The Committee met at 9:00 a.m. in the House of Assembly.

CHAIR (French): Good morning, folks. I guess this morning's Government Services Committee are doing the Department of Finance and the Public Service Commission.

I guess we will start off with the Public Service Commission, if that is okay with everybody at hand. Before we do, I guess we will start by - before I call any of the subheads, actually, I will call, like I said, the Public Service Commission first. Before I do, I will ask the committee to introduce themselves and we will follow up by the minister and the officials from the department. Then I will call the subhead, and the minister can have a few words to start off and then we will go to questions. The way we worked it in the last committee, the first person asking questions went fifteen minutes and then we went ten and ten after that. So if that is okay with everyone, we will keep the same format.

First of all, I would like to start with Mr. Dinn. If you could kindly introduce yourself, we will move from there.

MR. DINN: John Dinn, MHA, Kilbride District.

MR. PARSONS: Kelvin Parsons, MHA, Burgeo & LaPoile.

MS MICHAEL: Lorraine Michael, MHA, Signal Hill-Quidi Vidi.

MS E. MARSHALL: Beth Marshall, MHA, Topsail.

MR. FORSEY: Clayton Forsey, MHA, Exploits.

MR. KENT: Steve Kent, MHA, Mount Pearl North.

MR. T. MARSHALL: Tom Marshall, Minister of Finance, President of the Treasury Board.

MR. PADDON: Terry Paddon, Deputy Minister of Finance.

MR. CONSTANTINE: Bob Constantine, Assistant Deputy Minister of Taxation and Fiscal Policy.

MR. WALSH: Ed Walsh, Chair, Public Service Commission.

MR. BARRY: Keith Barry, Vice-Chair of the Public Service Commission.

MS McCARTHY: Maureen McCarthy, Director of Pensions, Department of Finance.

MS VAUGHAN: Linda Vaughan, Director of Financial and General Operations.

MS BREWER: Donna Brewer, ADM, Financial Planning and Benefits Administration.

MR. HICKEY: Bill Hickey, Director of Communications, Department of Finance and PSS.

CHAIR: Before we go any further, I will just ask that the officials, when they speak, if could you give your name first, just for recording issues - when you speak, if the minister refers to you. So please give your name before you respond to the question.

We will call the Public Service Commission, subhead 1.1.01. I guess we will start off this morning with the - who is starting with the committee this morning?

MR. T. MARSHALL: (Inaudible).

CHAIR: Oh yes, first. Sorry about that. Go ahead. I'm jumping ahead.

MR. T. MARSHALL: Good morning.

I understand we are going to deal with the Public Service Commission first. Just to make sure that everybody is okay, I know there were some strong feelings about the debt interest clock that I took around. I just want to assure everybody, this is not an interest clock, it is just a regular clock.

Public Service Commission; the focus and core mandate of the Commission is established by its legislation. It involves the protection and the application of merit principles in public service hiring and promotions and the development of staffing related policies and processes. The Commission is committed to the concept of a public service excellence through merit, respect and fairness.

Government's ongoing support and commitment to the Commission is demonstrated by the decision to allocate the necessary resources to effectively deliver on its core mandate. In addition to its core mandate, the Commission has been tasked with providing confidential personnel services to our employees. These services include the Employee Assistance Program, the Respectful Workplace Program, and the Employee Wellness Program. These programs have supported thousands of our employees and their families.

The Commission has also been authorized to provide an investigations unit designed to provide independent, credible, expert investigation services to government departments and agencies to meet the ever growing demand in areas of harassment and abuse of authority complaints and human resource management.

With that, Mr. Chairman, we are open for questions.

CHAIR: Thank you.

Mr. Parsons, would you like to start?

MR. PARSONS: Yes.

I just have one question. What is the status right now of recruitment, in terms of how many vacancies exist in the public service, the nature of those vacancies? What kind of stresses do you see on a go-forward basis in terms of being able to attract people to the public service, particularly the high-ranking positions in the public service, given our, shall we say, differentials between some of the weigh scales here and what someone might get in the private sector?

MR. WALSH: As a general comment, I would suggest to you the size of the public services we have it - and I am talking here now for the purposes of our discussions - the core public service, meaning the government departments and agencies that are scheduled to the Public Service Commission Act.

Attrition is a normal part of any major organization, any major employer. I would suggest to you that on a go-forward basis we regularly have somewhere in the vicinity of probably about 2 per cent or 3 per cent of the public service positions that are in some state of flux. Those are normal things that happen through retirement, individuals leaving for other opportunities, individuals leaving the Province for whatever would be the reason. That 2 per cent, 1 per cent, is kind of standard. In the last year we ran somewhere in the vicinity of 1,400 job competitions, which would be a considerable number given the size of the staff at the Public Service Commission, but we found ways to enable us to achieve that in a reasonably efficient manner.

What are the factors that impact on recruitment? - I believe, sir, is your question. To a large extent, we are like any other employer of the Province. We are the largest, but nevertheless, we are like any other employer. We have to ensure that we are competitive; both from a financial perspective but also that we are seen to be an employer of choice.

The emphasis has been placed, over the last number of years - particularly with the Public Service Secretariat and the commission working jointly - to try and enhance and do the kinds of things that are necessary to show perspective employees that the public service is a good place to work. We are making considerable efforts in that area, and we continue to do so. Particularly in the area of advertising, we are doing things like - some of you may remember the discussion the minister tabled in the House a little while ago on a career expo, and a series of career expos that we are doing throughout the Province just to continue to promote the public service as a perspective employer for individuals who may be interested in working in that field.

MR. PARSONS: So are we competitive with -

MR. WALSH: In some areas, sir, we are extremely competitive, in some areas we are not. The reality is that when you start competing in a broad sector, in a broad sphere with the private sector, there are going to be some sectors that have a greater capacity to pay.

We cannot compete, for example, with the oil industry. We cannot compete with the kinds of opportunities that - or the kinds of salaries that are being offered in places like Fort McMurray for truck drivers. To a large extent, our labour market, which is the Province of Newfoundland and Labrador, and in that labour market we are generally competitive. Some occupations we are very competitive, and some occupations not so much.

MR. PARSONS: Thank you.

I have nothing further.

CHAIR: The Member for Signal Hill-Quidi Vidi.

MS MICHAEL: Thank you very much, Mr. Chair.

I am interested in the investigation unit. I do not think I was aware of this unit, actually. I am very pleased that there is an investigation unit into harassment and abuse of authority.

Could I just have some information on how that operates and how the staff throughout the public service are aware of this unit with regard to reporting, et cetera?

MR. WALSH: The unit operates as - and I guess in a broader context, the Public Service Commission operates as an arm's-length independent agency.

Ultimately, the responsibility for the review of harassment - I am going to use harassment as an example - cases rests exclusively with the deputy minister of the agency or the organization where the complaint comes from. There are instances where those are done in-house but there are also instances where, because of the complexity and because of the sensitivity of the case, they are referred to the commission. In which case then we have two individuals working on staff, both of whom are very experienced investigators, and those individuals will take responsibility for doing that independent review. Again, it depends upon the nature of the complaint that may come forward, but they would do that review and forward the report on that matter to the hiring deputy minister.

How is it promoted? We have, through the course of our normal exchange, ongoing and regular discussions with the executive of various departments. We deal with the union, and particularly with NAPE, as it relates to the availability. Information about the availability and the unit, and the process, is available in the collective agreement for employees.

MS MICHAEL: Do the complaints usually come directly from employees to you, or is it a mix?

MR. WALSH: There is a mix. Sometimes they go directly to the department. Again, that would be the normal, particularly as it relates to harassment types of complaints. They would normally go to the department and the deputy minister would request their involvement. Again, there are instances and situations. However, where those complaints and requests come to us - and again, depending upon the matter, we will either refer the employee to the deputy or we will take the matter and deal with it directly ourselves.

MS MICHAEL: Does the unit - obviously it would track complaints that come to the unit. Is there a relationship between the unit and the department so that the unit is also aware of the number of complaints that might happen in departments, that while the unit does not deal with the complaint, it does get information about how many complaints happen?

MR. WALSH: To the best of my knowledge, at this stage the only data that we are tracking is data related to the complaints that actually come to the Public Service Commission. Again, remembering that the responsibility, ultimately, for dealing with those harassment complaints rests with the employer. In this case that would be the employer's representative, either by the Public Service Secretariat or the deputy minister of the agency.

MS MICHAEL: Okay.

My only reason for asking that question is that it would be good for us to - or I mean good, good for the employer when I say us -

MR. WALSH: Yes.

MS MICHAEL: - for the employer to have a sense of how frequent complaints, with regard to harassment and abuse of authority might be. I think it would be good if there was some kind of coordination of getting an idea of what happens in departments, as well as the complaints that are made to the unit. It is just a thought that I am having.

MR. WALSH: Yes, madam.

MS MICHAEL: So it gives us an idea of what the climate is throughout the various departments of government, and not just left to each department to be in charge of its own.

That is good. Thank you.

MR. WALSH: Thank you.

MS MICHAEL: Just a couple of line items, Mr. Chair, that I want to raise.

CHAIR: Go right ahead.

MS MICHAEL: Under Professional Services, I notice that in the budget for 2007-2008 – I am looking at line item 05. under the one section for the Public Service Commission, on page 61.

Line item 05. Professional Services. In 2007-2008, the budget was $204,300 and then it was revised to $495,000, and this year it is being estimated even more at $554,300. Could you give us an explanation of why the revision was so high and why this is much more money going into Professional Services?

MR. WALSH: In last year's budget we had received funding for - if you look and do the comparison with the Salaries on line 01., some of those salary dollars, instead of hiring people on temporary status, we hired them contractually. Ultimately, they were dollars that were paid to provide us with the additional supports necessary to deal with the increased volume of work in the staffing area.

MS MICHAEL: Okay. Then this year it looks like you are allowing for an increase in the Salaries and then also an increase in the contracted Professional Services.

MR. T. MARSHALL: This year, the budgeting funding is the same level as 2007-2008, plus an additional $350,000 that has been allocated to fulfill a Bluebook commitment to develop a strategy to increase the number of graduates employed in the provincial public sector. So, there is a $350,000 increase for that purpose.

MS MICHAEL: Okay.

Thank you very much.

I think that is all, Mr. Chair.

CHAIR: Thank you.

Any more questions before we move on to the - Mr. Dinn?

MR. DINN: Mr. Walsh can probably fill me in on this one. You were saying that we are losing some people and we are competitive in some sectors and not in others. I am just wondering, how are we competing or how are we when it comes to skilled trades? Because I know in the whole St. John's area especially, there seems to be a shortage of skilled people around.

MR. WALSH: Mr. Dinn, my observation would be that in the metropolitan St. John's area in the skilled trades, we are as competitive as any other employer. I think in a broader context, though, the reality of the workplace in 2008 is a lot different than it was even ten years ago.

MR. DINN: Yes, definitely.

MR. WALSH: Some pundits call it the big commute: people who work in the skilled trades and there family is here but they are working outside the Province because of the availability of the dollars and because of the nature of the transportation that goes back and forth.

That is a factor that will impact upon our ability to recruit; but, again, I don't think it is just the Government of Newfoundland and Labrador. I think it is the Province of Newfoundland and Labrador in that regard.

MR. DINN: I am well aware of that, yes.

I hear all kinds of cases of skilled people, operators, truck drivers, and a lot of them are leaving, like you said, because they can go and commute back and forth every few weeks. I think we are losing them for the bigger dollar there.

MR. WALSH: There are some factors there, and I think as well there is – and maybe a representative from another department might be better able to speak to the issue of what is happening in a broader context within our society in terms of how many of our children are choosing and opting to go into the skilled trades as an occupational choice, and the implication of that on the size of the available labour market.

MR. DINN: Okay.

There is one other point. I ran across a case related to one of our own employees who, every winter, gets laid off. He works with the Housing Corporation. This year, rather than sit around the house and wait until he gets called back to work in the spring, he decided to upgrade himself. He was only, I guess, a handyman, kind of a janitor type of person. He did a lot of carpenter work, plastering and painting, so he decided to go in and upgrade himself. When he reported to EI, they cut him off. So here he was with no income and they told him that he had to clear this with them, and all this kind of stuff, and he couldn't because he was working.

Anyway, he had to appeal it, and with the help, I guess, of his own department and the minister, he was able to win his appeal, but there is an issue that we might want to flag for the future. Just work it out with the federal government, with the EI people. If we have people who are off and are willing to go and train themselves to keep their jobs here, then they should not run into this hassle with the unemployment people. This guy will, after this year, be employed from now on. He will not be on the EI system any more.

It is just something that I want you to flag, just in case. It might not have anything to do with Budget Estimates and stuff like that.

MR. WALSH: Thank you.

MR. DINN: Thank you.

CHAIR: Any further questions?

Shall 1.1.01. carry?

SOME HON. MEMBERS: Aye.

On motion, subhead 1.1.01. carried.

CHAIR: Shall the total carry?

SOME HON. MEMBERS: Aye.

On motion, Public Service Commission, total heads, carried.

CHAIR: Shall I report the Estimates of the Public Service Commission carried without amendment?

SOME HON. MEMBERS: Aye.

On motion, Estimates of the Public Service Commission carried without amendment.

CHAIR: Thank you very much.

I guess we will now move on to the Department of Finance, and we will start by calling subhead 1.1.01.

Shall 1.1.01. carry?

I will now refer to the minister for the opening comments.

MR. T. MARSHALL: I understand it is traditional for the minister to say a few words, and I will say a few words in terms of the Budget and to point out the fact that our Budget this year is an historic, monumental Budget in terms of what has been happening in the Province over the last fifty years. We have now been able to turn a corner, a very important corner, where we are no longer running deficits and we are now in a position to run surpluses because of higher oil revenues, metal, our mining revenues and the benefits of the 2005 Atlantic Accord, which enabled us to keep revenue without losing revenue under the equalization formula when we receive the oil and gas revenues.

We had an unprecedented Budget last year of $1.4 billion, driven mainly by high oil prices, totally unexpected oil prices, metal prices. We also, in terms of expenditure, I think last year we were $6.6 billion in revenue after – that was about a billion dollars more than was forecast at budget time last year. Expenses, the spending on debt, we spent $730 million last year, and on government services and programs $4.7 billion.

This year our revenue will drop to $6.3 billion, from $6.6 billion to $6.3 billion. We are going to have a major decrease in production levels. Everybody focuses on the increase in prices, but our production levels are going to drop this year by thirty-one million barrels of oil compared to last year, which is, when you do the math, you know, thirty-one million barrels times whatever the price of oil is, it is a big loss of revenue; but the higher oil prices - and we have used a figure of $87 in our forecast - we are therefore predicting that our oil revenues will still be the same because of the high oil prices, but we have to be cognizant of the fact that it is a non-renewable resource; it is coming out of the ground.

Oil production was at a peak in 2007 and we are now into a decline. I know Jeffrey Simpson of The Globe and Mail called it the cliff; we start falling down the cliff. There will be an increase in production, I think, in 2011, when White Rose expansion comes on. Then, in 2015, when Hebron comes on, there will be an increase again; but, even with those two projects, the total oil production will not get back to what it was in 2007, so we have to be very cognizant of that.

We are proposing to spend on government programs this year, $5.2 billion. That is a 9.5 per cent increase in spending over last year; it is about $460 million. We have reduced revenue, as you know, in terms of taxes and fees, by about $178 million. There were revenue reductions last year of about $160 million, which was the largest revenue reduction in history, and this year, much to my surprise, we have exceeded that to $178 million. That is $342 million in tax and revenue reductions over two years.

That does three things. It makes our tax system more competitive, which will mean that people can invest, and that will mean jobs. We don't give tax breaks to investors because we like them; we give it to them in order to create the economic growth and to create jobs, because small business certainly creates more jobs than any other group in the country. I believe that figure is right. We want to create that because we still have people at the low end who don't have jobs - low-income people, marginalized people - and we want to create employment for them.

The other thing, of course, is that we need to attract people to this Province and we need to keep people to stay in Province. The retraction and retention of skilled workers, the retraction and retention of people in the medical profession, the engineering profession, we need these people and we have to be competitive on a tax basis. When you can lower personal income tax it puts more money in people's pockets. It is like giving people a raise, and that was the reason for doing that.

The third reason, of course, is that, while inflation is reasonable, the increase in energy costs has not been. We have big increases in home heating fuels. I think it was 30 per cent over last year to this year. I think gas prices are up 22 per cent - I think I read that yesterday – this year over last year. We want to put money in people's pockets to help people deal with those costs.

Some of the things we did: last year there was a low-income tax benefit; two years previous to that, I think, a budget of Minister Sullivan. When you look at both of those, there are about 20,000 people at the low end who got the benefit of the low-income tax benefit, which is now indexed, and they have been removed entirely from the provincial tax rolls. There were income tax reductions last year. There is a further income tax reduction of 1 per cent this year. We lowered motor vehicle registration. When I did the pre-budget consultations last year that is what I heard more than anything else from people: they wanted that motor vehicle registration reduced. When I did it this year I heard from people about the unfairness they felt with the tax on insurance, the 15 per cent tax on insurance, so we removed that as well this year.

Our Province is now permitting seniors to split pension income between spouses, which would result in the payment of less tax. The federal government is doing that. We are doing that as well, permitting the splitting of pension income.

The Seniors' Benefit: last year we enhanced the threshold. That enabled about 7,000 senior couples, or 14,000 seniors, to receive either the full or partial Seniors' Benefit. This year we doubled that for single seniors, so they will get the same benefit.

The feeling was that if you had a couple, if one of the spouses died, their cost of living didn't drop 50 per cent - it was still as expensive to maintain a household - so we elected to go with the same benefit. That is an increase from $380 to $776, and that benefit will be available in October.

Also, of course, is the home heat rebate, which is now $300 for people who heat with home heating fuel. It is $400 for people in Labrador because they use the stove oil, and they use more of it because of the colder temperatures. In November, when we did this, electricity costs had in fact gone down by about 3 per cent, so that is why the rebate for electricity, for those who heat their homes with electricity, was maintained at $200.

Apart from revenue reductions, as I said, government programs and services will be $5.2 billion this year. That is an increase of $460 million. That will include the Poverty Reduction Strategy which, when analyzed next year, will be $100 million a year.

In terms of infrastructure, when you look at the repairs and maintenance in the $5.2 billion of government's expenses, or government programs and services, and what we are going to pay on tangible capital assets, that is $673 million. That is a major investment in infrastructure that is much needed. This year there will be $451 million paid down on debt. It was $370 million last year. We will also invest $328 million in Hydro, to enable Hydro to meet its commitments where it acquires the 5 per cent equity interest in the oil fields, and there is $100 million in there as well to enable Hydro to pay down its debt to have a better debt-to-equity ratio as it prepares for its investments in the energy sector and also, over the long term, the Lower Churchill, because one of the ultimate goals is to get that renewable hydro power to the Coast of Labrador to allow that power to support investment in Labrador and then hopefully the dream is to get the electricity here to the Island, so that the people here can heat their homes with renewable hydro energy and we can stop the burning of fossil fuels.

I think that is enough. That is just a general overview, so I am open for questions.

CHAIR: Thank you, Minister.

I will refer to Mr. Parsons, I guess, to start the questions.

MR. PARSONS: Thank you.

I am sorry to hear, Minister, your statement that we don't give tax breaks to taxpayers because we like them.

MR. T. MARSHALL: No, to business - investors.

MR. PARSONS: First of all, I will say up front, I don't come from an accounting, financing background, so albeit some of my questions may seem very elementary to you, bear with me. This is a learning experience. I have never been the Finance Critic before, so this is hopefully going to be educational to me. Someone told me one time there is no such thing as a stupid question, but I may prove them wrong this morning. Anyway, bear with me and some of my questions.

First of all, maybe with some line-by-line stuff, Minister, on page 31, under 1.1.01, the Minister's Office, the item of Salaries there, $277,500, could you give me some idea of the positions included in that heading?

MR. T. MARSHALL: There are four employees in my office. There is me; there is the departmental secretary; there is Larry Wells, an executive assistant; there is Lorna O'Neill, who I refer to as my constituency assistant but I believe she may be called a ministerial secretary; and there was also a position of policy analyst that is presently vacant. That was Mr. Darrell Hynes who was seconded or who was transferred to Aboriginal Affairs.

MR. PARSONS: Say that again. There is yourself, there is your EA and there is your departmental secretary. I cannot hear you very well.

MR. T. MARSHALL: Oh, I am sorry. Lorna O'Neill, the constituency secretary.

MR. PARSONS: Would your constituency person come under ministerial? I thought that was dealt with by the House?

MR. T. MARSHALL: No, when you move to Cabinet the constituency person is taken care of by the department.

MR. PARSONS: Because I had an answer in Estimates last Thursday. Actually, twice last week I asked the same question, and both of them said that, no, constituency assistants were handled – and they were ministers, no doubt – were handled and dealt with and paid for by the House and not included in the ministerial office.

MR. T. MARSHALL: No. When I was in Justice and in Finance the constituency assistant – I understand when you move into a new Cabinet position your constituency person – I think, if you had a person who was a member here in St. John's and had an office here in St. John's, the constituency person is here in the House of Assembly or up in the government members' office, but when the person moves to a Cabinet position, the constituency assistant or secretary goes with them and then comes under the department's payroll. That was case in the Justice and that was the case in Finance.

MR. PARSONS: I am a bit confused, Minister, because I sit on the Board of Management and I know the House of Assembly pays for forty-eight constituency assistants. So, unless someone is getting paid for twice, I do not know how a constituency assistant would be –

CHAIR: If I could just interrupt for a second. I do not know if it is appropriate for me to comment as Chair, but I am a Parliamentary Secretary in the Department of Health and I have a constituency assistant and that comes from the Department of Health.

MR. T. MARSHALL: Mr. Parsons, maybe this might help. The constituency assistant is referred to here as a secretary to the minister, and then there is a departmental secretary to the minister. That is the permanent departmental secretary.

MR. PARSONS: Okay. So, if you have a secretary to the minister in here, he or she works in here –

MR. T. MARSHALL: No, no. Mine is my constituency assistant.

MR. PARSONS: They work in Corner Brook?

MR. T. MARSHALL: Yes, both my EA and my CA. I always refer to her as a constituency assistant.

MR. PARSONS: Yes, so the EA and CA are both in Corner Brook?

MR. T. MARSHALL: That is correct.

MR. PARSONS: But they both come under your ministerial cost?

MR. T. MARSHALL: That is right.

MR. PARSONS: That certainly clarifies things, because that is not what the other two ministers told me. In fact, that is what led to my question, because one of the other ministers said that he did have a departmental secretary and a secretary to the minister, a CA. When I asked again, he said, no, no, that is not correct, that is paid for by the House. There is some confusion amongst the staff..

So, those are the four people who are there. Anyone else? Minister, EA, departmental secretary –

MR. T. MARSHALL: Those are the four who are there now. There was a person, there was a policy analyst, I had when I became the Minister of Finance and the President of Treasury Board. That person is no longer in my office.

MS MICHAEL: Could I ask a follow up question to that, if I may?

CHAIR: If it is okay with-

MS MICHAEL: We work pretty well on this.

CHAIR: Sure, go right ahead.

MS MICHAEL: It does not make sense for me to come back to it later.

In the details, in the salary details, there are permanent employees, four permanent employees who you have referred to, and then there is a temporary amount, an amount for a temporary employee, $73,900. Would that be this position that you are talking about?

MR. T. MARSHALL: Exactly.

MS MICHAEL: Okay. Because that comes to, then, the $277,500 that is in the Budget.

MR. T. MARSHALL: That position is vacant.

MS MICHAEL: That position is vacant, but will that be a temporary position when it is filled?

MR. T. MARSHALL: It is a temporary position.

MS MICHAEL: Okay, and that is the policy analyst. Thank you.

MR. PARSONS: Maybe, Minister, if you could clarify it for me as well, given the Chairman's comment. In those departments that do have parliamentary secretaries, according to the Chair who is a parliamentary secretary, his CA would also be paid for by the department in which he is the Parliamentary Secretary.

MR. T. MARSHALL: That I do not know. I can only tell you about my personal experience when I was in Justice and in Finance.

MR. PARSONS: If that is the case we have eighteen ministries, I believe, eighteen all told, plus we have five at least Parliamentary Secretaries, which is twenty-three positions which would be twenty-three constituency assistants, so really the House should only be paying for twenty-five constituency assistants if that is case. Is there any way someone can verify that, because I think that is at odds as my understanding as a Member of the Board of Management.

MS BREWER: I cannot speak to what is charged in the Legislature because those details go through the Management Commission but I can confirm that there is a standard allocation for all ministers, which is the Minister, the EA, the departmental secretary which is a public service position and then you have the other secretary which is a political assistant. Wherever there is a parliamentary secretary there is as well an assistant, a political assistant, with the parliamentary secretary and they are budgeted in the salary estimates of the department. I cannot speak to how many constituency assistants are actually budgeted in the Legislature itself.

MR. PARSONS: Ms Marshall who sits as part of this committee, I am not sure but maybe you can clarify the thing, because she also sits on the Management Committee. She indicates to myself that there are forty-eight CAs under the House, whereas according to this information there are twenty-three under ministries.

Anyway, I guess we will follow it up because I under that the House stuff gets done in the House, so we will certainly raise those questions. I believe in the House it is either the Minister of Finance or the House Leader who usually takes questions, so that question will be coming. Maybe we can have some clarification on it by the time we raise it in the discussions in the House when we do the House Estimates.

Minister, moving on to Executive Support, 1.2.01: I see now from the salary, the staff complement there, who is included in that: Deputy Minister, Assistant deputy Minister, Comptroller General, Director of Policy and Strategic Planning, Director of Communications, Secretary to the Deputy Minister and Secretary to the Assistant Deputy Minister. What is the distinction between a director of communications and a communications specialist? What is the distinction in the departments because some departments have both?

MR. T. MARSHALL: In the two departments that I have served in, I have only had a communications director, I have never had a communications specialist.

MR. PADDON: My understanding is a communications specialist would be sort of a level below the director of communications and would report to the director of communications. In the departments that fell they have, I guess, greater communications needs, they would have two individuals dealing with communications, but it is really just two different levels of staffing.

MR. PARSONS: Can you tell me how many departments have communications specialists?

MR. PADDON: I would not be able to tell you.

MR. PARSONS: I would have assumed that all of that information goes through you guys somewhere in the process.

MR. PADDON: It would, but a lot of that would go through the Public Service Secretariat who deals with the HR side of things. Sort of the budget for each department goes through here, but I would not be able to tell you off the top of my head which departments have a specialist and which have just a director.

MR. PARSONS: Can someone undertake to give us the answer, to provide that information?

MR. PADDON: Yes, that is not a problem.

MR. PARSONS: On 1.2.02, page 32, just a few minor items, Treasury Board Support there.

MR. T. MARSHALL: What is it again?

MR. PARSONS: Treasury Board Support, 1.2.02. It is on page 32; 1.2.02, Salaries. I notice there is a fairly substantial jump there from the $84,800 for last year up to $322,000 for this year. Is there an explanation for that?

MR. T. MARSHALL: A new division, a new activity, was created on September 10^th, 2007. The funding in the 2007-2008 budget was restated as indicated. The 2007-2008 revised was the estimated expenditure of this activity. This is the new budgeting division that has been set up, consisting of a director, two officers, a registrar and a secretary.

MR. PARSONS: Can you educate me a bit on that? Why the need for a new budgeting division?

MR. PADDON: What we found traditionally is that the support for the Treasury Board itself was handled by the budgeting division of the Department of Finance. Over the last number of years, we found a considerable strain on that division, the budgeting division, particularly when it comes around at budget time. The budget cycle typically runs from August to whenever budget day is, say March or April. What we found is that at the time when you are traditionally trying to deal with the request from departments and sort of the whole decision-making process around budget, you are also trying to support the Treasury Board process of Cabinet as well.

It was, we found in our view, very inefficient and very time-consuming on staff. We put a proposal forward to create a separate support division that would just support the Treasury Board itself, the Treasury Board Committee of Cabinet. That proposal was put in place midway through last year, which is why you see the $84,000 in salaries, $119,000 in total expenditures for that division. Then this year you see a full allocation for the entire year of 2008-2009.

By not having two separate divisions, by having just the budgeting division handle both, we found we were doing a disservice to both sides of it and that you were not providing the appropriate support to the Treasury Board itself and you were being pulled away from the analytical process around the budget, as well. In our view it made sense to have a separate support. That is really no different than, say, the Economic Policy Committee of Cabinet and the Social Policy Committee of Cabinet that are supported separately by the Cabinet Secretariat or roots within the Cabinet Secretariat area.

MR. PARSONS: Looking at your permanent staff complement under the staffing departmental salary details, the numbers obviously are not lined up exactly here. It just says 1.2, it does not get in to the further breakdown there.

MR. PADDON: Yes, 1.2 shows that there are four permanent staff in the Treasury Board Support.

MR. PARSONS: I am showing three. I am looking at page 23 in your salary details.

MR. PADDON: Yes. We have a Director of Treasury Board Support, one; two Treasury board Officers, two people, and a Clerk.

MR. PARSONS: Yes, you are correct. That number comes to $269,000 under there, correct?

MR. PADDON: Yes.

MR. PARSONS: Yet, over in Finance, when I am looking at page 32, 1.2.02.01, Salaries, it shows $322,000.

MR. PADDON: That would include, I guess, any temporary assistants. The staff details only have permanent positions, so if there are any temporary positions or overtime provisions that would be included in the $322,000.

MR. PARSONS: Okay.

Can I take it as a given that whenever we see that in any departmental estimates, the difference between the salary detail book and the actual Estimates, that you have built in temporary staff there?

MR. PADDON: Yes, either temporary staff or provision for overtime and that sort of thing. A combination of both of those items would be generally the difference.

MR. PARSONS: Okay.

MS BREWER: Mr. Parsons, in the front of the salary details for every department there is a salary summary and it will show what the permanent employees are, then it shows a column called temporary and other employees and then it will show overtime and other assistance that would add up to what is in the Estimates.

MR. PARSONS: Okay.

MS BREWER: In the case of this particular Treasury Board Support there is a fifth position that has been approved, but at the time we printed the salary details the position had not been classified and until a position is classified you do not get a PCN, which is called a Permanent Control Number assigned to it. In next year's Estimates you will probably see five positions for that area.

MR. PARSONS: Thank you.

CHAIR: Mr. Parsons, do you want to continue or did you want to take a break and turn it over to Ms Michael? It is certainly up to yourself.

MS MICHAEL: I will take over for a bit.

CHAIR: Okay. Ms Michael, please.

MS MICHAEL: I think I have the answer because of what you just said, but if we come back to 1.2.01., the amount of money that has been allotted as temporary for this year seems high. On page 21 in the Salary Details, under Executive Support you have the $920,029 for permanent but $245,400. Are they positions that you already know what they are and they are just not filled, or are they in the category of you are not quite sure yet what those positions are going to be?

MR. PADDON: In the Executive Support, you are asking that $245,000 there?

MS MICHAEL: In the Executive Support, yes.

MR. PADDON: The positions filled in Executive Support are generally permanent. The $245,000, there is a provision in there for a couple of temporary people to work on a project related to information management in the coming year. They are not filled at this point in time but we would expect to fill them relatively soon. They are temporary, just for one year. So you would see that decline then, but there is a general provision in there. It is just for some overtime and that sort of thing, but other than those two temporary people, there are no other plans to fill that.

MS MICHAEL: Okay.

Thank you very much.

For a minute, instead of doing the line by line right away - and I suppose one could say that if we do the line by line right away I will get all of my answers filled. I want to come to the bottom line - and make sure I am reading this correctly, I am sure I am - the very last line, the total expenditure for the department on page 39. We see that the budget for 2007-2008 was $78,868,900, it was revised down to $66,446,700 - down at the very last line of the estimates - and the estimates for 2008-2009 are $235,140,400. We have an increase this year of $156,271,100. I want to know, can I get the answer to that one first?

MR. PADDON: If you turn to page 33 of the Estimates you will see a provision in Government Personnel Costs of $165 million for salaries.

MS MICHAEL: Right.

MR. PADDON: This is essentially a block. The larger share of that is a block provision for salary increases in anticipation of a settlement of collective agreements.

MS MICHAEL: Okay. I missed that actually.

Thank you.

MR. PARSONS: I had identified that from 1.3.01. that you just referred to. Personnel costs, is that where the 8 per cent that we are talking about for this year is?

MR PADDON: Yes, that is right.

MR. PARSONS: So because you have not actually finalized any contracts yet, it is my assumption that that is the template?

MR. PADDON: Yes.

MR. PARSONS: You have taken the 8 per cent, you have factored it into the employees and you have the pot there and as and when contracts become do and clued off, you pay it out to the -

MR PADDON: It will be transferred to the appropriate paying department. Right now, in each departmental estimate, there is no provision for wage increases. It is as a block here in the Department of Finance.

MS MICHAEL: Yes, because we were asking that and could not get that answer. So that's –

MR. PARSONS: (Inaudible).

MS MICHAEL: Yes. Okay, great.

MR. PADDON: (Inaudible) the lion's share around sixty-five, yes.

MS MICHAEL: Then of course you had the, it is a small amount in comparison, but you had the $300,000 as well over in 1.2.02. for the new budgetary unit. So that is a fair bit as well.

MR. PADDON: That is right.

MS MICHAEL: Okay. I missed that one myself. So I am glad I got that answer taken care of first.

If I could, because I would like to look at the two of them together - if you can get them set up - section 2.1.04. Financial Assistance, and 2.1.06. Financial Assistance. I am sort of going to refer to the two of them together because 2.1.04. "…provide for financial support for Crown agencies and grants to promote business opportunities. Appropriations also provide for initiatives which are consistent with the objectives of the Community Development Trust…" and then 2.1.06. is "Appropriations provide for loan and equity financing to support business opportunities and promote industrial development."

Now first of all, if we can look at that one, 2.1.06., am I correct in saying that this category started in the budget? I have gone back as far as the Budget 2005-2006 and I do not think there was a category. This category did not exist in 2005-2006. It seems to have come in, in 2006-2007, is that correct?

MR. PADDON: This would be the third budget, I believe, that would have this category, if memory serves me correct.

MS MICHAEL: Right. I think each time it has been budgeted but not used.

MR. PADDON: Not all of it has been used; some of it has been used. Generally speaking, it was used to provide an appropriation if something came forward that government thought was a reasonable idea that deserved some funding, that there was no funding in another department. It was kind of just to have a provision if something came along and you wanted or thought it was an appropriate idea to fund it.

MS MICHAEL: Well, there was nothing spent in 2007-2008.

MR. PADDON: In the 06.?

MS MICHAEL: In 06., 07. there was some expenditure but not in 2007-2008.

MR. PADDON: I am sorry, in category 06.?

MS MICHAEL: In 2.1.06. I am sorry, yes.

MR. PADDON: That is right, yes.

You really need to look at the Financial Assistance, the 04. and the 06. in combination.

MS MICHAEL: That is what I am sort of doing.

MR. PADDON: Yes, because one is a current amount. It provides for grants to agencies. The 06. one is a capital amount. So, it really provides for equity financing and loans, those sorts of things. Really, both are similar, but serve slightly different purposes.

MS MICHAEL: Where would the proposals come from then for these expenditures, from Cabinet?

MR. PADDON: They could come from anywhere. They might come through any department, I guess, that had a proposal come in, say from the private sector. If they did not have funding available in that department then they, as part of the Cabinet process, the review process, the decision process, then you would seek to see where there is a source of funding that is appropriated in the Legislature, and if it is not in the department, then there is flexibility here in these amounts to fund it.

MS MICHAEL: Are there written criteria for how this money in both categories is allotted? I mean, what guides you in making the decision of whether or not to use money under either one of these two categories?

MR. PADDON: Well, I think we would generally take direction from Cabinet, as a result of a decision of the Cabinet, whether to use this appropriation for a particular purpose.

MS MICHAEL: So that is your main criteria. If Cabinet says that it thinks you should appropriate the money in this direction, you do it?

MR. PADDON: That is right.

MS MICHAEL: That is interesting. Of course, we would not have criteria from Cabinet on that. You would just receive the recommendation from Cabinet and act on it.

MR. T. MARSHALL: Maybe I could give you an example of one of the things that was funded from that account, and that was there was money given to Newfoundland and Labrador Hydro. It was a subsidy to offset the rate increase for diesel for isolated communities.

There was also money to C.A. Pippy Park for an operating grant, and there was also money to the Newfoundland Government Fund Limited to enable that corporation to fully repay the remaining investors out of the immigration investors program. So that gives you an idea of some of the things that were funded.

MS MICHAEL: I wonder, minister, would it be possible for the committee to receive that information of who received money last year, please?

MR. T. MARSHALL: Yes.

MS MICHAEL: I notice that you are allowing quite a bit more in this budget. Under 2.1.04., you budgeted the year before - in 2007-2008 the budget was $9,250,000, you only spent $3,365,000 but yet going up to $13,900,000 for this year. What is the rationale for going up so much more this year?

MR. T. MARSHALL: The increase this year is a one-time increase of $9.4 million for the Community Development Trust with offsetting revenue.

MR. PADDON: As part of the federal budget this year, they provided what they call a Community Development Trust to all provinces. Our share of that is about $23 million. What we have done here in the Department of Finance, government has yet to decide where they are going to direct that money. What we have done is said: Okay, $9.4 million, we will provide an allocation for that amount and we have the offsetting revenue as well down below as part of that federal revenue. So, once the decision is made how the money is going to be spent, it will flow from here. Then the revenue will be offset against here from the trust.

MS MICHAEL: Okay. That is helpful.

Thank you very much.

Thank you, Mr. Chair. I will stop for the moment.

CHAIR: No problem.

Mr. Parsons.

MR. PARSONS: On that same point, I notice under 2.1.04, Financial Assistance, you are talking about grants to promote business opportunities. Why would there be money in this separate pot under Finance to promote business opportunities when we have a Department of Business, which apparently looks after things external and we have ITRD which looks after things internal, yet we have another little substantial pot of money tucked away in Finance and not in a department? Why would that be?

MR. PADDON: Again, as I indicated earlier, it is essentially to provide a bit of flexibility if something comes along that really does not fall within the purview of those other two departments. Generally speaking, you would think that the mandate of those departments would deal with most things that come forward, but this is designed really to give a little bit of extra flexibility just in case something comes that is perhaps out of the ordinary or does not fall within that mandate. Also, I guess, it is still a holdover from the - this is the third year it is there and it predates when the funding was initially allocated in the Department of Business in last years budget. So you have a little bit of an overlap, I guess.

MR. PARSONS: I do not mean to be nasty here, but some would suggest that if you just have a pot of money in Finance - because you have had it there now, you said three years, and we are getting into a fourth year. You have a substantial pot of money that you have not yet decided what you are going to do with it. One would think that is not very good budgeting and that is not very good planning.

Surely, how would anybody in the public ever know - you are told if you go on the government Web site, if you have a business initiative in this Province, you are given two ideas of where to go. Yet, here we are with a substantial sum of money, $13.9 million, how would the general public ever know about it if it is not in the department that you would expect to go to?

I have never heard either minister in this House or outside in a press release saying: Oh, yes, just in case there is something special you have that you do not meet our criteria in our department, there is another $13.9 million over in Finance. How is that helpful to the public?

MR. PADDON: I would suggest it is not designed to be a broad-based program. Broad-based programs are budgeted and allocated within the Department of INTRD and the Department of Business. Again, it is generally - if something comes forward to government that does not meet the criteria of those other two departments, there is some flexibility to deal with it here, but it is not a broad-based program.

MR. PARSONS: Explain it to me again. I still do not understand the numbers because you had $9.25 million there for last year. You have gone up to $13.9 million for this year, but yet you say the federal government gave you $23 million for this year as part of the Community Development Trust.

Walk me through these numbers again. If we have $23 million coming in from the feds this year, how come that revenue portion is not showing $23 million? How come it is showing $19.4 million?

MR. PADDON: The $19.4 million is here in this department; the rest of it is in the Department of Natural Resources, the balance, $4 million.

MR. PARSONS: Why would that split have been made? Why would you have carved off $4 million and put over in Natural Resources?

MR. PADDON: Because the $4 million was intended to go against the initiative related to the forestry sector that Minister Dunderdale announced maybe three or four weeks ago.

MR. PARSONS: That left $19.4 million going into here. Of the $19.4 million you are only going to spend $13.9 million, according to what you have here. So where has the other $5.5 million gone?

MS BREWER: The $23.4 million reflects a drawdown from the federal trust into the Consolidated Revenue Fund, but that funding was intended to be spent over three years. So you will see $9.4 million as budgeted as our estimate as to what might be required in 2008-2009, but you actually see the revenue coming in when the revenue is drawn down from the trust this year.

MR. PARSONS: So, again, my lack of accounting ability here now, you have $23.4 million come in this year.

MS BREWER: Yes, the feds put that in a trust.

MR. PARSONS: You could, if you wanted, spend it all this year; it is this year's allotment from the feds?

MS BREWER: I will clarify with Bob. That is my understanding.

MR. PARSONS: Okay.

So you have decided that, of the $23.4 million this year under the Community Development Trust, we are going to put $4 million over into Natural Resources, we are going to put - what was it you said, nine? – how much into this one this year?

MS BREWER: We have a block of $9.4 million included in this financial assistance block.

MR. PARSONS: Okay, $9.4 million, and the other $5.5 million just went off, stayed in Consolidated Revenue Funds. That is still in your bank account, we will call it.

MS BREWER: Well, it will end up in appropriations either in 2009-2010 or 2010-2011.

MR. PADDON: Of the $13.9 million that is allocated, $9.4 million of that relates to the Community Development Trust. The rest relates to either an appropriation for a grant for Pippy Park – $350,000 – and the balance is the block fund for the unanticipated initiatives, if you want to call it that.

MR. PARSONS: It is my understanding that the feds have already directed the criteria that the Community Development Trust must use, and we have signed on to that as a Province. It is not a case of: we are going to figure it out, now that we have the money, what we are going to do with it.

My understanding is – in fact, this was confirmed to me by Loyola Hearn, the federal minister, at a meeting in Port aux Basques about three weeks ago, because the town there was interested in applying for it, and his explanation was: Look, yes, we have negotiated it out, it is all agreed to, the criteria are there, and we have passed the share for the Province for this year over to them.

Now, he didn't say $23.4 million – he didn't have that figure available - but he said it was a fairly substantial sum of money.

So why would it be parked here? You say there are no criteria. You sort of gave me the indication you don't know what you are going to use it for yet. My understanding is the criteria already exist.

MR. T. MARSHALL: That is not my understanding.

I am trying to recall the press release that came out at the time. There were some broad-based criteria, but I think further details had to be developed, and I know that $14 million is going into this community development, in terms of the forest industry, that was announced by Minister Dunderdale, involving the Great Northern Peninsula.

MR. PARSONS: So, when are we likely to – now, don't get me wrong; there are a lot of people in the Province who are very pleased to see that we have a lot of money kicking around in the budget. The question we are getting asked, as MHAs now, is how do they access it?

When are we likely to see the fleshed-out details so that this money can be applied for?

MR. T. MARSHALL: It is my understanding that will come from the Department of Natural Resources.

MR. PARSONS: My understanding is that is just on the $4 million; that is not on the money that is here. Who is working on and who is going to tell us, here are the criteria for that money? I fear that we are going to be sitting here next year at this time saying, you have $13.9 million that you didn't spend because we never got around to developing the criteria.

MR. T. MARSHALL: Well, there is $13.9 million spent in 2008-2009 that is allocated. There is $19.4 million federal revenue, leaving $5.5 million unallocated, but the same point.

MR. CONSTANTINE: My understanding is that the Intergovernmental Affairs Secretariat is working with the Prime Minister's Office on further details on that, so we have some very broad parameters but there are other issues. That is the last I heard on that, which might have been maybe three or four weeks ago.

MR. PARSONS: The fear people have, and I will be quite blunt, when people see money like this in a budget and the ministers and the department or anybody can't tell you exactly where it is going to be used, people think of slush funds. That is what comes to mind, and that is why I am looking for answers; because, rather than have someone say that, people want to know: how can we get at that money?

MR. T. MARSHALL: The broad parameters were that the money was supposed to help communities that were affected by the drop in demand out of the U.S., and the rise of the Canadian dollar which in turn affected purchases coming out of the U.S. in the forest industry. That was the broad parameter. Then government - and I would imagine the Department of Natural Resources and the Department of Environment and Conservation - would put together programs where this money could be expended to address those broad parameters.

MR. PARSONS: I understand, and that was why it was of particular personal interest, because it was also to deal with communities that have been hit by major type disasters, like in the case of Port aux Basques, for example, when the fish plant closed and kicked 200 or 300 people out of work. According to Minister Hearn, they would definitely be addressed under this type of scenario, the same as your forestry people, I guess, who felt the impacts of the American dollar and so on. It is unfortunate if we are going to have to wait; it is not developed yet. If it is still in the development stage it is not for 2008, for sure, then.

MR. PADDON: At this point in time we have the broad parameters that were basically outlined by the federal government in the initial news release and in general agreed to by the Province. The money has flowed.

In terms of the specifics as to how the money will be allocated within the Province, that would be a decision ultimately that the government will have to take. In terms of the timing and when that will be, I guess, determined, I wouldn't be able to speak to it.

CHAIR: Did you want to refer over to Ms Michael?

MR. PARSONS: Go ahead.

CHAIR: Ms Michael.

MS MICHAEL: Thank you very much.

I am going to start doing some line items now.

Under 1.2.03., page 32, I am looking at actually the revised budget for 2007-2008 and there are a couple that went up significantly. One was in 03.Transportation and Communications, under that head; $176,000 had been budgeted but the revision was $270,700. What caused that jump in the revision?

MR. T. MARSHALL: I am advised that the revised amount reflects an increased cost associated with postage. Transportation and Communications deals with postage and courier costs for the department, and these cost increases can be attributed to general mail cost increase and increased activity from corporate restructuring and the Home Heating Rebate Program.

MS MICHAEL: You don't expect to need that much this year? Because we are back down to $176,000.

MR. PADDON: As a general rule, the home heating fuel rebate is done on a year-by-year basis, so there is no budgeted provision for the postage. Generally, when the program comes in place we will look within the department to fund the cost associated with it. Essentially, we use savings from elsewhere in the department to cover it off. So this is where you see the increase here, but you would savings elsewhere that accommodate that.

MS MICHAEL: Okay, because of the fact that Cabinet makes its decision year by year.

MR. PADDON: Annually, yes.

MS MICHAEL: Thank you very much.

Under 1.3.01., Government Personnel Costs: Appropriations provide for the payment of government's share of employee benefits for employees in government departments and retired public employees. Funding is also provided for compensation and contract adjustments….

That is why there is no money – in 2007-2008 the budget was $1,531,100 and it was revised to zero, and now is $165 million. Why was there no expenditure under that category in 2007-2008? No contracts got settled?

MR. PADDON: In fact, if you look back to last year's budget documents, the $1,531,100 was actually $4.857 but got restated during the year and got allocated out to departments - mostly Labrador and Aboriginal Affairs, and Justice - and some of it, $83,000, for the new Treasury Board support department within our own department.

Some of that money did get allocated and the rest just was not needed. There was originally $4.8 million allocated; $3.3 million was allocated during the year and the rest was just unspent. This year, the $165 million, as I had spoken to earlier, is a provision for the 8 per cent plus a few other odds and ends.

MS MICHAEL: Okay.

I was more curious about what happened last year. So, because it is allocated out, it just doesn't show up at all.

MR. PADDON: That is right.

MS MICHAEL: Thank you.

Under 2.1.01., there is a slight rise in Salaries there. Are you anticipating a new position? We are back up to what was budgeted for 2007-2008. Almost $200,000 didn't get spent, and in this year's estimates we are back up to the same amount again.

MR. PADDON: The reason that you would see the decline from $1.7 million to $1.5 million would just be the normal sort of attrition, turnover, that sort of thing, nothing more than that. Then, we would still budget the same amount.

MS MICHAEL: Okay.

Under subhead 05., Professional Services, in the same head, again, 2007-2008, there is a real difference between what was budgeted and revised, but we are back up to the same budget figure, the same budget estimate. What are the Professional Services under this section, and why would you be estimating yet not spending?

MR. PADDON: These would normally be fees paid to the Province's actuaries, so you would have a provision for any consulting services that we may require trying to get some updated numbers as to where we are with the unfunded liability or if you are contemplating some changes to the pension plan, trying to get some costs in as to what the impact would be on the liability. We have budgeted for almost $400,000, only needed $140,000, but we would keep the same provision there because it is difficult to plan.

MS MICHAEL: Sure.

MR. PADDON: It comes and goes. I don't know if there is anything else, Maureen?

MS MCCARTHY: (Inaudible).

MS MICHAEL: That makes sense.

Okay, thank you.

Then, under the same head, the revenue, what is the source of that revenue there?

MR. PADDON: Essentially, the entire cost of this division gets charged to the pension plan itself.

MS MICHAEL: That is what I thought.

MR. PADDON: So the pension plan essentially pays for the cost here.

MS MICHAEL: Right.

Thank you.

MR. PADDON: Ultimately, it is a cost to government because it would factor into the liability of the plan as well.

MS MICHAEL: Right, yes.

I am like my colleague here, like Mr. Parsons, being educated with regard to how this is done.

I think that one was a minor one.

Under 2.1.03., again under Salaries, subhead 01., is this an issue again of just having positions not filled? Although it is a substantial amount, the estimate for this year is substantially higher than the revised budget for 2007-2008.

MR. PADDON: The change, budget to revised, for last year, I believe, and Donna can correct me if I am wrong, but it would just reflect normal attrition or normal sort of vacancies, delays in recruiting. I don't know if there is anything else, Donna?

MS BREWER: There were a couple of positions that were approved. There was an extra budget analyst and a budget technician. A budget technician is usually someone that we would try to recruit out of university, and we are into the midst of a lot retirements that are happening in that division so we need to start to rebuild that division.

It was a couple of positions that were approved during the year and we have not been able to fill, so that is why you are going to see an increase in 2008-2009. As well, there was a position in the insurance division that was approved last year that did not get filled as well.

MS MICHAEL: I presume the intention is to get those filled as soon as possible.

MS BREWER: Yes.

MS MICHAEL: Thank you.

I am curious. Under 2.1.05., which is totally the fuel oil tank replacement program, what is the change in the Province that is calling for the much higher estimate than we have had in that area, because you had $750,000 budgeted, revised to $102,000, and back up to $750,000. What are the indicators that would say that we need to keep the $750,000?

MR. PADDON: It is fickle to predict what the take up on this program is. This is a program that provides a maximum of $300 rebate if people replace the fuel tank in their homes. It is essentially - the demand, you would think, would be linked to the closer you get to the drop-dead date, for lack of a better word, or when you are absolutely required to have your fuel tank replaced.

So it is a rough provision at this point in time. We really do not know what the take up is but, as you can see, there was not a whole lot last year. The closer you get to the date when everybody has to have their tank replaced, you would think, you will see the demand starting to rise.

MS MICHAEL: Did we have a year - I did not go back to the other documents on this one. Did we have a year when it was as high as $750,000?

MR. PADDON: Yes. We have had years where it has been higher, yes.

MS MICHAEL: Okay, thank you.

I will do one more at this moment then.

In 2.2.01., I think the Salaries are probably the same answer as others, so I will not go to that one, but I am curious about the Purchased Services here. I suspect what it is, is special expertise that you need at a certain time, but could you explain the Purchased Services under this head, please, the Tax Policy, 2.2.01.?

MR. PADDON: This is not special expertise.

MS MICHAEL: Oh, I am sorry.

Purchased Services, not Professional.

MR. PADDON: You are talking about the $554,000?

MS MICHAEL: Yes, that is right.

MR. PADDON: This is the fee that we pay to the federal government for the Canada Revenue Agency to administer some of our programs on our behalf.

MS MICHAEL: Okay.

MR. PADDON: Some of the basic tax programs they would administer free of charge but any add-ons we would have - for instance, the Seniors' Benefit, the set-off program that we participated in, there were additional charges for that. So they charge us on a fee-for-service basis.

MS MICHAEL: Okay. Thank you very much.

That is fine, Mr. Chair.

CHAIR: Mr. Parsons.

MR. PARSONS: On page 38, 2.3.01. Economics and Statistics. Could you give me some idea of the types of Professional Services you would have under 05., the $267,900?

MR. PADDON: In some cases, we have contractual - somebody will contract with that branch to do a survey, for argument sake. An outside entity might come and say: Will you do a survey for us? We will go out and hire people on a contractual basis to conduct the survey. They would be essentially temporary people, but on a contract basis. That is the type of thing that would be included there.

MR. PARSONS: How about purchase services? I would have thought that would have been Purchased Services.

MR. PADDON: No. Purchased Services, generally, are printing costs, training, shredding services; those sorts of costs.

MR. PARSONS: Under that $296,000, Purchased Services, you do not get printing done under that branch through the Queen's Printer or anything? That is all contracted out, is it?

MR. PADDON: Some of it is contracted out. Some it is done through here. It is charges for photocopiers, for laser, the ink. All those sorts of things are lumped in there.

MR. PARSONS: The nature of the revenue there from the federal government and the provincial government?

MS BREWER: No. I am just going to clarify, that even if the Queen's Printer is used the Queen's Printer does bill departments.

MR. PARSONS: Okay.

In the Revenue there is $200,000 and you have $1.6 million Provincial.

MR. PADDON: They have a number of special projects that they are working on right now. There is a census project where they are taking census records back to the early 1900s and putting them in a database, essentially used for genetics research at the university and that sort of thing. That is funded by the federal government and the university.

They are doing a market basket measure of - sort of an index of poverty. That is funded externally. They are participating with the federal government on a national crime prevention strategy. There are about four or five projects that they have external funding for. So they hire people on an as-needed basis and then get the revenue in to offset those costs.

MR. PARSONS: On page 39, Comptroller General, 2.4.01. The Revenue again there - it is not a lot of money in terms of the overall budget.

MR. PADDON: Revenue, generally, from HST and excised tax claims. If you go out and get somebody to look at whether you have overpaid HST or excised tax, it will get refunded through here.

MR. PARSONS: Going on down to Corporate Services, 06. Purchased Services. Why the substantial increase from $4,800 last year to $424,000 this year?

MR. PADDON: The Corporate Services, this is a new shared services unit essentially taking the document processing part of government departments and consolidating them in one area. We have a tender out for leased space that we are going to start to occupy, hopefully, sometime in the summer. So, the $400,000 is to accommodate the lease cost.

MR. PARSONS: Again, I call it the KP dummy book of finance and budgeting; help me fill in a few pages here.

Minister, can you explain to me, in a nutshell - and I posed this question to you in the House when I spoke to the Budget. Can you show me, in very simplistic terms, how we spent the $1.4 billion?

MR. T. MARSHALL: How we spent the $1.4?

MR. PARSONS: Billion dollar surplus.

MR. T. MARSHALL: Okay. I am going to refer you to pages ii and iii in the Statements at the back of the Budget.

OFFICIAL: I don't have a Budget.

MR. T. MARSHALL: Let me get the Budget Speech there.

MR. PARSONS: Page?

MR. T. MARSHALL: Pages ii and iii, at the back in the schedule, Statement I and II.

In answering this question I would like to point out to all concerned that I am not an accountant either. You have asked me to do this in very simplistic terms, and I will do the best I can. If you look at Statement I first, for the year 2007-2008, if you look at the Revised, we hit Revenue of $6.6 billion. We had Program Expenses on government programs and services of $4.7 billion. We paid Debt Servicing of $730 million, approximately. They are called the expenses. So you subtract that from the revenue and you get your surplus. You would then add Net Income of Government Business Enterprises of $200 million. That is Hydro and the Liquor Corporation, and we are showing a surplus of the $1.4 that you mentioned. That is our income statement on what is called a consolidated accrual basis in accordance with the general accepted accounting principles set by the public sector accounting board, but it is not cash.

In that revenue of $6.6 billion I mentioned, when you look at a breakdown of the revenue you will see, for example, that $305 million last year of the $6.6 billion was an allocation of the $1.9 billion that we received under the Atlantic Accord - which we received in one payment, the $2 billion payment.

When we received that $2 billion payment, we actually received the cash three years ago. The cash came into the government and the money was put into the teachers' pension fund; but the obligation, with respect to revenue, showed up on the balance sheet as unearned revenue because the revenue, the full $2 billion, would be earned over eight years, the time period of the Atlantic Accord. So each year there is an accounting entry that brings a portion of the $2 billion into revenue. Last year it was $305 million, this year it is $360 million. What that means, to answer the question, is that of our revenues of $6.6 billion, really $300 million of it is non-cash, we received it before. So that reduces the revenue.

Also, in program expenses there are certain accounting entries, again, which are accrual entries and are not cash. The one I think of is amortization, which in my day was called appreciation. It is reflected in the financial statements to show an allocation of what we spent on tangible capital property. So much of it is allocated to an amortization expense or depreciation expense, but it is not a cash item. It is an accounting entry.

When you work it through - and that is done over in Statement III. If you look at the 2007-2008 Revised -

OFFICIAL: Statement II, page iii.

MR. T. MARSHALL: Statement II, on page iii.

- you will see at the top, the Surplus is $1.376 billion. Then, as you can see, they add back the amortization, because that was a non-cash item. So you have to add that to the surplus. Then you subtract the revenue from the Atlantic Accord 2005, which is $306 million.

The cash that was generated last year was $1.158 billion. Of that cash, $279 million was spent on tangible capital properties - this is infrastructure spending. Normally what would happen, the Government of Newfoundland and Labrador, when it did infrastructure, when it bought new structure, it would have to borrow to pay for this. Last year we did not have to borrow. We simply paid for it, and that was $279 million of the $1.15 billion.

Then you will notice under Financing, it refers to Debt Retirement. So as our debt came due, in the past the Government of Newfoundland and Labrador would have to go and roll over the debt. It would have to borrow from somewhere else to pay off the debt that was coming due. Last year, because of the cash we had on hand, we did not have to do that. As debt came due, we simply paid it off out of cash, and that was $370 million. That left, at the end of the year, $616 million in cash, which is available at the start of this year.

In this year's Budget we are predicting a surplus of $544 million, but when you take out the non-cash items, like we did for last year, that brings the $544 million down to $464 million. So you now have the $616 million from last year and the $464 million from this year. Then that will be spent on infrastructure this year, $483 million. We will retire debt of $450 million, as debt comes due, and we will invest $328 million in Hydro to enable it to meet its commitments with respect to the 5 per cent acquisition of the various oil fields; and $100 million of that, as I mentioned earlier, was to enable it to change its debt-equity ratio.

So, the surplus for last year and the surplus from this year will be spent to pay for infrastructure, instead of borrowing for infrastructure. We will retire our debt by $820 million. There will actually be $820 million paid down on debt, on a cash basis, and we will invest $328 million in Hydro.

The money is going to debt repayment, infrastructure, and the investment in Hydro. That is where the surpluses are going.

MR. PARSONS: Good.

MR. T. MARSHALL: I am sorry, you go ahead.

MR. PARSONS: No, you go ahead.

MR. T. MARSHALL: That is cash. The next question, of course, is we are paying down $820 million on debt. Why, in the Budget Speech, did it say we are spending $1.5 million down on net debt?

Again, I am going to turn that over to Terry Paddon and let him answer that one.

MR. PADDON: Thanks very much, minister, I appreciate this.

Net debt is really an accounting definition. It includes the funded debt of the Province, which is the stuff we have borrowed in the capital markets - so the bonds outstanding. It includes the unfunded liability of our pension plan. It includes our post-retirement liabilities. The liability that the Province incurs that relates to our share of health benefits that we would pay on behalf of retirees. That would add up to an amount of money, that sort of total debt. Offsetting that would be, say, any liquid assets, cash that you have on hand.

Even though your debt might be outstanding, we do not have the flexibility or the ability to pay it until it comes due, so some of our net debt is reduced by the cash we have on hand in anticipation of paying it off at some future date, or making the investments in infrastructure or in the Hydro Corporation, which is essentially deferring borrowings that you would normally do for those sorts of things. You would use the cash for that.

MR. PARSONS: Can you walk me through on page v? I take it that is the net debt summaries that you are dealing with, v – five.

MR. PADDON: That is the net debt. This is the accounting definition, the definition of net debt that is promulgated by the Canadian Institute of Chartered Accountants.

MR. PARSONS: Okay.

Using that definition, can you walk me through that page, just to explain it?

MR. PADDON: If you look at it, if you start from the top, you have Net Debt – Beginning of Period. We had $10.3 billion dollars in net debt that was there at the end of last year. Then we look at what changes net debt this year. Well, it obviously gets reduced by the surplus, which is $544,000, but then you have to make adjustments for the cost of tangible capital assets and the amortization of those tangible capital assets, which is –

MR. PARSONS: So the $483,000, Acquisition of Tangible Capital Assets, that is infrastructure money we are –

MR. PADDON: That is essentially infrastructure. Those are investments in assets that would last more than one year.

MR. PARSONS: Yes.

MR. PADDON: So it would not include repaving an existing road but it would include building a new road. It would not include repairing a building but would include building a new building. Repairs to an existing building would be in the Departmental Estimates as repairs and maintenance. The same with the repaving of roads, it would be in Transportation and Works paving budget. It would be part of your current expenditures.

Of the tangible capital assets that we acquire, then we would depreciate or amortize those over their useful life, so it depends on the nature of the asset. It might be twenty years, it might be thirty, or it might be forty years.

The Decrease in Net Debt, once you adjust for the tangible capital assets and amortization, is $248,000. So at the end of this period, this 2008-2009 period, we would expect net debt to be down to almost $10 billion.

Then, if you look at what the component parts of net debt are, you have borrowings, which is your debenture debt, the stuff you floated in the bond market, is $6.6 billion. You have unfunded pension liabilities and post-retirement benefits, the two I talked about, is $3.3 billion in total. Then you have sort of the financial assets that offset those, cash less the unearned amount of the 2005 Atlantic Accord. So you have some assets there - some net liabilities there.

MR. T. MARSHALL: I just might mention, for clarification purposes – I am waiting for that light to come on - in Statement III, in addition to debt retirement, you will notice last year there was some –

OFFICIAL: In Statement II.

MR. T. MARSHALL: I am sorry, in Statement II on page iii, under Financing, I refer to Debt Retirement, $370 million last year and $450 million this year. Now, that is what government paid. In addition to that, there might be some payments made by agencies like hospitals and the Regional Health Authorities.

OFFICIAL: Those were included.

MR. T. MARSHALL: Oh, those are included. Okay, I am sorry.

You will note in the last year there were borrowings of $660 million and then there was a Retirement of Pension Liabilities of $582 million.

You will recall last year we went out and borrowed money and invested it in the pension funds, so that is what those two items refer to.

MR. PADDON: We had borrowed more than we actually needed. This was back early in the year before the price of oil spiked, so we were borrowing sort of in anticipation of some cash flow needs that really we didn't have to at the end of the day.

MR. PARSONS: Looking at your Statement IV again, you have Unfunded Pension and Retirement Benefits Liability 2008-2009, $3.3 million.

MR. PADDON: Yes.

MR. PARSONS: When you use that terminology, Unfunded Pension and Retirement Benefits Liability, are you referring to what we are going to pay out in the run of a year to pensioners, or is that still an unfunded pension liability that we have that we need to catch up, the same as you did with the NTA?

MR. PADDON: Yes, there is still an amount that is unfunded. There are not enough assets in the pension plan to provide for the ultimate retirement of those liabilities as they come due. It may be some time in the future before you would have to pay that, but it is still a liability.

MR. PARSONS: Where does it show in the Budget or in the Finance Department the payment of the actual – that wouldn't be shown anywhere – pensioners' paycheques?

MR. PADDON: Oh, yes.

MR. PARSONS: Where is that reflected?

MR. PADDON: That is reflected, I guess, in the –

MS BREWER: The pension fund pays the pensioners, but what you see in Consolidated Fund Services would be the premium payments that the employer has to match. When an employee gets paid, the premiums are deducted from the employee. Then the employer has to match those premiums; they go into the fund.

MR. PARSONS: I visualize that there is a pension fund out there somewhere being administered by someone, they earn money on it and they pay the pensioners; but there is a cost of administering that fund, and some of that is reflected in our statements under our pension section, I take it, but the actual payment to the pensioners is nowhere reflected -

MR. PADDON: The cost of the administration is the $2 million, roughly, cost in the Department of Finance, in the Pensions Division, that is charged back to the pension fund. That is the administrative cost related to the fund; but, you are right, there is money out that is invested in bonds and stocks and real estate that is then used to pay the pensioners as their pension cheques come due.

MR. PARSONS: There obviously was a concerted effort for the last two or three years to pay the unfunded liabilities of the pension funds. We have seen, like you say, the Accord money went into the NLTA and we had money gone into the public sector pension last year; you borrowed almost $600 million to do that. I am just wondering the logic or the rationale as to why. Like, do you have any plans for liquidation of that unfunded pension liability - because it was such a hot issue - or is it a case now where we are saying we are sort of caught up a bit; it is not unmanageable any more.

MR. PADDON: Before it was addressed by the $1.9 billion and this additional $500 million payment, if you look at the Teachers' Pension Plan in particular, its funded ratio was down in the low twenties, so it was only 20 per cent funded. Projections were that, that fund would have been out of money by about 2013. So, at that point in time, the Consolidated Revenue Fund - the government - would have had to write cheques from its own bank account to pay for the pensions of teachers. So that was critical. It was more than an academic exercise at that point because you could see within five or six years that you actually had to start writing cheques. So the roughly just over $1.9 billion payment that went to the Teachers' Pension Plan took the funded ratio from, say, about 23 per cent up to about 82 per cent or 83 per cent. So, it got it not fully funded but very substantially funded.

On the Public Service Pension Plan, its funded ratio was somewhere around 54 per cent or 55 per cent. It did not have the same sort of imminent problem that the teachers' pension had but it was still woefully underfunded. I mean, 54 per cent is a critically underfunded pension plan. The money that was put into that pension plan brought it up to about the same funded level, somewhere in the 83 per cent to 84 per cent range. At that point in time you figure, if you get reasonable returns in the pension plan, that funded level is enough to sustain it at about that level for quite some time.

So, you are right, it did take the pressure off those funds, and there is not the same sort of impetus or urgency to continue to address it. Now, maybe at some point in time we will take a look at it, but that would be a decision at that point in time.

MR. PARSONS: When you say, for quite some time, what kind of figures do you have in your head? How many years?

MR. PADDON: Obviously, it depends on the returns that you get. Returns – everybody knows they fluctuate.

MR. PARSONS: I realize that, yes.

MR. PADDON: We were looking at sort of a twenty to thirty year time horizon that you could maintain a funded level, in that range.

MR. PARSONS: So when we look at – and correct me if I am wrong again – looking at this statement we are saying, for example, up at the top there, Net Debt – Beginning of Period, $10.284.

MR. PADDON: Yes.

MR. PARSONS: That is billion, is it not?

MR. PADDON: Oh, yes.

MR. PARSONS: That is right.

So we hope to get, buy the end of this year, you want to get the net debt down to $9.9 billion, roughly.

MR. PADDON: No, you want to get the net debt down to $10.036 billion.

MR. PARSONS: Excuse me, yes, that is right, down to $10.036 billion.

MR. PADDON: That is right.

MR. PARSONS: Are there any plans? I realize the urgency is not there, but when you talk about paying down the debt, and the minister talks about paying down the debt, there is still, like I say, included in that, a substantial portion of that $10 billion is the unfunded pension liability, $3.3 billion.

MR. PADDON: Well, $3.3 billion is the pension liability plus the retirement liability for health and those sorts of – well, health premiums basically.

MR. PARSONS: Right.

MR. PADDON: That is about $1.6 billion.

MR. PARSONS: At least in my head – I don't know about the public, but in my head - when I think about the debt, $10 billion, we will say, we are going to have at the end of the year – $10.036 billion - I just think about it as loans that we borrowed over the course of fifty years, and I do not attribute it to anything in particular. What you are saying is that actually about one-third of it is related to pensions and retirement benefits liabilities?

MR. PADDON: That is right, yes, but if you look at, as the minister went through, what we are actually going to do with the cash that we are generating, we will spend more than we have generated, through a combination of paying for capital assets, investments in Hydro, and repaying the funded debt as it comes due. We have bond issues that come due, we have borrowed from the Canada Pension Plan, and some of that comes due, so –

MR. PARSONS: One of the questions I have, and just to clue up before I switch off here, I kept thinking that if you have set repayment plans on the loans that you borrow – you went to the United States market and you borrowed $1 billion, and you could only pay it off over, whatever, ten years – my understanding is that you did not pay any principal for that ten year period. You just paid interest, and at the end of the ten you paid the full principal whack; is that right?

MR. PADDON: We are, in most of our debt, required to set up a sinking fund, which is essentially you put money away so it is available when the debt comes due. It is essentially a principal payment but that fund is managed by the Province, so you have debt on one hand and you have cash on the other hand. The reality was, we were traditionally borrowing to put money into the sinking fund, too, so both were going up at the same time so you were no further ahead. At the end of the day we have no flexibility or ability to repay debt early. We pay it when it comes due, so we will then take either the sinking fund related to it, and use that to repay, but that generally is not enough to repay the debt, and then we will use cash for the rest of it.

MR. PARSONS: My logic was that if you had the surplus - and that is why I started with the question, where did it go? – I obviously thought you could not put it on paying your set debt. If you can only repay $500 million a year on your certain loans that you had, how did you get to bring down your debt? Obviously, if you put it into unfunded pension liabilities –

MR. PADDON: Some of it goes into sinking funds, there is no doubt about that, but we do have a fair bit of debt coming due this year on a net basis and that is really where that $450 million number on Statement II comes from. That is the amount that is actually coming due in 2008-2009 that we will pay back to the bond holders.

MR. PARSONS: Given the current good financial situation that you find the Province in, how long do you anticipate – I realize you mentioned about the equalization piece might be over; according to this we are down to, I think, $18 million in equalization this year – that you might liquidate the debt?

MR. T. MARSHALL: I am sorry, I missed the question.

MR. PARSONS: If you could have years like you had this year, how long would you anticipate – I am thinking now in future years. I would think you are going to get eventually caught up on your infrastructure needs. If your program costs are kept in check, and your infrastructure needs don't continue to be as massive as they are, and the revenues keep to be as good as they are with revenue, how long would you think is a fair guess before you liquidate the debt, the $10 billion debt? That is forgetting about anything Mr. Harper might or might not do in the fulfillment of that commitment.

MR. T. MARSHALL: I don't know if we have ever sat down to estimate when we could eliminate the entire debt. I know the Auditor General, and it was the Auditor General John Noseworthy, in one of his reports where he deals with the financial statements - he comes out every year and deals with the financial statements. He also comes out with the report that catches everybody's attention, his report on spending in departments, but there is another report that does not attract a lot of attention and that is where he deals with the financial position. He was the one who brought to my attention the effect of the large debt, because you talk about our good financial position, but we are still $10 billion in debt. He talked about the effect it has on us and how it affects each of us in terms of the interest that we pay on it.

What is interesting here is that the interest we pay on the debt is higher than the debt we paid down over the last two years. So, that is quite an amazing number. It is a scary number. I have always said I would much rather see that money going into health care. I guess my own view of it was trying to get it to a number that brought us back more in line with the Canadian average. Our per capita debt is about $20,000 per person, and that is twice the national average.

I asked a group of economists from Memorial to come in and discuss that issue with me, in addition to doing the pre-budget consultations where you hear from the Board of Trade, and I heard from the Federation of Labour their views on that matter. The economists felt that we could pay it off by looking for a plan where we could reduce the whole thing over a certain period of time, based on the number of assumptions.

The Auditor General had talked about, for thirty years, if we had a surplus of $300 million a year -

MR. PARSONS: The quote from the Auditor General was: The Province must have a surplus of $300 million each year for forty years to eliminate its existing debt of $11.6 billion.

MR. T. MARSHALL: Right, that was his comment.

I guess from my perspective, and the department's perspective, we never really talked about elimination of the entire debt. Our concern was getting the debt down to a more reasonable figure, more in line with the provincial average or a least the maritime average first and then the provincial average, so that if the oil and gas stopped, if the prices went down, if the production was not there, that we would be in a position that, even without that, we could handle the amount of debt; future governments, out of their cash flow, could handle the amount of debt. We have not had any time talking about reducing the whole thing because there is certain debt that does not bother me in the sense of, if you take out debt to build a hospital or to build a school, then future generations benefit from that. You pay it off over time, but future generations benefit from it. My concern is debt. Somebody once described it as debt you take out to pay for the groceries. That is the type of debt that we have accumulated that bothers me and I would like to see us get rid of.

This business of paying down debt is new for the Province of Newfoundland and Labrador. I think the first actual pay down in debt would have taken place in the year 2005-2006. The Comptroller General has just come out with the public accounts for that. Last year, for 2007-2008, which is the year that has just ended, I think we are in a bit of a shock in terms of what the oil prices have been and the revenue that came in. Our concern at this point is: Will those prices stay up or will there be a correction and they go down?

I do not know if I am answering your question at all but -

MR. PARSONS: Again, I realize that you cannot be as simplistic as this but looking at your figures, we have gone from $11.6 billion net debt to, at the end of a two-year period, last year and this year, we are going to be down to $10 billion. That is $1.5 billion off your net debt in the course of a two-year period. There certainly does not seem to be any break if the oil prices, which are fuelling this thing, are up to over $125 a barrel now and you have based your estimates on $87. I am just using that rationale, if you could pay off $1.5 billion over two years, how long does it take to pay off $10 billion? To me, you are looking in the range of six years or so, six or seven years, given those figures if –

OFFICIAL: (Inaudible).

MR. PARSONS: Yes, and I realize this is simplistic, but given the barrel of oil being up $125, controlling program cost -

MR. PADDON: It is not just a question of the oil prices, too. You need to link it to the production levels as well. The price might stay at $125 a barrel, for argument's sake, but if production is declining over the next number of years continuously, well that sort of takes the edge off that potential reduction of net debt. So, you are right, simple math would dictate that if you are going to run the $1.3 million or $1.4 million reduction in your net debt every year, well yes, it is only going to take you six or seven years, but the big uncertainty is: Are you going to stay at that? Is it there?

MR. PARSONS: Right.

Thank you.

CHAIR: Mr. Dinn.

If you do not mind, Ms Michael, Mr. Dinn wanted to make a comment.

MR. DINN: While we are talking about debt, something that always comes to my mind, as you know, with a debt you always have certain interest payments to make every year because you have a debt. We paid down some of our debt. What are we saving now in interest payments because of what we paid on our debt?

MR. PADDON: Historically, our interest payments were up over $900 million a year, now they are down into the $720 million. There are two factors on the interest. One is the actual cash interest you pay to the bondholders, and then there is the interest related to the unfunded liability on pension plan and on the post-retirement benefits. We have seen a bit of a flatness over the last couple of years. Essentially, it reflects some of the volatility in the financial markets, particularly in January and February this year, but that tends to fluctuate.

If you look at where our pension plan returns have been since we have had a pension plan in 1982, historically, we have been over a 10 per cent average. You can look at fluctuations year over year and you will get some years where you will have negatives but you will have some years where you will have double-digits. Obviously, any time you have a downturn in the market then you have a concern, but historically, you will see sort of that pattern continuing.

Just to get back to your question. We have reduced our interest costs by well over $200 million a year just as a result of paying down debt, particularly with the $2 billion being invested in the pension plan.

MR. DINN: Okay. That is what I thought.

CHAIR: Mr. Parsons.

MR. PARSONS: Educate me. Why do they call it sinking funds, and what is it?

MR. PADDON: I would not be able to tell you why they call it a sinking fund, but it is essentially a - if you liken this to your mortgage, when you pay your mortgage payment, your payment is a combination of interest and principal. So you are actually reducing your mortgage principal every month as you make a mortgage payment.

With the Province, we pay interest payments semi-annually every year but part of our debt covenants, our bond covenants, is that rather than paying a principal payment to the bondholders we take the equivalent amount and invest it, put it in an investment fund.

MR. PARSONS: You sink it into a fund.

MR. PADDON: We sink it into a fund, yes.

Then, generally, we will tie the length of that fund or the investment period to the length of the debt. So when the debt comes due, so does the sinking fund as well. You take the cash from the sinking fund and use it to repay the debt back to the bondholders. So, you are paying your interest payments semi-annually but you are only - you make a sinking fund payment annually but at the end of the bond period, it might be twenty or thirty years, you would repay the bondholders.

MR. PARSONS: Okay.

I always had a negative connotation when I thought about sinking funds into something but really it is a savings account, in a way, isn't it?

MR. PADDON: It is, yes.

MR. PARSONS: I heard the minister, or read a report somewhere in the last few days where you gave a speech to either the Board of Trade or out west, one or the other, and you made a comment that I found interesting about the credit ratings. My understanding - and maybe someone can educate me again now: What is our current credit rating? Who are the bond raters who give us that rating? Just briefly, where we have come from to where we might need to go, or where you expect to go?

MR. PADDON: Now you are going to test my memory.

There are three bond rating agencies that rate the Province: Standard & Poor's, Moody's, and Dominion Bond Rating Service. Standard & Poor's and Moody's are international; Dominion Bond Rating agency is a Canadian rating agency, although they are moving internationally.

In order to borrow in the markets you have to have your debt rated by a recognized rating agency. Generally, the rating that you have would dictate the interest that you are charged. So the lower your rating, or the worse your rating is the higher interest costs you have.

Traditionally, with Moody's and Standard & Poor's our ratings have been in the A category. With Dominion Bond Rating agency we had traditionally been down into the high B category, just sort of one step above, just into the investigator grade. Most pension funds, life insurance companies, these are the companies that generally buy our debt - or the organizations that buy our debt have a minimum credit rating that they need to be able to invest us as part of their policy. So if you are below investment grade, you are shut out of those markets. It is going to cost you considerably more to borrow and you have to go further a field.

The debt rating - and I am going to be at a loss here to actually tell you what the ratings are, but they have come up through all three rating agencies over the last couple of years. Dominion Bond Rating agency, after we released the mid-year update in December, provided another increase in our outlook. They now have us into the A category. We are in A right now. I think, generally speaking, the market is probably pricing our debt higher than our rating would suggest, because it anticipates well in advance of what the bond rating agencies come out with.

As a process, we will meet - starting this month and next month - with the three rating agencies, run through the details of what is sort of reflected in the Budget, the assumptions around revenue. Sort of the background work, if you want to call it that. We do that every year. They take that information, probe it some, and they will review it and come out with a rating some time - either maintain the rating or change the rating some time over the summer months.

MR. PARSONS: Thank you.

CHAIR: Ms Michael.

MS MICHAEL: No, I think all of my questions have been answered as well now.

Thank you.

CHAIR: Okay.

Thank you.

MR. PARSONS: I have a question on - talking about the program expenditures in particular. In four years we have gone from a program cost of $4,057,000,000 in 2004 up to $5,299,000,000 this year. That is a 25 per cent increase in four years. It looks like, according to projections, by 2010 we are going to go to $5.8 billion. That is a fairly, I think by anybody's count, substantial increase in your programming costs; which tend to get fixed, of course, unless you cut programs, and cutting programs hits people. That is usually why you had the programs in the first place. Given that you - that will give you six years - I think you are actually going to be up over 40 per cent then in program cost increases. Does it cause you concern that a lot of our revenue is based upon oil, which is pretty volatile, and yet here we are, we have yanked up our program costs? It is great to talk about debt payment but at the same time we seem to be ratcheting up, at a fairly ready pace, our program costs. Does that cause you concern? Do you think you have the right mix, actually, where the program costs seem to be pretty dramatic?

MR. T. MARSHALL: Obviously, the whole theme of the Budget this year is sustainability, and we have to make sure that our spending levels are sustainable. Any time we bring in a new program or if we are going to do something this year, we have to look at what it is going to be four or five years from now to make sure that we can still afford it.

For example, I mentioned in the salary increases to our workers, our public workers, an 8 per cent raise is a $200 million increase in spending. The next year, another 4 per cent is another million. So, that is $300 million. Then the next year it is another $100 million, and then the next year it is another $100 million. So at the end of four years the additional spending on payroll will be half-a-billion dollars. Obviously, we had to look at: Will we be able to afford that four years from now? It is a good question.

The deputy was talking about the bond rating agencies, when they come down. When I met with them last year, while they were pleased with the Budget, the question they asked me was: What about the spending levels? What about spending on health? Can you sustain it, given the demands that are coming in the health care system?

We recognize that for many years, because of our financial position, government was not in a position to spend monies on needed programs or to spend monies on much needed infrastructure. As a result of that, we have seen the deterioration in maintenance, the deferred maintenance.

The modernization of our infrastructure is important. For economic development you need good infrastructure. You need roads, you need wharves, you need water bombers, we need new hospitals, and we need long-term care facilities as our population ages, so we recognize that there has to be a period of catch-up; but, once we have done that, then spending levels will have to fall back to try to keep them in line with the growth of the economy. Your point is a good one.

MR. PARSONS: Another complicated subject for me, at least - can you explain to me again, in simplistic terms if possible – I am referring to your April 16 press release about the equalization election. It is pretty complex, I would think, for my buddy Joe Chesterfield, I always say in the House when I am trying to explain something to a constituent. Joe always asks me, and I can't explain to Joe what our options were, and why we chose one back in the fall. I understand there was certain information that came to light, then, from the feds later to make you make another decision.

Can you tell me – and again I appreciate it might be a complex subject, but try to condense it and simplify it – why we made a certain election versus another?

MR. T. MARSHALL: I can do that. It takes a lot of time to go through the steps, but with Terry's help we got through it.

Essentially we had a situation where, under equalization, we were receiving our equalization allocation, and we had the Atlantic Accord – I mean, the equalization allocation was based on the fact that if our fiscal capacity went up, our equalization went down. That is how the equalization formula works. If you do better – if this is the national average, and we are here, and then our fiscal capacity goes up, obviously we lose equalization. We lose a certain amount.

So, when the oil and gas was coming in, what we were finding was that – don't let me get off the topic here – what we were finding was, we were getting the oil and gas revenue, the oil and gas revenue was making our fiscal capacity go up, but we were losing equalization so we weren't getting any further ahead. There was no net benefit to the Treasury of the Province.

That is where the Atlantic Accord, that is where the agreement that Premier Williams and Prime Minister Martin negotiated, that is where that helped us, because for a certain fixed period of time it was going to enable us to keep the equalization that we would have lost because of the oil revenue, and that gave us a leg up.

Prime Minister Harper's – or then Opposition Leader Harper's - commitment was that if he were elected he would remove the oil and gas from the equalization formula. That would mean that the Atlantic Accord would become redundant. It would also mean that if oil and gas revenues are not included in the formula we wouldn't go off equalization. That commitment would mean a lot of money to the people of this Province over a period of time, and Dr. Wade Locke of Memorial put out his estimate of what it would be. There have been numbers floating around, about $10 billion.

After the election, the Harper Conservatives, when they brought forward the changes to the equalization formula, they had previous to that appointed a commission, the O'Brien Commission, to take a look at the issue. After hearing from O'Brien they essentially accepted most of the O'Brien recommendations. They gave us an option. We could stay under the old formula, where we were - that was choice number one - or, number two, they would give us O'Brien, but they were not giving us what they promised us. They were not giving us that formula whereby the oil and gas revenue would come out. They said it could come out, but they put a cap on it and they amended the equalization formula, which was their right to do.

Equalization is a federal government program. Equalization is paid for by the taxpayers of all of Canada. It is not paid by any province. If you qualify, if this is the national average and your fiscal capacity is here, if you are under the national average you get equalization. If your fiscal capacity is here, you don't qualify for equalization because you don't pay any money in.

So, when we hear Ontario talking about they pay for equalization, well, the Province of Ontario doesn't contribute a dime to equalization from the government's point of view, or from the government, but the equalization formula is paid for by all taxpayers across the country. I guess if most high income taxpayers are in Ontario then they argue that they are really paying for it.

The choice he gave us was the old formula or O'Brien. He didn't give us the commitment that had been made to us.

Equalization is a federal government plan. It is their law, it is what they say it is, so in the end they didn't do what they promised us, but they gave us the formula and they said: You have to pick. You have to make an election.

Obviously, if we have to pick from two choices - again, the choice we wanted wasn't there. The choice that was promised to us wasn't there, but we had to choose. Given the fact that it is the equalization formula, we had to choose one of them. Obviously, we looked at the numbers and we would choose the one that would get us the most revenue.

So it looked like, based on the information we had at the time of the fall update, that by going to O'Brien we would gain more money - I think it was $66 million extra - so obviously we had to go to it. The press interpreted that as if we were accepting the Prime Minister's formula, but we weren't. We were still saying we didn't get what was promised to us, but we said we had to pick one of them.

After the fall update we received additional information from the federal government which indicated that over a period of time, if we stayed with the fixed formula this year - because you can't just look at the equalization formula; you also have to look at the two Atlantic Accords, the 1985 Accord and the 2005 Accord, to see how it affects us. So we looked at the totals of all of those. I think we did an analysis involving ninety-four decision points, and it was determined that the way to get the most money would be to stay with the fixed formula this year –

MR. PADDON: In 2007-2008 and 2008-2009.

MR. T. MARSHALL: In 2008-2009, and then in 2009-2010, at that point, go to O'Brien. That way, we maximize what we would get under the formula.

MR. PARSONS: That is okay by the feds, to split it? When you make a pick this year, you are not bound by it for four years, you can do it two and two?

MR. T. MARSHALL: No, but at some point, once we go to O'Brien, we are locked in. Once you go to O'Brien, you are locked in.

MR. PADDON: They allowed us, for 2007-2008, you could elect either way, and if you went to O'Brien you had the ability to go back to the fixed framework for 2008-2009, but from 2008-2009 on, once you go to O'Brien, you are stuck there.

MR. PARSONS: You're stuck.

MR. PADDON: For us, as the minister says, this was strictly a mathematics exercise. Under which of those various permutations and combinations do you generate the most cash over a period of time? That is really what we are trying to do.

MR. T. MARSHALL: One thing I would like to add, if I may, I said in my previous remarks that the equalization formula was a federal government formula; in the end, it is whatever they said it was going to be.

The Atlantic Accord, to me, was a bilateral agreement between governments, between Ottawa and our Province and between Ottawa and Nova Scotia. When the federal government brought in the new equalization formula and didn't give us the commitment that we feel they had promised us, they also amended the Atlantic Accord, and they amended the Atlantic Accord without any prior discussion with us. They have since amended it twice more, again without any discussion with us.

The Atlantic Accord was meant to help us. The Atlantic Accord was meant to allow us to keep the oil and gas revenues without losing equalization, while we were on equalization, during an eight-year period, but they have now changed the Atlantic Accord.

It is very complicated to explain it without the benefit of charts and whatnot, but they are now using the Atlantic Accord in order to take revenue from us, where it was meant to be something that would help us keep revenue.

I just want to make that point.

MR. PARSONS: So, once we no longer need equalization after this year, I guess the Accords are no longer –

MR. T. MARSHALL: The Atlantic Accord of 2005 would only give us benefits while we are on equalization.

MR. PARSONS: Right. So, once we get to that point next year, the $18 million, and then we get off it –

MR. T. MARSHALL: Unless we would qualify at some point down the road.

MR. PARSONS: Yes.

MR. T. MARSHALL: If the Prime Minister's commitment had been kept, we would not be off equalization.

MR. PADDON: Just to clarify: if we are off equalization, as the minister says, and we don't qualify for the 2005 Accord, we still qualify for the 1985 Accord. That continues because it is a function of the previous years' equalization. It provides you with protection as it comes down, so it would be a declining amount, but even if we are off equalization we would still qualify for 1985 Accord payments.

MR. PARSONS: Right.

Totally off the beaten track here, now, from what we just talked about. Environmental liabilities: since 2002 the Auditor General has been recommending that government should be more proactive in identifying all contaminated sites in the Province for which there is potential liability, determining the estimated liability associated with remediation costs, and recording that resulting liability in the Province's financial statements.

Now, taking us back to Minister Sullivan's time, the first two years of his tenure as Minister of Finance we heard over and over about shifting from one kind of accounting, accrual accounting, to current accounting, and putting all your liabilities in, and you can't leave so much over there in that cupboard and ignore it as if it doesn't exist. You still have it as a debt and you should pay it, and that kind of stuff.

Obviously, the Auditor General is saying that unrecorded environmental liabilities also ought to be in our books. Where are we with that recommendation of the AG?

MR. PADDON: Strictly from an accounting perspective, while the Auditor General has suggested that we should look at it, there is no requirement under the current accounting rules to record environmental liabilities. Beyond that, I guess, even if you accepted that perhaps we should look at it - and maybe we should - there are still huge issues about, how do you measure the liability that might be there?

It is one thing to identify where your environmental sites are, that have problems, but - I look at it strictly from an accounting perspective, a financial perspective - how do I measure what the liability is? Under what basis do I - is it on a cleanup basis? Maybe you are not going to clean up those sites.

There are a lot of issues around that, and the first step would be to identify the sites. Then, the next thing you get to, how you are going to measure it. At this point, from my perspective, we have not started down the road of measuring environmental liabilities from an accounting perspective.

MR. PARSONS: I just find it odd that he obviously took it upon himself to recommend that, so it must be a practice in other jurisdictions, I take it?

MR. PADDON: Not in Canada.

MR. PARSONS: Pardon?

MR. PADDON: Not in Canada.

MR. PARSONS: Not in Canada?

MR. PADDON: No.

MR. PARSONS: Thank you.

That is it for me.

CHAIR: Any further questions from any Committee members?

No? Well, that is good.

I certainly thank the minister.

Shall 1.1.01. to 2.4.02. all-inclusive carry?

SOME HON. MEMBERS: Aye.

On motion, subheads 1.1.01. through 2.4.02. carried.

CHAIR: Shall the total carry?

SOME HON. MEMBERS: Aye.

On motion, Department of Finance, total heads, carried.

CHAIR: Shall I report the Estimates of the Department of Finance and Treasury Board carried without amendment?

SOME HON. MEMBERS: Aye.

On motion, Estimates of the Department of Finance carried without amendment.

CHAIR: Well, that is it.

Thank you very much, Minister, and thank you very much to the staff.

Before we clue up, there are a couple of little housekeeping things.

First of all, can I have a motion to adopt the minutes from Wednesday, May 7, 2008, for the Department of Transportation and Works?

MR. DINN: So moved.

CHAIR: Do I have a seconder?

MS MICHAEL: Seconded.

CHAIR: Seconded by Ms Michael.

As well, tonight's meeting, unfortunately, is cancelled. Minister Hickey, I believe, is not going to be able to attend, as he is sick, so I would ask Mr. Parsons and Ms Michael if you could check your schedules over the next couple of days. I guess the Leader of the Opposition will be attending on behalf of the Official Opposition, will she?

MR. PARSONS: (Inaudible).

CHAIR: It is Labrador and Aboriginal Affairs.

MR. PARSONS: Okay.

CHAIR: If you could just let her know that tonight's meeting is cancelled, and ask her when would be a good time for her, because I know in the morning she is busy with the House stuff and so on.

Tonight's meeting is cancelled, and hopefully we can schedule it in this week or early next week.

Thank you very much.

MR. T. MARSHALL: (Inaudible) the undertakings we gave here to come back with an explanation of the constituency assistants, when a person goes to Cabinet, does the department take over or not?

There was one more I can't recall.

MS MICHAEL: It was details of the expenditures in 2.1.04.

MR. T. MARSHALL: Okay, thank you.

CHAIR: Thank you very much.

MR. PARSONS: Thank you.

On motion, the Committee adjourned.