the premium we charge today. Therefore, our premiums inherently have in them a level of experience loss that we can withstand as part of the calculation of the rates.
Senator Mitchell: Though I am not suggesting it is the case in any way, shape or form that these private sector companies other than AIG might be weak — although AIG is a factor, as well — is there any obligation on the part of CMHC or by similar private sector firms to cover losses? Might you be called upon to do that if they were to fail?
Ms. Kinsley: No, we are not obligated to do that. We had one private insurer in operation in Canada that left Canada as a result of issues with their parent company in the United States. Their book of business will run off, and they will be obligated to manage that.
Senator Ringuette: Out of the $53.4 billion that was used to purchase insured mortgages, how many of these insured mortgages were your own, and how many were from the private sector?
Ms. Kinsley: I do not have the exact statistics, although I could find the number. If you just take the market share, roughly, that we have in the marketplace versus our competitors and assume that the pools came in relatively similarly distributed, we have about a 67 per cent share and our private-sector competitors have the balance.
Senator Ringuette: You used to have 90 per cent of the market.
Ms. Kinsley: Not in my time.
Senator Ringuette: It was not too long ago. You are saying that, out of the $53.4 billion of mortgage insurance buy- back to our financial institutions, probably 67 per cent of them are your insured mortgages.
Ms. Kinsley: Yes. That would be a rough estimate.
Senator Ringuette: Can we have that data? That is very important. If the rest, which is 33 per cent, was used to buy AIG insured mortgages that have left town, I would say that is a bigger bailout for the sake of AIG from the Government of Canada through your auspices.
Ms. Kinsley: Let me elaborate a bit on how the process works for our private-sector competitors. First, AIG Canada is distinct from AIG U.S. I do not speak on their behalf, but they will indicate that they are strongly capitalized here in Canada. Also, it is important to note that the private-sector competitors — be it Genworth Financial Canada or AIG — have a 90 per cent government guarantee on those loans. Therefore, when we are purchasing those loans, they come with a 90 per cent government guarantee.
In fact, the loans that we have in our portfolio are either 100 per cent our own — the 67 per cent we discussed — or the others are 90 per cent backed by the government.
Senator Ringuette: Therefore, we have backed AIG-insured loans by 90 per cent. That is what you are saying?
Ms. Kinsley: Correct.
Senator Ringuette: Wow. Taxpayers are in for quite a shock.
There is still $71.6 billion in the pool of $125 billion. You probably do not have these numbers and these data, but could you please provide them to the clerk so that all the members of this committee will have them? I want to have a breakdown of the current $53.4 billion, the actual numbers of how many were from insured loans from your corporation and from the two private corporations, which financial institutions have pooled these mortgages and what the risk factors are for these mortgages.
In regard to your policies, do you need to have your minister's approval before you announce a new policy?
Ms. Kinsley: Do you mean in the case of mortgage insurance?
Senator Ringuette: In the case of mortgages at large.
Ms. Kinsley: Yes. We operate our housing finance mandate on a commercial basis. In other words, premiums and fees are used to pay for losses. There is no taxpayer dollars involved. We have approval, operationally, to make changes to our program with our board of directors' consent. If there was something such as the Insured Mortgage Purchase Program, for instance, that would be a ministerial approval and announcement.
Senator Ringuette: I will give you dates and policy changes, and you tell me if it was your own decision, your board's or the minister's decision to venture that way in regard to policy for mortgages.
On June 28, 2006, CMHC announced that it would now venture into interest-only mortgages and extended amortization from 30 to 35 years. Let me specify this for the people who are listening to us. With interest-only mortgages, for the first 10 years of a mortgage, the mortgagee only pays for the interest and not the capital.
On your website, there was an example for $175,000 home, extending the mortgage and extending this 10-year, interest-only payment. At the end of the day, the owner of the house paid over $100,000 more in interest for that same home.
My other question is about the extension of mortgages from what used to be 25 years to 35 years. Would this policy need the minister's approval before you make that kind of change?
Ms. Kinsley: The answer for both of those cases is, no. That is an operational change to our program.
I want to clarify interest-only mortgages for the committee's benefit. Even though the homeowners have the flexibility to pay interest only, they had to qualify for those loans on the basis of full principal and interest payments. In other words, we did not qualify homeowners assuming they were only paying interest. They had to qualify on the basis that they were paying a full blended payment, as traditional mortgage would require. However, once they qualified, they had the flexibility for cash flow reasons to only pay interest in that initial period of time.
Senator Ringuette: Another committee of the Senate, the Standing Senate Committee on Banking, Trade and Commerce was looking into hedge funds, sub-prime and derivatives, and we were sounding bells on similar types of issues.
In regard to ministerial involvement in program and policy change, I have a press release here dated November 27, 2006, where Minister Flaherty, the Minister of Finance, says that he is looking into policy changes, such as lowering the required down payment consumers are required to make on mortgages.
If it is an operational decision that only you and your board makes, why would the minister come out with a press release saying he would be doing this?
Ms. Kinsley: I do not have the benefit of having the press release in front of me. However, I would imagine it related to the fact that the Department of Finance was looking at changes to the Bank Act at the time with respect to the down payment threshold at which mortgage insurance would be required.
You will recall that it was changed from 85 per cent to 80 per cent. Although I do not have the press release, that might be what the Minister of Finance is referencing.
Senator Eggleton: I want to reference your remarks this morning on affordable housing. You spoke about the government announcement in September last year for $1.9 billion over the next five years for housing and homelessness programs; an additional one-time investment of $2 billion over two years in the Economic Action Plan and the budget; $1.7 billion annually in support of social housing units, which are getting older and need repairs and renovations; housing for First Nations in northern communities; and $2 billion in low-cost loans to municipalities for housing-related infrastructure.
Some of that was in the budget bill, but I am not sure which elements were in the budget bill and which were not. Presumably there is another budget bill coming this spring. What portions of this are not in the bill that was just passed versus what parts have yet to be covered by legislation? How does that affect your opportunity to get this into the market?
It is part of the stimulus. However, since we do not have legislation covering some of it, we cannot get this money into the market right now.
Ms. Kinsley: The $2 billion for affordable housing in Canada's Economic Action Plan as well as the $2 billion for municipal loans were both in the Budget Implementation Act.
The $1.9 billion for housing over the next five years announced in September 2008 will come through Supplementary Estimates (A). The $1.7 billion, which is the amount we currently spend annually, is in the Main Estimates before the committee today.
Senator Eggleton: Is there nothing left to be covered in another budget bill, or is there only this $1.9 billion remaining?
Ms. Kinsley: That will come through Supplementary Estimates (A) to these Main Estimates.
Senator Eggleton: I want to ask about the $2 billion to the municipalities. This is something quite new. How will it work? What kind of infrastructure will be covered? What will be the criteria for approval? Do you have an application form, and if so, can we look at it? What will the interest rate be? How attractive will that interest rate be to municipalities versus the rate at which they can borrow now? What is the length of time for repayment? What is the start-up date for this program?
Again, time is of the essence in terms of the stimulus package.
Ms. Kinsley: The report that went to Parliament recently with respect to measures in Canada's Economic Action Plan indicated that the program will begin in April, which is fairly soon. The launch will include all the details you have highlighted with respect to the application form, the interest rate, the length of time loans would be available, et cetera.
On the type of infrastructure this would relate to, it must relate to housing-related infrastructure. Examples of that could be sewage treatment plants, water treatment plants, power generation within a given residential community or roads and sewers within a community.
Senator Eggleton: What about community facilities such as sports facilities?
Ms. Kinsley: No. It will not include what we call social infrastructure. It is what we call hard infrastructure.
I think you also raised the approval process.
Senator Eggleton: Yes.
Ms. Kinsley: We will require a municipality to come forward and indicate that they have all the appropriate approvals needed for whatever project they propose. This includes environmental assessment, which would be required because we are the lender on this project. It is incumbent on the municipality to do all the things required to ensure approval, including compliance with the environmental processes.
Senator Eggleton: What is the repayment schedule?
Ms. Kinsley: All of those details will be announced in April with respect to the specifics on terms and rates.
Senator Eggleton: Therefore, the details will be announced in April, and the program will immediately be up and operating?
Ms. Kinsley: Correct.
The Chair: When I look at Bill C-10, the Budget Implementation Act, 2009, section 312 talks about accordance with the terms and conditions approved by Treasury Board. Is it these terms and conditions you were identifying to be approved by Treasury Board in order for the funds to come out of the Consolidated Revenue Fund and given to CMHC to do the function?
Ms. Kinsley: With the approval of the Budget Implementation Act, 2009, the funds become statutory and are available. However, we are required and have gone to Treasury Board to approve the terms and conditions for each of those initiatives. There are two elements: the programmatic approval with Treasury Board; and the funding approval and availability through the Budget Implementation Act, 2009.
The Chair: I understand that. The question I have is the terms and conditions. Are the terms and conditions referred to in the statute those which you have been talking about with Senator Eggleton?
Ms. Kinsley: Yes, they are.
The Chair: They will all be completed with respect to all of those sections by April?
Ms. Kinsley: Correct.
Senator Nancy Ruth: I want to ask about the Native on-reserve housing. You have $400 million in this budget. How is that different from the other funds that are available for Native housing, the other programs that exist?
Ms. Kinsley: The $400 million in the Budget Implementation Act, 2009 will be delivered through existing programs. It will be an add-on.
Senator Nancy Ruth: Part II of the Main Estimates, page 14-13, suggests that the corporation had planned to reduce spending on on-reserve programs by $168 million, from $318 million to about $150 million. Is the new money coming in to replace the old money that has been removed?
Ms. Kinsley: No. In fact, it is not. The difference is largely attributable to $150 million, which was a unique item last year. This was one half of a $300-million investment the Government of Canada made in the First Nations Market Housing Fund, which I alluded to in my remarks. One half of the contribution was made last year, and it was the final half of the fund. Our spending has continued at the same levels in the program. This one-time expenditure is what accounts for the difference.
Senator Nancy Ruth: I want to ask about the First Nations Market Housing Fund that you spoke about. Is it on a first-come, first-served basis? Who gets the money? Does it only go to the bands?
I have several questions, so I will pose them all. I was surprised and interested that you used the words ``supplemental lands,'' lands adjacent to reserves that could be used for housing. Who owns that land? Most of your money is for houses, not for land, because the bands own the land. In the supplemental lands, who owns the land, as well as the buildings? How do they get them? Is it the band that distributes it? Does the band have any gender analysis of who they distribute to? Do you enforce that, if they do not?
Ms. Kinsley: Perhaps I mispronounced the words; it is actually settlement lands, not supplemental lands. Settlement lands are just another form of tenure for First Nation communities, largely in the North. These are First Nation communities that have their communities on settlement lands.
Senator Nancy Ruth: They own it.
Ms. Kinsley: Absolutely.
Who distributes the funds? The way it works is that, first, the band has to agree to participate in this program because the band does provide its guarantee in part for the loans that are being made. However, it is the individual community members who go to the bank, in the same way that you and I would, looking for a mortgage. They must qualify in the same way that we would. Once qualified, it would be the lender who would advance funds to that particular prospective homeowner. The role of the band in this process is strictly as a guarantor.
[Translation]
Senator Chaput: My first question deals with the shared-cost infrastructure program. Can a municipality participate in this program if the federal government is not involved?
Ms. Kingsley: Yes.
Senator Chaput: Does the province need to be involved?
Ms. Kingsley: No. It would depend on the legislation governing municipalities in each province. For example, Ontario municipalities are not required to have the province on board. Elsewhere, in Quebec and in British Columbia, a provincial agency must be involved along with the municipality.
Senator Chaput: And what about Manitoba?
Ms. Kingsley: I do not believe the province needs to be involved, but I am not certain.
Senator Chaput: My next question concerns housing on reserves. Like many of my colleagues, I attended a breakfast meeting at which Chief Phil Fontaine spoke to us about the state of housing on reserves and about the unacceptable humanitarian crisis that is unfolding in our country.
You indicated that the fund will help to provide up to 25,000 housing units on-reserve over a 10-year period. Did you do a needs assessment in order to arrive at this figure and time frame? How did you determine that 25,000 housing units over a 10-year period would begin to address the needs identified in a timely manner?
Did you consult with First Nations? Did they help you come up with these figures?
Ms. Kingsley: Yes, we consulted with First Nations on the fund initiative. Even Chief Fontaine of the Assembly of First Nations agreed that this figure of 25,000 units was reasonable. This is just one component of the government's efforts to improve conditions on reserves. This initiative does not target all reserves, only the ones that are capable of paying for housing. The affordable housing program must operate in conjunction with this program. Many reserves are not capable of paying for housing.
Senator Chaput: What percentage of the reserves would have that capability?
Ms. Kingsley: This analysis was done with First Nations and it was found that approximately 10 per cent of bands have the financial capability and the professional management skills to participate in the fund initiative. However, there is still work to be done to improve the capabilities of an additional 20 per cent to 25 per cent of level II reserves, so that they can access the fund at some point in the future.
[English]
Senator Callbeck: I want to return to the $2 billion that you will be lending to municipalities at a low interest rate. You said that that would be available April 1. Does that have to be used in the two-year period, or is it just a matter of committing it?
Ms. Kinsley: Just for clarity, I did not say April 1; I said in April. Yes, we do have to be able to have the funds dispersed in that two-year time period. These are loans, so we have to advance the loans in that two-year window.
Senator Callbeck: How will that money be divided among the provinces?
Ms. Kinsley: At this time, we are not looking at an allocation process because we are not sure from where the demand will come. However, we will ensure that there is equitable distribution across provinces and between what we would consider rural and urban areas.
Senator Callbeck: In April, then, we will have all the details of that. You said that it was not available for social infrastructure.
Ms. Kinsley: That is correct.
Senator Callbeck: What about health clinics?
Ms. Kinsley: No, it is not available for health clinics.
Senator Callbeck: I want to ask about housing repair and improvement programs because they have been reduced from $122 million to $79 million. You have a reduction of roughly 35 per cent. Included in those programs is the Residential Rehabilitation Assistance Program, RRAP, which is for low-income families who want to shingle their roof or whatnot. In my province right now, there is a waiting list of six to seven years to be able to take advantage of that.
The other program is Emergency Repair Program, ERP. If your furnace blows up, you can get help through this program. The only problem in my province is that you have to wait two years before they will even consider you.
I look at this figure, where these programs are cut 35 per cent. Are those two programs affected — the RRAP and the ERP?
Ms. Kinsley: To clarify, the programs have not been cut. The ones that you are speaking of were scheduled to expire in March 2009.
However, in September 2008, the government announced that it would be adding $1.9 billion over five years. A portion of that, for the next two years, will be to extend both the Residential Rehabilitation Assistance Program and the current Affordable Housing Program. The monies for those programs, as I mentioned earlier, will come through Supplementary Estimates (A). In the Main Estimates, the decrease referred to was the scheduled termination of the program. However, the program has not been terminated but has been extended through the September 2008 announcement.
Senator Callbeck: Has it been extended for the same amount?
Ms. Kinsley: Yes.
Senator Callbeck: You mentioned the Affordable Housing Program, but you did not mention the ERP.
Ms. Kinsley: We consider RRAP and the ERP as a suite of products. Both programs are extended under RRAP for the next two years at the current funding levels.
Senator Callbeck: I am also interested in significant decreases to on-reserve housing and affordable housing. With respect to money to help companies expand into other countries in the housing market, the money is still in place. I would think that with the present slowdown in the economy, it would be more important to spend money in Canada because of the snowball effect, such that jobs are created in construction. It helps those in retail who are selling building supplies, such as electrical, plumbing, furniture and so on. The snowball effect from building houses is tremendous.
Ms. Kinsley: Absolutely, building houses creates economic generation.
To come back to the first point, as I mentioned, the reductions for both the Affordable Housing Program and the RRAP have been offset by the announcement in September 2008 of the extension of the programs. In the case of on- reserve housing, as I mentioned to Senator Nancy Ruth, it was the result of the one-time funding put in place last year. These base programs are maintained at the same level and augmented through Canada's Economic Action Plan.
You are absolutely right with respect to the stimulus impact of housing. We know that in new construction, for every dollar spent, we can multiply that by 15 jobs and in renovations, 22 jobs; and that 80 per cent of the material in a home is Canadian-made. That has spinoff effects and the consumer spending associated with housing has an impact on GDP. Housing is a huge positive when it comes to economic stimulus. That, perhaps in part, is recognized in Canada's Economic Action Plan.
Senator Di Nino: I hope that all of my colleagues will join me in giving kudos to CMHC. They have been referred to as boring for many years but have turned out to be one of the best that the world has ever seen. Ms. Kinsley alluded to this when she talked about the CMHC's underwriting standards. Maybe we should give you some bonuses.
Could you briefly tell us about the differences in the underwriting standards of CMHC and those of other institutions, in particular in the U.S., where the so-called subprime product originated.
Ms. Kinsley: The most obvious difference is that we do not insure subprime loans and never have insured them. This goes back to the point about not putting people into houses that they cannot afford, which is not to anyone's benefit.
Senator Di Nino: The debt ratios would be much higher.
Ms. Kinsley: The credit scoring and the kinds of products offered to these lower-rated individuals in the U.S. were not suitable to the nature and the profile of the borrowers. They had what they called ``teaser rates,'' which are low rates at the outset that would rise over time.
Senator Di Nino: We would never do that.
Ms. Kinsley: No. In fact, CMHC does not do subprime loans.
Senator Di Nino: The approval of mortgages, of which some $53 billion plus has been used up, was a program meant to create liquidity in financial institutions so that they could continue to extend borrowing facilities for businesses and for individuals. Was that the intent of this mortgage program?
Ms. Kinsley: Absolutely.
Senator Di Nino: I understand that at the only three auctions that have taken place, the product presentation by the institutions has been less than anticipated or expected. Is that correct?
Ms. Kinsley: Yes. We have had more than three auctions. We have been doing an auction each month. I believe that we have had about ten auctions. However, you are absolutely right: In the last two auctions, the take-up has been less than what we offered. We have an auction happening this morning. We believe, in talking to financial institutions, that to be indicative of the fact that they have taken advantage of our auctions held to date. As well, separate from this program, we have our own securitization programs — Canada mortgage bonds and mortgage-backed securities, of which financial institutions have taken advantage. At this time, a fair amount of liquidity exists in the system. We have not seen credit crunches occurring with respect to the housing finance system, which is good.
We would not say that the program will not be taken up as we go forward, but, given the pace we have been operating at, we will probably want to slow it down a bit, given the needs of lenders at this time.
Senator Di Nino: This is simply an opinion, and you may not want to respond. The institutions seem to be in better shape than we thought they were and likely will be able to continue to provide financing to Canadian businesses and individuals. Would you agree with that?
Ms. Kinsley: I would agree.
Senator Di Nino: Do you think that the entire $125 billion will be taken up?
Ms. Kinsley: To be honest, we do not know. We will continue to monitor this with our colleagues in the Department of Finance. Our authorities are up to $125 billion. Clearly, as we monitor these auctions, if we think collectively that there is no continuing need, we would stop at that point.
Senator Di Nino: We should send our congratulations to the entire financial institution but to Mr. Tremblay and you at CMHC, thank you for sticking to the standards that we are well-known for in the world.
The Chair: Senator Di Nino raises an issue. You said that you have your own securitization, whereby you issue securities, such as a bond backed by mortgages. Is that correct?
Ms. Kinsley: Yes, that is correct.
The Chair: What do you do with the revenue derived from the sale of these bonds?
Ms. Kinsley: It is almost identical to the Insured Mortgage Purchase Program. We sell the bonds internationally to global investors. We take the money raised through the sale of these bonds and pass it back to the lenders in terms of the purchase of the mortgages. If you look at the Canada Mortgage Bond Program and the Insured Mortgage Purchase Program, they are identical except that in the Insured Mortgage Purchase Program, CMHC becomes the investor. In the Canada Mortgage Bond Program, the investors are third-party investors around the world.
The Chair: Are the mortgages that you use to back these up the same?
Ms. Kinsley: They are exactly the same.
The Chair: Are the mortgages that you are buying on the mortgage investment program?
Ms. Kinsley: They are exactly the same. They are insured mortgages on the marketplace.
The Chair: Does this net out at the end? In terms of the money that you gather from selling your bonds and the amount that you are investing, is your plan to try to net that out?
Ms. Kinsley: Yes. In fact, we would be best described as a facilitator. We are an aggregator of mortgages from financial institutions, and we are a vehicle through which those institutions can sell those mortgages to third-party investors. Therefore, the money we collect, we in turn use to put back into the system through the lenders.
The Chair: For that, do you use the Consolidated Revenue Fund as a bank account?
Ms. Kinsley: In the case of Canada Mortgage Bonds, no, we do not. We raise that money through the sale of the bonds to third-party investors in the private capital markets. That money is raised in that fashion, and that money is then used to purchase the mortgages. It is only in the Insured Mortgage Purchase Program, where we are the investors, that we are accessing government funds.
The Chair: Thank you. It is becoming a little clearer, and I appreciate your patience on this particular matter.
Senator Gerstein: Ms. Kinsley, an honourable colleague characterized the $53 billion of mortgages that you have purchased as potentially being a bailout by Canadian taxpayers. Would you agree with that?
Ms. Kinsley: As I mentioned, these are insured mortgages guaranteed by the Government of Canada, with a good portion of them being ours.
Senator Gerstein: I think she was referring to the third that are not.
Ms. Kinsley: Again, those are insured by the Government of Canada, as well.
Senator Gerstein: Therefore, you would not agree that they were characterized as a bailout.
Ms. Kinsley: They are high-quality loans.
The Chair: I will propose that Senator Mitchell, who is not here, loses his turn because he is not at his desk at the appropriate time.
Seeing no other questions and seeing that our time is now overextended, I thank you, Ms. Kinsley and Mr. Tremblay, for having been here today. On behalf of the Standing Senate Committee on National Finance, this has been very helpful. You have undertaken to find for us some information and breakdowns. We look forward to receiving that information as soon as you can so that we can draw it together.
We will be dealing with Supplementary Estimates (A) in the not-too-distant future, but we have two supply bills to deal with before that.
As you can see, this committee is quite active in the realm of much what we have been talking about today. We look forward to the opportunity to talk with you again. Maybe we will attend one of these auctions sometime to see how it works.
This meeting is now adjourned. We will meet tomorrow evening at our normal time.
(The committee adjourned.)