CAPITAL INVESTMENT PLAN ACT, 1993 / LOI DE 1993 SUR LE PLAN D'INVESTISSEMENT
BETTER ROADS COALITION OF ONTARIO INC
JOINT COMMITTEE OF WATER/INDUSTRY ASSOCIATIONS
COUNCIL OF ONTARIO CONSTRUCTION ASSOCIATIONS
ONTARIO URBAN TRANSIT ASSOCIATION
BOARD OF TRADE OF METROPOLITAN TORONTO
CONTENTS
Tuesday 17 August 1993
Capital Investment Plan Act, 1993, Bill 17
Better Roads Coalition of Ontario Inc
Harold Gilbert, chairman
David Bradley, vice-chairman
Pat Curran, vice-chairman
Brian Crow, director
Provincial Auditor
Erik Peters
Ontario Pipe Trades Council
Peter Landry, representative
Jerry Boyle, business manager
Transcanada Pipelines Ltd
David Russell, vice-president, power generation and projects
Harry Poch, legal counsel, environmental and legislative affairs
Joint Committee of Water/Industry Associations
George G. Powell, spokesperson
Council of Ontario Construction Associations
Frank Bisson, chairman, economic development and taxation committee
David Frame, executive vice-president
Ontario Urban Transit Association
Al Cormier, executive director
Dave Roberts, assistant executive director
Board of Trade of Metropolitan Toronto
Don McIver, chairman, economic policy committee
Ian Smith, vice-chairman, transportation planning committee
Continued overleaf
Continued from overleaf
STANDING COMMITTEE ON GENERAL GOVERNMENT
*Chair / Président: Brown, Michael A. (Algoma-Manitoulin L)
*Vice-Chair / Vice-Président: Daigeler, Hans (Nepean L)
*Arnott, Ted (Wellington PC)
Dadamo, George (Windsor-Sandwich ND)
Fletcher, Derek (Guelph ND)
*Grandmaître, Bernard (Ottawa East/-Est L)
Johnson, David (Don Mills PC)
*Mammoliti, George (Yorkview ND)
*Morrow, Mark (Wentworth East/-Est ND)
Sorbara, Gregory S. (York Centre L)
Wessenger, Paul (Simcoe Centre ND)
*White, Drummond (Durham Centre ND)
*In attendance / présents
Substitutions present/ Membres remplaçants présents:
Cousens, W. Donald (Markham PC) for Mr David Johnson
Hope, Randy R. (Chatham-Kent ND) for Mr Dadamo
Mathyssen, Irene (Middlesex ND) for Mr Fletcher
Phillips, Gerry (Scarborough-Agincourt L) for Mr Sorbara
Sutherland, Kimble (Oxford ND) for Mr Wessenger
Clerk / Greffier: Carrozza, Franco
Staff / Personnel: Anderson, Anne, research officer, Legislative Research Service
The committee met at 1003 in the Humber Room, Macdonald Block, Toronto.
CAPITAL INVESTMENT PLAN ACT, 1993 / LOI DE 1993 SUR LE PLAN D'INVESTISSEMENT
Consideration of Bill 17, An Act to provide for the Capital Investment Plan of the Government of Ontario and for certain other matters related to financial administration / Loi prévoyant le plan d'investissement du gouvernement de l'Ontario et concernant d'autres questions relatives à l'administration financière.
The Chair (Mr Michael A. Brown): The standing committee on general government will come to order. The purpose of the committee's meeting today is to have public input into Bill 17.
BETTER ROADS COALITION OF ONTARIO INC
The Chair: Our first presentation today will be made by the Better Roads Coalition of Ontario Inc. Welcome. For your information, the committee has allocated half an hour of time for your presentation. You may wish to use all of it or reserve some of that time so the members may have a conversation with you.
For members' information, we will be doing the questioning during this period by way of rotation, starting with the Liberal Party, the Conservative Party and then it will move, and the time will be allocated equally among the caucuses.
So, good morning. If you would like to introduce yourself, you may begin.
Mr Harold Gilbert: My name is Harold Gilbert, chairman of the Better Roads Coalition, and with me is David Bradley, who is vice-chairman of the coalition but also is from the Ontario Trucking Association. Our vice-chairman, Pat Curran, is with the Canadian Automobile Association. I'm sure all of you are aware of Pat. She's been around for some time. She's really a very young person but she's been around for some time. Then there is Brian Crow of the Ontario Motor Coach Association.
I wish to make a short statement at the beginning and I would say that the majority of our time would be for questions for the members to ask. First, I want everyone to understand we are dealing with part III, the Ontario Transportation Capital Corp. We have not spent the time on the rest of the bill. Of course, our concern is mainly to do with the ability to operate toll roads.
The Better Roads Coalition, being a coalition of road users, had been hesitant to support alternative means of financing our roads when revenues from the direct road user taxes provided over $1 billion per annum more than is being spent on our roads. However, faced with an economy that continues to sag and a road system that badly needs expansion, we strongly supported the principle of Bill 17; that is, the Capital Investment Plan Act.
As outlined in our November 1992 paper, which I'm sure all of you received, entitled Alternative Road Financing -- Toll Roads, the Better Roads Coalition proposed a number of conditions to achieve this objective.
First, tolls must not be collected on existing roads. The program is intended to accelerate road construction and therefore must only be applied to new construction.
Second, construction priorities of toll roads must be based on appropriate needs studies.
Third, toll roads must only be constructed where existing roads would provide road users with an option to bypass tolls if they so choose.
Fourth, all moneys collected as tolls must be dedicated funds to be used exclusively to retire the capital and administrative costs of the facility on which it is collected. Once this debt is retired, such tolls must be removed.
Fifth, an agency should be set up by regulation or legislation to borrow capital funds to build the facility and collect funds to pay for the investment. These funds would then be protected by legislation for the construction of the facility.
Sixth, tolls must not be viewed as an excuse to relieve the government from its obligation to provide funds for the maintenance and expansion of the road system. Otherwise, the principle of tolls to accelerate construction would be subverted.
Finally, the disparity between road user revenues from the gasoline tax, fuel tax, licences and permits and the government's expenditure on roads must be reduced as quickly as possible.
Therefore, the Better Roads Coalition took strong exception to clause 40(c) as it referred to maintenance costs and subsection 47(2) as it referred to any highway being designated as a toll highway, particularly after Premier Rae had made specific reference to applying tolls to the construction of new highways only.
Our concerns led to discussions through the Treasurer, Floyd Laughren, with his staff and with senior staff from the Ministry of Transportation. At this time, we wish to thank the staff of both ministries for their cooperation. These discussions, we understand, led and are going to lead to subsection 47(2) being repealed and replaced by new subsections 47(2), 47(2.1) and 47(2.2).
Although maintenance is still included, we accept this as it refers to the maintenance of the capital infrastructure rather than what we calmly think of as maintenance: the normal winter snowplowing etc. We also accept that it is necessary to include the maintenance reference in any private sector financing agreement.
We're also particularly pleased to understand that subsection 47(2.2) requires that tolls be removed when the capital construction costs have been discharged. Therefore, with these amendments, the Better Roads Coalition withdraws its objections to Bill 17 and we strongly urge the early passage of the bill.
I have, as I said, members of our executive here. If I could, I would ask if they have anything to add to what I said.
Mr Gerry Phillips (Scarborough-Agincourt): Just as an aside, I think, now that virtually everybody else has the amendments, perhaps the committee members might also see the amendments that are proposed. Just as a courtesy, perhaps, it would be helpful.
Mr Gilbert: We haven't seen the final amendments. What we have had are discussions with the ministry as to the amendments it proposes to put in.
Mr Phillips: I appreciate that. You're just well ahead of us, because the government hasn't shared the amendments with us yet.
Mr Kimble Sutherland (Oxford): The final wording of the amendments isn't here as yet and should be here tomorrow morning for all the committee members.
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Mr Phillips: I appreciate the support of the coalition on the proposal and, as we've always said, there is some merit in what's being proposed. One of our concerns, I think you probably heard, is that it would run the risk of running up some substantial debt in these capital corporations that we are worried about. But my question really to the coalition is, how do you see this thing down the road? How will the responsibility for construction of transportation split between the ministry and the corporation and how will one set the priorities of what roads will be built by the corporation and what roads will be built by the province?
My worry is this, that clearly, if you are a government besieged by debt and deficits, you will make a decision to fund your roads by toll roads, I would think, because you can continue to build. But that may not be the number one priority for the public. The number one priority for the public may be refurbishing of other roads, but there's an enormous bias if you're the government to funding construction through toll roads and therefore distorting the priorities. How does the coalition see that responsibility splitting and what assurances have you had from the government on funding for traditional road construction?
Mr Gilbert: Certainly, Mr Phillips, that was a concern of ours even when we were putting our paper together, when we were saying how we would support it, and that's why we put in those conditions such as that "tolls must not be viewed as an excuse to relieve the government from its obligation to provide funds for the maintenance and expansion of the road system. Otherwise, the principle of tolls to accelerate construction would be subverted." We were addressing just what you had mentioned, and that is the fact that we want to see the funds that are already being collected from the road users continue to go to the expansion of existing roads.
In our discussions with the ministry we have clarified really what it was talking about when it talked about specific roads, such as the 407 and other highways. We don't see a QEW, we don't see a 400 or highways like that, existing highways, being paid for from toll roads. In fact, we strongly object to that. So when you say, "What guarantee have we got?" we have tried to build it into our support for the concept of toll roads, because we certainly agree that would be the wrong thing to do. I don't know whether my colleagues want to add to that.
Mr David Bradley: I think perhaps, as well, if we use the model that appears to be unveiling itself now with private consortia becoming involved, they'll be compelled, before they start risking their finances, to look at the economics of the situation. If you're going to be building a highway for which there's not a demand or a highway where people simply will continue operating as they have been, the economics aren't going to be there and likely you won't get private involvement at that point. Maybe that doesn't relieve the concern you have over debt rung up by the corporation, but I think that it brings some private sector business principles to bear on the investment that perhaps were lacking before. So I guess we can't look after all occurrences or things that might happen, but we think there are some natural checks in the system that don't exist now.
As well, I believe that the ministry has been approaching our group lately to look at new ways of looking where investment should be made and I'm pleased with the approaches made so far, that perhaps we might be able to come up with highways that there's agreement are of provincial interest, as opposed to situations now where you simply pave anything and fix anything. There are only so many dollars to go around and they appear to be going at it in a more intelligent way than perhaps in the past.
Mr Phillips: I have no difficulty with the finance end of this. It is essentially borrowing from a different source, in my opinion. It's happening in the transportation corporation, it's happening in the realty corporation and it's happening in school construction, that the debt is being moved to a different place. The consortium, I presume, will fund the road on the assumption that they will get a return on their investment through user pay. That's understandable, but it's a different way of funding debt for the province.
My second question is, because a criterion now is that there have to be alternative routes available to move, what changes have to be made in the construction of a toll road? Presumably the construction of Highway 407 will be different or at least the construction on the ancillary roads will have to be different than they would have been otherwise.
Mr Gilbert: I have a problem, Mr Phillips, when you say the difference in construction. Is this the actual physical construction? If it is, in our opinion, as the Better Roads Coalition, we would see it being built with the same high standards that Highway 401 or --
Mr Phillips: I understand. I'm saying Highway 407 was designed to be publicly accessible, and therefore, presumably, you wouldn't have had to construct other roads alongside it that would provide options. I'm just wondering, now that it is a toll road but one of the criteria is that the local people have to have an alternative, has the coalition any thoughts on how one would construct differently the alternative routes available to residents so they wouldn't have to use Highway 407?
Mr David Bradley: I think the alternative routes, if you use Highway 407 as the example, already exist; it's Highway 401. If you choose to continue using Highway 401, so be it; you can do that. We've not given thought perhaps to access, to egress, to alternatives. That may be something that has to be considered further. But more I think there's an issue in terms of construction of the toll highway, because you want to ensure that traffic moves efficiently through whatever toll system is put in place so that you don't have traffic slowing down and bottlenecking to throw quarters in the box or whatever. We've urged, and I know that there's a study under way now to ensure that the most up-to-date technology for toll collection is used. I think that for us that's more of a concern than the alternative highway, which in most cases we believe will exist.
Mr W. Donald Cousens (Markham): I appreciate the efforts that are made by the coalition. I think you're vigilant, you're on the mark, you're working there in the best interests of commuters and people who are on the roads, and I commend you for it. I wish there were more such organizations as qualified and as interested and as conscientious as you are as a group. Just don't let up on it. The fact that you're ahead of us, as Mr Phillips points out, on the amendments is to your credit. It's not for our lack of trying. But it was good news yesterday when we saw the changes made to section 47 on the toll roads. That just was such a repugnant thing to have in there, and the fact that they have backed off is good news.
There are two or three elements. The one issue I'm still questioning is that no one yet has completed the financial analysis that will be required to identify the total cost and how much will be collected on the toll roads. What kind of tolls would you see as being responsible or expected on such a road and for the distances travelled? I don't mean the guys who are picking people up in these little carts down in Toronto; you pay so much a block. Maybe you could give us a sense as to how good or bad the message is going to be when we hear it.
Mr Gilbert: Certainly, Mr Cousens, we are not in a position to make a recommendation to government as to what the tolls should actually be. I think it gets back to what David was talking about. The discipline will be in the number of people who use it. If they're not competitive, as long as there are alternative roads available, such as Highway 401 and Highway 7, then they'll use them.
I think one of the best examples of that was when they built the Burlington Skyway, long before everybody else other than I guess me was around. There, at the beginning, a lot of truckers would not use the toll bridge until they were sure that the trip over the toll bridge was competitive to going over the other bridge. I think that's the kind of discipline that will have to be built into the setting of tolls regardless of whether it's the private sector or the public sector or whoever wants to charge. That will be the discipline.
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Mr Cousens: That's a good answer. To me, market forces are something that do keep a balanced set of books if people really want to do it, and that's good.
Mr Gilbert: That's right.
Mr Cousens: One of the things that was mentioned yesterday in Ms Stewart's presentation had to do with -- she touched on how the corporation will repay the indebtedness. The one here that I hadn't seen before says, "Earmarked transportation-related revenues (such as fuel taxes, driver licences and vehicle registration)." I haven't seen the government till now put in writing that it is prepared to earmark certain related revenues for the construction of roads. I think it was done at one time. Maybe you could just comment on this statement that was made by the government.
Mr Gilbert: I haven't seen that statement, but I think I speak for my colleagues here that we would be delighted if the government started to actually earmark the dollars it's collecting now towards roads. That's the recommendation we've certainly been making for some time.
Mr Cousens: Yes, I support it as well.
Mr David Bradley: I think there was a lot of discussion of that through the Fair Tax Commission hearings when people from whatever political stripe they might be were making that point. I think people are looking for value for money. They want to see where their money's going and not have it go into a black hole. That was one of the objections raised with the tire tax. They took that off in the last budget. Perhaps it's a sign of things to come and we in the trucking industry would certainly support it.
Mr Cousens: That's good. That's it.
Mr Ted Arnott (Wellington): Thank you for your presentation. You've a lot of credibility on this issue in terms of advocating the construction of 407 and paying for it with toll roads. You've been advocating that for some time, and I think your advice to us is very helpful.
We heard yesterday from the individual who was answering questions on behalf of the government on behalf of the Ontario Transportation Capital Corp that it's the intention of the government eventually to finance all provincial roads through this corporation. I believe, if I'm not mistaken, that's what we heard yesterday, that the financing and the construction of all new provincial roads would be through this corporation.
I wonder where that leaves the municipal roads.
Mr Gilbert: That would be something, I can tell you, that our members would find very difficult. That's the very reason we laid down the conditions. From our point of view, there are specific highways with these kinds of conditions that you can apply tolls to, but to start to apply it to a lot of existing roads, we strongly object to that, and we've been given every indication from our discussions not only with government but with staff of both treasury and the Ministry of Transportation that there is no intention of --
Mr Arnott: I'm not saying that tolls would be applied to every new road, but the financing arrangements would come through this corporation.
Mr Gilbert: I don't think I can comment on that.
Mr Arnott: It's a long-term plan, I guess.
Mr Gilbert: I think that gets back to what Mr Phillips was talking about.
Mr Arnott: Your organization would still support the need for strong support from the provincial government for the building of municipal roads?
Mr Gilbert: Oh, yes, very definitely. In fact, we have made our position known a number of times. Yes.
Mr Sutherland: It's nice to have an organization supportive of a piece of legislation to start off our hearings. I think it shows that the process has been working, because your organization has been providing quite a bit of advice on how the legislation should read with respect to tolls and I think there has been accommodation for the wishes of your organization.
Before I ask you to comment, I want to clarify that while there may be the option of municipal roads being funded through this, there have been no formal decisions made on that. No consultation has occurred with municipalities as of yet, and that process would have to occur before any decision of that nature would be taken. But there is the option for doing more financing of different roads through this, through the corporation.
I'd be interested in hearing specifically, both from Mr Bradley and Ms Curran, from their organizations, on what they see the impact being of accelerated construction of Highway 407 through this type of mechanism.
Mr David Bradley: Certainly, from a micro sense, the impact on the trucking industry, it presents great possibilities in terms of relieving the excessive costs of congestion the truckers face moving across the top of Metropolitan Toronto. That impacts not only on carriers from Metro, but also from the province as a whole because Toronto is such a magnet for the movement of goods.
The Metro Toronto goods movement study of 1989 at that time estimated that the cost of congestion in Metro was about $2 billion a year. To the extent that we can impact upon that and reduce that cost, that will help with the competitiveness of the trucking industry. If we're more competitive and the cost of moving freight goes down, that will have benefits for the manufacturers and shippers of this province as well.
From a more macro point of view, we believe this project, the accelerated construction, will increase the demand for many of the products that our carriers move, and also in terms of jobs, and perhaps stimulate some consumer spending and confidence in the province as well. From a macro point of view, we're supportive as well.
Ms Pat Curran: In principle, the Canadian Automobile Association is against toll roads. However, our membership, as well as the organization, recognizes the benefits that would come about with the acceleration of a roadway such as 407. With this in mind, we have agreed to the conditions that have been set out by the Better Roads Coalition to accept tolls on newly constructed roadways.
In a very recent public policy survey of Canadian Automobile Association members they stated by a majority that they agreed with tolls on newly constructed intercity highways. They were, by a great majority, against toll roads on existing roadways and also against, by a great majority, tolls on roads that would be put on to deter motorists from travelling into a downtown area. They agree that we need an expansion of our highway system to help alleviate congestion and for safe travel throughout our province.
Mr George Mammoliti (Yorkview): You talked a little bit about the positive impact it would have on truckers in terms of jobs. Can we just elaborate a little bit more? I want to ask you to pretend that there are a number of construction workers behind you at this point, construction workers who would have been out of a job for a couple of years, two or three years, many of them in my riding, who are sitting behind you right now listening to your response.
The question I wish to ask at this point is, in view of what's happened over the last three years in terms of the economy, in terms of the worst recession since the 1930s, would you not agree that this is certainly an initiative that's expected by the public from its government, and will these people behind you who are watching you right now go back to work? I'm talking about construction workers. I'm talking about the cement industry. I'm talking about all those trucks that are parked right now and haven't been doing anything for the last couple of years. Do they have a hope?
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Mr Gilbert: Certainly I think in general, and perhaps my colleague could go on, but you're really speaking to the converted, because as the Better Roads Coalition we have been saying this for some time. Here is a chance to do two things: one, to improve the economy, and the other, it isn't money that is just being thrown away. The road system in Ontario badly needs it. It badly needs expansion. So this is why we've been saying for a number of years, put it into roads for those two reasons. It isn't just a so-called make-work program by any means, because those roads are badly needed, and as David Bradley of the truckers has said, certainly their industry alone requires that.
Do you have anything to say?
Mr David Bradley: No, other than to say that I believe this highway is an economic corridor and that no economy is going to be competitive, is going to be able to maintain jobs unless it has a competitive infrastructure. The infrastructure in Ontario has been allowed to lag over the last 20, 25 years and therefore we have to play a lot of catch-up. That means we've had to look at alternative and innovative ways of financing. It means an industry like mine has had to go out on a limb a bit on this.
We don't want more taxes. There's enough money there now, but we can continue to do that dance and we wouldn't see Highway 407 in our lifetime. That's why we had to go out on a limb to get things moving again, both moving within our industry -- but our industry is simply a reflection of the economy. We're a drive-demand industry and if the economy moves, there's some product for us to move. This again we see is a key way in the short term to stimulate growth and jobs, but over the long term we have to make this investment or we're not going to be competitive.
At one time Ontario's highway system, I think, was the jewel of North America and certainly far surpassed in terms of its quality the interstate system in the US. I can't say that now. Governments in the United States have dedicated taxes through the federal highway trust fund for years to the highway infrastructure and as a result they've been able to maintain and expand their system. Here it has not. Our taxes have been viewed for the most part as sin taxes and they've gone into the black hole. I'm not saying it hasn't been funding useful things, but we've allowed the highway system to fall into neglect.
No matter what you might feel, we need those systems, we need the east-west arteries and the north-south arteries to move our trade. We're a trading economy, and without that capacity we're going to have bottlenecks in the system. We're not going to be competitive, we're not going to be able to sell into the US market, and that's what we have to be able to do.
Mr Brian Crow: I would like to add to what Mr Bradley said. The jobs you talk about, I guess, are the direct jobs, and I'm no expert but I understand that highway construction is labour-intensive and is going to create those jobs. As Mr Bradley pointed out, the secondary thing, if we have better roads, if there is less congestion, we can become more competitive, and my industry sure wants to move those people, more people to work. If you're creating jobs, we're moving more people to work.
We want to become more efficient. We have to compete. We're losing business to south of the border, so we have to have better highways to compete and to put people back to work. We've lost a lot of jobs and we want them all back to work. So the direct benefit to our industry is that we'll be moving more freight and moving more passengers and that means more jobs.
The Chair: Thank you to the coalition for coming today. We appreciated your presentation and I'm sure the members will be closely watching it as we go through clause-by-clause.
PROVINCIAL AUDITOR
The Chair: The next presentation will be made by the Provincial Auditor, Mr Erik Peters. Good morning, Mr Peters. As you're aware, you've been allocated one half-hour by the committee for your presentation. If you'd like to introduce yourself and your colleague, you may begin.
Mr Erik Peters: Thank you very much, Mr Chairman. I'm Erik Peters. I'm the Provincial Auditor for the province of Ontario, and with me is Ken Leishman, who is an executive director in my office.
Before I start in, I have about a 15-minute presentation prepared for you. Mr Phillips, you seem to have a copy already. That's fair enough. I had asked for it to be distributed later on in my presentation but I'm glad you have it. I'll walk you through it later on. I'll make a presentation for a few minutes and then I'm open to questions by you on anything that you would like to put my way by way of questions.
Thank you very much for giving me time with your committee. I consider this legislation as very important, because Ontario now adopts an approach to cope with debts and deficits which is already followed in other provinces, notably British Columbia and Saskatchewan, but there is a price to pay in terms of accounting and in terms of accountability to the Legislature. I would like also to thank you for giving me the opportunity to attempt to bring the accountability features into this legislation.
My office was not invited to advise on this legislation and we followed the process of drafting Bill 17 through snippets of information which ministry staff were willing to share with us. We are grateful for that. Through that occasional glimpse, we saw accountability clauses appearing and disappearing in the draft legislation without being able to provide input or without finding out why these clauses were disappearing. This kind of spectatorship became somewhat uncomfortable when memoranda of understanding were offered as the main accountability mechanism to govern these corporations without finding the necessary support in the legislation for those memoranda of understanding.
As you know, I'm an officer of the Legislative Assembly and the Legislative Assembly is the principal client I serve, and I serve that client through the standing committee on public accounts. The public accounts committee has been unanimous and swift in supporting my efforts to pursue a workable legislated accountability framework with the central agencies.
In this process, I view Bill 17 as a first opportunity to enhance legislation for better accountability with the view that value for money be obtained. It is the result that I'm interested in, to ensure that we are obtaining value for money for the taxpayers' dollars.
I'm mindful that ministry staff have expressed similar concerns about the need for embedding accountability in legislation rather than using only memoranda of understanding. Memoranda of understanding are essentially an administrative tool, but they're not tools that assist you, as members of the Legislative Assembly, in ensuring that you have the right tools to monitor, to control and take corrective action where necessary as these corporations are starting down the road and undertaking their activities.
I quote from some of the material that has been prepared within the agencies to support this. They indicate in a study that was conducted in 1991:
"A corporation should be established under the authority of a separate act" -- which you have before you -- "which sets out the organization's mandate and corporate powers based on a determination of the powers needed to realize that mandate. The more precise the determination of mandate and powers, the less likely the organization will drift off its intended course or function in an unanticipated manner by virtue of exercising powers which effectively alter its intended function."
They continue to say: "A legislative mechanism is needed, establishing the requirements to submit annual corporate operating and capital budgets, an annual corporate plan and payment of surpluses, if any, to the government."
These are just some of the thoughts that the staff themselves had expressed.
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In my proposals for improving the accountability provisions for the capital investment corporations, I'd like to mention that these are based on the following principal considerations:
The corporations are taking on operational and financial activities carved out of the operations and financial activities of the consolidated revenue fund. Therefore, the accountability and auditing provisions should at least be equal to those governing the consolidated revenue fund.
The Legislative Assembly should have controls over the corporation's revenue and spending and over the total provincial debt through legislation since memoranda of understanding are outside the scope of the Legislative Assembly.
Another reason: The accountability rules should be strengthened to provide a financial position statement which combines the consolidated revenue funds and these corporations, and indeed all other government-owned corporations, so that the public has a picture of the overall financial position of the province.
A second and most important feature is that there should be a provision that loans are only set up as assets if they are repaid from revenues and not from future grants, because if it is the grant route, it is just sticking money from one pocket into the other, and that does not represent an asset of the government. And there should be the ability to conduct value-for-money audits in the legislation.
A second principle is that the corporations look forward to partnerships with the private sector. For this reason, the accounting rules should be the same as those for the private sector; that is, they should follow generally accepted accounting principles -- and that was embedded in the original press release for these corporations -- not the modified cash basis which is used by the consolidated revenue fund.
There should be the facility for the government to approve multi-year capital projects. As you know, currently a budget process is followed where the government approves annual budgets with a stop and go at the end. But if you look at multi-year capital projects, a mechanism has to be in there to establish these projects so that they can be pursued in the most cost-effective manner as they go along, without the fear of interruption as they go along.
The ability to recognize and account for and therefore manage and properly be accountable for physical assets in these governments should be created. That's one of the things we're all about. Some of these operations are created so that we can in a way not just mortgage the future ability of the province to collect taxes but also the assets which are owned by the province.
The memoranda of understanding are an element of an accountability framework useful in specifying and detailing accountabilities, but they cannot replace legislated accountability provisions such as the ones that you have now before you. I think they have been distributed and I would like to walk you through these if I may for just a moment.
Firstly, the first one that deals with management responsibility on first glance may look to you like motherhood inasmuch as it talks about keeping proper books of accounts and records in relation thereto and having the financial management control and information systems and management practices in respect of the corporation and any subsidiary corporations. That is sort of motherhood stuff.
But the second section is the important one. In other words, the first one lays the foundation for doing these things, but the second one gives the purpose. That is a very important purpose to me because there should be (a) reasonable assurance through the legislation and through the legislators that the assets of any corporation and of its subsidiaries are safeguarded and controlled, (b) that the transactions are in accordance with this act and the bylaws of the corporation and any subsidiary, and (c), and this is really the one closest to my heart, that the financial, human and physical resources of a corporation and of any subsidiary corporation are managed economically and efficiently and the operations are carried out effectively.
The key feature of why I would like to see this embedded in the legislation is so that management is charged with this responsibility, and when the audit is pursued we can deal with a stated management responsibility as opposed to imposing these standards or rules through an audit. It would be far better if they are embedded in the legislation and they are part of the day-to-day features of management activities as opposed to proposing them through the Audit Act on to these corporations.
The key reasons I am making the proposals are very evident.
Firstly, as I've just explained, it makes management responsible in generic terms for the maintenance of books, records and systems for the purposes outlined in section 2.
It makes appropriate internal auditing a management responsibility. These organizations are big; we are talking about billion-dollar corporations, so occasional external audits cannot accomplish what a sound internal auditing regime can accomplish within the corporations.
The third key reason is that it provides the legislators with the ability to assess performance of management which a memorandum of understanding would not provide. Essentially, a memorandum of understanding is just an agreement between one set of bureaucrats with another set of bureaucrats; it's not one that involves, necessarily, the Legislative Assembly.
The second proposal deals with audit provisions, and although when you compare the wording that is currently in Bill 17 with this wording it may appear superficial, there are very fundamental and deep reasons why I make these suggestions.
Firstly, stating that the Provincial Auditor is the auditor of a corporation invokes the provisions of the Audit Act which you have given me to work under for these corporations. The previous wording merely talked about providing annual financial audits, and that would be inadequate because it would avoid applying the value-for-money audit provisions which are embedded in the Audit Act, particularly through the word "annual" because obviously we cannot do annual value-for-money audit; that would not be cost-effective auditing. They have to be done periodically because we have to also give management a chance to take corrective action.
The second part of this proposal is very deliberately done. It is that the Provincial Auditor, or another auditor appointed by the Lieutenant Governor in Council, shall be the auditor of a corporation. This second provision is one that I encourage as well, because if these corporations go into partnership with the private sector, the private sector partner may very well wish to have its auditors look at the books of the corporation or the books of the project. This would permit the government the facility to facilitate that private sector partner to get in there and have a look at the books itself for its own purposes. Hopefully, they will pay for it, but it's a matter that this facility simply has to be there in order to achieve the mandate of going into partnership with the private sector, because they view the Provincial Auditor as just as much of a government mechanism as anybody else.
The third proposal is for more explicit annual reporting provisions principally aimed at you, the legislators, being able to assess the performance of these corporations.
There are four features we are outlining here.
One is that financial statements for the corporations and any subsidiary corporations should be prepared in accordance with generally accepted accounting principles. One of the things that is missing from the legislation is essentially the explicit statement that they will follow generally accepted accounting principles. That was in the original intent when the legislation was announced and we didn't find it specifically mentioned in the act, so this feature would bring it as an explicit statement into the act.
The second one is that there shall be an auditor's report, and that has to be a standard so you can have my assurance as to the fairness of presentation that allows me to express my service to you.
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The third is a statement on the extent to which the corporation has met its objectives for the fiscal year as set out in the corporate plan. That is results-oriented; that is telling you how well they've performed.
The fourth is quantitative information respecting the performance of the corporation. You have heard already, and I've heard along with you and you will hear other people's expectations as to how many miles of road they're going to construct or what they're going to do. You'll probably want to know this quantitative information, and this is to ensure that it is contained in the annual report.
These quantitative pieces of information should be relative to the corporation's objectives and shall be prepared in a form that clearly sets out information according to the major businesses or activities of the corporation and of its subsidiaries. This shall not preclude at all non-quantitative information, which is very often as important to you as quantitative is, but it's at least encouraging the quantitative which may lead to better explanations of non-quantitative or qualitative expressions that may be brought before you.
Therefore, to reiterate, the reasons are: to incorporate generally accepted accounting principles in the legislation; to include the auditor's report and to whom it shall be addressed, to ensure it goes to the right parties; to provide accountability for achieving objectives; and for performance-oriented reporting.
On the last section, I must admit I had a fair bit of discussion with my own staff and some soul searching as to whether to present it to you, largely because it is somewhat outside the purview normally of the auditor to deal with the planning and budgeting provisions. I decided to include it because, on detailed reading of the act, I just could not find specific expressions as to how and in what format and with what content these corporations were supposed to present their plans to the Legislative Assembly.
Therefore, just to go through the salient features, it should be approved by the appropriate minister and the minister then should recommend it to the treasury board for approval so that it can be included in the estimates.
The corporate plan shall be all-encompassing and shall have all the activities of the corporation. It shall state the objects for which the corporation is set up. It should state the corporation's objectives -- and this is a recommendation of mine -- for the next five years and the strategy that the corporation is going to employ to meet those objectives.
It should show the corporation's expected performance for the year in which the plan is submitted. In other words, where do they stand now so that you have a picture of where they stand now so you can assess the future plans? Under the old saying, the sooner you fall behind, the more time you have to catch up. It gives you a little bit of a start.
The operating and the capital budgets of the corporation for the next following fiscal year of the corporation shall be presented. This is an important feature, because these corporations will have both capital and operating plans.
Point 4 gives a mechanism under which the corporation advises the minister and the Legislature if there is a significant change in activities, either brought about by external forces or others, so that the corporation doesn't run off on a course of action without advising the minister in due time as to what it's planning to do and what changes it wishes to make to its plan.
Point 5 merely says that the budget shall be all-encompassing and point 6 talks to the fact that the form should clearly set out all the activities.
Point 7 is the provision that the minister may approve capital projects for multiple years, over a number of years; this is, set the thing in motion and it happens for a number of years.
The key reasons for the proposal in this regard are that planning and budgeting were not generically covered in Bill 17 as it is before you; it provides for accountability to the Legislative Assembly for performance against objectives and plans -- in other words, there's a performance orientation here, and that's really what this is all about, results; and it provides legislators with the ability to assess performance which a memorandum of understanding would not provide to the Legislature.
That ends my presentation and I'm very happy to answer any questions.
The Chair: Thank you, Mr Peters. Mr Cousens, there are about three and a half minutes per caucus.
Mr Cousens: I appreciate your coming forward. I think one of your points is that you're bringing responsibility to the government, accountability back to the Legislature, which I certainly talked about yesterday and which our caucus would support.
You are gutsy in making proposal D, I think, having been on the public accounts committee for quite a number of years. But I think you're moving in the right direction, that we really have to have value for money, have to have a sense of knowing what's happening and there has to be real openness in this accounting. It would make it very possible for the ministry to understand what's going on there without surprises.
I support where you're coming from. The one thing I'm a little concerned about is the communication between yourself and the ministry prior to the release of the published first reading of the bill. I don't know whether the ministry would like to comment on that part of things. Was Bill 17 drafted by the ministry and were there opportunities that were forsaken or taken to have some dialogue with the auditor? What would your comment be on that?
Mrs Barbara Stewart: Indeed the legislation was drafted by a group of ministries in consultation with legislative counsel. There were opportunities taken to hear the views of the Provincial Auditor's staff some months ago and an attempt to incorporate what could be incorporated from those discussions.
Mr Cousens: Maybe Mr Sutherland could comment on whether the ministry might be prepared to set guidelines as presented by the auditor to be included in your amendments. As we haven't seen your amendments, would they address these concerns?
Mr Sutherland: First of all, let me say I did make a comment in my opening remarks yesterday that one of the amendments we'd be proposing would deal with the issue the auditor has raised in section B about the Provincial Auditor being the auditor or another auditor appointed for subsidiaries. We made reference to that as one of the amendments.
I guess the issue is that the auditor has been asking that these provisions be put specifically in the legislation. We have indicated that many of the suggestions he's put forward would be dealt with through the memorandum of understanding that would be drafted between the corporations and the appropriate ministries.
We should also be aware and I understand that there is an overall process going on between the auditor's office and several ministries at the deputy ministerial level about developing the overall legislative accountability framework, the mandate the auditor was given from the public accounts committee; that some of these issues that have been raised specifically with this bill are being dealt with in a much broader framework than just this specific piece of legislation.
So we believe that many of the suggestions would be incorporated under the memorandum of understanding. The auditor is requesting that it should be broader than that and put in the actual legislation to allow the Legislative Assembly to have more degree of accountability.
First of all, let's be clear that all the corporations have a responsibility to table annual reports with the Legislature. There are accountability mechanisms that way. This is a schedule 4 agency. The Minister of Finance has the ability to issue directives, and there is an absolute obligation to carry out the directives from the Ministry of Finance.
We believe there are very strong accountability mechanisms here to deal with some of these issues and that it can be dealt with under being a schedule 4 agency and also under the fact of a memorandum of understanding, and whatever changes may come about from this overall legislative accountability framework process -- the auditor is working with the central deputies -- would also apply to these corporations as well as any other corporations in terms of what new mechanisms are there for greater accountability.
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The Chair: Mr Sutherland, you're using your own time at the moment.
Mr Sutherland: That's okay. They were basically some of the comments that I wanted to put on the record anyway in terms of what the auditor has put forward. His intent is to ensure that there is accountability?
The question now is, should we deal with Bill 17 specifically as the piece of legislation to have the new system, or should we ensure that we have the flexibility there that once this overall legislative accountability framework is worked out between the auditor's office and some of the ministries that are involved in doing that, this would still carry through to these corporations and they'd be subject to whatever that legislative accountability framework would be, and that in the meantime the memorandum of understanding and the other mechanisms the Minister of Finance has provide sufficient accountability.
Mr Peters: May I comment on that? The intent, as I outlined, was that I certainly do not see the two as mutually exclusive. In other words, I see that Bill 17 is being fast-tracked in order to establish these corporations. We want to have them in place by the fall of this year. I have absolutely no idea at this particular point when this new accountability framework that we're working on will be in place. So it would give an opportunity, and I've only made generic suggestions here, to embed accountability items in this legislation which, if amendments are necessary, could later be amended.
At the moment, I should say that I would not be satisfied, as the Provincial Auditor, if the memorandum of understanding would be the only accountability process, for two reasons: firstly, because it's not anchored in the legislation itself; secondly, as I've outlined, it is merely an administrative tool. Without dwelling on it, the current memoranda of understanding, in many instances, are not up to date. In one case, in one report that I've just made public, I pointed out that the last memorandum of understanding was signed in 1982 for a schedule 3 agency. We are now in 1993. It's 11 years after.
I would not find the memorandum of understanding process satisfactory for those reasons and would truly advocate using the opportunity to at least anchor some of these generic features of an accountability framework in this legislation. We're talking about 12% of the funds that flow through the consolidated revenue fund which are carved out here. That is a fair chunk of money. If we, for example, have no opportunity to ensure that for that amount of money value for money is being obtained, I would think there is a problem here.
The Chair: Thank you, Mr Peters. My apologies to Mr Hope. Mr Phillips.
Mr Phillips: Is Mr Hope next?
The Chair: Their time has expired.
Mr Randy R. Hope (Chatham-Kent): He has just given me an apology.
Mr Phillips: Oh, thank you. I really appreciate your presentation and I share your concerns. I happen to think that the way the province is allowed to keep its books does not provide the public with an accurate assessment of the finances. That has nothing to do with the NDP, because that's the way the books have been set up for years. I think that's one of our problems. We do not have, in my opinion, accurate year-to-year comparisons. My own view is that if this were a company, you'd never get it listed on the stock exchange because you cannot report accurately to the shareholders the state of the finances.
I very much appreciate the role that you are --
Mr Hope: It's creative bookkeeping.
Mr Phillips: It is creative bookkeeping, and I'm not saying it's just you people. I think every government has had the ability to do that. Therefore, I like your recommendations and I think they're solid.
I had a subsidiary issue that you can, I hope, maybe be helpful on. My own view is that one of the motivating factors behind this is to find new ways of essentially funding or hiding debt. The loan-based financing for schools, hospitals, universities is going to run up a debt on someone else's book, which the province has sole responsibility for funding. That'll be $3 billion in five years; it'll be, I think, $15 billion in 20 years, a huge debt.
Secondly, I think the selling of the government buildings to the realty corporation and then leasing them back is essentially just a way to borrow $250 million each year, and the lease payments will be the cost on that debt. As to the sewer and water corporation, I think we're now moving to "loan-based financing," which means instead of $150 million a year in grants, it will be in "loans," but the obligation to pay the loan is 100% the province's obligation.
My question to you is really this: Can you, as the Provincial Auditor, be helpful to the Legislature in providing -- firstly, are my concerns justified or am I being unreasonable, and secondly, if they are justified, how can the public and the Legislature get a reasonable year-to-year comparison of the finances of the province if we move to this kind of off-book debt financing?
Mr Peters: The methodology of following that is that we will have to work towards putting the books and the reporting of the province on to the standards that are currently promulgated in Canada for government accounting by the public sector accounting and auditing committee of the Canadian Institute of Chartered Accountants, and that's certainly a direction in which I propose that we move. They include most of the concerns you have expressed. In other words, they are advocating summary financial statements.
Saskatchewan, for example, which has followed the route right now of setting up these crown corporations, has had the Provincial Auditor bemoaning loudly, by qualifying their financial statements, the fact that they did not provide the whole picture in the public accounts. The federal government is doing a similar step. The record of the federal government is that the -- I think the Auditor General of Canada has not given a clear, clean audit opinion on the books of Canada in any year except one, in which they've given a clear opinion. In all others, they have qualified it. These are certainly standards that are being strived for and I think they will take into consideration the concerns you have just expressed.
The other one I raised with you was the one about the loans receivable. The standard has just been pronounced that a loan receivable is not an asset of a province if the province intends to repay it through appropriation or by giving grants to the people to pay it back.
The Chair: Thank you, Mr Peters, for coming this morning. We appreciated your presentation. I'm sure it will be useful as we go through the clause-by-clause review of this bill.
1110
ONTARIO PIPE TRADES COUNCIL
The Chair: The next presentation is the Ontario Pipe Trades Council. Good morning. The committee has allocated one half hour for your presentation. You may use all of it in your presentation or reserve some of it for conversation with the members. You may introduce yourself and your colleague and begin your presentation.
Mr Peter Landry.: Thank you, Mr Chair. My name is Peter Landry and I'm with Jerry Boyle, who's the business manager of the Ontario Pipe Trades Council. I'll be making the presentation on behalf of the council.
Members of the committee, we're not going to do the clause-by-clause analysis of this bill. Rather, we have a different message today on behalf of the people we represent.
By way of background, the Ontario Pipe Trades Council of the United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada was established in 1922. The council is the central representative within the province of Ontario, having jurisdiction over all matters relating to the general interests and welfare of local union affiliates.
The Ontario Pipe Trades Council represents 13,000 workers from across Ontario in the plumbing and pipefitting trades. These are among the highly skilled men and women who have literally built this province into having one of the world's best standards of living.
A significant contributor to this standard of living has been the quality of our public infrastructure, such as roads, schools, hospitals and of course water and sewage systems. We in Ontario have been fortunate in the past to have had a well-developed public infrastructure, which has contributed enormously to the economic performance of our province and to our environmental wellbeing.
The problem for us is that currently, along with other workers in the construction sector, we are facing very high levels of unemployment. Levels as high as 60% are not unusual, with one local reporting a rate of 80%. These rates have been with us for a number of years now. Many of these workers have exhausted their unemployment insurance benefits and are now forced to claim welfare. They, along with their families, are certainly not enjoying the standard of living they rightfully deserve. Construction workers understand as well as anyone the impact of the recession.
This is at a time when much construction needs to be done. However, our investment in public infrastructure has not kept up with the province's needs or with the level of investment by many of the other jurisdictions with which we compete.
Our infrastructure is becoming quite old. The bulk has been around for 30 to 40 years. Much of it does not meet safety and environmental standards. It is inefficient and wasteful and, quite frankly, is quickly deteriorating.
The lack of infrastructure development will clearly affect the economy and the quality of our environment. A specific example concerning members of the Ontario Pipe Trades Council is the condition of the water and waste lines in publicly owned and managed buildings. Many of these systems are as old as the buildings themselves and may pose such hazards as high lead content in the potable water system. Boiler rooms in such buildings may also be out of date, as well as the related steam and hot water heating systems. Updated systems will lower maintenance and operating costs, as well as being more environmentally friendly. If investment is not made into new and better systems, it is no exaggeration to suggest that public health may be threatened.
Although not limited to work in our trade, we note that one of the Ontario government's own publications, Public Investment for Economic Renewal, admits that a quarter of the province's watermain and sewage pipes are over 50 years old and are therefore near the end of their useful operating life. It goes on to say that many of these watermain and sewage pipes are suffering from a high rate of breakdown. About a third of the province's pipes are between 25 and 50 years old, which will lead to increased requirements for rehabilitation in the future. In addition, the publication reminds us that this infrastructure will not meet the rising environmental performance and safety standards of the future.
All of this is happening when the government of Ontario's capacity to invest in infrastructure through tax dollars is diminishing, as demonstrated by the fact that the infrastructure investment in Ontario is lagging behind the growth in the economy as a whole, thereby having the effect of making Ontario a less attractive place for companies to invest.
The impact on the workforce is obviously key for the mandate of the pipe trades council and we must consider the impact of the infrastructure development on the workforce. Unless Ontario moves to get on the leading edge of infrastructure development and retrofitting, workers will not have the opportunities to be trained and gain experience in state-of-the-art equipment and technologies. The need for a highly skilled workforce, which formed the impetus for initiatives such as the Ontario Training and Adjustment Board, will simply not be given the chance to be satisfied.
Without work, people who have invested an enormous amount of energy, time and effort to learn trades will leave the construction industry permanently, many of whom will not find new jobs. Young people considering careers will not look at construction as a viable option for long-term employment.
The solution, I think, lies in the initiative the government has before us.
Members of the committee, our message today is simple: The construction industry has been devastated by the recession, and quite frankly, there's no indication that there will be a quick reversal of the situation. The recession has forced business, labour and governments to rethink how we operate and challenge old assumptions and ways of doing business. Bill 17, in our minds, provides an excellent example of this by providing new opportunities to achieve positive results by forging new partnerships between the public and the private sector.
This is why the Ontario Pipe Trades Council views Bill 17 and its four crown corporations with optimism. We believe that by creating crown corporations like the Ontario Clean Water Agency, the Ontario Realty Corp, the Ontario Transportation Capital Corp and the Ontario Financing Authority new sources of financial investment and ideas to fix the problems we have described can be found. We know that there's much construction work needed in Ontario. Perhaps we won't see the kind of building boom we saw during the 1980s, but there may be another boom possible in the redevelopment of Ontario's public systems, as we described earlier.
We understand the importance of getting the work done soon from the perspective of the economy and the environment, and frankly, directly in terms of work for the people in the construction industry. We know from our discussions with various industry leaders that even though these crown corporations have not been created, there's already interest in making private investments in public projects, like the retrofitting of public buildings and the facilities to be managed by the clean water agency. They are serious because they believe the returns on investment can be very positive. We have already seen evidence of public buildings saving on water wastage through the installation of new systems with fast pay-back periods for dollars invested. Sometimes full return on investments can be seen in as short a time as three to five years.
Business also know that investing in new infrastructure leads to new business opportunities, and for us that means jobs. In addition, we believe the kinds of initiatives that could result from Bill 17 represent real opportunities to put Ontario at the leading edge of technology and in a position to be able to export our knowledge, equipment and techniques.
The potential benefits of the bill include spinoffs beyond the interests of the workers in the construction sector that we represent. Manufacturers who supply the equipment for the projects, the people who transport the products, the people involved in research and development, the engineers, architects and so on will gain enormously from new investment in public infrastructure.
We have briefly outlined how we view the potential of Bill 17 as benefiting our economy, environment and jobs. We believe the government has a positive vested interest as well. By increasing its partnerships throughout the private sector, the government will be able to undertake the projects more quickly than it has in the past. It will also realize real tax savings and be in a position to share and diminish investment risks with other, more expert partners.
In conclusion, the Ontario construction industry has recently faced some of the toughest times in its history. Our workers are suffering rates of unemployment more usually associated with underdeveloped economies. This situation does not have to continue. We have before us a real chance to put our people back to work in a way that will benefit not only these workers but the quality of life for all Ontarians. We urge members of this committee not to delay passage of Bill 17. The crown corporations that it will empower must get on with the job of renewing Ontario's infrastructure and create employment that we depend upon.
Thank you for your attention. I would be happy to answer any questions.
The Chair: Each caucus has approximately five minutes.
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Mrs Irene Mathyssen (Middlesex): Thank you, Mr Landry. I was quite interested in your presentation. I just have a couple of little clarifying points.
You've indicated that a great deal of our infrastructure is old and needs to be revitalized and that, in order to maintain the environment, we need a significant amount of new infrastructure. Am I correct in assuming that we're talking about billions and billions of dollars which a government may not necessarily be able to find, any government in any economic times?
Secondly, your reference on page 4 talks about the need to make Ontario attractive for companies to invest. Now, there has been some concern about the notion of user-pay and full-cost pricing for services. Do we have to look at that realistically in terms of all of these billions that we could be talking about?
Lastly, your reference here is to public buildings that have put in new, better systems and have realized paybacks in terms of savings.
Could you put this all into perspective and tell me how it all fits?
Mr Landry: I agree with you that no government could possibly, and particularly now, invest the kind of money strictly through tax dollars to make the systems to the level that we need. That's why, when we were reviewing the bill and the materials attached to it, we became quite enthusiastic, because it's not asking government to bear the load itself; it's seeking other people who may want to invest for paybacks on things like tolls, user-pay and so on, or it's simply because their buildings are less costly to run now and it reduces the cost for government to run a building if it's using less energy and less water and so on.
I'm not sure the user-pay thing is as scary as many people may think. I'll give a non-type trade example: If you look at the Highway 407 concept and tolls, companies may very well be prepared to invest in tolls for trucks, for example, to go across the highway, if it's going to save them 45 minutes going across the top of Toronto. You can pay x for a toll, but you have to balance that with what the current costs are.
Also, with regard to the public building infrastructure renewal that we talked about, there's a whole business out there now of people who will retrofit public buildings and save simply on the water bill. If we're wasting the amount of water that we know we're wasting now and you can reduce those costs, obviously there's some profit in that, and for members of the Ontario Pipe Trades Council that means they can be employed doing that. In the long term it doesn't cost the government anything really. These buildings waste an enormous amount of energy. That costs the government and doesn't create jobs for anybody.
Mrs Mathyssen: In terms of things like something as precious as water, we can't afford to waste it, period, any more.
Mr Landry: Not to mention the environmental issues.
Mr Bernard Grandmaître (Ottawa East): In your presentation, I agree with you, first of all, that something has to be done with our infrastructure and, as the previous speaker pointed out, the billions of dollars that it would cost the province of Ontario. You will know that AMO, the Association of Municipalities of Ontario, and also FCM, the Federation of Canadian Municipalities, have been after provincial governments and federal governments to get involved in a one-third, one-third, one-third program along with municipalities. FCM told us at the time that it would cost Canada about $15 billion. You're not referring to the federal government in your presentation. Are you saying that these corporations can answer or will answer Ontario's needs by creating these corporations and the federal government doesn't need to get involved in the renewal of our infrastructure?
Mr Landry: I don't think we're saying that at all. I think we're saying that this bill presents a certain hope to deal with Ontario's problems, Ontario's public infrastructure. We recognize that it's as important, and in some areas more important, for the federal government to continue investing in its infrastructure, and if it can't do it through tax dollars, then we would urge it to find a way through sharing the cost with the private sector in order to do it as well.
They've done a little bit of it through Terminal 3, for example, but we're not absolving them of their responsibility, nor the municipalities either. All we're saying is: "Look, there are not enough tax dollars here. We need the work. This work needs to get done. Let's put it together."
Mr Grandmaître: Not "Enough taxes," but "Let's go with user fees," right?
Mr Landry: In some cases.
Mr Grandmaître: Gerry?
Mr Phillips: Thank you. Just quickly, I think the essence of the corporation, and I think it's creative and interesting, is to find funds by taking the rate on water up. I mean, when all is said and done, that's what happens.
I guess my question to the trade group is, does your group have any concerns that this impacts everybody regardless of income, and I think we tend to use water probably not based on income but on other things, that the funding for this will come through increased water rates that are not necessarily progressive? Has your committee ever debated that or discussed that?
Mr Jerry Boyle: We're also looking at the changes reducing the costs of operation, and over a period of reasonable time those savings will pay for those changes. So we think it is almost a self-funding operation to some degree.
Mr Phillips: So there's no extra money here.
Mr Boyle: We're suggesting that there are means of investing money from private industry back into the structure to finance the changes on a purchase-lease method that will be of no direct cost to this government to effect those changes. We believe there can be enough savings in water in some installations and in the efficiency of updating the heating installations to pay the costs of those changes.
Mr Phillips: A presentation we had yesterday suggested that what we're really looking at is a fairly substantial increase in the rates on water. Is that not your understanding of what's planned?
Mr Boyle: Not in what we are proposing. In some of the suggestions that we will follow up with will be a direct savings on certain installations that will pay for the changes. It's not going to affect the -- we're talking building-specific. We would be in a position to have the system reviewed through engineering firms to establish the savings with the proposed changes. So it can be, in those cases, self-funding.
Mr Phillips: Thank you.
Mr Arnott: Thank you for your presentation. I think my understanding of what you've said is that more and/or accelerated public expenditure on infrastructure will create jobs for your membership.
Mr Boyle: Definitely.
Mr Arnott: Okay. You said that the unemployment in the industry was as high as 80%.
Mr Boyle: Correct.
Mr Arnott: I'd just like to go back to 1988 for a minute. What was the unemployment rate for your membership, 1988-89? I assume you were pretty close to full employment, were you?
Mr Boyle: There was work available somewhere in the province at that time.
Mr Arnott: So we've seen an absolutely devastating change over the last five years.
Mr Boyle: Definitely, yes. But in 1988 and other years, there have been places to go. Right now the only fully employed local of the 17 that I represent is Windsor, and including their membership and those who have moved to Windsor to take up the job opportunities, there are fewer than 500 people working in Windsor out of the 13,000.
Mr Arnott: Every unemployed worker represents a significant personal tragedy. Anybody's who's out of work for two years, there's certainly loss of purchasing power for that individual family of a significant amount. I just wonder, what was the average wage for your membership in 1988?
Mr Boyle: I don't have those statistics; I really don't. That would vary from area to area. I would have to research that; I couldn't give you that.
Mr Arnott: But the wage structure has likely gone down too, which again would represent a loss of purchasing power in each individual --
Mr Boyle: The overall income to our membership has definitely gone down. There are areas that have made several changes under the collective agreements and rollbacks on wages etc to help their contractors, their employers, trying to seek work, but that isn't always the answer.
Mr Arnott: Are your members concerned about the debt levels in this province?
Mr Boyle: They're very concerned. Many of them are not in a position that they're contributing against those either. Any project that this government sees through commission, there's an automatic return to the economy with tax dollars federally and provincially, and of course in buying power. We have several members who have, again, had a terrible two years. They've lost their homes; there's nothing there. We're still trying to hold the efficient, top-quality tradespeople, men and women, in the industry, and it's hard to hold them in the industry with no work. They're doing everything they can, from working farms to anything else they can get their hands on.
The Chair: Thank you, gentlemen, for appearing before the committee today. You bring home a message that's very important to all of us as members of the Legislature.
1130
TRANSCANADA PIPELINES LTD
The Chair: The final presentation for this morning is from TransCanada PipeLines Ltd. Good morning. We have allocated one half-hour for your presentation. I notice you've been here for a while, so you've seen how this works. If you would just like to introduce yourself for the purposes of Hansard, we would appreciate that, and you may begin.
Mr David Russell: Thank you, Mr Chairman, members of the committee. My name is David Russell. I'm a vice-president with TransCanada PipeLines, and I'm here basically to support this initiative and to offer what we believe are some constructive changes to the legislation.
What I would like to do is explain the background of TransCanada and its interest in the legislation, and then my colleague Harry Poch, who is our counsel for environmental and, in this case, legislative affairs, will provide you with the details of the changes that we're suggesting.
TransCanada PipeLines has been interested for the past three years in the possibility of installing a water pipeline to service various municipalities and regions in Ontario. We believe this initiative is one which has positive environmental as well as potentially beneficial employment implications for the province, and we certainly appreciate the prospect of appearing before you today to offer our comments.
As background to the company, TransCanada is one of North America's leading gas transporters and marketers of natural gas. We have assets of something over $8 billion with $3 billion being here in Ontario, so we're quite familiar with operating in the province; in fact, in the last three years I believe we've spent $1.5 billion in the province, which with the multipliers is something over $4.8 billion worth of impact on the provincial economy.
As well as being in the natural gas transportation business, we're interested in the private power industry. We're a 40% owner of a 500-megawatt power plant in the United States, we own and operate a small 36-megawatt power plant at Nipigon in Ontario, and we're discussing some other power plants with Ontario Hydro.
Anyway, to focus on our interest here, as I said, over the past three years we have been discussing with various ministries in the government, various municipalities and government agencies the concept of transporting treated water from Georgian Bay to those centres which require it in south-central Ontario. A large-diameter pipeline, which we're proposing to finance, construct, own and operate, would run from near Collingwood on Georgian Bay to serve communities in Simcoe county, Dufferin and Wellington counties as well as the regions of Halton, Peel, Waterloo and York. With the exception of part of York region, which relies on Metropolitan Toronto for some of its water, the areas that we're contemplating serving all currently depend on groundwater, which in several cases is unreliable because of quality or quantity issues.
We envisage that the pipeline would be of steel construction, which would probably be of interest to the parties who spoke to you just now, and would be, like our gas pipelines, buried along the entire 115-mile length. We contemplate financing the entire cost of the $500-million project, which would include an intake structure, treatment plant, pumping stations and the pipeline, and over 95% of the material involved in the project would be sourced in the province. We understand that the total construction impact during the construction program would be about 5,000 person-years of employment after we take account of the impact on all the other aspects we affect during construction, and we'd create 70 long-term, full-time jobs.
We're recommending that the pipeline be fully regulated and that it would be subject to full examination.
Our concerns really relate to the way in which the current bill is structured. It appears to us that although the thrust seems to be to encourage private industry to work with the Ontario Clean Water Agency and projects of this nature, there are some areas where we believe we would require certainty in order to proceed with coming up with the investment that I mentioned earlier. It really focuses on three general issues.
One is the ability to expropriate land. While the bill provides for expropriation of land by the agency, it does not say that the agency may expropriate the land for private industry. We can see some problems in having a working relationship evolve with OCWA on that basis, and consequently, some of the amendments which Harry will talk to you about in a minute address that particular issue.
We also believe that the issue of municipal approvals could provide an obstacle to the overall approval process for the pipeline. In our discussions with the province and with others, we've envisaged a sort of a one-stop regulatory process which would cover all aspects of the environment and other issues. But the way we read the legislation at the moment, there is the possibility, after the overall approval has been granted by that commission, whichever it may be, that the municipalities could come back and frustrate the approval process by later introducing some new bylaws or appealing old bylaws. We have some amendments which we'd like you to consider which address that issue.
Finally, in our discussions with pretty well all of the municipalities and the regional governments, the issue of rates has been obviously a sensitive issue for everyone. Our view was that much in the way in which TransCanada is used to being regulated, particularly with rates -- in our case by the National Energy Board, and in the case of the local distribution companies or gas distribution companies here in Ontario by the Ontario Energy Board -- we had envisaged that there would be an impartial tribunal which would review the rate-setting process and provide at least some public discussion of the rates so that every municipality that was affected, as well as ourselves, could appeal any particular rate-setting which may have taken place.
That's our background; those are our concerns. Harry Poch will provide the details of the legislative amendments that we're suggesting. We believe they're minor. We don't believe that they affect in any sense the thrust of the bill in terms of the crown agency, but we do believe they provide flexibility for introducing private partners into the equation.
Mr Harry Poch: The bill itself is certain in many aspects of its thrust. The preamble to the bill is certain that there should be a joint partnership between the government and the private sector in capital infrastructure works. Unfortunately, in several key aspects, from the private sector perspective and investors' perspective, the owner-operator's perspective, that preamble is not carried through with the certainty that's required to allow a company -- we're not just talking about TransCanada but we're talking about the private sector now -- to go ahead with major capital infrastructure building and improvement and to get the necessary financing from the lenders.
However, that certainty can be accomplished with very minor tinkering to the bill. We're aware of the accelerated schedule that this committee is facing, and to that end we've attempted to draft specific amendments that are set out in pages 5, 6 and 7 of our brief. I understand everyone has received a copy of that to assist you and legislative counsel to bring forward the necessary clause-by-clause amendments; I take it that it will be tomorrow afternoon.
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If you'd be kind enough to refer to pages 5, 6 and 7 at this time, I will take you through those provisions very briefly and give a rationale for why we believe those amendments are necessary. I must say that on one side, we believe they're necessary; on the other side, any deal can be structured with the Ontario Clean Water Agency, structuring who operates, who owns, who produces water and for whose purposes.
But we don't want to get into that. We want to have clarity in the legislation up front. We must have that so that ultimately the company and the lenders know that we have one regulatory process, a regulatory process with certainty; that at the end of the day, if we do receive all of our environmental approvals and our necessary municipal approvals that would be part of that one package before the tribunal or before the adjudicating body, there won't be a second kick at the cat by a recalcitrant party or because politics change two or three years down the road and somebody decides, "Maybe this isn't as good as we want," or, "Maybe we want to be part of the show," and for one reason or other they're not.
Moving to the amendments, the first amendment would be an amendment to subsection 49(1) of the bill, which is the provision which provides for the agency's objects -- now, we're strictly dealing with the Ontario Clean Water Agency here -- to clarify what its objects are and that it will be working with and facilitating and assisting in the implementation of private sector projects. We've suggested the new clause (d) that I've set out at the top.
This is important from the perspective of clarity and from the perspective of lending but also from the perspective of if TransCanada, for instance, attempts to acquire properties along the right of way or easements, which would be the preferable way, and we have one major property owner that declines to enter into a consensual acquisition transaction, we want to be able to go to the clean water agency after environmental approvals are granted and say: "We've tried. Could you please expropriate that one parcel for us, for our project?" This provision, expanding the objects tied into the expropriating provision, would assist that power and enable that to occur.
We don't want to be the producer for the clean water agency of clean water; we want to be the owner and operator of the works. We have to construct the works. We don't want to get into convoluted structuring agreements with the agency to get around provisions of the act. Counsel to the MOEE will be able to tell you that's possible, but we don't want to have to do that; we don't want to get around provisions of the act. We don't want to have to structure situations. We want everything clear up front. This will enable that to occur.
Likewise, the amendment to section 52 set out in paragraph 2 would allow that to occur, the expropriations issue. Currently, under the Expropriations Act, if lands are expropriated or if an interest in land is expropriated and there are surplus lands, in this case the agency would acquire, by way of expropriation, certain easements, and those easements then are to be transferred to TransCanada for the pipeline. If not all of that land that was acquired along the right of way or from that singular parcel is to be conveyed to TransCanada, then you need the expropriated land owner's consent before TransCanada could be granted those lands.
We believe that once the project has received its regulatory approval and gone through the environmental approvals process, expropriation has occurred, and the lands are to be conveyed to TransCanada, we don't want to be in a position where it can be frustrated because the expropriated land owner doesn't agree to give up his first right of refusal.
The amendment under clause 2(d), as suggested, would allow the agency to then convey the expropriated lands to TransCanada without having to go back to the expropriated land owner first and give him that right of first refusal.
Now, when we're talking about expropriation we're talking about, hopefully, never having to invoke that power, or the agency having to invoke that power. TransCanada would go and attempt to acquire the necessary rights of way and easements, but we have to have that fallback position. If we go through a regulatory process, it's going to cost millions of dollars to go through the environmental assessment process. We want to have some certainty up front so that if we do receive approval, the lands can actually be acquired, one way or the other, and the project implemented.
The next point I would like to raise is a point that's set out under paragraph 8 on page 7. It again deals with the land acquisition and conveyance process. As you're aware, the government and government crown agencies are generally exempt from the severance provisions of the Planning Act on conveyances and acquisitions of land. There is a provision in the bill that states that the agency, by way of contract, need not bind Her Majesty.
By inclusion of that provision in the bill -- and we're not saying that's an inappropriate provision -- there is the potential that the clean water agency would not be a crown agency within the meaning of the Crown Agency Act and therefore it would not have that exemption under the Planning Act under subdivision control.
For clarity, for certainty, to help the agency, we've suggested the first amendment under my paragraph 8 on page 7, just to add the words "or by the Ontario Clean Water Agency." That may or may not be necessary, depending on the contracts that the agency enters into, but this is just a matter of clarity and assistance for the agency.
The second severance amendment that we're looking at is in the case where we acquire the lands. Likewise, we need subdivision consent approvals under the Planning Act. If we have gone through the regulatory process and obtained the environmental approvals for the project and the right of way, we would like not to have to go through a subsequent severance process.
There's the ability to join the severance matters at a joint board hearing under the Consolidated Hearings Act, but this project may not even be under that act. It might be under the Environmental Assessment Act itself. So we may not have that ability to join that at a hearing. For clarity we've suggested that after all necessary approvals under the environmental statutes are obtained, we don't have to get a severance for that easement acquisition.
Likewise, my amendment under paragraph 6 on page 6 is for clarity and attempts to assist the agency. There's a provision in the bill that states that the agency can enter on to road allowances without the consent of the local municipality. What we're attempting to do by this amendment is to make certain that that's the exact power that the agency has and that the Municipal Franchises Act bylaw isn't necessary for them to do that. It's just a matter of clarity, tidying up the act again. A lot of these matters are to add certainty to a situation that the agency may be facing in the future and that private sector companies such as TransCanada will be facing.
The next amendment I'd refer you to is number 4 on page 6. If you'll excuse my moving back and forth, it's just that I've set out these amendments by way of number to the bill for ease of reference as you go through clause-by-clause, but I'm now dealing with these matters by way of issues.
The next matter would be municipal franchises. Under the current legislative regime, if you are constructing or operating a public utility, and this pipeline would be a public utility, in those municipalities that you're going to service, that ultimately the agency would service -- here we're talking about transporting water -- the agency at the end of the pipe then is supplying water to the municipalities by way of individual contract with municipalities.
To construct and operate that pipeline in that consuming municipality, we would need a bylaw from that municipality under the Municipal Franchises Act and then we would need subsequent assent of the municipal electors by way of a municipal plebiscite, except if the Ontario Municipal Board dispensed, after a convoluted and lengthy Ontario Municipal Board predispensation process, with that necessary assent.
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What we would like is an amendment that says that in the case -- and this is set out in paragraph 4 on page 6 -- where we've received our environmental approvals and gone through that public process once, we cannot be held up for ransom, and the agency, for that matter, can't be held up for ransom by the municipality by its not passing a bylaw. Now, there may be goodwill between the municipality and the agency and TransCanada ultimately, but now we want that certainty before we even get into that process. We don't know if there will be that ultimate goodwill. Politics do change, as we're all aware. So we would like dispensation from that requirement for the franchise approval.
By the way, that Municipal Franchises Act provision and the Public Utilities Act provision are very, very old provisions. They were drafted earlier this century. There have been massive changes, as we're all aware, to today's world. What was thought of as a franchise and a public utility at that time and the nature of public utilities is not the same. I don't believe we could even contemplate the interregional types of public utilities that we're talking about here when the Public Utilities Act and Municipal Franchises Act provisions were drafted. We're trying to relieve that problem.
The next issue is zoning and official plans. Again we get our approvals. We don't want a municipality to come along after the fact, even if we've gone through a joint board hearing, and say, "We're going to now attempt to amend our official plan, or we are going to amend our zoning bylaw to prevent this public utility occurring."
One kick at the cat and municipalities, like anyone else, would have the ability to attend and participate in the public hearings process, the environmental process, whatever process is mandated under the statute, not after the fact. Again we're seeking, by way of an amendment to paragraph 5 on page 6, a relieving provision so that if approvals are granted, the environmental approvals are granted after the fact, and at that time the zoning and the official plan would not affect the project.
Finally, paragraph 7, starting at the bottom of page 6 and continuing at the top of page 7, deals with the issue that Mr Russell mentioned, that the municipalities we've contacted, and we've contacted numerous municipalities, almost entirely would like to have an independent appellate tribunal or body to be able to sit on the rate-setting mechanism and the amount of rates that are imposed.
What we're attempting to do here is set up a process where, instead of just having the methodology of rate imposition promulgated by regulation, as it would be under the bill now with a notice and comment period, as it's now drafted, whenever rates are changed, the municipalities would be able to appeal to the OMB.
We only suggest the OMB because it has expertise in that area. It could be the Ontario Energy Board, another tribunal that has expertise in rate-setting. The interested parties could then have the rates determined by an independent tribunal. We believe that this is necessary from the perspective of the ultimate consumer, which is the municipality.
Those are the suggested clause-by-clause amendments. The wording, obviously, may not satisfy legislative counsel in its entirety. I understand that these amendments would have to be moved and that one of the members would have to approach, I take it, legislative counsel in advance to have the necessary motion drawn. We'd request somebody to give immediate consideration to that.
The Chair: Thank you. We have about a minute and a half per caucus. Mr Phillips? That's about one question.
Mr Phillips: I hate the sort of pause.
Mr Grandmaître: Don't you have a question?
Mr Phillips: You go ahead then.
Mr Grandmaître: Good. You're asking for major, major amendments to a lot of government acts, especially the Expropriations Act. I'm very, very concerned that this power would be given to your agency. Not that I don't trust you, but you're asking for major, major changes on expropriation, but I realize that if you want to go through with this major project, especially as you're referring to I think 115 miles of pipeline, I'm sure there's a lot of expropriation along that route. No?
Mr Russell: If I can just comment, I have no idea what the expropriation requirements along that route would be, but TransCanada, in general, in less than 1% of the land owners do we ever have to resort to expropriation. It's the nature of a linear project that requires, in the end, one person perhaps here and there to be able to be subject to expropriation from the point of view of assembling the land or the easement.
Mr Grandmaître: In other words, you have been able to resolve all of these problems through mutual agreements.
Mr Russell: Yes.
Mr Poch: What we're proposing is comparable to the National Energy Board process itself.
Mr Cousens: In the same vein that Bernard is following on, you may be a little precipitous in proposing these changes when in fact at the appropriate time when there's a decision that whatever company, very probably TransCanada PipeLines, would have the opportunity to develop this trunk and so on, that legislation could be brought forward at that time to accompany the commitment that is being made, so there are ways in which this could be addressed.
I personally don't think there's a way I am able to look at the amendments and the changes you're asking for in the time we've got because there are so many other questions that go to it, though I think the direction we're taking, the approach that's going to have to be taken, will all have to be faced up to. But it's a much bigger issue than I think we're equipped to handle in the time frame we have.
Maybe what you've done, just as feedback, is table some very, very helpful information for the next stage that goes into it. I present that to you as a possibility.
I have a question out of all that and that is, would it only be TransCanada PipeLines that's interested in building this trunk or are there other companies that might well become a consortium or group?
Mr Russell: We have taken the initiative in contacting the municipalities and talking to the government agencies, as I referred to earlier. My understanding of the amendments we're offering is that they would be non-specific in terms of who they might assist. I suspect any private consortium would want similar powers under the act.
Mr Poch: The amendments are not drastic. What we're trying to do is add certainty. We have projects that are probably in the works aside from TransCanada's. We would like to go ahead. Given the legislative agenda and how full it is, and we all are aware how full it is and how full it will remain, it won't be so easy for amendments to come forward. Also, projects won't wait. Projects are here now. They may not be here a year from now, and what we're suggesting is that now is the time to deal with these amendments.
The Chair: Maybe you would like to yield your time to Mr Hope, Ms Mathyssen.
Mrs Mathyssen: Do you have a good question, Mr Hope?
Mr Hope: Yeah. Laying pipe in the ground is not a problem, but you're talking about transporting water. Are you transporting treated water or untreated water? I'm listening to the amendments you have for the municipality and you talk about a cost-recovery calculation. Right now, most of our water is not full cost. I'm just wondering, I listened to Mr Phillips's comments about the charge to the consumer. Your charges to the consumer are going to be quite high.
Mr Russell: To take your points in order, yes, we'd be transporting treated water. We treat the water as it leaves the lake and before it enters the pipeline. In terms of cost, yes, it would be a full cost recovery, of necessity, in the kind of business arrangement that we're proposing, which is actually identical to the way in which we run the natural gas pipeline and the way in which Consumers' Gas and Centra Gas and so on run their pipelines at the present time.
In terms of the impact on the municipalities and regions, that is the mechanism and cost approach that we've discussed with them and they remain interested in this as an option for them. So the cost hasn't been an inhibiting factor. In terms of individuals, I guess that we once made an estimate that it's similar to the order of cost of having your cable television on a monthly basis, so that gives you some idea of the --
Mr Poch: If I may just follow up, Mr Chairman, one of the enumerated powers in the bill, clause 49(1)(a), states that without limiting the powers or capacities of the agency, its objects include assisting municipalities to provide water and sewage works and services on a cost-recovery basis. We're not talking about a different philosophy than what has already been put forward by your bill.
Mr Hope: According to your page 13 --
The Chair: Thank you, Mr Hope, and thank you very much, gentlemen, for coming before the committee today. We appreciate your presentation and, given the time element, we will attempt to consider the points you made in the clause-by-clause.
As members would know, if you've been looking at your schedule, we do not need to reappear till 2:30 this afternoon. I would ask that members be here promptly at 2:30. I have two motions. One is a subcommittee motion, and I believe Mr Cousens wishes to put forward a motion. I would suggest, rather than do that now, we do that at 3 o'clock. We have a half-hour break in the presentations. We will adjourn till 2:30.
The committee recessed from 1202 to 1433.
JOINT COMMITTEE OF WATER/INDUSTRY ASSOCIATIONS
The Chair: The standing committee will come to order. The committee of course is considering public deputations regarding Bill 17, the capital investment plan. Our first presentation this afternoon will come from the Joint Committee of Water/Industry Associations, George Powell and Sandy Cochran. Good afternoon, gentlemen. The committee has allocated to you one half-hour for your presentation. The committee always appreciates having some of that time so that we can ask you questions and hear your responses. Perhaps you would like to take your seats.
Mr George G. Powell: I would also like to introduce Bob Pickett. Bob Pickett is here as well. He represents one of the associations as well.
The Chair: Thank you very much. You may commence your presentation when you're ready.
Mr Powell: Thank you very much for giving us the opportunity to make a presentation to you today. My name is George Powell and I am spokesperson for the Joint Committee of Water/Industry Associations.
What we comprise is the stakeholders in the water industry. We work in the areas of planning, design, engineering, construction and operation of water and waste water systems. Our committee members include representatives from the American Water Works Association, Ontario section; the Ontario chapter of the American Public Works Association; the Consulting Engineers of Ontario; the Council of Ontario Construction Associations; the International Association of Environmental Testing Laboratories, Canadian chapter; the Municipal Engineers Association; the Ontario Municipal Water Association; the Ontario Sewer and Watermain Contractors Association; the Urban Development Institute; and the Water Environment Association of Ontario.
We represent approximately 15% of Ontario's workforce. In our professional roles, we protect the integrity of Ontario's water and sewage systems by providing efficient and economical design, construction and long-term operation of these systems.
Our committee supports Bill 17 and endorses the Ontario Clean Water Agency for the following reasons:
It is a move towards consolidating the planning and management of clean water. At present the management of clean water is fragmented and therefore unable to cope with the complexities of Ontario's clean water resource.
It provides a realistic and innovative way to provide funding for capital works.
It will provide jobs immediately and add stability to the industry during future economic cycles.
Having said that, however, we have the following concerns about Bill 17 and the Ontario Clean Water Agency:
The Ontario Clean Water Agency lacks authority and autonomy to carry out its role. Bill 17 appears to provide for establishment of another department of the Ministry of Environment and Energy instead of a dynamic organization positioned in every respect to make and implement policy to resolve problems related to a complex and vital provincial asset: clean water.
The Ontario Clean Water Agency does not have a universal mandate to set policy with respect to a central issue, a key issue, that must be resolved before any other objectives can be effectively undertaken; namely, the manner of pricing water sold to consumers by municipalities in Ontario.
The Ontario Clean Water Agency does not have a strong communication link on policy advice between itself and outside professional sources, such as the members of our committee.
We consider these to be fundamental matters that require recognition and change to enable the Ontario Clean Water Agency to reach its full potential. In support of our concerns, we provide the following argument:
There's a common belief in Ontario that fresh water is available in endless supply. This is not true. Over two thirds of Ontario's water flows away from major populated areas and the residue must be shared by not only Ontario's seven million residents, but also 33 million United States residents who live in the Great Lakes watershed. Unfortunately, Ontarians do not recognize the need to conserve clean water. We are the highest per-capita consumers of clean water in the industrial world. We also have the lowest price. If we continue at our current rate, consumption will double by the year 2011.
But clean water may not always be available in these quantities. In our province, as elsewhere, its transportation is dependent upon an aging and deteriorating infrastructure. The replacement costs of Ontario's sewer and watermain underground piping systems is estimated at $35 billion. The allowance recommended for annual maintenance is 1% of the replacement cost; that is, the system would last 100 years. It's a fairly conservative estimate. That means 1% of $35 billion is $350 million. That is the recommendation that should be made and is not being met. The current level of spending on annual maintenance is less than $100 million. Further, 80% of Ontario's 415 provincial and municipal sewage treatment plants are running at capacity, and in 1988 more than a quarter of these failed to meet effluent guidelines.
The story is the same for our water distribution systems.
Because the systems are deteriorating, service capacities and pressures are reduced, resulting in inadequate supplies in high-demand periods, such as droughts and fires, and in some cases as much as 40% of the treated water is lost to leakage. It is impossible to maintain, let alone extend, customer service under these conditions. We must reverse these conditions and make Ontario conservation-conscious.
The Ontario government has recently received a proposed water conservation policy from the Ministry of Natural Resources entitled the Ontario Water Efficiency Strategy. This proposal has the support of the advisory committee to the Ministry of Environment and Energy on the municipal-industrial strategy for abatement -- that's MISA -- and a broad stakeholder group participated in the development of this strategy.
This comprehensive Ministry of Natural Resources proposal to reduce fresh water use includes adoption of full-cost pricing to the water user, phasing out of grants and exclusive dedication of the revenue to the operation and maintenance of sewer and watermain systems; universal metering; fair and equitable pricing of water and sewage services to all customers; reduction of watermain leaks from a high of 40% to not more than 15%; audit of commercial and industrial water usage; improved management of ground water and surface water; and the development of a public awareness program.
In spite of the recognition of the importance of reducing clean water usage, this policy has not yet been adopted or initiated.
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Increasing pollution threatens the availability of clean water. Internationally, Canada, Ontario and the United States long ago recognized that the quality of fresh water available from the Great Lakes was diminishing because of pollution. As a result, the Great Lakes water quality agreement was signed by Canada and the United States. It called for all municipalities within the Great Lakes basin, including those in Ontario, to treat their waste water with the best available technology economically achievable by the end of 1982 and to provide the financial resources necessary to ensure prompt construction of these needed facilities.
Eleven years later, neither the eight American states involved nor the province of Ontario have achieved this pollution control objective, arranged for its financing or come to an agreement on cost. The condition of the water environment in this province, including the Great Lakes, can stand no further procrastination.
Locally, Ontario must recognize the need and initiate the means to implement MISA so as to set limits of toxics that industry and commerce may discharge to municipal sewers and establish the effluent limits that municipalities must meet in discharging treated waste water from their sewage treatment plants; establish combined sewer overflow control regulations; analyse the impact of rural and urban storm runoff to determine a control strategy; and restore the underground portion of municipal water and sewage infrastructure to avoid actual replacement of this $35-billion investment.
Virtually none of these programs in respect of any of the issues has been officially implemented by the Ontario government.
Additional stress is placed on aging infrastructure when economic growth continues through industrial, commercial and residential expansion. Conditions must be attached to such growth to bring environmental considerations into the mainstream of economic decision-making. Action is required to initiate official plans that balance the protection of natural resources with economic needs and development. To date, little has been done to implement such a policy.
All of the preceding issues are important in themselves. The central issue, however, is the manner of pricing of clean water. Today, many municipalities sell clean water to consumers at prices that are less than cost for operations and maintenance and capital. It is our opinion that until the price issue is resolved, none of the other foregoing issues related to clean water can be fully resolved, nor can a comprehensive clean water program be initiated.
The Ontario water industry is aware of this problem. The Water and Wastewater Charges for Ontario: The User Pay Principle, done by Mitchell and Fortin, supported by the Ministry of Environment, stated:
"There is a growing perception in Canada and elsewhere that prices charged for municipal water and waste water services are generally too low. The need to revise rate-setting practices is especially pressing considering that many municipalities are facing substantial cost to finance the renewal of aging infrastructure, to meet the challenges of new growth, and to cope responsibly with emerging water pollution control concerns.
"The mood among many members of the industry is aptly captured by Jack Mannion, executive director of the American Water Works Association, who writes:
"`The issue is no longer whether rates should be increased. The issues are how high, how soon, and with how much political and public howling.'
"Given the deficit and debt problems that senior governments now face, it is unlikely that the anticipated cost burden for infrastructure investment will be met by bail-out grants from this source. Instead, senior governments are promoting the user-pay principle. This is the message from the Inquiry on Federal Water Policy" by Pearse and company. Again, it was supported by the government of Ontario.
The simple solution to this problem is for Ontario to implement a policy requiring municipalities to sell clean water at its true and total cost on a municipality-specific basis.
Again, the Mitchell-Fortin report defines the policy required, and there are certain recommendations it makes:
Municipalities must raise the price of water to reflect its true cost.
Municipalities must charge for water according to volume consumed.
Revenues received must be reserved and spent only for operating and maintaining the water and sewage system.
Senior government must commit or arrange for special funding for catch-up where municipalities are unable to do so.
This simple solution, however, is a very difficult one to implement.
We interpret Bill 17 to mean that the Ontario Clean Water Agency will use innovative means to provide funds for capital projects and will operate on a cost-recovery basis. Until municipalities implement full-cost pricing for operations and maintenance and capital, they will continue to operate sewer and watermain systems at a deficit. Unless this changes, it seems unlikely that municipalities will be able to repay loans, pay for other services from the Ontario Clean Water Agency or indeed use its services at all.
In 1991, chairmen of the Ontario regional municipalities published a position paper on the topic of an Ontario crown corporation for water and sewage services entitled Implications for Regional Municipalities. In it, they placed the capital cost for environmentally friendly water and sewage systems at $16 billion over 10 years to cover implementation of a safe drinking water program, universal metering, MISA municipal priorities, sewer and watermain leakage control and rehabilitation of existing systems. They pointed out that this list of initiatives translates into an additional expenditure of $1 billion per year above what is already being spent and does not account for growth-related spending. The municipal chairmen also addressed the issue of how this capital cost would be paid for. We quote from that position paper:
"Provincial officers estimate that full-cost pricing of sewer and water services in a user-pay system will result in a nominal 8% annual increase in per-household water and sewage expenditure over 30 years. Today's annual expenditures of $250 per household could grow to almost $800 by the year 2005."
It's interesting to note that some jurisdictions in the USA and many in Europe are charging $800 per household for sewer and watermain services.
For the record, the regional chairmen's position paper supported the notion of a separate arm's-length agency associated with the Ministry of Municipal Affairs that would make operational management and administrative decisions to ensure drinking water improvement, reduced waste-water pollution and water and sewage plant rehabilitation. Subsequently, the Association of Municipalities of Ontario endorsed the regional paper.
There is ample documentation of what is required to keep Ontario's water clean, how much the remedy will cost, and how it should be paid for. What has been lacking is a means to implement this solution.
In our opinion, implementation has been seriously hampered by a fragmented management approach to a complex matter. In the past, three major management and policy aspects of the clean water question, ie, water quality, water conservation and water administration, have been split between three ministries: the Ministry of Environment and Energy, the Ministry of Natural Resources and the Ministry of Municipal Affairs, respectively.
Management of pricing of water is even more fragmented, having been left in the hands of each municipality to resolve on its own, in response to its particular political and social needs. We do not believe that Ontarians can be assured of an adequate supply of clean water until responsibility for the management of all aspects of water is consolidated within a single management unit.
We believe that the Ontario Clean Water Agency as a single management unit has the potential to provide the necessary leadership and management skills to coordinate the relationship between pricing, water quality, supply, conservation, pollution management and economic growth and to produce policies that include consideration of all facets of clean water. At the local level, the implementation of Ontario Clean Water Agency policies should be under the direction of a municipal body whose sole responsibility is to plan and manage water and sewage operations.
We make the following recommendations to enable the Ontario Clean Water Agency to achieve its full potential and thereby assure Ontario residents of a reliable and adequate source of clean water:
(1) Vest the Ontario Clean Water Agency with full authority and autonomy to plan and manage all facets of clean water, reporting directly to cabinet or through a minister in a manner which avoids conflict of interest between policy legislation, policy regulation and policy enforcement.
(2) Assign the Ontario Clean Water Agency the immediate responsibility of introducing a policy of water conservation, a uniform accounting system and full-cost pricing as defined herein. In this respect, we have attached draft wording for a proposed amendment to Bill 17, which I would read:
"Proposed wording for an amendment to Bill 17, part IV, Ontario Clean Water Agency, Section 49, Objects, page 18:
"Add paragraph (d).
"(d) Introduction of a policy of full-cost pricing to be applied by all municipalities to be defined as follows:
" -- Pricing for water to reflect its true cost.
" -- Charging for water according to volume consumed.
" -- Reserving received revenues and spending them solely to operate and maintain water and sewerage systems.
" -- Ensuring commitment by senior governments to provide special funding for catch-up where municipalities are unable to do so.
"Adopting a uniform accounting system."
The third recommendation we made is:
(3) Appoint the Joint Committee of Water/Industry Associations as an advisory body to the officers and directors of the Ontario Clean Water Agency on technical and financial matters.
We'd be quite willing to participate in that area.
In closing, we wish to emphasize that we support the Ontario Clean Water Agency, with the provisos previously mentioned. Key to the success of this agency is establishing and monitoring a financially self-sufficient operation. Full-cost pricing is the way to achieve this needed goal and we believe that Ontarians are willing to pay the price for the use and protection of a vital natural resource, clean water.
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Mr Arnott: Thank you for your presentation and thank you for providing us with all the background information. I think you've sent it to all our offices in advance of this committee, so we certainly appreciate all the information you provide from your perspective.
It seems to me that this bill presupposes that full-cost pricing for water will be required over time. You're saying that you want further clarification or further assurance that that's going to be forthcoming.
Mr Powell: The actual bill itself refers to what is known as cost recovery. Cost recovery is not full-cost pricing, and that's the difference. I think it's important to realize that what we mean by full-cost pricing is no different than when you pay your gas bill. If you pay your gas bill or you pay your television or your Bell Telephone bills, those things are on a user-pay basis. Others are not, even the electricity. Because of the grants and so forth that you get, you would argue that they're not fully user-pay. They should be but they're not, and that's a fundamental flaw in this legislation.
Mr Arnott: On average, the increase in the cost of water would be what?
Mr Powell: They're talking 8% a year as what's required. You'd ratchet -- "ratchet" is the word I use -- the price of water up until you got it to that basis, but the program would be established that all municipalities must ultimately reach that goal by such-and-such a date. There's nothing new about that policy. Those policies are in in certain areas of the States and they're also in in Europe. We, as Canadians, simply because we have abundance or appear to have abundance of clean, fresh water, don't seem to realize how important it is to respect that and ensure that it's always the case. So it's the heritage issue. It's a very vital, key natural resource that we've got to protect.
Mr Arnott: You'd start with individual metering on industrial customers, I suppose.
Mr Powell: Yes. The metering of the industrial customers is only part of the issue. You have to also make sure that the industrial customer is paying the appropriate cost and there's no hidden price structure that he's not paying for.
Mr Arnott: Would there be a way around individual metering on every household customer, if you're still hoping for full-cost pricing?
Mr Powell: You can debate that issue, but I honestly think, in order to make people believe it's fair, you'd put it in. You'd put universal metering in regardless. Even though there are people who could argue one way or the other, you'd put the metering in. Then we can argue that when you water your lawn and I water my lawn, we're all paying the same for the same thing.
The Chair: Thank you. Mr Hope, Mr Sutherland and Mr White.
Mr Hope: It was interesting to read, as one who lives down from Chemical Valley, your comments. You talk about the Great Lakes and pollution control. I would love to see the day of zero discharges here, but we all know the repercussions that will be there because there will be extreme job loss.
It was interesting when you were talking about the true cost of water. Currently, when you do an expansion, it goes on the municipal books and it's not on the facility's, especially when you're dealing with regional water distribution. So the municipalities all carry a part of that on their municipal debts, not on their treatment, because it's a regional water supply system. You're saying, to get into true costs, you're never able to get into true costs for the simple fact the debt is allocated from a provincial facility to a municipality, and then it's charged on a per-rate fee to pay for the -- per 1,000.
Mr Powell: No, under true user-pay, you would actually have to assume that debt and pay for that debt, and the user would probably end up carrying that debt. Now, generally, if the municipality has the debt, many of the water utilities are paying for that debt over the period that the debt has occurred. The provincial government has a based-on-cash accounting where your funds come out of the capital account of the consolidated revenue fund, and the day the thing is expensed is the day it disappears. So you don't take any value for the assets you have.
If you put the thing on a true accounting basis, it would make it far more logical and the way that the private sector is forced to work. If you did that, you would see that I would have to pay the price for every drop of water I have. It is not covered in the grant that the province has paid for. Some of our municipalities have 85% funding of their water systems. Ultimately, you've got to get away from that. There should be no free ride on water. There are other areas where, through your own circumstances, we have to have a situation where we look after others, but under water there's no reason for it.
Mr Hope: The one question I have is dealing with the municipality, under the auspices of the municipality. I'm wondering if there couldn't be the heavy-handed approach of larger municipalities over top of smaller municipalities in the control of water and urban growth.
Mr Powell: Those are good points. I think you see some of the regional systems -- certainly the one that Bob Pickett's responsible for, Metro Toronto, is one that's well operated. They are approaching the part where everything is paid for, but you have to go to the large municipality or the regional government. The smaller municipalities just can't do it. My prime example is some of the northern communities. They just physically can't afford the cost of clean water. They have to be assisted. So there has to be some way of bringing those people up to scope and we realize that and we recognize that. That is a separate issue. The thing you want is that the bill itself that I'm paying, even though I'm assisted somehow through a subsidy, reflects the true cost of that.
The Chair: Thank you. Mr White.
Mr Drummond White (Durham Centre): I thought Mr Sutherland had a comment.
Mr Sutherland: No, I passed for Ms Mathyssen to ask a question.
Mr White: I'm interested in this cost-recovery issue. My understanding is that clean water is one of the prime areas by which we have benefited in this century in terms of health. When we're talking about cost recovery, clean water is as essential to the health of our communities, to the growth of our communities, as are hospitals, health care, schooling, and we're talking on a cost-recovery basis, I'm wondering how that would affect those communities.
Mr Powell: There are many areas of the world where these systems have been put in and they work. One prime example is in the United Kingdom, where they took 10 large watersheds and they actually privatized them. But they are on a full-cost-recovery basis and they have the same problem with respect to, "But you must provide clean water and it must be pure and bacteria-free." That I understand.
The cost-recovery area is that if you continue to do that, you're going to have an infrastructure that you're eventually going to have to replace that's worth billions of dollars and you're not putting money aside for that. It's similar to having your house and deciding: "Well, I'm not painting it. I'm going to wait till the wood rots." When we wait till the wood rots, it's a lot more expensive to paint the house. It's that simple.
Mr White: When you talk about cost recovery, are you talking about a cost for the water or a cost for the infrastructure?
Mr Powell: No, the cost for the water, there are people who have put that forward, but again, I have to be careful with the words "cost recovery." Please let's use a different word. Cost recovery to you might mean, "I make all my costs and any of the grants that come in, who cares about them, or any of the municipal financing that comes in, who cares about that?" I can't operate a system unless I know the overall cost of it. I have to know that, because some day those things may not be there. I think it's very important to bring the thing into full view so the public understands where their dollars are going. In terms of water, I submit that the people are willing to pay for it. They certainly are in other parts of the world.
Mrs Mathyssen: Thank you for this presentation. It's been very helpful and informative. I was a little concerned earlier, when you were talking about phasing out of grants, that you hadn't considered smaller and rural municipalities. But you've addressed that and I appreciate your perspective there.
One thing I wanted to ask, you talked about the autonomy of the clean water agency and the need for it to be able to set policy. There have been some concerns expressed here about that agency being responsible to the Legislature and responsible to the people and the need to make sure that it reports. Any fears in terms of it perhaps falling too far outside of that legislative control or purview?
Mr Powell: That's a governance issue and I respect its problem. I think that we're technical people and we don't truly get into it. As a citizen, I would suggest that the governance of the thing -- you have to have controls on it and you have to set them up as you have controls on business and a number of things that restrict the way that we do things. We're very concerned the way the governance is now. It's in three areas. You literally have people who are legislating, regulating and enforcing all in one group. To me, that's a conflict of interest and the Ministry of Environment and Energy knew that. Yet the thing goes ahead like it is, and to me that's wrong and to our organization it was wrong. So we brought that forward. This is what we're trying to do: make the legislation better. We're the ones who work on the darn thing and we want to make it better.
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Mr Grandmaître: I agree with you that it should be consolidated within a single management unit, because at the present time more than three or four ministries are involved, especially in controlling our clean water supply.
I know you don't like the words "cost recovery." Then let's use "full-cost recovery." How would our business sector or our major businesses be affected by full-cost recovery? You will recall when Hydro was proposing a major increase in its rates that Ford, Chrysler and GM were all opposed to it because they were saying it would add $300 to $400 per car. What are your thoughts on our major industries?
Mr Powell: There's going to be some initial howling from people who are impacted until they realize how to solve the problem: pollution prevention. One of the things is to use less water and find more creative ways of doing it; there are more and more industries working that way now. You don't want to put things back in your waste water. Literally, that's product loss. So if you lose things that theoretically you can recover, you're better off to do that.
The mindset is moving that way. I'm not saying it's there now, but it certainly is moving that way. We see even the pulp and paper industry, which has been one of the industries that's been a very high water user, now going to almost closed systems. This is what you were referring to, sir, the zero pollution. It isn't zero. It'll never be zero -- zero is not zero -- but it will be reduced, and we'll go a long way if we do that.
If the MISA program went ahead, the municipal-industrial strategy for abatement, if those programs are worked out properly and industry is given a time to respond, I think you can do it. In fact, there are many places in the world where they are doing it.
But you have to recall that we use more water than any other industrial country in the world. Our rates are far lower than they are in Germany. We're lower than Norway. Norway used to always be the first, but now it's second and we're first; we have the lowest costs on water.
We see it. It's obvious to us. We have tons of it. We go out on the Great Lakes and we see it there, but that is not there for ever. We have done damage to the Great Lakes and you're all aware of that, so we have to work towards solving that problem. We can do it, and industry has to be brought into the equation. It is expensive, no question about it, but if you look at the motor companies, the Fords, the Chryslers, the systems they're putting in now are far less a problem environmentally than they were 20 years ago. The paint systems they have and a number of things are far better. They're using far less water. All the industries are doing that.
Mr Phillips: What you're proposing here is frankly fairly substantively different from what's in the bill in that the bill was designed, in my opinion, to find sources of funding to fund capital as opposed to fundamentally changing the way we deal with water in the province.
This is rather an omnibus bill. It sets up four new agencies. It's huge. But you're talking about a very imaginative, new way of looking at providing water.
The challenge I think is going to be that we'll be dealing with clause-by-clause on Thursday and the thing is essentially a done deal, but I gather from your comments that if the choice is to go ahead with Bill 17 or not, you would say go ahead with Bill 17 as it is.
Mr Powell: Yes. We've tried to give you a recommendation with respect to a wording which tries to get in that mindset that we have to come forward with the full-cost pricing.
Mr Phillips: May I ask a technical question?
The Chair: You certainly may.
Mr Phillips: The $800 number that you have in here; you use the word "nominal." You're saying that somehow or other your judgement is that we have to find a way to get the average household expenditure on water up to, in today's dollars, $800?
Mr Powell: I think that's what it is, yes, in that ballpark. You have to appreciate that when you read that number, that is what we call a system where we'd have environmentally very sound systems. We'd have MISA in, we'd have all the meters in, we'd have combined sewer overflow control, we would have looked at storm pollution and agricultural runoff. We'd have a number of those things in, and that's the ultimate goal. Then when we've done that -- we'll never stop, but when we finally reach that, I think we've really accomplished something.
There are places in Europe, for example -- when a drop of rain falls on your roof you pay for that. I think it's $1 per square metre, and they're putting that money into the treatment of that storm water.
Mr Phillips: They must pray for sunny weather.
The Chair: Mr Daigeler, briefly.
Mr Hans Daigeler (Nepean): I know that in the Ottawa area, the region certainly and in my city of Nepean we have adopted the user-pay at least to a fair degree for quite some time. Even the city of Ottawa finally, before the last election, decided to move towards that; in fact, it's financing a fair amount of its sewer reconstruction through that water charge.
Have you taken into account that major municipalities such as Ottawa have already moved considerably towards where you want to go? That's my question. If other municipalities haven't moved in that way, where does that leave us?
Mr Powell: I appreciate it. Ottawa has combined sewer systems. Ottawa has not really begun -- they've studied it, probably more so than any municipality around, to try to find better ways of treating that particular problem. The water systems are essentially being brought up so that the operating costs and a number of the capital improvements are certainly being covered.
But I would suggest to you that that is not the bottom line, that is not what we mean by full-cost recovery. That asset you have in the ground is not going to last for ever, so there has to be a reserve fund established and a reserve fund that we -- when I say "we," our industry -- can draw on to fix things that are cracked, to fix the things that are broken, and to replace those things when their life is over, when their life cycle is through, not to allow the damn things to break so we'd have to shut down traffic, so we have to go through a whole slew of things and it's twice as expensive to do it.
If we had a really solid program for renewal of that infrastructure and had funds set aside for it, we could go at that problem, we could solve that. It's an ongoing thing. It's no different from how you and I do our financing at home: We paint our houses every five years, or whatever it is. That's the mindset we have to get into. Those are the things we have to do.
There are many municipalities in Ontario that have gone a lot further than a lot of others in terms of some of the little communities in Guelph and areas that are on sensitive water streams. They've had secondary treatment in since the year 1929. North Toronto sewage plant has been in since that time. Those people have been doing it. We have communities that are still on primary treatment.
So the inequity in the thing -- you can argue that some people have not had to do it; they've waited until people have come and helped them. We've got to get over that. I may be hard-nosed, but I believe it should be a hard-nosed business decision. Get the water on it, no different from my cable TV, no different from my gas bill. That's the way you have it, and I'll pay that bill. I know where it is, I know what I'm getting for it and if I don't like it I can go and argue with the water company or whatever it is, and I do that. That's how I'd do it.
The Chair: Thank you. The time, unfortunately, is at an end. We appreciate your presentation. The committee will be considering this bill in clause-by-clause, as you know, later in the week. Thank you very much.
Mr Powell: Thank you very much, sir.
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The Chair: If I might just take one moment to pause from the public hearings and discuss the subcommittee report. I believe all members have the subcommittee report in front of them. Would someone care to move the subcommittee report? Mr Daigeler, I think, was first. Is there any discussion on the subcommittee report?
Mr Mammoliti: I don't seem to have a copy, Mr Chair.
The Chair: We'll find you one.
Mr Arnott: Just for clarification on point 2, that if groups from outlying areas within the province request to make presentations the committee should pay for travel costs in accordance with the Legislative Assembly guidelines, I gather that means mileage if it's within reasonable driving distance for one day, air fare if it's not within reasonable driving distance, and one meal?
The Chair: I'll ask the clerk to clarify.
Clerk of the Committee (Mr Franco Carrozza): That's correct.
Mr Arnott: And that's the end of it?
Interjection: Hotel if necessary.
Mr Arnott: Hotel is included?
Clerk of the Committee: Only if they stay overnight. It depends on how far. If they are from Thunder Bay, perhaps --
Mr Arnott: If they can't get reasonable connections.
Clerk of the Committee: That's correct.
The Chair: It's fairly standard practice.
Mr Hope: As it's fairly standard practice and as we're not travelling outside of Queen's Park, and I understand why, I'm wondering if all consideration is given for those individuals who live in rural Ontario, the opportunity to make presentations before this committee. I notice that the committee presentations over this bill are mostly from larger centres and very few from rural Ontario. I'm just wondering if, through the process, as we're not travelling outside Queen's Park, those outlying rural communities have an opportunity to be before this committee.
The Chair: I don't have the advertisement before me, but we advertised through the entire province and indicated regional centres where the committee was willing to meet. We did not get from any one centre, Kingston, for example, London, Windsor, a sufficient number of requests to appear before the committee to make it reasonable and cost-effective for the committee to actually travel. I think we could say in all fairness that the people in rural Ontario should have had the ability to know that the committee was willing to hear them and was willing to come to a centre close by.
Mr Hope: I understand that, and I'm not arguing with not going to the rural communities. All I'm saying is that because the hearings are here, that opportunity be given to those rural communities to make presentations here in Toronto. You're absolutely right. I'm just saying that when you're going through your normal standard of who is making presentations, some opportunity must be given to rural communities to be here.
The Chair: I think any group from any rural community that was going to come would have its expenses paid. That's what the resolution says. It was advertised through all of the province, so they would have had the opportunity to indicate that.
Mr Hope: I'm not arguing that point with you.
Mr Mammoliti: I just wanted to reiterate the point that it was advertised and that the original subcommittee report did come to the committee and we approved it with the proposed advertisements.
Mr Grandmaître: And also AMO. I think it represents 75% of all the municipalities.
Mr Hope: AMO represents those individuals who are --
The Chair: One at a time.
Mr Mammoliti: We apparently got some responses from Kingston and Ottawa.
Mr Grandmaître: And London.
Failure of sound system.
The Chair: We're back on the air waves. Shall Mr Arnott's motion carry? Carried.
The clerk would be much happier if we could record the carrying of the subcommittee report.
Shall the subcommittee report carry? Carried.
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COUNCIL OF ONTARIO CONSTRUCTION ASSOCIATIONS
The Chair: All right, I see that the next presenter is here, so we would be happy to call the Council of Ontario Construction Associations.
Good afternoon, gentlemen. The committee has allocated one half-hour for your presentation. We always appreciate the opportunity to ask a few questions about your presentation, so we would hope you would reserve a few moments for that. You may begin by introducing yourselves for the purposes of our Hansard.
Mr Frank Bisson: I'm Frank Bisson. I'm chairman of the Council of Ontario Construction Associations' economic development and taxation committee.
Mr David Frame: I'm David Frame, executive vice-president of the council.
Mr Frank Bisson: I can make my presentation now?
The Chair: Yes.
Mr Frank Bisson: My name is Frank Bisson. I'm chairman of the Council of Ontario Construction Associations' taxation and economic development committee. I hope you'll bear with me here. This speech is long enough that I couldn't commit it to memory. I would much prefer giving it the proper way, but in any case, on behalf of the council, otherwise known as COCA, and the members of my committee, I would like to thank you for having agreed to meet with us this afternoon to hear the things which we have to say on Bill 17. Some of you are already familiar with COCA. However, for the benefit of those who are not, I would like to begin by telling you a bit about ourselves.
The Council of Ontario Construction Associations speaks for the construction industry in Ontario. We are a provincial council representing employers in industrial, commercial, institutional, engineering and residential construction for Ontario's construction trade associations, associations such as the Electrical Contractors' Association of Toronto and the Ontario Formwork Association etc. We're also representative of Ontario's local mixed trade associations, and here I refer to the likes of the Hamilton Construction Association and the Ottawa Construction Association. Membership also includes such prime contractor-builder associations as the Ontario General Contractors Association, so we're quite wide in our scope. In total, the Council of Ontario Construction Associations represents 49 different construction associations and the second-largest industry in Ontario. In 1989, Ontario's construction industry employed approximately 420,000 people and was almost four times the size of Ontario's auto industry.
I am here today to tell you that things have changed dramatically for Ontario's construction industry since 1989. Construction is more seriously affected than at any time since the Depression of the Dirty Thirties. Despite the fact that we've lost over 70,000 jobs since 1991, our own government is telling us that things are expected to get even worse.
The government of Ontario's non-residential construction activity forecasts, as included in its 1992 and 1993 budgets, say that construction activity in Ontario will decline by over 20% in 1993 and 1994, when everybody else is so-called coming out of the recession. This follows a drop of over 40% during the 1990-through-92 period and means that by 1995, Ontario's construction industry will be 60% smaller than it was in 1989. That's right; the Minister of Finance for Ontario is predicting that by 1995, Ontario's construction industry will employ 60% fewer men and women than it did in 1989. That's one heck of a body blow for Ontario's second-largest industry to have to take.
We've all heard many horrendous numbers since the onslaught of this recession, but before I get into the specifics of Bill 17, I want to give you one more number to remember. This is a number which, for me, very dramatically underlines the gravity of our situation and underscores the importance of what I will be saying.
In the spring of this year, the General Motors Scarborough van plant was closed, putting 2,500 people out of work. The newspapers and TV were full of stories and pictures, and so they should have been. The closing of this large plant was putting hundreds of Ontario workers on the street at a time in their lives when it was difficult for them to retrain, and the closing of this plant was turning the lives of hundreds of others inside out at a time when they expected to build for the future.
The number that I want to leave with you this afternoon is this one: The number of jobs lost in the Ontario non-residential construction industry in the last two and a half years, and that's not a very long time, is equal to the number of jobs which would be lost if we shut down 28 General Motors Scarborough van plants; 28 of them. It boggles the mind. Ontario doesn't even have 28 large automotive plants, but if we did, the impact of shutting them all down would be equivalent to what our industry has experienced during the last two and a half years. As I said earlier, Mr Laughren tells us that things are going to get worse before they get better. It is therefore with all the seriousness that we can muster that we come here today to ask that you pass Bill 17, and to ask that you pass it quickly.
With that background, let me say that it did not take a Philadelphia lawyer to see, back in 1991, that the recession was going to be with us for a while and that the government, faced with ever-increasing welfare and escalating deficits, was not going to be able to meet its ambitious $4.3-billion capital budget target. The Council of Ontario Construction Associations therefore began to write to ministers and to meet with treasury officials as well as officials within Health, Education, Government Services, Colleges and Universities, Environment and Management Board to ask that they consider using private sector money to finance capital projects which they knew were needed but for which they had no money.
There were times when we did not know whether we would be shown a chair or the door. However, as the number of contractors declaring bankruptcy climbed month after month, we persisted and were rewarded with a promise in the Treasurer's April 30, 1992, budget that he would look at private sector financing for government capital projects. We wrote more letters and attended more meetings, and while we're not attempting to take all the credit for this bill, it does include many of the things that we asked for. I would like to begin by highlighting some of these things.
Interjection.
Mr Frank Bisson: Sorry, am I too far away? I like to get comfortable. This is long.
Okay, number one, and I've numbered them in my copy here so that you know the breakoff points:
(1) Ontario parents for many years have been asking that portable classrooms be replaced because they contain no washroom facilities and are cold in the winter and very hot in the summer. They've also been asking for new schools so that their children do not have to spend hours on school buses. They've been saying that they do not want their school taxes increased.
This desire obviously puts school boards in a tight bind: "Give us new buildings, but don't ask us to pay more." We said: "Fine. Let the private sector build the school or lend you the money, and then amortize the costs over the generations that will use it. You get better facilities and we get jobs." We're therefore pleased to see that the Ontario Financing Authority will have the authority to raise money on behalf of Ontario school boards.
(2) We said the same things about hospitals. We said, "Let the private sector fund that new extension or this new heating plant," and as we read the act, this will now be possible. Given that our population is continuing to age, we were surprised that within the Homes for the Aged and Rest Homes Act, long-term care facilities are not covered by this act. We realize, however, that there is provision for the cabinet to bring these facilities within the financing authority's jurisdiction at a later date.
(3) We've also had many discussions with the ministry and with Ontario's colleges and universities. They need new residences, classrooms, wheelchair accesses and new laboratories. They have been caught between a rock and a hard place in that the ministry was cutting or freezing their grants. Also, alumni donations were flat and students could not find summer jobs to pay for higher tuition. They welcomed our ideas, though they could not go further. Now they can, and we're glad of this.
(4) Ontario's municipalities have always had the right to issue debentures, subject to the approval of the Ontario Municipal Board, though many smaller municipalities were hesitant to go this route even though valid requirements existed. We see that as a result of this act, smaller municipalities will now have easier access to capital markets.
The Ontario Municipal Act also placed severe restrictions upon a municipality's ability to enter into, for example, a lease-purchase arrangement with the private sector for a new fire hall or a new library. While not part of the purview of the Ontario Financing Authority or this act, we are pleased to see that the government is moving to amend the Municipal Act in a way which will permit municipalities, large and small, to use private sector financing mechanisms.
(5) I would now like to turn very briefly to the Ontario Clean Water Agency. COCA is a member of the Joint Committee of Water/Industry Associations, which met with you at 2:30 today. As the joint committee speaks for us on this subject, I will simply go on record as saying that we strongly support the recommendations which it makes.
Ontario needs to consolidate the planning and the management of its urban clean water systems, and the Ontario Clean Water Agency needs the teeth to do this. This is an initiative which has the potential to create thousands of new construction jobs at a time when they are desperately needed and also to enhance the quality of our lives. We ask that you listen to them carefully.
(6) The Ontario Realty Corp has the potential to make government accommodation and land use much more cost-effective. Many Ontario public servants are located in buildings which are inappropriate to their needs simply because the government owns the building. Many government buildings are also located on prime real estate and could achieve a much higher return for the taxpayer by being sold or given other uses.
Up until the present, the government has had very few options at its disposal. As of April 1, 1994, this act will permit the Ontario Realty Corp to do more than just hold or sell land. It will be able to buy, hold, joint-partner or sell both land and buildings. This approach is similar to that followed by the British Columbia Buildings Corp for the past 10 years and is something which we have wanted for a long time. We've been working hard at seeing this happens.
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In particular, we believe that the joint-partner option will permit the government to create more jobs through the construction of facilities such as new courthouses and has the potential to trigger additional construction by, for example, using a government building to anchor the revitalization of a downtown core.
We remain concerned that, despite the fact that the realty corporation will have its own board of directors, much of the final decision-making will remain with Management Board officials and their minister. This has the potential to stifle the flexibility and the imagination which will be crucial to a private sector buy-in and could turn this corporation into little more than another level of bureaucracy. I'd like to say that perhaps this is something I can explain further in a question period, so that you have ideas why we've got these thoughts.
(7) The Ontario Transportation Capital Corp has the potential, by advancing the construction dates of such projects as the expansion of Highway 407, to generate thousands of jobs, the impact of which will be felt across the Ontario economy. We support the government's Let's Move program and its call, for example, for a $7.1-billion expansion of Metro Toronto's rapid transit system. Our key concern with the transportation corporation, like that for realty, is that it be given sound business direction and the freedom to do its job.
With these comments in mind, let's go on to say that Ontario's private sector has the talent and the ability to use the transportation corporation and the other corporate vehicles in this bill to jump-start Ontario's construction industry. It can use these vehicles to create jobs which will take construction workers off unemployment insurance and welfare and place them in the ranks of those who are paying taxes, which we all want. That's what you want and that's what we want. To do this, these corporations need to be up and running.
We are at the peak of Ontario's construction season. The 1993 budget says that these corporations are going to account for $800 million of the year's $3.9-billion capital budget. We know that this is to be achieved by first flowing the $800 million as grants and by then, once this legislation is passed, converting these grants to loans which will be carried on the books of the Ontario Financing Authority.
Some have called this a "smoke and mirrors" exercise, and well it may be. At this point, we don't really care. What we care about is that talent, time and money be brought together in the most effective way possible and that the major product from this exercise be jobs -- Ontario construction jobs.
Mr Chairman and members of this committee, we appreciate your having seen us today, but we want to tell you that we want once again to tell the government that there remains a need for government and industry to work more closely together on these initiatives if they are to achieve their full potential. We are ready to do this and we are waiting for the government's response. COCA represents a vast array of experience, initiative and ability. We can work with government at every step. All we need is to be asked.
We look forward to your questions. Thank you.
Mr Mammoliti: Welcome to the committee today, sirs. I'd just like to touch on the second-last paragraph of your submission for a second. It says: "Some have called this a `smoke and mirrors' exercise, and well it may be. At this point we don't really care." I'm going to disagree in terms of what some people have said about smoke and mirrors, because I don't believe it is. But even if it were, do you believe that the average construction worker and average person out in Ontario feels the same way that you do at this point and really wants to get back to work?
Mr Frank Bisson: I don't think so. I think they all want to get back to work. I don't think they believe that. I think the "smoke and mirrors" comments may have come from some rather technical people who were looking at the way the books --
Mr Mammoliti: No, I'm not asking whether they agree with the "smoke and mirrors" suggestion. I'm asking whether they agree with you in terms of your saying that you really don't care, that people should get back to work and that's the priority. That's what I'm getting out of this, that right now the priority is getting people back to work. Do you believe that the majority out there feel the same way you do?
Mr Frank Bisson: I believe that, for sure. No question about it. There are people just dying out there and they are desperate to get work.
The problem that we run into too is that Ontario is going to need a huge infrastructure program over, let's say, the next 10 years, and with 60% of the industry being unemployed at this point, those skilled workers -- we have lots of numbers on this -- are going to go to other jobs. Now, it's not very easy right now, but those skilled trades are quite skilled and can adapt themselves to working in other industries. So when the time comes, there are not going to be the skilled people who are required to do the infrastructure development that needs to be done.
Mr Mammoliti: Again, I want to make this clear; I want it on the record. In your opinion, most Ontarians at this point want to get back to work and don't really necessarily care at this point about smoke and mirrors.
Mr Frank Bisson: That's right.
Mr Mammoliti: Okay.
Mr Frank Bisson: That's my opinion.
Mr Grandmaître: Honestly, George, you're on a broken record.
Mr Mammoliti: It's incredible.
Interjections.
Mr Frank Bisson: I'm only talking the construction industry, that's right.
The Chair: Thank you, Mr Mammoliti. Mr Phillips?
Mr Phillips: I appreciate the presentation, and I think I saw the building permits numbers this morning off the daily that show you're in even worse shape than you probably thought yesterday.
Mr Frank Bisson: I could give you another number that's perhaps even more relevant, because the start of a job is related to the labourers and carpenters who do the structure itself, so that's the start of a job, and the hours for those people are down now 75% of what they were in 1989. So there's 25% of those hours left at this point in time. It's an absolute disaster.
Mr Phillips: It is, and as I say, the numbers for Ontario today were disastrous. I'm sure Mr Surplis has seen the numbers, but for the month of -- I guess the building permit numbers came out this morning. So I appreciate the desperate straits the construction industry is in.
Just in terms of the funding issue, because what we're talking about here is how we fund it, in the past we've funded it heavily from a capital budget.
Mr Frank Bisson: Yes.
Mr Phillips: I think your proposal here is that we fund it through new sources, we look to at least buyback arrangements, we look to borrowing the money from the private sector.
The challenge for all of us I think is just that we often hear from the private sector about the need to manage the debt, and to me, for example, on the school construction the province plans to add I think about $600 million of new debt each year off its books. It's going to be somewhere else but off its books. I think some of the proposals here are to have the private sector build something and then the province pay the private sector over a period of time through lease costs. Those are creative solutions to finding funding, but in the final analysis they still end up being debt to be paid off; they're just being paid off in a different way.
Mr Frank Bisson: That's right, yes.
Mr Phillips: So I think the concern of some who look down the road at the debt is that they say, "Regardless of how we are planning to pay this off, it's still debt."
Has your group looked at how much new debt you would think we should be adding in these creative ways in the next five years or so to meet the needs?
Mr Frank Bisson: That one I can't answer. I think, though, that whether you call it debt or not, it is over a much longer period in a much smaller amount on an annualized basis, and we think that in terms of affordability, infrastructure has to be addressed. I think we're all aware of that. I've heard numbers like $3 trillion worth of infrastructure is going to be needed in North America -- $3 trillion worth of infrastructure -- because it hasn't been attended to for so long. It has to be addressed somehow.
We don't at all agree with increasing the current deficit by the government using the taxpayers' money immediately. We think there is a real advantage to whatever is required being carried by those generations that are going to use it, which is what we're proposing. If it's over a 40-year lease period, the generation that uses it will pay for it.
We've already got the problem over here with the debt. Let's leave it there.
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Mr Phillips: The government's providing us with the numbers on the school and hospital capital proposal which plans to spend $600 million a year on it through what's called loan-based. The problem is that in five years, there's $3 billion owing. In 10 years, there's I think $5.5 billion and in 20 years, I think there's $12 billion owing. We never see that decreasing. We just see it growing and growing and growing for some future generation to try and pay off. That's why there are some questions around loan-based financing. Have you looked at those numbers and do you share any of those concerns?
Mr Frame: I haven't seen those particular numbers. I think to be fair, though, you've got to recognize there's a difference between capital debt and other types of debt too. When you buy a house, not many people pay cash on the barrel head for their house. They tend to finance it so the way you pay for that house reflects the use you're getting over a long period of time. When the government builds a new school, why should the government pay for that new school in one year when it's going to get the use of that school over 30 or 40 years? That's what we're asking for, that the cost to the government reflect the use of that facility.
Mr Phillips: That is the debate, that every year we spend about $4 billion on capital in the province. What this proposal calls for is allocating one twentieth of that as a cost each year. The problem is that we then will show for about five years very little money being spent when we probably should be allocating, I would think, $4 billion a year as an expenditure. If this were the private sector you'd be depreciating your assets at $4 billion and showing that. It's just a different way, and I think there's a debate that could be lodged on both sides of that issue.
Mr Frank Bisson: Just off the top here, I think you could also be very creative about the way you do this too. You might use these mechanisms in a downtime like this and then go back to the normal ways in a better economy and be able to go back and forth, perhaps move the cycles. You jump-start the economy with construction too. It's subject to the multiplier. There are lots of positive advantages to it.
I think too those people who look at deficits, whether they be on Wall Street or wherever, are going to look much more kindly on the kind of proposal we're suggesting currently than on financing infrastructure with more current government debt. I think there are a number of arguments there that are very useful.
The Chair: Mr Daigeler has a quick question.
Mr Daigeler: My party has been calling for more emphasis on job creation for many months. We're obviously interested, as you are, in job creation but, frankly, I really feel that if you're placing all your hopes in these capital corporations, I think you're going to be sorely disappointed. That's what I'm really worried about.
You seem to feel this really is going to help you out, and I haven't heard anything during these hearings where the government said that there's going to be more money in construction, with the possible exception of the 407, because there may be private sector interests there because the tolls are going to bring in some money. At every step, really, we're talking about the moneys that have already been allocated simply being financed in another way, so if you are hoping that there's going to be more schools built and more universities through this measure, I think you're going to be very sorely disappointed. I give you, as a concrete example that this government isn't really willing to go to the kind of private sector arrangement that you are planning, an example in my own area. My school board, the Carleton public school board, had two years ago gone to the minister with an arrangement to have the private sector build a school and then lease it back to the government. The government turned it down because it did not want, on a philosophical basis, to have the private sector profit from that.
Those opportunities for private sector involvement have been there, frankly, for quite some time and we don't necessarily need these corporations to do what you're proposing.
I think you should continue to press for an additional capital program. If these bills will help in that way, fine, and I think we're all in favour, but I certainly don't share your optimism that these corporations are going to be the answer to your problem.
Mr Sutherland: You're too cynical, Hans.
Mr Daigeler: I base it on experience.
The Chair: Was there a question there?
Mr Frank Bisson: I think, without going into very much detail, in defence of the government, a lot of the mindset comes through from the bureaucracy against using the type of proposals we're talking about, and that's changing. I think we have been making some points with the government that it has accepted. Who knows where that might be six months from now?
Mr Arnott: I'm delighted that you were able to be here today to give us your views. Your brief is excellent. It's blunt, it's direct and I think it has captured everyone's attention with the facts that you presented. We recognize that construction is a cyclical industry and we do run through good years and we run through bad. We have to be able to weather the bad to continue on and be prepared for the good in the future, hopefully.
I suppose I share Mr Daigeler's concern that while we recognize this bill may in and of itself be a positive step, we're three years into the government's mandate and construction companies and the construction industry have been hurt by taxes, excessive regulations, new labour laws and so on. The point that we're at today, everything is not going to be solved by this bill. That's my observation. I don't think I have any questions for you. I think your brief spoke very well.
The Chair: Mr Hope?
Mr Hope: I'll let Kimble go ahead. After the political statements across, I'll forget about it.
Mr Sutherland: Maybe if I could just comment a bit, too, I think there's some implication here that somehow all we're doing is changing how we're financing some of the capital projects. That's a large component of it, but you also have to look at what some of the side benefits are going to be, and we've certainly heard that regarding Highway 407 and getting that through quicker.
First of all, in terms of how normal capital is done, each year's allocation has to be approved; it has to go through the budget process. There's no long-term planning; there's no guarantee that each year you're going to get some type of allocation for continuing on with the 407. With the type of arrangement you're looking at through the capital corporation, people know there's going to be so much money there each year to build and construct part of the 407.
In terms of private sector people who may be looking at development, communities looking at development along or near the 407, those folks can start planning, and start planning with some certainty in terms of a multi-year approach in terms of what is going to occur. Those are the types of economic benefits that are going to come about, let alone increasing the number of construction jobs much quicker by completing the project far quicker. That's just one example.
I think if you look at some of the other capital corporations, and by doing this new financial arrangement, that will also allow more moneys to be freed up and also some more stability in terms of multi-year capital being spent, which is not as -- you don't have the same degree of flexibility with the current system.
Mr Frank Bisson: Make I make a comment?
The Chair: That's why you're here.
Mr Frank Bisson: I don't want to run out of time. We want to see the $800 million that the capital corporations are supposed to spend this year be spent. But, in addition, we've been talking, to the extent that we can, with various people about the possibility of bringing on line -- whether it be courthouses or whatever -- buildings that would not otherwise be built using private sector techniques.
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Just by way of background, the seven relocations -- there are no longer seven -- came out and before they came out there was a lot of consultation with the private sector about how to do it, and the Terminal 3 model was recommended. When they did come out, MGS got involved and completely changed it such that it was no longer what we in the industry call design-build, which allows for private sector creativity, and I'll explain why you want private sector creativity in a second.
They became essentially fixed-price jobs that didn't allow for the type of good pricing that you might otherwise get. We have been talking to various people, and I won't say who they are, but that mentality has been changed, I think, in the government. What we've found, and this is just very brief, if you look at the analysis that the Business Roundtable in the United States did, over 15 years -- the Business Roundtable is a group of owners -- not developers; owners -- like Du Pont and GM and so on, the biggest owners in the world. They had a 15-year cost study done by the University of Texas at Austin. What they found, in terms of potential savings in building a building, if you put a graph with potential savings up here and time over here -- a building is planning, design, construction and then commissioning out here, where the building's available -- the curve goes like this. It's very simple. All the money is saved up front in the design and planning phase.
So if an owner designs a building and he puts it in stone and doesn't allow for the creative options that can be created by, say, the development industry and the contracting industry, by looking at that in that early 10%, 15% stage, almost all the potential savings are gone. We have been able to, I think, convince government that buildings should be coming out and using this type of process where you're getting a cheaper job, a better job, and you're going to have buildings that wouldn't have been built in the first place.
Mr Sutherland: I believe it's still being done in St Catharines, a design-build model.
Mr Frank Bisson: Yes, that one came out wrong at the start.
The Chair: Thank you, gentlemen, for appearing before us today. The committee will be taking this bill through clause-by-clause later in the week. Thank you for appearing.
ONTARIO URBAN TRANSIT ASSOCIATION
The Chair: The next presentation will come from the Ontario Urban Transit Association.
Mr Al Cormier: Mr Chairman, members of the committee, my name is Al Cormier. I'm the executive director and Dave Roberts is the assistant executive director of the association.
The Chair: Just for your information, the committee has allocated one half-hour for your presentation.
Mr Cormier: I'd like to briefly walk you through the remarks, which I believe you have a copy of already.
The Chair: Yes, we do. Thank you.
Mr Cormier: Our association represents the urban transit systems in the province. The members are primarily the municipalities and the agencies thereof, such as Toronto Transit Commission and GO Transit, that operate transit systems. We represent 58 transit systems and collectively they operate about 95% of the mileage and the ridership of transits in Ontario.
OUTA is affiliated with the Canadian Urban Transit Association and there the memberships are expanded to include the manufacturers and suppliers of products and services used in urban transit. Of course, our mission is to assist the members, but also to represent their interests, particularly with regard to the affairs of your government. We're governed by a board of directors elected by the members.
We have several comments to make with respect to the bill. First of all, we broadly support the general intent of the bill and would urge its passage through the Legislature. Naturally, our comments are particularly oriented to part III, which relates to the Ontario Transportation Capital Corp. We welcome the legislation's plan to allow the development industry along the rapid transit lines to contribute to the cost of these services. We've known for a long time that land along these corridors appreciates significantly in value with transit services and it's fitting that they should be given the opportunity to benefit and contribute to these services.
Ontario has gained an excellent reputation internationally for the efficient management of its transportation system. In particular, we're pleased that the funding program under the Public Transportation and Highway Improvement Act is recognized in many, many jurisdictions as one which provides a high level of incentive to municipalities and leaves accountability where it belongs: at the local level. As a result, transit services in Ontario have a better-than-average financial performance.
For years we've realized that the costs of planning, designing, constructing and maintaining highways are certainly not being sustained and fully recovered by the fuel taxes and other related revenues that come from transportation. Some studies done at the federal and other levels, and at the academic level, have shown that the deficit in the road operation can be as high as 40%. We're pleased that the government, by proposing this legislation, certainly allows, then, the users to contribute more and to control some of that deficit, particularly to welcome capital under the corporation's plan.
Fundamentally, as a transit association we naturally oppose the construction of more highways or freeways, as we certainly know from experience that they attract more vehicular traffic and then consequently generate more noxious emissions in the atmosphere. While we recognize the significant achievements of vehicle manufacturers in recent years to reduce the emissions per vehicle, this is generally more than offset by the increasing number of vehicles travelling longer distances.
Therefore, we feel that any legislation which would promote more highway construction could be seen as being in contradiction with the accepted objectives of controlling harmful emissions, curbing urban sprawl and improving the quality of life. Any actions which would encourage additional travel by single-occupant automobiles, especially in the GTA, surely cannot be condoned in the longer-term environmental concern facing Ontario and the world community.
Ideally, we would prefer to see the corporation focus its attention on the construction of public transportation facilities, leaving the present and extensive highway network for more essential trips, such as the movement of goods and services.
Some specific comments with the legislation: OUTA has, certainly, the following comments to make.
Although part III of the bill requires environmental assessment, as is normally done for a highway, we would encourage the committee to add a clause or amend the clause to require the corporation to ensure that the projects under consideration do not contribute to the general deterioration of the environment and are not contrary to the environmental goals of the province and Canada. In our view, that would require a broader assessment of what is normally done for highway environmental assessment of the impacts of the projects in question.
The corporation's ability, of course, to raise tolls would create an incentive to maximize the number of vehicles for revenue purposes using the roads in question, and that certainly is not what we would like to see. Traditionally, highway planners have focused their attention on the movement of vehicles and not on the movement of goods and persons. That's really how you should measure the facility.
I think the corporation should be required to actively discourage, through pricing and other policies -- and this may be done through the use of regulations or policies after the legislation -- the use of policies that would limit the use of toll roads to single-occupant vehicles and use such mechanisms to promote transit, car pools and other high-occupancy vehicles on these roads.
Section 3 we note makes the Minister of Transportation responsible for the administration of the act and for the transportation capital corporation. Then subsection 8(2) gives the chief executive officer the same powers as a deputy and the chair the same powers as a minister. While we recognize that these powers are necessary for the efficient operation of the corporation, we're concerned that the corporation should operate within the overall transportation goals of the government and objectives, certainly, of the minister and his government. In our view, perhaps it should not undertake projects which the Minister of Transportation considers contrary to the goals of the government. This equality of powers may or may not make this feasible.
Section 38 contains a few definitions. We think it should include a definition of public transportation that should be broad enough to include public transportation facilities that are operated on regular highways or streets as well as those operated on separate rights of way, be they rail or other modes of transportation.
Finally, section 40 of the act deals with the powers of the corporation. It is not clear that these powers can extend to transportation facilities normally under the control of municipal governments. In the case of public transportation, allowing the corporation to enter into agreements with municipal governments we feel is a requirement.
These are the only observations we have to make about the bill. It's not very lengthy. We're generally pleased that it's going ahead and we just have these cautions to express.
Mr Daigeler: I presume you're familiar with the fact that this transportation capital corporation, in particular, will be quite a small outfit, actually -- we were told something like 15 people possibly. Really their sole purpose is to look for the financing. So in terms of the broader concerns, long-term impact on public transit and so on, environmental aspects and everything else, I don't think the 15 people can look after all these concerns as well. Are you aware of this?
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Mr Cormier: I was aware that it would be a small secretariat, so to speak, but it will have behind it the resources, I guess, of the ministries, especially MTO presumably.
Mr Daigeler: That's correct. So really I guess you're reiterating your concerns to the Ministry of Transportation.
Mr Cormier: But the degree of independence that it would appear to have under the legislation could be interpreted to mean that it could initiate projects; I think in reality probably it would not. But we just want to raise that concern that we don't think it should just go off and invent a freeway on its own.
Mr Daigeler: I don't think they will, not in the foreseeable future.
Mr Cormier: I would hope not.
Mr Daigeler: It doesn't look that way.
Mr Phillips: I understand how the transportation corporation can access funds for toll roads. That's fairly clear to me. How do you see them accessing funds for rapid transit? What sorts of models would you see in the future?
Mr Cormier: I am not experienced in that field other than having read how it is done in some other areas. It typically has been, as I understand, contribution by the development industry along these corridors, either the owners of the facilities or even the tenants in some cases. There are cases in Europe where the employers along heavily serviced transit corridors pay a payroll tax to support these transit services.
Mr Daigeler: A commercial concentration tax.
Mr Cormier: Not quite.
Mr Phillips: What is the expectation from your group around how you will benefit in terms of accelerated projects? Is the expectation that the private sector may fund some sectors of rapid transit in return for dedication of fare box revenues in the future? I'm just trying to get an idea of the things that you must have talked of.
Mr Cormier: Obviously, I think the private sector, to be enticed to make a contribution, will have to have a return on its investment. I have not thought through the details of how to get that return; I suppose that's what the corporation will have to do with it. But somehow there has to be a public sector control on the services operated in terms of the fares charged so that the municipality or municipalities and the province can use that facility as an instrument of policy for whatever purposes it has in mind. We can't leave it entirely in the hands of the private sector.
Mr Arnott: The question of the actual price of the toll will be a significant public issue once the toll road is built. You've expressed a suggestion that in single-occupancy cars the occupant should be asked to pay a higher toll. Do you have any other suggestions about the toll pricing?
Mr Cormier: Well, I suppose you could exempt public transit vehicles from paying tolls, and I see the legislation would allow for that, but commensurate I guess with the ability of the agency to exact a toll from private vehicles. That would still achieve the objective of the freeway. You can't obviously put a toll that's so high that nobody uses it. Presumably, your first example being that the 407 is really a bypass to the bypass, and I would imagine that the truckers would be most interested in using it first.
Mr Dave Roberts: There are some parallels with the high-occupancy vehicle policies that the province has been looking at as well, where again that can be used to provide incentive for higher capacities, car pools and the like.
Mrs Mathyssen: Thank you for this presentation. I've got bits and pieces. I hope I can put it together for you in terms of a question. I understand your concern about the environment in regard to single vehicles as opposed to mass transit. Obviously if we improve public transit, mass transit, we're going to get better ridership and less dependence on the single vehicle. Have you any suggestions, ideas to offer us as a committee in regard to how we can utilize the transportation corporation in order to move that particular agenda forward?
Mr Cormier: In terms of attracting more transit ridership, I think we know that the rapid kinds of transit services, whether they be on separate rights of way or dedicated lanes on existing arterials, certainly are more attractive for the users. So anything the corporation can do to advance the construction of those projects through the acquisition of private funds will certainly then attract more people to use them. We contemplate that the kinds of facilities that would be funded would not be simple bus routes but would be something more substantial in terms of rail facilities. Those have a good track record of attracting more riders.
However, that doesn't happen by itself. There have to be supportive policies that the province and the municipalities in question will have to work together to ensure that the land use along these corridors is compatible with the objectives of the transportation facility proposed. It would make no sense to build a freeway and allow single-residence or only farming land use along it or, for that matter, a rapid transit line with single residential housing along it. It has to have the ability to feed itself in terms of riders. So the land use issue is very critical. It's an area where the province has a lot of control and a lot of jurisdiction, and the province has shown a fair degree of leadership recently through guidelines. Of course, the Sewell royal commission has certainly excellent proposals there as well.
Mrs Mathyssen: That would fit logically into this notion about the minister being responsible and maintaining a vigilant and policy-oriented role in the corporation.
Mr Cormier: Yes.
Mrs Mathyssen: I wonder if you heard the presentation from the previous presenters. They suggested that the government was too intrusive and that intrusion would stifle the creativity of a transportation commission and the other corporations. I wonder if you could comment on that.
Mr Cormier: I've never seen dollars without strings, and the greater the amount, the greater the liberty of intrusion, I suppose. I would see nothing wrong with ensuring that the investments will have some decent paybacks by having the supportive policies that are required to go along with it.
Mr Roberts: Some of those things might be as simple as ensuring that things like the 407 corridor do allow for transit facilities. It's been pretty clear so far that transit's poorest performance traditionally has been in things like suburb-to-suburb trips, where everything has been focused in the downtown. All of a sudden a new facility is coming into place that will provide for some excellent opportunities to really try to get into that market that just has never been properly addressed in the past.
Mr Sutherland: I just wanted to clarify for the record, to deal with some of the concerns. You raised concerns about whether the corporation would have to operate within the overall transportation goals and objectives of the Minister of Transportation.
I think it's important to understand that given the fact that it will be a schedule 4 agency, the minister has the ability to issue directives to the corporation, the corporation following those directives, and that there is a very strong linkage set out in it being a schedule 4 agency and just the overall establishment of the corporation. I don't think that needs to be an overall concern. It's not explicit. It may also be set out, for example, in terms of a memorandum of understanding between the ministry and the actual corporation what the arrangements are going to be. So I think those concerns can be dealt with in those mechanisms.
Just on your last point, the corporation does have the ability to enter into agreements with municipalities, because, as any corporation, it's considered "a natural person" and has the ability to enter into a contract.
Mr Cormier: So there was reference about entering into agreements with other governments and internationally. I just wanted to make sure that was explicit in our interests.
Mr Sutherland: Sure. Okay.
The Chair: As the Chair, I just have a question of fact. This morning we had a presentation from the Better Roads Coalition which indicated that, if I believe the numbers were correct, the province received over $1 billion more in revenue from road taxes of various kinds as opposed as to how much it spent on roads, and I see in your presentation a figure that says 40%. I just wondered if you could help me rationalize what I'm hearing from you and what I was hearing from the Better Roads Coalition this morning.
Mr Cormier: I've seen a number of studies in that area and I guess it depends who does it and what numbers they include. The last one I looked at was a federal study that took a broader look on this at the national level. There was a recent US study of that nature as well that also confirmed that there was a significant shortage between the expenses, including direct and indirect expenses, related to roads and the revenues generated by roads. That debate has been going on for decades. I don't imagine we'll ever resolve it.
The Chair: I was just hoping you could solve it for me. Thank you.
Mr Mammoliti: Who's right?
Mr Cormier: I think we are. We haven't done these kinds of studies ourselves, but I'm referring to that there have been some environmental groups who have done these studies, Transport Canada has done some, and the latest one I've seen was a US research institution, a national research institution with a high degree of credibility in the States. Mind you, they haven't got the gas tax levels we have here, but the same sort of parallels I think could be drawn.
The Chair: Are there any comparative studies for Ontario itself that you are aware of?
Mr Cormier: There was one done by Pollution Probe about a year, a year and a half ago.
The Chair: Thank you.
Mr Cormier: I'm not sure if it has been published yet, but I recall seeing a draft.
The Chair: I understand we are to get a written presentation from Pollution Probe, so maybe they will clarify that in their report to the committee.
Thank you very much for taking the time to come down and meet with us this afternoon. We appreciate your presentation. It has brought us some points of view I don't think we've heard before, so we appreciate that.
Mr Cormier: Thank you.
The Chair: The next delegation is not presently assembled, although we have some members. I think we'll take a 15-minute recess.
The committee recessed from 1613 to 1630.
The Chair: The standing committee will come to order.
BOARD OF TRADE OF METROPOLITAN TORONTO
The Chair: We have one final presentation for the day, being the Ontario board of trade, Don McIver, chair.
Mr Sutherland: It's actually the Metro board.
The Chair: Oh, is it the Metro board of trade? We have a board of trade.
Mr Don McIver: As long as you're not bored with the board of trade.
The Chair: Yes, it is the board of trade.
Mr McIver: I will not take responsibility for being the chair of the board of trade. I'm chairman of the economic policy committee of the board of trade.
The Chair: Thank you. If you would introduce yourself for the purposes of our Hansard, you may begin your presentation. You've been allocated one half-hour.
Mr McIver: Fine. My name is Don McIver. I am chairman of the economic policy committee of the Metro Toronto board of trade. With me is Mr Ian Smith, who is vice-chairman of the transportation and planning committee of the board of trade. I intend to make a few introductory observations and then I'll pass over the comment on specifics of the bill to Ian.
In general, I think the board of trade is quite supportive of the intention of the legislation, which is purported to provide a greater opportunity for the involvement of the private sector in public sector dealings, whether that be in construction or whether it be in the numerous capital projects that the province is engaged in.
My specific concern is with an aspect of that. We are told, of course, that this legislation is necessary in order to make it possible for the government to engage more freely with the private sector in cooperative ventures. I say that's fine, of course, if that be so. But there is one aspect which I think is extremely important, that we need to be certain the changes that are introduced do not themselves introduce a source of confusion into the methodology of public accounting.
Since this results in a change in the reporting methodology, which will superficially result in a reduction in the reported headline deficit and debt of the province, I think it's essential that the reader of the Ontario budget, the document itself, be clearly cautioned that the data that he uses, that he interprets, that he reads in the budget document be consistent data. I think it's imperative that the Minister of Finance be bound to provide some consolidation of these accounts, some consolidation of primary and secondary levels of government debt, in a simple table which should be provided early on in the budget, in the document, in a manner in which the media -- especially the media -- and the general public can be provided with a very clear set of uniform and consistent data so as to contrast and compare one budget to another.
Even the last budget, the 1993 budget, contains some quite confusing elements with respect to the newly visited capital fund in which there was some $804 million which didn't quite seem to appear, on the surface, to be self-evident, whereas we have the government planning to spend $3.1 billion on capital projects, so it appears in the first few pages of the document. If you work your way back through the appendices and annexes at the back of the document, you find out that indeed $804 million of that is intended to be borrowed by the Ontario Financing Authority and used for capital projects. That debt, of course, is just as much a burden of the province and that capital spending is just as much public spending as it would have been last year under the old accounting framework.
So I'm very concerned that the accounting methodology for these various funds and particularly, of course, for the Ontario Financing Authority, be clearly spelled out and that the public -- and I say "the public," but I think really the media -- should be thoroughly apprised of the shift and the consequences of the shift in accounting.
I don't think it's acceptable to make the argument that Ontario Hydro is already treated in a similar off-budget manner. First of all, the treatment of Ontario Hydro has some history to it. We've grown accustomed to it, those of us who look at the accounts. Perhaps it should be on budget, but the fact that it isn't, at least we have a consistent set in the back of our minds. We know what a $10-billion deficit is, ex Ontario Hydro. The other element, of course, with Ontario Hydro is that Hydro does produce a commercial service upon which one can reasonably expect there will be a revenue inflow. I don't think the analogy is quite the same with respect to a school or a hospital.
One other comment, if I can, is that within the introductory material that was provided to us earlier in the year there was the comment made that this was a necessary or desirable change so as to enable the province to engage in loan financing -- and this was purported somehow to be desirable -- but the idea being that the funds would be made available for a capital project and that there would be an operating transfer each year equivalent to the annual amortized cost of principle and interest.
In that document it referred to the useful life of a capital project. Elsewhere we've seen that implied to be 20 years. But I don't believe that in the bill itself there is anything spelled out as to what constitutes the useful life of a project.
If you take something, for example, like a hospital, it's not unreasonable to believe that someone might suggest that two or three years from now that 50 years is perhaps a reasonable life for a hospital. Then, of course, the operating transfers could be one fiftieth of that amount. In the meantime, the Ontario Financing Authority will have its debt building up, sort of hidden away perhaps if it's not brought front and centre in front of us. Then maybe 20 years from now that hospital will be in need of a massive retrofit, and that too will be viewed as a capital expansion and another new budget, and perhaps that will extend its life another 50 years. You can see perhaps what I'm getting at.
I think it would be extremely desirable to have spelled out in the legislation what is meant by "the useful life." If indeed 20 years is viewed in most cases, why not all to be limited to 20 years at any rate?
Those are my opening comments. Let me turn to Ian, who has some specifics on some of the other aspects.
Mr Ian Smith: I'm going to speak on one particular element of the bill, the transportation capital corporation, which the board has been on record as fully supporting. I'd like to make my comments to cover two areas, one dealing with how the transportation capital corporation will affect highway construction within Ontario, and the other part of that is how it will affect public transit construction.
With regard to the highway construction, the board has some history on this, starting in February 1992. The board of trade forwarded a paper on transportation financing to the Minister of Transportation and the Minister of Finance. In this paper we advocated the establishment of toll roads, beginning with Highway 407. There's a lot of reason as to why we wanted toll roads, a major reason being that we thought it would expedite the construction of something that's really needed to help alleviate congestion that we have in the Metropolitan Toronto area.
We had a number of principles established in that paper that we thought would be requirements to support toll roads, things such as that a parallel non-toll road must exist to maintain choice for drivers who do not wish to pay, criteria of that nature.
As we understand from the Premier's February announcement on Highway 407, it met all these conditions. We strongly support that desire of the province to involve the private sector in the financing and construction of Highway 407 based on the build, operate and transfer model, or the BOT model, what you're seeing in the US and throughout the world. It's our understanding that these discussions and possible lease arrangements will be facilitated by this transportation capital corporation. Again, we're fully in support of that element.
The second part I'd like to talk about is the public transit construction. Again, the board of trade has been on record extensively saying it supports public transit expansion within Metropolitan Toronto. The one concern that we have, though, given the current financial realities of both the province and the Metropolitan and municipal levels, is that we simply can't afford to go ahead with all the different proposed projects.
What we've always advocated is prioritizing the expansion program to maybe a number of -- not all six but one or two, based on whatever criteria are established. In our case, we've been favouring criteria such as the impact on potential ridership. So we're looking at we should be prioritizing these projects before we proceed.
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Right now the proposed first phase of the rapid transit expansion program, which is estimated at $2.5 billion in 1992 dollars, envisions the private sector contributing 20% of the total cost, or $500 million. The major private sector contributors logically, with the experience we've had, would be the private development companies. However, with office vacancy rates in the Toronto area at 20%, we seriously question the ability or the desire of developers to construct additional office space or pay any new levies which may be implemented.
This reservation leads us to a larger concern: If the private sector is unable to provide the 20% of the total expected contribution, who will? It has been suggested by some, and you'll see in our documentation that we handed out, that perhaps the Ontario Transportation Capital Corp could borrow any shortfall of the private sector cost. This causes us concern, as Don has mentioned, with regard to Ontario Hydro because we may see the beginning of another, what we believe, Ontario Hydro fiasco, which provincially guaranteed debt allowed to accumulate without any real controls or safeguards.
To conclude my brief comments, the board of trade supports the creation of the Transportation Capital Corp but would caution that it not overextend itself in guaranteeing accumulated debt in pursuit of expensive projects which we cannot afford.
The Chair: Thank you. Mr Arnott.
Mr Arnott: I think you've raised a couple of very good points. One is the issue of reporting of the amount of debt that these corporations are going to be responsible for, and you mentioned the media and the importance of the media understanding it and in turn disseminating that information to the public at large. I totally agree with you. The suggestion has been raised that one of the political motivations behind this bill might have been the opportunity for the government to move some of its debt off book so as to make its deficit number and ultimate debt figure look better.
There's a legislative requirement in the bill that means that the corporations have to report to the Legislature at some point but it doesn't say specifically what the timing is. I think it would be sensible to include a requirement upon the government, a provision, that they have to report the debt figures of these corporations within the provincial budget for ease of reference for the media on budget day. Then I think the story on budget day would be the new taxes that have been brought in, the taxes that may have been repealed, the bottom-line debt figure that the people of Ontario are on the hook for.
Mr McIver: If I can comment on that, I think in fact that probably is envisioned and would likely occur. The question is where it occurs, whether it occurs in the third subappendix or whether it occurs on page 1 and in the press release that is handed out coincident with the minister rising.
The reference is made somewhere, either in the preamble or in some of the previous material, to the fact that British Columbia is one of the provinces that is currently applying a similar type of technique. I don't wish to go overboard in my praise for their accounting methodology but nevertheless, looking through their most recent budget, the debt and deficit implications of those agencies are quite clearly spelled out in the body of the budget material in a number of places.
Contrasting that with the Ontario document for 1993, where, as I say, that $804 million is slipped in there, there are a number of instances in the first 50 or 60 pages -- I don't know how many pages there are in the document but in the first part of the document -- where there are little asterisks and a little footnote commenting upon it but not amplifying it. It's not until you get to the back, after you've waded through it, which even those who attend the lockup may not find themselves able to get to on the day of the budget, that you find the explanation of it and the detail of it.
Unless you're sort of primed to look for it, and I would argue that in many cases the media aren't and certainly the general public isn't primed to look for it, there is a significant disadvantage in shifting from one methodology to another unless the linkage is very clearly spelled out for the reader.
Mr Sutherland: Let me just say that in terms of some of the concerns about how the information will be expressed, the capital investment plan would be expressed in the budget, and obviously with the estimates, the amount of money that would be going to each organization for its capital project, the principal and the interest, the amortized amount, that would be clear in the estimates.
Let me say I've been informed that we may need to give the media a little more credit, that in this year's budget lockup, they did ask questions about the $804 million. So we're on top of it, and it is extremely difficult in this day and age to hide things, even if you wanted to do that.
Some of the concerns you raised -- you weren't here this morning when the auditor made a presentation as well and expressed some similar issues and some comments about how things should be reported -- were mentioned as well.
Mr McIver: Can I just comment on that? I believe the legislation spells out -- Mr Arnott made the comment about the capital reporting requirements -- that the end of their fiscal year would be April 30 but the individual agencies had 90 days thereafter in which to report, which conceivably could result in their report coming after the delivery of the budget and certainly before the preparation of the budget. That could be quite a sticky point, I would think.
Mr Sutherland: They'll probably be on the same financial year, March 31 ending. That point is certainly noted.
Mr Arnott: That's to report to the Minister of Finance, not to the Legislature. The report to the Legislature is at the discretion of the government and could very well take place Christmas Eve.
Mr Sutherland: Could I just say that I don't think there's ever been a problem in terms of tabling annual reports of corporations. Just with respect to the other comment that had been made about the potential for the ytransportation capital corporation to become another Ontario Hydro, I think there are a couple of points that need to be made there.
First of all, the new corporations are schedule 4 agencies. The type of accountability mechanisms to the government are far different. They are more developed. They are more direct in terms of a minister being able to issue directives that they must implement those types of things. I do believe there's a far greater deal of accountability directly back to the minister, that the types of concerns people have expressed over the years regarding some other agencies such as Ontario Hydro would not occur in this situation, that action could be taken far sooner to correct any potential problems.
Mr McIver: Does that necessarily increase the comfort level?
Mr Sutherland: I think it does because you can deal with the problem far sooner, before it becomes a large problem.
Mr Arnott: So you'll act upon the Provincial Auditor's suggestions on this.
Mr White: What I'm interested in is a bit of a conundrum. The change in the means of raising capital also creates that sort of off-book problem that you mentioned, but I'm not sure you could have one occur without the other. There have been in my area -- I represent the town of Whitby and part of the city of Oshawa -- a couple of projects. I mention one, the Ontario Realty Corp.
There's a substantive amount of provincial lands which could and should be more properly used for industrial, residential and commercial purposes, which are now essentially not even properly used for agriculture. It's an ideal situation, and when I inquired about the process of freeing up those lands, this is something which would take a decade because of the present process. With the realty corporation, with the advanced direction or goals of that corporation relative to the present situation, that could be done much more quickly, but it can't be done quickly if it's all part of the Ministry of Government Services or Management Board.
Another situation was the development of a large facility for a ministry. I won't go into the specifics of that because it's still being negotiated, but the local municipality and several private individuals, representing a couple of corporations, got together to say, "Look, we could facilitate the building of this," in a way which I thought was just straightforward. Why hasn't this been done for generations, frankly? But something which was unique, something which was wasn't previously possible prior to this legislation, and their plan basically fits with this.
But again, it would be off-book and how do you reconcile -- you know, the borrowing would always be there. As you mentioned, it has to be part of the overall revenue expenditure picture for the government. But by creating the capital corporation, it allows for a flexibility that doesn't currently exist. It would allow for infrastructure, it would allow for development of government lands for both private and commercial and industrial uses. I think what I'm hearing from you is that conundrum. In doing that, then you're moving things off-book, but you're also moving them out of central Queen's Park control to a schedule 4 agency.
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Mr McIver: Certainly that is what I've been given to understand, that it is necessary to create these agencies in order to facilitate the type of transfer that you're talking about. Personally, I find it a little difficult to understand why it is necessary to create this agency or these agencies in order to accomplish that. But taking that at its face value and given -- the first instance that you cited is surely nothing other than a capital asset disposal, which governments have been able to accomplish all along. There's no private sector involvement there.
Mr White: Under the present situation, it would require almost a decade to go through that process, whereas with the proposed realty corporation that process could be sped up significantly.
Mr McIver: I guess my answer to that would be, first of all, why cannot other methods of speeding up -- why is the bureaucratic process so slow in that regard? Is it really necessary to introduce this type of agency in order to do so?
If it is, that's fine. My concern was simply that there be a recognition of the increase in the debt and the deficit that is taken on the shoulders of Ontarians as a consequence of these agencies and not that they be sort of sloughed off to some appendix in the book or to some separate reporting mechanism and, at the same time, that there be a provision to enable the casual reader of government accounts to understand from one year to the next that if the capital budget appears to have shrunk by $2 billion, that it be certain that it has shrunk by $2 billion and that it not be a situation where in fact it has risen by $2 billion and that the debt of Ontarians is now $4 billion higher than purports at that first glance superficially to be there in the budget document.
It really is a concern with accounting techniques, and I wish I had heard the auditor because I'm sure he would be in a much better position to recommend a method whereby that problem could be reconciled. It doesn't mean that the agencies are necessarily bad in and of themselves, and in fact as we've suggested, there are some significant positives perhaps towards having these agencies. It's more the Ontario Financing Authority -- I may have the name wrong -- but its reporting methodology that worries me.
Mr Smith: But you really are touching on a key point, I think, from our perspective. I'm again speaking on behalf of transportation and planning, but the reality is in the last 10 years if we look at public transportation, nothing has happened in Metro, or very little has happened, and if the transportation capital corporation can create that momentum, that initiative, that whatever is required to make projects happen, as you're describing, and reducing that time span from 10, 20 years down to immediately, then -- and definitely that's why we're behind it. We're saying this is a major opportunity to move things forward. Things haven't been happening in Metro, for whatever reason, and if it takes getting the private sector involved to make it happen, then we're fully in support of it.
The issue of reporting accountability, it's been touched upon already and maybe it'll be provided for and maybe the auditor's already commented on it. In terms of making things happen, that's why we're behind it, both in a highway and public transportation sense.
The Chair: Thank you. Mr Phillips.
Mr Phillips: I have a question, but I think maybe Ben wanted to go first.
The Chair: That's fair.
Mr Grandmaître: It doesn't matter. Go ahead, Gerry. I'll go second.
Mr Phillips: I appreciate the board's presentation and I think you've got your hands on one of the issues, and to the extent that we believe as a province we can't afford to continue to spend in a certain way, but that we use these vehicles to hide our real expenditures is one of our concerns. We, like you, believe there's some merit in the transportation capital corporation, but I think we should be watching carefully these mechanisms because in my opinion there's $600 million a year of debt building up on school board books, hospital books, that is solely, totally the responsibility of the province. It owes that money, it will repay it, but it's going to be on those books.
Every year, yesterday we heard, the government plans to transfer $250 million worth of these buildings into the realty corporation and lease them back. We will take on a brand-new lease cost we didn't have and we'll take in the revenue, $250 million.
We heard that the sewer and water corporation will get $150 million a year from the province, not in the form of grants but it will be in the form of, "Get the finance agency to go out and borrow the $150 million and the province will undertake to repay it over a 20-year period."
Those things don't bring any new money; they are just a different way of raising debt. The merit in all of this is if we can bring some new money, and that's where the toll road does bring "new money." Now maybe people in the 407 area will say, "Well, it's a tax on me," but the rest of the province will think of that as new money. Similarly, with the transportation one the rapid transit can perhaps bring some new money.
I think what we have to do, all of us, is monitor this as we go through it to see, are we artificially raising money, because some people think this is new money, but it's just sort of like, "I can't afford to buy a car so I'll lease a car." Well, sometimes if you can't afford to buy a car you can't afford to lease a car because you are essentially buying it and making your monthly payments on a lease payment instead of a loan payment.
I appreciate the board's comments, I think in a positive way about the benefits of it and in a cautionary way, and I support very much your cautionary notes about watching whether this is real. I would just encourage the board to read the auditor's proposals, which I think have a fair bit of merit and may be helpful to all of us. I'm sorry, that was more a comment than a -- you had a question, Ben.
Mr Grandmaître: Okay, let's talk about toll roads. You do support tolls for especially Highway 407, and this is understandable, being from Metro, but let's talk about your four criteria.
The number one criteria is "A parallel, non-toll road must exist to maintain choice for drivers who do not wish to pay." Is this applicable to Metro only, or would you say this criterion should apply for the rest of the province?
Mr Smith: Having been involved in the development of some of these criteria, I guess we were looking primarily at Metro initially. I'm not sure what the implications are of saying it applies universally in Ontario. I would think if we were being consistent in our application, we'd be looking and say yes, that criterion is universal, but we really didn't look at it beyond the Metropolitan Toronto, the GTA, area and saying what are our options here and how we would like to see it evolve if we went ahead with the toll road concept.
Mr Grandmaître: Imagine what the cost would be in rural or northern Ontario.
Mr Smith: Sure, and we haven't looked at that particular implication. Right now we have a problem here in Metro and the GTA we have to deal with and here's an option to deal with it and it still gives people a choice where you have that option as a user to pay or not pay. We thought that was a fair and reasonable way to approach it, but you're right. There may be a greater implication if you went into Sudbury and said, "We need to build this road and we have no other choice." That's a different set of criteria perhaps.
Mr Grandmaître: But, generally speaking, you do support user fees?
Mr Smith: In this application, yes.
Mr Daigeler: I think you have mentioned some of the concerns that we've raised for some time. At the same time, you have indicated willingness to try this out. It may work.
You did say that the interest from the private sector -- we're all interested to get the private sector to put up some money. Let's face it, that's really what we're after. We're saying the taxpayer through the normal process can't afford it, perhaps we can get some big private money interested.
I'm still a little bit leery as to who all these people are with the spare bucks, and I think you put a cautionary note forward there that certainly in terms of public transit, with the real estate the way it is at the present time, there doesn't seem to be that much interest out there from the private developers even if we were to build the public transit. There don't seem to be too many people out there who'll say: "Yes, I'll give the government so much money. I'm interested. I'll put so much money up front, because I know I will profit in the long term."
I think a few years ago, if I'm not mistaken, I did read in the newspaper a few people saying that they were willing to upfront money, but I haven't heard anything recently there. Can you indicate to me, from your contacts with the private sector, whether there are some out there who have deep enough pockets at the present time?
Mr Smith: I think you have to separate it into two points. As to your comment, yes, there was interest. At the peak of the real estate era, when you're talking about the late 1980s, maybe even 1990, you had a group, for example, on the Sheppard subway line that was proposing to contribute moneys to the construction of that particular line. The opportunity they were looking for was a return on investment and development around notable points etc. That's still philosophically a part of the concept here.
As to whether or not right now you have an interest from the private sector to commit significant dollars, there may be some contribution, but you're talking about 20%. Whether that interest is there today, I think we with the board would question that, and we've been questioning it throughout, since this has been announced. The reality, though, is that maybe five years from now you'll see that resurgence of interest as the economy itself picks up potentially.
What you're doing, in effect, if you separate it into two parts, is you're creating a mechanism to allow it to happen which you didn't have before. That makes sense philosophically. Whether in practice right today you're going to see something happening, that's questionable. The only issue we're raising is, if it doesn't happen, the commitment's made and who pays?
Mr Daigeler: I agree with you, but it's just that Mr Mammoliti's workers who are sitting next to the telephone may have to wait another five years.
The Chair: Thank you, gentlemen, for appearing before us today. We always appreciate hearing from the Metropolitan Toronto board of trade.
The committee will know that we will sit tomorrow morning at 10 o'clock in this room.
The committee adjourned at 1703.