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

CHAIR (Kevin Aylward): I would like to welcome everyone to the Resource Committee of the House of Assembly to look at the Estimates of the Department of Industry, Trade and Rural Development.

If the Committee members could introduce themselves first, and then we will ask the minister to introduce her officials.

MR. TAYLOR: Trevor Taylor, The Straits & White Bay North.

MR. H. HODDER: Harvey Hodder, Waterford Valley.

MS M. HODDER: Mary Hodder, Burin-Placentia West.

MR. MATTHEWS: Lloyd Matthews, St. John's North.

MR. BUTLER: Roland Butler, District of Port de Grave.

CHAIR: Thank you.

Madam Minister.

MS FOOTE: Judy Foote, Minister of Industry, Trade and Rural Development.

I ask the officials with me to introduce themselves, before I have another coughing fit.

MR. SCOTT: I am John Scott, Deputy Minister of the department.

MR. CURTIS: Ken Curtis, Manager of Financial Operations.

MR. STIRLING: Bill Stirling, Executive Director of Regional Economic Development.

MR. McCARTHY: Phil McCarthy, Assistant Deputy Minister.

MR. LOMOND: Ted Lomond, Executive Director of Federal-Provincial Agreements.

MS KELLAND: Donna Kelland, ADM for Trade and Investment, Jobs and Growth.

MR. JOHNSTONE: Terry Johnstone, Executive Director of Technology Development and Corporate Planning.

MR. GUINCHARD: Larry Guinchard, Assistant Deputy Minister of Regional Operations.

CHAIR: Thank you very much.

Where this is the second opportunity to look at the Estimates of this department, the minister has already given an opening statement, so maybe we can move to any questions that you would like to have.

Mr. Taylor, go ahead, please.

MR. TAYLOR: Ed is not going to be able to make it this morning. He had transportation problems on the way back yesterday.

Since we talked fairly extensively last time, I guess in a very general way, about the department, I will try to stick to the estimates this morning. I guess we will try and move through this quickly. I think everybody would appreciate that.

I will start with a few questions. On page 128 in the Estimates, under 1.2.02, subhead 03, Transportation and Communications, there was a budget of $125,400 last year, a revised of $69,800 and again back to $125,400 this year. Can you explain, Minister, what would have not happened there, I guess, for lack of a better way of putting it?

MS FOOTE: I think essentially what that is a result of, Trevor, is a greater use of e-mail and other electronic forms of communication, with less than normal phone usage and the fact that the number of mail outs by the department was down for that year.

MR. TAYLOR: Back up to 01, Salaries, there was a budget last year in Administrative Support of $73,000, revised to $106,300, and this year there is a big drop to $46,400. What was the cause of the jump last year and the big drop this year?

MR. SCOTT: This activity supports the general operations of the department from our central administration unit. Typical, from year to year there are variances. In this case, last year after the Budget was brought down we retained some additional temporary assistance throughout the year to deal with some information technology projects and some general operations in our registry. For example, last year - I believe, Ken - we re-framed our entire registry. So we were able to move some money around within this activity, still staying within the budget envelope of this activity, to support the differing needs of the department throughout the year.

In terms of what our needs are. This year, again, we look at it year to year in terms of registry, in terms of incremental needs to support the department on special projects. This is not core departmental staff.

MR. TAYLOR: Okay.

Just further down to the next head, Policy and Strategic Planning, 1.2.03. Again, under Salaries, there is about a $100,000 difference from last year to this year in the Budget, and I guess about a $40,000 difference in the actual from last year's budget to what was actually spent. Can you elaborate on that, please?

MR. SCOTT: In this Policy and Strategic Planning shop, last year we filled a vacancy that was not filled the year before and we are intending to fill all the positions in that critical division this year. What you are seeing here is, in prior years we have achieved some efficiencies and some savings from freezing of vacancies and doing business a bit differently within the department. Now that we have two full years under our belt in the new department, we have strengthened the policy capability in this shop in accordance with the complement that had already been there by filling vacancies.

MR. TAYLOR: I am not sure if you said it, because I am not hearing very well here this morning. My hearing is as dim as the lights.

Anyway, the vacancies that you have filled and are filling this year - have, and/or are filling - what type of positions are those?

MR. SCOTT: Those would be policy analysts. One policy researcher and one senior policy analyst.

MR. TAYLOR: Good enough.

I am sorry, but we are going to have to jump back up again. I had intended to ask - I will not prejudge what the answer is. Anyway, back up to the first one, Administrative Support, under Information Technology. Again, there is a fairly wide variance there from the Budget to the Revised last year of $376,900 to $453,100 and an estimate this year of $254,400. Do you want to elaborate on that?

MR. SCOTT: The Information Technology budgets in particular vary quite widely from year to year depending upon new acquisitions for hardware, software upgrades and the like.

In the past couple of years we have been doing some fairly major upgrades to our internal systems when the two departments of Development and Rural Renewal and Industry, Trade and Technology came together. Those upgrades are pretty well nearing major conclusion. So we are going back this year to more normal, typical type of IT expenditures, which would be for routine replacement of equipment that is obsolete, for software upgrades and the like.

MR. TAYLOR: Jump in anytime, Harvey.

We are going to move over to page 129, the Export and Investment Promotion section, 2.1.01. Salaries again, there has been quite a variation there of almost $200,000 last year from the Budget to the Revised, and a slight increase this year. What would have been the cause of the big jump last year in particular?

MS KELLAND: We had a number of vacancies within the section when the budget was first prepared the year previous. We had some staff returning from secondment, had been out to secondment in other departments and various things. Those staff returned and we had enough flexibility in the overall departmental budget to retain the staff that we had replacing them. Overall, we were within our original sort of salary plan but it does show additional positions there. Those positions had been vacant and then were filled.

MR. TAYLOR: Okay. So they were positions that were always there and -

MS KELLAND: Already there, that is right.

MR. TAYLOR: I just note, they have been moved on to something else or left the government entirely and you just filled them again?

MS KELLAND: Yes.

MR. TAYLOR: Okay.

Transportation and Communications. Again, $176,500 and a revised of $190,700 and up again this year by $11,000, to $201,500. What caused the jump last year and what do you anticipate?

MS KELLAND: We had some additional Pan-Atlantic work that we were doing with ACOA and the three other Atlantic provinces in terms of trade mission shows as well as planning for various trade events. We generally tend to travel to those Atlantic meetings.

MR. TAYLOR: Moving down to 05., Professional Services. There is about a $40,000 jump there from the Budget to the Revised last year, and we are back down a little bit this year. What type of professional services were these?

MS KELLAND: We tend to use professional services for consultants when we do business, matchmaking for businesses on trade missions and shows. That can vary, depending on the number of shows and the number of businesses we have participating. Generally, that causes the fluctuation in that budget.

MR. TAYLOR: Is there anything that you want to ask, sir?

MR. H. HODDER: I apologize for the fact that I was not at the last session, so I do not have a transcript of what questions were asked. I think today we are going through the line by lines.

To continue on where Trevor was asking questions before. Purchased Services, we know that last year it was $1,200,700, it went down to $817,300 in the Revised, and now it is back up to $1,159,200. Why the fluctuations? What did not happen to lower it and what is expected to happen this year?

MS FOOTE: It was a delay in the appointing of the Agency of Record.

MR. H. HODDER: Okay.

MS FOOTE: That is where you see the savings there, but we anticipate, of course, another Agency of Record in place and that would be back to its original amount.

MR. H. HODDER: On the issue of purchased services, I notice that there have been variations in various sections of the Budget. Purchased services is a wide variety of things that one can purchase. In terms of the overall department, having added up all the components - they do all come in one total number at some point - what is the general overall position of the department in terms of purchased services in the accumulative?

MS FOOTE: Total, overall?

MR. H. HODDER: Yes.

MR. SCOTT: Just bear with us for one second and we can get that for you.

Purchased services is captured under general operating.

MR. H. HODDER: Yes.

MR. SCOTT: Just to give you an example, in the original budget for 2002-2003, our overall operating, which includes purchased services, was about $4.2 million, and it is about $4.2 million forecast for this fiscal year again. So overall within the department on purchased service, we are pretty much on par with the our historical levels.

What we do throughout the year is to look at our own priorities, whether it be purchased services, professional services, what type of trade shows we are emphasizing, what type of programs we need to put more priority to, and we have the flexibility, with Treasury Board approval, to move money around different activities to meet our needs that vary from year to year.

Overall, globally, on an operating basis, our budget is pretty much the same. I think there is a $50,000 increase this year over last year.

MR. H. HODDER: What strategies would you have in place to assure that there is some evaluation done when you are purchasing services, let's say for trade shows and these kinds of things? Obviously, someone has to take the lead and say, yes, this was very worthwhile that we have some net benefits to the Province. What programs do you have in place to carry out an evaluative approach, and how is that process then factored into deciding what further programs you would participated in? How do we do that? There must be a process in place for doing that.

MR. SCOTT: Perhaps I can ask Donna Kelland to speak in terms of the trade and investment activity and export development, because that is really the key there, Donna.

MS KELLAND: We have two types of processes that we use. When we do trade missions and trade shows, we do follow-up work with the companies that are involved with those missions and shows to ask them what level of benefits they have received from those missions. We track those on an individual basis but report them collectively, if you like, in terms of the cost of the missions verses the benefits to the companies overall. What our work is showing is that there are very significant benefits overall in terms of deals that the companies are engaging in resulting from the missions.

The second process we use is more of the pan-Atlantic approach where we work very closely with our partners in the other Atlantic Provinces and we do more formal evaluations of, for instance, the Team Canada Atlantic missions. There is a formal evaluation now of our Team Canada Atlantic strategy that is going on over the next two or three months in preparation for the missions in the fall and from hereon out. We would tend to take those two types of separate processes.

MR. H. HODDER: What steps are taken, then, to ensure that the initial responses that you get from your various trade shows are somewhat consistent with the responses and the actualities, shall we say, a year or two years later? Obviously, when you come back from a particular show, there is a level of enthusiasm, there are initial contacts, and an evaluation done at that stage generally is not always consistent with an evaluation done, shall we say, a year later or two years later, this kind of thing. It is one thing to evaluate a participation of these things, shall we say, a month after one gets back, but the reality might be completely different when you look at the things in various sequences one year later, two years later, and maybe even after that.

What steps are we taking to make sure that the initial expectations are then grounded in realities, shall we say, in terms of permanency?

MS KELLAND: We do a two-step process when we return from the missions. One is about three weeks after the mission. We get the initial sense then. We do a second survey about six months after that, just to confirm. That is usually about the time that companies realize, or do not realize, where the deals are and how solid the deals are. There is no formal process beyond the six month period, but a lot of these companies we are working with on a regular basis. We do more informal sort of determinations of how well they are doing, particularly in relation to shows that may have happened two or three years ago.

MR. H. HODDER: Do we then follow up afterwards to see the relationship, for example, between the trade shows, between the initial assessments, the six month assessment? Do we do an integrated approach, shall we say, with the Department of Finance to see what the differences would be in terms of taxation revenue? When we have new business coming in we obviously want to see what - not only that there are increases in jobs, but that these investments - and I am not against these investments, not at all. What I am saying is: Do we then do an analysis, for example, that because of this level of participation - what this department does, it has this net effect on the taxation revenues to the Province or the net effect on jobs, permanent jobs created, and this kind of thing.

MS KELLAND: Obviously, there is a much more difficult cause and effect relationship there to prove. Most of the work we do is with small and medium size enterprises. So no, the short answer to your question is there is no formal evaluation of trying to track the result of a particular trade mission through to a revenue increase in the treasury two or three years out. Again, most of the work we do is with smaller companies, new exporters. So you would not see that type of cause and effect relationship very clearly in that process. The short answer is: No, we don't do that kind of work.

MR. H. HODDER: A further follow-up question. When we obviously have these various announcements, and being a former mayor of a large municipality, I know what happens in terms of - we all talk about all of the jobs that are created and new businesses get started and all this kind of thing. If you were to go into a municipality like Mount Pearl and add up all the new business created every year for the last twenty years, you would have to have a business in every building and every house in Mount Pearl, but there is a phenomenal failure rate as well. How do we factor in the value of our various trade missions and then factor in what is initial success in small and medium sized business with the failure rate that occurs as well? Do we do any follow-up in terms of the failure rates and how that is factored in? Again, that is all part of an evaluation process, but since you do not go beyond six months you might not have data on that.

MR. SCOTT: Perhaps I can answer that in a longer term, policy context because we do monitor very closely with our industry associations where we are growing in terms of export and trade development. Through our liaison with industry associations we are able to determine qualitatively, mind you, as opposed to quantitatively, what companies are having success beyond the initial phases of the trade missions.

On an annual basis we monitor very closely where our export growth is, geographically, where it is ‘sectorly' and whatnot, to get a sense of whether or not the momentum is still building. We do it ‘sectorly' with our industry association. So, in the longer term we have, I believe, a fairly good sense of what is effective. From year to year we adjust our trading investment promotion programs and our actual activities to fit that evolving situation where we are getting the biggest bang for the dollar.

It is not quite as quantitative, Mr. Hodder, as you suggested in terms of tax revenues coming back to the Treasury but we do monitor it in a global and sectoral sense on a long-term basis as well to judge whether or not we are having the impact desired. We do that jointly with our Atlantic counterparts and ACOA when we pursue Trade Team Canada missions or Trade Team Atlantic missions as well. I think the record where we have participated on Trade Team Atlantic missions, where ACOA has done some more quantitative analysis over the years, has shown quite a success rate for those who have participated. I am not sure I would describe them as phenomenal failures. There are ups and downs. Businesses grow up and down. The failure rate of businesses nationally, we are tracking above that. We are tracking better than that, I should say, but that is the normal business cycle. We do look at these things very carefully with our industry associations on an annual basis as we plan next year's activities. Many of these activities require commitments two or three years in advance, in fact, so we need to be proactive and evaluative in that context before we take the next investment decision.

MR. H. HODDER: The point of my question is not to say that we should not be doing these things. In fact, we should. I have had a long history of being very proactive in that kind of investment; however, we also have to make sure that before we continue to pump money into these particular processes that there is some evaluation process and that we are getting value for our investment dollar. That is the only purpose in which I ask the questions.

MS FOOTE: If I could just speak to that for one minute, I think you are absolutely right but, as John has said, I think what we do is look at the investments that are made in particular sectors, and clearly if we are not having a lot of success in a particular sector then you look very carefully at whether or not you go back into investing in that sector again. So there are evaluations done on an ongoing basis because we are following all of the companies, certainly the companies in which we have invested. We are monitoring them very closely.

CHAIR: Mr. Taylor.

MR. TAYLOR: I have a couple of more questions.

On page 131, under Regional Economic Development Services, 3.2.01.10. Grants and Subsidies, there was a budget last year of $1.49 million and a revised of $1.249 million, and a budget this year of $800,400. Is there a reason? Is this supposed to be going this way, or is it just happening this way?

I do not know if I am very clear in my question, but is this a plan that you have to reduce the grants and subsidies in this section, or is it just that the uptake is not there or what? What are the grants and subsidies for? I guess I should ask that too.

MR. SCOTT: Perhaps I can ask Ted Lomond to take over. What you see here is our Community Economic Development Program. This is the grants and subsidies. Last year we put more resources into that program, and the year before when we sponsored the special employment initiative program throughout the Province. What we are seeing here is, last year, an indication of the cash flow carry-over commitments from prior years. Primarily, we are cleaning up projects, and what we are coming to this year is a more normal level of activity associated with community economic development programs. Two years ago we put an additional, I think, almost $3 million, Ted? Perhaps I can ask you to speak to the amounts.

MR. LOMOND: Yes, that line object 10. Grants and Subsidies, what you are seeing there, that $800,000 in 2003-2004 is actually our yearly annual budget of $460,000 and a carry-over requirement of $340,000. The reason it is declining is because what we are seeing - that is a ripple that comes from 2001-2002. Our department, in 2001-2002, administered the special employment initiative. As you recall, we approved approximately $3.7 million worth of projects under that initiative. Some of those were cash flow from Works, Services and Transportation, but approximately $3 million of those were administered by ourselves and MAPA. That funding flowed through that activity. There were a number of significant additional dollars put into this Community Economic Development Program in 2001-2002, and those projects did not all finish in 2001-2002 so there were carry-over requirements into the next fiscal.

MR. TAYLOR: The $800,000 this year is a reflection of the carry-over this year.

MR. LOMOND: That is right, $340,400 carry-over.

MR. TAYLOR: Fair enough.

Back on page 130, 3.1.01. Strategic Business Development, under Professional Services and Purchased Services, again that fluctuation is fairly significant in those two subs, $343,000 down to $117,000 in Professional Services and back up to $253,000 and again a fairly wide variation there, a fairly high degree of variation in Purchased Services. Where is this coming from? Can we anticipate a similar fluctuation this year from the estimate to the budget? Obviously you cannot say that, I suppose. If you could, you would have budgeted differently wouldn't you?

MR. SCOTT: In this activity we have a $1 million block fund for implementing jobs and growth initiatives. That block fund is established to deal with pilot projects pursuant to our jobs and growth renewal strategy as opposed to ongoing programs and ongoing projects. From year to year, depending upon what we select either when the budget is being prepared but more practically speaking during the course of the year, once we select the pilot projects that we want to pursue and focus on in jobs and growth, we will move some money around the objects of expenditure to achieve those objectives. From year to year we will see some significant variances depending upon what emphasis we place within that fund, and even within the year depending upon what projects we select, because we try to do that in consultation with industry associations. We do not try to do it; we do it in consultation with industry associations and other departments. We do not have, necessarily, at the beginning of every year, a game plan that will precisely denote where the money will go from A, B or C, but we have a fairly good general indication of what our priorities are. There are variances from year to year from that point of view.

MR. TAYLOR: Under Grants and Subsidies there, that same section, there was a budget of $1.2 million last year and it is down to $566,000 in the revised. Why were Grants and Subsidies less than half of what they could have been?

MR. SCOTT: Our intent last year was to roll out our Business Attraction Agency toward the latter half of last year, but we entered into a broader range of consultations with key stakeholders to make sure we got it right. As a result, we did not commit that full amount for the new Business Attraction Agency. You will see the number come up this year to reflect the fact that from this activity we will be on target this year in terms of full expenditure.

MR. TAYLOR: Okay.

MR. SCOTT: It is a timing issue more than anything.

MR. TAYLOR: I only have two more questions, as far as I know anyway.

On page 134, under Business Analysis, again I am going to into the Grants and Subsidies section here, under 3.3.01.10. What are those grants and subsidies for, and what do they entail? Again, if you could give me a brief description, I suppose, as to reasons why the budget was not all used in this section last year.

MR. MCCARTHY: That is our budget to support the call centres that have been attracted to the Province; Converges and ICT. The reason why it was down a little bit is because the ICT centre in St. John's did not ramp up as quickly as they anticipated, and they anticipate they will be ramped up to the full amount this year.

MR. TAYLOR: Okay, thank you.

On page 135, again, under Grants and Subsidies, in the Investment Portfolio Management section. Again, a brief description of what the grants and subsidies in that section are for and why only one-seventh of it was utilized last year?

MR. GUINCHARD: What that has to do with, Mr. Taylor, is the fishery industry subsidy program. We will be subsidizing the interest rate once it goes above a certain rate for fishermen. Remember we talked about it the last time?

MR. TAYLOR: Okay.

I think that is it for me.

CHAIR: Thank you, Mr. Taylor.

Mr. Hodder.

MR. H. HODDER: Just one question. I notice here tremendous variations in the amount of the federal government's participation in various programs, looking at the thing in a global sense. Given the fact that we are having some difficulties with the federal government relative to the financial arrangements for various programs that interact with the Province, could we get a comment from the minister as to the impact on the budget here of the failure of the provincial government and the federal government to be able to come to any meaningful relationships in terms of the continuation of various federal-provincial agreements with the Province and what impact that it is having, or potentially going to have, on this budget for this year?

MS FOOTE: If you look at what we have been able to accomplish, working in partnership with the federal government for the past thirty years, it will have a significant impact that we will no longer have cost-shared agreements. You are talking, just in CEDA alone, that was a $100 million agreement, $20 million a year for a five-year agreement. What we had to do was allocate our 30 per cent - which, in the budget, was $5.5 million - in anticipation or in hope that the federal government would come back to the table and partner with us again. Now, it is not just Newfoundland and Labrador. It is not a matter of a failure of the Province and the federal government to reach any kind of a cost-shared agreement. This is the case right across the country. The federal government has taken a unilateral decision to get out of any cost-shared agreements. So it is not just Newfoundland and Labrador. I just want to put that in perspective; but, having said that, it is still difficult for us.

One of the problems we are facing, of course, is that ACOA has had their budget increased. There is a pan-Atlantic agreement in place now so that if they approve a project, they will not just approve a project if it is good for Newfoundland and Labrador, it has to be good for the four Atlantic provinces. But under ACOA, the difficulty we are having is that under their criteria they cannot approve anything that would be of a provincial initiative. So anything funded under any of the departments of government.

Under CEDA, for instance, the Comprehensive Economic Development Agreement, we were at the table together, and they were funding things like Fisheries Diversification Program to the tune of $500,000. That was ran out of the Department of Fisheries. They cannot do that any longer because it does not fit the criteria for ACOA. So now we have to take our $5.5 million, and half of that - like the $500,000 of that will now have to come out of that. One million dollars for tourism marketing, for example, would have come out of CEDA, but now, because it does not fit the criteria for ACOA, $1 million of that $5.5 million now has to come out of provincial funding. So it is going to have a dramatic impact for us; a devastating impact, in fact.

One of the problems we are facing is that people are going - organizations and groups - to ACOA with these wonderful projects, these wonderful initiatives, and ACOA is coming to the table saying: We can fund them to the tune of 80 per cent, go find the other twenty. Of course, they are coming to the Province. Well, we do not have the kind of money that ACOA has. We are not the ones with the surplus here. So when they come to us saying: Well, we have a $500,000 project that has been approved by ACOA. They come to us looking for $100,000. I do not have it. It is causing us untold grief because at the end of the day we have these wonderful projects being approved but the money is not there.

What we have said to these groups and organizations, and we have been talking with ACOA, is that ACOA can fund some of these 100 per cent. They are going to have to do it, otherwise some of these projects are going to fall off the table. You are going to have people who are putting a lot of time and effort into coming up with these initiatives and putting the proposals together, and not being able to have them realized. It is unfortunate. This is why we have said to the federal government, again, is: What you are doing to us is putting us in an untenable position because you are doing the total analysis on these projects. You are determining whether or not - what needs to be done - whether it is a provincial priority, without the Province being at the table.

It is making it very difficult for us in terms of trying to move forward and respond to initiatives and proposals, bearing in mind that we have limited funding. The funding that we have allocated, our 30 per cent, will, in fact, have to be spent to do things that would be considered to be of a provincial nature that ACOA cannot fund.

CHAIR: Thank you very much.

Are there any other questions?

If it is okay, we will move the subheads.

On motion, subheads 1.1.01 through 4.1.02 carried.

On motion, Department of Industry, Trade and Rural Development, total heads, carried.

On motion, minutes adopted as circulated.

CHAIR: We appreciate the time this morning of the Committee members.

Thank you, Minister, and all your staff, along with the Clerk and the Page. I appreciate your cooperation this morning, on this wonderful Monday.

Have a good day.

On motion, Committee adjourned.