Proceedings of the Standing Senate Committee on
National Finance
Issue 6 - Evidence - Meeting of April 21, 2009
OTTAWA, Tuesday, April 21, 2009
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to examine the following elements in Bill C-10, the Budget Implementation Act, 2009: Parts 1-6, Parts 8-10 and Parts 13-15, and in particular those dealing with Employment Insurance; and to examine the Estimates laid before Parliament for the fiscal year ending March 31, 2010 (topics: Part 5 — Stability and Efficiency of the Financial System; Part 6 — Payments; and Part 8 — Miscellaneous Provisions).
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Good morning. I call this meeting of the Standing Senate Committee on National Finance to order.
[Translation]
This morning, we resume our study of Bill C-10, the Budget Implementation Act, 2009, and of the Estimates for the fiscal year ending March 31, 2010.
[English]
Our meeting will have two parts this morning in two separate panels. In the first session, for one hour, we will be focusing on Part 5 of Bill C-10, which concerns the stability and efficiency of the financial system. We have already heard from the government on these provisions, honourable senators. We will now hear from some of those who have to operate within this new regime.
The second part of the meeting will focus on Parts 6 and 8 of the act. As we have done with the rest of the act, we will ask departmental officials when we come to that part of it to explain those provisions to us and what the intended purpose is of the amendments.
Our first panel has two members. We are pleased to welcome Eric D. Siegel, President and Chief Executive Officer of Export Development Canada.
[Translation]
We welcome Mr. Jean-Michel Laurin, Vice President, Global Business Policy, Canadian Manufacturers and Exporters.
[English]
As I indicated, we have a second panel, and I have only allotted, at this stage, one hour with these witnesses. When we come to the questions and comments phase, I ask that you keep your questions and comments succinct, having in mind we have witnesses who could be helpful to us and we would like to hear from them.
[Translation]
Eric D. Siegel, President and Chief Executive Officer, Export Development Canada: Thank you, Mr. Chairman and members of the committee, for inviting me to speak with you today about Budget 2009 and what it means for Export Development Canada and the Canadian companies with which we work.
[English]
As you know, access to credit is vital for companies of all sizes. As a Crown corporation, EDC plays an important role in helping Canadian companies access credit and protect themselves against a variety of risks. This is our mandate. It is what the Government of Canada created us to do nearly 65 years ago.
Briefly, EDC provides loans to foreign companies looking to buy goods and services from Canada; working capital loans to Canadian companies to help them fulfill their export contracts; loans and insurance to help Canadian companies invest abroad; guarantees to banks, making it easier for them to lend; insurance to protect Canadian companies against a variety of risks, including non-payment; bonding services to help Canadian companies guarantee their performance; and equity participations.
We do all of this directly and in partnership with Canadian and international financial institutions. We do it on commercial terms, without annual appropriations from Parliament.
As you are aware, the Budget Implementation Act temporarily expanded EDC's mandate for a period of two years, allowing the corporation to operate in the domestic market. With this additional flexibility, EDC is now able to provide the same financing and insurance solutions available to our exporting customers to Canadian companies operating in the domestic market.
Let me take a moment to explain a bit more about how we can use this flexibility. In order to make the best use of our existing skills and expertise, EDC intends to primarily focus our domestic financing activities in industry sectors that have a connection to exporting and international trade. Our recent US$40-million commitment to participate in the renewal of a syndicated facility for New Flyer Industries Inc. is an example of how EDC is able to provide enhanced capacity under its expanded mandate.
Whenever possible, we will look to fill gaps in the domestic market by working in partnership with Canada's financial institutions, not as a direct competitor. To ensure EDC's activities are complementary to the products and services available in the private sector, we are engaging with our private sector partners on a regular basis.
EDC's participation in the Business Credit Availability Program, or BCAP, is one way we are increasing cooperation with commercial financial institutions. Through regular meetings of this committee, EDC, BDC — the Business Development Bank of Canada — and representatives of Canada's major banks will be able to consult, collaborate, discuss potential areas where gaps are present and add capacity to the market.
At the same time, EDC is also working with the private sector insurers to add capacity through reinsurance and guarantees. On April 9, 2009, EDC announced its domestic bonding program with the Canadian surety industry to facilitate up to $1 billion in domestic surety coverage for 2009. Practically speaking, this arrangement will provide up to $9 billion of support contracts for Canadian companies. EDC is also in discussions with Canada's domestic credits insurers with the goal of reaching similar agreements in the near future.
To help us deploy this enhanced capacity, Budget 2009 has raised EDC's contingent liability limit and our share capital limits. We will, if necessary, increase our borrowing limits as well. These measures build on the recent $350- million capital infusion that was allocated in the November Economic and Fiscal Statement.
It is important to note that any new business taken on by EDC under its expanded mandate will continue to be on commercial terms and will adhere to the same credit standards and due diligence processes.
In the current economic climate, more and more Canadian companies are turning to EDC for finance and insurance solutions. EDC is stepping up to respond to our customers, taking on more business and doing it more efficiently.
Despite this increased demand, we are not losing sight of our long-term focus and competency: trade financing and risk management of exports. EDC's combined financing and insurance volumes have already reached $17.4 billion in this year's first fiscal quarter, nearly $1 billion more than we had in the same period in 2008. In just the first few months of 2009, we have taken on 702 new customers and done an average of $275 million every single business day.
By working closely with our financial partners and providing support to our customers, EDC is not only helping Canadian companies survive and succeed in today's challenging economic environment, we are hoping to strengthen Canada's ability to trade both now and in the future.
[Translation]
I am now available to answer your questions.
The Chair: Thank you, Mr. Siegel. We will now hear Mr. Laurin's presentation before moving to questions.
Jean-Michel Laurin, Vice-President, Global Business Policy, Canadian Manufacturers and Exporters: Thank you, Mr. Chairman.
[English]
I am with Canadian Manufacturers and Exporters, CME. The association I have the pleasure of representing is the largest or most significant trading industry association in Canada. Our members are in all industrial sectors from all provinces of Canada; CME has divisions in every Canadian province.
The manufacturing and exporting sectors we represent are not only the single largest business sectors in Canada, representing 16 per cent GDP in manufacturing and over 20 per cent in the case of exporting, but it is also a sector that has important economic impacts on the economy overall. Every dollar of industrial output generates more than $3 in total economic activity, so it is an important economic sector. Last year alone, we shipped more than $600-billion worth of goods. We generated $483 billion in export sales last year alone.
Manufacturing still employs close to 2 million Canadians. We pay wage rates that are, on average, 25 per cent above the national average. We account for two-thirds of goods and services and exports and three-quarters of private sector research and development. This sector is innovative, investing heavily in research and development, and generates a lot of the innovation that our economy needs to succeed in the future.
We are here this morning to talk about the last federal budget and some of the financing measures announced in it. Our organization's and our members' top priority going into the last federal budget was to ensure that competitive businesses would continue to access credit. Our priority was to ensure that the budget would address immediate liquidity problems that manufacturing and exporting companies are facing and ensure that credit continues to flow to these competitive businesses.
In large part, the budget responded to our short-term financing priorities, and $200 billion was injected into financial markets. As Mr. Siegel indicated, the capital base and the lending capacity of EDC and also BDC were increased, and new financing mechanisms can now be put into place to assist businesses and to help ensure that credit will continue to flow to businesses.
I would like to take some time this morning to share the results of our latest business conditions survey. This is a survey we do every month through our members and also members of the Canadian Manufacturing Coalition, which has a number of different sector associations. It will give you an idea of the current situation regarding access to credit. This survey had over 700 respondents. Most of them were small and medium-sized companies. Ninety-six per cent, the great majority, are companies that have been in business for at least five years; we are talking about experienced businesses. Eighty-seven per cent are exporters and 81 per cent are also manufacturers. This survey gives us a good indication of where we are right now.
Looking at the economic situation, I think the downturn in the economy and the recession are affecting all sectors of manufacturing, although we are seeing the situation improve a little bit. This survey was done in March. We will release our April results very soon.
In the March results, we asked companies, "If you look over your last three months, are your current orders higher or lower — and by how much — than they were three months ago?" Thirty-one per cent of companies said their current orders were higher or the same as three months ago, and 69 per cent said they were lower. We also asked: "If you look three months ahead, what do you expect? Do you expect the same thing?" Fifty-one per cent of companies said they expect higher or same level of orders three months from now and only 49 per cent are forecasting a downturn.
Fewer companies are expecting a significant fall in sales going forward. We hope and expect that situation to continue to improve. Despite that, I think financing challenges are still very important. I can share the results of that survey with the members, as you will be making recommendations and writing a report.
I think the two most important challenges when it come it is to business financing are companies trying to access working capital and trying to increase their line of credit. Companies are seeing a significant downturn in sales. They are trying to restructure the company and reposition themselves so they are in a good position to grow when the market picks up again. However, in the short term, they need access to working capital and, in many instances, a higher line of credit just to deal through this downturn. For the most part, we are talking about competitive businesses — businesses that were in a good position before the financial meltdown happened back in the last quarter of last year.
We also asked our members: "If you asked to increase your line of credit, why did you do so?" For the most part, companies are asking for a higher line of credit to cover current expenses during the present slowdown when sales are down. We also asked companies: "If you have asked for an increase in your line of credit, were you accepted or was your request declined?" Thirty-three per cent said they were declined and 18 per cent said they are still waiting for an answer. When asked why they were refused a line of credit, 31 per cent of companies responded that their bank thinks their sector is too risky; 27 per cent said the assets they were giving as security were not sufficient to meet the bank's requirements; and 12 per cent said their company's overall level of debt is just too high, so the banks will not finance them.
In conclusion, it was important to ensure going forward that the budget was passed quickly so that the measures announced in the budget to deal with the financing situation would rapidly come into force. We have been in constant discussions with EDC, BDC and the Department of Finance, not only to ensure the measures are put into place quickly, but also to ensure they respond to business needs. The level of dialogue has been excellent.
The key is to ensure that those measures can be taken to market very quickly so we can resolve that situation, and companies are able to access credit and continue to operate, despite the current economic situation.
The Chair: Thank you very much, Mr. Laurin. Before we proceed with questions, I have a point of clarification. Mr. Laurin, was there any pressure amongst your membership to see Export Development Canada participate in the domestic market before we got into this economic downturn?
Mr. Laurin: That is a good question. Our members are more interested in the results. Quite frankly, the provider of the financing is a secondary consideration. Ensuring the money is available is the first priority. Most exporters already have a relationship with EDC because of the financial products it provides. If you are looking at delivering something through EDC, it makes sense for the majority of exporters because they already have a business relationship with EDC.
The Chair: That is helpful. We understand that its facility to participate within the domestic market is for two years but can be extended beyond two years by order-in-council. Therefore, we will not be coming back to Parliament for approval in that regard.
Mr. Siegel, do you know whether there are any parameters to look at in order to determine whether there will be an extension of this activity?
Mr. Siegel: I do not know of specific parameters. Obviously, there is an obligation on the part of EDC to report to the government and the government to report on a consolidated basis as to the impacts of all the budget measures. EDC will be reporting to the Department of Finance, as well as the Treasury Board, not only on what we are doing on the domestic side, but also on what we are doing to step up our core business, as well. There will be an opportunity to evaluate the impact of EDC's deployment of those powers.
The Chair: Those reports will be available to all parliamentarians?
Mr. Siegel: Yes. There are obligations on the part of government to report to Parliament as early as June.
The Chair: So that all honourable senators have a clarification of your points, on page 5 of your presentation, you indicated that to help you deploy this enhanced capacity, Budget 2009 has raised EDC's contingent liability limit and share capital limits. How does enhancing your share capital from $1.5 billion to $3 billion help in deploying your enhanced capacity?
Mr. Siegel: It helps EDC know that if it needs more capital, there are no legislative restrictions on the amount of capital the government can invest into EDC. Currently, the government has approximately $1.33 billion of capital. Under the Financial Administration Act, they were previously limited to a maximum capital investment of $1.5 billion. They have given themselves more room to invest more capital into the corporation if and when it is necessary.
As many major financial institutions do, we work on a capital adequacy policy. We are constantly measuring the amount of capital that we are deploying across all of our programs. If we felt that we did not have sufficient capital to meet additional demand, either because of the volume of business we are writing or the level of risk attached to it, we could go back to the shareholder now and them to invest more capital. They can go up to $3 billion in capital.
It gives us the added confidence that we should get out there, write the business and not be unduly constrained by a limitation on capital.
The Chair: You indicate in that same paragraph that these measures build on the recent $350-million capital infusion allocated in the November Economic and Fiscal Statement. Was it through the federal government's investing in Export Development Canada under the Financial Administration Act that the additional $350 million became available to you?
Mr. Siegel: Yes. They made that commitment in November with the update and made the investment into EDC in January. When I talk about the $1.33 billion in paid-in capital, that includes the $350 million that the government recently contributed.
The Chair: I do not recall the government coming to Parliament to ask for permission to invest $350 million in Export Development Canada. Presumably, under existing legislation, as long as your share capital limit is not exceeded, the federal government can make that investment without coming to Parliament to ask for permission.
Mr. Siegel: That is my understanding. At that time, up to $1.5 billion was the maximum under the legislation and they have increased that ceiling up to $3 billion.
The Chair: That is helpful for us to understand. We try to follow the Main Estimates, all the supplementary estimates and budget implementation legislation to see how the federal government initiates these various matters. We now understand how that happens with respect to Export Development Canada.
Senator Callbeck: Welcome this morning and thank you for your presentations. I want to ask some questions on the Business Credit Availability Program. The mandate for EDC has been broadened so that you can support the development of domestic trade. Before I ask the questions, I would like to understand how this will work. As I understand it, EDC, BDC and, of course, the financial institutions, including credit unions, are all tied in.
Let us say that a cheese manufacturer in Prince Edward Island wants to send a trailer load of cheese to Manitoba and he wants to ensure he will get paid for it. He is being financed by the credit union in P.E.I. What would be the roles EDC and BDC?
Mr. Siegel: They are perhaps twofold. EDC may be involved in assisting that credit union, if necessary, and providing the working capital to that cheese manufacturer who wishes to ship his cheese elsewhere in Canada. With the imminent conclusion of a reinsurance arrangement that we are putting in place with a number of credit insurance companies, we may be adding capacity to allow them to insure that sale so that the risk of non-payment by the buyer to your cheese manufacturer in P.E.I. is also insured. That becomes very valuable to the shipper, but may also be part of the security package that the credit union was using to make the loan in the first place for working capital purposes.
Senator Callbeck: BDC does not necessarily have to be involved in each transaction.
Mr. Siegel: No.
Senator Callbeck: The literature was confusing.
Mr. Siegel: BDC has a mandate for small and medium-sized enterprise financing domestically. That is their mandate, strength and competency. EDC is working alongside them, but we do not want to replicate what they are doing. We do not want to overlap unnecessarily with their programs.
On the other hand, EDC has been focusing on exporters who also have domestic needs in order to complete an export transaction. It is not all happening across the border. They may need working capital or to post bonds, et cetera. We have had programs that have done that, historically.
There has always been a side-by-side relationship between EDC and BDC, particularly in relation to small and medium-size enterprises, SMEs. EDC has less restriction in its ability to offer programs domestically. We are still working alongside BDC. That is the value of BCAP, which brings together executives from the two Crown corporations — EDC and BDC — as well as all the major financial institutions. Our goals are to achieve clarity of what we can do; to identify any potential impediments that may exist between ourselves and the banks; to allow the bilateral relationships that exist already between the Crown corporations and the financial institutions to flow; and to bring more concerted measurement to the amount of credit being created through the combined efforts of all those players.
Senator Callbeck: Before this change was made in the legislation to allow the Export Development Act to aid domestic trade, in the example I gave you, the Export Development Corporation now would insure that cheese shipment so the plant in P.E.I. would get their money from the person in Manitoba. Who did that before?
Mr. Siegel: Before the legislation was passed, EDC could insure that sale by the cheese manufacturer if the manufacturer were selling outside the country. We could not insure him if he was selling to another domestic partner.
Senator Callbeck: Who insured that?
Mr. Siegel: There are private sector insurers out there such as Atradius, Euler Hermes, Coface and the Guarantee Company of North America. There are five or six major credit insurers who do that business. Obviously, in this environment, they have less capacity and appetite for individual names or sectors.
EDC is now able to bring capacity to them to help keep that credit insurance availability, in this case for domestic sales.
Senator Callbeck: EDC's participation in the Business Credit Availability Program would be transactions that are credit worthy and viable but that have not been serviced by the market. It sounds like we have had a market failure. Canadian banks are saying they were up 9 per cent in the month of February. Does this mean that the problem is really in the non-bank business credit system?
Mr. Siegel: That is a large part of the problem. We have seen a withdrawal of the non-bank sector and we have also seen a withdrawal of foreign banks from the Canadian domestic financing scene. The immediate impact is that even where the banks were prepared to lend, it meant there was a large chunk of capacity that had been removed. In those situations, the role of EDC is to help fill that gap. We are not there to take over what the banks are doing or to help the banks exit. We are there to help them stay in and provide that additional capacity.
I mentioned the transaction with New Flyer Industries. That is exactly what we did. We were able to do it easily because the legislation suspended a regulation that limited our domestic financing. It was easy for us to step up and provide $40 million to a bank syndicate of $190 million in order to ensure that New Flyer Industries had what it needed. The problem was created originally because foreign banks were no longer interested in that credit.
Senator Callbeck: Will $5 billion be more helpful for small businesses or for large corporations? We know that banks tend to deal with large corporations of over $1 million, whereas credit unions will deal with businesses of about $250,000.
You talked about forming partnerships. Are you making greater efforts to form partnerships with the non-banking sectors?
Mr. Siegel: Yes. The intent of the Business Credit Availability Program is to focus on SMEs, not on large companies. Out of those enhanced relationships, we believe that larger companies will also benefit, but the real focus of BCAP was on SMEs. The $5 billion is an expectation of the amount of credit that could be created in that field.
In terms of focusing on other parties, we have had a strong focus on our relationships with the banks in general, even before the creation of BCAP. We have had a dedicated relationship management. The bank, as the delivery channel, was the direct beneficiary of approximately $14 billion of our business last year, through a guarantee or insurance or other. We want to expand upon that, which BCAP helps us to do.
In turn, our relationship with industry associations is extremely important because they are the way for us to understand the problem and to reach the membership more effectively. We have a national industry stakeholder panel with 20 industry associations that we work through and meet with on a regular basis.
Senator Callbeck: You said, or I read in the press release, that you have been reaching out to form these partnerships. Have you been doing that across the country? Have you been to Prince Edward Island, for example?
Mr. Siegel: Yes, we are going across the country in many ways. In some cases physical and in some cases virtual. I am participating in a webcast this afternoon. Close to 700 of EDC's customers will dial in. We will go through how we set up the domestic powers and how they access them. We have our spring export forecast tour, during which our chief economist and EDC personnel criss-cross the country, touching every province and every major centre. We have regional representation across the country as well, so we are not Ottawa-based only. We have been moving underwriting services into the regions as well, which makes sense so that they are more collocated with the sales and account management. The answer to that question is, yes.
Senator Callbeck: You do not have an office on Prince Edward Island.
Mr. Siegel: That is correct, but we have an office in Moncton, New Brunswick, and our representative there spends a good deal of time in P.E.I. dealing with our clients there.
[Translation]
Senator Ringuette: Mr. Laurin, you referred to a survey of your members about their access to credit. You stated that 33 per cent of those respondents who had requested an increase of their line of credit had received a negative response from their banks.
Mr. Laurin: Yes, 33 per cent of the companies who had requested an increase of their line of credit did not get it.
Senator Ringuette: Is that a high percentage? What is your interpretation of this result?
Mr. Laurin: We believe it is rather high. It is a survey that we do each month. We started last December. Statistics Canada has a similar survey but it takes some time to get the results. We thought it would be interesting to ask our members what happened in the previous month and what their expectations are for the future in order to get a better understanding of emerging issues. We ask questions on access to credit but our data is somewhat dated and we cannot go back further than December.
Since December, the situation has not changed. A rather high proportion of companies need credit but cannot obtain it. For the majority of companies, credit is required for operating capital. Referring to the previous example of the cheese manufacturer from Prince Edward Island who receives an order from a client in Manitoba, the first thing he has to do is to purchase raw materials to start making the cheese and he needs short-term funding for that. Many companies cannot access this type of funding but that was not the case previously.
I haven been with our Association for seven years. Previously, this type of problem was very rare. Banks operated normally, we had many foreign banks and there was no problem with the supply of credit. However, over the past few months, members have been telling us that it is difficult for them to obtain credit. That is why this issue was a major priority during the pre-budget consultations.
The government can take steps to stimulate economic growth and protect jobs but, if companies cannot stay in business and have to declare bankruptcy because they do not have access to capital, we will have a major problem.
Senator Ringuette: All things considered, the government has injected $12 billion in the economy through direct investment, the purchasing of mortgages and, more recently, the purchasing of what I call "asset car leases". Despite all this capital being made available to banks to increase the amounts available for loans, why has it not improved access to credit for your members?
Mr. Laurin: First of all, we will have to look at the situation closely over the next few months. Some of the steps announced in the budget and described by Mr. Siegel have not yet been fully implemented. Some new transactions have been facilitated. Mr. Siegel referred to a transaction with Newflyer but that was a few weeks ago. Companies are only now beginning to learn about these new measures. A few more weeks will probably be necessary for everything to be put in place and for us to be able to assess the impact through our surveys and through our discussions with our members.
What is most important is to ensure that those measures are implemented without delay. That is what we have been working on during the past few weeks. This is absolutely the very first priority for Canadian companies at this time.
Senator Ringuette: I understand the issue but I do not understand the mixed messages coming from our government. On the one hand, we only provide $1.5 billion to help our exporters but we will provide $200 billion to our financial institutions. Your members seem to confirm that it is very difficult for them to get credit from our banks but, on the other hand, our Prime Minister goes to the G20 meeting in London and tells the international media that our banks are in great shape, that they have enough cash to lend and that they should be buying foreign assets but, at the same time, we will only provide 1.5 million to help Canadian companies. These messages are contradictory, as well as our objectives.
The $200 billion invested by Canadian taxpayers in our financial institutions was precisely aimed at helping you, not the foreign companies. Considering those mixed messages, what can we expect from your members? How will they react and what are they going to do in the future with these credit constraints?
Mr. Laurin: First of all, you say that banks have restricted access to credit but the situation is more complex than that. Some companies deal with RBC but it is not necessarily RBC or other Canadian banks that have restricted access to credit. The problem is mainly due to the fact that Canadian banks represented only half of the commercial funding provided to Canadian companies. Several foreign firms used to provide non-traditional funding or insurance coverage.
Mr. Siegel referred to various types of financial products that are available. For example, some firms specialize in equipment purchases. Those firms are not based in Canada and they have virtually withdrawn from the Canadian market.
It is not a given bank or Canadian banks in general that have restricted access to credit. It is more a situation where access to commercial credit is limited and this phenomenon is partly due to the fact that foreign banks and financial firms have withdrawn from our market. Now, the government has a role to play and it should realize that the market is not able to provide funding to companies which should normally have access to credit. The market is unable to meet the demand. Therefore, the government has the duty to get involved in the short term, until the situation improves. It should inject capital in the market to make sure that companies that need short-term loans or lines of credit are not forced into bankruptcy because the international financial system is temporarily in turmoil. That is why the government gave EDC the power to provide domestic financing during the next two years. I believe that is a positive step.
Will the steps announced in the budget be sufficient? Are the amounts provided directly to the banks too high in comparison to what should have been provided to help Canadian manufacturing companies? I would rather avoid that debate.
Your study is very important but it will also be very important to scrutinize the situation over the next few weeks and months. We will then be able to assess if the amounts are sufficient or if we should have provided more capital to EDC, for example. I am quite sure that Mr. Siegel and his team will not hesitate to tell us if they find that they do not have enough capital, and they will get our support.
The present situation is extraordinary and we have no precedent to guide us. It will be important to assess the situation on a weekly basis and to adjust government programs and services as required.
Senator Ringuette: I must say that I find it unfortunate that we provide $200 billion to Canadian and foreign financial institutions but only 1 per cent of that amount to Canadian export companies. However, Mr. Siegel, I support your position. As far as I am concerned, if financial institutions do not react in an appropriate manner, you will have a larger role to play and you will need more capital. Instead of getting 1 per cent of what has been provided to financial institutions, you should perhaps have received 10 per cent of that amount and we would then be assured that the money would be invested in our Canadian companies.
[English]
Mr. Siegel: I appreciate the honourable member's comments about the expectations of EDC. Let me just expand on what the government has made available to EDC.
First, even before the government invested capital in EDC, EDC's capital position was $9.4 billion. Through the reinvestment of earnings that EDC has made over the years, we have built our capital position up to $9.4 billion. The government's paid-in capital portion of that was about $1 billion, but our retained earnings and loan loss provisions and so on were much larger than that. We are bringing all of that; and then the government chose to put an additional $350 million there and to create the capacity to put another $1.5 billion there.
The government also increased the ceiling for potential exposure under the Canada account, which is another way that EDC can bring support to the market — business written at the risk of the government, not at the risk of EDC's corporate account. It increased that from $13 billion to $20 billion, and it has now stepped up and started to deploy that.
For instance, EDC provides receivables insurance to the automotive sector, which is a very challenged sector at this point — particularly the Detroit Three, more notably, GM and Chrysler. There is a lot of concern with suppliers and their exposure and potential for non-payment by those players through their shipments, so EDC has been insuring that. Just on GM, Chrysler and Ford alone, we have over $550 million of exposure out there.
There is a limit to how much we can do on the corporate account, so the government has chosen to deploy another $700 million through the Canada account. It is the same type of coverage, EDC providing the insurance, to raise that total to $1.25 billion of receivables insurance exposure to just the Detroit Three. Then we go on to provide insurance to the other manufacturers in the market, such as Honda and Toyota. Last year, it was $4.2 billion of overall automotive sector support.
When you add up the increase in the Canada account, the potential increase in the capital account you referred to, and the organization's existing capital position, and when you look at the fact that the government has raised our contingent liability limit, meaning we can just write more business — we are not limited by a limit of $30 billion but could go up as high as $45 billion — I would say that the support that EDC can bring is more than 1 per cent. It is in the 10 per cent range, and it could potentially grow if that is necessary in order to continue to address this.
You have BDC as well, which is also the recipient of more capital and an increase in its capital ceiling, from $1.5 billion to $3 billion. As we said earlier, it is an important player in the domestic market.
Senator Gerstein: Mr. Siegel, I was most interested that in your opening comments you said, "It is important to note that any new business taken on by EDC under its expanded mandate will continue to be on commercial terms and adhere to the same credit standards and due diligence processes."
I would like to focus for a moment on your phrase "the same credit standards" and explore with you the level of your risk tolerance. I would suspect that in the current economic climate, whether an existing customer or a potential customer, a company's ability to meet your usual and regular covenants is far more difficult today than it might have been a year or two ago. Hence, I am a little surprised to hear you say you are simply maintaining the same credit standards. Could you comment on that, please?
Mr. Siegel: Yes, I would be happy to. In simple terms, it means we are using the same risk ruler that we used before. We are not lowering that, or bringing out a new risk ruler to all of a sudden say that this is now not a risk, when in fact it is. We need to go into this and ensure that we are making appropriate, sound risk decisions. We need to be consistent in how we analyze credit risk and how we ultimately score and assess that credit risk.
That does not mean we will not take the risk. It means we just understand what that risk is; we have not tried to make it look better than it is. In this market, you are absolutely right: on average, the credit risk has moved up across the field. Indeed, our portfolio, for things we have written before, is riskier today than it was when we wrote it before.
What does that mean? It means we are deploying more capital against that credit risk. It does not mean we walk away from it, sell it or unload it. It just means that we will use more capital in the organization in order to support it. That is what we are doing with our existing portfolio and that is what we are doing with new commitments we are making. We now know that a transaction that might have been a single A transaction before in its rating is now a double B transaction, and that means it uses more capital. However, it can still be an acceptable credit for us to go forward.
What we mean by that is to use a common ruler and use the same approach to being diligent about securing those risks. These commitments we will take on will be with us for a long time, in some cases, and we must ensure they are properly structured. However, that does not mean we do not anticipate that we need to have a bigger "risk appetite" in order to do the business, and that is where the capital becomes very important. That is when I referred to the level of capital that we have to bring to the table and the government's willingness to put more capital there if necessary. That is what allows you to have a bigger risk appetite. That said, a risk is a risk, and we should see it for what it is.
Senator Gerstein: In the current economic climate, would the tolerance to be able to accept covenants that are broader, perhaps, or lighter or less than what you might have experienced in the past be something you would look at?
Mr. Siegel: I think the phenomenon is that we actually came out of a period where there were almost no covenants. In a period of high liquidity, we were living in a market where the covenants were lax or indeed nonexistent, where people had forgotten sometimes there is a credit risk here and one must understand it.
I do not think it is unreasonable that, in this period, you will have more covenants and more structuring in the transactions. However, that does not mean that you are not prepared to go ahead and do the credit. It simply means that it is a more prudently structured credit. Frankly, I think it is better for everyone in the market. That applies not only to covenants but to pricing, too, because pricing had reached unrealistically low levels and was out of line with the actual funding cost. Some readjustment is taking place in the market.
We are not trying to over-impose covenants, because too much will only lead to an inability to live with that — a default — and that just comes back to hit the lender. However, a rebalancing is taking place here, and I think it is on a par — it is a natural and good thing.
The Chair: I will ask the next two senators to pose all of their questions, and then if the guests could reply at the end, that will wrap up our time.
Senator Mitchell: I would like to know whether each of you is generally happy with those sections of the bill that apply to your area of expertise and responsibility. In particular, I am referring to Part 5 of the bill; I think that encompasses most of the sections that support you.
On the flip side, are there other things you wish had been in that bill, or other elements of public financial policy that might have been delivered in some other way that would assist you and our economy?
I am wondering whether you have a target for green investment initiatives, given that they can be very stimulative and given that they will probably be the basis of an economy of the future, if we do this right. Could give me a percentage of your portfolio that does address green initiatives and, while this may be too specific, a percentage of the last six months of lending that has gone to green initiatives?
Maybe you have said this and I missed it, but could you tell me what your total portfolio is? I think your notes mentioned that, in the last few months — the first quarter — you have put out, in combined financing and insurance volumes, $17.4 billion. Could you tell me the relationship between your reserves — which I think are $9.4 billion — and the increase in authorized capital, which could be as much as $9.5 billion? What is the relationship between those reserves and your total portfolio, and how does that compare to the capital ratio that banks have to live with?
The Chair: You have made note of those questions and you may not be able to get to all of those answers but we will take written replies from you, as well, if we do not have an opportunity to answer them all.
Senator Di Nino: Let me thank the witnesses; they have both been very clear and precise in their responses.
I have two quick questions for Mr. Laurin. The first deals with some statistics that we have heard in the last week or two weeks about the latest economic numbers. It was a surprise element, at least to most people, that manufacturing and exports were really up in the last number — I think last quarter, though I am not sure what it was. Could you comment on that?
My second question is similar to Senator Mitchell's. Your association is obviously one of those most affected by a number of the changes contained in the budget implementation bill, Bill C-10, and there has been some suggestion that some of the measures may not be particularly clear or may not be particularly supportive.
Could you give us your general thoughts on that, particularly with a specific comment regarding some of the criticism that the private insurers have directed at the government's extension of EDC's powers domestically, and the fact that it may create a competitive disadvantage for those insurers?
Mr. Siegel: Regarding our reaction to the bill, yes, we are happy with it. No, we do not see other things that we wish were there.
On the target for green investments, I think we would like to report back to you as to what our activity is in environmental industries. The only thing I will say is that we have a legal obligation for all of our projects-related activity to do environmental assessments. Also, we have an overarching environmental policy that applies to all of our businesses. Therefore, there is a pre-qualification, if you will, by EDC, either by policy or law, as to the types of things we can get involved in relating to environmental impact. Regardless, we can report more to you.
Our total portfolio last year at our year end was about $30 billion of gross loans receivable and $28 billion of contingent liability. The total volume of support last year that we underwrote was just under $86 billion. The capital position against that — you are quite right — is $9.4 billion, and that currently consists of $1.33 billion of paid-in capital. The balance is $5 billion of retained earnings, and the balance would be in the form of loan-loss provisions and claim provisions. We continue to add to those capitals.
To answer your other question — how that compares with the banks — it is a much more conservative capitalization ratio. Canadian banks were in 10 per cent to 15 per cent leverage ratio. Some of the foreign banks were 25 per cent, 30 per cent or 35 per cent, and sometimes even higher. Investment banks were operating at a much higher level, but we are operating pretty well at a 3:1 or 4:1 capitalization ratio, which is a very conservative capitalization ratio.
The Chair: Thank you very much for your quick answers. We look forward to your written answers.
Mr. Laurin: In response to Senator Mitchell's questions, the first answer is yes. Section 5 of the budget addresses our short-term priorities with regards to access to credit. In large part, we are satisfied with what is in the budget. As I said, we will need to monitor over the coming weeks and months to ensure this is sufficient and that this can indeed resolve the problem.
Our priorities are with helping businesses in general, whether regarding financing or other things. We are stressing to the government that we are trying to ensure we help existing businesses.
That goes to your question on green investments. It would be better to support existing businesses, develop new technologies and make investments that will let us make the green turn needed in our economy rather than financing the development of new businesses. We need to do the best we can to safeguard what we have now.
With regard to your question about whether there is something else we would like to see in the budget or in that section specifically, many companies have unused scientific research and experimental development, SR&ED, tax credits. We were asking the government to address this, but it was not in this section or in this budget.
Companies can apply for SR&ED tax credits to fund their research and development. A lot of companies cannot use those tax credits because they do not make any profits. Many companies in manufacturing now need to make investments, whether in green technology or innovation, to compete in the future. However, they cannot access those tax credits because they are in a loss position. We would like to have seen something in the budget in response to that. Making those tax credits partly refundable would be one way to get money flowing to companies.
In response to Senator Di Nino's question regarding statistics on exports, I think you were referring to last month. Last month was not that bad because the previous month was terrible. In December, Canada was in a trade deficit position for the first time in over 30 years. That changed with last month's figures.
However, our trade volumes over last year or the last five years have been down significantly, especially with the United States. Over the past few months, this has largely been due to the fact that the downturn has been more significant in the U.S. than in Canada. We rely on the U.S. markets for the majority of our exports.
Finally, you were asking for thoughts on whether EDC's additional powers in the domestic market would be bad for private sector insurers. When I talk to my members, they want to ensure they have access to the financial products they need at a competitive price. I do not want to say it is irrelevant, but they worry mostly about how they will finance their operations more than about who will provide the product. How it gets done is secondary.
EDC has been doing a good job to ensure they do not undercut prices in the market. That has been constant throughout their history. I have not heard anything that would allude to a change in this policy recently. It may be more difficult to find current pricing because the markets are in turmoil now. On the other hand, EDC has been cautious to ensure it does not crowd out the private sector. It is important they intervene in the domestic market right now because there is a market failure. There is a need for additional capacity, which is what you are trying to do for the next three years.
The Chair: Mr. Laurin and Mr. Siegel, thank you for helping us through this. We focused on one division. There are seven divisions in Part 5 and 15 parts to Bill C-10. You can understand the job we have. We appreciate your coming before us.
Thank you all for being here for our second panel this morning. As we have done in the past, we will be hearing from a number of departmental officials who will explain the provisions of Part 6 and Part 8 of Bill C-10, an Act to implement certain provisions of the budget tabled in Parliament on January 27, 2009 and related fiscal measures.
We ask you to help us go through the sections. Honourable senators have Part 6 and Part 8 in front of them. Each part is divided into various sections. We will go through them and try to understand as briefly as possible what the government is hoping to achieve by the initiatives and amendments that appear in the bill.
Once the witnesses have presented, we will open the floor to questions on various aspects of Part 6 and Part 8. An appropriate official will return to the table as needed. If there are other officials here who are not at the table, we can bring them forward.
We thank you all very much for being here. We will go to Part 6 of Bill C-10, which is entitled "Payments: Infrastructure Stimulus Fund." There are many parts. Who would like to start to help us through this? Mr. Lambert, please proceed with your presentation.
Stéphane Lambert, Chief, Sectoral Policy Analysis, Transport and Corporate Analysis, Economic Development and Corporate Finance, Department of Finance Canada: Good morning. As you know, budget measures normally go through appropriation and spending authority would be sought and obtained through the supplementary estimates. Given the need to flow funds as quickly as possible to construction or rehabilitation projects so they can begin as soon as possible to stimulate the economy, spending authority for a number of large budget measures in support of provincial, territorial and municipal infrastructure is being sought through the Budget Implementation Act. With Royal Assent of the act, funding can begin to flow to these initiatives as of April 1.
I can speak to the Infrastructure Stimulus Fund, accelerated payments under the Provincial-Territorial Base Funding Initiative, the Communities Component of the Building Canada Fund and the Green Infrastructure Fund. Cabinet has approved program parameters for these initiatives. Funding was secured with the passage of the Budget Implementation Act. Treasury Board has approved the program parameters and the terms and conditions of these initiatives. Project proposals are being sought through negotiations with the provinces and will be announced shortly by Infrastructure Canada. Some projects have been announced in British Columbia and Quebec.
The Chair: Have some projects been announced?
Mr. Lambert: Yes. About $350 million in joint investments has been announced in B.C., and the Government of Canada has committed up to $350 million on the Infrastructure Stimulus Fund in Quebec for projects under the Programme de renouvellement des conduites d'eau potable et d'eaux usées.
The Chair: That falls under the Infrastructure Stimulus Fund and the Provincial-Territorial Base Funding Initiative?
Mr. Lambert: This falls under the Infrastructure Stimulus Fund. All provinces and territories have been contacted and offered accelerated payments under the Provincial-Territorial Base Funding Initiative. We understand from Infrastructure Canada that negotiations are under way with a view to finalizing agreements with participating provinces and territories.
The Chair: Did I understand you to say that program parameters have been accepted in respect of each of those programs?
Mr. Lambert: They have been approved by Treasury Board.
The Chair: Yes, but it is necessary for the federal government to negotiate with each province and territory to determine funding agreements.
Mr. Lambert: Yes.
The Chair: Those funding agreements have not been concluded yet.
Mr. Lambert: The negotiations are under way.
The Chair: When do you anticipate conclusions of negotiations?
Mr. Lambert: The June report will include further details on the timing or finalizing of these agreements.
The Chair: No money can flow to any of these programs until those agreements have been reached.
Mr. Lambert: There is a difference between money committed to specific projects and money flowing to projects. Typically, under federal infrastructure programs, money flows when construction is under way or being finalized and receipts are obtained. The money is committed when projects are announced.
The Chair: Were you talking about the Community Adjustment Fund as well? I understand Ms. O'Brien will speak to that.
You have talked about the Green Infrastructure Fund, the Communities Component of the Building Canada Fund, the Provincial-Territorial Base Funding Initiative and the Infrastructure Stimulus Fund. Can your comments be applied to each of those programs?
Mr. Lambert: Yes, exactly.
The Chair: Thank you, Mr. Lambert. Ms. O'Brien, please proceed.
Erin O'Brien, Chief, Microeconomic Policy Analysis, Policy Analysis and Coordination, Economic Development and Corporate Finance, Department of Finance Canada: It is a pleasure to see you again this morning. Budget 2009 provides $1 billion over two years for the Community Adjustment Fund, which will help to mitigate the short-term impacts of restructuring in communities across Canada. The Community Adjustment Fund will support community transition plans that foster community development and other measures that promote economic adjustment and diversification. The fund will be delivered nationally through regional development agencies with transitional measures for the newly created Southern Ontario economic development agency and the regional development agency for the North. The Budget Implementation Act authorizes the first year's payment under the Community Adjustment Fund to these agencies for a total maximum of $503 million.
The Chair: Last Sunday, there was an announcement about funding to be available to communities. Is that part of the Community Adjustment Fund or does that come from somewhere else?
Ms. O'Brien: I am sorry; I did not see the announcement on Sunday.
The Chair: I will see whether I can get that for you before the committee adjourns today. The announcement related to the federal government making funding available to communities for housing or other related activities, such as lighting or highways within communities. It was announced on Sunday, April 19, 2009.
Ms. O'Brien: That would not fall under the Community Adjustment Fund.
The Chair: No one seems to know where that money will come from. Do you want to talk about another program?
Ms. O'Brien: I am here to speak to the Community Adjustment Fund.
The Chair: We will hold our questions until we have heard from the others, after which we will put our questions on the record. If necessary, perhaps you could undertake to provide written answers to the clerk of the committee.
Does anyone wish to speak to the next section of Part 6 of Bill C-10? Hearing no response, it seems that no one is interested in talking about universities and colleges. We will hear from student representatives and the Association of Universities and Colleges of Canada next week. However, it would be nice to know beforehand what the government is hoping to achieve.
Mr. Lambert: Spending authority here is being sought through the Budget Implementation Act, a measure that would normally go through the supply estimates. Industry Canada is responsible for this program. A large number of projects have been identified and decisions are expected in the near future with respect to that initiative.
The Chair: There might be some other questions from honourable senators later.
We will move on to First Nations housing and renovation and retrofit of social housing.
Tamara Miller, Chief, Labour Markets, Employment, Learning, Social Policy, Federal-Provincial Relations and Social Policy Branch, Department of Finance Canada: Good morning. Effectively, the provision is similar to other provisions in the Budget Implementation Act with respect to payments. It provides parliamentary appropriation for one year for housing announcements made in Budget 2009. The money will flow through existing programs, either through the Indian and Northern Affairs Canada or through Canada Mortgage and Housing Corporation, CMHC. The departments involved are in the process of negotiating agreements, either with First Nation communities and organizations or with provinces and territories. We do not have a deadline for when the agreements will be finalized. We understand through CMHC that negotiations are progressing well and that they anticipate finalizing the agreements quickly. That includes all housing from sections 310 to 315.
The Chair: There is quite a group of them, including northern housing for persons with disabilities and housing for low-income seniors, as well as the ones mentioned above. Will all funding will flow in the same manner, and are the same negotiations taking place with respect to these programs?
Ms. Miller: It is through existing programs. There is no requirement for any additional parameters. They just have to negotiate agreements because most of the money flows through provinces and territories. They have to ensure that the provinces and territories are comfortable and that there are firm agreements in place.
The Chair: You cannot tell us when these agreements will be in place so that money will start flowing?
Ms. Miller: I anticipate the June report will provide more firm deadlines. All I know at this stage is that negotiations are progressing very well.
The Chair: That was helpful. Can anyone help us with Canada Health Infoway?
Ms. Miller: I can speak briefly to that, although I am not the expert in that area. Again, it is an issue of parliamentary appropriation to allow the funding to flow as soon as possible. Canada Health Infoway exists already, and this is extension to that.
The Chair: Are negotiations going on before the money can flow on that one as well?
Ms. Miller: To be honest, I am not sure whether this flows to the provinces. I think it is a federal program. However, I am not the expert in this area.
The Chair: Could you undertake to find out for us?
Ms. Miller: Certainly. Yes.
The Chair: We are interested in knowing, when we approve these funds, how long it will take for the funds to get out to be used for the intended purpose, what is holding them up, and, if there are negotiations to be done, when it is anticipated they will be concluded.
Ms. Miller: I will undertake to get you that.
The Chair: The next section is Part 8, Miscellaneous Provisions. Division 1 is the Wage Earner Protection Program.
Gay Stinson, Senior Director, Labour Standards and Workplace Equity, Human Resources and Skills Development Canada: We have responsibility for the Wage Earner Protection Program Act. Budget 2009 accomplished amending that very new act and increasing the definition of eligible wages.
With the July 2008 passage of the act, for the first time eligible wages included what one normally thinks of as wages — salary and commissions and regular wage expenses — and as of Budget 2009 it excludes termination and severance. Applying to bankruptcies that take place on or after January 27, the definition of eligible wages includes severance and termination amounts.
The cap on any individual claim is the equivalent of four weeks eligible earnings as defined under the Employment Insurance Act; currently, that number is $3,253. The eligible cap remains exactly the same. Budget 2009 made this amendment to the Wage Earner Protection Program Act. It also provided increased funding in the order of $25 million for increasing statutory amounts payable due to this increase in the definition of wages.
The Chair: When you say statutory amounts, is there some federal money that will back up the right if the corporation is not able to pay that?
Ms. Stinson: Essentially, this applies to official registered bankruptcies. It allows individuals to make a claim and for government to pay the eligible claims directly back to individuals, rather than having an individual wait for the sometimes one-, two- or three-year process until the full distribution of assets is available, at which time they would normally get their payout.
The passage of the Wage Earner Protection Program Act in 2008 accomplished this new, faster method of getting money to individuals. It also made where they come in the list of eligible creditors to a company much higher.
The Chair: Regarding these amendments that take place with respect to Bill C-10 — which you have just explained to us expand the definition to include termination and severance — is this initiative due to a recognition that something was lacking in the 2008 legislation, or is this being brought about because of the economic downturn?
Ms. Stinson: I do not suppose there is one single cause that made this happen. We expected that the number of bankruptcies would increase because of the recession and the effects of recession on certain kinds of business that were perhaps already struggling. There was already recognition of the fact that employees lose money. They lose not only their last set of wages if they were not paid when a bankruptcy occurs, but also there are other amounts owing to them that are not normally paid.
Because this is the first time a program like this has been run, there was no reasonable estimate on what those amounts would be. We had no idea at the passage of the act in July 2008 how much of the money would be claimed. It turned out that in the first eight months of operation, the average claim by individuals was about $1,200. There was ample room up to the cap to enrich that program and encompass other amounts owed to employees when the termination of employment is sudden, due to a bankruptcy.
The Chair: That is helpful. There may be other questions. I am just trying to clarify for everyone so we can move this along. I think that is all of Division 1, Wage Earner Protection Program. Division 2 is Federal Financial Assistance for Students.
Ms. Miller: The current Canada Student Loans Program provides over $2 billion in repayable loans to students pursuing post-secondary education. Following an extensive review and consultations, Budget 2008 committed an additional $123 million annually toward streamlining and modernizing the Canada Student Loans Program, as well as announced the new Canada Student Grant Program, which starts at $350 million and ramps up to $430 million over a period of years.
The amendments included in Budget 2009 are amendments to the Canada Student Financial Assistance Act and the Canada Student Loans Act to further streamline and modernize the current program. They provide authority for the minister to terminate all obligations of a borrower in the event of death; authority for the minister of HRSDC to request documentation or information to verify compliance with the acts; authority for the minister of HRSDC to terminate or deny financial assistance in cases of abuse of the program; authority to require an actuarial report every three years; authority for non-financial amendments to be made to the terms and conditions of the student loan agreements — financial amendments will continue to require Governor-in-Council approval; and lastly, authority for the minister to suspend or deny financial assistance to students attending a designated institution where there is significant risk of fraud.
The Chair: Does anyone have anything to add to that? We will have two different associations of students appearing before us next week. We look forward to their comments on whether they are happy or otherwise with the provisions.
Are you able to tell us about this consequential amendment to the Budget Implementation Act, 2008? We passed that bill, and that appears under Federal Financial Assistance for Students.
Ms. Miller: Which specific provision?
The Chair: Section 368, page 319; it is under Division 2, Federal Financial Assistance for Students. We have to make a consequential amendment to the Budget Implementation Act, 2008. Is there anything significant or major about that? We all focused on that about a year ago and passed it, and now we are being asked to change it.
Barbara Glover, Director General, Canada Student Loans Program, Human Resources and Skills Development Canada: I think this is consequential to the Budget 2009 change around death of a borrower. It essentially gets rid of the estate's obligation to repay a student loan in all cases where the borrower dies.
The Chair: If it turns out to be otherwise, you will let us know.
Ms. Glover: I am quite confident.
The Chair: Thank you very much. You may want to be here when we have the students next week. You might find that an interesting session.
The final division under Part 8 is Crown Corporations, and then the Financial Administration Act and consequential amendments to about six or seven other acts.
Anthony Chapman, Director, Governance Directorate, Government Operations Sector, Treasury Board of Canada Secretariat: These are six amendments that affect the governance of Crown corporations. Five of these amendments relate back to a report that was tabled in Parliament in 2005, the governance review for Crown corporations, which contained 31 different measures to improve governance, transparency and accountability.
The sixth amendment is to correct an anomaly in the Financial Administration Act, which is section 370 in the Budget Implementation Act. It deals with the ability of agent Crown corporations to lease property. They have the power to sell or dispose of the property but, because of an anomaly in the legislation, they were never given the explicit power to lease. Therefore, that clarifies that they have that power.
Section 371 makes the chief executive officer the only management member that can sit on the board of directors. Previously, the Financial Administration Act said that the majority had to be non-management members, but it did not specify that the CEO is the sole management member on the board. This makes it explicit that the CEO is the sole management member permitted on the board.
Section 372 deals with annual public meetings. Previously, in the Financial Administration Act there was no requirement for a Crown corporation to hold an annual public meeting. This requires that they do so within 18 months of the Budget Implementation Act's coming into force.
Section 373 deals with indemnification of directors and officers of Crown corporations. Currently, the Financial Administration Act provides that directors and officers of a Crown corporation who have been sued in their capacity as directors and officers of the corporation can be indemnified by Treasury Board. This would add an amendment to that to make it explicit that they be provided with an advance of costs in the event that they are sued, in other words, before a judgment is actually rendered. It also adds investigative proceedings to the type of actions that they would be able to access indemnification for.
The next two amendments deal with special examinations. These are supported by the Auditor General. Currently the Auditor General carries out special examinations on Crown corporations. These are a type of performance audit done on Crown corporations. They are really getting at whether the assets and operations are properly managed. Previously, the Auditor General was required to carry out a special examination on each Crown corporation every five years. This amendment changes the cycle to every 10 years, but it permits the Auditor General to go in and do a special examination whenever she thinks there is a situation that warrants it. The amendment is designed to allow the Auditor General to concentrate her resources where they are most needed.
The other amendment affecting special examinations makes it mandatory that special examinations be made public and that the Crown corporations publish the special examinations within 60 days. Previously, there was no legal requirement for them to do so. It also requires that Crown corporations provide a copy of the special examination to the minister and to the President of the Treasury Board within 30 days.
Those are the amendments.
The Chair: Thank you. What was the title of the 2005 examination of Crown corporations?
Mr. Chapman: It was the Government of Canada's Review of the Governance Framework for Canada's Crown Corporations — Meeting the Expectations of Canadians.
The Chair: Was that an outside review or was it done by the Auditor General?
Mr. Chapman: It was done internally at Treasury Board Secretariat and tabled in Parliament in February 2005.
The Chair: Have you been working on that every since?
Mr. Chapman: We have been working on it ever since, chipping away at it and trying to get some of the final measures into legislation and to produce guidance documents for other measures.
The Chair: This is the fruition of a number of these amendments here of the work you have been doing since 2005.
Mr. Chapman: That is correct. In fact, we got several amendments into the Federal Accountability Act, as well.
The Chair: Congratulations to you. I remember Bill C-2. We remember it well.
Mr. Chapman: We do, too.
The Chair: Is there anyone else here who has not had an opportunity to speak? I think everyone has. Is there anyone not at the table who had hoped to speak on any of these sections? If not, we will go to questions and answers. We have about 25 minutes in our allotted time.
Senator Nancy Ruth: I wanted to ask about the Wage Earner Protection Program and to say how wise I think it is that it was expanded to cover severance and termination. This morning on the CBC, a number of Nortel workers were complaining about the lack of severance packages and so on. We are aware of AbitibiBowater.
The budget book says that the government will provide more protection to workers by extending the Wage Earner Protection Program on an ongoing basis to also cover severance and termination pay, subject to the current maximum of four weeks.
Given these large new bankruptcies happening in Canada, how are the additional funds flowing to you and how are they being administered? This will be millions as these large companies keep hitting the bankruptcy table. Can you tell me how those monies are moving over to you?
Ms. Stinson: First of all, I would like to clarify that Nortel is not an example that falls under the Wage Earner Protection Program Act. That act refers to bankruptcies. Nortel has filed for bankruptcy protection under the Companies' Creditors Arrangement Act. In fact, some of the issues that have arisen in that setting are exactly because, under the Companies' Creditors Arrangement Act, employees are simply one of many creditors there in line to vote on what happens in the distribution of assets and how that company will carry on. I wanted to make that separation.
To answer your question more generally about how this program works in cases of bankruptcy, this program allows individuals to apply, with the support of the trustee handling the bankruptcy, to government to receive their eligible wages back. The monies are paid directly to individuals. Service Canada is the delivery agent for that program. There is an application process. Individuals make applications, primarily online but also on paper, in person or however else they want to make an application to Service Canada. Their claims are supported by the trustee of the bankruptcy claim who also submits the claims with all of the information that verifies these are the amounts eligible to these individuals. Then Service Canada processes that and issues cheques directly to individuals. The money is never delivered to the department, shall we say. It is a direct payout from the Consolidated Revenue Fund, from the Receiver General. I think that is how it is. It goes directly to individuals.
When individuals make a claim like this, they subrogate their right for distribution of assets of the bankruptcy to government. The government will therefore take the place of those employees in the eventual distribution of assets of that bankruptcy. To the degree that there are assets available to be distributed among creditors, the government will take the place of those employees collectively and receive whatever portion is available back.
It is a direct payment from the federal fund to individuals and then, to recoup whatever portion of those losses is possible, through the bankrupt estate.
Senator Nancy Ruth: Any company that has asked for bankruptcy protection and is restructuring does not get access; is that correct?
Ms. Stinson: That is right.
Senator Nancy Ruth: For those who actually go bust, you do this evaluation and the assets are divvied up to the creditors, including the employees. There is a huge time lag there for the workers. Is there an average length of time it takes to get payments out to workers? Are you aware of that so far, since this came in January?
Ms. Stinson: The program was first passed in July 2008. It is a very new program. For this program, we need to have the certification by the trustee of the amounts that are owing to individuals, and there is a period of time allocated for that. With the expansion of the program in Budget 2009, the number of days allowed is 56 days. From the date of the actual bankruptcy, there is a period of 56 days within which individuals and trustees get together, find out the information, fill out the forms and submit the forms. Trustees must deliver that information to support employees within those 56 days. Then we process the claim and send out the claim.
I do not know the exact number of days, but I think our processing is aiming at two weeks. We need a little experience here; it is a brand new program. However, it is likely the payments will be issued to individuals within a couple of weeks.
Therefore, payments are flowing very rapidly, at least relative to the normal timing that would be associated with distribution of assets from a bankruptcy. That only happens at the very end of all of the calculations regarding the distribution of assets and sometimes liquidation and so on.
Before the introduction of the Wage Earner Protection Program Act, distribution of assets usually waited over a year and a half. It was not uncommon to have a two- or three-year wait. One of the main objectives of the Wage Earner Protection Program Act is to get money to individuals within a much more timely period. It is probably around three months or three and a half months that they would be able to receive their payments.
Senator Nancy Ruth: How much money has been spent so far?
Ms. Stinson: I do not have a summary. The amount that was paid from the introduction of the original program until the end of March, which is the end of the fiscal year, was $3,623,363.12. The average amount per claimant was $1,325. There were 5,751 individuals who made a claim in that period.
In April, we have much smaller amounts, of course. There were 841 individual claims that came in between April 1 and April 19. The total payout was $473,786.23 and the average amount per person was $989.12. It is likely that these payments do not yet reflect termination and severance. We are ready and able to receive claims that include those amounts.
The new provisions of Budget 2009 apply to bankruptcies that occurred on or after January 27. If you take into account the almost two months allowed for trustees to gather the information from the employer, to communicate to the employee, to fill out the forms, to make an application, et cetera, then the earliest we would start seeing those claims is just about now.
As of May 1, we will be tracking exactly how much of these payouts are due to unpaid amounts for severance and termination as opposed to unpaid wages.
[Translation]
Senator De Bané: Is there among you a public servant able to talk about equalization matters?
Ms. Miller: Unfortunately, no one at this table can talk about that.
Senator De Bané: I will still ask my question and you might be good enough to ask someone to answer.
What is the rationale for deciding to adjust the equalization formula on the basis of 50 per cent of the population? Why 50 per cent?
What would be the impact if it were 60 per cent?
[English]
What is the rationale underlying the proposed use of 50 per cent of the population as the proportion for determining the adjustments to be made to the equalization payments in the framework of the proposed rules to ensure equalization program fairness? What would be the consequences if the Minister of Finance used 60 per cent instead of 50 per cent?
My second question is to Ms. O'Brien, who is in charge of microeconomics. This morning, I was listening to a statement by the Bank of Canada that said the world recession is more severe than it was assessed some time ago. In view of that, the Bank of Canada has again reduced its interest rate, to 0.25 per cent.
Being in charge of microeconomic policy analysis, I assume you oversee what is happening in the greatest number of businesses in our country, which are small businesses. Would you give us your assessment of the impacts of this recession, which is affecting everyone? In my own small circle, I see how people have changed their consumption behaviour because of the recession. Does the group you are heading have some ideas you would like to share with us?
Ms. O'Brien: Small business policy is an area of interest for the Department of Finance and is within my scope of responsibility. In preparing measures for Budget 2009, we have undertaken unprecedented consultations across the country. We have heard from a number of small business leaders and entrepreneurs. We have heard from them recently that access to credit is their number one priority. I am sure the witnesses here before us this morning from the Canadian Manufacturers and Exporters and EDC can confirm that as well.
Through Budget 2009, we have undertaken a number of measures to try to ensure that credit remains available to small and medium-sized enterprises. Notably, we have done so through a number of measures affecting our Crown corporations.
For example, we have increased the paid-in capital limit for the Business Development Bank of Canada. Initially the limit was $1.5 billion. Budget 2009 increases the limit to $3 billion and increases the borrowing authorities as necessary. In addition, the budget undertook a number of measures to capitalize EDC and to give it expanded authorities. I understand that Mr. Eric Siegel already explained those to the committee this morning.
If there are particular questions you might have with respect to some of those measures, I would be pleased to try to answer them for you.
Senator De Bané: Is there any basis to what we are hearing more and more — that small businesses, which have always honoured their commitments, are now having difficulty with their credit facilities in obtaining assistance with their working capital? Are the banks less open to dealing with their customers who have a very good credit history? Is that true?
Ms. O'Brien: There is certainly anecdotal evidence suggesting that credit conditions have been tightening across the market for the small and medium-sized enterprises as well as other participants in the marketplace.
Regarding working capital, in the economic statement of November 2008, the government committed $100 million in additional capital to the Business Development Bank of Canada to create a working capital guarantee facility. BDC has been working diligently to get this facility up and running. It has undertaken a number of consultations and put together the program parameters and conditions. We expect to have available a working capital guarantee facility in the marketplace shortly.
Senator Mitchell: I have two sections for questions, briefly. One concerns the idea that there are impediments to getting this infrastructure and other money out, which some of your comments have addressed. Certainly, it has been an issue publicly.
First, has anyone assessed how the fact that municipalities have to come up with 30 per cent in order to initiate an infrastructure project will impede or not impede the ability to allocate that money? Many municipalities simply do not have the money to meet such conditions.
Second, in respect of the regional development agency for Northern Ontario, to which Ms. Miller referred, I have heard that that 20 or 30 projects have been recommended to the political level by the agency but they are being held up. Have you recommended projects under such programs that have been held up for an inordinate length of time? What is the average time? Where are those decisions made? Are they made by the minister, by cabinet or by the Prime Minister?
Third, what criteria have been used to determine what money will go to which universities for which projects?
Fourth, with regard to the issue surrounding wages, it seems to me that your figures of $3 million over the last eight or nine months means that about 2,750 people received an average of $1,200. However, you said that 5,750 individuals have made claims. Therefore, about 50 per cent are receiving the money that they claimed. Could you explain that difference?
Fifth, if you go to $25 million, which is the maximum, it would account for about 23,500 people. If there are only 2,750 people, then that amount might be enough, but it seems rather limited in the current environment. Is this one of the programs that you pay to meet the demand, even if the demand goes over the allocated budget?
The Chair: We will make note of these questions and proceed with questions from another senator, after which the witnesses can provide quick answers.
[Translation]
Senator Chaput: My question, and you may answer in writing if you wish, relates to the infrastructure and housing initiatives. I find it impossible to get a clear picture at this time because, if I am not mistaken, several different departments are involved.
For example, taking the Post-secondary Education Fund, did I understand correctly that it is under the responsibility of Industry Canada?
Mr. Lambert: For colleges and universities, yes.
Senator Chaput: Would you be able to provide us with a table listing the names of the funds? For example, for the Post-secondary Institutions Fund, the lead department is Industry Canada; for Health InfoRoute, the lead department is Health Canada or Industry Canada; for social housing, is the lead department Indian affairs and Northern Development Canada?
Could we get such a table showing the funds with the various lead departments? This would help us understand and we would then be able to ask more intelligent questions on these issues.
The Chair: Do you have such a table at this time? If not, would you be able to prepare one for us?
Mr. Lambert: I do not have such a table at this time but we can follow up with you later on. In the meantime, if you want, I can give you an idea of who is responsible for which funds.
The Chair: I believe it would be useful for us if you could prepare such a table and send it to the clerk. It would help everyone.
[English]
Ms. Miller may respond to the questions posed by Senator Chaput or Senator Mitchell.
Ms. Miller: I cannot speak to the regional development agencies, but I can speak to the housing components through CMHC. I believe that you made reference to 30 projects recommended to CMHC. A number of provinces have formulated proposals for submission, but we have not heard that there are as many as 30 through CMHC. You might have to ask the agencies directly. We have not heard of any holdup or concerns expressed by the provinces that there is a huge backlog. I cannot speak to what is happening at the regional development agencies because that is not under my purview.
The Chair: We have been provided with a copy of the news release. We are very pleased that money is starting to flow, so that announcement on Sunday was most welcome.
Ms. Miller: This would not have been included in the Budget Implementation Act, but it was part of the budget at page 125 under municipal loans.
The Chair: Where does parliamentary approval happen?
Ms. Miller: This is an existing program. CMHC has the authority and the funds to make these loans, so there is no legislative requirement.
Senator Mitchell: CMHC approval is different, because they make their own approval. Those housing, mortgage or insurance issues are different because the approval, I believe, rests with the Prime Minister. We know that much is concentrated in the Prime Minister's office these days. If there were delays, I would be concerned that they were happening there. You cannot answer, and I accept that. However, could you take that back to the appropriate person and find the answer for the committee?
The Chair: Does anyone else care to reply to Senator Chaput's or Senator Mitchell's questions?
Ms. Stinson: I would like to reply to Senator Mitchell's question about the Wage Earner Protection Program. Yes, you are quite right: the figures that I read on the amount of money spent and the amount to individuals reflect the fact that at the time of the end of the fiscal year, about one half of the payments had been processed. Also, at the beginning of the program, a number of applications were incorrect or unsupported by trustee information or came in separately. They were not the correct amounts and had to be rejected. Of the 5,700, about 1,000 of the early claims were rejected because they were incomplete. They had to be sent back and then resubmitted, causing a delay in the payments for almost a quarter of the original applications. The remainder is a reflection of the fact that they were in the process of being addressed.
In response to the second part of your question, whether there will be sufficient money available, the original amount voted under the Wage Earner Protection Program Act, as passed in July 2008, was $34 million, of which $31.2 million is available for individual claims as statutory amounts to pay individuals. That is a maximum up to which, on a yearly basis, individuals could submit claims.
With the change in Budget 2009, an additional $25 million per year or $50 million over two years is available to accommodate the expansion and definition in wages as well as the expectation that in times of economic downturn, the draw on the program will be greater. In fact, there is a very high level of cap to it, when you look at the relatively low level of application and claim load that we are receiving so far.
This is only our first year of implementation, so I do not think we have a full understanding of exactly how that is going. However, one thing we are quite clear about is that there is a bit of a lag in the economy and it takes a while for companies to reach a point where they have no options remaining and they declare bankruptcy. At this point, we are starting to see a bit of an increase.
The Chair: I have two senators. I will ask you to pose your questions and then if you would make a note of the question and provide us with a quick answer, that would be fine. If not, you could provide us with a written answer and we will see that the answer gets circulated to everyone.
Senator Gerstein: Mr. Lambert, under the infrastructure spending section of the budget, my understanding is that there is a $4-billion infrastructure fund and that there is a separate $500-million fund for infrastructure spending, particularly for small communities. I also understand of that $500 million, $407 million has been allocated to VIA Rail for particular infrastructure spending in small communities between Toronto and Montreal. I would be interested to know, first, how we expect VIA Rail to allocate these funds and, second, whether it is expected that this will improve rail service between Toronto and Montreal.
Senator Callbeck: I have three or four questions, but I will be very brief with them. I would really appreciate written answers because I do not think we will have time after to answer them.
One is on the health transfer. A budget in 2007 set up a formula with the provinces that the health transfer would be figured out a certain way and then, in 2014, it would change to per capita. With this budget, it is changed to per capita quicker than was committed to in 2007. What was the rationale behind the government's doing that? I come from a smaller province, and when programs go per capita, they have a huge effect on a province like mine.
Ms. Miller spoke to the housing question that was brought up. My question concerns the Emergency Repair Program and the Residential Rehabilitation Assistance Program, RAPP, which are two programs for low-income Canadians that I have spoken about before. I understand the federal government has made a five-year commitment to continue these programs. Has any more money been put in the pot?
Right now, if you want to fix your roof in my province and you are a low-income Canadian, you go to RAPP and you get a six- to seven-year wait. For the Emergency Repair Program, you have a two-year wait. I think those figures are unacceptable. I am glad the program will be expanded for five years, but is there any more money?
On the Community Adjustment Fund, I do not know whether you are familiar with it. I think Ms. O'Brien spoke about that. Down in my area, there is a lot of talk about the lobster buyback program; might that fit in the criteria you have gone over?
With respect to the students, there was $17.5 million over five years to Social Sciences and Humanities Research Council for scholarships. These were scholarships for master's programs, for people who had their first degree, but they were to be based on business-related degrees. Why did the government limit it to business-related degrees? Has the government done any analysis to show that there is a particular shortage of people in this area in the country?
Another point with respect to students is that a minister can deny individual students access to loans for which they qualify. The material I read said the loans could be turned down on the basis of financial risk to the student or to the government. Ms. Miller, I believe you mentioned this morning abuse of programs, but on what grounds would the minister be allowed to make decisions on behalf of a student, whether a student was taking on too much financial risk?
The Chair: Those are all very good questions. Unfortunately, we are out of time. Can any of these questions can be answered quickly, either Senator Gerstein's or Senator Callbeck's?
Ms. Glover: I will answer the last question around Canada Student Loans. There are two clauses here that could involve students the way you are describing. The first is suspension or denial of financial assistance where the minister believes there is a high likelihood of fraud happening by the educational institution. The idea is that a criminal case might be started, but not completed. There is a risk that the students going to that educational institution will take out student loans, and, hypothetically, by the end of the year the institution will no longer exist. That is one example of what that clause is about. Typically, in that circumstance a provincial government would de-designate, but it does not always happen. Our thinking is that this is an exceptional circumstances clause. It would rarely happen, but hypothetically it would happen on occasion. That is the first case.
The second one is administrative measures. Currently, if a student misrepresents himself or herself on a Canada Student Loan application for the purpose of getting more money — an example might be applying in two different jurisdictions, thinking they could get two student loans and that would be good news — the minister has no recourse. This clause would allow the minister to deny student financial assistance in the case where it has been demonstrated that a student was falsely providing information for the purpose of getting additional student loan money that they are not eligible for.
The Chair: Thank you very much. Unfortunately, we have run out of time. You will appreciate that we are all running on schedules here and I know you are, too. We will have to ask you to provide us with written answers to the various questions that you were not able to get to, and any other questions asked throughout this morning that you would like to expand on or change. We would be very pleased to hear from you.
Bear in mind that we are under an obligation to report back before mid-June with respect to our review of the budget implementation provisions. If you could get your written answers to us as quickly as possible, we will get those to everyone.
Thank you very much for being here and helping us through Parts 6 and 8 of the 13-part bill we are dealing with. It was very helpful. I know this is the second time that most of you, if not all of you, have been here. We appreciate your understanding and patience. Thank you for the good work that you are doing.
(The committee adjourned.)