Proceedings of the Standing Senate Committee on
National Finance
Issue 3 - Evidence - April 14, 2010
OTTAWA, Wednesday, April 14, 2010
The Standing Senate Committee on National Finance met this day at 6:48 p.m. to examine the Estimates laid before Parliament for the fiscal year ending March 31, 2011 (topic: Community Futures Program).
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Honourable senators, I call this meeting of the Standing Senate Committee on National Finance to order. Thank you all for being here.
[Translation]
This evening we are continuing our study of the Main Estimates for the 2010-2011 fiscal year, which have been referred to our committee.
[English]
This committee has already held four meetings in relation to these estimates, and we will continue to examine them over the course of the fiscal year.
At our first meeting on the Main Estimates, some questions relating to the Community Futures Program were raised. This program is administered by the regional development agencies across Canada, and we are pleased to welcome a panel of representatives of those agencies who will explain how the program is operated in the various areas for regional economic development. Representing Western Economic Diversification Canada, Daniel Watson, Deputy Minister. Thank you for being here. Representing the Federal Economic Development Agency for Southern Ontario, Clair Gartley, Vice-President, Business Innovation and Community Development. Representing Industry Canada, which has responsibility for FedNor, France Pégeot, Assistant Deputy Minister, Regional Operations. Carmen DeMarco is manager, Program Delivery Northeastern Ontario.
[Translation]
For Economic Development Agency of Canada for the Regions of Quebec, Ms. Manon Brassard, Vice-President, Operations, and Ms. Rita Tremblay, Vice-President, Policy and Planning.
[English]
Representing the Atlantic Canada Opportunities Agency, Robert Smith, Director General, Community Development. He is accompanied by Kent Estabrooks, Director General, Finance and Administration.
I understand that Mr. Watson will provide a brief overview of the program, after which each agency will be called upon in whatever order you can work out amongst yourselves to explain its operation within their region.
These officials have been invited, honourable senators, specifically to address the Community Futures Program. However, should you have questions regarding other aspects of regional development you are welcome to ask them. These officials may not be in a position to respond directly to them this evening but can take back the questions and give an undertaking to provide an answer at a later date. In those cases, if you do not have the answer, we are happy to have you undertake to provide the answers for us later. We are an easy lot to get along with here. I hope you will find that to be the case.
I will now call on Mr. Watson to provide us with the overview.
[Translation]
Daniel Watson, Deputy Minister, Western Economic Diversification Canada: Mr. Chair, on behalf of my colleagues from the various Regional Development agencies and Industry Canada, I would like to thank you for giving me the opportunity to provide you with a brief overview of community development programs.
[English]
The strength of the Community Futures Program is in its flexibility — that is, its ability to adapt to the unique circumstances of each region as those needs evolve over time. Its success can be measured in its ability to effectively target its resources in ways that continue to meet the evolving needs of the people that it serves. My colleagues will elaborate further on their respective approaches delivering programs in the parts of country that they serve, but I will talk generally about the program as a whole. It is a program that operates throughout much of the country and gets delivered by the regional development agencies in different parts of the country.
Since its inception in 1986, the focus of the Community Futures Program has broadened simply from addressing labour adjustment issues in areas of chronic and acute unemployment to broader economic development issues in all non-metropolitan areas of the country.
[Translation]
Although growth, economic stability and job creation are still objectives of the program, diversity and competitiveness in rural economies and the economic viability of communities continue to be priorities as well.
[English]
Community futures organizations, CFOs, are non-profit, local development organizations in non-metropolitan areas run by volunteer boards of directors with professional staff. Nationally, there are more than 3,500 volunteer board members and 1,500 staff. It is not often that you find twice as many volunteers working in an organization as you do paid staff but that is the situation we have here.
There are 273 local CFOs across Canada, linked by a network of provincial, regional and national CFO associations. There are an additional 10 community futures organizations in Nunavut and the Northwest Territories which are administered by the territorial governments. CFOs offer strategic community planning and economic development, business services, access to capital, and support for community-based projects.
[Translation]
I would like to draw your particular attention to a significant and positive change that Budget 2010 announced. For nearly 25 years, significant portions of CF funding have been approved on a temporary basis with CFs needing to seek renewal every two or three years, sometimes every five years. This resulted in significant uncertainty.
[English]
The measures proposed in Budget 2010 put an end to this temporary approach to funding. Budget 2010 proposes to make the source of community futures funding ongoing, subject to the usual program management and accountability requirements that would apply to any government program.
This represents a significant step forward, reducing uncertainty and promoting longer-term planning and encouraging more strategic approaches. It is hard to do the type of strategic and long-term planning that you might want to do when your funding runs out in three, four or five years, and the ability to do those things if the source of the funding is ongoing.
This funding was a continuance of the $55-million increment over five years that was approved in Budget 2005. In addition, some regional development agencies augment support to the CFOs from existing departmental funds.
[Translation]
Recent evaluations of the CF program have concluded that it supports projects that drive economic development in rural Canada, as well as providing a source of funding that would not otherwise be available to small and medium-sized enterprises in rural regions.
[English]
Over the last 11 years, CFOs made 60,000 investments worth over $2.3 billion to small- and medium-sized enterprises that have difficulty accessing traditional sources of capital. An additional $4.3 billion, mainly from the private sector, was leveraged, maintaining an estimated 260,000 full-time jobs.
[Translation]
Having made these general comments, I will now yield the floor to France Pégeot, my colleague at Industry Canada.
[English]
France Pégeot, Assistant Deputy Minister, Regional Operations, Industry Canada: Good evening, senators. Thank you for the opportunity to discuss the delivery of the Community Futures Program in Northern Ontario. FedNor is a program within Industry Canada. Although its core mandate is Northern Ontario, until the creation of FedDev Ontario — that is, the agency for Southern Ontario that was created in August — FedNor was responsible for the delivery of the Community Futures Program for all of Ontario. As background, I thought you might be interested to know that.
My comments will focus on Northern Ontario, which is a vast region of nearly 803,000 square kilometres, representing 87 per cent of Ontario's land mass although it contains only about 6 per cent of Ontario's total population. It is an area rich in minerals, forests, lakes and wildlife. Consequently, it has an economy that is closely linked to the up and down cycles typical to the natural resources and tourism sectors. In the North, Industry Canada delivers the Community Futures Program to help communities face and overcome the challenges that affect the stability and development of their economy both in the short and long term.
The Community Futures Program is the cornerstone of FedNor's approach to small business and community economic development across the region. Using an annual budget of roughly $9 million, FedNor provides support to 24 community futures development corporations, CFDCs, located throughout Northern Ontario.
In the North, some areas have been designated as bilingual and are serviced by 12 CFDCs which offer the products and services in both official languages.
[Translation]
These organizations work directly with the official language minority communities to meet their economic development needs.
Of the 24 CFOs serving the North, two focus exclusively on helping aboriginal communities, entrepreneurs and businesses.
[English]
In addition to the financial support we provide to individual CFDCs, FedNor also contributes to the functioning of a provincial membership association and two regional community futures networks. These regionally incorporated bodies help facilitate the sharing of best practices as well as the delivery of professional development, training, marketing and promotion opportunities. This regional CFDC teamwork also laid the groundwork for the establishment of investment pools aimed at supporting larger economic development projects.
Operated independently, the successful northeast and northwest investment pools allow member CFDCs to offer loans of up to $500,000 through an innovative cost- and risk-sharing arrangement. Last spring, the government introduced the community futures stimulus plan in Northern Ontario as a way to capitalize on the expertise of CFDCs to grow small business and create jobs, and to help our communities deal with the effects of the global economic downturn.
Among its key features, the plan included an increase of the lending limit of CFDCs to $250,000 from $150,000. This measure, in effect until March 2011, is providing CFDCs with additional financial flexibility. The plan also allowed for temporary increases to community futures, CF, operational funding to support increased lending activities as well as the development of enhanced partnerships with the Business Development Bank of Canada, banks and other credit unions.
[Translation]
Between 2006 and 2010, the CFOs in Northern Ontario invested over $83 million in more than 1,800 enterprises in that region. That support made it possible to collect an additional $12 million in investments from other sources. We estimate that as a result, 5,442 jobs were created or preserved and thousands of businesses were started up or expanded.
[English]
In addition, the most recent evaluations of the CF program in Ontario concluded that, overall, the program is relevant, successful and cost effective. We believe these results demonstrate that the Community Futures Program and our partnership with CFDCs are contributing to a regional economy where businesses can grow and people can prosper.
The Chair: Thank you. The CFDC, community futures development corporation, is that what the various community futures entities are called?
Ms. Pégeot: Yes, CFDCs are what they are called. The money coming from the program is allocated to those various community futures development corporations. They deliver the program.
The Chair: Thank you. Maybe we could clarify this before we go to the next speaker: Do each one of the CFDCs in all regions make grants, contributions or loans?
Ms. Pégeot: They make mainly loans.
Robert K. Smith, Director General, Community Development, Atlantic Canada Opportunities Agency: At the risk of complicating things, we call them CBDCs, community business development corporations, in Atlantic Canada. I will elaborate more on that later.
The Chair: I am glad you clarified that for us.
Clair Gartley, Vice-President, Business Innovation and Community Development, Federal Economic Development Agency for Southern Ontario: Thank you and good evening, honourable senators. Thank you for the opportunity to represent FedDev Ontario tonight.
The government created the new Federal Economic Development Agency for Southern Ontario, known as FedDev Ontario, to respond to the economic downturn associated with the global economic crisis and the ongoing structural change in the manufacturing sector. FedDev was launched on August 13 of last year and began immediately to deliver new and existing business, innovation, community and infrastructure programs in Southern Ontario. Southern Ontario is recovering from the recession, but faces many challenges as its industries and communities seek new ways to grow and transform to take advantage of new opportunities.
FedDev Ontario's goal is to help promote such growth as well as economic transformation and diversification in the region. It does this effectively through a variety of new initiatives and programs strategically designed to build economic development. How do we do this? We partner with local governments, businesses and community organizations to bolster the economy to ensure it is stronger, more vibrant and more resilient in years to come, and we encourage innovative ideas in the commercialization of research and investments in advanced manufacturing.
In establishing FedDev, the responsibility for its several existing grants and contributions programs was shifted from Industry Canada to FedDev Ontario. One of these programs is the responsibility in the region for the Community Futures Program. The Community Futures Program supports the operation of 37 community futures development corporations — 15 in Eastern Ontario and 22 in Southern Ontario.
FedDev works closely with local CFDCs to integrate activities and tools that align their core objectives and provide for effective delivery of programs that maximize the opportunities and economic potential in our communities. The intent is to integrate all of our economic efforts in the region, including the important work that individual communities do to support their own economic development. In turn, the CFDCs develop local economic development strategies. They offer business counselling to small businesses, support community-based projects, and provide access to capital very similar to other areas. The main objective is the provision of access to capital to small business owners in smaller and more rural communities that have a more difficult time getting such funds from traditional lending sources.
Our stakeholders often tell us clearly that the lack of access to capital from conventional sources remains a critical problem for their success and for small businesses in Southern Ontario. By helping to address this issue, the CF program supports the current government priorities of building jobs and growth and of sustaining Canada's economic advantage.
During the last five years, Southern Ontario's CF corporations have invested more than $139 million in over 2,600 Ontario businesses. This has leveraged an additional approximately $260 million in investments from other sources and created or maintained 17,700 jobs.
We are focused at FedDev on building the CFDCs and the Community Futures Program as integrated and integral parts of our community economic development strategies and efforts for Southern Ontario.
Thank you for the opportunity to appear tonight.
The Chair: Thank you. Congratulations on getting rolling so quickly. These were economic times that required you to do so.
[Translation]
Manon Brassard, Vice-President, Operations, Canada Economic Development for Quebec Regions: Mr. Chair, as Vice-President of Operations for the Economic Development Agency of Canada for the Regions of Quebec, I am pleased to have this opportunity to discuss management of the Community Futures Program (CFP) in Quebec.
In Quebec, the CED manages the CFP through, in particular, the Community Futures Development Corporations (CFDCs). The CFDCs are known in French by the acronym SADC. We also work through the Business Development Corporations (BDCs), the Community Economic Development Corporations (CDECs) and the CFDC network.
The 57 Community Futures Development Corporations (CFDCs) contribute to the development of the communities they serve through leadership, dialogue and the creation of jobs and businesses. In 2009, they made some 1,005 business loans totalling almost $60 million.
[English]
The CFDC network's mission is to provide networking and training support for CFDCs and BDCs in Quebec. The CFDCs and BDC network in Quebec consists of 1,350 volunteers and 400 professionals. Every year, more than 9,300 firms and organizations benefit from the services of a CFDC or a BDC.
[Translation]
The CFDCs created a financial tool, the CFDC Common Fund, which aims to ensure CFDC investment fund cash flow among members and contribute to making venture capital available, in particular through initiatives established with our Agency such as the Business Startup and Succession Fund and the Business Support Fund.
The CFDC Common Fund manages more than $41 million in assets that it makes available, in the form of loans, to member CFDC/BDCs.
[English]
The 10 business development centres, the BDCs, are located near urban areas and BDCs work to stimulate employment opportunities by contributing to the creation or expansion of local small businesses. Their key mandates are to provide financing to small and medium enterprises and technical support to entrepreneurs.
[Translation]
The 14 Community Economic Development Corporations, our CEDCs, are located in disadvantaged urban areas. The CEDCs support sustainable community economic development projects. They are instrumental in improving the quality of life of residents in neighbourhoods undergoing revitalization. Canada Economic Development supports 14 CDECs in disadvantaged areas: 11 in Montreal and one in Sherbrooke, Trois-Rivières and Quebec City.
[English]
Each year, the 14 CFDCs carry out an average of 340 community leadership and awareness activities. Through this vast network of partners, Canada Economic Development ensures that Quebec communities' proven access to the government services is available to them.
Thank you for your attention and I welcome your questions.
The Chair: Thank you. I think you used some of the same acronyms in French. I was trying to follow to make sure that you did, but you seemed to speak of some other entities. Your organization is a little bit different, I think.
Ms. Brassard: We are a bit different. We have 57 CFDCs. They are the ones that look the most like the ones my colleagues have. We have 10 CAEs and they have a smaller portion of the CFDC's mandate. The CFDCs do part of the work but in more urban areas. That is the program we inherited when the program was transferred to us. There are historical reasons for this, but it is basically the same mandate with organizations that had, when we received them, a slightly different organization and way to work, and we continued with that.
The Chair: Who determines the amount of allocation of funds to each of these various organizations?
Ms. Brassard: We have contracts with them and it depends on their mandate and what they will deliver.
The Chair: You work that out at the Quebec region level?
Ms. Brassard: Yes, we do.
Mr. Smith: ACOA welcomes the opportunity to appear before you this evening to talk about the strategic goals and economic benefits of the Community Futures Program in Atlantic Canada. Our federal department was created in 1987 to work with public and private sector organizations to help build a more innovative, productive and competitive economy for our region.
In addition to others, our economic development network includes Atlantic Canada's 41 community business development corporations, or CBDCs, as opposed to calling them CFDCs. I will elaborate more on why we do that in a moment. CBDCs deliver lending, counselling and training services to business owners in Atlantic Canada, with funding support from the Government of Canada through ACOA.
From 2004-05 to 2009-10, ACOA's investments in CBDCs totalled $114.2 million. The Community Futures Program accounted for $74.3 million, or nearly two-thirds of that total. ACOA provides other assistance to CBDCs, primarily under our business development program, for specific projects such as the seed capital initiative which assists young entrepreneurs with business loans, training and business counselling.
During this same six-year period, which ended in March of 2010, community futures program spending in Atlantic Canada reached the highest levels since the program was created, with the government's annual contribution to Atlantic Canada's CBDCs averaging $12.4 million. Budget 2010 increases that amount to an average of $12.6 million per year going forward.
My colleagues have also explained that community futures funding supports three key business development functions: access to capital, counselling and community strategic planning. The program's application in Atlantic Canada is unique in that CBDCs use community futures funding to deliver lending and small business counselling services only. The community strategic planning function is the responsibility of the 53 non-profit regional economic development organizations, or REDOs, as we call them in Atlantic Canada, and that network is funded separately at approximately $9 million per year under ACOA's business development program.
Community futures helps to close the gap commonly associated with financing in rural areas by giving access to needed capital for business start-ups and expansions. Since 1995, the 15-year period that CBDCs have been working with ACOA, they have provided more than 22,000 loans to business owners in Atlantic Canada with funding support from the program. An evaluation of the program covering the five-year period from 2003 to 2008 found that CBDCs are helping businesses that would otherwise not be able to start up or to expand.
This evaluation confirmed the program's importance to the growth and strength of Atlantic Canada's economy. It showed that community futures-assisted loans have resulted in the creation of more than 5,400 permanent employment opportunities in Atlantic Canada and the maintenance of an additional 10,000 jobs. The evaluation also went on to find that every dollar invested in businesses under community futures generated more than $2.35 in gains to Atlantic Canada's GDP.
It is important to point out that ACOA works closely with the pan-Atlantic and the four provincial CBDC associations in achieving the goals of the Community Futures Program. The agency also supports CBDCs in undertaking a number of project-specific initiatives such as SME training, marketing and information technology. ACOA has also been innovative in supporting the creation, in 1991, of the Atlantic Canada community business investment fund, which pools available funds from CBDCs, similar to the program in Quebec.
Community futures is fulfilling its mission in Atlantic Canada to help business owners meet their economic needs and seize opportunities for growth. Atlantic Canada remains the most rural region of our country, and this program is an integral part of ACOA's approach to rural community development.
We appreciate this opportunity to speak to you today and we would be pleased to answer questions.
The Chair: Thank you very much, Mr. Smith.
Mr. Watson: I will speak briefly about the specifics of the western context.
[Translation]
Western Canada is a region with numerous rural communities. The CFDCs are an important factor in our ability to support those rural communities.
[English]
Currently, there are 90 CF organizations supported by Western Diversification, WD, in Western Canada: 16 in Manitoba, 13 in Saskatchewan, 27 in Alberta and 34 in British Columbia. The CFs in Western Canada serve smaller populations but often have larger geographic territories that they cover because of the density of the population and the geography.
Currently, WD is providing a total of $28.5 million in funding each year to the 90 CFs and to the four associations. Within each of those provinces there are associations that bring them together to work collectively on different issues. In 2010-11, the funding level is the same, at $28.5 million, as it was last year. The funding is at the same level and I am pleased to say that each and every one of the 90 organizations that we fund has received the firm funding offers to make sure that their funding is the same this year as it was last year.
[Translation]
It is important to note that the $28.5 million represents over 22 per cent of WD's annual program budget in 2010-2011. So it is a large proportion of our total expenditures.
[English]
In addition to the ongoing operating funding, the federal government has contributed approximately $170 million since the program's inception in investment funding to the western community futures organizations. That money has grown to a total of $247 million, or just under a quarter of a billion dollars, over time, through successful investments that those organizations have made.
WD has also contributed an additional $15.5 million to investment fund pools where those organizations work together to do loans almost on a syndicate basis with each other.
[Translation]
To address the challenges in providing services posed by the West's vast distances, WD has also supported the provision of videoconferencing technology to these organizations' offices to enable members to share resources, deliver seminars and hold meetings routinely.
[English]
What I would say about the video conferencing technology is that it is something all of the agencies learned, and certainly we have learned in Western Canada, that so frequently in the rural context it is not always simply the money that is the issue; it is the ability to actually be in touch with other people who may be hundreds of miles away to share success stories and things that they have learned and to expand those across Western Canada and, quite frankly, across the country where it can be done.
[Translation]
WD is continuously seeking opportunities to improve its results, to respond to the evolving needs and realities of Western Canada and to ensure alignment with government priorities.
[English]
It is in this context that my Minister of State, the Honourable Lynne Yelich, met with all the of the community futures organizations earlier this year to discuss their future role and the ways in which they might best contribute to government priorities. What we heard out of that set of meetings was that people were very interested in making sure that they continued to be relevant, that they continued to be able to meet the evolving needs of their communities and the people they were trying to serve.
Budget 2010 made it clear that organizations receiving federal funding must be able to demonstrate that the funding provided to them is tied to furthering government priorities, and to achieving the right results for Canadians. We are convinced that the opportunity that is present in not having the same uncertainty over funding going into the future will allow for a much better discussion on that front moving forward.
[Translation]
WD will work with CFs over the coming year to get their input into how to best achieve the goals and best meet the needs of Canadians.
[English]
In conclusion, I want to thank you for this opportunity and assure you that, for the year coming, the funding agreements are in place, or at least they are being negotiated at this point in time. The numbers are clear and the numbers of dollars will be the same as last year, which is good news for all concerned.
The Chair: Thank you, Mr. Watson. You have made the point several times that there will be secured funding for the future that appeared in the budget. Should we anticipate finding what your funding will be for the year in the Main Estimates or in the Budget Implementation Act?
Mr. Watson: It is not in the Main Estimates, because those are prepared before the budget speech is delivered, but if you go to the budget speech, you will find it in there. Perhaps someone can tell me the page.
The Chair: Is the budget not statutory?
Mr. Watson: No, it is not, but then it would appear in the Supplementary Estimates after that.
The Chair: We are anticipating receiving them in the next little while.
Mr. Watson: That is the proposal for the budget. We will see what Parliament says.
The Chair: Will we see it if we look into the Main Estimates now?
Mr. Watson: You will not see it.
The Chair: We will see some allocation requested that parliamentarians are requested to vote on.
Mr. Watson: That is right.
The Chair: In addition to that, there would be more in Supplementary Estimates (A).
Mr. Watson: That is right. If those amounts were to be approved at this time next year, if we were having this discussion, you would expect to see the amount that reflected this increase in next year's Main Estimates.
The Chair: That is the way the system should work.
Mr. Watson: That is the way it should work.
The Chair: Thank you. Has everyone had a chance to speak? That has been very helpful and we thank you.
Now we will go to specific questions from honourable senators and we will have a dialogue back and forth. If the question is a general question and more than one would like to answer, just let me know and we can give you a turn to answer. We have quite a few people who might want to participate, so it would be appreciated if you could keep your answers as succinct as possible.
Senator Ringuette: I am trying to identify in the budget speech where exactly the funds our witnesses are referring to are located. Is it on page 120?
Mr. Watson: I have chapter 3.3. Unfortunately, the document I have does not have a page number. There is a line that says $11 million per year ongoing for the Community Futures Program, which promotes community and economic development in rural Canada. That is under a page entitled "Renewal of programs."
Mr. Smith: It starts on page 84 of the document.
Senator Ringuette: They are not reflected in Table 3.3.1 of the funding for the different economic development agencies. Let us start from the estimates that we are looking at today.
For ACOA, Atlantic Canada, there is a reduction shown here from 2009-10 of almost $2 million. There is an increase in Quebec of $300,000. Western Economic Diversification Canada goes from zero last year to $23,653,000. Southern Ontario went from zero last year to $9,571,000. Northern Ontario went from $21 million to $8,488,000.
I will start with Ontario. If I look at the previous year and the current year, it seems to me that allocation for Northern Ontario has been split in two between Northern and Southern Ontario. You rob Paul to give to Peter. In addition to that, there is almost $3 million less for both these agencies in the current year.
Why are we robbing Paul to pay Peter? We are robbing someone to give to someone.
[Translation]
In other words, money is being cut that was budgeted last year for FedNor and it is being redistributed between FedNor and the new agency for Southern Ontario.
Ms. Pégeot: What happened is that when the agency for southern Ontario was created, the whole of Ontario, which was covered by all the CFDCs, was divided in half, so before the budget for all the CFDCs or for the entire Community Economic Development Program was with FedNor. So part of the budget has stayed with FedNor to cover Northern Ontario, and for southern Ontario, which was now with FedDev Ontario, the amount associated with that has been given back. So we have not robbed Peter to pay Paul, if I may put it that way; we have divided the money based on the size of the area covered.
Senator Ringuette: Yes, but there was no economic development agency for Southern Ontario?
Ms. Pégeot: No, FedNor handled the whole of Ontario.
Senator Ringuette: I was under the impression for the many years we have been on this committee, looking at budgets and estimates, that the money allocated for developing Northern Ontario was invested for Northern Ontario. But now you are telling me that for all that time, there was money. . . So Peter has been getting robbed to pay Paul for even longer than this year?
Ms. Pégeot: With respect to the Community Development Program, I think it was the only program that was really for the whole of Ontario. For example, we had money for FedNor in the Northern Ontario Development Program, which was only for northern Ontario, which was really only for Northern Ontario. But when the budget was allocated for the Community Development Program, it was intentionally for the whole of Ontario, never for Northern Ontario alone.
Senator Ringuette: Exactly. We really have to clarify the situation. If there was money taken from FedNor to develop the regions of Southern Ontario —
Ms. Pégeot: No, no.
Senator Ringuette: Why was the program in Southern Ontario?
Ms. Pégeot: Because it is a national program, it is provided for the entire country. So since the program was national, it should cover the whole of Ontario. It is the only program that was administered by FedNor for the whole of Ontario.
Senator Ringuette: Right, as compared to the other programs, which are solely —
Ms. Pégeot: For the North.
Senator Ringuette: In all of the programs that had been identified for Northern development, that is the only program?
Ms. Pégeot: Yes.
[English]
Carmen DeMarco, Manager, Program Delivery Northeastern Ontario, Program Delivery, Industry Canada: For a short period of time, we also delivered the Eastern Ontario development program for rural Eastern Ontario because it was a program that was effectively delivered through the community futures corporations in Eastern Ontario, but it was strictly allocated for Eastern Ontario. There is really no mix. The Northern Ontario funds are only spent in Northern Ontario, but Community Futures, as just mentioned, is a national program.
For context, the program was originally administered by Human Resources and Skills Development Canada. When it was transferred to Industry Canada and to the regional agencies, at that time there was no regional agency in Southern Ontario, so FedNor picked up the Community Futures Program for Southern Ontario. That is why we were delivering programming in the South, but it was certainly allocated for Southern Ontario.
Senator Ringuette: Either way, the numbers we have in front of us indicate that the envelope of money for the coming fiscal year is over $3 million less. For Atlantic Canada, we are going from $13 million to $10.9 million. We are losing another $2 million there.
Mr. Smith: As Mr. Watson explained, those numbers you are talking about were pre-budget. If you look at the numbers post-budget, in actual fact, over a five-year period, Atlantic Canada will have an increase on an average basis of the funding provided to community futures organizations.
Senator Ringuette: What guarantee do you have of that?
Mr. Smith: It will be in the Supplementary Estimates. It is part of the budget.
Senator Ringuette: Not for the coming years. We only deal with the budget a year at a time. What guarantee do you have of that?
[Translation]
Mr. Watson: If it is voted this year, it becomes the base funding for the Main Estimates next year. As a rule, Parliament will have to consider a higher figure the next year in the Main Estimates for that year. Because once an amount is approved permanently, that amount comes back the next year in the Main Estimates, unless something changes.
Senator Ringuette: I understand, but what I want to know is what guarantee you have that this amount is permanent?
Mr. Watson: In the past, funding was granted for very specific times. So a request had to be made to obtain it during a specified period. That means that Parliament can make its own decision about any spending matter, provided that Parliament agrees to it in the long term. The expenditure will be presented, year after year, unless a minister someday decides different.
That is very different from the situation we have today, because otherwise, we have the absolute certainty we will see the funds disappear as you describe, that is, the funds that were approved a few years ago are ending now. That is absolute. To replace them, we have this proposed measure in the budget; if it is accepted, the funds will come; if not, we will not have the funds.
Senator Ringuette: I still have no proof that the cuts to ACOP, in New Brunswick and in the regions of Ontario. . . We are talking about these three organizations, at least $5 million.
I presume your boards of directors, who are volunteers, are all appointed the same way, that there is a standard, guidelines that have been established and are the same for all the agencies.
What is the percentage of the amounts we are talking about today for the Community Development Program that goes solely to administration?
[English]
Mr. Smith: With regard to administration costs, 95 per cent of the funds go towards administration costs that we provide annually.
Senator Ringuette: Ninety-five per cent of the funds are for administration?
Mr. Smith: That is correct because they already have their capital funds in place.
Senator Murray: I do not think you understood the question well.
Senator Ringuette: Of the $10,962,000 in the estimates this year for ACOA under the Community Futures Program, how much is for administration, operations of the program? I hope it is not 95 per cent.
Kent Estabrooks, Director General, Finance and Administration, Atlantic Canada Opportunities Agency: All of the $10,962,000 is a contribution under the CF program that goes directly to the CBDC organizations. Included in ACOA's base is approximately $600,000 that we use to operate the entire CF program on an annual basis.
Senator Ringuette: Is it similar to all the other organizations?
Mr. Watson: Western Diversification looks like it is about $100,000. It is roughly in the same order of magnitude. It is a very small proportion of that, not 95 per cent.
Senator Callbeck: Thank you all for coming this evening. Mr. Smith, you said that last year community futures' spending reached the highest level since the program was created. What was the figure? I know the budget was $13 million, but was there money in the supplementaries too? What was the total figure that was spent?
Mr. Smith: Last year the amount spent was $13.1 million in Atlantic Canada.
Senator Callbeck: So then this year we have quite a decrease.
Mr. Smith: Our planned spending for this year is $12.6 million. It is not reflected in the documents you have because that is the number that comes out of our analysis of the budget.
Senator Callbeck: Why are we reducing that? It is such a great program in Atlantic Canada.
Mr. Smith: We are not reducing the operational funding to the program. We are providing the community business development corporations, the CBDCs, in Atlantic Canada with exactly the same amount of operational funding this year as last year, and we are planning that same amount going forward. We are not reducing operating funds.
The slight decrease of $500,000 is easily accounted for because we do a lot of project activity with the CDBCs and we set up a reserve. We are reducing that reserve. It is a reserve at head office that we do not require any longer, so in actual fact there is no reduction to the operational funding being provided to CBDCs in Atlantic Canada at all.
Senator Callbeck: You had a reserve but you say it is no longer necessary?
Mr. Smith: It was a reserve we would use for special projects that might be presented to us. It is not to do with the operations of the CBDCs themselves. As I said earlier, the $55 million, the $11 million a year mentioned in the budget, was put in place initially as an increment in 2005, so dividing it by five gives you $11 million a year. That is not the way the money flowed. It flowed on an increasing scale each year until it reached its highest level in 2009-10. However, if you averaged that out and looked going forward, we are actually providing more money on an average basis to the CBDCs over the next five years than over the past five years. It is because it ramped up to the highest level in the last year.
Senator Callbeck: Okay. I want to ask about a couple of other programs, if that is permissible. Why have the innovative communities fund and the Atlantic innovation fund for the years 2011-12 and 2012-13 been cut?
Mr. Smith: I am afraid that is one of the questions we did not come prepared to be specific on. We will have to get back to you on that. We would be happy to do so.
Senator Callbeck: I would appreciate it if you would send an answer.
The Chair: For any undertakings such as this, please correspond with the clerk and he will make it available to honourable senators.
Senator Callbeck: The Atlantic Gateway was not mentioned in the budget. Is there a reason for that?
Mr. Smith: Again, it is not an area I have any familiarity with, other than the fact that I know it is there. I do not work in that area.
Senator Callbeck: With the Community Futures Program as it exists now, are there any improvements you would like to see to the program?
Mr. Smith: We have had a very successful 15-year relationship with the community futures organizations. In Prince Edward Island, the Active Communities Inc. organization in Montague is the only Atlantic combined CBDC and REDO, so it is the only true community futures organization in Atlantic Canada. We think there are opportunities throughout the region for closer cooperation and collaboration between these two networks. Economies of scale and better services can be offered to the public if they do cooperate more closely, and there is the tendency now for these two organizations to start to work closely together. That is something I personally would like to see happen and is something that can be accomplished. We have regular meetings with the two organizations and we encourage it.
I should add that, in the evaluation conducted, the only thing that came out of it was there is a certain degree of overlap and duplication in the two networks, and we are addressing those areas by working with them to eliminate or reduce them.
For example, some of these REDOs also provide business counselling, not all of them but some of them do, and the next-door CBDC also provides business counselling. We do not think that is necessary, so we are working with those organizations to reduce the issues.
Senator Callbeck: Would that be the only change?
Mr. Smith: Another issue, if I may, in some cases, some of the funds are not required in every case by the CBDC either because they do not have the demand or their credit function is a little less easily accessible money because the CBDC might be prepared to assume less risk than the others. We would like to see a minimum amount of their capital funds be invested at any time, and we are looking at a reasonable figure. If that figure is not reached, then the CBDC in question that has surplus capital would lend it, as a matter of course, to our pooled fund so it can be accessed by other CBDCs where the demand is higher. Am I making that reasonably clear?
Senator Callbeck: Yes.
Mr. Smith: Those are the two things that I believe would make major improvements to the Atlantic Canada program.
Senator Finley: I have an amazing amount of paperwork here, more acronyms than I have ever seen. It has me a bit confused. I am a rookie at this, so I hope you will bear with me.
I understood that the majority of the money that passes through these funds is in the form of loans?
The Chair: Is your answer yes?
Mr. Smith: Yes, sorry.
Senator Finley: Presumably, by definition, loans are repayable?
Mr. Smith: Yes.
Mr. Gartley: Yes.
Senator Finley: What is the repayment level — I have lost where the total was — of the several billions of dollars that have gone into this program since it was established in 1986? What percentage of these loans has actually been repaid? You could even give me a region.
Mr. Watson: I can speak to Western Economic Diversification's area, Mr. Chair. If you look at the aggregate amount put into loan funds over the years, we know that number fairly well. It is about $170 million. We also know the value of those loan funds today is $247 million, so it is a net increase of almost $80 million, or in the range of 40 per cent to 45 per cent over that time frame.
On an aggregate basis, it tells us that the fund has increased rather significantly, despite the fact that, by design, it is intended to help people who would otherwise, in a bunch of cases, have challenges getting access to credit.
Senator Finley: Is this increase because more government money has been put into it on an annual basis, but it is neither an accumulating number?
Mr. Watson: There are two different pots of money that are useful to think of here. On the one hand, there is the loan pool of funding out there available to be loaned out to businesses and so on, and then there is the operating funding which pays the people who make the program known, who help decide whether or not a particular business person is worth the investment or whether or not their idea simply will not pay out, the people you have to pay to do the accounting and all of those types of things. On the operating front, what we get from that investment are the right people in communities who know the players they are working with, who know the business areas they are working with. We get some support for professional staff to guide business people as they are undertaking their work and so on.
From the other pool of money, we get the actual capital for someone who has an idea and been to the banks and maybe turned away, been to private-venture capital funds and been turned away, but who believes firmly the place they want to be is rural Canada and wants to set up their business there. They would go to the CFDC and, because of the funds that are placed there, they are able to get a loan that in many cases they would not otherwise get.
In the area I work with in Western Canada, we put in $170 million over time, but because people made good loan choices and made good on the business ideas they had and produced a value and repaid the loans, that number is not $170 million but is up to just under a quarter of a billion.
Senator Finley: I noticed in the Quebec presentation that they talk last year of having lent $60 million, whereas the budget from the federal government was $32 million. Does that $28 million delta then come out of the accumulated profits, or did it come from somewhere else?
Ms. Brassard: There are two pots of money. The $32 million is used to pay salaries and to pay for their activities. That is where it goes. They have capital funds. Each of the CFDCs has a capital fund. That is the pot of money they use to lend money. Last year, they did $60 million worth of loans, and their percentage of repayment is a little over 95 per cent.
Senator Finley: I am confused.
Ms. Brassard: I will speak for CEDQR at this point because I am not sure how the others work. Each CFDC has money to operate. Over time, they were transferred to us, and over time, we capitalized each of them up to $1,000,500. That is the money they use to make loans and get interest and build their money. That is where they take the money from to make those loans.
The $32 million that we give this year is not going to that capital fund. It goes for their employees to ensure that it is properly managed, that they do the planning they are mandated to do in their community, that they assist the entrepreneurs, that they give the loans, that they follow the loans, that they help the entrepreneurs before they have serious problems. If they see gaps in the management or issues arising out of the economic situation, they help them before they go bankrupt or have serious financial issues. The operating money we give them goes to that. The average CFDC in Quebec has five people to do that, and it has budgets to organize.
Senator Finley: If I am right and what I am hearing is right, and I realize this is pre-budget, but from the original numbers I have here, $85 million is going to pay the salaries in 270 agencies. Therefore, 270 agencies can consume $85 million in salaries and fees. Is that what it is?
Mr. Watson: It includes all of their operating costs, including travel and rent, all of the things you would need if you were setting up any business. Certainly, salary is a big chunk of that.
Senator Finley: I noticed in one of the presentations, I think it was for Atlantic Canada, that they made a statement, and I am not arguing the statement by the way, not at all, that for every dollar being invested through these programs, they had increased the GDP by $2.35. Is there a set of deliverables that are commonly measured among all of the various regional agencies? You can supply these presumably afterwards, but what are they, how often are they measured, who measures them, and who agrees to the objectives and deliverables in the first place?
In other words, if a statement is made that we have created or maintained 225,000 jobs, and a number like that was mentioned somewhere, how do we know that the money originally was not intended to produce or maintain 500,000 jobs? Do you follow?
I am not, by the way, down on community development funds, not at all, because in my own area, the Sand Plains Community Fund has done an absolutely fabulous job in helping to replace the jobs lost through the tobacco fiasco. I want to get an understanding of how this thing works and primarily how we measure its success.
The Chair: Will someone undertake to provide us with that information in due course? If each of you wants to, that will be fine too, because we can sort it out. Senator Ringuette has a supplementary question.
Senator Ringuette: What percentage is operation and what is effectively loan? We were looking at about 5 per cent, or at the most 10 per cent. You said 100,000?
Mr. Estabrooks: Ninety-five per cent of the funds that we have in our estimates go toward CF organizations in order to pay for their operations. Five per cent go for investment funds from time to time. Just so I can clarify, my $600,000 reference was the cost of ACOA's operation of the program.
Senator Ringuette: I did not get the clear answer that I was looking for. You are telling us that, out of the total allotted funds from the operating estimates for this year, which is roughly $85 million for all your agencies, 95 per cent of that is for administration?
Mr. Gartley: Mr. Chair, I might bring that down to the community level. Ninety-five per cent is for administration, but let me bring it down to what a typical CF corporation looks like. It might help, I hope.
Typically, you have a volunteer board of 10 or 12 directors, generally elected by the local community. There may be three or four professional staff managing the operations that CFDC is involved in, which is different in Atlantic Canada versus much of the rest of the country. They are running a bunch of community economic development and all kinds of programs and managing a loan portfolio. In Southern Ontario, they are managing an average portfolio of $3.2 million.
If you look at the $250,000 to $300,000 we are providing to them to operate the corporation, that corporation is then managing the portfolio. The average is $3.2 million, but it can be $1.8 million or even as high as $9 million in some CFDCs in Southern Ontario. There are usually about 62 loans, so they are dealing with existing loans and new applications, and processing them. Several CFDCs in our territory in Southern Ontario have over 100 loans and the loans range anywhere from $5,000 to as much as $250,000.
I wanted to get back to an earlier question about the default rate. We are looking at something like 7 per cent as a default rate on those. These are small businesses and there is a certain amount of risk. The whole idea of the program is to take some risks and get some things incubated and moving along. That is the number for Southern Ontario, at least.
The Chair: Is it 7 per cent of the loans or 7 per cent of the capital?
Mr. Gartley: Seven per cent of the capital.
Senator Murray: What is the comparable figure to the other agencies? That is what Senator Finley was getting at. Is it about the same in FedNor?
Mr. Watson: It would be similar for Western Economic Diversification Canada, as well.
Mr. Smith: It is slightly worse than regular banks, but they take higher risks. They take collateral that a bank will not take.
Senator Murray: We are talking about 7 per cent.
Mr. Watson: It may be useful to address the question of operational costs. I want to be clear on the question of which operational costs — that is, the operational costs of the department, say, Western Economic Diversification Canada, might be $100,000 out of the amount that we would have. The rest of this amount is about, essentially, the operations of the CFDCs, which are not a Government of Canada operation. They are not Government of Canada employees. These are other organizations.
My colleague from Quebec spoke to this a couple of minutes ago: One of the reasons that many lenders will not touch a bunch of these borrowers is that they know it is a lot of work to get them into the position where they can pay back the money. These may be people with a good idea and a decent business plan but who do not necessarily have the background that you would have if you were more sophisticated, et cetera.
You have staff in place to actually help them understand issues around cash flow that they would not otherwise understand — that if they can get it right, they can make the business work which would not otherwise work.
If you cannot get people to understand those issues or to understand what some of the opportunities are because what they are good at is making widgets, rather than the business of selling them to people who might want to buy them, you end up with a host of owners who will not touch them. In many cases, it is the higher-cost end of helping people who, in many cases, would not be nearly as likely to get the money from some other lenders if they were on their own.
On the other hand, the reason these organizations are prepared to put their money where their mouths are — and the reason they can do that in a bunch of cases is they know they will have people watching over things to ensure they go right — is that private lenders, in a whole bunch of cases, have come in at almost 2:1 in a ratio for loans because the seed money was there through the CFDCs.
If we look at the numbers in Western Canada, for example, while we have put out over $665 million in loans through the CFs, it is an additional $853 million from other sources that is also coming in. It is not quite 3:2, but it is even more money than was put out through these.
A lot of that is because the CFDCs can have the confidence that they will get their money back because they have someone watching over them and who spots things before they go wrong and who can help fix things before that happens. These other lenders, in some cases private, in some cases other sources, know that the CFDC has someone on the ground also looking out for shared interest.
That is where a bunch of the operating stuff goes.
Senator Murray: These are private investors you are talking about.
Mr. Watson: In many cases, yes, but not all.
Senator Murray: What are the others?
Mr. Watson: The provinces, for example, have set up regional economic development organizations in Western Canada. Sometimes First Nations have funds that they make available, as well. There is a range of sources, but much of it is also private.
Ms. Pégeot: I may know what is confusing. When the program was created 20-some years ago, each community futures organization received roughly $1 million in kind of an endowment fund. Throughout the years, the various regional development agencies added some money. We say they capitalized those funds, or capitalized the CF organizations. This is different from those operating costs.
The numbers you have before you, senators, is actually the money that goes to the CF organizations for them to administer those funds, to provide advice to the businesses and to work with the communities on economic development projects. That is maybe where the confusion is coming from. Out of the numbers you have before you, a small portion is kept by the regional development agencies — by the departments — to then administer the program. That is what it is.
The Chair: Are there any other supplementary questions on this issue before we go on?
Senator Marshall: Mine is related to Senator Finley's question. When responding to Senator Finley, Mr. Watson made reference to about $170 million that is now $250 million. Is that a fund? If so, how did it get from $170 million to $250 million?
Mr. Watson: I guess the short answer to that question is: By making good business decisions. Some of my colleagues talked about some of the entities having something in the order of $3 million per CFDC to send out to the communities they serve. That money started getting put in place in the 1980s when these organizations were created and they have been capitalized at different points in time, although not for a while, to the best of my recollection.
If they started out with, for example, $1.5 million, they loaned out a bunch of that money. They had good repayment rates. They made sure they had people in place to help the businesses that might otherwise have lost the money, but kept getting it paid back. They get paid back at a competitive interest rate. That increases their fund. They re-loan that money and do it again.
Senator Marshall: That was my next question. What about on a national basis? Is that $250 million on a national basis?
Mr. Watson: No. That is with the 90 CFDCs that Western Economic Diversification Canada works with. My colleagues might have the figures handy or they might not, but that is for Western Economic Diversification Canada.
Senator Marshall: I will follow up with this question, then. If that fund is growing because you are lending out the money and it is being repaid and you are earning interest, will you not reach a point eventually where you will not need any capital funding from the Government of Canada anymore because you have now built up this big lending institute?
Mr. Watson: If it were a bank, that is exactly what would happen. That is to say, they would lend out the money while charging service fees and things like that, get it paid back with interest and that would be their income, and they would pay the staff to do the work.
However, the CFDCs are a little different. It was a policy decision at the time which said that the loan money is not to be used as operating money. If you start at $1.5 million way back, it is easy to eat that away. The policy decision was made early on: We will keep the loan monies separate from the operating money.
Imagine today, the average amount that a CFDC gets is something in the order of $300,000 a year. If you started someone out with a $1.5 million loan budget and they needed the first year to use $300,000 of it, they would go broke in no time at all. Therefore, a policy decision was made to keep the two separate.
Senator Marshall: You are saying yours is just for Western Canada, $250 million. If you are doing that well and another region, such as Quebec, is doing well, should you not come to a point in time where you can say we are getting all this money back that the Government of Canada has channelled to us over the years, with interest — and when do you start repaying the Government of Canada, or have you already done that?
Mr. Watson: I have to be careful here, because I will get on a plane eventually and I will land at an airport in Western Canada. The people who greet me, if they think I am taking credit for their good business decisions, they will take me off to a corner of the airport I would rather not visit.
It is the CFDCs that are doing well, and these are not government organizations. They are sponsored by a government in a way and funded by government, but these are community volunteers, with professional staff that they hire, and they take personal risks sitting on these boards as members of the boards of directors, just like anyone who is on a board of directors of any organization does. They have made some great decisions in some cases and, like any business, some of those decisions have not worked out. The question you ask, though, is certainly an interesting policy question as to whether or not, over some period of time, there might be a different model. The model in place today is the one we have.
Senator Marshall: If the taxpayers of Canada are paying to fund these regional organizations and that same taxpayers' money is being channelled out to all of these community futures organizations and they are doing extremely well, with a collection rate of 95 per cent and interest, then it would seem to me that the taxpayers of Canada who have made an investment in these companies should also see some sort of return for their investment.
To tie up my supplementary: I did have an opportunity before we had the formal meeting to have a brief conversation with ACOA, because I was looking for their financial statements. I was assuming ACOA had their own set of financial statements, and I could not find them on the website. However, I would be interested in seeing those financial statements.
Mr. Chair, I would appreciate it if we could get a copy of financial statements from ACOA. Do the other regional organizations also generate their own financial statements? If so, I would like to see a copy of the financial statements.
Mr. Smith: We can provide them.
Senator Marshall: I will not say they are not there, but I could not find them.
Mr. Estabrooks: We publish our expenditures through the departmental performance report, DPR.
Ms. Matthews: The financial statements are actually posted through the DPR, so you would find them for all of our agencies. They would be attached.
Senator Marshall: They are on a particular website?
Ms. Matthews: Yes. They would be on the government website through the Treasury Board Secretariat.
Senator Marshall: We will follow up on that. I could not find them, Mr. Chair.
The Chair: You referred to the departmental performance report?
Ms. Matthews: That is correct.
Senator Gerstein: Thank you all for appearing before us. I must say — and it is certainly my fault — that I am somewhat confused, so if you will bear with me asking a couple of questions.
As I understand it, there are two pools of money: There is a loan pool and there is an operating pool. The $85 million that is here refers to the operating pool, and that is disseminated down, run by — and I am using your words — volunteer boards of directors. Do I assume from the word "volunteer" that that means they are not paid?
Mr. Watson: Yes.
Senator Gerstein: So there is no payment for the boards.
Help me to understand better where the loan pool comes from. What created the loan pool?
Mr. Gartley: There was a comment earlier about this, that when the program was originally set up, there was capital made available. It started at $1.5 million for each community futures development corporation. That is what started the pool. Over time, other programs or initiatives have come along where maybe additional dollars in different regions have been added to that pool.
Senator Gerstein: By the federal government?
Mr. Gartley: Yes.
Senator Gerstein: Maybe or has been?
Mr. Gartley: Has been.
Senator Gerstein: Has been, not maybe.
Mr. Gartley: Has been. In fact, I can speak for Southern Ontario. In the past year, we actually added another $14.3 million to that pool out of an initiative last year in Southern Ontario, and I think others may have done the same. Those pools have grown a bit.
Senator Gerstein: If I may stop you for a minute, where does that $14.3 million show up? Where would we see that?
Mr. Gartley: That was an expense from last fiscal year out of the community adjustment fund.
Senator Gerstein: Where would it show up in our budgets?
Mr. Gartley: It would not be reflected in your Main Estimates for 2010-11. This was an expense from the past year. If you look at the accounts for the past fiscal year, you would be able to find it.
Senator Gerstein: What you are saying is that the growth of the pool for loans is not simply a management issue; other monies have been put in?
Mr. Gartley: That is correct.
Senator Gerstein: It is not solely a reflection that you loaned it out, it got paid back, you had interest, et cetera?
Mr. Gartley: That is right. The reason it has grown, too, if I could add, is there is still demand there. I know the 37 corporations we deal with, some of them are still projecting that if they had more funds, there are more businesses they could support. These are in centres of under 100,000 people. They are more rural. Unemployment rates tend to be higher. They are perhaps struggling more. Adding funds helps them, helps more businesses, and hopefully creates more economic opportunities and jobs.
Senator Gerstein: Will we find anywhere in the estimates additional monies going into the loan pool in this year, 2010-11?
Mr. Gartley: I can only speak for what FedDev is responsible for, and I do not believe there are any additional monies, no.
Senator Gerstein: The other agencies are getting no addition to the loan pool this year.
Who is actually granting the loans? Is it the agencies themselves? Do the five agencies have the same criteria for granting loans? Is there a commonality?
Mr. DeMarco: The individual CFDCs make the decisions. The boards of directors make the decisions on the loans.
Senator Gerstein: Their criteria would be different or are they all the same?
Mr. DeMarco: The terms and conditions are the same across the program nationally. Interest rates are set 2 per cent above prime, for example. Security must be taken. There is a commonality across the country on the criteria for the loans.
Senator Gerstein: This leads me to the astute questions that Senator Finley raised. I think it would be helpful to the committee if you could indicate what monies have been loaned out by the various agencies and give us some examples.
I would like to understand what the criteria are. Is it measurable? Does an application have to meet the criterion of how many jobs will be created or whether there is some economic advancement in the area or economic spinoffs? Is it possible to obtain something of that type?
The Chair: You are all nodding your heads. You can all send information in. I know you are not coordinated and we brought five different groups here. That is fine. Just send us the information.
Senator Gerstein: I would like to conclude by saying that in no way are my questions reflecting disaffection with the program. I am basically trying to understand the program better, which I must say I do not at the moment.
Mr. DeMarco: There are common deliverables: jobs created, start-ups of new businesses and spinoffs. You must appreciate that the program is designed so it can be unique from area to area, depending on the local needs, so there is some flexibility within the program.
Senator Gerstein: Could you give us examples of specific loans that have been done and what that has done for the particular area? I think it would be helpful for us to see what the effect of some of these programs has been.
Mr. DeMarco: Okay.
Senator Marshall: My questions are for the Atlantic Canada Opportunities Agency, because that is the agency that does business in Newfoundland. What sort of organizations are these Community Futures organizations? Are they the old regional development boards? Can you give me some examples? What are the names?
I am trying to relate to them. There are so many community organizations in Newfoundland. Which ones would this program be funding?
Mr. Smith: They are called Community Business Development Corporations in Newfoundland.
Senator Marshall: Yes. Would you be able to tell me how much of the $13 million last year went to Newfoundland? I am trying to put it into perspective.
Mr. Estabrooks: Last year, it was approximately $3.8 million.
Senator Marshall: In addition to that funding, there would also be capital funding provided; do I understand that correctly?
Mr. Estabrooks: I would have to check to see exactly. I am not entirely sure whether or not there was capital funding. I would say, though, even if there were, it would be minimal, because the organizations in Atlantic Canada now draw much of their capital requirements from the centralized pool of funds.
As we explained earlier, there are some community business development corporations that have underutilized or funds that are not out in active loans currently. We try to incent them to go to the pool rather than come back to government to get top-ups.
Senator Marshall: So the $13 million that you said went to the, I think they are called "re-boards" in Newfoundland and Labrador — the $2 million or $3 million — those are grants, are they not? That is not repayable; that is all paid for operating costs, is that correct?
Mr. Estabrooks: That is correct.
Senator Marshall: How do you decide which ones of those boards get funding and which do not, or do they all get funding, and how do you determine how much funding each one gets?
Mr. Smith: The regional ACOA office in Newfoundland will sit down each year with the CBDC organizations and work out what their funding requirements are for the coming year. They will work out an arrangement and do a contract for that year and provide them with the funding they need to do that.
Senator Marshall: Who monitors these boards? You are granting them so much money for operational purposes, and then they tap into this centralized pool for capital funding. What sort of audit requirements are on them, or what sort of review requirements? How do you monitor and ensure that everything is going okay within those organizations?
Mr. Smith: In addition to the ongoing interaction between ACOA officials and the organizations, we also did a full audit of the Community Futures organizations in Atlantic Canada last year. The ACOA external audit committee appeared in front of them to present the management action plan to address that audit. It has been published.
Senator Marshall: Is that similar to New Brunswick, P.E.I. and Nova Scotia?
Mr. Smith: That audit was for all four provinces; it looked at the operations in all four provinces.
Senator Marshall: What were the results of those audits? I recall seeing on your website that there were some reports regarding audit activities. Would you know off the top of your head if the outcomes of those audits were satisfactory, or are you having problems with a number of boards? Could you give me a general idea?
Mr. Smith: The audit was conducted in accordance with Treasury Board policy on transfer payments, of course. The objective of the audit was to provide assurance that ACOA exercised due diligence in the management and our oversight of the program, and to provide assurance that key managerial and financial controls and processes are in place to ensure the recipients of contributions — in other words, the CBDCs themselves — had complied with the terms and conditions mentioned earlier. The audit covered the period April 2006 to March 2008, and was carried out during 2008-09.
Senator Marshall: I know you are saying you carried it out in that particular year. How frequently would the audits be done? Is there a requirement that these boards be independently audited every year by a private sector auditing firm, or are review engagements used? What sort of requirement is there?
Mr. Estabrooks: There are audit requirements passed along through the contribution agreements that we have with each individual CBDC. That is part of an annual process of our monitoring of the file.
Senator Marshall: Would that be consistent throughout all the Atlantic provinces?
Mr. Estabrooks: Yes, it would.
Senator Marshall: In addition to the internal audits and audits carried out by the private sector firms, are there also evaluations carried out to make sure that the programs are meeting their intended objectives?
Mr. Smith: There was an evaluation completed last year. It was a national evaluation and everyone completed their own. It was national in scope, but we did our own individual agency evaluations of the program.
Senator Marshall: Who would carry out those evaluations? Do you do it yourselves?
Mr. Smith: We have an evaluation unit that does the evaluations.
Senator Marshall: Are they considered independent and objective? Anyone can review their own programs and come to a conclusion we are doing a great job with delivering our own programs, but is this a separate, objective branch of your organization?
Mr. Smith: I do not want to speak for the other agencies, but our evaluation branch is internal. I think they maintain professional standards of independence. I have been involved in a number of evaluations at ACOA and I have never felt there was any bias demonstrated. It is not like an external audit, obviously.
Most of the evaluations at ACOA are conducted by contracted organizations that conduct evaluations. We do not do the evaluation ourselves; we supervise an organization that specializes in evaluations.
Senator Marshall: I recall from the website that there is some reporting on internal audit activities. I believe there is also some information there. Would the evaluation be on your website?
Mr. Smith: They are published, yes.
Senator Dickson: Thank you for an excellent presentation, especially the answers to the questions, because it was a great learning experience for me.
Insofar as the CBDCs and whatever they are in the other jurisdictions, the gentleman opposite me said there were standard terms and conditions, as I understood it, for the loans. As you go across Canada, are there any exceptions to those standard terms and conditions? In other words, to what degree is there discretion?
Mr. DeMarco: There is still a fair degree of discretion within each of the organizations. We set minimums — for example, I mentioned the interest rate minimum — but it is still within each organization. Depending on their local economies, they can set the interest rates they think are appropriate. We do set minimums, and those are fairly consistent right across the country.
Senator Dickson: For example, is there any consideration given to equity investments?
Mr. DeMarco: Yes. There is opportunity for term loans, equity investments and also loan guarantees. Those are the three investment tools each of the organizations has. On the equity side, it is far more on the term loan side than it is on the equity. Equity loans, at least in Northern Ontario, are fairly rare.
Senator Dickson: Following up on the guarantee side for a moment, do the CBDCs, or whatever, guarantee all third-party money that is put in the pool? In other words, the provincial government puts in $1 million; is that guaranteed by the federal government or some agency?
Mr. DeMarco: No. Again, the individual CFDCs, community futures corporations, lend out the money. They make those decisions and they take security on the loans. They own that security. The position that they take on a security certainly depends on the risk of the loan and who the other partners are on the loan. The Government of Canada does not take any of that security.
Senator Dickson: But you mentioned guarantees. Security is one thing.
Mr. DeMarco: Again, loan guarantees are rare under the program. Very few CFDCs do them. This is where they would work out an arrangement with a bank, where the bank would make the loan and the CFDC would guarantee a percentage of that loan in the event of a default. That is a rare occurrence.
Senator Dickson: The CBDC in Atlantic Canada would be on the hook for the guarantee.
Mr. DeMarco: Yes, under that arrangement.
Senator Dickson: As far as operating manuals are concerned in Atlantic Canada, CBDCs, and I assume across the region, there is uniformity in the operating manual. I come aboard to be a director and I get a package of material.
Now, are there any exceptions as you go across Canada or is there uniformity?
Mr. DeMarco: I would not say they are totally uniform across the country. We have developed an accounting manual that we have shared with the other agencies for them to consider. There will be differences from agency to agency but, again, most of the common approaches are there. Each end organization is required to provide us with their operational manual, how they will do their business, how they are going to make decisions, the transparency and so on. That is required from every organization, but there will be some variances, definitely.
Senator Dickson: As you look across the operations of these CBDCs, evidently I would assume some are more effectively operated than others.
Mr. DeMarco: Yes, over time there are some good performers and not-so-good performers. We monitor their performance carefully and often, when they come up for renewal they have to provide us with a business plan. Again, I am speaking for Northern Ontario but I am sure it is similar across the country. We may put special conditions on an organization if we want their performance to change over a period of time. Therefore, we have the ability at renewal to administer these kinds of special conditions.
Senator Dickson: Have you ever, for example, if there is an exceptional CBDC in Atlantic Canada, which I know there are many effective ones there, have you taken ideas from Atlantic Canada and, if you wanted, superimposed them on organizations in Western Canada?
I want to get a sense of how it operates overall.
Mr. DeMarco: We have a number of forums for best practices. Certainly, we share information through email and so on. Every three years, we have a national conference where we bring together all the organizations and most of that time is spent sharing best practices from one region to another, from one organization to another.
There is a national website that also allows organizations to post best practices. There is a lot of sharing of information. The program is fairly mature, being 20 some years old, so there is a lot of opportunity to do that.
Senator Dickson: Are the community futures development corporations subject to the Access to Information Act, or any other federal legislation?
Mr. DeMarco: No, they are not. Certainly, the loans they make to business are their loans to business and it is private information. That is not open to access to information.
Mr. Smith: I would like to add something to the question about service standards.
We have been working in Atlantic Canada with the CBDC network for quite some time to develop service standards, and actually we are finalizing those service standards at a symposium in June of this year, where we are inviting all the presidents of all the CBDCs and their directors to come to this symposium. I am not even sure if we shared this with our colleagues yet.
At this symposium, we intend to finalize the establishment of service standards across the entire CBDC network. We will discuss potentially new funding models with the organizations. We are going to look at the internal and investment management controls they have in place. There will be the establishment of a standardized lending guide that they will all follow and the standardization of financial statement presentation and disclosure.
The reason we were doing this is because some of these things were picked up in the CF audit that I mentioned earlier and so we are acting on that audit, and we will share that information with our colleagues once we have it finalized.
The Chair: Thank you for the intervention; that is helpful.
Senator Runciman: I have a quick question following up on Senator Finley and Senator Marshall related to discussing audits in ACOA.
Do your agencies fall under the mandate of the Auditor General?
Mr. Estabrooks: We are subject to audit by the Auditor General, yes.
Senator Runciman: I assuming, as a newcomer to this role as well, the Auditor General federally has the ability to conduct a cost benefit review. Has that ever occurred in any of the agencies, and if yes when?
I appreciate what Senator Marshall and Senator Finley are referencing here. I do not think we want to appear terribly cynical but, when you do these internal evaluations and come to conclusions that are pretty glowing, it is fair to ask if there has been some sort of outside review of whether or not you are achieving your goals, and whether some improvements would be called for? Has that happened as far as you are aware in recent memory?
Mr. Watson: I would like to say in the evaluation that was done by Western Economic Diversification Canada in that context, we actually hired an outside company to come in and provide outside advice and evaluation. We did not do it ourselves. It was an external party that came in and did the review of these parties.
Senator Runciman: In terms of my question, it was the Auditor General.
Mr. Watson: As far as I know that has not happened in the 25 years.
Senator Marshall: I wanted to speak to that topic. I know where ACOA is concerned, when I was searching for their financial statements I did see some reference to the fact that the federal Auditor General had done a review, an audit, back in the early 2000s, maybe around 2004, but the audit she does would not be done every year. Based on the information I saw today, she has done at least one.
Senator Runciman: I was not talking about an audit as such; I am talking about a program evaluation, a sort of cost benefit.
We are all qualifying each time we ask a question that might be perceived as critical. We do appreciate the work that is being done. I can speak to my own home base of Leeds-Grenville that the folks involved there do a terrific job. They are not faceless unknowns. They are very much involved in the community as well, as well as volunteer boards and they are great people with financial or business backgrounds and they do an outstanding job.
You referenced earlier the Eastern Ontario development fund administered through FedNor. It is now being administered through the new agency.
There was some suggestion earlier that those funds might not be replenished for this coming fiscal year but I gather a commitment has been made now. I do not know how this fund works in terms of other regions. Is there something comparable, or is this unique to Eastern Ontario? How do you arrive at determining what is the appropriate dollar amount for that program?
Mr. Gartley: There may be similar funds that have come and gone in other regions, but certainly in the region that FedDev Ontario covers, which is the eastern 15 CFDCs I mentioned and 22 in the south, this program is specific to those 15 in Eastern Ontario. It provides them close to $10 million a year. And that is in the budget for 2010-11. This is the last year of the program so it will undergo an evaluation and there will have to be decisions this year as to what happens next with it. I expect that will depend on the evaluation and the information that comes forward there.
I am afraid I do not have the history of how the amount got determined. I expect that this was based on representation from the region. They have a network in Eastern Ontario so the 15 CFs there work together quite a bit. They probably put forward proposals. I know they have aggressively moved to try to get this fund in place and a lot is aimed at doing community economic activities. It is divided up into several different areas, but I think they felt a real need there to find new opportunities to transform the economy and diversify. There were communities with single industries that were in trouble or going, and they needed to get something moving to create some new things.
They are doing things like setting up and redeveloping downtown cores and creating places to go and shop in different stores, building innovation centres and working at attracting new businesses into the area. In some cases, they are working together to do this. Most of the funds are allocated to the individual 15, but I think around $700,000 this year is kept for them to work together as a network.
Senator Runciman: You talked earlier about discretion, and I think in terms of this program it has worked well, at least from my experience.
Senator Murray: It has been a long time since I focused on this area of government activity so I need to catch up.
I will start with the Federal Economic Development Agency for Southern Ontario. Mr. Gartley, what is the territory covered by your agency? Is it everything that is not covered by the Northern Ontario agency?
Mr. Gartley: That is a very good answer. It is kind of south of the Muskokas and over to Ottawa and down to Niagara.
Senator Murray: It was created in response to a particular set of circumstances, as I understood you earlier, namely, by the problems faced largely by the traditional manufacturing base of Ontario. Was consideration given to being more selective about the territory?
Mr. Gartley: My understanding is that the downturn in the economy caused the consideration of what we can do to address what is happening in Southern Ontario, and then a realization that it was the only postal code left in the country that did not have its own development agency. I believe that had a big impact on the formation of the agency. Now, we have the country covered with a similar type of approach and focus from economic development agencies operated by the federal government.
Senator Murray: Am I correct in saying that the Eastern Ontario development fund referred to by Senator Runciman, and most of the community futures organizations — 15, you said, in Eastern and 22 in Southern Ontario — existed before the creation of the agency?
Mr. Gartley: That is correct.
Senator Murray: Then what is the value added that the creation of the agency brings?
Mr. Gartley: There was additional funding over and above the existing programming.
Senator Murray: Perhaps I should put it somewhat differently. Are you conducting the same kinds of programs that are being conducted by the other regional agencies?
Mr. Gartley: Some similar programming. The programming is still building, but there was core funding of $1 billion over five years added to the agency. In addition to delivering the existing programming, the community futures programming, the Eastern Ontario development program, infrastructure programming and stimulus programming like the community adjustment fund, we had additional funding of roughly $200 million a year added to support other initiatives that would be very similar to the initiatives delivered by the others.
Senator Murray: Did you create new programs?
Mr. Gartley: There were programs launched last year and different partnerships funded under the Southern Ontario development program.
Senator Murray: Partnerships with whom or with what?
Mr. Gartley: There is a partnership with the Yves Landry group, with the CME, the Canadian Manufacturers and Exporters association to help run their SMART Program with the Chamber of Commerce. Those kinds of things were done as well as delivering funding to support the development of individual businesses in the area.
Senator Murray: You are topping up programs of the Chamber of Commerce?
Mr. Gartley: Given that we started in August of last year, and of course there was a need to move quickly to stimulate things so as many partnerships as could be created were. As well, we ran intakes. We supported a special initiative, for example, to the food and beverage industry. We had what we called a general uptake into the Southern Ontario development program to support business development in the area. Those things were done to move things quite quickly, given that it was a new agency and given the economic situation in the region.
Senator Murray: I will leave it at that. Perhaps sometime someone would like to take a more detailed look at those programs, what they are doing, what they are accomplishing and so on.
Mr. Smith, your statement referred to the 41 community business development corporations, the CBDCs, and then over here the regional economic development organizations, the REDOs. Did we create those, did you create them, or did they just emerge? It seems like a lot of organization for a relatively small territory. You referred to the need for some integration in some places, and I wondered why the region needs so much organization.
Mr. Smith: Well, the REDOs originated in Atlantic Canada well before the creation of community futures organizations. They go back to the old DREE, Department of Regional Economic Expansion, and DRIE, Department of Regional Industrial Expansion, days, for those who remember industrial commissions. They eventually became economic- and enterprise-oriented, focussing on small business. They were funded, over time, by three levels of government: federal, provincial and municipal.
ACOA became involved in providing funding to the REDOs about seven or eight years before the Community Futures Program was transferred to us from HRDC back in the mid-1990s. The community futures came in, but we already had a network well established and operating efficiently with co-funding from all three levels of government. We did not really need the community futures to play the role that these REDOs were playing. We said we will continue to fund the REDOs with our own A-based money and use the community futures money to fund the community futures organizations, CBDCs, but we will not ask them to do the community development role that the REDOs are doing. We have two parallel organizations. They are often in the same building and serve the same territory, but they have different functions and different mandates.
Senator Murray: Really?
Mr. Smith: Yes, because the community futures organizations primarily do lending and training. They do not do strategic planning at the community level and that sort of thing.
Senator Murray: I made the note of what Mr. Watson spoke about. He said in French:
[Translation]
The only source of funding for small and medium-sized enterprises in rural regions.
[English]
The question that struck me is, "Why should this be so?" You gave the answer a bit later in English. I am paraphrasing here, but what I got out of it was that the borrower would not have the security to satisfy conventional lenders.
Again, why should this be so? Are you into loan guarantees? Mr. DeMarco indicates "very rarely," and I wonder why. Do you or these organizations intercede with the banks on behalf of potential borrowers and businesses?
Mr. Watson: What is important, as you just pointed out, it is the CFDCs themselves that make the loans and undertake this activity.
They will work closely with banks, credit unions and others on a bunch of cases. They will often syndicate loans so no one is carrying too much risk. The loan guarantees, generally, are things that organizations have tended to move away from. I do not pretend to be an expert in business, but my sense is people find it more complicated than it is sometimes worth for the amounts that we are talking about. The average loan size we deal with is slightly under $50,000. By the time you start setting up loan guarantees for something like that, it is probably far more complicated than it is worth to do for something at that amount.
The bulk of what we see, as the others have described, are loans. It is more than a one-to-one ratio where we would see other people coming in on those loans. One of the great things about a lot of these rural communities is that the different players talk to each other a lot. If there is a new plant coming to town or a new business starting up, people will regularly have spoken to the credit union, the bank, whatever provincial agency might be out there, federally supported agencies and the CFDCs. I do not know if it intercedes in the sense that a lawyer would intercede on behalf of someone, but it adds credibility to an applicant's attempt to get funds from other borrowers if people know that the CFDC is already on side.
Senator Murray: To the extent these organizations are into community strategic planning, they are financed by Ottawa, effectively, through the regional agencies. Where do the provinces, municipalities and other organizations come into this community strategic planning?
Mr. Watson: It depends a lot on the province. It is very different from place to place. Some provinces have a history of getting very engaged in that type of thing. Others have taken a different approach and have not invested the same types of resources.
One thing that works out in many of these communities is where there are provincial organizations, and sometimes there are municipal ones as well. They have tended to find their own niches on these things. The CFDCs that we work with do not tend to do the same type of community planning as maybe some of the organizations that our colleagues in Atlantic Canada might see at some of the organizations they work with.
We tend to see people working more directly on business loans and things like that rather than what might be more broadly defined as community planning, although many of the same people sit on a whole bunch of different boards. It is just a factor of life in many of these smaller communities where one person who gets known for one set of skills ends up being on the chamber of commerce and a local committee to attract some other business, sitting sometimes on the CFDC board or others.
In some cases, we know there have been cross-appointments on the boards of some provincial and some CFDC organizations. It is done quite deliberately to ensure there is the best cross-pollination that could happen between organizations that are not identical but have some similarity of purpose, certainly, some similarity of interest.
Senator Murray: The only point I am making is that a community plan is not worth very much unless it has support, not just from people who are doing it and from the federal agency that may be involved, but the province as well. It would be important to involve the province not just in the planning but the implementation process, and perhaps the federal agency is better positioned to persuade the province to become involved in those exercises. Am I wrong about that? Is it done?
Mr. Watson: Certainly, we have a lot of discussions. I would not say that the provinces would feel that the federal government is the best convincer of doing various things, but certainly if you get to the community level, where the CFDCs have worked with the local and provincial entities supported on the ground, we tend to see a lot of cooperation there. In many cases, they will work with the provincial equivalent of the ministry of municipal affairs, for example, who tend to be interested in some of the infrastructure and planning questions that are important. As a department outside our involvement with CFDCs, Western Economic Diversification Canada, just like the other agencies, would work very closely with the provinces.
It depends on the scale of the project before it would trigger significant engagement through our other programs and services because many of the things we are talking about here are at a scale that the CFDCs are the best entity to deliver. If someone is looking for a $50,000 loan, for example, with a couple of partners, that infrastructure is on the ground through the regional economic development agencies of the province, the community futures development corporations, and in some cases as well, through First Nations investment funds, which different pockets in Western Canada can actually be significant sources of funding.
Senator Murray: I have one last thing. Senator Runciman also asked about the Auditor General. We are aware the Auditor General audits ACOA, FedNor, WDO and so forth, but the Auditor General would not go beyond that into the CBDCs and others, would she?
Mr. Watson: There are specific rules about that. I cannot remember the specific quotation, but certainly the Auditor General is able to follow money that starts from the federal purse a fair distance. Therefore, to make sure the federal program was run the way it was intended, she can follow the money far enough to do that.
You get into some questions when you go beyond that and look at the organization itself on its own merits, but to the extent you are following the federal money and finding out whether it did what it was supposed to, my understanding — and I can be corrected by anyone more familiar with the specifics — is she can certainly go that far.
Senator Murray: I cannot remember the details, but I think we had a discussion about this with the Auditor General some years ago.
The Chair: Senator Murray, we can have that discussion with her next week. She will be coming out with her report, and we will have her before our committee.
The other matter I wanted to share with colleagues in addition to the Auditor General attending our committee is that we will be delving into the Budget Implementation Act; get yourselves a copy and start reading.
If we wanted to pursue this line further, it might be interesting to bring one of the organizations, one of the actual units here and talk to a volunteer and the administrators of one of the various community futures development groups. That might be another interesting thing to do.
You have given us a lot of information. There are five regional economic development agencies represented here. You have seen the line of questioning, the interest and the undertakings. If you could each go back and prepare a submission and send it along to our clerk, that would be helpful for us in our understanding. It is already clear you are doing a fine job, and we very much appreciate you having taken time out this evening to help us understand this a little bit further.
Thank you very much. The meeting is now concluded.
(The committee adjourned.)