Pursuant to Standing Order 68, Glen Littlejohn, MHA for Port de Grave, substitutes for Paul Lane, MHA for Mount Pearl South.

Pursuant to Standing Order 68, Lorraine Michael, MHA for Signal Hill – Quidi Vidi, substitutes for George Murphy, MHA for St. John's East.

The Committee met at 9:00 in the Assembly Chamber.

MR. FORSEY: Good morning everyone.

The seating is a little different this year compared to last year, so I have to look around to see who is here.

The first order of business this morning, at the beginning of the Estimates for the total budget we have to elect a Chair. I will ask Elizabeth if she will do the nomination.

Elizabeth.

CLERK (Ms Murphy): Is there a nomination for Chair of the Committee?

MR. DINN: I nominate Clayton Forsey.

CLERK: Mr. Dinn nominates Mr. Forsey.

Are there any other nominations?

There being none, Mr. Forsey is acclaimed Chair.

CHAIR (Forsey): I will call for nominations for Vice-Chair.

MR. PEACH: I nominate Dwight Ball.

CHAIR: Dwight Ball has been nominated for Vice-Chair.

Are there any more nominations?

Dwight Ball has been elected as the Vice-Chair.

What we will do this morning first is we will introduce everyone. We will start over here on this side and then we will come over to the minister and his department.

Do you also have the PSC here this morning, Minister?

MR. MARSHALL: The PSC (inaudible).

CHAIR: We will do the PSC first this morning?

MR. MARSHALL: (Inaudible).

CHAIR: Okay. I think that is okay with everyone.

Lorraine, Dwight? Yes.

We will do the introductions, and if the minister wants to have a couple of words by all means you can have up to fifteen minutes normally, that is sort of the rule of thumb.

We will start with the introductions. I guess we will start right here with Dwight.

MR. BALL: Thank you, Mr. Chair.

Dwight Ball, MHA for Humber Valley.

MR. LONO: Simon Lono, Official Opposition Office.

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

MR. MORGAN: Ivan Morgan, Researcher, NDP caucus.

MR. LITTLEJOHN: Glen Littlejohn, MHA for Port de Grave.

MR. PEACH: Calvin Peach, MHA for Bellevue.

MR. MURPHY: George Murphy, MHA for St. John's East.

MR. DINN: John Dinn, MHA for Kilbride.

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

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

MR. GRANDY: Glenn Grandy, Assistant Deputy Minister of Finance.

MR. JOYCE: Luke Joyce, Communications Director for Finance.

MS CHAFE: Ann Chafe, Commissioner, Public Service Commission.

MR. HOLLETT: Bruce Hollett, Chair and CEO, Public Service Commission.

MS THOMAS: Raelene Thomas, Director of Appeals and Investigation, Public Service Commission.

MR. MILLER: Trevor Miller, Acting Comptroller, Department of Finance and PSC.

CHAIR: Minister, do you want to carry on with the questions or do you have a couple of – because I have to call for a subhead as well before we start.

MR. MARSHALL: Do you want me to make some opening remarks?

CHAIR: Do you want opening remarks?

MR. MARSHALL: I will just be very brief.

CLERK: Excuse me, (inaudible).

CHAIR: Okay, Minister, I am sorry.

We will call for the subhead for the PSC.

CLERK: Subhead 1.1.01.

CHAIR: Subhead 1.1.01, PSC.

Okay, Minister.

MR. MARSHALL: Traditionally, Finance and PSC appear before this Committee together. The last couple of years we have PSC start off, because there are usually not a lot of questions for them and then they have to sit here for the whole three hours. We allow them to go first so that they can leave once the members opposite are finished.

I will simply say that the Public Service Commission is a very important Commission that we have in government. Government's ongoing support and commitment to the Commission is demonstrated by a decision to make sure that the necessary resources are given to them to effectively deliver on their core mandate. They are committed to the concept of public service excellence through merit, fairness and respect. Their mandate and focus is established in the legislation. The protection and application to merit principle and public service hiring, and promotion on the development of staffing related policy and processes.

In addition to the core mandate, they have been tasked with providing confidential personal services to our employees. These services include the Employees Assistance Program and the Respectful Workplace Program. These programs, I understand, have supported thousands of employees and their families.

The Commission also provides administrative support to the bargaining unit, non-management classification appeal board, as well as interpretative support and advisory services in matters related to the Conflict of Interest Act. They also provide investigative services upon request.

With that, we are open for questions. Mr. Bruce Hollett is the Chair of the Commission. He will take the lead with this.

CHAIR: Okay. What we will do is, Dwight, we will begin with you. You have been through this before, and Lorraine has many times. We usually take fifteen minutes and then we will pass it over to Lorraine probably. We are not going to be that tight on it but that is to give everybody an opportunity to ask questions. It would be a good practice when you are responding to a question to say your name so as Hansard can understand who is responding to the question.

Dwight, if you want to start.

MR. BALL: Thank you.

Actually, I do not even think I will be fifteen minutes but just a couple of questions in terms of the Salaries, which would be 01. We have seen virtually a $500,000 reduction there. What is the reason for that?

MR. HOLLETT: The salaries for the new fiscal year are budgeted less in Public Service Commission for a couple of reasons. The Vice-Chair position is going to be held vacant throughout the year, so there is no funding provided for that.

As well, the Commission has always carried the salary for the Channing Chair at Memorial University and that position is not going to be filled this year as well. So the salaries are not there for that. The remaining reduction is a reduction in temporary salaries at the Public Service Commission. We have had a fair amount of turnover at the Commission and we are able to not fill a number of temporary positions there this year that have become vacant. That is going to allow us to achieve those savings.

MR. BALL: Is this permanent? Those positions will not be just this year or are they permanent displacements?

MR. HOLLETT: No, the reduction in the funding for the Vice-Chair and the Channing Chair positions – there is no funding there for this year. The decision was not that those positions would be eliminated. It is simply that they will not be filled in the 2012-2013 fiscal year and there is no funding therefore this year for those positions.

MR. BALL: Okay.

What is the reason why you can do without them one year and you cannot do without them for five years, for instance?

MR. HOLLETT: The Vice-Chair position has been vacant now for a couple of years and the Commission has managed to conduct its affairs with that status of the executive group. I have only been there a month, but so far I do not see a problem with us being able to accomplish that over the coming year.

With respect to Channing Chair, the Channing Chair is a position that from time to time is filled. It does not serve a direct functional role within government, but it is a research position that is funded by the government at Memorial University. There will be no impact on the Commission or government by holding that position vacant for the year.

MR. BALL: I move down to bullet 06, Purchased Services, there looks to be $400,000 there, the reason being there: Do you need the money? You spent about $1.3 million last year; you have about $1.2 million budgeted this year. Are you okay with that?

MR. HOLLETT: Yes, the big items in Purchased Services are rent for the Commission's office space and in advertising of vacancies in the public service. The rent obviously is not something that we can change. There has been an analysis of how we advertise positions in the public service.

Traditionally, we have used a combination of on-line advertising and print advertising in the media. Virtually all of the applicants for public service jobs today find out about the jobs on-line either up on the Commission's Web site or on some of the other digital sources that we use. There is very little in the way of print advertising – that is not where people find out about the jobs. We are going to reduce, not eliminate, the amount of print advertising that we do this year and focus more on digital advertising of public service positions.

MR. BALL: Okay, sounds good.

Lorraine?

CHAIR: We are good?

MS MICHAEL: Yes, just one question.

CHAIR: Okay, Lorraine.

MS MICHAEL: Thank you.

Just to come back, Mr. Hollett, to the position of the Channing Chair. That research that was done, was that research that when there is somebody in that position, is that research that the university dictates or is it research that relates directly to needs at the Public Service Commission?

MR. HOLLETT: Thank you for that question; I am actually able to answer that well because, in fact, I was the Channing Chair for a little over a year. The research that the Channing Chair does, essentially it is a research program that the Channing Chair, whoever is in the Channing Chair, would identify and then in discussion with the Clerk of the Executive Council and the President of the University basically come to an agreement that yes, it would be a reasonable area to focus on. You really design your own program and then, assuming that everybody is okay with it, you move forward. It does not really relate to the Public Service Commission itself at all, except that the position is funded through the Commission.

MS MICHAEL: Right.

If you want to answer this question – you may not want to – if you were still in the Chair, would you have things you would identify as research you would like to see done?

MR. HOLLETT: Yes. I do not know what those things are today, but it is an interesting opportunity. When you work in public service for a number of years of course you are very consumed with the roles you have and performing the functions you have. The university environment is a very different environment, but once you get used to that research environment then there are things that become interesting and you do dig into. I found that quite interesting at the time and I dug into a few things that were of particular interest to me.

MS MICHAEL: Thank you.

Minister, I am going to give this question to you because I actually think it is more a question for the Minister of Finance. If I am wrong, then you can pass it back to Bruce.

My concern is that with the two positions, the Vice-Chair and the Channing Chair, with the money removed it is always harder to put money back in. The money is not being held for the positions, yet I am being told the positions are still on the paper. I know we have another deficit Budget in the plan for next year and you see a surplus coming up the year after.

What are the chances of in a year or two years' time in particular saying: Yes, these are still needed positions and now we are going to put money back in? I always hate seeing money taken out if what is there is important. If they are not important, then why leave them there?

It is strange for me to have these two positions which one would think were necessary. One has been empty for two years. Is it necessary? I am a bit confused about it. From your perspective, I would like to have some input.

MR. MARSHALL: The previous Chair, when he retired, indicated to me that in his view a one-person Commission would be adequate. Government has not made that decision as to where we go in the future.

The Channing Chair – it is my understanding that a senior civil servant would go over to Memorial and – I do not know if the word cynic here might be the word. I did not think they came back, and I am delighted to see Bruce came back with all of his years of experience. Then he went over to MUN and had that opportunity, but now he has come back. I did not think that happened, but we are delighted to see him back.

MS MICHAEL: What you are telling me is it is actually possible that at least one of those positions could actually end up being gone permanently, and that is the vice-Chair. You have not made a decision –

MR. MARSHALL: It is always a possibility – I do not think there has been any discussion of cancelling the Channing Chair. It is just that it is something that does not have to happen every year and there are times when our revenue is not as high as it is in other years, it is something that is a means to help us reduce spending until the revenues come back.

MS MICHAEL: Right, but the Vice-Chair could be gone in the future permanently.

MR. MARSHALL: There was a recommendation that there is only a need for a one-person Commission, but whether government adopts that suggestion remains to be seen.

MS MICHAEL: Right.

I think that is all that I have.

CHAIR: Okay, thank you, Lorraine.

Is that it for you, Dwight?

Shall the subhead for the PSC, 1.1.01, carry?

Shall I report the total carried?

All those in favour, ‘aye'.

SOME HON. MEMBERS: Aye.

On motion, subhead 1.1.01 carried.

On motion, total carried.

CHAIR: Thank you, Minister, to PSC.

MR. MARSHALL: You are welcome.

CHAIR: For Finance, we will call for a subhead.

CLERK: Subhead 1.1.01

CHAIR: Subhead 1.1.01.

Dwight, if you want to begin.

MR. BALL: If it is okay, we will probably –

MR. MARSHALL: Could I just interrupt?

CHAIR: Okay.

Minister.

MR. MARSHALL: Rather than make the speech, I know we are limited in time, but I will say that Terry Paddon to my left is the Deputy Minister who I understand is the Chief Executive Officer of the department.

Glenn Grandy is here, to Terry's left. Glenn is the ADM for Financial Planning and Benefits Branch. It used to be Bob Constantine; Bob retired. That branch deals with the Budgeting Division, the Treasury Board Support, Pensions Administration, and the Insurance Division.

The other ADM is Laurie Skinner. Laurie is the ADM for Taxation and Fiscal Policy Branch and that deals with Tax Policy, Fiscal Policy, Debt Management Division, Project Analysis Division, and the Tax Administration Division. There are two other divisions. One is the Economics and Statistics Branch, and the ADM there is Alton Hollett. There are two divisions within that branch. There is Economic Research and Analysis and that is headed by Rod Forsey, and there is the Newfoundland and Labrador Statistics Agency.

The last branch is the Office of the Comptroller General and the divisions are: Government Accounting, Financial Systems Control, Professional Services and Internal Audit, Compensation and Benefits Division, and Corporate Financial Services Division. That is the organizational chart of the department.

CHAIR: That concludes your address, Minister?

MR. MARSHALL: For today.

CHAIR: Okay.

Dwight, if you want to start.

MR. BALL: Thank you.

From this side, it is always a little tough trying to get out of departments – we went through this in Health last night. One of the things that the minister said that would be helpful and I think it actually would be very helpful, even if we had the organizational chart, when we came in and started a meeting so that we would get an understanding on obviously where you guys line up into the flow charts. That would be nice to see.

If it is okay, I will just start off and we can probably go line by line. What I will try to do too is when I ask the question actually make reference to the particular bullet that might be able to make it a little easier for you guys, as you follow through in your binders over there.

I will start right with 1.1.01, that being the Salaries positions in bullet 01. We have seen a $37,000 reduction. Actually, there was a bit of a swing because it went from a budget of $337,000, a revision to $236,000. I would like to know why that is. It looks like you have about a $37,000 savings for this year.

MR. MARSHALL: The difference between budget and revised from the $337,200 that was budgeted and it was actually $236,000; there were savings of $101,200. There was funding for a temporary policy analyst position. That position has been vacant for some time. There is a reduced requirement for additional assistants, leave replacements, students.

When you compare Budget 2011-2012 to Estimates for 2012-2013, as you know government went through what we called a 3 per cent cost reduction exercise, but certainly front-line staff and certain departments were exempted from that exercise. There is a $37,000 drop this year, as you pointed out, and that is a cost-cutting measure.

MR. BALL: Okay.

If we flip the page to 1.2.03, that is under Administrative Support, bullet 06, Purchased Services. There was a revision made from last year's budget, I guess, from $67,000 to $110,000. I am wondering what the comment was for that – 1.2.03.06.

MR. MARSHALL: Is it Purchased Services you are –

MR. BALL: Yes, the budget is $67,000.

MR. MARSHALL: Are you in General Administration?

MR. BALL: Yes, General Administration, Administrative Support, 1.2.03.

MR. MARSHALL: The budget was $67,000 and the revised for 2011-2012 was $110,000. This was due to the renovation costs for the Debt Management and Pensions Administration executive offices and Taxation and Fiscal Policy. For next year, 2012-2013, it will be the same number as last year.

MR. PADDON: If I could just add a comment, if you do not mind.

MR. BALL: Sure.

MR. PADDON: Just on the renovation side, most of that was flooring. I think the last time the floors, the carpet, had been replaced was probably back in the 1990s, so it was a bit of a state. We took an opportunity this year, we had some savings in other areas, to be able to upgrade.

MR. BALL: I will not ask you the colour.

MR. PADDON: It is pretty neutral.

MR. BALL: If we could turn the page, this would be 1.3.01, Salaries. We went from a budget of $2.465 million last year to nothing and then back to $3.7 million.

MR. MARSHALL: The revised numbers reflect no expenditure in 2011-2012, as this funding provides an allowance for the settlement of salary anomalies and other adjustments throughout government, such as general salary increases, group reclassifications, and negotiated agreements. When approved through Treasury Board, this funding is then transferred to the applicable department, as required.

For 2012-2013, the Estimates provide block funding for the recently-signed Labrador Benefits Agreement. These funds are to be redistributed to departments in 2012-2013 to cover incremental increases.

Terry, would you have anything to add to that?

MR. PADDON: Maybe I will add a comment.

It is essentially a placeholder at Budget time. Then once you determine where the money needs to be allocated during the year to other departments it will be transferred out of the Department of Finance to the appropriate department and spent there. It is really just to provide some funding for specific initiatives, like the Labrador Benefits Agreement, that are going to be generally spread throughout government, particularly departments that have staff in Labrador.

MS MICHAEL: Can I just ask for further clarification?

MR. BALL: Yes, go right ahead.

CHAIR: Lorraine.

MS MICHAEL: Just for further clarification then in terms of reading here: If the money is transferred out, would it still show up as revised, transferring out?

MR. PADDON: No, the actual expenditure would be in the department that actually spent the money as opposed to the Department of Finance.

MS MICHAEL: May I understand that $2.4 million was transferred to departments?

MR. PADDON: No.

MS MICHAEL: That was my question. So last year there was no transferral of money at all?

MR. PADDON: No.

MS MICHAEL: While, Minister, you did give an explanation, it still was not clear to me. It seems strange under the categories you described there would have been absolutely no need for any money being spent in those categories.

MR. PADDON: It is a block placeholder for certain salary adjustments that might occur during the year. The first line of defence, if you want to call it that, is a department would look to their own resources and their own allocation. If they can fund it through savings, they would do that themselves. If they find they do not have sufficient savings to be able to accommodate these anomalies, then we would use the amount here to transfer it to be able to accommodate it. Unless we get a request, we would not do the transfer.

MS MICHAEL: Then the expectation for this year? It is $3.7 million this year.

MR. PADDON: As I understand, it is directly related to the recently-signed Labrador Benefits Agreement. We would expect that money, to the extent it is needed, would be transferred during the year.

MS MICHAEL: Okay, thank you.

CHAIR: Dwight.

MR. BALL: It also talks about retired public employees. Can you give me an example, maybe, that would make it a little easier for me to understand that line?

MR. PADDON: In terms of?

MR. BALL: In terms of that money, because in the definition as we talk about it here, talks about: "Appropriations provide for the payment of Government's share of employee benefits for employees in Government Departments and retired public employees."

MR. PADDON: This whole area of government personnel costs is related to the payroll burden of all the departments. It is parked in Finance but it relates to everybody.

We also continue to cost-share health benefits for employees when they retire. So the cost of that would also be reflected in this vote as well.

MR. BALL: Okay.

So, you are talking about all employees?

MR. PADDON: Yes. As part of the collective agreement that we have, we will continue to pay the government's share, 50 per cent of the health and life insurance benefits.

MR. BALL: Okay, that is a little clearer.

In bullet 02, the increase: How is that related to the salaries at all, or is there a connection between the $65 million versus the $67 million that was revised to the $71 million? It seems to me there is no connection at all here.

MR. PADDON: There is somewhat of a – I guess it would link to a number of things. One would be the rate of salary. Two would be the number of employees you have and, thirdly, it would be impacted by changes that, say the federal government would implement on Canada Pension Plan premiums, EI premiums. The other one would be the impact of premiums for our own health program, our own group insurance program. So, all those things would factor into this allocation.

MR. BALL: Okay.

I am going to move right along to Financial Administration, 2.1.04. I have a question on line item 05 Professional Services. There was nothing last year, $500,000 for this year.

MR. MARSHALL: That $500,000 is for consultants to help out with the core mandate analysis.

MR. BALL: The core mandate?

MR. PADDON: That is right. As you are aware, government is embarking on this core mandate review. All departments will be looking at their programs to determine sort of where their priorities are and efficiency, effectiveness, innovation, and those sorts of things. As part of that program, the government will hire a consultant to assist departments in that process. So that $500,000 is an allocation for that purpose.

MR. BALL: Okay.

How long is that work? Is it one year, two years?

MR. PADDON: That would be one year.

MR. BALL: The Grants and Subsidies on line item 10, $6 million last year was not spent and then to $8.7 million.

MR. MARSHALL: The increase from $6 million to $8.7 million?

MR. BALL: The budget amount was for $6 million, revised to zero, and then $8.7 million this year.

MR. MARSHALL: Okay. This is dealing with the Community Development Trust. Back in 2008, the Government of Canada set up this Community Development Trust which was to provide assistance for communities that were vulnerable, given what was happening in the world economy, and communities that were vulnerable based on their dependence on a single employer or an economic sector that was under pressure due to exchange rate fluctuations and declining demand, notably in the US. So, the federal government has set up this Community Development Trust to help vulnerable communities adjust in these circumstances that I mentioned.

The money was provided to the Province by the federal government and other provinces, as well. This amount remains ‘unadvanced' and it is held in the department. There is a committee that makes suggestions to government as to how these funds could be appropriately used.

Areas of investment include: job training funds; skill developments to identify local or regional gaps; measures to assist workers in unique circumstances facing adjustment challenges; funding to develop community transition plans in support of economic development and diversification; infrastructure initiatives that support the diversification of local economies and other economic development and diversification initiatives that are aimed at helping communities manage transition and adjustment. Such as public utility projects, industrial park development, science and technology development, access to broadband technology, downtown revitalization, and communication and transportation services.

MR. BALL: It seems that was not spent last year during the (inaudible)?

MR. MARSHALL: I am just trying to remember what it was originally. I think it was $20 million or $30 million originally; $23 million originally. It has been spent from time to time but there is $6 million remaining for further initiatives that government decides to pursue.

MR. PADDON: If I could just add a comment. The cash was received. Of the $23 million that the federal government allocated to the Province for the Community Development Trust, we received the cash three or four years ago. Now it is a question of how you essentially account for the cash.

There is still about $6.25 million that was essentially unallocated or unaccounted for. It is probably the wrong way to describe it, but it has to be spent for a specific purpose. Then we would sort of adjust the accounting to recognize the revenue in the year that the appropriate expenditure was made.

MR. BALL: If the amount of $23 million – let's say was the number that I will repeat. If that amount was received, how did it get up to $8.7 million?

MR. PADDON: The $8.7 million is more than just the Community Development Trust. Maybe, if you want, I could just go down through the specific items that are included.

MR. BALL: Yes, sure.

MR. PADDON: Let's just take the $6 million for starters – you almost need to put your accountant's hat on which I am sure you will be delighted to do. The $6 million, there are two elements to that. There is $5 million related to the Community Development Trust, and there is $1 million that is an unallocated amount that is in the Department of Finance in case an initiative is presented to government that does not fit any other department.

It is essentially an amount just in case something comes that we need a little bit of money for to be able to deal with. That was not spent; there were sufficient funds in other departments. The $5 million for the Community Development Trust was not spent that year.

Then as we move forward to 2012-2013 to look at the $8.72 million, there are three elements to that. That block fund, the $1 million I just talked about, that is there less 3 per cent. That is part of the 3 per cent reduction applied to that as well. So there is $970 million there. There was also – pardon me?

OFFICIAL: Nine hundred and seventy thousand dollars.

MR. PADDON: Yes, $970,000. I am so used to talking about millions – block funding. There was also an amount this year of $1.5 million which is essentially an innovation fund. As part of the core mandate analysis, there may be opportunities that departments present to government where they need to spend a little bit of money upfront where they might see some savings over the long haul. This is a provision to be able to accommodate that if something is presented.

The balance is $6.25 million, which is the $5 million in the Community Development Trust that was there in the Department of Finance last year carried forward to the next year. There is also an additional – just to confuse things a bit more – $1.25 million in the Community Development Trust that last year was in the Department of Fisheries and now is just parked in the Department of Finance. So, if that did not confuse you…

MR. BALL: No, that was not bad at all, actually.

CHAIR: Lorraine, do you want to ask a few questions?

MS MICHAEL: Yes, I would like to get a bit more around this one; because, in actual fact, last year we were in the same situation with regard to this piece of money, where in 2010-2011 we had $6 million sitting there for the same reason that you have identified. I am curious then about the Community Development Trust and Innovation Fund. I think, Minister, you did list off sort of initiatives that come under that, but I am curious as to why it is two years in a row now that money has not been used under the Community Development Trust and Innovation Fund.

MR. MARSHALL: There is a committee of Cabinet ministers that deal with that initiative, and I am not aware of any recommendations that have come over that time period. Obviously, given the eligibility criteria of the things that we can invest the money in, I am sure there will be lots of suggestions as to where that money could be spent.

MS MICHAEL: So the fund is totally under this committee of ministers?

MR. MARSHALL: The committee of ministers has been set up to make recommendations to government from time to time.

MS MICHAEL: I am very curious. The recommendation would come from a department, through the minister, to Cabinet to access money from that fund?

MR. MARSHALL: Yes.

MS MICHAEL: Where does one then get reports on how that fund disperses money?

MR. MARSHALL: I guess when government spends money it is in the Estimates; it is in the financial statements. This is merely a source of funding. The federal government says: Look, we are going to give you money to help in these particular areas. So, it is a source of funding (inaudible) money in the bank.

MS MICHAEL: The only way that one would see it, though, is when, in Estimates under this line item for example, you would see if money had gone out to the fund. The fund does not hold money itself. It only receives money from Finance. Is that correct? That is what I am trying to figure out.

MR. MARSHALL: We receive the money from the Government of Canada and we set it up here in this account.

MS MICHAEL: That is what I mean.

MR. MARSHALL: Then as it is spent, it is transferred. For example, some money was transferred over to Fisheries. The money would be transferred from – this is like a bank account. It is just transferred to the department that does the spending.

MS MICHAEL: That is what I am trying to get at. Then if there has been a transfer we would see it here in this line item, obviously.

MR. MARSHALL: You would see a reduction.

MR. PADDON: You would see a change in the Estimate for sure, yes.

MS MICHAEL: That is right. Then we could ask the question: What is the reason for the change? This would be the only place really where we would be able to see that.

MR. PADDON: Yes.

Next year you will be looking at that $6.25 million. You should be able to see when you look at the revised in the Estimates whether it was spent or it was not spent.

MS MICHAEL: That is right. Thank you.

I am wearing my accounting hat as you can see. I am just trying to be clear on how we are getting the report. Thank you. That is helpful.

Subhead 2.1.03.05, Professional Services, there was no money budgeted for Professional Services, but it was revised to $3,200. What was that money spent on?

MR. MARSHALL: The $3,200 was for actuary services.

MS MICHAEL: That was not a normal expense? Because it was not budgeted for.

MR. PADDON: No, typically we have not budgeted for actuarial services in the Insurance side, but there were a couple of things last year that were unique that we had to get some information on.

MS MICHAEL: Okay.

Under 02, Revenue – Provincial, what would that revenue be related to and why was it revised down? Are there departments that require payout for services?

MR. MARSHALL: From budget to revised, it reflects decreased revenue as the salary recoverable for the insurance adjustor under the annual aggregate deductible was reduced. The forecast for next year was the same. Can you add anything to that, Terry?

MR. PADDON: There is an insurance adjustor who is on staff in the Insurance Division. If that person's services were provided to another department for adjusting services, we would recover that from them. It is really just a transfer from our department to another department.

MS MICHAEL: Right, okay. I figured that is what it was; I just wanted the specifics of what it was. Thank you very much.

Subhead 2.2.04, I do not think we have asked about that. There is quite a drop in Salaries in the Tax Administration section. The budget was $4.267 million; it was revised down to $3.2 million and up to $3.7 million. There is quite a bit of change in Salaries there. Could we have an explanation?

MR. MARSHALL: Between budget and revised, there is a savings of a little over $1 million. There were three reasons for that: three positions were vacant for the entire year as they await classification, that is $220,000; administrative salaries related to the energy rebate program were unspent as the delivery model was finalized late in the fiscal year, and that was $400,000; and additional savings are the result of employee turnover, temporary vacancies and the replacement being hired at lower levels, that was $416,300. The total of that is $1,036,000.

Between Budget 2011-2012 and Estimates of 2012-2013, the change there, which is from $4,267,700 to $3.7 million – so $4.3 million to $3.7 million – that is a $551,000 decrease. There is a re-profile of funding to Professional Services for a study we are doing with respect to mining royalties and the tax arbitration case, which is $350,000. There is increased funding for the energy rebate program of $100,000, and there is the decrease as part of the 3 per cent cost cutting of $301,000. That totals $551,000.

MS MICHAEL: Can you explain the re-profiling to me?

MR. MARSHALL: The money is for professional services and it is involved with a transfer pricing study and tax arbitration. I cannot specifically mention the companies that are involved but we are studying a transfer pricing. There is a transfer pricing study and there is a tax administration case.

MS MICHAEL: I am trying to understand why all of that is resulting in $551,000 less being spent, or being budgeted.

MR. MARSHALL: The re-profiling is $350,000. The increased funding for the Energy Rebate is $100,000 and there is a decrease, the cost cutting measure, we are saving $301,000 there.

MR. PADDON: The transfer for the Professional Services is essentially linked to the budget versus revised, because we had savings, because we had positions unfilled and I guess temporary positions still unfilled, we had a need. We have a couple of tax issues that we want to get resolved to be able to sort of finalize some audit issues. We need to hire a consultant to give us some advice, one on transfer pricing which is when a company operates in multiple jurisdictions. They have an ability to shift money around to minimize their tax, I would say. We just need somebody to look at that.

Also, on another taxpayer we have an arbitration that we need to set up. So we need to hire somebody to be our representative on the arbitration panel. Because we had savings in the Salaries, rather than keep the salaries the same and put the money in for Professional Services, we just reduced the Salaries and use that to fund then the –

MS MICHAEL: To get the consultants?

MR. PADDON: Yes.

MS MICHAEL: Okay. That is clear now.

Thank you very much.

You did say something I found interesting there, Minister. You were mentioning, I do not know if the word you used was a review of, or a study of, or not of, but you mentioned mining royalties. Could you explain exactly what you meant by that, because I actually have quite an interest in the mining royalties? That is why I am wondering what it is you were specifically referring to.

MR. PADDON: It is essentially the issue I just talked about. It is the transfer pricing issue as it relates to our mining tax. It is not a review per se of the royalty regime. It is specific to a taxpayer.

MS MICHAEL: Okay and that is it.

I will leave the other issue open for another time, but I do have – not concerns, but an interest in the tax regime for the mining industry because I do note that right across this country I think the tax regime with regard to mining is quite different than tax regime with regard to oil for example, right across the country.

MR. MARSHALL: There is quite a difference in the royalties we get from the oil companies than the mining companies. Now I understand, traditionally, the trade off was increased employment that we get from the mining companies but it is something that has to be looked at.

MS MICHAEL: Yes, I think it does need to be looked at as well.

Thank you.

Under the same 2.2.04, the Supplies subhead; the budget was $306,200 and only $46,000 was spent, and then the estimates for this year are in that ballpark. What was it you thought you were going to be using the money for before it was revised down?

MR. MARSHALL: This revised figure reflects savings as a result of $250,000 that was provided to address IT systems and equipment upgrades for both government and energy suppliers; however, this $250,000 was not required.

MS MICHAEL: Okay, thank you very much.

Under 06 Purchased Services, there is also – no, what I asked was 06, wasn't it?

Under the Professional Services –

MR. MARSHALL: Purchased Services.

MS MICHAEL: The Purchased Services is 06, and that $330,600 revised down to $121,900 which is a big change also.

MR. MARSHALL: That reflects savings as a result of a $200,000 allocation provided to address the Energy Rebate Program costs; however, there were no costs incurred with respect to the Energy Rebate Program.

MS MICHAEL: Okay.

MR. PADDON: This was when we moved into the removal of the 8 per cent HST on home heating fuel and electricity.

MS MICHAEL: Right.

MR. PADDON: We were unsure at the time we put the program in what kind of costs we were going to incur to move into the administration of this. The first one, the supplies, we thought we would have an additional cost for IT and those sorts of things to get systems in place which we, in the end, did not need.

In this particular one under Purchased Services, we thought there may be a need to provide some funding to fuel delivery companies to upgrade their equipment to be able to accommodate the removal of HST, but at the end that was not needed either.

MS MICHAEL: Can I assume from that there has been a fairly easy transition with regard to this particular removal of that tax?

MR. PADDON: Yes. Most of the delivery of the rebate has been done at point of sale. For instance, Newfoundland Power and Newfoundland Hydro, you would see it right on your bill.

MS MICHAEL: That is right.

MR. PADDON: By and large, most of the fuel delivery companies are able to deliver it right on your bill as they deliver fuel. There are a couple that apply to us for a rebate and we give it, but mostly it is fairly simple.

MS MICHAEL: That is good to hear, actually. I am sure both the minister and I are happy about that one.

Subhead 05 Professional Services, we have a much larger amount under that this year. There is obviously something you are expecting to be paying for in this year.

MR. PADDON: Yes, that is the transfer we talked about. The transfer pricing study and the arbitration came out of salaries. This is where it ended up.

MS MICHAEL: Okay, great. Thank you very much.

How am I doing, Clayton?

CHAIR: You are doing okay. You have another couple of minutes yet.

MS MICHAEL: Okay, very good.

Under 2.2.05 Debt Management, 01 Salaries, there was a big drop between the budget and the revised, $180,000, I think.

MR. MARSHALL: There were savings of $188,500 due to the Manager of Capital Markets position, an Accounting Clerk II, and a government loan analyst being vacant for the entire year.

MS MICHAEL: Okay.

MR. MARSHALL: We have not borrowed for operational purposes since 2004. We did borrow in 2007, just under $1 billion to put into the pension fund. We have not been borrowing. If you do not want to work, that is the division to go to.

MS MICHAEL: Okay. Yes, I think it has been a few years since you have borrowed. There has been a total of about $1.6 billion borrowed since 2004.

MR. MARSHALL: We keep the Treasury bill program going. We do not need to, but we do it just to stay in the market in case at some point in the future we have to be back. We do not really need to do it.

MS MICHAEL: Right.

You have not done it, I know, in the last few years. I know where you have done it and I understand the need for doing it. At one point you look at it: Okay, we have so much that we have built up in the cash assets and at the same time we have borrowed. I understand the need for those two things happening.

I have a couple of questions, but I think I am going to leave them more to the end as more questions around the whole thing of the borrowing and investment. I think I will leave them until the end rather than do them here.

Subhead 2.2.06, which was the Special Assistance, the appropriations with regard to the fuel oil tank replacement; the program, I understand, is now over. Are we satisfied that it was successful? Do you feel confident about the oil tanks that have been replaced? Do we have all of the replacements? Do we have any idea of the status of the oil tank issue?

MR. MARSHALL: That particular program is a program in Environment. I think we just –

MS MICHAEL: You just gave them the money.

MR. MARSHALL: We just deliver the cheques.

MS MICHAEL: Okay, I will leave that.

MR. MARSHALL: I think the policy would refer to the Minister of Environment.

MS MICHAEL: I suspect Mr. Murphy may have asked about that already in Estimates I am realizing now. Okay, thank you.

Moving on, 2.3.01, Economics, line 06, Purchased Services, there is going to be a big jump there in the Estimates for this year as compared to the budget for last year.

MR. PADDON: The Economics group or a portion of that group right now is housed at the Motor Registration Division building in Mount Pearl. That space is required now for Service Newfoundland and Labrador. That group now will be moving into vacated space on Pippy Place and we will have to start paying rent.

MS MICHAEL: Right.

MR. PADDON: This is an allocation for the rent at that space.

MS MICHAEL: I assume then that is why you have a line item – you have $165,000 for property, furnishings, et cetera. That is probably related to the move.

MR. PADDON: It is a one-time item just to fit the place out.

MS MICHAEL: Okay, thank you very much.

Again, this is more of – it is not a curiosity, but an interest in what the provincial revenue would be under this head?

MR. PADDON: Essentially, the Economics Division provides services to other departments if they need some research done on a particular project. Just to give you an example, the Department of Government Services a number of years ago came and sort of wanted some work done about where they were located and where the population base was that those offices were servicing. They could go then and on a rational basis look at making some changes to better service the population.

When we do work for other departments, we would bill that department. In some circumstances, if you do not have the expertise in-house you might have to do a bit of a contractual arrangement to get somebody in for the specific project. That is what that is related to.

MS MICHAEL: Thank you very much.

CHAIR: Lorraine, I do not know if Dwight has a few questions. Then we will get back to you, I am sure.

MS MICHAEL: Great. Thank you.

MR. BALL: We will keep with subhead 2.3.02, with the Statistics Branch. I have just a few questions there. There is obviously an increase in Salaries there. Could you just explain the $100,000?

MR. PADDON: It is a similar answer to the last question, actually. When we do our budget, we anticipate there may be a number of special projects we will undertake during the year for either internal departments or we may do some work for external parties to government. It is an estimate at the beginning of the year as to how much we would need in additional salaries to undertake special work. At the end of the day, it is an unknown at Budget time. The revised reflects the fact there were less special projects than we had anticipated at Budget time. No more than that.

MR. BALL: Professional Services, line item 05; we budgeted $213,800 last year, revised down to $63,000, and then back to $106,000.

MR. PADDON: This would be essentially related to the same thing as the last answer on Salaries. In all these budget items there would be what you might call your base operations and then additional money there for special projects. In Professional Services, there is probably an amount somewhere around $65,000 that was there at Budget time for special projects. All of it was not needed.

You do not really know. It depends on the specific projects as to whether you are going to have to go out and, say, buy specialized data, for argument's sake, to be able to do the project. Until you get the actual project, you do not really know.

MR. BALL: Just moving down the same page there, 2.4.01, Office of the Comptroller General, we have Purchased Services budgeted for $425,000, budgeted last year for $297,000, and revised to $333,000.

MR. MARSHALL: Dwight, what section is that again?

MR. BALL: That would be under section 2.4.01.

MR. MARSHALL: That is the Comptroller General. Which sub-branch?

MR. BALL: Subhead 06, Purchased Services.

MR. MARSHALL: Purchased Services, 06?

MR. BALL: Yes.

MR. MARSHALL: Okay.

MR. PADDON: I guess, the note here, this is essentially costs of banking fees, purchasing cheque stock, those sorts of things, for paying suppliers. There was a general increase in the banking fees and there was an increase in, I guess, the cost of the cheques. It is essentially reflected here. There is nothing really jumping out here as unusual, other than just general cost increases in those items.

MR. BALL: You would think the cheques would be in Supplies, wouldn't you?

MR. PADDON: Pardon me?

MR. BALL: You would think the cheques would be in Supplies.

MR. PADDON: No, because we have a contract to buy those cheques from an outside supplier and, for whatever reason, they are in Purchased Services.

MR. BALL: Okay. I am sure it is not a big line item.

That is it for me in this aspect of it now. I have some questions in terms of debt management and things like that. Lorraine, I do not know if you had anything on the Estimates piece that we have missed or that you would like to cover off before we move on to some of the other questions.

CHAIR: Lorraine.

MS MICHAEL: Just under 2.4.02, Corporate Services, line 05, Professional Services, you had budgeted $13,000, it was revised down to $100, and this year it is $8,000. I guess Professional Services are always a moving target. Why did you do up to $13,000 and this year you have $8,000? What is your expectation?

MR. PADDON: I guess it was essentially a placeholder if we had needed to hire some consultants during the year. There was no requirement. The reduction from $13,000 to $8,000 was just a reflection of the 3 per cent exercise to reduce cost.

MS MICHAEL: What would be the nature of Purchased Services? That is under 06. What would be the nature of the services that are purchased under Corporate Services?

MR. PADDON: The lion's share, probably 90-odd per cent of that is rent.

MS MICHAEL: Rent?

MR. PADDON: Yes.

MS MICHAEL: Okay.

MR. PADDON: They are located out on Topsail Road, so it is rental space.

MS MICHAEL: Okay, very good.

They are all of my line item questions, Dwight, so if you want to go back to some of your questions and then I have some as well.

CHAIR: Okay, back to Dwight.

MR. BALL: Thanks, Mr. Chair.

I have some questions in terms of some of our debt. I think I understand the philosophy behind the sinking fund. Just if I could, why is it some of the debt that we carry as a Province requires a sinking fund and it is not required for some others?

MR. PADDON: It is really just a question of, at the particular time the debt was issued, what the market acceptability was, what the tone of the market was. Sometimes, you may get a somewhat better rate in the market if you commit to have a sinking fund attached to it.

Normally the way our debenture debt works is you pay the interest over whatever the length of the time is, say it is a twenty-year issue, you pay interest every year or twice a year. At the end, you pay whatever the amount of the debenture is, it is paid all at once. The sinking fund is really you are putting money away every year. It is essentially a principle repayment every year.

Because you have that money tucked away for repayment, then you probably get a somewhat better rate in the market when you go there. Sometimes, the tone of the market may be that there is no advantage from a rate perspective by having a sinking fund so we would not do it. I think most of our issues do have sinkers attached to them.

MR. BALL: When you service debt, are you saying that you just pay the interest twice a year and no principle?

MR. PADDON: The payment into the sinking fund which is also paid annually or semi-annually is essentially a principle repayment. It is not paid to the bondholders per se, it is put in a special fund.

MR. BALL: We have a reserve fund for that.

MR. PADDON: Right, yes, but it is actually cash put aside in a sinking fund. That money is available when the bond comes due to repay the debt. It would not be dollar for dollar; you might have 80 per cent available when the debt comes due twenty or thirty years down the road.

MR. BALL: That sinking fund then, is that an investment of a specific type that you are allowed to invest in?

MR. PADDON: There are specific restrictions on what you can invest in. Essentially, we invest in government bonds, other governments, the Government of Canada. We might actually if our own bonds become available on the open market, we would buy those back. You are repaying your debt to an extent because you have gone out and bought your own bonds.

MR. BALL: In that case, a sinking fund – what kind of interest rate would that attract?

MR. PADDON: The sinking fund itself, it really depends on what instruments you are going out and buying. Just to give you an example, if one of our bonds became available on the open market and let's just say it was a bond that had a 10 per cent interest rate attached to it, if we were going to go out and buy those on the open market, we would have to pay a bit of a premium because somebody is giving up a bond that they are getting 10 per cent on.

It is difficult to say, theoretically. Just in simple terms if you went out and bought our bond that had a 10 per cent coupon rate, we would really be earning 10 per cent on that, except that you had to pay a premium at the beginning. That really takes the value of that back to today's market environment, so that the amount of premium you would have to pay would really get us back to an equivalent amount in today's market, which if you were borrowing money at, for twenty years today, you could probably get it between 3.5 per cent and 4 per cent, somewhere in that range.

The cost of that bond, essentially, at the end of the day, is going to reflect the current market environment; it is just sort of the (inaudible) –

MR. BALL: We have other options besides bonds.

MR. PADDON: Well, when you look at the sinking fund, the sinking fund would have a range of investments. The lion's share would be bonds, but there would be short-term liquid investments, certificates of deposit, just cash on deposit, and those sorts of things.

We do not invest in equities, for argument's sake. It is all relatively secured and higher rated debt instruments.

MR. BALL: If I could take a specific-type question here. In the Appendix IV, in this one right here, this book –

MR. PADDON: In the Estimates?

MR. BALL: Yes.

For instance, we have one instrument here that says – I am assuming that was taken out in 1989. I see a 2014 number next to it. Is that the maturity date?

MR. PADDON: Yes. We issued it in 1989 and it will mature in 2014. It was essentially a twenty-five year issue. We borrowed $150 million at that point in time when the interest rate was ten and one-eighth per cent.

We contributed 1.5 per cent every year into a sinking fund, so 1.5 per cent of the $150 million goes into the sinking fund every year. You can see the amount of the annual interest, the $15.187 million, and the amount of the sinking fund contribution is $2.2 million.

MR. BALL: So that will be paid off in 2014?

MR. PADDON: In 2014 that issue would have to be repaid. So, you will have a certain amount available in the sinking fund to repay that. It likely will not be sufficient to completely repay it, so the balance then would either be paid out of any cash we may have in the Consolidated Revenue Fund or if we did not have cash, typically what we have done in the past is gone out and borrowed, too,

MR. BALL: Yes, that is a great answer. That is exactly where I am going.

If we fast-forward the clock to 2014, we never refinance that under the current conditions. We normally just pay those out?

MR. MARSHALL: I believe historically governments would simply refinance and roll their debt over. Fortunately, since 2004 we pay out a cash flow. We have not had to refinance.

MR. BALL: That is where I am going. I see simply three opportunities here between now and 2014. I am just wondering if there is a policy of government right now given the liquidity we have. Are we actually paying off those funds when they become available?

MR. PADDON: Yes.

MR. BALL: That will continue?

MR. PADDON: It will continue to the extent that we have sufficient liquidity – cash – on hand to be able to do it.

MR. BALL: If you do not mind, that is an area I would like to go because I am trying to get my head around all the number of infrastructure commitments we have made. I am looking at, Minister, obviously the commitment we have made to Muskrat and want to make. I am looking at all of this and we are, in terms of cash flow right now, in a very positive position. I cannot see, given what we have facing us in terms of the deficits and the amount of infrastructure requirements and commitments we have made, how we are not going to be borrowing in the next three years.

MR. MARSHALL: I said we have not borrowed for operational purposes. That means we are living within our means. In certain projects, obviously it would make sense to borrow and to take on debt, especially in situations where your debt is cheaper than your equity.

We would expect for certain projects, especially projects where we may get a guarantee from the Government of Canada, obviously to borrow for those projects where the project is an investment and where the project generates revenue which is used to pay the operating costs of that investment and then pays down your debt, and hopefully will provide a dividend back to the government which government can use for health, education, and things that are important to government.

MR. BALL: Just so I can be clear about this, we have asked the questions about where the equity is going to come for Muskrat Falls. We have been told we have $2 billion sitting in the bank that would be the equity position for it.

MR. MARSHALL: No, we have not said that. When it is time to make the equity contribution, we could do it from cash or we could borrow it. We could do it partly from cash and partly borrow it. We will make that decision at the time. We will obviously do what is in the best interest of the Province.

MR. BALL: In actual fact, we could actually borrow from Muskrat – Nalcor borrow from Muskrat.

MR. MARSHALL: Well, Nalcor's borrowing from Muskrat will be guaranteed with the Government of Canada. We will have to make our equity contribution. As I said, that could be borrowing, it could be cash, or it could be a combination of the two.

MR. BALL: Yes.

One of the things – and I mentioned this yesterday – is that we have been trying to get a handle on where our partner Nalcor is in all of this. When I look at the commitments that they have to make to, which is really us, I do not know if the numbers are accurate or not. We have been asking and it is difficult to get the numbers, but my estimation is it is in excess of $1 billion that you are going to be requiring within the next six, seven years because of our share in, obviously, offshore developments.

In that case, when Nalcor borrows we support that too. I know the Government of Canada will support that from Muskrat Falls, but what happens for the other projects? Is this something that we back stock as well? I imagine it is.

MR. PADDON: We guarantee the debt of Newfoundland and Labrador Hydro at this point in time. We always have. So any borrowings that they would make for their own capital program have always, traditionally, been guaranteed by the Province.

MR. BALL: The debt retirement, we have heard of trying to get the debt within the ten-year national average. We have obviously heard a lot of discussion about that plan.

MR. MARSHALL: Net debt.

MR. BALL: Net debt. What is the national average right now?

MR. MARSHALL: Just under $14,000 per person.

MR. BALL: Fourteen thousand. We have not really significantly made much improvement on ours for about three years.

MR. MARSHALL: I did have to read your speech from Hansard. I do not think your numbers are up to date.

MR. BALL: It is from your book, $17,000.

MR. MARSHALL: Our net debt per person is $15,210 if you include 2011-2012. The average across the country is just under $14,000. There are two provinces, not one, that have a higher per capita debt than us. You mentioned one.

MR. BALL: Quebec.

MR. MARSHALL: Quebec and Ontario, both, they have a net debt per capita higher than ours.

MR. BALL: Okay. I thought I took that from the indicators actually, or maybe it was from the AG – no, it was from the AG's report. That came from the AG's report 2011.

MR. MARSHALL: He is always one year behind, right.

MR. BALL: Yes, I know.

MR. MARSHALL: Yes.

MR. BALL: So we have to be one year behind too because we would not have had it.

MR. MARSHALL: I can ream it off for you, if you like.

MR. BALL: Yes. No, listen –

MR. MARSHALL: I can tell you each province in Atlantic Canada.

MR. BALL: Yes, no problem. My numbers came from the AG's report. I might have said that as I was saying it, I am not sure.

The question then becomes, we have this ten-year plan to get from where we are to the national average of somewhere around $14,000. What is the plan? How do we do that?

MR. MARSHALL: Well –

MR. BALL: We have to pay down debt; there is no question about that.

MR. MARSHALL: No, I just lost my train of thought. We are going to have a deficit this year for the first – we have had six surpluses out of the last seven years. This year we are going to have a deficit. It is not a structural deficit in the sense that Ottawa is. Ottawa has been running a deficit every year for example. So they have to cut spending in order to get to a surplus, and they are doing that over time.

We have a situation. We have two of the FPSO vessels going offline for maintenance. One to Ireland, one to Marystown, but they will be back. We are going to have two of our three producing oil fields are going to be shut down, one for 147 days and one for 125 days. We are just not going to have the production this year. That does not mean we are never going to get it just because we do not take it out this year. We will get it in the future.

Last year we had a surplus of $776 million, this year we are looking at a deficit. So should we, I use the words slash and burn? Do we do that to get a surplus this year and then we are back in surplus in two years? One year because you have a surplus, do you ratchet up spending? Then in another year you have a deficit, do you cut spending?

I think you have to take a longer term approach, and that is what we are doing. We know that in the medium term, even though our oil production is declining, because our fields are in decline right now, but our revenues are going to be higher because we negotiated high royalty rates.

MR. BALL: And the price of oil.

MR. MARSHALL: The price of oil is high but that remains high, and some of the fields are going to hit payouts in 2013 and 2014.

Conceptually, we know that in the long term – and, of course, we are all dead in the long term as somebody once said, but in the long term we know the oil is going to be gone. So we have to make sure that our spending is sustainable to match our revenues over the long term.

I should also say absent new discoveries. We have not had a major discovery in a long time but we know there are two significant discovery licences out there, one at Mizzen and one at Ballicatters. I am always optimistic that on the West Coast something is going to happen so that we can get an onshore oil industry. That would be wonderful.

In the meantime, we know where we are heading, unless we have new discoveries. We have to make sure we start being measured in our program spending so that we can have surpluses which we can use to pay down debt. We have planned for this year to get our program spending down below the rate of inflation, and that is where Finance Ministers like to be. They feel our spending should be matched with our growth in CPI and growth in population, or population growth. It has turned the corner. We are starting to see growth again after many years of outmigration. It is still relatively modest.

That is number one – program spending – and number two would be our infrastructure. We expect to continue to invest in infrastructure. It is a foundation for economic growth. We need facilities. We need hospitals and we certainly need long-term care facilities because of the aging population. We will continue to do that, but at a rate or measure so we can have surpluses and use the surpluses to fund our infrastructure so we do not go into debt. We also use part of the surplus to continue to pay down our debt. We have a target, so we are not reacting every year. We will have a long-term target.

We went through an exercise this year because we knew our revenues were going to be down. We did what a business would do and what a family would do: Where can we avoid some duplication? Where can we find some efficiencies? Where can we find savings? We have decided to do this core mandate analysis to ensure we are investing in what our priorities are.

It is great to bring in new programs when you have the revenue, but sometimes, old programs, maybe it is time they should be refocused or re-profiled into things that are more important for the people of the Province right now. We are going to look at efficiencies. We have what is called an Innovation Fund. Maybe there are ways we can provide services to the people that are more efficient and that are in a better way. That is the plan.

CHAIR: Thanks, Dwight.

Lorraine, do you want to pick up for a minute?

MS MICHAEL: Yes, thanks.

I would like to just pursue a couple of more points around the whole investment issue, and then I would like to ask another question on top of that. I just want to get it straight, Minister. It seems to me – and you know I have been curious with regard to the build up of our cash and short-term assets, and that is not negative. I think one needs to do that. When one looks at what happens right across the country, we are only starting to catch up with what other provinces have had to do. There have been times when our cash assets were down to about $200,000 back when. I can see the purposes for obviously increasing cash and short-term assets.

I also note that in a lot of the other provinces the cash assets, pockets of them, are earmarked for something that is in the future with regard to different agencies that are part of government, for example, and are very specific about $50 million here, et cetera. One knows why the money is there and what it is eventually going to be used for, and in some cases it is being invested to increase the money while they are waiting to use it.

I guess, based on what you have said here this morning, and you said it before today – and I think it is good that you are being very clear about it – that the cash assets that we are building up, one part of that could be leaving your option open with regard to whether or not you want to use cash when it comes to the equity contribution to Muskrat Falls, if Muskrat Falls were to happen.

I have two questions around that: What is your sense of the timing around that decision; what are you hoping for? Is the timing long enough that could not more of this money be invested? Right now, my understanding is from the report in the Consolidated Revenue Fund for 2011, the public accounts reporting, that only about one-quarter of the cash in short-term assets is actually invested in a short-term that comes due, I think, next year, at just slightly over 1 per cent interest.

I have multiple things in there, but this is not Question Period so I think I can put all of those multiple things in for us to have the discussion around that. So, if I could just have your reaction to some of the things that I have just said?

MR. MARSHALL: We have made commitments and we would like to make more commitments in the future, so we have to make sure that we have the resources to meet the commitments that we have already made. We committed to some major projects.

Muskrat is an investment. You know why we are doing it: to meet the energy demands of the future. Also, we feel very strongly that we have to get off Holyrood. We have to stop producing electricity by using oil – 18,000 barrels a day at peak capacity.

So that is a project where there will be borrowing. There will be times in the future where we are going to be borrowing again. I have no problems with borrowing for investments, or borrowing for projects, like a hospital, that is going to last for many years. We have so much cash, we generate cash each year, but at some point, with the projects, we will expend that cash, and of course the means borrowing. So, there will be some of one and some of the other.

I think your question relates to what we are doing with the cash we have on hand. Terry and I had that discussion yesterday and I am going to let him –

MR. PADDON: I guess you are really trying to balance a couple of things: One, every year you have an expectation of what your cash requirements are going to be. While you look at the public accounts at a point in time, it will give you what your cash balance is at March 31, 2011. We know the public accounts that it was $2.2 billion and then it is divvied up between cash and short-term investments.

Typically what happens on April 1, there is a fairly significant call for cash because a lot of grants go out to the health boards and those sorts of things. Really, fairly quickly after the end of the year you would have a reduction in your cash balances. Then that will fluctuate during the year and sometimes you have needs for certain things at certain periods of time, and then the next thing you know you will get an influx in revenues if royalties are up.

We try to ensure we have sufficient liquidity on hand to be able to meet the day-to-day ongoing requirements. That would sort of reflect why some of the amounts of our cash were just in cash balances and some are in short to medium-term investments.

The other thing is that if you looked at the interest rate back a year ago that we were getting on our cash on deposit and our short-term say – normally you would call say certificates of deposit, that sort of thing, there was not a whole lot of difference. You were really indifferent as to which vehicle you used. That has changed a little bit during the year. Now there might be a greater propensity to move into the short-term deposits versus the cash in the bank. Those are the types of things that we would look at.

When we budget at a particular point in time we look forward. There is an expectation that you would require cash, for argument's sake, for Muskrat Falls. The timing changes during the year, that will adjust. From our perspective, from a cash management perspective, you have to assume that if the expectation was that you were going to need it at some point then, that you have to have the cash available.

We are sort of trying to balance what we think are the needs versus sort of a prudent or a practical approach to make sure we squeeze out a little bit of extra return here or there. You make a call and whether it is optimized or not – hindsight is a wonderful thing but difficult looking forward.

MS MICHAEL: Right. That is really helpful actually, your explanation. I have to be honest, I had not really thought about the cash assets being there in terms of part of the regular operations as well. It is really helpful to have that explanation. It really does help.

I have noted in looking at other places, on one level while they do have a lot earmarked – if you are talking about Ontario with about $35 million in cash assets. While a lot is earmarked, you still have some that are not. I guess it is for exactly the same reason that you have just described.

MR. PADDON: We would always, as a matter of course, keep $200 million or $300 million. Even in kind of our worse days, at least keep $200 million or $300 million in cash because you know you need to do that. We also have an overdraft or sort of, call it a line of credit that we can dip into but that is an expensive proposition. So if we do not have to, we do not want to.

MS MICHAEL: Right.

MR. PADDON: You are always looking forward. We will have departments tell us on a daily to weekly basis what their needs are going to be. So we will always manage our cash flows accordingly.

MS MICHAEL: Right. That is really helpful.

Thank you.

MR. PADDON: I will just make the point too, you talked about Ontario. They would have sort of a special purpose vehicle, say their infrastructure corporation.

MS MICHAEL: That is right.

MR. PADDON: They would probably earmark some cash for that. We deal with our infrastructures through the Consolidated Revenue Fund. It is essentially the same principle except you do not have an arm's-length – I would not call it an arm's-length agency, but a separate agency.

MS MICHAEL: That is right, and they have a number of those separate agencies. I think Nova Scotia does as well, actually.

MR. PADDON: That is right, yes.

MS MICHAEL: My other question then, because I think between Dwight and myself all of my questions around the investment stuff – there has been a good discussion here. I am really appreciative of the discussion that has gone on here this morning.

With regard to the pensions, and the minister and I have had one-on-one discussions around this one, but I would like to have more of a public discussion. We know the unfunded pension liability is growing. Even though government has said one-third of every surplus is going to go towards it, this year, for example, one-third of the surplus was basically only one-third of what the increase in the unfunded liability was which is about $700 million in the past year. If we keep going at that rate, the unfunded liability is going to be completely out of control.

I am just wondering what the thinking is that is going on with regard to a plan, with regard to the unfunded pension liability?

MR. MARSHALL: The pensions are a very complex issue, and there is a lot of misinformation out there in the public. It is very difficult when you are giving a short-term answer to deal with the whole gamut of pension issues.

I know, Lorraine, your question was related to our own public service pension and the fact that the unfunded pension liability has been growing. It is now more than 50 per cent of debt. It is now bigger than our borrowings, our direct debt. We have two types of debt. One type, which is called direct debt by the Comptroller General, borrowings, is debt that most people think of as debt. As you go out and borrow it, you sign a note or you sign a bond and you promise to pay it back. On a certain day it is due and you have to make the payment.

The other debt is our unfunded pension liability. It is not only the pension, but we also have what are called post-retirement benefits other than pension, which is insurance and health that we provide to our employees and to our retirees. That, as well, is now up to $2.3 billion in unfunded liability. The unfunded liabilities, our retirement liabilities are growing right across the country. The liability is growing for two reasons.

In a defined benefit pension plan, there is a formula that says what the pension is going to be. In other words, somebody says: This is what you are going to get. It is usually based on the accrual rate and the years you have worked for your employer. It is usually based on your best five years and your salary, but saying it is one thing. Where does the money come to pay it?

Under our plans, we have an actuary that comes in every three years and tells us what the liability is and what the premium should be. We pay half. The government pays half, the taxpayer pays half, and the employees pay half. The problem is the actuaries have to predict the future, and I have said many times in this House predicting the future is not easy and we cannot do it.

Every three years the actuary has to come back and do another actuarial analysis. What we are finding is that some of the assumptions have not been right. People are retiring earlier and they are living longer. Also, his estimates about what the returns are going to be – because that cash sits in a pension plan and it is invested. Sometimes the investments are not what the actuary thought they were going to be. Those two things, maybe higher accrued benefits and less earnings are driving unfunded pension liabilities right across in everybody's pension plan, whether it is private sector or whether it is in the public sector. So, it is a real issue.

Now, in England they had a report. It was done by former Labour Minister of Pensions, Lord Hutton. He has come out with a report. Ontario has had a report, Nova Scotia has had a report, but New Brunswick is doing a very, very thorough report. They are looking at the governance of all their pension plans which under our Pension Benefits Act is under the Minister of Service Newfoundland and Labrador. Finance looks after our own pension plans.

We have been looking at this, I have certainly been looking at it because I am seeing it is going up and it has to be addressed. I am awaiting the New Brunswick report, which I was told was going to be in June. Now, I did not get that from the New Brunswick government. One of the members of our lending group was down here and he mentioned to me that the New Brunswick report should be out in June. So we are going to look at that report and that will help us determine what we might do in the future.

It is a big issue in the private sector because the employer has to come up with the money. If the targets are not hit, if the actuary's numbers are wrong and there is not enough money put in the fund, well then the employer has to come up with that money, and in substantial amounts, as you can see each year. That is money that is not available.

Now remember, the employer has already made the regular contributions. These are extra special contributions that have to be made. Of course the employer, if you are in the private sector, and if one employer has a Defined Benefit Pension Plan and his competitor does not, well one employer is going to be putting money into the pension plan but his competitor might be putting money into marketing and into making his business more efficient.

What we are seeing in the private sector – and these Defined Benefit Pension Plans, these are wonderful plans and provide decent retirements to people. We are seeing in the private sector that they are getting away from these Defined Benefit Pension Plans and they are going to Defined Contribution plans, which are not nearly as generous.

It looks like the only employers that are continuing with Defined Benefit Pension Plan are in the public sector. The issue is the money. These extra payments that government is putting in the pension plan, is money that governments will not have to invest in health and education and other things. Of course, it is not the government making the payment; it is the taxpayer making the payment.

Some people put up the argument and say: Well look, here the government has to top up these Defined Benefit Pension Plans for its employees. The government takes the money from taxpayers, and most of these taxpayers do not have the Defined Benefit Pension Plan. They have an RRSP or a Defined Contribution Pension Plan. If the market is down, or the interest rates are low and they do not do well in their own plan, the argument is that government then taxes them in order to guarantee a Defined Benefit Pension Plan for its own employees. So, there is some negativity on that side.

There have been calls for governments to go from a Defined Benefit Plan to a new Defined Contribution Plan for new hires. I suggest that there could be a better way. The better way – there are hybrid plans that Quebec and some countries have come up with. I think there are a number of options that we can look at. I am looking forward to the New Brunswick report that will help us see how we may want to go forward.

MS MICHAEL: I do not think we should get into a full discussion obviously of this whole issue today but there is a lot of discussion to be had. I would like to think that as we go down the road, and whether it is a New Brunswick report or other reports that we need to look at, I think we do need all parties involved in this discussion. By all parties I mean all political parties and all parties in the broader sense as well.

There would be a lot of differences of opinion on the way to proceed with the issues that we are talking about. For everything that gets said to you from one side, there is something else that is going to get said to you from another side and we will not get into that here today.

MR. MARSHALL: It is obviously important that it become part of the public discourse.

MS MICHAEL: Yes.

MR. MARSHALL: It is very complicated, it is complex. It is important that there is an education piece that has to take place. I think we have to have a public debate that this issue has to become part of the public discourse so that all sides can give their views.

MS MICHAEL: Absolutely. Well, I hope we would all agree that the bottom line has to be that we put people first and make sure that it is the interests of people that we are going to put first in making decisions and finding a way to make that happen. I think we have to find a way in which also to make sure that in the public discourse that the voice of everybody in the House of Assembly is heard too.

Maybe it is through our Public Accounts Committee that this could happen, because I think that would be the place where this kind of discussion can happen in public accounts. I am really delighted to see that we now have what is going to be I think a fully operating Public Accounts Committee again, that public accounts is able to hold public meetings and have public discourse. I think that could be the body through which we could push forward this kind of discussion. So I put that out today.

CHAIR: Lorraine, are you almost clued up? If not, we can –

MS MICHAEL: I am, actually.

CHAIR: Oh, are you? Because we can finish and go back to Dwight, or –

MS MICHAEL: No, I am quite content to leave it at that.

CHAIR: Okay. All right, perfect.

We will go back to Dwight.

MR. BALL: Thanks, Clayton.

I want to go back to where we were with the personal debt again. The average of $14,000, which seems to be the target right now or if it was in today's dollars at least. In light of the fact that the next two years we will run deficits and marginal surplus in year three, I am just wondering what the impact is.

How much does it take in a surplus to, say, reduce the personal average debt by $1,000? Do you have that number?

MR. MARSHALL: I do not; maybe Terry can come up with it. I know that target will be a moving target.

MR. BALL: Sure. Well, obviously the other provinces are going to be moving, too.

MR. MARSHALL: Yes, and many of the other provinces have not been doing as well as we have lately.

MR. BALL: That is true, yes.

MR. MARSHALL: The target is moving, so the plan will have to be recalibrated from time to time. In terms of how much we would get our net debt per capita down, Terry, maybe you could?

MR. BALL: We could almost look back to last year, I guess, and see if you went from $17,000 you say, to $14,000.

MR. MARSHALL: No, the average for the country is $14,000. In Newfoundland and Labrador it is $15,210. That was the last number I saw.

MR. BALL: Okay. So we dropped it from around $17,000 to $15,000, and we have a surplus of what?

MR. PADDON: It is about seven hundred and fifty-five.

MR. BALL: That is right. So maybe I can do that calculation myself.

MR. PADDON: That would be a rough – the other component that is also factored into that is the amount of infrastructure spending you do, which is a little bit independent of your surplus deficit. It is factored into your net debt calculation. As you move forward, even though you might be running a deficit, if you are reducing your infrastructure spending at the same time, that would have a beneficial impact on the net debt impact.

MR. BALL: Okay. So let's be clear: What is the target? Is the target the per capita debt?

MR. PADDON: The net debt per capita, yes.

MR. BALL: Okay, alright.

MR. MARSHALL: Dwight, we have looked at a number of targets, and Terry can take you through them. We looked at a number of them. This is one that was selected, but there are other targets you could use as well. The idea is to plan to get to a certain point.

MR. BALL: Well, I would agree. I would support this one because I think it puts the individuals of the Province – it makes it real to them. I do not know what the other options were considered, but I think this would be one that I could certainly support.

MR. PADDON: What our objective was, our thought process was to try to find some point in time in the future that you had a goal you were obviously shooting for. We looked at certain things like debt to GDP. One of the problems with that, certainly the GDP number is fairly volatile. Now all of a sudden you have a surplus deficit number that is volatile because it is linked to the oil industry. You have a GDP number that is volatile, a huge amount of volatility in ups and downs. You could have looked at things like a balanced budget, but then you still have this issue of sort of feast or famine almost.

MR. BALL: That is right.

MR. PADDON: As the minister would say, are you going to slash and burn in one year and then sort of ramp up the spending.

To us, the net debt per capita, as you suggested, focused on the individual and it was a reasonably stable indicator that you could look to over time. I think the minister alluded to it, too. You have a number of factors going on. The population is growing, so that will be beneficial but it is not growing that much. Our population growth, I do not think, is going to be sufficient to achieve our target, let's put it that way.

Other provinces are running deficits. The national number is coming up, but obviously that does not make sense to rely on that side of it to achieve your target. I do not think that would do it anyway.

So, at the end of the day we have to run surpluses, and probably moderate the rate of investment in infrastructure from where we are today but still have a reasonable infrastructure program every year.

MR. BALL: Yes, I do not think the $1,000 child allowance at birth is going to make it significant enough to take the average net debt.

One question; I would like to go back to, and we have had significant discussion I guess, not a lot of specifics around it. I know, Minister, you were at the meeting in – I guess it was Victoria, BC about the 2000 Accord and when that expires. Then, we move into 2016-2017.

Do you have any idea what the implication of that reduction of 3 per cent and how we get to the – what do they call it, a nominal GDP of 3 per cent? Any idea what impact that will have based on what we know in today's dollars?

MR. MARSHALL: I know it was every other 6 per cent increase. I think that is going to continue for a certain period of time.

MR. BALL: Two years.

MR. MARSHALL: Two or three years?

MR. BALL: Two years.

MR. MARSHALL: It is two years beyond what it already was.

MR. BALL: Fourteen, yes.

MR. MARSHALL: Then they indicated they were going to reduce the level of spending to a nominal GDP, which is real GDP plus inflation.

MR. BALL: Yes.

MR. MARSHALL: I think if they had done that in past it would be around 4 per cent. It would be a 4 per cent increase every year. Obviously, given the fact that we think our health care, the demands on health care are going the other way as our population ages and more people have to access the health care system, it will have an impact. In terms of your specific question –

MR. PADDON: I think just as kind of a round number or a rough order of magnitude, if you were going to reduce the escalator by 2 per cent, it could have an impact of reducing the growth by maybe $5 million to $10 million annually, that kind of a range. You still have growth, but you will not have the growth to the same extent that you thought you would – unless I got my decimal point wrong.

MR. BALL: Okay.

One of the things I just want to go back to, and this is really shifting gears, is the Home Heating Rebate. I do not know where we are with that now. We have had obviously from the MHA offices, not from the critics who are all here now, but from the offices there seems to be a fair amount of delays and late processing and stuff like that. Where is that now? Are we current now or are the processing delays behind us?

MR. PADDON: Typically what happens is you get a fair amount of influx of applications after the program is announced, say, in the late fall, early winter. We typically try to commit to getting cheques out in a certain period of time and the time frame escapes me right now, I just cannot remember. At this point – pardon me?

OFFICIAL: Ten weeks.

MR. PADDON: Ten weeks. At this point in time in early May, May 1, we would probably be pretty well up-to-date. I would be surprised if there was any real backlog. I would say we are probably through the bulk of them right now.

OFFICAL: (Inaudible).

MR. PADDON: Yes, that usually is a good litmus test.

MR. MARSHALL: The office is in Grand Falls-Windsor. When I visited the office, the official opening, the surprise I had were the letters that were there. They were in box after box after box of all these requests came in right away, and then they have to get through them all. How difficult it would be is that when you want to check one, do you have a request in from so-and-so and then they have to find it if it is not opened.

It would be worth your while to go in and take a look at it. They are a great crew there, and really pleased that the office was moved to Grand Falls-Windsor. I think there were twenty-three, twenty-five jobs there. They have a very positive attitude and a great group.

MR. BALL: It is always nice to write a cheque.

MR. MARSHALL: It is.

MR. BALL: Do you have any idea how many applications we had this year?

MR. PADDON: No, it would only be idle speculation.

MR. BALL: Yes, no problem.

MR. MARSHALL: I can certainly get you that.

MR. BALL: Yes, that would be nice.

MR. MARSHALL: I get a report from time to time. I have not had one recently, but I would be happy to get that and provide you with that information.

MR. BALL: That is pretty much it for me.

MS MICHAEL: I just have one more.

CHAIR: Lorraine.

MS MICHAEL: Thank you.

Just one more item, Minister, different from the others, and I have not talked about this since this time last year. It is the VLTs. Of course, last year we had a five-year plan that came to an end. You did report at that time there had been a 25 per cent reduction in the machines, down to 679, which I think was better than what had been earmarked.

Is it all just status quo now? You had hoped to maybe put together another strategy to continue looking at the issue. Have you been doing that? Where are things with your plans?

MR. MARSHALL: Your timing is perfect. I had a discussion on this yesterday along the same lines.

We are doing a new five-year strategy. It is being done in-house to date. We could go outside to have it done and we could make it broader, a full gambling strategy as opposed to just VLTs. We are committed to doing the VLT strategy.

I see so many numbers and I may be wrong here, but I think this past year there was $78 million increase in revenue of which $8 million was from the VLTs and $70 million was from the traditional games. We are doing the strategy. The officials are doing it. I cannot give you a timeline when it will be ready, but at some point it will be.

MS MICHAEL: You are working on it, so that is good.

MR. MARSHALL: The officials are working on it.

MS MICHAEL: Right. When I say you, I mean your department.

That is it. I do not have any more questions.

CHAIR: No more questions?

Dwight?

MR. BALL: I have one more (inaudible) –

MR. MARSHALL: This will be the killer.

MR. BALL: – because it will be a yes or no, I am sure.

With the expropriation of the Abitibi assets in Grand Falls, the Fortis property – the Enel one was taken care of through Sun Life and through that group – but with the Fortis property there was some outstanding work, that they had not been left whole or whatever the word was that was used. Just an update on where that is.

MR. PADDON: It is not an issue that is directly related to the Department of Finance. Nalcor themselves are negotiating with Fortis and the lenders associated with that. I know it is an ongoing file.

MR. BALL: I thought we did the expropriations, so we then turned it over to Nalcor, did we?

MR. PADDON: They are operating the power plant out there. They have been dealing with the issue around the lenders. They would be making the payments to the lenders.

MR. BALL: Nalcor will make the payments?

MR. PADDON: Yes.

MR. BALL: So we did not make the $73,000 to Sun Life and Enel?

MR. PADDON: I am just trying to recall how the cash flowed. I cannot remember off the top of my head.

MR. BALL: Okay, you might want to check it out.

MR. PADDON: I can get the information for you. I just do not recall.

MR. BALL: Okay.

That is it.

CHAIR: No more questions?

We will call for the subheads.

CLERK: Subheads 1.1.01 to 2.4.02 inclusive.

CHAIR: Will subheads 1.1.01 to 2.4.02 inclusive carry?

All those in favour, ‘aye'.

SOME HON. MEMBERS: Aye.

On motion, subheads 1.1.01 through 2.4.02 carried.

CLERK: The total.

CHAIR: Shall the total carry?

All those in favour, ‘aye'.

SOME HON. MEMBERS: Aye.

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

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

All those in favour, ‘aye'.

SOME HON. MEMBERS: Aye.

CHAIR: Carried.

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

CHAIR: Before we adjourn, if my schedule is right, our next meeting of Estimates for Government Services is going to be on Monday, May 7. That is in the p.m. and we will be doing Service Newfoundland and Labrador.

I would just like to thank our Committee, Minister, and your staff for being so co-operative.

If there is no more business, I will ask for a motion to adjourn.

MR. DINN: So moved.

CHAIR: Moved by Mr. Dinn.

That is it. Thank you. Meeting adjourned.

On motion, the Committee adjourned.