Wednesday 15 February 1995

Pre-budget consultations

Ontario Teachers' Federation

Anne Wilson, president

Ruth Baumann, executive assistant

Greater Toronto Area Mayors' Committee

Hazel McCallion, chair

Ontario School Bus Association

Brian Babcock, president

Dan Stock, vice-president and chair, viability committee

Bill Heslop, past vice-president

Canadian Institute for Advanced Research

Dr J. Fraser Mustard, president

Calvin Bruner

Joint Committee Water Industry Associations

George Powell, chair

Sandy Cochran, secretary

CN North America

Allan Deegan, senior vice-president, CN East

Ron Ditchburn, manager, property tax, CN Real Estate

Canadian Property Tax Association

Yvonne Hamlin, legal counsel

International Council of Shopping Centers, Canadian committee

Gordon Peck, chair

Lorne Braithwaite, president-elect, international council


*Chair / Président: Johnson, Paul R. (Prince Edward-Lennox-South Hastings/

Prince Edward-Lennox-Hastings-Sud ND)

Vice-Chair / Vice-Président: Wiseman, Jim (Durham West/-Ouest ND)

*Abel, Donald (Wentworth North/-Nord ND)

*Caplan, Elinor (Oriole L)

*Carr, Gary (Oakville South/-Sud PC)

*Haslam, Karen (Perth ND)

*Jamison, Norm (Norfolk ND)

*Johnson, David (Don Mills PC)

*Kwinter, Monte (Wilson Heights L)

*Lessard, Wayne (Windsor-Walkerville ND)

*Phillips, Gerry (Scarborough-Agincourt L)

*Sutherland, Kimble (Oxford ND)

*In attendance / présents

Substitutions present/ Membres remplaçants présents:

Marchese, Rosario (Fort York ND) for Mrs Haslam

O'Connor, Larry (Durham-York ND) for Mr Wiseman

Clerk pro tem / Greffière par intérim: Grannum, Tonia

Staff / Personnel:

Campbell, Elaine, research officer, Legislative Research Service

McLellan, Ray, research officer, Legislative Research Service

The committee met at 1002 in room 151.



The Chair (Mr Paul R. Johnson): We continue with deliberations with respect to pre-budget consultations. The first presentation this morning is by the Ontario Teachers' Federation. If you would identify themselves for the purposes of Hansard and the committee members, I'll remind you that you have 30 minutes within which to make your presentation and field questions from the committee members.

Ms Anne Wilson: My name is Anne Wilson. I have the honour to be the president of the Ontario Teachers' Federation.

Ms Ruth Baumann: I'm Ruth Baumann. I'm an executive assistant with the Ontario Teachers' Federation on staff.

Ms Wilson: We're certainly pleased to be here this morning to address the standing committee on finance and economic affairs at this pre-budget consultation. I'm sure many of you are aware that the Ontario Teachers' Federation represents 130,000 teachers in the publicly funded systems of Ontario. We represent elementary, secondary, public, Roman Catholic, English and French teachers across this province.

For several years, we've used this opportunity to discuss with you the role of the provincial government in the provision of education, both elementary and secondary, for our students and to talk about the needs of our schools in Ontario today.

We want to focus on the impact of the Royal Commission on Learning, which has recently reported, on January 26. Public expectations are there: Is there a capacity for our system to deliver what the public is expecting? For the past five years, I would suggest that the Ontario education system has been buffeted by two forces: increased opportunity for success and the real and perceived fiscal pressures that are on the system, and also the conviction that the education finance system is flawed.

In 1993, in our submission to this committee we spoke about the systematic downsizing of the Ministry of Education and Training, and the reductions in transfers, undermining the system's capacity to implement change such as the destreaming issue. In 1994, we outlined the paralysis created by the social contract and the expenditure control plan.

Let's look at the Royal Commission on Learning. Its establishment in May 1993 marked the beginning of the first real look at the system since the Hall-Dennis report back in 1968, Living and Learning, that Justice Hall and Lloyd Dennis produced. The interest in the work that has been done by the royal commission is tremendous. I don't think, in my career as an educator, I've seen so much in the press on the public interest in education. As a teacher in Ontario I am pleased to see this, because to my mind education is one of the most important areas we need to be dealing with. We know that parents, teachers, students, employees, interest groups, a total of 3,000 groups and individuals, commented to the royal commission over the period of their consultation period. So the response has been phenomenal.

The Royal Commission on Learning has focused on the needs of the children, on the new foundations to learn skills, to continue learning. They've also focused on the collective attention that we need to be paying to education, the kind of education that our children need and that society wants. There are the early childhood programs, the early literacy interventions, the affirming of the role of teachers, more support for teachers and ending teacher isolation.

The royal commission report speaks intelligently about the role and use of technology in learning, calls for a systematic commitment to literacy and also lays the foundation for accountability. As you are aware, some of the recommendations might be contentious, are contentious, but I think the report has a mission and a purpose and has certainly captured imagination and built expectations in Ontario today.

OTF is pleased to see the commission's focus on the role of the teacher and the call for more collaborative workplaces. The Creating a Culture of Change project is a joint venture between the Ontario Teachers' Federation and the Ministry of Education and Training and it's in its third year. It's a venture that supports teachers across the province in local schools, helping them meet the needs to implement The Common Curriculum, improve their Transition Years program, develop anti-violence programs and break down the isolation they often feel in their classrooms.

We hope that this project -- our three Cs project, as we call it, Creating a Culture of Change -- will continue to play an active role as schools and their communities work with the recommendations from the royal commission.

In the report there is a focus, certainly, on the technology and it's quite a significant focus for several reasons. There's a recognition of the effective use of technology in learning and that it's not the same as learning to use a computer. There's much more to the technology than that. The technology opens windows on what is learned, how it can be learned and with whom it can be learned. Technology planning must do more than put hardware and software into our schools. It must assist in rethinking teaching and learning.

Many classrooms in Ontario today have computer equipment, but much of it is more than 10 years old. The grant-eligible microcomputer systems program, GEMS, was a victim of the 1993 expenditure control plan, which was unfortunate. The commission has recommended there must be financial and human resources put into this area.


The telecommunications aspect of the technology needs cooperative efforts. OTF and the affiliates, provincial school board and trustee organizations, provincial supervisory officers' organizations, Contact North and the Ministry of Education and Training, together founded the Education Network of Ontario, ENO, which provides coordinated, affordable telecommunications activities, computer conferencing and access to the Internet. We have over 20,000 Ontario educators who have registered. We have thousands more who have applied to be included on the network, and we're working through those registrations. I believe, because of the number of registrations, we have about a 10-week waiting list right now to register those people on to the network. So there is great interest. Over 200 schools are provided with access to the SchoolNet.

In another area, the federation welcomes the clarity which the commission report brings to the role of the provincial Ministry of Education and Training. There is a pressing need for this ministry to have substantial professional expertise in education to be responsible for key curriculum documents, program design and implementation. A few years ago, a senior ministry official saw the ministry's future as "no longer setting policy, but brokering and facilitating the movement of good ideas among boards." The implementation of destreaming and The Common Curriculum have shown some of the confusion that results when the ministry fails to provide the framework that is needed.

The Royal Commission on Learning report says:

"By itself The Common Curriculum is insufficient for informing teachers and parents about programs. While it is sensible to making learner outcomes the basis of curriculum design, it is also necessary to indicate what major areas, topics or skills might be emphasized in an annual program, in a way that is not restrictive, but permissive and helpful in choosing priorities among alternatives....

"What is missing now is a set of curriculum guidelines that describe at least some of the sequences. Without such guidelines, there is no assurance of consistency in or between schools in what is taught and learned. Curriculum guidelines are frameworks within which specific programs can be elaborated in each school or class. Existing guidelines below the grade 10 level are not congruent with The Common Curriculum and must be redesigned.... Some work is necessary at once, to give teachers and parents some guidance, support and reassurance."

Desire alone will not establish a strong and effective Ministry of Education and Training. The commitment of resources and the political will will do that.

Other issues from the royal commission certainly include early childhood education and the whole area of assessment and accountability, issues that are important to our children, our students in Ontario today. All of these issues, all of these recommendations, will require significant resources even in the planning stages.

Another area of importance certainly to teachers in Ontario and to the students of Ontario relates to the Ontario Educational Communications Authority (TVO/LaChaîne). It provides a significant education service to students and to teachers. We understand that the fiscal pressures seem to be heaviest on education programs, but I would suggest to you that TVO/LaChaîne needs adequate resources to maintain the commitment it has to our students and to our public for educational issues.

I want to look for a few minutes at education finance reform, since this is the finance committee. Over the last number of years, in the past decade, there have been three major reports to define how education finance can and should be changed: the Macdonald commission on education finance, the Ministry of Education's education finance reform secretariat and the Fair Tax Commission. Many recommendations were made by those three groups but there have been no changes, really.

The need for change becomes more and more acute. There are fundamental inaccuracies and unfairness in public tax as the primary source for education funding. The social contract seems to have delayed the day of reckoning. The deepening of the divisions between assessment-rich and assessment-poor boards is very evident.

In 1994, this federation told this committee:

"One particularly adverse effect of the social contract in education has been its disproportional impact on teachers within their first 10 to 12 years in the profession" -- our young teachers. "These young teachers find themselves with significantly larger income losses" -- than they expected -- "at a time in their lives when many would normally be considering home purchases or other significant investments in Ontario's economy. The X generation of teachers, frozen for the term of the social contract and not knowing what will follow, is unable to plan effectively for the future or to contribute positively to Ontario's economic recovery."

In the intervening years the pattern is becoming more complex. The grid increases expected during the term of the social contract are lost to those young teachers permanently. The inequalities among our teachers are increasing. Some boards in the province have the financial capacity to cope with these implications for the teachers regarding the social contract; other boards do not have this flexibility. So the divisions have serious implications in the public and separate board comparisons, and comparisons between English and French boards.

Recently we've received a publication from OISE: Public Attitudes Towards Education in Ontario. It's a 1994 publication by Livingstone, Hart and Davie, and in that report they indicate that in comparison to 10 years ago, a vast majority of Ontarians are willing to pay more taxes in support of education.

In conclusion, on behalf of Ontario teachers, we recognize the public environment within which this committee will be weighing its report. We know there is an increasing public resistance to taxation in general, a growing perception of unfairness in the tax system, and in the field of education, rising expectations of what can be accomplished.

Government announcements to date regarding the recommendations of the Royal Commission on Learning have included no promises of new money. In the absence of new money, the dilemma will be how to reallocate existing funding and at the same time re-establish an equity in financing of education across the province. The standing committee on finance and economic affairs, the Treasurer and the government must consider whether at this time and for these changes there is public support and the political will to put the resources, including new funds where necessary, into real educational change.

As the commissioners of the Royal Commission on Learning said in the introduction to their report: "Our schools will never be perfect. Yet our striving as Ontarians requires that they be better than they have been. Like no other social institution, our schools hold the promise of a way into the future for us all." That promise is yours to fulfil.


Mr Gerry Phillips (Scarborough-Agincourt): I think the biggest problem we've heard from people in education, fiscal problem at least, is this issue around the social contract. It would appear that going into the social contract there was some kind of parity around the province -- not perfect -- but that during the social contract there's been more distortion board to board and, I don't know, maybe panel to panel, so that when the social contract ends April 1, 1996, we're going to have some significant disparities. At the same time, as you say in your brief, in the absence of new money we have a problem. Have you any recommendations for this committee or for the government on how we might deal with that problem, the disparity and, frankly, limited resources?

Ms Wilson: In response, and I would look to Ruth to come in on this if she wishes, to my mind if there's a will there's a way. If there is agreement among the political people in this province that this inequality must be rectified, then I think it will happen; it can happen. It seems to me there has been more money saved out there than the social contract ever thought would happen, and I think we need to be looking at some of those saved moneys and redistributing them, if you will.

I'll tell you, in the schools of Ontario the problem of the increment, the freezing of the increment, is causing a lot of anguish between our new teachers, our more experienced teachers; it's demoralizing.

Mr Phillips: I hear that wherever I go.

Ms Wilson: Maybe Ruth has something.

Ms Baumann: I think we have to be careful that we look at the social contract fallout as an immediate consequence of that, but recognize that what we're seeing now -- and this is what we've tried to say in the paper -- is that what's happening as we approach the exit from the social contract very much reflects the state of education finance going into it, that the boards that seem to be managing a smoother process towards exit are the boards that have resources. What you will have at the exit from the social contract will be some boards that are, relatively speaking, on a more stable footing in terms of their teacher population and where they sit -- not that they've got more money, but they will have managed to ease the dislocations. The boards that are resource-poor are the ones that are going to have the greatest difficulty in managing that dislocation, and it really comes back to the basic system of education finance, I think, more than the social contract itself. What we're seeing now is that if you start with a system in which things weren't working very well and then you put that on top of it, they don't work well worse, if I can put it that way -- terrible English but the right point.

Mr Gary Carr (Oakville South): Thank you very much for your presentation. There isn't too much time and David has a question too, so I'll be really quick.

My question relates to the royal commission. Two questions I have are regarding the teachers' college and the teachers' accreditation. Does your organization support that and, if not, where do you see any problems that may arise?

Ms Wilson: The college of teachers?

Mr Carr: Yes, and also the accreditation.

Ms Wilson: The recertification, that idea?

Mr Carr: Right.

Ms Wilson: Let me talk on the college of teachers. As president of the Ontario Teachers' Federation, I would say the vast majority of our teachers are in support of a college of teachers. I think it's a recognition that we are a profession, and that's one of the points. There are some contentious points, as you can imagine, and I think you've probably seen some of those in the press, but I think the vast majority of our teachers will welcome this. There are many questions that we have about the establishment of the college, how it will operate and mandate and all of those sorts of things, but we want to be involved in finding the answers to those questions, and I'm sure we will be. It's an area that obviously if we're not involved, we won't have the ownership and it will not play out as well as it should.

On the recertification, I believe we have a semantics problem here. I don't believe the commissioners were talking about teachers every five years going back and taking a year to recertify, and that's the meaning if you go to the baseline. I believe the commissioners were suggesting that people need to be current, and the majority of our teachers are. This is what they do for a living. They have concern for the students they teach and many of them put in hundreds of extra hours. So on the recertification and the college of teachers, we need to be involved and we're quite willing to discuss and look at what is being suggested.

Mr David Johnson (Don Mills): Thank you as well for your deputation. My question to you concerns priorities. You've brought many points to us today, technology, computers, the possibility of three-year-olds coming into the system, freezing of the increments which we know is a source of concern with the younger teachers. The separate school system of course has come before us saying there should be a redistribution within the existing system. Given that we have a limited amount of resources, where do you see the priorities over the next few years?

Ms Wilson: If you want to have a system that will run smoothly, you need to take care of the increment question. That's one for sure. It is impacting on every school in Ontario and therefore it's impacting on our students. I would suggest that's one of the ones.

Certainly in the area of technology, we need our students to be computer-literate so we need access to current hardware and software, and we need the inservice for our teachers so they can work with the students.

Ms Baumann: I would start by looking at the classrooms and I would emphasize what Anne has said about the divisions among teachers that the increment question has brought, which makes it difficult for people to work together when people perceive themselves as having been treated significantly differently.

The other area that I would emphasize in addition to what Anne has said is the commission's recommendation around the central role of the ministry in curriculum development. I think if we don't have an education system that's seen as a whole system across the province, we continue the difficulties that we've had. So there's a real need there, starting from the classrooms, of what those people in the classrooms have to work with and what their resources are.

Ms Wilson: One additional point on the three-year-olds: We know from studies that money spent in the early years is financially sound and saves money later on. Many of our little people are ankle biters, as I often call them. They need to have a good start in their education and in life. I'm an elementary teacher and I've taught those little people and the profits back are there. So we need to look at that. I understand there isn't a lot of money in the system, but we need to look at how it can be spent so it will benefit our students the best.


Mr Kimble Sutherland (Oxford): When you talk about the increment issue, I get myself in a bit of a difficulty, because I have friends who are obviously new teachers who are suffering under that and of course then I've got a couple of good friends who graduated from teachers' college and haven't been fully employed and a little different perspective depending upon which one you're talking to. So it is a difficulty.

Coming back to this issue of three-year-olds in school, and separating out the issue in terms of the merits of early childhood education versus how you finance it and whether you can afford it and what type of system you set up, some have said that the concept of early childhood education is a silly idea. I guess I would appreciate you elaborating a little more about what people should interpret as their understanding of how education works and how kids learn when they call the concept of early childhood education a silly idea.

Ms Wilson: I would suggest to you that people who call it a silly idea have not seen how children interact, little children, and the things that they learn from each other, from their peers, even at three years of age. There are a lot of skills that the young children, if they have and they learn at three and four and five, will assist them as they go through their educational career: social skills, getting along with people, getting along with adults.

We don't have time to go into all the skills they would learn, sir, but I would suggest to you that if you attend any of our JK classes, you would be amazed at the activities the children are engaged in and how organized they are and how they help each other, and how they help the teacher, how they assist in the classroom. I've often visited senior kindergartens and junior kindergartens, and I've been really amazed at what they're accomplishing and the progression you see from September to June.

I'm also an administrator in a school and I spend time with the little ones. Their spoken skills, the increase in their vocabulary, because they interact with other children and with adults, their organization skills, their awareness of the world around them, of what is happening, is mind-boggling. It really is, and until you've seen it and been involved with those little ones, I don't think anyone has an appreciation of what the teachers do in those classrooms and what the children do.

Ms Baumann: There's some very good research that was done, actually in the state of Michigan. It was a 25-year longitudinal study that was done of children in the Perry preschool project that the CIA -- the Canadian Institute for Advanced Research -- often cites.

Mr Sutherland: I'm glad you clarified that.

Ms Baumann: The CIAR, as opposed to the CIA. I think that if we want schools to be institutions that help equalize life's chances, research and the research you see out of Europe as well on early intervention at the age of three and the option for families of having their children involved with the school system that early is quite stunning in terms of the changes it makes in life's opportunities that are there 25 years later. The research is very hard to argue with.


The Chair: The next presentation this morning is by Mayor Hazel McCallion, chair of the Greater Toronto Area Mayors' Committee.

Mrs Hazel McCallion: Thank you for the opportunity to come before you today representing the greater Toronto area mayors. As you know, we've been operating for three years now, as of April, and have accomplished a lot of things, working with the government. The Honourable Ed Philip, minister of the GTA, has been very cooperative and has worked with us. We've been successful in some things and not successful in others, but I guess that's the way life is.

I guess, since this is an election year, we will not be talking so much about tax increases in the province, but we in the municipalities are concerned about down-loading, which really is a tax increase in a roundabout way in that if the province downloads on us, we obviously must reflect that in the property tax. I just wanted to emphasize that we are very concerned about downloading, and not only downloading by this government, but downloading by the provincial government, period, over the years. It has not just occurred in the last few years; it's been a trend of downloading on the municipalities. I just want to say that.

The other thing we are doing in the GTA is that we've done a study in cooperation with the provincial staff on the inequities between the GTA and the rest of the province and they are quite large. Now we are going to continue with the study on the inequities that exist within the GTA because, as you know -- I'm sure you read the papers, as we all do -- Metro is very concerned about the fact that the regions around Metro are stealing industry and commerce from Metro, and we are. There's no doubt about it; there's a good reason why.

First of all, as you know, the regions around Metro have gone ahead with reassessment to market value on different years, which gives a more level playing field between industry, commerce and residential taxes. Due to the fact that the province turned down Metro's desire to proceed with reassessment to market value and then turned down its desire to equalize assessment throughout Metro, that is one of the major crises that has been created by the province and therefore Metro is at a great disadvantage.

Reassessment to market value in the past has been on the fact that a municipality or the province comes in, does a reassessment but they do not give you the impact on individual properties; they give you a global figure that so many -- in Mississauga I think 39,000 properties received a decrease and 41,000 received an increase, but they didn't tell us who. We had to go ahead with market value assessment knowing full well that it would come out equal in regard to the taxes, because it balances out. The province divulged the individual property in Metro and, as a result, I think there were some 44,000 appeals, which is causing a tragic situation in Metro in which large anchor tenants in plazas got a reduction and are now prepared voluntarily to try to help out the smaller tenants in the plaza.

I just want to tell you that the reason we are attracting industry and commerce outside of Metro is because of the mess the province created by not allowing Metro -- and I say "Metro" -- to proceed. I want to clear that up, because there's some impression that we have tax havens outside of Metro. We don't. We've done our homework and the regions around have taken the bull by the horns and gone ahead with reassessment to market value.

When Mississauga reassessed to market value in 1969, the impact was so great that it had to ask for special legislation to phase in the reduction in the industrial-commercial and phase in the increase in the residential, so our commercial-industrial was loaded to the hilt in Mississauga, as it is in Metro. Of course, it's a tough decision for politicians to increase the taxes on residential developments, but I can give you all kinds -- even Mr Joe Berridge, who has been set up by the province to look at a task force for the GTA, admitted to me in my boardroom, and he was very honest, "I happen to be one of those taxpayers in a residential who is getting a break second to none while the industry-commerce of Metro is being loaded."

The province has to take action, and I'm not at all convinced that the task force it's setting up is going to deal with the most important issue, which is taxation and assessment. The province has had the $8.1-million Fair Taxation report since August 1994 and we have seen no action on it. We could go back to the Smith report. In fact, it seems that when politicians don't know what to do, they set up a royal commission or a task force to get it off their agenda. That is not just typical of the province; that's the federal government and sometimes even at the local government.


We are concerned about the social contract ending in 1996. The province promised us, at the time we stayed at the table and the unions did not stay at the table to discuss the social contract, made commitments regarding issuing guidelines to interest arbitration and giving greater municipal control of public budgets -- no action on that; that has just dropped off the table. As requested previously, we want this, and we negotiated that at the time the municipalities stayed at the table to try to assist and participate in helping to design the social contract.

Let me give you some of the things we're concerned about.

Downloading: Mr Laughren on June 15, 1994, met with the president of AMO and said, "As of July 1, 1994, you will be charged for adding assessment to the rolls." Either the province has to change its calendar year or we're going to have to change ours. You can't tell us to balance our budget, which we do, in the first couple of months of the year and then bring down a provincial budget that throws it for a loop. You just can't do it, because that to me is screwing up our budgeting at the local level.

We approached Mr Laughren and said: "Look, in the city of Mississauga, it was $1.7 million. Where do we find it? We've just adopted our budget." "Well," he said, "just transfer it to 1995." We are not impressed with the creative bookkeeping occurring at the province of Ontario at the present time. Those are the kindest words I can use: "creative bookkeeping."

Then after it was decided -- no consultation with AMO, absolutely none -- he set up a task force, because they realized that the $120 they charged to add it to the assessment in some cases wouldn't bring in the revenue equal to the charge. That's trying to close the door after the horse is out of the barn.

Court security: not your government's decision but the previous one's. We must, us, pick up the tab for court security by our police department in provincial courts. As we said to the former Solicitor General of the former government, "We thought you had a police force called the OPP which might be the ones who should be court security for provincial courts." That I believe is costing Metro somewhere around $2 million.

Mr David Johnson: More than that.

Mrs McCallion: Or more than that. Dave, you should know.

This is the type of downloading that has got to stop.

If you want to take education and welfare off our property tax, we would be extremely happy. Now, we know you can't. At the local level, I believe we have a better understanding of finances than the provincial or federal governments have, I have to tell you. We know you can't assume education, but you could phase in assuming it. Now with the royal commission on education, the province is going to dictate the entire educational system for the province. I say if you're going to dictate it, pick up the tab for it. I have no problem. I don't mind having jurisdiction for something and being responsible for the cost of it if I have control of it, but that is not what is happening.

Let me go to some others.

Policies and guidelines for grant and subsidy qualifications must not be altered to remove eligibility on items which previously qualified. That is happening too. Every so often we get hit with a different interpretation.

Bill 163 is downloading cost to the local government, I've got to tell you. Parkland dedication: The city of Mississauga had to inform Morley Kells of UDI, as well as the staff of the province, that the way we were doing park dedication was not double-dipping. They now acknowledge that it isn't double-dipping, but they can't change the act to change it. I've asked Mr Philip to drop that from the bill, but they made a deal with the developers. Interesting, the government making a deal with the developers.

I have to say to you that Metro has another major problem. I believe the province is now going to try to download even more on them with two more subways. Our infrastructure in the regions around Metro is paid for by the developers. We collect levies. That is why Mississauga is debt-free, because the infrastructure is paid for. All infrastructure in Metro goes on the tax bill and it's debentured. That is why Metro's taxes are way out of whack.

The question that arose is, what are the regions around Metro doing to replace the infrastructure? Many municipalities around Metro are setting up reserve funds to replace the infrastructure, because it doesn't last forever. That's the type of financial planning occurring at the local level. I think we could show the province, maybe, to some degree, about adopting some of the policies that have been adopted at the local level.

What are we going to do about the Fair Taxation report? If the intent of the Premier is to set up a task force to look at the GTA in regard to many items such as governance, I can assure you it's going to be a long time coming. What we should be facing up to is taxation reform, the province to determine how it's going to deal with assessment. That's the priority on the minds of the Metro area and on the minds of the GTA regions around Metro. You have to face up to taxation. You have a report that, in my opinion and the opinion of the municipalities around Metro, has to be dealt with. We don't need any more reports.

Our other concern about the GTA task force the Premier is setting up is that it's going to be a task force composed of academics, bankers, mainly non-bureaucratic people from the local level but none elected from the local level. I can assure you, and you can take a message to the Premier, that he's got a battle on his hands. We have expertise at the local level that knows the problems we're facing every day with the entanglement and the confusion that exists. We believe we have the expertise to advise the province about what should be done in regard to changes that have to occur in the GTA.

I'll give you an example. I want to compliment the former Minister of Transportation, Mr Pouliot. He set up a task force to look at the integration of transit within the GTA. When we sat down as municipalities to look at it, the first item on the agenda was not, "How are we going to govern this?" not, "How are we going to amalgamate?" not, "How are we going to eliminate?" It was, "How are we going to serve the transit user of the GTA more efficiently and more economically?" And it was a success. Governance never entered the picture. Now we have an integrated fare in the GTA, and we're proceeding further with the secretariat he set up to look at how we can integrate information so somebody in Markham can find out when the bus leaves Square One in Mississauga.


It just shows you what we can do if you will give us the opportunity to do it at the local level. The day has come that mandating from the top down has got to go, and the solutions have got to come from the grass roots up. We, as municipalities in the GTA, now with the support of the mayor of Toronto and the mayor of Scarborough, who were not on board previously, have the expertise, have the desire, and we want to make the changes that are necessary. We don't want to be told by the province how to do it, because all the messes that have been created over the years, and not just this government, have been created by the provincial governments mandating down.

The regions formed around Metro cut off all our communication with Metro -- cut us off. We are a unit. We're the engine of Canada, certainly the engine of Ontario, and our engine is sputtering because of provincial interference and mandating things down on us that just don't work.

I think of the tire tax that another government put in that was going to help us but got into the slush fund, called the consolidated fund of the province, and not used for the purpose of the GTA. Waste management: $60 million, $70 million down the drain, and nowhere near a site in the three regions around Metro, not a site yet, and $140 million down the drain with the Ontario Waste Management Corp.

I tell you, folks, when you tell me you don't have any money at the province, I fully understand. You don't need to be a rocket scientist to figure it out. We say to you, we want to be consulted, and in advance, about decisions like Mr Laughren made on assessment. I believe we should pay for a service provided. I have no problem with that, but don't land it on our budget in a year we've already confirmed our budget for. If he had said January 1, 1995, it would be understandable and we could prepare for it, take it into account.

It's a lack of understanding of the staff in the Finance department, in my opinion, of how local government works, and you folks can do something about that. When they brought in the expenditure control and then the social contract, the staff in the Finance department did not know -- and that's proof -- that our calendar year is not the same as the province. That's general knowledge.

So, folks, let's make some changes. As I said before, my politics are basically conservative with a liberal point of view, a great social conscience, and looking for a lot of reform in government.

Ladies and gentlemen, I say to you we are no longer children of the province, we've grown up, and we know what has to be done. Give us the opportunity to do it and stand aside, as I would hope the Premier would do, and say to us as municipalities in the GTA, "You tell us what should be done," and then if it doesn't work, who can he blame? He can say, "You folks told us." But when it comes from the top down, it will not be successful. There'll be confrontation second to none. Here you have an opportunity as a province for once to say, "Tell us what should be done, staff and elected people of the GTA," and then if we blow it, we can't blame the province.

But no, I'm afraid that I see the task force going in the direction of a group of academics that we'll have to teach what local government's all about, or our staff will have to show them; or bank managers with whom we've had a problem -- and we've had them before in our GTA and told them to smarten up.

We know what has to be done. Give us the opportunity to do it. And, please, no more studies on taxation. They're gathering dust at Queen's Park. Take off the dust and come up with some decisions for the good of the people you folks should be interested in serving. Certainly we are, at the local level, because we're with them every day, can't get away from them. And we know what they're thinking; that is, no tax increases, definitely, and we've said that to the federal government, because a tax increase right now will set back the economic recovery we're experiencing, it will send more to the underground economy, which is flourishing in our province and our country, and it will discourage foreign investment in our country.

So that's our message, the GTA mayors.

The Chair: Thank you, Mayor McCallion, for your most enlightening presentation. We have very little time left, about a minute and a half per caucus. That's for the question and answer, I might remind committee members.

Mr David Johnson: Then I'll get started and just say thank you very much.

Certainly downloading has been rampant over the past few years; you've outlined a number of cases.

The assessment issue in Metropolitan Toronto I think is the greatest mess that has to be faced. Businesses are overassessed, tenants are overassessed, and the single-family homeowner cannot pay any more taxes; they're paying enormously high taxes as it is. There's simply too much infrastructure that's being supported on the assessment system in Metropolitan Toronto. Of course we think primarily of schools and welfare. Those are the two the board of trade has brought to our attention.

You made comments about the two new subway lines that are being proposed. We see the general manager of the TTC today saying they're not affordable, that the capital within the system that's required for maintenance could tally several hundred million dollars, perhaps $800 million, over the next four or five years.

My concern is that there is too much cheerleading going on about the subways, that the provincial government is simply trying to push it in without understanding the economic implications. If it makes financial sense -- we should stand back, bring in a neutral third party, have a look at it, see what the costs are, what the implications are for the taxpayer, what the implications are for the fares in the future, because the costs are going to be enormous and the extra revenue coming in will not support the cost of these lines.

I don't know. Is that in line? You probably have about 10 seconds. The province, from what I can see, over the financial concerns of Metro is trying to push in these extra two lines, which we'd all love but apparently can't afford.

Mrs McCallion: Dave, you're not absolutely correct when you say that the residential can't pay any more taxes. I would love to own a home in Rosedale or Forest Hill.

Mr David Johnson: You tell the people of Metro they don't pay enough taxes. It won't be me.

Mrs McCallion: I'd like to own a home in Forest Hill or Rosedale and compare it to the taxes of an 1,800-square-foot home in Mississauga. The residential in Metro is badly undertaxed in certain areas, and commercial and industrial are loaded to the hilt. I can't agree with you there.

In regard to the two subways, we just can't appreciate that the province has the money, which it doesn't have, to subsidize the debenturing and the interest carrying charges on two subways, when we know it's turning down and telling us out in Mississauga that it doesn't have the money for an interchange at Mavis Road and Highway 401. Right now we have three major warehouses of 500,000 square feet each wanting to move to that area, not moving from Toronto, by the way, moving from other areas of the country.


Mr Sutherland: If I may just go over some of the things that you talked about and want to mention, you mention about municipalities and the province taking over welfare. Of course there was a negotiated agreement with AMO representatives as part of the disentanglement process. Individual municipalities as a whole rejected that disentanglement deal that was in place. Okay?

I think the other interesting thing, though, through your presentation was your comments about the integrated pass. You mentioned how if we're going to have reform done, it has to come from the grass-roots level. But the integrated pass did not come about until the government got involved to provide some leadership to bring all the parties together. There wasn't a lot in the way stopping the individual municipalities and the individual transit systems from developing the pass system on their own.

If the process is going to work, it needs some provincial involvement in terms of providing some leadership and of course the involvement of the individual municipalities, but from the way you've presented the integrated pass system, it did show that the provincial government was there providing the leadership and working in cooperation with the individual transit systems. That didn't come about solely by all the individual municipalities working on their own and deciding to do it.

Mrs McCallion: Let me correct you on two things. Disentanglement was not turned down by AMO. Disentanglement was canned the day that Ed Philip came to the board of directors of AMO, and I'm on it, and announced expenditure control, which threw the thing in complete chaos. Disentanglement was ruined by the expenditure control program. That very day AMO said, "This throws it to the winds." So, please, let's get that straight once and for all.

Mr Sutherland: There was a negotiated agreement with AMO representatives.

Mrs McCallion: I have written Mr Laughren and corrected him. He gives out the same false information on AMO, I have to tell you.

Secondly, in regard to integration, I don't think you realize that integration was occurring. We have integrated transit with Brampton. We have some integration with the TTC. Long before the minister got us all together, it was occurring, rather slowly, but occurring.

You see, what it really clearly says to me as I listen to people, and I've come down to many standing committees, is the lack of understanding of the members of the Legislature in regard to what exactly is happening at the local level. You're out of touch, I've got to tell you.

Mr Sutherland: Well, there are two sides to every story.

Mrs McCallion: You're out of touch.

Mr Phillips: I have just a comment first and then a question. I was interested in your comment, "Take the message to Bob that he'll have a battle on his hands if he proceeds." From my own experience I just want to say I'm betting on Hazel over Bob in a battle, because I haven't seen you lose many and because I think you've demonstrated --

Mrs McCallion: I have no problem with appointing an independent chairman, don't get me wrong, but if he starts loading the task force with academics and bankers and everybody under the sun other than the expertise at the local level, the staff that know the day-to-day operation of the municipality and the elected people who have to make the decisions on the day-to-day operation of the municipality, then it's going to be a waste of time, and we're not prepared to let that happen. We'll set up our own task force if that happens, I've got to tell you.

Mr Phillips: I appreciate that and, as I say, when the Pro Line odds come out, I'm with you.

In Metro Toronto we have seen a significant job loss. There really are about 200,000 fewer jobs in Metro Toronto now than there were in 1989. At the same time in the surrounding area, including your successful municipality, we've seen job growth occurring. My question really is this: Do you think Metro Toronto is at the end of the problem or is it, in your mind, just going to be a continual kind of a running sore until it's resolved? I ask you the question because you're on the other end of it in some respects.

Mrs McCallion: Metro Toronto has its assessment problem. That's a mess and that has been created by the provincial government. It's sad. Secondly, they've got a lot of contaminated land, they have a lot of old industrial stock. You see, we're building 40-foot buildings in Mississauga. We have more new stock and more new stock around, not just in Mississauga, but in Markham, in Vaughan etc. So Metro is up against those situations, no question about it.

It's important to us around Metro that Metro is strong, that the city of Toronto is strong. That's why I set up the greater Toronto area mayors to promote the greater Toronto area. I can't call it the greater Mississauga area. I'd love to. In fact, I had to go to confession 10 times before I decided I was going to promote Toronto. But it is known internationally and it's got to be strong.

The GTA is only as strong as its weakest link and if the major core is weak, like the city of Toronto, then we're not as strong around. We recognize that and we want to work together and, as I say, we are working together.

I'm delighted that the new mayor of Toronto is on board and that she's contributing and wants to participate, and the mayor of Scarborough. Those were the only two mayors who were not supportive of my effort of the GTA and we've got it now, so let's go. We're ready to go. As she said the other day, and I agree, we're not always going to agree on things but, by Jove, we're going to find solutions and we've got to strengthen the city of Toronto. They've got some problems.

Your environmental controls in this province: The environment wasn't ruined overnight and it's not going to be cured overnight. But today nobody's going to buy land in the city of Toronto and go through the environmental like we're going through in Texaco and removing all the soil and taking it up to Britannia. We enjoy that, you know, moving soil from this area to this area. Just great, isn't it? Great. It's hard to believe the environmental controls that this province is putting on that, in my opinion, are ridiculous, and we are an environmentally sensitive city, recycling second to none.

The Chair: On that note, Mayor McCallion, I'd like to thank you for making your presentation before the committee this morning.

Mrs McCallion: In fact, I'd love to give you all a copy of the City of Mississauga 1994 Successes: $4.3 million staff saved in the city of Mississauga in 1994. Not bad.

The Chair: Did I hear you say you are going to give us all a copy?

Mrs McCallion: Sure. If you all want a copy, I'd love to give you all a copy.


Mrs McCallion: We're working at it.

The Chair: If you want to table one with the clerk as opposed to giving just one to Gary Carr.

Mr Carr: Can I have one? Then I'll table it.

Mrs McCallion: Yes, if you would, and I'd be glad to send you as many as possible. We're getting requests from municipalities across Canada for it.


The Chair: The next presentation this morning is by the Ontario School Bus Association. Please come forward and make yourselves comfortable. I'd like to say it's going to be a hard act to follow, but I think that would be inappropriate.

Mr Brian Babcock: Mr Chairman and members, on behalf of the Ontario School Bus Association, thank you for accepting our request to appear before the committee during your pre-budget consultations.

My name is Brian Babcock and I'm president of the association and president of Babcock Coach Lines in Beamsville. Dan Stock is vice-president and chair of our viability committee and also vice-president of Stock Transportation Group based in Markham. Bill Heslop is a former vice-president of the Ontario School Bus Association and is vice-president of Canadian operations at Charterways in London. Richard Donaldson is the executive director of our association.

The Ontario School Bus Association is a voluntary association representing the interests of school bus providers located in each and every county of this province. Through leadership and learning opportunities the OSBA prioritizes -- I'd like to underline "prioritizes" -- the enhancement of the long-term safety and security of students in Ontario. We hope to achieve stability with quality service providers who are viable in the school bus industry in Ontario.


Our members comprise 80% of the 18,000 school purpose vehicles currently operating in Ontario. Our industry, with 23,000 employees, the majority being female part-time employees, carries approximately 800,000 students from home to school and back each day.

Last year when we appeared before the committee, as the School Bus Operators Association of Ontario, we urged the government not to further reduce the general legislative grant to student transportation. Indeed, we were pleased the government accepted our recommendation that no further reductions of student transportation funding occur until such time as restructuring initiatives could be more fully implemented to realize greater cost efficiency.

You will be pleased to know that during the intervening 13 months we have been working in partnership with the Ministry of Education and Training and a number of local boards of education on these very issues.

Last fall the association conducted a province-wide campaign coinciding with the municipal elections. The campaign was designed to communicate interactively with potential school trustees on current and future issues of student transportation. The results were very interesting, and I want to share with the committee a few of those results. In the package that we're providing you'll find graphs that describe the outcomes.

Trustee candidates were asked, "How do you think school boards should treat student busing?" and 80% answered that school busing was an essential service. To the question, "Who should pay for school busing?" 82% of the respondents said local boards and provincial government. To the multipart question relating specifically to alternative delivery models and systems, 87% supported coterminous sharing, double or triple routing and staggered start times of schools, and these are all initiatives that we have aggressively pursued since 1989.

Let me provide you with a few specific examples where we have seen success of alternative delivery modes and, I assure you, the examples are selected virtually at random.

In York region the public and separate school boards have amalgamated the two previously distinct transportation departments into one. The one department now serves both boards, and it is estimated that this integrated model will result in a 2% to 3% saving in gross costs, translating into $1 million with a goal of 10% in saving.

In the Dufferin-Peel region new initiatives include coterminous sharing of routes, automation, staggered hours, contract changes and safety measures, and in Hastings county staggered hours is a well-established practice.

Concomitant with my previous comments, the Ontario School Bus Association has been in the forefront of fostering change. As an example, on March 4 we're sponsoring the second of two conferences this year dedicated to exploring greater efficiencies. Participants will include school trustees, board administrators, transportation managers and private school bus operators. We will be exchanging experiences and learning from the successes and perhaps the not-so-successful ventures with all the players in the student transportation industry. It is our main aim, however, to have the participants gain valuable information and leave the conference ready to continue with restructuring.

We have seen that restructuring has its advantages: increased cost-effectiveness in Victoria county; reduction in the education mill rate in Huron county; more effective use of human, physical and material resources in Renfrew; open and collaborative planning in Wellington.

But restructuring has resulted in cost increases to school bus operators. Amalgamated routes and staggered hours have put our buses on the road longer with increased costs for items such as fuel, depreciation and driver salaries, real costs which are not always recognized in the contract provisions between school boards and private contractors.

These contracts are often structured on a per-vehicle, per-mile basis, leading in some cases to hardship for the service provider at the same time that provincial and local governments achieve savings.

The Ontario School Bus Association recommends that the Ministry of Education and Training incorporate additional financial incentives into the school transportation funding formula to encourage school boards to restructure, while at the same time fairly compensating bus operators who incur additional recognized costs.

We recommend that the government maintain the student transportation funding at the 1994-95 levels until such time as restructuring initiatives can be fully implemented to realize greater efficiencies.

I want to turn to the issue of the provincial task force on the integration of local transit and school busing.

During the negotiation of the municipal sector agreement under the social contract, Bill 48, the signatories to the agreement identified the issue of school busing as an area of review, recognizing the need to reduce costs of municipal services. Voting members on this task force include the Amalgamated Transit Union with one vote, the Association of Municipalities of Ontario with one vote and the school trustees' association with one vote. The OSBA requested voting status on the task force as the sole organization representing private school bus services. The request was denied but we were granted observer status.

Prior to the establishment of the task force last fall, our association was very much an active participant in the Ministry of Transportation's community transportation review. Paramount to the general principles agreed to by all parties are the following at the task force:

"The safety of students should take precedence when deciding upon transportation options, and age guidelines should be determined locally (eg, elementary students using school buses versus public transit)," and, "Full-cost accounting should be used when comparing the cost of school buses versus public transit or other options for school transportation, including all capital and operating subsidies from public funds."

The members of this committee will want to know that according to Transport Canada, on a per-passenger, per-kilometre basis the occupants of school buses are 16 times less likely to be injured in road collisions than the occupants of any other motor vehicle. School buses and school bus drivers are subject to stringent construction safety and licensing requirements, both federally and provincially. We maintain that the safety of our province's future, our children, must supersede all other considerations and we will continue to, as forcefully as possible, remind the public of this fundamental principle.

On the issue of full-cost accounting, we accept that all levels of government must scrutinize expenditures, not just in severe economic times but in all years, to determine the best value to the taxpayer. We are prepared to provide to decision-makers high levels of value based on sound management principles.

With this in mind, the Ontario School Bus Association recommends that full-cost accounting be a requirement of doing business in the provincially funded public transportation sector of Ontario.

We wish to thank you for the opportunity to appear here today. We welcome your questions. Having said that, we were indeed gratified with some of the responses to last year's presentation.


Mr Sutherland: I want to thank you for coming in again. It was good to have your group here last year to talk about some of those issues. I think it's important for your organization again to highlight the safety aspect as well. I have one of the manufacturers of school buses in my riding, Thomas Built Bus, and then Blue Bird, which is one of the other major ones, is just outside my riding. I had the opportunity to tour their facility this past year, the Thomas one, and find out all the stringent testing mechanisms and what they have to put into their buses these days to meet those standards.

I think last year some of the questions and the discussions were about the efficiency issues. You've talked a little bit about them again today. If I remember correctly, I thought you felt last year there was some sense that those issues weren't proceeding as well as they could be, partly because there maybe wasn't as much responsiveness to your organizations and some of the suggestions that you had as to how that could proceed. Would you care to update us, in terms of your sense over the last year, whether there has been more responsiveness to the approach and the specific issues you've been putting forward that will help some of the efficiency and the cost savings?

Mr Babcock: I'm pleased that you asked that question. We identified these issues in 1989, and I'm just going to read them quickly before I respond to your question, if I can, Mr Sutherland.

We suggested that there be a combination of facilities -- that is, administration and transportation offices -- of public and separate school boards; that combined public and separate school students on the same buses may be a situation that bears fruit and, further, to combine elementary and secondary students on the same bus; to increase the flexibility of hours to make better use of buses; to make double and triple runs viable; to extend walking radiuses -- I want to be careful here -- where safe and practical; and, wherever practical, to use optimally sized vehicles.

Those were our recommendations as early as 1989, and what have we seen in the last 13 months? I want to give both Bill and Dan, and Rick, if he feels he needs to, an opportunity to respond, but I think the results have been gratifying indeed. My perception is that school board administrators and bus operators are taking the issues very seriously. I think we're all acutely aware of the fiscal demands imposed upon all of us as Canadians and Ontarians with deficits that are difficult for all of us to have to think about managing. So this situation is being taken very seriously.

The process is interactive. We'd like to think that we continue to provide quality learning experiences, to share, as I mentioned, both successful and perhaps not-so-successful initiatives. There is indeed now some indication that the successes will bear out in the numbers. Those numbers are preliminary, I have to say.

Mr Sutherland: I guess maybe too your organization is probably one we haven't heard from on the report on the Royal Commission on Learning, but I just thought it might be fair to let you provide any comments, whether you had any issues about three-year-olds on school buses and whether you feel that will have any impact on your organizations, your drivers, what happens now with buses. Did you have any comment?

Mr Babcock: I think we all have comments, but in fairness to my colleagues, either Bill or Dan, do you want to field the question?

Mr Dan Stock: I think that in terms of the younger children, for us it will be an additional challenge because, of course, when you speak of safety and security, it's an important issue for us. They take additional care than, say, the high school students would. We already do some cooperation in certain school boards with day cares, bringing them to school systems, so that is under way. That type of work is not foreign to us; it would just be additional work, and we'll just have to put additional emphasis on it. But it's an area where safety and security becomes that much more important. We would certainly be in support of that type of direction. Again, for us it's not new.

Mr Larry O'Connor (Durham-York): I want to thank you for coming before the committee. I know that Stock has grown quite a bit in recent years and they've actually done a lot of good work in York region collaboratively with the two coterminous boards and I think were very active in that participation.

On a constituency level, if I may use a little bit of the prerogative of an MPP here and ask a question, I often get asked about seatbelts on school buses, and I don't have the best answers. I'd just like to pose a question to you. Why aren't there, and is there a reason for that? Just so that I'll have it on the record and I can pass it on to my constituent who has posed the question to me.

Mr Babcock: The most authoritative study that involves student restraint systems in school buses is Transport Canada's 1984 crash study. It is now recognized by the National Highway Traffic Safety Administration, I believe they call themselves, in the US. In essence, what the study indicates is that in the large majority of accidents, which are frontal collisions, the loading force that could create a fatal injury to the student is indeed most significantly reduced without the use of seatbelts. The conclusion of the report is that the number of fatal injuries increases by significant factors with the use of seatbelts.

The difficult part for our industry when we are indeed advocating the issues of safety and security, and believe in it very strongly, is then to say to the public that it's all right to fit the vehicle with a device that could potentially fatally injure your student in an accident of like force. The difficult part for the public is that for some 19 years now we have been instructing our children to use seatbelts in automobiles. Indeed, I can tell you that I get this question from my 11-year-old daughter. It's very confusing. It's a very confusing issue. But the best scientific evidence available to us indicates that seatbelts in school buses would increase fatal injuries.

Mr O'Connor: Okay, thank you. I may have to turn to that report for further information. I know that school bus operators and their drivers certainly do take safety as a number one precaution. Being married to a former school bus driver, I know that the circle check that Stock up in Sunderland provided for their employees, the training was really quite essential, and it was probably something that they really did emphasize.

Mr Monte Kwinter (Wilson Heights): I was quite taken with the number of school buses that are on the road. Your association represents about 15,000 of the 18,000, and you're transporting in total about 800,000 students. Have you taken a look at the benefits of alternative fuel in school buses?

Mr Babcock: We can answer your question; it's just a question of who's going to answer. There are a number of experiences among our members with alternative fuels, and there are a number of issues. I'm going to speak probably more for myself than for the association, as I cannot be sure that we have developed an official policy on this as an association.

One of the issues that stands out in my mind is which fuel has the highest flashpoint, so that even though there is a very strong structure that protects the fuel containment system on school buses, in the event that there is a puncture, which fuel is least likely to be flammable and subsequently dangerous to the occupants? There are issues of safety that come into the proposals of alternative fuels that go beyond cost-efficiency.


I can tell you that a number of our people experiment with alternative fuels and there are experiments that probably cover the full range of alternative fuels. I think the experience is that if there were a very dramatic cost saving that would override some of the other issues -- accessibility, availability, the issues of flammability -- then I would suggest that you would see larger use made of alternative fuels. I can tell you there are studies constantly being done with alternative fuels by our members.

Mr Phillips: Your point on full-cost accounting, full-cost recovery: I think I understand it, but maybe you could just make sure that I do understand it and what you're getting at here.

Mr Babcock: Okay. I'm doing all the talking here and I make apologies for that, but let me do it this way: The quote I like to use on this is Robert Anthony's, who is a classic writer in accounting. He says, and I think we all have to pay attention to this, that all costs are variable in the long run. That's the thrust or the meaning of full-cost accounting. To purchase, for instance, a $250,000 vehicle, to take that capital cost as a sunk cost and not recognize it as a cost to the taxpayer, to the government or to whomever, is indeed not a full-cost accounting approach. It then only recognizes operating costs, and that may end up creating something of an unlevel playing field, so to speak, because in the real world of cost accounting, ultimately those expenditures will be out-of-pocket expenditures, in the long run, to the taxpayers of Ontario.

Mr Phillips: I guess what you're saying is that when you take the private operators versus the board-owned operators, what you have to do to compare costs is that you've got to make sure that each has all of the same elements in it: depreciation costs on the bus, plus, I guess, administration, overhead, routing, all of those things. When you do that, is there any evidence that one approach over the other is more cost-effective?

Mr Babcock: Yes. You are right: What the principle assumes is that you are matching costs and time frames, that you have exactly apples and apples in every parameter of measure in the accounting principle. When that's looked at by an independent study that we cited in last year's presentation -- it was commissioned by our group, done by Ernst and Young -- it indeed found that the cost of transporting students to and from school with school vehicles was significantly less than that of alternative methods of delivery, public transit in this case. That report is available and we're glad to share it with the group.

Mr Phillips: Is there a trend going on one way or the other? Is it more to the private operators as a percentage or more to the board-owned operations?

Mr Babcock: I am going to let Bill answer that.

Mr Bill Heslop: There had been a shift and a trend of students going on to transit vehicles and that's what brought about our doing that report in 1992. What's more cost-effective, taking kids to school in a dedicated school bus or on a dedicated transit bus, where again, as Brian highlighted, 75% of the cost is hidden? That's the province giving to the municipality 75 cents on the dollar to purchase that bus, and some of the operating costs also. So we saw a trend in that direction, and until there's a real full-cost accounting methodology, it could be more reasonable for the school board to put kids on transit buses.

That's all we're asking for. Put all the dollars together. What is the most cost-efficient route to get kids to and from school? But include the 75-cents-on-the-dollar subsidy that comes from the province, include the 16 to 30 cents on the dollar that includes the operating costs that come from the province, not just look at what it's going to cost the municipality or the transit system or the school board locally. Put all the costs together.

Mr Phillips: I thought the debate was more around board-owned buses versus your own, but it's more transit system versus your own.

Mr Babcock: Yes.

Mr Carr: Thank you very much for a good presentation. This is maybe a difficult question, but I'm asking more for a percentage range. I know a big percentage of school boards' budgets are salaries and benefits of teachers and so on, about 80% of it. Is there a ballpark range, percentagewise, of what the costs are for transportation on most boards? What are we talking about here in terms of percentage of the board's budget?

Mr Babcock: In the range of 3% to 5%; that would be certainly a median if not a mean.

Mr Carr: So 3% to 5% of the board's budget would be made up of transportation.

One of the things I want to explore a little bit is what the province can do. The Ontario Hospital Association was in yesterday and talked about how some hospitals are doing great things in terms of cost cutting and getting almost like a best-practices type of situation where something saves a lot of money -- some nursing practices, as an example, can be explored -- and hospitals can share that information to get cost cutting dramatically down.

You shared a couple of instances of some savings that had been done across the province. What can the province do to ensure that some of these models are incorporated in other boards? Do you see the provincial government taking a role in that? If so, what can the provincial government do to ensure that some of the good things that are being done, that you outlined on pages 3 and 4, in fact get done on other boards as well? How do you see the province fitting into that?

Mr Babcock: That's a complex question; easy question, complex answer. We see a number of ways the province can do that and we see attention being given to this by the bureaucracy at MET. The first answer that jumps into my head is that of financial initiatives to encourage these kinds of incentives for restructuring. That can take the form of restructuring in grants, which has indeed happened and may need to be re-examined -- I can't speak for ministry, of course.

It certainly goes to the issue of sharing a problem with the SOs of the school board, and I can tell you that it is happening; it may need to be geared up further. There are a number of ways the province can indeed send the message that there is a need to create as much cost-efficiency in the system as is practical.

The delicate situation for everyone who is involved with this industry is, at what time do we compromise safety? How hard do we press on this gas pedal? There's always the issue of balancing adequate funding to provide high-quality service that ensures safety and security. At the same time, we're confident that the system is as efficient as it can be. So a lot of it's in funding models.

Mr Carr: One last question on those funding models, and you may not be able to answer this: The Ontario Separate School Trustees' Association was in talking about some of the disincentives in the financing and I wanted to ask them the question. Apparently, right now, they were saying that for the separate board, there ares some financial disincentives, through the funding arrangements, for them to cooperate with the public boards. I didn't get a chance to ask them. Would you be familiar with the provincial incentives that are making it difficult, for example, for separate boards and public boards to cooperate? Are you aware of any of that at all? You may not be, but I just wondered if you had any idea.

Mr Babcock: Let me say this about that: We hear that. I regret that I can't directly speak to it. We hear the message.

Mr Carr: I will have to go back and ask them. Thank you very much.

Mr Babcock: Sorry.

Mr Carr: That's fine, I understand. Thank you for a fine presentation.


The Chair: I'd like to thank the Ontario School Bus Association for making its presentation before the committee this morning.

As I indicated yesterday, we have some housekeeping concerns we must deal with. I'd first of all like to remind the committee members that the clerk has placed before you a copy of the submission from the Insurance Bureau of Canada, which was the group that cancelled this morning.

Mr Carr: Was there a reason they gave for cancelling at all?

The Chair: Not that I'm aware of.

With respect to writing our report, we need some information to guide the committee. Does the committee want to forward a copy of the finalized report to the minister at the same time as it is being sent for translation and printing? Is everyone agreeable to that?

Mr Phillips: I don't have a problem with that.

Mr David Johnson: That's fine.

The Chair: We have an agreement on that.

The committee concludes its meetings, as we all know, on Wednesday, March 1. Is March 3 an appropriate date for the clerk to receive the final documentation from research in order to forward it to the minister and for translation? These questions, by the way, are some concerns that the clerk has raised.

Mr Sutherland: I think just to clarify what you're saying then for the March 3 deadline, if there are going to be submissions, dissenting reports etc, March 3 is the day they should be in.

The Chair: That's right and let me add, if so, if the opposition parties are attaching a dissenting opinion and they wish to have that opinion forwarded with the report to the minister and for translation, the clerk would require these documents on March 3 as well. If we're going to use that as an arbitrary deadline, is March 3 agreeable to everyone?

Mr David Johnson: Fine.

Mr Phillips: The only thing I might say is whether we shouldn't give ourselves till March 6, the Monday. We'll sit down for our final drafting of the committee's report on March 1 and that doesn't give much time, if we want to submit a dissenting report, to get it done and out.

The Chair: No disrespect, but I would presume that any dissenting report is being worked on as we go through this process anyway. Would that not be correct?

Mr David Johnson: You've got it done already, haven't you, Gerry?

Mr Kwinter: We had it done before we started the hearings.

The Chair: I wouldn't doubt that either.

Mr David Johnson: It's just going to be last year's report.

Mr Phillips: I'm just saying that in the interests of really one day, Monday, March 6, would be preferable to Friday.

Mr David Johnson: That's fine by us.

Mr Sutherland: If you want it Monday, that's fine.

The Chair: I think I hear agreement among the committee members and we'll make it March 6.

Mr Sutherland: So 4 o'clock on the Monday then?

The Chair: Yes, 4 o'clock, Monday, March 6.

If it's not received by this date, the opposition parties should provide the clerk with both English and French copies of their documents for printing, so I would suggest then that the opposition parties understand that if they get their dissenting reports in in time, they will go through the process as with the report.

The final point: Is it the wish of the committee that when the report is printed, it be tabled with the Clerk of the House prior to the return of the House?

Mr Sutherland: Agreed.

The Chair: Everybody agrees.

Mr David Johnson: When is the House returning?

The Chair: That's a very good question, Mr Johnson, one that the Chair is not able to answer, unfortunately.

Another concern that was raised by the clerk: Rather than going to the cost of translating and appending the final summary to the report, would the committee be satisfied to make a notation at the back of the report indicating the summary is available from the office of the Clerk? Is that understood? Would you like me to repeat that again?

Mr Phillips: That sounds fine, so you don't have a big, thick document. Is that right?

The Chair: Yes, that's right.

Okay, everyone's in agreement with that?

Mr David Johnson: That's agreeable.

The Chair: Then that concludes our housekeeping duties this morning.

The committee recessed from 1144 to 1402.


The Chair: The first presentation this afternoon is by the Canadian Institute for Advanced Research, J. Fraser Mustard, president.

Dr J. Fraser Mustard: Thank you, Mr Chairman. It's hard to comment on the budget, so I decided what I would try to do in about 15 to 20 minutes is, with the charts in front of you, show you the background from which I'd try to appoint any discussion about a budget. It may or may not be clear.

The difference that I would have with the presentation of the current documents about the budget is that they use the term "economic growth," but they're talking about business cycles. I want to talk about the deeper issues of economic growth and what they mean and put before you some tough choices that governments are making and will continue to have to make regardless of what happens in terms of political changes or known changes over the next 10 years or so. The issue that I'm talking about is not a one-year cycle; it's a 10-year cycle or longer. So if I may, let me just sort of flip you through these charts quickly in terms of what they mean.

Most of you have a sense that the wealth of the western countries began with a thing called the Industrial Revolution, which was a major piece of what we call deep and broad technological change. We had a second one at the turn of this century, which was electricity for steam power, and we're in one now, which is chips for neurons. It's when you understand that and the issues around economic growth with that kind of situation we all face that it seems a bit different than if you approach this from a business cycle framework.

The next little chart shows you how the western countries became rich. For those of you who have western roots, it's not western Canada; it's basically western countries, and the two driving forces are both institutional innovation and technological innovation.

One of the burdens that comes up in public policy is your rules and regulations that may or may not enhance or hamper institutional innovation. It's an extremely important aspect of deep and broad technological changes.

When I use the term "deep and broad technological changes," I'm not referring to minor technological changes or technological changes that don't have huge effects. Chips for neurons have a huge effect. They're already affecting everything we do and it'll take at least another 10 to 15 years before they pass through their full impact on our society with a large amount of institutional change.

Adam Smith gets quoted all kinds of ways, but he has a chapter which most people don't read, the chapter on productive and unproductive labour. In it he correctly classifies my profession as menial servants. I'm a physician by background. We don't create wealth; we consume wealth. He makes a very sharp distinction that it's the productive side of your economy that's crucial to sustain what he called the unproductive side. We've switched the terms, to make it less offensive to my profession, to primary wealth creation and secondary wealth creation.

Governments have huge problems handling this and provincial governments have major problems handling this because most public financing at the provincial level is for Adam Smith's secondary wealth creating sector, and therefore it's very dependent upon how well the primary wealth creating sector actually works. That distinction is not well understood within our political structures and policy advisory structures. It's in Adam Smith, if you want to look it up.

It's portrayed in this little diagram, and that is two rectangles. This is about where people used to work in Canada five years ago. About 25% worked in the upper left-hand quadrant, which is tradeable goods and services, which is basically your source of income generation or wealth creation. I want to make certain. To create the income flows in a society you have to have the instruments to do it.

The lower left-hand box is a good and a bad box. These are dynamic services. They're finance, communications etc. They don't do very well if they don't have something to serve. That's pretty obvious.

The upper right-hand box is where a large chunk of your activities go to: it's the publicly financed sectors of our society, which are very important for the quality of the society and the infrastructures etc but become badly handicapped if the upper left-hand quadrant isn't working well.

The lower right-hand quadrant is the small shopkeepers, retail and leisure people who are very dependent upon the entire dynamics of the system.

A simple way to think of that is if you're thinking of Kapuskasing with a pulp and paper mill which employs 1,000 people. If that pulp and paper mill goes down, the whole economy of 11,000 people goes down. Provinces are no different. So one of the things you need to think about in your budget themes is how well are you affecting that upper left-hand quadrant; how well are you distinguishing the businesses in each of those three quadrants, because policies for one may be detrimental to the other etc.

Let me take you through one transition period. It's the only one where we have enough historical evidence to understand it. None of us in this room has lived through a deep and broad technological change which is transforming. The only one we have reasonable documentation on is the transformation caused by electricity coming in to replace steam power. What this next chart shows you is industry power sources. You'll see how long it took for electricity to replace steam power. It didn't occur overnight; it took place over many years.

When societies are going through these transitions in the instruments that allow them to create the income or wealth flows that they need, those transition points have enormously complex effects on society. I'm arguing, obviously, that you're in such a stage at the present moment, and so the policies that you develop should be related back to the nature of this change to the best you can understand it so that you don't hamper the adjustments but you facilitate the adjustment.

The next chart is, for those of us not trained in economics, a little hard to grasp, but one way of looking at your capacity to create wealth through your income flows is to look at a thing called total factor productivity. You'll notice that in the United States, during this transition period at the turn of the century to electricity from steam, total factor productivity was flat. I'll show you a little later on that Canada has been dead flat for 14 years, and that's a very important signal too. It fits that we're in a transition at the present moment.

You all know income changes that are taking place in society and it's interesting that in the clerical labour income in the United States during this period which has been tracked, the period of the transition, wages and constant dollars declined substantially during the transition period. I'll show you again that you can see the same phenomenon occurring in our society at the present moment.

So much for the one transition we know a little bit about. There may be some lessons that we should apply. I don't know how you apply them to an annual provincial government budget, but you should try to think within this context, if you can.

The best-kept secret of economists is they do not understand the determinants of economic growth. My statement for that happens to be the Economist magazine, which is a suitable magazine to make the statement. The reason I say it is because this article -- which, if you heard me before, I emphasized is enormously important -- points out that if you understand the true determinants of economic growth and separate those from business cycles, your public policy framework will radically change. It's worth reading the article. But the point I want to make is that I'm going to talk about economic growth in the sense that they're talking about it, not in the sense that's in the text that's come out in the pre-budget document. It isn't talking about economic growth in the business cycle framework. Is that distinction clear to everybody?


The implications of it are straightforward. If you turn to the next chart, there are four kinds of economies according to Porter, who did a study of Canada: factor-driven, which is a resource-based economy; innovation-driven, which is the lower left-hand one; investment-driven is low wages and technology -- by the way, going on, it's the middle one -- and then on the right-hand side is wealth-driven.

It's important to understand those different kinds of economies because we are, hopefully, trying to shift Canada from a factor-driven, resource-based economy to an innovation-driven economy, from a system where you're used to financing objects to financing ideas. If you talk to anybody working with ideas, their single biggest problem is finding ways to get ideas financed now. To the credit of this government, it's taken initiatives to get there. No government has taken enough initiatives for the people who control the private pools of capital to move in yet. That's an issue that needs to be addressed and is not being addressed well in our society at the moment.

On the right-hand side is the most dangerous form of economy. That is when you allow the financial pools of capital to play with money. The global currency-trading markets are playing with money; they're not investing in wealth creation. At the present moment, our incentive structures do not differentiate between a wealth-driven business enterprise and one investing in wealth creation, and that basically is going to require changing the tax structures of the country if we want to come to grips with it. So at the present moment our incentive structures are not good, in my judgement, for building the new economy.

Diagrammatically you can see all this on the next chart. Wealth creation on the vertical axis, and I'm using it loosely in a sense but this is how you create the income flows that keep your system going, against time. A neoclassical economist would have the black line. Economies just keep growing because neoclassical economic theory does not include the concepts of economic growth as expressed in the Economist article.

When you put the power of technological innovation into that framework in terms of creating the resources we need, you can shift the slope to that upper dotted line, if you follow that chart. The lower dotted line is a wealth-driven economy. That's an economy that plays with money. The lower one is what Great Britain slid into at the turn of this century, and if you want to historically analyse what happens to a society that fails, read the history of Great Britain. It's awesome, it's brutal and it's real. Canada has slid somewhere between the black line and the lower dotted line. That's Porter's analysis. We need to get above that black line.

The wealth base you have to work with as the government has slid by about 30% since 1975, so if you try to increase taxes you're doing it on a smaller wealth base and people are going to complain. Understanding this dynamic is enormously important in terms of public policy and how you move things forward.

Just to show that Canada is not the only nation caught in this, you can track European countries. This is the Morgan Guaranty Trust data. It's showing that in European countries, about 1974 or 1975, this break, this change in economies begins -- taking you back to the electricity-steam story -- and you can see that the European public sector debt climbs and the unemployment rates climb, all in keeping with this.

The next set of data, if you've never seen it, should jar you. This is our friend "total factor productivity." Remember, we saw it for the electricity story. What you now find is that for the period from 1979 to 1990, and the most recent federal government document, the purple document, brought it up to date to 1992-93, the story is still flat, which means that this country, as measured by that device, has not been moving into new wealth creation. It's flat.

The frightening thing is, there is a whole bunch of other countries that are handling the adjustment better than we are. So that says, how do you turn that around? If your budget policies don't come to grips with that, you've failed. It's not an easy task but you've got to think about that question: What are you doing that's going to move that up?

In this document they do not fairly show the commodity price index change; they truncate it back to 1980. The next chart shows you, if you truncate it, take it all the way back to 1972 in constant dollars, that the value of natural resources has declined by over 30% in constant dollars in our society. That was part of our major primary wealth base. In this transition, what we've lived off has diminished on us, so we're caught in a very difficult situation on this change.

The next set shows you some interesting perspectives. Government spending in Canada, listening to the rhetoric generated by you good politicians, generated by the media set, you would think Canada happens to be a huge public spender. The truth is, if you look at the data from the OECD and other people, Canada is not the biggest public spender. We're a moderate public spender historically. But if you look at the next chart, we've managed to generate the largest public debt.

That paradox should hit all of you. It demonstrates more clearly than anything I can give to you that our wealth base has declined but we've maintained our public spending and generated a debt. Now, how that works is that your GDP measures your outputs in your primary wealth creating sector and your secondary wealth creating sector. If you sustain your expenditures in the secondary sector, publicly financed or otherwise, and your primary sector is not growing, you have to borrow to sustain those expenditures. In effect, if you do that, you maintain your public expenditures in this case, but because your primary wealth base is not increasing you actually substantially increase your debt. So you have a misnomer when you look at growth simply through GDP. That's the point I'm trying to make here. It gets a little bit confusing, but you see the paradox that stands out very clearly in these data.

The next one shows you a simple analogy which is very important, and that is that what you produce is your wealth. By the way, Canada has 10% unused productive capacity. If you cranked it up, you'd probably surmount a lot of our problems. Somebody should ask the question why we don't crank it up, what are the barriers to it.

Your expenditures are your consumption plus your investment, public and private, and that leaves the current account balance. The current account balance means many things, but it's a measure of your external debt; that is, the debt owned outside the country.

The next chart shows you the extraordinary feature of Canada. We have accumulated the largest external debt of any developed nation. That's impressive, because you and I, privately and publicly, have borrowed to sustain a standard of living since 1975 that we couldn't sustain.

The next chart shows you it harshly. The chart should read "Net Foreign Debt." The way this was done, the government document's called it "International Investment Position." Look at where Canada sits in its external debt as a percentage of the GDP. Not even Italy comes close. This piece of information, to me, is the most frightening information, because that drives your interest rates, the currency value of your dollar etc. Somehow or other we collectively have to get that turned around -- quickly, not slowly.

You then have this simple little theme I gave you at the beginning: Public policy and budgets that do not focus on the wealth-creating sector, which I'm calling tradeable goods and services, is a dangerous policy. Public policy that does not address the question of playing with money is dangerous policy. We have to face up to those sayings and create incentives to drive that upper left-hand quadrant. In the meantime, with diminished resources you have to sustain the upper right-hand quadrant, which is the tough task.

Just to make it clear to you, that you all know that these changes are pretty uniform, there are the unemployment rate changes in Canada. If you track it back to 1975, it's been climbing with business cycles changing it; we're in another cycle now changing it. But if you look at real wages, the next one, look where Canada sits in terms of Europe and Japan. Our real wages have not increased, which is again a reflection of this effect on our country.

The change in average income in Canada by age group is very frightening. This document correctly records the problems youth are having. Just look at it from an income distribution function, as you'll see, the change in average income. My age group is doing all right, thank you.

Mr Carr: What's your age group?

Dr Mustard: Oh, you heard me. Yes, you can quote me. But look at what's happening to the child-rearing group. Look at what's happening down there. That should frighten all of us. That has huge effects throughout our system. In a public policy sense, I hope we will make certain that whatever you do doesn't damage the capacity of that generation to handle the next generation.

I'll conclude. The two major tasks of the government are to create a climate that fosters the establishment of the new kinds of enterprises, and you should check through your budget proposals to make sure they do that, and the second thing is, with diminished resources maintain a healthy social environment; your toughest task of all of them, doing that.

Let me just flip you to one last thing to think about. I won't worry about the other things. If you come to the map of Italy -- and David Crane wrote a marvellous article on Putnam in the Saturday Star. Obviously, I'm a Putnam fan. It's a map of Italy. Putnam talks about civic societies versus uncivic societies. Civic societies have enormous capacity to compromise and adjust and to adapt to the changes that are required. You have to watch very carefully that your policies do not create uncivic societies, because you create vertical structures in those communities that prevent creating the horizontal structures Putnam talks about.

I'm not sure any government has ever tested its actions against those themes, but I think if we're going to pull out of this adjustment and with diminished resources maintain stable social environments for our young, particularly children, we have to look very carefully as to how effective policies are in helping strengthen the civic character of Canadian and Ontario communities. I think it's a very important measure for you to put against it.

I won't spend any more time on it. I've taken too much time already, Mr Chairman. I'll stop and let you yack back at me.


Mr Kwinter: Dr Mustard, as always, your presentations are fascinating, and I have to apologize. We should spend a day with you examining some of your theories and concepts.

I have no problem at all with what you advocate, and I've had opportunities to discuss this with you in the past. The problem that I have is that it seems to me that what we are dealing with is sort of nibbling at the edges to sort of deal with the political reality and there isn't a real commitment by anybody to really restructure the system to meet the kind of goals you've set out. How do you feel about that?

Dr Mustard: There are days in which I'd agree with you. Your handicap is that you go through an electoral process and you have to get elected and you have a public that may not understand what I've said.

But let me put a positive spin on it. We have talked with communities across this country, including those in Ontario, ranging from small communities like St Stephen in New Brunswick to large communities such as Toronto and Vancouver, to very mixed audiences. If you take the time to provide this information to those communities, they can understand it.

The single biggest thing we have to do -- and it may not be able to be done; we'll go through the political process -- is to actually transfer that understanding to the communities of Canada. They can take it and make use of it, which will actually change the political process. So I think change is possible, but it's going to require a much heavier involvement of communities and getting their understanding to facilitate the point that you're getting at about how do you get the real commitment, a long-term commitment, to make this move.

Mr Phillips: This is very interesting, and as Monte said, we could spend more than a day with you. One of the challenges is information. For example, we get our job picture using kind of the old definition of manufacturing, resource, services. In many of the emerging industries, your innovation-based technology would be I think in the service sector, not in the manufacturing sector. So I think we run the risk of, if our information systems aren't brought up to date, we can start to make the wrong judgements, and that's your chart here on goods, dynamic services and consumption. I have a feeling we will not identify some of the future goods because they will not be in "the manufacturing sector," they will be in the service sector.

Is there any validity in that point of view, that we're going to have to, in addition to understanding this, change the information systems that we have, to measure the changed economy?

Dr Mustard: Absolutely. The single most important thing is to get a statistic that actually measures your primary wealth-creating capacity. That requires a revolution in thinking. I know premiers of other provinces who understand this and cannot get it across, to get the GDP measure, which can give you false impressions, out of the way and put into a different context. So we are up against a substantial information problem.

Mr David Johnson: Thank you, Dr Mustard. I'm looking at your chart that you expressed I think the most -- one of the two or three you expressed the most concern about, which involves the G-7 countries and the net foreign debt. You pointed out that Canada is by far and away isolated in the sense of it looks to me as if about 45% of our debt is held offshore.

Dr Mustard: Private and public debt.

Mr David Johnson: Private and public, that's right. I think we should bear in mind that it is a total debt picture, private and public; that's important. In Italy, which is next in line, it looks to me as if it's about 12% by comparison.

Here in Ontario, the government has introduced the Ontario savings bond within the last couple of weeks. One of the goals, I guess, was to repatriate the debt. I wondered if you had any views on that as a vehicle for making any kind of a dent in this dreadful situation.

Dr Mustard: It'll make some dent, but if you look at those figures, if you want to rebuild your wealth-creating capacity, then you have to find some way to stop your economy from being buffeted by the financial marketing part of the economy, what I call the fiscal roulette group. Because as long as you allow that to dominate your thinking, then your interest rates and currency value structures are driven by the needs of that community, whereas if you come to your primary wealth creating capacity, you need a differently valued dollar and a different interest rate and you have a real conflict there in our society at the moment.

Mr David Johnson: I think the problem we face in Ontario, the situation isn't quite as bleak as the Canadian level, but about 60%, I believe, now of the Ontario debt is offshore. On a year-by-year basis in total probably 35% or thereabouts, I would think, of Ontario debt is held overseas. The investors overseas are looking for a return on investment commensurate with the risk. If they perceive there's a risk in Canada because of political instability, let's say, or a high level of debt, then we're at the beck and call, I suspect, of those countries.

When I flip to another chart, where you talk about the average income and those under 25 years of age having significant problems in terms of their income, much below the average of the other age groups, and the tragedy, I wonder if these two are linked. I wonder if it is our economic policies, our debt, our deficits that are causing the squeeze in the economy that's hurting those who are under 25 years of age so they're not being able to take their rightful place in our economy.

Dr Mustard: Yes. When you go through a complex transition, the most vulnerable groups are mothers and children. That's well documented. That affects you in a variety of ways. So as your wealth base ceases to stay in balance with the rest of the world, your own resource base to support your society declines. The people who are older, who have secure positions, will stay in the system longer. People coming in have less opportunity to come in until you build your new economy. So you're absolutely right, and the historical description I went through, and we'll take you through in more detail, shows quite clearly that when economies are going through these transitions, the young pay a very high price for them unless economies or societies are very sophisticated in handling them.

Mr Sutherland: Thank you, Dr Mustard, and like the others, it's a pleasure to have you in here and we could use certainly more time. I thought it was interesting to note, on the one chart you didn't get to, spending on research and development in the G-7 countries, and certainly note, when you look at non-profit organizations, government and business, we see that compared to countries like Japan and Germany and France the business community in Canada seems to be well behind in terms of the amount it's spending on research and development.

I guess that leads me to the other issue that I think Mr Phillips brought up too, about measuring some of the new GDP. I think I saw an article where Stats Canada is really trying to figure out how to get a better handle on measuring some of these new innovations and people doing home services through their computers and whatever, having a difficulty in measuring that.

I guess the other point I wanted to bring up then is related to this, and I did hear you mention that, of course: how we finance ideas. I recall from a presentation I believe you and Mr Peter Maurice did for the members here and talking about that, that our traditional financial institutions aren't good at financing ideas because of course you normally have to have some collateral to have financing, but if you've only got an idea, you don't really have the collateral. Do you feel that we're making any progress on that and do you have any more thoughts as to what are mechanisms that might be available to support the financing of new ideas and new research?

Dr Mustard: From zero discussion of this theme in 1985 we've come to substantial discussion. The fact that you even ask the question is a tremendous movement forward. So in terms of getting discussion on the issue, we've advanced. In terms of the strategic ways to implement it, we've got a long way to go because you've got to get the understanding and then you've got to come through huge institutional change to succeed, because to be able to finance uncertainty, which is much more complex than risk, the financial institutional structure has to become married into the groups doing that. Even the financing of risk is a problem. If the reward structure does not give a high reward for the person who takes that risk and the capital gains tax structure etc doesn't recognize that the creation of wealth is an important function and totally different from playing with wealth, then it's hard to drive the institutional changes that are necessary to make that work.

You're quite correct to have picked up that chart, and the chart before it is even more important because it shows where your investment strategies should be. What it says is as long as you invest in enhancing your productive capacity, you'll get rid of that external debt. If the public funds and the public financing aren't driven into that lower base in the right manner, then you'll never turn that around, because you won't create the idea flow that's necessary to move it.

The province, through two governments -- it's non-partisan -- has done some extraordinary initiatives such as the centres of excellence program. They're beginning to bite. They'll take a while to bite. What they've done is they've demonstrated in spades what you've just said. The industrial capacity to take those ideas and take them to market is still weak and we will not solve that until we bring in the financial and institutional capability to do it. So anything you can do in a budget to promote that private sector change to come into financing ideas would be a boom.



The Chair: The next presentation this afternoon is by Calvin Bruner, a chartered accountant. Please come forward and make yourself comfortable.

Mr Calvin Bruner: Good afternoon. I appreciate the opportunity to be able to speak to the committee prior to the budget. I'm here solely as a taxpayer and resident of the province. I'm not representing a special-interest group or any group for that matter. I'm certain over the course of the last two weeks you've heard from many groups who have their own agendas and mandates to fulfil. I believe I bring a somewhat unbiased view that should be given some consideration.

I am somewhat concerned that the committee is hearing mostly from groups. Not that their views shouldn't be heard, but I'm concerned that individuals are not showing up to these hearings, and I hope anybody watching this will in the future have their views made known.

I have a few concerns prior to getting to my main reason for being here that I'd like to go over. The first is with respect to the debt of the province. I'm sure many groups have expressed their concern and I know all provincial parties have taken the issue as very serious. It's an election year. I just ask that the parties all please don't make any promises that will cost us money. It's not something we want to get into at this point.

Not only that, I think the government needs to take steps immediately to reduce and eliminate the deficit. To do otherwise will be extremely shortsighted. We are living on borrowed money right now and it doesn't make any sense. If we ran a surplus to reduce the debt we'd have a roller-coaster effect that would start to increase the interest savings in the province and allow us to build and develop social structure in the province.

My second concern has to do with the recently introduced province of Ontario savings bonds. It's an interesting idea, but I think it's a little hypocritical for any government in this country right now, and I'm not saying Ontario is to be blamed, to say it believes in small business given the extent to which government is competing with business for the dollars.

With the Ontario savings bonds program, you're borrowing in your own backyard. I understand the concerns about borrowing from foreign investors, there is a legitimate concern there; however, by borrowing in your own backyard you are reducing the dollars available to smaller and medium-sized businesses in Ontario that cannot go to foreign markets. I would suggest that maybe in the future the Ontario savings bonds program should be looked at again and perhaps eliminated.

The third and last concern I want to bring to your attention is the public accounts in the province and my perception that the government has been attempting to enter into transactions solely for the purpose of improved financial statements or an improved financial picture. I find that to be a waste of time and money. There is no economic reality to transactions that only involve moving assets into separate corporations or setting up corporations to do sale leasebacks with the government. In audit circles, the substance of the transaction takes precedence to the form of the transaction, and I don't think window dressing of the financial statements helps anybody in the province. I'd like to see an unqualified audit opinion by the Provincial Auditor. The integrity of those statements is very important to me.

As I've mentioned, I did want to see a reduction in provincial debt levels. In that regard, I did not come here empty-handed. I actually came with something for the committee. What I am proposing is the harmonization of our provincial taxes, bringing them in line with the two main federal taxes, the income tax and the GST. That is my raison d'être for being here, and I hope you will give this consideration. It can save real dollars without any cuts to program spending.

We currently have two tax administration and collection systems -- we have the federal system and we have the Ontario system -- and this could be and should be reduced to one system. By having the federal government collect Ontario's taxes, Ontario would not need to maintain a costly and redundant tax collection system. Ontario could still adjust the rates to meet its needs, but you need the same tax base on which to collect.

Corporations tax the federal government already collects, in a form, through the Income Tax Act. Our corporations tax of the province is substantially the same. In fact, to give you an example, the federal government already collects provincial income tax for individuals in this province. There is no reason that the corporations tax, which is mainly comprised of income tax based on the federal Income Tax Act, could not be collected and administered by the federal government.

In fact, corporate income taxes are collected by the federal government in all but four provinces already. The federal government already has the auditors and systems in place to administer tax collection. If Ontario is going to collect tax, it should at least be done in the most efficient and cost-effective manner.

There are very few significant differences between Ontario's corporate income tax and the federal income tax. Most of the differences arise in the calculation of Ontario's corporate capital tax, which should be eliminated just for the sheer burden it puts on companies that are required to deal with it -- not the tax, just calculating the tax.

Keep in mind that you are also dramatically reducing the burden on business: one less tax return to file, one less accounting fee to pay and one less audit to undergo.

The estimated savings available to the province are $26 million.

Retail sales tax: Now that we have a national system of sales tax, the GST, that the federal government is administering, it is time for Ontario to use that system for the collection of Ontario's retail sales taxes.

There is no question the two taxes are quite different. That being said, is the difference worth the $25 million it costs to collect? Is it worth the additional burden to business of preparing two sales tax returns each month and undergoing two separate audits?

There are some major challenges to harmonizing the GST and the retail sales tax. Those challenges lie in the fact that cooperation among all the provinces is difficult, if not impossible, to achieve and that under the GST purchasers are given credit for GST paid. Naturally, Ontario would not want to give credit for purchases made outside the province, and that causes a bit of problem with harmonization.

In order to overcome the problem without adding further complications to the tax system, pending all provinces agreeing to a national sales tax system with the federal government, the provincial portion of the tax could be based on gross revenue, based on GST sales, with no credits for purchases. That would mean that for every sale made by an Ontario company, there would be tax, whether the sale was made in or outside the province.

This form of gross revenues tax would involve structural changes to the tax system that would put many high-volume, low-margin businesses at a disadvantage, and that's clear. However, there are many advantages to be received from this system. Wholesalers, manufacturers and distributors would be subject to the tax, whereas the retail sales tax presently only applies to consumers. The tax would certainly be passed down to consumers in one form or another through the system. The only question would be whether it would be passed down to Ontario consumers or consumers in other provinces or countries.

Exemptions contained under the GST legislation for foodstuffs and corporate reorganizations would also apply for this new system, as only GST-qualifying sales would be subjected to a revenues tax.

The estimated savings available if we were to eliminate the collection of retail sales tax in the province are approximately $25 million.

Property assessment is the next tax, and while the province itself does not collect the tax, it does administer the assessments. There is no federal tax that has as its basis the value of property, and we should probably be thankful for that. Property tax is an archaic form of taxation that should be abolished.

Property taxes have been described as unfair, as they are unrelated to the ability to pay; unrealistic, as they are unrelated to benefits; and unsuitable because they support services unrelated to the property.

So why do we have property tax? Why are we continuing to collect half of our tax dollars in this province based on an unfair tax? While consideration has been given to changing our property tax system, no one has considered abolishing it, and unfair, arbitrary taxes should be abolished.

Some of you are possibly wondering why I'm dealing with this tax. As I said, the province pays the administration of the assessment process, and the process costs more than the costs of collecting all our other taxes combined.

Tax should be based on a quantifiable basis, not a nebulous market value concept. If property tax were to continue, it should be based on concrete, non-changing values, such as frontage, or a flat rate per business or household. At least then there would be some correlation to services provided.


If any of you doubt the tax should be abolished, you can speak to Metro area residents and businesses. I'm sure they'll make that quite clear. They have problems with the property taxes. Municipalities within and outside of Metro have problems. There's a horrendous amount of wasted tax dollars spent by this province in administering the system. It is unworkable the way it is.

Rather than collecting property tax, I would suggest an increase in sales and/or income tax while providing appropriate credits to those at lower income levels. As mentioned above, this can be combined with a certain frontage or flat rate tax collected by municipalities, which would then take into account the municipal services utilized. Income received by the province through an income or gross revenue tax would then be allocated to the various municipalities on some reasonable apportionment basis.

The estimated savings available to the province by eliminating the administration of the property tax system are $135 million.

The employer health tax: I am not concerned with eliminating it, but it's important to eliminate just to get rid of the support services that we now have in place for our tax system. If we're going to follow through on tax harmonization, we should get rid of all the taxes and put them all within a federal structure. As I'll note later, there are substantial savings above and beyond the savings for each individual tax, as there is no requirement for all the support services such as public relations, appeals and collections.

The simplest way in which to eliminate the tax would be to incorporate it within the GST/gross revenue tax I mentioned earlier. The tax is already paid by business and the estimated savings available to the province are about $11 million.

Without a doubt, the federal tax system both for the GST and income tax is a better-run and better-managed system than Ontario's. More information is available to the public on it; more people have knowledge of the system. It's not surprising given the size of the federal system. There is a comprehensive appeal system in place and taxpayers generally know their rights and obligations.

By harmonizing Ontario's taxes with the federal tax system, Ontario's taxpayers will receive better service. In fact, the harmonization of Ontario's taxes would eliminate expenses for program administration, tax appeals, special investigations, collections, building rental, public relations, client services and the taxation data centre and information systems, which would save the province approximately $38 million.

I provided each of you with a quick summary of my thoughts when I went through this recently, along with a letter from the Ministry of Finance verifying the savings. In fact, I think the potential savings are in excess of the amounts shown.

Premier Rae recently suggested that Ontario be willing to consider giving up its right to collect sales tax in exchange for a higher percentage of the income tax. I think that's the right way to go, at least to attempt a harmonization. However, I think that since it involves giving up rights, there's unlikely to be any all-province agreement. I would encourage the government of Ontario to participate in a national GST system if it's at all possible. Pending agreement on a national sales tax with all of the provinces, however, Ontario must act unilaterally to reduce the duplication.

If all of the taxes I've just discussed were implemented and the changes made and harmonization completed, there would be savings of approximately $225 million to the province. I recognize that our deficit is in the billions of dollars, but $225 million is still not insignificant. It may save a few programs here and there, and it doesn't harm any social programs in place.

The tax harmonization measures proposed, while creating change in the tax system which no business would like, would bring about savings for many businesses through reduced tax compliance. More importantly, the reduction in the government deficit would reduce the need for future tax increases. All in all, there is no doubt that there are major benefits to tax harmonization and this is one of Ontario's few opportunities for a win-win situation.

Even if some of the more innovative suggestions such as creation of a revenue-based tax or abolition of market value property taxes are not followed through, there is absolutely no reason for Ontario to maintain a separate corporations tax. It's ridiculous. It's based on the federal tax system as it is right now and it can be moved over very quickly. The Ministry of Finance needs only to examine its own house to see where significant savings can be achieved.

That's about it. I'd like to thank you for your time and I hope you'll read the package.

Mr David Johnson: Thank you very much, Mr Bruner. You've raised many good ideas, I'm sure, and I think directionally in terms of reducing government costs I can't disagree with you at all. I would ask for your views, though, on the income tax in that you have indicated, I think, that the income tax should be used as a vehicle -- that means increase the income tax -- to offset some of the property tax, for example. I think you've indicated that you would recommend a different property tax assessment system and use income tax transferred from provincial governments to municipal governments to assist in that realignment. Did you also recommend a reduction in the sales tax?

Mr Bruner: Yes.

Mr David Johnson: And the income tax may pick up some of that.

Now, just let me say that one of the problems that's been brought to our attention is that the income tax in Canada is the highest as a proportion of GDP of all the G-7 countries -- and considerably higher, well above the norm; well above the United States, for example, which is just on our doorstep. That's one problem.

The second problem is that we have an underground economy which the home builders will say involves over 40% of home renovations and that the underground economy is largely because people feel the personal income tax already is too high and that the underground economy is being stoked by high tax rates.

Thirdly, once you get above the 50% marginal rate on your income tax, we were told yesterday, it's a disincentive for people to work. I wonder, within that context, do you feel there's still room to add more on to the personal income tax?

Mr Bruner: Just to make it clear, when I talk about the income tax, I'm not talking about the personal income tax. The personal income tax is already collected by the federal government. As far as I'm concerned, it's harmonized. I don't have a problem with that.

What I'm concerned with are the corporate income taxes and corporate capital taxes, which could easily be put into the federal system. Our corporate tax rates are not out of line with US rates in general. There are some higher, there are some lower, but in general they are reasonably in line.

I am suggesting that if we're going to get rid of the property taxes and move it to another tax base system, yes, it is possible some of that may be recovered through a slightly higher income tax. I think realistically it should be recovered through a revenue-based tax, based on sales. That's probably the best way to recover it, and you really do have to recover your property taxes.

But if you have a company that's looking at investing in Ontario, wanting to set up a plant in Ontario, it looks at all taxes. They'll look at their corporate tax base, they will look at the property tax they're going to have to pay in this province, they'll look at the revenue taxes they're going to have pay. This really involves an adjustment as to where they pay the tax. I'm saying, take it out of the property side, unless it's just a straight frontage-type base of tax, and move it into a revenue-based tax or, to some extent, an income tax.

Mr David Johnson: Would you have the same sort of property tax then for a business that's located in a very prime area, perhaps a retail store on Yonge Street by a subway station with a certain frontage, and a store in the outreaches of Scarborough in a very lightly travelled area with the same frontage? They would have the same sort of property tax? Is that the concept that you're proposing?

Mr Bruner: Yes. We have to get away from the market value concept. Market value doesn't work because it's always changing. You're going to always spend the money to try and administer a system which is going to be inherently unfair because all the market values are based on an assessor's opinion. It may or may not be right. But I can get you three assessors, there'll be three different opinions.

You cannot base it on that. You can go to a flat rate for businesses if you want to, a flat rate plus frontage, and that's fine. That could be administered by the municipalities because there are no ongoing changes in values that would have to be administered by the province and we wouldn't have to spend $135 million trying to keep up with assessed values.

Mr David Johnson: That's an interesting concept. There are certainly different points of view and there are many people who would agree with your view of market value assessment. However, there would be many other people who would point out that it's almost universally implemented across the world.

I was in a forum where there was a gentleman from India and we were talking about assessment. I was outlining some of the problems of market value assessment and he took me to task because he had been an assessor in India. They had a market value system in India and in his view it works quite well. So there are certainly different kinds of views. But certainly in Metropolitan Toronto the assessment is in a mess as well.

The Chair: Mr Johnson, we have to move on.

Mr David Johnson: Thank you for your deputation.


Mr Sutherland: I just wanted first of all, Mr Bruner, to let you know that the financial statements of the province were audited this past year and there were no qualifications from the Provincial Auditor on the statements. So that has occurred.

Mr Bruner: Yes, I understand. I appreciate that too. I'm concerned with the integrity and I'm pleased it's there.

Mr Sutherland: That's fair enough. I just wanted to put on the record that has occurred.

You have some very interesting proposals here in terms of how to change the tax, so I just want to clarify some of the points. Basically what you're saying is the corporation tax should be like the income tax in terms of the province taking a percentage of whatever the federal rate is.

Mr Bruner: It already basically is. The income tax for Ontario -- if you look at any budget material that comes out from the province, they say, "We've adopted the following measures in accordance with the federal income tax." It's 95% equivalent. There's a 5% differential there that the province has various small and sundry items it wants to enhance in the province. The cost of those enhancements is not worth the collection of the tax or the taxpayers' cost of administering the tax.

Mr Sutherland: Okay. Could you just elaborate on your definition of "gross revenue tax"? Are you really talking sales tax or are you talking like the concept of the flat-tax system?

Mr Bruner: It's a hybrid, in a sense. The only way to collect or only to harmonize our sales tax system is to go to the GST. That's the only system that's out there to harmonize with that makes sense, with the federal government. The federal government, in its GST system, allows businesses, where they spent GST, to obtain a credit for it.

We can't do that in Ontario because you'd have people who bought goods in Saskatchewan or BC getting credits and Ontario's not going to pay for those credits. The only other way to handle it is to base the tax on the GST sales, which is a base you can work from. All I'm suggesting is, opposed to sales tax, there would be no sales tax from the province. There would be GST, but there would be no sales tax per se.

Mr Sutherland: So again it's a similar thing in terms of basing it on a percentage of what the federal take would be from Ontario in GST then, more or less?

Mr Bruner: Right. If a company had $100,000 in sales it would have like a 1% revenue tax. It would be much lower than what the provincial tax is now just because it would be on multilayers of the system. Wholesalers would pay 1% on their sales; distributors pay 1% on their sales; manufacturers pay 1% on their sales or whatever the percentage happened to be. It could be 0.1%. I'm not sure what the number would end up being.

The idea is not to put anybody at any further disadvantage. That will trickle down to the consumer regardless. The consumer's going to end up paying it. As I said, the only question would be whether it's an Ontario consumer or an out-of-province or out-of-country consumer.

Mr Sutherland: If I could just pick up on Mr Johnson's question regarding the property tax, because it's an interesting concept, one of the points you made is that the property tax system is unrelated to the benefits. I think where Mr Johnson was going to in his question was that obviously if you have frontage right in front of where a subway stop is, that creates far more traffic flow than, say, if you had equal frontage on a small suburban street in Scarborough or Etobicoke, and therefore your benefits are far greater by being closer to that subway line and therefore you should be paying more property tax than in the other. How would you respond to that?

Mr Bruner: At the end of the day, what I'm really trying to do --

Mr Kwinter: It's the opposite.

Mr Sutherland: What's that?

Mrs Karen Haslam (Perth): It would be just the opposite. For those in rural Ontario, we agree with you.

Mr Bruner: What we're really trying to do is have the province get out of the business of assessing tax at a cost of $135 million. If the municipalities want to individually say, "Look, if you're in front of a subway stop we charge you X, your curbside's X, flat rate is X and that's what it is," that's fine. I don't care what the municipalities -- I may as a resident of municipalities, but I'm not concerned, because they're going to look at the cost of administering this tax, and say, "Is it worth it?"

Mr Sutherland: Okay. But I guess the argument I'd come back to is, while different municipalities set different tax rates etc, are there not advantages to the province in terms of business people wouldn't want to come in and try to figure out which municipality has a different system for setting up its property tax rate? You still need some consistent basis for determining that province-wide, do you not?

Mr Bruner: What I'm suggesting is that primarily the taxes be collected through the revenue tax base, and then on top of that municipalities could levy a smaller --

Mr Sutherland: A small amount? Based on frontage then.

Mr Bruner: Well, frontage would be flat rate. If they want to do it in front of subway stops that's fine, but it's their cost of administration. They have to look at what it's costing to administer the system.

Mr Sutherland: Okay. I appreciate you taking the time to come up with some ideas that would simplify extremely the tax system. There's no doubt about that.

Mrs Elinor Caplan (Oriole): Welcome. I know Cal, just for the interest of members of the committee and for people watching.

The Chair: We are interested.

Mrs Caplan: I think you would be. Cal, as a citizen, contacted me and said, "Do only groups and organizations get to come to committee, or can a real person come and give their ideas and will I be listened to?" I encouraged him to notify the Chair and express his desire to be here, and I'm glad that you're here. You made an excellent presentation.

I think most people, when they think about tax reform, assume that's going to mean that their taxes are going to go down. A concern that I have is that right now people are saying, "No more taxes." Part of tax fairness is, if anything, we'd like some relief, although we know realistically we've got big problems with the size of our deficit and our debt, so I think people are quite realistic. But on the other hand, they're saying, "Whatever you do, I don't want to see any taxes go up." I agree with that sentiment, I understand it, and my concern is that in any changes within the revenue system they be revenue-neutral and certainly not see anybody's taxes increase.

I have two questions. The first is, within the proposals you have here, could you see taxes going up as a result?

Mr Bruner: Whether taxes go up is really going to be a function of how the government sets the tax base at each level that I'm proposing here. I'm not suggesting that you increase taxes here. I am suggesting that the tax bases be changed, the way in which we collect taxes be changed, in order to save dollars that are hard dollars.

Mrs Caplan: I think it's very important that we be clear that taxes are not going to go up as a result of any of the things you're suggesting.

Mr Bruner: No, I'm not suggesting that.

Mrs Caplan: Okay. The other question I have relates to your questions about the Provincial Auditor, and I would like you to comment on this as a citizen, someone interested in what's happening here.

It's true that a couple of years ago the Provincial Auditor did not give an unqualified attestation to the books of the province. They changed their method of bookkeeping for the purpose of the audit and the numbers that went to the public accounts, but the Provincial Auditor came to this committee at the start of the hearings and advised the government to use the same parameters in setting the budget because their audited statements bear no relationship to the way they're presenting the budget and it's confusing to the taxpayers. I think it's an issue of accountability, and I wondered how you felt about the fact that the government has said to the Provincial Auditor, "We're going to keep two sets of books."

Mr Bruner: I don't think a budget is a separate set of books, first of all, so I'll defend the government on that ground. However, I think they should be presented on the same basis. I want to be able to see the budget as compared to the actual statements. I think it is improper at the end of the day to disclose them in any other way. Certainly in private industry I can assure you that I could not. If I was going to present an offering to the public, the OSC would be hanging me two seconds later.

It's just not appropriate. You have to disclose on the same basis. I'm sure you can do all sorts of things, but realistically, if you want to keep up the integrity of the statements in this province, you really should keep them on the same basis.

The Chair: I'd like to thank you for making your presentation before the committee this afternoon.



The Chair: The next presentation this afternoon is by the Joint Committee Water Industry Associations, if the representatives would please come forward.

Mr George Powell: My name is George Powell and I'm chairman and spokesman for the joint water industry associations, representing some 11 associations that essentially work in the water and waste water field, representing some 25,000 Ontarians. With me is my colleague Sandy Cochran, who is secretary and special adviser to the joint association.

What I'd like to do, if I might, is to read to you our paper with respect to the water industry's concerns, and it might help to have some of the -- I'll call them charts -- out in front of you. The charts are here. They're at the end of the paper, and that would help you, I think, in following the discussion.

Thank you for the opportunity to make our recommendation with respect to financial and budget policy for the management of clean water resources in Ontario. There is a growing crisis and increasing public concern with regard to our ability to provide clean drinking water for the citizens of Ontario.

Studies show that the level of pollution of the sources of our drinking water is moving beyond our capacity to control. As a result, the quality of drinking water and our water resources in general is declining. Our systems to treat and deliver clean water are not adequately maintained and are being allowed to fall into alarming disrepair. The result is a real and growing threat to the health and safety of Ontario citizens.

Through neglect, we have allowed the crisis to develop over many years. Given full attention, it will require many more years to correct -- what we're suggesting is 15 years -- and immense transfusions of cash. Up to $28 billion over the next 15 years is the current estimate. The longer we delay acting, the worse the situation will become.

To provide an insight into the reasons the status quo is not working, I quote from a document entitled Water Conservation in Ontario, published in January 1991. It's by the municipal-industrial strategy for abatement, MISA, and that's Ministry of Environment and Energy. A copy is attached to reference so that you can review that at your leisure.

Ontario municipalities will double their per capita use of water and related energy by 2011 if current use patterns continue. This will create an even greater economic crisis for Ontario water and waste water utilities.

Already, pollution of the province's water resources has reached a level that challenges the capability of our water supply utilities to meet current allowable toxic contaminant levels in their treated water supply, yet the public is clamouring for lower risk levels to be set.

Some 415 municipal waste water plants are discharging more than 90 tonnes of suspended solids every day into Ontario waterways. In addition, myriad toxic pollutants are contributed, primarily by the 11,000 industries using municipal sewer systems. Indeed, it is estimated that more than 70 kilograms of total heavy metals alone are discharged daily from these plants.

The current pollution emanating from these municipal sources can be attributed in some degree to poor enforcement of existing regulations in the past. More than 100 of the plants currently fail to meet regulatory requirements, with 49 having failed for more than three years running. You have a report on that before you.

Ontario's water and sewage systems have an average age of about 50 years and many contain components which are older than Confederation. Their physical condition is deteriorating rapidly, yet they represent an enormous investment, currently estimated at $50 billion in capital replacement. Annual spending on water and sewage operation, restoration and expansion represents more than 1% of the gross provincial product, making this one of Ontario's most significant industries. Values of this magnitude warrant improved management and operating procedures to assure that design capacities are adequate, that the systems operate to the maximum benefit of public health and the environment, and that they are fail-safe and efficient in customer service.

Urban storm runoff through combined sewer overflows contributes more conventional and toxic pollution, including heavy metals, to Ontario's receiving waters than several of the industrial sectors. In addition, their contribution of bacteria to receiving waters causes an acute threat to human health and impairs recreational water use.

Canada uses more water per capita -- some 360 litres per day for domestic use -- than any other country except the United States, in part because its municipalities sell water at a cheaper rate than utilities in many other countries. Currently, we pay between 30 cents and 35 cents for 1,000 litres of water.

The crisis in Canadian water utilities and waste water systems is created by two major defects: (1) Water is sold to customers and waste water is provided to customers at substantially less than cost. (2) This subsidy, when combined with a lack of metering, encourages wasteful use of water.

This situation leads to overuse of our water resources and coincidentally to their increased pollution; continuing deterioration of the physical integrity of our water and sewer infrastructure; non-productive government spending through subsidizing wasteful practices; a need for oversizing water supply and pollution control works; and unfairness and irregularity in pricing of services among customer types.

The bad news is that the amount of money required to correct this crisis is enormous. The good news is that the problem can be managed if we act now. The solution lies in implementing a conservation program that is based on users paying the full cost of clean water service, which will lead to financial self-sufficiency for these systems. As a result, the need for provincial government subsidies through grants will disappear.

In recent years, the amount of grants provided for our water and waste water systems has been significant: $200 million to $300 million per annum. But the future need is a breathtaking and unavoidable $1.9 billion per annum. A brief examination of the finances relating to providing clean water shows the following, and it's divided into three categories.

The first is replacement. Cost to replace the existing sewer and watermain systems comprises that which is in the ground and that which is aboveground and is estimated at a total of $50 billion, as I said previously. That $50 billion, if we take cost per annum and assume it's a 100-year life, at 1% of replacement cost works out to $500 million; that is, 1% of $50 billion is $500 million. The cost per annum to upgrade existing sewer and watermain systems to protect the source of our drinking water from growing threats of pollution and thus protect the quality of water is $1.3 billion per year. And the cost per annum to provide for growth, that growth which is essentially required by the various municipalities to provide in their systems, is estimated at $100 million per year. You'll find it adds up to $1.9 billion.

While the total annual cost to defuse the crisis is estimated to be $1.9 billion, the total capital spent on sewers and watermains in 1992-93, as estimated by treasury board, was some $750 million, $150 million of which is provincial grants and subsidies, $80 million of which is investment in provincially owned facilities, and the direct municipal funding, including developer contributions, is $520 million. That totals $750 million.

The shortfall between moneys needed and moneys actually being spent is slightly more than $1 billion, an immense amount of money, particularly for governments that are in financial straits right now. For the solution to this growing problem, we refer you to page 4 of the MISA report, "Conclusions and Possible Solutions." We recommend that you read that very carefully. In our opinion, the key recommendations are the following:

"Provincial authorities should move now to adopt and implement a municipal water conservation plan for Ontario. The plan would be fully implemented over a 10- to 15-year period and would be similar to those currently in place in [the United States]. At the root of the plan should be the conservation of water and the requirement that the user pay the full cost of service. Full-cost pricing and universal metering would:

"Permit restoration of all systems before staggering replacement costs become a reality;

"Permit and provide for, on a budgeted basis, the desperately needed treatment improvements to protect our water resources;

"Reduce fiscal pressures on senior government budgets;

"Reduce water use and thereby reduce pollution."

You will note the emphasis on full-cost pricing. The essence of full-cost pricing is as follows:

The price of water and waste water service must reflect its true cost, including allowances for depreciation of the system. There are no transfers from governments and cross-subsidies in this.

Users must be metered and charged only for the amount of water they consume.

Revenues must be dedicated exclusively for the operation, maintenance, upgrading and growth of sewer and watermain systems; that is, the war chest would remain and would be used for the municipality to expand, preserve and operate its systems, not used for other purposes.

The municipalities must adopt a universal accounting system. Right now they don't do that.

How much will this solution cost consumers? Studies show that the average family in Ontario pays about $340 per annum for clean water and waste water services. Studies show that the actual cost per family to provide for adequate service is about $1,100 per annum, including provision for maintenance, upgrading and growth. If we assume that the transition period to fully implement the conservation full-cost pricing program is 15 years, it will be necessary to increase the cost of water by 8% per year, every year during the 15-year term, to reach the target of $1,100 per annum. The annual amount of increase will vary between $27 per family in the first year to $80 per family in the fifteenth year.


Is this politically acceptable? Given a choice -- which we believe there isn't -- the citizens of Ontario would choose to spend a modest amount more each year to be assured of a reliable supply of clean, safe drinking water, instead of accepting the health risks associated with not having a reliable supply of clean, safe drinking water.

To put the matter in some perspective, the following amounts are spent each year by the average Ontario family on other utilities and on tobacco and alcohol, and you can see what they are: $340 for water and waste water; cable TV is $317, probably higher now; bottled water $400; telephone $679 and so forth; tobacco and alcohol $962 and $913 respectively.

In this case we believe that the safe political decision, in view of the modest additional cost involved, is to act to safeguard drinking water. To not act would seem to us to be politically risky in the extreme.

In conclusion, we urge politicians to do the following:

Accept the fact that our facilities to produce and deliver clean water and to treat waste water are in a state of growing crisis. Do not avoid making a decision to act in favour of doing a study. The matter has been studied to death. We will be happy to refer you to studies completed by highly competent professionals whose conclusions regarding the state of Ontario's clean water systems and the solution to the problem are the genesis of the recommendations we are making here today.

Implement an effective water conservation program. The Ontario Water Efficiency Strategy, which includes the vital full-cost pricing component, was prepared three to four years ago by the Ministry of Natural Resources with the aid of a broadly based consultation group of water industry professionals and other interested parties. It is fully developed and ready to be implemented. A copy of this strategy is attached for your reference.

The results of implementing these proposals will be dramatic. The growing crisis will be averted because water and waste water utilities, like all other utilities, will become financially self-sufficient. Water and waste water utilities will cease to place the current enormous financial demands upon all levels of government in Ontario. Pollution levels in the sources of our drinking water will be diminished and controlled and the quality of our drinking water will be permanently improved and the current threat to health removed. The physical integrity of our sewer and watermain infrastructure will be maintained and the need for early and costly replacement avoided.

Mr Kwinter: Thank you very much for your presentation. I have a couple of concerns. I'm old enough to remember when the idea of trying to sell somebody a bottle of water would have been perceived to be almost illegal and outrageous, that anyone would want to sell someone water when water was readily available and the quality was never in question. Now we have a situation where, according to your figures -- and I'd like to question the figure -- you say the average family spends $400 a year on bottled water, and all you're talking about is $27 per year on the low side and $80 a year on the high side.

First, I question the $400 a year that the average family spends, because I don't think the average family buys water. I think the people who do buy water might spend $400 a year, so I'd like to ask about that. I'd also like to ask you, how do you correlate the quality-of-water situation, which has traditionally been something that in Ontario has been of a very high standard -- and I think most people don't even question it -- and the fact that there have been such incredible inroads by people who are bottling water and selling it, not only in Ontario but literally all over the world?

Mr Powell: Sandy, on the $400, how did we derive that number?

Mr Sandy Cochran: That number came from the industry itself when we were doing some research on an earlier report. We, like you, were surprised that bottled water would be at that level of sales at this point. But that was the figure they claimed and that they indicated was growing.

What we have found, contrary to the opinion you've just expressed with respect to the confidence that Ontarians have in their water, is that there is a growing concern throughout the whole of the province with regard to the quality of water they're consuming, and moreover, they're concerned about the disposition of the sewage which is going back into the source of our drinking water.

Mr Powell: I would add that the difficulty is perception more than anything. You don't see a lot of positive news with respect to the drinking water. Toronto's drinking water is tested every two hours, tested for faecal coliforms, tested for all the pollutants they're required to treat for. There needs to be far more effort done on public education but, notwithstanding that, the people are using more and more bottled water.

We don't sell bottled water, by the way. We're trying not to sell it.

Mr Kwinter: Just so there'll be no misunderstanding, I have absolutely no quarrel whatsoever with the need to refurbish and replace the aging infrastructure of our water. I think that's absolutely critical or we are going to be in a very serious problem. But I remember the medical officer of health of Toronto sometime last year, I think it was, commenting that the quality of the water that comes out of the tap in most cases is higher than the quality of water that's sold in bottles. I just wanted to make sure that people who are watching don't get the impression that the water in Ontario and the water in Toronto has suddenly deteriorated to the point where it's unsafe.

Mr Powell: You're absolutely right on that; I'm not disagreeing. In fact, the standard that bottled water has to meet and the standard that the municipalities have to meet are two different standards. The drinking water standard that the municipalities are put to is a rigorous testing of their water, and in most cases in the water supplies in Ontario, you don't see a lot of "boil water" orders, but there have been some.

Mr Kwinter: Could you comment on the private-public sector approach to solving this problem? Do you have any ideas on that?

Mr Powell: I guess I do; I can speak to it. I believe there is a number of reasons for asking the private sector to assist, but one is that in some of the areas that are very fast-growing, the need to expand the infrastructure is beyond what they are legally allowed to borrow, and as they go above the 20% revenue number that they require -- the regional municipality of Halton would be one, for example, where they have to spend perhaps something like $500 million before the year 2011 on infrastructure upgrading. For them to do that actually puts them out of tilt with the borrowing requirements, so the public sector and the private sector could come together in a private-public partnership and could perhaps provide some relief in the financing of that infrastructure. That's one thing.

There are some situations in some of the smaller communities where they're just not as well run as they might be. I would say in those instances the service is going to cost more if the private sector does it. So there's give and take on it; there's not really a clean answer on it.

Mrs Caplan: Do you have any examples of working private-public sector partnerships that you could suggest to the committee as models of what you're proposing?

Mr Powell: In terms of the public-private partnerships, there is a number, as you know, in England. That's where it came from. There are 10 water boards over there, very large, and they were privatized under the Maggie Thatcher government. There's a lot of information on that.

Sixty per cent of the water supply in France is done through what they call concessions, where the public essentially owns the infrastructure but it's operated by the private sector. They're very large companies that are operating those.

In the United States there are a number of smaller municipalities where that's done. I know that in the city of Indianapolis, which isn't a small municipality, their waste water system is run by the private sector, and the mayor claims there are excellent gains made there. I think there can be, but I think it's again one that you have to look at.

But the private sector is interested in this particular sector. They see that they can invest in it. It is a good investment, because everybody uses water and it would be a good investment. I think the private sector could assist in financing this tremendous financial cost that we're talking about, the $1.9 billion, but we've got to get going on it.


Mr Carr: Thank you very much for the fine presentation. You're not unlike the roadbuilders who came in and said the same thing. As you know, in the financial circumstances we're in, every man, woman and child is in debt to the tune of about $9,000, just provincial debt -- the federal is over $15,000 -- and that doesn't include Ontario Hydro debt or workers' comp.

Certainly the private sector needs to be more involved and what the government has to do is set the priorities. The three that I believe and our party believes are health care, education and law enforcement. We'll need more private sector involvement in everything from roadbuilding to day care to what you're talking about. So I think everybody agrees on that and it's going to happen under any government -- the next one, I think it will happen.

Two things that I'd like to point out: Your stats on page 5 need to be correct and I want you to give us the assurance they are; I don't know. I think what the public will be looking for is, "Fine, we believe the private sector can do it." I think with the government bureaucracy and seeing the way government runs things, certainly they would believe the private sector can do it faster, better, cheaper and at no expense to the taxpayers, which I believe as well. Your figures on page 5 talk about what the average person would be concerned about, which is their bills. Are you confident that those stats are correct and that in fact they're right?

Mr Powell: Just let me give you the benefit of a couple of things. First of all, the United States Environmental Protection Agency has done studies that indicate that we should be spending somewhere in the neighbourhood of 1% to 2% of our household income on water and waste water services. Right today in Ontario, I believe the average household income is something like, I'm going to say, $50,000 a year. It's actually $52,000 or whatever. But 1% of that is $520. There are many places in the States, and it's very common in Europe, that have numbers at least at that level, so when I look at the other areas of the world where water is a concern and where they're moving towards better and better water supplies and to doing more and more with the waste water treatment, those are the numbers that are being advanced: 1% to 2% of the average household income is affordable. Economic studies have been done.

Mr Carr: Good, because I think that's what the public's going to be looking at and I appreciate it. I didn't mean to challenge your numbers.

Mr Powell: Yes, I appreciate that. I'm not arguing at all.

Mr Carr: I understand that's what they're going to look at, but I'm interested in how it would work. I've talked with some of the ratepayers in my group who want to get rid of regional government and want it to become a non-taxing utility as well where you pay the cost for things like that. How do you see the shift? Could you maybe explain to us how you would see the shift to the private sector with governments getting out of it, particularly for some of the folks at home? How do you see us moving from what is happening now to what you propose? How would it work? If you could be a little bit simplistic so we could all understand how it should be without getting too much detail.

Mr Powell: The municipality would have to examine its system and determine whether it wishes to do so. But let's assume those communities that have very rapid growth and need the influx of private funding -- what they can do is take a section of their facility or all of their facility, if they saw fit, and essentially almost sell it to the private sector. The private sector would have to pay them for the worth of that. That's an extreme situation. That's what I call privatization.

Maggie Thatcher, for example, what they did there was they took the Thames water facility and they actually floated a bond issue, and that bond issue was on the public exchange and people bought into that and people bought the service. That's how they raised the money to buy the public asset, I'll say, from the government and then they took it over. They run it as a utility would, like a Consumers' Gas, essentially like the cable TV. But there are many other situations where that may not be acceptable to the public and we're not saying one way or the other that it is.

What we're saying is there are various partnerships that could be set up where you might take the future growth and the growth requirements and have that financed by the private financier and then eventually that would revert back to the municipality as an asset to the municipality over the long term. So that would be like a lease-buyback-type arrangement. There are many instances where that's being done. There are a tremendous number of permutations and combinations that can be developed to suit the funding requirement.

The other one of course is for the utility to be just like it is now, a public utility, run by the public, but we'd like to see that in one entity where water and waste water are treated as a single utility, with the proper financial basis and accounting systems so that every nickel that goes into them is being used for the water and for the upgrading of those systems. So that's the other extreme, which is a public one, and there are a number of different ways that could be done.

Mr Carr: Thank you very much. It's a great idea and very helpful.

Mr Wayne Lessard (Windsor-Walkerville): I want to thank you for your presentation. It's very interesting. When you're talking about water, you're talking about one of the major building blocks of our existence, really. The majority of us is water and the quality of it is very important. It's very difficult to try and convince people that there's an impending crisis when you're talking about water, however. I'm from Windsor and we're virtually surrounded by it, and that's not unlike a lot of places in Ontario. Every time it rains there are hundreds of gallons of it that just get flushed into the sewer system, and some of it's treated, some of it isn't.

We have what have been referred to as very high-quality drinking water standards, but we don't drink a lot of the water that we see pass through our homes during the day and I don't know how we as politicians bring home to people the fact that this is something we need to pay more attention to. I don't know if you have any thoughts with respect to that.

Mr Powell: I would almost like to have it a non-political issue. I would rather have it as nothing more than a very necessary and essential fundamental of life that we provide to the people of Ontario at a cost that recovers the full cost of it and that when we drink that water and put it back into the environment, we do no damage to it. In other words, the environment is there, it's sacred, it's something that we want to give to our children in a proper state and it's vital that we continue to examine it and so forth.

I think the government's role is regulating. I think the government should regulate it and require the municipalities to provide that safe water system to them. I think if we did that and made it a self-financing entity, standing on its own two feet, that's the way it would be done. It's feasible to do. There are many municipalities in other parts of the world, and even in Ontario, that are doing it.

Mr Lessard: Are there municipalities that are using the full-cost pricing for water? I know in Windsor a couple of years ago they put a sewer surcharge, I think, on the water bills to reflect water usage. It wasn't very popular, though, I can tell you.

Mr Powell: No, but what it's doing is making the people of Windsor aware that there is a cost for sewage treatment; it's not just something that's in the general taxes. The more, then, you use the water and the more you put it back into the sewage, you're paying your fair share. It's an equitable system, in our opinion, the user-pay.

One of the things that you don't realize, if you look at the financial information that you people have, last year there was about a $200-million difference between expenditures and revenue, in favour of expenditures. So there's $200 million that the politicians -- I shouldn't say it that way -- that the financial return information shows you is not being made up. It is being made up; it's made up by transfers, by coming out of general revenues, by coming out of lot levies. There's a whole slew of other ways that it's happening, and that's the kind of thing that we should be trying to avoid. Put it up there and let it stand on its own two feet, and it will because people need it. It's not a political issue. People want clean drinking water, and we can give it to them and they'll have to pay for it. It won't be something that will get all confused with the soft servicing issues, which I appreciate are real problems for politicians today, believe me.

Mr Sutherland: I just want to make one comment. What I find from people, certainly where I live, is how they define quality drinking water. Taste seems to have more impact on people's definition of quality drinking water than truly what is safe drinking water. I think that accounts for a lot of the bottled water. It has a lot more to do with that. One last question, based on that: Do you think the province should make metering mandatory?

Mr Powell: Yes.



The Chair: The next presentation this afternoon is by CN North America. Would Mr Allan Deegan, senior vice-president, CN East, and Mr Ron Ditchburn, manager of property tax, CN Real Estate, please come forward and make yourselves comfortable. I'll remind you that you have 30 minutes within which to make your presentation and field questions from committee members. Whenever you're comfortable, please proceed.

Mr Allan Deegan: My colleague Ron Ditchburn and I thank you for the opportunity to address your committee. As senior vice-president, CN East, I'm accountable for our operations and business planning in five provinces in Canada, including Ontario, as well as with our Grand Trunk Corp responsible for those same activities in the states of Michigan, Illinois, Ohio and Indiana. As the committee would know, these states have important trading relationships with Ontario.

Over the past several months, a great deal of public attention has been focused on the state of the railway in Canada east of Winnipeg. The proposed merger of CN and CP operations, CP's offer to buy CN's eastern assets and most recently the parliamentary task force, the Nault task force, that travelled the country to hear views from Canadians on the notion of turning CN into a publicly traded company, all of these initiatives have occurred in response to the grave financial situation of both major national railways over the last five years in eastern Canada, each of which has experienced substantial losses. These things have certainly caused people to be more conscious of the economic importance of railways and perhaps to even begin to wonder what the future is of CN.

I thought it might be of assistance to you in your pre-budget deliberations to determine just how instrumental CN North America is in the expanding industrial economy of Ontario, and also how we can continue to play an even more important part provided that the Ontario government recognizes the extremely competitive nature of the freight transportation business and does not act in a way that inhibits our ability to serve Ontario industry.

To set the stage, as we have done in the past, I'd just like to give you a few basic facts and figures about our operation in Ontario. We employ in the range of 6,000 people and we have a payroll of close to a quarter of a billion dollars.

Over the past three years, we've spent approximately $400 million in Ontario on capital improvements to our plant and facilities. Our company pays some $60 million, and in fact our most recent figures for 1994 show that we now pay approximately $73 million, in various taxes to municipal and provincial coffers in Ontario.

We've got a track network of some 2,700 miles. Our employees operate approximately 45,000 GO commuter trains each year in Ontario, with by the way an average on-time performance of 95%. On any given day in Ontario, we have some 225 mainline freight trains, road switchers and industrial yard assignments in action.

We service some 4,000 freight customers, and in 1994 our trains delivered 23 million tons of freight to or from Ontario industries. For example, rail transportation is of vital importance to the automotive, steel and chemical industries, the pulp and paper industry, and therefore is influential in the maintenance and growth of good-paying jobs in these sectors in Ontario.

I was interested to read in the government's guide to budget-making, 1995, that Ontario's economy grew 4.5% last year and sustained growth is indicated for the remainder of the decade. Striking a particular chord with me was the statement, and I quote, "Ontario's manufacturers have more than doubled their exports to the US in the past 10 years. Auto assembly and parts lead the way, but high-tech business equipment and services are an increasing source of export earnings. Ontario firms are also bolstering trade with developing economies around the world." We at CN can relate to that statement. It very much reflects the significant changes in our own activities and traffic patterns in the last few years.

Global industrial restructuring and the new trading agreements among Canada, the United States and Mexico have dramatically changed our workload. Even when our traditional transcontinental freight carryings remain strong, cross-border shipments have risen sharply in the 1990s.

CN has no fewer than four international gateways in Ontario, three of them in key areas of southern Ontario. Our tracks connect to the US rail system by way of the International Bridge at Fort Erie, by way of the Detroit River Tunnel, which we own in partnership with CP, and by way of our own rail tunnel beneath the St Clair River between Sarnia and Port Huron, Michigan.

Through these international gateways we now move some 4,600 trains per year. Since 1991, our tonnage from Ontario to the United States has grown by 28% while the tonnage from the US to Canada is up by 18%, and all while our transcontinental business east to west is growing at certainly a moderate but steady pace.

A large part of this freight traffic is made up of what we call intermodal trains, trains carrying shipping containers, either domestic or off the ocean ports, or carrying highway trailers on flat cars. This type of service is loaded quickly by cranes at intermodal terminals in major cities, with tractor-trailers doing the local pickup and delivery.

The potential for growth in intermodal to and from Ontario is almost unlimited. We have made major investments in our plant and facilities to exploit this opportunity. Indeed, most of you have probably seen and heard a great deal about the new tunnel we are building beside our present tunnel between Sarnia and Port Huron, Michigan. This is a $200-million investment, perhaps the largest single investment in transportation infrastructure in all of North America in recent years.

This will be open for traffic in little more than a month. Its very large diameter will allow us to operate trainloads of multilevel auto carriers as well as doublestacked containers on flatcars all the way from Halifax or Montreal or from Ontario's industrial basin right through to our major terminal in Chicago. We can't do that with our present tunnel, so this will mean a tremendous improvement in the service to our customers because we will no longer have to use our time-consuming railcar ferry operation across the St Clair River at Sarnia.

In this context, when you look at the dynamic freight transportation marketplace in North America, Chicago is really the key. Not only is it a huge industrial market on its own, but Chicago is also the railway hub of North America. There are more than two dozen major rail yards in the Chicago area. All significant railroads interchange traffic there for all other parts of the United States and Mexico.

I take pride in saying that CN already has the most efficient rail route between Ontario and Chicago. We own the Grand Trunk Western Railroad, which extends from Port Huron to Chicago and from Windsor through Detroit south to Cincinnati and Toledo. Very shortly the Grand Trunk operations will be completely integrated into those on this side of the border.

Together with our new tunnel, this will be a telling one-two punch for our company against our competitors. North American freight shippers are demanding seamless, efficient, reasonably priced service. We believe we are doing what we must in order to help industries compete in their own markets and to grow our railway freight business so that we can become a financially strong and durable company.

At this point, with all I've said so far, you're probably thinking that this sounds pretty rosy. One would be forgiven for wondering why all the fuss about railways in the past year or so and what does this all have to do with the process of pre-budget consultation.

In response, I would ask you to consider for a moment the fiercely competitive nature of freight transportation, together with the purpose and needs of the freight transportation companies involved.


I want to emphasize that CN's needs are no different from those of our competitors. Although we are currently a federal crown corporation, we are obligated to perform as any other commercial company and ensure that our shareholder receives a reasonable return on investment.

In CN's case, however, there has been no investment by the shareholder for nearly two decades, and since we are not able to secure equity funding from other investors, we are very much on our own financially. This demands that we manage our business in such a way to continuously improve our profit-and-loss statement so that we generate the funds needed to survive and sustain a strong future. It means we have to generate the funds to finance our capital investments.

In Ontario and in the rest of eastern Canada, the competition for freight business is not restricted to Canadian railways and Canadian truckers. We are very much in a North American borderless market, where American railroads and American trucking firms are extremely aggressive. As far as the railways are concerned, the American companies are far and away more productive, more streamlined and more cost-efficient than either CN or CP. This is because deregulation of transportation in 1980, the Staggers Rail Act, led them to make mind-boggling changes in the way they do business so that their costs are much lower. This, obviously, is reflected in the rates they are able to quote to shippers.

But our main competition in Ontario and elsewhere in the east is the trucking industry. Trucks continue to proliferate, with more and more taxpayers' dollars being spent on new and expanded highways. Certainly the policies of the Ontario government have encouraged this growth: longer and heavier trucks, licence fees that come nowhere near paying the true costs of operations and tax advantages not enjoyed by other modes and so on. Trucking is important to Ontario.

So we have to keep our prices low to attract business. It's as simple as that. On the other hand, our cost base in Ontario is inordinately high. Without an extremely aggressive cost-reduction effort, our costs will continue to overtake any small revenue yields we can accomplish. Our ability to survive will be threatened and so too will the role we now play in helping Ontario's industries.

Our cost reductions are coming from a broad range of initiatives, from working smarter by changing processes, by consolidating activities and by eliminating redundancies. We are also striving mightily to get out from under the crushing cost burden associated with too many underutilized rail lines.

Without question, the needs of rail customers today and tomorrow can be met with a much smaller network. A great deal of our 2,700 miles of track in the province isn't really compatible with the vision we have of ourselves as being a core rail carrier moving truck-competitive freight between major distribution terminals. Many of these light-density lines are unprofitable and should be abandoned; some, however, are marginally profitable but could best be operated by smaller, independent companies as feeder railways. The successor rights provision of the Ontario Labour Relations Act has created difficulties with the exercise of this alternative. However, we are still hopeful that a way can be found to work out with the unions and the government a resolution of this issue.

As your committee examines various views regarding finance, the provincial economy and the 1995 budget, I hope that some of the points I have made will be remembered. I believe that the investments and the plans we are making hold enormous potential for expanding freight volumes and aiding the competitiveness of Ontario's industries. However, our ability to seize these opportunities depends greatly on whether the economic climate is railway-friendly or not.

Railways already bear a discriminatory tax burden in Ontario. Almost half of the $73 million in taxes CN pays in Ontario each year represents property taxes on our rights of way and rail yards and diesel locomotive fuel taxes for operating our own trains on our own rights of way. These are clearly punitive taxes that harm our competitiveness.

Our highway competitors do not pay property taxes at all on the public roads and highways they utilize to compete with railways, nor do the fuel taxes they pay equate to the overall cost of building and maintaining highways. Moreover, our real competitors in neighbouring states operate under a much more favourable tax regime. Some Canadian provinces have recognized the tax disadvantages that harm the health of railways. Manitoba, for example, rolled back the level of locomotive fuel tax assessed railways there.

So with anticipated sustained growth in Ontario's economy, the time is right for the province to undo some of the imbalance in the tax structure and let railways fulfil their potential, as we see it, as the engines of prosperity.

Mr Kwinter: We had a presentation, I'm sure you know, from CP the other day, and they made many of the same points.

I was interested to see your reference to the fact that some of your tracks are not terribly productive and you'd like to see them off, and smaller operators. Of the trains you're running, what proportion is freight and what proportion is passenger, and are most of the tracks you want to get rid of the passenger tracks?

Mr Deegan: If I could answer it this way, all of our business is freight business, and on top of that, we operate about 97% of the GO service in Ontario under contract with the government. So that's one nature of our passenger business. The other nature of our passenger business is the Via trains we carry on our lines, again under contract.

Essentially, all of those trains operate on what we consider to be our core network. There are a couple of GO lines or possible extensions to GO lines that are on rail lines under some question, and we're working that out with the Ministry of Transportation and the GO Transit people, but essentially our core network handles all of our freight business and all of our passenger-related business.

Mr Kwinter: I'd also like to comment on the problem of the taxing of the right of way. I'm very supportive of your particular position on that because I think that to put in a tax that is literally retroactive and then penalizes you for what happens alongside that right of way makes no sense. If you had known going in that this was going to happen, you could have planned your tracks in such a way that they wouldn't be -- well, the people from CP mentioned that if they go by the SkyDome, they have to pay the rate the SkyDome pays. If you had the choice, you wouldn't go near the SkyDome. That, of course, is one of the problems.

How do you feel about that whole situation and where do you think the progress is going to be to alleviate it?

Mr Deegan: As in most cases, our view is that we got there first. In relation to where our tracks are, that's where our customers are, that's where we do our business.

With the last effort on market value assessment -- and you're correct; it was in the major urban builtup areas where the proposal was to assess us on the base of adjoining property values -- our tax was going to increase in the range of 400%, highly inequitable from our point of view.

I think some sanity and reason got into the argument when we brought forth the argument at the same time Ontario Hydro was bringing it forward, that we would have to pass a majority of that expense along to GO Transit under our contract with them. GO Transit was operating at the highest density on some of the routes that were most susceptible to the market value assessment, so our tax bill in Metro alone was going to head up into I believe around the $50-million to $60-million range, and over 50% of that was going to be passed on to GO Transit under contract. So it just doesn't seem to make much sense.

The key issue for us is not only that argument but the argument that our key competition in eastern Canada is trucks, and to unnecessarily hobble the railways with a taxation base like that is just beyond our imagination.


Mr Kwinter: There's another area I'd like to explore with you. You may or may not know that I used to be the chairman of the port authority of Toronto. When the seaway was conceived, it was going to bring ships right to Chicago and through Toronto to alleviate all the problems of either rail or road. That, of course, didn't happen because it's not a year-round facility and it's not deep enough.

What proportion of the freight that comes into the port of Montreal -- this is container freight -- comes into Ontario and what proportion goes rail and truck or intermodal? Do you know that?

Mr Deegan: I would have to admit with some regret that our main rail competitor handles most of that traffic that comes out of the port of Montreal towards Toronto, so best you should have asked Canadian Pacific that question. I can tell you, though, that with the current companies that operate out of the port of Montreal, for traffic that goes Toronto and beyond I'd just have to say a fairly high percentage would go by rail. We're experiencing the same sort of thing with traffic that comes across the ocean into Halifax. We carry pretty well exclusively the traffic that comes out of the port of Halifax that's destined for either Montreal, Toronto or indeed Chicago, which is the focal point for all container traffic in North America, and by far the vast majority of that moves by rail.

So we really feel that in relation to how the province wants to look at its finances and structure its transportation system, rail is essentially a paid-for system that is there. We don't look to be subjected to any discriminatory taxation, and we also feel that a greater use of the rail network, particularly the core system, puts the province in a marvellous position where it can start to manage the deterioration of highways and the money that's spent on the road system a lot better.

Mr Carr: I have a question and then I'll pass it over to Dave because he has one as well. As usual, we don't have enough time.

Thank you for the presentation. On page 9 you say the Americans are far "more productive, more streamlined, more cost-efficient than either CN or CP" because of deregulation. You go on to say on page 11 that you were trying to work smarter, change processes, consolidate activities and eliminate redundancies.

We have just as big a challenge here in the province, because we have to do the same thing, and we're far, far behind what you're doing, and I believe we're way behind what you even had to do. But I guess that'll be the big question in the next provincial election, who is best to do that.

The question about versus the Americans: How far behind are we, and are you confident that we are going to be able to compete with the Americans? I'll preface that by saying we had the automotive manufacturers in here, and they sat here and said our exports in cars are up, and we're doing the job faster, better, cheaper than the Americans are, when we left them alone. Unfortunately, we've regulated you so much that you aren't able to compete. How far are we behind the Americans, and a few years from now, are you going to be in business and be able to compete with them?

Mr Deegan: Yes, we are going to be in business. Yes, we will be able to compete. Right now, in terms of competition with the US side, while some people would look upon it as a negative, I suppose, the current status of the Canadian dollar is one of our best allies.

But maybe I could describe it best that one of the key measures in the railroad industry is something called the operating ratio, which is your total revenues over your operating expenses. Some of the better US roads that we compete with have operating ratios in the range of 78 to 82, meaning they spend 78 to 82 cents for every dollar they can take in. Our operating ratio last year, a year ago, was at about 95, 98, meaning we spent 98 cents for every dollar we took in. We've pulled it down considerably this year and we intend to pull it down considerably more next year.

The effect of that in its most simple terms is that when a marketing representative from one of the major US roads goes in to a customer bidding on an account, let's say an automotive account, they know the people back home are going to be spending 78 cents for him to earn that dollar, so he's got some room to play. When our people go in, on what we were doing a year ago, they knew we were already spending 98 cents, so how in the world do you make a whole lot of money on it?

The US has become highly entrepreneurial, highly competitive, getting out of a lot of regulation. They have different tax regimes south of the border, and while there's not enough time to get into any detail, it's a more friendly regime, generally speaking, than what we have in Canada.

Mr David Johnson: As I understand it, the rail lines are assessed, for property tax purposes, on the basis of the adjacent use to the rail lines. Is that essentially correct?

Mr Ron Ditchburn: Yes, that's correct.

Mr David Johnson: Is it your contention that the rail lines should pay absolutely no taxes or not be assessed at all, or is it your contention that there should be some low assessment based on the lower use that would not be subject to change if the adjacent property changed?

Mr Ditchburn: If we're looking at our main competitor, our argument would be that versus trucking, on the right of way alone -- and we're not talking about our yards and that sort of thing, but the actual area where the trackage is -- we should either not be assessed, or exempt. At present we're paying something like $12.5 million in right-of-way taxes in Ontario, and next year, if Halton reassesses, and also Niagara is talking about reassessment, that would add another $1.5 million on top that's just pure increase; that's not taking into account normal mill rate increases or anything of that nature.

We know, and we've put it in presentations before, that right now everyone has fiscal problems.

Mr David Johnson: Including municipalities, and that's the flip side. I wonder if you've approached AMO. They were before us yesterday and they were criticizing governments in general for making unilateral decisions. In particular, they have been charged for assessments which -- if they wish their assessment rolls updated midyear, last year for the first year they were charged, and the charge was somewhere in the vicinity of $19 million, I believe, over all municipalities. Maybe we're talking about the same order of magnitude here. They were very irate about that. Have you discussed this with municipalities?

Mr Ditchburn: We've had conversations with individual municipalities, not on an overall level, and perhaps we should be more proactive in that. We've been really trying to bring a halt to some of the increases we're facing, because right now what we're finding is that we move into some areas, and it's truer about smaller railways than CN or CP, and municipalities seem to favour maybe a halt to the increase in taxes. This is basically bringing back the pre-1990 assessment methodology where there are still taxes paid but there are changes between the railways; that group of properties, if they're paying $1 million in Toronto, say, will continue to pay $1 million plus their 5%, 6% increase.

Mr David Johnson: That's why I asked you if you had another scenario. Perhaps that might be useful, and I would suggest strongly that you do discuss this with them and try to work out some compromise. That may be just the ticket that gets you out of this dilemma.


Mr Norm Jamison (Norfolk): It's a pleasure to have you here today. The question I'd like to ask is that dealing with transportation in general, whether it be trucking, shipping or rail, we're really looking at, today more than ever, a situation where manufacturers are looking at getting their product delivered on time, on a very timely basis, and of course then comes the issue of price.

But in many instances, the just-in-time delivery aspect of doing business today even overrides the price element, if there's a relative closeness but you can be assured of just-in-time delivery.

The concern I have after listening to your presentation is that you seem to be downsizing your operations somewhat, keeping your main trunk lines operating. In doing that, letting some other lines that are marginally profitable, would you not be eliminating some manufacturers' ability to use your system directly?

Mr Deegan: No, not really. If I could explain it to you in these terms, Mr Jamison, we want our core network to be sort of the most effective, efficient network possible for getting freight from major location to major location. Certainly that's what our customers want. GM wants us to be able to take traffic from Flint through to Oshawa in the shortest time possible. That's where we're investing an awful lot of money in our core network.

When you get to some of the non-core lines, the branch lines we're talking about, some of our lines do have small industry on them. We have other ways of handling small industry. I made reference to our intermodal capability where we can containerize, trailerize, whatever, the manufacture of most industries and bring it in by road -- which we do, we own our own equipment -- bring it into major terminals, put it on trains and get the efficiency of the long-distance haul out of it.

When we are looking at our non-core network, that's one thing we're particularly sensitive to, to ensure we're not going through a significant erosion of revenue just by eliminating for efficiency's sake.

Mr Jamison: Yes.

Mr Deegan: The marketplace is the key, prime target.

Mr Jamison: I agree with you. The second part of my question really deals with something that no one has really picked up, and that is what CN is doing to remain competitive as far as just-in-time delivery and all the factors beyond the dollars and cents in cost and freightage.

When you talked about the new tunnel, what was the turnaround time on using the old tunnel and having to barge cars across and so on? What difference does that make to your operation? Because -- and this is my perspective -- just the advent of that tunnel, which is a highly expensive proposition, not only makes you more competitive, it also makes Ontario more attractive --

Mr Deegan: Absolutely.

Mr Jamison: -- that one investment. I really believe that's an important aspect to look at, how forward-looking your company is as far as recognizing the factors in obtaining, in the public side, the ridership, or, in the merchandise side certainly, the ability to move freight by rail.

Mr Deegan: Maybe I could just comment on that. The new tunnel between Sarnia and Port Huron will allow us to gain, on behalf of our shippers, somewhere between 12 and 36 hours to Chicago.

Mr Jamison: That much?

Mr Deegan: That much. So people like General Motors have an extremely high interest in it. It's also positioned us to enter into alliances with some of the major US companies that are interested in using the tunnel. We currently have an alliance with a major US trucking company that is going to convert, by and large, to container. So rather than seeing all the truck traffic on Highway 401, as we're all used to, particularly that going through to Oshawa, it'll be coming through our new tunnel on double-stacked containers.

That has a great benefit for Ontario, frankly. When you have to look at other things such as the transportation budget and the wear and tear on roads and bridges and everything else that you must finance, we maintain our own right of way. It's there, it's free; hence the taxation issue.

The Chair: Unfortunately, our time has expired.

Mr Deegan: It was a great note to end on


The Chair: The next presentation this afternoon is by Yvonne Hamlin. Correct me if I'm wrong, but I believe you're making a presentation for the Canadian Property Tax Association.

Ms Yvonne Hamlin: Good afternoon, Mr Chair and members of the committee. As Mr Johnson has indicated, I'm here on behalf of the Canadian Property Tax Association. This is a national organization that was created in 1967, the aims of which include the promotion of equity of assessment property.

One of the goals and activities of the association is to study legislation and to make representations to governments on property tax issues. Last fall the CPTA struck a committee to deal with and look into the issue of farm land assessment and I was asked to be chair of that committee, which explains why I'm here today.

You've heard a lot before this committee today, and I had an opportunity to hear the presentation of Mayor McCallion this morning, about the importance of assessment and local taxation. Everyone knows about the current needs of every level of taxation to have more revenue, and the local governments are no different from any other level, but in looking for the revenue, usually a balanced approach by the taxing authority is the one that's adopted.

I am here because in some of the municipalities, particularly in the greater Toronto area, there has been a push for what I would call excess taxation on lands that are currently farmed. This excess taxation will have a negative impact on the farm economy, on the ability of the province to ensure consistent and balanced growth, on the ability of builders to provide affordable housing and on the ability of owners to carry sufficient lands to accommodate future growth.

I make this presentation to request the committee, through the process that you're going through now, to make a minor amendment to the Assessment Act that will ensure that this excess approach to taxation will not be allowed to occur.

Some municipalities have always taken an aggressive approach when it comes to taxation. You heard Mayor McCallion this morning speak about the 5% park issue. As I'm sure many of you know, the Planning Act requires that when you're subdividing land, 5% of the land be given to the municipality for park purposes. Mississauga took a very aggressive approach in reading that and also required 5% to be given at the building permit stage, where there was an increase in value. So they really took two bites at it.

Mr Sutherland: No.

Mrs Haslam: Not Hazel, no.

Ms Hamlin: Amazing. Not Hazel, no. But no other municipalities interpreted it that way. The staff at the province didn't interpret it that way and, as she indicated to you, the province took the opportunity in Bill 163 to close that opportunity. The point is that I guess sometimes the province has to intercede to make sure that there are not abuses of the provincial legislation that lead to excess taxation.

Now many of you probably haven't had much to do with the assessment of farms, and I'm just going to take a very few brief minutes to explain to you that the assessment of farm land was given special treatment in the Assessment Act in 1955, and there have been six legislative amendments since that time that reinforced that special treatment.

Originally, the special treatment, as I'll call it, was given to those whose principal occupation was farming, and then as Ontario became more of an urban area and lands that were being farmed were held by other than farmers, the Assessment Act expanded to really cover all situations where there was a bona fide farming operation being carried on at the property. What the act currently says is that farm lands shall be assessed at a value which reflects their farming activity, not on the basis of any other use of the lands.

That intent has been reflected by the Ontario Municipal Board and the courts in many decisions over the years. In one decision of the Ontario Municipal Board, in 1981, the board said this about the intent of the legislation:

"The board agrees that the sole intent of the Legislature is to assist farmers to continue to farm land despite the pressures to sell the land which would be particularly aggravated if their taxes were raised to the rate which would be paid if the lands were not utilized for farm purposes. It is the belief of this panel of the board that those purchasing lands with the intent of subdividing are thereby also encouraged to keep land in food production as long as possible."


Now, the zoning of the land has never been an issue. It's never been determinative. But I must tell you, and the reason I'm here is, that the Ontario courts have recently had a case come through where the question has been opened up, without it being settled, as to whether zoning of land, that is, the use that land can be put to, should have some determinative point to play in whether land should be assessed for farm purposes. In other words, lands could be farmed, but if they have a zoning law on them for industrial uses, how should the assessment be treated? Historically, that's come up a number of times and the courts have always said: "We're looking at encouraging farming. Zoning is not determinative."

As I said, there's been a recent decision that's raised it. It has not been settled, but I can tell you that a few aggressive municipalities, and I don't think I'd be telling tales out of school to say they would include Mississauga, Brampton and I believe Oakville, are now taking this opening and aggressively pursuing through the appeals process the assessment of farm lands.

I want to address with you today a few points in my time: the provincial policies that encourage farming; why farming has always been an inherent part of the planning process; who is it who's farming anyway in the province of Ontario; and what is the impact of this aggressive interpretation that's being placed on the assessment provisions.

It goes without saying we've had a lot of growth in Ontario, particularly in the GTA, for many years. In a study that was produced by the IBI Group, who many of you know are consultants, for the Greater Toronto Coordinating Committee in 1990, they in fact estimated that between 1961 and 1986 we had 65,000 people per year come into the GTA and they estimate through to 2011 another 68,000 people a year. What has this meant? It has meant the province and in particular this government has introduced a lot of policies to require that growth be directed to settlement areas, to require compact growth, to require growth to be using up land as needed, and also to make sure that lands are kept in agricultural production as long as possible.

There are a number of policies I want to just remind you of, and I'm sure many of you are very familiar with them. One is the Food Land Guidelines that were produced by the then Ministry of Agriculture and Food back in 1978. It clearly recognized the importance of the agricultural industry not only as a producer of food but as an important component of the economic base and as a source of employment. It recognized that land use planning policies should as much as possible ensure land is kept available for farming until it's actually needed.

The growth and settlement policies which came out of our Ministry of Municipal Affairs in April 1992 stress the importance of protecting the integrity of agricultural lands while ensuring we adequately anticipate growth. Also, there are many policies now that require a designation of a sufficient supply of land for residential, industrial, commercial and other uses in advance of actual development needs. The Ministry of Municipal Affairs actively encourages the designation of lands through official plan amendments for this future land-holding need.

Typically, land owners take advantage of that official plan process and rezone their lands at the same time. In this regard, the housing policies of this government also require a 10-year supply of designated land for residential uses -- a 10-year supply -- and a three-year supply that's actually draft approved, ready, you can go in and get a building permit, for residential uses.

There are policies that stress a phased approach to bringing development on stream and also the growth and settlement policies that stress that comprehensive long-range planning should ensure the development of policies which integrate the demand for growth with considerations relating to conservation and agricultural lands.

Finally, the Assessment Act has long said that as long as lands are used for farming, property taxes are calculated on the basis of their value as farm lands only.

Why has the province encouraged this long-term designation of lands and encouraged, through the official plan and rezoning, having a lot of lands available? One, it ensures there is a sufficient supply to keep land costs down.

Secondly, if you want to attract industry and business, which pay, obviously, realty taxes, business taxes and create jobs, there have to be locales with a zoned and readily available inventory of land. Businesses can't wait for the five-year planning process. They make a decision. They want to build. They look for the land. They want to go ahead. They can't wait.

Thirdly, it ensures well-planned communities, and fourthly, this has been a big point for this government, to ensure that growth is directed to those settlement areas where the province wants major infrastructure. They give an early warning: "Growth is going to this area. This is where the roads are going. This is where the major facilities are going."

Who's doing the farming? Largely in the greater Toronto area it's tenant farmers. Not much rent is charged to these tenants, but the farmers do all that's necessary to cultivate the soil. They plant it, they harvest it, they take it to market. We see it as vegetables. It's often used for livestock feed.

The owners of the land generally fall, in my experience, into four categories.

The first one is large and small businesses which have decided to build their head offices or factories here, but they've bought excess lands thinking they're going to expand in the future. Before they're into that expansion mode, they're farming those lands.

Secondly, residential home builders who are anticipating a long-term build-out will buy these lands that are designated and zoned.

Thirdly, developers who are participating in the lengthy planning process we have here often will buy lands. They will farm them through the planning process. As the market approaches, they may stop to service the lands, put in some pipes and so on, and then farm again until the lands are actually required for growth.

Lastly, I've spoken to a number of aggregate producers, which as you know produce the gravel and other components that are needed for our roads and our construction industry, and they tell me that they buy in large blocks of land. Their lands are zoned for their use, but the Ministry of Natural Resources actively encourages them to farm their holdings prior to their being excavated, because they only excavate so much at a time. They have also been actively encouraged over the years to farm their lands and they also look to this farm land assessment.

What's the tax impact of what these aggressive municipalities are looking for? We asked a tax consultant to do some numbers for us, and we took Mississauga as an example because that's where this consultant does a lot of work and it's one of the municipalities involved.

We calculated, for a one-acre parcel, that if the lands were zoned industrial but are farmed, and if these aggressive municipalities have their way, the taxes would increase on a one-acre parcel about $2,800. If you look to a 50-acre parcel, which might be a typical holding, the increase in taxes on an annual basis would be $140,000. This is almost a 6000% increase. If the lands are commercially zoned, the taxes would go up almost $6,000 an acre. If the lands are zoned for multiresidential purposes, and this is where our stock of townhouses and affordable housing largely comes from, if it happens to be zoned for multifamily residential, the taxes on a per-acre basis would go up $11,400, so for that 50-acre parcel it's almost $600,000 a year more in taxes. These are very big numbers.

You might ask, as we asked ourselves and have debated internally, what is the impact of such a huge increase of taxation? We see six major impacts.

First, farming as an interim use pending development will largely cease as the incentive to encourage farming disappears.

Second, the jobs and the positive economic impact associated with agricultural use will be lost.

Third -- and I've heard from several businesses in this account -- as you know, many businesses have come to the GTA over the last 10 or 15 years. They employ thousands of people. They made significant decisions to invest in southern Ontario. Based on the existing property tax laws, they bought these excess lands for their future uses. If they are required to pick up such huge tax increases on their vacant lands, most companies today are bottom-line-driven and they will have to cut somewhere else.

They tell me that their next biggest cost is usually employees, so it will have a direct impact on jobs. Secondly, they will be forced to sell those lands, if they can find a buyer, and when it comes time to expand, maybe they won't expand where they are. We all know the pressures on current businesses by those who come up from the States and other more favourable locales trying to get our businesses.

Fourth, there are the carrying costs of land that is going to be developed ultimately for urban uses, for the 68,000 people a year who are coming into our area. With increased costs, we can expect that the costs of all new forms of housing will increase. We know that these increased costs of land and building particularly have impacts on the less affluent sectors of the population.

In addition, it will be increasingly difficult for developers and builders to provide affordable housing and meet those targets set by our Ministry of Housing. Also, the viability of small builders -- and we know that small business is generally the backbone of our economy -- will be jeopardized because they may not have the financial ability to carry these taxes through the process, through to the point of sale or building.


Next, and I think this is an important point we have to keep in mind, there will be a very strong resistance by owners to have their lands designated and zoned for future urban uses. Who will want to have a piece of land for that 10-year planning horizon that the Ministry of Municipal Affairs is promoting if it means you're going to have to carry the tax burden over that length of time?

Also, the provincial objectives of clustering development and only using land as you need it and so on will be difficult to achieve, because that objective will be overcome by a need to develop land with anything -- any building, any structure -- to create a cash flow to pay the property taxes.

We might also expect the disappearance of the readily available and zoned land for industrial inventory, which will limit the attractiveness of our area for business and industry.

Lastly, I happened to notice, when we were going through some of those who are impacted by this, that the Management Board Secretariat, which holds the land for the province, also appears to be big farmers in this province. I was thinking, as I heard the presentation by the rail company about how they were impacted and how Hydro was impacted, that these changes municipalities would like to see, to grab taxes from vacant lands, have major impacts, and I think they could have impacts on the Management Board Secretariat, that also appears to be farming, for all the logical reasons I've said to you and all the provincial policies in place.

What's happening is that land owners are now going back through the planning process to allow agricultural use. As someone who has worked with that industry, I can tell you that land owners spend years going through the planning process to get their lands out of agricultural zoning, and now they're going back into the planning process to get the agricultural zoning again because they're trying to forestall in some fashion this aggressive approach that's being taken.

This, I have to tell you, is an incredible waste of our resources. We have hundreds, if not thousands, of people involved in the Ministry of Municipal Affairs, Ag and Food, MNR, conservation authorities, all the municipalities, who are involved in the planning process, and they now are all going to be involved again as these lands are the subject of applications to allow agricultural uses, agricultural use which has long been promoted and really meets all the objectives and intents of this government.

In conclusion, I'm here to ask that the Assessment Act be clarified to ensure that the existing provisions which benefit the lands that are farmed are maintained. I have set out one suggestion; we're not married to this suggestion. It's a simple suggestion that the section of the Assessment Act that sets out how farm lands are to be treated just have a few words added that might say, "Consideration shall not be given to the designation in zoning of lands," in looking at how farm lands should be assessed.

It will be that simple a change. It would recognize the existing situation and would close what I would call a bit of an opening that the aggressive municipalities are trying to take currently. I'd ask you to consider, strongly, using your committee to make this small recommendation to assist at this time.

Mr David Johnson: Thank you very much for the deputation -- a very interesting topic. Am I to believe, in looking through here, that there is one court case, the Amoco case?

Ms Hamlin: That's the one, sir.

Mr David Johnson: But there's no precedent, I gather; it only pertains to that particular situation, which is rather unique. If I'm correct in that, then there has not been a reassessment of other properties, but there are some under appeal, are there?

Ms Hamlin: I was speaking to a lawyer today who spent two days at the Assessment Review Board last week on some lands in Oakville, arguing that zoning shouldn't determine the assessment of farm lands. The reason he's there is that the municipalities have put farm lands under appeal. I've been called by a number of land owners in Mississauga who have lands under cultivation. Mississauga has literally put, I'm guessing, hundreds, maybe a thousand acres, maybe thousands of acres of land under appeal this year by appealing the assessments on those lands and forcing the issue.

Mr David Johnson: Does it matter at all if the property is being used for farm purposes? There are properties that may be zoned industrial or commercial or residential. They may be sitting there vacant with just weeds, I suppose, or they may actually be being cultivated. Is that any determinant?

Ms Hamlin: Yes. The key criterion to get yourself into the farm assessment provisions is that the lands have to be farmed by a bona fide farmer who cultivates, who plants, who does all the normal things, harvests, sells. So by planting or just leaving your lands with weeds on them, you wouldn't fall into that section.

Mr David Johnson: So they would already be being assessed at some different rate?

Ms Hamlin: Some different rate, yes.

Mr David Johnson: I see. This problem, I presume, is greater in the GTA. It probably becomes lesser as one gets away from highly urbanized areas, I would expect.

Ms Hamlin: I gave that some thought, and I think that in the greater Toronto area it's a prominent issue because of the actions going on. But I think it's an issue that's going to impact every centre that has a settlement area with urban boundaries that are larger than where the housing and development is. Because of what I do on weekends, I can think of -- as you drive into Lakefield, for example, they have these lands that are currently farmed with big signs up: "We're ready. Come. We can subdivide this in a second to put your industrial building up." There's an example.

Mr David Johnson: I'll ask one last question before my time runs out. You pointed out that there's quite a difference between the taxation for farm land and the taxation for, particularly, multifamily residential, a huge differential. Your position is that it should remain at the farm. Have you been in discussion with any of the municipalities, Mississauga or Brampton, that there's some other position in between that would make sense?

Ms Hamlin: It's hard to answer that because the Assessment Act applies to the whole province. It's very hard to just go into one municipality and strike a deal.

Mr David Johnson: And have a new category. So that's really a non-starter.

Ms Hamlin: I don't see it as being feasible.

Mr Sutherland: Thank you for your presentation. I must tell you that I'm very surprised to hear that this is going on in Mississauga, because we hear that Mississauga is probably the best-run municipality in all of Ontario. I believe we heard that this morning. Its reputation across the country is for that.

It's interesting that you bring up this issue, because there are serious implications here. One of the programs the province operates is the farm property tax rebate program. I think these particular changes would have some impact on that program as well. So I appreciate you doing that, and certainly we will undertake to make the Minister of Finance aware of this situation.

Ms Hamlin: Thank you very much.

Mrs Haslam: You talked about the GTA and you talked about urban centres, but I come from a rural riding, and the farm tax rebate is a big thing out there. It's not just big urban centres; it could be a small community in the middle of a township that has allowed itself, under an official plan, an area to be zoned for growth. That would put great stress on a farm in that situation. They may be looking at 20 years down the road, 30 years. But that farm tax rebate is very important to them. If this has an effect on that, boy, I want to reiterate that I certainly plan to bring it to attention, because I don't want to see anything touch that farm tax rebate. I know how important that is to some people in our rural areas.


Mr Kwinter: I have no problem with what you're proposing, although I'd like to suggest a compromise, because I think there's another problem. There's no doubt that the Ontario Municipal Board has consistently ruled it is what the property is being used for, not what its zoning is. I have no problem with that. Where I have a problem is that there are some municipalities in Ontario that have decided that if they built themselves an industrial park they would attract industry. What they've done is taken farm land that is being farmed, they've put in roads, water and sewers, and nothing's happened. So you've got a piece of land that is being assessed as farm land and it's had all this expensive infrastructure put in, and it would seem to me that somewhere along the line that has to be paid for, and it should be paid for and attributed to the property it was meant to service.

I can see that happening even in the greater Toronto area where a developer has bought some property and the long-term plan is that he is going to turn it into either industrial, commercial or residential but in the interim he would like to have a farm assessment. The municipality, looking at the development plan, says, "That's what's happening; we're going to put the facilities in there," so the land is serviced right to the property line, only for that property, and he's saying: "Well, it isn't convenient, or the market isn't ready for me. I'm going to just sit here with my farm assessment, and too bad for you."

I think there has to be some acknowledgement and recognition that that particular infrastructure was put in for the benefit of that particular piece of property and there's got to be some kind of accommodation so that the taxpayers get some kind of relief from doing that. Do you have any comments on that?

Ms Hamlin: Yes, I do. I'm not saying there's no middle ground, and we're always willing to talk; this is sometimes how things are resolved. But with respect to services, I must say that by and large those who develop land pay for the services. Before the Development Charges Act came in there were lot levies, and now we have development charges.

When a developer comes forward now, whether at plan of subdivision stage or at building permit stage, hefty fees are paid to cover all the costs of services for growth, because it's long been recognized, and I guess implemented through legislation in 1989, that growth has to pay its own way. These services are largely paid by those who are developing, and that's to the property line, and then inside the property where the roads and pipes and so on may be put in, those are all paid 100% by those who are developing. Nobody else pays any.

I say that, but I want to reiterate that I'm not saying there shouldn't be some middle ground achieved. I don't know what it is, and maybe this is the start of the discussions on it.

But the owner who's sitting on the lands that are serviced wishes he could sell them, wishes he could market them. There's no market right now. If you happen to be sitting on industrial lands right now, it's too bad, there are no takers. I don't know what you do in that situation, but I think it needs to be talked about.

Mr Kwinter: I agree, but the point I'm making is that unless the owner initiated the serviced development, the municipality wouldn't do it, and to have the municipality do it and then have the owner say to them, "Sorry, but it isn't convenient or the market isn't there, and it's too bad, but when we get around to it in two years, five years, 10 years, then we'll talk to you about paying our share," I think that is where the problem is. As I say, I have no problem at all with your presentation, but I think there's got to be an accommodation and a realization that that doesn't happen often but it happens enough that it has to be considered.

Ms Hamlin: I think it happens less often than you think. I think most people assume that the municipalities are putting up front a lot of services, and they don't. The services generally go in close to when the lands are going to be needed and they're almost always not paid for by the municipality; they're almost always paid for by the development community. But there may be instances I'm not aware of, and maybe when you get into more rural areas of the province it's different. My experience has largely been in the GTA.


The Chair: The next presentation is by the International Council of Shopping Centers, Canadian committee.

Mr Gordon Peck: Mr Chairman and members of the committee, I am Gordon Peck. I am a senior vice-president of J.J. Barnicke Ltd and the chairman of the Canadian committee of the International Council of Shopping Centers. With me today is Lorne Braithwaite, chief executive officer of Cambridge Shopping Centres Ltd. Mr Braithwaite is the incoming president of the International Council of Shopping Centers and will be the fifth Canadian to hold that position in the past 37 years.

Our written submission has been provided to the clerk and distributed. Instead of reading it to you, we propose instead to give you a condensed version of our message so that as much of our allotted time as possible is available for questions.

To give you some idea of our industry, Lorne and I were at the trustees' meeting in a warmer clime in the middle of January, in a hotel that was very difficult to find your way around. After a session, I got on an elevator, and there was a concierge taking around a couple of people who were just checking in. The lady asked the man what business he was in and he said, "I'm in finance." She said, "What kind of finance?" and he said, "I finance cattle." I turned to him and said: "You finance cattle? There are a lot of shopping centre people here who would like to meet you." He said, "I wouldn't finance a shopping centre." So we're in trouble in that regard.

The International Council of Shopping Centers is the trade association of the shopping centre industry. It's a non-profit organization with over 25,000 members worldwide. The Canadian committee of ICSC represents Canadian-based members of the association, whose members consist of shopping centre owners, operators, developers and managers in Canada, most of the retail chains, banks, financial institutions and lenders, as well as a broad range of consultants, lawyers, architects, leasing agents and public officials. Membership of ICSC in Canada now totals some 2,000 members.

The shopping centre industry in Canada produces $28 billion in annual retail sales and delivers $1.838 billion in sales tax to the province of Ontario, providing 366,000 jobs.

We are facing a tax and competitive crisis. It did not begin with the 1990 recession, but also is not easing as the provincial economy recovers. It has reached an acute stage. Property taxes are making our industry uncompetitive and untenable. We are the early warning system of a crisis that is building across the municipal sector of the province.

For our industry, property taxes are the single biggest immediate threat to financial wellbeing. They also pose a direct threat to the vitality of both downtown and suburban shopping areas. Property taxation is the single biggest variable item in determining lease costs to tenants. High tax costs for tenants result in reduced rental rates, reduced profitability and reduced opportunity for new development. No development equates to no additional jobs and a continuing revenue squeeze on government revenues and services delivered to the public.

Business property taxes and business occupancy taxes in Metro Toronto are much higher than elsewhere, especially in the neighbouring GTA municipalities. In our view, local property taxes contribute to continuing job loss throughout Ontario and are a barrier to the recovery of employment. Without action on property taxes, local businesses will continue to downsize or cease to operate, shifting the burden on to those businesses that remain risks, accelerating the problem of job loss.

We emphasize that the problems have their origin and solution at the provincial level of government. Key elements of property taxation are controlled by decisions of the provincial government, including assessment policy, subsidies for municipal services, and transfer payments for school funding and social assistance.

Property taxes matter. Business pays more property tax, combined with the related business occupancy tax, than any other tax under provincial jurisdiction. Occupancy costs for retail stores have far outstripped increased sales in Ontario in recent years. You'll find that chart on page 4 of the major submission you have.

Sales increased by only 22% over 1986, with occupancy costs rising 75%. In the drug industry where the chart shows sales went up 45% over six years, occupancy costs, however, have increased by 71%.


A regional shopping centre in many communities is the largest municipal taxpayer and in many communities is the largest employer. This is a job-related issue. It affects shopping centres in Simcoe, Belleville, Windsor or Goderich. These centres provide the startup jobs for teenagers who do part-time work to earn money or to help with their education costs, and also women who want some type of work while running the household. We all know people in all these categories. We must have a level playing field, otherwise job opportunities will shrink.

Because the situation in Metro Toronto is so serious, we were pleased by recent indications that the government of Ontario intends to move on those aspects of economic and social life in the GTA that militate against a level playing field and an efficient and competitive business environment. In our view, property tax reform should be fundamental to such an initiative.

I'd like to talk about methodology, which is on page 8 of the main brief. The shopping centres are the only form of real estate in which the owner's ability to generate revenue is directly related to a tenant's business operations. In essence, owners and tenants form an economic partnership unlike that experienced in other types of real estate. Typically, shopping centre tenants pay rent in two ways: They pay a base rent calculated with regard to anticipated sales levels, and an additional amount calculated as a percentage of sales above this base level. It is normal for property tax assessors to increase property tax liability on successful tenants who exceed base sales expectations. These successful tenants contribute a participation rent in addition to the base rent contracted in the lease. It is this total revenue stream which the assessors use as a basis for their valuation of a shopping centre.

I'll explain that. In Ottawa, we have a situation with which I am very familiar. A Marks and Spencer store of 11,000 square feet surrendered its lease because it could only generate $148 a square foot in sales. This space was taken over by The Gap, which, through good merchandising, advertising and customer relations, managed to produce $460 a square foot in the same space. This increase in sales, owing to a percentage clause in the lease, resulted in increased real estate taxes and increased business taxes, and of course they also pay corporate taxes federally and provincially. Although the piece of real estate remained the same, because he did all those business things which improved the business, he pays a premium all along the road for his success.

Surely the business component of the space should be taken out of the assessment. A standalone big-box retail superstore down the road, either leased or owned, doing $70 million to $100 million, does not have its business portion assessed. Here we need equity in the system.

From our perspective, the root of the problem is an entrenched system of property assessment which is skewed in favour of homeowners. The established inequities contribute to a willingness to continue to exact additional taxes from non-residential property owners. At the same time, they also make the search for solutions very difficult. As any elected official will tell you, the political reality is that commercial and industrial taxpayers don't vote. They do, however, create jobs.

Two additional contributors to out-of-control municipal taxes are education and social assistance costs. Again, while Metro Toronto reflects the worst case, these aspects of the problem are replicated province-wide. They're in the main brief.

The provincial government is central to any initiative to reduce the burden of property taxes on our industry. Our experience and that of many other business sectors indicates that to meet these objectives will involve three areas of provincial action: (1) educational finance reform; (2) reform of provincial property tax assessment policy; and (3) transferring local responsibility for social assistance funding to the province.

In the US, two years ago Michigan withdrew education tax from the property tax, and there are now 22 states going through some form of removing the education tax from property tax and funding it on some other basis.

Property tax reform doesn't have to be a zero-sum exercise. Removing at least some of the burden of education and social assistance costs from property taxes would allow a redistribution of shares at the same time as tax payments are reduced. This doesn't mean that the current tax bill would simply disappear. At the same time, it recognizes that property tax reform is part of a larger process of rebalancing government responsibility and tax powers to increase efficiency and reduce waste and duplication.

We believe these problems should be situated in the context of redrawing the pattern of fiscal responsibility and that the 1995 Ontario budget should address these issues and indicate the short-term relief measures the government of Ontario is taking pending a systemic solution. The budget is more than symbolic in this case: It is the central statement of the government's intention in dealing with what must be seen as a core set of economic issues.

Overall, we believe that high levels of local taxation reflect debt and deficit problems provincially and that these, in turn, reflect problems in the federal-provincial division of responsibilities and tax powers and revenues. Thus, one can say confidently that the definitive solution will reflect comprehensively redrawn public sector finances.

There is a number of ways in which the province could act to provide property tax relief. How we will get from point A to point B is not yet clear. Our industry is anxious to make our experience and expertise available to the province and to participate in efforts to address and resolve the issues we have outlined here. Part of working through these problems is to develop awareness that goes beyond individual homeowners' and companies' property tax bills and to build consensus around a solution that advances the interests of all Ontarians. ICSC is working to help create the solution.

Mr Sutherland: Thank you for your presentation. I note that in your more extensive presentation, rather than the summary you read into the record, you did acknowledge that the disentanglement process had been started in terms of dealing with the issue of social assistance costs. It is regrettable that that deal did not go forward, because I think in the long run it was in the best interests of municipalities in terms of having more predictable costs, given that with the different economic cycles, social assistance costs aren't as predictable whereas costs for improving roads etc can be far more predictable.

It's interesting that you noted the Michigan model, because they did take off the education portion. My understanding, though, is that they've also increased their sales tax. The people chose, I believe through a referendum process, that the sales tax would be the way of increasing those revenues. I'm not at this time advocating a sales tax increase in lieu of that, but given your business, retail sales, there's always a lot of concern about any increase in sales tax. Is it your assessment of the Michigan situation that the retailers, because of taking the education portion off, are still going to be better off as a result of going to sales tax from property tax?

Mr Peck: I understand that's the situation, yes. But let me throw a quantum leap at you. When I go to my doctor in Commerce Court and get a physical, he gets the same amount of money from OHIP as a doctor would in Kapuskasing, Windsor, Ottawa, wherever. Although there were a lot of people at the start of OHIP who didn't want any part of socialized medicine, nobody I've ever run into wants it stopped.


If everything in the health system is on a uniform basis and your educational department is coming up with set guidelines and standardization throughout the province, why isn't the education tax the same throughout the province?

Mr Sutherland: I think there's general agreement that the province probably should be taking on a larger share of the costs of education.

We had an interesting proposal earlier about simplifying property tax and property tax assessment. You've outlined that there are some concerns. Do you have any specific suggestions, other than the concept of market value that the system operates on now, that you think would give a greater degree of consistency and fairness to how property tax should be assessed?

Mr Peck: Lorne pays more taxes than I do in Ontario, so I'll let him remark.

Mr Lorne Braithwaite: I think the first thing I should say before trying to answer your question specifically is that Cambridge has 45 malls across the country and 42% of them are in Ontario, so we're very close to the Ontario situation. We have I think 10 municipalities in Ontario where the property taxes for the last 10 years have increased at more than double the rate of inflation over a 10-year period, and in some cases it's double-digit compound. We've gone back into those municipalities to the point where we've got aggressive right within the city and looked at budgets and how many police per thousand and this kind of stuff, a lot of the services we don't get in malls, and the answer we always get back is: "We're not the problem. It's the education portion that's the problem. We have no control over it."

The bottom line is that if that continues, the industry's toast. A lot of the major players are broke already. I'm not saying that one issue was the major contributor; it was part of many things, and I think you should be aware of that. The industry is broke, so these issues have to be addressed.

The market value assessment in terms of shopping malls is flawed, because you do not understand the way the industry has come together. I've been fortunate enough to work in the industry for almost 20 years, and you've got highly distorted rental rates that are nowhere near a reflection of the cost of putting together a building and in no way reflect equity participation, and yet, in spite of isolation, we're taking market value or the revenue that is being generated by the building. That will ultimately add a further blow to a very weakened industry that is in pretty sad shape right now.

We do have ideas. For example, there's been a lot of work done that we should do a 50-50 solution; in other words, a blending of the old system, which is not perfect either but it's basically founded on costs, with the new market value system. That represents a commonsense approach halfway in between that addresses some of the old ills but doesn't spend $1 billion to try to figure out all the puts and takes on the funny deals that are done with anchor department stores etc that have no reflection of market value.

Mr Sutherland: Well, the new definition of "common sense" isn't doing anything in the middle, that's for sure.

Mr Braithwaite: I'd like to make one last comment in that area also. Regional malls, and other malls as well, don't get a lot of the services. They don't get garbage pickup, each tenant in the mall; it's provided and paid for collectively by the malls themselves. There's a real discrepancy and a problem there as well that has to be addressed.

Mrs Caplan: Thank you for an excellent and thought-provoking presentation. Fairview Mall is in my riding and I'm very familiar with the problems that all the tenants of Fairview Mall are having.

I agree that education financing reform must be a priority if we're going to solve any of these problems, and I also agree with you that MVA as it has evolved and as we've seen it functioning is flawed. I have some concerns about what you do instead, because I don't think there are any quick or easy solutions to what the alternatives are. But what I've also seen, as well as it having an adverse impact on your sector, is the experience out of some of the major cities in the United States. Market value assessment has had a very negative impact in their large cities, emptying out the cores, and the cities have died.

I'm one whose community would benefit under market value reassessment and I have always been a proponent of tax fairness, at the same time not wanting to see anybody's taxes unfairly increased, but I have concerns that we mustn't proceed to do something that's going to have a detrimental effect on our quality of life in Metropolitan Toronto.

The point I'd like to make, having said that, as I said earlier today, is that whenever we talk about tax reform everybody assumes that means their taxes are going to go down. What we saw happen just recently to the merchants at Fairview was a reassessment and a reapportionment hitting them all at once that had an absolutely devastating effect, particularly on some of the small merchants who needed an immediate assist.

The problem is that even with the negotiated settlement that Fairview was able to come up with, whereby the large anchors gave back voluntarily to the small merchants some of the reapportionment, my constituents, the merchants in Fairview Mall, the small retailers, are suffering terribly. I'm wondering if you're aware of that situation and if you have any advice for the government and the Treasurer about something that could be done on an interim basis while this is sorted out so that we don't see stores closing and people losing their jobs.

Mr Peck: They should stop assessing the success of the small retailer. That's what's happening. They don't separate the real estate from the business portion of that piece of real estate.

Mrs Caplan: Could that be done as an interim step towards the kind of massive reform that --

Mr Peck: Very easily.

Mrs Caplan: Because you see the concern with all of this is that everyone says you have to do the whole thing at once. Well, that's unrealistic. What you need is an approach that will allow an interim step to be taken to relieve the immediate while you get to the medium- and longer-term overall solution for everyone.

Mr Peck: Your little merchant in Fairview Mall, because he does whatever he does and he becomes successful and he pays the landlord some percentage rent, his taxes go up but his piece of real estate hasn't changed. That person's business acumen made that successful, just like there are stores in Fairview Mall that really aren't successful. They never get up to the break-even point. If you go out where the big boxes are going, whether it's Aikenheads, Price Club or whoever, nobody's looking at what their volumes are and what the success is. That all flows into corporate headquarters and they have a flat tax. So the guy in Fairview Mall who's selling these glasses at $2 apiece -- and one up the street somewhere else, and he's probably paying a little extra tax to the municipality because he's on percentage, and the other guy who's selling $2 glasses doesn't pay any extra.

Mrs Caplan: It's a very serious problem for Fairview Mall and I know the other malls in Metropolitan Toronto. If something's not done, we're going to see job losses and people going out of business simply because of a complicated issue that nobody seems to be able to step in and resolve in a way that's going to allow those businesses to do what they do best, and that is create jobs and provide services to the people in the community.

Mr Braithwaite: We put forth the 50-50 solution, which I mentioned earlier, and we were sort of the third member of the stakeholder group that was dealing, which included the Fair Assessment Coalition Toronto and the major department stores and also Floyd Laughren's office. We were quite surprised and disappointed, if you will, that at the 11th hour an interim agreement was reached between the FACT people and the major department stores and Laughren's office, with the landlords left out of the discussion. I was quite surprised and taken aback, because the original commitment from the government and the other players was that it was a stakeholder group and those decisions would be made as a group.


Mrs Caplan: Well, thank you. I wasn't aware of that, and I know my merchants are saying to me that the deal hasn't helped them all that much and that they are --

Mr Braithwaite: It's not a long-term solution.

Mrs Caplan: It's not a long-term solution.

Mr Braithwaite: Not at all.

Mrs Caplan: Thank you.

Mr David Johnson: Thank you for your deputation as well. Shopping centres then would be a separate category in the Assessment Act, would they? Separate from other retail establishments?

Mr Braithwaite: Yes, I believe so. I think it's separate -- well, I'm not sure. No, I think it's all under the definition of retail.

Mr David Johnson: I just wondered, because you indicated that in terms of compiling the assessment there's a different approach taken in shopping centres as a similar store down the street. Isn't that what you said?

Mr Peck: They're not tied into a percentage rental cost. That sets it off.

Mr David Johnson: So that must put them in a different category in the Assessment Act then, I presume. Well, at any rate -- okay.

Mr Braithwaite: There are different rental rates. The other thing is, they end up in different zoned areas. You can get retail -- particularly now with the big boxes, you can get the big-box people somehow getting zoning in industrial areas and --

Mr David Johnson: I was involved in this recent shopping centre kerfuffle as well. The Don Mills Shopping Centre of course is in my riding. My understanding is that the assessment was based primarily on square footage, which emanated from about 1970, I think, and that the shopping centres were given some overall assessment --

Mr Braithwaite: Yes.

Mr David Johnson: -- and then within the shopping centre each store was apportioned a certain assessment. The anchors would be given the lion's share, of course, and then the smaller shops would be apportioned their assessment.

Mr Braithwaite: Yes, based on the old system it was cost-based, cost of assessment based on the old system.

Mr David Johnson: Cost and assessment. It wasn't based on the square footage? Oh, cost of square footage, all right.

Mr Braithwaite: Cost and square footage are one and the same thing.

Mr David Johnson: Then what happened is that the act was changed but not implemented, or not enforced, until it was appealed by one of the anchors, I think it was, and the way the act now reads and the way it's been enforced, I guess across most of the rest of the province of Ontario, it has a closer relationship to the rental value of the individual store. Is that the way it works?

Mr Braithwaite: That's correct.

Mr David Johnson: And then the rental is based on the volume of revenues, so that if your revenues --

Mr Braithwaite: Well, yes and no. The rental is based on the volume or revenues as far as the specialty, as far as the small tenants. As far as the anchors, not at all, and in many cases the rent that is being paid by the anchors is way below today's economic rent in terms of what it cost to build that particular store. Often what will happen is that when a developer puts together a retail project, he may give the anchor, or the department store, a big allowance to help him build it and charge him a very low rent, which doesn't reflect at all what it cost to put together the --

Mr David Johnson: Well, it certainly is another illustration of the problems we have with the assessment system in the province of Ontario. I know, having gone through the problems with the Don Mills merchants, that many of them are just hanging on by their fingernails.

Mr Braithwaite: Sure they are.

Mr David Johnson: The assessment increases, the tax increases, at that point four or five times, and they simply couldn't bear that. The anchors of course realize this too, because a shopping centre with two anchors, one on either end, and many vacant smaller shops up the middle is not a successful shopping centre.

Mr Braithwaite: The anchors are being cute as well. I mean, the landlords were left totally out of that final decision.

Mr David Johnson: Can you tell me, if the shopping centre has an overall assessment, and if somebody's assessment among the stores goes up, then does the total assessment of the shopping centre go up, or does somebody else's assessment go down to compensate?

Mr Braithwaite: It's different in different malls, depending on how the ownership and how the structure of the individual mall is set up. But typically what happens is you get a bill for the whole mall and then it is divided out among the different players. That's been the old methodology, if you will.

Mr David Johnson: So you're representing the owners, who would actually get the tax bill?

Mr Braithwaite: That's correct.

Mr David Johnson: And then you would divvy up the bill among yours?

Mr Braithwaite: That's right. We would take and show a calculation showing what the total was, the total dollar and what their square footage was over the total square footage, and that's their portion of the tax.

Mr David Johnson: I was just wondering, in the case where somebody's sales went up, as the case that you mentioned in Ottawa where the sales went up and you indicated that the assessment for that particular store went up --

Mr Braithwaite: In the new market value, that's correct.

Mr David Johnson: -- would the assessment of the whole shopping centre have gone up?

Mr Peck: The total would, but not for the adjoining stores. They would stay the way they were.

Mr David Johnson: The adjoining stores would stay the way they were, but the cumulation of all the assessments would have increased or would --

Mr Peck: Yes, there wouldn't be any go down because that went up.

Mr David Johnson: All right. Did you --

The Chair: Mr Johnson, I'm afraid we've run out of time. I hope that information has helped.

Mr David Johnson: Yes, thank you very much.

This ends presentations before the committee. We will tomorrow start writing our report, and I want to remind the committee members that the clerk has given to them a proposed report outline document and a summary of recommendations from February 7 to February 9, inclusive, for your perusal tonight. Tomorrow we'll start going over our recommendations.

Mr Sutherland: I was just wondering, related to the questions that were asked about the assessment of shopping centres, if we could have research table a brief outline of what the actual assessment process is. I think that would be helpful for everybody in terms of having a better understanding. And I guess also how that would compare to a regular retail shop, just a storefront on Main Street.

The Chair: Is that sufficient information? Okay. Thank you, Mr Sutherland. I'm sure everyone would appreciate that.

The committee adjourned at 1707.