Assemblée législative de l'Ontario

AGENCY REVIEW

EASTERN ONTARIO DEVELOPMENT CORP

REPORT OF THE SUBCOMMITTEE

CONTENTS

Friday 9 August 1991

Agency review: Eastern Ontario Development Corp

Report of the subcommittee

Continued in camera

STANDING COMMITTEE ON GOVERNMENT AGENCIES

Chair: Runciman, Robert W. (Leeds-Grenville PC)

Vice-Chair: McLean, Allan K. (Simcoe East PC)

Bradley, James J. (St. Catharines L)

Frankford, Robert (Scarborough East NDP)

Grandmaître, Bernard (Ottawa East L)

Haslam, Karen (Perth NDP)

Hayes, Pat (Essex-Kent NDP)

McGuinty, Dalton (Ottawa South L)

Stockwell, Chris (Etobicoke West PC)

Waters, Daniel (Muskoka-Georgian Bay NDP)

Wiseman, Jim (Durham West NDP)

Substitutions:

MacKinnon, Ellen (Lambton NDP) for Ms Haslam

Ruprecht, Tony, (Parkdale L) for Mr Grandmaître

Villeneuve, Noble, (S-D-G & East Grenville PC) for Mr Stockwell

Wood, Len (Cochrane North NDP) for Mr Waters

Clerk: Arnott, Douglas

Staff: Pond, David, Research Officer, Legislative Research Service

The committee met at 1046 in committee room 1.

AGENCY REVIEW

Resuming consideration of the operations of certain agencies, boards and commissions.

EASTERN ONTARIO DEVELOPMENT CORP

The Chair: Come to order, please. I would like to welcome officials from the Eastern Ontario Development Corp this morning. Mr MacKinnon, would you like to introduce the other members with you for the purposes of the record?

Mr D. MacKinnon: I would like to introduce Margaret LaPierre, who is our acting chief financial officer; Gary Sullivan, who is our manager of corporate affairs; and Michael St Amant, who is the chief operating officer responsible for lending operations.

The Chair: You have a presentation. I understand you would like to make an opening statement.

Mr D. MacKinnon: Yes. We can do it one of two ways. We can do it either with the overhead transparencies or by following discussion notes. I thought it might be more economical of the committee's time if we used the discussion notes.

The Chair: Okay, fine. How long do you feel this will take?

Mr D. MacKinnon: I think in our previous discussions it was between 20 and 25 minutes, but I am entirely comfortable with any way in which you want to proceed. In particular, if you wish, we could take questions as we go through it.

The Chair: I think I would prefer to see you do the 20 minutes or so and then we can open it up and get on with questions after that.

Mr D. MacKinnon: Okay. The clerk is just handing out the discussion notes I am working from, but basically in our presentation this morning we wanted to try to achieve four things: First of all, to describe in general terms how the Eastern Ontario Development Corp operates; second, we wanted to outline its relationship with the other three development corporations; third, we wanted to describe the extensive corporate renewal program completed over the last few years; and fourth, we wanted to talk about some of the current issues that face the corporation and what we are doing about them.

I should say perhaps before I begin that we have tried to avoid in this presentation duplicating material you have in the green binders, so I am not going to go into too many quantitative figures, although obviously we are prepared to respond to them in terms of questioning later.

In terms of the operations of the corporation, the board of directors of the corporation meets monthly except in December, so it meets 11 times a year. It usually meets in Toronto in conjunction with the three other development corporation boards because there are cross-appointees among them, but three or four times a year it does meet in eastern Ontario centres: Ottawa, Kingston and so on, I guess Brockville as well in the past year.

The general philosophy of this program, indeed of most of the development corporation's activities, is that the programs the corporations operate are described rather broadly and the government depends upon the judgement of individual business people, lawyers, accountants, academics and so on to make the precise transactional decisions about who gets a loan and who does not, and below certain levels the board supervises staff decisions of that kind.

The board generally is composed of people from those backgrounds and usually involves people with a great deal of business experience. So we feel that in terms of dealing with the kinds of technologies and enterprises that sometimes are most important for us, particularly those that are complex in a technological sense or in a financial sense, we have a variety of experience, a variety of backgrounds available on the board to help make those decisions.

From time to time the board also meets, aside from its monthly sessions, as a policy committee and examines the general evolution of the programming in relation to economic developments and events in Eastern Ontario.

Management is supervised directly by the EODC board under the bylaws of the corporation. As you will notice, the chief executive officer is required to report monthly, and that happens. But management is also supervised by the EODC representatives on the policy, audit, French-language and other committees that represent all four boards. I will come back to those committees in a moment.

In general, the staff specifically allocated to the EODC are located in the various eastern Ontario centres at various offices, but very important functions, particularly finance, legal, systems support and senior management, are provided from the development corporation's general office in Toronto. To ensure that the corporation's programs and activities are consistent with the government's policies, the chief executive officer is a member of the management committee of the Ministry of Industry, Trade and Technology. As well, much of the administrative support, particularly in areas such as personnel and budgeting, is provided by the ministry through a memorandum of understanding. I think a copy of that memorandum of understanding is also in the green binder.

In terms of the second issue I wanted to review, it involves the relationship between EODC and the other development corporations.

Four EODC board members are also appointed to the Ontario Development Corp board, and that again is designed to ensure that there is a reasonably good linkage between them.

There are two key committees of the ODC board which impact on all the others. One is the policy committee, which plans major group initiatives, examines transactions of unusual significance and generally co-ordinates administrative matters and standards. As well, there is the audit committee, which reviews the financial statements in detail. Our financial statements and program structure is unusually complex, partly because there are four boards, but partly also because of the nature of the activities we manage. The audit committee also examines bad loans or failed investments after the fact.

You might say, "After the fact?" What we are really trying to do in each of these cases, and they are extensively reviewed, is to identify lessons or problems that have developed in our activities that we should bear in mind for the future. Ideally, we think, and certainly our audit committee thinks, that we should be our most severe critics in cases where things do not work out as we intended and that anything that can be learned should be and should be factored back into decisions in the future. When the audit or the planning committee considers any particular matter, particularly if it is considering a difficult loan or investment from the east, then the members of the EODC board on the ODC board bring the decisions back to the EODC for whatever further consideration is required.

Finally, there are a variety of other subcommittees of the four boards which are convened as required. Two such committees currently active deal with French-language services and aboriginal affairs. Both subjects are of quite significant interest, not only in relation to current government policy but in relation to the board members themselves.

The corporate renewal program, which is the third item, I hope I can perhaps focus the bulk of my comments upon, because in part it relates to past history with this committee. The major activity at the development corporations and in the EODC over the last three or four years has been what I would call a top to bottom reconstruction. That arose from really three sources. The pressures to do that arose from three sources.

One is that in 1986 the Provincial Auditor issued a report that was highly critical of the internal administration of the development corporations, and so it was clearly necessary to fix that and to deal with the issues he raised at that time.

Second, as you will certainly remember, Mr Chairman, we inherited another provincial agency called the IDEA Corp, which was deeply troubled in different ways, and we were able to learn a great deal from that experience.

Third, and I have not mentioned it in my notes, there was a set of hearings of this committee in, I believe, the fall of 1987 at which the committee made about a dozen recommendations, as I recall, and we have implemented I think more than half of those. Of course, I would be quite prepared in questioning to deal with the half we have implemented, but also perhaps, if you wish, to explore the ones we did not implement and explain why. In any event, in I think early 1988 this committee, as it was then constituted, submitted its report, which came to us and formed a part of the decision-making which led to the renewal program I am about to describe.

The first item on the renewal program was a complete organizational restructuring. The Provincial Auditor had made the point in his report that we had a most unusual method of lending to people, that one group of people made the loan up front or one official of the corporation was responsible for presenting the loan to the board, which then made it, another group administered the loans, and another group did all the legal and other work associated with actually disbursing funds to them. The result was that the customer had to deal with three different groups. Of course, anybody who knows how bureaucracies work would predict the result of three different people all dealing with the same customer, and that is, there was confusion, there were paper wars and there was a great loss of productivity.

So we felt it was necessary to move towards a system whereby an individual in the corporation was responsible for the initial research connected with the loan, presenting it to the board, administering it once the loan was made and ensuring that all the legal and other services necessary were there when the loan was actually disbursed. That is, of course, conventional in most financial institutions, but for us that was a wrenching change. But that change has been accomplished. Now individual staff members of the corporation are responsible for loans from the day they are started until the day the loan is discharged, by whatever means it ultimately is discharged.

The second item is the computerized loan accounting and administration system. Our system in 1986-87 was paper-based. If you think back to a chartered bank branch about 25 years ago, you would get a good picture of what one of our offices looked like: paper everywhere, files everywhere, great difficulty in getting information when you needed it and a substantially reduced capability to develop new products. So we have implemented a new computerized loan accounting and administration system, and there are a few aspects of it that we are still administering, still placing in our regional offices as I talk, but basically that system is now operational and has been operating as an accounting system for over a year.

We also introduced senior management. Each of my three colleagues with me are relatively new to their current positions, and we also brought in several other people and made major changes to our senior management team.

Fourth, there was significant change in terms of the budgeting of programs. A long real decline in the level of funds allocated to programs was arrested in 1987-88. The general trend, in terms of the allocation of funds, has been increasing normally with inflation and with the economic demand ever since.

The other additional changes included significant new programming, and here perhaps I could describe two of our particularly important initiatives. One is the Innovation Ontario Corp, which provides seed equity capital to start up businesses. Some of you may have noticed a reference to the corporation in this morning's Toronto Star. It has operated for four or five years. It now provides 80% of all the institutional seed equity capital available to enterprises in Ontario and I think it is an important initiative for firms that are starting up in technologically intensive areas of industry.

Our New Ventures program is a major partnership with the Canadian chartered banks by which they actually make small loans to start up enterprises. This method of delivering allows us to avoid administrative costs, and we generally set the policy which the banks follow in actually making these loans. This program has been very successful and is today the only program that has ever been recommended to all provinces in Canada by the Canadian Federation of Independent Business. It is not only the only program they have ever recommended, but it is the only one they have ever recommended to all other provinces. We are quite pleased with it, as are the banks, because it essentially allows banks to stay and make small business loans to start up enterprises, which they normally could not afford, because it is impossible to make money on loans that small.

The government also decided on enhanced supervisory responsibilities for the board of directors, and that also has been accomplished, and I have described in particular the functions of the audit committee. Now the chairmen of the boards meet regularly with the minister. There is a very detailed set of linkages designed to ensure that the relationship with government policy is both close and developed, and the board is also broadening its supervisory responsibility in relation to management.

We have as well implemented a variety of steps to ensure much greater financial disclosure. We refer you to page 26 of the annual report in your green binders to indicate perhaps the principle of these initiatives; that is, the development corporations not only operate programs themselves, but they operate programs and activities for a variety of other ministries of the government. These are what we call our agency activities. Previously, they had never been publicly disclosed in any form until 1988 or so. On page 26 we describe those agency activities along with those we operate in our own name. You will see that the total of the two combined is approximately $1 billion. Of course, if you wish, we can get into that material rather more deeply.

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We have also embarked on a major program to decentralize our staff. Before we made all these changes, the bulk of our staff were located at the head office in Toronto. There were a few regional offices, but they were thinly staffed. We have now moved nearly all of the people who deal directly with the customer out of Toronto. We have also moved many of our backroom support functions out to Mississauga, to reduce our presence in the downtown core. But the more important aspect of it is the decentralization of staff to our regional offices around Ontario. That process of decentralization was accomplished last year.

There are a number of other steps I have summarized greatly. For example, of our 200 major accounting policies I think, as I recall, 197 needed to be updated, and there were literally a great variety of other housekeeping steps to be taken. The quantitative results I can show you in terms of loan losses, but also in terms of things like loan arrears, have been very good. For example, the arrears rate in the portfolio has fallen from about 42% in the middle of 1987 to well below 5% today. In fact, I think it is 1.6%, in the realm of 2%. So this program has now been completed, but also enough time has elapsed to demonstrate that it has had a very beneficial impact on our internal administration and efficiency.

Fourth, as indicated, I would like to talk briefly -- and I will try to be very brief, Mr Chairman, in keeping with your time limits -- in terms of the issues that are now facing us, and causing us the greatest concern. Of course, the foremost of those is the industrial recession which has gripped Ontario for the last year or 18 months. The recession started to affect our operations somewhat earlier because of the high-risk nature of our lending activities. We have responded, and the government of course has responded, to the recession with two new initiatives: the manufacturing recovery program, which my colleague, Mr St Amant, can talk to if necessary, and also with the enhanced budgeting and the larger transactions for Innovation Ontario. We have, of course, continued to rely on our core lending programs. We have tried to accommodate them to the demands of situations that are more restructuring of enterprises than new projects, although we have continued, even throughout the recession, to see interesting new projects come before us. But adaptation of the existing programs, the development of the manufacturing recovery program, enhanced Innovation Ontario, and the accommodation of greater volumes overall have been the basic methods by which we have accommodated ourselves to the industrial recession.

Partly because of the history as I have summarized in the early to mid-1980s, we have also been very conscious of the need to improve our relations with our customers, and to broaden our reach into certain aspects of the community. We have greatly enhanced our French-language service capability, particularly in eastern Ontario, and Mr St Amant again can describe that in detail. We have also, as I have mentioned, accommodated the decentralization initiatives. That has been very positive in terms of customers being able to deal with our officials in or near the communities in which they live. The organizational changes have also made it easier for customers.

We also have done some other things. In our Northam industrial park in Cobourg, for example, we have been involved with the community in placing a day care centre on the park, and that has given us much food for thought in terms of industrial day care and how it can operate. We have also been quite active, and have made a number of programming suggestions, to the aboriginal affairs group. We have a board committee which is considering methods by which our programming can be made more accessible to the very significant aboriginal population in eastern Ontario but also, of course, northern Ontario. Finally, some of our new programs have a particularly beneficial impact in terms of their gender takeup. About one third of the New Ventures loans mentioned in my earlier description of that program have gone to female entrepreneurs. That is an extraordinarily high rate for any industrial support program.

In eastern Ontario, but also in any other part of the province, particularly where it is adjacent to the United States border, we face significant competition from other jurisdictions. We are getting letters from our customers about the extent to which American states are devoting attention to them and so on. What we try to do, of course, is respond with the new programs I mentioned, but also with an effort to try to sell our programs in a way that makes them more attractive to entrepreneurs who may be tempted to look elsewhere.

We continue to face, of course, one of the major issues for Ontario, now and in the foreseeable future: how we can develop more technology-intensive enterprises. We have been particularly active in that area. Innovation Ontario Corp, as I mentioned, with its equity capital operation, has about 27.5% of all its investments in eastern Ontario, which is a very high percentage. Many of them are in very exciting sectors. Perhaps I can just read a few of the products to give you a flavour of them. There is software security; computer-assisted learning software; composite material energy density analysers; solid-state-controlled ball-pitching machines for baseball practice; vision machines for industrial application; airborne remote sensing acoustical instruments; and so on. There are 53 such Innovation Ontario investments in eastern Ontario and the list of products is very interesting in what is going to come in terms of technology development in future years.

We have also of course, again, maintained our long-standing programs, particularly our export support loan program, to deal with technology in eastern Ontario. It is not commonly known, but nearly all of the important technology enterprises in Kanata and in the Ottawa area, including some of the biggest such as Mitel, Lumonics, Gandalf, etc, all had EODC loans in the very early stages of their development. Indeed, one of our current staff members made the first commercial loan to Mitel, and he describes the operation as being one that could fit in this room at the time he first came in contact with it. So we have a history and we continue to use our existing programs to build on it.

Finally, we continue to be worried and to focus, if I can put it that way, on our internal efficiency and in particular our technology. In the lending and investment business, you are only as good as the information you have. If you do not have good information systems you cannot really do the job well. We operate and our customers operate in a world in which six weeks can be a very long time. So one of our continuing problems is not only how do we get up to date, but how do we maintain ourselves in terms of making sure our technology and managerial practices are comparable to those that exist outside in the private sector and that give us some standing with our customer base.

The renewal program I described earlier was very extensive, but I have little doubt that having completed it, we will now have to embark on another cycle of change to keep ourselves current in the years to come.

That really constitutes the bulk of my presentation. I think it has taken 22 minutes, but it gives you an overview of how we operate and what it is that we are trying to achieve, along with, of course, the quantitative documents. Over the last few years, during a very difficult time in the evolution of the organization, we have had much support from our board, from the central agencies of the government, from others, and we think we are reasonably well positioned to move on in future years. I do not want to give any impression that satisfaction with completion of the renewal program is giving rise to any complacency. It is certainly not.

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The Chair: In terms of your timing, you are much closer to the time estimate than the chairman who appeared before us yesterday, Mr Ostry. He was significantly off, if that makes you feel a little better.

Before we get into questions -- and we have at least three members who have now indicated they want to ask questions -- I just wanted to express a personal concern about the fact that there is apparently no one here who serves on the board of the EODC. I find it passing strange that we could not find one, with the notice given, who could find the opportunity to appear here as well as officials from the EODC.

Mr D. MacKinnon: I can say that the substance of our remarks and materials have been reviewed in detail by the chairman of that board. Our past practice has been that generally these presentations have been made by management. I think on a previous occasion one of our board members or our acting board chairman happened to be in town. This was on the 1987 occasions and he was here, but he did not contribute to the presentation. I feel certain that the fact that no member of the board is here is more a continuation of that past practice. I do assure you that the chairman of the eastern Ontario board has been heavily involved in all the materials you have before you and that I have summarized. He is certainly on side with the comments I have made and would be ready on any occasion you considered appropriate to respond to any issues that arise from this hearing.

The Chair: That does not allay my concern. In fact, I think it would have been helpful to the committee -- that is a personal observation -- to have someone here who serves in a volunteer capacity, essentially a volunteer, because their per diems are certainly not significant.

Mr McGuinty: You will notice that the draft financial statement for the year ending March 31, 1991, shows at note 7, relating to administration, salaries and benefits. It shows that in 1990 these cost $564,000; for 1991 it was $784,000. A rough calculation shows that to be a 39% increase over one year. How do you account for that?

Mr D. MacKinnon: Maybe I can make a general comment in response and then perhaps ask Mrs LaPierre to respond in detail. Basically, the salaries of all our employees, with the exception of contract people -- we are all classified public servants of the province of Ontario. So the increases in salaries and benefits, to the extent that they have taken place, are in line with the overall increases awarded to classified public servants in Ontario. Margaret, do you have any additional comment?

Mrs LaPierre: If you could just give me a moment, I want to verify something else. There was an increase in staff in the eastern region in the time frame in question. I am just trying to confirm the exact number. But just to reiterate Mr MacKinnon's comments, the salary increases for all the staff who are listed here are under the terms and conditions as laid down by government. So the only logical reason would be an increase in staff. I will just find the number for you, if you wish to continue.

Mr McGuinty: All right. I just note that it also indicates under the same note that the remuneration for directors actually dropped from 1990 to 1991. So that substantial increase would have to be accounted for by either a substantial increase in staff or something else that we are missing here.

Mr D. MacKinnon: I can assure you it is not increases to staff.

Mr McGuinty: Why do we not just leave you with that and we will come back to it later. What would the salary of the chief executive officer be?

Mr D. MacKinnon: My current salary would be in the realm of $115,000 annually.

Mr McGuinty: The number of directors in EODC is 10?

Mr D. MacKinnon: I think under the act there are 14; 14 members of the board maximum under the Development Corporations Act. At any given point in time, it varies.

Mr McGuinty: I am just wondering why it is that the enabling legislation provides for a maximum of 14 and we seem to have kept it at 10. Any particular reason?

Mr D. MacKinnon: I could ask my colleague, Mr Sullivan. It does vary. It really depends on any given point in time. Sometimes the terms of people on the board are overlapping and sometimes there are extensive intervals between someone leaving and someone being reappointed. Normally, however, the number of people present on the board is much closer to the maximum. Gary, do you have any comment on that?

Mr Sullivan: At the present time there are nine vacancies on four boards. There are two vacancies on the ODC board, two other vacancies on the Northern Ontario Development Corporation board, and Innovations Ontario has one. It is not unusual; in fact, I do not recall a time when every board was at its maximum.

Mr McGuinty: Is there some kind of a general rule or principle that you attempt to achieve the maximum?

Mr D. MacKinnon: Mr McGuinty, these appointments are normally made by the Premier's office in consultation with the minister and his staff. Normally our advice is not sought and given on these matters, except sometimes in terms of the particular skill mix which we need at any given point in time. But the overall numbers and the actual number on a board at any given time is not really under our control or influence to any significant degree.

Mr McGuinty: Let me take advantage of your presence here, then, and seek your advice on that. For instance, you have 10 on the EODC right now. Is that satisfactory? Could you use more? Is that too many?

Mr D. MacKinnon: In my opinion, the EODC board at the present time certainly has the appropriate mix of skills needed for our smooth operation. Obviously, to the extent to which one broadens that skill base, we are better equipped to deal with things that we may not now foresee. But I would say, at the moment it is operating efficiently and normally.

Mr McGuinty: For the EODC, I see there were seven meetings held. Does a meeting normally take a maximum of one day?

Mr D. MacKinnon: I believe there were 11 meetings held.

Mr Sullivan: No. This is for this year. Actually, including the meeting that was held last month, there have been eight meetings held this year.

Mr D. MacKinnon: Yes, they normally take at least half a day, sometimes spill into the second half of the day and usually involve a variety of other meetings of the committees that co-ordinate with all the other development corporations as well.

Mr McGuinty: I note the bylaws provide that if there is agreement by the majority of directors in attendance at a meeting, they can deem another director who is not present, to be present and to assist at the meeting by way of telephone. Does that ever take place?

Mr D. MacKinnon: They cannot deem without his or her permission.

Mr McGuinty: Exactly, yes.

Mr D. MacKinnon: Yes. It is a very unusual practice. It is very rarely employed, but that provision is in the bylaws. There is a whole series of detailed provisions in the bylaws that cover the operation of the boards; but I think it is fair to say that several, like that one, are designed to accommodate urgent decisions. It is not uncommon for us to have to make a decision in a 24-hour cycle. So we really do have to be able to convene a meeting by telephone if necessary.

Mr McGuinty: Would it be possible, then, to attend a meeting by way of telephone and be paid the per diem?

Mr D. MacKinnon: Mr McGuinty, the number of occasions on which that has happened is so infrequent that I do not know what has happened in terms of the payment of the per diem. However, I very much doubt that it would be paid.

Mr McGuinty: I just note that the bylaw specifically says "will be deemed to be present."

Mr Sullivan: To my knowledge, the per diems are prepared by my staff. I do not recall any time when we paid a per diem for an individual who was not there.

Mr McGuinty: I note that the majority of the meetings for the EODC are held in Toronto. Would not the majority of directors be in eastern Ontario?

Mr D. MacKinnon: The reason for that, Mr McGuinty, again, is because of the variety of committees co-ordinating with the rest of the corporate group and because of the overlapping provisions of the statute. The statute provides that there will be people from EODC and NODC and from Innovations Ontario appointed to the ODC board. Clearly, it is very difficult to have that work efficiently unless they are meeting together in some central location.

As I mentioned in my comments, they do meet from time to time in other parts of the province, and we do make the logistical and cost sacrifices necessary to accommodate that. They all live in that region, so they are bringing their experience in the region to the board's decisions, and that is regardless of the actual location of the meetings.

Mr McGuinty: Do you feel that the most cost-effective way to do it is to continue to operate on the same basis, and to have the majority of the meetings in Toronto?

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Mr D. MacKinnon: I feel that the logistical necessities made necessary by the overlapping appointments under the act make that the least costly and the most effective way of operating, yes.

Mr McGuinty: Is it possible for one director to sit on the ODC, the EODC and the NODC?

Mr Sullivan: To my knowledge, no, that has not happened. If you wish, I could circulate the cross-appointments that are in place now among the four boards. Right now, for example, the chairman of the EODC board, Jean-Claude Gélinas, together with Zdenek J. Kvarda, Ivy Hooper and Roger Legaré, who are also on the eastern board, also sit on the ODC board. There are no other individuals on the EODC board who sit on any of the other boards.

Mr D. MacKinnon: These people, as I think the chairman noted, generally serve in a volunteer capacity or close to it. I mean, membership on any of these boards will not make anybody rich. We find we have to be quite careful to be economical with their time. If you are appointed as, say, a chairman of the Eastern Ontario Development Corp or the ODC board, you can expect to spend several days a month on our business. We try to keep that down to a minimum, but I think the very minimum that any member of any of our four boards would spend on our business in the course of a month would be two days; and the maximum would be, for the chairman of the ODC board, probably more like a week.

Mr Sullivan: May I just add to that? When the chairman of the eastern board visits the Ottawa office, which is on a regular basis, he is not paid a per diem. He does not even claim expenses. The only time a per diem is provided is if there is a formal board meeting. So, in fact, the chairman, since he lives in the region, in Hawkesbury, and does business in Ottawa, regularly drops in at the office. The expense accounts go through me, and he has never claimed any travel for those meetings or a per diem.

Mr McGuinty: Your point, Mr MacKinnon, about the directors being close to volunteers, is well taken. Is there any potential for conflict if we have a director on one of the boards sitting on another of the boards? Are they ever in positions where voting in favour of funding of a particular venture might somehow impact on their home jurisdiction, so to speak?

Mr D. MacKinnon: There have been one or two such occasions, but again, they are extremely rare. If I can perhaps generalize from your point, there is a real risk of conflict of interest generally in many aspects of our operations. We do have a conflict-of-interest set of guidelines which the board itself adopted, and which are considerably stricter than those that apply to most other parts of the government under the Manual of Administration. We can certainly provide those.

I do not think that specific type of conflict of interest is a real problem. On the one or two occasions when there have been such cases they have been recognized by the person concerned, and he or she has absented himself or herself from the room. But the issue of conflict of interest generally is one that we have to constantly keep before us, and we are very draconian. If you wish, I could certainly provide you with the internal policy, which is very rigorous and rigorously enforced.

Mr McGuinty: I would appreciate it if you would file that with the committee.

Mr D. MacKinnon: Sure.

Mr McGuinty: I have one final question along this line. I note also that the bylaws advert to the possibility that a director can also be an employee. Has that ever happened that you have one person holding both the office and the position as an employee?

Mr D. MacKinnon: I believe that specific provision applies only to the chief executive officer. I think, under the act, it only applies to that one position.

Mr McGuinty: I am just looking at page 15 of the bylaw, subsection --

Mr D. MacKinnon: I was just going from memory. I will refresh myself, if I may, but I believe that it does only apply to --

Mr McGuinty: It is the section dealing with remuneration of directors, officers and employees and it says: "Payment shall be in addition to the salary paid to any officer who is an employee, who is also a director."

Mr D. MacKinnon: There is only one officer who could conceivably become a director of the corporation under the provisions of the act and the bylaws and all the other apparatus, and that is the chief executive officer; but that has never happened. In recent years, there has never been a case where an officer of the corporation has also been a director of the corporation.

Mr McGuinty: Mr Chair, I will leave it at that, then, if I might just indicate that I would appreciate receiving a response regarding my first question dealing with the increase.

Mr D. MacKinnon: I think we do have a response now, Mr McGuinty.

Mr McGuinty: All right, fine.

Mr D. MacKinnon: Our staffing increased over the years. It was not a net increase in the corporate group, it was the decentralization program I mentioned. Our staffing increased by a third between 1988 and 1991 in the eastern area.

Mr McGuinty: My concern, Mr MacKinnon, with respect, is that just from 1990 to 1991 there was a 39% increase.

Mr D. MacKinnon: It was, in fact, constant. It increased from a total of nine staff allocated to the eastern offices in 1990 to 12 in 1991. So there was a one-third increase over the base of nine in that period, which would account for the bulk.

Mr McGuinty: Sorry, what period is that again?

Mr D. MacKinnon: That is 1991 over 1990. A third of it would be staff. The other few percentage points would be salary adjustments in line with the rest of the public service.

Mr McGuinty: Three more staff then? Is that what we are talking about, basically, three more full-time staff?

Mr D. MacKinnon: Yes.

Mr Villeneuve: The EODC, I think, has done a reasonable job in eastern Ontario, but I am going to be speaking primarily from the clients' point of view. Could you walk me through? Any time I have contacted the ODC, it is, "If it's not secondary manufacturing, it doesn't qualify, I am sorry," and they hang up on you. It is a little bit frustrating.

I see there are some loans here, and under the New Ventures, I believe, you have set up new businesses and there is some tourist involvement. I believe there are three of your borrowers in the jurisdiction that I represent. I do not know whether that means a great deal or not.

Could you walk me through? I decide that I am going to seek assistance from you. Do I go to one of your consultants? Does he come to me? How do you break the ice and could you just walk me through that initial process?

Mr D. MacKinnon: Perhaps I could ask my colleague, Mr St Amant, who runs all the decentralized lending offices, to answer, if that is agreeable.

Mr St Amant: The entry point, I guess, is what you are looking for. Basically, it comes in three ways. The first and probably most common practice is that the individual would be aware that there is an ODC office in the area. Usually he would call to arrange an appointment with a consultant, and generally the consultant, if it is a manufacturing type of enterprise, would probably want to go and visit the client at the plant. A lot of our time, for instance in the Cornwall area, the initial contact is for us to go to them, in terms of on-site locations.

The second form of contact is generally a referral. That comes either through a financial institution, chartered accountants or lawyers, and it takes two forms. One is a referral to the client to call us, but more commonly it is a referral to us to call a client; and generally we follow up on those fairly quickly.

The third form of contact is basically generated through the Ministry of Industry, Trade and Technology field network whose consultants are out trying to assist people and advising them of the various types of programs available. There is generally a good working relationship, certainly in eastern Ontario, between the MITT field personnel and the Ontario Development Corp personnel.

Mr Villeneuve: I see your interest rate varies from 0% to 12.5% in the document that we have. How do you arrive at that?

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Mr St Amant: Generally, the rate we are charged is based on what it costs Treasury to borrow the money; we have a formula that is in existence where we apply our standard rate and it is based on Treasury's cost of borrowing money. In terms of certain instances where there was a merit or an incentive type of relationship, the rate may have been slightly varied downwards, but generally the rates are attached to the borrowing rate from Treasury.

Mr Villeneuve: I go back to secondary manufacturing. Somehow there seems to be a mindset that unless you are in secondary manufacturing, you do not have a lot of time spent by your representatives. You are either in or you are out. There is a phone call made and I find in many instances, "I'm sorry, but you don't qualify," is the answer.

Eastern Ontario does some secondary manufacturing, but not an awful lot. We have many people who have, I believe, good projects, but through EODC they are told, "It's been nice to know you, but you don't qualify."

Mr St Amant: We have certainly taken a great deal of effort in the last couple of years to refocus our thinking. Basically, the EODC existed to provide financing, and most of the programs provide financing, to secondary manufacturing.

We have certainly taken a broader view of how we have been interpreting secondary manufacturing. As an example, EODC has assisted a number of software-related companies in terms of trying to finance exports or assisting them with marketing their products. In addition to that, we work very closely with Innovation Ontario Corp and they have a broader mandate in terms of technology-related industries that they can provide assistance to, and we do help a lot of tourism ventures.

Engineering firms and farmers, basically, are a bit awkward to help, because they are not in the traditional vein of where we lend money. But I would argue that over the past couple of years we have taken a much broader approach to helping industries, certainly in eastern Ontario.

Mr D. MacKinnon: If I could just make a supplementary comment, Mr St Amant is correct, we have taken a broader view, but I think the thrust of your observation is correct, that we have been focused to a very significant degree on manufacturing and on tourism, but there are a couple of reasons.

One is that when government financing programs venture into things like the retail sector, if you start assisting one person in a community, for example to run a certain form of retail business, then that comes at a direct cost to a competitor down the road who may be selling, say, women's clothing as well. So there is a high element if you get beyond sectors like manufacturing and tourism of robbing Peter to pay Paul in any financial assistance government might provide. That is the first reason for that focus.

The second is, generally, we place a high premium and all governments of Ontario to my knowledge have placed a very high premium on exports, for reasons that I do not think I need to elaborate, and mostly it is goods that are exported, although increasingly services are, but overwhelmingly world trade in goods would be a multiple perhaps 10 or 12 times of trade in services.

So Mr St Amant is correct that we have broadened our view, but I think the fundamental focus on manufacturing for government assistance does make sound sense. The major exception is our New Ventures program and it is, of course, open to all. It operates through the banking system and we depend to a significant degree on our own staff and on the banking staff to try to minimize the competitive risk component. That has been successful and we have avoided many of those problems.

Finally, there is also funding availability. If we were to move beyond our existing core activities we would need greatly enhanced funding activity, and I have not seen much evidence that is available.

Mr Villeneuve: On New Ventures, would you be primarily a guarantor as opposed to a lender?

Mr D. MacKinnon: We are the guarantor.

Mr Villeneuve: One experience we had not many months ago, in the riding I represent, is that the groundwork, homework, was all done, I think very efficiently, but it took about a month and a half to get a minister's signature. Your experts, I would very respectfully submit, had done their work. Can you not proceed with a loan without having a certain minister, who may or may not be available, sign a document? I found that rather bizarre.

Mr D. MacKinnon: Mr Villeneuve, I am pleased to indicate that in December 1990, the ceiling of our loans that require government approval was lifted to $1 million from the previous $250,000, so that makes it a whole lot easier to deal with that.

However, if, for example, a big loan comes up, say, the day after our board meets, then it will, in all probability, unless it is an emergency, be another 28 or 29 days before the board meets again to consider the loan. So the existence of our supervisory structure does impose certain limits on the times we can actually achieve.

Mr Villeneuve: I had spoken to J. C. Gélinas and Mr Burke and everything was done. It was rather unfortunate that the time element -- there was wasted time.

One final question: Give me an idea as to what your arrears situation is with EODC. How is the viability, the write-off situation? I did not have a chance to look at your annual report.

Mr D. MacKinnon: On the chance that you might ask that question, I have left with Mr Arnott a brief summary of our loan losses and recoveries. Maybe I can run through it with you.

In recent years, our loan losses as a percentage of total loans receivable has varied from 4.21% in 1987, to 6.19% in 1988, to 5.29% in 1989, to 3.13% in 1990, and up to 4.97% in 1991. Those figures, I should say, reflect many of our administrative changes, so they are not totally a reflection of what is going on in the economy. We are busy changing our systems for accounting and so on, and part of that is reflected in here. But that is the recent experience with loan losses.

We also have write-offs from loans written off. But generally, I would say that the 5% level is kind of a benchmark; 5% of the portfolio per year, or less, gets written off. If it rises significantly above that figure, we would have to view that with some concern. Equally if it fell very significantly below, it may mean that we are being too tight. As you can see, in 1990 the figure was low, but we are clearly feeling the recession in 1991 in that we are now operating probably at a full two percentage points higher than we were in the early part of 1990. But I think that is in line with what one would expect.

Mr Villeneuve: As I read the profile that you now have, no one compares you with the Federal Business Development Bank because I think FBDB is more or less a place of last resort.

Mr D. MacKinnon: I can comment briefly, and then I will ask Mr St Amant to comment on that, if I may.

We do compare ourselves informally to other financial institutions, and perhaps, to set this figure in context, if you were running a schedule 1 chartered bank, you would write off between 0.75 of 1% and 1.25 of 1% of your loan portfolio per year.

Mr Villeneuve: Domestic?

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Mr D. MacKinnon: No, that is overall. If you went above the 1.25 of 1%, running that kind of bank, you would be in significant difficulty, you would be facing a situation that you do not want to face. I can give you the numbers. Very basically, if a major schedule 1 chartered bank increases its loan losses by an amount equivalent to 1% of its loans outstanding, it wipes out its profit. That is how finely tuned the mathematics are. There is a variety of term lenders. RoyNat would be, I think, in the realm of 2% to 3%. The FBDB would be perhaps a little higher. We are in fact on the high end of the range that you would get and we are operating at between four and five times the write-off levels of a major mainline bank in normal times. I hope that sets the context a bit.

Mr Villeneuve: I think you have pretty well answered my question. Thank you. Mr Chair, I will relinquish to my colleagues.

Mrs MacKinnon: Thank you very much for coming and giving us your presentation. I want to state that I have never met you before, Mr MacKinnon, but I have met a lot of MacKinnons since I got elected. It is amazing, we must be good stock.

I am going to try to give you a scenario of a particular incident I have been involved in so that perhaps you can help me. If you have answered this question to Mr Villeneuve, forgive me, because I did get a little bit distracted. I had a constituent come to me. They have a viable manufacturing situation, and it has been doing very well. But the plant needs upgrading, and this will help the expansion because it will benefit the packaging, etc. If I am not being clear, forgive me, because I am neither a banker nor a manufacturer.

These people, by the way, have done everything on their own. They have not had to borrow one dime, but now they need some help. Is the type of lending business that any of the Ontario development corporations are involved in going to help them upgrade? Do you have the consultants to go and -- I know I am bumbling around here -- help them develop, not only on a financial basis, but to develop the necessary equipment to upgrade that particular industry?

Mr St Amant: That would be the sort of loan we ideally look for, lending for equipment. We take security on the equipment and basically that is what we are best at. In terms of the type of assistance, we have been of late working very closely with a broad range or number of companies where we have engaged consultants to go into the businesses to draw up strategies and production plans that help the companies to become more efficient, because one of the key challenges we are facing right now is to try to get our companies more competitive. Internally, we do not always have the manufacturing expertise required to assist somebody. But we have gone outside and brought that expertise in to advise us and the company as to what needs to be done.

Mrs MacKinnon: I can gather from what you say that it is not just eastern Ontario. It is the Ontario Development Corporation and whatever covers southwestern Ontario. I guess that is the Ontario Development Corporation as well, is it?

Mr St Amant: We have 18 offices across the province, including EODC.

Mrs MacKinnon: So I can be quite sure of my facts if I write a letter to my constituent and say: "Please go to see the Ontario Development Corporation. They will be happy to try to talk to you and see what can be done from there."

Mr St Amant: We would certainly be glad to talk to them and see what we can do.

Mrs MacKinnon: That is what I mean. I want to have some comfort myself that I am sending this person to where they would get advice. If not money, they would get advice.

Mr St Amant: Certainly.

Mrs MacKinnon: In the event that they need some help in getting new equipment, do you have expertise to help them find the place or the people to build this equipment, or is this something they will have to do on their own, or will I have to do it?

Mr St Amant: No. Generally, if they are in the industry they would know how to get the equipment. That is not usually the problem. The problem is usually in working out a satisfactory financial relationship with the suppliers of the equipment. I would think, if they are as sophisticated as you have implied, they would probably know where to get the equipment. The issue would be, can we package something to be able to finance bringing that equipment in?

Mrs MacKinnon: That is what I looking for, thank you.

The Chair: Mr MacKinnon, I would like to ask you a couple of quick questions myself. Looking at the figures prepared by our researcher and the indication -- I do not know if you have that document -- taken from your annual report indicating that the total amount of loans and guarantees authorized in 1989-90 for EODC was $29 million and change -- big change for most of us -- and in looking at table 3 for NODC it is almost $110 million, that is a pretty significant difference there between the north and the east. I am wondering if you can explain why that has occurred.

Mr D. MacKinnon: What page are you on, Mr Chairman?

The Chair: I am on number 10. I am looking at numbers 9 and 10, table 3 and table 4.

Mr D. MacKinnon: I will ask Mr St Amant to go back into it in some detail, but as I mentioned, we run the two types of programs, the ones that we run ourselves directly, without involvement of any other ministry, and then the others that we operate on behalf of the other ministries and agencies of the government. At the moment, I think there are 13 or 14 ministries and agencies for whom we act as the agent in the delivery of these kinds of programs. So the total amount on that table reflects both.

In terms of the NODC, is it true that historically, in relation to both the southern and eastern Ontario, our presence in northern Ontario is quite high, partly because we are backstopping all the government programming aimed at commercial development in that area of the province. Frank, do you have any supplementary observations to make?

Mr St Amant: I think that is the thrust of the answer, Mr Chairman, that the agency activities the corporation manages on behalf of the Nordev heritage program get incorporated into the larger number of funds available in northern Ontario.

The Chair: You are saying we are comparing apples and oranges here, or would it be a fair conclusion to say that the east is getting the short end of the deal?

Mr D. MacKinnon: In general over the years, historically the economic conditions, unemployment rates, personal income levels and so on have been the reason governments have focused a large part of the programming on the north. In fact, in the last couple of years, a lot of those figures are changing rapidly. Many of the municipalities with the highest level of unemployment and the greatest difficulty in terms of personal income are now in southwestern Ontario.

The Chair: Before we move on to Mr Ruprecht -- I represent an eastern riding, Mr Ruprecht, so I hope you will appreciate my getting a couple of questions in here as well.

Mr Ruprecht: Of course, Mr Chairman. We always appreciate your comments anyway.

The Chair: I still have some discomfort with that whole business about such a significant difference in respect to the north and the east, in any event.

I have some questions about the boundaries that are described in the Development Corporations Act. What county is the city of Peterborough in? If it is not in one of the counties that is represented in your act, I am wondering why you have an Eastern Ontario Development Corp office in a municipality that is not covered by the act.

Mr D. MacKinnon: We do have maps of the exact boundaries.

The Chair: It is outlined in the Development Corporations Act, clause 1(1)(c) of the act, and it mentions specifically the counties of Hastings, Prince Edward, etc. But I note that you have an office in Peterborough and I am just curious. That does not seem to fit in with the --

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Mr St Amant: The boundaries are tied to the Ministry of Industry, Trade and Technology boundaries, I believe. Where they define eastern Ontario starts is basically where our borderline has traditionally been in terms of servicing: anything east of Oshawa, I guess.

The Chair: Obviously you are in conflict with the Development Corporations Act, then, which outlines your boundaries.

Mr St Amant: Is your suggestion that we shut down the Peterborough office, or get the act --

The Chair: No. My suggestion is, if you are representing eastern Ontario, you should have your office in the eastern Ontario boundaries as outlined in the act. If it is an eastern Ontario office, why is it outside the area outlined in the act as your area of responsibility?

Mr D. MacKinnon: I guess I do not know. I do not have a copy of the act in front of me. I do not know what the answer to that is at the moment. If you just give me a moment, I will look it up.

The Chair: While you are looking that up, Mr MacKinnon, it was interesting to note that you have two industrial parks that are the responsibility of the corporation. I was not aware of that. The one that you say is in eastern Ontario is in Cobourg. I assume that comes under Hastings county. I do not know; maybe it does. I do not think it does come into Hastings, does it? I am looking for some direction here as well. It seems to me, if Cobourg is an industrial park for eastern Ontario it should be in eastern Ontario. But again, I would like to have an answer in respect to that.

Mr D. MacKinnon: The answer to your first question rests with the second clause of section 1, which allows the Lieutenant Governor in Council to designate such areas in addition to those described in section 1 as being designated areas within the boundaries. So I think the answer is that from time to time there have been changes to the boundaries in accordance with the second clause of section 1.

The Chair: Cabinet has expanded those boundaries over the years.

Mr D. MacKinnon: It has changed them. It has certainly changed them from time to time. My sense of it is that in the last 10 years there would have been two or three changes.

The Chair: I remember one specifically which I was very uncomfortable with and went into the Durham area, as a matter of fact. It is this whole question of every ministry and, perhaps, every agency of government having a different definition of eastern Ontario or other regions of the province as well. Again, I have a concern about the pie only being so big. If you define eastern Ontario as running into the Durham area, that gives me some difficulty.

Mr D. MacKinnon: On the second part of your question, the industrial park: We sometimes have decisions to be made as to how we supervise particular activities. The reason that the industrial park in Cobourg is run centrally is because, of course, we have other real estate assets, and you have to have the same kind of skills brought to bear on the management of an industrial park, whether it is in Cobourg or Huron Park or, indeed, Mississauga or wherever. But the eastern Ontario board does take a great interest in that park, has met on it, has toured it, and several of its board members, whenever they go by, to and from Toronto, do drop in. They take a very close interest in it, even if, in formal terms, it is run in conjunction with our other parks. I think it is safe to say that the bulk of the supervisory attention devoted to Northam industrial park is devoted to it by individual EODC members. The chairman of the EODC, in particular, takes a close interest in it. If there are problems, I can assure you, they are very quick to make their views known.

The Chair: You never had concerns expressed from municipalities who might be in competition from Cobourg? Does this give Cobourg a leg-up?

Mr D. MacKinnon: It is an accident of history. As you may know, the base is an old Canadian forces base that we took over, I think, in 1972 or 1973, because at that time the government felt that its loss would be a very serious loss to the area. But generally speaking we do not have a competitive problem, because there is considerable pressure on in Cobourg itself in terms of the capacity utilization of parks. So generally it has not been a problem.

The Chair: Okay, thanks. I have two more questioners on my list, Mr Ruprecht and Mr Bradley.

Mr Ruprecht: I wanted you to know that I am subbing for Mr Grandmaître. He has considerable interest in this issue. I am referring to the significant accounting policies, that are found on your page 19. Could you just briefly explain the statement you have made here: "No provision is made for doubtful loans in advance of a loan being written off"?

Mrs LaPierre: In the accounting policies for the development corporations we have to correspond as much as possible with the public interest in terms of disclosure, as per our annual report, and closely harmonize the reporting to that which would be in the private sector.

At the same time we have accounting policies dictated to us by the government, Treasury and Economics in particular. Specifically what happens with respect to loan losses is that there are policy statements -- I think you will find it more revealing in the 1991 notes -- with respect to write-off criteria. In essence, a loan is written off or written down based on those policy decisions, and therefore an additional provision would not be required because of the restriction there.

There has been some discussion in the past with a review by one of the major accounting firms with respect to this issue. In consultation with the Provincial Auditor's office and Treasury and Economics, it was concluded that the presentation you see today would be the best approach.

Mr Ruprecht: Is a doubtful loan recoverable?

Mrs LaPierre: The loans are written down or written off based on one's best judgement of the value of the security. Yes, they do pick up and get recovered. This is particularly true in guarantees and in loans. We have a department whose mandate is to continue to use every method possible in a business context to recognize the value of the security, and this would happen after the write-off had been processed. So we have been quite successful in our recovery situation on loans.

Mr Ruprecht: Along with Mr Villeneuve's question, who began this line of questioning, is the 1991 Eastern Ontario Development Corp figure of loan losses of 4.97% supposed to be an interim figure, or is this a projected figure to the end of this year?

Mrs LaPierre: Our year-end is March 31, 1991, so those are final figures for the year ended March 31, 1991.

Mr Ruprecht: Do you have any projections for 1991-92?

Mrs LaPierre: In the estimates that were submitted in part of public accounts. I believe it is on that schedule that you have in front of you, an estimate of loan losses. Is it there? Yes, 1.4%.

Mr Ruprecht: My final question goes to Mr MacKinnon. Mr MacKinnon, you described for us in, I would say, fairly successful terms your strategy and the process by which, in your own words, the corporation is fairly successful. You would agree with that, would you not?

Mr D. MacKinnon: I would stress the next phrase, "but not complacent."

Mr Ruprecht: I wanted to find out from you in a public statement how you would see the criterion that would be developed to have a successful corporation, and at the same time to tell this committee how you see the criteria for unsuccessful corporations, so that there is some form of judgement that the person could make in determining when the corporation would not be successful.

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Mr D. MacKinnon: First of all, I do not think anyone has a complete set of answers. There are all kinds of forecasting systems that are in place -- computer software, spreadsheet analysis and so on -- which people have developed to help take a balance sheet and an income statement from a company and to try to predict its chances of succeeding in the future. I have seen many such systems. They are in use and they evaluate all the individual things things you would expect to be evaluated to try to come up with some reasonably accurate way of making a prediction, and some of them are quite good, but I think there is some art to it, too. What those kinds of systems often forget is that sometimes success arises from adversity, for example, or sometimes people, because of an unusual level of capabilities, are able to succeed at things where all the rules of the economists and the accountants say they should not be succeeding. There are also surprising things. Generally speaking, if a firm is operating in a competitive environment, its chances of survival may be better than if it is operating in a non-competitive environment without active competitors to stimulate it on.

I guess, to answer the question, yes, there are systems that can to a significant degree forecast the future of a company, in financial terms, at least, but you can never rely on them, because you are dealing with human behaviour, in a very real sense, when you talk about entrepreneurship, and you are dealing with its variables and sometimes -- one of the most advanced technology businesses I ever saw made axe handles. In our line of business, no one can ever know the rules completely and you always have to be open to people succeeding or failing in ways you have never seen before, and I think this is the fundamental reason why successive Ontario governments have had this board structure.

They do not want a set of formal rules that are applied in each and every case, because there are always people who are going to fit outside them. They do not want a bunch of people like me and my colleagues sitting there making these judgements in that way. They have, I think, taken the view that, because of the fact that we are dealing with human behaviour and all the variability associated with it, in some ways the best people to make the judgement as to what will succeed and what will not are people from the business and the academic and the legal and the accounting communities whose day-to-day life brings them in touch with them, and they bring the art part of it as well as the experience.

The Vice-Chair: Thank you, Mr MacKinnon. We have almost run out of time. We have two more people who want to ask questions, and we have to deal with the subcommittee's report before lunch, so if the two questioners would be brief, I would appreciate it.

Mr Frankford: In this list of loans made, I think one of the biggest ones on this list was to a company in Scarborough, a modular home manufacturer. Is this just where the company happens to be based or --

Mr D. MacKinnon: Just while we are looking at the papers, quite often the head office is different from the actual location of a plant. That is likely what this is, but Mr St Amant perhaps would be familiar with it in detail. We will check that particular case, but there is a 90% chance it relates to the head-office/plant location.

Mr St Amant: Yes, the head office is located in Toronto, but the manufacturing facility was in eastern Ontario.

Mr Frankford: Do you know where the manufacturing location is here?

Mr St Amant: My recollection is that it was outside of Cornwall, but I will check.

Mr Frankford: Okay, I will leave it.

The Vice-Chair: We have another questioner, but we are going to be back here after lunch, from what I understand, so if we wanted to continue then with the questioning. Mr Bradley said he would wait until after lunch, unless we could wrap it up with them and not have them come back here, if your questions were going to be fairly brief.

Mr Bradley: I will try to keep them relatively brief, although I do not know whether they will be.

There is a concern in two directions, obviously. One direction is that not enough people are able to get loans, that it is difficult, that those who genuinely could have a business that would benefit themselves and the province have to fight through the red tape and find that your rules are too tough. The other school of thought would be that the main concern of the Legislature and of your corporation should be that the people who are going to get loans are in fact not going to end up going out of business and leave the taxpayer holding the bag, because the taxpayer does not directly get the profits. I realize that there is an argument that the taxpayers indirectly share in the benefits of a successful corporation or business, but they do not necessarily cheer when they are stuck with the bill at the end when it is not successful. So I ask the question in this context. I will not ask it in a general context of, how do you make sure they are successful? I can surmise some of the things you do.

What about people with a criminal past or a past which, if not criminal, is what we might call shady in terms of business? Are they able to get loans or do you wipe the slate clean? I can think of one person -- but Hansard is running -- for instance, who was involved in a number of businesses a number of years ago that the legislative committee dealt with in great depth, a great investigation, and the person subsequently was sent to jail. He is now out and in business again. Would people in that category be able to get a loan?

Mr D. MacKinnon: We take great pains to check the individuals involved in a business, Mr Bradley, as you may recall from reviewing some of those files in your days in cabinet. We certainly do our best to check on the measurable conduct of all involved in seeking a loan.

Having said that, we have to pay careful attention to the law. It is a fine point. If somebody goes to jail, serves his or her term, gets out on the street again, do you make a loan to him? The answer, I think, in legal terms would be that you are not precluded from making a loan to them by the fact of their once having served a jail sentence, and we have on occasion made loans to people who have served jail sentences, and we have been successful. However, the overall pattern of a person's life and conduct is of interest to us, and that is what we assess.

The other side of that question, which goes a little bit beyond it -- I will try to be very brief -- is that if someone does succeed in defrauding us or anyone else, then we follow all the measures under the law. Mr Runciman has left, but he would have been involved in the hearings of a company called Wyda Systems a few years ago, which occasioned great concern and great political concern on all sides of the Legislature, that particular case. Four years later, we finally ensured the principal of that case went to jail.

We believe strongly in the deterrent effect. If somebody does succeed in defrauding -- now, in that case it was not us who was defrauded; it was IDEA -- we will pursue it very vigorously with all the reasonable legal means at our disposal to try to prevent it.

So there are two sides to the question: Yes, we try to assess but we try not to be too doctrinaire because of the principles of law and natural justice, but second, if somebody does succeed in defrauding us, then we are quite vigorous in pursuing it, probably more vigorous than a commercial lender would be.

Mr Bradley: How public is it when people are seeking a loan from one of the development corporations? My guess would be that it is relatively a private thing, but is it public at all? The reason I ask that is that if it were, there may be people who would come forward with a tip, saying, "By the way, this person, you should know, has this, this, this."

Mr D. MacKinnon: We generally only disclose loans that are approved by the board or by the government, and we do it annually each year. The reason for that is that sometimes the very fact that somebody is seeking a loan from any source is a matter of great commercial significance and can affect that person, so we do not normally disclose. But obviously there are a variety of information sources open to us. I mean, I am a devoted reader of the court notices on fraud, as are most of my colleagues, as you would expect.

Mr Bradley: So that is a check there.

Another question I would have for you, and this is, I realize, very difficult, because there are some people out there -- actually probably on the extreme left and the extreme right; interestingly enough, it would be those two sets of people in philosophy -- who would say, "Why should the government loan anybody any money?" So it gets to the question, what percentages of the businesses do you think would get going and succeed whether or not they got your assistance? That is a very difficult question.

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Mr D. MacKinnon: If I could come at that in a slightly different way, I think I can answer the question better. In my view, there are whole categories of enterprises that the evidence available to us shows are not developing adequately through the commercial credit and investment system. For example, we are providing 80% of all the institutional seed equity capital to Innovation Ontario. That tells you there is a clear market gap there that the private sector is not serving.

Second is very small commercial loans. I left a bank to join ODC, and at that time -- I will not use the figure -- it was very hard for us to make a profit on a loan of much under, I do not know, something in the range of $150,000 to $300,000. So below that level, a whole lot of commercial loans that need to be made in this society just are not going to be made because nobody is going to make any money lending it. That is one of the reasons why over a period of time the size of our loans has tended to decline, because we are filling that gap. I could go on.

I think the evidence available is that there are several important gaps in the private credit system that have not been filled, yet it is very much in the public interest that they be filled. That is why banks, for example, if you went down to ask the CBA or the other banks if they have any difficulties with our operation, would tell you, and I know because I asked them, "No, because we're not competing."

The Vice-Chair: Mr McGuinty, do you have a short question?

Mr McGuinty: Yes. Mr MacKinnon, in light of the fact that it is likely we are not going to be meeting after lunch with you, I thought I would ask you one more question. It is probably, again, a difficult question to answer, but you know we politicians have a tendency to oversimplify things and I wanted to put it to you anyway.

If we look at the costs -- I am trying to simplify this now -- of the development corporations, first of all, there is this 3% cost. You refer to the fact that there is a 4% write-off rate, I believe.

Mr D. MacKinnon: It varies from 3% to 6%, I think, in recent years.

Mr McGuinty: If we take it to be 4%, then there is a 3% difference between what is acceptable to a financial institution. Is that correct, just generally?

Mr D. MacKinnon: Yes. Sure.

Mr McGuinty: So that is one cost. Then there are the administration costs, and then there are the costs of lending out money at a reduced rate of interest. Are there any other costs I am missing?

Mr D. MacKinnon: No, I think you have got the bulk of them.

Mr McGuinty: Okay. If we were to add those up and arrive at a dollar amount on a yearly basis -- what I am trying to get at here is, how do we assess whether we are getting a bang for our buck? Those are the costs. The benefits, of course, are the benefits associated with having a successful business venture and the injection that gives to the economy.

Mr D. MacKinnon: Plus revenues. Remember that 95% of those loans are coming back. They have been repaid, with interest.

Mr McGuinty: Right, but I am just looking at the differential now of the reduced rate of interest. If we measure those costs, has any attempt been made to develop some kind of system to measure those costs against those benefits we were talking about?

Mr D. MacKinnon: You have hit an area which is -- I can give you some numbers that I think will answer your question in global terms, but the government accounting system is geared basically for most ministries of the government. In a highly commercial enterprise like us it fits in uncomfortably. So the answer is that there are not precise figures provided to legislators of that important variable. I agree with you it is important.

We have done several rough calculations, though. I can assure you that in any given year the final net cost to the taxpayer, out-of-pocket costs or activities, would be under $50 million, and in some years it has been much less than that. Let's use the maximum possible figure. Suppose that filed out-of-pocket cash cost this year was $50 million and on that you are getting a program base for the whole set of development corporations that is providing approximately $300 million to the customer base. In recent years that figure has been less than that, but I do not have a precise figure that every accountant in the government would agree on, because the system is not geared to commercial operations like ours, and frankly that is one area where I think we need to do a lot of work. You will see from our improved financial statements, if you compare our financial statements this year compared to five years ago, you are getting vastly more information, including some information of that type, but we have a lot more work to do.

The only thing I can tell you, though, is that the out-of-pocket cost is generally a very small fraction, less than 20% and probably less than 10% most of the time, from the financial assistance made available to the community.

Sometimes some parts of our operation are also highly profitable, by the way. Industrial parks are, and sometimes we do quite well on investments that we run for the government. There are two components: the revenue side deriving from interest revenue; profit derived from industrial park operations, which is substantial; and profits derived from gains in the sale of investments. Over time, on some investments we have done reasonably well. For example, we have divested seven Innovation Ontario companies and on each of them we have achieved very substantial profitability.

The Vice-Chair: Thank you very much for appearing before us today. We appreciate your input and your coming, and the members have had some excellent questions. It has always been very close to me, how the ODC has operated, and I think it does a super job. Thank you for appearing.

Mr D. MacKinnon: Thank you very much, sir, for the opportunity.

REPORT OF THE SUBCOMMITTEE

The Vice-Chair: Committee, we will deal with the subcommittee's report of yesterday. I understand that the government members wanted to consult with regard to perhaps looking at more appointments or a change, and perhaps we could deal with that now. Mr Hayes, are you speaking on behalf of your party?

Mr Hayes: Yes, Mr Chair. I appreciate some of the concerns, but at the same time I guess I have to say here in this committee that the schedule and the times that were laid out first of all were actually agreed on by the previous subcommittee, and the times that all the committees would work was agreed on by the whips of each party. For us to just decide here today that we are going to change the rules we have been living by -- I guess I have to say we are not about to do that.

In dealing with appointments, I know we have concerns, and rightfully so, that there is a problem with time. However, I guess we are going to have to do that when the committee comes back when the House is sitting. We cannot agree to deferring these appointments at this particular time and also changing the rules.

Point 4: We certainly can agree that we would meet and that the committee would schedule at least one meeting per month for the review of agencies when the House meets. That is where we are right now.

Mr McGuinty: I am very disappointed to learn of the government members' position with respect to this matter. We are operating, as Mr Hayes indicated, under severe time constraints. That is not the fault of any of us, to put it fairly. What is suffering here, of course, is the integrity of the government appointments review process, a process that was set up by the Premier as a solution, or an attempted solution, to a problem he felt to be very significant. I think we all feel the significance.

Now the government side is saying in effect that it is not prepared to make any concessions. They want to stick by the rules and the net result is going to be that 14 appointments will take place and we will be deprived of the opportunity to review them.

Mr Ruprecht: That is terrible. That is just awful.

Mr McGuinty: I think they are just not making the effort to set aside some time at another time and show some flexibility and maintain the integrity of the process. That is what is at stake here. I am just extremely disappointed they have taken that position.

The Vice-Chair: I wanted to say a few words on behalf of our party if the Chairman were still here, and of course I have had to take the chair. However, I would still like to put a few points on the record about this whole process, which was raised yesterday, how flawed we have believed it to be. What is happening now shows me it is more flawed than I thought it was, because we were never allowed time to deal with this. We asked for six weeks, and to blame it on the whips and the House leaders -- it is the government that calls the agenda, it is the government House leader who dictates more or less what takes place in House leaders' meetings and runs the agenda. To say that it is because of our House leader's problems -- I do not accept that and this shows to me how badly flawed the process is.

Mr Villeneuve: I have been around here as long as anyone at this table, I guess, and this government came in with the idea that we are going to be screening. None of us were under the illusion that -- with six from the government and five in total from the opposition, of course the government was going to have its way, as is the way in majority governments. However, to remove the screening process, where we can put on the record where these people are coming from and what their ideas are on the particular appointments they are going to, I think negates the raison d'être of this particular committee.

I am very disappointed. Never was I under the illusion that we would change the mind of the government vis-à-vis the appointments, but at least we could put on the record where they are coming from, screen them and if a vote is required, that is fine; the government will win the vote as is always the case or almost always the case in majority governments. It is a disappointment, if nothing else.

The Vice-Chair: Thank you. We should get on with the vote.

Mr Hayes: I do not think anybody here is going to deny it. Certainly we would like to have more time. Obviously there are a lot of people who are not available to sit a very lengthy period of time through the summer. They are spread out very thinly as it is, and there are many members sitting right here from all three parties who are not regular members of the committee, so it makes it very hard to sit longer. I am kind of glad to hear people saying it is a good process that we have been going through, because they have been saying before that it is a farce and a waste of time. Now they say we want to spend more time on something that is a waste of time. I have a little problem with that. That is all I have to say right now.

Mr Ruprecht: Just for the record, I think that government members, including Mr Hayes, would agree that the process will suffer in terms of its integrity. We on the opposition side have to believe -- at least that is what we were made to understand -- that the NDP government would come in with a fresh, clean slate, that there would be plenty of time and that there would be plenty of opportunity to go through the process. On behalf of Mr Grandmaître, who is a member of this committee, that is why I would simply like to indicate we would not agree with the government position by taking the time away from this process.

The Vice-Chair: Let's get on with the vote. We will vote on item 2, then we will vote on item 3 and item 4.

You all have item 2 before you. Is there a motion that item 2 carry? I would like a vote in favour of the recommendation of item 2. All those in favour? All those opposed? I declare item 2 defeated.

We will move to item 3, the certificate with regard to August 1:

"Your subcommittee advises that a subcommittee meeting will be held on August 30 to select intended appointees for review from the certificate of August 1 and any subsequent certificates received in August."

All in favour of item 3? Those opposed? Carried.

The last one is with regard to the scheduled meetings when the House meets:

"Your subcommittee recommends that the committee schedule at least one meeting per month for the review of agencies when the House meets."

All those in favour of that recommendation? Opposed, if any? Carried. Thank you for your time on that one.

The other item of business is the closed session, with regard to advising our researcher what recommendations we feel we should make. We could probably do it in 10 minutes.

If we could go into camera, I will declare this part of the committee adjourned.

The committee continued in camera at 1221 pm.