The Nova Scotia Legislature

The House resumed on:
September 21, 2017.

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HALIFAX, WEDNESDAY, APRIL 17, 2002

STANDING COMMITTEE ON PUBLIC ACCOUNTS

8:00 A.M.

CHAIRMAN

Mr. William Estabrooks

VICE-CHAIRMAN

Mr. James DeWolfe

MR. CHAIRMAN: We are going to begin another session of the Public Accounts Committee. I would like to welcome Mr. Salmon and his staff. I will have you introduce your staff in a minute, Roy. As part of the formalities, of course, of the Public Accounts Committee, I would like to call upon my colleagues in the Legislature to introduce themselves.

[The committee members introduced themselves.]

MR. CHAIRMAN: Mr. Salmon, could you introduce your staff to us.

MR. ROY SALMON: Certainly, Mr. Chairman. On my left is the Deputy Auditor General, Mr. Claude Carter; to my immediate right is one of the two Assistant Auditor Generals, Elaine Morash; and to her right is the other Assistant Auditor General, Alan Horgan. Each of these three has responsibility for a portfolio of departments that they take responsibility for auditing. As the questions arise and get into detail with regard to any particular department or agency, I will call upon them to provide responses.

MR. CHAIRMAN: I would remind committee members that Mr. Salmon and his staff will also be in front of the Public Accounts Committee next week. We do have a couple of items of business, so I would like to save 15 minutes at the end of this session for those items of business with the agreement of the committee.

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Is it agreed?

It is agreed.

Such consensus early in the morning is a wonderful example to follow. Mr. Salmon, of course we're looking forward to your comments. As you're aware, we usually say 15 minutes or thereabouts but, not because of your position, we will certainly give you some flexibility with that. Then we will go to each caucus for 20 minutes and divide up the remaining time.

MR. SALMON: Mr. Chairman, since we gave you an extensive briefing in camera on the day the report was tabled, February 20th, almost two months ago, and my report has been available publicly for those two months, we had not planned to make any kind of formal presentation this morning but rather we're here to deal with any issues that members wish to raise in the form of questioning. I would turn it back to you. We're available to respond as best we can to any points of issue that the members wish to raise.

MR. CHAIRMAN: That's great. Thank you for that. Mr. Steele, you have 20 minutes. It's 8:04 a.m.

MR. GRAHAM STEELE: Thank you, Mr. Chairman. Thank you, Mr. Salmon, you've set a wonderful example for future witnesses, to keep your opening remarks brief and to the point. As you said, your report came out quite some time ago and there was considerable discussion at the time of a number of the highlights of the report. I don't really, today, want to just go over that again. I would like to talk about some of the other things, things that in some ways are more technical but in many ways are more important than some of the issues that were raised the day your report was released, because in some cases it's worth tens of millions of dollars and in other cases it has to do with accountability to the Legislature, which is one of the themes of your report.

I would like to raise a number of issues and in no particular order, just in the order that they come to me here. I was intrigued by your comments on the Transportation trust fund, which is something, frankly, that I didn't know about before I read about it in your report. I suspect that many people don't know about it. I wonder, Mr. Salmon, if you could start by explaining what the Transportation trust fund is, and when it came into being, and what it was supposed to do?

MR. SALMON: I will ask Mr. Carter to respond to that.

MR. CLAUDE CARTER: Mr. Chairman, we're talking about Chapter 2, Paragraph 45 on. The Transportation trust fund has gone through a number of iterations, as indicated in the text in that paragraph, and the summary on the letter in Paragraph 2.46 summarizes the history of the Transportation trust fund itself, at least as it relates to its statutory enabling

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provisions. Far be it from me to know what the original intention was when that piece of legislation was put in place in 1990, but when you read the terms of the legislation that applied to the fund at the current time, our understanding is that the fund was established originally to hold a certain percentage of the gas tax and then to have those funds support 100-Series Highways construction and maintenance projects.

Through the process, and I think it was in 1996, the original provisions for the establishment of that fund were changed such that it became part of the consolidated funds. At that point it essentially stopped being a separate, segregated fund and became more of a notional fund, in the sense that you still have a certain percentage of the gas tax that is supposed to be applied to 100-Series Highways construction and maintenance projects but it doesn't have to be specifically accounted for separately.

What you have now is a notional fund as opposed to a true segregated fund. In any event, what has happened is every year since 1990, in the Public Accounts, there has been an unaudited statement of the activity of the fund, both when it was a segregated fund and now that it's just a notional fund. Essentially what you have is a dollar value which represents the percentage of gas tax that was supposed to be set aside for the fund and the related expenses at the Department of Transportation and Public Works, as they are now known, have spent against those funds. Our concern was that in recent years costs associated with other than 100-Series Highways projects were being offset against that percentage of the gas tax that was, at least under the statutory provisions, to be set aside and used for 100-Series Highways.

MR. STEELE: If I understand your report correctly, the Transportation trust fund, which was designed to take part of the gasoline tax and have the money dedicated to 100-Series Highways, still exists in some form. You wouldn't be writing about it if it didn't exist. Yet it seems to be a strange beast; you called it a notional fund. There is still accounting for it and yet it's not in any way segregated from the general consolidated fund of the province.

MR. CARTER: I would suggest that they're reporting on it as opposed to accounting for it. The accounting is mixed in with the consolidated fund, consistent with the changes in the legislation that made it part of the consolidated fund in the mid-1990s. What they're doing on an annual basis is notionally saying, okay, the percentage of gas tax that was taken in that is supposed to be used for the Transportation trust fund, how much is that? Okay, there's the input or the inflow to the fund. Now what costs have we incurred to offset against those? The way the provisions indicate is that that percentage of gas tax is supposed to be used on 100-Series Highways projects. Then they are going through their accounting in the consolidated fund and what our costs are against 100-Series Highways.

MR. STEELE: After your review, are you in a position to say whether or not the money set aside to be spent on 100-Series Highways was in fact spent entirely on 100-Series Highways?

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MR. CARTER: I think the appendix to Chapter 2 or the exhibit to Chapter 2 that summarizes the history, or the totals indicate that there are some questions that we've raised. I guess since we're raising the questions, we're basically saying, do these represent costs that are consistent with the intent of the Act? There were refunds of payments that were made to vendors and there were transfers to the consolidated fund in order to make the fund balance to zero. That's what we've raised. It's unclear from the legislation, from our point of view, whether or not government has the flexibility to do what they've done in that regard.

They've got a legal opinion from the then-Clerk of the Executive Council saying that what they're doing is fine. We're neither agreeing nor disagreeing with that; we're saying you have a piece of legislation that when we read it in black and white, something different is being done.

MR. STEELE: Part of the reason why this is of so much interest is because everything old is new again, and we have a Conservative Government that is again claiming that it's taking part of the gas tax and dedicating it to a certain purpose, and yet setting up no particular structure to assure citizens that it is, in fact, doing what it is claiming to do, but with no particular controls in place to ensure that it's done. This was done under another Conservative Government in 1990, which then turned around two years later and essentially abolished any real controls over the trust fund so that it went into general revenue.

Mr. Salmon or Mr. Carter, do you have any thoughts on what lessons we can all learn from this previous example, namely the Transportation trust fund that might guide us in the future when other governments claim to be dedicating a part of their revenue to a particular purpose?

MR. SALMON: This really boils back to a point that we have been making continually and that is the adequacy of information that comes forward to this Legislature in terms of accountability. When legislation is passed or commitments are made with regard to items like this, there has to be an accountability in terms of information coming back to this House that demonstrates whether or not commitments that have been made are lived up to.

MR. STEELE: It really highlights a particular problem that we have here in the Legislature in the financial area, because this is just one example of many that I could probably list for you where financial requirements and the province's laws are just simply not enforceable. The government has a number of requirements that they must do certain things by certain times, and they don't do them, and there is no way of forcing the government to do them. One recent example was that the Provincial Finance Act requires the minister to issue quarterly reports. In the real world quarterly reports get issued four times a year. Last year the minister issued two. This Transportation trust fund is another example.

Mr. Salmon, in your report you talk quite a bit more, at length, about adequate reporting to the House of Assembly and, really, the enforceability of certain requirements on

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the government. I wonder if you would care to elaborate on that now for the record. What kind of information do you believe this Legislature needs in order to exercise effective control over government spending?

MR. SALMON: The real issue is achieving a balance. When you sit back and look at what this government and this Legislature are responsible for in terms of $5 billion in revenue and expenditures, the danger is information overload. How do you achieve a balance that provides this Legislature with the right level and quantity of information on issues within a $5 billion expenditure level. Here we have an item that over 10 years amounted to $380 million, that's about $38 million a year out of $5 billion. How many items like that can this Legislature deal with in the course of a year? So, either you get too much or too little or you find a balance. I don't know what the answer to that is, Mr. Steele. I don't know that anybody does, but we strive, all of us collectively, I think, to provide information in the best manner we can.

[8:15 a.m.]

MR. STEELE: I would like to turn to a related issue which is Paragraph 1.24 of your report on Page 11 where you raise a question about whether the House of Assembly can exercise effective control over spending authority limits. Right now in the Legislature we're engaged in the process of setting the spending authority limits for the Government of Nova Scotia for the 2002-03 fiscal year. Yet, the government can exceed those limits with apparent impunity because of certain practices that have developed, such as the carry over of appropriations. If they have an appropriation they don't spend, they just pile them up and pile them up and, if I remember rightly, there are literally billions of dollars in unused appropriations that the government feels it can dip into at any time. I wonder if you could comment on this issue about government exceeding the limits set by the House of Assembly when the House of Assembly has no effective way of controlling them.

MR. SALMON: This has been a long-standing issue and we've commented on it every year for years. It's not an issue of having appropriations that this House has approved in carrying them over, it's an issue of this House approving appropriations up to a maximum and the government then spending in excess of that. That's what additional appropriations are. Those additional appropriations, those additional expenditures don't come to this House for approval, so the government, under the Provincial Finance Act, at Executive Council level, can approve spending money over and above what this House has approved. We consider that to be inappropriate. That is not effective control of the public purse by this Legislature.

MR. STEELE: Mr. Salmon, is that something that is authorized by Statute or is that simply a practice that is developed?

MR. SALMON: No, it's authorized by the Provincial Finance Act. Claude can elaborate on that.

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MR. CLAUDE CARTER: The Provincial Finance Act has a provision that allows the Governor in Council to approve additional appropriations, but the Provincial Finance Act also has, from our point of view, very clear language that says that no money is to be committed unless there is remaining appropriations available. The whole issue of whether or not spending authority is formally in place and available to meet the spending commitments is the issue. So the Act right now allows the Governor in Council to do that. From our point of view, it's very clear that those additional authorities should be in place before the spending occurs. From a practical point of view, governments today and in the past have said that they don't want to put the authority in place until they know what the exact totals are. From our point of view, in terms of the Legislature, and we think that it's important to respect the principle of statutory spending authority; there needs to be some amendments or changes in process so that can happen.

Some jurisdictions come back with supplementary estimates throughout a year so that they then get changes and additional spending authorities approved by the parliamentary system as opposed to just going through the executive process.

MR. STEELE: Mr. Carter, let me put it to you directly. In your opinion, when the Executive Council appropriates money for which there's no authority voted by the Legislature, are they violating the Provincial Finance Act?

MR. CARTER: Not by putting the authority in place because the Act clearly allows them to do it. Our concern is the timeliness. From our point of view, if the Act was adhered to in terms of the way it's written, they would do it in advance of the monies being committed to spending. In other words, if you don't have the vote, if you don't have remaining appropriation, you can't go out and enter into that transaction until you get the additional authority in place. If that's what the Act says, then we don't have a reason to disagree with that because the House passed the Provincial Finance Act - or some previous iteration of the House did - and all we're saying is that the piece of the legislation is there and it's not being complied with.

Now, having said that, there have been situations and this is both timing and when and whether the authority is put in place. Sometimes it takes months; in some cases in recent years, it's taken quite a bit longer to get what some people refer to as the housekeeping. I disagree with that terminology. I don't believe that putting in place additional spending authority is housekeeping. I believe it's a fundamental principle of parliamentary control.

MR. STEELE: My time is rapidly waning so I would like to put to you, Mr. Salmon, another question. There was a sentence in Paragraph 1.25 of your report that caused me a great deal of concern and I would like you to elaborate on it, please. It is, "with financial accounting and reporting now on an accrual (versus cash) basis in accordance with Generally Accepted Accounting Principles, the current appropriations process or focus cannot provide adequately for the effective control of the public purse by the House." That causes me a great

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deal of concern, when the Auditor General says that the House cannot provide effective control of the public purse. I wonder if you could elaborate on that, please, and tell us what you were getting at there?

MR. SALMON: It's really an elaboration of what Mr. Carter has just said in that if there is not an effective approval process in advance of government departmental officials making commitments to spend money, then there is not effective control by this Legislature. The fundamental principle is that no money should be spent unless this body says it can be spent. What we have is a timing issue. Commitments are being made, money is being spent and this House is being asked to approve it after the fact. There is no choice at that point. The money has been spent. So it becomes, as Mr. Carter portrays it, housekeeping. That is not effective control.

MR. CHAIRMAN: Thank you, Mr. Salmon, and Mr. Steele, your time has elapsed. The next 20 minutes will go to members of the Liberal caucus. I would like to welcome the MLA for Lunenburg West, Mr. Downe, who has the floor. I also welcome the MLA for Queens, Mr. Morash, who has joined us. Mr. Downe.

MR. DONALD DOWNE: Thank you very much. I welcome the Auditor General and his staff here today for his Auditor General's Report. I used to look forward with interest and anticipation to these reports for many years, and as I indicated publicly in the paper, I think the Auditor General and his team have done a lot to help move Nova Scotia in the right direction from a fiscal management point of view. I know that the Auditor General has indicated - and probably many times for the record. I can recall back in 1992 and 1993 that we had less than 1 per cent GDP in the Province of Nova Scotia, 0.7 or 1 per cent. That's where we're continuing expeditiously. Operating deficits were massive. I believe at the time we took over the operating deficit was some $617 million, but if you use GAAP and through NSRL, Sysco and unfunded liabilities of the teachers' fund and everything else, I believe the Department of Finance indicated the minimum operating deficit of the province would have been in excess of $1.1 billion on a current year's basis as well as the overall debt growing, and those were on current expenditure issues as well.

I think, if I recall correctly, we would be waiting as long as a year to get reporting information back after the year was over on some departments as to what the true expenditures were. So I believe that the Auditor General has stated, and you can confirm this or deny it, that we've come a long way over the years in our accounting procedures in Nova Scotia and we continue to improve, but that's because of maybe the political will, but also the gentle nudges and good direction from the Auditor General to move in that way, and I think that should be stated for the record. Do you have any comments with regard to that?

MR. SALMON: I don't think there's any question that Nova Scotia, in terms of moving forward to achieve good financial reporting, has gone from very near the bottom in relation to other provinces to very near the top in a period of eight to nine years. Is that a

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reasonable statement? (Interruption) The quality and, in fact, even the timeliness of financial reporting in this province has just improved dramatically.

MR. DOWNE: One realizes, auditor, that realizing the fact that right now the province, under their current account there's - well, we found out through Mr. Steele's findings an additional $1 million under the Gaming Corporation, addition; about a $2.3 million surplus under the ordinary side. The capital continues to grow and has grown at a rate of approximately $100 million a year; certainly $100 million again this year. Does the Auditor General have any concern about the fact that the overall debt of the province is continuing to grow and there doesn't appear, at this point - although we've been promised and we haven't seen it - a plan to deal with how and when we're going to start paying down the debt of the Province of Nova Scotia?

MR. SALMON: We have the same concerns that have been voiced by many others, that on a per capita basis the debt of this province is far too high and that has to be dealt with. Yes, we're waiting to see the plan as well. I think we have to acknowledge that the government, any government, is always faced with trade-offs in terms of demands - and I say this in my report - from the public for services, and for infrastructure and demands for lower taxes, and less burden on taxpayers and balancing revenues with expenditures that aren't necessary to meet the desires of our citizens, those are tough decisions, very often, political decisions. I'm not going to comment one way or the other on the quality, or rightness or wrongness of those decisions. They have to be made but, yes, we need a plan that's going to reduce the debt to something that's manageable. We cannot continue to spend 20 per cent of our revenues to service the debt. That's got to be reduced so that that money can be used for health and education, which seem to be the priorities.

[8:30 a.m.]

MR. DOWNE: Auditor General, we had indications a year ago that the debt would continue to grow at a rate of tens of millions of dollars per year to the year 2007. This year, in a lock-up, we were informed that that debt would continue to grow to the year 2011 by the tens of millions of dollars. My question is, even with a plan, can we afford to go in full deficit? Ordinary is one issue, but capital is the other and you're still, overall, however you want to cut the cake, going deeper in debt.

Can we afford to continue to go to the year 2011 without starting to pay down that debt, and realizing three things; interest rates, we're talking about a 25 basis point increase recently, Greenspan is talking about interest rates increasing possibly next year. The five year trend certainly looks like it's moving in that direction. It depends a lot on inflationary factors. Secondly, inflation, what impacts will it have. Thirdly, the whole issue of the Canadian currency in relative terms.

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If the staff is talking about 2007 or 2011 and the economy goes sideways somewhere in this next decade, one way or the other, is this not a recipe for huge problems, either increased tax burdens, which we've seen consistently this last couple of years, or user fees or fee for services, whatever you want to call it, or a combination of all three? Do you not see that we are at this crisis point at this stage?

MR. SALMON: I don't think I'm in a position to say whether or not we're at a crisis point. That question really has to be posed to the marketplace. The bond rating agencies, those who loan money to this province, how much risk are they willing to take? What's going to happen to the economy? What's going to happen to the Canadian dollar in relation to the U.S. dollar? There are just too many unknowns out there. I would suggest though that we're at a risk point.

MR. DOWNE: A couple of quick snappers here. One is, the government set aside for debts, loan loss provisions, I believe it's $3 million in development. Is that accurate? The loan loss provisions that the government set aside for bad debts, I believe the number is $3 million in economic development, but in all of funding in all the different loan loss provisions across the board it is around $6 million.

MR. CARTER: Are you talking about what they've set aside for 2002-03?

MR. DOWNE: Yes.

MR. CARTER: I really haven't looked at that. The change in the provision for doubtful accounts is a charge included in the calculation of the annual surplus or deficit that's reported. So if you're asking me to comment on whether or not what they've got in the budget for 2002-03 is appropriate, I'm not able to even comment on it.

MR. DOWNE: I understood that your department reviewed a number of issues relative to the budget before it goes out, assumptions from revenue, GDP assumptions, economic forecast assumptions and loan loss provisions are part of that process when you talk about the ability to be able to continue lending money. My concern is that with the current situation with Theodore Tugboat and with Seagull Pewter, the loan loss provision that was allocated, are we now running in deficit?

MR. CARTER: Again, I can't comment on that because that's an expenditure side. When we look at the assumptions, we are looking at them from the point of view of their impact on total ordinary revenue. We don't look at the assumptions within the context of what government's estimating for expenses. That's not part of our mandate on the estimates. Our mandate is focused primarily on the revenues.

MR. DOWNE: On the issue to balance, we're seeing, to some degree, that the overriding question that remains, is balancing the budget enough. It appears to be that the

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government is giving specific numbers to departments, whether or not they're able to live within those. It's evident in Health, it's evident in Education, and Community Services that they've consistently had overrides in those particular departments. Is the Auditor General considering any changes in those areas of assumption of what is manageable or what should be appropriate levels, or is that totally going to continue to be left to the departments?

MR. SALMON: We devoted several chapters in this report to the issues of the planning and budgeting processes. We acknowledge that the Department of Finance, along with the Treasury and Policy Board, is moving to improve those processes. We had an extensive discussion, and Ms. Morash did this work and she can elaborate on it, but we were concerned that the process is target-driven, that is driven by a process that says this is all you can have to run your programs. You, at the operational level, make the decisions on how to spend that money and establish your own priorities. That's a very difficult thing to do in the public domain we're in because of the demands from the taxpayers for services. So you have this competition going on between this is all we have and these are what the demands are.

MR. DOWNE: Excuse me, but notwithstanding the fact that the government itself goes out and says that these are all the things we can do, will do and in our contract with Nova Scotians will do - to some degree, I guess we all set our own bar at the appropriate height that we want to get elected and then, all of a sudden, try to bury it in the ground shortly thereafter. It is interesting; since we talk about revenues, in 1999, the government took over $4.622 billion in ordinary revenue from all sources. This year, the estimates are $5.306 billion, a very significant amount of money. In other words, the government took in $683 million more than it did three years ago. During that same time, the overall debt of the Province of Nova Scotia, from capital borrowing alone, grew at a rate of somewhere in the vicinity of close to $400 million, if I'm not mistaken. It's very close to that figure.

Part of the change is in accounting, but the capital borrowing grew in the Province of Nova Scotia. But the actual revenue is $683 million more of just straight revenue. Given what the Auditor General said about the need for better systems - and I agree with you; you're really talking about our systems analysis - does the government have a revenue problem or a spending problem, in light of the fact that it has had this additional $683 million in revenue than in that three-year period?

MR. SALMON: I would say, from my perspective, the government has a debt problem. The debt charges, as a percentage of total revenue, are 40 per cent higher than they should be on a per capita basis. If the debt was consistent with averages across this country, the debt charges would be significantly lower and that could free up in the neighbourhood of $300 million to $400 million a year to be spent delivering services to our citizens.

MR. DOWNE: In Paragraph 1.8 in your summary I quote: "As I mentioned earlier, this is my tenth Annual Report to the Legislature. Starting with the first one, and annually, I have stressed the need for improved processes, systems and information. As I have

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acknowledged before and as I discuss in this Report, continuous improvement has taken place through actions and leadership at various levels. I also acknowledge that actions have been directed at addressing the province's fiscal situation. In the early 1990s Nova Scotia was running huge deficits and debt was skyrocketing. Actions by successive governments from 1993 on have slowed the pace but the goal of achieving a balanced budget has still not been met, and the Province's debt continues to grow."

In light of that, the debt is still continuing to grow. The revenue in the Province of Nova Scotia increased in that period of time by $683 million over the year that they took over, 1999, and notwithstanding the fact that the debt is still huge and it costs a lot of money - I'm not arguing that point at all, I agree with you, it's a huge issue - but the fact that you've got $683 million more coming in, we're spending more on additional capital, is it a management issue, is it a revenue problem or is it a spending problem?

MR. SALMON: I don't believe it's a revenue problem. I believe it's an expenditure problem and the problem is that there are continuing demands for more and better services from our citizens and, because debt is growing, debt charges are growing and eating into the revenues, but I don't believe we have a revenue problem unless you want to argue with Ottawa about more transfer payments.

MR. DOWNE: We can argue with Ottawa about more money; none of us will ever stop that problem. But the bottom line is that they've had, I mean just to do comparative numbers, from 1994 to 1999 the ordinary revenue of $4.13 billion versus $4.622 billion was $491 million. In other words, the last three years this government has been in power, they've had an additional $0.25 billion more revenue than we did. So the spending has increased and that's really basically what you're saying.

Given that the Auditor General has said that the successive governments since 1993 have tried to control spending, could you comment on the growth in revenue relative to the growth in spending? You know, is there a systems plan that should be put in place, realizing that we also need a system in place when we talk about balancing ordinary and capital and starting to deal with the deficit, because unless you have a surplus you're not going to deal with the debt?

MR. SALMON: Well, I would certainly agree with that. This came up in a discussion in a press conference following the release of my report back in February, that even running a $100 million surplus per year for 40 years would only reduce the debt by $4 billion which might get it back to where we can manage it. But that's 40 years. But are you ever going to be able to produce a surplus of more than $100 million a year? In current circumstances you can't expect anything more than that.

MR. CHAIRMAN: The next 20 minutes goes to the government caucus.

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The honourable member for Sackville-Beaver Bank.

MR. BARRY BARNET: Mr. Chairman, first of all, I guess my question is going to be twofold. I'm going to ask a specific question about the correctional facility in Burnside, but before I do that I want to talk about our debt ratio and debt and deficit financing, that type of stuff, the thing that I guess has driven us to the position that we're in.

[8:45 a.m.]

In the past year and a half to two years there's been a term that has been ingrained in my head and I'm sure I understand what it means, but most Nova Scotians don't truly understand what it means, and it's an accounting term and that is GAAP - Generally Accepted Accounting Principles. Could you explain to us, first of all, what the term means and, secondly, how we compare in terms of other jurisdictions with utilizing GAAP?

MR. SALMON: The term GAAP - Generally Accepted Accounting Principles - we have a professional organization in Canada called the Canadian Institute of Chartered Accountants that does extensive research and works through a structure of volunteer members on standard-setting boards that determine what good accounting and financial reporting principles are, and that leads to a body of principles and standards generally referred to as GAAP. There is an ongoing attempt to standardize those internationally.

What it results in, hopefully, is that organizations of common focus, principle and objectives report their financial results on the same basis so you can make comparisons between jurisdictions, between public companies across the world. So that's where we've been striving to get to, and this province has come a long way in the last five, six, eight years in terms of reporting on a basis consistent with those principles. We're probably in the top three or four in this country.

Canada is far ahead of virtually the rest of the world in terms of reporting by governments in accordance with a set of principles like that. For years - and I don't even know whether they have yet - the United States never produced a balance sheet, never produced a statement that showed its financial position or the results of its operations. We have in Canada for as long as I can remember, and we've consistently gotten better and now certainly we're seen as world leaders.

MR. BARNET: I found it interesting when I first became involved in governments - municipal and provincial - that there seemed to be a great deal of effort and interest in budgets. Annually you would go through a process municipally, and we do it here provincially, where we analyze the budget and debate the merits of a budget, but we don't seem to have a similar process for the actuals. There doesn't seem to be a public process where anyone actually sits down and analyzes whether or not - with the exception of your

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office I should say - where those elected officials sit down and say, okay, this is where we're at.

We've seen it with school boards where, in fact, school boards - and I talk about the Halifax Regional School Board - when you look at the budget and you look at the actuals and you compare the two of them on a balance sheet, you can see wide varieties of differences where they weren't even close, in some cases, 25 per cent, 30 per cent and 40 per cent. In your view, do you think there should be a process where elected officials should in some format analyze the actuals?

MR. SALMON: I couldn't agree with you more. That has been a point with me for the 30 years I've worked at the federal government level and now the provincial government level. There is a real focus on the budget, the prospective aspects of spending, and very little debate or discussion retrospectively on the actuals. This is the only forum that it takes place or can take place at the present time. I think there needs to be more debate on performance and we have been recommending and attempting to influence government at the official level to improve the quality of information that comes forward to this House, not just in terms of financial results but in terms of performance. Not just how much you've spent, but what you did with it. How good is the health care system?

There are initiatives underway, there's a major focus on reporting on health care across this country. The first reports are due in September. Fourteen indicators of performance in the health care field based on statistics, and we're trying to figure out how to audit it and that's a challenge in itself, let alone the Department of Health trying to figure out how to report it, we're trying to figure out how to audit it; wait times, all kinds of indicators, but that's where debate should take place. This House, I believe, should be focusing on how well are we doing on delivering services to our citizens and how much is it costing?

MR. BARNET: I couldn't agree with you any more. I think it's obviously important to plan the money that you're going to spend, but it's equally important to understand the impact of the decisions that you made with respect to that and to know particularly where you are in terms of how you spent that money and what value you're getting out of that. This committee, obviously, part of its role and mandate is to do that.

With respect to our debt ratio, in your audit you peg us at 19.9 per cent of our funding paying back the principal and interest, I suppose, of our debt. Where do we compare - just the interest? Is it just the interest or the principal and interest?

MR. SALMON: The 19 per cent is just interest.

MR. BARNET: Just interest. Where do we compare with other jurisdictions in terms of their debt ratio? I know municipally, for example, Halifax Regional Municipality is 13 or

[Page 14]

14 per cent, but how do we compare to New Brunswick, P.E.I., Newfoundland and other jurisdictions similar in size of us?

MR. SALMON: I don't have the exact position, but we're one of the highest.

MR. BARNET: We are one of the highest. I suspected that. One of the reasons that I believe we moved to that is because public expectations are high for services and we've borrowed over the past to accommodate the expectations of the public.

Interestingly enough, in the past couple of weeks I've had an opportunity to read some old Hansards and I was reading around budget debates. One of the things that I discovered was in 1970, there was a great deal of debate over the amount of appropriations that were going to go into highways in the Province of Nova Scotia compared to Medicare. At that time, the member for Clare - and I don't even recall his name - was arguing for more roads being paved in his jurisdiction and there was some debate over whether or not this move to Medicare would actually have detrimental effect on the roads in Nova Scotia.

They spent $75 million on highways in 1970. The projection was $25 million on Medicare. It's interesting that today we have billions on our health care system and virtually the same amount on our roads. It's important to look at our debt and deficit from a financial perspective but we also have to look at it from an infrastructure perspective. We built these roads in the 1960s, 1970s and a little bit in the 1980s and now we're forced to maintain them. Does your department look at exactly that life-cycle analysis of infrastructure in the Province of Nova Scotia and is there any written analysis of where we're at in terms of our infrastructure?

MR. SALMON: I have not seen any analysis. I'm certainly aware, everybody is aware that we have an extensive deferred maintenance problem in this province, not just in terms of roads, a tremendous problem in terms of schools; you hear complaints from the hospitals, continually, about the adequacy of their facilities. We have a problem, and I understand and this seems to be fairly common knowledge, that until the system was changed, school boards were given money by the province and they could spend it as they saw fit and they chose to pay teachers rather than maintain schools. That's a problem and we're living with it now and it has to be dealt with.

MR. BARNET: Just finalizing my section on the finance, so is it your belief generally that we operate using GAAP, Generally Accepted Accounting Principles? Just simply, yes or no.

MR. SALMON: I'm sorry, could you repeat that Mr. Barnet?

MR. BARNET: Is it your belief that we operate generally using the term GAAP, which is Generally Accepted Accounting Principles?

[Page 15]

MR. SALMON: We do now.

MR. BARNET: Is this budget balanced?

MR. SALMON: I can't comment on that. Our analysis, our review of the budget was focused on the revenue and we concluded that the revenue estimates were based on reasonable assumptions so we're reasonably confident that the revenue side of the budget is appropriate. Now, the question is, can the government live within the expenditure limits that were set? I can't comment on that. Therefore I can't comment on whether or not the budget is going to be balanced or the actuals are going to be balanced.

[9:00 a.m.]

MR. BARNET: That goes back to my original discussion about the actuals. One more small question with respect to our ability to borrow money. There used to be a great deal of public interest in the Province of Nova Scotia's ability to borrow money, both locally and throughout the world markets. I recall a number of years ago - I haven't seen so much focus on it now in the media - there was a lot of media attention on bond rating agencies about Nova Scotia's ability to repay its debt. The better our ability to repay the debt and deficit, the greater the bond rating we had and the lower percentage that we paid on our debt and deficit. Is it your view that by moving to things like Generally Accepted Accounting Principles and developing and maintaining a balanced budget, that will actually improve our position with those who develop ratings for us so that we borrow money at a better rate?

MR. SALMON: That's hard for me to comment upon. I believe that the fact that we are reporting our financial results and also preparing our budget on the most appropriate basis makes us look better to bond rating agencies and investors because they have better information. On the other hand, it is our understanding that prior to those changes, when we were not reporting completely on the basis of Generally Accepted Accounting Principles, the bond rating agencies made all the necessary adjustments anyway. So, we're saving them work in terms of understanding our position but I don't know that that changes the way they rate the province from a debt point of view.

MR. BARNET: If I can move over to my other area and that is with respect to the correctional forensic facility in Burnside. You actually detailed quite well some of the history following up to the decision-making to locate that facility in Burnside. As somebody who watched from outside of the provincial government the actual location site selection process, the development of that facility, I was surprised to learn, after having read the report, that there in fact was a site that had been selected in advance of the Bedford site. The government chose a site in Bedford rather than a site that was recommended by staff. I must say that I remain somewhat confused by that because I've lived for the past two and one-half years listening to criticism from the Third Party about the fact that our government chose a site rather than the Bedford site. What I find difficult to understand is how someone can criticize

[Page 16]

the government for doing the very same thing that they may have done. My question to you, Auditor General, do you know approximately the cost to the Province of Nova Scotia for moving from what, after having read this, appears to be a site in Rocky Lake to Jacks Lake?

MR. SALMON: I will ask Mr. Horgan to comment on that.

MR. ALAN HORGAN: Based on our audit, we believe that the cost differential between those two sites is $1.1 million.

MR. BARNET: Were you able to discover why it is that the previous government moved that facility from Rocky Lake to Jacks Lake?

MR. HORGAN: We were not able to determine that. It was a question we asked and staff of the department could not tell us the reason. They indicated that they did not know the reason. We examined a lot of documentation and we could find no reports of any nature that explained why that change was made.

MR. BARNET: Again, I find it interesting. I took the time over the past couple of weeks to actually visit all three sites. I recall clearly why our government decided to move from Bedford, the Bedford site happens to be in my riding, my constituency, to Burnside. There was a great deal of public outcry, there was a great deal of concern, but interestingly enough, I don't recall the public outcry and concern and even a remote issue of why it went from the site at the industrial park to the site at Jacks Lake. I think this is going to be one of those mysteries that may never be answered, but considering it cost the Province of Nova Scotia $1.1 million, it's something that, particularly the constituents that I represent and all Nova Scotians should know. I know I'm not going to get the answers from you and I doubt I will ever get the answer from the previous government so I'm going to end there.

I just want to say that I find it absolutely bizarre that we have the Third Party criticizing the government for a decision to move a forensic facility from one community to another community when they did the exact same thing and in reality, it probably cost almost the exact same amount of money. They easily could have moved it to the site that was ultimately selected and not had any expenditure at all with respect to the final move. Having said that, I will pass my time over to the member for Kings.

MR. CHAIRMAN: Mr. Carey, you have just one minute.

MR. JON CAREY: I would like to thank Barry for that, but the question I would really like to ask will take longer than that, so perhaps we can move on because I can't do what I want to do in a minute.

MR. CHAIRMAN: That's fine. I thank you for your co-operation, but you've messed up my math here so, I believe - I know that in the past the history teacher had to do it by the

[Page 17]

"goesintas" of Jethro, I think we have 12 minutes left each, if you will stick with that fairly flexible time, that will leave us with 15 minutes or so to do business. It's 9:05 a.m. and I'm going to turn the next 12 minutes to the member for the Official Opposition. Mr. Steele.

MR. STEELE: I have a whole bunch of issues I want to cover in 12 minutes, but I would like to start with something that you've alluded to and that is that a lot of the budget setting is done by setting a target and then saying to departments or agencies or units of government, okay, now reach this target. It's sometimes done without an operational plan for how to get there. The target's set and then nobody is really quite sure how they're going to get there so it's not a very realistic budget. You allude to this, Mr. Salmon, in your report. I wonder if you could give some specific examples of where that occurred?

MR. SALMON: I will ask Ms. Morash to try to respond to that.

MS. ELAINE MORASH: There is one specific example noted in the report; and I don't have the paragraph number right in front of me, but I can describe the example. It had to do with the Home Care Program and the elimination of light housekeeping. If I recall, the numbers were that the light housekeeping element of the Home Care Program cost about $3.5 million a year, and during the budget deliberations that component was apparently not funded. There was no operational plan devised to eliminate that component of the program and, at some point during the year, management at the Department of Health realized that it had never been eliminated. So in fact, it was overspent because they hadn't eliminated that particular component.

MR. STEELE: I was also interested in your comments about presenting to the Legislature program outcome targets, because that is exactly what's missing from the estimates. We are given thick books of line items and we have to guess for ourselves what the program impact is going to be, made more difficult by the fact that each year the government seems to come up with new and creative ways to make this year not directly comparable to the previous year. What would it look like for the government to present to the House of Assembly program outcomes? If I could just say, by way of editorial comment, that that is, in many ways, precisely the issue around this year's budget, which appears to have been driven by the desire to reach a certain bottom line when it's not at all clear to us as members of the Legislature and, I would dare to say, not at all clear to the government what the program implications are of some of the decisions that it's made. What would it look like for the Legislature to get the kind of information that you seem to be calling for in your report?

MR. SALMON: Well, the government has made significant progress in developing and publishing business plans. Now, you can always improve the quality of business plans in terms of specifying program outcomes, but we're getting there. But I don't see any debate going on with regard to those business plans. Elaine, do you want to comment further on that?

[Page 18]

MS. ELAINE MORASH: The business planning process now focuses on goals and priorities for the year, but it doesn't have a concerted effort to produce targets for various programs. So what we are really looking for is numerical, quantitative targets being set up for programs ahead of time and then, at the end of the year, for reporting against those targets. Although there's been some effort to do that, there isn't a completely developed process to set up the performance indicators ahead of time and then, at the end of the day, measure your performance against those targets.

MR. STEELE: One example that I could think of is the Seniors' Pharmacare Program, where the co-pay premium has gone up. There are studies in other provinces showing that that leads seniors not to take their drugs, to, in fact, get sicker, which leads to higher health care costs. But I would dare say that the government has no idea what the implications are of the decision to raise more revenue from the Seniors' Pharmacare Program. That's the kind of information that the House needs, it seems to me. Either the information the government has on the implications or just the very fact that it doesn't have any analysis of what the implications are is something that the House would need to know.

At Paragraph 1.22 of your report, Mr. Salmon, you refer to the serious deferred maintenance problem in schools and to internal Department of Education documents. To your knowledge, have those documents ever been made public?

MR. SALMON: Elaine?

MS. ELAINE MORASH: I can't answer that question. I don't know whether they've been made public or not. I know that we have seen a report that articulates $500 million as the deferred maintenance cost, what's been deferred.

MR. STEELE: Or if I could put that another way, am I understanding you rightly that the department's own, internal analysis is that it would take $500 million to catch up?

MS. ELAINE MORASH: That's right.

MR. STEELE: And do those internal documents identify specific issues at specific schools?

MS. ELAINE MORASH: I would have to honestly say that I haven't looked at the document. My staff has, but I haven't, so I couldn't say whether it's at that level of detail or not. I honestly don't know.

MR. STEELE: Those documents - is that something that your office would be willing to release, Mr. Salmon, or is that something we have to get through the Department of Education?

[Page 19]

MR. SALMON: My standard policy, Mr. Steele, is that documents that are owned by particular departments or agencies should be released by them and not by me.

MR. STEELE: Okay. Yesterday, the federal Auditor General released her report and one of the items which has received a lot of immediate attention is the emerging practice of the federal Liberal Government to put literally billions of dollars of public funds out of reach of audit by setting up foundations to spend the money at some point in the future. To your knowledge, Mr. Salmon, is there anything analogous here in Nova Scotia of any kind?

MR. SALMON: Not to my knowledge. It is a concern of all of us across the country, as legislative auditors. It's a problem at the federal level, and it's a problem in Ontario. I'm not sure about any other jurisdictions at this point in time.

MR. STEELE: But to your knowledge, Mr. Salmon, it is not currently something that has been tried in Nova Scotia?

MR. SALMON: No.

MR. STEELE: In your opinion, is there any method of any kind being used by the government to put the spending of public money beyond the reach of meaningful audit or public oversight?

MR. SALMON: If there were, you'd here from me about it.

MR. STEELE: In Paragraph 2.19 of your report, you refer to what in some ways sounds like a technical issue, namely prior year adjustments of federal-provincial fiscal arrangements. The reason why this issue, which on one level is very technical and so important, is it is worth literally tens of millions of dollars every year. I, frankly, do not understand how it is that the government can record a revenue item of tens of millions of dollars every year, and for the last fiscal year it is forecast to be $40 million, but each year in its forecast it sets the item at zero. There seems to be a problem here with forecasting or reporting, or something, because of course this item, which few people truly understand, absolutely dwarfs a lot of the government's most controversial cuts; $40 million goes a long way, no matter how you slice it.

I wonder if you could comment on why it is that last year, and again this year, the government has forecast prior year adjustments at zero, when it seems like a virtual certainty that it will be worth tens of millions of dollars?

MR. SALMON: Claude, do you want to comment?

MR. CARTER: Mr. Steele, the reason is that if they can identify the prior year adjustments in their estimate for the future year, then they need to account for it in the current

[Page 20]

year because it relates to the prior years. It would be totally inappropriate for you to have an estimate for prior year adjustments, because if you can estimate it you can account for it in the year that's in process or has yet to be reported upon. So it is based on information from the federal government in terms of adjustments that are going to flow to you, flow to the province for years that are finished. So if you've got that information, you have to account for it as opposed to include it in a future year's estimate. We would have a serious issue with the revenue estimates if that prior year number was anything other than zero in the estimate. It would be totally inappropriate.

MR. SALMON: From an accounting point of view, it's a timing issue. If you are aware of information that relates to prior years, then it's appropriate to include it in the current year, not a future year.

MR. STEELE: In Paragraph 2.59 of your report, Mr. Salmon, there is reference to certain matters in which you believe action is still warranted, recommendations from previous reports. I'd like to go to the last item on the list, which is "Disclosure of compensation arrangements for executive and senior management positions in all Provincial public sector entities . . ." You're suggesting that that disclosure should meet the requirements that publicly traded corporations have had to comply with for many years. I wonder if you would care to comment on that and, in particular, are there any compensation arrangements for executives and senior management positions that cause you any concern in terms of full disclosure?

[9:15 a.m.]

MR. SALMON: Well, we don't believe that there's adequate disclosure, across the whole public sector, of executive compensation. The Supplement to the Public Accounts lists the salary of every public servant within government departments, any salary that exceeds $25,000. So you get this great big thick book of all these salaries, but with regard to the disclosure of senior officials in hospitals and school boards, that's not disclosed and that's what we're getting at.

MR. STEELE: The second item on the list refers to exceptions to the procurement policy, which is still not reported to the House of Assembly. It's treated as an internal matter. Who is exercising effective control over exceptions to the government's procurement policy? Is it your office or is it nobody?

MR. SALMON: Do you have a comment, Alan?

MR. ALAN HORGAN: What, specifically, are you referring to?

MR. STEELE: In Paragraph 2.59, the second bullet.

[Page 21]

MR. HORGAN: I would say that is generally not a practice that occurs right now, but it is not clear to us whether there is a specific requirement in policy - and I believe there is no requirement in legislation - that these exceptions be reported to the Treasury and Policy Board at the time. It's just something that's unclear to us. There has been a relatively recent change in procurement policy and it is something we're just looking at now. We haven't completed a review of it, but that change has made it unclear what kind of responsibility there is for reporting procurement exceptions.

MR. CHAIRMAN: The Liberal caucus has the next 12 minutes.

The honourable member for Lunenburg West.

MR. DONALD DOWNE: We were talking about bullets in the document, Mr. Auditor General. If you were to look at one single silver bullet in this report, what would it be?

MR. SALMON: Silver bullet?

MR. DOWNE: Well, smoking gun, silver bullet, whatever you want to refer to it as. If you were to say, out of this whole document, the one area that we have the biggest problem with, the biggest concern for Nova Scotians, as the Auditor General, what is it?

MR. SALMON: Managing the debt.

MR. DOWNE: Managing the debt. This government has not brought in - and it promised for the last three years that it was going to bring down - a management plan. It has yet to bring it down, and the Finance Minister promised a so-called surplus management plan. He's now referring to a debt management plan. If the debt continues to grow for the next - well, we're hearing now to the year 2011 - whether it's 2007 or 2011, on capital, that problem that you say is the biggest will continue to grow, even with a plan, unless that plan starts kicking in immediately? Is that accurate?

MR. SALMON: I would say that that's accurate. I'm not in a position to answer the question. The bond rating agencies are.

MR. DOWNE: I'm sure they're looking at that issue as well.

MR. SALMON: I'm sure they are.

MR. DOWNE: And they would be concerned if the debt continues to grow?

MR. SALMON: I think we all have to recognize that as debt grows, debt charges grow. If revenue doesn't grow, there's less money available for education and health.

[Page 22]

MR. DOWNE: And we referred to earlier that the revenue has been coming in. It isn't a revenue problem, but it's a spending issue. You have expressed concerns over the rising debt of the Province of Nova Scotia even though the government has balanced the ordinary side; you and I have had this conversation; under GAAP, there is the concern that the $100 million growth per year in additional expenditure under capital is still happening. However you want to deal with it in accounting terminologies and so on and so forth, the debt continues to grow and will continue to grow at least for the foreseeable future. Do you agree with that? It has since 1999. Do you see it continuing to grow under the current system?

MR. SALMON: Well, under any set of accounting principles if your revenues do not exceed your expenditures - that's ongoing operational expenses and capital expenditures - then your debt is going to grow, your debt charges are going to grow and your financial position continues to get worse.

MR. DOWNE: What happens if the economy shrinks or slows its growth that we should currently have?

MR. SALMON: If the economy does not grow, if the economy shrinks, then revenues shrink.

MR. DOWNE: If revenues shrink?

MR. SALMON: Deficits increase.

MR. DOWNE: Deficits increase, more cuts, . . .

MR. SALMON: Less services.

MR. DOWNE: Less services and further increases in debt, possibly?

MR. SALMON: Yes.

MR. DOWNE: Is it a good thing for the province with the highest debt per capita in the country to be adding to the debt?

MR. SALMON: That's a question you have to ask the bond rating agencies.

MR. DOWNE: As the Auditor General, one of the best Auditors General in the country I might add, if you're continuing to add to the debt in a province that has the highest debt per capita, is that a good thing?

MR. SALMON: Well, I'm not an economist, I'm an accountant.

[Page 23]

MR. DOWNE: But you're a hell of a good accountant and you understand the economy very well.

MR. SALMON: I think there's a risk.

MR. DOWNE: It is a risk. Do you think that the capital debt is okay as the Finance Minister does, because they say they're investing in assets?

MR. SALMON: The issue of investing in assets is related to the quality of services being demanded by our citizens and it's a trade-off, and it's a difficult trade-off and there's a risk associated with it.

MR. DOWNE: There's a risk associated. We talk about a highway, a 10-year-old highway is not worth the same as a highway that's brand new today, and that's an asset. We're now talking about putting air-conditioning units in our resorts so that the private sector can take it over and do the capital improvements under this, those types of things. We're talking about everything from computers to air-conditioning units. That's building assets even though they're depreciated asset base. I have some concern about that. I guess you're saying the same thing in regard to your statement, depending on what the asset is?

MR. SALMON: Well, we're not buying challenger jets anyway.

MR. CHAIRMAN: Now, there's an editorial comment.

MR. DOWNE: That's the first time the Auditor General became political and I take it you don't want to go to Ottawa, Mr. Auditor General, but I think John Buchanan probably did a few of those things himself, if I recall.

MR. SALMON: I'm sorry, I just couldn't resist.

MR. CHAIRMAN: No need to apologize. Mr. Downe, you have seven minutes.

MR. DOWNE: I knew you were fiscally responsible, Auditor General, I just didn't know you're political.

MR. SALMON: I'm not.

MR. DOWNE: Okay, that's good to hear. In the budget lockup we were told by the Minister of Finance's officials that the debt will go probably to the year 2011. I have explored some of those questions with the chairman of the Treasury and Policy Board and he indicated at the budget debate that, in fact, the debt will continue to grow, that they are looking at additional expenditures in capital next year and they are forecasting new plans - whether it's because of the election year coming up or whatever. Have they shared and should they share

[Page 24]

any of those kinds of plans with the Auditor General in regard to increasing the level of capital debt, even though they show a $89 million capital debt growth next year, or a $90 million capital growth next year, they're actually talking about a list of other priority items, do they share that with you?

MR. SALMON: No, they have not and I'm not even sure they need to. I'm not involved in the decision-making process as to how much money to spend.

MR. DOWNE: No, no, fair, that's good. The minister referred to, the government referred to and the Premier referred to a so-called surplus management plan. Now they're talking about debt management plan. A surplus management plan means that there are substantial surpluses. In other words, they've been able to manage, and they have surpluses enough to deal with the debt of the Province of Nova Scotia. Now they are talking about a debt management plan. Do you have any idea what the minister is referring to with regard to using two different terminologies here? Can you enlighten the House on that?

MR. SALMON: No, I can't enlighten you as to why the change in terminology, but I would suggest to you that, from my perspective, the plan would be the same no matter which term you used to describe it.

MR. DOWNE: You see them as being equal.

MR. SALMON: Well, if you are going to manage the debt and manage it down, then you must produce surpluses. So surpluses would have to be part of the debt management plan.

MR. DOWNE: You make some observations about performance information, and I think that's very important that you do. Could you cite specific examples of situations where decisions by this government were being made without proper information? I know there's so many. There must be one or two somewhere.

MR. SALMON: Elaine can probably comment on that.

MS. ELAINE MORASH: I think it is generally accepted that the health information systems are deficient, and there's been a substantial investment announced for health information systems so that, certainly, decisions that are being made in that sector, I think there's not very much debate that the information systems are, in fact, deficient.

MR. DOWNE: So they're spending money in areas that they do not have substantial data to prove that those investments, in fact, will give them a return on investment or save them money and provide better health care delivery?

[Page 25]

MS. ELAINE MORASH: I think that the deficiency in information systems in the health sector has more to do with effectiveness of certain medical procedures, and that kind of thing, as opposed to return on investment.

MR. DOWNE: I'll turn to my colleague, I know he has patiently been waiting to ask a couple of questions.

MR. CHAIRMAN: You have three minutes.

MR. RUSSELL MACKINNON: Mr. Chairman, my questions will be brief because I want to save my voice for the House.

MR. CHAIRMAN: Take as long as you want, Mr. MacKinnon.

MR. MACKINNON: Based on present trends, in terms of generating a surplus, I believe, Mr. Auditor General, you've alluded to the fact that if we had a surplus of $100 million a year for the next 40 years, that would only bring us down to about one-third of the debt. Is that correct?

MR. SALMON: That's correct.

MR. MACKINNON: How realistic do you see that as an attainable goal, even $100 million a year surplus?

MR. SALMON: There are so many factors to consider in determining the future - revenue trends, cost trends, economic trends. I really couldn't comment as to whether it's realistic or not, but it certainly should be a goal.

MR. MACKINNON: And that's only to bring it down to one-third of what it is now.

MR. SALMON: Well, doing that would be a major achievement and bring us in line with where we probably should be.

MR. MACKINNON: This may be a policy question, perhaps a little unfair, but if you were in the position of making those value judgments as to how to achieve those savings, where would your target areas be?

[Page 26]

MR. SALMON: I would start by examining where all our expenditures are and start ranking priorities in terms of service demands and needs of the population and start to cut-out at the bottom. Some of that's been going on, but that's the only process that will work. The other option is to start looking at other revenue sources and beating down the doors in Ottawa. There's a whole wide range of options here being considered. Yes, there's been a loud outcry about increasing the gas tax, increasing the price of a bottle of booze and that sort of thing. But those are necessary considerations and they are options that have to be considered and have to be dealt with.

[9:30 a.m.]

MR. MACKINNON: I'll just make this final closing comment because I know my time has expired. You make reference to the cost of a bottle of booze. If you were to translate that into a gallon of alcohol, you'd be paying about $80 for a gallon of alcohol and you're only paying $4.50 for a gallon of gasoline. So there's your analysis.

MR. SALMON: They both get consumed, too.

MR. CHAIRMAN: The honourable member for Kings West.

MR. CAREY: Mr. Chairman, I just have one question and then I'll pass, but I think I'd like to have you explain, in the simplest terms that you possibly can. When we talked about a balanced budget, I've had constituents tell me, it took you 40 years or more to get in this position. Why do you want to get out of it now so quickly? What's the rush? So I don't think they understand. Critics are saying a balanced budget is important, but not now. You can put it off. There are other things that are more important. As citizens, we would know if we were paying 20 per cent interest on our debt that we have at home that we would be called in probably by our banker quite soon and be told to get it straightened out or our kind banker would probably force us into bankruptcy or that situation. We would lose our assets that we have, I think.

As a province, I understand the consequences from a bond-rating position in that we would continue to get further in debt. But for me to explain to a constituent who really doesn't care about bond rating in a sense and, politically, we all know that we can be changed every election, but regardless of who's here, they're going to have that problem. So I guess I'm looking for the worst consequence that really can happen if something doesn't get done about this, and not just like a bond rating thing, but for a citizen, what's going to happen to him? Nobody likes fees. Nobody likes more taxes. But what's the bottom line?

MR. SALMON: What's the bottom line? Well, over the last number of years, we've seen two governments virtually put into bankruptcy - New York City and Orange County, California. Two things can happen. The bond-rating agencies get concerned about the ability of this province to pay its debt and pay the interest on an ongoing basis. The first thing that

[Page 27]

happens is that they raise the interest rates if we want to borrow money. That's one scenario. So that starts costing us more than 20 per cent of our revenues.

The second thing that could happen is that they say, no, we won't loan you any more money. If you're working in a scenario where your debt is increasing and you are continually trying to borrow and they say, no, we won't lend you any more money, then you're faced with managing at that level and cutting back on services, or increasing revenues through increasing taxes, in some form. That's what we're faced with. What's the number today? Every citizen of this province owes about $12,000 on behalf of this province. If it got called, would people be willing to cough up $12,000? I don't think so.

MR. CAREY: So is it fair to say if something isn't done that taxes would have to go up; we would have to raise revenue somehow, or we just couldn't operate as a province. Is that a fair statement?

MR. SALMON: Or we would have to cut back significantly on the level of expenditures . . .

MR. CAREY: Or take away services?

MR. SALMON: . . . on services, yes.

MR. CAREY: Mr. Chairman, I will pass to my colleague, Mr. DeWolfe.

MR. CHAIRMAN: The honourable member for Pictou East.

MR. JAMES DEWOLFE: Mr. Chairman, I'm totally amazed at some of the questions from my colleagues to my left, particularly as they try to discredit the direction this government has been taking with regard to debt management.

MR. DOWNE: Is that written down for you, is it a script?

MR. DEWOLFE: No, it's pencil written, former Finance Minister, and you're one of the people I am referring to, and that's why I'm so amazed. Critics have told us that now is not the time to balance the province's budget, they're telling us we can't balance a budget now, we should do it later on, and I guess I want to know what your opinion is. Would it be better if we delayed the balancing of the budget?

MR. SALMON: No.

MR. DEWOLFE: I am not surprised by your answer, because I think most Nova Scotians would agree with you, Auditor General, in that regard. The budget certainly was a turning point in my mind and a new direction for government, a direction that the previous

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government didn't abide by, and it certainly ensures that the future of health care and education and public services in this province are allowed to continue. The budget also allows more financially secured debt management in Nova Scotia.

We've been living on credit cards much too long, I think you would agree with that, over the past 40 years. Again, the old story, that if you run your household that way you know where it ends. You have fewer and fewer choices and as a province we were beginning to have fewer choices and this is precisely the predicament this province was in, only on a much larger scale. Getting our finances in order is an important turning point in this province, and I think you would agree with that, Mr. Auditor General. Would you like to comment on that?

MR. SALMON: Let me put it this way. The problems occurred in the 1970s and 1980s. The problem was identified in 1993 and steps were taken to start to address it, not all that successfully, and that's without regard to political Parties. The governments of the last 10 years have recognized the problem and have taken steps to start to address it. We still have a long way to go.

MR. DEWOLFE: Do you believe that the current government has met its fiscal objectives despite the fact that we inherited a budget from a government that promoted deficit surplus?

MR. SALMON: I would suggest to you that since 1993 the focus has been on balancing the budget. Now, what is an issue is that our accounting principles have finally caught up with reality and to some extent, until recently, we were dealing with incomplete financial information and therefore not portraying what the true financial situation was, and now we are.

MR. DEWOLFE: This is truly a new direction?

MR. SALMON: I wouldn't agree with you, Mr. DeWolfe, that it's a new direction. I think the direction has been consistent. The information on which the decisions were being based was incomplete, and now it's complete.

MR. DEWOLFE: Given time is passing by, I think I will pass to my colleague, the member for Yarmouth.

MR. CHAIRMAN: The honourable member for Yarmouth. You have three minutes, sir.

MR. RICHARD HURLBURT: Mr. Salmon, every day here in the House I hear the two Opposition Parties saying, put more money into services, balance the books, don't raise taxes, and I guess there's a magic wand somewhere. The former Minister of Finance said that

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he balanced the books here a few years ago, and I guess that was proven wrong. So I don't know what the answer is today to satisfy the two Opposition Parties, but I think the government is on the right track. I would like to ask you if you would mind commenting on how you feel the P3 school system was for the taxpayers of the Province of Nova Scotia?

MR. SALMON: Costly.

MR. HURLBURT: Absolutely, I agree with you. Being a small business person before I got into politics, I would always look at buying versus leasing my equipment, but I would always make sure that there was a residual that I could afford at the end. Maybe you can help me out here. I know the P3 school in my community is costing the taxpayers outrageous rent for that and at the end of 20 years there's not even a mechanism in place for them to turn that back over to the department without heavy costs to the taxpayers of Nova Scotia where they've already paid for it about three times. Am I correct?

MR. SALMON: I can't comment specifically on any one school. We did extensive audit work a couple of years ago on the P3 process and criticized it significantly. The agreements are all very complex and the terms and conditions of each one are somewhat different. How costly, I really don't want to comment.

MR. HURLBURT: Mr. Salmon, I only have one minute left, ambulance services in the Province of Nova Scotia in 1995, don't quote me the exact number, but I think it was $13.6 million that it cost. Last year it was $53 million in costs. Would you like to respond to that in any way, what do you see for the province?

MR. SALMON: There have been over the last couple of years a couple of sessions of this committee dealing with ambulance services and you've had the Department of Health officials in to comment on it. I believe that it's generally acknowledged and has been stated publicly that Nova Scotia has a Cadillac ambulance system, probably one of the best in North America, and it is costly. Do we want to afford a Cadillac system?

MR. HURLBURT: Can we afford the Cadillac system?

MR. SALMON: Do we want to, then can we, there are two sides to it, yes.

MR. CHAIRMAN: Mr. Salmon, of course, you are returning next week and we welcome you back. Usually at this time we allow a few wrap-up comments. Do you or any member of your staff want to take that opportunity at this time?

MR. SALMON: I don't think we have anything to add. I'm pleased that the bulk of the questioning has focused on what the major issue is in this province and so I hope that we've been able to respond and provide you with information that you were interested in having. We would be pleased to come back next week and do it all over again.

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MR. CHAIRMAN: Same time, same place. Mr. MacKinnon, to the Auditor General. Just one moment, please, and we're going to take a quick recess and then we have business. Mr. MacKinnon has the floor.

MR. MACKINNON: A little bit of curiosity here, did the Auditor General ever find his laptop and did that pose a security risk?

MR. SALMON: No.

MR. CHAIRMAN: Our apologies for that unfortunate incident and I say that from someone who has had it happen nine different times.

MR. SALMON: At least I got my car back.

MR. CHAIRMAN: Oh, you have your car back. Okay, on another topic, if we may, we have to move on to a couple of items of business and I am quite sure that you folks don't mind if we proceed right to that.

We have two items. The first item is in response to a concern brought up by Mr. MacKinnon at our April 10th meeting. This is concerning the fact that we've had a number of witnesses who have not been forthcoming with information that has been requested over a various time limit. I would ask, Ms. Stevens, if you could report to the committee where we are on that request from Mr. MacKinnon.

MS. MORA STEVENS(Legislative Committee Coordinator): What happened is last week at the committee, it was decided that the chairman would undertake a way in which to bring the issue forward to the House of Assembly. That was done in the form of a point of privilege to the Speaker on the Wednesday following our meeting. On Thursday he reported back that it was up to the committee to form what is called an order to the Department of Health, giving them a time limit as to when they should report their findings and what they can bring back to the House from that list of 16 items. That was done and sent to the Department of Health; I think it was signed on the Friday. They have until next Tuesday, which is Tuesday, April 23rd, so when we receive their response, that can be reported on next week at this meeting.

[9:45 a.m.]

MR. CHAIRMAN: How are you with that, Mr. MacKinnon?

MR. MACKINNON: That's fine with me, Mr. Chairman. Was it just the Department of Health? I believe there may have been one or two other departments. I stand to be corrected. We can examine that detail next week.

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MR. CHAIRMAN: The second item of business is a follow-up from Mark-Lyn Construction. I frame it around the possible referral to the Ombudsman's Office. Is that correct, Mr. Steele? This is your topic?

MR. STEELE: Members of the committee will recall that I had made a motion that the committee recommend to the Ombudsman's Office that it look into the matter, and I would like to bring that back to the committee's attention; that motion was deferred and not finally dealt with. I could say, by way of comment, it seems to me that after we looked at it for two weeks, it's fairly evident that it is a complex, multi-faceted issue with differences not just of opinion but, in some ways, some radically different understandings of the facts.

It's simply not within this committee's ability, I think, to reach any definite conclusions on what the facts are, never mind on whether the relevant departments of government acted appropriately. It seems to me that the one office that has the ability and the resources to resolve this issue once and for all, because it's independent of government, can do an investigation, and issue a final report, is the Ombudsman's Office.

It's my understanding that the citizens have approached the Ombudsman's Office, but I still believe that if this committee writes the Ombudsman's Office encouraging them to look into it and to reach a final conclusion, it will carry a great deal of weight in terms of the relative priority that the Ombudsman's Office gives to that particular file. I would respectfully ask the other members of the committee if they could support that motion I made a couple of weeks ago, that the chairman be directed to write to the Ombudsman's Office requesting it to inquire into the whole matter of Baltzer Bog.

MR. CHAIRMAN: Are we clear on the proposed motion? Do we have any members wishing to speak on the motion? I'm going to call for the question.

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

Please don't ask for a recorded vote. You were supposed to do that before you made the motion; remember that one?

The motion is defeated.

Mr. Steele.

MR. STEELE: You had mentioned that to me before, Mr. Chairman, which was, as far as I knew, a brand new interpretation of the rules, that a request for a standing vote had to be made before the oral vote. I'm just wondering if you could confirm that that's your understanding of the Rules of the House.

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MR. CHAIRMAN: That was my understanding, but I'm also aware of the fact that if there are two members requesting a recorded vote - at that time, I must admit, as the chair, I decided on the spot that it wasn't necessary. I understand the value of a recorded vote at times, but - and I'm not based upon precedents here. Just out of making the committee work more effectively, I'm suggesting that when you make a motion you also include the fact that you want a recorded vote. I will clarify that with Legislative Counsel; I would assume that's who I should go to. I take your point.

However, the motion that you made is defeated. Mr. Steele.

MR. STEELE: The motion to refer to the Ombudsman's Office was only one suggested way of bringing some kind of resolution to this issue. The Public Accounts Committee has the power and, really, sometimes needs to try to bring things to a point, bring things to a conclusion, and I still think it's worthwhile for the committee to consider whether it wants to try and reach a consensus report on what we heard and what conclusions we draw from it. It's not terribly helpful to anyone involved in the Mark-Lyn matter to hear witnesses for two weeks and just leave it hanging. It doesn't strike me as being a very productive use of this committee's time to hear from witnesses and then do absolutely nothing about it, and not even discuss whether we want to do something about it.

MR. CHAIRMAN: Thank you for your point. Mr. MacKinnon has a comment on this topic.

MR. MACKINNON: If I may, we do prepare our annual report and I believe we've already agreed as a committee that we'll be preparing quarterly reports - am I correct on that Mora?

MR. CHAIRMAN: I believe that was our commitment. Yes.

MR. MACKINNON: So, I mean, we'll be able to cover that off.

MR. CHAIRMAN: Okay. Other speakers on this topic? I see none, therefore I will call for a motion of adjournment.

We stand adjourned and next Wednesday, same time. Thank you.

[The committee adjourned at 9:52 a.m.]