FINANCE

Mr. Assistant Deputy Chairperson (Gerry McAlpine): Order, please. Will the Committee of Supply please come to order. This morning, this section of the Committee of Supply meeting in Room 255 will resume consideration of the Estimates of the Department of Finance.

When the committee last sat, it had been considering Item 2.(a)(1) on page 63 of the Estimates book. Shall the item pass?

Mr. Leonard Evans (Brandon East): At that point, the member for Crescentwood (Mr. Sale) was asking questions, and I believe the minister was in the process of answering them, and I was just wondering, did the minister complete his answers? Yes.

So which line did you say we were on?

Mr. Assistant Deputy Chairperson: 2.(a)(1) on Page 63.

Hon. Eric Stefanson (Minister of Finance): I think when we were doing this yesterday, we agreed, if it is agreeable with everybody, that we would go, how do I define it, section by section, like we did the Administration and Finance section first.

We are now in the Treasury section, and we had a series of questions. From my point of view, I think we were mostly through the Treasury section, and then we would deal with that, and then we would move on to the Comptroller section and do it in the however many sections there are within the Estimates, if that is agreeable with everybody, Mr. Chairman. It seemed to work easier.

Mr. Assistant Deputy Chairperson: Is that the will of the committee? [agreed]

Mr. Leonard Evans: So we are still under Treasury. We still have some questions in this area to ask, mostly by way of information. Some of these questions of information, I think, are appropriate because over the years we have not spent too much time on this department, have not asked too many questions related to detailed administration.

In this branch, as I understand it, it maintains close contact with the world financial community through various--so it is knowledgeable about the status of markets relevant to the province. I am just reading from the documents supplied by the minister, supplementary information about the department. It provides advice to the minister respecting such markets.

I was wondering if he could now elaborate as to what markets we are talking about. What are the current markets, I guess, geographically, or am I reading it properly? Maybe it is not geographical. Maybe it is some other dimension that we are referring to here.

Mr. Stefanson: Our markets are traditionally Canada, I guess in order of priority, so to speak, Canada, the United States, Japan and the Euro-Canadian, but as we discussed I think it was in response to a question from the member for Crescentwood (Mr. Sale) yesterday, we did undertake to give a breakdown of our debt on a regional basis and, again, I think as we discussed yesterday, our debt servicing today is all in either Canadian or U.S. funds.

In terms of our general purpose debt, about 67 percent of it is serviced in Canadian funds, about 33 percent in U.S. funds, and we have no debt servicing in any other currency. When we do borrow in, let us say, the Japanese market, we then do a swap and swap it into either a Canadian or U.S. exposure. I think we have had this discussion before. Our view certainly is to try to have as much of our debt in Canadian currency as possible because it matches our revenue sources, but if it is not in Canadian currency then we believe it should be in U.S. currency. They are our largest trading partner and, particularly when it comes to corporations like Manitoba Hydro, they have some revenue in U.S. currency.

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Mr. Leonard Evans: This has been a change. There has been a change in the distribution of debt held in different currencies by different countries. As I understand it, and the former Minister of Finance made some point about this, and that is that his preference was to hold it all in Canadian, if possible and, secondly, U.S. I guess the purpose of that, of course, is to minimize the risk and to minimize uncertainty that can occur.

As we all know, these markets can be very volatile, too volatile sometimes. Yet, some years back, as I recall, with previous governments, previous Ministers of Finance, the effort was made to go to whatever market in the world that provided a good, low rate of interest for our borrowing. In other words, what you traded off was the cost of borrowing in various foreign markets which at that time seemed to be very attractive vis-à-vis borrowing in Canada or the United States. So what we are trading off here is risk versus the cost of borrowing.

Now it is possible, I guess, theoretically, that Canada can also be very--this is the ideal world where Canada happens to be the lowest cost market so to speak for our borrowing or say, followed by the United States, so that we can have both advantages. We are minimizing the risk and at the same time we are getting a low rate of interest, but that usually, in the past at least, has not been the case. Canada has been a high cost area of borrowing.

I would just like to ask the minister a general question. What price are we paying for obtaining this--I just want to make it clear that I personally am inclined to favour borrowing in Canada first and the United States second. I am biased in the direction that the minister and the government has gone in this respect but at the same time there could be a cost, and I was wondering if the minister could give us some background. Are we paying a cost in terms of--and I do not know if anyone has computed this--on whether we are forgoing a bargain, so to speak, that we are paying an extra amount of interest by virtue of the fact that we are borrowing more in Canada and the United States than we have in the past?

Mr. Stefanson: Mr. Chairperson, the overriding consideration is still what it is going to cost us to borrow. Having said that, as I said earlier, we have a policy of keeping our debt servicing preferably in Canadian dollars, but we are prepared to carry some in U.S. dollars. So even though we will borrow on other markets we will swap it back to one of those currencies, but when we do that we are doing it on the basis that we are borrowing at significantly lower rates than we would have been able to borrow at in Canada even though we borrowed, say, Japanese yen and done a swap back. So, am I making myself clear? We look, obviously, at our cost of borrowing. What is our cost of borrowing going to be? We want to get our exposure ideally back into Canadian currency, but we are prepared to take some U.S. exposure as a result.

The other part of that, Mr. Chairperson, as the member for Brandon East (Mr. Leonard Evans) knows, is always one of access to capital as well. Really, we cannot necessarily access all of our borrowing requirements or all of the provincial borrowing requirements and Canadian borrowing requirements within Canada. So when you reach a point where you do have to do some borrowing you then look at the access to capital and obviously getting the best rate you possibly can and keeping our exposure in Canadian or U.S. I am repeating myself, but we have absolutely no exposure in any currency beyond Canadian or U.S. With those kinds of parameters our objective is still to try and borrow within Canada and to keep our exposure within Canada, but sometimes we will end up with some U.S. debt servicing because it is the lower interest rate at that particular point in time.

Mr. Leonard Evans: The previous Minister of Finance was very critical of our policy where we borrowed extensively in foreign markets. Maybe I should know the answer, but I do not. I would like to ask the minister--maybe he can advise us through his staff at least--why did we not do this previously? I mean, we were criticized for borrowing so much from abroad and exposing ourselves. As I understand the minister, what he is saying is you minimize the exposure by immediately swapping into Canadian currency, which is fine, but why did we not do that earlier?

Mr. Stefanson: Swaps really became, in a very significant way, a way of doing business in the mid- to late '80s, and I guess that is probably the simplest answer as to why it was not more prevalent in the early '80s or in previous governments. Then you still have to look, even when you are doing a swap, obviously that it is still the most cost-effective decision. Of course, it is subject to other market conditions. We will have some years where we will borrow on those markets, we will have some years where we will not borrow on those markets even under a swap arrangement, because we cannot still get the best--we can get lower interest rates in either Canada or the U.S. So there is the issue of what the market is like at that particular point in time, but also that swaps just became a very significant way of doing transactions in the mid- to late '80s.

Mr. Leonard Evans: How do you achieve these swaps? I would sort of guess you go to one agency or another and get their advice as to procedures. They will do it for you, I guess. They will do the actual transaction for you and maybe advise you, so the role of the department is to decide whether or not this is good advice. Is that correct?

Mr. Stefanson: Really we basically perform two functions. We do work with our investment dealer who is proposing the transaction. Let us say, if we were doing a Japanese yen swap, we would work with one of our underwriters there, Nikkei or Industrial Bank of Japan. They would then go out and basically test the market for doing the transaction. We would also be monitoring the market to see what kind of rates were available, and if they come together, and we are satisfied that the rate is in our best interest better than we could borrow at within the Canadian market or directly in the U.S. market, then we will proceed with the transaction.

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Mr. Leonard Evans: So the agency can vary, or do you always use the one agency for the swaps?

Mr. Stefanson: I think, as we indicated yesterday, we will work with our underwriters, our traditional underwriters in Japan, but then we will work with several banks. In response to, I think, a question from the member for Crescentwood yesterday, we indicated that the banks that we will deal with are medium AA or above credit ratings. So based on that it could end up being with one of several banks, but we will be working through our major underwriters in Japan, as an example.

Mr. Leonard Evans: Just again on the procedure, and I thank the minister for that information. So the agency will perhaps give you the advice but you still do your homework. You still do your research and make sure that we are getting sound advice and that all aspects are taken into account, all the data are taken into account and that it works in the interests of the Province of Manitoba to engage in a particular deal, a particular swap.

Mr. Stefanson: That is basically correct, Mr. Chairman.

Mr. Leonard Evans: I think that pretty well--there are other questions I had regarding other activities of this branch relating to establishing interest rates for loans to Crown corporations, and I just wondered how do you go about establishing the interest rates on Crown and government agencies? We touched on that a bit last time, but I am not clear whether I got an answer on that one.

Mr. Stefanson: We did discuss this at some length yesterday, Mr. Chairman. We do it monthly. We do it the first of every month. We get the rates from our three Canadian underwriters, take the average of the three, and as I indicated, if we saw one rate that was out of whack or appeared to be out of whack for some reason or out of line, we would then have discussions with that underwriter to get an explanation and determine whether or not an adjustment is required as a result of that, but normally it is the average of our three underwriters done on a monthly basis, and that is the interest rate that is charged to our Crown corporations.

Mr. Leonard Evans: It sounds very simple. You get three estimates and take the average and carry on.

Just passing on to the area of Capital Finance, still under Treasury, there is reference made to global capital markets where you are monitoring, initiating the borrowing activities of the government which have recently averaged between $1.5 billion and $2 billion per annum. I was just wondering how does this compare with previous years. It is a lot of money; how does that compare? You say here all documentation relating to borrowing activities is prepared by the branch. Is this a normal amount that you monitor and supervise?

Mr. Stefanson: Mr. Chairman, I think as the member knows basically the components of our borrowing, there are really three main components or there have traditionally been three main components. One has been when governments were running deficits and you had to finance the deficits; two, we also provided the financing for our Crown corporations; and three is the refinancing of various issues that come due in given years. So those are the elements that traditionally have made up our annual borrowing, and really over the last several years that has been going down on a cumulative basis in part because deficits have been going down.

This year we are running a surplus and have no deficit in 1995-96, and some of our major Crown corporation undertakings, particularly Hydro, have basically come to an end. So in this document it says $1.5 billion to $2 billion, I would think over the next few years our borrowing might be more in the $1 billion to $1.5 billion range and looking back over the last few years, going back in the early '90s, we were up in excess of $2 billion, so there has been a downward pattern basically because deficits are being reduced and Crown corporation requirements have been less than in earlier years.

Mr. Leonard Evans: Thank you for that information. I would agree. I would think the fact that Manitoba Hydro is not undertaking any massive development--there is no Limestone development. I guess Telephone, which is the second largest corporation in terms of borrowing, does have some ongoing capital requirements, but you do not get any sort of massive surge as you do with hydro development.

The reference is made to a liaison with domestic and international rating agencies, and we talked about agencies earlier. I am just wondering, exactly who are they, or is this a large group or anybody who is out there that you want to deal with from day to day?

Mr. Stefanson: It is really the four bond rating agencies: Standard and Poor's, Moody's, Canadian Bond Rating Service and Dominion Bond Rating Service.

Mr. Leonard Evans: You said Standard and Poor's, Dominion Bond Rating Service, and Moody's and the Canadian Bond Rating Service. I guess DBRS is not one of the favourites at the moment.

Mr. Stefanson: That is not true.

Mr. Leonard Evans: I know the minister has a letter from their organization re the credit rating, and they say nice things about the credit rating which is fine, but they still have that table and the table, as I read it, shows a deficit of $96 million, is it, for 1995-96. That is what the numbers show in the table, unless they have changed the table on us.

Mr. Stefanson: Mr. Chairman, we are quite pleased with Dominion Bond Rating Service. We had some concerns about a year ago with Canadian Bond Rating Service, their method of dealing, certainly with our government. We find the three, Standard and Poor's, Moody's and Dominion, do an extensive review of the Province of Manitoba, keep in good contact with our officials, and so on, to have a good understanding of our economy, of our fiscal situation.

We were somewhat concerned about a year ago with the Canadian Bond Rating, that they were doing a very general and superficial review of our situation, and we have had some discussions with them about that, that we think there should be a more thorough review and ongoing discussion with our officials, but the issue of Dominion Bond Rating Service--I certainly would be more than pleased to provide the member from Brandon East with a copy of the letter that Dominion Bond Rating Service sent.

They confirm that we have a surplus this year of $48 million. All that they did is they took a one-time transfer of lottery funds that we have said all along is a one-time transfer, and they took some transfers that are from Crown corporations that are one-time and deducted them from the surplus and said if you did not have those one-time transfers, here is what the deficit would be. They do a similar thing right across Canada, and the reason for doing that is comparability. They want to try to maximize as much comparability as they can.

I think that is why we are strong supporters that provincial governments should co-operate as much as possible to try and create some fairly consistent standards right across Canada. It was no more and no less than that. Dominion Bond Rating Service wrote a letter clarifying that there is a $48 million surplus. They make these adjustments each and every year with various provincial entities, and that was the extent of it, Mr. Chairman.

Mr. Leonard Evans: On that, there is no question that if you have the money, whatever the source, and you put it in, you can reduce your deficit or come about with a surplus, obviously. The criticism, I guess, as the minister is pointing out, is the methodology. You want to have consistent methodology to be able to compare provinces or various governments. I think that is fair.

I can tell you, there were a lot of people out there who were concerned that this one-time payment from the accumulated Lotteries Fund put into your revenues that it was not the way to run a business. I had one constituent who was a businessman, a reasonable businessman, who said, and all he knows is what he read in the paper, that he could not run his business or would not run his business that way.

What I was concerned about also is how you could in this respect, and I know it is a bit of a footnote, utilize funds that I thought were received last year and transfer it to this year from the sale of Crown corporations.

The one I am most familiar with is McKenzie Seeds. I mean, everything we read in the paper was that the government was paid last year and received the money last year, and then all of a sudden some of that money or all of that money is transferred to this year. It seems to me, that is not appropriate.

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Mr. Stefanson: Mr. Chairman, those kinds of things are all a matter of timing, and when you are selling off an asset or winding down an asset there are a whole series of things that have to be done even beyond concluding your transaction just with the buyer. That is not uncommon. I mean, that I am sure has happened over the course of the last many years and happens in other provinces in terms of when things are finally concluded and when the funds are in fact transferred across into general revenue.

Mr. Leonard Evans: Well, I gather, Mr. Chairman, that this is a discretionary matter, that the government could have showed it as last year's revenue or it could have shown it as this year's revenue. It chose to show it as 1995-96 revenue. Is that what the minister is saying?

Mr. Stefanson: I would have to look at each one individually and see just what the timing was of the wind-down. In some cases there might have been some discretion, but in some cases it could also have been the, as I say, completion of the winding up of the entity and concluding that the entity will no longer have any function.

When you start talking about timing differences, I think, again, as the member for Brandon East knows, we have a modified accrual accounting system in Manitoba because so many of our items remain open for a long period of time. In terms of the finalization of what our share is under different federal funding arrangements, some of them are kept open for as much as three years in some cases in terms of finalizing the equalization on some of these kinds of programs.

So, I mean, one could argue you should be trying to determine what it is at a given point in time and then dealing with adjustments over the course of the three years. It does not make any sense because there can be such a variation. So ideally in any system you would like a full accrual system, but governments, not only the Province of Manitoba, provincial governments right across Canada, I am not aware that there is any government that is on a full accrual system because of the timing differences under a series of issues that remain open for many years.

Mr. Leonard Evans: I think, without doubt, that public finance is much more complicated than private finance; it is just the nature of the beast. There are so many people, so many departments, agencies involved, and as you are pointing out, we do depend on considerable flows of funds from the federal government, and those are subject to variation because of the way the formula works. It seems to me the formula allowing for corrections and further corrections so that, you know, now you see it, now you don't, and then all of a sudden some more is back--I think you had that experience not long ago where you expected a fairly large influx of money and then somehow or other it disappeared, or part of it disappeared.

Mr. Stefanson: We could probably discuss this issue all day about the accounting and timing differences, but just to illustrate my point about some other provinces, both Saskatchewan and Alberta handle their profits in a very similar manner to Manitoba, and I will give the two examples very briefly. Saskatchewan holds liquor and gaming profits in a special account until Treasury Board directs that they be transferred to Revenue. On March 31, 1994, $155 million was held for future transfer in Saskatchewan. Alberta makes periodic transfers to General Revenue. They also make significant grants directly out of their lottery fund which does not happen here in Manitoba. On March 31, '94, over $200 million was held in the fund in Alberta. So that is just confirming the point I made that these kinds of practices, as the member has acknowledged, are not uncommon to governments and public accounting which, one could argue, are not as common in the private sector.

Mr. Leonard Evans: What this does is call into question the value of trying to come up with annual estimates of budgets as opposed to, say, something of a three-year nature, to get a more true picture of what has happened to the finances. I know we have got quarterly estimates as well, which are even--because a smaller period could be subject to even more volatility, but it seems to me it is a very difficult job to budget and forecast, because you have got so many departments, so many agencies that put their numbers in and then you do not know--hopefully, you are going to get a handle on expenditures so you will have some idea that departments are going to be within their budgets, but on the other hand, revenues may fall very short of the mark or exceed the mark depending on what happens to the economy. So a large part of it then revolves around what you estimate to be the rate of economic growth and how your income taxes may grow or not, your sales taxes, other taxes and so on. This is the tricky part of it, and sometimes I wonder how valuable just the one-year estimate is. There is a better argument to be made for budgeting over a longer period and looking at a pattern of whatever has happened to provincial finances in any province or government and to get a more realistic assessment.

Mr. Stefanson: Mr. Chairman, and that is in part why--I believe it was three budgets ago now--we started doing a three-year projection beyond our current year, so we do project out for three years what our estimated revenues are going to be, what we are estimating, what our expenditures will have to be and so on, and as well the whole issue of fluctuations is one of the reasons that we support utilization of the Fiscal Stabilization Fund, to provide that stability because of the fact that we can be open to some significant swings, particularly as it relates to transfers from the federal government.

Mr. Leonard Evans: Because of the way our system works, because of the social security legislation that all provinces and the federal government have, when you do hit a recession, some of these expenditures soar. I mean, welfare payments and other kinds of costs seem to be incurred when we have a lot of unemployment, when we have a great deal of recession. To some extent you do not have much control over this unless you change the regulations and cut back on the rate of payments or whatever. So you have that as well.

What has tended to happen is government budgets have tended to offer some sort of a stabilizing impact on the business cycle. In other words, you sort of automatically provide some stabilization because, say, your welfare payments, just to take one area, increase so that provides further funding, for some people at least, and to help offset a recession.

At any rate, I am one who has advocated that too much attention has been paid to whether or not a budget is balanced in any specific year. I mean, if it is so magical, if that is so great, why do we budget it every quarter, why do we not budget it every week? I mean, what is so magical about a 12-months budget? I am not saying you should be imprudent. I am not making the case for wild spending or being imprudent. I am saying that in reality it may be more appropriate to look at how the budget has been done over a period of three or four years, or how it is over a business cycle. The ideal, from a Keynesian point of view, is we should balance over a business cycle, presumably achieving surpluses in good times and deficits in bad times, and hopefully the surpluses pay for the deficits. It does not always work that way, but that is the theory.

Mr. Stefanson: I really think we will have many opportunities for debate on this issue. We do have the balanced budget legislation which we will be dealing with, and I am sure the member for Brandon East (Mr. Leonard Evans) will be participating. So unless we want to get into this debate, I will not take the bait, and I will save a much broader discussion when we actually have the legislation before us, no later than this fall.

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Mr. Leonard Evans: Well, I am sure we will have a lot of interesting debates in the House on the whole matter of balanced budget legislation, which I am very cynical about for various reasons, among others that it is not fixed in stone, that it can be changed, unless you have an amendment to the British North America Act as it pertains to Manitoba, as I understand. Any subsequent Legislature can change the rules and regulations set down by balanced budget legislation.

Referring to the Expected Results, mention is made that the government is expected to borrow $1.4 billion in 1995-96. Yet I look at the budget document in the financial review section, page 5, and there is another number referred. Unless this is not the same kinds of numbers, I am wondering why there is this difference. The number mentioned on page 5 of the financial review is $966,873,000, which is quite a bit less than the $1.4 billion referred to in this report here.

Mr. Stefanson: Again, there is a simple answer to that, Mr. Chairman, and I think the member for Brandon East (Mr. Leonard Evans) will recognize it. The difference between these two numbers is that in 1994-95, we did some pre-funding of approximately $400 million. We have had this discussion before in terms of when we access the market. We do it when we believe it is in our best interests in terms of interest rates. This year was also a year where we knew there would be an election at some point in time, but we did not want to be in a position, again I think you can appreciate, of having to go to a market during a provincial election. We had an opportunity to do some prefunding at the tail end of our previous fiscal year and we did that, and we might end up doing that again at the end of this fiscal year if the market conditions are in the best interests of Manitoba. That is why those two numbers--our actual requirement for this year '95-96 is the figure just under $1 billion, the $900-and-some million.

Mr. Leonard Evans: Mr. Chairman, what the minister is saying is the budget document is a more recent estimate of requirements than this Supplementary Information provided for this Estimates review.

Mr. Stefanson: Mostly right except we are saying that by indicating the 1.4 here, we might do a preborrowing at the end of our '95-96 year-end, but the budget document as he has indicated is the one that is our actual requirement for '95-96.

Mr. Leonard Evans: Reference is made to require probably five to eight issues of securities, both domestically and internationally. Could the minister elaborate on that, could he give us some information on that?

Mr. Stefanson: Well, that really is based on that we normally go to the market for issues in the $250 million to $300 million range but we also end up usually doing a couple of smaller placements again, depending on market conditions and so on. That is why we suggest that we would be looking for about five to eight. If you do approximately four in the $250 million range and do a few smaller placements, that can be anywhere from $50 million to $100 million. Again, that is all subject to market conditions, what kind of a rate we can be offered, what kind of terms we can be offered, and so on. That is a number of issues of which we are in one right now, as we discussed yesterday. The Builder Bond program is one of those.

Mr. Leonard Evans: Mr. Chairman, reference is made to, we want to make sure that the most efficient market is used. What is the definition of a most efficient market?

(Mr. Jack Penner, Acting Chairperson, in the Chair)

Mr. Stefanson: The simple definition of the most efficient market would be the market where our debt servicing is in Canadian dollars at the lowest interest rate available at that point in time. That really is the simplest way to define it. The objective is to have Canadian exposure at the interest rate that you can get it at any point in time. The other part of the efficient market is a receptive market, because obviously if we launch an issue, we want to be sure that it will sell well, that investors will buy our bonds and so on. Those would be the two overriding parameters of a definition of the most efficient market.

Mr. Leonard Evans: I guess, Mr. Chairman, markets tend to be national markets, in other words, for the central banking system and national banking legislation. There is the American market as opposed to the Japanese market, or are there variations within a nation?

Mr. Stefanson: There are various markets within each national market. We have the Canadian market, the U.S., the Japanese and so on, and within each of those markets, there are different markets to be borrowing from. Obviously again, we look at interest rates, we look at term and, of course, keeping our exposure to ideally Canadian currency, but also sometimes U.S. currency. So within those markets you might be doing a private placement or you might be doing a broader issue through an underwriter to traditional investment dealers and so on.

Mr. Leonard Evans: Well, I thank the minister for his explanation, but I am a little confused. I still do not know, I mean, the term "market" is used very broadly. I suspect what you are talking about is that within a country, within a nation, you may find varying circumstances so with one group of people you can get a better deal than with another group of people in the same city or maybe elsewhere, but I guess it revolves around what are you talking about when you are talking about a market. A market is a very broad concept. The Wheat Board deals with international grain markets. We are talking about financial markets, but maybe you should use another term.

Mr. Stefanson: Mr. Chairman, I think it is safe to say that the majority of the market--or I guess maybe the better way to look at it, the market is the investor, the person who is basically putting up the money and buying our paper. The majority of it would be institutional, whether it is insurance companies or pension funds or entities of that nature, but there is certainly a retail component.

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For instance, if you borrow on the Euro-Canadian market, that could be a retail issue where individual citizens within Europe will actually invest and buy a Province of Manitoba bond. Similarly here in Manitoba, the Builder Bond is really a retail market where we are going out and selling them to individual Manitobans. Again it can vary on where we are getting the best terms and the best rate, but the majority would be the more traditional institutional investor who would be what we would define as the market or the investor in Manitoba debt.

Mr. Leonard Evans: I think I understand the minister. I guess my complaint is the description of it here. It is just the generalization, you know, the most efficient market is used. There is nothing wrong with the word "market," but it is how you use it, and it just seems to me--well, really, it is a generalization and if you wanted to find out more about it, try to understand it, there is not enough information to allow a novice to appreciate what is being done. Well, I do not want to belabour that.

I would just like to pass on to the Money Management and Banking area which is still under Treasury. One of the objectives is to establish banking arrangements appropriate to the government's needs. Well, that is fine. What banking arrangements are we talking about, and specifically I want to get at the point of what bank we are continuing to use and why. I think I know the answer but I am asking the question anyway.

Mr. Stefanson: Mr. Chairman, we do use all of the banks to some extent, but I am just going to the final question. In terms of the overall banking of the province, our bank for many years has been the Royal Bank. We are right now in the process of having put out requests for proposals on the banking for the province of Manitoba. Those have closed. We are going through the process of analysing those, and we will make our decision based on price and service, like any decision.

Our overall banking--the Health component has also gone out for requests for proposals, and I think, as I mentioned yesterday, the direct payroll system has also gone out. So we have three RFPs out right now for the most significant elements of our banking. We are going through that analysis, and we will be making our decisions based on price and service.

Mr. Leonard Evans: I am very pleased to hear what the minister has said. I have no problem with the Royal Bank of Canada. I have dealt with it in different ways. It is not my main bank, but I have had occasion to deal with it for various reasons over the years, and I have no particular problem, nothing. I hold no grudge against the Royal Bank, it is a fine institution and so on, but I have always wondered, and I have wondered this for years, why we continue to deal just with one bank just because of some tradition established years back. If the minister is now telling me that he wants to ensure that that bank or indeed any bank will offer the services that we require to engage in financial administration in Manitoba, that we are going to get it not only at a level of quality but also at a level of cost, that makes us feel comfortable. There is always the question of whether some other bank will do it a bit cheaper, of course providing that they offer the same level of service.

Mr. Stefanson: Mr. Chairman, the member is correct in terms of what our objectives are. We have sent it out to all of the major banks and to Credit Union Central. I think like any service that any entity gets, particularly government, that at appropriate times you want to be sure you are getting the best price and the best service.

As I have indicated, those proposals have now closed, and we are going through the process of the detailed analysis. I do not think anybody has a lock on providing any service to any government or any entity. You want to always be testing price and quality and what changes have happened and so on. That is the opportunity and what we are going through right at this moment.

Mr. Leonard Evans: Mr. Chairman, does that mean whenever this process is completed and a decision made that it is possible the Royal Bank will no longer be the major bank for the government of Manitoba?

Mr. Stefanson: That is certainly possible. I do want to just briefly indicate, we have been very satisfied with the service the Royal Bank has given us. As the member has indicated, they are a very reputable organization in our province, served the province well. That is entirely possible. They are in the process along with the other financial institutions in our province, and we will be making our decisions on price and service.

Mr. Leonard Evans: Just by way of observation, because we have inherited the British branch banking system we tend to have a very stable banking system as compared to the unitary system that you see south of the border. We have many, many small banks. In fact, I guess in some states, one company can have one bank building or may be confined to one community area as opposed to the system that we have become accustomed to.

The point of the branch banking system is that it does provide for a lot of security and safety. It seems to me that no matter which of the major five banks you dealt with you would be assured of dealing with a secure institution. I cannot say that for other than the big five. I am not as familiar with some of the others.

In fact I would not recommend--and I think the minister said you would be going just to the major ones, so I suspect it is the big five. I do not think you would have any trouble dealing with any of those in terms of security and confidence, although some of them are a bit smaller than others and may not have the same capacity to provide service as fully in all parts of the province. We have to remember that we are serving people in remote areas as well as the city of Winnipeg and larger centres.

At any rate, I note that this area deals with a lot of management of cheques and cash references made to 1.9 million cheques representing $11 billion in transactions through the government disbursement system, plus not to speak of money orders and drafts and other things. This is obviously a lot of activity here. I imagine this is an area that lends itself to a lot of innovation by way of computerization and introduction of new technology in order to cut down on the extensive paperwork that is involved and just to be more efficient in making sure that the payments are made with due expedition.

Mr. Stefanson: The member is correct. It is an area that continues to change with the sophistication of technology and equipment. We take off our bank balances daily through the bank computer system, as an example, all various things that are now happening that continue to reduce paper flow and paperwork.

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As I mentioned, one of the three RFPs that we put out with the banks is to go to a direct payroll system as opposed to the current system that we have, so subject to being satisfied with at least one of those submissions, that, again, is another move to dealing with payroll transfers on an electronic basis.

Mr. Leonard Evans: There is reference made to the fact that the branch expects to enter into electronic media using services such as EFT to replace physical cheque and insurance receipts, which is what the minister just dealt with or made reference to. I am not clear when you say electronic media using services. I wonder if the minister could explain a little bit more. Exactly what do you mean by electronic media using services?

Mr. Stefanson: I know the word media always might conjure up certain impressions, but really it is just another form of saying systems, is really all that they are referring to, that we can transfer to an entity, they can transfer back to us. The word media has been used to reflect that ability.

Mr. Leonard Evans: Too used to thinking of media in a narrower sense than that, some favourite radio stations or television stations or papers or whatever as opposed to the true use of the words. Fine.

I would just like to carry on further. In dealing with Treasury Services, reference is made to monitoring foreign exchange markets. Arranging for the purchase and sale of foreign currencies is required to service the debt and convert the proceeds of new issues. I thought I read that elsewhere, and I am just wondering, is there, and I am sure there is not but I will ask anyway, some duplication or overlap done in this section of the department with some other section of the department?

Mr. Stefanson: Mr. Chairman, the member would probably have seen similar wording when we were dealing with the Capital Finance section, but this section that we are in, Treasury Services, is really the servicing side now of the debt, the paying of the debt, the paying of the interest. Servicing at the capital market side, the lengthy discussion we have had is on the acquiring, and so on, of the debt.

Mr. Leonard Evans: I see reference again made to MPIC where you advise them or provide services with their major accounts. How does that work, Mr. Chairman?

Mr. Stefanson: Mr. Chairman, this is really the safekeeping function on behalf of Manitoba Public Insurance where we collect their interest on their behalf and control the investments, is really the function that is being performed within this division. Again, that split in terms of the functions, this is holding the investments, collecting the interest and then ultimately distributing funds back to Manitoba Public Insurance as required.

Mr. Leonard Evans: So MPIC is totally dependent on the department for this service. They just rely on you to offer this service and they sit back and collect the money, is that right?

Mr. Stefanson: Mr. Chairman, yes, that is right, and we do charge them for that service.

Mr. Leonard Evans: The Autopac policyholder eventually pays.

I am just wondering in a general way, because we are talking about the debt and the interest on the debt, how does Manitoba stack up with the other provinces in terms of this being a burden? There are some figures here in your budget document as to percentage of total expenditures that is related to interest payments. I think it is something like 11.7 percent public debt costs. This is on page 12, Financial Review of the Budget document. It is a pie chart. Of course, it is in the table as well, interest on the public debt, public debt costs, 11.7 percent. I guess my question is how does this compare with other provinces in Canada?

Mr. Stefanson: Mr. Chairman, going from previous charts that I have seen, debt servicing as a percentage of our expenditures, I believe Manitoba has the second lowest in Canada with only British Columbia lower than us. I refer the member as well to page 9 of that similar section that he was looking at, and it shows the provincial per capita debt servicing costs. On a per capita basis our debt servicing costs are the second lowest in Canada with only British Columbia being lower than us. He can see how significantly higher some of the per capita debt servicing costs are in many other provinces in Canada.

Mr. Leonard Evans: Mr. Chairman, what page was the minister referring to?

The Acting Chairperson (Mr. Penner): Page 9.

Mr. Leonard Evans: I did not notice this particular table or chart which I guess I should have.

Relatively speaking, on a per capita debt basis '94-95 servicing costs in dollars, we are the second lowest in Canada, and in terms of per capita we are the lowest, which brings me to a point that sometimes I think we are overconcerned with the debt burden in Manitoba. We always want to have lower debt than higher debt, and obviously we do, but it seems to me that Manitoba traditionally, now and for some past years--I do not believe we have ever been in a situation where we have been experiencing the heaviest debt burden, at least in terms of interest as a percentage of spending.

I do not think Manitoba has ever been in that position. We usually end up somewhere around the middle. If we can be at the bottom end, that is even better. It seems to me that, and I do not have the historical, this is just for this year--I wonder if the minister's staff could advise the minister, what has been the highest percentage? Can anyone recall? It is 11.7 we are dealing with now. What has been the highest that we have ever had in terms of percentage of expenditure?

Mr. Stefanson: Mr. Chairman, if the member is looking for public debt costs as a percentage of our operating expenditures, again, the detail summaries on pages 20 and 21 of the same section show what public debt costs have been as a percentage of our expenditures. This one goes back to 1986-87. Obviously, if we went back to other budget documents you could see it going back to earlier years as well.

The member is right. Manitoba, in a relative sense, is in a very favourable position. We do have the second lowest debt servicing cost as a percentage of our expenditures. I think the reality is that still is a challenge for every province in Canada.

It is interesting--just an editorial comment--I think the federal government's debt servicing cost is a percentage of--it is about 34 percent, 35 percent I believe, in that vicinity anyway. Whether it is 35 or 40, it is way too high.

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Mr. Leonard Evans: Mr. Chairman, I am very remiss because I remember now looking at this before--memory lapse here. There it is right in front of us. The minister is correct in his observation. Well, 12.7 I guess is the highest we have achieved, so we have not improved. We are still fairly good, relative to most provinces, but it has worsened. The best was '91-92, as I read it here in this table, when it was only 9.9, but there has been an escalation in the last four years.

I paid particular attention to looking at it in another way. You can look at it in terms of net debt per capita. That is another way of assessing your debt burden. Of course, that has gone up. As I have said in the House, under this government it has gone up by about a third, roughly, from $9,372 in '87-88 to now $12,272. It certainly has not--there has been some variation over the years, but generally the pattern has been upward. This year is less than last year, and '95-96 of course is a bit smaller than '94-95, but still we have tended to increase.

I guess you could also put it in another light and say, well, why do you not look at it in constant dollars and then it is not as bad compared to current dollars. That is why in some ways using it as a percentage of total spending may be more realistic because total spending is influenced by inflation as well. If you are just taking it as a percentage of total spending you are sort of taking into account more or less the fact that the dollar is worth less and therefore--I mean, if you deindex, in other words, if you put this total net debt per capita on constant dollars, you would not find the same increase, you would not get the one-third increase. It would be a lot less than that because of the impact of inflation.

Mr. Stefanson: I do not necessarily want to get into a long debate on this, although again I am prepared to, but probably the more meaningful figure is the figure just above that which is the net general purpose debt because that is the direct debt of the Province of Manitoba. The total net debt, while I am not saying it is not an important number to be aware of, that does include the debt for our Crown corporations, Hydro and MTS, which as we know are self-sustaining. So it is the net general purpose debt which is really the direct debt of the Province of Manitoba, and this tracks it from '86-87 on a per capita basis.

If the member so wishes, I would gladly go back and update this table to show him the period 1981 to 1988 in terms of what has happened to net general purpose per capita debt as some additional information. It will show an interesting development with the net general purpose debt per capita over that period of time.

Mr. Leonard Evans: Yes, that is an argument that can be made. It is more relevant to look at net general purpose because the other is presumably debt being acquired to put assets in place, but I would make a case of part of the net general purpose debt puts assets in place. I mean you are building highways. You are putting infrastructure in place from time to time throughout the province, and you could even make an argument that some of it has gone for human capital investment, investment in people through education expenditures and so on.

There is always sort of an assumption made, well, if it is general purpose debt, it is sort of bad debt, and I would disagree with that. There is a lot of money spent under general purpose that is very necessary for keeping the quality of education, for maintaining highways, for whatever. But, certainly, you have not had the same degree of increase, but still it has gone from 4,691 in 1987-88 to 6,149 in 1995-96. You do not have public debt costs or net general purpose debt costs as a percentage of operating expenditures in this table if I am reading it properly.

Let me ask you the question. When it says public debt costs 12.7 percent, does that not relate to the total net debt?

Mr. Stefanson: Mr. Chairman, our public debt costs are only on the net general purpose debt because we recover the debt servicing costs from Hydro and Telephones on the overall debt.

Mr. Leonard Evans: Okay, thanks. That is interesting. The public debt costs only relate to net general purpose debt and therefore excludes debt related to Crown corporations primarily. At any rate, we do not have that per se. I guess if you took the difference between the total net debt and the total general purpose debt, it is roughly $6,000 for 1995-96. So what you are saying is about half the total net debt is related to investments in Crown utilities, essentially.

At any rate, Mr. Chairman, I think we are agreed that relative to other provinces, our debt situation is not out of line, and I do not think it ever has been seriously out of line.

Just carrying on, reference is made to Expected Results of the Treasury Services, and reference is made that the direct debt serviced by the branch is expected to approximate $17 billion in 1995-96. I stand to be corrected on this, but I think on page 18 there is some reference to $14 billion. The 1995-96 budget shows $13.953 billion as opposed to $17 billion, so I was wondering why--

The Acting Chairperson (Mr. Penner): I wonder if I could interrupt the honourable member for Brandon East and ask him to reflect on which documents he is quoting numbers from. It appears that you are working with three different documents, and I think for simplification to the minister and his staff it might be useful if you identified which documents you are quoting from.

Mr. Leonard Evans: Mr. Chairman, yes, the reference to the $13.95 billion is from the Manitoba Budget 1995 document, page 18 of the financial review and statistics section. This is the table we were referring to earlier.

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Mr. Stefanson: Mr. Chairman, the table the member is looking at in our actual budget document, the $13.953 billion is net of sinking funds, but the actual debt servicing is the full $17 billion, the debt that has to be serviced. This is showing the Expected Results and the functions of the department in the Supplementary Estimates, but the actual net overall debt, as it says on the table in the actual budget, net correct and guaranteed debt after sinking funds is approximately $14 billion.

As the member said earlier, you can see that it is approximately 50-50. It is roughly $7 billion for general purpose debt of the province and roughly $7 billion for Hydro and other Crown corporations.

Mr. Leonard Evans: So the key word, I guess, is net as opposed to total.

Further reference is made to the servicing of the foreign debt obligations is expected to require the purchase of $330 million U.S. I wonder if the minister--I am making reference now to page 46 of the Supplementary Information for Legislative Review 1995-96. The Chairman looks a lot happier now, and his assistant.

Mr. Stefanson: Mr. Chairman, what is being referred to is the requirement in U.S. dollars to pay interest and to retire any principle on any borrowings that come due during '95-96, U.S. borrowing.

Mr. Leonard Evans: Reference is made to new borrowing is expected to require the sale of $300 million U.S. I wonder if he could elaborate on that. I am not quite clear on that statement.

Mr. Stefanson: I guess the simple answer is the $300 is really potentially part of that almost $1 billion, the $900 million of expected additional borrowing requirements for the year, that all we are saying there is we might well do one U.S. issue. It might end up not being a U.S. issue. It might be a Canadian, or it might be Euro-Canadian or some other. So that is just reference that, based on past practices, the expectation is we probably will do one U.S. issue out of our total requirements, but that final decision will be made when we get to the point in time when we actually require the capital and the cash. We will go to the best market with the best rate and the best terms.

Mr. Leonard Evans: Mr. Chairman, does this involve a lot of key staff and a lot of meetings with agencies and doing a lot of research and so on, or do you have it down to a science where you can almost intuitively feel your way around?

Mr. Stefanson: Mr. Chairman, it is really like we discussed somewhat yesterday. This division is in daily contact with the investment dealers and so on, on an ongoing basis, monitoring it on the screens of their computers and an awful lot of interaction between our department and the financial markets and the investment dealers and so on.

Mr. Leonard Evans: In other words, the staff lives and breaths the data and the fluctuations and what is going on out there.

I think that pretty well concludes our comments or rather our questions and comments on the Treasury, unless the minister wanted to add anything further. I think we have pretty well covered the major concerns, so we are quite prepared to pass that, unless--oh, there is no Liberal here.

The Acting Chairperson (Mr. Penner): Item 2. Treasury (a) Administration (1) Salaries and Employee Benefits $128,800--pass; (2) Other Expenditures $123,100--pass.

2.(b) Capital Finance (1) Salaries and Employee Benefits $300,200--pass; (2) Other Expenditures $37,100--pass.

2.(c) Money Management and Banking (1) Salaries and Employee Benefits $418,000--pass; (2) Other Expenditures $378,900--pass.

2.(d) Treasury Services (1) Salaries and Employee Benefits $419,000--pass; (2) Other Expenditures $43,300--pass.

Resolution 7.2: RESOLVED that there be granted to Her Majesty a sum not exceeding $1,848,400 for Finance, Treasury, for the fiscal year ending the 31st day of March 1996.

Item 3. Comptroller.

Mr. Stefanson: Mr. Chairman, just because I know the member for Elmwood (Mr. Maloway) is interested in this, yesterday the member for Crescentwood (Mr. Sale) asked for the market distribution of where we have borrowed over the last five years. I will give this information to the member for Brandon East (Mr. Leonard Evans) to share with his colleague.

The Acting Chairperson (Mr. Penner): Mr. Minister, are you tabling those documents?

Mr. Stefanson: Yes.

The Acting Chairperson (Mr. Penner): Shall we move on then, or is there more documentation to table?

Mr. Stefanson: Mr. Chairman, there was also some question on cash and investments that I will table as well, and the last question was who our tax appeal commissioner is, and it is Mr. Glenn Russell.

The Acting Chairperson (Mr. Penner): The item then under consideration is 7.3.3. Comptroller.

Point of Order

Mr. Leonard Evans: Mr. Chairman, on a point of order, it is now 12:30 and we are expected to go till 2. My stomach tells me it is time to eat. I wondered whether we should take a 20-minute sandwich break, or whatever, or whether we take a five-minute break and bring some food here, although the Clerk tells me the rules do not permit eating, even in the committee. I do not know what drinking juice means, but anyway, I wondered how the minister felt about this.

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The Acting Chairperson (Mr. Penner): The honourable member does not have a point of order. It is a matter of committee consideration that he is asking for, and I am going to ask the committee, what is the will of the committee? Do you want to break for a few minutes for lunch or do you want to continue? What is the will?

Mr. Stefanson: Mr. Chairman, I do not need much time. We have not had a chance to discuss what the plans are, but I am flexible. I guess that is the best way to describe it.

Mr. Leonard Evans: On this matter, we do not anticipate concluding today, possibly Monday but not today, so--

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The Acting Chairperson (Mr. Penner): Should we break then for 15 minutes for lunch? We will be back here then at quarter to one. The committee has recessed.

The Committee recessed at 12:30 p.m.

________

After Recess

The Committee resumed at 12:45 p.m.

The Acting Chairperson (Mr. Penner): As a matter of note from the Chair it is now a quarter to one, the time for recess has expired, and we are waiting for the members to return to the table.

Mr. Leonard Evans: Mr. Chairman, the next section we are dealing with now is Comptroller's Office. I wonder, just a general question, whether there are any major developments in here that the minister wants to enlighten us on. Is there just status quo, nothing new, nothing changed, or is there something of significance we should be aware of?

Mr. Stefanson: Really nothing different than we talked about in a general sense yesterday. Two of the most significant undertakings in this area have been that Corporate Human Resource Information System, CHRIS, that we referred to yesterday and the Integrated Management Information Strategy, the IMIS one. We touched on those yesterday. Other than those this area would be, in many respects, business as usual.

Mr. Leonard Evans: Mr. Chairman, I understand that, among other things, this branch or section is responsible for updating the financial administration manual, including policy refinements. This is obviously an ongoing process, but are there any new developments in policy refinements?

Mr. Stefanson: Mr. Chairman, really nothing significant other than Eric Rosenhek who has joined us, who is the ADM of this division, participates and is a member of the PSAAC, Public Sector Accounting and Auditing Committee of Canada. That really goes back to the issue that we touched on earlier today, talking about standardized accounting policies across Canada and those kinds of issues in terms of reporting of governments and public sector entities.

Mr. Leonard Evans: The Public Accounts committees in Canada get together once a year along with the auditors and so on. There is a lot of concern about standardization of accounting for better comparisons. If nothing else, I think we touched on that earlier when we were discussing the handling of accumulated funds such as lottery revenues or whatever and how we use them. I think there is a lot of interest in coming forward with standard procedures so that we can compare apples with apples.

Is there reference made to resolution of outstanding provincial audit issues? Can the minister advise us what the outstanding audit issues are? I have got the Provincial Auditor's report, but I have only got Volume 2, unfortunately. I do not have volume 1 with me. The Auditor does, from time to time, delineate problems as she or he sees fit or identifies, rather, in various departments. I was wondering, are these audit issues relating to this department, or are these provincial audit issues generally that the Auditor identifies?

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Mr. Stefanson: Basically it is this division of our department that works with individual departments to follow up and deal with any outstanding issues as a result of the Provincial Auditor's report.

Mr. Leonard Evans: I guess it would be too vague of a question to ask you, what are some of the outstanding issues? Is there anything really predominant that stands out that you would be concerned with? I have always looked upon Finance as very complementary or supplementary to the Provincial Auditor's function because you have the overall concern of financial management. That is one of your major responsibilities. So I can see you having to work very closely with the Provincial Auditor on a lot of issues that do come up from time to time in the departments. I was just wondering, though, is there anything outstanding now that could be commented on?

Mr. Stefanson: There is nothing outstanding of what I would call of significance. As a result of the various individual auditors' reports, there are often accounting issues or those kinds of issues that we are the ones that follow up, whether it is, as I say, just how they are preparing their information, timeliness of information, a lot of those types of issues, but there is no particular initiative or area that is significant that is being followed up on at this time.

Mr. Leonard Evans: Thanks for that information, Mr. Minister.

Mr. Chairman, there is reference which my colleague for Elmwood (Mr. Maloway) has made in this document. He has pointed out, in this document, reference to development of a comprehensive government-wide travel expenditure database. I wonder if the minister could explain what is involved here?

Mr. Stefanson: That is work that is currently being done with American Express Canada to develop the entire database of all travel that is being done by departments, by everybody associated with government, with the Province of Manitoba really as a starting point to see the extent of travel being done within government, the volume of travel, the destinations, with a view obviously then to looking at the broader issue of the requirements, but also looking at ways to continue to control costs in that entire area and get the best price, best arrangements on behalf of government whenever we are travelling.

Mr. Leonard Evans: Mr. Chairman, this would involve, I would imagine--maybe the minister can enlighten us. Most of the travel expenditure is with regard to use of automobiles, either government fleet or private, or are we talking beyond that?

Mr. Stefanson: This is really mostly related to airfare travel outside of the province of Manitoba.

Mr. Leonard Evans: As I understand it then, the minister said air travel outside of the province of Manitoba. I see.

Do you have any estimates of how much we are spending now in total, say, the past year?

Mr. Stefanson: The Public Accounts summarize expenditures. We happen to have the March '94 one as an example. Transportation on behalf of the government that year was just over $32 million, but that is all transportation, I want to make clear. It is not only air travel. That is vehicle utilization, all travel and transportation on behalf of government. So that is in the Public Accounts broken down with many other areas of expenditure.

What we are really talking about--this just happens to be the '94 one and it is in section 5, page 16 and 17--but what we are talking about here in terms of the original question is air travel, getting the data base on air travel outside of the province, utilization, as I have already outlined, of travel and just to determine how we can keep those costs down, what kind of arrangements we can enter into that control those costs and to determine the need in all of those areas, how extensive it is and so on.

Mr. Leonard Evans: Did I hear the minister correctly a minute ago when he said this is being done in conjunction with the American Express card company?

Mr. Stefanson: That is correct.

Mr. Leonard Evans: Mr. Chairman, why American Express? I know it is one of the various credit card companies but there are others as well, including the banks, of course, that are into this. Why American Express?

Mr. Stefanson: Mr. Chairman, we went through a tendering process. They were the selected entity that could best perform it. I was just confirming. I do not believe any of the banks even responded or had the capability to perform this function as efficiently as American Express Canada.

Mr. Leonard Evans: I am not clear. We would have the data, not American Express. So what, in effect, is going to happen is you are going to have one or two or three people from that company, research people, who will come and look at the data and analyze it somehow or other and then give you some observations. Is that correct?

Mr. Stefanson: Mr. Chairman, it is more than that. It is a result of utilizing their credit card and account system for travel that then allows them the capability to, in an organized fashion, produce the information for our use. We went through an RFP on that service to us, instead of where we do utilize credit cards or do want to have an account system of controlling our travel. Instead of having it through a series of different entities, it is more efficient to have it through one. We can get better prices, and then it does allow us now to have this capability to pull it all together to determine, as I have already said, the activity in that area. Are we getting best prices, are we travelling in the most effective and efficient way and all of those kinds of things, again, looking at controlling costs.

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Mr. Jim Maloway (Elmwood): Mr. Chairman, I would like to ask the minister, then, does that mean that the travel that had been taking place on an individual department basis over the past years has now been pulled into a central ordering process? Will individual departments still be buying their travel tickets individually?

Mr. Stefanson: No. There is no centralized service. It is simply the way that they will be paying for their account, which then allows the consolidation of all of the information, and then our ability to utilize that information to hopefully reduce costs.

Mr. Maloway: So really what it is is nothing more than a computerized record-keeping system then provided by American Express for what purpose, so that you use their card?

Mr. Stefanson: Mr. Chairman, record keeping and bill paying is really the function, not unlike we have to pay our air travel, so they are paid through American Express, as opposed through a series of different credit cards or through an account basis or an advance basis where money can be outstanding then for a prolonged period of time while people then submit expense reports and so on.

This way it is done immediately. There is no need to be giving cash advances to employees for travel, as it relates to that component and so on. So it is a much more efficient method, but it also allows us the opportunity to get information that we think we can utilize to continue to control costs.

Mr. Maloway: Mr. Chairman, then does that mean that the individual departments are still making the decisions as to which airline and which travel agency they use, the only difference is they are using the American Express credit card to pay for the travel?

Mr. Stefanson: Basically, yes, as opposed to a series where it could have been done through a cash advance, through a different credit card, through one of the many ways. That is exactly right.

Mr. Maloway: Mr. Chairman, then I would like to ask the minister, what is this new service costing us?

Mr. Stefanson: There is no fee for doing it. It comes with utilization of their card. In fact, we have quite reasonable terms with them, 60 days to pay accounts, which in today's financial situation is very reasonable.

Mr. Maloway: Well, that is consistent with what they have been doing with other organizations, I think universities and so on, for a number of years. Is there any agreement that is signed with American Express?

Mr. Stefanson: Yes, Mr. Chairman, there is a three-year agreement.

Mr. Maloway: When did the agreement start?

Mr. Stefanson: It started January 1 of this year.

Mr. Leonard Evans: I am not quite clear, Mr. Chairman. At first I thought we were into an agreement with American Express to develop a database, not to deliver a credit card service, but now it appears from some of the answers that we are committing ourselves--maybe I am wrong--but we are committing ourselves to using their credit card system for three years.

Mr. Stefanson: Maybe it was not perfectly clear at the beginning. We developed the database but from information that we now get in on a consolidated basis from American Express Canada.

Mr. Leonard Evans: What about the use? Does it mean now that a civil servant or public servant must use American Express credit cards?

Mr. Stefanson: Basically any department or any individuals who are doing significant travelling on behalf of government would put that cost on an American Express travel card.

Mr. Leonard Evans: Does this mean a public servant is prohibited from using, say, Visa if he or she wanted to do that?

Mr. Stefanson: Mr. Chairman, any individuals booking air fare would book them through this basis, through their house account, which is with American Express. There is nothing precluding individuals using their own credit cards for travel and then putting that through a travel advance if their travel has been of course approved in the first place.

Mr. Leonard Evans: What is this service going to cost? Is there not a cost involved?

Mr. Stefanson: No, there is not. They are happy to, I think, have some cards in circulation, have the business. There are advantages to us. As I have indicated, we do not pay for 60 days, which are reasonable terms. We also do not have to put money out in advance as cash advances against travel, which we pay interest on or that costs us money. There are certainly cost savings to us as a result of implementing this kind of a system.

Mr. Leonard Evans: American Express is doing this to make money, so I guess it is making money by charging back to the airlines, who have to pay for the use of this credit service.

Mr. Stefanson: The process, Mr. Chairman, the way I understand it with credit cards, is there is a charge to the supplier traditionally. That would be the case here as well, whether it was with a travel agent or depending on the individual's amount of travel. Some individuals will be allowed to use these for booking accommodations and those types of things. So again, similar to any credit card, there would be a charge to the hotel. That is how American Express would obviously earn their revenue as well as having some cards in circulation with individuals who then might carry an individual card as well or those kinds of things.

The Acting Chairperson (Mr. Penner): I am going to interrupt here and ask one of the members to sit beside the table to eat. We are not supposed to eat at the table. Those are the rules. Thank you.

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Mr. Leonard Evans: Mr. Chairman, again, the reference in the document is to development of a database. Did I understand from the minister's previous answers that there is no cost in developing this database? I presume the Manitoba government has signed an agreement with American Express. The member for Elmwood (Mr. Maloway) suggests we maybe get a copy of the agreement.

Mr. Stefanson: I was just checking. I do not see any reason that that should not be able to be provided, and I will undertake to do so.

(Mr. Assistant Deputy Chairperson in the Chair)

Mr. Leonard Evans: I thank the minister for his co-operation. I wondered--I just want to backtrack a bit--did the minister say this was a three-year agreement? I know we will be looking at the agreement but this is a three-year period and the question is, is it easy to get out of dealing with the company once you have begun this? Now even though it is three years, is it that easy, that practical, for whatever reason, if you were not quite that happy, but maybe marginally unhappy, could you really get out of it easily?

Mr. Stefanson: If at the end of the three years we want to terminate, I do not anticipate that as any problem. Again, I am confirming and we will check the agreement as well. I believe there is even a notification period in the agreement if we wanted to. I think there is a notification period in the agreement if we, for whatever reason, wanted to terminate it earlier.

Mr. Leonard Evans: Did the minister state earlier that we spend, according to the 1994 Public Accounts, $32 million on air travel, or was that total travel?

Mr. Stefanson: That was transportation in total of all types--vehicles, air, whatever type of transportation is done on behalf of government.

Mr. Leonard Evans: Do we have easy access to a breakdown of that? Do we know how much was spent on air travel? What are we talking about here in this dealing with American Express? What total expenditure are we looking at?

Mr. Stefanson: That is not in the Public Accounts. We will undertake to see if that information is readily available. That is one of the aspects of what we are doing here; we will have a comprehensive database for our use on all government air travel.

Mr. Leonard Evans: So does the minister expect to get some analytical insight from this study, which may then allow him to make recommendations for changes in air travel regulations as it pertains to the civil service?

Mr. Stefanson: That may be an output of it. The most immediate, as I said, is a financial cost saving to government as a result of going to this kind of a system as opposed to what was in place before.

Mr. Leonard Evans: I am not pretending to understand how this whole system works in the government, of ordering travel, but at some point, it seems to me, the departments deal with travel agencies. Will that have any impact on travel agencies being used because, as I understand, American Express also owns or has some relation to some travel agencies?

Mr. Stefanson: It will have no impact on travel agencies that individual departments choose to use for whatever reasons. It is merely the method of payment.

Mr. Leonard Evans: We look forward to getting the agreement, Mr. Chairman.

Just on to another topic, references made to initiating a process to re-engineer the Public Accounts reporting requirements and preparation.

I wonder if the minister could tell us exactly what is happening? I like that term, "re-engineer" Public Accounts.

Mr. Stefanson: I will simply read what the outline is: The Provincial Auditors' Report to the Legislature comments on the presentation of information in the Public Accounts and the need to review the appropriateness of this information. This is being done.

Staff are preparing a proposal which would see significant changes in the appearance and to some extent the contents of the Public Accounts. The review takes into consideration the informational needs specific to Manitoba as well as the practices in other jurisdictions.

This proposal will be presented in the near future and may be considered for implementation in the '94-95 Public Accounts.

Mr. Leonard Evans: I was just commenting to myself, it is a good thing some members of the opposition ask these questions. The minister can find out what is going on in more detail in his department.

I just wanted to ask this question: If recommendations come forward to make some adjustments, who makes that decision? Is it made by the Minister of Finance or does that have to be a cabinet decision or does there have to be some agreement with the Provincial Auditor, as well? What is the decision-making process here?

Mr. Stefanson: I want to put the member for Brandon East's concerns to rest, that I do know what is going on in the Department of Finance. I do have the authority as Minister of Finance but there often are occasions where these are discussed at the Public Accounts committee of this Legislature.

Mr. Leonard Evans: As Chairman of the Public Accounts committee, or past Chairman and maybe future, who knows, I will be interested in seeing if and when this does come forward.

At any rate, I guess we could pass on to the other area of this section, and that is Disbursements and Accounting. Reference is made on page 54 of your Supplementary Information for Legislative Review document to preparing approximately 450,000 supplier payments in accordance with legislation and policy and so on.

This brings me to the question, is the reference made to a payment cycle not exceeding an average of 36 calendar days from invoice to cheque date? It seems to me that from time to time MLAs get complaints about suppliers not being compensated early enough, or something happens that for some reason or other they are not receiving their payment when they believe they should receive it. I wonder if the minister can advise me whether he as minister or the deputy minister gets many complaints about tardiness with payments to the private sector for services rendered.

Mr. Stefanson: No, we get very few complaints. The average for '94-95 was 35 calendar days. If I recall it correctly from some previous studies I have seen and read about, we stack up very favourably in terms of the time it takes to pay our outstanding invoices.

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Mr. Leonard Evans: What accounts for the time required, the 35 days? You receive documents and documents have to take their time because the staff have to analyze them and assure themselves that these are legitimate services received or goods obtained, et cetera, and that the goods are in good order and so on, but how is that 35 days broken down, because obviously there has been an analysis of this? What accounts for 35 days? Why not two weeks or why not three weeks? I am not being critical here. I am not saying 35 days is unnecessary, maybe it is excellent, maybe it is. I am not judging that, but why 35 days?

Mr. Stefanson: There are really two main elements within our department. From the time we receive the voucher to the turnaround to the issuing of the cheque is usually no more than two weeks. The other period of time is taken by the individual departments verifying the invoice, verifying the goods or the services were in fact received and performed satisfactorily, and all of those standard kind of functions that would happen in government, the private sector and the due diligence that should be done.

Mr. Leonard Evans: I have had one or two cases where I have had complaints, but then I found out there were extenuating circumstances.

I gather if a supplier, for whatever reason, is delinquent--is that the term--on a payment to the government of Manitoba, let us say for income tax or whatever, that is taken into account when a payment may be made by the government to that supplier. I imagine you must have some system in your computerization of this of flagging this down or drawing this to the attention of the department.

Mr. Stefanson: We do, Mr. Chairman, have the right to offsetting. If there are delinquent accounts, money owing to the government and an amount is owed to a supplier, we do have the ability and the right to offset. The system is not integrated to the extent that we integrate receivables, payables accounts, all of those kinds of things by an individual or a corporate name. There is the opportunity, and occasionally we do have offsets.

Mr. Leonard Evans: Is this much of a problem, Mr. Minister? Is it a very minor situation, or do you find it creeping up from time to time?

Mr. Stefanson: Mr. Chairman, no, it is not a major problem. On outstanding accounts owing to us we do charge interest, but obviously if we are providing a service that has become past due or of course on any outstanding accounts.

Mr. Leonard Evans: There is reference made to collecting on a timely basis amounts owing on shared-cost agreements administered through the branch. I wonder if the minister can explain what these are. What are these shared-cost agreements? What are we talking about here?

Mr. Stefanson: The most common under this area would be agreements with the federal government where we implement, they owe us money, and we obviously pursue the collection. I guess the most current example would be the infrastructure agreement where we are the delivery vehicle, but obviously the federal government is paying one-third of the overall program, and we collect the money back from them.

Mr. Leonard Evans: Is this just federal cost-sharing or are we talking about municipal as well?

Mr. Stefanson: Mr. Chairman, they are virtually all with the federal government. There might be one or two there with the municipalities. An example given was there was some ring dike agreement with some municipalities at one point in time but that does not happen very often.

Mr. Leonard Evans: Do we administer this usually rather than the federal government? Do we administer this and then collect monies or transfer monies to the federal government, or is it on some occasions the federal government takes the lead and we use their services?

Mr. Stefanson: I am not entirely clear on the question but we administer--I will use the most recent one, the infrastructure agreement, as an example where in most cases the implementing jurisdictions are the municipalities, but obviously the province is contributing one-third, the federal government is contributing one-third, and we administer the distribution of the two-thirds from the federal and provincial governments to the municipalities. Under some of these agreements, the federal government takes the approach that they want to deal with one entity, the Province of Manitoba, and then we become the delivery vehicle.

Mr. Leonard Evans: Mr. Chairman, are we having any current problems with the federal government? We are talking about collection here. This could include a collection from the federal government.

Mr. Stefanson: Mr. Chairman, collections that fall under our department, no. I think, as the member knows, there might be some outstanding issues in Family Services, as an example, under social assistance for aboriginals off reserve. I think members are well familiar with that issue and the concern that the federal government used to pay 100 percent and they are now paying 50 percent. There is an outstanding continual dispute over what they should be paying, and to date that has cost the Province of Manitoba over the last period of time some $60 million, those kinds of issues. But under what we administer here, no, there are not any problem areas or outstanding issues.

Mr. Leonard Evans: I think it was 1989 there was a problem with firefighting costs and the federal government was not going to pay a certain share which we thought they should be paying. So you are saying, in effect, that would not be in your department. That would be Natural Resources probably.

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Mr. Stefanson: That is correct, Mr. Chairman.

Mr. Leonard Evans: Then what is covered? Could you give us some examples of what is covered or if the minister would like to prepare a list.

Mr. Stefanson: Mr. Chairman, these are the 1993-94 Public Accounts. I refer the member to page 37. It shows amounts receivable with the government of Canada, but it is all inclusive, so it does show the Canada Assistance Plan and Disaster Financial Assistance, and so on, but it does also include the ones that we administer which tend to be the smaller ones. I can certainly undertake to give him the breakdown from this list of which are the ones that are dealt with through the Department of Finance, but this section will show him not only the ones through the Department of Finance but all of them that are with the government of Canada.

Mr. Leonard Evans: Which year was that for that the minister referred to? The Public Accounts for 1993-94? That is the latest, I guess.

Mr. Stefanson: That is correct. It is the 1993-94 Public Accounts, and those are the most recent.

Mr. Leonard Evans: I would like to pass on, then, to Legislative Building Information Systems, which is still in this section, and ask for an explanation of this reference to installing a new information technology system in the Legislative Building. Apparently it is based on the so-called open systems concept. Could the minister give us an update on just what is going on here?

Mr. Stefanson: The status of the Legislative Building information system is that Wang has fulfilled its obligation to the province, and no issues remain outstanding. The new system has been installed in the Legislative Building and is operating satisfactorily. All offices are using the new system and applications are in the process of being converted.

The Legislature now has a very powerful, flexible and open system which is well positioned to meet the future needs and is capable of providing it with access to the information highway. In addition, some of the original Wang microcomputers and printers, which served the Legislative Building, have now, over a period of about five years, been redeployed to government departments with the highest priority needs. So they are still being utilized within government.

Mr. Leonard Evans: There was reference to Wang, about developing Wang or using more Wang, and yet there is a reference here to generally phasing out the use of the current Wang system.

Mr. Stefanson: I think the confusion for the member is that I referred to the Wang agreement. The member will recall previous discussions we had about penalties under an agreement with Wang. This has been the implementation now of nonproprietary systems in the Legislative Building to create an open system. They are not Wang products. They are products like Mind computers, which is one example that I can provide. I can give a breakdown of the other kinds of products being utilized.

So it is the fulfilment of the outstanding penalty through the implementation of a system and hardware that is open. But as I have also indicated, the equipment that we have been utilizing for the last five years is continuing to be utilized within government in other departments that do not need an open system.

Mr. Maloway: Mr. Chairman, I think it is a good idea to develop an open system and I am wondering why we did not do that before.

Mr. Stefanson: I think what really happened is we are going back over five or six years when the original Wang agreement was put in place, and what has happened is both thinking and technology have changed in terms of the ability of these open systems and the nonproprietary systems. As a result, we will be able, through the utilization of the penalty, to implement now an open system utilizing products like the Mind computers but still continue to have value for the system that was in place from Wang.

Mr. Maloway: Mr. Chairman, I think the minister should recognize though that the open systems have been around for many years. Does he see this as an error in judgment to have accepted the idea that Wang should introduce their proprietary system into the building, which in effect probably costs us a lot more money by being stuck with one type of technology that is closed?

Mr. Stefanson: Mr. Chairman, no, the Wang agreement has not in any way cost us a lot more money. It was a part of a much broader strategic initiative at the time. That was the reason for a penalty provision of approximately $2 million, which was utilized to acquire the hardware and the system that we now have in place.

We have the situation today where we utilized that penalty to put in place Mind computers and others in the Legislative Building information system, and we still have access to the utilization of the original Wang hardware and system that was put in place some six years ago. So by having written an agreement that had penalty provisions in place and binding penalty agreements, we were able to end up with an open system here that is very efficient and should meet the needs of this facility and members in here and individuals in here for many years to come.

Mr. Maloway: Mr. Chairman, could the minister outline for us what the costs are of this new open system, what the equipment is and who the providers are?

Mr. Stefanson: The hardware and software came from a number of vendors. I will certainly provide the breakdown of that information. My recollection is the penalty was in the vicinity of about $2 million, but I will give a detailed breakdown of what the penalty was and the systems and vendors that software and hardware were acquired from.

Mr. Maloway: Mr. Chairman, can the minister tell us what the time frame is for the implementation of this new open system? When was the agreement signed? When do they anticipate the final unveiling of the system?

Mr. Stefanson: My understanding is all of the hardware is in place and there is the continuation of the implementation of the software to the various offices, whether it be the E-mail system, the correspondence tracking system, the various elements of the systems that are available for everybody to utilize.

Mr. Maloway: Mr. Chairman, was this process open to tender at any point?

Mr. Stefanson: Well, there are two elements. Various aspects of this have definitely gone through public tender. In terms of the Wang penalty, we worked with Wang in terms of selecting hardware or software that was deemed to be most appropriate to meet our needs.

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Mr. Maloway: Mr. Chairman, I do not think the minister still has told us which elements of this computer buy, because that is what it is, have been put to public tender. There is a $2-million penalty from Wang. Presumably, that $2-million penalty was used to purchase some of this equipment from Wang, I understand.

Mr. Stefanson: I indicated aspects of it have been public tender. I will undertake to provide the detailed breakdown of which were done directly as a result of utilizing the Wang agreement and which had been done through a public tendering process.

Mr. Maloway: Mr. Chairman, would the minister then tell us what the total cost of this new open system will be?

Mr. Stefanson: I will undertake to provide that information.

Mr. Maloway: Mr. Chairman, clearly then the minister is admitting there are elements of this work that were not put to public tender.

Mr. Stefanson: No, I am not confirming that. I want to go back to the settlement with Wang and determine what aspects did go through public tender.

Mr. Maloway: My final question, could the minister tell us how long he anticipates that this exercise will take then in providing us with a breakdown as to the suppliers in this project, the cost of the project and which elements of it were tendered?

Mr. Stefanson: The member for Elmwood knows that I will provide that information to him as soon as possible.

Mr. Leonard Evans: As part of the agreement with Wang, was there not supposed to be some manufacturing concluded in Manitoba, some manufacturing put in place by Wang?

Mr. Stefanson: I would have to go back to the original--you are talking about the original agreement with Wang. I think it was not manufacturing, it was more the development of imaging technology and the creation of a centre of excellence here. That never occurred. As a result of that, there was a penalty clause in the agreement which I believe was approximately $2 million. That penalty clause was then utilized for one of the many projects that we had to move forward on, this one being the Legislative Building Information Systems.

Mr. Leonard Evans: Just passing on then to Internal Audit Services, Mr. Chairman, I imagine this is not an area that involves any private auditing services. Is that correct?

Mr. Stefanson: That is correct. It is totally internal.

Mr. Leonard Evans: This Audit Services is a very large function, I am sure, of the department. I was wondering to what extent this section of Finance co-ordinates with the Provincial Auditor in these services. Are we duplicating what the Provincial Auditor does, or do we work hand in glove with provincial auditing staff, just what is the arrangement?

Mr. Stefanson: Mr. Chairman, there is no duplication. It is an entirely separate and distinct function. It used to be broken down individually through all of the departments. It has now been centralized into one, under the Department of Finance, and they do work in direct co-operation with the Provincial Auditor in terms of the service that the Internal Audit Services provide.

Mr. Leonard Evans: Do departments not maintain for their own purposes some form of auditing function within the department as opposed to what you are doing, or the Provincial Auditor?

Mr. Stefanson: No, they do not. It is now done through here. It still allows the opportunity for departments to prioritize their needs, but it also allows us to prioritize on a government-wide basis which departments require and should be utilizing this service.

Without getting too technical, you get into issues like materiality and a whole range of decisions when you decide how extensive an internal audit function you should have. So, once again, by approaching it in this method we believe we will get much better utilization, better value. I believe that was with the support of the Provincial Auditor that this is a more efficient way to perform this service.

Mr. Leonard Evans: Mr. Chairman, I guess this was one of my questions, how do you co-ordinate this? I mean you are co-ordinating what you do with the Provincial Auditor. You do not want to duplicate. Although in some cases you have to, I am sure. That is the nature of auditing; somebody checks the books and then somebody checks them again and again. I am just wondering how this worked.

I know the Provincial Auditor has staff assigned to specific departments, in some cases several staff, to various sections of departments. I imagine you would have staff assigned to particular departments as well, so I am just wondering how this co-ordination worked with the Provincial Auditor.

Mr. Stefanson: Mr. Chairman, they really are quite different functions. I mean the internal auditor is the day-to-day control systems, mechanisms that are in place to--basically, I will come back to the word control--have a system of control in place in terms of monitoring the delivery of the financial requirements and services and so on. Whereas the Provincial Auditor will get into functions that are quite different, will get into attest functions, attest audits, will get into project audits on individual projects within a department, which is different than the day-to-day control of monitoring that the checks and balances are in place, to be sure that if material is coming in that the invoices are checked. They are checked to be sure that all of the regular ongoing internal control functions are done.

They really are very different functions but they do have an interrelationship. That is why there is co-operation between the Provincial Auditor and the internal auditor.

Mr. Leonard Evans: I gather then that this has been a recent development, taking some of these functions out of the departments, putting them into Finance and centralizing them. There is reference made here to the completion of the consolidation of the Internal Audit Group, on page 58 of your Supplementary Information. You are actually locating them into a common office, so you have taken them right into the department physically, and doing other things, developing an internal audit manual. I guess the idea there is to try to bring about some standardization throughout the government.

When will this be completed? I mean, you are in the process, but when do you expect to complete this development of an internal audit manual?

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Mr. Stefanson: The physical relocation is finished. The manual continues to be worked on.

Mr. Leonard Evans: Just going on to Information Technology Services, is this where this ITRO is?

Mr. Stefanson: Mr. Chairman, we will get to that when we get to Treasury Board which is further in our Estimates process.

Mr. Assistant Deputy Chairperson: The hour being two o'clock, committee rise.