REPORT OF THE COMMITTEE
Thursday, March 12, 2009
The Standing Senate Committee on National Finance has the honour to present its
FOURTH REPORT
Your committee, to which were referred the 2009-2010 Estimates, has, in obedience to the Order of Reference of Tuesday, March 3, 2009, examined the said Estimates and herewith presents its first interim report.
Respectfully submitted,
IRVING R. GERSTEIN
Deputy Chair
FIRST INTERIM REPORT ON
2009-2010 ESTIMATES
The Standing Senate Committee on
National Finance
FOURTH REPORT
Chair
The Honourable Joseph A. Day
Deputy Chair
The Honourable Irving R. Gerstein
TABLE OF CONTENTS
THE EXPENDITURE PLAN—AN OVERVIEW
CHANGES IN 2009-10 MAIN ESTIMATES
THE HEARINGS ON THE 2009-2010 ESTIMATES
3. Canada Mortgage and Housing Corporation
4. The Accuracy of the Estimates
7. Private-Public Partnership (P3)
8. Human Resources and Skills Development Canada (HRSDC)
9. Atlantic Canada Opportunity Agency (ACOA)
FIRST INTERIM REPORT ON
THE 2009-2010 ESTIMATES
The 2009-2010 Estimates were tabled in Parliament on February 26, 2009, and subsequently referred for review to the Standing Senate Committee on National Finance. As is customary, the committee anticipates that several meetings will be required in order to complete a thorough review of the 2009-2010 Estimates. The initial examination began on March 4, 2009. Appearing from the Treasury Board Secretariat was Mr. Alister Smith, Assistant Secretary, Expenditure Management Sector. He was accompanied by Mr. Gregory Smith, Senior Director, Expenditure Operations and Estimates Division, Expenditure Management Sector. In addition to their presentation, which outlined and explained the main features of the 2009-2010 Estimates, the officials responded to the committee’s initial enquiries about the government’s planned spending for the new fiscal year.
This report is the committee’s First Interim Report on the 2009-2010 Estimates. The committee intends to examine certain aspects of these Estimates in greater depth at a later date and to submit further reports. The committee will present a final report on its work before the end of the fiscal year 2009-2010.
As in the past, there are four components to the 2009-2010 Estimates. They include PART I – the Government Expense Plan, which provides an overview of federal spending by summarizing the key elements of Part II and by highlighting the major year-over-year departmental changes. PART II – the Main Estimates, directly supports the Appropriation Act, and lists the resources that individual federal departments and agencies require for the upcoming fiscal year. It also identifies the spending authorities and the amounts to be included in subsequent appropriations. Since 1997, PART III has been divided into two sections. The Report of Plans and Priorities (RPP) provides additional details on more strategically oriented planning and results for each of the departments and agencies. It focuses on outcomes expected from federal government spending activities. The RPPs are normally tabled in Parliament in the spring. The Departmental Performance Report (DPR) focuses on results-based accountability by reporting on accomplishments achieved against the performance expectations and results commitments as set out in the Report on Plans and Priorities. The DPRs are normally tabled in Parliament in the fall of each year.
The Main Estimates 2009-2010 of $236.1 billion present information on both budgetary and non-budgetary spending authorities (see Table I below). Budgetary expenditures include the cost of servicing the public debt; operating and capital expenditures; transfer payments to other levels of government, organizations or individuals; and payments to Crown corporations. In these Main Estimates budgetary expenditures amount to $235.8 billion. These budgetary expenditures are further divided between Statutory Expenditures of $150.2 billion and Voted Appropriations of $85.6 billion. Non-budgetary expenditures (loans, investments and advances) are transactions that represent changes in the composition of the financial assets of the Government of Canada. In these Main Estimates they total $0.35 billion and are composed of $0.086 billion of voted appropriations and $0.15 billion of statutory expenditures. As in previous years statutory expenditures make up the largest component (63.7%) of planned spending.
TABLE I
TOTAL MAIN ESTIMATES 2009-2010
($ millions)
|
Budgetary |
Non-budgetary |
Total |
Voted Appropriations |
85,627.5 |
78.6 |
85,706.1 |
Statutory Authorities |
150,157.1 |
271.4 |
150,428.5 |
Total Main Estimates |
235,784.6 |
350.0 |
236,134.6 |
Source: 2009-2010 Estimates, p. 1-3
THE EXPENDITURE PLAN—AN OVERVIEW
In total, the 2009-2010 Main Estimates are $14.7 billion greater than the 2008‑2009 Main Estimates published in March 2008: an increase of $6.6 billion in voted appropriations and an increase of $8.0 billion in statutory spending. Altogether, this represents a 6.2% increase in the level of the Main Estimates over the previous fiscal period.
While not all of the Budget 2009 items are accounted for in these Main Estimates, all of the items announced in earlier budgets or fiscal updates are included. Since the Main Estimates are prepared well in advance of the beginning of a fiscal year, they would not include expenditures for initiatives announced in the Budget that require separate legislation or further development to implement, or that were not known in advance due to budget secrecy.
The Budget also provides for possible adjustments to those major statutory expenses driven by economic or demographic variables that could change during the course of the year such as interest costs on the debt and equalization payments to the provinces. Supplementary Estimates permit these requirements to be met within the overall planned expense levels provided for in the Budget or the Economic and Fiscal Update but not reflected in the Main Estimates.
Table II, below provides an overview of the distribution of spending by payment type. A more detailed explanation of the numbers is available on page 1-5 of the 2009-2010 Estimates.
Program Spending by Sector is discussed on page 1-7 of Part I of the 2009-2010 Estimates. The section is set out by sector and, within each sector, by federal department and agency. While some sectors show a decline in spending in 2009-2010, others are showing increases that, in part, reflect measures announced in either previous Budgets or the November 2008 Economic and Fiscal Statement. A table on the page summarizes program budgetary spending by sector, along with the total and percent change in spending as compared to the 2008-2009 Estimates.
TABLE II
BUDGETARY MAIN ESTIMATES 2009-2010
BY PAYMENT TYPE
(In million of dollars)
Fiscal equalization 16,086.1
Canada Health Transfer 23,987.1
Canada Social Transfer 10,860.8
Other transfers and subsidies (net) (910.0)
Sub-total Transfers to Other Levels of Government 50,024.0
Elderly Benefits 35,197.0
Employment Insurance 16,575.0
Universal Child Care Benefits 2,544.0
Sub-total Major Transfers to Persons 54,316.0
Sub-total Other Transfers and Subsidies 34,723.6
Total Transfer Payments 139,063.6
Operating and capital expenditures 59,699.6
Public debt charges 31,868.0
Other obligations and payments 5,153.5
Total Budgetary Main Estimates 235,784.6
Adjustments to reconcile with the November 2008 Economic
Statement and the net to gross basis of Budget Presentation* 12,603.4
Total Budgetary Expenses 248,388.0
*Includes adjustments for the impact of accrual accounting, expenses charged to prior years and any anticipated lapses. It also includes expenses not yet allocated for initiatives which require further development or legislation, as well as revisions to major transfers to other levels of government.
Source: 2009-2010 Estimates, Part I, page 1-5.
CHANGES IN 2009-10 MAIN ESTIMATES
Each issue of the Estimates may contain a number of changes in the way that the information is conveyed. Beginning on page 1-133, the current document provides information on the changes in the current Main Estimates as compared to the previous set of Estimates. There are four types of changes in presentation that are discussed:
- Changes to presentation;
- Changes to government organization and structure;
- Changes in authorities (Votes and Statutory items); and
- Changes to program activity architectures (strategic outcomes and program activity descriptions).
A significant change in these Main Estimates is the creation of a new Treasury Board Central Vote to accelerate some of the expenditures announced in the 2009 Budget. The government indicated it believes that several elements of its stimulus package need to be implemented within the next 120 days in order to be most effective. Furthermore, the Government indicated in the Budget that it will adjust the Main Estimates for 2009-10 to ensure that new funding flows quickly. While payments related to several of the Budget initiatives will be authorized upon passage of the Budget Implementation Act, some programs will require funding through appropriations. Accordingly, a new central Vote in the amount of $3 billion has been created in these Main Estimates to provide the mechanism which will enable those programs to be implemented as quickly as possible. Funds will only be allocated from this central Vote between April 1st, 2009, and the end of June 2009, for expenditures on Budget-related programs approved by the Treasury Board.
To achieve this objective, the wording of two existing votes in the Estimates of the Treasury Board Secretariat has been modified: a) Vote 1 has been modified from “Operating expenditures...” to “Program expenditures...” and b) Vote 30 wording has been modified to make reference to “...the federal public administration...” Also, a new “Vote 35” was created with the following vote wording:
“Vote 35—Budget Implementation Initiatives
Subject to the approval of the Treasury Board and between the period commencing April 1, 2009 and ending June 30, 2009, to supplement other appropriations and to provide any appropriate Ministers with appropriations for initiatives announced in the Budget of January 27, 2009, including new grants and the increase of the amounts of grants listed in the Estimates, where the amounts of the expenditures are not otherwise provided for and where the expenditures are within the legal mandates of the government organizations.”
THE HEARINGS ON THE 2009-2010 ESTIMATES
In his opening remarks to the committee, Mr. Alister Smith outlined a number of significant changes in the 2009-2010 Estimates, and highlighted several initiatives of the federal government.
In particular he noted that the 2009-2010 Estimates contain a new central vote: Treasury Board Vote 35—Budget Implementation Vote. This vote introduces some new elements in the Estimates and will give rise to an additional degree of scrutiny by Parliament as it is put into practice. After providing an overview of several aspects of the current Main Estimates, the officials answered questions raised by the senators.
Some senators were interested in a number of items contained in the 2009-2010 Estimates. In the first instance, they asked about the $3 billion to be set aside for the Treasury Board Vote 35 (TB Vote 35). Specifically, they were interested in the procedure to be followed in order for departments to get access to this money. Mr. Alister Smith explained that the proposed procedure will be very similar to the internal procedure used for supplementary estimates. It will require Treasury Board decisions on approvals of items which might otherwise be in Supplementary Estimates (A) or Supplementary Estimates (B) later in December. He assured the committee that the same type of due diligence will be applied as with supplementary estimates. He added that the advantage of the central vote here is that the funds, if approved in interim supply at the end of March, would be available to flow as early as April for budget items that have been approved by Treasury Board in accordance to stated requirements. He explained that usually, departments which are required to implement the budget begin the year with a limited proportion (three twelfths) of their required funds. With Vote 35, additional funds would be available to departments as early as April.
Mr. Smith said that in his opinion, most of the spending under TB Vote 35 will involve infrastructure projects, which would be ready to go when the new construction season starts. He could not say how the funds will eventually be divided among the provinces.
Some senators wanted to know more about the degree of accountability surrounding the use of this fund. They reminded the officials that Canadians have a right to expect the government to be accountable for the manner in which funds are spent. How the Treasury Board will monitor these expenditures is a significant issue. Mr. Smith explained that any new initiatives seeking funding under TB Vote 35 will be subjected to considerable scrutiny by the Treasury Board Secretariat and by the Comptroller General, to ensure that the requests are in compliance with Treasury Board policies, the Financial Administration Act and all other requirements for audit and evaluation. None of those requirements will be waived here but will remain in full force. The Secretariat still has its own internal audit and the Office of the Auditor General will audit the process throughout. Furthermore there will be quarterly reports to Parliament on the implementation of the budget measures as outlined in the Economic Action Plan.
There will be considerable scrutiny and reporting on these initiatives and due diligence by the Treasury Board. The level of scrutiny has not changed.
The quarterly reporting is a new measure which will bring additional transparency to the process. In addition, there is heightened scrutiny by both the internal auditors and the auditors of the Office of the Auditor General. There will be tracking of spending and results through the Treasury Board. Mr. Smith believed that in many respects, the due diligence in respect of TB Vote 35 disbursals will be higher rather than lower.
Some senators were interested in federal spending initiatives in support of literacy programs. In particular, they noted that there had been a literacy secretariat that was abolished in recent years. Now, on page 14-7 of the Human Resources department there are grants to voluntary organizations for literacy and essential skills, which last year had appropriations of about $24.9 million, and this year will be receiving only $20.7 million. Some senators view literacy assistance as an important function and are concerned by this reduction in federal funding in the coming fiscal year. They noted that in the past, reductions in this type of funding have led to some worthwhile organizations not qualifying for assistance. Furthermore, these organizations could not determine the reasons for the funding refusals. Mr. Alister Smith agreed to check into this matter and inform the committee at a later date about the change in the spending levels and the distribution of funding by provinces under this initiative.
3. Canada Mortgage and Housing Corporation
Also in the Human Resources department, under the Canada Mortgage and Housing Corporation (page 14-13), there is an item for housing repair and improvement programs of $79.98 million in the coming fiscal period. Some senators noted that this amount represents a relatively large decrease of 34.6% from the $122.23 million appropriated in fiscal year 2008-2009. This decline raises concerns because, as some senators explained, in some province funding for housing repairs is difficult to obtain in a timely fashion.
Mr. Smith explained that notwithstanding this apparent decrease in funding for home repairs, the budget has brought a whole raft of new initiatives and spending: retrofit of housing on reserves and off reserves, social housing, and he believes also the Residential Rehabilitation Assistance Program. All these programs are expected to get significant new funds as part of this overall stimulus package. There will be a several billion dollars more going into housing, renovation and retrofit of social housing, housing for low income seniors, persons with disabilities, First Nations housing, northern housing, and direct lending to municipalities for housing related infrastructure projects. There will be a huge increase in spending if the budget implementation act and the rest of the Economic Action Plan are passed. Mr. Smmith also agreed to obtain additional information on the Emergency Repair Program and on the Residential Rehabilitation Program.
4. The Accuracy of the Estimates
It has been customary in this committee for senators to raise concerns about the estimation practices of certain organizations that fail to properly anticipate their annual requirements. This usually leads to requests for additional funding later in the fiscal year. The committee does not question the need for a process of supplementary estimates because they are necessary for often very good reasons. Rather, the committee questions the effort of some government organizations to provide reasonably accurate figures in the budgeting exercise. Some figures in the current documents lead some senators to suspect that they are not realistic.
For instance, the Public Service Labour Relations Board (PSLRB) has in the past, seemingly submitted with some degree of consistency low appropriation requirements in its Estimates, only to come back again and again for supplementary funding. Last year, these requests for additional funding had the effect of almost doubling their initial budget. In the fiscal year 2008-2009 the PSLRB spent some $12 billion. In the coming fiscal year they are asking for $6 billion. Some senators are sceptical that they will actually remain close to their stated budget intentions. Mr. Smith acknowledged the past discussions in this committee regarding the accuracy of the PSLRB annual estimates. He agrees that in spite of mandate changes at the PSLRB, there is a need to solidify the base funding for some of the smaller organizations.
Another example involves the estimated $31.9 billion that will be spent paying the interest on the public debt. Currently the Estimates suggest that interest costs on the public debt are likely to decline in the next fiscal year. Some senators found this view at odds with the substantial increases in government borrowing. In their estimation, the new federal borrowing would swamp any savings that might be realized from interest rate decreases on the federal debt. They did not feel that the current estimate is realistic. Mr. Smith responded that the Department of Finance provides an estimate, which is for Parliament’s information, as are other statutory items to be included in the estimates. Such figures are updated during the supply cycle as new information is available.
Some senators feel that in their assessment of the funding requirements of government, they need to know that the numbers provided in the Estimates and Supplementary Estimates are reasonably accurate projections of an organization’s spending plans.
Some senators were interested in the funding allocations for the Office of the Coordinator—Status of Women Canada. While they welcomed the appointment of a Minister for women’s issues they were concerned that the $29.6 million set aside for the organization is inadequate to deal with the many problems besetting women in Canada.
Some senators observed on page 1-14 a decline in the spending on the cultural programs sector. They noted that overall spending was expected to decline by $248.2 million in 2009-2010 from the $4.0 billion spent in 2008-2009. They were concerned because this reduction in cultural spending is due in part to a reduction of $12.7 million in support of Official Languages. Mr. Smith responded that this decline in the funding provided under the Official Languages Act is the result of the “sunsetting” of some funding that had been provided in Budget 2007. It has now expired and that funding drops off. It is the sort of time limited funding issue that was provided in support of the Official Languages Act, but it was for a particular period of time and that is now completed. He agreed to obtain additional information on the funding of Official Languages and to provide it to the committee at a later date.
Some senators were also interested in the budget of the National Arts Centre and how it spent its money outside of the National Capital Region. Mr. Smith said that he will get that information.
7. Private-Public Partnership (P3)
Some senators observed that $82.9 million in funding is being sought by PPP Canada Inc (page 9-13). They asked the officials to provide some details on the implementation of this program. Mr. Smith explained that the $82.9 million is for operations and program delivery, with $72.8 million slated for the P3 fund investments. He believes that the fund is still being set up, so that some portion of the difference ($10.1 million) is for set-up cost and some portion is for operations. The officials did not believe that any disbursements have been made from the fund. Mr. Gregory Smith added that the Minister of Finance announced the permanent chair on January 19, and the new permanent CEO was announced January 19. There have been no investments made at this time, however, it is expected that $1.2 billion will be disbursed over a five year period.
8. Human Resources and Skills Development Canada (HRSDC)
Some senators observed that there were reductions in the programs at HRSDC in the area of contributions for training and worker education that might be ill-timed given the expected increases in unemployment during the present recession. These senators felt that decreasing spending in these areas was perhaps not advisable at this time. In particular they pointed to some of the major decreases in contributions for worker training and education programs listed on pages 14-8 and 14-9 of the Estimates.
Some senators were also concerned about the reduced funding available to the Public Service Commission. This committee has known for a few years that the federal government will face a major attrition of its workforce as its employees continue to age and retire. There will be a need to increase the level of hiring to try to compensate for the more than 20 per cent of the public service that will retire. The agency responsible for the hiring is the Public Service Commission. Some senators felt that the Public Service Commission should be on high alert to hire new employees and that the $5 million reduction in their funding will reduce its ability to address this issue and other human resource problems.
Mr. Smith responded that the $5 million cut is due to a reduction in the interim recruitment solution and the longer term public service staffing modernization project. This was a time limited funding program, which is now sunsetting. He also mentioned that the public service has been growing significantly over the last few years, because recruitment efforts have been relatively successful. Furthermore, he agreed that there are demographic issues that make it imperative for the government to recruit and fill the gaps that will arise in coming years. He believed that this objective is being met.
9. Atlantic Canada Opportunity Agency (ACOA)
Some senators noted that while the ACOA budget was up from its previous initial Estimates, it is down significantly when one includes the amounts allocated through the Supplementary Estimates in the fiscal year 2008-2009. For instance, it was pointed out that the planned spending for the Enterprise Development and Cultural Development activities were both reduced compared to the previous year. Mr. Smith agreed to obtain more information from ACOA.
These and other matters were discussed during the committee’s examination of the 2009-2010 Main Estimates. In the coming months the committee intends to return to some of these topics and other items in the current Estimates in order to more fully examine the government’s spending plans for the 2009-2010 fiscal year and to report on this work at a future date.
The Standing Senate Committee on National Finance respectfully submits its Interim Report on the 2009-2010 Estimates.