SEPTEMBER 30, 1999                                                           PUBLIC ACCOUNTS COMMITTEE


The Committee met at 9:30 a.m. in Room 5083.

CHAIR (J. Byrne): Order, please!

My name is Jack Byrne, I'm the Chairman of the Public Accounts Committee. We have mikes in front of us, a new system we have here. When you are speaking just please press the talk button and identify yourself.

This hearing was called as a result of the Auditor General's report submitted to the House this past spring. The Committee had previous meetings and had some discussions about what we would want to review or have hearings on. Special warrants were discussed and we decided we should have a look at them.

I will go around the table now, ask people to introduce themselves, and then we will have the witnesses sworn in. We will start to my left.

MR. ANDERSEN: Wally Andersen, MHA for Torngat Mountains.

MR. J. NOSEWORTHY: John Noseworthy, Deputy Auditor General.

MS MARSHALL: Elizabeth Marshall, Auditor General.

MR. WILLIAMS: Ron Williams, Comptroller General.

MR. KENNEDY: Peter Kennedy, Secretary to the Treasury Board.

MS CAUL: Brenda Caul, Assistant Secretary to the Treasury Board.

MR. MANNING: Fabian Manning, MHA for Placentia & St. Mary's.

MR. FRENCH: Bob French, MHA for Conception Bay South.

MR. M. NOSEWORTHY: Mark Noseworthy, Executive Officer, Public Accounts Committee.

CHAIR: To my left is Elizabeth Murphy who is the Clerk of the Committee.

What we should do next, I suppose, is have the witnesses sworn in.

Swearing of Witnesses

Mr. Williams

Mr. Kennedy

Ms Caul

CHAIR: Thank you.

I noticed we have two more representatives from Treasury Board in the back of the room. If we need to hear from you people we can swear you in at that time.

To my right is Mr. Lush, who is the Vice-Chairman of the Public Accounts Committee.

I would like to ask now the Auditor General to make any opening comments, if she would like.

MS MARSHALL: Yes, Mr. Chairman, just a brief comment. The subject we are talking about is special warrants. I would like to say that traditionally how the government gets approval to spend money is by the way of tabling bills in advance, but government can authorize itself to spend money in advance if there is an urgent requirement and this is done by special warrants.

The concern that I have is that the use of special warrants has increased over the past several years. The first concern I have is that some of the warrants do not appear to meet the requirement, that they be an urgent requirement. The other concern I have is that warrants are effectively expenditures so they can affect government's bottom line. When you issue warrants you can effectively decrease your surpluses or increase you deficits, or effectively wipe out your surpluses so they become deficits. Those are my primary concerns.

CHAIR: Thank you.

Would the people from Treasury Board like to make a comment?

MR. KENNEDY: Yes, Mr. Chairman, a brief comment.

The use of special warrants is something which has long been a part of the governing process in this Province and to my knowledge special warrants, or some variation on the theme, exists in all jurisdictions that follow the British parliamentary system of government. There has to be a means whereby government has the ability to get supply, to make the ability to incur expenditures at times when the House may not be open and available.

The warrants that are under discussion here, including the one cited by the Auditor General in her report paragraph, in our view comply with the act in all respects, including with respect to the meeting of the tabling requirements in the act and so on.

The Auditor General has made a comment on the issue of urgency and, I guess, on some basis, pass a judgment. In her view there is an element of urgency which is missing in some of these transactions. To that, I think our view would be that the act itself provides no guidance or assistance, or no guidelines in effect, as to what constitutes urgency or what kind of conditions ought to be present for the test of urgency to be met.

The act requires that a minister state that there is an urgent requirement; that the expenditure is required for the public good. The act further then requires each special warrant and related documents to be tabled individually in the House at a subsequent date in accordance with timing requirements that are laid out in the act. Of course, each warrant must ultimately - after the fact, as the Auditor General says, be subject to approval by the House in the form of a supply bill, usually a supplementary supply bill.

There have been, in the last couple of years, a larger number of special warrants issued toward the end of the fiscal year. In the most recent Budget of the Province, the government indicated that it has found itself in a position where there was financial flexibility available. At year-end, at the same time, as the government was looking at a structural financial problem in the upcoming year, government took some actions, that the Budget clearly indicates, that smoothed out the bumps that would otherwise be there in our financial performance and kept us with a stable and a more predictable bottom line.

The fact is, Mr. Chairman, our financial condition generally is subject to a high degree of dependence on federal transfer payments. Those transfer payments, by their nature, are highly volatile for a whole series of reasons. They tend to be fairly unpredictable. There are years when the transfer payments are adjusted downward. We have seen mid-year corrections that typically result from that kind of situation here: mid-year layoffs, program changes, fall financial statements, that kind of thing. There are other years when the numbers, toward year-end, prove to be higher than had been expected. So, the government, in this case, did utilize the special warrant mechanism to make some expenditures that they felt, obviously, served the public good and were worthwhile expenditures. Generally, investments in infrastructure, health education and other program areas, as well as, in some cases, writing down some debt, paying off some debt, from this year-end flexibility that was available.

So, yes, there is a process here of using special warrants to distribute some of that flexibility that was available at year-end and help smooth out the Province's bottom line financial results from one year to the next. That is a fact.

CHAIR: Thank you.

Let's go right into questioning now and ask Mr. Andersen if he wants to ask any questions at this time.

MR. ANDERSEN: The first question I want to raise is with respect to the bond writing agencies. Has Treasury Board noticed or become aware of any negative impact that these special warrants, especially in the last couple of years, have on our bond rating?

MR. KENNEDY: The special warrants have not typically attracted a lot of attention by capital markets representatives, including credit rating agencies. The credit rating agencies do monitor the Province and all borrowers very closely as a service to investors, and they assign credit ratings to all major borrowers. The fact that there are these year-end transactions, that there are special warrants, is known publicly. It is certainly reported to the credit rating agencies. To my knowledge they have not expressed any particular concern about any of these transactions, so there has certainly been no negative impact in that area. In fact, if anything, I would think it is probably seen as a positive thing that the Province is using this year-end flexibility to pay off some long-standing debt and to make some key investments in infrastructure that otherwise might not have been available if the higher revenues had not accrued.

No, there is no negative impact and perhaps, if anything, a positive impact because capital markets and credit rating agencies and investors generally prefer to see a stable picture and a stable result, not big surpluses one year and big deficits the next year, that kind of thing.

MR. ANDERSEN: I guess a question of more information: What kind of expenditures have been authorized by the special warrants in the past?

MR. KENNEDY: Special warrants - I have not done a survey or anything on that. In my experience, special warrants would have been issued for all kinds of eventualities; would have been issued for grants, capital investments, operating funds for departments.

When you do a budget, of course, a budget contains a lot of numbers and a lot of estimates. Many of these accounts are large accounts. It is difficult to get the numbers exactly right when the budget is done. In addition, of course, other eventualities sometimes arise through the year that could not have been foreseen or predicted when the budget was being put in place.

Warrants have been issued, I would think, for pretty well every category of expenditure over the years and I don't think there is any limitation on that: salary accounts, grants, capital needs, social assistance perhaps, in some years when there have been overruns, additional requirements for forest fire fighting. If you get a bad winter there may be special warrants for snow clearing expenses and so on. It pretty well runs the gambit of all public expenditures.

MR. ANDERSEN: Are there any years when there are no special warrants issued?

MR. KENNEDY: To my knowledge, there are no years when there are no special warrants. I think the Auditor General had some statistics in her report that went back five or six years. I know, from personal experience, I can go back some years before that. I think it would be highly unusual to be able to manage a $3 billion or so budget in any manner that completely avoided the use of special warrants. As I say, unpredictable things will arise and I think it is fair to say that there have been special warrants in pretty well every financial year since Confederation, I would think.

MR. ANDERSEN: Another question: Due to the two methods of accounting within the context of government - there is the cash basis and the accrual method - does Treasury Board feel that departments fully understand the full implementations of special warrants on these two methods of accounting, and the different types of impact they have?

MR. KENNEDY: I assume departments would fully understand that the budget is prepared on a modified cash basis of accounting. Typically, the principle with the cash basis of accounting, of course, is that the expenditure belongs in the year in which the expenditure is actually made. Our budget around government departments and so on operates on that basis. I think that is clearly understood. Preparation of the public accounts is done on a somewhat different basis. I think the workings of the budget are fairly clearly understood by departments, yes.

CHAIR: Can I interject a question on that, if you do not mind?

You just said that special warrants should be spent in the year that they are issued. I think that is what you said.

MR. KENNEDY: No, I said special warrants are charged - expenditures issued pursuant to special warrants are charged to the financial year in which the expense is made by the consolidated revenue fund.

CHAIR: Okay.

If there is an urgency requirement - before this special warrant would be issued there had to be an urgency - you said that all the minister has to do is state that there is an urgent requirement for this money.

In the year the Auditor General referred to here, there was some money issued, I think, in 1997, and the money was set in the Crown corporation - the Newfoundland Municipal Financing Corporation - up until the following November sometime. You are looking at something like eight or ten months. How would you describe that as being urgent?

MR. KENNEDY: Those expenditures, Mr. Chairman - grants are charged to the year in which they are paid. In the case of most of the year-end transactions that the Auditor General has referenced, you are probably dealing with an agency, a public body of some kind, as opposed to a government department. The proper accounting treatment when a grant is issued is that the grant is charged to the financial year in which we make the payment. Now, the actual expenditure of that money, the money being spent for its ultimate purpose, may in fact occur in a different year and that would be a normal feature of our accounting system and our accounting practices anyway. We would pay money to hospitals, for example. In the normal course of events, I think we pay hospitals and certain other public bodies on the basis of one month in advance or something of that nature. You may well be paying them in March for April's expenses or something of that nature. You may well be providing -

CHAIR: In this situation though, we are not talking a month ahead, we are talking, maybe, eight or nine months.

MR. KENNEDY: That is correct, but the expenditure is nevertheless properly charged to the year in which it is paid.

CHAIR: I'm not questioning the method of accounting here, I am questioning the special warrant itself in this situation. If it is supposed to be urgent you would think it is an emergency situation. I went through all this and will have questions later on but Mr. Andersen just touched on it there now and I wanted to see what was going on.

If you have a situation that is urgent and we need a special warrant, and the House is not sitting or whatever the case may be, yes, and it has not been previously approved in the Budget in the House of Assembly, I can see you being required to spend whatever on the situation, but in a situation where money is approved and is not spent for eight months after, I have to question the urgency and if there is really a need for a special warrant from that issue.

MR. KENNEDY: I understand the question. I suppose the only thing I can say is the act neither requires nor provides for any subjectivity to be brought into the issue of whether there is an urgent need. It requires that a minister state there is an urgent need and the minister can not likely do that because, of course, the special warrant is a very specific type of transaction. The minister must then bring the special warrant to the House of Assembly and very specifically table it. Clearly, there is a lot of attention brought to it then, and I would assume if there is an issue of urgency or any other question as it relates to the nature of, or the need for, the expenditure, presumably that would be discussed and the minister would have to defend it in a very direct and open way. Subsequently, again, when a Supplementary Supply Bill is brought forward and, of course, the House is asked, at that point, to formerly provide for the authority for something that has already happened.

That is the system which exists. Whether -

CHAIR: I know it is the system.

The Auditor General.

MS MARSHALL: The only problem with that is when the special warrant gets tabled in the House and it is March, at the end of the year, nobody really knows what is going to happen to it. It gets paid over into the Crown corporation and it is not until some time in the future that people become aware that it was just sitting there and not being used. It is not possible to tell at the time the warrant is approved. You sort of have to wait a couple of months, several months, or nine months just to see what actually transpires.

The problem that I have is that I can see this might happen on one occasion. You might think it is urgent and you need it and something happens, maybe a deal falls through or something. What I am finding is over the last couple of years there will be three or four special warrants in each of those years whereby the money gets transferred over to a Crown corporation and it just sits there. Those warrants are always dated March month, at the end of the year. They are paid out to the Crown corporation and then they just sit there. That is a concern.

CHAIR: Thank you.

One more question, Mr. Andersen, and we will move onto another.

MR. ANDERSEN: Again, this one is probably for information. Going through some of the readings, sometimes we see large variances in federal warrants, in the revenues. Why do we see these large variances in the federally estimated revenues?

MR. KENNEDY: There are a couple of reasons, I suppose. These revenues generally accrue. They give us anywhere between 40% and 50%, historically, of our total budgetary revenue. There are two main sources of federal transfers: the Canada Health and Social Transfer and the equalization program. The equalization program, in particular, tends to be the more unpredictable of the two. The equalization program tests what each province's fiscal capacity is in respect to thirty-five or forty different tax basis and compares those to kind of a notional national average. Those averages and the individual fiscal capacities move around a great deal depending on economic conditions and other factors.

You tend to get large swings in the numbers for those kinds of reasons. We use the best numbers we have available when we do our budgets, the best numbers we can get from the federal government. We do not do these estimates ourselves. Despite our best efforts here, simply because of our complexity of the programs and the fact that they are based on fiscal capacities, economic activity in our own Province, economic activity in other provinces and so on, they tend to move around a lot for those reasons.

CHAIR: Thank you. We will move on.

Mr. French.

MR. FRENCH: Thank you, Mr. Chairman.

I would like to ask a couple of questions in the beginning just, I guess, more for clarification than really anything else, to start out.

The Auditor General points out to us that in four years special warrants have gone from $32,516,000 in 1996 to $136,051,900 last year. To me, it has gone up four times over what it was previously. That, to me, is sometimes bothersome. I wonder if we are governing by special warrants or are we governing by the way we should really govern.

I just want to ask these questions. Number one, do you think this is excessive? Number two: How much proof - or maybe proof is not a good word - how much really does a minister have to say to Treasury Board that we need, that this is an urgent requirement? Because as we go on today I am going to point out in here where the Auditor General thinks that we have approved special warrants and they were not really of an urgent nature.

I believe I understand you correctly that there is absolutely nothing Treasury Board can do to say: That may be or that may not be a special warrant. Am I correct there, that you people have absolutely no control? If I am a minister of the crown and I say I need $15 million, $20 million, $30 million, or $40 million all I have to do is say that it is urgent and that is granted to me automatically?

MR. KENNEDY: Mr. Chairman, the normal approval processes that are required for any expenditure - whether it be part of the original budget or part of subsequent activity and addressed through special warrant or transfer of funds or something of that nature - is subject to a fairly stringent test as to the necessity of the expenditure that will be discussed by the political leadership of the Province of the day, and they will determine whether something fulfills the public good or otherwise. You will get the normal examination by Treasury Board as well as to the validity of the estimates being put forward, is there a sound plan, is there a good accountability system in place, and so on. You will subject requests that are received subsequent to the budget, for example requests for special warrants, to certainly the same scrutiny, if not more scrutiny, than other expenditures.

Because the government in deciding to issue a special warrant - which is a decision that the Cabinet must make, and the Cabinet can only make that decision on the recommendation of the Treasury Board - well, the government knows full well it is open and exposed to the accountability process that the act currently provides for in relation to that warrant. Presumably the government will satisfy itself as to the urgency of a special warrant and will satisfy itself, I suppose, as well as to the number of warrants and will be prepared to justify that.

The normal approval processes are in place. I think the spotlight is really shined on these special warrants because of the requirements to do individual tabling of these to seek supply for them ultimately through a supplementary supply bill and so on.

CHAIR: Mr. French.

MR. FRENCH: I guess the point I am trying to make here is that once it goes through Cabinet then really Treasury Board has no authority to turn it n. Am I correct? We just had an example of money being transferred but it was not really used for at least nine months. I would really like to know how we consider that of an urgent nature. I am not an accountant but I would really like for somebody to explain to me how an expenditure nine months down the road is urgent today.

MR. KENNEDY: I suppose, Mr. Chairman, again, to say what I said before, that you are dealing with opinion. What I think is urgent and what the Auditor General thinks is urgent and what the member thinks is urgent may be entirely three different things. I cannot speak to that. I can only say that the law which operates to provide for the issue of these special warrants and the procedures that are contained within that requires, as a requirement, that a minister state that there is an urgent need. That is the test which the law, passed by the House of Assembly, provides for, and if that test is met then in our view the warrant is consistent with the act.

CHAIR: With respect to that, from my perspective, I would think that once a directive comes from Cabinet for a special warrant to go to Treasury Board, the responsibility of the people at Treasury Board would be to see that it falls under the legislation of the Financial Administration Act. If it meets those guidelines, that is it, it is done. It is the Cabinet that are the ones that decide this.

MR. KENNEDY: Yes, that's correct.

CHAIR: Can I interject a question here? Because you are on to something that I want to hit on. I'm not sure if I am going to get on to it.

Do you have Appendix 1 there? That is a small diagram. From my perspective, reading the Auditor General's report it is obvious to me that this government is using the special warrants, really abusing the special warrants, to help set what the deficit or the surplus would be in any given year. That is obvious in that diagram. If you look at 1997, the cash surplus deficit projected in the budget was $44,772,000. The cash surplus before special warrant was $54 million. Then you have special warrants of $75,700,000. Now automatically you have a deficit of $21 million. This was at the time when all the cutbacks were happening in this Province and salaries and demonstrations and what have you.

In 1998 you have the cash surplus deficit, before special warrant, of $77 million. Then you come up with $88,601,000 in special warrants, and $34 million of that is in the last month of the year. Now we have a deficit of almost $11 million. To me, when you are using these special warrants you have a direct impact upon the bottom line of the budget. You can say you are having a surplus or a deficit. When you are using $34 million in the last month, to me you are manipulating the budget to your own end. Is that a fair statement to make?

MR. KENNEDY: I don't believe it is a fair statement, no. No, I think what you are involved in here is the management of a process which is very challenging. Managing the financial affairs of this Province is a very challenging undertaking, as I think anybody that lives here would know. I indicated I think in my opening comments that the government had used the flexibility that was present at year end to make some expenditures in what the government felt to be necessary, for necessary purposes.

CHAIR: Yes, but -

MR. KENNEDY: Expenditures that, were they not made at the beginning of that year, might not have been able to be made in the following year because the financial flexibility was not there, or was not believed to be there. Government made these expenditures for what they felt were public goods and proper purposes, and the act provides for the government to be held accountable for that.

CHAIR: Yes, right. Not to cut you off, but again when you have - and I've have used it in the past, that what is legally right and what is morally right are oftentimes two different things. The spirit of the act and the intent of the act are things that have to be adhered to as well.

From my perspective, again, when you go from $32 million in 1996 for special warrants up to $136 million three years later, and then you see that it was around the same time that you can have a surplus in you cash budget, whatever the case may, in you cash surplus before the special warrants, and now you have a deficit, to me... You have nurses on strike, you have the RNC looking for money, the civil service being cut back, layoffs all over the place three or four years ago, and now, because of special warrants, we have a $10 million deficit when we could have had an $88 million surplus - no, a $77 million surplus.

I think, personally, they are playing around with the numbers big time.

Anyway, I am sorry Bob.

MR. FRENCH: As well, I guess the major concern I have is that we are not governing this Province by special warrants. I would like to ask for an opinion here. I do not know if you are free to give one - if you are not, you can certainly tell me - but do you people feel that maybe we should tighten up rules and regulations as to how they relate to special warrants?

Again nine months, to me, is not an emergency. I am only using that one now but there are others in here which I will get into as we progress. Do you think that we should tighten up the rules?

MR. KENNEDY: Mr. Chairman, I guess I am being asked for a personal opinion on whether the provisions in the existing -

MR. FRENCH: If you are not free to give it, you can just tell me and I will change my line of questioning.

CHAIR: Bob, again, we have to be careful of questions we ask these individuals because they are staff of the Department of Treasury Board, and this special warrant issue, to me -

MR. FRENCH: I realize that and I do not want to put them in an embarrassing position, Mr. Chairman.

CHAIR: Or on the spot.

MR. FRENCH: No.

CHAIR: The thing is that the Cabinet are the ones who direct special warrants, and if it is within the financial administration act and the regulations, well -

MR. FRENCH: I realize that, too.

CHAIR: - they have to do what they have to do.

Mr. Lush, do you have any questions you would like to ask?

MR. LUSH: Not any that I have never asked in my life before. It seems like it is not the first time I have been in committee with Mr. Kennedy and his staff here, defending special warrants.

WITNESS: (Inaudible) like them.

MR. LUSH: No, I do not like them. As a matter of fact, I can tell members present why they stopped in the early years, in 1996. I do not know if Mr. Kennedy ever got down to nothing but there was one particular premier who was quite upset with special warrants, and I think his pledge was that he would never use a special warrant, but I don't believe he could keep it. I know that was in the early years of this present administration that they were down because, as I said, a certain premier was quite upset about the way a previous government was using special warrants.

I guess the problem lies with the fact of the public perception as to what is an urgent requirement. I suppose it is difficult to perceive that if a certain government agency has monies which they have received from a special warrant in their possession for nine months, how could that be regarded as an urgent requirement.

I am just wondering if the officials could comment on that. There may be something in that, that members do not see. If some agency makes a request for money, the fact that they do not spend it the next day or the next week or the next month, to my mind, does not necessarily say that when the request was made it was not an urgent requirement; they need their money to operate, whatever the circumstances are.

I am just wondering if somehow, somebody on the staff knows of a situation where they might be able to shed a little more light on what - not necessarily defining what an urgent requirement is, but to give us an example of a situation whereby somebody requests money and it is sort of sitting with them for five or six months. How could that be determined to be an urgent situation?

MR. KENNEDY: I suppose, Mr. Chairman, if you take urgent to mean something related to basically an emergency situation then there are probably not very many special warrants that would be consistent with the act if that is what it means. I suppose a special warrant for additional money to fight forest fires would meet that kind of a test, but special warrants are not issued for things that are of an immediate or pressing nature.

We might, for example, reach a new cost-shared agreement with the federal government partway through a year. I think one of the warrants that was cited by the Auditor General refers to expenditures for an extension to the infrastructure program that was arrived at shortly after the budget was introduced. There was a special warrant because the House was not available, presumably, to provide authority to spend an additional amount of money for that purpose. That money was not spent in the next day, in the next week, or in the next month. That authority covered the expenditures that would normally be associated with that program from that point in time until the end of the year, up until the end of March, and warrants can typically be of that nature.

Social assistance costs, for example, will sometimes tend to be somewhat unpredictable. If there is a shortage developing on the social assistance account in July, August or September, that might be known on the basis of experience to date and so on, and the department might well be in a position to say: Look, we have an additional need here; we need a warrant for this money.

You could do that in August, September or October, I suppose, and not spend the money until the following March. So I don't think there is any correlation between - if you look at any of the warrants we have issued, the immediacy, I don't think, is present in very many cases. It might be there coincidentally, and it might be there on something like fighting a forest fire, but it may not be there for most program requirements.

If I were the government, I think I might argue that an expenditure for capital infrastructure for hospital equipment or new school construction, or something of that nature, is in the public good and I would make the judgment that it is urgent to do it because I have the financial flexibility at this point in time to do it. When the new year rolls in, I may not be in that position because I don't know what the revenue numbers will be, or I know what they are like and I know I am not in a position to do it unless there is some further improvement in the position.

I think that is not a bad argument as it relates to urgency for some of these expenditures. I don't think the test of immediacy would be generally applicable to warrants issued recently or in the more distant past.

MR. LUSH: Democracy is a wonderful thing that we have, and Parliament as well. Many of the rules and regulations are designed with experience in mind, giving everybody the kind of flexibility that is needed. So I expect here that what we have is a problem with definition or perception. If there were guidelines introduced, I expect that would probably tie government's hands tremendously in accessing monies when they were needed.

I guess what I am saying is the fact that the definition is left open, that there are no more guidelines, is probably a rather deliberate situation; because if there were guidelines, it seems to me that you would have departments pretty much in a straightjacket with no flexibility.

My question from that is - I am sure, Mr. Kennedy, that you are familiar with other jurisdictions - what do they do in a matter of special warrants? Is our system pretty much the same with respect to guidelines or lack of guidelines?

MR. KENNEDY: I'm not personally familiar with the status. I know many of the new special warrants. As to whether there are guidelines that are helpful in determining, or define better, when a warrant can be issued or not, I do not know. I am not in a position to comment on that. I do not know if Mr. Williams knows any better than I do or not. If he does, I guess he can make a comment.

MR. WILLIAMS: I am not familiar with all of the procedures or guidelines on all the other jurisdictions but in the Atlantic Provinces - I think Nova Scotia and New Brunswick - their financial administration act is almost a parallel of ours. I would not be able to comment on others across the country as to guidelines. I have no knowledge.

CHAIR: Is that it?

MR. LUSH: Yes, for now.

CHAIR: Mr. Manning.

MR. MANNING: Thank you, Mr. Chairman.

A point of clarification. If a minister requests a special warrant, that request goes through Cabinet and back to your department. Does your department then review that request? Can you just give some information on the process there, please?

MR. KENNEDY: Yes. The act requires that the original request be considered by the Treasury Board, which is the sub-committee of Cabinet on financial matters. If it is a special warrant it has to pass through Treasury Board and get a recommendation from Treasury Board ministers before it can be considered and decided upon by Cabinet. (Inaudible) a decision is then made, of course our responsibility would be to do the accounting for the transaction to ensure things are compliant with the act and established processes, and then that expenditure that are made pursuant to the special warrant meet the test that, under expenditures generally, they are required to meet.

MR. MANNING: When I look at the special warrants for the year ending 31 March, 1998, and you can refer to page 2, figure 1, of the thirteen warrants that were issued, seven of the thirteen were issued on March 13, 1998. My comment is this, that is kind of passing strange to me that there would be so much urgency on March 13.

CHAIR: Was that a Friday, I wonder?

MR. MANNING: All I have in front of me is 1998's special warrants. I am just wondering what comment - and I guess if you are not in the position to make the comment - but of the thirteen warrants issued in 1998, seven of them were issued on March 13. Wouldn't that seem peculiar?

MR. KENNEDY: No, not really. What you were dealing with here, as I explained earlier, is a situation where they had been very late in the financial year upward revisions in the revenue estimates, and government was then I guess left with the prospect of putting together a budget for the upcoming year with this financial flexibility available, and was able to use it to make some necessary expenditures; expenditures that might otherwise have been a charge against a subsequent year, or expenditures government might subsequently not have been in a position in fact to make. I think that the fact there is a group of them around March 13 - and you would see the same thing in the subsequent year - would simply be a group of decisions made by government in the process of deliberating on the budget and finalizing the budget packages and so on. I think that it was why you would see it on March 13.

CHAIR: I would just make a statement. That again to me lends more credence to my statement earlier that the government are using special warrants, when you have seven issued on the same day two weeks before year-end, to manipulate either a surplus or deficit for the budget for that year. That is just a statement I want to make, to be on record.

Mr. Manning.

MR. MANNING: That is what I was trying to get at. Once we are in trying to finalize the figures for the fiscal year ending, whatever year it is, that is why I said it is strange you would have over 50 per cent of the warrant issued in a fiscal year to be issued on the one day, which is two weeks prior to year-end.

On a follow-up on how your department follows up on a request, the Auditor General noted that on November 30, 1998, the Newfoundland and Labrador Education Investment Corporation still had $14.7 million in investments. For the 1998-1999 year, a special warrant provided another $13,650,000 in funding to the Corporation. In your review of the department's request for the issuance of the special warrant, would Treasury Board officials have checked to see that this corporation was not holding millions of dollars in their accounts?

MR. KENNEDY: Mr. Chairman, I think the government and we, as officials, would have known that the money that passed through the budget for that year in the form of a payment of a grant to the Education Investment Corporation, which is a different public body from a government department or the government itself, it would have been known that this money would have been spent then in the course of the following years. That was known and acknowledged up front and was a fundamental part of the transaction. The expenditure, nevertheless is still properly charged because it is a grant to the budget for the year in which we made that payment to the Education Investment Corporation.

MR. MANNING: But the fact that they had $14.7 million in investments, would that question the fact that they needed this urgent money?

MR. KENNEDY: They had those monies available because government had made public commitments to have a certain school construction program and to spend $50 million on that, or whatever the amount was, and these monies were paid out to the Corporation in order that that commitment could be met and the expenditures could be flowed on an orderly basis.

MR. MANNING: Has there ever been a request for a special warrant in your tenure that has been denied? Has there been a request for a special warrant from a department that has been denied?

MR. KENNEDY: I would have to go back and check through our files on that. Off the top of my head, I would think there would probably be some that have been requested that have been denied for various reasons, either because the government did not want to proceed with the initiative that was being put forward or perhaps because before a department requests a special warrant it must state it has no contravening savings that can be used. So there might be issues of that nature where it can subsequently be established there are savings available to be used, in which case you cannot use the special warrant mechanism. I would be fairly confident in saying I think there have been some which have come forward that have been turned down.

MR. MANNING: Again, I guess, getting back to maybe something that was mentioned earlier but I just wanted to clarify, when the year end is approaching - the issue of special warrants - do they change the fiscal picture of the Province to the point that without these special warrants we could end up with a surplus in our account?

MR. KENNEDY: The bottom line results of the Province over the couple of years that you are talking about would be different if these warrants were not issued. Yes, that is correct.

MR. MANNING: Thank you.

CHAIR: Who is next? Mr. Andersen?

MR. ANDERSEN: (Inaudible).

CHAIR: You pass? Well, maybe I will ask a few.

On page 2 - and Mr. Manning was on to this here - Figure I, under Details, Education, "To provide additional funding for scholarships for needy students.", $4 million on March 13. What was the urgency there? Could you explain that?

MR. KENNEDY: As I recall, Mr. Chairman, the government had decided to follow up on an announcement by the federal government to put in place something called the Millennium Scholarship Fund, which would provide a significant amount of public expenditures for scholarships starting in the year 2000. The government of the day determined that it would be a good thing to make an investment in a scholarship fund - which I think is over at the university, in fact - in order to allow some scholarships to be awarded to needy students for the intervening years before the year 2000. So it is monies that were paid out to the university into their scholarship fund.

CHAIR: The next one, Executive Council, on the bottom line, it says: "... new FMIS system for the Government.", $2.3 million. What was the urgency there?

MR. KENNEDY: We were in the midst of putting in place a new - the FMIS is a new central financial management system for the Province. The old system which runs our accounts, pays our bills, keeps our books and records, and does all of our main financial functions, was out of date and was not Y2K compliant and so on. We were engaged in a $7 million to $8 million project over a period of years to put in place - it was a fairly significant undertaking - a new central accounting system for government. The work on that project was proceeding more quickly than had been originally anticipated when the budget for that year was done and the decision, I guess, around December was: Well, do you shut this down and wait until next year to get some more money, or do you keep this going and get it done quickly as possible?

CHAIR: You answered my next question, which was: Couldn't this have been budgeted for in the regular budget, type of thing? You are saying it was advancing quicker than you had anticipated.

MR. KENNEDY: Yes, it would not have made any sense to leave it and shut down a project team.

CHAIR: The next one was the Newfoundland Municipal Financing Corporation, $2.6 million. What was the urgency there?

MR. KENNEDY: That was a response to the fact that there were a large number of municipalities in financial difficulty by virtue of very high debt loads. In fact, a lot of the accounts of the Newfoundland Municipal Financing Corporation, for that reason, are in arrears and so on; so there was a reaction by government to address that need. Those monies were paid over to the Newfoundland Municipal Financing Corporation to assist in putting in place refinancing packages of -

CHAIR: But, couldn't something of that nature have been foreseen in the regular budget, though?

MR. KENNEDY: The fact that there are municipalities that have financial difficulties is publicly known, so that could have been foreseen; but presumably when the original budget was being done, the financial flexibility was not there to address that particular priority.

CHAIR: Health, I have no problem with. Legislature, $1.8 million - no that is the education reform, okay.

MR. KENNEDY: Yes.

CHAIR: Municipal and Provincial Affairs, "To provide additional funds for an extension to the existing Canada-Newfoundland Infrastructure agreement.", $6.5 million. What was the urgency there?

MR. KENNEDY: When the budget was being done, it was known that the federal government was going to extend the then existing infrastructure agreement for a year but it was not known what order of magnitude the extension would be. We did not know, so the budget made a block provision of $5 million, which was a guess, so the account was there and it was opened. When the amendment subsequently materialized, it was for a larger amount. In order for proper authority to exist to allow the program to be rolled out as anticipated over the course of the following year, subsequently it was extended for another year, the special warrant had to be issued to allow commitments to be made for approved projects.

CHAIR: Thank you.

Under Works, Services and Transportation, "To provide additional funds for the Labrador Ferry Services and the construction of the Trans Labrador Highway.", $35,334,000. Again, I might ask the Auditor General if she would want to comment on this, but couldn't that have been foreseen in the regular budget?

MR. KENNEDY: Mr. Chairman, the Province entered into an agreement with the federal government after the budget had, in fact, been presented, something called The Labrador Transportation Initiative, under which the federal government agreed to pay a substantial amount of money to the Province in return for our taking over certain responsibilities for ferries, coastal boats, related infrastructure needs and so on. That money was put into a fund against which there would be a draw down in each subsequent budget to allow for the cost of those boats, the construction of the Trans-Labrador Highway and so on to be made. I guess that was done after the budget.

CHAIR: Auditor General.

MS MARSHALL: That one I did not have a problem with. The ones that I had a problem with that year are on the next page, Mr. Chairman, on page 3.

CHAIR: Page 3. Yes, I have those highlighted too.

MS MARSHALL: There is $30.9 million that I had a problem with.

CHAIR: Yes, $30.9 million, and the Nature of Funding Provided Under Special Warrants on page 3. "Of the $88.6 million in special warrants issued in 1997-98, $30.9 million were issued although it appears there was not an urgent requirement for the funding." Would the Auditor General like to comment on that? Then we will get a response from the Treasury Board.

MS MARSHALL: Primarily, the $21.8 million that went into the Investment Corporation and the $2.6 million that went into the Newfoundland Municipal Financing Corporation, they were put into corporations. In other words, the money was transferred out of government's central account, went over to these crown corporations and just sat there, and sat there for several months without being spent.

The $6.5 million, the problem I had with that was, that was a special warrant that was issued earlier in the year, but in fact most of that money lapsed so at the end of the year most of that money did not get spent. About $6.1 million of that did not get spent.

CHAIR: Was that the -

MS MARSHALL: That is the one relating to the Infrastructure Agreement.

CHAIR: Yes, that is what I am saying. I was just questioning that.

MS MARSHALL: Mr. Kennedy just spoke to that one.

CHAIR: Yes.

MR. KENNEDY: I can make another comment on that if you wish, Mr. Chairman, on the Infrastructure Agreement.

CHAIR: Yes, please.

MR. KENNEDY: Agreement? When that $10 million had become available, the Province felt from the outset that two financial years would be needed to properly flow that amount of money, given the requirements for planning and so on that are required and the timing of program approval. The Province nevertheless had to put a financial mechanism in place to allow commitments to be made even though funding might not be spent until later. In fact, the Province was subsequently successful in convincing the federal government that two years would be needed to properly expend these monies. That is why you had a significant dropped balance on that particular (inaudible).

CHAIR: I have to ask the Auditor General a question on this. If that $6.5 million lapsed, the deficit for that year, would it have been reduced by $6.5 million?

MS MARSHALL: No, that would have no impact at all on the bottom line, but the other two, the $21.8 million and $2.6 million, that would have an impact on government (inaudible).

CHAIR: So if we had a deficit that year of whatever, we should have improved by $24 million. Again, it goes back to my earlier statement. I think there is a lot of manipulation in numbers going on here, big time, with respect to when the budget is being prepared. Did you want to comment on those two that the Auditor General just referred to?

MR. KENNEDY: I don't think I can say much further about them. They are legitimate charges against our budget accounts for the financial year in which the expenditures were made. They are paid out of grants to these agencies that are public bodies and are at least at some arm's-length from us. Even though the monies might not have been spent for some months subsequent, then there was still a need for the monies to be available so that commitments could be made for the orderly expenditure of those amounts. If the amount had not been provided you would not be in a position to make those commitments.

CHAIR: Thank you.

Mr. French.

MR. FRENCH: Yes, Mr. Chairman. I would just like to ask Treasury Board about something. Earlier this year we heard an announcement by the government of $100 million for special projects. My guess is most of them would have been in capital expenditures, would be, again, in infrastructure, water and sewer, this type of thing. My understanding was it would be $100 million by the Province and then another $100 million by municipalities around the Province.

Would it be fair for me to ask you people have there been any talks as to where this $100 million will come from? How will this money be dispersed by Treasury Board? Has there been any discussions on the $100 million that was announced a while ago? Twenty million dollars of which, by the way, is being spent in my own district or part of my district, so I'm very pleased with that, but I would still like to know where the money comes from.

MR. KENNEDY: How the municipal financing projects work is this. We have had municipal capital works for a large number of years and certainly back to some time back in the 1970s. The expenditures on municipal capital works do not flow through the budget directly in the year in which the expenditures are made. The authority for a project is given and authority is given at the same time for a municipality to borrow sufficient monies generally to allow the project to be financed and paid for through its construction phrase. Interest accumulates on that account and at the end of the day when the project is complete then a long-term financing mechanism is put in place under which the Province and the municipalities will generally each have certain responsibility. We will be picking up part or all of the subsidy on municipal capital works' projects and those amounts would be in the budget then in subsequent years.

MR. FRENCH: Yes. My understanding here is this. In the case of two of the municipalities in my district, the Town of Holyrood and the Town of Conception Bay South were both required to go out to a bank and receive approval to borrow their portion. In the case of Conception Bay South it was roughly $20 million and in the case of Holyrood it was something under $1 million. Again, the question I am asking is: Does the government now have its own financing in place to handle this $100 million fund or will we wait until a project is finished? Then will Treasury Board either borrow the money or will we look somewhere internally within the Province's Budget to find that $100 million?

MR. KENNEDY: The Province's contribution toward those particular projects would work in no different way, fundamentally as it relates to our budget, from other municipal capital works projects. Our financial share will eventually show up in our budget after the project is complete and will be a charge against our budget then in each year as the loan is paid off.

MR. FRENCH: I don't know if I am not understanding you or you are not understanding me. The Province announced - I am going to use a figure of $30 million or close to $30 million - this year for infrastructure expenditure. Those funds were disbursed by the minister in the House of Assembly some two, maybe three, weeks before this megaproject was announced and the mayors from various municipalities were called in and so on. What the Province had to spend in infrastructure was spent weeks before the infrastructure money was announced.

CHAIR: The new infrastructure, the new project.

MR. FRENCH: The new infrastructure, the new project was announced, the money that the provincial government had, and has every year - you know, $20-odd million I think it is, Tom, every year for capital works programs. That was announced in the House by the minister and was spent.

As a matter of fact, I personally had conversations with the minister in which he told me: Now, Bob, the two municipalities in your area are not covered under this funding because your two municipalities have applied for funding under the megaproject. To me, the megaproject was not budgeted in the 1999-2000 expenditure, as I see it. Maybe I am wrong.

What I want to know is -

MR. KENNEDY: That is correct, and the $20 million that they normally spend, you do not see that directly, that $20 million, in this year's budget either because -

MR. FRENCH: But it was announced as part of this year's budget.

MR. KENNEDY: It was announced and there will be financial responsibility of the government in relation to either or both of those programs.

MR. FRENCH: Okay, then where do we come up with the $100 million, if it is $100 million - or if it is $50 million, where do we come up with the $50 million - with the government's responsibility here? Where do we get that money?

MR. KENNEDY: What we have agreed to do - and Ms Caul can correct me if I am wrong on this because she is more familiar with it than I am - in the case of either of those projects is to undertake a certain part of the responsibility for the debt repayment on the loans that will be put in place to allow for their construction. As the projects are complete we will, to our intra-subsidy account or our principal subsidy account in the Department of Municipal and Provincial Affairs, add a component for the annual debt servicing costs on those projects as they are done, which is the way this has worked for twenty-five or more years.

CHAIR: Can I interrupt? I think what Bob is getting at - I am not sure, maybe I am wrong too - there was $100 million announced, $50 million from the municipalities and $50 million from the Province, going into it.

MR. KENNEDY: Right.

CHAIR: The $20-something million was already distributed before the House closed - two or three weeks - so that $50 million that the Province is putting into it, where is it coming from?

MR. KENNEDY: Over and above. I will ask Ms Caul to try.

MS CAUL: The $100 million program, what we have done is, we have authorized municipalities to go out and borrow $100 million, of which the Province has given a commitment -

CHAIR: Has guarantees.

MS CAUL: - once it goes on repayment, that they will cost-share 50 per cent of the debt servicing on that. There is no public money gone into it up front, it is bank money, but when the loans go on repayment the Province has given a commitment that we will service 50 per cent of the debt associated with it.

CHAIR: Okay.

MR. FRENCH: Okay, because -

MS CAUL: That will be in the budget two or three years down the road.

MR. FRENCH: I have run into municipalities across this Province where I have sat with mayors. Can I also ask this question, Mr. Chairman: Will the government guarantee to municipalities - an example would be Twillingate - the money to the bank on behalf of the municipality of Twillingate, or will they not?

MS CAUL: No, they will not give a government guarantee. What they will give is a letter of commitment that they will provide 50 per cent of the funding at the end of the day. For most banks that has been fine. There has been the odd bank which has been holding out and saying: That is not good enough, we want the guarantee. But the Province is not prepared to give the guarantee. That was stated up front in the guidelines and it was known by all the towns before they applied, that there would not be any guarantee -

MR. FRENCH: Yes, but they changed the guidelines in relationship to the number of years you would have to pay it back.

MS CAUL: That is right, yes.

MR. FRENCH: So things can change.

MS CAUL: But they did not change the requirement regarding the guarantee.

MR. FRENCH: One of the municipalities I met with was told that the contribution from the Province would be a little over $2 million and the municipality had to go and raise $2 million on its own, which it did. But, at the end of the day, they were at loggerheads with their bank because the bank was saying: Well, if you do not get us a government guarantee we are not going to give you $2 million.

At the end of the day this municipality, who certainly needed the $4 million for infrastructure, would end up with nothing.

MS CAUL: Yes, but I think what I would say to that municipality is: Shop around with your banking, because there are a number of banks out there who are quite prepared to give those loans on the strength of the government commitment.

MR. FRENCH: The only problem is that with some municipalities in some of the more rural communities, the Royal Bank of Canada, the Bank of Nova Scotia or the Bank of Commerce is the only game in town and it is very difficult to find somewhere else where you can do your banking. That is unfortunate but that is a fact of life.

MS CAUL: It is, yes.

MR. FRENCH: It seems to me like in parts of rural Newfoundland we are almost saying to a rural community: Well, we are going to punish you because you are this far away from St. John's. That doesn't sit well with me at all.

Again, you are telling me that we will not be guaranteeing - there will be no government guarantees for bank loans - so at the end of the day this government will then have to go borrow the $50 million to -

MS CAUL: No, the $50 million that has been borrowed by the municipalities, all we will do is kick in our share of the debt servicing costs.

MR. FRENCH: Okay, where will the government get its share? Where will our government get $50 million?

MS CAUL: It will come from current account. What we have done, what municipal affairs have proposed in getting this program approved was a reduction in their regular municipal capital works. Like, the regular municipal capital works in later years has been a $25 million program. With the introduction of this multi-year or mega-program what they have done and have agreed to do over the next fifteen to twenty years is to reduce that $25 million program down to $5 million. So in essence what has happened is we have given towns - money that they would normally get over fifteen years, we have given to them (inaudible).

CHAIR: Up front.

MR. FRENCH: Again, my understanding of this, and not from John Q. Public but some people very close to the scene - I will not get into names here but some people very close to the scene - were telling me that Treasury Board were having a great deal of difficulty with megaprojects. I know in my own community there has been a megaproject talked about since I got elected in 1996, and I would really like to know: Does Treasury Board have a problem with this megaproject, or if indeed it ever had a problem? Because my sources which are very good sources, tell me that in the beginning Treasury Board had quite a problem with them. I would really like to know if that is true or if it is not true.

CHAIR: Not to be putting words in their mouth, but I can't see how they can answer that question, to be honest with you.

MR. FRENCH: They are on Treasury Board, Mr. Chairman.

CHAIR: Yes, but again, if you want to ask that, you ask that to the President of Treasury Board, I think. That is who should answer that question. If you want to answer, go ahead, but -

MR. KENNEDY: I agree with you, Mr. Chairman. I don't think it is appropriate for me to - government does what it wants on these issues and determines what they support and what they do not support, and government speaks to it and is accountable to it publicly.

MR. FRENCH: That is not the question I was asking, Sir. I was not talking about the government. I was talking about Treasury Board and Treasury Board's objections in the beginning.

MR. KENNEDY: Treasury Board is group of ministers. That is what constitutes the Treasury Board appointed by Cabinet. Treasury Board has a staff, which is us.

MR. FRENCH: Which I assume they would be taking some advice from, either good or bad.

MR. KENNEDY: They choose to take or leave the advice, at their discretion -

MR. FRENCH: That is right.

MR. KENNEDY: - which is as it should be.

CHAIR: With respect to that issue with the megaprojects with municipal affairs, if you sit back, that was a smooth and smart move on government to reduce their bottom line by $20 million over a few years. The towns will get the money up front now and they do not have a guarantee on that money - they have a commitment - so in actual fact again that affects their deficit or surplus for the next few years.

MR. FRENCH: That is where I was going, Jack.

CHAIR: Anyway, is that it? Is there anybody else who has other questions here?

WITNESS: No.

CHAIR: I have a few more.

On page 5, section 3 - and this is Treasury Board Secretariat's Response - "A number of your comments make the claim that, in your opinion, the need for certain of the expenditures authorized by Special Warrants was not urgent. However, in all cases appropriate statements to this effect had been prepared by Ministers, and were tabled in the House of Assembly."

In the next paragraph, "I am not aware of any guidelines that would be helpful in determining what would constitute an urgent requirement."

Again, I think that at the end of the day, my belief is that there should be guidelines not only in policy, but in actual fact. Maybe the act itself should be changed - I am going to get into the act next - the Financial Administration Act.

It says here, on page 6, section 28.(1), mid-paragraph, "... with the prior consent in writing of the board, where countervailing savings can be effected from other subheads of its Head of Expenditure, apply those savings to meet the excess expenditure, whether or not the Legislature is in session."

We have had some discussion on that, but it goes on under (2), "Where the sum appropriated by the Legislature for a continuing service is insufficient to meet the requirements of that service during the year for which the appropriation has been made, then, upon the report of the minister that there is insufficient legislative provision and that no countervailing savings are available from other subheads of the Head of Expenditure concerned and upon the ..."

Okay, I got into that. I read something I should have crossed off before; the next paragraph is what I am getting to.

"(3) Where, when the Legislature is not in session, or when the House of Assembly has been adjourned for more than 30 days, an expenditure not foreseen and not provided for by the Legislature in respect of a new service is urgently and immediately required for the public good, then, upon the report of the minister that there is no legislative provision and of the minister having charge of the new service in question that in his or her opinion the necessity is urgent, giving reasons for the opinion, and that where the expenditure is not made, grave damage to the interests of the Crown or the public will result from delaying the expenditure until the necessary legislative provision has been made, the Lieutenant-Governor in Council may, on the recommendation in writing of the ...."

To me, that section backs up what the Auditor General has been saying. You are using the words urgently, immediately, grave, these types of things, and some of these reports were waiting around, or these special warrants have been issued for nine months. I think, again, it certainly leads me to believe that there is abuse within government with respect to these special warrants. I know you cannot address that to a certain extent; you are the executive, I know. I think what we should have done, Mark, was have the President of Treasury Board before us.

Anyway, on page 8, section 29, "....and the comptroller general shall report to the board a case which comes to his to her notice in which liability has been incurred by a minister, deputy minister or other officer or person which contravenes this Act and the board may take whatever action in the matter that it considers necessary."

I think that these again contravene some of these special warrants that were highlighted, especially those that Mr. Manning brought up, where we had I think it was eight issued on the same day, that contravene the spirit of the act and the intent of the act.

Page 9, the last sentence on that page, In each case where a Special Warrant is issued, the relevant departmental Minister must provide a statement indicating that the need for the Special Warrant is urgent." Again, some of these I do not believe have been urgent.

On the next page, page 10, section 4 says, "In addition, the 14 Special Warrants totaling $136,051,900 were included in the 1998-99 Supplementary Supply Bill which received Royal Assent in the House of Assembly on May 27, 1999."

The question I have: Every special warrant that was issued in the 1997-1998 budget was included in that list at that time?

MR. KENNEDY: Yes, I would assume so.

CHAIR: On page 12, under Finance, "Special Warrant of $5,000,000 to provide additional funds for a capital grant to the Newfoundland Municipal Financing Corporation for municipal Debt Relief." Again, I think we touched on that earlier, did we not?

MR. KENNEDY: It was additional money for the same purpose, the same program.

CHAIR: It is more money?

MR. KENNEDY: Yes.

CHAIR: Again, the notes that I had made here, couldn't this be budgeted for in the regular budget, an emergency situation or an urgent situation? I have to agree with the Auditor General on these, I really do.

Under the next one, Forest Resources and Agrifoods, the second one, "Special Warrant of $1,000,000 to provide for the payment of a grant to the Newfoundland and Labrador Legacy Trust." Is this really urgent or could it have been budgeted for? Would you like to comment on that one?

MR. KENNEDY: I suppose it could be budgeted for, Mr. Chairman, but the fact was the flexibility was there to make this and certain other related expenditures at year end. I assume the government felt the flexibility would not be there in the upcoming budget so they decided to do these year-end transactions. They felt the public good was being served by that, that it was a valid thing to spend money on, and were prepared to go off and defend it.

CHAIR: But it is more than the public good. It is suppose to be, according to the words I used earlier in the Financial Administration Act: urgent, immediate, grave consequences to the public.

To me, I would have to agree with the former Premier that Mr. Lush referred to, that maybe these special warrants should take....

I will tell you one thing I have learned here today: when the next lists of special warrants are listed in the House of Assembly, I am going to be asking some serious questions on them, I can guarantee you that. Sometimes you just take it for granted that they are, but I have learned a lot here today.

Tourism, Culture and Recreation, again we have special warrants of $3,800,000: Soiree ‘99-$1,400,000; Labrador Winter Games - $400,000; Canada Games - $500,000.

Again, to me, these are all things that could easily be budgeted for. We heard about Soiree ‘99 last year, maybe the year before, and -

WITNESS: (Inaudible).

CHAIR: Yes.

MR. FRENCH: Could I ask what the $500,000 was for, for the Canada Winter Games? I am fully supportive of these type games but is there an explanation as to what the $500,000 was for? (Inaudible).

MR. KENNEDY: I don't know offhand, Mr. Chairman. I assume some sort of a provincial contribution to the games for infrastructure or related needs but I don't know off the top of my head. I would have to check and find out.

MR. FRENCH: Could somebody get back to the Chairman with an answer?

MR. KENNEDY: Sure, by all means.

CHAIR: Thank you.

Mr. Manning.

MR. MANNING: Mr. Chairman, as we look at the act and certainly look at the comments from the Auditor General, it would seem that most of the discussion this morning has centered around the definition of the words: urgent, immediate or whatever the case may be. From a perspective of where you people sit - again, I will ask the question and if you cannot answer it I will understand - do you believe that if there was a regulation, criteria, guidelines in place, that not the flexibility, I guess, but would the government's hands - whatever government would be there - be tied behind their backs more or less in regards to... If we stuck to the letter of the act, which is of an urgent nature - and we all know what urgent means; the Canada Winter Games may not be of an urgent nature - if there is something, as you alluded to earlier, a forest fire or something like that, if we stuck to the letter of the act, what is your view on how government would be able to control the financial situation of the Province?

MR. KENNEDY: Again, Mr. Chairman, we think the warrants that have been issued here do in fact comply with the act because what it requires is for a minister to stand up and be counted and say: I say this is urgent. I will carry this special warrant into the House of Assembly and I will defend the decision publicly and whatever. I guess that is the process which is in place.

I guess in answer to the earlier comment the member made as to if you had guidelines in place, clearly if there were guidelines and various tests that might be required, I think that would restrict the government's ability somewhat. That would require the government then to apply a different criteria to whatever decisions might be made; but, on a personal basis, I don't quite frankly know how you would define or limit something like urgency, what is urgency and what constitutes urgency in different situations. I think that would be a very difficult thing to do.

MR. MANNING: That is what I am trying to get at, the definition, because it comes down to a point where a minister or a group of ministers, a group of three or four people, are deciding what is urgent and they go out and defend it. The problem I have with it is, in many cases, as Jack alluded to earlier, asking more questions in the House. I guess it is all a learning process, but many times they do not have to defend it because it does not get questioned in some cases, only within the inner circle themselves.

I am just wondering, from an urgent point of view... To me - again, in my opinion, and we are all into opinions here this morning - there is a fair amount. It is strange that in 1994 we end up with two special warrants and in 1998 we end up with thirteen. When we look at the list of special warrants, it begs the question of what the definition of urgency is.

CHAIR: Thank you.

Does anybody else have questions? I have three or four more.

On page 13, under Education, again we touch on the Education Investment Corporation; $13,650,000. I think we had some discussion on that. Auditor General, do you have anything further on that one?

MS MARSHALL: No. These are all warrants that were tabled this year and we are doing some audit work on it now so I will be reporting on these in my next report.

CHAIR: Under that also it says, "Total of $9 million paid out in 1998-99; $3 million was included in the 1998-99 Budget, the Department found savings for $4 million and $2 million was included in the Warrant."

Would you like to comment on that and tell me exactly what is going on there?

MR. KENNEDY: This was the Opportunity Fund, Mr. Chairman. Government made a commitment when the university launched this major fundraising drive that they had, the purpose of which, I think, was to raise $50 million for needed infrastructure, scholarships and other needs. The government agreed that if the university could raise I think it was $25 million on their own, through the private sector, the government would, in fact, match that contribution. There was subsequently an agreement that, because we were in a difficult financial position at the time, required us to - I think with the university's agreement - pay them $3 million a year for a period of years until the liability was extinguished, even though they might have collected more money than that.

One of the options that was explored here at year end was to in fact advance enough money to the university to in fact match what it was they had already collected rather than to be in a situation where we were paying in arrears. The government, I guess, met the obligation fully in that year to the tune of whatever amount they had collected over there on their own. So there were some savings in the department that were put into this account to help meet the payment and then a special warrant for the balance.

CHAIR: The next one, cumulative deficits, "Special Warrant of $1,699,000 to provide additional funds for the following: - Cumulative deficits for School Boards at time of consolidation."

When I read that, the first thing that popped in my mind was yesterday and the day before we had the Avalon East and the Avalon West School Boards here and we had some discussion with respect to salary top-ups, severance, paid education leave outside the guidelines and what have you. When I see $1.2 million as a deficit for the board, paid out by government, does any of that go to cover those types of things from the board? We are not finished with the Avalon East or the Avalon West board yet, but in my mind the kind of bucks that were paid out for severance of some of these individuals is verging on criminal, as far as I am concerned. Do you want to comment on that?

MR. KENNEDY: These deficits were deficits that showed on their financial statements, so presumably I guess whatever expenditures they made could have contributed to the deficit. The reason government paid off the deficits, of course, there was a reorganization, there was a new system of boards being put in place, and in several cases some of them were kind of saddled with pre-existing deficits that had existed when the old boards were around and government felt they should be put on a sound financial footing to start off on that basis.

CHAIR: Mr. French.

MR. FRENCH: Is there any way that this Public Accounts Committee can be told if any of this money went to pay top-ups of severance and paid educational leave which is not covered by the Government of Newfoundland and Labrador's guidelines? Because we have seen, as our Chairman has said, in the last few days, massive amounts of money which have been paid out. In one incident some $58,000 was paid to two individuals, which is outside government guidelines. There was no set of government guidelines for paid education leave, yet the two same people who received this money are still working for the board. Is there any way to know if any of this money was used for that?

MR. KENNEDY: I suppose, Mr. Chairman, if the transactions in question took place in the financial years in respect of which you have this bottom-line result, then -

MR. FRENCH: Is there any way Treasury Board could check and again give us a report as to where it was -

MR. KENNEDY: It is a fairly simple thing, I think, to check and find when those transactions were done and what years the deficits were accumulated in. I think that could be done fairly easily.

MR. FRENCH: I would be very interested in knowing that, because I am very interested in why fellows were paid money they should not have been paid.

CHAIR: On page 14, Human Resources and Employment, "Two Special Warrants of $8.0 million and $6.9 million respectively to cover the provincial share of the cost to purchase annuity contracts as per the Fisheries Early Retirement Agreement." Couldn't this have been budgeted for in the regular budget?

MR. KENNEDY: There was a choice available on that item, Mr. Chairman. The Province had a responsibility, had agreed to financially contribute to the cost of those early retirement programs, and chose to do that by simply buying an annuity from a private sector bank or financial institution, paying out the cost of that upfront and then having that institution pay on an ongoing basis the annual or monthly payments to the individuals involved. So it could have been done either way, yes.

CHAIR: Would you like to comment on that?

MS MARSHALL: We are looking at that one now, but I understand that it was a choice between paying up front or you could pay later. There was a choice, so I will be reporting on that in (inaudible).

CHAIR: Thank you.

Does anyone else have any questions to be asked?

I will ask the Treasury Board representatives if they would like to make a comment before we clue it up.

MR. KENNEDY: Perhaps the only thing, Mr. Chairman, that has not been pointed out: I think the wording which is in the act - I just point it out as a fact, I suppose - I think that has been like that for a long while. This is not say that it should or should not be changed but this goes back many, many years, certainly thirty or forty years, I would think.

MR. FRENCH: Think we should change it?

CHAIR: It basically depends on the government of the day, the interpretation they have of it and what they want or how they want to use the Financial Administration Act. That is what it boils down to, as it now stands.

Would the Auditor General like to make any comments?

MS MARSHALL: No, I have no comments.

MR. LUSH: The matter of urgency, too, Mr. Chairman, as you, a politician, should know, depends not so much on the definition but the groups coming up to you for the money.

MR. FRENCH: And what it would mean in a provincial election, Tom.

MR. LUSH: They determine the urgency.

CHAIR: What party are you with?

I would like to thank the representatives from Treasury Board for appearing here today, and those people at the table and the people at the back of the room, the Auditor General and her staff, the Committee and our staff.

WITNESS: And the media.

CHAIR: I beg your pardon - and the media, of course.

We will be reporting to the House hopefully in the sitting in the fall, if we have one, and make any comments or recommendations that may be decided or agreed upon by the Committee around the Table at a later date.

Thank you.

The Committee adjourned.