Tuesday 24 August 1993

Community Economic Development Plan, Bill 40

Ontario Home Builders' Association

Phil McColeman, president

Ken Gonyou, member, land development committee

Ontario Alliance for Community Enrichment

David Walsh, chairperson

David Talbot, director

Community Business Centre, George Brown College Foundation

David Pell, executive director

Ontario Worker Co-op Federation

John Brouwer, executive director

Kensington Market Review Committee

Alan Schwam, spokesperson

Wendy Kwong, member

Ontario Association of Business Development Corporations

Diana Neziol, chairperson

Portcam International Inc; Prince Arthur Consulting Group

Shaun Reddington, principal, Prince Arthur Consulting

John Rosario, president, Portcam


*Chair / Président: Brown, Michael A. (Algoma-Manitoulin L)

*Vice-Chair / Vice-Président: Daigeler, Hans (Nepean L)

Arnott, Ted (Wellington PC)

Dadamo, George (Windsor-Sandwich ND)

Fletcher, Derek (Guelph ND)

*Grandmaître, Bernard (Ottawa East/-Est L)

*Johnson, David (Don Mills PC)

*Mammoliti, George (Yorkview ND)

Morrow, Mark (Wentworth East/-Est ND)

Sorbara, Gregory S. (York Centre L)

Wessenger, Paul (Simcoe Centre ND)

*White, Drummond (Durham Centre ND)

*In attendance / présents

Substitutions present/ Membres remplaçants présents:

Cordiano, Joseph (Lawrence L) for Mr Sorbara

Haeck, Christel (St Catharines-Brock ND) for Mr Morrow

Hope, Randy R. (Chatham-Kent ND) for Mr Dadamo

Jackson, Cameron (Burlington South/-Sud PC) for Mr Arnott

Jamison, Norm (Norfolk ND) for Mr Fletcher

Wiseman, Jim (Durham West/-Ouest ND) for Mr Wessenger

Also taking part / Autres participants et participantes:

Ministry of Municipal Affairs:

Loken, James, legal counsel

Melnyk, director, community development branch

White, Drummond, parliamentary assistant to the minister

Clerk / Greffier: Carrozza, Franco

Staff / Personnel: Anderson, Anne, research officer, Legislative Research Service


The committee met at 1004 in the Humber Room, Macdonald Block, Toronto.


Consideration of Bill 40, An Act to stimulate Economic Development through the Creation of Community Economic Development Corporations and through certain amendments to the Education Act, the Municipal Act, the Planning Act and the Parkway Belt Planning and Development Act / Loi visant à stimuler le développement économique grâce à la création de sociétés de développement économique communautaire et à certaines modifications apportées à la Loi sur l'éducation, à la Loi sur les municipalités, à la Loi sur l'aménagement du territoire et à la Loi sur la planification et l'aménagement d'une ceinture de promenade.

Mr Michael A. Brown (Algoma-Manitoulin): Good morning. The business before the committee this morning is to hear public input on Bill 40, the Community Economic Development Act.


The Chair: This morning, our first presentation will come from the Ontario Home Builders' Association, Mr Ward and Mr Gonyou. Good morning. You've been allocated one half-hour by the committee for your presentation. The members always appreciate some time to discuss your presentation following it. You should introduce yourselves for the purposes of our Hansard recording and then you may begin.

Mr Phil McColeman: First of all, my name is Phil McColeman and I'm the president of the Ontario Home Builders' Association. Mr Ward is not with me; Ken Gonyou is with me, just for the record.

I am a small builder from the Brantford area. I own a small company that employs nine people. Ken is a builder-developer from St Catharines and is a member of the OHBA land development committee.

I am going to speak for a couple of minutes to explain OHBA's interest in the amendments to the Planning Act that are contained in Bill 40. Then Ken will take over and go into more detail on some of the proposals. Our remarks will take a little over 10 minutes and then we'd like to answer any questions you have.

At the outset, I want to make it very clear that we are only going to comment on the proposed amendments to the Planning Act. This covers section 49 to 66 of Bill 40.

I probably do not need to spend a lot of time going over the facts and figures about the state of the housing industry. The Ontario housing market has been depressed for four years. Last year saw a bit of improvement, but starts this year will slip below 50,000 and probably go as low as 45,000 starts. As you can appreciate, this has had a tremendous human toll. Over 100,000 jobs have been lost in the home building industry. But the depth and length of this depression makes this more than one of those cycles where jobs are temporarily lost. The industry has been weakened to the point where recovery cannot be something that is taken for granted.

The downsizing of companies that have stayed in business has scattered a lot of talent and expertise. The inventory of serviced lots and draft-plan-approved subdivisions has been used up and is not being replaced and a combination of environmental and economic risk is making financing for land development more difficult to obtain.

In short, even if demand was to suddenly return tomorrow, the industry infrastructure is not in place to allow it to respond. This is the context in which we are looking at proposed amendments to the Planning Act.

A little over a year ago, the Honourable Dave Cooke, who was the Minister of Municipal Affairs, described the approvals process in the following terms: "The province's approval process does not work. It is too long and too confusing. And it is costing us jobs."

We desperately need a streamlined and efficient process that will enable the industry to respond quickly to changes in the market, and we believe the amendments that are being proposed in Bill 40 point us in the right direction. I'll pass it over to Ken, who will now speak to some of the specific amendments.

Mr Ken Gonyou: Good morning. I'm Ken Gonyou. I'm the development coordinator at Landcorp Ontario Ltd in St Catharines. We're a builder and land development company. We're a small company, but we're a pretty active company.

Before I began working with Landcorp six years ago, I spent 13 years in the public sector, where I was a planner for the city of St Catharines and the city of Welland, and before that, York region. So I've been on both sides of the fence on these types of issues.

Last fall, the Ontario Home Builders' Association worked with the provincial facilitator and the Urban Development Institute to organize a series of one-day workshops to identify best practices and planning in the approval process. These were the Building on Success seminars.

One of the suggestions that came out of these seminars was the idea of a more complete application form. One of the things that definitely slows down the system is the quality of the applications that are in the process. There are a lot of applications out there that aren't going anywhere but still use up valuable resources and everybody's time. The concept of a complete application form, if it could be described, might avoid this source of delay and it would mean fewer false starts because a study or information that perhaps should have been submitted at the beginning of the process is missing. That's the theory and that's one we support.

A draft of the complete application is being prepared and we've had a chance to take a look at it. I think it's fair to say that as good as the idea sounds in theory, it'll be somewhat difficult to apply in practice.

A significant problem is that some information requirements need to be phased. Many questions on the application form cannot be answered until you have answers to earlier questions at previous stages of the review process, and the answers to these earlier questions may need to be confirmed by the agencies that are reviewing your application.

For instance, the application forms that are proposed are asking for areas of cut and fill, storm water management, sewer and water capacity, detention ponds, these types of details at the beginning of the process, and all these technical matters might have to be revised later on, once the public gets involved in the process and wants to change the design of the development.


A second concern is that not all types of information are relevant for all types of proposed developments. Therefore, if a proponent has to justify not including a specific study or certain information with his application form, this might actually be as onerous as actually the study itself.

A third problem is that the information does not always exist or is not always reasonably accessible in the early stages of the development process planning. There are a lot of agencies and staff that perhaps aren't willing to dig out a lot of data and commit a lot of time to finding information that might have to be revised three or four times before they actually get down to the final approval of the development.

We all want to be able to say that the application has been carefully thought through before it's submitted. For instance, all municipalities require preliminary discussions before you submit your application and before they'll accept it. As applicants, we don't want review resources wasted on an exercise in futility.

But the sense of completeness that is represented in the draft application form is turning the draft approval and registration concept on its head. Some are putting the cart before the horse. Under the current system, an application is completed by answering general questions and filling in bits of information over time if the information is needed. When the general questions have been answered and the public is satisfied with the development, a subdivision gets draft approval, and then when all the specific details are worked out in the final plan and subdivision agreement, the subdivision gets registered. Therefore, the current system has a number of steps. It has a preliminary discussion phase to provide general information and the public gets involved, the development gets draft approval and then you get into the technical design details. After that, the plan gets registered.

The complete application, as it's currently drafted, is trying to get all the information that will ever be required and bring it together at the very beginning. Some people have correctly pointed out that the application is not calling for information that is not already required at one point or another during the development review process. But the idea of asking for all the information at once, at the beginning, is different and no one knows if it's realistic or a waste of time and money.

Earlier this year, the provincial facilitator's office set up a pilot project in three cities to study the effectiveness of mediation in cases going to the Ontario Municipal Board. We believe the complete application idea calls for a similar type of pilot project.

Before the complete application becomes a standard practice and before information for a complete application is prescribed in regulations, we strongly urge that the complete application form be put in the field, in perhaps one or two municipalities, on a trial basis first.

As Phil pointed out, serviced lots and draft-plan-approved subdivisions are in short supply. In many cases, the land that's currently available for development in the subdivision designs, and some already in place, isn't really suited to today's market. Neither the province nor our industry can afford to be hamstrung by a well-intentioned regulation that does not work in practice.

I'd like to thank you for your attention, and Phil and I would be pleased to answer any questions you might have.

Mr Bernard Grandmaître (Ottawa East): You mentioned that you've had a few seminars with the provincial facilitator, Mr Martin. Did you have a chance to appear before the John Sewell commission?

Mr McColeman: Yes, we did, many times.

Mr Grandmaître: Tell me about your recommendations to Mr Sewell.

Mr McColeman: To take the time to give you our full submission and all the details of it, we'd be here for a long, long time. Suffice it to say that in relation to the two people you've mentioned, Dale Martin's work and John Sewell's work, we've been very supportive of the work of Dale Martin because he has improved the approvals process and he's got things on stream in a much more timely fashion than has been previously experienced.

Mr Sewell's work went well beyond streamlining the approvals process, which we originally thought it was intended to do. Mr Sewell's vision of how we would develop and live in the province of Ontario is not one that our association has totally accepted or agreed upon. There are a lot of elements in Mr Sewell's report that we have commented on publicly that we did not agree with. As I said, if we were to spend time on each of those areas, it's not the place to do that, because we just don't have the time.

Mr Grandmaître: You talked about the approval process, and I agree with you that it does need to be streamlined. You also talked about the lack of serviced lots in the province of Ontario. This is why you people, like other developers, are stalled at the present time. People are losing jobs for the simple reason that very little construction is happening in the province of Ontario. Are you telling us that municipal governments should be acquiring more land and should service this land? Is this the message you're driving at?

Mr McColeman: I'd say absolutely not, but I'll let Ken respond to that.

Mr Gonyou: I think it's not a matter of land being provided for us; it's more of a matter of getting through the approval process, which in a lot of cases takes more than two or three years. For instance, in the region of Niagara, they have a sort of in-house policy where when they receive an application they say that they want to get that application out, get it circulated to the agencies for comment and get their report to their committee in council within six months. I've got a report from the regional planning department and I've reviewed a lot of the statistics in the report, and what I'm finding is that there are numerous subdivisions.

If I can just look at a statistic here for a second, out of the circulated draft plans on the circulation list right now, 31 of them in the region of Niagara are under four years, just circulated. This is sending them out to agencies and saying, "Send your comments in to us so we can prepare our reports." Out of the 31 subdivisions that are under the four-year process, the average age of the subdivision in circulation is 1.86 years. So it's taking over a year and a half just to get the comments from the agencies so that they can prepare the report to council.

One of the submissions I personally made to the Sewell commission was that one of the ways to really speed up the process is to put a time limit on the circulation process. When you send the plans out to the agencies for comment, they should be able to get their comments back within a specified time frame, not kind of let it sit on the corner of somebody's desk for a number of years. Then, when the comments finally do come in, sometimes it's only, "We have no objection," and we're scratching our heads saying, "Why did it take so long to say, `No objection'?"

Those are the types of things that we find are really slowing the process. We can always get our hands on acquiring the right lands and dealing with the local planners and the regional planners. It's the commenting agencies that seem to be tying us up.


Mr Hans Daigeler (Nepean): I appreciate you coming before the committee because, frankly, that part of the bill, trying to do some streamlining, I guess, of the OMB process, I think is probably a very good one. I'm not quite sure how this section got into Bill 40, because I have a bit of a hard time seeing how this relates to the other aspects of Bill 40, but never mind, that's not a question to you.

I'm wondering, though, where these particular changes that are being made with regard to the OMB process, that are being made right now, are they're coming from. If you have an opportunity to make changes to the process, would you say these are the changes that we need to make right now and, yes, that's the one where we should start? In other words, you seem to say in your presentation, "Yes, we generally support what's happening here," but you really didn't say very much. Is that your top priority? Is that where government should act if it does act right now?

Mr McColeman: I believe yes, definitely. To respond, we, as I mentioned, have supported Dale Martin's work which is a very, I would call it, pragmatic approach to making things happen now so that we can get our employees back to work so we can start building houses that suit this market condition.

There are definitely some streamlining changes, to answer your question, that have resulted from his work from the provincial facilitator's office, and we've encouraged him and urged him to make pragmatic and practical changes that work in the field. That's what he's been concentrating on, pulling all the various interest groups in government -- over 30 people who would comment on development applications -- together and saying: "Here, do you like it or don't you? Say yes or no, but let's get a decision."

So yes, that's what we've encouraged and actually consulted and worked very diligently with him in helping him get through some of the changes that are being proposed.

Mr Daigeler: Do you see that reflected in the bill before us?

Mr McColeman: Yes.

Mr David Johnson (Don Mills): Another part of the bill that's before us today would allow the minister to charge for fees for planning applications submitted to the province for approval. I wonder if you have any comment on that?

It says in the brief that we had yesterday, at the bottom -- the pages aren't numbered but at the bottom of the second to last page -- I don't know if you got the brief or not, maybe not -- it says that, "Some of the applications under consideration for a fee are plans of subdivision, condominium, severances, zoning orders, part lot control, validation of title and power of sale," for example.

Mr Gonyou: I'm not sure how charging a fee would speed up the process other than you might weed out some of the speculators who are just sort of getting a plan approved and then flipping it off to someone at a later date.

The real developers that have applications in submission, if they submit a fee, they're going to be really pushing to make sure that the application gets approved within a reasonable time frame. If there a fee was to be charged, I would like to know that if we're going to pay a large fee for an application, we would have some guarantee of when the application is going to be approved rather than have the fee tied up for five years.

Mr David Johnson: My suspicion is that it isn't necessarily to speed up the process; I think it's just to extract money. That is my guess.

Mr McColeman: Can I comment from another angle or another context, and that is the health of the building industry, the residential building industry as I know it and represent it for over 4,000 member companies is the supply of affordable land on which we can build. Every time a fee is added or a new levy comes into place, as you know, our personal challenge is in association to the levy system that exists today. It is ongoing and will continue to go forward and we've had some successes.

What we are doing is we're fighting for the consumers of the province because it translates into the affordability issue of the house. If you add on more fees, you can just expect the lineal foot of a building lot to increase because any kind of speculative profit no longer exists anywhere on any type of land that's being developed today. It's estimated for that the cost of developing a building lot today, the tax burden is somewhere in the 30% range of the final price of the lot and could be higher depending on the time of carrying it, if it's three to five years, to get it developed.

Mr Cameron Jackson (Burlington South): Or the municipality.

Mr McColeman: Exactly.

Mr David Johnson: The preliminary to the comments on the planning amendments indicates that: "The proposals are a positive step toward further improvements in the planning system. They are consistent with the recommendations submitted recently by the Commission on Planning and Development Reform in Ontario, known as the Sewell commission." Mr Jackson has suggested that Mr Sewell come to this committee to speak to that issue, but we're wondering, from your perspective -- a little concerned because we know that your industry is not totally in agreement with the Sewell commission.

Is there anything else, other than this form, that would require all of the information up front which you think may not be practical? Is there anything else in here that has sort of come out of the Sewell commission that you have some concerns about?

Mr McColeman: Our major issues of concern with Sewell are not in this document, not in this streamlining. This is geared towards the streamlining issues, not the philosophical issues Mr Sewell presents.

Having said that, our disagreements with John Sewell relate more to his vision of how business and communities and the public sector would work together, his vision of where we would live and how we would live, so it's not specifically -- we think that the streamlining things are more oriented to Dale Martin's work and not John Sewell's work.

Mr David Johnson: His vision, I think, is very much of a centralized community and, I've heard some builders say, would make it very difficult to build a single-family house in rural areas, I suppose.

Mr McColeman: It would make it very difficult to build, yes. His vision is very much intensification --

Mr David Johnson: Intensification.

Mr McColeman: -- and a totally different landscape of housing than we currently have in the province.

Mr David Johnson: What sort of wait time do you have at the Ontario Municipal Board now if you take an application? What are we looking at?

Mr Gonyou: I've currently made a submission to the Ontario Municipal Board to review a subdivision development that we're working on. I got the application in in April or May. I've made a number of submissions since and I still don't have any idea at all, and this is a phone call a week, when the hearing date will be. I was told, "Call me back in a couple of months and I might have some more information for you." This is to accommodate an affordable housing project and we have the support of the provincial facilitator and the province's housing program.

Mr David Johnson: I've heard that the waiting time can be well over a year, that it can be a year and a half, that type of thing.

Mr Gonyou: It's more than a year if it's a non-affordable housing situation. If it's an affordable housing situation, you might slip in there within a year.

Mr David Johnson: Has your industry suggested anything particularly geared at the Ontario Municipal Board that would speed up the process? I know you've suggested a time limit in terms of seeking the input from various agencies. That sounds like a good one to me. This is gearing at the Ontario Municipal Board.

Mr Gonyou: I can't really say that we have, other than it just seems to be spreading it too thin or there's not enough people in the process to deal with it or the process is too cumbersome. There's just too much information being provided to the board in order to make a reasonable decision.

Mr David Johnson: Do you want to take a question here?

Mr Jackson: Could I ask just briefly, then -- I know that your brief focuses rather specifically on the Planning Act amendments. Have you looked at the broader issues of the community development corporations, the opportunities for your industry to be recipients of financial support for starting up businesses and for doing certain capital works within the community? Has your association examined the broader Bill 40 for its implications to your membership?

Mr McColeman: No.

Ms Christel Haeck (St Catharines-Brock): Welcome. I'm looking at page 3 of your submission. You mention in the first paragraph that currently in preparing a plan for draft approval, you basically only have some general questions to answer and you feel that getting into having the complete plan available for approval almost at the outset would present some problems. That's how I read that. Am I correct?


Mr McColeman: Yes.

Ms Haeck: Okay. One of the concerns I've heard from some of the resident groups in St Catharines, which Mr Gonyou obviously knows rather well -- they have a concern and I think some of it's mirrored in what Mr Sewell has also brought forward, which is that residents do like to have a sense of what project they are dealing with. It's probably one of the issues why Mr Gonyou's at the OMB regarding a housing project, even if it is an affordable one. The people would like to have a better idea of what it is that they are actually dealing with through the whole development process.

Where is this off? In some way the residents and the people in the city, the people who are going to be living next to it, would like to know that what is a conceptual drawing, what they react to, is going to be pretty much what in fact is going to be on the site when it's over and that, as a result of a range of change orders or as a result of a range of other concerns that you as a developer or a builder may go through, the plan's going to look considerably different at the end. Where is this off in that?

Mr Gonyou: When a draft plan is submitted, it's generally a pretty basic drawing. It shows you where the roads are. It shows you what types of lots are going to be where, where the parkland will be. The public at that point is just getting a general idea of what's going to be where and where the roads are going and where the traffic is going. The application form that they're coming up with now is asking for all the specific details of design, which the public really doesn't care that much about. They don't care about what size pipes are under the road.

Ms Haeck: I don't know. I've met a few people who are really interested.

Mr Jim Wiseman (Durham West): I'd be interested in that if it was going on in my subdivision.

Mr Gonyou: It's a matter of -- for instance, Meadowood Estates, which is a subdivision that I submitted in 1990 and I still don't have a draft approval yet. We submitted the plan and went all the way down to the draft approval stage and there was a woodlot on the site and the public decided: "We like that woodlot. We want it kept for parkland." So we redesigned the subdivision around the woodlot. Then, once we redesigned the subdivision around the woodlot, the whole development had to be recirculated again. The whole game started all over again. So we're back to step one.

Then that plan was to the staff's satisfaction. The city planners and engineers and the people at the region liked the plan, so we went back to the public and they didn't like where one of the roads was intersecting, so we had to go back and play with that. Once we'd played with that second plan, then the local engineer says: "We have a problem with traffic design. We want to reroute the road again." So we're on our third redesign.

Now, if we had given all this technical information -- we went and we had storm-water studies, cut-and-fills and all the technical information -- we would have had to throw that information out three times and bring it all forward again. So this is like putting out too much information at the beginning, before we actually even know what the general design of the neighbourhood's going to be. Which one is the public going to want? Then we'll get into the technical issues.

Ms Haeck: We could be very specific about St Catharines or Niagara. There's been a real concern about tree removal. I think you understand that as a result of Mountainview Homes going in and basically clearing -- I've forgotten -- about a 10-acre site out of Niagara Falls, there was a furore that resulted in the community, because nobody knew that those trees were coming down. As a result of some school board building and removing all the trees, there's been an awful lot of concern. I think it's one of the things people do tend to react to.

I live very close to Welland Avenue and there was an awful lot of concern about tree removal there for widening of Welland Avenue. Because the neighbours got involved and mediated with the regional municipality as well as the city -- 1,000 letters went in to the city of St Catharines, saying: "Look, we want those trees. We want to preserve an older neighbourhood." It is a mixed community, as you probably recognize. The downtown core where I live is older buildings closer together whereas, yes, the suburbs are spread out.

People have some concerns about what is coming into their neighbourhood. The conceptual drawing, which you say they may not sort of react to, in fact is what they believe is going to go there. When the plan changes over two or three years, they have some serious concerns. I think that just from my discussions with either my neighbours or some of the resident associations, they would like to have a clearer understanding of what your ideas are. I had an earlier discussion with the planners and with the municipalities so that their concerns are represented.

I understand that going around three and four or five times with a plan is costly, time-consuming and probably not the most exciting thing to do. But, by the same token, in fact the discussions with the community, the people who are going to live around this on a more regular basis, may in fact shorten the process. In fact, despite some other concerns I personally have with the Sewell commission report, that's one section that I strongly support.

Mr McColeman: I agree with you totally that you have to determine where the sawoff point is between being pragmatic and being, I suppose, controlled by the special interests of the builder or the community or whatever. On our submission, we have appendix 2, and appendix 2 shows you the practical numbers of housing starts and how our industry has been affected.

I agree with you that interests have to be protected, but I also agree with you that people have to have jobs in our industry and people should be working. Where there are situations -- what I just heard -- three and four times of having to redesign, the amount of time taken to do that, there has to be a line drawn and perhaps deadlines given to say these decisions must be made by this time in order that we can get this industry back to work and get functioning, because it can be the leader of an economic renewal as it has in the past.

Ms Haeck: The one question that came to mind as Mr Gonyou was going on about the time frame that the agencies took to respond, I wanted to raise the question of which agency. Are we talking, say, the Ministry of Natural Resources or the conservation authority when you're talking about floodplains, or what agencies are you talking about? You're not at this point usually going to the residents' groups to ask for their comments; it has to be some agency within officialdom that may or may not be responding as quickly as you would like.

Having been involved with a housing project in west St Catharines, I was very surprised at the remarks from parks and recreation in St Catharines on some plantings that we were planning to undertake. So where are the holdups? Is it at the municipal sector or is it at the region? Is it within the ministries that you have to deal with?

Mr Gonyou: It's generally the ministries. If I can just go back to the subdivision that I was highlighting, that we're into three years and still before draft approval. We didn't really have trouble with the public. We've been the type of company, our particular company, we go to the public first in a lot of cases to find out generally what we want and we have never really had problems with the public in relation to our developments. It's more of the technical issues with regard to agency comments. In other words, the public might like the plan, but the technocrats or the provincial agencies might not.

The Ministry of Ag and Food has really been a slow agency for commenting. There are only two people that seem to be commenting on every subdivision in southern Ontario. The Ministry of Natural Resources, we have a great rapport with it, likewise with the conservation authorities, but they don't seem to have the resources staffwise to be able to comment on the applications within the time frame. There's just too much information to go through and there's a ton of overlapping: the conservation authority, the Ministry of Natural Resources.

Ms Haeck: I guess that's one of those things that is being addressed, yes.

Mr Gonyou: They're both doing the same thing.

Mr George Mammoliti (Yorkview): Who has the most power?

Mr Jackson: Ministry of Agriculture.

Mr Gonyou: You're right there. The conservation authority is a little more technical.

Mr Jackson: They'll stop you dead in your tracks.

The Chair: Thank you, gentlemen, for appearing this morning. I'm sure the committee will take your comments into consideration when we do the clause-by-clause later next week.



The Chair: Our next presentation is from the Ontario Alliance for Community Enrichment, Mr Walsh.

Mr David Walsh: I have David Talbot with me.

The Chair: Good morning, gentlemen. You have been allocated one half-hour for your presentation. I believe the clerk's distributing it as we speak. The committee always appreciates some time to ask questions and to clarify some matters. You may begin by introducing yourself, your organization and then start.

Mr Walsh: I'm David Walsh, president of Realco Property Ltd. I have with me David Talbot, who can introduce himself later. We're both businessmen and we're interested in supporting community economic development. We're here to speak to some of the ideas around Bill 40. I'm particularly interested in speaking to the capacity-building side of it. There's the finance side and the capacity-building or community development.

I've had a long-standing interest myself in community economic development. I've been involved on the board of directors of about six non-profit housing groups here in the Metro area as a volunteer board member. Non-profit housing is a form of community economic development. If you want to see an example, these are business corporations that have fairly high budgets and employ people and run businesses.

With the problems we have around jobs today, the problems have really shifted to employment as a major issue that our community has to deal with. I've been working with a large number of people from different sectors of the community and trying to see how people from the business sector might support these efforts around job creation.

Back in 1991, we had a meeting at Ryerson with about 50 people from foundations and business and different groups active in community economic development like the community business centre. We made a presentation to the Ontario cabinet at that time. It's outlined here. It's about five pages. It outlines different capacity-building that needs to be done. Unfortunately, we've never had a response to this proposal that we made in 1991 in November which was, as I say, on the basis of two consultations with foundations and business people and many people from the community.

Subsequent to that, just this past May we held a conference with 48 workshops and 150 speakers, just to give people an idea of the interest in community economic development. We left a few copies of this with Lynn to distribute to members who are interested. During this conference, we published three daily newspapers called Our Local Economy just telling what was going on. I've left one copy with you. I've got copies of the others if you're interested. Also, we published three issues of this newsletter called Community Economics, which gives examples of community economic development throughout Ontario.

We've approached the Ontario government on numerous occasions to ask for support for these type of activities and we did get some support for the conference in May. But generally, the response has been that community economic development really doesn't fit within any ministry and we have to wait till this interministerial committee is set up and until this type of legislation is approved before we can do anything.

I think we've missed a real opportunity in Ontario, because we've got some good legislation coming forward in the way of Bill 40 for community loans, but a lot of the capacity-building and connecting business expertise with community businesses hasn't got going the way it should have, if there had been more support earlier. It's sort of a chicken-and-egg situation, with the government saying, "Wait till we have this legislation passed and then we'll look at capacity-building." But we should have really been looking at it more seriously two years ago and following up on the proposals that were made at that time.

In any event, we're here in 1993 and we've got to make the best use of what we have. One of the issues that we're particularly concerned about is where our public money is being directed. We read in the paper about training moneys being directed to train people for race horses and we see casinos coming on the horizon and wonder how much public training money will be involved there.

What our group is particularly interested in are services in the community that directly benefit people. Just to give you an example, we have a tremendous seniors population coming on our horizon, and there's really a need to see how different sectors from the community can be involved in these types of care services. It's a real area where community economic development could have a strong impact in the way that, as I say, non-profit housing has been a type of community economic development. We've really improved the housing situation for many people who are affected by falling incomes over the last five years.

I would urge the committee to see that public dollars are spent in ways that benefit the community, in caring services and job creation that is meaningful. There are many opportunities for meaningful job creation, so why do we need to spend it on other areas where the private sector is more interested or is out to make a profit? We should be giving concern to where public dollars are going, and that's what our group is really interested in.

Also, I think there's a need to draw on community expertise. There are a lot of business people like ourselves. We've both been volunteering tremendous hours for this conference. As I say, I was program director of this conference, and lining up 150 speakers takes a fair amount of time. We had one staff person for it, but we had over 75 volunteers, and this is what community economic development is. It's people in the community getting together and working towards a vision of a strong local economy that is self-reliant, that meets community needs.

As I say, there are many other business people who are interested, if we can build these partnerships. Bill 40 is a step in that direction with the community loan program. But on the community loan program, I'll let David Talbot speak to it more. He's on the board, for instance, of the Canadian Industrial Innovation Centre in Waterloo, which looks at 1,000 new inventions each year. This type of expertise should be used in looking at a community loan program, and also there seems to be a tremendous need within the whole community economic development sector for a facilitation. We have a lot of groups that don't have a lot of business expertise, but with some facilitation we can bring different people from different sectors to work together.

One question is going to be, when you get these community loan programs set up, what criteria do you use to decide who's going to get the money? We should be looking ahead at those types of obstacles, those types of questions, right now and planning for them rather than realizing a year or 18 months down the road that they are a problem and only beginning to look at it then. I've raised this with people at the ministry and I hope that they'll look at it, but I think they're waiting for your committee to move on some of this legislation and get the ball rolling.

Mr David Talbot: Good morning. My name is David Talbot. I am on the board of directors of the Canadian Industrial Innovation Centre in Waterloo. I am currently serving on the Toronto interim credit facility, which I think is a forerunner of the loan programs that are being set up under Bill 40. I'm also chairman of the Entrepreneur Centre and I run my own consulting practice and have spent most of my 30-year career in business. I'm speaking to you this morning with several hats on, but most of all as a citizen of Ontario with an interest in job creation.


Job creation is the focus and has been the focus of the Canadian Industrial Innovation Centre in Waterloo for 15 years. We're federally funded, and as David mentioned, we screen 5,000 ideas a year and fund about 1,000 inventors from the point of view that we look at the market viability of these inventions.

As you probably know, inventions in one generation create jobs in the next. So we're looking at a rather long-term phenomenon. Perhaps the foremost example would be the telephone, invented by Alexander Graham Bell over 100 years ago. If you look around the world today, you'll find virtually millions of people working in related industries.

Alexander Graham Bell was in Toronto in the 1870s and was unable to raise equity capital for his invention.

Mr Joseph Cordiano (Lawrence): Some things never change.

Mr Talbot: Some things never change, so the story is repeated many times.

The then owner and publisher of the Globe and Mail, George Brown, had taken out a six-month investment option. He had the exclusive world distribution rights for the telephone for about six months in the 1870s, and he let his option expire. Bell could not raise the money in Toronto, hightailed it down to Boston, which is where his father-in-law was, and raised all the equity capital and began to manufacture these new devices and ship them into Canada, where we tripled the import duty to protect the jobs of messengers.

Mr Jackson: Typical Canadian response.

Mr Talbot: Unfortunately it's a typical response, but there's a lesson there. Although it's easy to be critical and say yes, we've been doing this for years and our best inventions end up in the hands of other countries, there is an opportunity for us to do something, except that we're all sort of swimming around in the same sinking row-boat without having the new paradigm that everyone's looking for, and I don't mean two 10-cent pieces.

The message that I want to bring to you this morning is the result of some work that we've done at the innovation centre, and it has to do with our understanding of how things work in economics. It's something that's not currently taught. It took us many years of research and for me personally it was sort of a eureka experience when I first discovered this.

Insurance companies that are insuring human beings were created about 100 years ago and exist to this day, and have outlived four generations of insured human beings, yet they live on. The reason they've been able to do that is the discovery just about 100 years ago of the life expectancy of human beings, that human beings are born, live and die according to mathematical regularity, which means it's predictable. It's called the normal curve, or the mortality curve. All the insurance companies do is just make sure that their premium flow, their income, is just slightly higher than their outlay. As a result, the insurance corporations have now lasted well over four if not five generations.

We discovered at the innovation centre some work done in the 1960s by an American by the name of Joseph Steindl, who recognized an equally significant phenomenon. His work has gone I think unnoticed. He discovered that businesses are born, live and die according to the same mathematical regularity that human beings are born, live and die, except their life expectancy is a bit shorter -- quite a bit shorter -- and as a result business, small business in particular, where jobs are created, look like too high a risk. But there is a premium that can be calculated.

I guess the foremost message I want to draw to your attention this morning is the possibility of a new industry, first of all here in Ontario but perhaps a new industry worldwide, and it's called the business life insurance industry. If businesses are born, live and die according to mathematical regularity, then it should be possible for actuaries, the same way they did for human life insurance, to set up a scheme whereby business life can be insured. What that might very well do is free government from having to spend all the money that goes into guarantees, like the guarantees behind Bill 40, which I think is an excellent program although it's rather small but a good start in the right direction.

What I'd like to leave with you is just that thought or that suggestion that it may be possible to form a study group, with the universities involved, with the banks and perhaps insurance companies, to put a pool of funds together, a small pool, to investigate this new paradigm. I think it's quite interesting from an intellectual point of view, but I'm not an intellectual. I'm an engineer by training, and I'm much more interested in the practicality of putting Ontarians back to work.

If it is possible and if the model I've cited is in fact viable from a mathematical and from a business point of view, we may end up forming here in Ontario the first business life insurance system in the world, which means that we would have a very large pool of funds available to all individuals who wish to form a company, a business. We would therefore be able to insure the loans, not just guarantee them, we would be able to insure investments and the pool of insurance funds would be self-sustaining.

Now, the premium may be high. I know the Small Business Loans Act, which is administered federally, had something to the effect of a 4% or 5% write-off where the loans are backed usually by equity or by real estate or assets. It may indeed be that this business life insurance program needs a premium much higher, but it would be a transaction-based premium. If someone wanted, for instance, $10,000 as an equity investment or even as a loan, it might require a 20% premium, which means that they might get $8,000 and $2,000 would go into a self-sustaining insurance fund. I pick these numbers arbitrarily.

There is some research required. Steindl's work is over 20 years old and needs to be updated and perhaps studied in the context of the Ontario economy. But it looks to me as if it makes sense and is something that might be worthwhile for this committee to initiate, and I would be happy to participate in that. I have talked to a couple of the senior vice-presidents of two of Canada's major banks, who've also expressed an interest. In fact I've never seen bankers quite so interested in a concept.

Mr Jackson: Sharing the risk.

Mr Talbot: Sharing risk. In fact it's riskless and of course the bank's interest in the insurance industry becomes even more profound on the basis of that.

The Chair: Thank you. Mr Johnson or Mr Jackson.

Mr David Johnson: Well, perhaps to -- is it Mr Baker?

Mr Walsh: Walsh.

Mr David Johnson: Mr Walsh, okay. I wasn't here when you started. My apologies. Mr Walsh, you indicated during your comments a thought which I fully concur with, which is that we should decide up front on the criteria and who gets the money. We should decide now, we shouldn't wait until all the applications come in and then try to sort it out at that point. I wondered if you had any particular guidance you could give us in terms of your thoughts on the criteria.

Mr Walsh: I'm not sure that we could say very much in a couple of minutes here, but, as I say, in this particular conference, for instance, we had 48 workshops. There are a great many areas where funding is required, and I don't think we should take the prerogative away from local communities. It will be very interested communities getting involved in the loan program. Like the non-profit housing, you attract a mixture, though. You attracted a lot of church groups, a lot of community groups, but then you also attracted a lot of developers, and it sort of went off key there with some of these big developers taking advantage of the program. To me, it's most important the type of groups that you're working with on the loan program and that they have integrity, because I don't think we can make all the decisions from the top down. It is a program to give input at the local level, so I think we're looking for groups with integrity in the community to work with and I think the ministry's aware of that and has been talking to a lot of groups.

Mr David Johnson: Okay, let me just follow up on that then, and that's a concern to me as well, because the groups that are involved in the community, I'm sure we'd all agree that they need to have integrity, they need to have some business sense, they need to have a whole lot of qualities. Then there will be a board that will be formed to direct the loan fund or the share corporation, and that board in itself will also need to have all of those characteristics.

Since you've given a great deal of thought to this whole prospect, have you given any thought to the kind of screening or how one can ensure that the groups, the boards, that are involved will have those characteristics? Integrity, I guess, is one aspect, but they need to have business sense so that the kinds of applications they select are successful ones, so that the moneys that are put forward are put to good use, that type of thing. How does one go about ensuring that you get the right kind of people?


Mr Walsh: I'll just take the example of Massey Place, a housing project in East York which you'd be familiar with, the history of that, going through a housing project and selecting the right board and doing the community consultation, deciding what type of housing to build in the community. It's going to be a similar type of decision in a way, although it will be broader in the sense that it's not just housing we're looking at here; we're looking at different businesses.

Again, I think we have to have some general principles of meeting community needs, and the politicians will be continually cognizant of what's happening. But to say "You can't do this or you can't do that" is going to be difficult. But I think it's a good question and something that should be given some thought to.

Mr David Johnson: You specifically mentioned the seniors population, and that's a growing concern to all of us, I'm sure. You mentioned care services. I'm wondering how you envisage seniors services fitting in with the criteria that have been outlined for the community economic development proposal. Specifically, what sort of seniors services do you see that might be eligible?

Mr Walsh: There are a lot of unemployed people who have strong caring skills. My point is, how do we involve these people in the community? They're presently probably sitting at home watching TV with nothing to do, but they really have caring skills; say, a lot of single mothers who have raised children. The question would be, how do we involve these people in the caring of seniors as the need grows and grows?

We also have ex-psychiatric patients being deinstitutionalized into the community. How do we involve caring people in services related to ex-psychiatric patients who are often just being left to fend for themselves today?

These are questions that are not easy, but you could look at a whole range of seniors' services. Some are more specialized and more medically oriented; you're obviously going to need specialized facilities for those. But Meals on Wheels and examples like that which are already successful community economic development types of activities -- there will just be a need for a whole range more as the seniors population increases.

I did one housing development that I was involved with and I found out that as far as job creation money was concerned, we were competing against golf courses and motel swimming pools at the same time as we were trying to look for job creation money to do a seniors project.

The lines are fairly obvious, if somebody's there to look at these judgements.

Mr David Johnson: One of the reasons I asked you that question is because, as I understand it, at least in the first instance, the thrust was towards tourism, manufacturing, and processing information and telecommunications technology. The ministry staff yesterday indicated that they would look at broadening that sort of definition. But I didn't really see a category that would include seniors in there. I wonder if you've looked at this closely?

Mr Walsh: I haven't looked at it closely, I haven't looked at the loan program, because I'm more interested in the capacity building in the community and the community development aspects. But I think your question is a good one as far as broadening that much more into the caring services is concerned. We tend to look at these caring services as not making money and then as not being a meaningful part of the community. But the fact is that they're going to have a lot of social costs and that somebody's going to have to pay for them and there's going to be some subsidy involved. I think the government has a hard time dealing with this issue of how much subsidy and, if something is receiving subsidy, is it a meaningful business? My own feeling is that it is a meaningful business and that a lot of businesses receive subsidy, one way or another. General Motors receives huge subsidies, but somehow we see the caring for of seniors as something different.

Community economic development is people in the community saying what's important to them, and maybe caring for seniors and child care is more important than big cars and cheaper cars. Our long-term vision is to have people in the community being able to express their voice in this way.

Ms Haeck: Thank you very much. I must say I've found what both of you have had to say very enlightening. A friend of mine has been a small inventor and he's related to me his problems in trying to find venture capital. I've noticed, once having been elected, that various people have come to me and said, "Look, I've got this great idea, but I go to the banks and they say, `Thank you, but no thank you.'" Basically there are some distinct limitations.

I'm interested in what you've had to say, Mr Talbot, on the inventions side of your talk. Could you expand a little bit? If someone wanted to get in touch with you -- and I know there are other people out there who are really anxious to sort of get access to people like yourself who are going to provide encouragement and possibly the means by which their idea is going to see fruition -- how do they go about this?

Mr Talbot: Your question is, how do inventors raise capital?

Ms Haeck: No, how do they get in touch with you? Basically, how do we make sure that other people know that your group exists? Because in reality there are a lot of people out there who've got valuable ideas and they're just not being addressed by the banks.

Mr Talbot: There are two issues here: one is getting in touch with the Canadian Industrial Innovation Centre in Waterloo, and I didn't come here to advertise its services.

Ms Haeck: No, but I'm going to make sure I get your card.

Mr Talbot: But that's all right. I do sit on the board, so I am not involved with the operations, but we do provide a very good service. In fact, I am told that we have been successful in putting most of the lawyers or shyster invention brokers out of business in Canada, with the help of the RCMP, because there was a thriving industry in this country taking advantage of inventors. Every citizen is a potential inventor. I'd be happy to give you the phone number. There's a 1-800 number and we have a substantial mailing list at the innovation centre.

We have 40 affiliated organizations across the country that are involved in the screening of inventions, and then investment of course comes later. Venture capitalists will not touch an invention until it's commercially viable. The insurance scheme that I mentioned to you would invest in all comers. Once an idea for a business or an invention got to a certain stage, the investment would take place almost blindly, on the basis of very little information, because of the actuarial phenomenon that we know that 2% of inventions will become very successful, so successful that any shares held in those corporations would pay for the 98% of non-performers. There are a number of precedents elsewhere in the world.

Mr Wiseman: Trivial Pursuit.

Ms Haeck: Yes, invented in St Catharines.

Mr Talbot: Yes, that's right. You don't predict the success of Trivial Pursuit in advance. The point is that if you set up a scheme where investments are available fairly easily -- you don't want to back anything that's sort of fraudulent or frivolous, but the point is that you can't spend the kind of money Innovation Ontario, for instance, is spending. About 20% of their cash flow goes into due diligence. That's a very high cost, a very good program but a very high cost. But the investments that Innovation Ontario makes are also insured.

Ms Haeck: Do you give patent advice?

Mr Talbot: The innovation centre provides assistance in looking into the marketplace to see whether there are patents, to see whether there are any competing products on the market. With many of the inventions that come through the centre, the inventors are discouraged from investing any further and they're grateful for that advice, because they would tend to spend far more than would be worthwhile or would be practical without knowing it.

The Chair: You might want to permit your colleague Mr White to have a question, Ms Haeck.


Ms Haeck: Well, I think I might yield some time.

Mr Jackson: Speaking of Trivial Pursuit.

Mr Drummond White (Durham Centre): I just want to thank you very much for coming forth. I thought that many of your ideas were exciting, innovative -- the issue about the business insurance -- I mean, real paradigm shifts, a real capacity to move forward. I think that's one of the things that is very true of the whole community development movement, that capacity to see a much broader horizon and have an ecological view.

As you were saying a few moments ago, what's the difference between General Motors and a seniors building? We have an artificial paradigm that says that these moneys should be for industry, which is defined in this sort of artificial way as opposed to what contributes to the community. Automobiles do, sure, in their own way, but so of course does the healing and caring process.

Many of the groups that you're associated with will be involved in setting up community loan funds, in social investment, in a range of the activities that are forecast under this bill. I'm wondering if you could, at least anecdotally, relate your knowledge of their knowledge of this and their response to it.

Mr Walsh: I just mentioned in my presentation that there's a real need for facilitation because they're generally familiar with it and they're aware that there is a shortage of funding for worthwhile proposals. I'm talking about a certain type of proposal with these groups we're working with. But there's a real need to help these groups develop and facilitate how they're going to judge business opportunities or investment opportunities. I'm not sure that's been taken into account. But there will be a lot of things that will be seen as the process starts. It's partly natural, but I think as business people we can look ahead a year or two down the road and say, if you start on certain things now, there's going to be a lot less pain for these types of groups that we're working with. We've tried to express this to the ministry. We haven't had a response yet.

Mr Cordiano: I would just like to say that your idea warrants further examination. I think it's an interesting one. Perhaps that will come to fruition some time in the future. But dealing with what the government has proposed in the bill that's before us, I would like to get some comments from you on the notion that there will be an interest in the broader public to invest in the corporations, the share corporation and the loan fund corporation. While the loan fund corporation seeks to provide capital for businesses -- startup and otherwise, expanding -- the kinds of investment that are going to be made by the public would require a return. As I understood it, in this bill there is no guaranteed rate of return. In fact, under the community loan fund, there's a ceiling on that, if I understood this correctly. The rate of return would not exceed the rate of return for GICs.

I'd like to get your comments and your views on how you think that might prove to be successful with the public that would invest in something like this, which would be rather risky, I would say. At a time when we are facing difficult economies in most industries, it's going to be rather interesting to see if you can raise capital out there in the broader public.

Mr Talbot: That's a profound question and a very good one. You did say "risky," and the idea is to remove the risk. This program will fail. Bill 40 won't work. There's ample evidence elsewhere in the world and in this province why it won't work. I would categorize both the loan fund and the share investment corporation in the same category, although they're slightly different.

The reason it won't work has nothing to do with raising the capital. I believe the capital can be raised. I believe there are enough community-minded individuals who will make contributions, particularly if there is an RRSP type of kicker into the contributions. If there is federal and provincial support for a 40% tax credit, which I'm not sure is in the legislation -- there was some talk of it.

Mr Cordiano: Not this legislation, no.

Mr Talbot: If there is no tax break or incentive, it will be more difficult to raise the funds. Provided there is incentive, and maybe an altruistic incentive is enough in various communities to put together a loan fund, and the money is pooled, the fund isn't large enough: $300,000 for a share investment corporation is far too tiny even for a community like Elora or Guelph or Sudbury; it doesn't make any difference. They really should be pooled.

The question comes up: Who is going to make the investment? Let's say that we can raise the money and that the program grows and it grows well beyond the $20-million or $40-million budget. Let say it grows to $200 million, $500 million or $1 billion, which is where it should be. The biggest problem is going to be to put the money out in a way that does create jobs but in fact somehow diminishes or eliminates the risk. You can see examples of things that are not working like this if you're looking at the labour-backed venture capital funds that have been set up: absolutely no difficulty raising the capital; major problems in putting the money out.

Your question about forming the committee that is going to make the investment: I do sit on the Toronto Interim Credit Facility, I think it's called. Are you familiar with that? There are four programs in Ontario which are precursors of the loan funds that are set up under Bill 40. I sit on the one here in Toronto. It's a $200,000-some-odd loan fund.

The problem is the criteria that you ask. What are the criteria for making a loan or making an investment? If the insurance phenomenon, the insurance model or the paradigm that I mentioned, is valid, then you want to have minimal screening and you want to have a very large number of small loans and a very large number of small equity investments, because you don't know who the winners are. If you stand at a marathon race where there are 10,000 runners, you tell me, without knowing who's there: Who's going to win? The same thing is true in the insurance industry. You line up 100,000 people and tell me who's going to pay premiums from age 15 to age 65. The insurance companies don't know, but they're smart, aren't they? They know that there is actuarial predictability to the life expectancy of individuals.

No loan committee and no share investment committee is going to know which of the loans is going to come back at prime plus four, which of the investments is going to become successful. All you can do is sort of put a wet finger up in the air. If you have a small number of investments, a small number of loans or a small number of share investments that you've made, it's like setting up an insurance company and deciding you're going to insure 6 people or 12 people or 45 people or 1,000. Insurance companies all went broke until they could get past the critical mass that was required to create the predictable, mathematical regularity with which human beings are born, live and die. It means a big pool. The private sector and government can afford to create that pool if it gets together. In fact, I'd like to see it all private-sector-funded.

A community share investment corporation set up in Guelph capped at $300,000 with an investment committee or an advisory committee of business people is going to be asked to look at a number of investments. If they make 10 investments of $30,000 each with no guaranteed return, what's the probability of those investments, or any one of those investments, producing enough return to pay back? It's too small. So the pool has to be province-wide, and we're not looking at $20 million or $40 million but we're looking at probably $100 million per industry. And there's a trick to setting it up. If you pool $100 million but only use the interest earned on the $100 million, you can give the $100 million capital back to the investors after a period of 15 years, let's say. Our calculations indicate that a pool of funds like that, set up on an insurance scheme, will produce a profit in year 16. I haven't seen anybody in Ontario or in Canada, or in fact in North America, making a 16-year investment decision. Nobody does.

The British did in 1947. They set up the National Research and Development Corp. They capitalized it at £50 million and it's now today, in 1993, the world's largest licensing corporation. It's a precedent for what I'm talking about.

Mr Walsh: I might just say that there are some investment funds now -- I mean, there's the Calmeadow fund; 40 religious organizations have a fund called CAIF, Canadian Alternative Investment Fund -- and they're very conscious of the criteria and where the money goes. I think there is a real need for demonstration projects. So while David is looking at the larger- picture end of business, I'd just urge the committee -- it's a very small amount of money, as he was saying -- to look at it as a demonstration project to learn more about --

Mr Cordiano: You mean Bill 40?

Mr Walsh: Yes.

Mr Cordiano: That's too expensive.

Mr Walsh: What's the amount of dollars involved as far as loans in this first stage?

Mr Cordiano: It depends on how much they raise and how successful they are. Twenty million is what's been allocated for the share corporations.

Mr Walsh: I just think, like in the housing sector, we need some demonstration projects to learn more about this whole area, and I think on the social investment side there's a need for this type of legislation.

Mr Talbot: There is an interesting precedent. David mentioned Calmeadow. The Calmeadow Foundation has set up very small loan funds in developing countries. Their payback rate on the loans is surprisingly high. What they've done is their investment is given to a group of individuals who act sort of as a support group, and if any one of the members of that small circle defaults on the loan, the others have to pick up the slack. Although these loans are very tiny, the behavioural aspect of that practice of loaning to a group of individuals who sort of have to help each other so they act sort of as a board of directors for each other but also pick up the slack if there is someone who falls behind -- that model should be one of the criteria for the community loan funds to make sure there is a support group there and that the onus doesn't fall on just one individual operating all by himself or herself. It really should fall on a group.


The Chair: Thank you, gentlemen. The committee appreciates the time you've taken to appear before us this morning, and certainly you've brought some challenging new ideas to the committee. For your information, the committee will be doing the clause-by-clause of this bill next week.

That completes the morning's presentations. As you will note from the schedule, there have been two cancellations.

Mr Jackson, I believe you had a motion before the committee. It would probably be an appropriate time to continue the debate on it at this point.

Mr Jackson: Yes, I had moved it, and if it's now on the floor for discussion, I simply indicate that I don't wish to pursue, nor do I think the committee wishes to pursue, the full Sewell commission report, but simply to discuss those elements of the recommendations that came from his public hearings around the province on those sections the government has chosen to bring forward and their impact on the legislation before us. Mr Wiseman suggested it. I merely put it in motion form.

The Chair: Thank you. Is there further debate on Mr Jackson's motion?

Mr Jackson: Just a recorded vote, Mr Chairman.

The Chair: First, I suppose, seeing as the motion was made yesterday, we would read the motion just to ensure that members all are familiar with what it is.

Mr Jackson has moved that the committee invite John Sewell to assist the committee.

Mr Jackson: I'll get Mr Cordiano. It will just take me a second.

The Chair: All in favour, please raise your hand.


Cordiano, Daigeler, Grandmaître, Jackson, Johnson (Don Mills).

The Chair: Opposed?


Haeck, Hope, Jamison, Mammoliti, White, Wiseman.

The Chair: Mr Jackson's motion is therefore lost.

Mr Mammoliti: On a point of order, Mr Chairman: I just wanted it noted in terms of what happened a couple of minutes ago where a member on the other side had called somebody from the hallway to come in for the vote while a vote was taking place. I hope that the Chair will recognize on the record that this shouldn't have happened, and it needs to be put on record that it won't happen again.

The Chair: Mr Mammoliti, I think you would appreciate some responsibility --

Mr Mammoliti: It's out of order.

The Chair: -- in the way this process works. Generally speaking --

Mr Jackson: Are you taking advice from Wiseman on points of order?

The Chair: -- I would have technically asked two questions.


The Chair: Order. I would technically have asked two questions before a recorded vote. It was in order, and that's the end of that.

Is there further business before the committee? We will reconvene at 2 o'clock sharp this afternoon.

The committee recessed from 1126 to 1409.

The Chair: Order. The business of the committee is to consider public deputations with regard to Bill 40, the Community Economic Development Act.


The Chair: Our first presentation for the afternoon will come from the Community Business Centre, David Pell. Good afternoon, Mr Pell.

Mr Randy R. Hope (Chatham-Kent): Mr Chair, before the presentation comes before us, just for the record, this document, which is labelled number 9, is that a document that's being supplied to us from the Ministry of Municipal Affairs in opening our first day?

The Chair: Yes, Mr Hope. I have a letter addressed to the clerk which indicates that it is exactly that. It's from Mr Burns, senior policy adviser.

Now, Mr Pell, the committee has allocated one half-hour for your presentation. You may speak for the entire half-hour, if you wish, or you may wish to allow some of that time for conversation with the members.

Mr David Pell: Thank you. I'll speak for significantly less time than 30 minutes.

Thank you for the opportunity to make this presentation. As the executive director of the Community Business Centre, part of my responsibility involves the coordination of a consortium of business development groups throughout Metro and York region. My presentation is on behalf of that group, so I'm here speaking for the York Business Opportunities Centre, the Y, the Toronto New Business Development Centre, the Centre for Entrepreneurship, the Metro Labour Education and Skills Training Centre and the Community Business Centre, which is part of the George Brown College Foundation.

The comments I would like to make will focus on two aspects of the act, one component related to financing and the other comment related to the training and education aspects of the act.

In general, I'd like to say that the Community Economic Development Act is, in our opinion, an opportunity for communities to play an active and important role in the development of local solutions to their economic problems. The act also enables participating municipalities and community organizations to develop local strategies and programs which will complement and support province-wide programs and private sector initiatives. So the group that I represent sees the proposed legislation and the programs within it as a very important component of much larger initiatives that are currently under way under the leadership of the provincial government and some within the private sector.

I am particularly pleased that the act appears to address most of the issues identified in a province-wide survey conducted by the Community Business Centre and several of our colleagues in 1990. This survey involved in excess of 300 individuals and organizations involved in community economic development across the province. In this survey, we attempted to basically identify what organizations were attempting to do, what opportunities they saw for themselves and, in particular, what the barriers were to further development and growth. Just for your information I'll summarize the key barriers, and I'll do this because the act has, in many ways, responded quite accurately and effectively to the barriers identified by the organizations active in community economic development work throughout the province.

The barriers that I have drawn from the study include the fact that there were inadequate financial resources for clients of community economic development organizations, basically people looking for small business loans. Inadequate planning and management skills were a problem that most community economic development organizations were experiencing; having a job that was much bigger and more complex than what they were able to cope with and the groups looking for opportunities for management training; inadequate technical skills to conduct the necessary research that these organizations have to carry out in terms of understanding markets and market opportunities and labour force trends and so on.

Fourth, all of these organizations experienced a problem in terms of integrating their social objectives, helping people who are unemployed to become employed, with the economic opportunities that exist in their community. So it's one thing to help develop or expand businesses; it's something else to make sure that the local people who are unemployed benefit from these businesses that are assisted. This is an issue that many of the groups were dealing with at the time and continue to do so today.

Another barrier that was identified that I feel is quite important is that at the time of the survey, there was a lack of what was identified as a provincial policy framework. Local organizations felt they were working in a vacuum in the sense that they didn't have a good idea of where the provincial or the federal governments were going with respect to economic and social development policies, and therefore were not clear as to whether the directions they had developed for themselves were going in the same direction or whether they were in conflict with where the senior levels of government were moving.

Finally, they also identified a lack of provincial infrastructure which would provide information and technical assistance. As I've already very quickly mentioned, many of these groups experienced difficulties in having or getting the skills and knowledge they require to be effective, and they also have not been able to identify sources of training and information that could help them with these problems.

As I've mentioned, the act in many respects addresses these barriers quite effectively and I'm sure there will be a good response to the programs because of this. But with all acts and with all new programs, it's not perfect and there is room for improvement. I know some of the people who will follow me will be addressing some of the limitations, so I'm going to restrict myself to just a couple that I don't think will be identified: one with respect to financing; the second with respect to training and education.

With respect to financing, just looking at the community loan fund program, this is an area of work that I've had an extensive amount of experience in this province and in other places in the country. One of the weaknesses of the proposed program is that there is not a sufficient, in my mind, incentive for the contributor or investor. There is very clearly a group of people out there, individuals and organizations, who will invest in these loan funds; I have no doubt. In fact, our organization has money from organizations which will invest in a community loan fund.

But there is a much larger group which is sitting on the fence and it will sit on the fence because there is not sufficient incentive for it to invest. What I am referring to is that in other jurisdictions tax incentives have been made available for people who invest, or organizations which invest, in programs like this.

I am aware that the government is looking at making these investments RRSP-eligible and I would encourage you to move as quickly as possible in that direction because that's a well established and recognized incentive that I think many people would use. I would also suggest that we explore something that would enable registered charitable organizations such as my parent organization to invest in initiatives such as the community loan fund. As you probably are aware, in the United States this is possible through federal legislation.

I would recommend, without getting into the details today, that we look at what would be appropriate for the province of Ontario. There are charitable organizations in the province which are interested in this type of initiative but current legislation makes it very difficult for them to participate.

In summary, what I'm saying is that we do have a group of investors but we're also leaving some people out of the possibility of contributing or becoming active because of some barriers that still exist.

The second area that I'd like to touch on just very quickly is in the area of training and education. The technical and managerial side of community economic development work is as important -- some people would say more important -- than the financial side in that if you don't have a competent organization with the management skills, the business skills and planning skills, it doesn't matter how much money you have; you won't be able to achieve your goals.

Certainly, that's a problem that community economic development groups in Ontario have identified for themselves. They want assistance. They want help. The assistance that is available today is very limited. If you are part of the Community Futures programs sponsored by the federal government, there is a training program that is now available. The organization has to pay the cost, or much of the cost, but it is available. It's also very specific to that federal program, which leaves out many -- most organizations, for that matter.

The economic developers who have their own council and program have a very limited amount of course work and training work that's available. As a result, there is a large vacuum there for training for people involved in community economic development work as staff or as volunteers.

Some people in the room are aware that for a year I attempted to convince Ryerson to develop a program within its continuing education division which would be available on campus as well as by correspondence, and despite preliminary indications indicating there was a market for the program, Ryerson has decided not to pursue it. I feel quite disappointed in that decision and I also think Ryerson has made a mistake because there is a market there.

In summary, I'd like to say that with respect to the education and training area for community economic development, we do need to put in place some form of credit and non-credit training program, probably offered by a post-secondary educational institution in the province, that has the capacity for distance education so we can reach the communities in the north in the more isolated regions as well as the communities in southern Ontario. This, for me, is a priority concern and an area I'd like to see addressed in the immediate future.


In conclusion, I'd just like to congratulate the government on the act. It's a very important step forward for this area of planning and economic development work. I think you will be impressed with the proposals that will be coming forward from the variety of communities interested in this area across the province.

The Chair: We have a number of people indicating they wish to pursue some issues with you, Ms Haeck and Mr Hope first.

Ms Haeck: Thank you for coming, Mr Pell. I would like to pursue your comments with regard to training at this moment, because I was involved with a co-op housing project in the early 1980s and I know that the resource group that gave of its time as well to make sure our project was a success definitely emphasized the training component and followed through with the residents for a year after their moving into the project.

How do you foresee the training really taking place? If someone is going to come forward with an idea, be taken on, they may not have all of the business expertise but have sort of a good technical background; what kind of training do you think they should be getting?

Mr Pell: There are training needs at at least two levels: There are training needs of the clients themselves and there are resource groups like my own that have been developed in many areas -- certainly not all communities -- that can provide those training needs. The more critical issue at this point is the area of training that members of the board of directors and the volunteers and the staff of the organizations require, including staff of municipalities in the economic development departments and the planning departments, who are now in many communities being told, "Get involved in community economic development." This seems to be the direction that North America and western European communities are going.

That's fine to say but if people don't have a program they can get involved with, either part-time or full-time, to add to their body of skills, they are at a loss and are not going to be able to do the job that's expected of them.

There is a handful of people in Ontario right now getting full-time, university-level training in this area by going to a college in New Hampshire. To put it all too simply, that's the situation for that level of training. So we need a post-secondary education institution to take it on as part of its mandate.

Ms Haeck: For anyone who might be reading Hansard at some later date and trying to figure out -- what kind of components would formulate a training program that you're addressing?

Mr Pell: What I'll do is summarize what we were proposing or investigating while I was assisting Ryerson. The program that was developed there was in response to some market surveys and it included: training in organizational development and management -- how do you run a non-profit organization; how do you plan one; how do you resource one; how do you staff one -- strategic planning, which would help an organization look at economic, environmental, social problems and opportunities and develop a plan that could be implemented.

We developed a course in financing: What are the sources of financing for economic development, both from conventional institutions like banks, trust companies and credit unions, and from the so-called alternative sources -- foundations, pension funds etc. There's a whole area of knowledge and information that's necessary for people to effectively work in these areas.

Ms Haeck: Thank you. I'll turn the rest of the time over to Mr Hope.

Mr Hope: I was interested in some of your comments; first of all, those organizations that would probably have a socioeconomic background dealing with trying to help their communities out. I was interested in your comments because there are some groups I know, non-profit groups, in our communities that would probably like to invest somehow back into their community to help people off social services.

I was interested also when you were talking about the technical end of things. I'm wondering what your experience would be around the incubator process where you help small businesses. Mainly we will see this legislation working with small business because they're the most likely not to succeed in getting funding from the banks. The big institutions, credit unions, only have certain limitations of what they can do for their community.

I'm wondering, with your experience around the incubator, because you were talking about the technical end and you were talking about Ryerson not putting forward the education process -- and good luck when that will ever happen -- but right now we have a situation we have to deal with and it's called employment.

I know in the Maritimes, and I forget exactly which one -- I think it is Nova Scotia that has a program that's like an incubator where the municipality is involved in helping people on social services start up businesses. Then, once the business has generated enough, it is sold off and it moves out into the community. I'm wondering what your experience is and how you see that, especially from a rural community. I notice you represent Metro and York. You have a lot more people than we have and I'm just from a rural community, and I'm just wondering what your comments are around the incubator because it is important to us.

Mr Pell: Very quickly: Incubators in general have proven to be quite effective in terms of assisting people to successfully start up businesses. The one you're referring to has identified people on social assistance as their client group and their particular program has proven to be quite effective. There's actually an evaluation coming out very soon by Peat Marwick, I believe, that will, among its set of comments and observations, state that that program has saved the municipality of Halifax in excess of $10 million from their welfare budget.

Incubators that work with more sophisticated experienced people who want to start their own businesses have also demonstrated a great deal of success in North America. If they involve a facility, they can be expensive. The organization I work for had a facility at one time and the board decided to give it up because operating a facility was taking up 80% of their time and too much of our budget. So I guess if there's a downside, that's the downside to the incubator idea.

In rural communities it's much more of a challenge because you don't work with as many and as great a range of business opportunities as you do, obviously, in a large urban environment. But there are examples, primarily in the US in places like Ohio and so on, where there has been success in the sense that people have gone through the program and successfully started their businesses.

A few years ago, I believe, there was a study sponsored by the American Express company. I can't quote them, but I do believe this is accurate. They concluded that in the US, the success of incubators was best summarized by saying that they had reversed the old rule of thumb that 80% of all businesses failed during the startup to the reverse, where 80% of all businesses going through the incubator program succeeded in establishing themselves.

Mr Daigeler: Just for your information, it goes around the table here to the different caucuses.

Mr Jackson: When the music stops we all move.

Mr Daigeler: I must admit that I may not be as familiar with this community economic development as perhaps some others might be. I think some of the people who have written to us are not quite clear on that either, because we've got some submissions from business people and people who are involved in the private sector who look at this as one way to stimulate private economic development. I think it's clear what this has meant is there's a specific meaning to community economic development and you represent it, you're involved in this.

What is the relationship with the private sector? Can you explain a little bit to me what you actually do in your community business -- I think that's the name of your outfit -- and how that relates to the ordinary business person who is out there trying to make a profit? If I understand it properly, the big distinction here is that this is basically non-profit and we're trying to get financing for that, and I think there's room for that.

I don't want to deny that. I think I support that. But at the same time, we must realize that this is probably, and will always be, a very minor sector of our economy, and if we're relying on this sector to really get the economy rolling again in this province, we probably will have to wait for a very long time. That's not to deny the significance and the usefulness and the importance of what you do.

Can you explain to me a little bit what you do versus the private sector and how this fits together?


Mr Pell: I usually charge for this information, but I'll make an exception here.

Mr Daigeler: So you are for profit.

Mr Pell: That's the point. The organization, ours and any other organization that calls itself a community economic development group, is a non-profit organization. Our mission is to assist private entrepreneurs or groups of people who want to start businesses to become profitable at whatever they want to do, so that our community's economy becomes a dynamic economy, able to provide employment and to generate wealth. We're a vehicle to help private entrepreneurs. So what we do at the business centre --

Mr Daigeler: Could I give you an example? I had somebody involved in gardening, and she's got expertise in horticulture, that type of thing, setting up gardens, and she wants to set up a business and make money. She could go to you and get business advice and the only difference is that you are non-profit.

Mr Pell: We won't charge her a fee. We won't ask for a royalty. We won't take an equity position. We're there as a community service to assist her to formulate her plans and to implement her plans and to become successful at whatever the business is, and there are a number of ways we can do it. It could be simply through providing counselling advice or getting information that she would have difficulty accessing, patent information, whatever, or maybe she needs to have some formal training in marketing and planning.

Mr Daigeler: How are you financed, then?

Mr Pell: Our financing comes in a variety of forms. Over the past three years we had a contract with the city of Toronto to assist small business owners in the city because the city of Toronto was concerned about losing its small business sector. In the roaring '80s, Toronto was becoming too expensive a city to try to operate a small business.

Currently, we have a contract to manage and deliver the Jobs Ontario program related to self-employment. We also have a contract with the federal government to assist people on unemployment insurance who have decided they want to be self-employed. A number of these people are new immigrants who are not able to practise their trade or profession in Canada.

We also receive funding for special businesses and business projects from private foundations and private corporations.

Mr Grandmaître: Have I got time for a short question?

The Chair: If Mr Jackson will permit it, sure.

Mr Grandmaître: Let's talk about the barriers that you've identified. I think one of my colleagues addressed the training barrier. Let's talk about the financing barrier. We were told this morning -- I forget his name -- that this program will fail because of the lack of incentives provided in this program and the risk of investors.

Mr Jackson: Too small a pool.

Mr Grandmaître: Too small a pool.

You just told us that you know of a number of groups, investors, that are willing to get going with this program as soon as it's in place. Can you tell me, why are these people waiting for Bill 40 to be enacted? Why can't they get going on their own now?

Mr Pell: Are you referring to the investor or the client who is looking for financing?

Mr Grandmaître: I'm talking about the total financing picture. I'm talking about the investor and also Bill 40, this economic development act, and providing people with the startup dollars. You know of a number of groups of willing investors right now. Why are they waiting for this program? Why can't they do it on their own?

Mr Pell: I'd like to make a comment both with respect to the investor -- I'll start there -- then the client, if I may.

There are investors who are making money available. The business centre, over the past three or four years, has approached investors on an individual basis as clients came to the point where they required some financing and we couldn't secure it through a bank or trust company or new ventures program or whatever.

Mr Grandmaître: So that investor is taking a chance. If he's being turned down by our financial institutions, then that investor is taking a chance; it's high risk.

Mr Pell: That's right. There are many of those investors, though, who would take that chance and there are many who wouldn't. Their organization would not permit it. Without exception, all of them have said to me that, "We would much prefer to participate in an organized program rather than work on this ad hoc basis where you call us up every time you have someone."

That's not a criticism of us. What they are saying is: "There's obviously a need out there;" -- and I'll address that need in just a moment -- "why don't we set up a system where we can identify what we can contribute and it will go into an organization and it will be managed by an established, reputable financial institution? That institution and that organization will make the loans or whatever, the guarantees that are required by the client. It would be less time-consuming for you and we will feel more comfortable with the arrangement."

That's been the barrier. There isn't a vehicle for them to participate in. The barrier is slightly different for the individual than it is for the labour group or the foundation or whatever, because of their legal restrictions.

With the clients, of the 150 people we now have who are finishing their business plans or actually trying to start their businesses, we estimate that approximately three quarters of them cannot get access to financing for a variety of reasons. Most of them, like 70%, require less than $10,000. I'm sure if you read the newspapers like I do, and the business magazines and so on, you will know that this is the area of lending where no one wants to commit themselves: the banks, the trust companies, whoever.

I don't fault them. The reasons make sense. It's expensive to review and administer an $8,000 loan if you're the Royal Bank of Canada. It's almost the same amount of work to process a $50,000 loan, so why not take the $50,000 loan client and ignore the small client? That's the situation.

We have clients who have good business plans, who are credible people in terms of what they're trying to do, but they lack a track record. Maybe they're new to the country. Maybe they lack some of the standard collateral that's required, or simply the amount of money they want is too small and they don't have an uncle or an aunt to turn to for that short-term loan.

The situation has been the same and is the same in the United States, in every country in western Europe, and in Australia and New Zealand. It's a problem that all the industrial countries experience. As a result, and Ontario is a latecomer in this field of work, these alternative forms of lending organizations have developed. They've been developed and supported and endorsed by groups like the Organization for Economic Cooperation and Development.

Mr Grandmaître: It would be easier to push our banks or trusts or caisses populaires into changing their attitudes towards small and medium-sized business. Don't you think it would be easier?

Mr Pell: I don't.

Mr Grandmaître: Have you tried?

Mr Pell: I have personally tried. That may be a comment on me more than the banks, but I've tried several.

The Chair: Thank you, Mr Pell. We appreciated your presentation. For your information, the committee will be considering this bill in clause-by-clause next week and reporting it to the Legislature this fall.



The Chair: The next presentation will be from the Ontario Worker Co-op Federation, John Brouwer. Good afternoon, sir. You've been allocated one half-hour by the committee for your presentation. I see that we have circulated a copy of your presentation to the members. You may begin.

Mr John Brouwer: Good afternoon. I'm John Brouwer. I'm the executive director of the Ontario Worker Co-op Federation. I want to thank you for the opportunity to make this submission this afternoon.

We're a co-op federation. We want to congratulate the government on this initiative supporting economic development in the context of communities. We of course value the specific inclusion of cooperatives as organizations eligible for the act's provisions.

The community loan fund program and the community investment share corporations program have the potential to provide access to job creation by those people who do not have the resources to create their own jobs. They further provide an opportunity for investors to become part of partnerships which can promote local economic development. Worker co-ops will take advantage of these opportunities to create jobs.

Worker co-ops, in common with the other cooperatives, have a full range of capitalization needs. This act has the potential to help the smaller worker co-ops in accessing the capital they need to create jobs.

We're suggesting a few amendments to the act to allow it to work more effectively in a worker co-op context.

In the community loan fund, we recommend that section 16 of the act be expanded to include a member of a cooperative in the definition of "eligible borrower."

Entry-level participants in the economy seeking to form worker co-ops have similar obstacles to those looking to form other types of businesses. The community loan fund program can open up job creation opportunities for these entrants.

Worker co-ops generally have a membership of people from varying socioeconomic backgrounds. Each member is required to invest an equal membership share, and for less affluent groups, that's usually less than $5,000. Those potential members who do not have the resources to cover their membership share could benefit immensely from this loan program. It would allow them to access the credit by which they could borrow the money for the member investment in their co-op business.

This would allow the co-op in turn to put together the core investment required to start the business. From the co-op's perspective, each member would be treated equally, regardless of his or her socioeconomic background, as each would have an equal investment in the co-op.

By supporting access to individual borrowing for co-op investment, the program would reinforce the responsibility of the member for the success of the co-op business. Allowing borrowing only by the co-op would permit the member to evade individual responsibility for the loan since the co-op, as a corporate entity, has limited liability.

Further, by granting the loan to the individual member rather than the co-op, the loan default rate would be reduced. The loan would be secured by the member's share investment in the co-op, and if the individual is unable to pay, the lender would have recourse to those co-op shares. Conversely, if the co-op business is unsuccessful, the lender will still have recourse to the member. By limiting eligibility to the co-op, it would mean that the community loan fund would have to cover more defaults.

In the case of community investment share corporations, we recommend that clause 11(1)(d) be amended to include unsecured debt as an eligible investment.

In a worker co-op, the place of capital is secondary to the place of workers in their communities. Control of the business is exercised on the basis of one vote per worker-member. The wealth created by the business is equitably distributed among all the workers and the business will remain in the community, since the workers who control it live in the community.

Those constraints on the role of capital in a worker co-op lead to fair distribution of the wealth and stable communities. However, by constraining capital in this way, worker co-ops experience major obstacles in raising capital, especially business startup capital. Some legislative regulations, tax policies and programs exacerbate the obstacles.

I just want to say that I certainly appreciate the initiatives being taken under the co-op review, under the auspices of Steve Owens, to remove some of those obstacles that are currently there.

It's most likely that a co-op-oriented community investment share corporation will be a pooled operation investing in a number of co-op businesses. Since return on investment is limited by regulation in a co-op context to prime plus 2%, it is not possible for a community investment share corporation investing in a co-op to provide a competitive return to investors after all costs are applied. In order to be self-sustaining with a reasonable rate of return to investors, the community investment share corporation needs to be able to generate higher returns than prime plus 2%. Within a co-op context, this can only be achieved by a debt instrument.

Since unsecured debt functions similarly to preferred shares, our proposed amendment would not change the intent of the legislation. In common with the usual definitions of equity capital, "unsecured" should include a floating charge on the assets of the business.

I want to address a few comments to the regulation and program considerations under the act.

The proposed regulation requiring owners to provide a minimum of 25% of the total equity required will prevent community investment share corporations from assisting in worker co-op job creation. This results from the fair profit distribution structure in a worker co-op.

In a sole proprietorship, partnership or joint stock corporation, the owners receive all the profit from the business. In a worker co-op, the founding members, usually three or four, invest equal amounts but future profits are shared equitably with all future workers. For example, if a business grows to employ 20 workers, each of these workers shares equally in the business profits after their membership date. This dilutes the profit to the founding members by a factor of 20. Obviously, the return to the founding members is much less. The expectation that they contribute a percentage equal to the contribution from sole proprietors, partners or joint stock corporations in our opinion is inappropriate.

Consequently, we recommend that the minimum investment by workers in a worker co-op be set at 10% of the equity capital required.

We want to emphasize that a worker co-op structurally distributes the created wealth to all member workers in the business, and this is distinct from other forms where the profit is concentrated to the owners. Furthermore, the worker co-op control structure ensures that the business will remain in the community. Since these are broad social benefits, we feel that it's appropriate that investment raised through a community investment share corporation be allowed to provide the remaining equity required for the worker co-op business.

Our second recommendation is that the community investment share corporation be permitted to provide the remaining required equity of a worker co-op if the workers' investment is subordinated to the community investment share corporation's investment. If the workers' capital is subordinated to the community investment share corporation's capital, the workers appropriately would have the primary stake in the business.

We recognize that there is certainly abuse possible in the existing legislation. In order to prevent that abuse by individuals forming a worker co-op and then converting the business to another cooperative form, we recommend the following condition to community investment share corporation participation in a worker co-op as follows:

The worker co-op articles of incorporation must state that on dissolution, the residual assets are to be distributed to either another worker co-op, a federation of worker co-ops or to a charity. That would prevent somebody from converting a co-op into a private corporation and privatizing the assets.

A few comments on the eligible business sectors: The discussion paper suggests that the regulations will be defining the business sectors in which a community investment share corporation can invest. As the size of a community investment share corporation limits its investment to small business, defining business sectors would prevent the share corporation from supporting viable niche markets which may provide economic support to a particular community even though the sector itself may be excluded for global reasons.

We suggest that the definition of eligible business be broad and directly tied to job creation. Some business sectors which have minimal job creation benefits might be excluded.

In conclusion, we want to congratulate the government on its initiative to support economic development in communities. These suggested amendments are there to ensure that the act can have the maximum impact on job creation and economic development within a worker co-op context. Thank you for your time.


The Chair: Thank you. Questions? Mr Cordiano.

Mr Cordiano: I am sorry, I just got here and caught the tail end of your submission but I wanted to ask about your recommendation on page 2, with respect to section 16, that the act be expanded to include a member of a co-operative as an eligible borrower. I'm trying to understand how that would be compatible with what the act's intent is with respect to the share corporations and the community loan fund corporations.

First of all, the community share corporations are for-profit corporations, and the community loan funds -- both, in fact, are required a return on equity, a return on investment. Mind you, it's not enough or sufficient, but there's a requirement for that. That could be accomplished in a non-profit situation, but still the community share corporation would require for-profit efforts.

How would the profits accrue to investors in your cooperative non-profit corporation? That's the question or difficulty I would have with the recommendation that you make.

Mr Brouwer: The recommendation is only in regard to the community loan fund program.

Mr Cordiano: Okay.

Mr Brouwer: It is presently constituted that the eligible borrower is a sole proprietor, partnership or corporation.

Mr Cordiano: Or a corporation, yes.

Mr Brouwer: A word of explanation: The worker co-op is not not-for-profit; it's a for-profit business.

Mr Cordiano: Okay.

Mr Brouwer: It's got to be out there being able to make a profit in the marketplace. All it does is distribute that profit back to its workers.

Mr Cordiano: Right, but that still does not allow for profit in the sense that investors would then -- because of the stringent requirements with respect to return on investment, you'd have to make up the return on investment for investors, and then whatever profits are left over entitling the workers of that co-op to share it. How do you make that work in that scenario?

Mr Brouwer: In this case we're looking at it, saying the members of this program should be eligible to borrow funds from probably a credit union, under a community loan fund guarantee, for membership share investment in their cooperative. In terms of the profit distribution inside the co-op, generally everybody who is employed in that co-op, including all the members, would get a basic salary or an hourly wage that was set when they went into business.

Mr Cordiano: Yes, obviously.

Mr Brouwer: Then they distribute any profits back to the members in a proportion to the number of hours each particular member has contributed to the cooperative. Profits are distributed like that and then they in turn have access to their profit plus their regular wage to pay back to their credit union that loan plus the interest on that loan.

Mr Cordiano: Yes, I understand that, but that would entail workers to be investors at one and the same time that they're earning a salary and then returning a return on investment or a return on equity -- correct? -- under your scenario. That would preclude sort of outside third-party investors.

Mr Brouwer: Outside third-party investors can still invest in a cooperative. It would be in a different class of shares. Usually we set these things up to have three classes of shares.

Mr Cordiano: I was putting this in the context of what would amount to a limited return on investment and how you felt that would fit into your scenario. Would it be a workable proposition with the community loan fund? There's very little return on an equity requirement, in fact a ceiling in terms of where that return on investment would be set at, the rate for GICs. Do you think it's attractive enough?

Mr Brouwer: It's workable for this reason. Because it's a loan to the member, the credit union and the community loan fund can set that at regular commercial rates for that kind of loan. That doesn't come under the jurisdiction of a limited interest within the cooperative itself, so the loan to the individual can be set at regular commercial rates.

Mr Jackson: Following on that, we've had a response from John. I wonder if we could get the parliamentary assistant to give us an indication if he and his government look favourably on the recommended amendment to section 16 or if the government has difficulties with this recommendation.

The Chair: Mr White or Mr Loken? Pick a number.

Mr White: Mr Loken.

Mr James Loken: I'm James Loken, legal counsel, Municipal Affairs. Although it's really a policy question, the ministry is considering doing this, and we're reviewing the implications of it.

Mr Jackson: Why is the ministry considering doing this?

Mr Loken: In order to make the program more accessible to working co-ops.

Mr Jackson: What concerns do you have currently then?

Mr Loken: It's not really a major concern. As Mr Brouwer indicated, the loan would be at commercial rates so it would not affect the loan fund assets as such, the difference, whether the loan is given to an individual or given to a corporation.

Mr Jackson: What does your ministry think of the second recommendation, to allow unsecured debt as an eligible investment?

Mr Loken: This is something we haven't considered as of yet.

Mr Jackson: Clearly, the bill speaks against this position in several sections.

Mr Loken: Yes, it does. The basic reason is that debt of course is enforceable whereas preferred shares need not be paid a set rate of interest, a dividend, if the corporation, the company, doesn't have the solvency to pay it. Therefore, it's in the interest of the business itself.

Mr Jackson: And the 10% equity capital requirement, what concerns if any do you have for that? The bill speaks of 30% or 40%.

Mr Loken: The bill requires 60% non-CISC equity in the business, so we certainly have a concern as to that because that would affect the viability of the business and the chance of return.

Mr Jackson: A final question: If cooperatives are put in as an eligible borrower, would you be recommending that the specific amendments that would flow from that be put in the legislation or in regulation?

Mr Loken: It would be an amendment to section 16.

Mr Jackson: I understand that, but once you do that, there would be some subsequent amendments that would deal specifically with the unique nature of borrowing by a cooperative. Is that not correct?

Mr Loken: No. A co-op is a taxable corporation.

Mr Jackson: You don't have any concerns about that part of it. Thank you.


Mr White: I just wanted to congratulate Mr Brouwer on his excellent presentation and the specific recommendations. As you've heard, the points that you make are certainly things that we will be taking into consideration and they may be brought up in clause-by-clause. We can't on the spur of the moment right now say, "Gee willikers, these are the things that are going to be coming through," but we will be taking them all back and considering them thoroughly.

I had a little interest, and perhaps this is just for my own education, but worker co-ops -- in my constituency office, just from my own work, we've established an unemployed workers' group and the Union of Injured Workers in my area. But particularly the unemployed workers are interested and involved with a church group in setting up a workers co-op. They're also interested, the same group of people, in a CLF. Is that the typical formation for a workers' co-op, for people who have been out of work and have some skills getting together?

Mr Brouwer: It's definitely an option for worker co-ops. Worker co-ops are an option in those kinds of situations. We work with a whole number of initiatives from groups of people similar to what you're describing.

Mr White: And if this group was to get in touch with you, you would be able to offer them some consultation and advice?

Mr Brouwer: Yes. We're currently operating under a Jobs Ontario contract to undertake job creation for long-term unemployed within the mandate of Jobs Ontario. Through those resources, we're able to provide that kind of group development, business development service, to assist them in moving into implementing a workers' cooperative.

Mr White: You'd even be able to help a group in Whitby and Oshawa?

Mr Brouwer: I think we're already talking of that group, actually.

Mr White: Probably. I defer to Ms Haeck.

Ms Haeck: John, you're quoted here in one of the publications that actually we got earlier, and it talks about the fact that you're really concretely saying that you can probably create 500 jobs a year with this kind of opportunity. I think we'd all be interested in the kind of areas where you're creating jobs. I know you're not just looking at industry, you're looking at a range of different areas in which to create jobs, service sector or otherwise. What areas are you looking at?

Mr Brouwer: Our approach has been mainly to be responding to groups of people who come to us and say, "We have an interest in working together to develop a business that would provide employment to us." So we tend to be responding to the people who are coming to us from their particular skill level. That's currently ranging from the food sector, in which there are definitely opportunities developing, there are computer operations; there's a wide range in the skills. We're currently talking with airline pilots around the possibility of doing some kind of regional airline operation, which on the face of it looks like they'd have something that would work. But it really depends upon what the group's coming to us with.

We've had this Jobs Ontario program since late winter. We're in touch with about 50 groups that are at various stages of looking at implementing their business. We expect that 25 or 30 of those would actually go to business implementation. But we are certainly seeing a lot of interest out there from people who are looking at this and saying, "This is one way in which we can create jobs."

Ms Haeck: It sounds like it's a very diverse range of jobs that could be created.

One of the issues that was mentioned earlier was the training. How do you assist the people who come to you to get the kind of training they may need to run that particular enterprise?

Mr Brouwer: We work with them on combining two tracks. One is a group development track in terms of going through a process with them to ensure that they have congruent business values which allow them to work together as a group, and then we work with them in developing a framework to actually operate a business as a co-operative so that they have a decision-making structure and accountability structure and a strategic planning structure that's in place to do that. We then also provide assistance with them in identifying business opportunities, working with them in terms of assessing the feasibility of those opportunities, and then, if they look feasible, assisting them in implementing a business plan and raising financing and the incubation work required to implement that business.

Part of that of course is to work with the group to assess what is their group skill level in terms of what's required for that business to function effectively. If they're missing particular skills, either marketing or finance or just technical skills, we definitely recommend that they take some of these various courses that are out there now and that can be used to upgrade their skills. So the kinds of programs we would be referring to them are the kinds David Pell was mentioning earlier. Various members of our groups in various parts of the province are taking modules within those programs who say, "We've got to increase our bookkeeping skills; let's take a bookkeeping-finance module here."

Ms Haeck: This can be a rather long-term endeavour for yourself and your cohort, Walter Schenkel, who I know. I know that in the housing co-op sector it's at least a year. Do you find yourself expending about a similar amount of time with a budding enterprise?

Mr Brouwer: On a fast track it would probably take six months. On an average we're aiming for nine months, and then, depending on how the business opportunity could develop or market conditions, it could take a year.

Ms Haeck: Thank you, John, and lots of luck with all your endeavours. I know that you're doing a lot of good things out there.

The Chair: Thank you for appearing this afternoon. We appreciate your input. The committee will be considering this bill in clause-by-clause next week.


The Chair: The next presentation is from the Kensington residents and business people, Allan Schwam. Good afternoon. The committee has allocated one half-hour for your presentation. We would appreciate it if you would introduce yourself and your colleagues for the purposes of our Hansard recording and then you may begin.

Mr Allan Schwam: Thank you, Mr Chairman. I want to thank members of the Legislature for this opportunity to address you. We're here representing members of the business and residents' association of the Kensington area, and more specifically we represent a working group which was recently set up. It's this working group that first encountered Bill 40. So with your indulgence, I'll tell you a little bit about how we encountered Bill 40, and I have left you a document, but you won't understand it too well unless I give you a run through it.

Perhaps a few words about the Kensington area, better known for the famous Kensington Market. It's just a stone's throw from this Legislative Building. It's in the heart of downtown Toronto. It's a community of about 3,500 residents, home owners and tenants, and the majority of the residents today are of Chinese origin. Two decades ago the majority were of Portuguese origin, four decades ago the majority of residents were of Jewish origin and eight decades ago the majority of the residents were of British origin, British immigrants. We are, in other words, an immigrant area. There is always a majority population, but we are in no way a ghetto. There's always a good intermixing of older and newer immigrant waves.


Inside the residential portion of the Kensington area are to be found several streets on which are mainly small shops and businesses. These number about 400. You can see that inside the Kensington area there's a major regional shopping complex. It takes about 200 stores to make a regional; we have 400. Of course these stores are much smaller than the average size of a shopping plaza, but they're very concentrated. We also have some factories in our area too.

You can see that with a residential population of 3,500, we would have to have a big draw to keep those businesses going. In the summer and the fall, Kensington's full of people shopping from all over the Metro area. There are tourist buses regularly, and we get lots of school children for whom, for some reason, Kensington is unique, but I can tell you, the ethnic mix of many of the children coming to our area exceeds the ethnic mix in Kensington today. More and more our population's beginning to resemble your population.

How it all started was, there are in the Kensington area two major institutional buildings, the Toronto Western Hospital on one end, a very huge complex now joined with the Toronto Hospital; at the other end is the Kensington campus of the George Brown College, a building of some 200,000 square feet, made up of three buildings, one built in the 1930s and one built in the 1950s. That complex is now virtually empty. It will be moving out of our area.

That's a problem, because that provided people who shopped in our area, the students who shopped in our area, but also it's an opportunity, because the building was never oriented to our local community. In other words, it fronts on a street which is residential and the other street is commercial, and it was really not oriented to either of those two. So we saw that as an opportunity to make sure that there was a good use for that building.

We drew up a set of guidelines, and I'll read an extract from them:

"That new development projects be evaluated as to the degree to which they encourage local employment and spinoff economic activity;

"That the special employment characteristics of the market be recognized, maintained and strengthened and public and private funding be so directed."

That was drawn up before we ever heard of Bill 40.

Our local MPP, Rosario Marchese, has a regular meeting with ministers of the crown who come to our community to talk about various issues. Ministers Lankin and Buchanan came to University Settlement House to talk about Bill 40, and we immediately recognized that it was relevant to what we were trying to do, which was to generate economic development and spinoff activity. So we immediately announced that we were very much interested in Bill 40 and what we could do with it.

As a result, we simply drafted into the guidelines, which are now being discussed,

"That business and residents work together to establish a community development corporation (CDC) as outlined in Jobs Ontario Community Development guidelines..." and

"That this community development corporation apply for the establishment of a community investment share corporation."

We had a meeting with our local businessmen to see how they would react to the idea and they said that they were favourable. Now, that's quite a contribution on their part, because most of the businessmen we talked to don't need this community development corporation. That means that they would be willing to help new or smaller businesses locate in the Kensington area by subscribing to such an idea, and that's a very positive thing.

We've also discussed the CDC with the area manager of the Royal Bank in the Spadina-College area, and while the banks are not too happy with certain aspects of this legislation, they did indicate they'd be very happy to come and help us administer and give whatever expertise that they have.

On this working committee we have the area planner, the city of Toronto planning board. A member of the provincial civil service who's actually charged with the responsibility of that building sits on our working committee. But the key support has come from Rosario Marchese, our local MPP. We have no money; we're an entirely volunteer organization. His office does all the work on our behalf. He sends out notices, he attends the meetings, and he makes sure that we're functioning properly. It's a very fine role for a local member of Parliament to play.

These guidelines haven't been adopted yet, but I can tell you they are being favourably received. They will be circulated to all residents in the community, we hope by September, and we'll make our application accordingly.

So that's how we came to Bill 40, and you'll see in our guidelines how we have incorporated it into the general development guidelines for our community. You must understand that impediments to development in a local community may lie in various directions. What really stops us from being the commercial and economic success we would like to be is our traffic and parking problems. There's no way that we can fund through this but, you see, what we can do as a local community is to focus on real problems, impediments to development.

The success of the bill will depend on how communities are able to come together and take advantage of it. Right now, on Thursday evening the provincial bureaucrats are meeting with Metro bureaucrats to tell them how local municipalities can take advantage of this legislation. How many of your constituents are being advised right now how they can take care of this legislation? I'm afraid that some of this money may simply be diverted to local municipalities, so if they want to hire somebody to do something etc, they'll get that funding to do it. That's not, in our opinion, really good local community development.

Economic renewal through community development has largely been abandoned in the last 20 years. The concentration of more and more people into ever-growing urban centres was the engine that was supposed to fuel economic activity. You know, Olympia and York, all that stuff: Toronto, 50,000 people a year; world banking centre; world this, world that. Gone. That engine is dead. If the stock market had collapsed as much as the real estate market has, there would be a panic in this province. Fortunately, it's only a real estate collapse. It will take a lot longer to percolate, but it's a serious situation. The big engine has run out, and the little engine of local community development is the only one we've got left.

Now, the philosophy saw more and more provincial funds being transferred in the form of per-capita tax grants and unconditional grants to real estate to cities, and even during the era in the city of Toronto where we had reform mayors like David Crombie and John Sewell, they never had any idea that local communities could be used as economic engines. They were politicians who wanted local communities to be safe from federal and provincial legislation, but they didn't see them as local economic engines. Municipalities paid less and less attention to the welfare of their communities and more attention to big projects like Ataratiri, $1 billion down the drain; a whole number of projects that went down the drain.

Today we have 50-cent dollars, 25-cent dollars and zero dollars. Many mayors sit around figuring out how to get a program in which the province pays 75% and the municipality pays 25%; that's a 25-cent dollar. The 50-50 or 50 -- in our province we have zero-cent dollars; that is, where the province transfers unconditionally per-capita tax grants and grants in lieu of taxes. The George Brown College generates to the city of Toronto's tax base $440,000 a year. None of that is used in our local community, and it doesn't take $440,000 to do anything with the George Brown College building. That's apart from any money they get for programs to there, and the idea that any of that money should come to municipalities is alien to local governments. That's not what they're in business to do.


We see this legislation as beginning to put money directly into local development activity. If that is the real intent of this legislation, I think it is to be welcomed.

The other thing we like about the legislation is that you guarantee money and you don't give it in grants. We're going to have to go out and raise between $50,000 and half a million dollars, and that's good. If we can't raise that money, then we don't deserve this. If our businessmen and our local can't, okay, that's the way it is.

The whole of the housing program of the federal government, after the war, was financed by underwrite. The government did not directly give you money for a house. They guaranteed the money, if you were an ex-serviceman, and you went to the bank and you got a loan. Through that procedure, billions of dollars were steered into housing and thousands and thousands of homes were built. This is a good principle and should be endorsed.

More important, in our opinion, is there is a current effort, we read in the literature, to make CDCs eligible as RRSPs. This is very, very important. That means that people could really invest in their local community. You could buy shares in the community development corporation and they would be as safe as an RRSP, and you would be investing in your local community. I understand negotiations are under way with the federal government to do that. I think that should be encouraged to the utmost degree because not only could it raise money; it would give everybody a feeling that they're really participating in this effort.

A chief danger to this legislation will come from municipalities and bureaucracies. Bureaucracies do not like programs that work directly between the elected representatives and the people. I'll give you an example. A week or so ago, my colleague Jason Pearson and I went to see two civil servants about the CDC. We spent a half-hour telling where Kensington was. The first thing they said to me was: "You know, Mr Schwam, we'll have to check on the representativeness of your community group." They don't know where Kensington is, they don't know who we are, but they're going to check to see if we're really representative. That's the way it goes. They will attest to, affirm, and so forth. I don't like that very much. It bothers me. Our local MPP should attest to our validity. That should be enough. I don't need bureaucrats doing that. It really galls us.

Those are the outlines. I haven't mentioned the community loan fund. At the time we drafted this, we were not too clear of what that is; we'd read the legislation and were not too sure of what that is. However, I can say that if it is that a local businessman comes to our board and says, "I want some help. I can't get a loan from the bank," and we loan him $5,000 and he can get a bank loan, if that's the purpose of the loan fund, that's a good thing and that might work out very well. We could then loan somebody some money so that he could qualify for another loan from a banking institution. Not a bad idea if that's the intent of it.

That's my presentation to you.

The Chair: Thank you. Mr White.

Mr White: Thank you very much, Mr Schwam and Mr Pearson and -- I'm sorry. I didn't catch your name.

Ms Wendy Kwong: Wendy Kwong.

Mr White: Ms Kwong. I was very impressed with your presentation. I'm one of those people who have been in transit through Kensington Market myself. I used to live on Bellevue just after I first married. My wife lived above Stitsky's Dry Goods before it became a hardware store. I'm just really very impressed -- very, very impressed. This sounds like the kind of exciting community development corporation that would make an awful lot of sense for your area, the fact you already have a community, you already have people who are already working together, know each other, could easily form together and make representation to secure those kinds of moneys, to plan for your area and go on from there, as you suggest, to that community investment share corporation or community loan fund. Those are all fancy names, but I think you very well describe what they mean.

Yet, Mr Schwam, you also mentioned that you feel there might be some barriers by other levels of government or institutional -- you know, this ministry, that ministry, this municipality. How do you feel that would happen in terms of recognizing your community?

Mr Schwam: I hope it won't happen, but the problem may be this: The city of Toronto will not view this legislation very enthusiastically, in my opinion, except maybe the mayor; she seems to show some recognition of some of the problems. Because we have had these problems with the city of Toronto. Our businessmen had to fork out $60,000 to remove ancient gas mains because the city wouldn't help us and Consumers' Gas wouldn't do it. We've had experience with a lot of municipal bureaucracy refusing to help local communities. They don't consider it part of their mandate or their interest.

So it's based on that experience. For example, our area generates about three quarters of a million dollars in revenue to the city of Toronto over and above what the city spends on our services. That money goes into general revenue and we never see it. And the city is not embarrassed about that. They say: "We have other things to do. We don't like the idea that we're obligated to put local revenues back into the local community." The only groups that I think get any kind of break that way are the BIAs, and they are allowed to use some tax revenues for local BIA activity.

Mr Jackson: MVA considerations put aside.

Mr Schwam: Right. But our problem here has been that we have a very strong residential and business community and the BIA has not been a vehicle that we have followed. So it is a problem.

I hope that what I'm saying, these problems, will not exist, but if I were to foresee them, I would see them in that direction, that there may not be enthusiasm for local community development activity. If the province really feels that this development activity is essential, the province will have to make sure that's where the money goes, and not back into municipal coffers so that what you're doing with the social contract -- so they'll fire three people one way and then rehire them under Jobs Ontario. In our opinion, that would not be genuine development. That's all. These are experiences we've had with local government and local bureaucrats etc, and it's very welcome to see the province apparently feels that money in local communities can be used productively for developmental activities.

Mr White: It's an exciting prospect that you offer. It's an exciting prospect for your neighbourhood that you offer.

Mr Schwam: Very much so. It really has been, especially coming -- we are asking the province to turn the George Brown college over to us for two years so we can develop that site ourselves. Now, that's a radical concept right there. But there's nobody else around to do it. Who are you going to ask?

Mr White: Indeed.

Mr Schwam: Who's left? I've worked with Reuben Corp, with Cadillac, Greenwin, Meridian -- they're gone. You know, the first fear of our community was that some developer would put a high-rise building up there. Forget it. There are no high-rise buildings going up any more. That fear, that's over. That war has been lost, sadly lost. That money is not around. This notion that money circulates for ever -- well, trillions of dollars were made and I don't see where that money is in our economy today.

But a local group that knows real uses, real purposes, that can define them -- we were talking about a parking garage the other day. I have a resident who lives right across from the park. She told us more about that park, and any architect could come around and design that parking garage because of her observation of what happens there.

So it is a very exciting -- I'm sorry, I think my time is up here. I'm being nagged on either side.

Mr Jackson: Your enthusiasm is being tempered, that's all. There's nothing wrong with that.


Mr Grandmaître: I have one very short question. I know that you have been very active in your area, but I can't understand that you never took advantage of the BIA. Now you come before us and you say: "This is the 11th commandment. We've been waiting for this for years and years and years." How come you never took advantage of an existing program, a very successful program in the province of Ontario?

Mr Schwam: We discussed it with our businessmen and we decided it was not for us. Maybe in your community it's a terrific program.

Mr Grandmaître: Then my second question is, if the BIA program wasn't suitable for your needs, did you propose to the ministry another program?

Mr Schwam: Has the ministry paid me to do that? Am I a consultant of the ministry?

Mr Grandmaître: We're trying to create partnerships here.

Mr Schwam: Right. If the ministry had asked my opinion, I would have given my opinion. I was not aware the ministry knew that I existed or asked my opinion. This is a strange line of questioning. The BIAs are very valuable, and for those communities that use them successfully, that's great. It doesn't mean it's a panacea for all communities. It doesn't work very well in ours. I told you. We have residents and businesses together and we work very closely. It doesn't work very well because they won't let us have that association in BIAs. We're not opposed to BIAs. As for other programs, we have approached many other programs. Nobody listened to us. Sorry.

Mr Jackson: You were asked a question and you responded. That's fine.

Mr Wiseman: I would like to respond to one of your earlier comments about why you see so many school children down there. Given that I, in my previous life, had cause to bring school children down there, I'll tell you why we did, at least why I did, at any rate, and why my colleagues did. It's a dynamic area. It's unique. It offers to children a presentation of a different view of how things can be done. It gives a clear example of how a downtown area in a big city can function and be successful at functioning. Hopefully, it also conveys to the students -- and this is what we tried to do -- that, in cooperation with one another, a multicultural dynamic can work and that you can then take that paradigm, that dynamic, and use it in communities.

I think that what we were attempting to do, coming all the way from Ajax, was to try and shatter this planning myth that spaghetti-like streets with wide frontages and ugly garages on the front of houses, of which I own one, makes for a good community. In fact, what Kensington Market represents, and the Kensington area and a lot of the streets in downtown Toronto, is a living form that we have got away from that we need to return to. When I brought my students to downtown Toronto, to Kensington market and to other areas, this was what I was attempting to show.

Mr Jackson: Look for him; he'll be doing it again in two years.

Mr Wiseman: Probably not; I will probably be here. I'll tell you how you can do it.

Mr Jackson: The truth was that you were looking for Al Waxman's autograph.

Mr Wiseman: Al Waxman, skinheads, yeah, right. But the point I'm trying to make is that right now, in the broader area, we are destroying our environment with urban sprawl. We're loading taxes on to people because urban sprawl is not sustainable. There are alternatives, and those alternatives are before our very eyes.

Mr Schwam: Beautifully put, Mr Wiseman. As a town planner by profession, I couldn't agree with you more.

I want to tell you about Al Waxman. There is no King of Kensington. A king wouldn't last 10 minutes in Kensington, I'll tell you that. It was a good story anyway.

The Chair: Thank you for your presentation. We appreciated it very much.

Mr Schwam: Thank you very much, all of you.


The Vice-Chair (Mr Hans Daigeler): We now have the next presenter with us, the Ontario Association of Business Development Corporations. Would you please introduce yourself. I think you have been here and know what the process is.

Ms Diana Neziol: Yes. Good afternoon. My name is Diana Neziol and I am speaking to you today as the volunteer chairperson of the Ontario Association of Business Development Corporations and also as the manager of a business development centre. Our association members are involved in community economic development and would like to comment on one of the new initiatives under Bill 40; namely, the community loan fund program.

My presentation will include a description of our corporations' activities, what our role has been in community economic development and the development of the community loan model, and the opportunities that lie ahead for new community partnerships.

Business development centres, or BDCs, fall under the sponsorship of Employment and Immigration Canada's Community Futures program. There are 55 BDCs like ours in Ontario and 230 across Canada. We are located in rural communities with areas of high unemployment. You will not find us in cities such as Toronto or Hamilton, but you will find us in smaller centres like Brantford, Sarnia, Kirkland Lake, Thessalon, Pembroke and the Six Nations New Credit reserve, to name a few.

Each BDC is a non-profit corporation with a base investment portfolio of $1.55 million, from which we impact local employment by making loans to small businesses in our communities. There are usually two to three employees within each corporation who are responsible for assisting an entrepreneur in the development of a business plan application and then presenting that proposal to a board of directors. The volunteer board members are individuals with lending experience or experience as owners of their own businesses. They are interested in improving their local economy by assisting small businesses with financial and management services through the BDC office.

Our clients are entrepreneurs with new or existing businesses who are unable to obtain financing from conventional sources and who will create or maintain employment with BDC funds. Although our contractual agreement with Canada does not specifically state that we cannot loan to clients without collateral security, we must submit an annual investment fund proposal with lending policies acceptable to EIC. As a result, our client base is characterized by high-risk consumers and we are often called "last resort" lenders.

The average BDC loan is $24,500, ranging from $1,000 to our maximum of $75,000. Interest rates vary from a minimum of prime plus 1.75% to as high as prime plus 7% and are dependent upon each board's lending policy and the inherent risk in the collateral security. All interest earned on loans is returned to the original portfolio and over half of the Ontario BDCs now have capital pools approaching or greater than $2 million. With these funds we have made over 5,000 loans and influenced over 19,000 jobs. Our investment losses currently average about 8% across the province.

There are two primary reasons why business development centres are successful: the board of directors and the technical assistance and aftercare provided to clients.

The board members, who render all final decisions concerning our loans, bring the community aspect to the program. They know what is best for the community and they're very sympathetic to the issues faced by the entrepreneur. They also have a tremendous base of business experience on which we draw, often coming up with creative solutions to our clients' problems.

In terms of the technical assistance our offices provide, there is a wide range of skills among the office staff. Each of the managers has small business experience, either hands-on or in consulting roles, and/or lending experience. Some have considerable training skills and offer relevant courses and seminars at little or no cost to clients. Most offices provide business planning, bookkeeping, marketing and cash flow management services to clients for nominal fees.

But most of all, the offices provide frequent reviews of their client accounts. This monthly monitoring consists of regular client contact, sometimes more than once a month, and includes reviewing the monthly income statement, accounts receivable and accounts payable summaries and comparing this data to the business plan projections. In addition to the client monitoring, the BDC receives its monthly loan payment, again ensuring regular client contact.


This contact is something that bankers cannot provide, simply because they do not have the time. The typical BDC loan portfolio is made up of an average of 70 active clients, while bank account managers may handle as many as 300 active loans. Because we are not banks, we are not measured on the actual dollar return of our portfolios, but rather on our ability to influence local employment. We also have flexibility in dealing with our clients and we'll do whatever is necessary to keep them in business. More than just a financial aspect of our monitoring is the fact that we are available to listen and share in our clients' problems and commend them on their successes.

To verify our fiscal responsibility, our own reporting to Employment and Immigration Canada includes annual audited financial statements and funding submissions. This checks and balances system is successful, with very few problems and fast action taken when issues arise.

BDC boards and staff are a dedicated group, committed to helping small businesses and entrepreneurs in their communities. On an annual basis, they analyse the economic climate of their community and review their investment strategy, together with their Community Futures partners. The strategies target specific industry sectors, loan sizes, client groups and potential job impact. Marketing, operational and, sometimes, training plans are aligned to fit with the investment strategy to ensure effective economic development consistent with their municipal government's strategic plans.

BDCs were originally mandated for five-year periods, with the goal that the loan portfolio would, in five years, be self-sustaining. Self-sufficiency, however, has been difficult to achieve, since BDCs are more focused on client success and service, job creation and community economic renewal than generating substantial revenues to offset subsidized operating budgets.

Employment and Immigration Canada realizes the value of the program and has recently begun to reselect communities to continue for additional five-year periods. Once reselected, a BDC can qualify for annual operating funds to a maximum of $150,000 and possibly additional investment capital. The point of explaining our funding background is that BDCs have and will be in Canadian communities for at least a five-year, and more likely a 10-year period.

Almost 20,000 jobs, with over 5,000 loans, translates to an average cost of less than $5,000 per job. Even considering operating costs and losses, our cost per job is less than $6,500. Our statistics speak for themselves. The business development centre community-based lending program is an effective use of government funds and a catalyst for economic renewal.

The question then is, how can we work together to ensure effectiveness within the provincial government's Community Economic Development Act? In terms of the development of the community loan fund model, I was directly involved in the working group that designed the community loan fund, or CLF, model for the city of Toronto. This research facilitated the design of the CLF model used by the Ministry of Municipal Affairs. The model was presented to the public at a community economic development financing conference held in June of this year here in Toronto.

During the design phase, the business development centre model was cited as an example of successful community-based lending, including the costs associated with the delivery of this type of last-resort lending. My participation in the process was twofold: first, to bring the real-life experience of the concept and, second, to investigate whether BDCs would have the opportunity to act as sponsors and delivery agents if this model were adopted throughout the province.

However, in the June discussion paper BDCs were conspicuously not named as potential sponsors. This issue is our major concern. As I have described to you already, BDCs operate as non-profit corporations. They have board members with business experience who are representative of the community. They have offices staffed with skilled business advisers. They have systems in place for administration of loans, including the collection of payments and registration of collateral security. In effect, they have all the elements described in the community loan fund discussion paper.

In addition to having all the basic parameters of the CLF model in place, BDCs and their board members have small business lending experience. Through trial and error, BDCs have learned what businesses will and will not work in their communities and what lending systems will and will not work to ensure loans are paid back or to deal with situations when a loan is likely to default.

The attraction for BDCs to be involved with the community loan fund has several facets.

BDCs have a lending history with clients requiring larger loans and are usually unable to assist the community loan fund target groups because of an absence of collateral security. CLFs give us the opportunity to help these individuals and use our lending and business experience to their benefit.

BDCs have not attempted to access private capital; however, with the majority of BDCs now having over four years' experience in their communities and therefore established track records, it makes sense that they would now be ready to pursue local private capital pools. CLFs give us the opportunity to begin to work with local private funds and prepare for the future when our own investment portfolios could be privatized.

BDCs have cultivated dedicated board members who each give at least 10 hours per month reviewing loan applications. CLFs will find it difficult to solicit more dedicated board members than those already working with BDCs.

It appears then that the main objection of working with business development centres is the fact that we are federally funded. Yet in this economic climate of fiscal restraint and cost cutting, to the general public it would seem that the fit of business development centres and community loan funds is a given.

Administratively, it is a simple task for BDCs to account separately for provincial funds and private capital, since we operate under stringent federal guidelines already. It is a simple task for BDCs to ensure that job creation statistics are attributed to the individual sources of government funding. It will be more cost-effective for the provincial government to utilize experienced community-based lending projects to deliver a new and innovative idea such as the community loan fund. Finally, there is a greater chance of success for soliciting investment funds, since, from a private investor's perspective, it would be more prudent to place investment dollars with a group that has lending experience.

The provincial government's Bill 40, Community Economic Development Act, is built on the premise that communities know what is best for their areas. It attempts to limit the bureaucracy associated with most government programs and put decision-making in the hands of the community.

The federal government has experience with this concept through its Community Futures and business development centre programs. Why not share resources and work together, just as you expect of the community volunteers and investors who will initiate the community loan fund program.

Your input on the debate of Bill 40 can ensure that this partnership of government programs will take place and will not be left to bureaucrats defending their new or existing initiatives in community economic development. Thank you for the opportunity to speak to you.

Mr Norm Jamison (Norfolk): Thank you for your presentation. I've got a couple of questions for you. Most of your funding at this time comes from the federal government. Is that right?

Ms Neziol: Yes.

Mr Jamison: How much of your funding?

Ms Neziol: All of it.

Mr Jamison: We have Community Futures in my area, in the Norfolk area, and we have experience there. One of the concerns that I have is the appointments that have been made there. That's a simple fact.

The other is that the people who are on the board don't seem to reflect the various sectors in the community, whether they be the social side or the business side or whatever. What I gathered from your presentation, to simply say, "We're there, just give us the money," I don't buy that because I've seen some mistakes made at your end along the way also, not intentional.

To say in your presentation that you're the only people who have the capabilities to manage that because of the experience, I think is a little unfair because I believe that there are many people in my community that are very capable. The question is, if you were involved, what would your involvement be and where would you fit into this provincial program?

Ms Neziol: I think the perspective that the business development centres would take in this scenario would be that they might possibly form the subcommittee of their board and bring in some other representatives that would make sure that we are representative of the lending constituency, in this case disadvantaged people. We would have a finance committee of that group that would review the proposals the same way that we do now and we would also take care of administering the funds rather than doing that through a bank.


Mr Jamison: I'm really interested in you being more specific. What would you see the participation of your BDC being, in people?

Ms Neziol: The actual board members?

Mr Jamison: Yes.

Ms Neziol: Our existing board members would probably be expanded to ensure that we include the community groups that you're speaking of that in some cases may not be representative of the final BDC.

Mr Jamison: So you're still talking about really administering through the BDCs with amendments the provincial moneys.

Ms Neziol: That's correct. It would be a partnership of existing federal administrative support services that are there now --

Mr Jamison: I just wanted a really simple answer to that question. Why couldn't it work with just a representative of the BDC along with the other groups administering in a coordinated way?

Ms Neziol: It doesn't make sense to duplicate administrative services if they're already in place now. What we're trying to do is save the provincial government some money. We already make loans; we already collect payments.

Mr Jamison: There are some regulations. You must understand that there are regulations about representation on those boards. My understanding -- and knowing the boards in my area that have been set up, they would really run into conflict where unless you dropped a number of people, that representation just simply wouldn't exist properly, or the board would be 38, 39, 50 people.

Ms Neziol: Right now, most boards are 10 to 12 people. There's no reason why we can't get another non-profit corporation status, form a board that has a crossover of BDC board members who now have lending experience, add to that members of the community representative of the loan client base and then use the business development centre structure to deliver the provincial loan fund.

Mr Jamison: Just one more question: Why didn't you include these groups in your own makeup prior to this?

Ms Neziol: That's a good question.

Mr Grandmaître: Because the provincial government was never invited.

Mr Mammoliti: That's irrelevant, though.

Mr Jamison: I'm asking the question.

Ms Neziol: Provincial governments were not invited to the federal program. The federal program --

Mr Jamison: No, I'm talking about the different makeup of your community. Why wasn't there a broader selection made?

Ms Neziol: There are native band groups. Most of the people that sit on our boards are business people or bankers or accountants, people who have direct access to business now.

Interjection: People who have money.

Mr Jackson: That's why they have an 8% loss rate. You're projecting much higher.

The Chair: Thank you. Mr Daigeler.

Mr Daigeler: I find that very, very interesting and I certainly would agree that if there's already something in existence, let's try and use it.

I would like to, if that's in order, hear from the parliamentary assistant what the view is of the ministry on this matter and as to why --

Mr Grandmaître: It was never approached.

Mr Daigeler: I shouldn't say, "Why is it not included?" I just would like to see, do they have difficulties with it or is this simply an oversight, or is this deliberate or do they see a possibility of working with the existing group?

Mr White: I believe there were a number of problems cited. The issue in terms of the need for a community loan fund is very real, not alone in small communities but also in larger ones and in urban areas. I believe Ms Neziol cited the fact that there are a number of excellent programs they offer, but primarily through rural areas.

So there's the issue of the broad base, there are several issues in terms of the program, how it's administered, the clientele etc, the issue that Mr Jamison brought up in terms of the representation on the board and the derivation of those board members. But I would also ask Ms Melnyk if she could join us for this particular issue. She has a much greater knowledge.

Ms Tania Melnyk: We've had several discussions with the BDCs, and I would like to compliment Diana on a very eloquent and excellently presented brief.

The concern as was mentioned -- and she did make reference to it in her brief -- was primarily that we not rush in too quickly into funding something that was already being funded by the federal government, thereby opening up the opportunity for withdrawal of federal funding and its being replaced by provincial dollars.

Having said that, however, I think there are ways of doing this, as Diana started to describe, that we can create a subsidiary of some kind that would have the kind of representation that we're interested in -- there are ways of getting around some of the difficulties that we experienced -- so we could draw on the BDCs.

But the issues you've raised of coverage -- they are not in all communities; they are not in large urban centres where there are very great needs right now in the current economic situation -- lead us to require to have the opportunity to work with a number of groups, not just the BDCs. But we do see them as a very obvious potential partner, as are a number of other groups.

Mr Daigeler: Just to confirm, you just said you do see them as a major potential.

Ms Melnyk: Yes.

Mr Daigeler: You do.

Ms Melnyk: Yes, we do.

Mr Daigeler: I'm glad to hear that because this is a little bit different than the message that I got a little bit earlier.

Ms Melnyk: No. I think Diana had to present a brief.


The Chair: Order.

Mr Daigeler: I can understand because they're concentrating on the rural area and you want to also cover aspects.

Ms Melnyk: Yes.

Mr Daigeler: I think that's fine. I don't think anybody has problems with that.

Mr White: I would suggest as well, though, that we can't have a partnership until such time as we have created a framework ourselves.

Mr Daigeler: Well, obviously.

Ms Melnyk: Yes.

Mr White: We can't have a partnership unless we have a community loan fund program established by this legislation.

Mr Daigeler: I understand that. I just hope then that what Ms Melnyk said is correct, that you are certainly looking at the possibility, once all of this is set up -- I mean, that's taken for granted.

Ms Melnyk: Yes. In fact we have met with the federal representatives of the whole Community Futures group in Ontario on a number of occasions to look at ways of cooperating. We've had very successful cooperation with the Community Futures groups which have very common principles with ours in terms of what they are trying to accomplish.

In Port Colborne we undertook a strategic planning project in a three-way partnership between the municipality, the province and the Community Futures group, which serves now as a model for a lot of strategic planning that we're doing.

The Community Futures people, the federal representatives in the province, do recognize that one of the bigger issues is the board representation. However, they do not see this as a major hurdle that could not be overcome. There are ways of getting around that, either through a subsidiary arrangement or potentially some kind of broader amendment of their program nationally.

Mr Jackson: Ms Melnyk, can we take it then from your comments that you would support an amendment which would allow the inclusion and naming in the legislation of the BDCs?

Mr White: Mr Jackson, it's not to Ms Melnyk.

Mr Jackson: Don't interrupt. I'm going through the Chair.


The Chair: Try this one at a time.

Mr Jackson: I'm asking Ms Melnyk to clarify her comment, Mr White.

Mr White: Ms Melnyk's support of a comment is not something that is immediately relevant to this committee.

Ms Melnyk: I don't think it requires an amendment.


Mr Jackson: Mr Chairman?

The Chair: Look, we're going to have to do this one member at a time.

Mr Jackson: I guess it's simpler for the government members to understand. You don't have objection then to an amendment which includes the BDCs since you indicated your willingness to work with them, and there are minimal problems and arrangements could be made. That's what I understood you to say.

Ms Melnyk: I don't think it requires an amendment. I think the reference was that the group was not identified as a potential sponsor in a discussion paper that we --

Mr Jackson: The way the law is written, and you know this as well as I do -- any bill is written -- if it's not included, it's therefore not included unless --

Ms Melnyk: I don't believe it's in the bill.

Mr Jackson: Where is it included then?

Ms Melnyk: It'll be in the regulations.

Mr Jackson: So where have they seen the regulations that indicate they know for sure they have been excluded?

Ms Melnyk: They have seen a discussion paper that we put together for a conference on community-based financing that was held about a month ago.

Mr Jackson: Can we get a copy of that report?

Ms Melnyk: That paper is in your background documents.

Mr Jackson: In which tab?

Ms Melnyk: Tab H.

Mr Jackson: Okay. So that's the basis on which eligible --

Ms Melnyk: Yes.

Mr Jackson: I now am concerned when I hear that the BDCs have 55 offices operating in Ontario and your targets are to hopefully get to 40. Your territorial responsibilities now become highly suspect. If you're already indicating that there are problems of coverage with 55 centres, how in hell do you expect to reach out to enough people if you're only looking at 40 centres?


Ms Melnyk: I think it's been stated earlier that this program is modest because it is very much charting new waters. I think there's an attempt to move more slowly to try to gain some experience, not to make some major mistakes, costly mistakes, that would be more of an embarrassment to the province.

Mr Jackson: Are there any discussions around the territorial issues then in terms of coverage? We've heard from Diana that some communities may not have contract renewals; some probably will, since the federal government has indicated extensions may be in order. Is there any dialogue there? It's a legitimate question for the public and for any reasonable politician to seek to limit what might be loosely referred to as a duplication of service. When you take the loan investment component away from this bill and talk about loan assistance, then you're essentially doing the same things.

Ms Melnyk: Not really, because the kind of client you're dealing with is quite different. The BDCs will acknowledge that because of the pressure on their program to become self-sustaining, they have by definition become somewhat more conservative in their lending. The kinds of loans they make therefore tend to be higher than the kind of loans we are looking at, and the collateral requirements are there to a greater extent than they would be for our program.

Mr Jackson: Would you then consider qualifying an applicant who is turned down from a lender but qualifying a BDC application as a qualified lender who's turned down an application?

Ms Melnyk: First of all, we'd have to have them operating in the same community. We're not sure we're going to have them in all the same communities.

Mr Jackson: You've avoided my question. In those communities where they do exist in harmony, hopefully, if you're saying they're more conservative, then there will be people turned down from a BDC. Now the people are sitting there and they are going to say, "Where is your court of last resort?" They walk into my office and say, "Cam, how can you help me?" I say, "I'd like to send you to a wonderful provincial program, but Mrs Melnyk said it wouldn't work and that you weren't a qualified lender." You don't want that responsibility on you, do you?

Ms Melnyk: We're assuming that the BDC now has a subsidiary loan fund that they're operating and therefore, yes, they could go to the loan fund and qualify. It depends on what the board of the loan -- we don't have a say in that, but this would be a situation where we would see that probably someone who might not qualify for a loan from BDC might be eligible for a loan. This is meant to complement, not duplicate. I think that's why Diana and her people are interested.

Mr Jackson: One final question, is there any interest -- and it's only because the issues of geography and where you commence programs has been raised. There are certain communities that have been negatively impacted by recent decisions: St Catharines, for example, Brantford, Cambridge. There are several communities that were anticipating large injections of dollars and employment that didn't occur. Is there any attempt to target those as priority areas? Is there any policy discussion along those lines? It seems logical.

Ms Melnyk: That's premature. At this point, we're trying to get the program through so we can start mapping out the kinds of areas that might get priority. I don't think it's intended to target. It really is very much a community-based emphasis where the government is not a top-down decision-maker, but the communities come forward and put forward their proposals and they are approved on the basis of those principles.

Having said that, Brantford and St Catharines happen to be communities that are extremely active, have been in to see us already looking for resources and are really waiting for this legislation to get through.

Mr Jackson: On that point, I'm getting rather confused messages here about this whole issue of territorial and served territory and service. It wouldn't have occurred to me until we get the two organizations, the two infrastructures, talking in terms of the number of offices they may create and the type of client they serve. But also when I hear they're primarily rural -- and we want to have an emphasis on urban areas, and I hear that, and then I hear the government's not trying to determine which areas, I'm rather confused in terms of where we might be going with this, whether it's been all well-thought-out or not. But I'll leave it at that. I appreciate the deputation immensely and also for Ms Melnyk's responses as well.

The Chair: Ms Neziol was attempting to answer at one point.

Ms Neziol: The business development centres want to have the opportunity to deliver this program and we want to make sure it's going to be successful for you as quickly as possible. We have lending experience. We have been doing this for four, five, six, seven years. We know what it's like to be lending to somebody who has been turned down by a bank, okay? We know what it's like to try to collect that money from those individuals later on. We've been doing it for a long time. Our board members have experience in making these type of loans. We want to make sure that we have the opportunity to deliver and make the program successful for you too.

Ms Haeck: Mr Chair, just a small point of clarification.

The Chair: And what would you like me to clarify, Ms Haeck?

Ms Haeck: Just the fact that St Catharines is receiving the Ministry of Transportation building. It is going to be a $100-million injection of jobs and, shall we say, capital investment in the downtown core of St Catharines.

The Chair: I don't remember making that statement, so clarifying it is --

Ms Haeck: Mr Jackson indicated that it wasn't happening and in fact it is.

The Chair: Thank you very much for the presentation. As you know, we'll be doing the clause-by-clause of this bill next week.

Ms Neziol: Thanks for your consideration.


The Chair: This is the final presentation of this afternoon: Reddington, McNeil Inc and Portcam International Inc. Good afternoon, gentlemen. You've been allocated one half-hour from the committee. If you would like to identify yourself for the purposes of our electronic Hansard, you may begin your presentation.

Mr Shaun Reddington: With me is John Rosario, president of Portcam International Inc. My name is Shaun Reddington. I'm a principal in the Prince Arthur Consulting Group.

Our interest is as financial consultants, having looked into these sorts of program over the course of a number of years. We're interested in the legislation and the strengths and weaknesses thereof.

We have a brief presentation, just to raise some of the issues we think would be of interest, based on our experiences in dealing with these sorts of things and dealing with the small business community.

Small business plays a crucial role in the economy of this province, as more than ever before it is the vehicle for economic growth and employment. However, of the many of the problems facing small business, there's nothing more basic than the difficulty in raising capital, whether debt or equity. For minorities and socially disadvantaged people who aspire to own a business or to expand an existing company, this problem is even greater. Therefore, we applaud the government's initiative in providing a mechanism for raising debt and equity capital for small businesses and it is within this positive context that we offer the following comments.

Community loan funds: The use of community associations as sponsoring bodies is a good idea, but professional assistance will probably be required, given the problems outlined below.

The anticipated relationship with a bank will not happen.

Reading the material that we were presented in support of the act, there was intention that there would be developments of a relationship with the bank and that the bank would be the primary mechanism through which loans of $500 to $15,000 would be provided to the applicant. No bank will use the services of an experienced, independent account manager to manage a portfolio of $500 to $15,000 business loans. The economics simply just do not justify such an approach. As well, no bank will be prepared to undertake the collection of such loans and they'll merely collect under the community loan fund corporation's guarantee.

We understand that several credit unions have expressed an interest in this program, and they may undertake it as a loss leader, but no bank will be interested in going this route.

Basic training in how to run a business should be mandatory for all successful applicants. It is our experience that the best way to reduce the high ratio of startup business failures is to insist on a training program leading to the completion of a business plan and basic training in accounting and marketing.

If someone wants the money but is not willing to make a small investment in time that will improve their chances of succeeding, then the venture will probably fail and it should be questionable whether they deserve that money or not.


Given the fact that the board of the CLFC will have to use a great deal of its own time in terms of actually operating the funds in terms of approvals, the follow-up, the reporting, the fact that if anything does go bad they will ultimately have to be the ones to collect, there will be quite higher operating costs. Given the higher operating costs they will experience, increased operating funds should be allowed to support their work.

Board members should also receive specialized training if they request it. There will be a number of community advocates and I think it's very important that if they're going to be involved in sponsorship they take an active and productive role in that. But they may feel that, if they don't specifically come from a business background, they might benefit from general business training or they might receive responsibilities of being a director and what does that entail exactly? These are all issues which somebody who's not specifically involved in business might want to have further developments in being made better aware of.

As far as community investment share corporations go, even more than debt financing, raising equity capital for small businesses is the most difficult financing issue today. A source of equity for which the business person does not have to surrender a good portion of their common shares or even control, is invaluable.

Still, the program could be improved and our comments below outline suggested improvements.

The program requires that a company must have 60 cents in equity for every 40 cents that can be contributed through a CISC. This is far too onerous.

By definition, a company that will benefit from this program requires equity because it cannot raise funds elsewhere, including banks, because its debt-to-equity ratio is too high. Therefore, requiring such a high equity contribution for potential clients will defeat the purpose of the program and will make many companies that would benefit from this program invalid under the current ratios.

Has the Canadian Institute of Chartered Accountants and Revenue Canada qualified the investment as equity?

Part of the advantage of putting it in the form of preferred shares is that it would be equity and that this could be taken into account in any sort of other debt vehicle that people might want to use that would be contributing to the equity base of the company. But if it's a preferred share issue that has a fixed repayment requirement in seven years, it may not be considered as equity but rather as long-term debt. This is an important point as it will also influence how banks and other financial institutions will interpret the actual meaning of preferred shares in this case.

There are a number of issues that need to be clarified before the program can be introduced, such as the RSP eligibility of investors' funds and the treatment of dividends.

Some general comments:

The amount of the guarantees allocated to the program represents a good start, but they are inadequate to really address the problem.

Given even a modicum of success, the programs will be fully subscribed well within the established time frames of three years and provision for an expanded program would be beneficial.

There is an incredible need for additional equity financing out there for small businesses that are ready to take off or that people are looking to expand. Without another source, this will be a very popular program for those people who qualify and the money, you may find, will be very quickly used up. Hopefully there will be provision for an expansion of the program and it will be well within the three-year time frame that would be used.

Programs of this kind are inherently prone to abuse and we suggest that a strong audit requirement be maintained as part of the administration of the programs.

For a CISC, annual financial statements prepared by an accounting professional with a recognized designation on a "review engagement" basis should be part of the requirements. In other words, anyone receiving equity funding should really have a company that has been in business and has sufficient sophistication to be able to have annual statements prepared by a CA or a CGA or whatever the current controversy will allow. Review engagement means that it's not merely the management providing numbers and the accountant making it look pretty; it's actually that the accountant has done some review and has done some tests to ensure that there is generally everything in place in terms of control, and the numbers have some validity.

For a CLFC, the size of the loans do not justify such an expenditure for a professional accountant to prepare its statements but, for clients, a detailed discussion paper as to how to record-keep, the expectations of what sort of records they will keep and submission of annual statements supported by a random audit should be undertaken.

Consideration should be given to guaranteeing a minimum annual return to investors. The government's guarantee for capital is the important selling point that will make the programs a success. However, capital could be raised more easily if a minimum return was offered.

Given current interest rates, it would only require a few percentage points to make the investment attractive. Given the fact that people can put the money into a bank for 2% to 4%, having a government-guaranteed investment for a long period of time would make it very attractive at a very minimal expense. That would make it much more attractive, but at the same time it would guarantee some sort of minimum return for people who are thinking of being altruistic and funding these ventures. Inevitably, some companies will fail within 12 months of startup, no matter how well planned and executed, and if the investors' funds aren't productive for seven years, then even altruistic investors will be concerned.

In summary, we applaud the government for starting an excellent program and we think it has a lot of very good points to it, but there are a number of technical points which we feel could be addressed and improved before the final reading.

The Chair: Thank you. Mr Daigeler.

Mr Daigeler: Thank you very much for a very good, very succinct presentation. I must say I'm a little bit struck by your serious questions in here, and pretty major questions, and at the same time you think it's a great idea, "Let's move ahead with it." Perhaps you can help me there a little bit.

Mr John Rosario: Permit me to respond to your question. The program, in terms of the draft reading of Bill 40 that we've done, is excellent, no question about it. What concerns us as operators in the small market and midmarket is that in a province whose GDP is $45 billion at zero growth, a $20-million guarantee appears to be quite small.

Number two, while conceptually everything is fine in terms of the pref shares and so on, as my colleague has raised, I am not sure at this stage of our reading, and it could be our misunderstanding, that the Canadian Institute of Chartered Accountants would actually look at that as capital. They may look at that as a form of term lending with some special treatment. Graver than that would be Revenue Canada, which might look at the dividends upstream, given the differences between dividend taxation and interest taxation, as not being -- or a disguised form of term lending and therefore disallow those shareholder investors from qualifying their dividends as dividends.

So there's nothing wrong with the program. It's more questions that are raised on how those various treatments are concerned. Now, the popularity of the program, I have no doubt it will be very useful. I mean, the backbone of our economy is the small businessman, the guy who risks everything. It is not the General Motors of this life. So they are the ones who really need help. I'm not sure, as an experienced capital markets person, in terms of the securities offering -- if we make an offering memorandum calling something shares, paying the possibility of x dividends, and if we leave pending in the air the questions I just raised about Revenue Canada and the CICA, what sort of liability would I have as the individual who wrote that thing on behalf of the CISC and on behalf of a particular project? Would the various parties and bodies to this project find themselves, two years down the road, in a pile of trouble? I don't know.

Mr Daigeler: I'm no banking expert and I don't profess to be an expert on this bill either; I'm still confused because there are so many ministries involved and you're dealing with so many aspects. If I understand correctly, and perhaps the parliamentary assistant can put me right here, there are no dividends we're talking about here and the only possible benefit of this thing, other than sheer altruism and sort of the fact that you feel good because you invested in your community, the only other possibility for a return could be the RRSP consideration.


Mr Grandmaître: And it's not in there.

Mr Daigeler: And that's not even in there yet, as my colleague says. People are telling me, "Well, there are groups out there; there are charitable organizations," and I guess some religious orders, and since I have some background in that, perhaps I can appreciate that the good sisters might want to invest in this.

Mr Grandmaître: They've got all the money.

Mr Daigeler: But I don't see where any dividends are coming from here.


Mr Daigeler: I won't repeat what he just said.

Ms Haeck: Why isn't the mike on when we need it? I heard that.

Mr Daigeler: So you see I understand your concern and I think you're quite right, but since there won't be any dividends, you won't have to be concerned about this. Perhaps I'm off base, but I don't think so.

Mr Rosario: We are in possession of a discussion paper and that discussion paper outlines, among other things, that in the case of the CLFC, the dividends or rate of return will be limited to a maximum of the five-year GIC rate at the time of the issuance of the shares. The cost to the borrowers will be a minimum of prime plus 1% and the maximum term per loan, in the case of the CLFC, will be five years. That has been our understanding. If we have we been misled, it's another story.

In the case of the community investment share program, we were told in that discussion paper that the maximum rate of investment would be prime plus 5%, the maximum term will be seven years and in both cases they'll be denominated as convertible pref shares plus A notes.

If we don't understand what we read and it has been changed ever since, I would assume that anything that is called an investment would have to have, even altruistically, a minimum return to entice the local communities to invest in the program. The GIC rate these days is about 4%; five years is as altruistic as you can get when you can go to the mutual fund market and return 15% pref, so that's altruistic.

The Chair: Mr Jackson.

Mr Jackson: I'll pass, Mr Chairman. Thank you.

Ms Haeck: I believe I've Ms Melnyk sort of having a discussion with a few people and I sort of sense a desire to have some input here, so if I could personally call on Ms Melnyk to contribute to this discussion.

The Chair: I suspect the parliamentary assistant could.

Mr White: What specific question did you want to raise with Ms Melnyk?

Ms Haeck: I think Ms Melnyk has some clarifications to make. I think we're all sort of taking an interest in what Mr Rosario has to say and I know there probably have been some discussions going on in the ministry relating to this. So I'd like to hear Ms Melnyk's remarks.

Ms Melnyk: These are some very real issues that are being raised and we're very much aware of them. However, just in terms of the clarification, what I wanted to stress was that we are looking at very different kinds of investors for these two financial instruments.

In the case of the community loan fund, the return is indeed capped, it potentially could be capped at the GIC. In the case of the CISC, it's not necessarily capped at the same low rate of return. There may be a cap just to ensure that there will be some operating funds for the CISC but it won't be at the same low level. So the potential for returns under the investment share corporation is higher now, and we're hoping that it will be sufficiently high to attract investors.

We have some legal experts here and other experts who can clarify this further, but I just thought that was --

Mr Jackson: What about the differential treatment of Revenue Canada. Have you gotten legal advice on that?

Mr Loken: I'd just like to clarify the interest raised by the presenters a little bit if I could. What the CISC will be investing in is an equity share, according to the definition in the bill, that has a voting right. The preference we are speaking of, we're interested in a preference on liquidation or dissolution so that the government guarantee will not be called upon before -- the assets of the business will go to the guaranteed shareholders first. As to the terms of the share, those are open under the definition.

If I could also clarify the debt-equity ratio, clause 11(1)(b) refers to the ratio between the CISC and the non-CISC investors. It does not refer to the arm's-length debt ratio to share capital.

Mr Rosario: I believe that in terms of the ratios, perhaps we didn't express ourselves as clearly as we would have wished. A 60-40 ratio or $1.25 equity to one buck of debt is really above the banking requirements of the Canadian chartered banks. Not a soul in the world would have a minimal problem going with $60 of equity to the CIBC, for example, if he says, "I want to borrow 40 bucks," no problems whatsoever.

What we were addressing was that the ratio, as we read this, is 25% existing funds, an additional 35% other sources and 40% CISC. If it's defined at 35%, it is debt, be it a mortgage on the property or the factory or whatever, perhaps. But if it is clearly and rigidly defined that 60% existing equity has to be present, no Canadian bank will say no to such a client.

Mr Cordiano: There won't be very many clients.

Mr Rosario: There won't be very many clients. Thank you, sir. That's exactly it.

Mr Loken: Sir, if I may clarify. I still don't think we clarified this properly. We're referring to the percentage between the share capital that is contributed to business, the CISC share capital as a maximum 40%, the non-CISC share capital as 60%. This does not refer to the debt-equity ratio in the business. The business may have $100,000 in capital and may be borrowing arm's-length financing from a bank.

Mr Cordiano: Yes, but how do they accomplish 60% equity?

Mr Loken: We're talking about share capital. The decision as to the viability of the business, where there is enough share capital as opposed to debt capital, is another decision that will be in the valuation by the ODC in many cases.

Mr Mammoliti: Anyway, I want to ask a question.

The Chair: Mr Mammoliti.

Mr Mammoliti: I'm just saying I thought there was a process here --

The Chair: The process broke down when there weren't sufficient questioners for the parties to fill their time and so I was just providing ample opportunity for members under the constraints of the time to ask the questions.

Mr Mammoliti: Who broke the process?

Mr Wiseman: So really that 60% share offering could still be risky, so it's not really what you're saying here. The bank would never handle something like that.

Mr Rosario: No, sir. If the 60% is clear-cut, designated on the balance sheet of a company, be it by way of actual shares issued or by way of shareholders' loans, which is another form of capitalizing a company, which banks bring to the bottom line and consider as capital, if that is your 60%, my suggestion here or our suggestion here is that such a company has no problems whatsoever in going to a bank to expand its business for an additional 40%. Where the banks have problems is when there is one buck of capital and the company is asking for two. If a company comes in with $1.25 and says, "All I want is $1.00," they give it like that.

Mr Wiseman: The problem is that where there is no capital and somebody wants to borrow $4,000 or $5,000, they can't get it.

Mr Rosario: But under the CISC, I suspect that company, unless we're misreading this entirely, would also not qualify. Under the CISC rules, that company will be told to raise -- let's assume it's $100,000 -- $60,000 on its own before talking to the community association or the municipality or whoever. That's how we interpret it.

Mr Cordiano: Aside from all that, these two funds, the CLFs and the CISC, we're talking about $30 million in total in guarantees.

Mr Rosario: That's correct.

Mr Cordiano: I think that is such a minuscule amount of money.

Mr Rosario: We find it small too.

Mr Cordiano: Very small. I mean, let's be very blunt about it.

Mr Jackson: The Liberals talk in terms of billions, you've got to know that.

Mr Cordiano: It's insignificant.

Mr Grandmaître: And you don't know how to write.

Mr Rosario: I didn't catch the last part, sir.

Mr Cordiano: We were so rudely interrupted by editorializing by my friends on the right here.

Mr Rosario: We find it small because frankly, the GDP of the province is $45 billion.

Mr Cordiano: You made that point earlier, but I just wanted to emphasize that what we're dealing with really is about $30 million and that's not going to go very far.

Mr Rosario: No, it's not.

The Chair: Thank you, gentlemen. We appreciate your intervention. The committee will be adjourned till tomorrow morning at 10 am.

The committee adjourned at 1632.