Public Accounts Committee — Department of non-compliance with the agreement — 5 November 1997

1997-11-05

Newfoundland and Labrador — Committees

November 5, 1997

PUBLIC ACCOUNTS COMMITTEE

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

Confederation Building.

CHAIR (E. Byrne): Order, please!

First of all, before we get into the explanation of

what the process is all about, especially for the witnesses, I would just ask

the members of the Committee to introduce themselves, and the Auditor General to

introduce herself and her staff. We will start with Mr. Smith.

MR. SMITH: I am Gerald Smith, MHA for Port au

Port.

MS THISTLE: I am Anna Thistle, MHA for Grand

Falls - Buchans.

MR. FRENCH: I am Bob French, MHA for Conception

Bay South.

MR. J. BYRNE: I am Jack Byrne, MHA for Cape St.

Francis.

MR. LUSH: I am Tom Lush, MHA for Terra Nova.

MR. E. BYRNE: I am Ed Byrne, MHA for Kilbride.

MS MARSHALL: I am Elizabeth Marshall, and to my

right is John Noseworthy. John is Deputy Auditor General. To my left is Wayne

Loveys. Wayne was manager on this audit. In the audience is Tony Roestenberg.

Tony was the auditor (inaudible).

CHAIR: Okay. We are going to have the swearing

in of witnesses, which is a quick process. You say your name for the record.

SWEARING OF WITNESSES

Wayne Loveys

Brian Condon

Max Ruelokke

Perry Tobin

CHAIR: The purpose of the meeting this morning, as

I am sure you are all aware, but for the record, is: The Public Accounts

Committee is the only Standing Committee of the House of Assembly that is

comprised of both government members and opposition members. Primarily we are

concerned with, and only concerned with, the accounting of public dollars. It is

not a partisan committee. Essentially we work hand in hand with the Auditor

General.

For the most part what comes from the Auditor

General's Report each year, the Committee then meets and decides amongst

ourselves, through a process mostly of consensus: What areas will we look at or

call public hearings on for the upcoming year? This is, I guess, the

environment, the venue, in which we are operating this morning.

Last year the Auditor General's Report looked at the

EDGE program and gave an evaluation on it from her point of view. Based upon

that, the Committee felt that it was important to hold a public hearing and

gather information. It is an opportunity for the Committee to ask publicly

questions, but also an opportunity for the witnesses before the Committee to

provide information in a more public way. For the record, on the EDGE program,

what have its successes been? What have the pitfalls been?, and what the future

looks like for EDGE companies that are coming here.

I won't get into much more. I will say to the

witnesses: Each time you are asked a question, whichever one of you will

respond, please your name for the record prior to responding to the question.

First of all, I would ask the Auditor General if she

or her staff have any opening comments with which she would like to begin.

MS MARSHALL: I was not going to get into the

details of the audit report, Mr. Chairman, but there is one comment I would like

to make with regard the program.

It is unusual in that the cost of the program is not

reflected in the accounts of the Province because effectively what happens is

that companies who are eligible under the EDGE program are really refunded their

taxes, so you cannot go to the accounts of the Province to see exactly what the

program has cost the Province. At this point in time I am unable (inaudible) how

much it has cost the Province at this point in time or if, in fact, the

(inaudible). I think it is a very important point.

CHAIR: Okay. I will say to the deputy minister, if

you have any opening comments that you would like to make, feel free.

MR. RUELOKKE: None other than to confirm that as

the deputy minister I am responsible for the administration of the department,

and all that entails, including full responsibility for the program we are

reviewing here today. The fact that I may, from time to time, turn to one of my

colleagues and co-workers to answer questions will not be any attempt to defray

responsibility.

CHAIR: Fair enough.

With that we will proceed, I guess, with the

questioning. I will open up to any of the members who would like to start. Mr.

French, would you like to begin?

MR. FRENCH: I have a question which is probably

not recorded anywhere, but just to start me off generally. I had occasion to be

involved with a company that - I am not sure if this is the place for this

question or not.

CHAIR: We will see and find out, Sir.

MR. FRENCH: How do you dispose of equipment if a

company is to go out of business? What do you do if you have a willing company

to buy the equipment?

CHAIR: Bob, I am going to ask you to hold that

question because I am not sure that it is relevant to the hearing this morning.

It seems like there needs to be a lot more information associated with that

question before the witness can answer it, so I will ask you to move on if you

could for the moment.

MR. FRENCH: It is very relevant, Mr. Chairman.

CHAIR: As we get through it, it will come out. If

you want to proceed from there.

MR. FRENCH: Yes, and (inaudible) to this program.

On page 3 of the Auditor General's Report, in that

report the Auditor General notes specific incidents by the department of

non-compliance with the agreement. These include annual work plans to implement

a program that were never prepared, certain financial information that should

have been prepared on an annual basis was not prepared, and the strategy

programming and program element budgets that should have been reviewed were not

done. Can the department comment on this?

MR. RUELOKKE: Page 3 of the -

CHAIR: Are you looking at the EDGE program?

MR. RUELOKKE: The comments on the EDGE program

appear to start on page 30.

CHAIR: Bob, would you like to redirect the

question?

MR. FRENCH: Yes, just move on for a second.

CHAIR: Okay, Mr. Smith, would you like to ask a

question?

MR. SMITH: Basically, again just following up on

what Mr. French was talking about in terms of the compliance issue, the Auditor

General does reference a number of situations where conditions that are laid out

in the program have not been adhered to. I guess it is to be expected, when

programs are developed and these guidelines and regulations are put in place,

the assumption is that they will be strictly enforced. I am just wondering, how

would the department respond to this issue that has been raised by the Auditor

General? Why have the instances that her staff have identified been allowed to

slip through? Is it because it is a new program and we are working with the

program? How does the department explain the fact that these instances have

arisen?

MR. RUELOKKE: The department is always concerned

when it is brought to our attention that we somehow failed to live up to

obligations that we have in administering programs, so we respond in two ways.

The first thing we do is try and get confirmation that, in fact, the situation

that has been referred to us has occurred.

MR. SMITH: Can you confirm that for us, that in

fact these instances that are referenced here are accurate?

MR. RUELOKKE: Yes, I am not confirming any

specific point because I think the question is perhaps a little more general in

nature, but generally there were, as there will be from time to time -

MR. SMITH: But we can make it specific. For

example, there is reference here, in one instance, that the financial plan was -

it made reference to very specific (inaudible). Did your review confirm the

Auditor General's finding, in fact, or was her staff in error in terms of the

issues that were raised here?

MR. RUELOKKE: I think that the Auditor General's

staff have, on a number of occasions, pointed out areas where there were

problems, where perhaps we were not as diligently as we might have been in

delivering the program. In those cases we looked at them and amended our

procedures so that we would not have repeat occurrences of that sort of

situation.

MR. CONDON: Further to that, the EDGE legislation

in itself outlines the requirements for a business plan, and indicates that a

company shall provide financial projection, a market plan, a human resource

plan, and I guess several other things. We agree that in some cases there was

not a glossy market plan in all proposals but we have had proposals from

companies, for example, that were bidding on that transhipment (inaudible), and

obviously their market plan was, I guess, once they got that (inaudible).

We had another case where we had a company that was

involved in supplying vessels to bring oil from Hibernia that was granted EDGE

status. Their business and market plan clearly says: Look, our business is the

delivery of oil. They did not need a glossy market plan that outlined where

their market sector is, and all this kind of stuff.

There are incidents where I think probably they were

not in the form that maybe the Auditor General would require, but the business

plan in itself would not need to address the market plan because they already

outlined to us: Look, this is our market plan. This is what we are going to do.

We have a contract here.

Those are some of the issues that maybe -

MR. SMITH: Maybe we could look at page 35 of the

Auditor General's report,

Summary of Compliance with

Section 3 by Twelve

Applicants. Do you have that there? Maybe you could comment on this particular

chart you have here. For example: Consistency with provincial Strategic Economy

Plan. Number in compliance, two. The board did not evaluate compliance with this

criteria for ten of the twelve applicants. However, we evaluated eleven of the

twelve as being in compliance.

These specifics - do you dispute any of the things

that are in the report or...?

MR. CONDON: Not necessarily. The Strategic

Economic Plan is fairly broad in what it recognizes as a growth sector, like the

non-resource-based manufacturing, technical industries. If the proposal that

came forward didn't fit particularly within those three criteria then I guess

the Auditor General's point of view is that the proposal wasn't consistent with

the Province's Strategic Economic Plan. I think the Board took the position:

Look, if the proposal makes sense, and if it provides for economic

opportunities, then we will look at it.

MR. SMITH: Let's look at it. It says there, the

eligibility criteria: Substantial net economic benefits. That is a pretty broad

statement, but I would assume that wouldn't be too difficult. As a part of the

review process, certainly one of the necessary prerequisites would be to in fact

determine that what we are looking for, as in any organization or group we are

looking at granting EDGE status to, we are going to include the bottom line in

terms of the net economic benefit to the Province. We look over and it says: Net

economic benefits were not calculated by the department in three cases. How do

you (inaudible) that?

MR. CONDON: Some of those cases, I guess, relate

to the transhipment port, and one related to the provision of tanker services

for the Hibernia transhipment of oil back and forth. I think in both of those

cases, due to the sensitivity of the information and the confidentiality of the

information provided, we didn't have the type of detailed financial projections

that our economic analysis people required to do a proper economic analysis.

MR. SMITH: It does reference there that one of the

nine resulted in a projected net cost to the provincial Treasury. Can you

comment on that?

MR. CONDON: I am not sure which one -

MR. SMITH: I wonder if the Auditor General could

(inaudible) -

MS MARSHALL: I will certainly (inaudible).

MR. LOVEYS: Wayne Loveys, Mr. Chairman.

MS MARSHALL: Mr. Chairman, I would just like to

say - we are sort of into the discussions here now - the act requires that these

applicants meet certain criteria, and also that they provide certain

information. I think for all people who are applying under this program the same

criteria and the same information should be required from all. I think there

should be strict compliance with the act. To say that: We didn't have a nice

glossy financial report for a certain company and therefore it is okay to have

one that is not so glossy, but you have to be consistent. The program has to be

transparent. Everybody has to be treated the same. You cannot go up to one

applicant and demand certain types of information of a certain quality of a

certain level and not require it of others. You do have to be consistent,

because people who are applying to the program want to feel they are being

treated in the same manner as everybody else who is applying under the program.

I don't think there should be matters of degree with regard to the criteria for

the information that is being required.

CHAIR: Would somebody like to respond to that?

MR. CONDON: I agree that there are requirements in

the legislation, and I guess most of those requirements are not in the

legislation itself. They are guidelines that are (inaudible). In the case of the

EDGE act, the requirement for a business plan, a market plan, a human resource

plan, and it goes down the list, some of the projects just don't lend themselves

to that type of information. I guess the board, in its wisdom, has said: Look,

we are not going back to those companies and asking them for a detailed market

plan when they tell us they have letters on file that say: Look, here is our

market plan, here are our markets. I guess that is the position the board has

taken on this. I guess it all comes down to the nature of the proposal being

reviewed.

MS MARSHALL: It is a requirement of the act, and

if it is not practical then the act should be changed because, as I said

earlier, you have to treat all applicants consistently. You cannot require

something for one but not require it for another. You can't have a mishmash. It

has to be seen to be a fair program, because people who have been denied access

to the EDGE program would like to feel they have been treated in the same manner

as the ones who eventually got approved. There has to be the perception of

consistency.

MR. RUELOKKE: If I could just respond in a general

way, we have had a consulting firm come in and review the EDGE program for us.

In consequence of that, we have been given a series of recommendations in terms

of some affairs of a housekeeping nature that need to be done to make amendments

to the act, and actually to the administration of the program. We are in the

process of preparing a submission to Cabinet that would deal with some of those

issues, and I will be working with Legislative Council to propose the necessary

amendments to tidy up some of those inconsistencies that were in the

legislation.

CHAIR: Do you mind if I interject for a quick

question?

MR. SMITH: Okay.

CHAIR: In terms of the compliance issue with the

act, the act is fairly extensive, pretty clear on what is required. It is a

step-by-step sort of process that guarantees a quick turnaround in terms of a

company application. If they provide all of the information as required under

the act, within a very short time frame, thirty to forty days, the Board will

make a decision upon an application coming forward.

Surely you are not suggesting that because some

businesses or applications might not, in the determination - is it the

determination of the Board, or is it the determination of the individuals at the

front line, the EDGE officers? I would suspect the Board would follow

recommendations that would be made from people within the department. Surely you

are not suggesting that non-compliance is a discretionary sort of measure that

you would have yourself, or the EDGE program would have, in terms of not

complying with the Legislature, or not complying with the act that governs you.

You are not suggesting that, I would think, no?

WITNESS: No, Mr. Chairman, no.

MR. RUELOKKE: Mr. Chairman, if I could just point

one thing out. In fact, when the EDGE board meets, what they are given on each

individual application is an analysis that is done by the departmental staff in

consultation with other departments and other people as necessary. That analysis

does not, in fact, contain a recommendation from the staff.

CHAIR: It does not?

MR. RUELOKKE: No it does not.

CHAIR: Okay. So it goes to the Board. Who is on

the Board today? How many people comprise the Board today?

MR. RUELOKKE: The members of the Board at present

are: Harold Lundrigan, Yvonne Coady, Jim Janes, myself, John Scott from the

Department of Development and Rural Renewal, and we are proposing to Cabinet to

add the Deputy Minister of Finance as well to that group.

CHAIR: You meet how regularly? Depending on the

need?

MR. RUELOKKE: Twenty days to a month, usually.

CHAIR: Mr. Smith, do you want to continue that

line of questioning?

MR. SMITH: Yes, Mr. Chairman.

CHAIR: Okay, go ahead.

MR. SMITH: There is just one other item there I

would like to pursue. On page 37 of the Auditor General's report, again in

reference to -

CHAIR: Gerald, if I could just interject at that

point. That would be page nine for our purposes, would it?

MR. SMITH: Yes, obviously they are on a

different...

CHAIR: They are on a different one, yes, okay. I

think you would have the same thing we have here, only it has to be (inaudible)

from that document. Thanks.

MR. SMITH: It will make it easier for them to

follow.

CHAIR: Yes.

MR. SMITH: The Auditor General's report points

out: "Our review indicated that guidelines have not been established to evaluate

applications on a consistent basis." This is kind of the tenor of the discussion

we are into to right now. One of the examples there says: "assessing whether

granting EDGE status would confer a direct competitive advantage over other

businesses already established in the Province."

Again, if I could refer to page 35, page 7 for us, the

table that we are working from there, the last item in that table refers to this

particular item, and the explanation says: "While the Board evaluated all 12

applicants as being in compliance, departmental files for two applicants

included correspondence in which members of local businesses claimed that a

competitive advantage was being conferred."

This has always been, obviously, an area of concern

for all of us. We don't want to be giving anyone an unfair advantage. In this

instance I would assume what happened there is that in a subsequent follow-up

investigation by departmental officials this claim was disputed. In fact, people

were claiming that you were going to give these companies an unfair advantage.

It was determined that there was no basic for this. Is that a fair assumption to

make?

MR. RUELOKKE: I guess that would be correct. In

any case where a company claims that they are going to be put in an unfair

position competitively because of someone else's application for EDGE status, we

would review that thoroughly to determine if that in fact was the case. In these

two cases it was determined by the department that such an advantage was not

being conferred.

MR. SMITH: It would seem to me that under the

terms of the program you wouldn't consider anything if there is something out

there already in existence. This is with ACOA traditionally. This is the way we

have approached it, so we would not consider funding any kind of an enterprise

with similar aims as an existing industry. Is that not the case under the EDGE

program?

MR. RUELOKKE: Yes, that is the case. We will not

fund someone who has competition in the same marketplace in the Province.

MR. SMITH: So am I to assume here then, in this

instance, when people are making those kinds of claims, that this is a stretch

on their part, and that they are -

MR. RUELOKKE: Yes, that would be a fair

assessment.

MR. SMITH: Okay. Thank you, Mr. Chairman.

CHAIR: Just to follow up on a question that Mr.

Smith, the Member for Port au Port asked, what would be the process you would go

through? Give me a real life case. What if a company sent in a letter, a local

business, and said that they are in competition. What would be the process by

which you or the board or staff would make a determination that it certainly

would not be in competition with that company? What would you go through?

MR. RUELOKKE: Well, there is a case actually.

There is a letter on my desk now from a local firm with respect to an

application that the board is currently considering, a small manufacturing

operation. This local firm is a local agency of a mainland firm and they are

claiming that they will be adversely affected if the EDGE status is conferred.

So we now have to go out and investigate the marketplace a little more closely.

It is apparent from information contained in the

letter that, in fact, the competition in this particular case is not a

manufacturing one. The people who are presently claiming that they are going to

be adversely affected, in fact, manufacture their product in Nova Scotia; but

they are saying that their sales operation in Newfoundland may well be affected

if, in fact, this other company is given EDGE status for its intended

manufacturing operations in Newfoundland.

So they are saying that while you may well be agreeing

with additional capacity in Newfoundland, you are going to adversely affect some

Newfoundlanders because you are going to give these people an advantage in terms

of the EDGE status. So we have to go out and verify, in fact, amongst their

clients, what the status is, what sort of product they are selling, and verify

the fact that it is coming from Nova Scotia and not from Newfoundland, verify

that the applicant whom we are currently reviewing giving EDGE status to will be

establishing a manufacturing plant in Newfoundland and not bringing in a product

from somewhere else, and review that thoroughly and provide our analysis of the

competitive nature of this situation to the board and allow them to make a

determination on it.

CHAIR: Okay. On page 3, under the heading of

Assessment of Administration of the EDGE Program, the Auditor General points out

that: "...the department did not always provide all information to the board in

order for it to conduct a complete assessment of EDGE applications". Number one:

How do you respond to that? Number two: How many situations existed like that,

where the board did not get a full package of information to make, I guess, a

decision based upon all the factors involved? If a part of somebody's program or

application was not provided to the board, and a decision was made based upon

the lack of information and therefore they were not granted EDGE status, if I

were one of the applicants and found that out, I would certainly be very upset.

But how do you respond to that, first of all?

MR. RUELOKKE: I respond to say that is obviously

an accurate statement and it would have to be accurate. The board meets to

consider perhaps twenty EDGE applications, or maybe five, in a meeting that

lasts for an hour, two hours, or three hours. We may well have files on

individual applicants that are that thick. You gather a lot of information in

analyzing any application, and what the staff have to do is take all of that

information and summarize it in an evaluation form, with the necessary back-up

information on it, so you end up with an eight-and-a-half by eleven package that

is probably four or five pages which capture all the salient points of the

process.

It is fairly obvious that you cannot put in front of

the board all the information that you have gathered. What you do is extract

from it the information that you believe the board should have in order to make

a fair assessment, you summarize it, and you give them that. If, in fact, the

board requests additional information, and that happens from time to time, it is

given to them; but it is clear, we obviously cannot put the whole file on any

one application in front of the board.

CHAIR: We have seen situations recently - not

necessarily with EDGE but in other dealings with government - where applications

have gone to government for tenders where it has gone to another board, where

parts of proposals have been left out, for example, maybe for the same reason

that you are providing now. So you do not see it as a problem that, in making

the assessment, you bring it to the board, the board may request more

information? It puts some discretionary power, certainly, into the hands of

those who are administrating the program. I am just trying to get a full

understanding of it.

MR. RUELOKKE: If I could just draw a parallel, we

are in a process in the department on a continuing basis, as are all

departments, preparing submissions to Cabinet for major decisions that Cabinet

will make with respect to the affairs over which we and our department have

responsibility, and we have to do the same thing with Cabinet. I mean, you

cannot give Cabinet a book on every matter that you put before them. What you do

is, you give them - and you have to use discretion. That is a responsibility

that we take and accept. If, in fact, the people whom we serve feel that our

discretion is not being applied properly then there is a mechanism to take care

of that.

CHAIR: Auditor General, would you like to make a

comment on that?

MS MARSHALL: The concern that I had was that the

information was not there in the files to begin with, so the information could

not have been relayed on to the board. Based on the minutes of the board

meetings, the board itself recognized that some of the information was missing.

They also recognized that there were some problems inherent in the program, and

one of the problems, as discussed earlier, was this thing with regard to

competitive advantage. They were very concerned. They thought that it was not a

black-and-white thing, and they were having a lot of problems grappling whether,

by giving somebody EDGE status, would this give them an unfair advantage over

existing businesses.

I think the department, at some point in time, did

prepare a discussion paper for the board, but the board themselves recognized

that they were not getting all the information that they needed, nor was it

black and white as to deciding: Was this benefit going to get somebody an

unfair, competitive advantage?

Problems were inherent in the program. The board

recognized that the problems were there in the program, so the problems did

exist.

MR. RUELOKKE: I do not deny that, but I do not

know how many of us have the luxury of making black-and-white decisions at any

time. I see very few of them during my working day.

MS MARSHALL: The only thing though, Mr. Ruelokke,

is that if there is certain information that is required from these companies

when they apply, and that information is needed for the board to make their

decision, if the information is not provided by the applicant then the board

does not have the benefits of having that information before them to make the

decision. I see that as a problem.

The other issue that I saw as a problem was this thing

of giving people an unfair advantage by letting them tap into the EDGE program.

There were companies that were given the benefits of the EDGE Program and it did

appear it was giving them an unfair competitive advantage; and the board

themselves, I think, recognized that. They applied some that I think they felt

were kind of iffy.

I am not saying that there is a black-and-white

solution to it. I am saying that it was raised as an issue. Other people who are

out there competing in that same business, when they see a competitor going in

and tapping into the EDGE program yet they themselves cannot tap into that same

program, some of they were very upset. Reading through the files, and after

accessing the information in the department, I could see why they would be

upset.

MR. CONDON: Mr. Chairman, I would like to respond.

The board always has the prerogative to ask for additional information. That is

not... Competition is one of the most contentious issues the board has to deal

with. In a lot of cases the board has asked the resource people from the

Department of Forestry, the Department of Fisheries, Mines and Energy, to come

in on particular projects of a fisheries nature or whatever or, I guess,

technical people from our own department, to come in and explain to the board

about a technical project. That is where they garner a fair bit of their

information and a fair bit of their comfort level with respect to competitive

impact, when you have somebody there from the Department of Fisheries who can

explain the project. And the same thing with the Department of Forestry, when we

bring in people from time to time just to explain the project and to give their

views on it. So that gives the board a fair level of comfort as they are

addressing the competitive impact.

The board, I guess from time to time, comes back for

information on all projects, additional information, notwithstanding the fact

that we could give them volumes of information. There are always issues that the

board members bring up which they want clarified.

MR. RUELOKKE: If I could add just a tiny bit more

for clarification to you on the matter of competitiveness. It is a troublesome

area, but we have had a case recently where we have been requested and the board

has provided EDGE status - Cabinet has approved EDGE status - for someone

manufacturing a wood product for an international marketplace. There is somebody

in the Province who has an operation that was in existence prior to the EDGE

Program, manufacturing not the same product but a similar product to a different

segment of the international marketplace. The board wrestled with that, but at

the end of the day the board decided - and I think it was the right decision -

that the international marketplace is so large that while you are selling a

similar product, you are selling it in another part of the world. You are

competing with the worldwide marketplace, and if we can't provide support to

Newfoundland companies to ratchet up the level of exports and to increase

(inaudible) into the local marketplace then we are not really going to be

effective in growing the industry sectors the way that we should. It is a very,

very, grey area in that situation.

CHAIR: In the case that you bring forward, in

granting one company EDGE status, did the board give any consideration to

offering the same sort of opportunity to the company that - I mean we live in a

grey world. I understand what you are saying and -

MR. RUELOKKE: It was precluded from doing so by

the fact that the company is already in existence and in that marketplace.

CHAIR: So essentially -

MR. RUELOKKE: If they were to expand, the

expansion would certainly be eligible.

CHAIR: Another question. On the same page, the

Auditor General says, "...the Evaluation Board was inconsistent in its

determinations as to which applicants qualified for EDGE status". Could you

comment on that? That is a pretty interesting assessment of a new program.

Inconsistency conjures up a whole variety of images in terms of (inaudible) so

we gave it to you. You came in yesterday and you didn't, so you didn't get it.

I don't mean to minimize it, or be simplistic about

it, but it certainly does not give a level of comfort that one would look for in

a new program like this.

MR. RUELOKKE: Mr. Chairman, I guess I would like

to ask if the Auditor General would care to provide an expansion of that comment

perhaps, before I am able to appropriately respond to it.

MS MARSHALL: Well one of the criteria under the

EDGE program was that the company had to indicate that the EDGE status was the

impetus for the business activity; in other words, EDGE was the reason behind

getting the business up and going. We found some examples where, in fact, the

company was already up and running when they went in and applied for EDGE

status. I believe in one case - and Mr. Loveys can correct me - I think this

company here may even have had a contract to do some business in the Province

already.

MR. LOVEYS: Yes, there was a fibre optic

provision, all fibre optic cable product, and laying some cable - that was for

one company - and there was a contract in place with Cable Atlantic to provide

that service. So we question: Was the impetus the EDGE program if that contract

was already in place?

MS MARSHALL: If the company was up and running

then really they should not have tapped into the EDGE program. We found other

cases where companies were up and running, they applied, and they were told,

`No, you don't qualify because you are already up and running.'

Whereas others

were already up and running and they did receive EDGE status. So that was

inconsistent from our point of view.

MR. CONDON: In some of those cases I guess the

companies came into us before they were - in the case of the cable contract, the

company said: Look, we can service this contract out of Nova Scotia. We can

parachute our people in, but if the board would grant us EDGE status we will set

up an operation here. We will do some work here with respect to getting involved

in the technical aspects of fibre optics.

I guess the board took that into consideration, that

this company had the contract. Sure it could do the contract, but it would bring

its own people in from Nova Scotia. They would be here for several months and

then move back again. The local people here on the ground would gain no

expertise. So I guess the board, in its wisdom, said: Look, if the company is

prepared to set up here, hire local people to do that work, and allow them to

gain certain skills, then we will go along with it.

MS MARSHALL: But then you have an inconsistency.

You have a company which applied for EDGE status and was turned down because

they were already up and running, writing the department and saying, `How come

my friend here who was up and running received EDGE status? I am up and running

also, but they are telling me I can't tap into the EDGE program because I am up

and running.' The problem I had was the inconsistency. You have to be

consistent. People have to feel that it is a level playing field and, that they

are all going to be treated the same.

MR. CONDON: In the case of that cable or fibre

optic company, they weren't up and running here. They had not established their

operation here at the time, or if they did they may have had one person here.

MS MARSHALL: Yes, but they had a contract.

MR. CONDON: They did have a contract, that is

correct.

CHAIR: But previous to applying for EDGE status

they had a contract with Cable Atlantic, is that what Mr. Loveys said? For the

laying of fibre optic cable?

MR. CONDON: Yes, Mr. Chairman, they did have the

contract but, as I mentioned previously, they indicated they could very well

service that contract and bring their own people in from Nova Scotia to do the

work.

CHAIR: I guess they left the department officials

with no choice, or with limited options in terms of application. Either, in this

instance, they were going to be given EDGE status, or they were going to bring

every (inaudible) from outside of Newfoundland into the Province to complete the

contract they had. However, and correct me if I am wrong, if EDGE status was

provided then their pool of labour would come from the Province, from the local

economy. Is that essentially what you are saying?

MR. CONDON: Yes, that is essentially correct, Mr.

Chairman, that they could bring their own people in from outside and have them

in for several weeks and do some of the work (inaudible) -

CHAIR: Is that company still in existence today?

MR. CONDON: Yes it is, and it still has around

forty local people hired.

CHAIR: I don't mean to hog the proceeding. I know

Mr. Lush would like some questions. I know that Anna Thistle would, and then

Jack Byrne. Go ahead.

MR. LUSH: With respect to the eligibility criteria

to gain EDGE status, and I am referring to page 7 and the five eligibility

criteria mentioned there, I am just wondering. It seems to me that life would be

very simple, I suppose, if we could draw up all of the criteria we needed by

which to make approval of anything. We could almost get a robot. We wouldn't

need individuals. Bang, bang, you meet all of those (inaudible), so therefore

you are in.

I agree with the Auditor General (inaudible), having

made that statement, that certainly the system has to be transparent.

Individuals, companies, have to feel that they understand the system, and that

it doesn't appear they are being discriminated against in any way since they are

meeting the criteria as well as others who have been approved.

Having made that rather awkward

preamble, out of the

five items mentioned there, are there any items that receive more weight than

others? Because I am certain that there is a variety of businesses. In granting

EDGE status, are there some items that would receive more weight than others?

Are there some cases where you think: This is a good company, it is going to

meet most of the criteria, it is going to be a benefit to the Province, so

therefore we are going to go, even though number one, number two, seem a little

weak?

MR. RUELOKKE: I guess the bottom one there, the

last one, is probably a deal breaker, if you like, the competitive advantage.

That is a sort of a `no go' situation. If we can be convinced that this

applicant is, in fact, in direct competition with someone else, then I don't

think the Board would consider it further. With the other criteria, there is a

degree of evaluation with respect to them. As you correctly point out, it is not

a `go, no-go' situation. Substantial economic benefit is a term that can have a

variety of meanings. The EDGE incentive provides an impetus for business

activity. Yes, EDGE must provide an impetus, but there would be many other

factors that would come to bear here.

If we look at the example of the shuttle tankers for

Hibernia, clearly the fact that there was an EDGE program is not the only reason

those tankers are there. Those tankers are there because there is oil coming out

of the ground at Hibernia and it has to be transhipped to somewhere else. Those

tankers will provide the means of doing so. By using the lever of the EDGE

activity, we were able to ensure that the Newfoundland business community had a

major participation in this, and that Newfoundlanders are going to be employed

on those tankers. Again, the EDGE Board has to make that kind of evaluation.

The same thing applies to consistency with the

Strategic Economic Plan. The Strategic Economic Plan is a document that doesn't

carve the economy and its sectors up into neat little chunks. There is a broad

range of compliance, if you like, and consistency, with the Strategic Economic

Plan. We think businesses have to sort of follow the thrust of that, but it is

very difficult to look at a business and say that is consistent with the plan or

it is not. There is an evaluation that has to take place. That is perhaps a much

more awkward and long-winded answer than you stated your

preamble to be.

MR. LUSH: I have a general question. My

impression, in reading this report, is that the Auditor General found many

inadequacies and weaknesses within the whole system. We are talking here about

inconsistency with respect to the application of the eligibility criteria, we

get into administrative practices, we get into evaluation of the follow-up with

the results, and the Auditor General seems in every area to suggest there is

need for improvement.

Invariably, the departmental responses say they don't

agree with the Auditor General's view on that particular matter, or that there

seemed to be a misunderstanding of the process. Having studied the report, what

is your general impression of the whole report in terms of its evaluation of the

EDGE program? What benefits do you see accruing from the Auditor General's

report? Are there any areas you see that you can strengthen as a result of the

Auditor General's report?

MR. RUELOKKE: Yes. In fact, some of the

department's responses were very specific about that. For example, on page 11

you will see that we have agreed that an evaluation framework and process is a

critical element in the program, and we have put such a framework in place.

I guess on a more general approach, I think as a group

of people who have a responsibility for administering a program, there is a

great deal to be gained by us from having an independent agency come in and

evaluate the kind of job we are doing with respect to delivering on our

responsibilities. The Auditor General's examination is one such opportunity, as

was the fact that we hired a consultant to go out and talk to the business

community and to speak to our client groups that tell us, through him, the kind

of job they felt we were doing.

Program delivery is an ongoing responsibility of

government, and of our department in particular. In fact, there was just an

announcement this past Friday of a new cost-shared federal-provincial program

that we will be administering. While we don't always agree with the specifics, I

think it is a very healthy process, it is a very valuable process, and it

ultimately creates a situation where we do a better job. I do not think there is

any doubt about that. None of us are saying that we have done a perfect job in

the past, and I have no doubt in saying that if I am in a position to be back

here in three years' time on another program evaluation, the Auditor General, no

doubt, will find that we have made errors or omissions down the road. But we

will always try and ensure that we take the input with which the report provides

us and use that to try and do a better job. I think we owe the people who pay

our salaries that responsibility.

MR. LUSH: The Auditor General's staff make their

observations, criticisms, or whatever, based upon existing legislation. In the

absence of legislation they make their observations based on goals and

objectives to see how the results are measuring up in terms of the goals and

objectives, where they are missing, and they point that out.

As a result of this report now, can you identify any

areas particularly that you see will change as a result of this report? The

Auditor General herself mentioned, with respect to the legislation, if we cannot

meet the legislation, maybe the legislation ought to be changed. Maybe the

legislation is not helpful, particularly in reference to the turnaround time of

thirty days. There seems to be some concern about this, so I use that as an

example.

Very generally, my question is: As a result of the

Auditor General's report, what areas do you see the department moving towards to

fine-tune and refine the process so that it meets the criticisms advanced by the

Auditor General's department?

MR. RUELOKKE: We have prepared and are discussing

a Cabinet submission that would, in fact, give effect to some of the changes

that we want to see in the program; and the one you pointed out is one such.

The turnaround time is very difficult when you

consider all of the steps that we have to go through in evaluating the proposal

and bringing that proposal to the board. The board makes its evaluation and

determination, and it then gets turned into a submission to Cabinet and Cabinet

decides. To accomplish that in thirty days is quite a stretch, so that is one

area that we will be looking at.

Some of the other areas are of a relatively minor

nature and are more of housekeeping areas, but I think it is fair to say that we

have taken the Auditor General's report, we have taken the consultant's report,

and we have taken sort of an internal review that the board has done, and

combined all three sources to looking again at the EDGE program.

Of course, members will also appreciate that there

were some changes to the EDGE program made as a result of our program review

decisions in the department whereby we no longer provide a $2,000 per job

subsidy. We have been having some discussions with other departments in terms of

trying to perhaps develop a training program to which we could have access to in

providing some funds for training to companies that would come in under the EDGE

program. So there are whole series of areas that we are looking at.

MR. LUSH: What are your impressions of the EDGE

program in its short time of existence now in terms of meeting its objective, in

terms of energizing the economy, and in terms of diversifying the economy of

Newfoundland and Labrador? What would be your appraisal of the program in terms

of meeting its goals and objectives at this point in time?

MR. RUELOKKE: I think the EDGE program has been

effective, and that is borne out by the consultant's report, who consulted

widely with... It is certainly borne out in the kind of commentary we get with

respect to the firms that are coming and looking for EDGE status.

It is interesting that even though as of the first of

April we no longer offer the $2,000 per job subsidy, the level of activity and

application has not diminished any. One of the things that people tell us that

is extremely valuable, and it is not a cash cost to the Province at all, is the

provision of a facilitator, or someone from our department... As soon as someone

comes in through the door with an EDGE application, once we determine that they

are eligible, we assign a facilitator from the department who then walks with

that client through all of the regulatory and assessment processes that are

necessary to start off or to expand that business. Just about everybody we have

talked to tells us that is extremely valuable. Even if a company as large and

sophisticated as the Newfoundland Transhipment Terminals, (inaudible), I made a

statement that from all the things that they have had access to, it was the

facilitator who made the biggest difference to them in enabling them to speed up

the process by which they had to deal with government.

I think it has been a very effective program. It has

not been a perfect program. We hope we can improve it, but it has been effective

in increasing the economic activity in the Province. It is an effective tool.

We have very little ability in Newfoundland, because

of our economy, to provide the kinds of subsidies perhaps that some of our

competitors have. When I say competitors, I mean: Nova Scotia, New Brunswick,

and other provinces. So we have had to be a little bit creative, I guess, in the

EDGE Program, and the way that it has been crafted it has been successful and we

have attracted here a number of business activities that we would not have

gotten here otherwise.

MR. LUSH: How does the EDGE program stack up with

other jurisdictions in terms of its incentives?

MR. RUELOKKE: The other jurisdictions are -

MR. LUSH: - because they all have them.

MR. RUELOKKE: Yes. The other jurisdictions are

able to provide a level of subsidy beyond anything that we could provide, but

they have not taken the same approach with respect to the corporate income tax

that we have, and we think that is an advantage for us. While we can't give them

up-front money to attract them here, we can't go out and buy the jobs, we can

offer them some certainly with respect to how they are going to be treated on

the corporate income tax perspective, and that is a very strong factor in their

decision to come here.

MR. CONDON: Mr. Chairman, if I could add something

to that, the EDGE program is certainly complementary to some of the initiatives

that this government has taken over the past several years: taxation reform,

irregularity reform, and privatization initiatives. You are right that all of

the other, I guess, competition that the other provinces have, the ACOA's and

other type of programs, the EDGE program gives a business a long-term commitment

of tax relief. That is something that other provinces have not provided. I guess

businesses that are coming in here at least have the security of knowing that

for the next fifteen years, for example, I am going to get relief from the

provincial corporate tax payroll, and that is quite significant in terms of the

companies we have been talking to, especially companies from outside the

Province.

CHAIR: I will allow the Vice-Chair his third `one

EDGE?

MR. RUELOKKE: I will make a fairly general

statement. Brian may wish to respond in detail. EDGE companies are granted EDGE

status by virtue of a contract between the company and the department, and that

contract contains obligations for both parties. The department will monitor the

performance of the company against those obligations, but quite often we need to

use a little judgment and we will always err on the side of allowing a little

more time if it takes -

CHAIR: You have to provide flexibility, I

understand that.

MR. RUELOKKE: If their projections were a little

optimistic, and it takes longer than we anticipated for them to build up to that

level of activity, we are willing to give them that. Because if you look at the

EDGE program the way it is now, where there isn't the $2,000 subsidy, the only

benefits that will really accrue from the EDGE program are benefits that will

accrue once the operation is up and running. It is not like a program where you

give people money up front and then you expect them to do something. This

program will only benefit them when they actually have an operation going, so it

will not cost the Province anything until such time as they actually have

corporate income tax that is due and payable. That is a factor that we use in

our judgment as well.

We do monitor them, and if we find ourselves in a

situation where a company has obviously failed, and we expect they will continue

to fail to live up to their obligations, then we will exercise our rights under

the contract and terminate their status.

CHAIR: Have there been any companies like that,

that you found thus far, or any areas of concern?

MR. CONDON: We have revoked, I guess, the EDGE

status for one company in particular that could not live within the terms and

conditions of the EDGE approval and we went back to the board. We do on a

regular basis go back to the board with all of the EDGE companies, and they ask

us to review and follow up to see how they are proceeding with their business

plans. Some of them, I guess, have indicated to us that they are not proceeding,

or some of them are inactive and we have to follow up on a regular basis. If

they are not proceeding, the board makes a recommendation to Cabinet to revoke

their EDGE status, which happened in the case of this (inaudible).

CHAIR: One other question: What impact does tax

harmonization have on the EDGE program, in you opinion?

MR. RUELOKKE: It has had a fairly significant

impact because, of course, we no longer have the ability to exempt companies

from retail sales tax, which was a significant benefit.

MR. CONDON: I have something further on that, Mr.

Chairman. It was the view, when the program was initiated, that the retail sales

tax component would be the most significant incentive (inaudible). I guess since

harmonization now that is available to everyone, all companies, not only the

EDGE companies. I guess we are looking at other ways that we can improve on the

EDGE program.

CHAIR: Any of that you can elaborate on now?

MR. CONDON: Nothing other than the fact that I

think the deputy referred to a type of training fund that may be useful for, I

guess, upgrading skills of various companies and employees.

CHAIR: Thank you. Do you want to conclude, Mr.

French?

MR. FRENCH: Thank you, Mr. Chairman.

The Auditor General has pointed out consistently

certain applications that have gone before the board without full documentation.

Has that now been corrected? And if not, why not?

MR. RUELOKKE: The Board is provided with all the

documentation that they require. Again keeping in mind my previous comment about

the way that we have to summarize and try to capture the essence of an

application and a business plan in a relatively compact format, the board gets

the information it needs. If there are cases, and they do arise from time to

time, where the board will ask for additional information, that is provided to

them. It is our belief, and our position at this point in time, that the

information is made available to the board.

MR. FRENCH: So the act is now being complied with.

MR. RUELOKKE: Yes.

MR. FRENCH: How many companies to date have

received EDGE status?

MR. CONDON: Sixty-four companies.

MR. FRENCH: I guess Mr. Byrne kind of touched on

this. Is there any follow-up to see if these companies are indeed doing what

they should be doing? Is there any follow-up to see that a company is doing a

certain type of business which it has applied to do, and has not really - it

could be doing other things for which it really doesn't have EDGE status? Is

there any kind of a follow-up being done at all?

MR. CONDON: On an annual basis we require the

independent auditor of the company to indicate to us that if they are complying

with the terms of the contract. The terms of the contract just basically outline

that they have provided the government with a business plan, and government

provides certain incentives based on them meeting certain thresholds of job

creation and capital investment, and things like that. An annual report is

required from the company's internal auditor to the effect that they are indeed

complying with the terms of the contract with government.

MR. FRENCH: As well, when we say ten permanent

jobs, again is there any follow-up to see that if, for example, Bob French

Limited got EDGE status, that he has indeed created ten permanent jobs?

MR. CONDON: That would be a part of the auditor's

confirmation, too, as to the number of jobs the company has created.

MR. FRENCH: So, are they doing that or are they

not?

MR. CONDON: Well, they are in most cases. We are

in contact with the companies on a regular basis, and we basically know on a

quarterly basis how many employees they have. Then that is confirmed again by

their auditor at the year end.

MR. FRENCH: So, at the year end the auditor would

say to EDGE that yes, they have ten people employed and yes, this is what they

do.

MR. CONDON: Yes, and the company would have to

sign (inaudible).

MR. FRENCH: So we do have somebody who, at the end

of the year, reviews this?

MR. CONDON: Yes, all of those confirmations from

the auditor and the company would come into the department. We do a tracking of,

I guess, individual companies. We have a little check list and follow up on ones

that are delinquent in providing that type of information.

MR. FRENCH: So we are receiving all of that

information?

MR. CONDON: To the extent that a lot of those

statements are now due, we are.

MR. FRENCH: Okay. You say there are sixty-four

companies that have received EDGE status?

MR. CONDON: Yes.

MR. FRENCH: And they would be in a multitude of

sectors, I guess?

MR. CONDON: Yes, I think we just have them

outlined. Forty-one of those companies would be in what we call manufacturing

and processing, six in mining, and a number of sectors like that which we

classify.

MR. FRENCH: Does Newfoundland Transhipment come

under EDGE status?

MR. CONDON: No, their EDGE status was revoked when

they were not successful with respect to obtaining the contract for the

transhipment terminal.

MR. FRENCH: I don't quite follow you there.

MR. CONDON: They were granted EDGE status back, I

guess, a couple of years ago when the transhipment terminal came up for tender

by HMDC. There were actually a couple of local companies that were involved. One

of them was going to put the transhipment terminal at Spanish Room down in

Marystown, and North Atlantic Refinery was going to build one out in Come By

Chance. Both of those companies were granted EDGE status at the time because

there was some question of the terminal going to Nova Scotia, but shortly after

that HMDC went ahead and built Whiffen Head on their own. So, obviously EDGE

status for those companies was revoked because they were no longer in existence;

their project was no longer on the table any more. So those two would not show

up on our list of EDGE companies any longer.

MR. FRENCH: So, Newfoundland Transhipment would

not have EDGE status?

MR. CONDON: No.

MR. FRENCH: Okay, could you supply me with a list

of the sixty-four companies who have received EDGE status and, as well, the

different type of businesses that they are in?

MR. CONDON: To the extent that we can. We have all

of those listed now. I should mention that some of those may not be publicly

announced, but we do have the listing and the sectors and the number of

employees that are projected or proposed.

MR. FRENCH: Yes, what I am asking for is the name

of each company which has received EDGE status, the number of jobs that they

have created; and if there is any criteria that they have not met, I would like

to see that as well.

MR. CONDON: Okay.

MR. RUELOKKE: We have been asked by the Chairman

to provide some information, so we will package the information and (inaudible).

CHAIR: That's great, that is fair enough, yes. I

will also just note for the record too that in the package on page 15, there is

a number of them already provided, but I believe that is only up to a point in

time. I think that may answer some of your questions.

MR. FRENCH: What I want is a separate list, even

from the Chairman's. I personally want a list of the sixty-four companies that

have received EDGE status, what they do, if they have met all the criteria, if

they have not, and in what areas they may have failed.

Thank you, Mr. Chairman.

CHAIR: Are there any other questions? Mr. Lush.

I apologise for (inaudible).

MR. LUSH: That's alright.

Just a couple of concluding questions. One is a

repetition, and maybe two of them are repetitions, of what was asked before, but

to make sure that we get some confirmation from the department as to their

intentions regarding the recommendation of the Auditor General. I am referring

to page 10, Budgeting and Financial Reporting. The Auditor General has herself

indicated that her office views this to be an important matter.

Under item 3, Budgeting and Financial Reporting, the

beginning paragraph says: "Unlike other government programs which involve the

expenditure of public money, the EDGE program is based on incentives which

include the return of taxes."

Going on to the second paragraph, it says: "A cost for

the program can nevertheless be measured by the amount of revenue, in the form

of various taxes, that are returned to the EDGE Corporation."

I guess my question is, does the department intend to

address this particular item in the future, and to ensure that this shows up in

the public accounts of the Province, or in the Estimates, so that people know

exactly what is going on with respect to the tax incentives and the cost? Can we

expect this in the future?

MR. RUELOKKE: With respect, Mr. Chairman, we as

bureaucrats administer the legislation that was passed in the House. If, in

fact, the legislation is changed to require that, obviously then we would

comply. The way the program is administered now is in compliance with the

existing legislation. Just for clarification, the information is available in

the department. We monitor on an ongoing basis the amount of tax revenues that

are returned.

MR. CONDON: Just something further to that, Mr.

Chairman, we spoke to Department of Finance officials on that. With

harmonization now, obviously EDGE companies don't get any rebate of RST, but at

the time the Department of Finance was collecting over $600 million in RST, and

the fact that they only rebated $800,000 to EDGE companies, I guess they felt

the materiality of the amount was probably insufficient for them to make any

provisions in their budgeting for it. It is an academic exercise now because it

is not going to happen after the first of April.

With respect to the start-up grants which were

eliminated, we did provide budgeting through the House in the form of the

amounts we were going pay out, I guess, just based on some notional amounts of

grants that we were going to pay on an annual basis.

CHAIR: I believe the Auditor General wanted to

make a comment on that.

MS MARSHALL: There are payroll taxes, though, and

corporate taxes, are there not, Brian, that could be reported in the public

accounts and estimates and that?

MR. CONDON: Yes.

MS MARSHALL: I would think that should be reported

and would require no legislative amendments.

MR. CONDON: The payroll tax and provincial

corporate income tax are still there, (inaudible) correct.

MS MARSHALL: That information should be reported

because, as Mr. Lush indicated, that information should be available both to the

members of (inaudible).

CHAIR: Yes, separately, under a separate

designation, subhead. I agree.

MR. LUSH: Referring to comments or recommendations

made by the Auditor General, and also by the consultant in the consultant's

report, the Auditor General made the point: Guidelines should be more formalized

to ensure fairness across the board. The consultant recommends that the EDGE

Board be given greater flexibility to tailor incentives on a case-by-case basis.

Can the department comment on these two different

approaches? Which way is the department leaning?

MR. RUELOKKE: I would have to say that to the

extent we are leaning, we are leaning towards the Auditor General's view. We

don't believe that the view expressed by the consultant - I think the consultant

was reflecting perhaps the wishes of the people with whom he consulted on the

success of the program, i.e., the business community. We don't feel it would be

appropriate for the Board to have additional flexibility, if you like, to tailor

incentive packages, because we think the incentive packages need to be clear,

transparent and, as the Auditor General correctly pointed out earlier, people

need to know they are being treated in a fair and equitable manner. I think

providing any additional flexibility with respect to incentive packages may be

contrary to that desire.

MR. LUSH: So the business community can't expect

more flexibility.

MR. RUELOKKE: Unfortunately not from the EDGE

program.

MR. LUSH: Okay.

CHAIR: Certainly with the introduction of tax

harmonization, which was a huge incentive for companies in terms of previous to

that, as you talked about the rebate of RST, and with the elimination of the

$2,000 per job created, the EDGE program as it now stands without any

modifications, because we don't know if there are any - you may be working on

some, and there may be legislation in the House - has it become somewhat

edgeless? Have you seen a drop off in terms of the attractiveness of the

program? As a Member of the House who supported the program actually, and voted

for it in the House of Assembly at the time, those were two large areas that not

only I as a member but government certainly harped upon. Has it deterred

companies from applying for EDGE, do you think? Has it inhibited us in some way

of attracting more business as a result of those two things being taken from the

program?

MR. RUELOKKE: We can never say with total accuracy

that it hasn't deterred some people, because if they don't show up on your

doorstep you never know if they intended to or not, but we have not seen any

real diminishing of the volume of activity with respect to EDGE applicants. I

think it is a fair statement to say that, Brain, and I would have to say that is

not without some surprise on our part.

We felt, as you just expressed, that these were two

pretty valuable considerations. But obviously the corporate world sees the other

considerations as being valuable as well, so it is still an effective program.

We are trying to look at ways to increase its effectiveness, but it is still an

effective program. I don't know how many evaluation are under way at the moment,

but there are a number of them and we continue to meet and to review them on a

regular basis. Unless I am mistaken, we are doing so on Friday morning with

another group. So it is still having its desired effect of increasing the level

of economic activity in the Province by starting up new businesses.

CHAIR: Under Assessment of Administration, the

Auditor General points out that in terms of, I guess, objectives of the

department, or the programs, she says: "The Department has not identified how it

will determine if the program is successful." Could you comment on that in terms

of: Have you made any progress generally or specifically on how you will

determine if the program is successful? I know we have talked a lot about it. I

am not trying to again ask a question that has already been asked, but I think

it is important for the record to ask what the department is doing that, at the

end of the day, will say that over the past three years, since the introduction

of the EDGE program, that it has been successful because.

MR. RUELOKKE: It is a very good question. There

are a number of ways that we can measure success, but I think the most

significant one, and the one where we have the highest expectations placed on

us, is on the number of jobs that are created, because that is really where our

big problems are in the Province. We don't have enough of our people at work.

We cannot always say that the only reason the jobs are

created is that the EDGE program is there, but the EDGE program has made a

significant contribution to increasing employment in the Province and we intent

and expect that it will continue to do so. So we will continue to use as our

biggest measure of success the level to which we can look at the number of

people that are employed in the Province, and say that because there was an EDGE

program that number is higher than it would have been without it, and to some

considerable extent.

CHAIR: I guess directly, are you putting together

some sort of framework by where not only at the end of the day but throughout

the course of the program you can continuously monitor and evaluate the success

of the program? I think in the Auditor General's report the spirit and intent of

her comments were in that light: that there was no process for monitoring, or

there was no criteria established for what were the components that would

determine the success or failure of the program, so that on a constant basis or

upon request, or even at year's end, the department could determine the success

or failure, or to the extent that it has been a success. I believe that is where

the Auditor General's comments came from in terms of the spirit. Is that

criteria being developed? Are you into it? Have you taken that recommendation

from the Auditor General seriously to the extent that you are trying to do that?

MR. RUELOKKE: Yes, we have taken that seriously

and we are involved in, as Brian mentioned earlier, the process of evaluation.

The first thing we do is evaluate against the commitments that the individual

companies made. That is the sort of micro-scale evaluation, I guess.

We are in the business of trying to create economic

development, and EDGE is but one tool or one arrow in our quiver. We need to and

we are developing sort of a framework to allow us to evaluate EDGE because we

may be able to develop, over time, better programs.

What you should always learn from an individual

program that you get involved in is what weaknesses and the strengths of it

were, and use that as you build the next one. An example, I guess, there are a

lot of similarities between the SIID program that we had over the last number of

years and that expired recently, and the Comprehensive Economic Development

Agreement that we are now about to enter into, and we will begin activity on it

very soon. We have taken some of the comments and suggestions that were made by

the Auditor General with respect to this SIID agreement and incorporated them

into the way we intend to operate this new agreement.

Certainly, evaluation has always been an area of

concern for everybody. If you don't establish a framework against which measure

where you were successful or not then how will you know? I don't know if we have

the framework in place yet but we are working on it. We have had input from the

Auditor General; we have had input from our consultant. We will develop the

framework and we will reach a decision point sometime in the next year or so,

perhaps sooner, whether in fact or not we continue the EDGE program or whether

we have to shift gears and do something different. That will be as a result of

that evaluation.

MR. CONDON: It is difficult, I guess, to put

numbers on an application-driven program. I guess we haven't said: Look, we hope

to achieve 10,000 jobs by year five in this type of program, but I think, as Max

suggested... And we cannot point and say: Look, if the unemployment rate drops

by 2 per cent, well, that was EDGE. Those numbers are much too large, and there

are too many factors that play in there. We are looking at the EDGE program in

the overall objectives of the department with respect to investment promotion

and a number of other initiatives that are under way, and looking at how we can

put some measurement targets in there.

CHAIR: I would think some of that is realistic. At

the end of the day, considering all costs and factors, if EDGE, after all costs,

administrative and otherwise, creates one new dollar in the economy and one new

job, then I would suppose I would have to say it has been a success in that

regard, if everything else is factored out.

There has to be some quantifiable way that we can, at

the end of the day, say: If we have returned x number of dollars in terms of

corporate tax, payroll taxes, municipal taxes, etc., there has to be some way

that we can determine: Yes, that was a solid investment because... I don't think

we need to get into the grandiose schemes of unemployment reductions and all

that sort of stuff, but at the end of the day this program is set up to create

jobs and it has done that, long-lasting. We have to be able to determine that

somehow.

MR. CONDON: Yes, at the end of five years we would

perhaps be able to say (inaudible).

CHAIR: Providing that sort of framework, or that

sort of accountability inherent within the management and administration of it,

we may be able to come to a determination that each job as a result of the EDGE

program has cost the taxpayer $10,000 or $20,000 to create, or as a result of

the investment made that it hasn't cost us anything; actually it has produced

$5,000, $10,000 or $15,000 as a result of the activity.

I think that is the spirit of my questions. We need to

do that not only with EDGE programs but all programs, I think, and that was part

and parcel of the whole program review that government went through just post to

the last election, and going into the budget exercise. I would look forward to

something like that, because I think that is probably one of the largest

questions. Fundamentally that is what it is about, I guess.

There was a question asked earlier with respect to

other government funding agencies like ACOA. Don't take this as a leading

question, because it is not. To what extent does the department encourage or

show businesses which are coming here, which at least show they could produce a

significant number of jobs that would have a significant impact, like the

situation in Baie Verte with the tannery for example, that there are other

government programs, both federal and provincial, of which they can take

advantage? Is that something within the department that you would complement in

terms of a business coming for EDGE status? Would you say: By the way, did you

know there are other programs that may fit your business plan, that may assist

in developing and creating this number of jobs?

The second part of that question is: If a company

comes to the department having accessed, prior to applying for EDGE, $500,000 to

$1 million worth of other government programs, whether that be in the provincial

or federal government, how does the department factor that into their EDGE

application? I know you answered earlier in terms of ACOA it would be, but in

terms of grants, is that considered part of their capital expenditure

requirements, that you would say that is from outside sources outside your

department? I will just leave it at that for the moment.

MR. RUELOKKE: The answer to the first question is

a very emphatic yes. Almost every application that comes in and goes forward for

review contains a mixture of assistance. Wherever there is assistance available

we try to make sure, to the extent that it is applicable to their situation,

that they are aware of it. They can then choose whether or not they want to do

that. There is a mixture, a number of applications that we have had, where there

has been ACOA money, some money that is coming from the Department of

Development and Rural Renewal, and some money from the Federal Business

Development Bank. There has been a whole melange of (inaudible).

CHAIR: HRD in terms of jobs (inaudible).

MR. RUELOKKE: There have been others where EDGE

status has been the only thing that drove them, and that is what they wanted. We

certainly encourage them to choose from the mix that is available those which

are appropriate.

With respect to how we treat funding from other

sources, I think, not to reiterate to some extent my response to Mr. Byrne, that

if the applicant is on the hook for repayment then we consider that to be a

commitment. That would be deemed eligible under the $300,000 requirement for

capital. If that is grant money, if that is money that is given with no

expectation of return, then that is not eligible, because that is not a real

commitment on behalf of that (inaudible).

CHAIR: That wouldn't be factored into the criteria

under the EDGE program in terms of part of their capital requirements, you are

saying.

There are a lot of wage subsidy programs that are

being offered as an incentive to the private sector to hire up front wage

subsidy for a period of six months to a year. Did you ever come across a

situation where a company was given the $2,000 per job and at the same time they

may have accessed other government programs in terms of wage subsidies? If you

did, how would the department look at that sort of scenario?

MR. RUELOKKE: I don't know, but I suspect that has

happened in the past. The reason I don't know is because it was probably at a

time when I wasn't here, but I would think that it would have happened.

MR. CONDON: Yes, I guess when companies,

particularly companies from outside, look for information on the Province, the

type of assistance programs, we would send them out a package with information

on the EDGE, ACOA, and additional job funding on development and rural renewal,

whatever is there in the form of government assistance programs. I am sure that

there are cases where they have availed of the training grants under some HRD

program and also have gotten the $2,000 start-up grant that was in existence at

the time. The legislation, I guess, indicates that the EDGE incentives are over

and above whatever existing public assistance programs are out there. That has

not been an issue with respect to - they can get funding for training or

employment subsidies from other government agencies, (inaudible), go to it.

CHAIR: I don't have any more questions. Does

anybody have a question?

MR. J. BYRNE: I just want a point of clarification

on something.

CHAIR: Go ahead, Sir.

MR. J. BYRNE: In this report, at the time that

this report was done by the Auditor General, it showed that there were sixty-two

companies that had obtained EDGE status. On page 37 it says: jobs created,

1,565. From my own knowledge, one of the companies that is listed here out of

the sixty-two isn't up and running yet. I am wondering: Is the 1,565 jobs actual

jobs created, people working today, or is it the potential for 1,565?

MR. CONDON: It is potential.

MR. J. BYRNE: So in actual fact you are saying

jobs created 1,565; that could be half that?

MR. CONDON: Yes.

MR. J. BYRNE: Okay, thank you.

CHAIR: The question I ask then, how many jobs are

in existence today of that 1,565? Does the department know?

MR. CONDON: We have some numbers here, rough

numbers, that indicated in excess of 900 jobs - 921 actually.

CHAIR: That are up and running right now?

MR. CONDON: Yes.

CHAIR: When you put that stuff together for us,

would you be able to include those numbers for us?

MR. CONDON: Mr. Chairman, I am realizing too that

some of those companies are seasonal operations, (inaudible) from time to time.

CHAIR: It fluctuates, I understand. That is the

nature of the economy. A seasonal job is a full-time job in my mind.

I have a question to do with the consultant's report.

How many of the recommendations have you implemented of that report? Any?

MR. RUELOKKE: There are a mix of recommendations

and the ones that -

CHAIR: What ones have you focused in on

essentially?

MR. RUELOKKE: I guess to date we have focused in

on the administrative ones, the ones that we could fix without reference to

legislation, ones that we control within the department. So, in terms of

enhancing the role of the facilitator, providing more training for facilitators,

using people with different skill sets for different applications, that sort of

thing. I can't give you a number, but we have done a number of those things.

Some of the recommendations we will not follow because

we don't think that they are appropriate - and I will refer to one that Mr. Lush

mentioned about additional flexibility - but there are a number of others that

will be incorporated into the amendments that we will propose for the

legislation.

I think for the most part we were quite satisfied with

the work that was done by the consultant. As I say, there will be

recommendations that we have reviewed from our standpoint and don't think we can

go ahead with, but the majority of the recommendations either have been followed

or will be followed.

CHAIR: I have one last question, back to the

accountability framework, that sticks in my mind. Do, you have a target date? I

know you have answered generally, but do you have a target date in mind when

that sort of process will be put in place, that mechanism will be put in place?

MR. RUELOKKE: We will have that done some time

between the calendar year end and the fiscal year end.

CHAIR: Before March 31, 1998, you are saying that

will be in place?

MR. RUELOKKE: Yes, Sir.

CHAIR: Okay, I have no further questions. I don't

know if the Auditor General would like to make any comments.

MS MARSHALL: Mr. Condon, the 900 jobs, is that

based on audited information?

MR. CONDON: It is based upon, I guess, actual

conversations with the companies themselves, and based upon the number of

employment grants (inaudible).

MS ELIZABETH: So, it is not based on the audited

reports?

MR. CONDON: No, the audit information would be a

bit later coming in.

MS MARSHALL: I would just like to make one point

for clarification because Mr. French and Mr. Byrne asked the question. The

market plans, the human resource plans, and the financial plans, of the twelve

that we looked at there were instances where there were no market plans, no

human resources plans, and no financial plans. Now, I can relay that, giving Mr.

Ruelokke the specific examples after, but if there was anything at all that

resembled anything like a market plan or a human resource plan or a financial

plan, we did give the department the benefit in counting that as a plan. There

were instances where there was nothing, and I think that goes back to your

question about the (inaudible).

CHAIR: Let me ask the question, because it is

noted on page 6, I believe, that there were two applicants who did not submit a

marketing plan; two applicants who did not submit a human resource plan; two

applicants who did not submit information with respect to corporate ownership

and structure; and six applicants who did not submit all information with

respect to related operations. Obviously the question needs to be answered then:

Can the department comment on how they are going to evaluate these applications

without what seems to be a fair bit of required information?

MR. CONDON: In some cases we would agree that it

wasn't in the file, but a lot of times the information provided to the board at

board meetings, and bringing in expertise from other government departments and

agencies, provide additional information on all of those: information

requirement, financial requirement, and statement of corporate ownership. While

maybe it was negligent on our

part in not putting some of that (inaudible)

writing in, because once we get a business plan from that proponent we might go

back to him several different times and say: Look, just give us some information

on your corporate structure, or where your markets (inaudible). It is not always

noted in the file. Since that time we have endeavoured to put all of that type

of information in the file, whether it is a one-page market plan or a detailed

market plan.

CHAIR: Go ahead.

MR. J. BYRNE: If that is the case, in your answer

just given, if the Auditor General had - she has those companies listed, I would

imagine, identified -

MS MARSHALL: Yes, (inaudible).

MR. J. BYRNE: - if there was information that was

accessible to the board but not in the files, could that now be made available

to the Auditor General?

MR. CONDON: We would have to go back to our files

and see if there is any additional information. I guess it comes down to maybe a

determination between what we view as a market plan and what the Auditor General

views as a market plan. In the case of those transhipment port companies, there

may be no reference to a market plan.

MR. J. BYRNE: What about the financial statements

and the - what was the other one?

CHAIR: Human resources.

MR. CONDON: In the case of the financial

statements on those companies also, there was very little information of a

financial nature because of the confidentiality of the thing. The board was

aware of that right up front.

MS MARSHALL: The legislation is very specific, as

we mentioned this morning, so when it talks about a market plan it says: A

market plan is required, and the market plan is to include estimates for growth

and analysis of the market risk and competition in the market. It is very

specific about what the different plans have to include. We were looking for

compliance with the requirements of the legislation, as I indicated. If there

was something there that closely resembled it, we would have given credit, but

otherwise we wouldn't have given it.

CHAIR: Any further questions from any of the

members? Would the Auditor General like to make any closing comments?

MS MARSHALL: No, Mr. Chairman.

CHAIR: How about you, any closing comments?

WITNESS: No.

CHAIR: This hearing is concluded. I believe

tomorrow morning we are going to reconvene at 9:30 a.m., and I believe the same

witnesses will appear before us on the SIID agreements.

Thank you.

The Committee adjourned.

Document details

Collection	Newfoundland and Labrador — Committees
Citation	1997-11-05
Type	committee
Volume / chapter	committees standingcommittees publicaccounts ga43session2 1997-11-05 pac
Language	en
Format	htm
Source	PROVINCIAL
Identifier	a262b4d73770d961d16a3c975f3a498a146cd5d8

Source file is stored in the law ingest library (htm).