May

12, 2008

Government Services Committee

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.