2016 Legislative Session: Fifth Session, 40th Parliament

HANSARD

The following electronic version is for informational purposes only.

The printed version remains the official version.

official report of

Debates of the Legislative Assembly

(hansard)

Tuesday, May 17, 2016

Afternoon Sitting

Volume 40, Number

ISSN 0709-1281 (Print)

ISSN 1499-2175 (Online)

CONTENTS

Page

Orders of the Day

Committee of Supply

Estimates: Ministry of Finance (continued)

Hon. M. de Jong

C. James

V. Huntington

D. Eby

Proceedings in the Douglas Fir Room

Committee of Supply

Estimates: Ministry of Social Development and Social Innovation (continued)

M. Mungall

Hon. Michelle Stilwell

S. Fraser

M. Mark

J. Wickens

[ Page 13191 ]

TUESDAY, MAY 17, 2016

The House met at 1:32 p.m.

[Madame Speaker in the chair.]

Orders of the Day

Hon. M. de Jong: Committee of Supply, Madame Speaker. In this chamber, Ministry of Finance, and in Committee A, Ministry of Social Development.

Committee of Supply

ESTIMATES: MINISTRY OF FINANCE

(continued)

The House in Committee of Supply (Section B); R. Chouhan in the chair.

The committee met at 1:34 p.m.

On Vote 23: ministry operations, $178,497,000 (continued) .

[1335]

Hon. M. de Jong: When we broke, the hon. member had just posed a question about payday loans, and we were scrambling about, trying to ascertain the status. I can confirm the essence of the member’s question, built as it was around an undertaking the governing party had given in the last campaign. Some of that work around protection for consumers has been undertaken. The specific adjustment around the borrowing rate, if I can use that term, has not….

The reason we were scrambling a bit is that the initiative is being led by Consumer Protection B.C., which is housed within the Ministry of Solicitor General.

[R. Lee in the chair.]

I was able to obtain some general information. The specific objective, though, to answer the member’s question, has not yet been achieved, but I am advised they are continuing to work on a proposal that would see it achieved.

C. James: Thanks to the minister. It’s certainly something that, from my perspective…. I mean, there are all kinds of issues that need to be dealt with around an individual’s personal debt. But I think the issue of the payday loans and the report certainly put some urgency to it, so I appreciate the minister getting the information.

Just a question — and it’s timely, with the shake-it house outside — around earthquake preparedness and disaster preparedness. I’m sure the minister has been having the same kinds of conversations, or certainly other members have, with the insurance industry around disaster preparedness and the request of the Insurance Bureau of Canada to take a look at options that could be there for government to partner with industry to look at providing protections.

I think the industry has done a good job of reminding people how important it is to look at earthquake insurance and to look at those options. I think everybody agrees. Certainly, the Insurance Bureau of Canada has pointed out that if there really was a major earthquake, insurance wouldn’t cover it. If we really faced that, we wouldn’t be looking at losses…. In fact, they’ve predicted we could be looking at 73 percent of losses not actually being covered.

The industry has put forward a number of ideas that they are certainly hoping government will engage with them on. One, obviously, is some work with the federal government to see if the federal government is coming to the table.

One of the other ones is related to working with private insurance to look at some kind of program that could actually be put together with government, with each of them taking some liability — not putting the money in place but in actuality providing the support that government would have to provide anyway if insurance wasn’t covering the issue.

I just wondered whether the minister has had those conversations at all with the Insurance Bureau and whether there’s any discussion. I recognize that the Minister for Emergency Preparedness is obviously engaged. I know they have also wanted to have discussions with the Finance Ministry around long-term liability for government.

[1340]

Hon. M. de Jong: I have a distinct recollection of the report that I think the member is referring to. I believe that the insurance sector met with me and other representatives of government either just before they released the report or at the same time it was released. The member is correct. There are dimensions to it that engage all levels of government and certainly the federal government.

As I recall, the report highlighted the risk factors that are at play, particularly with respect to British Columbia — transportation infrastructure, bridges, emergency infrastructure. It is, I think, the subject of discussion within government. I will say that, within the Finance Ministry, the work has tended to focus on the regulatory side of the insurance sector more than the specific recommendations around emergency preparedness.

I think the member’s point, though, about trying to quantify from the point of view of ultimate Crown exposure in the event of a catastrophic event is a valid one. I think, candidly, we’re somewhat exposed in our present circumstances. There would, undoubtedly, be in the way,

[ Page 13192 ]

I guess, that we saw…. As compared to what would occur in the aftermath of a major seismic event, the floods, as catastrophic as they were in Alberta a couple of years ago, might pale by comparison in terms of the financial challenge that presented.

With respect to the insurance sector itself, though, our work has tended to focus around specific regulatory questions and the statutory oversight that governs the behaviour and the work that the insurance companies do with consumers in B.C.

C. James: I appreciate the minister’s answer. I think we would expect that the emergency preparedness area would deal with emergency preparedness and would be looking at the nuts and bolts. I think, really, what the insurance bureau is saying is: “Let’s have the conversation sooner rather than later.” It really is about sharing risk and how you share risk.

Ultimately, government is responsible, in the end, for those disasters and the challenges of people who are either underinsured or not insured, or the disaster is so large that the insurance companies couldn’t manage the kinds of costs that we’re looking at. I certainly would encourage the minister to have those conversations.

I agree that it’s not specific to the regulatory structure, but it is specific to some kind of partnership that I would expect the provincial government, the federal government and perhaps the insurance industry itself could look at to try and cover some of that risk. As we all know, as I said, it’s timely — today, outside the House — to remind us that it’s not eventually; it’s when. I think it’s good preparation.

I’m doing a number of random pieces to make sure they get covered off. Just a quick question that I’ve been asked to bring forward to the minister — I believe I know the answer, but I want to get it clarified — from a volunteer fire department that is looking at the transfer of a fire truck from one department to another department.

This is the McLeese fire department. They were gifted an ambulance, in fact, from the Horsefly volunteer fire department. It used to be done without PST. Now they have to pay PST.

They’re asking: with that change, is the government looking at providing them with an opportunity to not have to pay PST on something? When the change was made, it made it very clear that it had to be a family member that you were giving a car to in order to be exempt from the PST. These, obviously, aren’t family members — with two volunteer fire departments. I think the answer is going to be related to becoming a registered charity, but I just want to clarify that with the minister so that we can get back to them as well.

[1345]

Hon. M. de Jong: I was casting my mind…. I’m pretty sure I recall this specific request. It was McLeese Lake, just north of Williams Lake — home of the Oasis Pub.

I think the dilemma we ran into is that there is no general provision that would allow for an exemption. The reason I remember it is that I — like the member, probably — struggled with the idea of how, in effect, a charitable endeavour or a logical endeavour might be frustrated by the application of general taxation laws.

The exemption that applies for the gifting of a vehicle of course applies, as the member just pointed out, to families, so that wasn’t applicable. There is no general exemption that applies with respect to charitable donations. I have seen some other examples where that has been problematic, sometimes to the tune of many thousands of dollars.

I recall attending — or hearing about it; I may not have been there — a case of a very valuable sports memorabilia donation being donated and fetching a sizeable amount of money. The donor later discovered that he was on the hook for remitting PST, and a similar circumstance exists here.

I think I’ll take advantage of the question for pointing out to the interested parties, to assure the member and them, that we looked at all of the available mechanisms through which this laudable donation endeavour could be accommodated and weren’t able, within the existing framework, to do so.

V. Huntington: Just for the minister and his staff, I’ll be asking, eventually, a question related to Vote 23 — specifically, the appropriation for internal audit and Crown governance, if his staff would like to familiarize themselves, or himself, with that committee description.

My discussion goes to information that came out of a number of Public Accounts Committee meetings that were dealing with government computing controls, the general computing controls, and the concern within the Auditor General’s office and government as a whole — and the committee, certainly — with the troubled performance management we’ve had over a number of years in a lot of these multi-million-dollar software programs that have been developed in various ministries.

[1350]

Now, please understand that I am not here criticizing anybody in particular. It’s the general issue of accountability that I’m speaking to.

What we seemed to discover in the committee was that there was an accountability gap within the government with regard to the development of these systems. In one of the reports, the general computing controls report of 2014, the Auditor General said that: “The B.C. office of the government chief information officer is mandated with governance authority for standards setting, oversight and approvals for the province’s information and communications technology.” Then the next line basically said, “B.C. government organizations are responsible for following the spirit and intent” of that.

[ Page 13193 ]

So right away, I thought: you can’t follow spirit and intent if there is a requirement and a mandate to develop processes and enforce those processes through the system. I asked the information officer how they developed the spirit and intent. What processes did they use? Did they approve the processes within a ministry as they were developing these huge data management plans and contracts? Did you assist them in developing them? Do you have compliance requirements? Do you go in and test and say: “Okay, we’re testing this before you proceed down the line?”

Apparently the answer was no. The answer was that they set up a general framework, and it is the choice of the ministries whether or not they wish to follow that framework.

As we pursued that a little further, we ended up understanding that within the last two years, the office of the chief information officer has developed what were called policies and tools. They brought in KPMG and Ernst and Young. They’ve developed policies and tools that they hope will engage the ministries. But what I’m concerned about is that there was an obvious accountability gap. They agreed there was an accountability gap. I don’t understand how, when you’re talking multi-million-dollar expenditures — many of them failed along the way — that there is no accountability and people that will go in and check.

I guess my question to the minister is whether the internal audit and Crown governance appropriation within his ministry has the capacity to do an audit to determine whether those new policies and tools are appropriate in order that the government is protecting itself from these multi-million-dollar losses that we’re seeing as a general occurrence — whether he has the capacity to take a look at the tools and policies being developed within the chief information officer’s office and whether those will do the trick to protect government from these risks.

Introductions by Members

The Chair: Hon. Members, with the indulgence of the committee, I would like to make an introduction. In the gallery now we have 21 students, led by their teacher, Mrs. Sabina McCloskey, and also 25 adults right now, over there, from Holy Cross Elementary School, one of the best schools in B.C. Would the House join me…

Interjection.

The Chair: In Burnaby North.

…to give them a very warm welcome.

[1355]

Debate Continued

Hon. M. de Jong: If the member will allow me just to complete the exchange that took place with the hon. opposition critic. I am advised, with respect to gifts of vehicles to a charity, that they are exempt from PST if the donor has paid the PST on the gift originally. I’m not certain, in this case, whether that was applicable or not. I just thought I should fill that in, in terms of that exchange that we had earlier.

Now on to the member for Delta South’s question about an admittedly very important part of government activities and government expenditures. It’s true that we still build buildings — hospitals and schools come to mind, highways — but beyond that, the most costly infrastructure that public moneys are devoted to tend to be the IT systems that are purchased and upgraded. The member will get no argument from me that, in many cases, the scale of investment is quite staggering — measured, sometimes, in hundreds of millions of dollars.

It is intended to connect disparate groups and locations across a large province. It is intended to ensure that people sitting at desks or dealing with citizens across this province are able to communicate with one another. I suppose it’s fair to say that, for most of us, the complexities associated with doing that are quite staggering, to the extent that most of us have some contact with technology either with our laptop or iPad and are able to navigate, probably in most cases, pretty well. Sometimes it must strike us as odd — it certainly strikes me — the measure of complexity and cost associated with upgrading systems.

I won’t — because I know the member knows this — go on at length about where I imagine much of that complexity derives from. There are certainly security components to it, privacy components, all of those things that members and the privacy commissioners and others urge upon government. Yet it adds dramatically to the complexity and the cost.

The member’s question, I think, confronted by examples where there have been slower than anticipated operationalizations of systems, or complications…. I think some of that often can be assigned to the challenges of change — period. But then there are examples where the system hasn’t performed. Certain assurances have been given, and the system simply hasn’t performed. I mean, I can think of several.

I think the member’s question, though, is: is the internal audit

section equipped to directly involve itself in tracking some of that or assessing some of that? It is. I can advise the member that the

section has not done so to this point in a separate, focused way but has done so as it looked at individual agencies as part of its ongoing audits. Actually, I think the member, as part of Public Accounts, occasionally has an opportunity to review the reports. Sections of the report have dealt with procurement of IT services and packages.

[1400]

What has not occurred is that kind of global cross-government assessment or review or audit of IT procurement. Probably the member will detect from my

[ Page 13194 ]

response so far that it’s not something that I would be in any way hostile to.

Some work has gone on. As I think about the projects that lie ahead and the need, I am told, to update on an ongoing basis and establish in a lot of areas more effective communication between departments and between systems, this is not a challenge that is going to end or go away any time soon.

V. Huntington: Just to briefly follow up. I thank the critic.

I guess my request of the minister and his ministry is that…. Previous to 2014, or the general computing control report of the Auditor General — which, if the minister has not read, he may be very interested in reading — the chief information office, even though they had a much broader mandate and responsibility and authority, tended to concentrate their interest and authority on risk and assessment — security issues, rather than the broader performance management of procurement issue.

Subsequent to these reports, it appears that in the last two years, they brought in big organizations to help them develop tools and policies — a governance framework, they call it — that will assist them with the broader authority. What I’m concerned about, given the total lack of accountability through the structure of government…. I asked the comptroller general: “Is your department responsible for ensuring management and performance management processes are adequate when a ministry goes to procure a large IT project?” No, they don’t do that.

If the chief information officer didn’t do it and the comptroller general didn’t do it, who does it? The only place I could see was the description of this committee in that, apparently, the chief information officer has now developed a new framework of tools and policies, he says, that will enable them to reach out into the ministries and follow those new projects.

I am asking the minister whether his office has the authority to do an audit of those new policies to ensure that they’re doing and will do what we hope they will, and that is: provide an oversight mechanism, on this expenditure of hundreds of millions of dollars, and an approval mechanism that the government can rely on in the future — an audit of the new process.

Hon. M. de Jong: I think the short answer is yes. The interest in doing so derives from the fact, of course, that at the end of the day, these projects — some of them involving tens or hundreds of millions of dollars — are capital projects that frequently require Treasury Board approval.

In fact, new directions this year require departments and agencies wishing to embark upon those kinds of procurements in excess of, I think, $50 million to present to Treasury Board and receive scrutiny. There is not only an interest but an imperative and a role for Treasury Board.

[1405]

To that extent, the authority, I believe, exists under the Financial Administration Act to conduct the kind of review/audit that the member speaks of.

C. James: I just want to move on now to talk a little bit about the commission on tax competitiveness that the minister announced and that was announced, obviously, in the budget as well. Interesting to note that this is the fourth commission in the last four years, if I’ve got my numbers right. There was the Expert Panel on B.C.’s Tax Competitiveness in 2012, an industry tax steering committee that was put together in 2012 and the job and investments board’s final report, in 2014, which also looked at taxation.

Just to ask a few questions specifically on the terms of reference…. I think it’s interesting. If you take a look at the terms of reference, they talk about allowing the commission to consider a range of options to encourage competitiveness and the added piece that the scope of the work will explicitly exclude consideration of a return to the harmonized sales tax. I wondered if the minister considered adding the word “fairness,” when it comes to the tax system, in the terms of reference.

Hon. M. de Jong: I’m not sure if I did or didn’t. I should think that the panel….

Maybe I should back up, because there’s no point talking about this in the abstract. I had hoped that by the time we had this conversation, the member would be able point to the inevitable press release appointing the individual and the individuals. Regrettably, I haven’t finalized that as yet and am hoping to do so in the course of the next few weeks. But we can still certainly have a conversation about the intended purposes and the mandate that that group will be charged with.

I would say fairness is an underlying principle that should guide not just this group’s deliberations but government’s as well. Its absence from the material should not, I hope, and will not be taken as suggesting that it’s not something that will be taken into account or that I would expect the committee to take into account or that government would take into account when considering the recommendations. The member’s…. I didn’t specifically exclude it or specifically include it, and I can’t honestly remember if, in reviewing the mandate, the inclusion of that term occurred to me or not.

C. James: I think it’s important. If you take a look at competitiveness and you take a look at fairness, they can often be at opposite, polar ends. I think, from the public’s point of view, there’s been a great deal of discussion during the term of this government around tax fairness, around the issue of fees and services and whether those are taxes or not taxes. From my perspective and from the public’s perspective, I think that really is the bigger discussion that needs to be had.

[ Page 13195 ]

I guess I would also ask the minister, given that the government doesn’t include fees and services — fees in particular…. Whether we’re talking about MSP, whether we’re talking about hydro rates, whether we’re talking about tuition fees, whether we’re talking about ferry fares, whether we’re talking about all of that range of fees and services that the public has been hit with, I recognize, as I said, that the government doesn’t include those as part of taxes.

I think the public would beg to differ. I think the public very clearly includes them as part of taxes. I think even the Premier herself, when she was running for leadership, said that she believed that government needed to take a look at the entire burden on taxpayers, which included those fees and services.

I wondered: from the minister’s perspective, is there anything to exclude the discussion around fees and services and affordability and fairness as part of this tax commission?

[1410]

Hon. M. de Jong: I think there is sufficient room and breadth of scope that the group will be able to address issues. I think, to the member’s point, for citizens and businesses, the costs that are imposed upon them by government and by society come in many forms. Some are purely tax-related and others fall into other categories. Some are payroll deductions and therefore referred to as payroll taxes.

Having said that, I also try as best I can to be forthright with the member and the committee. In establishing the committee, I must confess, I am seeking to have them address some large structural issues, as well, around things like the PST and personal income tax, corporate and small business income tax: how these things fit together; how they apply in the context of in British Columbia, vis-à-vis our trading partners, the manufacturing sector; and where we might be in a position to effect change — and how we might be in a position to effect change — that enhances our competitiveness as a trading province.

That is uppermost in my mind. But the opportunity for the panel to examine other questions as they relate to that, I think, certainly exists.

C. James: I think the minister raises exactly the point. If the discussion is going to be…. And I understand the issue around structural changes to the tax system. If the discussion includes personal income tax, certainly, from my perspective, it needs to include, as the minister himself said, all of that burden on the public. If you’re talking about personal income tax, people don’t simply look at their personal income tax. They look at the payroll tax. They look at MSP. They look at the other fees and services that they face.

This plays in to the people that are appointed, and I appreciate that the minister said those final decisions haven’t been made. So it’s good timing to put forward advice, or it’s certainly a view that a broader tax panel would be helpful in that regard. I think there are some very qualified people who’ve sat on previous tax panels, who have a great deal of experience but are very focused, as the minister has said, on the structural piece of tax competitiveness.

I think, from my perspective, it would be an interesting exercise for the minister to have representatives from, for example, the Fraser Institute and the CCPA on a tax fairness commission. You would have an interesting discussion and polar opposites of a view around the tax system.

Surely, if we’re going to look at a good discussion and a good debate around the tax system and the competitiveness of the tax system, it would be helpful to have those kinds of people. I wondered if the minister had ever thought about a bit broader terms of reference or a bit broader look at the individuals who are sitting on this commission.

[1415]

Hon. M. de Jong: Well, I think the member’s observation that the conversation will be guided by the nature and the backgrounds and the expertise of the participants is a valid one. I’m not in a position, unfortunately, to disclose some of the names of people that we have been considering. They are, I can assure the member, from a variety of backgrounds and, in a couple of cases, might, I hope, pleasantly surprise the member. Again, I apologize for the fact that we’re not able to have that conversation in more detail, knowing who those individuals are and who the Chair is.

I wonder if I might also, though…. Again, I value this opportunity to provide the member and the committee with as much information as I can, and this may highlight the importance of the point the member has made around the backgrounds of the individuals.

This may not be something that the member welcomes hearing, but I don’t actually see this as a huge road show exercise of travelling from town to town. We have a budget committee that does that. That is not to say there won’t be an avenue, probably an electronic one, for people to submit their views and ideas. I do see this more as a case of people with views, expertise and background sitting down and having that discussion.

I wouldn’t want to leave the impression and then have the member disappointed, thinking that this was going to be a travelling road show across the province, because I’ve never thought about it in those terms. There are other avenues for that. Members of this assembly participate in one of the important ones, and the member herself has as well.

C. James: I understand that from the commission’s perspective. They request people to put in submissions, and I think that’s another area where the commission

[ Page 13196 ]

could look at a broader base. It’ll be interesting to see the list when the list comes out. But if the group isn’t as broad as perhaps it might be by including academics or people from the tech sector or the resource industry or folks who have some expertise in that area…. If the panel isn’t as broad, the other way to ensure that that information comes to the panel, of course, is through submissions.

The minister points out that the group won’t be travelling. I think that’s completely understandable, but I think it is important to take a look at where the submissions have come from. This is an interesting exercise that we go through at the select standing committee as well. Where did we get submissions from, and more importantly, where did we not get submissions from? Where are the gaps?

I think it was interesting. I just took a look at the submissions from previous panels — 31 submissions from industry associations, nine companies, three municipalities and two individuals. A big gap, really, when it comes to submissions.

I wonder if the minister has taken a look at or had a discussion — and perhaps it’ll happen after the panel is in place — around how to encourage a broader base of submissions, how to make sure, if the panel is a little more focused on the technical side of taxation, that the panel has the opportunity to be able to reach out in a broad enough way through information to groups and organizations to get those submissions coming in to the panel.

Hon. M. de Jong: It’s probably a shared responsibility, and ultimately, the bulk of that responsibility falls to government to make sure that people are aware that the work has been commissioned, who the members are, how they may be contacted.

[1420]

There’s probably an ongoing role for the committee itself, but I certainly have tried not to be shy about emphasizing the rationale behind creating the body — what the objective is in terms of timing and what the objective is in terms of the report and recommendations that are introduced.

I think the value of the work will be enhanced by the breadth of the input that is presented and the ability for the members to debate some of those disparate views that, undoubtedly, will be presented to it. Yes, I’m sure a subject of this sort will elicit passionate and varied views from all corners of the province and all quarters of the economic landscape.

In many ways, I don’t envy the work of the group to try and distil it down into a set of recommendations, which, inevitably, will be influenced by the biases that people in the group bring to their duties. That is a dimension to this that exists for the select standing committee and other groups that perform this kind of function.

We’ll wait and see. In the fall, hopefully, we’ll end up with something specific that the member and I can discuss and debate the merits of.

C. James: I just wanted to check around the timelines. He mentioned the committee is a little behind. Is the reporting time still the fall of 2016?

Hon. M. de Jong: Yes. Still looking for a report in the fall.

C. James: Now I want to move to a couple of areas in the minister’s service plan. Goal 3, objective 3.1, talks about effective oversight of public sector organizations, and goal 1 talks about sound and transparent management of government services.

I want to speak a little bit about this, related to the direct operating debt that we hear the Finance Minister talk a lot about and, certainly, a lot about in this budget. The minister talks about reducing the direct operating debt by 2018-2019. I do think it’s important when the minister talks about that.

I’m sure the minister would do that, as well, to recognize that overall government debt has gone up by $4.6 billion in the last two years — expected to go up by $6.6 billion in the next three years. When we talk about direct operating debt, I think it’s important just to acknowledge that — to acknowledge the debt.

I want to talk about part of the minister’s calculation that he uses for reducing the direct operating debt. Part of that includes the dividends that come from Crown corporations. That’s a clear link. Where the dividend comes in, that’s included in part of that calculation.

When going through estimates with the Energy Minister, it was interesting to note that the Energy Minister said that the dividends from Hydro — that actually come into the general budget from the minister — are actually borrowed money. I just wanted to confirm with the minister that the Minister of Energy’s statements…. I wanted to make sure that those were accurate statements and that the minister agrees with them.

[1425]

Hon. M. de Jong: I think the first…. There was a lot packed into the member’s submission, so I’ll probably deal with parts of it, and we can talk a little bit about the parts I miss.

I’ll begin by saying this. I occasionally, or maybe even frequently, hear people and colleagues of the hon. member say: “Ah, this lofty claim about the budget being balanced — it is only balanced on the strength of the payment of dividends from Crown agencies like B.C. Hydro or ICBC.”

The point I have made and will make again for the purpose of the committee today is: for the purpose of determining whether the budget is balanced or not, the payment of the dividend is inconsequential. The numbers would be the same, were the funds, those amounts, to remain within the agency.

Now, the member has pointed out, in the case of B.C. Hydro, where amounts are transferred. I should point

[ Page 13197 ]

out — and I’m often interested that this doesn’t factor into the conversation at all — there are Crown agencies, Crown corporations, from whom the government takes all of their return — 100 percent. The B.C. Lottery Corporation — which we’ll talk about, I think, later in the program here — is such an example where all of it is returned to the government as a dividend.

Again, were it to remain with the corporation, the effect would be the same. It would be the same for the purpose of determining budget surplus or budget deficit. The Liquor Distribution Branch is another case where all of the proceeds are returned as a dividend to the taxpayers of British Columbia.

Attention tends to focus on B.C. Hydro and ICBC. But the notion of paying that dividend — and in the case of B.C. Hydro, that now steadily reducing dividend — is not dissimilar from what occurs with other corporations. The member is correct in the case of B.C. Hydro. Given the very, very expansive construction program that is underway, there is an element of direct borrowing involved in seeing those projects through to completion.

C. James: The minister is right. There are some agencies where all the revenue is taken; there are some agencies where a portion of the revenue is taken. The debate around whether that individual dividend makes a difference to balancing the budget is not the focus of my questions here.

The focus, really, is on utilizing borrowing to be able to pay a dividend to government. I think that’s the piece where the public and others scratch their heads, to say: “How does it make sense to have an agency in debt borrowing money to give to government, to take from one hand to give to the other hand?”

I guess that’s my question to the minister: how does that make sense to the public? A Crown agency that is in debt that is borrowing money to pay to government on a dividend — how does that make good fiscal sense?

[1430]

Hon. M. de Jong: Two things come to mind. One is to emphasize the fact that the degree to which there is borrowing on the part of the Crown corporation that we’re discussing has far more to do with the extensive program of construction that is underway. Obviously, Site C is a large part of that.

I can offer this to the member. The degree to which I share the notion that debt equity ratios are important — and the government shares that view and that concern — is reflected in the degree to which the corporation and the government have established a program over the next ten years to phase out the payment of a dividend — well, to phase it out and to return the corporation to a much stronger debt equity circumstance.

To the degree that the member is looking for some measure of comfort that the government recognizes the importance of ensuring a healthy balance sheet — not just for the central operation but for Crown agencies as well — and that the government is prepared to take steps to facilitate that, it is reflected in the steadily diminishing amount of the dividend that will be paid through the next decade.

C. James: There seems to be a contradiction from the minister’s comments around the dividend and the difference that the dividend makes in the budget. If you’re taking a dividend…. The minister admitted himself that you’re looking at reducing the dividend, that you are concerned or that you are cautious about the debt at other Crown agencies. I think, given the requirements of good oversight of those public sector organizations, it seems odd that government would continue to take money that has to be borrowed, that actually adds to Hydro’s debt.

Hydro’s debt is British Columbia’s debt. Hydro’s debt is the ratepayer’s debt. Hydro’s debt becomes how much people are paying in their Hydro bills. It’s not something abstract. It’s not something over here. This relates directly to British Columbians.

The other comment that the minister made was that the payment of the dividend is inconsequential when it comes to the budget, that it isn’t related to balancing the budget or not balancing the budget. Well, if it’s inconsequential and if the minister believes that there’s a challenge with the debt at Crown agencies and that has to be watched, why would the minister continue to take the dividend, then?

If the minister believes that the debt at Hydro is a challenge, if the minister believes that the dividend doesn’t make a difference to the budget, as he said, why would the minister, then, not stop taking the dividend from Hydro and digging a bigger hole for Hydro when it comes to debt?

Hon. M. de Jong: What I can say to the member is to emphasize the degree to which the government is seeking to both reduce the dividend by, I think, in two years, up to $100 million a year until such time as…. The dividend payable will reach zero and stay at zero until B.C. Hydro reaches a debt equity ratio of 60-40.

This may go to the heart of the member’s question. I think the notion that the shareholders…. The member is correct. It’s a Crown corporation. It is owned by the people of British Columbia. Its debt is considered self-supporting.

[1435]

We do track that very carefully because were that not to be the case there would be serious consequences for things like our triple-A credit rating. So we do track that very carefully. But the notion of having the shareholders benefit, to a limited degree, from the returns and the success of the Crown agency is, I think, a valid one.

Where I am compelled to agree or acknowledge is that we believe the degree to which the shareholders benefit

[ Page 13198 ]

from the transfer of a dividend should be strongly influenced by the strength of the balance sheet of the organization itself. We would like to see B.C. Hydro’s balance sheet grow stronger, even during this period of time when it is engaged in the single-largest public infrastructure build in the history of the province.

C. James: I think most of the public would agree that the bottom line for Hydro needs to be strengthened. Debt issues need to be addressed. I guess I would ask the minister again: how does borrowing money, which then adds to Hydro’s debt, to pay a dividend to government on one side when the Crown corporation is on this side…? How does that make sense?

I guess I come back, again, to the minister’s point that if there’s a problem with the dividends and the government has recognized that and they’re going to start reducing the dividend down…. When Hydro is having to borrow 100 percent of that money to pay the dividend to government, why wouldn’t the government do that now? Why wouldn’t they end that now?

Hon. M. de Jong: Two things come to mind. The first, of course, is something that the member and her colleagues would have heard from my colleague around the practice that has developed, dating back to, I think, 1990, 1991. I have, again, acknowledged and indicated my belief and my agreement with the proposition, and my role in establishing, that the creation and payment of a dividend should be reduced and phased out. We are doing that gradually, over a period of time.

The second point that I am advised and wish to convey is that there is a difference between borrowing for operations and borrowing for capital. Of course, B.C. Hydro is engaged in the single-largest public infrastructure build in our history and is borrowing largely for that purpose and some other capital programs. They do generate, however, extensive cash returns as a public utility. I’m not sure it’s entirely accurate to try and paint those dollars into separate categories.

[1440]

The operation of Hydro generates a return in the same way that other Crown corporations generate returns, and the practice has been to derive for the shareholder the benefits of that. Having said that, I have acknowledged and said to the member again that, in my view and the government’s view, until such time as the debt equity ratio hits 60-40, the objective will be to phase out the payment of dividends from B.C. Hydro to the government.

C. James: Just to touch on a couple of points the minister made, one about the fact that dividends have been coming to governments since the ’90s…. I think, as the minister himself has said, that for the shareholders, the public, to benefit from a well-run Crown corporation is not something that would be disagreed with. It’s not something we would disagree with, nor is it something that the public would disagree with.

I think there is a distinct advantage to public Crown corporations. There’s a reason that they’re there. It’s so that the public can benefit. I think no one would disagree with that approach. But I think when you have a minister admitting that the money is borrowed to give as a dividend and acknowledging that, it makes the public scratch their heads and say: “How can they pay the government money that they don’t have, that they’re having to borrow, that is adding to their debt?” I think that’s the real crux of the issue, from the public’s point of view. That just doesn’t make good sense.

As I said, if the minister himself is saying that the money is inconsequential to the balancing of the budget, then I think the public is even more puzzled about why the government would continue to take that money. Wouldn’t you shore up a Crown corporation so that later on, when dividends are coming, when it’s making a profit and it’s not in debt, you’d be looking at resources actually assisting British Columbians?

But that’s not the only piece in the area of Hydro that is a tool that’s being used. I think there’s another tool. I’m sure it will be of no surprise to the minister — the issue of rate smoothing and the issue of the rate-smoothing regulatory account that’s in place. I think it’s important to just ask a couple of questions about this piece as well.

For those who are watching, this account allows B.C. Hydro to show future unapproved and yet received revenue in the current reporting period. So for example, money from 2020 — is it being booked as revenue in 2015 and 2016 and 2017? I wonder if the minister could tell us what other jurisdictions this kind of account, this specific kind of account, is being used in.

Hon. M. de Jong: I’m just going to bring in Doug Foster, who, within the ministry, works closely with the corporation. He’s probably best equipped to advise me with respect to some of these questions. So if I might beg the indulgence of the committee for just a moment.

C. James: Does the minister want to move on to another

section while we do this, or is he close by? Okay.

[1445]

Hon. M. de Jong: Joining us is Doug Foster from the ministry.

The specific question that the member has asked is: are there other jurisdictions that engage in the exercise of rate smoothing? My advice is that, in fact, there are. Certainly, U.S. utilities engage in a similar practice. The rationale is that as the corporation, the agency, is involved in significant expenditures, capital upgrades and capital infrastructure improvements, we would not ask the taxpayers today to foot the bill for that entirely. This

[ Page 13199 ]

is a mechanism by which the costs associated for that can be spread out over the life and duration of the project.

[R. Chouhan in the chair.]

But the member’s specific question, I believe, was: does this occur in other jurisdictions? I’m advised that it does.

I asked about whether, within the Canadian context of, say, Hydro-Québec…. I was advised that a similar mechanism — it may not be precisely the same — to account over time for the significant expenditure of dollars on large capital improvements is also employed to guard against ratepayers today shouldering the entire burden for improvements that will accrue to the benefit of multiple generations.

C. James: The reason I bring this up is similar to the previous discussion around Hydro and around the issue of dividends and utilizing borrowed money to be able to balance the budget.

In the case of the rate-smoothing regulatory account, in fact, what you are really looking at is that B.C. Hydro then shows a profit through the account, which then gives government a chance to be able to count the net income, the Hydro net income, towards balancing the budget.

So from the public’s perspective, the question that gets raised is, “Is the budget being balanced both on borrowed money when it comes to the issue of the dividend, and on unapproved money, not yet received money?” — which again, from the public’s perspective, raises all kinds of red flags about what the actual finances are and what the actual process is for the finances in British Columbia.

I guess I would ask the minister about counting revenue that has not come in yet — nor been approved yet — and how that is accounted for in our provincial budget.

[1450]

Hon. M. de Jong: I want to try and convey this in a semi-coherent manner for the benefit of the committee. We have a Crown agency that, in the case of B.C. Hydro, is making large, large, significant investments that will accrue to the benefit of generations. It is, in this case, not an exaggeration. The investments that lead to those benefits and to the creation of that asset are large, in the billions of dollars.

So the corporation, as a means of providing certainty and stability around rates, employs a mechanism that is accepted as being appropriate for sharing or spreading those costs out over time. It is an established mechanism for accounting for those expenditures and for the operations.

I’m reminded that the Crown corporation, in this case, doesn’t pay corporate income tax. It doesn’t pay property tax — some grants-in-lieu, in that instance. It enjoys those benefits that other businesses do not. It borrows, when it does borrow, on the strength of the province’s triple-A credit rating.

I suppose that might be a good place for me to offer this observation. To the extent that the member is doing her job, which is to poke and prod about whether or not the manner in which the financial statements for the Crown and Crown agencies are being presented….

I hope the member will take some measure of comfort from the fact that these are the questions that agencies like Standard and Poor’s, like Moody’s, like Fitch, like Dominion…. These rating agencies examine in great detail the state not only of the province’s books but of the Crown agencies that the province has created. They pass judgment on those books and the manner in which they are kept. They offer comments. One by one, we have seen jurisdictions in this country slip down the ladder farther and farther away from that highest rating that we in British Columbia enjoy.

Whilst I think it is entirely appropriate for the member to pose the questions that she has, perhaps the strongest response I can give is to highlight the fact that others besides her, in — if I can say — a less political forum, pose similar questions, offer commentary and do so on a comparative basis. Thus far, they have continued, happily, to assign to British Columbia the highest grade possible.

In the case of our books, I think it was Standard and Poor’s just last month who said that when it comes to transparency, when it comes to fiscal accountability, British Columbia sets the standard in this country. That’s something we’ve worked hard to achieve and, admittedly, are quite proud of.

[1455]

C. James: I understand the minister’s points that he raises. But I think it also, from the public’s point of view…. When you find projects that are exempt from the B.C. Utilities Commission, for example, and don’t have the opportunity for the examination that should happen from the Utilities Commission put in place for that accountability and that kind of independent oversight, it raises all kinds of questions from the public’s point of view. In fact, it defeats the minister’s discussion and purpose in trying to make sure that there’s transparency and oversight when the government refuses to send the projects to the B.C. Utilities Commission.

While I take the minister’s point, I think that the reality and the facts speak for themselves around the lack of transparency and the lack of accountability around projects and around what’s going on at Hydro, which therefore impacts the provincial budget. I think that’s the link that I really want to emphasize today, which is the concern about what appears — not my words; they were the words of a newspaper editorial that said it’s a shell game — a shell game, where money is moved around to appear that things look better than they are when they aren’t.

[ Page 13200 ]

To me, that’s not good fiscal management. That’s not being open and transparent. That’s not living up to the minister’s own service plan, which talks about that. But I think this is one where we’re going to agree to disagree on this particular point.

I want to move on to talk a little bit about debt collection and spend a few minutes on debt collection. We know that changes were made last year around collection of student loans. We had a discussion with the minister when the bill, Bill 13, was passed around the fact that ICBC was now going to be used to collect student loans. The minister talked about the fact that that was going to be rare and that it wasn’t going to happen very often.

I just wondered if the minister could share how many times ICBC has shared information with B.C. revenue services. How many times have they enacted that bill and the ability to utilize the licence provision to be able to collect from students?

Hon. M. de Jong: To the member, who correctly relates the conversation we had, the answer is none. The OIC that would authorize that process to begin — I signed it — was just approved a week or two ago. For the member’s information, it speaks to that tool and its application in the case of student debt and non-traffic-related court fines, so those are the two areas. I think we talked about that when the bill was being discussed.

The tool now formally exists, and at some point over the course of the next six months, I think we’ll presumably be in a position to have a conversation about how it’s been used. But it hasn’t been used yet.

C. James: So a future question, to look at that. I appreciate that. Thanks to the minister.

I want to talk a little bit about the contract that’s in place for revenue services and revenue collection and look at the HP Advanced Solutions — the contract itself. Our understanding is that the contract expired this year. It was first signed in 2004 as a ten-year contract. If I’ve got my numbers right, in 2006, the contract was opened again. Two years were added. It was called a refresh at that point and went from a ten-year contract to a 12-year contract.

I just want to ask the minister specifics. Is that contract expiring this year? Will it be renewed? Is there a process for that? Is it going to be tendered out through that process?

[1500]

Hon. M. de Jong: I’m reminded that the contract…. Well, to cut to the chase, last year the contract was renewed for a five-year period, which takes it to 2020 — so from 2015 to 2020.

The other point I’d want to make is that this is an example of where I think it’s entirely appropriate…. We are working to establish a system where, at that point in time, the contract would have been posted. The member would have the benefit of being able to go to the website and say, “Uh-huh. That contract has been renewed for X amount of dollars, and it is for such and such a term,” and can actually look at the contract itself and look at the terms that are applicable.

The short answer is that it was renewed in, I think, April of last year for a five-year term.

C. James: Just a few questions around the cost of the contract. It’s a little bit confusing for the public who are watching because there are portions of this contract that are paid out. The contract has a service provider’s share, a ministry’s share and what’s called net benefits that come to government.

When the contract was first put in place, the minister at the time said the contract was going to be about $58 million a year. That was going to roughly be the cost of that contract. If we take a look at Public Accounts , where the data comes out, we can see that that’s really ballooned over the last number of years. From the start of the contract at $58 million, we’re now looking at $90 million, $100 million; 2014-2015 lists it as $159.2 million.

I wonder if the minister could tell what justifies that increased cost. How has that increased cost occurred?

[1505]

Hon. M. de Jong: I’ve got some numbers for the member that I’m happy to share. Total payments to HPAS under the contract, actual payments, as at March 31, 2016, are $770 million. The extension, I’m advised, would see additional payments of $267 million to the end of March 31, 2020.

Those amounts account for base fees, performance, change orders and revenue management system completion payments. The bottom line is that given the construct of the contract, as more money was collected on behalf of the province, the contractor, HPAS, secured a higher return for themselves.

So those are the amounts, and that is the anticipated amount going forward, $267 million, to the year 2020.

C. James: Just to speak for a moment about the performance issue that the minister mentioned. I’m sure it’s the same for MLAs on either side of the Legislature. Probably one of the biggest complaints we get in our constituency offices are the wait times for MSP — trying to get through; trying to be able to even reach somebody; being on hold for 45 minutes, an hour; not being able to get through. It got so bad that MLAs were given a special line to be able to get through to assist people, to be able to reach them.

It doesn’t seem to me that those are great performance measures, just based on the volume of individuals who come in and complain in our offices. I know there used to be a monthly report that would come out that was re-

[ Page 13201 ]

quired, that would talk about service level reports to the government. We haven’t seen any of those, or we haven’t seen that those reports are continuing on. I wonder if the minister could talk about if there are monthly progress reports and monthly service reports that still come to the ministry. How is the ministry dealing with those kinds of complaints?

Hon. M. de Jong: The member’s specific question, I believe, was: are there monthly reports that track performance — things like call wait times? I’m advised that there are such reports, and we continue to receive them on a monthly basis. They are received on a monthly basis, and a report card is generated on a quarterly basis.

[1510]

C. James: I just wondered, then…. The Ministry of Finance used to include that in their annual report when they talked about revenue services. It appears, from the research we’ve done, that 2008 was the last time that that measure was included. I wondered why that’s not included anymore, from the Ministry of Finance’s perspective.

Hon. M. de Jong: Well, I’m not actually going to try and speculate as to why the change occurred, but I will say to the member that if the suggestion is that it might be these reports may be legitimate candidates for proactive release by government, I’m inclined to agree.

C. James: I’d say to the minister that I think it is an important indicator. I think it’s a critical indicator to include wait times, particularly with the complaints that come forward. There was previously a graph that talked about the wait times. From my perspective, I certainly would encourage that to be included in the report.

The last piece that I want to touch on for this

section is the issue of MSP debt written off. I think the minister will have read the Canadian Taxpayers Federation report that talked about the value of MSP written-off debt. That was something that certainly was out there.

Interjection.

C. James: This is the report from the Canadian Taxpayers Federation that came out, that talked about the value of MSP written-off debt and how much it has increased over the last while. I wonder if the minister would like to make some comments on that.

[1515]

Hon. M. de Jong: I’ve been trying to get as complete a set of numbers as I could for the member. We calculate the amount owing and payable on MSP premiums for the current fiscal year in the range of $2.6 billion.

The member will know that there are two numbers of note. There is the allowance based on historical data that is made for non-collection. That is $149 million — we did the rough and quick calculation — which is just under 5 percent of the amount due and payable.

The other smaller number, though significant as well, relates to the amounts that are actually written off as ultimately uncollectible. That, for the current fiscal year, is believed to be just under $40 million. Both are large numbers. They are a relatively small percentage of the overall amount due and payable but still not insignificant, which I think has generated some of the conversation we’ve been hearing.

The conversation around MSP has tended to focus on the amount that British Columbians are asked to pay and contribute to the health care system. Then there’s a second conversation that I think the taxpayers federation touched on around the mechanism for collection.

This is where you get to have the conversation about (1) should there be a separate levy, but (

b) if there is a separate levy, is there a better mechanism for collecting that separate levy? Is it at payroll? Is it as part of the income tax system? These are, I think, relevant and legitimate questions when confronted by the order of magnitude of non-collected amounts.

Then there is the separate conversation about the actual amounts that are levied, but we’re talking about the collection at the moment, so I’ll restrict my comments to that.

C. James: The minister walked into the other issue, of course, which is the cost of collection. Never mind the amounts written off, which, as the minister said, is a large amount in itself, but the actual cost of this contract and the cost of the collection, I think, certainly points — I’ll save that discussion, because we don’t have time to get into it today in estimates — to the discussion needed around MSP itself and the cost of administering, the cost of collection. That alone, never mind the unfairness of the tax, the regressive nature of the tax, the need to make changes.

I acknowledge that the minister made some changes in this last budget that will take place next fall and January, but I think it certainly points to the unfairness of the tax and the need to look at a better approach to utilizing it.

Now, I know we’re getting ready to move on to our next section, so I just want to ask a couple of quick questions to finish up. I know we’ve had this discussion, as well, during legislation, but I think it’s important to make sure that the minister also gets it on the record. It’s related to the prosperity fund and the funding of the prosperity fund in this year’s budget.

I think the first obvious question for the minister is why now. We have had the discussion in previous years. The minister has been very clear in previous years, and the Premier was clear this would be a fund that would be utilized for LNG revenue, when revenue came in.

We obviously have no LNG revenue in the province right now — that is, new revenue coming from a new part

[ Page 13202 ]

of the industry. Therefore, to take $100 million and put it into a fund at this point raises questions from the public’s perspective. I just want to ask the minister why now.

[1520]

Hon. M. de Jong: We had a little bit of this conversation, I think, with some of the budget legislation. The member presented her questions and, dare I say, her skepticism at the time. I don’t think my answers will vary a great deal from what I said at that time.

Firstly, it is to acknowledge that the conversation around the creation of this kind of mechanism certainly arose in the context of the possibilities around creating a new industry and a new form of industrial activity, that being LNG. I’m not going to suggest otherwise. It is also patently clear that we continue to await the first final investment decision that would see the construction phase of the liquefaction facilities begin.

It is not correct to say that there has not been LNG-related activity. The investment in the upstream that has taken place — billions and billions of dollars’ worth — is, in part, very much directly related to a burgeoning LNG industry, but we don’t have a final investment decision just yet.

So why now? Firstly, the government did make a commitment to create this mechanism by which a legacy fund could be created — took that obligation seriously and wanted to fulfil it. Secondly, here we are enjoying relatively strong and stable growth. We are, by every measure that is presented, leading the country in that regard — which is not to say that the benefits of that are accruing to every single family. They are not. It is not to say that the benefits of that nation-leading growth are accruing to the advantage of every single region of the province, because they are not yet.

Nonetheless, it is true that we are leading the nation in economic growth. It is true that we are leading the nation in job creation. It is true that we are leading the nation in the lowest unemployment. It’s the first time, I think, since 1976 that we’ve been able to boast of that — the first time since 1961, I am advised, that British Columbia will lead the country in back-to-back years in economic growth.

On balance, British Columbia as a jurisdiction is performing well economically. Our challenge, of course, is to ensure that the benefits of that accrue to people and families in all regions.

In addition to that, on the strength of that growth and coupled with the fiscal management and discipline that we have shown, we regularly post budgetary surpluses in a way that no other jurisdiction in the country has been able to over the last three or four years.

In that context, what I said to the member a few months ago and will repeat for the committee is the idea of taking what by budgetary standards is a relatively small amount of money — not necessarily so for real people, and I include myself, oddly, in that category…. To take a relatively small amount of money out of our chequing account and put it into a savings account to begin the process of establishing that fund is, I think, entirely legitimate, entirely appropriate.

I will acknowledge, in anticipation of what may follow, that there are always areas that are in need of more money and more spending. So the query or the question or the criticism or the admonishment that says, “But why didn’t you spend it here?” or “Why didn’t you spend it there?” — yes, there is always a very compelling case to be made for why those moneys weren’t spent somewhere else.

[1525]

The thing I would say in reply to that, however, is that as optimistic as we are and as positive as we are, there may come a day when British Columbia does not enjoy the advantages of leading the country in growth or where we may be confronted by some severe economic challenges that visit upon the whole country or the whole region. In that case, it will be of benefit to those that are confronted and governing at that time and to society as a whole….

It will be of benefit, in these relatively positive economic times for B.C., which we have achieved in the midst of some very fragile economic circumstances internationally, if we have tucked away a few dollars that the government of the day can tap into to help stabilize whatever challenges are being faced at that time.

If we are correct and if the work that has been undertaken comes to fruition and pays off and there is a final investment decision, then the incremental additional revenues that will flow from that will have a home, will have a place. But in the meantime, we’ll have demonstrated that we are not simply resolved to spend all of the revenues that come into government and that we do see merit in saving for more difficult days ahead — albeit with what is, initially, a very modest amount.

I’m sure to the member that I sound like a broken record — probably an unconvincing one at that, for her — but that remains the rationale. I believe it’s a legitimate rationale for the steps we have taken with respect to the establishment of this fund.

C. James: It’s not the broken record; it’s, again, the contradictions. The minister mentioned LNG revenue. There’s a difference between activity and new revenue coming in. Certainly, the impression given was that this fund would be put together for new LNG revenue, not activity to do with the LNG industry.

I also want to just touch on the point that the minister made that there may come a time when British Columbians don’t enjoy the advantage of a strong economy. I think the minister has described it before as “difficult days” may come. I think that it’s important to note that those difficult days are there for lots of British Columbians. Part of the challenge and part of the difficulty with a fund like this is that there are lots of British

[ Page 13203 ]

Columbians who, in fact, don’t enjoy the advantages of the strong economy right now.

The minister mentioned areas we’re leading. Well, we’re also leading in child poverty. We’re leading in personal debt. We’re leading in two cities which have been described across the country as the worst cities for housing affordability. Personal debt. I think those are the areas. When the public takes a look at $100 million and says, “I’m not benefiting,” or a senior citizen isn’t benefiting because they aren’t able to get the kind of care that they need…. I think the contradiction is the issue where I would profoundly disagree with the minister on priorities.

Just my last question, and then I’ll turn it over to my colleague. It’s related to how the fund is allocated. The majority of the fund goes to debt. The minister was clear about that: “Debt reduction is a priority.”

That again makes people wonder why it went into a separate fund. If the government is going to pay down the debt, they can do that any way they want. But 25 percent of the fund can be used for core government priorities, and it doesn’t appear to have any ties around it. It doesn’t appear to have any structure around it. I just wanted to ask the minister my last question, around accountability.

What transparency and what accountability will be there for how the decision is made for that 25 percent of funds? Will those resources be allocated to ministries? Will they go through the estimates process in ministries? Will the ministers, then, be accountable for making those decisions? Will the Premier be accountable for making the decision on that 25 percent? What are the accountability mechanisms in that area?

[1530]

Hon. M. de Jong: I think I understand the member’s question. That is: where there is a decision made to withdraw…. By the way, I answer the question not wanting to leave the impression that any such decision has been made for the fiscal year we’re in or the fiscal year ahead.

There is — and I think this is clear from the legislation itself and the discussion we had around it — the obligation for a Treasury Board process — beyond that, though, a reporting out, not just at public accounts but at quarterly financial updates and service plans for ministries for whom proceeds are assigned.

I think the member would agree that that will, in all likelihood, trigger an opportunity for…. Well, it would trigger an opportunity for the process that we are engaged in now — the estimates process for a more detailed scrutiny of what those decisions are and the purpose behind the allocation.

I am satisfied that, in the event a decision is made by a future government to affect a withdrawal, there is an obligation to disclose that in a very open and transparent way and an opportunity for the chamber and this committee to both scrutinize and criticize the decisions that are made.

D. Eby: My first questions are in relation to credit union guarantees for deposits in British Columbia.

It was in 2014 that FICOM commissioned a report about B.C.’s credit union exposure to risk and mortgage markets. It found that 67 percent of B.C. credit unions’ total loans are personal real estate–backed assets, and home mortgages represent half of consumer debt in B.C. The report said that: “Default risk is a particular concern given the continuously climbing housing price in the greater Vancouver area.” That was 2014. The housing market’s appreciated in some areas by 100 percent since then.

[1535]

It was late last year that a Nobel prize–winning economist, Robert Shiller, was on the Business News Network to caution Canadians in Vancouver and Toronto about the risk of the collapse in the housing market. It was echoed by the Royal Bank of Canada’s economist, who cautioned that Metro Vancouver’s housing market is “potentially detached from reality” as well as “dangerous.”

The Minister of Finance knows that B.C. guarantees our credit union deposits against default. Credit unions are also more likely to engage in higher-risk lending than traditional banks, including real estate. The question is quite straightforward in that context: what measures has the minister put in place to limit B.C. exposure to credit union collapse resulting from mortgage defaults, and what is our potential exposure to credit union defaults?

Hon. M. de Jong: I’ve got some data for the member that I’ve been provided with. If I don’t capture all of what he is pursuing with his question, I’m sure he’ll alert me to it. I am advised that 93 percent of the total loans are backed by real estate. That accounts for about $53 billion. Credit unions hold deposits of about $58 billion for almost two million members.

The question that the member asked was: what is the exposure? I’ll answer it this way, because I don’t want to leave the impression that the regulator is sitting here worried about an imminent collapse. The legal exposure is something that the member referred to. The government, in 2008, offered an unlimited deposit guarantee to credit unions, so it would be incorrect for me to ignore that fact, and it’s one of the reasons that the province and the regulator are very active and diligent about ensuring that the requirements are being met.

Now, I’m just reminded by the regulator that they do, as a matter of course, stress test on the basis of different scenarios. The regulator advises me that, in the most recent example of that, they contemplated a scenario in which residential property values diminished 40 percent and commercial properties diminished 50 percent — a dramatic shift in value. The regulator advises that the system of safeguards that is in place and capital requirements for the credit union movement within the province are robust enough and sufficient to accommodate that manner of sudden shift.

[ Page 13204 ]

I don’t know if that even begins to touch on the question that the member has asked. He’ll tell me, I’m sure.

[1540]

D. Eby: It does go some way. The question was: are there any new policies that have been put in place to manage risk since the dramatic run-up in property values in Metro Vancouver, which most commentators acknowledge increases risk.

I want to read you a headline from today’s Canadian Business magazine, talking about the Vancouver house-price surge, advocating for an independent agency to regulate runaway speculative investment.

“The Vancouver house-price surge is exactly the sort of thing the independent agency should handle. It is a national issue. Everyone knows who will be called on to clean up the mess if it bursts. The banks would feel it and likely would curb lending. CMHC would feel it because it has insured most of the mortgages Vancouverites have used to buy their inflated assets.”

Of course, it’s not just CMHC. It’s the government of British Columbia, through our guarantee to credit unions.

The question is: were there any new policies or are there any new requirements that have been placed on credit unions in this dramatic run-up in property values to ensure that our tax dollars are protected from having to bail out, for example, a small credit union or a medium credit union that doesn’t have the protection in place? We know the range of credit unions in B.C., from the very small to the very large, like Vancity.

Are there any new measures that have been put in place, new capital requirements or anything like that to deal with this run-up in property values?

Hon. M. de Jong: I can alert the hon. member and the committee to three specific areas and then another conversation that I had with his colleague earlier in these proceedings that I think is relevant to the discussion that we are having.

Within the last 24 months — three areas where policy has been altered, amended, enhanced to address the area of risk. One is as it relates to residential mortgage underwriting; the second, the question of internal capital targets for credit unions; and the third, governance standards or governance issues, particularly standards of competency for boards as it relates to risk assessment.

Those are three areas where the regulator, in concert with credit unions, is working to effect changes to address questions of risk.

There’s another area though, and the member mentioned it and may not have had an opportunity to hear the exchange I had with his colleague earlier as part of the FIA review. That is the fundamental discussion we are having with credit unions about the deposit guarantee itself. There are a variety of views that have been expressed.

I won’t take more time than necessary except to say that I alerted the member’s colleague to the fact that that process, which is very active, I am hoping to see brought to a conclusion this fall. The credit unions themselves have offered recommendations to the government as part of the financial statutes review, including a recommendation as it relates to the deposit guarantee that was put in place in 2008.

[1545]

It is very much an issue on the front burner and something that I expect he and I will be discussing in the months ahead.

D. Eby: I don’t want to put words in the minister’s mouth. I just want to be clear. The minister has listed three areas that definitely are areas that would be of concern if you were worried about risk: mortgage underwriting, capital requirements and governance. But my question was: are there any new policies in place at credit unions to manage the risk related to the run-up in housing prices? So I understand the minister to say: “No, there is work underway, but there are no new policies in place.” Is that correct?

Hon. M. de Jong: I’m sorry. I didn’t mean to be opaque about this. The areas I’ve referred the member to are guidelines in the sense that they represent the regulators’ expression of expectations of the credit unions. They have been developed over the last 24 months. I don’t know if that qualifies as new for the member, but they are new to that extent. They represent recent expressions by the regulator of expectations that credit unions must now govern themselves by.

In the case of my reference to the deposit guarantee discussion, it is entirely fair and accurate for the member to say that nothing has changed, but I did want to alert the member to the fact that the conversation is taking place and is something that credit unions are very engaged with.

D. Eby: Those requirements that the minister talks about in the last 24 months that have been modified or somehow communicated by the regulator — are those published anywhere? Are they available to the public, or would the minister provide them to me?

Hon. M. de Jong: I’m advised that they are on the website.

D. Eby: I will have a look, and I will check in tomorrow with the minister if I’m unable to find them.

The minister has set out the regulations. Just for background for the minister, I’ve been told before that stuff is on the website that’s not on the website. So I always double-check. I would appreciate it if the minister would commit, if it’s not on the website, to provide copies.

[ Page 13205 ]

The minister has told me that he’s got better regulations in place. He’s managing risk at the credit unions with the regulations. Are the regulations actually being policed and enforced? Are they being tested? Is the credit union’s activity being tested against the regulations by the regulator?

The reason I ask this is that there was an Auditor General report that said that there was a staff shortage at FICOM that’s dated back two years — this Auditor General report was released in 2014 — and that FICOM had completed only seven of 17 on-site reviews of credit unions. Four more were rolled over, and 16 planned on-site reviews have been reduced to three.

It would take over 14 years for FICOM to review all of B.C.’s credit unions. FICOM lacked staff expertise and competencies because they were unable to hire. They were increasingly reliant on contract resources. They desperately needed experienced and knowledgable staff to oversee the work performed by their own staff and any contractors.

The minister knows this isn’t just in relation to credit union risk around mortgages. This is around policing the real estate sector. This is around policing mortgage brokers. The question to the minister is quite straightforward. Where does the situation for staffing sit now, given that, at the time of the audit in 2014, FICOM had 25 staff vacancies, representing 35 percent of positions in its financial institutions division?

[1550]

Hon. M. de Jong: I can answer quickly and then take the follow-up questions. The member’s colleague and I had a brief exchange about this. I, at that point, indicated to her and the committee that FICOM was one of two areas where we have experienced challenges in terms of vacancies.

The ministry averages about 5 percent. In the case of FICOM, it fluctuates between 25 and 35 percent. Yes, it is an area of concern. Yes, we have found that people with the unique skill set that is required to do this work are very much in demand, and there have been challenges in terms of retaining those employees. So between 25 and 35 percent vacancy.

D. Eby: The minister knows…. Ms. Rogers came to testify at the Public Accounts Committee. When she testified — Ms. Rogers is the head of FICOM — she said:

“The Auditor General noted that the staffing constraints were not budget-related but rather stemmed from other constraints outside FICOM’s direct control, and that’s why the recommendation” — the recommendation to fix this situation — “was directed to the Ministry of Finance and not to FICOM or the commission. “Government supported the recommendation” — that was in 2014 — “and as I mentioned earlier, the Ministry of Finance subsequently requested that the Public Service Agency work directly with me and my management team to address the issues and develop a plan. Some work has been done in the area over the summer.”

Now the minister tells me that we are in the same situation. The Auditor General is clear that this is a Ministry of Finance responsibility, that the budget is there because the minister knows the money comes from the industries that are regulated. The industries are sending money over to the Ministry of Finance to hire the very inspectors and investigators and auditors that they want to ensure their industries are protected, and the minister stands up here and says that he has still failed to fill those vacancies.

This is a creature of the Ministry of Finance. It is entirely in his responsibility. Why has this happened?

Hon. M. de Jong: Well, there’s no question it’s been a challenge. I’m also prepared to acknowledge that, to the extent that some of the pressure relates to the private sector being in a position to offer more attractive salary packages, the responsibility for that ultimately rests with the government and, in this case, I suppose, ultimately rests with the Minister of Finance.

There’s also no question that through this period of time, when we have been asking the women and men who work in the public service to accept very, very modest wage increase packages, I have felt a certain obligation, a real obligation, to insist that we apply a similar standard and a similar approach in other areas and with other agencies. To that extent, I accept responsibility.

I can tell the member that the Public Service Agency, in respect of the specific circumstances, did establish a team, hiring compensation experts, to work specifically with FICOM to identify a means by which the pressure could be alleviated. That has led to some modest salary adjustments over the course of the past couple of years. We have approved three new executive positions. But there’s no question that these are specialized areas.

[1555]

We have been and I have been very much alive to the fact that we are asking hundreds of thousands of other people in the public service to make do with very modest increases and have asked the same. I think that is probably attributed to some of the pressure and some of the recruiting practices that we have seen.

I do feel that obligation to, on the one hand, ensure that the agency has the people it needs to perform its function but, on the other hand, ensure that the remuneration that is offered, or increases to that remuneration, is not wildly out of sync with what we are asking hundreds of thousands of others to accept, who work in the public sector.

D. Eby: I think the minister saw the effect of understaffing and the impact on public confidence in the real estate sector where, suddenly, everyone was quite startled by the fact that there were serious issues that needed to be dealt with.

I don’t understand. Maybe the minister can clarify this for me. I understand that industry sends money to

[ Page 13206 ]

the Ministry of Finance to pay for this regulation. They are funding their own regulation. If that’s the case, then I’m trying to figure out why it would be that the minister would be suggesting that somehow this was connected to the broader public service. They want the regulation to be done. They’re paying for the regulation. It’s the minister’s job to say: “Here’s how much it costs to do the regulation that has to be done to protect your industry, to protect its public reputation.”

I think the minister is giving a very convincing argument for why this needs to be an independent agency and not within the Ministry of Finance. It seems that the minister is actually blocking the hiring of the regulators that the industry is paying for.

The question is: how much money did these industries send to the Ministry of Finance for regulation? How much was actually spent on regulation, and was any money returned into general revenues of the provincial government?

[1600]

[R. Lee in the chair.]

Hon. M. de Jong: I’ve got the numbers for fiscal year 2015, where I can advise that there were recoveries — I’m talking about credit unions and the trust sector — of $6.3 million, expenditures of that amount of $4.9 million, leaving an amount of $1.4 million. To the extent that any of that amount was not expended, any unexpended amounts were returned to the consolidated revenue fund.

D. Eby: The minister knows that the superintendent is responsible for a number of different areas: mortgage brokers, realtors, the insurance industry. What were the recoveries from those sectors and the expenditures?

Hon. M. de Jong: For insurance, recoveries of $2.9 million and expenditures of $2.7 million. For real estate and mortgage brokers, $3.1 million and expenditures of $2.2 million.

D. Eby: Were there recoveries from any other industries that helped offset costs for the superintendent, and what were the expenditures relative to those industries?

Hon. M. de Jong: Pensions of $2.2 million and expenditures of just under $1.4 million.

D. Eby: By my total, the government underspent recoveries from industry by almost $3 million. Can the minister explain how it could be that industry is sending money to government to regulate it, and the government underspends by $3 million — returns that money into general revenue, doesn’t spend it on the regulators that the industry is compelled to pay? I’m sure that some of them are more enthusiastic than others about being regulated.

They underspend it by $3 million at a time when they still haven’t dealt with the report of the Auditor General that says that this is leading to risky situations where credit unions, in particular, in that report…. I think we can all look at real estate and say, “Boy, there were some serious problems there” — underspent by $900,000. Who knows what’s waiting in pensions, underspent by $800,000.

Why would we be underspending so dramatically when industry is sending this money for the express purpose of hiring regulators?

[1605]

Hon. M. de Jong: A couple of things come to mind. The member referenced the report of 2014. I can, of course, point out to the member, as of April of this year, the progress that has been made on those 11 recommendations.

Six related to policy and practice improvements. They have been implemented and are completed or substantially complete. Three of those 11 recommendations related to developing a deposit insurance payout plan, and those are in progress. It is, I’m told, a relatively complex project and will take some more time. Then two recommendations relate to addressing the staffing challenges that FICOM has experienced.

Members already heard me indicate that there have most certainly been challenges involved in recruiting staff to that agency. I can advise the member and the committee that that is primarily responsible for the issues that the organization has experienced on the staffing side. Believe me, by far the preference on the part of myself and government would be for the organization to be fully staffed with the professionals who possess the tools necessary to fill those positions and do the work.

I’m reminded, as well, that the fee structure that governs how much a credit union must remit to FICOM is governed and influenced by the size of the organization. Credit unions have experienced steady growth over the last number of years, and that has influenced — in a positive way, from the point of view of FICOM, and, I suppose, in a negative way, from the perspective of the credit union — the amount that they are remitting.

Amounts paid to FICOM have gone up. The ability to recruit the talent necessary to fully staff to the degree that we would like — those challenges have increased as well. But the objective, I can assure the member, is to see those positions fully staffed with qualified personnel and to make use of the other resources that are clearly available to do that.

D. Eby: We’re — what are we? — seven years since the collapse in 2008 in the United States, where we learned, I hope, a very valuable lesson about the importance of regulation and enforcement of regulation in the real estate market. Now we’re seeing our own dramatic run-up in real estate values in British Columbia.

[1610]

[ Page 13207 ]

At the same time, chronic, years-long — that audit reported in March 2014, done in 2013 — understaffing of the regulator under this minister’s watch. And I don’t want to mention it, but the chair of the Premier’s fundraising committee benefiting significantly from the run-up in real estate values — Mr. Rennie: significant donations to the minister’s party from the real estate industry.

I put these things together, and I have to ask the minister: why would he not move regulation out of his ministry? Why would he not end any kind of question about his inaction in staffing the regulator? Why would he not move this FICOM watchdog, like all the other watchdogs, out of the Ministry of Finance and let them set the rates? Let them set the rates of what needs to be paid in order to ensure good regulation.

I think that we’ve learned from the Real Estate Council of B.C. that you can have great rules on paper, but if they’re not enforced, things get crazy. I think we need a regulator that has enough people on the ground to go and do the undercover investigations, to go and do the audits, to go and do the reviews, and you cannot do that. The Auditor General was unambiguous. You cannot do that.

It’s been a couple years, so…. The Auditor General said that “the lack of staff is stalling the effectiveness” of FICOM’s work. Although they’re establishing appropriate risk ratings, “the lack of staff is stalling the effectiveness of this work.” That’s two years ago, and the problem hasn’t been solved.

To the minister: why hasn’t he moved this agency out from under the umbrella of the Ministry of Finance where they can do the work independently without any concern that they won’t be able to hire the people they need because the minister has decided it’s somehow connected to broader public service issues, even though it’s funded by the industry itself?

Hon. M. de Jong: Thanks to the member for his questions and submission. Again, I don’t think he was here earlier when we had the conversation about the review that is underway with the industry that is statutorily obliged to take place and that is designed to consider fundamental structural changes that may be appropriate, and may be even more appropriate in the context of a particular set of market circumstances.

I think there are at least two issues at play, and I think the member is attempting to link them in a certain way. I have readily acknowledged that FICOM, the regulating body, has encountered and experienced challenges recruiting and retaining some of the skilled personnel with the unique skill set necessary to perform the work of the regulator. I have readily acknowledged that.

The question about the placement of the organization within government is an interesting and maybe relevant conversation to have. But to suggest, as I think maybe the member is, that it somehow is linked to what is taking place in the market is something I profoundly disagree with. I can assure the member that I’ve been doing this long enough that I have no sense of proprietary turf protection around any particular agency.

The objective is to ensure that we have a regulator and a regulating body in place that can do the job. It has for many, many years found a home within the…. Since the 1980s or beyond that — 1989, I think. I don’t know if it was Minister Curtis that…. Anyway, the 1980s.

[1615]

The notion of finding a different home or a different structure offends me in no way whatsoever. I am more skeptical, however, and ultimately reject the member’s suggestion, if this is one that he’s making, that somehow I am inclined — or the government is inclined — to be territorial as a result of trying to protect the interests of others. Our interest here is to ensure that we have a regulator in place that is equipped and able to perform the functions that are assigned to it statutorily in the public interest — full stop.

D. Eby: All wonderful ideas, if the minister hadn’t been chronically understaffing FICOM for years now and clawing back millions of dollars from industry revenues paid to FICOM for the purposes of regulation into general revenue. I agree with the minister: an effective, well-staffed, independent regulator — critically important; not what we have in British Columbia. The regulator is not independent, not well staffed. Don’t take my word for it; take the Auditor General’s word for it.

In the meantime, the minister is clawing back the money paid for regulation into general revenue. Clearly, we’re not yet at the level that he aspires. I wish him luck. I hope that he acts, in light of his lack of territoriality, and passes that surplus that he’s taking — so-called surplus; the regulatory revenues — over to an independent body that will actually hire the auditors that are needed.

It’s not without consequence. It’s not like we haven’t seen the impact of understaffing. The real estate industry has taken all kinds of hits. An unlicensed real estate practice — I can advise the minister if he doesn’t know — is absolutely out of control in Metro Vancouver. It’s absolutely out of control in the CRD. People are, with impunity, dropping leaflets at the doors — thousands of leaflets: “I’m not a realtor. I want to buy your house.”

Now, we’ve seen the Alberta regulator literally chase an unlicensed realtor into British Columbia. He says that they pursued him ruthlessly. He says that they made his life miserable. They fined him $100,000. They’re threatening to put him in jail for two years. That’s what happens in Alberta when you’re an unlicensed real estate agent. Yet in B.C., assignments are openly sold by non-realtors on Craigslist, and people are dropping professionally printed leaflets at the doors of people across Metro Vancouver and the CRD.

My question to the minister is: how many FICOM staff were allocated last year to the issue of unlicensed

[ Page 13208 ]

real estate practice? How many staff were allocated this year to unlicensed real estate practice? Has there been any change at all in light of changing market circumstances and realities on the ground?

[1620]

Hon. M. de Jong: Look, there’s just one thing. I appreciate that the member has views and, as part of the exchange, wants to express them. I thought earlier, though, he, in referencing the Auditor’s report…. I may have heard it incorrectly, or he may have been thinking of one thing and talking about another thing. But the suggestion that the regulator, the superintendent, does not operate in an independent manner….

I feel obliged to respond on the record and say that based on my experience and my conversations with others, it would be unfair and inaccurate to suggest that the regulator — I am speaking in the third person — who is here in these proceedings and in this chamber, has performed her duties independent and free from influence. I think that’s important to say.

As I said, I may have been mistaken in what I heard the member allude to. But I don’t at any point think the Auditor General has ever impugned the superintendent, the head of FICOM, for acting in a way that isn’t independent and discharging her duties responsibly in that respect. The member has thoughts and ideas about how the structure could be altered — fair enough. We’ve had a conversation about that.

I did want to get that on the record and, in so doing, have talked myself out of the answer I wanted to give to the member’s question, which he may have to remind me of now.

D. Eby: I know that the minister is a lawyer, and he’s familiar with case law around independence of the judiciary, independence of a public inquiry. One of those key measures of independence is the ability to have the resources necessary to do the job that’s assigned. And in this matter, this regulator is not independent.

This regulator does not have the resources that are necessary to do the job that’s assigned. That is determined by the minister, and those are not my words. Those are the superintendent’s words in testimony to the Public Accounts Committee. “The Auditor General noted that the staffing constraints were not budget-related but rather stemmed from other constraints outside FICOM’s direct control.”

That’s why the recommendation was directed to the Ministry of Finance, to the minister, and not to FICOM or the commission. So I’ll take the minister’s point. I certainly would never want to suggest, without evidence, that the minister had somehow interfered with the superintendent’s decision or the superintendent had somehow interfered in some inappropriate way with one of her investigators.

But there is no question that the independence of FICOM is dependent, in part, on having adequate resources to do the job, which is not an independent decision but which is made by the minister. I think the minister would acknowledge that. In fact, the minister is failing on that, because he’s underspending by $3 million the resources given by industry for the purposes of regulation. In my opinion, this is not an independent situation. The minister is deciding not to spend that money on staffing. Very clear.

My question, which the minister missed, is: how many staff are assigned to the issue of unlicensed real estate agents, people acting as real estate agents, without the appropriate licencing — a core responsibility of the superintendent for real estate — in an exploding issue in the Lower Mainland and the CRD, where people act with impunity? That’s in comparison to the situation in Alberta, where they’re pursued across the border and threatened with jail.

The question is directly related to this question of independence. If there’s not the resources to look into credit union stability, if there’s not the resources to do other things, if we’re underspending dramatically what should be spent on staffing…. How many staff are assigned to this critical area? How many staff were on it last year? Has it changed at all?

Hon. M. de Jong: Just to maybe try to close the loop on the earlier conversation and then get to the question and ultimately the answer to the member’s last inquiry.

[1625]

Look, the constraint, if that is the appropriate term, that exists for agencies that work and are related to government, on the fiscal side has, I acknowledge, applied directly to the remuneration that is being offered.

I have to say that every year, a couple of times a year, the member or his colleague, the ever-diligent member for Victoria–Beacon Hill, will look at compensation levels for officials within government and will point to the amounts being paid and to increases. That’s the scrutiny that those matters deserve. They’ll be very quick to point out when they see amounts that are inconsistent with the increases that have been offered to, for example, the unionized workforce, the hard-working women and men that work with the public and on behalf of the public.

I will say again that I acknowledge that to the extent there has been pressure on the recruiting side, some of that relates to the constraints that have existed with respect to the pay scales and the pay grades that are applicable and may well have to be adjusted. But I am also mindful of the fact, and must point out to the committee, that in the past, when we have made those adjustments, there has frequently been withering criticism from members of the opposition for how it is that certain

[ Page 13209 ]

select people, for certain positions, can be singled out for a significant increase above and beyond what others are receiving in the public service.

Now, to the question the member has posed in respect of the full-time dedicated personnel that are assigned to interact with real estate organizations, the Real Estate Council. Until last year, there were two full-time personnel. That has been increased by an individual, and there are now three full-time personnel who dedicate themselves on a full-time basis to that work.

D. Eby: As much as I would like to relish the notion that the minister lives in fear of withering criticism coming from this side of the House, and it restricts his actions in regulating the financial sector in British Columbia — because he’d love to do it, but oh god, the NDP might get up and say something bad about him — I have trouble believing that that might be the case. If anything, it’s probably a convincing argument for moving the agency outside of the minister’s purview, because industry is paying for the regulation.

This is not like any other public sector area. Industry is paying for the regulation that they are not getting. It is like a hidden tax for three million bucks this year, where the minister claws money over into general revenue from that money that comes from industry. So if FICOM was independent, the minister would be out three million bucks, according to his numbers.

Interjection.

D. Eby: It’s $3 million.

The minister would be out $3 million, but then the new superintendent could set pay rates and hire the people needed, and if they needed more money, they could go back to the industry and say: “Look, you’re not paying enough for the regulation that’s required for industry. We’re going to hire the necessary people.”

I don’t understand why regulation is a political issue. I don’t understand why this government, which continually says how affluent and extraordinary our situation is, doesn’t have the money for good regulation, to hire the necessary people to regulate the financial sector. I find that a very, very strange situation indeed, as well as the suggestion that it’s because the minister fears criticism from the opposition benches.

Mortgage brokers are also policed by the superintendent’s office. Can the minister tell me — a same question: what are the staff resources dedicated to policing the mortgage broker industry in British Columbia?

[1630]

Hon. M. de Jong: On the mortgage broker side, I’m advised that the establishment is for ten FTEs. There is one vacancy, and there are nine fully engaged at the moment.

D. Eby: Can the minister tell me how many investigations were commenced into unlicensed real estate practice and mortgage brokers in B.C. in the last fiscal year, and how many fines or prosecutions resulted from those investigations?

Hon. M. de Jong: The most recent year that I have data for on the real estate side is 2015 — 98 complaints. Of those, there was formal enforcement action that was posted on the website in two instances, voluntary compliance in eight, warning letters in five instances and referrals to external agencies in ten cases, and 33 investigations are ongoing.

For mortgage brokers, the equivalent number is 116. In that case, formal enforcement action in five instances, warnings in 16, conditions on registration in four, and open investigations remain in 19 instances.

[1635]

D. Eby: How do those numbers compare to last year?

Hon. M. de Jong: Sorry. That was last year. I take it the member means the year previous. In the case of real estate, the complaints went from 54 to 98, and in the case of mortgage brokers, not as wide a disparity in 2014 — 109, which grew to 116 in 2015.

D. Eby: The minister refers to referral to outside agencies. Who are those outside agencies?

Hon. M. de Jong: Examples would include the police, Real Estate Council or the Securities Commission.

D. Eby: Can the minister detail, in the two cases involving real estate and the five cases involving mortgage brokers, what the penalties or consequences of the enforcement actions were?

Hon. M. de Jong: In light of the member’s earlier warning, I’m hesitant to say they are available. Apparently, they are posted publicly, but I’ll endeavour to get them in hard copy for the member.

D. Eby: There definitely are decisions on the superintendent’s website. I assume that those decisions that are posted, then, are the same ones that the minister referred to when he said there was formal enforcement action taken. Is that right?

Hon. M. de Jong: I’m advised that the decisions I referred to from 2015 remain accessible and available on the FICOM website.

D. Eby: Does the minister have similar statistics in relation to staff levels for pensions, insurance and credit union enforcement?

[ Page 13210 ]

Hon. M. de Jong: I take it the member is looking for similar numbers on investigations.

D. Eby: The minister anticipates me. Yes, I will be asking about that as well, so if that’s the sheet he has in his hand, I’d love to hear about that. But I’m also curious about staffing levels in those sections.

[1640]

Hon. M. de Jong: Personnel-wise, in the pensions area, ten; in the credit unions area, 24.

What I don’t have available — and I’ve canvassed this already — is the follow-up data which relates to investigations — the number of complaints and investigations. I’m told that there are occasions when a complaint is received about a credit union that does lead to the creation of a file. We just don’t have the data readily available, and it may be that I can get that for the member for tomorrow.

D. Eby: I thank the minister for that. And with respect to insurance…?

Hon. M. de Jong: Sorry, I should have included that. That is included in the 24 related to the credit unions and trusts.

D. Eby: On my list, I have 46 full-time employees involved in investigations and, I guess, auditing at the agency. Is that correct?

Hon. M. de Jong: I’m advised that that is essentially correct.

D. Eby: Just for clarity, I asked the question just to make sure that we’re not double-counting — that there might not be one employee, for example, that was involved in real estate investigations but was also doing credit union audits, and that kind of thing. Just to make sure that the point of my question is understood.

Hon. M. de Jong: I am advised, again, that that is correct. These are not the same people wearing different hats.

D. Eby: If I might just have a couple of minutes from the minister to gather my thoughts and make sure I don’t have any more questions about FICOM. I think I’ve got them all on the record, but I just want to make sure before we send off the relevant staff.

Hon. M. de Jong: I wonder…. With the committee’s indulgence, it might be a good time for a break. I move recess for five or ten minutes.

The Chair: The committee will be in recess for ten minutes.

The committee recessed from 4:43 p.m. to 4:53 p.m.

[R. Lee in the chair.]

D. Eby: I thank the minister for those minutes to gather myself, because there were a couple more questions.

In October of 2014, FICOM commissioned a report by Mingxin Li, titled Residential Mortgage Probability of Default Models and Methods. What it is, is a

summary paper of a number of different models of different types of stress testing.

The minister talked about stress-testing credit unions for the impact of the institutions’ residential mortgage loan portfolios in the event of a negative external consequence of some kind, stimulus of some kind. The stress test — I presume, as this is pretty high-level stuff — is meant to tell us whether or not the credit union would collapse if the given stress was present.

[1655]

Now, the paper presents several different models, six different models, for stress testing. I have a couple of questions about the paper. One is: why was it commissioned? The second is: was the intent that we would choose one of these models or that we would apply all of these models? If it was to choose one, which one did we choose and why?

Hon. M. de Jong: I’m going to answer the first question first — the why. I will, firstly, indicate I have not read the report. I am advised that the report was designed to solicit information on the methodologies and models that are available to conduct a stress test of deposit-taking institutions and financial institutions — the regulator in this case, of course, having responsibility for credit unions.

As opposed to conducting actual stress tests on B.C. credit unions, one or all of the 42 credit unions operating in B.C., this was designed to obtain information and research about the various approaches to that task that exist and establish what the best practices were on that front. That’s the why. That’s what motivated FICOM to initiate the work in the first place.

I think I remember one of the other questions. I think the member queried: which one was selected? I’m advised that FICOM didn’t settle on one methodology over the other and say: “That’s the one we’re going to employ.” Rather, it examined in their entirety the various approaches and intended to draw or has drawn from the various approaches that are out there. It didn’t just select one of the options and say: “That’s the one we’re going to follow.”

If there was a third question, the member will have to remind me.

D. Eby: I think the minister got them all. If I understand that properly, then, this paper was meant to inform

[ Page 13211 ]

the policy changes that were brought in over the last two years with respect to governance, capital levels and mortgage underwriting, to ensure that credit unions would pass these stress tests. Is that an unfair generalization? Am I trying to simplify this too much?

[1700]

Hon. M. de Jong: I should confirm that we’re talking about the same report. The one that a staffer advised me on the basis of was dated 2015. Is that the…? I thought I heard the member say 2014, so I want to make sure we’re talking about the same document.

D. Eby: The one I’m talking about is titled Residential Mortgage Probability of Default Models and Methods by Mingxin Li from the risk, surveillance and analytics, Financial Institutions Commission. It’s a research paper dated October 2014. I understand that the researcher is a PhD candidate at SFU, if that helps provide any…. I’d be glad to send it.

Hon. M. de Jong: Right. We are talking about the same report. It was released or posted in March of 2015 so that, I think, is the discrepancy there.

There certainly is an interplay, I’m advised, between the work that the researcher did and the survey of approaches. I am, however, told that the motivating factor behind the commissioning of the work was to create a document that could be provided to credit unions themselves and provide them with information and background and perhaps influence best practices on the part of credit unions.

There undoubtedly was an overlay and a cross-pollination within the office, but the rationale or the motivation behind the work was to provide a collation of the approaches that have been developed and to make it available to the credit unions — I presume all 43 credit unions.

D. Eby: Well, I sure hope they can make more sense of it than I did. As I said, it’s some pretty high-level stuff.

We’ve talked about the superintendent’s investigations on unlicensed realtors in British Columbia. This question relates to licensed realtors in British Columbia. In the absence of the independent advisory role — which was sort of an ad hoc thing responding to specific circumstances — in good times, what is the role of the superintendent in relation to licensed real estate agents, given that they have self-regulation? Where does her office come in there?

[1705]

Hon. M. de Jong: The three broad areas of authority and jurisdiction under the act for the superintendent…. The first relates to the unlicensed. We already talked about that.

There are two other areas where the superintendent has a role. Firstly, to review and appeal, where appropriate, any disciplinary decisions of the council. Those are appealed to the Financial Services Tribunal. That is one area. Secondly, to investigate licensee misconduct that poses a detriment to the public interest in circumstances where the council purposely chooses not to take disciplinary action.

D. Eby: Were there any instances where the superintendent, in the last year, took action to investigate a situation where there was a detriment to the public interest and the Real Estate Council declined to take action?

Hon. M. de Jong: With respect to the two areas of jurisdiction, in the first instance, reviewing and appealing decisions, that authority has been exercised, I’m told, on a number of occasions. In the second instance, with respect to the general investigating authority, there is no case in the last year where that power was exercised by the superintendent.

D. Eby: Am I summarizing that power correctly in that this is a situation where the Real Estate Council requests the superintendent to do this or where the superintendent is acting as a superintendent and overseeing the discipline decision, saying: “No, in this situation, you should have imposed a penalty”?

[1710]

Hon. M. de Jong: I apologize for the delay, but I wanted to answer the question accurately. The power is contained in 48(1) of the act, specifically 48(1)(b).

The question that I thought the member was driving at was whether a prerequisite to the launch of that investigation was a request from the council. The answer is no, it does not require that. It does, however, require, in exercising that authority, that the superintendent notify the Real Estate Council. That’s under 48(3).

Then there are some other notice requirements that have to be issued as well. But there does not appear, in the act, to be any prerequisite for a request from the council as a prerequisite to exercising the power.

D. Eby: As the minister knows, there’s law, and then there’s the policy that agencies often use to guide their discretion in these kinds of situations. So is there a policy in place that guides the superintendent about when she or her staff would decide to intervene in a decision that had been made or not made by the Real Estate Council, given that the realtors have self-regulatory authority?

Hon. M. de Jong: I think I understand the question, but I take it that it relates to the exercise of the earlier power — reviewing decisions that flow from a council decision.

Here is a bit of a synopsis of the areas that the superintendent would examine in deciding whether or not to

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exercise that power of review or appeal. Did the council’s disciplinary decision consider the number of transgressions of the subject of the complaint? Did it consider the licensee’s discipline history? Does it align with council and Financial Services Tribunal precedent — the Financial Services Tribunal being the appellate body — such that it is consistent with precedent?

[1715]

Did it appropriately consider aggravating or mitigating factors? Do the penalties appropriately use the range of penalties available? For example, are technical breaches penalized at the lower end of the scale and more serious breaches penalized at the higher end of the scale?

There’s sort of a list of areas that the office would apply in determining whether or not to exercise that review or appellate authority under the act.

D. Eby: Has the superintendent ever exercised this power, and if so, when did that happen?

Hon. M. de Jong: Yes, that is the case.

D. Eby: When did that happen? Is the decision still posted on line?

Hon. M. de Jong: About six months ago. In that case, the decision was to facilitate the appeal. The decision is available. It’s posted by the Financial Services Tribunal, which is the adjudicative body that would have rendered the decision.

D. Eby: Did I hear the minister correctly that it was six months ago?

Interjection.

D. Eby: I thought I asked if the minister had exercised that power in the last year. Oh, you know what? I was conflating the…. No, I don’t think I was.

I was asking about the superintendent looking over the shoulder of the Real Estate Council and changing a decision. I thought I asked whether it had been exercised in the last year, and the answer was no.

Hon. M. de Jong: It’s why I asked the member specifically if we were back to the original. My answers in the last series related to the exercise of the review and appealing authority of the superintendent, not the separate investigative power.

D. Eby: In respect of the second power, has the superintendent ever exercised that power?

Hon. M. de Jong: I am advised that the present superintendent has not exercised that power. I have information that indicates it may have last been exercised in 2005.

D. Eby: I thank the minister for that clarification.

The superintendent has made some public comments, I believe, in a speech to the mortgage brokers about changing regulations around disclosure. Can the minister explain the thinking behind this change in policy — what’s motivating it, what the results will be for British Columbians who deal with mortgage brokers and when that’s going to happen?

Hon. M. de Jong: There has been a bunch of discussion around this. The superintendent and the office have initiated a conversation, and the rationale goes like this. The question that’s at play here is really one of consumer awareness and consumer protection.

[1720]

Mortgage brokers, first of all, play a very important role and a very legitimate role in facilitating financing for individuals — in some cases, corporate entities. Where the concern has arisen is where a potential borrower approaches a mortgage broker who may have secured a particular arrangement with a lender. There’s nothing wrong with that, but where a financial incentive exists on the part of the broker to direct traffic in a certain direction or to a certain lender….

The idea that has been advanced by the superintendent is that in those circumstances, the consumer — the eventual borrower, who is seeking advice from the mortgage broker — is entitled to know that, is entitled to have the knowledge of that disclosed to them. Now, to be sure, some mortgage brokers have taken exception to that.

They’ve probably contacted the member. Certainly, a few of them have contacted me and, I think, other members of the House to say: “Okay, but that’s not fair, because if you go to a bank, they have incentive programs with some of their employees, depending on the number of mortgages they write. If we have to do this, then the banks should be obliged to do the same thing.”

I haven’t made final decisions about this in terms of regulatory change. I will say this. I do see a difference. I do see a difference from the consumer’s point of view. If I go to a broker, part of what I’m expecting is that the broker will direct me to where I can get the best deal based on my unique set of needs. If the broker has a particular arrangement that might influence her or him to send me in a particular direction, I probably want to know that.

Conversely, if I go to a bank, I may be dealing with someone within the bank who is receiving incentive payments based on performance, but I made the decision to go into that bank. I made the decision to walk into that lender’s office and choose that lender. I’m probably less concerned about what the arrangement is for remuneration among the employees. That’s one perspective. That’s my perspective at the moment.

But these talks are ongoing. Discussions are ongoing. The mortgage brokers have a perspective, and I think it’s

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slightly different than the one I just laid out. The member may have a perspective, as well, and I’m happy to hear it.

D. Eby: Well, absolutely. I thank the minister for his question.