The Nova Scotia Legislature

The House resumed on:
September 21, 2017.

Public Accounts -- Wed., Jan. 19, 2000

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HALIFAX, WEDNESDAY, JANUARY 19, 2000

STANDING COMMITTEE ON PUBLIC ACCOUNTS

8:00 A.M.

CHAIRMAN

Mr. Russell MacKinnon

MR. CHAIRMAN: It is a little after 8:00 a.m. so we will commence today's session of the Public Accounts Committee. As we all know, today is the continuation of the briefing by the Auditor General's Office on his 1999 Annual Report. So at this point, perhaps I can turn it over to Mr. Roy Salmon and his staff.

MR. ROY SALMON: Mr. Chairman, we don't have another opening statement. This is a continuation of last week's meeting. We are here to answer your questions on any matters contained in the 1999 Annual Report. I will caution you that one of my staff members seems to have gotten tied up on the bridge coming from Dartmouth. Hopefully Elaine will be here shortly, but we may have to delay dealing with some questions if they do fall in her portfolio and I can't deal with them. With that, we are at your disposal and we will attempt to answer any questions that you may have.

MR. CHAIRMAN: Perhaps we will turn it over to the government caucus.

MR. DAVID MORSE: We can start, perhaps, by asking a few questions. My colleagues have asked me to open the session today.

We have changed to Generally Accepted Accounting Principles in the preparation of these statements. There are two items that have yet to change, and maybe it is not fair to ask you this today but if so I am sure you will tell me, there are pension costs and the treatment of tangible capital assets which, as of today, are not incorporated in these statements but I think the expectation is that they will be in next year's statements. Could you give us an insight as to what might be different under that scenario and how it might impact, or is that exceeding the committee's jurisdiction?

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MR. SALMON: Let me start and Mr. Carter, who is responsible for the audit of the financial statements within the office, can elaborate. There is existing guidance from the CICA on the appropriate accounting treatment for pension costs. The Province of Nova Scotia has not been following that guidance in terms of how pension costs are calculated and accounted for. This goes to the issue of the calculation on an annual basis of the unfunded liability based on actuarial studies and the method of dealing with that unfunded liability on an annual basis. As well, the province has always treated the adjustment in the unfunded liability as a charge directly to net direct debt as opposed to taking it into account in the calculation of the annual surplus or deficit.

The right accounting treatment and the method of determining the annual cost of pension funding is going to require a significant amount of research in determination and that is ongoing right now in the Department of Finance. It is for that reason that the implementation has been delayed a year; the requirement to do the research. Mr. Carter can elaborate on that point.

The second issue is tangible capital assets, and that is new guidance coming out of CICA. There may be one province that has implemented accounting for tangible capital assets this way and that also requires research in terms of determining the assets of this province and the amounts that should be recorded. The major impact of implementing this new guidance in terms of accounting for tangible capital assets, putting them on the balance sheet and moving them to depreciation accounting as opposed to simply writing off the costs as incurred, is that you then are into spreading the costs over the useful life of the assets. It is considered that that is a much more appropriate basis of accounting. Then the issue becomes expenditure accounting versus expense accounting which gets into complex discussions moving further and further away from cash-based accounting. So I guess the bottom line with regard to tangible capital asset accounting, changing to it, is that it would have more of a positive impact on the determination of your financial position and your annual surplus or deficit. Claude, do you want to add anything to that?

MR. CLAUDE CARTER: First of all, I think it is important to note that CICA, and specifically the PSAB, Public Sector Accounting Board, employee post-employment benefits, including pensions, as well as an aspect of tangible capital asset accounting, is under review. So while there is guidance out there now that can be referred to, there is research and further standards review and challenge process that is in play right now that may affect what is appropriate accounting in the future.

I guess your question was, what is going to be the implication in terms of - on the province's financial statements. Again, as Mr. Salmon indicated, there is research currently going on within the Department of Finance in terms of what that implication can be. Now there are two ways it can affect the financial statements essentially. What is the liability that should be reflected on the balance sheet and what is the cost of service that should be reflected in the calculation of the annual surplus or deficit for pensions?

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This is very preliminary, the expectation is that while currently the province is showing the cost of service for pension as the actual cash contributions, obviously in those situations where the cash contribution isn't sufficient to cover the cost of service, then there would be an increase in terms of the expense reflected or expenditure reflected, each year in the calculation of annual surplus or deficit. The other consideration is how much of the unfunded liability should you reflect in your accounts.

In the Public Sector Accounting Board recommendations right now, it calls for the entire unfunded liability to be reflected as a liability of the government. The province isn't currently adhering to that provision. Both the employee and the employers component of the unfunded liability - in other words, that part of the unfunded liability that will be funded by future cash contributions of government, as well as employees - should be reflected as a liability of the government. Now that is different than the way it is done in the private sector. In the private sector it is more akin to just the employer's share.

Anyway, as I said, there is some further study being done in this area. Right now, as the standards are, it would result - if you went to full PSAB compliance for pensions, as the recommendations are currently written, it might likely end up in a slight increase in the annual cost of service reflected in the calculation of the annual surplus or deficit and a further increase in the pension liability to reflect the employee's share of the unfunded liability. That is on the pension side.

The issue of post-employment benefits is more than pensions. There is the issue of the long-term disability plan that is currently reflected in the notes of the financial statements, the deficiency of which is currently reflected in the notes of the financial statements but not accounted for in the financial statements. Similar to pensions, that is being subject to some research and comparative analysis by our office and the Department of Finance to see what is the general practice in that area, is it something that should be reflected in some manner in the province's financial statements. The jury is still out on that one.

The other consideration is long-service awards. Moving to consolidated financial statements for the year ending March 1999 and forward, means that the post-employment long-service awards that public servants are earning as they work their careers, should be accrued and reflected in the province's financial statements.

Now for the core government, the departments, the traditional consolidated fund, that has been done, it was done back in 1992 or 1993. So that is there. But in the school boards and hospitals, there is a hodge-podge of ways that long service is either accounted for or not accounted for. In those situations where it is accounted for, it is done in different ways. So there are some decisions that have to be made about what is the basis on which long-service awards are to be reflected in the accounts.

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The issue of tangible capital assets, as Mr. Salmon indicated, again Finance is currently in the process of studying this and drafting a policy and going through a review and challenge and approval process to decide how they will actually implement the accounting for tangible capital assets. Are they going to stay on the expenditure model or are they going to go to the expense model? The impact there is, what goes into the determination of the annual surplus or deficit, is it the $100 million that you spend for a building in the year that you acquire it, or is the depreciation for one-twentieth of the 20 year life building and so forth.

That is a long dissertation from both of us. I don't know if that helps you.

MR. MORSE: That is helpful, and thank you for shedding a little light on this. I suspect that this time next year, we will get the results. On the capital tangible assets, what happens with the existing ones? Do we try to attempt to value, basically, what the government owns on the balance sheet and has paid for over the past however many 100 years?

MR. CARTER: There is a note to the March 31, 1999 financial statements, I forget the number, the last note or one of the last, that shows the current estimated carrying costs, net book value of the assets that the government currently has.

MR. MORSE: Is that just highways and hospitals and so on?

MR. CARTER: No, highways are not part of it yet. There are issues like highways and so forth that have to be in there, but there is other information on school board assets, hospital assets and so forth. There was a fairly extensive process that they went through in terms of trying to inventory the assets that are out there, and no one is going to hide the fact that there wasn't an inventory that you could go to and say these are all the buildings and these are all the other tangible capital assets. The quality of the record keeping in the past depended on the individual department. Having said that, most of the records for tangible capital assets actually reside in the Department of Transportation and Public Works, certainly the majority of them

So there was some work done. There is an initial starting position there. I wouldn't be surprised, and I don't think people should be surprised, if over the next year or so some additions are made to that initial position. We did audit work on it based on the information that was available, but again many of these assets were acquired years ago, and the paper for these things has long since gone to storage and other places. But there is a starting position.

MR. MORSE: I guess the point that I think is sometimes lost on citizens, from a federal, provincial and municipal point of view is just because we write something off, it does not mean that it does not continue to be of value to the taxpayer. If that was shown at its current value on the books, it might make us feel a little bit better about our financial situation by times, at least some aspects of our financial situation, both federally, provincially and municipally. That is not to diminish the importance of dealing with the deficit.

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MR. SALMON: Just a further comment on that. The question is how far do you go? We have been dealing with the broad term tangible capital assets. You mentioned the highways, that is not in the plan; infrastructure such as that is not in the plan. Crown lands probably will not end up on the balance sheet as well. There are any number of tangible capital assets that might theoretically be taken into account, but at what value really becomes the issue.

I think this is a reasonable starting point, if we deal with - as the note to the financial statements indicates - equipment, vehicles and buildings. They are very tangible, and within reason you can value them, but there are many others that you are just throwing a dart in the wind.

MR. MORSE: I am going to defer to Mr. Langille.

MR. CHAIRMAN: The honourable member for Colchester North.

MR. WILLIAM LANGILLE: Mr. Salmon, at the last Public Accounts Committee meeting, we seemed to be running out of time and you were very explicit in just summarizing the Department of Health. I wonder if you would like to expand on what you were saying; it seemed like you were cut off when you were talking about health and more or less getting our act together in the Department of Health? Would you like to expand on that please?

MR. SALMON: Let me start, and then Ms. Morash may elaborate on what I say. There is general acknowledgement that the province is in a serious fiscal situation in terms of the level of debt that is being carried and the deficits that are being run on an annual basis. To support that, the Premier did appoint, with the assistance of Voluntary Planning, a task force that is shortly going to issue a final report making recommendations on what should be done to get our fiscal house in order. I believe that a big piece of that puzzle is bringing health care costs under control.

Health care accounts for a very significant portion of the revenues coming into this province, to this government. It has been said that, if allowed to, health care could consume every dollar of revenue generated for this province out of taxpayers' pockets or even taxpayers' money that flows to the federal government and back to the province. A big piece of the puzzle is getting health care costs under control, and that is not an easy task because we are in a situation where we have legislation that gives the citizens of this province rights to health care. It is a demand-driven program. We have to find a way, I believe, to change people's expectations and demands, as well as finding efficiencies in the systems and finding different ways to deliver health care services. That is the big challenge that faces this province, in my opinion. Elaine.

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MS. ELAINE MORASH: I guess maybe the only thing that I would like to add is that Mr. Salmon, at our last meeting, talked about the difficulties in attracting good staff at the Department of Health and talked about the fact that that had some implication on the lack of planning that we saw at the Department of Health during our audit of the Northern Regional Health Board.

During the last year, at an in camera briefing of this committee, I can remember putting up an organizational chart of the Department of Health and isolating all of those positions that were filled by people who were acting in those positions or were currently vacant. I think that has to be brought into consideration as a significant factor in the difficulties at the Department of Health that they have had, difficulty attracting staff. There are still many vacant positions and many positions filled by people on an acting basis and some of those are very critical positions. Right now, one of the positions vacant and filled by somebody in an acting capacity is the chief financial officer for example.

MR. CHAIRMAN: Mr. Langille?

MR. LANGILLE: No, that is all, thank you very much.

MR. CHAIRMAN: Does anyone else in the PC caucus have any questions to use their time?

The honourable member for Colchester-Musquodoboit Valley.

MR. BROOKE TAYLOR: Mr. Chairman, recently the Truckers' Association of Nova Scotia came under fire because the Auditor General reported that the Department of Transportation and Public Works, the taxpayers of this province have been subsidizing them. When you look at the Auditor General's Report it was indicated that the department estimated the premium paid for 1998 was about $4 million and, for the six years between 1993 and 1998, it exceeded $20 million.

The Auditor General also commented that there was no formal analysis carried out regarding the benefits and costs of paying above-market rates. I am just wondering if the Department of Transportation - with all respect to the Auditor General and I always appreciate and support his work - carried out some type of comprehensive study to support those types of figures?

MR. SALMON: Mr. Horgan will answer that question.

MR. ALAN HORGAN: The answer to that question is, yes, there was a study reviewing the effect of the rates used for truckers' services. Basically the study compared the rates being paid by the province on road construction and road maintenance to the rates being paid by entities outside of the Province of Nova Scotia, being municipalities, other provincial

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jurisdictions, and in some cases some private sector work. The nature of the analysis was just to determine how much more the province pays over what could be called the market rate or the rate charged by truckers to other entities.

MR. TAYLOR: Mr. Chairman, I am just wondering because I have information indicating the study they carried out was, in fact, with all respect, somewhat Mickey Mouse; also I have learned the so-called study didn't represent the Department of Transportation's own machinery, and what I am talking about here, Mr. Horgan, is the fact that the Department of Transportation, as you know, has two budgets, operational maintenance and capital construction. When a tandem truck, for example, with all of the attachments, is charged out against that operational budget, it is nearly twice as much per hour as the Department of Transportation and Public Works pays members of the Truckers' Association of Nova Scotia. So, in other words, if you were paying $80 for a tandem salt truck or charging that against your operational budget you would only be paying the private sector, TANS members, $40. Besides that, that excludes the price or the wages of the operator.

As a member of the Legislative Assembly in this province, I would really appreciate a copy of that study because quite frankly, I don't believe that it was very comprehensive and I have heard different people comment that is was somewhat Mickey Mouse. Perhaps I shouldn't prejudge the report but, can you tell me then, did it include the department's own cost for running machinery and the wages of the operators?

MR. HORGAN: To my understanding of the study, I think to some extent you are right, it was not an overly thorough study, it was perhaps done in a summary level to some extent and that is why the department indicates it is very much an imprecise figure, that there is some leeway, but the overall conclusion does seem quite supportable that they are paying above-market rates. Also, to my understanding, the review did not include a comparison to internal rates; I don't believe that was the purpose for which they were doing it.

One of the recommendations in our report is that the department take a closer look at the costs and benefits of using their own resources versus contracted or leased resources. I believe there is more work the department could do in that area.

MR. TAYLOR: Mr. Chairman, I am not satisfied at all with those figures and I would suggest that the Truckers' Association of Nova Scotia and their 1,000 members are quite concerned that this type of information was, in fact, included in the Auditor General's Report. With all respect to the Auditor General - I understand the department provided these estimates, and I am not suggesting otherwise - in future I would hope that the department would carry out some type of comprehensive analysis and a study that clearly reflects the situation.

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I might just comment - and come back to this later - that the big companies out there, the large corporations that have a great number of vehicles and infrastructure in place that would like to carry out this work do not have the appropriate type of equipment, for example, to do a lot of the dyke work that is carried out in this province. Dyke work requires large boulders to be trucked in along the sides of the rivers in this province, and an aluminum body dump box which is very expensive just won't withstand the dumping of the big rocks into that type of infrastructure. As a consequence, a lot of these large companies are just not able to provide the equipment. I just throw that out as one example and there are several more out there where the big, large corporations cannot do the work of the smaller, private owner-operator. Again, I think the department should go back to the drawing board on this one.

MR. CHAIRMAN: Any further questions from the PC caucus? You have two and one-half minutes left on your time.

MR. TAYLOR: Yes, if we have two or three minutes left. On snow and ice control. The past few winters, and up until two or three days ago, have been quite favourable in this province, and a number of people have commented, gee, the Department of Transportation and Public Works, the government, allocates so much for snow and ice control each winter in their budget yet the amount seems to be expended. How come there is no surplus? How come there are no savings? If there are savings, do those savings show up somewhere in the Public Accounts of this province?

[8:30 a.m.]

MR. HORGAN: We indicate in the background section of Chapter 10, specifically Paragraph 10.4, that there have been significant savings in the snow and ice control operations of the department, specifically it indicates that they spent approximately $45 million in 1991-92. This represents, approximately, a $16 million decline in expenditures to the current date. The department estimates about $11 million of that decline is due to cost reduction measures that they have taken and another $5 million is due to just differences in the way they account for the expenditures of the operation.

As to where that shows up, that would merely contribute to the reduction in the overall costs to the department and as such would just result in a lower budget for the department, which is, of course, a part of the government as a whole.

MR. CHAIRMAN: The time has expired for the PC caucus, now we will move on to the Liberal caucus. I believe all members will recognize the fact that what I have been doing since we started with the Public Accounts Committee, I have always recognized the NDP caucus first, then the Liberal and then the government, even though they are alternated, so I don't think there will be any offence to me recognizing the Liberal caucus at this point.

Dr. Smith.

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DR. JAMES SMITH: Good morning, Mr. Chairman. Being a visitor to this committee, I don't understand the internal workings but I will jump right into the fray. (Laughter)

MR. CHAIRMAN: It is quite unique. We are user-friendly, let's put it that way.

DR. SMITH: I would focus my comments mainly on the review of the Northern Regional Health Board and just some general comments. I think the Auditor General sort of was really correct in saying that this is a major issue relative to the percentage of the revenues of the province and how to effect health control and maintain an appropriate level of care.

It is demand driven, not only by patients but it is still dealing with a lot of fee for service, although that is changing as you know in what we call the alternate funding. I think that is really working well and I think a lot of physicians themselves are ready to move into that area, but primary care is still a fee for service and I think that is a driver factor as well.

The other driver factor I think is one of technology. You have international companies around the world making new technology and there are new tests coming out all the time. Yet, I am sure you realize when you looked at the northern region how important were those community programs in mental health, because if you look at families and what affects them, and what really dumps families into poverty is often mental illness. I think that is so very poorly addressed throughout our nation and certainly we are no exception on that. But I think we have seen some progress in some of those areas. So I think it becomes a moral and ethical issue as to who gets what and I think those are really major issues and I think it is so important when you are speaking of the lack of the strategic planning in the department and I certainly would acknowledge that.

Now with that lack of strategic planning, we see cuts across the board, we see 15 per cent being talked about in the Department of Health budget. That, on the surface, would seem to present a lot of challenges, especially if it is an attempt to do across-the-board cuts.

How do you see that rolling out at this juncture with the lack of strategic planning programs within the department and then to address a 15 per cent cut; where are the impacts there that you might see? I don't know if that is a fair question, but I am looking at it more from an accounting and an accountability issue. Where does that leave us today? In other words, some are saying that there is enough money in the system and some are saying there isn't.

The current Premier, unless I misunderstood him, during the election was saying that we could fix the Health Department by saving $46 million to $48 million from administration with no new money. I guess it wouldn't be fair to ask you if that has happened because obviously it hasn't happened. The issues of across-the-board cuts at this juncture, from what you have seen, to your knowledge, do you feel there is enough money in the health care

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system if it is used properly and if we started doing a 15 per cent reduction across the board, if that is the place to start relative to the lack of strategic planning programs?

[8:33 a.m. Mr. David Morse took the Chair.]

MR. SALMON: Let me start and then Elaine can elaborate. I don't believe that across-the-board cuts are appropriate in any department. I believe that this exercise that is now ongoing of program review, identification of priorities and making decisions as to where reductions can be made without having too serious an impact on the people of this province is the way to go.

In the absence of a strategic plan and strategic overall direction in health care, those choices are going to be very difficult, but some sort of exercise has to be gone through. One of the key solutions, but it is long term, is dealing with education and standards of living and unemployment because, as you indicate, all of those have an impact on health care costs. If you have a well-educated, fully-employed, happy citizen, he is much more likely to be healthy. So the problem is of a magnitude that is going to be very difficult to deal with.

MS. ELAINE MORASH: Perhaps if I could just add a couple of points. Some of these questions are very important questions and some of them would perhaps be better addressed by the staff and management of the Department of Health.

One initiative that I am aware of is a clinical services planning initiative that the Department of Health is currently doing where they are, in fact, taking a leadership role, I guess, with the health boards and the people in the non-designated organizations in preparing a plan for where clinical services will be delivered in the province, how that offering of clinical services will be rationalized. So perhaps that is one step in this prioritization initiative that has to take place in order to achieve that 25 per cent cut or 15 per cent cut, whatever the number is. That initiative might well be discussed by people at the Department of Health. I am not privy to it, I have just been informed that it is happening and that it is something that is happening at the current time.

Our work at the Northern Regional Health Board certainly led us to believe that there were insufficient dollars before 1999-2000 for them to maintain the level of programs and services that they were currently offering. So if the question is, are there enough dollars in the health system now to continue to do what it is that we are doing? My understanding is that for 1999-2000, those dollars are in fact there but that if there are cuts to that then we will be unlikely to maintain the level of programs and services that we have in place now. Again, that question would be better addressed by people at the Department of Health. In terms of the potential for administrative savings from the new organization structure that is being proposed in terms of the district health authorities, I have not seen anything that calculates whether those district health authorities are planned to save dollars and I guess that that

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would be a question that, again, would be better addressed by people at the Department of Health.

DR. SMITH: So if we look at the NDOs and the regional health boards and we have the business plans and the budgets that are set and they are within budget and held to that without allowing to run deficits, what does the strategic plan in health look like? Is this too broad a question, because for years I have been looking for policy. Before I went into government, I wanted to know what the policies were. I don't know where a lot of this stuff is written down because I have never really seen it. Maybe that is just that nobody has shown me, I haven't been able to find it, maybe it has been locked up somewhere.

I know this sort of sounds like a stupid question but, seriously, I believe there is probably a lack of understanding as to what a strategic plan in health may look like. It is so much keeping up with the day-to-day demands, plus you have the flus starting a month early this year across the country and the media is now on a feeding frenzy again. But if you look at it, it is really the administration of primary health care and the interaction with emergency departments that really creates this crisis.

So that is obviously a priority and must be somewhere dealt with in the strategic plan, but is it a fair question to ask, what is the main components that you see in a strategic plan in health that is not being done now? I am supposing that the business plans for the NDOs and the regional health boards would be in place, the budget would be allotted and they would live within that budget, but beyond that, the overall umbrella, could you just share with us because I would like to have your thoughts on that; this is a very serious question.

MS. ELAINE MORASH: Sure. I think that it has to start off with a vision; what the health care system is envisioned to look like over the longer term, in five years time, 10 years time. There are certain issues. Nurse practitioners are one of the issues that comes to mind in terms of choices to be made about their role in the health system and those kinds of things. So I think that it is a vision for the health care system and then the tactics for achieving that vision, the direction, those kinds of issues. Then rolling out into operational, plans financial plans, both for the longer term and the short term, you know, a three to five year planning horizon for financial purposes would make the health care system I believe function much better.

It is the fact that people are part-way into a fiscal year before they know what their budgets are for that year. Sometimes the fiscal year is almost completely over. So I think it is the longer term nature of the strategic plan that is really important, the fact that it sets a direction for the health care system. I know that the people at the Department of Health now, when we gave them drafts of certain sections of this report to review, we were talking about the strategic plans and they seemed to understand what was required. They said, no, plans isn't the word, it is really direction, it is the sense of direction for the system, and I think that that is a good way to put it, that it is the overall direction for the system and then the tactics

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in terms of how that direction is going to be achieved and a longer term component to the plan in terms of a three to five year planning horizon.

DR. SMITH: Thanks very much. I think this is truly important because I think strategic plans are - in some ways everyone you meet, wherever they work, is dealing with a strategic plan and this funny look comes on their face and they squinch up their noses and it looks like something that is really a burden in a lot of areas, but it is so important. I think from your perspective I appreciate sharing that.

Just reading the report, the northern region seems to be reasonably favourable to many of the things, although you pointed out areas of lack of financial committees. Also in your highlights, you had mentioned that similar issues and challenges will likely face whatever organizations are put in place to deliver health care in the future. I think a concern of ours would be, and mine personally certainly is one, that you are trying to put a system in place with a three year plan, with a Health Investment Fund, and now you are moving to nine district health authorities. You had mentioned, yourself, without questioning, I don't want to misquote, but that you hadn't seen any direction for that particular group. Now that has changed. From what you have seen of the process of the regional health boards rolled out and for the NDOs, would you expect that there would be further savings as we move from four to nine in the regions? Is that a fair question? I don't want to make you start whipping people for the government's misadventures but . . .

MS. ELAINE MORASH: I haven't seen a financial plan for those district health authorities so I really can't answer the question. I think that it depends on decisions that are yet to be made in terms of how the administration for those district health authorities is going to take place. Certainly there are options that the Department of Health could consider in terms of having common administration for more than one district health authority, for example. I have no idea where health is planning to go with some of those decisions that are yet to be made. I don't have the answers to the questions and perhaps people at the Department of Health would be able to be more specific in terms of what their plans are for administration of the district health authorities.

DR. SMITH: I think every region has evolved differently and I suppose that is good and then has its dangers as well. The thing that concerns me, that if this process of going further down to nine district health authorities is a response to a lack of local control and if you are moving back into that, then we are heading back toward the 30 hospitals competing with each other again. I think that is a concern of some people, at least. I think perhaps there have been some areas where there has been a lack of communication, certainly, within the regions, as you pointed out and I would agree with the problems of communication between the department and the boards and certainly the cancellation of the boards was a lack of communication, in my opinion. I have had my opportunity to speak on that where the boards were disbanded without the knowledge of the chairman or all the volunteers.

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In the northern region, you probably had chances to look at the hospital, I would imagine, in the Amherst area I suppose and the condition that it is in with plastic hanging up on the walls catching water during storms and that sort of thing. Did you have the opportunity to look at what is the minimum amount of a regional-type hospital? We see some restraint on the proposal that was brought forward. Was there any information that you had prior or since the release of this report that there will be a functional regional hospital that will meet the needs of that regionally isolated community? It was talked about as being open-ended. It was not my knowledge that it was open-ended but the cost had gone from $30 million up to about $53 million and now back to, I think, a limit of $45 million. Was there anything that you found that would need to ensure the functioning of an adequate health care system in that area that would allow further reductions in the size of that hospital or is that anything that you had to do with?

MS. ELAINE MORASH: We didn't look at that aspect of it at all. When we do these audits, we don't have any health care expertise to mention in our office. We don't have a strong health care background. Personally, I have been involved in audits of the health care facilities for quite a while now, for a large number of years, but I don't have a health care background. So I think in terms of how services are required to deliver quality care, I mean where they have to be located and that kind of thing, the decisions that have to be made with respect to how extensive a certain health care facility is in a community, we don't look at those kinds of things when we are doing audits.

What we are doing is looking at administrative and management practices, controls, due regard to economy and efficiency. We could look, for example, to see whether the Department of Health had done an analysis of the kind of facility that was required for that community but we wouldn't be looking at it and second-guessing those decisions. We don't have that expertise in terms of delivery of health care in order to do that.

DR. SMITH: So there is nothing that you have found, Ms. Morash, that would indicate that there would be a delay in the building of that facility? There is nothing you came across during your times there that there would be a further delay in time-frame? Is that a fair question?

MS. ELAINE MORASH: We didn't see a definite approved plan for the facility and that is the nature of the comments that we make in the report, that there had never been approval so if there hasn't been approval, then it is difficult to know whether in fact there has been a delay because we didn't see a comprehensive plan for this that was properly approved by the three participants - the regional health board, the foundation and the Department of Health. But certainly we saw evidence that the estimates for the facility, the dollar estimates, the cost estimates, had changed over the period and the figures that have been reported in the press, I think, are reasonably accurate. They reflect the information that we saw in terms of the $30 million escalating to $54 million.

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DR. SMITH: I think probably it is time to stop, health has a habit of taking over not only the revenues but the agenda. I just want to say that I enjoyed reading this part of it. I thought it was well done. I spoke with some of the people in that region that were on the boards and I thought it was an excellent board there, myself, to deal with. I think they have a large senior population. They really tried to do some programming and do what was right. I guess it concerns me that they were moving into, well there were just getting their feet wet and then moved into another system. I think you have been fair and your comments are comprehensive on that. I have a lot of other questions, perhaps, but they are best left to my colleagues. So thank you very much.

MR. CHAIRMAN: Mr. MacKinnon.

MR. RUSSELL MACKINNON: Mr. Chairman, I would like to shift the focus just slightly over to Page 179, Chapter 11, of the report, the last section dealing with the Workers' Compensation Board. One of the things I noticed, actually I was quite proud of the fact that we were able to maintain the rates at a fairly stable rate level when I was Minister of Labour. Given the fact, I believe the average rate quoted to me at that time was $2.42 of which approximately 70 cents of that went to the unfunded liability. In the last fiscal year, I believe there was somewhere in the vicinity of $30 million to $35 million surplus which I believe went toward the unfunded liability rather than reducing the rate and that was the decision of the board. I appreciate that.

Coupled with the fact that the long-term plan was that the unfunded liability was amortized and to be paid out over, I believe, a 40 year period, all indications are that will be paid down between 20 years and 25 years at the rate that they are going. Then I look at the issue of clearing the backlog. I understand most of the decisions that are being handed down are paper decisions and concern is being raised about the fact that many injured workers would like to have oral hearings rather than paper hearings and being denied as such. Then I look at the final paragraph of that section dealing with financial controls and records, "The auditors of the Workers' Compensation Board reported a need for additional control procedures to reduce data entry errors related to benefit payments.".

My question would be, what, in fact, does that mean and does the Auditor General's Office feel that there was a negative impact for injured workers in terms of receiving their benefits in a timely fashion?

MR. SALMON: Mr. Chairman, through you, we did not do any audit work in the Workers Compensation Board in the last year. The last audit work that was done was the special audit more than a year ago, that you requested us to do when you were the minister responsible. That followed the sit-in in the Premier's office, I believe, by injured workers.

[Page 15]

This item we reported here as a result of the normal review we do of management letters issued by auditors of Crown agencies as a result of the work they do to provide an opinion on the financial statements of those agencies. We did not do any detailed work to determine how significant this item was, but the auditors of the Workers Compensation Board thought it was significant enough to include in their management letter. It is certainly an issue of a control procedure within the system regarding the entry of data to action the creation of a benefit payment. How significant is very difficult for us to assess at this point, but it was significant enough for the auditors to put it in the letter. Alan, could you add anything to that?

MR. HORGAN: I can't be specific on the nature of the finding, but I can give you some examples just to kind of maybe put it into context. The auditors were commenting on control procedures and not on specific errors found, and they indicated that perhaps there could be more control in the area of data entry. Examples of how data entry could be further controlled, in some situations, but this may be a little more old-fashioned, in order to ensure the accuracy of data entry, data is entered twice into a computer by two different people and then the entries are compared to each other so that if one is wrong, it will be highlighted.

Another type of control is where data is entered into a system and then held in suspense for a very short while until someone, perhaps in a supervisory role, can review the data to see if there are any anomalies, and thus hopefully cut down on data entry errors. A third type that comes immediately to mind is computer program controls that will review data entered to see if there are any anomalies, perhaps entries that are too high, too low or the dates don't fall within a certain range. Those are examples of how you can improve control over data entry, but the exact specifics of this one, I am not aware of.

MR. MACKINNON: I raised that because I have received a number of concerns from various stakeholders, from the fishing community, the logging community and so on, about the high rates that they are paying, and in some cases they feel that the rates are being kept artificially high so as to pay down the unfunded liability a lot quicker than the government's 40 year plan, thereby causing undue hardship.

If this was significant enough to put in the Auditor General's Report, then the concern that would go to my mind would be the thousands of injured workers that are being denied payment of their benefits in a timely fashion so that they could meet their day-to-day living obligations. I have written to the Workers' Compensation Board and asked for copies of those management letters, but to date I haven't received them. Does the Auditor General have those management letters? Would you be prepared to table them for the committee?

MR. SALMON: We certainly have them; by provisions of the Auditor General Act, the auditors in the agencies are required to provide them to us. I certainly believe that it is more appropriate for an agency like the Workers' Compensation Board to provide this committee with that type of documentation. I just have a very strong view that I don't own those documents, and therefore it would be more appropriate for the organization to provide

[Page 16]

it, but I am quite prepared to contact the Workers' Compensation Board, ask them as to the situation regarding your request and whether they are going to provide it to you and to this committee, and ask them if they would prefer that I provide them. If they agreed, then I would.

[9:00 a.m.]

MR. MACKINNON: Okay, I will let it sit at that. Then we will go to the next step if need be. We have two minutes left. I noticed also on the same page of that report, Mr. Chairman, with regard to the Waterfront Development Corporation and the concern of, " . . . adequate reconciliation of the accounts payable subledger to the general ledger.". Would the Auditor General be kind enough to explain what that means? Are we talking a significant amount of money?

MR. SALMON: Again, this is from the management letter and we haven't done any detailed review. It is an additional control procedure. Whether it is of great significance, I would suggest not, but it is a recommendation that has been made by the auditor to improve control. If it was really significant, it could have resulted in a negative comment or a qualification in the auditor's report on the financial statements. That was not the case. It is a procedure that they are recommending that the corporation take into consideration to improve their controls within their accounting records. I would not consider it to be of great significance.

MR. MACKINNON: Let's put it this way, there are eight items that are listed here

from the Western Alignment Corporation, the Nova Scotia Arts Council, QE II Health Sciences Centre, and so on. Would the Auditor General be prepared to provide the management letters that those auditors articulated for the respective agencies for members of the committee to evaluate, to find out if in fact they are a significant concern that should be warranted on the expenditure of public dollars?

MR. SALMON: Again, I believe it would be more appropriate for those to be provided by the corporations concerned.

MR. MACKINNON: Failing that?

MR. SALMON: Failing that, with their agreement, I would provide them.

MR. MACKINNON: So it has to be with their agreement?

MR. SALMON: That is my preference. If they said to me, no, we do not believe it is necessary for us to make those available, then I would not wish to go against their wishes.

[Page 17]

MR. CHAIRMAN: I think on that point that perhaps we should move on to the NDP. I see Mr. Dexter is indicating he is going first.

The honourable member for Dartmouth-Cole Harbour.

MR. DARRELL DEXTER: Mr. Chairman, I wanted to spend some time talking about the review of the Northern Regional Health Board and the results of the audit there. I guess I have some questions with respect to health care generally. I, too, remember the presentation that was given last year with respect to the Department of Health. I was thinking on the way over here that perhaps if we want to increase the opportunity for funding for the health care system, perhaps we could get the QE II to put together a hockey team. It seems like they are more likely to get funding these days than the health care system.

I would like to start by just laying out some of what I see here. There have been criticisms levelled at the system in Nova Scotia generally, that would say that the decision-making process for the Department of Health has been short-term, short-sighted, and politically motivated over the years, resulting in a patchwork of planning in various parts of the province. What hasn't been done is what we would consider to be strategic planning. The Auditor General has made comment on this in our papers over the last while and has responded last week to questions about strategic planning.

The first point I wanted to make was just that strategic planning and operational planning are two different things. You are not suggesting the department should have to come up with a plan that gets right down to the operational details of what services are going to be necessarily offered in what community? On a broad level what you are really looking for is the direction for the health care system overall, and that is what I took you to mean by strategic planning. Is that fair?

MR. SALMON: Yes, I believe it is fair and Elaine, in response to an earlier question from Dr. Smith, made reference to the need for the strategic plan to really be a vision of where the health care system should be going. With all due respect to current and former Ministers of Health and their roles, the key person that drives that vision and creates that vision is the Deputy Minister of Health. If you look at our situation in this province and the numbers of changes in people at that level over the last number of years, it is clear why there is no vision, it is because there is no continuity.

MR. DEXTER: But there have been strategic planning exercises that have taken place on behalf of the government, and if you stack them up over the years, in fact there have been several, haven't there? There has been the task force, there has been the blueprint, even to some extent the Goldbloom report contains elements of things that you would want to incorporate, I think, into a strategic plan. So it is not that some planning hasn't been done, it is just that it hasn't been brought together and the government hasn't made a decision about where they are going to take health care in the next decade, let alone in the next half century.

[Page 18]

MS. ELAINE MORASH: You are right in that in the past there were completed strategic planning documents. The blueprint is an example, going back to the 1980's, and the Royal Commission on Health Care. There were some completed initiatives, but in the past several years we have seen something different in that many initiatives have been started and never finished, they have ended up in draft form. I think that is the point that Roy was alluding to, because of the lack of continuity these things just haven't been brought to completion and I think that is one of the major problems.

You had asked a question earlier and made a point with respect to operational plans and strategic planning and the relationship between the two. The strategic plan, in my view, should be the foundation for the operational plans. You set out your direction, what is important to you to accomplish, and then the operational plan lays out how you are going to do that and what are the implications. It doesn't have to be very detailed in terms of this service being offered in this community; obviously we have another level of administration that deals with those issues. In terms of general parameters for financial purposes, and human resource purposes, and some guidance with respect to what a board can expect to receive for capital equipment funding over the next three to five years for example, some planning processes can take place, because some of those capital equipment decisions require facilities modifications in order to take place and that kind of thing.

So I think that there are all kinds of operational decisions that follow from the strategic plan and the linkage between one and the other is really important.

MR. DEXTER: Mr. Chairman, just so that we all have a clear understanding of what you are talking about and I think what you have been saying to people is, it is not enough just to come up with a strategic plan, you have to do strategic planning every year. It is not that you come up with a plan and say look, we have a strategic plan, did that, been there, got the T-shirt, let's do something else. You have to do strategic planning every year and you have to make that part of the process of your department, isn't that fair?

[9:07 a.m. Mr. Russell MacKinnon took the Chair.]

MS. ELAINE MORASH: Absolutely, and a key part of a strategic planning initiative is that there is an implementation plan, that you take those directions and goals and assign them to particular individuals or teams and that you monitor their progress. Then you revisit your strategic plan after you have done parts of it and come back and say, okay, here is where we are, this is what we need to do to complete it and that kind of thing. It is the implementation piece, that because we have only had draft strategic plans or directions over the last few years, that implementation piece hasn't actually taken place either.

MR. DEXTER: All of this brings me to where we are today, because here we are starting a new direction in health care, we are setting up new district health authorities, we are making decisions and telling boards, board members and people involved in the health

[Page 19]

care community that by February 25th we want to have the structure in place for the district health authorities and the governance models and all of that. Yet, it is not the implementation of any kind of a strategic plan because there is nothing there to base what the government is doing today on, they haven't taken the time to do that. Isn't that the sum total of what you have said?

MS. ELAINE MORASH: You are right from a documentation sense, there isn't a strategic plan that I can put my hands on and say this is the Department of Health's strategic plan and this district health authority plan follows from that. However, I wouldn't want to take that to the next step to say that the government, the Minister of Health, the Deputy Minister of Health, don't have the vision. It may well be that there is a vision there and that this district health authority initiative follows from that, I just don't know. All I can tell you is I don't see the documentation.

MR. DEXTER: In practical terms, it is not good enough that it exists in somebody's head. It has to be on paper, it has to be distributed to decision makers. The vision that exists shouldn't be just a document that is manufactured for a political campaign. The largest component of the budget of the province, surely to goodness you would expect that there would be a comprehensive, strategic, visioning document that exists that people can point to and say this is the basis on which decisions are being made in the province. Surely, that is not too much to ask.

MR. SALMON: I would agree with you, there should be a document. There may be a vision, and if there is and it is in somebody's head it definitely needs to be communicated. Doing that all orally carries with it significant risk.

MR. DEXTER: You made the point earlier, which I thought was an excellent point, and that was you have to bring health care costs under control and you have to decide what services it is that you are prepared to provide; and government is always about making choices. I made the allusion earlier about getting a hockey team started for the QE II so that they can get some funding. That is the clearest illustration of a choice that we have had placed before us in some time. The government is choosing to fund one thing over another. Well, the same thing happens here in this province every day and it is usually not illustrated for the public in that way. The reality is when they decide which drugs they are going to be prepared to pay for, when they decide what the Pharmacare fees are going to be, when they decide whether or not a hospital in Middleton, Liverpool, or in any other rural community is going to continue to operate or not operate, these are decisions that have costs that are associated with them.

I guess what I would like to know is, how it is that increasing the number of boards in the province is going to go about controlling costs in our Department of Health? Isn't it exactly the opposite direction from which we were heading in terms of cost control? The

[Page 20]

reality is, that where we are heading is setting up more administrations that are going to be more expensive.

MR. SALMON: I can't make that assessment at this point in time. There are different organizational models and they all have their pluses and minuses in terms of how they work. The key is whatever structure you choose, assign the responsibilities, have good communication between the levels, make sure everybody understands what they are supposed to do and have a system in place that communicates what resources are going to be made available to do what you want people to do. Get that all in place. Whether it is four or it is nine, to me it doesn't matter, as long as it is structured in a way that people understand what they are supposed to do and are given the resources to do it.

MR. DEXTER: I am asking this, not because I have the answer, but because I really want to know, I may have some inkling of what the answer is, but what I really want to know is, doesn't your examinations show that we have in health care today a kind of turf war that takes place among the various institutions and components of the Department of Health that is very expensive for taxpayers in Nova Scotia?

MR. SALMON: I would not characterize it as a turf war. I would characterize it as a structure in which people are unclear as to what the vision is and what they are supposed to do and what is expected of them. I would not characterize it as a turf war between the Department of Health and the various health institutions. I believe that as a general statement. Everybody is motivated in the right direction and that is to provide quality health care. What is not clear is what is meant by quality health care. What are the desired outcomes and how are we going to achieve them? Do you want to add to that, Elaine?

MS. ELAINE MORASH: Yes, if I could perhaps just add one point. I think that there is one big issue from an administrative perspective which is, where the control is, who makes the decisions and the centralization versus decentralization decision. I think that's where a strategic plan would help to lay out what that vision is for who actually has the responsibility for making key decisions. That's what's been moving. It was with the regional health boards; in the interim period, that responsibility is really with the Department of Health. My understanding is that it will be shared under the district authority model between the Department of Health and those district health authorities and perhaps the community health board. So it is a matter of understanding clearly who is responsible for making the key decisions. I wouldn't characterize that as a turf war but I think it has been an issue that many people have been focusing on over the past little while as where should the responsibility for key decisions rest.

MR. DEXTER: I guess the result has looked like a turf war over the last number of years. Having served on a hospital commission board and seeing how it operates and what its relationship is with the Department of Health, I can tell you that those boards are sometimes justifiably very protective of what services they provide because depending on the

[Page 21]

services you provide, it dictates who you can attract in terms of professionals. So how many sub-specialties you have in your hospital is an important aspect of that institution. It is important to the community. It is important for all kinds of reasons that may have nothing to do with the objectives of the Department of Health.

I guess the point I have been trying to make and I guess, you have confirmed it in many ways, but the point I was trying to make is that you talk about strategic planning, and the allocation of responsibility I would suggest is a key point in a strategic plan, ultimately, politically, responsibility will always rest with the Minister of Health. This is where one of the problems arises because if you devolve power to some other body, all of a sudden you become responsible without being able to control what they do. I don't know how you are ever going to resolve that conundrum but what I do think is problematic, is to go down the road that the government is going down now, which is making decisions about how many administrative bodies you are going to have without having a strategic plan in place before you make those decisions.

The document that I saw with respect to the new directions in health care didn't resolve many of the most basic planning issues. Anyway. I am going to turn it over to Mr. Holm at this point.

MR. CHAIRMAN: Mr. Holm.

MR. JOHN HOLM: Just a couple of things. Much has already been covered, plus I want to get on the road before too long. (Interruption) Yes. One of the things that I just want to touch on briefly and is something that hopefully this committee will look at again with department officials, is the whole idea of leasing versus ownership which again you touched on in the report. It strikes me as déjà vu. This has been an issue that has been discussed in this House for many a year. I think of One Government Place across the road and I think of some others during my time. After all of that history, I was really taken aback by the comments that there really doesn't seem to be any kind of an accurate database or record in terms of what we do and what we don't own, what we do lease and what we don't lease. Could you indicate first of all where things currently stand within the government in terms of actually getting a handle on what spaces we own, what spaces we lease.

MR. HORGAN: I would first like to just clarify one point and that is, we have indicated that there is some lack of clarity on the part of the department as to what buildings it owns. But that is not the case with regard to property it leases. It has very accurate information on property it leases. They have a computerized database that handles leased property. It is very important, of course, to know what property you lease because you have to deal with the lease expirees, new contracts and negotiations as lease terms expire. So we did not find any deficiency with respect to knowing what property it leases.

[Page 22]

With respect to what property it owns, the department has put together a computerized inventory. Around the time of the audit they were pretty much well under way but I would say closer to completing that inventory. However they recognize that there were some inaccuracies in the inventory and to some degree it could be more complete. Of course that inventory was designed and is being used to account for every imaginable kind of building-like structure that the government has, all the way from an office building like One Government Place to Transportation sheds and fire towers. So, I would suggest that government has a very good idea what its major buildings are, the ones that it owns with respect to office buildings and stuff like that. Perhaps the areas that aren't so complete are the smaller buildings and building-like structures.

MR. HOLM: In terms of leaving out little Transportation sheds and water towers, that kind of thing, I guess I am more interested in - and I can remember a few years ago even some discussions on the leasing of Founders Square and we were getting into renting spaces in that. There were government-owned buildings not too far from it in the downtown area that actually the government was leasing out. They were renting space and the commercial rent that they were collecting certainly was considerably less than the rents that they were paying in buildings that were a block or two away.

Through your audit did you look at or were you able to determine the various buildings that are owned by government, if any, or what percentage, which ones are actually being then rented out, and is there any effort being made to look at spaces that they are leasing to determine if they are getting fair market value for the space that they are renting or if that space could be converted and used for other government offices and thereby eliminate the need to lease space?

I am very cognizant, again, of the comments made about the fact that we are now getting into a tight market. Rents are going to be going up and as leases are expiring, as the vacancy rates decline, the cost to taxpayers increases quite significantly and that can be a sizeable chunk of change. Was there any investigation done of that?

MR. HORGAN: Yes, we did look at the government's leasing of its property to either private sector entities or more commonly to charitable organizations. We indicate in the background of Chapter 9 that for the year ended March 31, 1999, the government received about $1.8 million in rental revenue. However, $1.3 million of that came from one lease which I believe is the Halifax Data Centre which, of course, is not so much an office building, but a special purpose building to some extent and thus really there was only $0.5 million worth of lease revenue to the province for the year.

So at this time it is somewhat an insignificant item. We found that there were 37 leases and it appeared that many of these leases were in smaller buildings in rural areas - not all, but some - and many of the leases were to charitable organizations, but I would not suggest a significant percentage of government-owned property is used for non-government purposes.

[Page 23]

Another thing we did inquire about is, when government seeks to locate an operation, whether they look at their own buildings prior to considering leasing property from the private sector, and we did find that that was the first thing that Public Works does is that they look to see if there is any space available in their own buildings and whether it would be appropriate for the purposes and then failing that space is available, then they will consider going outside.

MR. HOLM: I am not as interested in some of the smaller buildings where non-profit facilities are located, but there were, again not very far from where we are located, some government-owned buildings that even had restaurants and other things that were located in them. The rent was quite modest compared to what was being paid by government for other facilities. Did you get a full listing, or was that provided to you, of government-owned buildings and which ones were leased out? Did you get that far into it?

MR. HORGAN: We definitely did review the inventory of government-owned buildings. I cannot tell you right now whether we retained a copy for our file and, you are correct, in some buildings there would be small portions leased out to things like coffee shops and such, but . . .

MR. HOLM: I was not thinking of little tiny coffee shops.

MR. HORGAN: Okay, but other than that I don't have the specifics with me.

[9:30 a.m.]

MR. HOLM: In terms of looking at government space requirements and the whole issue of whether we lease or whether we own, whether we build, or whether we - I guess you even have it in the downtown core of Halifax - could locate out in suburban areas, and with new technology I don't really know why a lot of things couldn't be, but a good part of the reason that seems to have been given is that we cannot afford to own our own buildings because that would be increasing our debt load and the whole issue that we have talked about, and we have seen whether it be the P3 schools, or the P3 highway, whatever, that we cannot be placing that on the books.

With the new accounting practices that we are moving towards, and with tangible assets and the ability - and I don't claim to understand, I am going to need to have an Accounting 101 course to explain what all these accounting changes are going to mean - with the depreciation and so on, if you are going to be building a capital building, or purchasing one, then the full debts would not necessarily, I believe, be appearing on the books as a deficit in that particular year. Will the changes in those accounting practices make it more tenable in terms of the bookkeeping practices and how bond raters and so on would look upon us to be purchasing and owning and maintaining our own buildings rather than getting into some of the leases?

[Page 24]

MR. SALMON: Our understanding is that the guidance on accounting with regard to leases is under review at CICA and that it is likely that the distinction between an operating lease and a capital lease will disappear. If that does happen, then with the move to tangible capital assets, the distinction between leasing or owning from an accounting point of view will disappear. It will all be on the balance sheet, correct? That is a possibility anyway, but the real fundamental considerations for any government, or any entity, on leasing versus buying should be what is best value and the consideration of what risks do you want to assume and what risks do you want to avoid.

A major risk if you buy and own a building is at some point in the future you may not need it and you have to find a way to dispose of it as opposed to entering into a 20-year lease with an option at the end of the 20 years to make the decision as to whether or not you still need it. So I think the accounting issue should be set aside. That should not be the driver in the decision making; the driver should be a consideration of risk and value.

MR. HOLM: I guess, just if I could, in closing, on that point. There isn't too much real estate that goes down in value, so if you have to dispose of an office building in 20 years the chances are, if it has been properly maintained, the value would be there; in fact it would be higher after 20 years than it was in the initial stages. I guess the other thing is that it is almost a comparison to how much of our debt is in foreign versus Canadian funds. If it is in Canadian funds we have more control in terms that we are not going to be subject to the risks and fluctuations of the dollar.

If you own a building, you are not going to be subject in the same way to the fluctuations in the market economy in terms of what happens to the rents as they come up for renewal. It just seems that you are in more control if you own a higher percentage. You cannot own 100 per cent of what you are going to need, but you are in a better position to manage your risks if you own the facilities rather than end up leasing them, particularly in areas where the potential for low vacancy rates is quite high.

MR. SALMON: Well, again, there are a series of various types of risks that you have to evaluate in making your decision in a situation where you need accommodation, you need space. So you consider various risks associated with that particular property: location, length of need, et cetera. It is not just a clear one way or the other all the time. Value is a very important consideration. There are advantages to leasing in some situations and there are advantages to owning in some situations.

MR. CHAIRMAN: Now, in our remaining time, we will apportionate, each caucus will have about five or six minutes. We will start off with the PC caucus and I will recognize Mr. Bill Langille.

[Page 25]

MR. LANGILLE: Mr. Chairman, through you to Mr. Salmon, just one quick question. That is in regard to a statement here. I will read it to you, "The auditors of the Canada-Nova Scotia Offshore Petroleum Board reported weaknesses in bank reconciliation procedures and accounts receivable monitoring and collection procedures."

Now, I am interested in the weaknesses and accounts receivable. Is that in regard to our offshore leases or what is this in regard to and why would we have weaknesses in accounts receivable?

MR. SALMON: The reference is to monitoring the status of the accounts receivable, the age of them, whether payments are being made regularly, whether they are falling behind. That is a normal accounting function, normal accounting procedure to carry out that monitoring. Obviously, these auditors of this board determined that there were some inadequacies in the level of monitoring of the accounts receivable.

As to the nature of those receivables, I could not answer definitively as to what they are. I presume they would be related to royalties to be paid to the board by companies engaged in production of oil and gas.

Now, again, the significance of that comment, we saw it in the management letter. We felt it was appropriate, given my responsibilities to bring matters to the attention of this House of Assembly to extract from that management letter this comment and put it before you. If you feel that it is significant enough to pursue, I would suggest you put it on the agenda and bring in the people from the board.

MR. LANGILLE: Thank you very much. I will turn it over to my other colleague.

MR. CHAIRMAN: The honourable member for Colchester-Musquodoboit Valley.

MR. TAYLOR: Mr. Chairman, I just had a couple of points there. I guess I would like to have Mr. Horgan's comment on Page 171 of the Auditor General's Report, Paragraph 10.35. It speaks about the amount of money that the department spent on salt for the year ended March, 1999. I guess it is the second last sentence. It states that, " . . . the trucks are paid rates negotiated with the Truckers Association of Nova Scotia.". Then on Page 173, Paragraph 10.50, the third last sentence points out that, " . . . the Department reduced its salt haul rate by 20%.".

I would just point out, I guess, for housekeeping purposes only, my experience has been that that 20 per cent reduction was not negotiated and that the department estimated that it would save the province $800,000 each year because of this rate reduction.

[Page 26]

I just wonder, Mr. Horgan, bearing in mind that I indicated that I don't have much confidence in the study that the department carried out relative to their suggestion about the $4 million subsidy. I think some of the language you use in here, you don't have a whole lot of confidence in the study. Has evidence ever been offered, so to speak, that $800,000 has been saved on an annual basis, or is it just a figure that is floating out there and nobody has basically challenged it?

MR. HORGAN: As part of our audit, we did not challenge that figure. We have just put those statements in for information purposes to indicate the conditions under which the hiring and moving of salt exist. They indicated to us that going back a number of years, the rates in accordance with the 80/20 rule were applied to the hauling of salt. That to some extent was a decision of the department in that the specifics of the 80/20 rule only applied to road construction, however, as a practice, the government has applied the rates under the 80/20 rule to road maintenance, and at one point back a number of years also to the hauling of salt.

As our report indicates, I gather that they felt those rates were untenable for the hauling of salt and they were reduced by 20 per cent. I would suggest if their rates are reduced that would result in a reduction of costs for the government. How could it not? But I haven't seen a specific report or study that said as a result of this move this is the x number of dollars that were saved.

MR. TAYLOR: Mr. Chairman, I might just comment to Mr. Horgan that how could it not. I would suggest that when the government went out and purchased necessary infrastructure and retrofitted that infrastructure, put wet line kits on tractors, rented trailers, because even the big companies, not only members of TANS, the big corporations, you might recall, would not transport the salt. I hope if that $800,000 is ever challenged that all facets of the rate reduction are looked at and how that impacted the delivery of salt in this province.

Also under this section regarding the 80/20 rule, the hiring of trucks prior to 1994, as is indicated here, it was popularly believed that the hiring was done through political affiliation rather than on a rotational basis irrespective of politics. I guess what we have to do is look at the alternative to the 20/80.

Mr. Chairman, yes, I see my time is up. Maybe we could carry this further at another day. I thank you for your indulgence and cooperation.

[9:42 a.m. Mr. David Morse took the Chair.]

MR. CHAIRMAN: Dr. Smith, did you want to ask any questions?

MR. MACKINNON: I do, Mr. Chairman.

[Page 27]

DR. SMITH: We may share this.

MR. CHAIRMAN: Mr. MacKinnon.

MR. MACKINNON: Mr. Chairman, Page 172 of the Auditor General's Report, Paragraph 10.41, with regard to the charges to the municipalities on the exchange of services, the new fee of $6,000 per kilometre for servicing local roads built after 1995. Was the Auditor General's Office able to determine, recognizing the fact that the actual cost to the province was much less than the $6,000 per kilometre, it would appear to me that there is a revenue generator there for the province to the disadvantage of the municipalities, was there any determination or examination on that factor?

MR. SALMON: Alan, would you deal with that.

MR. HORGAN: No, we can't determine the extent. The nature of our observation is that the rates charged to municipalities increased for roads built after 1995, and that as with the rates used for roads before 1995, there was a study indicating what it cost the department to provide those services.

MR. MACKINNON: What was that cost, do you know?

MR. HORGAN: It was $3,500 per kilometre back in 1994-95.

MR. MACKINNON: Was that the fee that was charged?

MR. HORGAN: That was the fee that was charged, and to some extent is still charged for older roads. I say to some extent because the rate is increased for cost of living according to the Consumer Price Index.

[9:30 a.m.]

MR. MACKINNON: But you wouldn't think that it would go from $3,500 to $6,000. The cost of living didn't go up that much or else I am moving into Transportation

MR. HORGAN: Exactly, and that is the basis of us indicating that it appears that the current rate is above the cost that the department is charging and we did receive some representation from the department to the same. However, they cannot tell us what it now costs because they haven't updated their study. So they are not entirely clear what it costs them, though I believe they feel that $6,000 is somewhat in excess, it is hard to say how much. Yet they also indicate that in the case of smaller municipalities, or municipalities, say, other than HRM, that it is less than the cost that a municipality would incur to do that service themselves.

[Page 28]

MR. MACKINNON: Did they indicate to you that there are two different cost factors when dealing with road maintenance, one for the 100-Series Highways and one for the local feeder streets?

MR. HORGAN: My understanding is that the amount charged to municipalities would only include subdivision roads. It does not include 100-Series Highways.

MR. MACKINNON: I understand that, but which rate were they applying? Were they applying the rate that would be applicable to the 100-Series Highways or were they using the rate that would be more reflective of the cost on local feeder streets? I understand at the time there was considerable debate and confusion over which rate they were going to use and this obviously is having a tremendous impact on the Cape Breton Regional Municipality. Luckily, this winter it has been rather light, but the domino effect is there and we are seeing that with the regional police issue and I believe the next issue on the table will be the busing issue. So there is quite a significant impact. The bottom line is robbing Peter to pay Paul. Was there an analysis done to determine if the proper cost rates were being applied?

MR. HORGAN: I am afraid I can't answer that question.

MR. MACKINNON: One other issue, Mr. Chairman, is with regard to the issue of leasing - with the Department of Transportation and Public Works - I look on Page 161 of the report, No. 9.63, with regard to some of their conditions of their buildings and doing evaluations and when leases are being prepared and so on, sometimes the whole picture, so to speak, is not being considered because certain individuals or groups of individuals or factors are not taken into consideration when determining needs assessment and cost factors.

Under No. 9.63 it says, "However, in many cases, qualified building engineers need to be more regularly involved to properly assess the condition of buildings and to suggest the best methods of maintenance.". Could you give us a thumbnail sketch on what you are referring to there?

MR. HOGAN: What I am referring to there is that, to a great extent, the Department of Transportation and Public Works becomes aware of the need for preventive maintenance from requests made by the occupants or tenants of buildings. They gather these requests on an annual basis, prioritize them and decide which ones they have funds to address. Because the money is not there to address all the requests, or even to make a significant dent in the ones applicable to preventive maintenance, they have not produced a formal system whereby they determine what the maintenance needs of the buildings are. Thus, the majority of the support for projects identified comes from building occupants as opposed to qualified building engineers. Now that is not to say that when a significant project is suggested that the Department of Public Works does not have their engineers go out and review it but the engineers are not involved in a regular system of review whereby on a cyclical basis all buildings are reviewed to identify areas where maintenance is required.

[Page 29]

[9:50 a.m. Mr. Russell MacKinnon resumed the Chair.]

MR. CHAIRMAN: I wonder if perhaps it would be appropriate to pass it over to Mr. Holm for the final six minutes.

MR. HOLM: We have to deal with other business and I have to hit the highway as fast as possible, so I am prepared to give up that time so that we can deal with the future agenda items and then hit the road.

MR. CHAIRMAN: Okay, it sounds fair. First of all, I would like to thank Mr. Roy Salmon and members of his staff, Claude, Elaine, and Alan for the tremendous job they have done. I believe they have done a very thorough job and I think we owe them our appreciation for that because they are here under fire all the time.

MR. SALMON: You are going to give them all raises, are you, Mr. Chairman?

MR. CHAIRMAN: Well we will leave that for the government to decide. We will speak to the Minister of Finance, but we do appreciate your very thorough presentation and your forthright answers to our questions.

Looking ahead for witnesses for next week, the only ones that we have on the agenda approved so far is actually the MacNeil project, which obviously is not until sometime in February, and Mora is trying to arrange that. The one for Michelin has been approved, but it is a scheduling thing so that is not on the forefront at this point. We do have the list of potential witnesses that the respective caucuses submitted in October, so we have that to choose from; some of them have been approved and some haven't. Then we also have today's memo from the NDP caucus, through Mr. Holm, dated January 18th, and he has a list of seven more potential witnesses. The PC caucus, I understand they may want to revisit some of the ones they had from their list from a previous date. So I open it up to the floor for some suggestions.

MR. HOLM: Can I ask for clarification. It was my understanding from last week's meeting that we were all going to submit any additional ones, so am I to conclude that we were the only ones who were interested in providing additional . . .

MR. CHAIRMAN: No. We discussed that. The only one that we had given some consideration to as a possibility - looking the big picture with regard to Transportation and Public Works on leasing policy, purchasing policy and so on - it would be a good exercise to have someone like Mr. John MacLean, the Executive Director of Real Property Services, who is the chief cook and bottle-washer within that division because that was one of the issues that had come to the forefront.

[Page 30]

MR. HOLM: The other comment that I might make - and again going back to the list that we were provided and I know, Mr. Chairman, I had mentioned it to you that it might be helpful if we had provided to us again the full listing of all of the suggested witnesses from all three caucuses so that we have that ahead of us along with the proposed new list - I point out, in some of those on the list that I brought forward today, really the timeliness of calling them will depend upon when certain things have been completed. For example, the one that I have on the P3 schools, that would be after the independent report has been completed. Just put it on the list as one on a future date, not a first one to be called, but rather wait until the independent review that is supposed to be done has been completed.

MR. CHAIRMAN: As I have indicated, we had that one suggested, and I inferenced the other ones through the management letters. I thought it was appropriate, before we would consider inviting anyone on those issues, we would wait until we get the management letters and that way all members would have a chance to review.

DR. SMITH: Mr. Chairman, I certainly would support some of these on the NDP, someone from the regional health boards as we knew them.

That was the area that I had interest in and I had actually made some calls. What I found was that the person I spoke with, one of the chairs, did not wish to appear. Now, I don't know, if you summon somebody, what the rules are. I am not familiar with this committee. After having volunteered their time and then being unceremoniously dumped without a notice, I think they wanted to get that part of their life behind them.

I still feel there is a provincial advisory council that was in place, that was chaired by the Minister of Health. It had the chairs and the CEOs, the NDOs and the regional boards. Also, there was a PLC committee that was at the deputy's level. There was that structure in place.

I am very interested in what that structure might look like in the future and if there are any ideas there. Even though I did not bring that name forward, mainly because of my reception that I got when I spoke to the first chair, I thought this person would have a lot to offer to this committee, for the direction ahead. We speak about vision and direction, I think we have to look at the people who have been there, broken some new ground and go forward. The NDPs have mentioned this and I would support that.

I think, if somebody approached it in a way different than I did, maybe we might have better results. We have Dr. Perkin, we have people like that who have strong feelings, have done a lot of work and now have just been dumped without notice that their services are no longer necessary. They have, certainly, I think, an awful lot to offer to this province in the future.

[Page 31]

MR. TAYLOR: I just wanted to comment in regard to John's comments that some of these topics are, perhaps, more timely than others. I don't think there is any question about that but sometimes it is a little bit like beauty being in the eye of the beholder, timeliness depends on whose vocabulary you are talking about here.

What we have tried, Mr. Chairman, at the Standing Committee on Economic Development, is to try to do things fairly and on a rotational basis. Now, I am suggesting that we might even consider that here, in the name of fairness.

I know my colleague has a topic that he would like to bring forward. If we are not tramping on anybody's toes I think, perhaps, we should look at rotational basis, maybe assign the dispatch of this out to TANS, or something, to keep it all in . . .

MR. CHAIRMAN: Okay, I think we are developing a focus here. We are not saying no at this point. We just want to kind of do an initial canvass and then we will come back one by one.

MR. MORSE: I would like to start by thanking the NDP for submitting their list. I have had a chance to look at it but I would like to have a chance to discuss it with my colleagues, perhaps between now and the next meeting and come back with some sort of consensus from the Progressive Conservative caucus.

There were some topics which were not touched on in the fall which still would seem to be of some pertinence. I am thinking of a couple that we submitted and, therefore, have been in all the members' hands.

MR. CHAIRMAN: Could I intercede there for a moment? Just in fairness to Mr. Holm and the NDP caucus, they have submitted this list. Is the PC caucus saying at this point that they want to take this back to their caucus before they approve any of the names, any potential witnesses on this list?

MR. MORSE: We would like to have a chance to review it in private.

MR. CHAIRMAN: Is that generally agreed? Is there a question? John?

MR. HOLM: Well, I guess, a couple of things. First of all, we have a time-sensitive issue and that is, we have to select who we are going to be asking to come forward immediately. That is point one. Point two. I think that the Auditor General has underscored quite clearly that health care and getting control of health care and the vision is really - and maybe I can stand to be corrected on this if I overstate it - that the Auditor General sees that that is the most pressing issue. Really, it is one that got the most attention, I think, coming out of his recent report. Of those on the list that I have presented, I would say a review of the

[Page 32]

health care and the plans, the vision and where we are going would be the one that I would personally favour as the top item.

Now, if that cannot be arranged for next week because of inabilities to schedule and to get the appropriate people in, that can be quite possible. However, I think that we do need to make an agreement very shortly to have the health care officials, the appropriate people, brought forward ASAP.

[10:00 a.m.]

MR. CHAIRMAN: So if we could follow on this, out of the seven, there would only be one that you would feel strongly enough that you would want to at least have approved in principle for a future date even though it would not be first or second, but let's say sometime between now and March?

MR. HOLM: No, what I am saying is . . .

MR. CHAIRMAN: I guess I am trying to be fair to the PC caucus.

MR. HOLM: No, no, I appreciate that and I understand that. All I am saying is that, point one, we have to find out what topic we want to deal with next week.

MR. CHAIRMAN: Sure.

MR. HOLM: Okay, that is point one. Point two; what I am saying is I think we have to have a look at health care, as one of the earliest ones.

MR. CHAIRMAN: Sure, and personally I agree. But perhaps we will hear the potential witnesses that the PC caucus are referring to. Are these new ones or are these ones that . . .

MR. MORSE: No. This is timely though because we have got a situation with the compensation within the youth facilities. It has been going on and it just seems to be mushrooming. We are now doing another investigation. There has certainly been a lot of monies paid out for compensation and we did put that down on our list in the fall and we never got a chance to vote it so I would suggest that we consider that one.

MR. CHAIRMAN: Perhaps could you read exactly what it says because we have to be guided by the fact that if there are any issues that are before the courts or under litigation, we . . .

MR. MORSE: Mr. Chairman, I think that it may be in your possession; number 10.

[Page 33]

MR. CHAIRMAN: No, Mora's. Number 10, alternate dispute resolution program for compensation of victims of abuse at provincial youth institutions with the Deputy Minister of Justice and Jim Keating, whoever Jim Keating is.

MR. MORSE: Jim Keating is very involved with the employees who had been accused by omission, of basically perpetuating abuse on some of the children.

MR. CHAIRMAN: Are there any others?

MR. MORSE: As a starting point, you know, perhaps Mora could do some research.

MR. CHAIRMAN: Let's put that to the question because we also have the fourth one that John Holm has, "The committee should call representatives from regional health boards to discuss new health regions and the impact these will have on the implementation of strategic plans.". It sounds like a fairly good one and timely one as well. Do you want to vote on number 10, the alternate dispute resolution?

MR. MORSE: I will make that motion.

MR. CHAIRMAN: A seconder.

MR. LANGILLE: Seconded.

MR. CHAIRMAN: Would all those in favour of the motion, please say Aye. Contrary minded, Nay.

The suggestion by Mr. Holm; "The committee should call representatives from regional health boards to discuss new health regions and the impact these will have on the implementation of strategic plans.".

Would all those in favour of the motion please say Aye. Contrary minded, Nay.

Are there any others? It leaves us with a very tight agenda so we are going to have to come up with some more witnesses.

MR. HOLM: When is MacNeil's Cove scheduled?

MR. CHAIRMAN: I believe it is approximately the second week of February.

MR. HOLM: The second week in February. I don't have a calendar in front of me so . . .

MR. CHAIRMAN: Mr. Taylor.

[Page 34]

MR. TAYLOR: I am just trying to be helpful, Mr. Chairman, whereas the additional witnesses have just been submitted, I think my colleague expressed that we would like to have an opportunity to share that with our colleagues.

MR. CHAIRMAN: Sure.

MR. TAYLOR: We would be quite prepared at the next meeting of the Public Accounts Committee to come in with maybe - we could go even three or four down the road so to speak, relative to a potential list.

MR. CHAIRMAN: Yes, I think that is a good idea because this is unusual.

MR. TAYLOR: And, again, I would emphasize that although the numbers clearly indicate, that the PCs may have a majority, we would be prepared to go on some type of a rotational basis. I feel it is fair and it treats all Parties the same.

MR. CHAIRMAN: How do folks feel about Mr. MacLean from the Department of Transportation and Public Works as a potential witness?

MR. TAYLOR: Sure.

MR. CHAIRMAN: I have spoken with staff within this department. They have indicated from a general policy point of view they have no problems because there are several pages dedicated to leasing, purchases. Also we could perhaps invite somebody from the department to deal with the 80/20 rule that the Auditor General has pointed out.

MR. HOLM: Mr. Chairman, if I might? I guess I am hearing different messages. One, I am hearing the Progressive Conservatives saying that they want to go back and review the list, and then come back and have a discussion about who we will call in the series of witnesses. The majority in here seem to be saying that is what they want to do. Now I am hearing a suggestion that we should be picking our next witness as well.

What I would propose at this point in time, since we don't seem to be going anywhere fast, I would like to suggest that the other two caucuses, if they have additional witnesses and topics that they would like to present, that those be provided to the committee by the end of this week so that all caucuses will have the full listing of potential witnesses, and we can all review them. When we come here next week, we then set a schedule with a number of witnesses.

We have the Progressive Conservative motion that was already passed today, so that will take care of next week and presumably the week after that, because I assume next week will be a briefing session.

[Page 35]

MR. CHAIRMAN: Well, I believe the Progressive Conservative caucus has nodded that they are prepared to accept the invitation to be extended to Mr. MacLean.

MR. HOLM: Well, you are changing where I am going on this. For a moment, if I could. What I am saying is that next week we would have a briefing session, I am assuming, followed by the session. That would take us into the first week of February. Then we have MacNeil's Cove, which is the second week of February, so the second and maybe even third week of February are taken care of.

That means that next week we would have time to be looking at, and have the Progressive Conservative caucus and others present their list, go back in caucuses. Although I am interested and I have on my list as well the leasing issue and all of that, but before that I think that the top issue that should be coming forward is dealing with health care. That could actually spin out into more than one meeting. That was my proposal, that if we have . . .

MR. CHAIRMAN: John, I am open to your suggestions, I am just trying to find ways to keep the agenda flowing. Given the fact that it was on your agenda - Transportation and Public Works - it seems to be agreeable to the Progressive Conservative caucus and that was the only one that we submitted officially, I indicated that several moments ago, bearing in mind our caucus wanted to wait until we dealt with the letters of management on the eight or nine items that I thought would be interesting for all members of the committee, that the Auditor General had raised. That was our submission, it was rather straightforward. Mr. Salmon would like to speak to the issue as well.

MR. SALMON: Just briefly on the topic, the motion that was passed to have a session on the victims of abuse program, it seemed to me that what I heard was the focus was on the alternate dispute mechanism. We did an audit that was included, reported in my 1998 report of the victims of abuse program and the management of that program. We touched on the alternate dispute mechanism as part of it all. If you are proposing to have a briefing, we could brief but it would be dated material.

DR. SMITH: I am sorry, I must be losing it, but what did we vote on here? Who is coming in for what next week?

MR. CHAIRMAN: The motion was to invite representatives, in particular the Deputy Minister of Justice's office and Jim Keating, who have dealt with the Alternate Dispute Resolution Program for the compensation of victims of abuse.

DR. SMITH: We voted for that?

MR. CHAIRMAN: Yes.

[Page 36]

DR. SMITH: Well I am sorry I didn't get on record as against that, because I think this is a lobby group. It is a one-sided issue and I don't think there is a good balance; I don't think it is appropriate. I think health care is much more of an issue here, rather than a lobby group, but that is just as a member of this committee I want to say that. I think this is inappropriate.

MR. CHAIRMAN: I did make the note. I am somewhat concerned about any issues that are before the Department of Justice litigation.

MR. TAYLOR: Again, trying to be helpful, Mr. Chairman, I would make a motion whereas the NDP, the Liberals, and the PCs all agree relative to bringing in the Public Works representative, that we do that at the next meeting subsequent to the alternate dispute mechanism situation with abuse survivors.

MR. CHAIRMAN: Are there any questions?

MR. HOLM: That would bump MacNeil's Cove, which I think is already approved.

MR. CHAIRMAN: Well, no, as Mora is just indicating, MacNeil's Cove is a tentative agenda. We are trying to tie down their timetable to come here. If the MacNeil's Cove timetable, if we can get them before Transportation and Public Works, then we will have them first, but just to make sure we are not left with a vacuum on our agenda. That would include not only the Public Works side, but also Transportation.

Perhaps we could deal with the 20/80 rule and some of the other factors that were identified in the report, so there will be a little bit of latitude there to invite officials from the department. Is that fair enough? Mr. MacLean, from the Real Property Services, and perhaps, some senior engineering official who deals with trucking associations and so on. I am not sure of all the mechanics.

Would all those in favour of the motion please say Aye. Contrary minded, Nay.

The motion is carried.

We are now adjourned.

[The committee adjourned at 10:13 a.m.]