Proceedings of the Standing Senate Committee on
National Finance
Issue 35 - Evidence - March 19, 2013
OTTAWA, Tuesday, March 19, 2013
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to study the expenditures set out in the Main Estimates for the fiscal year ending March 31, 2014.
Senator Joseph A. Day (Chair) in the chair.
[Translation]
The Chair: This morning, we are continuing our study on the 2013-14 Main Estimates for the fiscal year ending March 31, 2014.
[English]
We are pleased to welcome a number of officials for our first look at the estimates for 2013-14. We have had Treasury Board to explain the new format, but it will take a while to get used to. We will begin with Transport Canada and welcome Deputy Minister Louis Lévesque and Assistant Deputy Minister André Morency, Corporate Management and Crown Corporation Governance.
From Infrastructure Canada we welcome Assistant Deputy Minister Su Dazé, Corporate Services Branch. From the Department of National Defence we welcome back Assistant Deputy Minister Kevin Lindsey, Finance and Corporate Services, as well as Rear-Admiral Patrick Finn, Chief of Staff, Materiel Group, who have both been with us before.
I believe each of you have brief opening remarks. Once we have concluded, we will proceed with question and answer in our normal format. If you are able to refer us to your particular section of the estimates for the year that will begin on the first of April, that is always helpful for us because we will be thumbing through. Try to refer to the page in these Main Estimates so that colleagues will be able to follow you.
I expect that this session will go for approximately an hour or an hour and a half, and we will have other business to conduct following that. Who would like to begin?
[Translation]
Louis Lévesque, Deputy Minister, Transport Canada: Mr. Chair, I have a few remarks to make before I yield the floor to my colleague from the Department of National Defence.
Thank you for inviting me to appear before your committee to talk about the Main Estimates and to give you an update on the transport, infrastructure and communities portfolio. Mr. Morency and Ms. Dazé, the two chief financial officers of the two organizations, are here with me today.
I will first talk about Transport Canada's Main Estimates.
[English]
Since becoming deputy minister last November, I have come to appreciate how Transport Canada's work is critical to our country's transportation system and the impact of transportation on Canada's economy. Transport Canada is fully committed to the sound fiscal management and solid stewardship of government resources on behalf of Canadian taxpayers.
[Translation]
Our objective is to ensure that Canada's transportation system remains secure, efficient and environmentally responsible. The department will use the funds allocated in the Main Estimates to meet those objectives.
Since I expect the committee to be particularly interested in some of the main changes to the planned expenditures, my comments will primarily deal with those aspects.
[English]
To begin, there is a decrease in planned spending of approximately $669 million for the Gateways and Border Crossings Fund. This represents the single largest change to our planned spending for 2013-14. This change represents a shift in cash flows due to funding profiles for projects under the Gateways and Border Crossings Fund being allocated to future years in order to ensure that the proper budgets are in place when the actual planned expenditures are expected to occur. This will be a recurring theme because the nature of our activities involve a lot of contribution agreements with third parties, provinces, territories, municipalities and other entities. We have to adjust our schedule of disbursements and payments and authorities to reflect how these entities are progressing with work and then submitting claims for payment. It is not only in Transport Canada, but also in Infrastructure Canada.
[Translation]
We are also expecting an increase of $113 million in planned spending for land acquisition for the Detroit River International Crossing project. Another significant change in planned spending is a decrease of approximately $47 million as a result of the savings measures announced in Budget 2012 and that were incorporated into the parliamentary appropriations for 2013-14.
In addition, we will see a decline of $17 million in the authority planned for the security and safety programs. Let me assure the committee that the decline in spending for some of our programs does not directly affect our activities that ensure the security and safety of Canada's transportation system.
The safety and security of transportation are and always will be at the heart of Transport Canada's mandate and those activities are a significant part of the resources that we manage.
As a result, no front-line inspector jobs have been affected by the decline in planned spending. The decline is a result of cuts to travel expenses, cuts to the use of professional services outside the department, as well as the savings made through increased administrative efficiency and the restructuring of the department.
[English]
I would like to turn my attention to Infrastructure Canada and spending in the Main Estimates. The Main Estimates for 2013-14 show a $1.1 billion decrease from 2012-13 under our Building Canada FundMajor Infrastructure Component. This decrease, as I noted before, reflects the timing of expenses incurred by partners and is to be expected as the programs announced in 2007 reach maturity and the projects are delivered.
However, Infrastructure Canada is continuing to support economic growth and jobs with $3.9 million in funding under its existing programs, including the Gas Tax Fund. As with all government departments, Infrastructure Canada is committed to finding new ways to reduce its operational costs and is working to develop a future long-term plan for public infrastructure.
[Translation]
Mr. Chair, we will be happy to answer any questions you may have about any of these issues. That is the end of my opening remarks. We look forward to your questions after our colleagues make their opening comments.
Mr. Chair: Thank you, Mr. Lévesque.
[English]
Mr. Lindsey, do you have comments with respect to National Defence?
Kevin Lindsey, Assistant Deputy Minister, Finance and Corporate Services, Department of National Defence Canada: I do. I will be brief so members have more time to pose questions.
[Translation]
Today, I am joined by the Chief of Staff for the Assistant Deputy Minister Materiel, Rear-Admiral Patrick Finn. Rear-Admiral Finn will be able to answer any questions you may have about major projects and all the materiel.
This year was also very busy for the Department of National Defence and for the Canadian Armed Forces.
[English]
The global fiscal outlook has changed dramatically since 2008 when the Canada First Defence Strategy was approved. In dealing with these new fiscal realities, there are a number of ongoing government fiscal restraint initiatives to support the federal government's commitment to return to a balanced budget. National Defence and the Canadian Armed Forces have identified numerous savings in various review processes that will increase efficiency and effectiveness to support the readiness of the Canadian Armed Forces.
Turning to the Main Estimates before you, I would like to highlight some key points for the committee on page II- 215 in the English version.
[Translation]
It is on page 209 in the French version.
[English]
National Defence 2013-14 Main Estimates are $17.9 billion, a net decrease in authorities of over $1.8 billion, or approximately 9 per cent, from the 2013 Main Estimates.
These decreases include a decrease in vote 1 operating expenditures of $1.25 billion resulting largely from government-wide spending reviews totalling $962 million, as well as the sunsetting of Canada First Defence Strategy budgetary authorities of $832 million, which were originally approved for a three-year period between 2010-11 to 2012- 13. It is important to note that DND will seek a reinstatement of this Canada First Defence Strategy funding once Treasury Board approves our investment plan. We would seek that authority through supplementary estimates in 2013-14.
These decreases in vote 1 are offset by increases in some authorities related to, for example, the Defence escalator of $340 million, increases for pay and allowances of $164 million, and funding for Canada's training mission in Afghanistan of $87 million.
The Main Estimates also include a decrease in vote 5 capital expenditures of approximately $480 million stemming primarily from adjustments to the spending profile of major capital equipment and infrastructure projects to align financial resources with current project timelines.
Finally, there will be a decrease in vote 10 grants, contributions and other transfer payments of approximately $81 million predominantly due to planned reductions to support NATO programs, including the airborne warning and control systems, alliance ground systems and the NATO Security Investment Program.
As we move into the new fiscal year, the Department of National Defence will continue to be a strong steward of public resources and will ensure the sound fiscal management of taxpayer dollars.
[Translation]
Mr. Chair, the spending included in the 2013-14 Main Estimates is necessary so we can give the Canadian Armed Forces the resources they need to carry out their work on behalf of Canadians.
[English]
Please note, Mr. Chair, we do not have any officials from the Office of the Communications Security Establishment Commissioner, so should questions arise, we would take those on notice and follow up.
The Chair: Thank you. It was not long ago that we had the Communications Security Establishment representatives here directly. They have become somewhat different, in terms of administration, than they were previously. Is that correct?
Mr. Lindsey: They have, Mr. Chair. They used to be included in DND's appropriations. However, they have been stood up as a stand-alone department within the ministry and now have their own appropriations and appear at your request on their own behalf.
The Chair: That was my recollection. Thank you all for your preliminary remarks.
Senator Buth: Good morning everybody, and thank you for being here.
I would like to start with DND and your comment on the amount for the Canada First Defence Strategy. I would like more detail on this. Could you describe what this is? Could you walk us through what was in total estimates last year and explain the comment you made that it would be included in supplementary estimates?
Mr. Lindsey: In 2012-13, approximately $832 million in Canada First Defence Strategy funding was included in the Main Estimates. That funding was intended primarily to help us grow the Canadian Forces, consistent with the CFDS, and also to provide funding for the mission in Afghanistan, specifically the close-out of that mission in Afghanistan.
As you well know, the Canada First Defence Strategy actually provided a 20-year funding line for DND. However, elements of that funding are subject to DND periodically having an investment plan approved by Treasury Board. It was our intent to have that investment plan approved earlier in 2012. For administrative reasons, that approval did not occur, and as a consequence that $832 million is sunsetting. We are proceeding with that investment plan, however. We hope to have Treasury Board approval sometime in the spring, and should we get that approval, we would then seek a reinstatement of this CFDS funding in supplementary estimates in 2013-14.
Senator Buth: Why are you calling it an investment plan? Are you actually investing money from those funds? I find it strange use of a term.
Mr. Lindsey: The investment plan is Treasury Board Secretariat terminology. It is a plan that outlines our intended use of, principally, our capital money in the Canada First Defence Strategy. In that context, the word ``investment'' refers to investments in assets and capabilities.
Senator Buth: Would you have capital funds in other parts of the budget? Is this the primary-purpose location for your capital expenditures?
Mr. Lindsey: All of our capital expenditures, by definition, are captured in vote 5 that you see in the estimates.
Senator Buth: To go back to your comment that it was $832 million in the mains in 2012, what was the total across all the estimates last year? It is difficult for us to see something that was in the mains last year and that is not in here but will be in the sups. What is the expected change in that program funding?
Mr. Lindsey: We will check and confirm for you. I do not believe we had additional Canada First Defence Strategy Funding in supplementary estimates in 2012-13. That is something I will have to confirm for you.
Senator Buth: Do you expect that it will be $832 million in the sups, then?
Mr. Lindsey: I hesitate to anticipate a decision by Treasury Board.
Senator Buth: That is fine. Thank you very much.
The Chair: Mr. Lindsey, $832 million was originally approved for a three-year period. Is that $832 per year, for three years?
Mr. Lindsey: Right.
Senator Buth: I have another question for Transport. You made the comment that the largest decrease in the Main Estimates was for the Gateways and Border Crossings Fund. Can you describe this fund in more detail, explain what it does and again explain the reduction in this funding? I think you used the term ``reprofiling.'' I would like to understand that.
Mr. Lévesque: The Gateways and Border Crossings Fund is part of the infrastructure plan announced in 2007 for such things as investment, notably on the Asia-Pacific Gateway in terms of the types of projects and in terms of border crossings. Many significant investments have been made since then. The issue generic not only to that program but also to other infrastructure programs is that government makes a commitment about a project. That is typically involved. It is not the federal government that is mostly executing those projects. It could be the provinces, the municipalities or, in the case of the gateway fund, railway companies, for which we provide a portion of the funding. We are not disbursing funds before the work is actually done and we have proven that the work is being done. We are largely dependent on the speed at which partners do that kind of work. We obviously cannot spend money that we are not authorized to spend, so we need to have the appropriation based on a best assumption. However, it happens that your assumptions at the beginning of the year do not turn out. The speed at which the partners spend the money is lower than expected, but since we cannot be in a position where we have claims and no appropriations, we have to, to some extent, make estimates that assume that the maximum amount of work is being done. That leads to reprofiling and monies spent in other years. That is the kind of situation.
I do not know if Mr. Morency wants to add anything.
André Morency, Assistant Deputy Minister, Corporate Management and Crown Corporation Governance, Department of Transport Canada: Traditionally, when we start programs, senator, we think we are pretty ambitious in terms of how the money will flow at the beginning, but we know that programs take time to start up. As the deputy has said, we also establish agreements with other parties who work at their own rhythm. We try to plan the spending based on what we anticipate as the costs to be incurred, which we can disburse in that year. We try to profile that money, from year to year, based on program reports.
Senator Buth: Would you say that the program is moving along slower than you expected or that the types of projects you would have expected are underway now and it is just a matter of timing?
Mr. Lévesque: It is a matter of timing. We are not talking about the funds allocated for the economic action plan at the time. Those funds are more or less done. These are longer term projects. We would obviously like them to go as fast as possible, but we are largely dependent on the speed at which the partners actually do the work.
There is a basic issue, namely that we cannot be in a position where a partner actually moves and we do not have appropriations to pay the bills. There will always be the situation where we have to assume that they are moving very diligently, only to likely find out that that is not the case and to ask for reprofiling. Should they actually go forward, if we do not have enough appropriation, we would not be in a position to make disbursements that we are committed to make under the contribution agreements that we have.
Senator Buth: How many years has this fund been set up?
Mr. Lévesque: The program has been established to March 2014. I will turn to Mr. Morency to explain the specific terms and contributions.
Mr. Morency: This particular fund, the Gateways and Border Crossing Fund, has been renewed until 2017-18 to allow for the projects to complete and for the department to disburse the funds as the project is completed. The Asia- Pacific Gateway and Corridor Initiative is currently programmed to 2016-17, again to reflect the cash flows for projects that are already under way.
Senator Callbeck: Thank you all for being here today. I want to start with Infrastructure Canada. The Gas Tax Fund was to be $2 billion a year. A commitment was made. That is starting next year, is it? I notice it is not quite $2 billion here.
Mr. Lévesque: It is actually in place for $2 billion.
Senator Callbeck: I know it is in place, but I was looking here and I see the provinces are not getting $2 billion. It is something like $26 million short and I was wondering why.
Su Dazé, Assistant Deputy Minister, Corporate Services Branch, Infrastructure Canada: Approximately $25 million was given to Aboriginal Affairs and Northern Development for the North. It is still the same funding. We manage the 1.974 and they manage the $25 million on our behalf.
Senator Callbeck: For the $2 billion, the commitment was made for how many years?
Mr. Lévesque: The government has made that a permanent commitment now through legislation.
Senator Callbeck: When it was set up, it was for clean air, clean water and to reduce greenhouse gas emissions. However, I notice in the document here it says that the federal government is working with the provinces on a new agreement. Does that mean that that Gas Tax Fund money could go to other areas?
Mr. Lévesque: As part of the new infrastructure plan, we will have to negotiate. The current plan expires in March 2014. In the two prior budgets, 2011 and 2012, the government stated its intention to announce at some point a new infrastructure plan that will allow new commitments to be made starting on April 1, 2014. Part of that plan will be what the rules are in terms of the areas that are eligible for funding under the gas tax money. That will be part of that new plan.
Senator Callbeck: In other words, you are saying that the current rules for the gas tax could change completely?
Mr. Lévesque: I am saying the government will have to decide on a go-forward basis what terms and conditions will apply to any program under the new infrastructure program.
Senator Callbeck: For these infrastructure programs, the Canada Strategic Infrastructure Fund and the Building Canada Fund and so on, what percentage does the province have to put up?
Mr. Lévesque: This varies by program. It is in the range of 25 to 50 per cent of the funding. Ms. Dazé would have the details for each program.
Senator Callbeck: Because time is short here, perhaps you could send to the committee a written response explaining each of these programs in terms of when they end and what percentage the province has to put into the program.
There has been a tremendous decrease in the Strategic Infrastructure Fund. It has gone down $121 million. In the notes, it says these Main Estimates are down somewhat in categories because they are based on projected cash requirements for approved projects. Does that mean that the provinces have not come up with enough projects, or have there been delays? If it is cut here, this year, will they eventually get that money next year or the year after?
Mr. Lévesque: The Strategic Infrastructure Fund is a perfect example of what I mentioned before. This program was announced prior to 2007, prior to the current infrastructure plan. What you are seeing is the tail end of disbursements on projects that were probably committed to in the early 2000s, or 2003-04, and that are coming to an end, because these are typically large projects. These ``reprofilings'' are mostly delays. They do not change the fact that they are commitments to certain projects. The speed at which the provinces and municipalities execute those projects determines the speed at which we disburse. It is not that the provinces are not committed and will not deliver the projects. These projects will happen over a longer period of time than originally anticipated.
Senator Callbeck: They will definitely get the money?
Mr. Lévesque: Yes.
Senator Callbeck: In the note you will send explaining each program, could you please also indicate how much each province has received to date and the future amounts they will get for each of these programs.
Senator McInnis: I wish to have a clarification. If the province does not have a project, then no funds are flowing; is that correct? Is it per program or project? What is it?
Mr. Lévesque: There are two types of programs. There are merit-based programs, such as the Gateways and Border Crossings Fund, where you have to have a project. Once a project is approved, a federal contribution is established as the federal commitment. The project is executed over time and the federal funding flows according to that.
In other programs, there are allocations by provinces and territories. Typically, there would be discussions between the federal government, the provinces and municipalities as to which projects would be selected. There would be agreements on the projects, and then the projects would go ahead. Often what happens is that some projects change. For some projects, the province decides not to go forward for a variety of reasons. In that case, typically the funds that are not used become available for other projects.
Senator McInnis: Across Canada?
Mr. Lévesque: In the same jurisdiction.
Senator McInnis: Within the province?
Mr. Lévesque: Within the province. For example, in Ontario, if a federal contribution of $10 million that was to go forward does not go forward, typically there will be a discussion between the federal government and the provincial government, and other projects that probably would not have been identified before, where there was not enough funding for the project, would then be eligible.
You are talking relatively small amounts at the tail end of programs, as some projects simply do not go forward or are adjusted. The federal contribution is lower because the scope of the project is reduced by decision of the province. This is all subject to discussions and negotiations. Eventually, under the programs that have territorial or provincial allocations, all the funds will be committed to projects.
Senator McInnis: Within the province?
Mr. Lévesque: Yes.
Senator McInnis: Is there an accumulation of funds if there are no projects for a period of time?
Ms. Dazé: In some cases, yes. It depends. For the provincial-territorial base, you can bank the money; and if it is not used, then we can reprofile it into a year to match the requirement.
Mr. Lévesque: The overall picture is that most if not all of the $33 billion that was part of the 2007 infrastructure plan has been committed. However, there are still significant disbursements being made, and some small amounts, compared to the overall amount, will go to another project if this project does not go ahead.
[Translation]
Senator Bellemare: An additional question. For 2013-14, there will be a drop in infrastructure expenditures. Can you tell us what the decrease will be for each province? Can you also give us a detailed breakdown of these expenditures by province for the entire program and for the current year?
Mr. Lévesque: We will get back to you with this information.
Senator Bellemare: Is it possible that projects will be rejected? For instance, can a province get to a program that has provincial funds and submit a project that will be rejected?
Mr. Lévesque: If there are projects that do not meet the program's terms and conditions established by Cabinet and the Treasury Board, there are usually consultations. At that time, the provinces, territories and municipalities can submit other projects. Nothing shows that any federal money will be left unused.
Senator Bellemare: Was demand for infrastructure projects higher than the amount of available funds?
Mr. Lévesque: I have no basis for saying that not all funds will be spent.
Senator Bellemare: But do you have data that show that the amount for projects was higher than the planned funding?
Mr. Lévesque: I was not at the department when the decisions were made on the initial allocations, but what we know is that the allocated amounts will be spent.
Senator Bellemare: Thank you.
[English]
Senator Callbeck: I asked you about money that is not used this year because a project is not ready. You said they will get it next year or the year after. Is there a cut-off date? Can this carry on for the next 10 years?
Mr. Lévesque: I will not speculate about future government decisions on what terms may be extended. I will ask Mr. Morency to repeat what he said.
Mr. Morency: The Gateways Border Crossings Fund program will end in 2017-18 and the Asia-Pacific Gateway funding will end in 2016-17. In some situations the government has decided, for reasons of projects not continuing, whether to continue the programs. As the deputy was saying, it would be a future decision for the government whether to terminate on those dates or to extend.
Senator Callbeck: When you supply that written information to the committee, will you add whether there is a permanent date?
Mr. Lévesque: Yes.
The Chair: You are stimulating a lot of interest, Senator Callbeck.
We will look forward to receiving the overall outline of various programs so that we can study them, but if the funds are not used and lapse, you have to come back before Parliament and ask to continue this program. It is a government policy to continue, but it still takes parliamentary approval; is that correct?
Mr. Lévesque: That is correct.
Senator Callbeck: In the estimates for 2012-13 there was a little over $2 billion for Transport and this year that has decreased to $1.5 billion. That is on page 342. Roughly how much of the drop of $500 million is related to the economic action plan?
Mr. Lévesque: It is my sense that it is a small amount, because most of that funding would have already lapsed last year. As we have noted, the biggest element that explains the variation is the variation with the Gateways and Border Crossings Fund. That is a $669 million variation on the downside. That is the biggest component, and that goes back to the whole discussion about reprofiling and timing adjustments. The $669 million does not reflect a change in government decisions to spend or not spend the money; it reflects the timing of those claims made on the department.
Senator Callbeck: I notice on page 217, under National Defence, that Maritime Readiness will be cut $235 million. What does that mean? Will we have fewer ships or jobs or less equipment? Where will that $235 million come from?
Mr. Lindsey: That reduction is attributable principally to the restraint measures to which I alluded in my opening remarks. That may be seen in reduced sea days or a reduction in national procurement funds available for the navy.
Rear-Admiral Finn, would you like to add anything?
Rear-Admiral Patrick Finn, Chief of Staff, Materiel Group, Department of National Defence Canada: Thank you for the question, senator. As Mr. Lindsey indicated, some of the reductions would be related to jobs as well as to sea days and other areas.
We are at an interesting point. We are in the process of modernizing all of the Halifax Class ships. We have put six of them into dry dock while we modernize them. That comes out of our vote 5 capital funding. Reducing the number of ships available naturally brings down readiness as well.
Mr. Lindsey: To explain that another way, because we have ships in refit, the requirement for operating funds is reduced because the ships are not available to put to sea. It is a fortunate coincidence that this restraint measure has come at a time when we have ships alongside.
Senator Callbeck: Is it because of the restraint that you are forced to take these six ships out of service?
Mr. Lindsey: No, senator. I would defer to Rear-Admiral Finn, who knows far more about this than I, but the refit of the Halifax Class has been planned for some time, and there is a fixed schedule for those ships to go in and out of dry dock.
Senator Callbeck: If there was a fixed schedule, why are we seeing the reduction? Why would that not have been taken into account?
Mr. Lindsey: The refits are a long process and the schedule for them greatly predates the announcement of these restraint measures. The strategic review and the Deficit Reduction Action Plan measures were not anticipated at the time that the refit schedule was established.
Senator Callbeck: You have known for a long time that those six ships would be out of service, right?
Mr. Lindsey: Yes.
Senator Callbeck: So that should have no bearing on why we are cutting $235 million.
Rear-Admiral Finn: The $235 million is year over year. It is a reduction from last year to this year and has been accounted for in what we are declaring we require to operate the fleet next year. Again, that is only part of the reduction. There are other aspects that relate to some of the actions that have been taken. However, in the context of those ships, yes, it has been planned. The ships will start to come out again, so in a couple of years we will be ramping up the number of ships that are available again. We are saying that we will be down year over year for next year as far as spare parts usage, fuel demand and those sorts of things.
Senator Callbeck: For my own information, what is the life of a frigate?
Rear-Admiral Finn: At build, they were built for a 30-year life, so there are a number of decisions you make around the type of materials used and the construction. They are at mid-life, so the refits we are talking about are a very large modernization of both capital and spare parts. We are basically going through the ships, changing out all of the combat systems, all of the sensors, some of the weapon systems, some of the propulsion management systems and communication systems. They are at mid-life, and they are anywhere from 15 to 20 years old now.
It is anticipated that because of this modernization and the work we are doing, including looking at structure and other things, we will actually have life-extended them. We anticipate continuing to operate the Halifax Class frigates for another 15 to 20 years, depending on which of the ships we are talking about.
Senator Callbeck: How often do they go into refit?
Rear-Admiral Finn: They go into a docking work period on a five-year cycle. It is not unlike an aircraft in that we take it out of service to go through the ship to ensure that it is still safe structurally. We use those opportunities to do any kind of modernization. You could imagine the computers on board, such as the communication systems. As they do commercially, they change quickly.
This process we are going through right now, which we are calling the Halifax Class modernization, is a much larger refit. It is happening on both coasts with the shipyards that are doing the shipbuilding strategy. They are going through, taking out all the computers, all the communications, all the platform management systems, all the radars and all the sensors. They are replacing them all in collaboration with Lockheed Martin Canada. This is a big mid-life refit and is much, much bigger than anything we do every five years.
Mr. Lindsey: The allocation of these measures is based on operational requirements in a given year. For example, depending on the operational requirements next year, you might see funding restored to Maritime Readiness to respond to the priorities of that year.
The Chair: Admiral, did I understand you to say that even though refit of the Halifax Class ships has been planned for many years and some of them are already in the process of being refitted, it is possible to slow that process down to save some money?
Rear-Admiral Finn: It is possible to do that, but that is not what is occurring. Take a look at the estimates on page 217 in the English version. We are talking about Maritime Readiness. Below that you have government defence expenditures, Equipment Acquisition and Disposal. Much of the modernization of the frigates is in that line item; it does not appear in the Maritime Readiness.
I am trying to describe that by virtue of the number of ships that we have undergoing refit. Again, we have sufficient to meet our main commitments, but we would perhaps have few involved in certain exercises, in certain training. By virtue of taking more ships off the line to do this heavy maintenance, we are incurring the cost in Equipment Acquisition and Disposal, but it is having a net effect on Maritime Readiness where we are consuming less food, less fuel and fewer spare parts. It is really taking the ships out of the readiness column and putting them in the maintenance column, where we are expending funds on equipment acquisition.
The Chair: Thank you, that is helpful.
[Translation]
Senator Bellemare: I had a number of questions to ask you about infrastructure, but you have already answered them. I would still like to have some clarifications about our national defence. We can see that a decrease is anticipated for the coming year; the decline can clearly turn later into an increase in the supplementary estimates, but there will probably still be an overall decline.
Do you know what the impact of this expenditure reduction is on each province, specifically in terms of operating expenditures? Will some provinces be affected more than others? If so, which ones?
Mr. Lindsey: Unfortunately, I do not have the breakdown of allocations per province.
[English]
I could say this, however: In distributing these reductions in DND, as much as possible we have focused these reductions on headquarters and administrative activities with a view to preserving the budgets of operational units. As you know, the vast majority of those operational units exist outside of the National Capital Region and are really quite broadly distributed across the country. However, I cannot give you a breakdown of these measures by province because I simply do not have it here.
[Translation]
Senator Bellemare: Do you have any idea of the impact on employment in each province? For instance, are there larger workforce expenditures for that will affect some regions more than others in terms of employment?
Since we know that the international situation is not ideal and that we have to get ready in the upcoming months, do you have any idea what the impact of your budget cuts will be on employment in each province?
Mr. Lindsey: Unfortunately, I do not have that information with me today. However, I can tell you two things. First, the Canadian Armed Forces are not being affected by budget cuts.
[English]
Our commitment is to maintain our regular force at 68,000 and the reserve force at 27,000. Therefore, we do not anticipate personnel reductions to the military.
With respect to civilian staff, some reductions have been announced. You have seen those. Again, unfortunately, I do not have a distribution by province. As much as possible we have tried to privilege operational units in order to maintain capability and as much as possible focus on administrative and headquarters functions.
Senator McInnis: Mr. Lindsey, will there be any cut to the reserves? It is my understanding — or I have been told or received correspondence to the effect — that they will be cut. It will not necessarily be the number, but the opportunities to train will be reduced by 25 per cent. It is my understanding that they train about four times a month. If it is cut to three, it is quite a blow. Could you give me a quick answer on that?
Mr. Lindsey: I will do what I can, senator, and I really do mean to be as clear as I possibly can about this. I know there have been a lot of conflicting messages.
Senator McInnis: Yes.
Mr. Lindsey: First, perhaps I could start with the point I just made in response to Senator Bellemare's question. The commitment in response to these initiatives is to maintain the reserve force at 27,000 in total. That is the first fact: no cuts in total to the reserve force.
However, one of the initiatives of the Deficit Reduction Action Plan is to reduce the number of full-time reservists to 4,500 from something in the order of 7,300, I believe, and I will come back to that.
I will speak now with respect to part-time reservists. There has been a lot of focus on army reservists and specifically on certain communications within the army. I would point out that Lieutenant-General Devlin, Commander Canadian Army, has made it clear in his communications that training opportunities for part-time reservists are to be protected. That means his expectation is that part-time reservists will continue to have 37.5 training days per year, which is the historical number. This is not to say, however, that training opportunities for reservists will be maintained at the levels we have seen over the last decade.
The reason for that, as you are no doubt aware, is that anywhere from 20 to 25 per cent of every rotation we put through Afghanistan was comprised of reservists. As a consequence, and to prepare reservists for that theatre exposure, there were tremendous training opportunities and requirements for reservists.
Now that that combat mission has ended, we do not have 25 per cent of rotations consisting of reservists because we have no rotations. Naturally we are not spending the kind of money we spent training reservists that we did during that combat mission. We have returned to a more normal peacetime footing, and General Devlin has made it clear in internal communications that training opportunities for part-time reservists are to be maintained at 37.5 days per year.
Senator McInnis: Thank you.
Mr. Chair and members, this is my first winter in Ottawa.
The Chair: This is spring.
Senator McInnis: I understand that spring will officially be here tomorrow, and I was wondering if we do have spring. However, in that regard, could I plant a seed or two with respect to Transport?
It is a known fact that much of the highway infrastructure has aged considerably. When you meet with your counterparts in the provinces, is there consideration of what used to be a prime spending agreement where there were 50-cent dollars. It used to be that it was only to deal with Trans-Canada Highway networks. However, with the necessity today for safety and the twinning of highways throughout the provinces, including the Trans-Canada Highway, is any consideration being given to such an agreement? Are there any discussions at all? I am not just talking about the actual asphalt or construction of roads. I am talking about the overpasses and the considerable inventory of infrastructure that is becoming depleted. Is there any consideration of that?
Mr. Lévesque: The first thing I want to say is that as part of the existing program, a significant portion of the funds that are being disbursed within the existing programs have been prioritized. The provinces and the federal government look at the actual spending decisions, and a significant priority has been given to roads, to highways, new construction, twinning and widening the highways. I am not sure we have the data to produce that, but it is clear that there have been significant investments in road improvements all over the country. Part of that reflects provincial priorities. Some provinces have decided to allocate more to roads, some others to transit, and that is the nature of it. The agreements are flexible and identify a range of areas, but through discussions within the federal and provincial governments that translates into different choices in different regions.
Senator McInnis: I know, but that is per project. However, in the prime spending agreement, you would have in advance requests from the respective provinces. There would be planning and it would be laid out. I realize what you are saying. For example, a major highway has been twinned in Nova Scotia, but that was on a ``per project'' basis. I think it would be better planning to — as I say, I am planting a seed here. I would like to think that if times are tough down the road, everyone has to cut back and we have to meet a balance. However, there will be a future, and that is why I said earlier that I would like to plant the seed that an organized plan be put in place to handle some of these capital structures that no doubt will come.
Mr. Lévesque: Part of the discussions the ministers have had over the last couple of years included the concept of capital budgets, planning and having a view of the overall state of infrastructure that is part and parcel of those discussions. Minister Lebel and Minister Fletcher have spent the better part of the last couple of years on this, and notably very intense consultation last summer. These elements are part of the input the government has received into decisions, not to make announcements, but in terms of whenever the next round of infrastructure plans come up.
Senator McInnis: Let me twist another area very quickly, if I may.
The cruise industry in Atlantic Canada is now a major industry in all three Maritime provinces. For example, in Halifax you can have up to five or six and sometimes even seven cruise ships at the dock, and I do not have to tell you what that does to the surrounding metropolitan areas.
Under the environmental protection agreement between the United States and Canada, there is now a need to twist from the burning of bunker C to diesel. We are delighted in Halifax to have received one of these huge plugs that are quite expensive — shore power — so that there will be no more idling at the dock. You will plug in and that will handle some, but because it is 200 miles offshore, not kilometres, it will be a major hardship and a cutback. Some are suggesting as much as a 25 per cent drop in the number of cruise ship passengers that will be coming onshore. This may fall to the Department of the Environment, I am not sure, but what can be done to at least delay some of this? I understand that the timing here is 2014-15, and for many of these vessels to twist from bunker C to diesel will be quite cumbersome. Is there some comment you can offer with respect to this?
Mr. Lévesque: The only comment I can make at this point is that we are well aware of what the new requirements will have in terms compliance cost on all sectors of the marine industry. Obviously we have a keen interest in seeing that the Canadian sector is not put at any competitive disadvantage compared to U.S. and international operators. There are active discussions with the industries to find ways to facilitate compliance in terms of ensuring that the newest technologies, for example, apply to get the maximum credit.
I do not want to mislead you. I am not an expert, certainly not after four months on those regulations, but the whole approach to ensuring that compliance costs are taken into account and the Canadian industry is not put at a competitive disadvantage is absolutely crucial to us.
It is a balancing act. We have environmental obligations. There are significant health impacts. This is also why the government has invested in such things as shore power that produce significant environmental and health benefits.
The Chair: Senator Gerstein from Toronto, a former deputy chair of this committee, and Senator Finley had an interesting discussion with Mr. Ménard when he was here previously. There were two aspects to this, as I understand it. One is lapsed funds and then needing those for the next year. The other is reprofiling from operations to capital votes 1 and 5 or, vice versa, from taking out of capital to keep things operating and the role of Parliament in relation to reprofiling and what the department can do.
Did I summarize that, Senator Gerstein?
Senator Gerstein: The chair framed it very well and I thank him for that.
If we could focus particularly on what the approval process is, it would be helpful to the committee in terms of the movement of funds from capital to operating and operating to capital in any given year. As you mentioned, Mr. Ménard was here and we also heard from Treasury Board. When I asked this question, both witnesses started their answers with the same comment: ``Senator, it is complicated.'' I hope that you, Mr. Lindsey, will turn to the committee and begin by saying: ``Very simply put, this is how we do it and this is how we get approval in any given year.''
Mr. Lindsey: Senator, it could not be simpler. First, any vote transfer that is a movement of money from capital to operating or operating to capital requires parliamentary approval — full stop. Second, any reprofiling, which is the movement, effectively, from one fiscal year to another, requires the approval of Parliament — full stop.
Senator Gerstein: Mr. Chair, I compliment our witness.
The Chair: Thank you, Mr. Lindsey; we appreciate that answer.
Senator Gerstein: Excellent answer.
The Chair: It puts that issue to bed for this committee, I hope.
We will proceed with the Deputy Chair of the Committee, Senator Larry Smith, from Montreal.
Senator L. Smith: Mr. Lévesque, I have comments on the reallocation of funds — i.e., Windsor — and reducing the funds by $669 million tied to timing, as well as Infrastructure Canada and the $1.1 billion. Senator Bellemare and Senator McInnis asked about the issue of performance results. Senator Bellemare asked about the economic impact. Are there people in your department who measure performance, execution and results? If a bridge needs to be built by a certain date and it has so much volume that crosses and so many billions of dollars that cross like the bridge in Windsor and/or the Champlain Bridge in Montreal, how do you measure your performance and that of your partners?
Mr. Lévesque: The concept of performance here is a little bit tricky.
Senator L. Smith: Is it complicated?
Mr. Lévesque: On performance, we sign contribution agreements with third parties for delivery of the projects. The contribution agreements specify the maximum amount of federal contribution and the work to be undertaken. Some of them have specific time frames but mostly they have to be executed within program terms. We disburse federal money with proof of progress on the work. From that perspective, federal funds flow when results, as agreed upon at the beginning, are being achieved. From the general sense of the conversation, people would like things to go faster than they currently go.
Part of that is not within the control of the federal government because of the nature of these undertakings by provinces and municipalities. I would not dare to criticize and say that it shows a lack of performance. There are all kinds of issues, such as budgetary constraints at that those levels and doing things in a way that maximizes value for money and not increasing costs by going too fast. There are various factors. At the federal level, the fundamental element is that we are contributing to improvements in infrastructure while making disbursements only when we are sure that the work described in the contribution agreement has been performed.
Senator L. Smith: I recognize that, but if you are giving $100 million to someone and you tell them you expect it to be finished in a certain time frame and people do not perform as in real business, then you have to recognize that you are not performing. There is a monetary cost to everything. It would appear that if we are going to give people money, even if it is the provinces or municipalities, should there not be some form of real measurement to make sure that they not only get the money and build it but also that they build it on time and to spec with expected performances. We want to ensure that when we give people money, we get value for money through their performance.
Mr. Lévesque: There are two issues: timing and ``the rest.'' Our contribution agreements on the scope of the projects and the extent of the federal contribution and partner contributions ensure compliance. The audits done at the end will show whether the money has been used for the purpose for which it was slated. That is not an issue.
The timing issue comes down to the question raised about whether the government will extend, et cetera; but that is not for me to decide. For example, governments have chosen to extend the terms of the program beyond the life of what was announced on the plan in recognition that it is taking more time for partners to deliver. At the same time, during the economic action plan the government had an extreme focus on ensuring that things were delivered along the time lines. Ms. Dazé may have the exact numbers, but I believe that over 95 per cent of projects were completed on time. There are different purposes and the government makes different decisions.
Senator L. Smith: You just mentioned a completion rate of 95 per cent. It would not be a bad idea to promote these types of successful completions; and maybe you do that. I think the general public would like to know where their money is going, how it is being used and the success of it. The concept of results is important to me as a business person because you have to have results and performance. If a bridge is completed a year after the original date and the expected traffic is 20 million vehicles per year, then that amount of revenue is lost, which is a performance issue. I am looking at ways of monitoring and having some form of measurement to improve performance; that is all.
Mr. Lévesque: Thank you, senator.
The Chair: Next, we have Senator Wells. from Newfoundland and Labrador.
Senator Wells: I have a simple question on gas tax. I know the expenditures are proposed at $2 billion, which is a dedicated fund from gas tax revenues to the municipalities. What are the approximate revenues from gas tax per year?
Mr. Lévesque: That is the responsibility of the Department of Finance. I do not have that figure at hand, but it should be easy to find in the public accounts. We can follow up and provide you with that information.
The Chair: When you get that information, please provide it to the clerk who will circulate it to each member of the committee. That would be helpful.
[Translation]
Senator Chaput: I apologize for being late. In my defence, I would just say that it is because of the snow storm out there right now.
My first question is for the National Defence official. In your budgetary expenditures, do you have an amount earmarked for fulfilling your obligations under the Official Languages Act? For instance, do you have any money set aside for recruitment? Do you also have any money planned for the training of staff members who want to increase their knowledge of either of the two official languages?
Mr. Lindsey: Yes, the estimates include money for the language training of military members and public servants. In terms of recruitment, there are also amounts allocated to language training. However, the amounts are not written in the estimates. There is a budget for language training under the internal budget of the Department of National Defence.
[English]
Senator Chaput: Where could I find that? Can you give us the numbers?
Mr. Lindsey: I am sure we could give you the numbers. We will follow up.
Senator Chaput: I would appreciate that. Thank you.
[Translation]
I have another question about infrastructure and the renewal of agreements with the municipalities, because we know that the agreements will expire in 2014. Where do things stand in terms of the renewal of agreements? Have you started consultations with the municipalities to ensure that the agreements will be renewed again? Have there been any discussions on that?
Mr. Lévesque: As you know, the last two budgets announced that the government was considering a new infrastructure plan as a continuation of the plan that finishes at the end of March 2014. Extensive consultations have been held on that issue.
The renewal of the gas tax fund agreements will be part of the new plan. It is not up to me to announce the new plan, but based on the expectations, we should be able to negotiate the new agreements soon.
Senator Chaput: How have the consultations been held up to now?
Mr. Lévesque: Last year, extensive consultations took place on the renewal of infrastructure plans. Ms. Dazé could tell you more about that. Minister Fletcher and Minister Lebel have had dozens of meetings across the country to discuss the renewal of the gas tax fund and, more generally, the infrastructure program.
Senator Chaput: Could you tell me who the consultations held were with?
Mr. Lévesque: We have met with the provinces, municipalities and organizations from the transportation sector. We can provide you with a more detailed list. We did a very thorough job.
Senator Chaput: Was it done through consultations, Ms. Dazé?
Ms. Dazé: I do not have anything to add. We have met with all the provinces. The two ministers travelled for a few months across Canada. They participated in 12 round tables and met with more than 200 participants. We can get the list of participants for you.
Mr. Lévesque: In total, almost 700 stakeholders were consulted.
Senator Chaput: Thank you.
[English]
The Chair: Mr. Lindsey, can you help me with the estimates for this year, page 218? We understand that non- budgetary listings are like funds that might come back to the government but do make a change in the current fiscal situation. Non-budgetary is listed here, and we see all of the information for 2011-12 but nothing for 2012-13 or 2013- 14 mains. Is there a reason why we have nothing in those columns?
Mr. Lindsey: A good way to think about non-budgetary items as opposed to budgetary items is that, generally, budgetary items are those that would fall to the income statement in the private sector. Those that are non-budgetary would be balance sheet items. I am simplifying, but that is a good way to think of them. In this case, this item relates to authority DND has to provide accountable advances and funds to military members who are on temporary duty, on transit or somehow deployed, funds that they have to pay back. That is what this authority is, and the figure you see here represents the change in the outstanding balance of those funds from one year to the next. What you are seeing here is that there has not been a material change in the outstanding balance from one year to the next.
The Chair: It is a negative figure of almost $7 million.
Mr. Lindsey: That means that the outstanding balance — the amount of the authority in the hands of members — has decreased from one fiscal year to the next. It is really a timing difference, Mr. Chair.
The Chair: Am I interpreting correctly that I am looking at 2011-12 and that there is nothing for 2012-13 or 2013- 14?
Mr. Lindsey: That is correct.
The Chair: Thank you.
Senator Callbeck: To come back to the gas tax, you spoke about 12 regional round tables, so I assume there was one in every province.
Mr. Lévesque: Yes, and in the territories.
Senator Callbeck: Who is at the table — provincial, federal, municipal? Is there anyone else?
Mr. Lévesque: There would be all kinds of groups, such as associations, federations of municipalities, people interested in transportation issues, business folks. We will probably not be able to give you the 700, but we will provide a specific list that will give you a sense of who was consulted.
Senator Callbeck: I mentioned before what it said the gas tax could be spent on in each of the provinces. Are the terms the same for what that money can be used for in British Columbia and Prince Edward Island?
Mr. Lévesque: My sense is probably yes. I do not want to mislead you, so we will check whether there are differences in the terms and conditions. My suspicion is that it is national, but I am not 100 per cent sure.
Senator Callbeck: Was it national in the past?
Mr. Lévesque: That would be my sense, but I would rather check. We will provide that in the written reply.
Senator Callbeck: I have one other question and it concerns National Defence. Non-Security Support was $17 million in 2011-12. Then it went to $5.6 million, and now it is going to $2.3 million. What does that contain, and why was there such a reduction? It is on page 217.
Mr. Lindsey: As we look at the distribution of resources by program activity, which is what that particular page does, two things typically drive year-to-year changes. One is a change in the absolute amount of appropriation. The other thing that can change them is the fact that we have changed the way we do business, and so the resources that might have been attributed to one program activity, in one year, have simply been shifted to another, in a subsequent fiscal year. In the case of Non-Security Support in 2013-14, about 60 per cent of the decrease is simply reflective of a decrease in the number of regular force personnel attributed to that support. In other words, that 60 per cent of military personnel that were once attributed to that activity are now attributed to other activities in that table. Unfortunately, I do not have the redistribution of that 60 per cent available for you. The balance of the change, senator, is related to the fact that the contribution to the Canadian Association of Physician Assistants is now attributed to Joint and Common Readiness as opposed to Non-Security Support.
Senator Callbeck: How much of that makes up for that $15 million drop in two years?
Mr. Lindsey: About 60 per cent of the change is attributable to reallocating military personnel that were once attributed to this item, and the other is the reallocation of the contribution for the Canadian Association of Physician Assistants to Joint and Common Readiness. Those two items account for the change. In other words, it is not an absolute reduction to that amount; it is just that we have reallocated or redistributed the resources.
[Translation]
Senator Bellemare: Mr. Lévesque, my question is on infrastructure. For my own understanding and especially for the future of infrastructure, on page 93 of the French version of the document, the expenditures are separated into ``contributions'' and ``autres paiements de transfert'', and the gas tax fund is listed under other transfer payments.
In terms of the management of funds, what is the difference between the government's contribution to a project and transfer payments when it comes to the gas tax fund?
Mr. Lévesque: That is a question of accounting. I am going to ask Ms. Dazé to answer the question.
[English]
Ms. Dazé: Simply put, contributions relate to eligibility. In other transfer payments there was an amount set and it is an allocation based on population. It is an assured amount based on population.
[Translation]
Senator Bellemare: Does that mean that infrastructure projects funded through the gas tax fund will now be allocated per capita or does this way of doing things need to change?
Ms. Dazé: The existing program expires at the end of 2013-14, but for now the fund is allocated per capita, for each province and territory.
Senator Bellemare: But can that change?
Ms. Dazé: The idea is for it not to change.
Mr. Lévesque: This is one of the decisions that the government will have to make with respect to the new infrastructure program.
Senator Bellemare: It is not set in stone. But for now, I am to understand that this fund is allocated per capita, correct?
Mr. Lévesque: Exactly. Until March 31, 2014.
[English]
The Chair: Mr. Lévesque, could you clarify a couple of points for me? With respect to the Gateways and Border Crossings Fund, would pipelines and hydrocarbon transporting means be included as part of the terms of reference of that fund?
Mr. Lévesque: We will give you a written answer to that, but my understanding is no, because typically pipelines are paid for by private sector proponents and the government does not provide assistance for that.
The Chair: Could you let us know?
Mr. Lévesque: We will check.
The Chair: Knowing the debate on that issue in regard to pipelines both east and west, it would be interesting to know if government funding is expected under that program.
Senator Smith was asking questions about the Detroit-Windsor bridge. My recollection is that the Government of Canada was going to acquire land in the United States. Is that funding of $113 million for the acquisition of land in the United States of America?
Mr. Lévesque: For the acquisition of land specifically, whether it is in Canada or the United States, I will have to check on that. Obviously, land we would acquire in the United States we are not paying for permanently.
The Chair: You made a point of saying that the reduction of $17 million with respect to transport security would not impact the number of people, the inspectors, who are actually performing the security operations, but you said there is a reduction in the cost of voyages; that presumably would be for the inspectors to go to the places where accidents have occurred and to inspect lines and rails, et cetera.
The other area I am interested in is the utilization of professional services exterior to the ministry, is your terminology, and how you saved $17 million.
Could you elaborate on those?
Mr. Lévesque: Generally speaking, as our colleague from National Defence explained, the reductions in the Department of Transport that followed Budget 2012 were designed to protect the front-line operations and focus on efficiencies and reducing overhead. Specifically, the number of inspectors has not been reduced. The focus on travel expense has been on contracting fewer professional services. That is what we mean in terms of external to the department's administrative efficiencies.
In terms of your specific point about travel in relation to inspections, that is another area that has been protected. A lot of travel is not related to inspection and there are many opportunities to use technology such as video conferencing for staff meetings. We need our staff to work together; it is a large country, but there are ways to economize.
The Chair: The other point of clarification is for Mr. Lindsey and Rear-Admiral Finn with respect to a NATO program for the AWACS that Canada withdrew from maybe a year or so ago. There is an $81 million saving predominantly due to that. What was the saving with Canada's withdrawal from that NATO program where we had been a major participant? What is the total saving and was the withdrawal primarily for financial reasons, or were other factors involved?
Mr. Lindsey: I will find it in my notes, Mr. Chair. I want to say that the AWACS withdrawal results in a reduction of $22 million annually, and the air-to-ground surveillance item, which is also a NATO-related item, is approximately $8 million to $9 million a year.
Sorry, I have those reversed. The AWACS is about $8.7 million a year and the AGS was about $22 million.
The Chair: Were they related programs, both NATO?
Mr. Lindsey: They were both NATO programs.
The Chair: AWACS is the airborne surveillance early warning program?
Mr. Lindsey: Right.
The Chair: It is my understanding that aircraft were flown out of Europe.
Mr. Lindsey: Correct.
Senator Callbeck: I have a supplementary question on the gas tax. I take it from what you say it is based solely on population. There are no other considerations when allocating that tax?
Ms. Dazé: That becomes the allocation by province and territory, with the exception of the money given to Aboriginal Affairs and Northern Development for the First Nations portion of that.
Senator Callbeck: That is $25 million or something, but otherwise it is simply how many people are in the province; nothing else is considered?
Ms. Dazé: Yes.
The Chair: Thank you very much, National Defence, Transport Canada and Infrastructure Canada. We appreciate your helping us with this particular supplementary estimate. I do not know if your plans and priorities are out yet, but if not, they will be very soon, and we will have a chance to look at those. These estimates were based on and developed with your plans and priorities for the coming year. However, tomorrow there is another document that could impact on all of this in Budget 2013, and we may be back talking to you about just how you will change these estimates to meet the new government expectations in the budget. Until then, we thank you very much for being here.
(The committee continued in camera.)