EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 2, 1995

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[Translation]

The Chairman: Welcome. Today we will consider chapter 12 of the Auditor General's Report, Federal Real Property Management. We will begin immediately since I will adjourn the meeting at 5:15 p.m., after which we will have 15 minutes to adopt the report of the Sub-Committee on agenda and procedure regarding the meeting of April 26 last.

As usual, we will begin with Mr. Desautels' opening remarks; he will be followed by Mr. Giroux. Mr. Desautels, I'd like you to introduce the poeple who are with you today and Mr. Giroux can introduce the members of his team.

Let's begin with Mr. Desautels.

Mr. Denis Desautels (Auditor General of Canada): Thank you, Mr. Chairman. I would like to begin by introducing Mr. Reno Cyr and Mr. David Rattray who worked on the issues we are studying today.

Thank you for this opportunity to present the results of our audit of real property management, as reported in chapter 12 of our 1994 Annual Report. This chapter forms part of the multi-entity audit of federal real property management in my 1994 Report, with departments specific issues being reported separately in chapters 16, 22, 26, 27 and 34.

The departments included in these audits were national Defence, Correctional Service, Public Works and Foreign Affairs. In aggregate, these departments are responsible for managing almost 70% of the federal government's real property holdings.

Chapter 12 includes findings from our review of the Treasury Board Secretariat and its bureau of real property and materiel. It also brings together selected major findings from the four audits to present an overview perspective of the real property issues common to these departments.

The Government of Canada owns real property in all provinces, territories and overseas, valued by the 1985 Nielson task force at between $40 billion and $60 billion.

The management framework for real property is governed by Treasury Board policies. Public Works and Government Services Canada acts as the designated custodian of general purpose office facilities. Other departments are the custodians of property for the delivery of their programs.

Our audits showed that the federal government needs to make major improvements in the way it manages property. In our opinion, the government's own policy that real property must be managed to the long-term economic advantage of the government is at risk.

While it is a reality that real property considerations are often subordinated to program requirements, particularly during periods of financial constraints, the long-term results of such a strategy include a loss of property value, a reduction of the usefulness of the property for delivering programs, and a build-up of a maintenance backlog that may never be adequately addressed in the future.

[English]

One factor we consider important to the committee's understanding of our audit findings is the accountability framework in place for the management of real property. Departments are accountable for the real property under their control. This is based on the principle of ministerial accountability for programs and for the assets used to support the delivery of those programs.

Treasury Board policy requires that departments only hold real property needed to deliver their programs.

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The Treasury needs to know how well departments are managing their property and whether there is adequate management from a central perspective. The key corporate requirements for managing real property within departments are established through Treasury Board policies.

Departments and their ministers are accountable for following these policies and obtaining Treasury Board approval for deviation from policies. The Treasury Board Secretariat is responsible and accountable for monitoring and overseeing how departments are exercising their accountabilities for real property management.

We're concerned that the review of departmental budgets and capital plans by Treasury Board Secretariat provides insufficient focus on real property management issues. The recent testimony before your committee, when you consider the chapters related to National Defence and the Correctional Service, raises several important real property management issues which clearly indicate problems with the way departments are managing their property.

These include the following. Considerable real property in the inventory is surplus to program needs. Divestiture of this service property could generate significant revenues and cost savings. There are political implications to both the acquisition and the disposal of real property. Major improvements are needed in management tools and practices in departments. Accountability for real property management is weak and blurred. Major cultural changes will be needed to improve management practices. The full cost of holding real property are not visible to the program managers. Program resource requirements tend to be addressed first and only residual resources are directed at real property management.

These issues, raised in the context of the two departments, are representative of the problems identified in our four audits and summarized in chapter 12. Based on the number and magnitude of these problems and the sheer size of the real property portfolio, we have concluded that there is a need for a central perspective on the management of the government's real property holdings, and that the existing oversight measures are not proving effective.

[Translation]

We are aware that both the Treasury Board Secretariat and departments are being subjected to serious down-sizing in terms of budgets and human resources.

Our recommendations were made in the context of this new environment and we are not advocating the introduction of new rules and controls. In analyzing the management of real property, we started with the roles and responsibilities that TBS had defined for itself and custodian departments in its policy manuals.

We then assessed how well these requirements were being fulfilled. In addition to improving real property management practices, some of our recommendations are aimed at achieving cost savings or cost avoidance.

One of the findings in chapter 12 was that the government's current accounting policies for real property need to be reassessed.

I am pleased that in the February 1995 Budget the government has announced its intention to adopt full accrual accounting practices, including the capitalization of physical assets.

I support the government's proposed changes, but will be looking to ensure that the changes do result in improved information on the true cost of programs and improved accountability for real property management.

One area of concern in the chapter is not addressed to the Treasury Board Secretariat but to the government as a whole. Our audits of major capital projects over the past 15 years have continuously identified political direction as a factor that has added additional costs to projects, in the fulfillment of other government objectives.

Our 1994 audits of real property have again highlighted this issue as increasing the opportunity cost in the management of real property. We do not question the prerogative of the government to make these decisions. We believe, however, that ministers should be provided with a complete options analysis when making decisions on real property, including the full cost implications of each option considered.

Ministers could then balance the financial consequences against the value of the objectives to be achieve when making these decisions.

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[English]

Mr. Chairman, I would now like to ask Mr. Reno Cyr to outline our major findings in chapter 12.

Mr. Reno Cyr (Principal, Audit Operations, Office of the Auditor General of Canada): Chapter 12 identifies four areas where we believe the role of the Treasury Board Secretariat must be exercised and strengthened.

The first area of concern is the secretariat's assessment of departmental performance in relation to policies and plans and in overseeing how departments are exercising their accountabilities. Treasury Board Secretariat officials effect their monitoring and oversight role through the review of multi-year operational plans, long-term capital plans, and individual project and transaction submissions. We believe during such reviews the more visible program considerations can override the real property issues and their long-term investment implications. Our audits have also noted weaknesses in the Treasury Board Secretariat scrutiny of individual projects submitted for approval.

TBS officials have acknowledged that more could be done to assess the performance of departments. Given the range of departmental problems identified in our audits, we believe there is a need for more effective performance assessment of departmental property management practices by TBS. TBS has prepared a draft monitoring guide to assist departmental managers in monitoring and assessing their own performance. However, TBS lacks current high-level performance information tailored to each department's operational environment to fulfil its central oversight role.

TBS officials have stated that improvements are being made to the content and review processes for long-term capital plans. Your committee may wish to review these changes and their potential to improve the assessment of departmental management practices.

[Translation]

The second area of concern is the absence of an effective central challenge of the property held in departments, and the absence of effective incentives for departments themselves to identify properties for disposal.

We acknowledge that significant property disposals have taken place in the past, and that the Treasury Board's Secretariat is currently active in disposals of large sensitive properties. However, there is the potential for rationalization and disposal of less significant properties within departments. Many of these disposals might not result in large revenues, but once divested, the cost of maintaining these properties would be eliminated.

Departments have been slow to dispose of surplus property, in part because of the disincentives for such divestitures, both real and perceived. For example, departments are not charged the full costs of holding property and so are slow to consider property disposals as a means of cutting costs.

Departments perceive that they do not benefit from the proceeds of disposal, notwithstanding that existing policies do provide for such benefits under certain conditions. In addition, departments view land banking as a conservative and inexpensive practice even when the property is not fully utilized. Custodian departments may view their role more as simply custodians of the real property they hold than as managers of it.

We believe there is a stronger role for the Treasury Board's Secretariat to play in challenging departments to identify surplus real property and in co-ordinating interdepartmental regional plans, including divestiture strategies.

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[English]

The third area of concern relates to management information systems. The Treasury Board Secretariat is responsible for coordinating the maintenance of information on the real property holdings of the government. The TBS maintains the Directory of Federal Real Property, which is a central inventory of all federal property holdings, as well as more detailed information on the government's major holdings contained in the Area Screening Canada Program.

We found the information in the TBS information systems is of variable quality and not up to date. TBS systems are not integrated with departmental systems. This is a requirement the private sector considers a critical element in making decisions. The TBS informs us that it recognizes the value of integrating information at the centre and that it is finalizing a framework which will permit the aggregation of descriptive and performance information at all levels of management. Your committee may wish to enquire into the progress that has been made.

Departments are required to maintain information systems for their real property holdings. However, the TBS has not assessed the adequacy of departmental systems and so it has no assurance that adequate real property records are being maintained by departments. Our audits determined that deficiencies exist in departmental systems and therefore departments may not have the necessary information available to manage their real property holdings. For example, some departments do not maintain adequate information on the condition of buildings, their maintenance requirements and their life expectancy. The Bureau of Real Property and Materiel agrees that this responsibility has not been adequately addressed. We recommended that the Treasury Board Secretariat strengthen and exercise its leadership and monitoring role in this area.

[Translation]

Our fourth concern relates to the additional challenges posed by financial constraints, which have had a major impact on real property. The Treasury Board Secretariat acknowledges that the real property inventory has not received the maintenance and recapitalisation necessary to maintain its value. For example, we estimate that deferred maintenance in two departments alone exceeds $2 billion. However, the government does not know the total extent of the backlog of required maintenance.

The management of real property requires compliance with federal and provincial laws and regulations concerning health, safety and the environment. Real property is also governed by policies on heritage and accessibility. While the TBS has identified the cost of complying with the policy on accessibility, it does not know the long term budgetary implications of complying with the policies and laws on heritage, health and safety, and the environment. We believe that the potential costs are large, and that management from a central perspective requires a knowledge of the costs of complying with existing laws and regulations.

[English]

While our comments to this point have emphasized the current problems in real property management, we would also like to acknowledge that significant improvements have been made since our last major review of real property a decade ago, and since the 1985 Nielsen task force report. Chapter 12 acknowledges that the government has implemented structural, legislative and policy changes since 1986 that have laid the foundation for better management of the federal real property portfolio.

But our 1994 audits indicate that more must be done. There is a need to remove the disincentives and increase the pace of change in real property management at all levels.

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Many of these issues were known to be problems years ago. In our opinion, unless the problems are addressed decisively and quickly, the government will continue to incur avoidable costs and face mounting expenditures.

This committee may wish to hear from the Treasury Board Secretariat on how it plans to address these issues and to provide a timetable indicating when various measures can be expected to take effect. Reporting on progress towards achievement of these objectives would also be helpful.

Thank you, Mr. Chairman. We would be happy to answer questions.

The Chairman: Thank you, Mr. Cyr.

[Translation]

Mr. Giroux, you have the floor.

Mr. Giroux (Secretary of the Treasury Board and Comptroller General): Thank you, Mr. Chairman. To begin, I would like to introduce my colleagues: on my right is Mr. Al Clayton, who is executive director of the Bureau of Real Property and Material; on his right is Mrs. Glynnis Thomas-French, who is director of Portfolio Management, Investment Division Program Branch, Bureau of Real Property and Material, and to her right is Mr. William Lye, who is the director, Portfolio Management, Land Use Division in the same program.

[English]

Mr. Chairman, thank you for inviting me to discuss the 1994 Auditor General's Report on Real Property. As you may know, the Treasury Board, the ministry of which I am secretary, is responsible for developing policies for the federal government, including those on real property. The Auditor General has produced many reports on real property over the years. The last comprehensive report came out in 1984. In the ensuing years the Auditor General has added a number of chapters and audit notes on various real property subjects, including the cost control of projects, the quality of construction and a number of specific projects. These studies help us measure the government's progress on real property issues.

A key element in the 1984 comprehensive audit was a discussion of the real property life cycle, from defining needs to final disposal of the property. The audit expressed concern about inappropriate investment decisions in real property. Since then, the Treasury Board Secretariat has been working to help departments improve their investment planning. In the past few years the Treasury Board has revised and updated its policy on long-term capital planning to place more emphasis on real property investment planning.

The board has revised all policies relating to real property to ensure that the value of real property is recognized. These policies direct departments to look for investment solutions that will produce the best long-term financial results for the government within its financial limits.

The policy framework for real property has also been revised to clarify questions about accountability. It is now clear that ministers who hold land in order to deliver programs are responsible for managing the property and observing related policies the Treasury Board and the government have set.

The Treasury Board sets out specific requirements for departments on such issues as market value in land sales and heritage and accessibility policies. The new Federal Real Property Act, proclaimed in 1992, clarifies ministerial responsibilities and simplifies transactions related to real property.

[Translation]

The Secretariat supports the Board in overseeing and approving activities related to major departmental projects and land transactions.

Over the last few years the three major land-holding departments have recognized major challenges and are working to resolve them.

Ten years ago, Public Works and Government Services Canada had an eight to ten percent vacancy rate in its inventory of properties. Since then, this department has essentially eliminated the vacancy rate for office space in major centres.

In 1994, the Auditor General turned his attention to Public Works and Government Services Canada's inventory of federal government land holdings. Its audit is positive. The Auditor General concluded that the department provides adequate office accomodation for the Public Service. This tells us that the department is meeting its primary objective and that government has made progress in the last ten years.

The primary challenge for the Department of National Defense is an excess of real property. DND has started a difficult and sustained process of consolidation and base closure. Starting in 1989, and continuing in 1994 and 1995, it has designated more than 30 military bases and other installations for closure or major reduction.

Transport Canada faced a similar and equally difficult challenge. About eight years ago, the government decided that, for the most part, airports are commercial operations that should not be government-controlled. In response to this decision, the department created the Canadian Airport Authorities to run major airports.

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To this end, four of the national airports have already been leased to local airport authorities and negotiations are currently underway to lease four more to Canadian airport authorities. Furthermore, under the National Airports Policy, Transport Canada will offer over 80 regional, local and small airports for sale to the local authorities.

In the 1994 report, the Auditor General indicates that funds directed to the maintenance and recapitalization of inventory are inadequate. There is truth in this. However, in some cases it may be appropriate to develop real property strategies that are consistent with the government's need to restrict funds and shrink programs. Why recapitalize a military installation when it's likely that the program need will change or that advances in building technology will make reconstruction at the end of the life cycle a better option?

Treasury Board has also provided special funding available for urgent health and safety projects. For example, about $200 million was spent in laboratories in the National Capital Region over the past five years; a further $265 million program has been established for structural renovations to buildings on Parliament Hill.

[English]

Most recently, Public Works and Government Services Canada received an increase in funding for real property so it can carry out investment strategies outlined in its long-term capital plan, called the Public Works National Investment Strategy.

The last few years have been a dynamic period for real property management across government. In most program departments investment and expansion are no longer possible. Instead, they must rationalize, consolidate, cut back, or withdraw.

The federal government has been living according to this new reality. In almost every program and its related real property portfolio, the government has looked for ways to transfer programs to other levels of government; ways to consolidate programs to use existing facilities more efficiently; and ways to share facilities among government departments and with other levels of government.

Over the past few years the government has made extensive use of partnering arrangements with the private sector. The Block 56 - Library Square deal is an excellent example. For this project, the federal government sold the land to the City of Vancouver at its market value. The city built a library to meet its civic needs and created an office building which the federal government leased. In many cases, the government will simply withdraw its own operations and find alternative uses for the facilities, or sell them as surplus assets.

Real property managers must acquire new skills and a new mentality to adapt to the changes in government management. They must be able to do a better job of matching program priorities to real property assets and start to see investment and disinvestment as two sides of the same coin.

In government we deal with property in a business-like manner, but we are not in the realty or development business. Government is responsible for delivering programs and services to Canadians and land and property are simply one of the means to meet this objective. All of Treasury Board's core policies are based on this idea.

Private-sector real property management norms cannot universally be applied to federal inventory, because much of our property has no private-sector equivalent, if we think of prisons and military bases, for example. Where private-sector norms do apply, as in the case of most Public Works office buildings, federal inventory can be compared with its private-sector counterparts.

[Translation]

During a period of down-sizing and program reduction in government, we must direct our managerial attention to such matters as reserving flexibility, using assets to their fullest - perhaps to the end of their life cycle without life-prolonging renovation - and investing strategically in critical assets or to meet urgent requirements.

The government also established policies and practices to ensure that the intrinsic value in real property is recognized and obtained to the benefit of taxpayers. If land isn't required for program purposes, it is sold at market value. The government has divested itself of a great deal of property over the past 10 years. The value of land sales so far is over $1.1 billion and government will divest itself of a lot more over the next 10 years.

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This process is challenging. While some of the remaining federal inventory has real value, a combination of falling real estate markets, the location and the nature of federal inventory make some assets very difficult to sell. Federal government must develop creative partnerships with other levels of government and the private sector to disinvest and invest strategically.

The 1994 Auditor General's comprenhensive audit of the Bureau of Real Property and Materiel's real property activities and of the central systems for real property took place alongside many other initiatives. The Treasury Board Secretariat has launched a program to overhaul, upgrade and modernize the central information system for real property. This started eight years ago when the central inventory of federal real property was transferred from Public Works and Government Services Canada to the Treasury Board. This system now meets the standards of accuracy and completeness for such an inventory directory. In addition, the Treasury Board Secretariate is creating a land use information system for major properties.

The Secretariat continues to automate these information systems - provinding on-screen access to information and integrating its system with other central systems, such as Finance and Personnel, and with those used in other departments. The Treasury Board Secretariat is also setting up data sharing agreements with land-based information systems in other governments and in the private sector.

[English]

The Auditor General also refers to accrual accounting. In the 1995 budget the federal government announced that it will introduce accrual accounting for capital assets. The examination of implementation issues is ongoing, but we look forward - as does the Auditor General - to a more complete picture of the cost of delivering government programs that the accrual accounting approach will provide.

Finally, the Auditor General mentions the need for better incentives to encourage good management, particularly the need to share revenue from land sales. Although we agree in principle with this idea, we have to be careful. Therefore, according to Treasury Board policy, a department that ends up with large and potentially valuable tracts of land, through accidents of history and past public administration practices, should not reap windfall returns from selling that land.

We have, however, had a number of revenue-sharing agreements with departments. The Secretariat agrees with the Auditor General that improvements to the system to allow for greater certainty in the extent to which they can respend to the proceeds from the sale of the property would be desirable. We are working towards this end.

The Treasury Board Secretariat is currently looking at developing a policy which, where called for in departmental business and capital plans, would allow departments to share a percentage of the revenues from the sale of normal inventory. We're also examining establishing a policy to allow departments to retain grants-in-lieu-of-taxes and operating and maintenance cost for lands they dispose of to reuse within their operating budgets.

The Auditor General's report on real property marks some of the progress in this area of real property and puts in place some of the signposts for the future.

Mr. Chairman,

[Translation]

now we would be happy to answer your questions.

The Chairman: Thank you, Mr. Giroux. We will start our first round of questioning with Mr. Fillion.

Mr. Fillion (Chicoutimi): I apologize for my being late but I was held up in the House.

I have read the General Auditor's Statement. In paragraph 23 of the report you say that over the past 15 years, your audits of major capital projects have led you to the conclusion that political direction was a factor that added additional costs to projects. Could the General Auditor table before this committee the list of projects and the cost generated by these political considerations, as you state in paragraph 23 of your report?

The Chairman: Mr. Desautels.

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Mr. Desautels: We could provide the committee with a list of various references given in previous reports going back to 1980, if I'm not mistaken, regarding a number of projects where policy directions were given that ultimately affected the final cost, compared with other alternatives. We could certainly provide that information if the committee wishes us to.

The Chairman: Does that answer your question?

Mr. Fillion: Yes.

If I understand correctly, then, you will be providing the committee with a number of examples drawn from your previous reports, including your assessment. Is that correct?

Mr. Desautels: Yes, that is correct, Mr. Chairman.

Mr. Fillion: Very good. I would now like to direct a question to the representatives of the Treasury Board Secretariat.

The Treasury Board is constantly pressuring the departments to rationalize their expenditures in relation to real property management. Have you actually set specific objectives for that rationalization? Are you aware of the goals each individual department has set for itself - indeed, some are actually mentioned in chapter 12 - with respect to the acquisition, sale and lease of government real property?

Mr. Giroux: First of all, I want to point out that the Treasury Board also has a responsibility to ensure - and, of course, as you say, exert pressure on departments, and there is no doubt that we do indeed pressure them. But more importantly, proper management of departmental real property involves ensuring that any property they have in their inventory is needed for program delivery. That is the first and most important priority.

Government departments, particularly the large ones you mentioned, all have a real property management plan in place, which is called the long-term capital plan. These plans are prepared by individual departments and submitted to Treasury Board on an annual basis. In past years, they were presented along with multi-year operational plans in the fall. In the future, however, they will be presented along with departmental business plans, in accordance with the government's new expenditure management system.

We review these long-term capital plans, discuss them with the departments and ensure that they lay out the steps to be taken to ensure that any real property not needed will be disposed of and that disposal strategies will be implemented. When departments make a request to purchase or acquire property - it could involve property that is already available or construction of a new building - we want to be sure that they have followed proper planning procedures. Also, when they come to Treasury Board for approval of a specific project, they also have to ensure that they have prepared a rigourous cost benefit analysis.

Mr. Fillion: If I understand you correctly, each individual department establishes specific objectives and plans. Do you then assess progress and update departmental real property inventories on a yearly basis?

Mr. Giroux: I would like to ask my colleague, Mr. Clayton, to explain in more detail exactly what we do with departmental plans, as his group is responsible for reviewing them.

[English]

Mr. Al Clayton (Executive Director, Bureau of Real Property and Material, Administrative Policy Branch, Treasury Board Secretariat): The long-term capital plan, which is the key planning document in each department, is presented to the Treasury Board for approval.

They are multi-year plans. When there are significant changes to those plans, which come each year, they will be amended annually, or reviewed annually. But property takes a long time for things to happen. Most plans are for five to seven years. So if there are no major changes in the interim, we wouldn't be reviewing each plan every year. They'd essentially be giving a nil report. So those plans we'll talk about are long-term property strategies.

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I will note that because of the level of authority that departments have to act without Treasury Board approval, almost every acquisition by a department requires the Treasury Board minister's approval, which means it comes for review as an individual case by the Treasury Board Secretariat and by ministers before it is done. There is not much property acquisition going on these days.

As noted in the text as well, the long-term capital plans have existed as a policy since 1983. A major overhaul or improvement was made of those about two years ago, and the new long-term capital plans coming in under the new policy are now starting to come in, one of the first being from Public Works and Government Services Canada.

[Translation]

Mr. Fillion: Does the fact that you refer to these plans as ``long-term'' mean that you've changed the way you work with the private sector, by emphasizing long-term lease rather than short-term management of the property you already own by investing whatever money is required to maintain them and ensure they are cost-effective. Is that what you are referring to when you talk about ``long-term'' and ``short-term''.

Mr. Giroux: No, not necessarily. You referred to various options, such as leasing property, as opposed to purchasing it or building it ourselves. All those decisions are taken on the basis of a full cost-benefit analysis before any transaction procedes.

There is clearly very little property acquisition going on at this time. Public Works and Government Services Canada are likely to put in place a number of different strategies for the future. But with the downsizing of the Public Service, I think we should expect to have to house a greater number of employees in buildings that already belong to the federal government, rather than in buildings we are leasing.

If the need to acquire property does arise, we obviously would want to procede with short-term leases so as to have the necessary time to adjust our inventory by filling and making maximum use of any available space in federal government buildings.

In some cases where property acquisition is envisaged, leasing is not an option. We are able to lease office space in downtown Toronto or Montreal, or places like that, because leasing is always an option there. Indeed, during times of economic downturn or recession, the government is able to lease space at quite an attractive price.

If we decide to build a prison or a very specialized type of facility, such as a laboratory, the government is likely to consider the option of acquiring the property or building the facility itself, although I would point out that these kinds of facilities are often located outside the major urban centres. So, our strategy varies, depending on the type of building we're interested in.

The Chairman: Mr. Fillion.

Mr. Fillion: I would like to come back to my first point. The government has eliminated some 45,000 jobs from the Public Service - or at least it will be proceeding with this plan over the next little while. Will this downsizing exercise have an impact on real property management? Given the direct impact of the 1995 budget on federal property management for the most effective departments, do you think you would be able to assess that impact and possibly report back to the committee on your findings?

Mr. Giroux: I just asked Mr. Clayton if he would provide some clarification, but I think it is probably premature, at this stage, to attempt to analyze that impact.

Mr. Fillion: I would ask that you answer my first question and then we'll see about the second one. Will the loss of 45,000 jobs from the federal Public Service affect real property management at the federal level? Is it likely that this could have the effect of extending the period for making needed repairs or shortening the life cycle of some buildings compared with others? First of all, will it have any impact or not?

[English]

Mr. Clayton: Perhaps I'll get back to a number I like to use, then I'll get to your question. You first have to remember that 84% of the inventory we talk about in the federal government is not office buildings.

They are airports, defence bases, laboratories and national parks.

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The 1995 federal budget - I might add, the previous budget as well - has fundamentally changed how we manage all of that 100%. Most of the 45,000 public servant reductions will affect the office buildings, because most of those public servants are in office buildings. Plans are being worked on right now by Public Works Canada, with departments, on what it really means across the country.

If you think of the last few budgets, as was mentioned by Mr. Giroux, in terms of changing the system, we're closing defence bases and we're changing the whole way we do airports. The last budget talked about closing down literally hundreds of harbours and recreational harbours under the Minister of Fisheries and Oceans. The fact is, the last budget substantially changed the way real property will be managed in almost every department in government. We are to a great extent now trying to sort out with departments, as part of our role, what the details mean, department by department, for those particular departments.

The Chairman: Mr. Williams.

Mr. Williams (St. Albert): Thank you, Mr. Chairman.

Good afternoon, ladies and gentlemen, I appreciate your opportunity to be here.

The concluding remarks of the Auditor General's statement, paragraph 27, on page 8, read:

Many of these issues were known to be problems years ago. In our opinion, unless the problems are addressed decisively and quickly, the government will continue to incur avoidable costs and face mounting expenditures.

I also read in the Auditor General's report, at 12.50, that for 30% of these properties information was as much as five years out of date.

In all the departments that come before us, Mr. Giroux, we always seem to have the same problem: nobody really seems to care. I find it exasperating that we read these reports about department after department five years out of date unless we act now. It's not as if the federal government just got into real property in the last few years. We've been at it for a long time.

First of all, I'm going to start asking whose head is going to be rolling when we get these types of reports from the department. In the private sector, heads would roll if senior management got this kind of report. It doesn't apply just to Treasury Board. It applies to every different department that comes before this committee. We get this litany of errors, irresponsibility and lack of accountability. But nobody's head rolls; and I think it's time we started to see a few of them roll.

On that basis, my point having been made, how aggressively are you trying to rectify the problems identified by the Auditor General's report?

Mr. Giroux: I think my opening comments indicated the areas where we feel progress has been made, Mr. Williams. We are not saying we've solved everything, there's no doubt. But you must remember that although the federal government has been the owner and has been in the federal real property business, the 1984 audit of the Auditor General set the government on a course of action that really changed the approach. When the audit was made in 1993 - I really think it was made in 1993 - that was seven years later.

I was deputy minister of Public Works from 1986 to 1990 and I must tell you that a large number of structural changes and new approaches were put in place. The Bureau of Real Property Management was established in the Treasury Board to establish a course of direction consistent with many of the recommendations of the Auditor General's 1984 report. We're beginning to reap the benefits of this, but we are acknowledging that more work needs to be done.

The Auditor General mentioned the question of information and database, and we're quite prepared to provide you with an update of where we are on this.

We are realizing more and more, as we face severe financial constraints in the government, that we need to provide better incentives for the disposal of property by departments, because departments are beginning to take notice of the pressures on their operation budgets. Remember, operating budgets were introduced only in 1992, if I remember correctly, and they were a significant breakthrough in terms of management of government expenditures.

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So a lot of these things have taken place only in the last few years. The best answer I can give to your comment is to say we've made improvements and we will continue to make improvements.

Mr. Williams: Thank you. As I say, not just for the Treasury Board but for all departments, I'm putting them on public notice that I'm going to start asking for some real accountability in government, because I think it is long overdue. It is not as if we just got into real property management in the last little while.

The Auditor General tells us the government does not know the extent of the backlog of required maintenance. Does the government use professional property managers and professional property management techniques to ensure decisions and evaluations are made as to when real estate should be fixed, repaired, renovated, abandoned, sold off or whatever, and on what basis are these decisions being made? Are they political decisions? Are they ad hoc decisions? Are they real professional decisions?

Mrs. Glynnis Thomas-French (Director, Portfolio Management, Investment Division, Program Branch, Treasury Board Secretariat): I would say over the past five years federal departments have made a very serious attempt to put in place asset management plans. In fact they hired a lot of private-sector people initially, but now they are getting their own systems up and running to perform appropriate assessments of the maintenance requirements of their buildings. We're getting to the point where there is a pretty adequate information base on those issues.

At the same time, that kind of information feeds into, if you like, these long-term capital plans we were speaking about a moment ago. In other words, where there are required recapitalizations or replacement of facilities, those will appear within the context of the long-term capital plan that's presented by the department to Treasury Board for approval.

Mr. Williams: Treasury Board is responsible for ensuring each department looks after property in accordance with policy developed by the Treasury Board. But in 12.54 the Auditor General says the Treasury Board Secretariat does not assess the adequacy of departmental information systems, so there's no assurance that adequate real property records are being maintained by departments. Is that up to date now?

Mr. Clayton: The whole real property information system development, as noted by the Auditor General has been...we set up a systematic process updating the whole system. Six or seven years ago, we didn't know what we had. Essentially, it was not integrated. We didn't have what we call shareable systems across the government. With outside experts, we've put in place a four-part process. The thing we did not want to do was to try to create the big system, which always seems to fail, so we're doing it in modules.

The first module was to get out what is called the ``directory''. We now have good, reliable, verified information on what we have and where it is.

Mr. Williams: When is that going to be completed?

Mr. Clayton: It was published and provided to members in 1992 in book form. It's a live database. That's the directory. It starts at the macro-level. At the second level, we also have at Treasury Board what is called the Area Screening Canada Program. There are 22,000 properties in the first system. The Area Screening Canada Program has about 10% of those properties in more detail, the ones that are significant. If you look at the 22,000, sometimes it could be a beacon -

Mr. Williams: You said four areas. One is done -

Mr. Clayton: The second one is done.

Mr. Williams: Second one is done. When is -

Mr. Clayton: Those two systems, the directory and the Area Screening Canada, are now in the process of being integrated as a single system.

Mr. Williams: When are three and four going to be done?

Mr. Clayton: The third type of system is what we call horizontal departmental systems. These are where another department holds information on everybody. Municipal grants are an example. Public Works has data on other departments. The Department of Canadian Heritage have Built Heritage. They have a database on the heritage buildings. Those systems are in place. They are not yet integrated, but will be very soon by being able to share information.

So those three are done.

Mr. Williams: In 1995?

Mr. Clayton: That will be done this year, I believe.

Mr. Williams: What about the fourth one?

Mr. Clayton: The fourth one is the internal departmental systems. We have made a distinct strategy that we are going to deal with those last over the next two years, reviewing and auditing them. I note they all have systems in place -

Mr. Williams: How many years before implementation?

Mr. Clayton: It depends then on the nature of what the problems are. I note the Departments of National Defence, External Affairs, Public Works have extensive systems in place and have had for years. We are now -

.1630

Mr. Williams: But do they work?

Mr. Clayton: I guess it is a judgment whether they do or do not work. But the last piece of this master-distributed system, making all of this link from the Treasury Board Secretariat over the next two years will be to do audits and assessments of those systems and to integrate those types of systems not into a big database but so they can talk to each other.

Mr. Williams: When is it going to be finished, and will it work when it's finished?

Mr. Clayton: The first two parts are done. The third... we've already had the test today. The fourth is existing systems, so it's a matter of upgrading and improving them.

Mr. Williams: When the Auditor General comes back, are we going to find he is going to say this system works?

Mr. Clayton: I would not want to prejudge what the Auditor General would say about National Defence three or four years from now, because those are individual departmental systems.

Mr. Williams: You know the concerns of the Auditor General and the fact that the property hasn't been well managed. Are you going to give us an assurance that these four modules, once they're all up and running, are going to manage the property well on behalf of the Canadian public?

Mr. Clayton: I think I can give you the assurance that the information will be there. That is not management of the properties, but that the fourth module, in effect, which is departmental information systems...which are their accountability to have -

Mr. Williams: Is the system going to work? You know, we've gone through this huge amount of paper and machinations of decision-making and we've produced these big reports and procedures, but is it going to work?

Mr. Clayton: The information systems will be there. That is, the information will be there for managers to make -

Mr. Williams: No guarantee that it's going to work?

Mr. Clayton: There are two issues. The information systems will work -

Mr. Williams: I appreciate that. But who's going to be accountable to make sure all this information we now have...who's going to take it and make it work?

Mr. Giroux: It will be up to the responsibilities of the individual departments to manage their real property according to the Treasury Board policies. What Mr. Clayton has been giving you, Mr. Williams, is a sense of where we are in terms of the information systems that will be in place. That's already a good start. That's one of the points raised by the Auditor General.

Will it work? Will we manage property better? Will we do our divestitures faster, giving better returns to the government? Will we do better planning and so forth? Only the test of our evaluation and audit of the departments' activities will tell us that. Of course, I'm quite sure the Auditor General will want to take another spot check in the few years to come. It will be up to the Auditor General to decide at that time and then we'll know where we are.

But definitely, what we're saying to you is we're putting in place the information systems. We have the policies and the long-term capital plans in place and these are all there to assist us in making sure that departments manage their property in the best way possible.

The Chairman: Mr. Shepherd.

Mr. Shepherd (Durham): I would like to get a capsule of how this system works and the divestiture of property. For instance, the airport policy of Transport Canada is now basically to dispose of airports. The bottom line is we're going to sell all these airports for a buck. Does that make any sense?

Mr. William Lye (Director, Portfolio Management, Land Use Division, Bureau of Real Property and Materiel, Program Branch, Treasury Board Secretariat): Thank you, Mr. Chairman. Perhaps I could correct a misconception. There is no overriding policy to sell all these airports to any particular agency for a dollar. In fact, the policy put into place by Minister Young includes a divestiture of the airports at their proper and true market value, depending on what that is in the location concerned. There may be locations in which the land, or the airport as an operation, has very little value. There are other locations where the value will be large and that will be determined and achieved. That is the intention.

Mr. Shepherd: How do you go through this evaluation process? Do you use appraisals with comparative market values?

Mr. Lye: Yes. Market value is determined by either estimate or appraisal, depending on the level that is anticipated. In areas where there is very low market value professionals from the Department of Public Works and Government Services may make an estimate, but in larger-value transactions - and I believe the number is over $75,000 anticipated value - one or more appraisals are required. In those cases where two appraisals are required, my understanding, if I'm not mistaken, is one of them must be a private-sector appraisal paid for by government.

.1635

Mr. Shepherd: When you appraise these, do you appraise them at their value as an operating airport or as alternatives to sell on the open marketplace for some other purposes? Highest and best use: do you use that analysis?

Mr. Lye: In general across government, the rule is a ``highest and best use'' appraisal. What would the land likely be used for under appropriate zoning, reasonable assumptions being taken into account?

About the airports, I believe Minister Young has put into place, with cabinet approval, some modifications to that so that in fact airports will be evaluated as an operating entity, and if they are transferred at that value, they must be maintained as operating airports for a minimum number of years before the purchasing agent can dispose of them for any other purpose. So there is in place a policy and procedures to prevent unfair windfall profits or procedures to prevent what I would call ``anti-flip'' provisions.

Mr. Shepherd: Could you explain to me something that bothers me personally. In my riding is the Oshawa Airport. Transport Canada is in the process of negotiating a sale to the municipality for $1. The property is clearly worth $30 million. What role do you play in that?

Mr. Lye: I can't comment on that particular transaction, because I'm afraid I'm not aware of the details. All I know is the policy is in place to transfer the airport, recognizing its value through a market-value transfer or through a transfer with restrictions on its use.

If you wish, we can get back to you on that. I believe that's more properly a question for the Minister of Transport.

Mr. Shepherd: Maybe that's the problem, though. The secretariat is supposed to control the value of the land and basically get the best value for the taxpayer regardless of what ministry controls the asset. Isn't that the -

Mr. Clayton: To explain how it works...the Minister of Transport, before this program started, that is - and we're talking here about not the 26 major airports but others - came to the Treasury Board Secretariat providing analysis. The Treasury Board approved the terms and conditions that would apply to any divestiture of those...whatever; 110 smaller airports. So in effect the rules and the terms and so forth that were set up were set up ahead of time with the Treasury Board to do what you said; that is, to ensure adequate value to the crown for those lands.

Mr. Shepherd: Then why is the department continuing with the process of disposing of it for $1?

Mr. Clayton: Again, I would not know about the specifics of the Oshawa situation.

Mr. Shepherd: But isn't the secretariat responsible for ensuring that the highest and best value is returned to the Canadian taxpayer?

Mr. Clayton: Yes, but the way the secretariat or the Treasury Board ministers did that was by setting up the terms and conditions for all the divestitures Mr. Young, as the responsible minister, must follow. That one in particular may actually come to the Treasury Board a second time, but in most of these cases we at the Treasury Board have set up the terms and conditions the minister must follow in terms of how you decide a price and how you carry out the transfers. That's how we carry out our responsibilities, not by dealing with every transaction.

Mr. Shepherd: But isn't this the essence of what the Auditor General is saying, that we're not managing our divestitures very effectively?

Mr. Clayton: I would argue that the Auditor General is not dealing with that sort of issue. In this case, ahead of time, we've set up the rules and regulations a minister has to follow and the Treasury Board ministers approved it. I'd assume Mr. Young and Transport are following those rules and regulations now.

Mr. Shepherd: Getting back to your information system...do you have that evaluation of that particular property...just to use it as an example that you know what the value of it is?

Mr. Lye: The evaluation policy in government is that we do not routinely evaluate all of our properties using annual or five-yearly appraisals as a private-sector realty company would do for accounting purposes. If, however, we have a commercial purpose or a transfer in or out of property, appraisals are taken at that time of that particular property.

There are many reasons for this. We do not routinely use, for example, return on equity as a measure of efficiency in government. There are other measures of efficiency. We have not yet gone to a fully capitalized accrual accounting system in which the assets are carried on the books by private-sector evaluation methods.

.1640

At this point I can tell you pretty certainly that we would not carry the current market value of the Oshawa airport in our information systems. However, the department disposing of that airport, and any department disposing of any other property, will be responsible for getting an appropriate evaluation at the time of disposal, either by rental or by sale. By and large, our reviews and periodic audits point out whether or not that has been achieved.

Mr. Shepherd: Just to use this analysis a little bit further - I think it sheds some light on the whole process - we also have in this case another big chunk of land called the Pickering airport land. To my mind, a study is saying that someday we're going to build that airport. To my mind, I believe the Oshawa airport will close in possibly 20 years because of that decision, but today we're willing to dispose of it to the City of Oshawa for $1.

Do you have the ability to make those kinds of judgment calls with this system you're talking about? Obviously, you don't; you don't have those kinds of appraisals or that kind of thought process.

I'm looking at it as if I were a private individual who owned the airport. This is the thought process that would be going through that individual's mind.

Mr. Lye: The future planning of the airport system of southwestern Ontario is essentially not a real property issue. It really is an issue for the Minister of Transport in his provision of air transportation programs for the people of Canada. The real property dispositions that come about because of the changes in that air transportation policy would involve us in areas where there is significant size or sensitivity, such as the Pickering lands, for example, or surrounding the Pickering area.

Mr. Shepherd: So when is your system going to be developed enough that you're able to sit back and say, look, I don't think the Department of Transport is getting the highest or best value for the Canadian taxpayer?

Mr. Clayton: I guess maybe we ought to get back.... On disposals, we've talked about the general one in terms of terms and conditions in transport. The way a disposal will work is if those appraisals, including for ones of size that include the private-sector appraisal, are, I think, for transport, above $100,000 in value, they require a specific Treasury Board approval to sell it. Part of that review is that we get copies of the appraisals when we want them and need them to ensure that the market value principle is observed, or if it is not, that the minister is aware of that situation when the final decision is made.

Because of its historic sensitivity, in the areas of both buying and selling land, there is not a great deal of delegation, as we call it, to departments to decide without a second view, which is of the Treasury Board.

Mr. Shepherd: The Department of Transport in this case is actually making the decision to dispose of the asset. Is that correct?

Mr. Lye: The Department of Transport proposed to cabinet a national airports policy, which implicated several tiers of airports, the Oshawa airport being in one tier. I can't personally recall which tier it was in. I understand it was one of those airports that would not be part of a national airports chain.

That second tier of airports, including the Oshawa airport, were to be disposed of under certain terms and conditions - there were several other airports - and the market value of that airport was to be recognized in the disposal, no matter how it was to be disposed of.

If in either case, where the Minister of Transport wishes to dispose of that below its appraised market value or where it's disposed of above a consideration in excess of $100,000, ministers of the Treasury Board will be required to look at that transaction before it is approved. So in fact while there may be discussion at the moment of a certain value of...and I can't comment, because I just don't know the facts in that particular case. If it is, as you say, below its market value, ministers of the Treasury Board would have to agree to its transfer under those conditions, and to my recollection, no transfer in the last eight years, below market value, has been approved without some of form of very unique condition being present. It's been 8 or 10 years, if I'm not mistaken. Very few have gone through.

So either the size of the transaction - above $100,000 - will bring it to the Treasury Board or the minister's wish to dispose of it at less than its full market value. In either case, it must come to Treasury Board.

The Chairman: Mr. Shepherd -

Mr. Shepherd: I guess my only argument is that its market value, as an airport, is zero, but its...[Inaudible].

The Chairman: - you have one final question.

If you're finished, then,

[Translation]

Mr. Fillion, you have five minutes.

.1645

Mr. Fillion: When I referred to cutbacks in the Public Service earlier, I was told that it was mainly office space that would be affected. I must admit I find that a rather simplistic answer. In terms of the real property you manage, Mr. Giroux, I imagine this downsizing exercise will have a tremendous impact on upkeep and renovations; there are whole groups of engineers, architects, urban planners and so forth who could be affected.

Although this plan for massive layoffs is only starting to unfold, what I want to know is whether you think that between now and the end of the year, for instance, you would be in a position to provide the Committee with an overall assessment of the impact of that downsizing on your area of operations.

Mr. Giroux: Well, as far as the impact on our area, I should point out that we are a small team responsible for reviewing policies, ensuring coordination, audits, and so forth. We are likely to have a very good idea of what its impact will be in the course of the year, when departments have laid out their specific plans for 1995 and told us what they intend to do in 1996 and 1997.

I have no doubt that for the most part some office buildings will be affected. But you must not forget that there are also other areas, such as military bases, that will be affected by these changes. It is possible that laboratories in such departments as Natural Resources, Health Canada, and so forth, may also be affected. So, I expect we will eventually have answers to all those questions.

On the other hand - and I would just like to give you a concrete example here - if we have a laboratory in a fairly remote area or a rural area - the Department of Agriculture's laboratories would be a good example - and we decide to reduce laboratory staff by 25%, that will mean that the government will still have a laboratory operating and performing certain functions, and yet the government may have trouble using 25% of that lab space that is no longer needed for anything else, as that space cannot be leased to the private sector; the fact is, there simply isn't any demand for those kinds of laboratories. So, while our answer may sound somewhat simplistic, we are just trying to make the point that many different considerations come into play when assessing the impact of this kind of measure.

But let's look at the example of office buildings now. Clearly, if a significant number of employees are working in leased office space and we know that the leases for those buildings will be expiring in two or three years, say, by planning now to move those people, we may well be in a position to terminate those leases and move employees to government buildings where there has been significant downsizing. In such a case - in other words, when we're talking about office buildings - it is much easier to make adjustments.

So, that is the kind of exercise that we are talking about. It is really impossible to give you an intelligent answer or provide you with accurate information as long as we don't have a more precise idea of the impact of these cuts. We do know about overall numbers, but as for the ``wheres'' and ``whens'' and the actual implications of down-sizing, I'm afraid it's a little more difficult to be specific at this point. However, I do hope that in the course of the year, we will have much more extensive information to provide you with.

Mr. Fillion: So, when you do receive that information from the various government departments - I believe you said you would be receiving it between now and the end of the year - do you intend to make it available to the Committee?

Mr. Giroux: If the Committee so requests, we will be very pleased to provide it with any information we have that we feel quite confident about, because we certainly would not want to mislead Committee members.

Mr. Fillion: I gather, then, that you will have adequate information to provide to the Committee by the end of the year to allow us to look more closely at the situation and actual progress that's been achieved. I guess what we're talking about is an inventory of sorts.

Mr. Giroux: Mr. Chairman, we certainly undertake to provide whatever information we have to the Committee. I cannot say at this point whether it would be adequate to conduct such an analysis, but we will certainly have far more extensive information later in the year than we currently have. We will try to present it in such a way as to make it meaningful and useful for the purposes of your assessment. So, we will definitely be tabling that information with you.

The Chairman: One last question, Mr. Fillion.

Mr. Fillion: I would like to refer now to pages 12 and 13 of the paper you read earlier by way of introduction.

Mr. Giroux: Do you mean my statement?

Mr. Fillion: Yes, pages 12 and 13 of your statement.

Those two pages refer to up to four specific projects to be implemented. Will you be in a position to answer specific questions in this regard between now and the end of the year?

.1650

I know, for example, that you say: ``This system now meets the standards of accuracy and completeness for such an inventory directory. In addition, the Treasury Board Secretariat is creating a landuse information system for major properties.'' Do you think that before the end of year, you will be able to describe actual progress made with respect to this system?

Mr. Giroux: I think I will ask my colleagues, who are probably much more aware of those issues than I am, to answer your question.

Mr. Fillion: There are several of them.

[English]

Mr. Clayton: As noted, the Auditor General's report was written essentially in 1993. Since then there's been considerable progress in this area. I was explaining some of that. By the end of this year, we could certainly provide this committee with a complete report of all the information systems enhancements and where they are.

Mr. Williams: I note that they're capable of providing us a complete report on the systems, but I see the policy has changed, according to the budget. We may be moving now to the concept of capitalization and accrual methods and so on. Is that going to require a complete rewrite of these policies again?

Mr. Clayton: Not of the policies. It would, however, require more systems changes.

Mr. Williams: On the concept of capitalization and accrual, I saw an article in one of the trade magazines - I think it might have been written by you, Mr. Giroux - stating the time had come for capitalization and accrual, especially on real property.

When can we get that implemented? How many years before it would be implemented? Do you have any idea?

Mr. Giroux: We sense that we will need a period of about five years to implement this. There is some preparatory work being done by a committee of the Canadian Institute of Chartered Accountants, which is looking at this to provide us advice and to ensure that the way we do it meets good accounting practises as ascertained by this group. I think it's called the physical assets committee, and it will be reporting back in 1997.

We're starting now to have dealings with departments. We're starting to do the planning. We are going to be using that report to do the necessary systems changes, and we've estimated a period of about five years.

Mrs. Thomas-French: It should be noted that the Auditor General is a member of that implementation committee. One of the issues really is with respect to the financial systems of the government. It will take some time to be able to effect those changes, but certainly the implementation program is under way.

Mr. Williams: If you have additional or excess space that has now been identified, do you lease it? Do you just have a disposal policy or do you try to lease it out to the private sector to generate revenue until such time as it can be disposed of?

Mr. Clayton: We've done both.

Mr. Williams: How much emphasis do you put on that?

Mr. Clayton: One of the real world realities is that when we do get actively into leasing we get into opposition of unfair competition with the private sector. That is, in effect, we're in their businesses.

If you cannot dispose of it, and there is a market, we do get into the business of leasing. I will note when there is a market that somebody will lease; you therefore generally can sell it. The problem is generally there's no market for anything, for either leasing or selling. That's when it becomes difficult.

Mr. Williams: I know you're working on it, but when can we expect progress or development of a policy that will ensure incentives for departments to manage their property efficiently so that they only have the space they need, that they acquire it and lease it according to the best form of pricing available at the time the decisions are made, so that we do not have these huge inventories that produce nothing other than cost to the government? When can we expect that to be in place?

Mr. Lye: First of all, can I comment on the policy. The policy is now in place, the policy that you must hold property only for your program needs.

.1655

The incentives to give action to that policy, to cause departments to act, are variously in place. For example, departments now keep the operating savings. If I might illustrate, when the Department of National Defence closed base London and moved the troops to Petawawa, the savings in operating costs for the armed forces paid back that move within five years, all of the capital costs. So there was a real incentive for the military to move and consolidate in Petawawa.

Moreover, by the end of this year we hope to have base London all but sold for proceeds in excess of $20- to $25-million. That is in place.

The Department of National Defence is working with us on all of the other base closures - Calgary, Chilliwack, the various locations that were closed - in a manner that they will achieve certain economic benefits directly from the operating savings, and they are large. As well, there's an opportunity to share in the proceeds of disposal to help them consolidate and relocate in other places.

Mr. Williams: So you're developing policies to provide real incentives, and they're pretty well all in place now.

Mr. Lye: The policy is in place and we're working with the individual departments to give rise to that.

Another example is that the 1992 or 1993 budget called for a joint Treasury Board/National Defence review of their urban land holdings. That has been complete. The current Minister of National Defence has approved of it.

Mr. Williams: But there's more than just DND involved.

Mr. Lye: Yes; I use that as an example.

Mr. Williams: My final question is on grants in lieu of taxes. It seems they've been paid out of a central fund and never charged out to appropriate departments. Why are simple policies...such as grants in lieu of taxes? Every other private sector that pays taxes rather than grants in lieu of charges it to the cost of operating the properties.

Now, simple things like that, we from the private sector can't fathom as to why the government wouldn't even have been doing that for many, many years so that you're passing the real cost of a building, of maintaining the property, back to the relevant departments involved. Why, and when is it going to be done?

Mr. Clayton: I agree. It's going to be done - I'm going to say ``either'' because it has to do with some systems area - either by next April or the April after.

The reason is historic. Until 1980 it wasn't really done; that is, it wasn't a comprehensive grants in lieu of taxes regime and it was always seen as a fiscal transfer rather than operating cost. The whole way it is actually operated in government is out of a statutory vote used under the Minister of Finance as a transfer. We're changing that system so that it's an operating cost.

I will note right now that we're not even waiting for that right now; we were making agreements with departments even before that. If they close facilities, we'll transfer the GILT - grants in lieu of taxes money - to them right now, into their operating budget. So we're not waiting for the accounting mechanisms to catch up to make the incentive work so that there's an incentive they get that money.

Mr. Williams: I just would like to make a comment, Mr. Chairman, that I hope there aren't any more systems like that, that should have been done many years ago, that we're still waiting to see accomplished.

Mr. Telegdi (Waterloo): Mr. Chairman, besides incentives for departments, I would certainly like to see some type of personal accountability put in. I have some sympathy for what Mr. Williams was saying. Too often, messes happen; people get transferred and no governments are held accountable, but we want to make sure that gets transferred on to the civil service.

The recent book by Ms Cameron, which was a best-seller, On the Take, is a lot more popular than the report put out by the Auditor General. It has a lot more coverage. Some of the charges in there are just incredible. I assume many of them were correct. For instance, leases were opened up so that more money could be given to friends of the government at the time.

Certainly, looking at best management practices, I have seen enough horror stories in the military to have some real concerns. There are other areas in government as well.

.1700

What I have a bit of a concern about was raised by Mr. Shepherd, regarding airports. Take an airport such as Waterloo Region at the present time. We have an airport that I imagine will get passed over to the region for something like $1. That is fine as long the local government continues to provide the same function.

At some point in time, be it 8 years, 10 years or 25 years, if the use changes and if that government no longer provides that function, there's going to be realized a great capital gain on the part of the local municipality. It would seem to me if that changed and if that government, the local authority, gets out of the airport business, then there should be moneys coming back to the federal government from the realization of the capital gain.

I have a little concern when you say 8 or 10 years, because there are airports in fast-growing municipalities such as Waterloo Region that in 20 years, if the use changes, will have much greater value than they have today. So it would seem to me that it would be fair, if we are going to sell it for $1, that we're tied into whatever time that property is disposed of, if the same use is not maintained.

Mr. Giroux: Mr. Chairman, we'd like to comment on that. We may have missed it in the previous discussions.

Very often when these transfers are made they are made on the understanding that the use of that property will continue to be, in your case, for an airport. If the use is to terminate and then that property is to be looked at for other uses, there are - and I'll ask Ms Thomas-French or Mr. Bill Lye to add to this - a number conditions attached to that transfer that specify that the federal government can take part in any of the benefits arrived at.

Mr. Lye: Mr. Chairman, that is quite true. I can't comment specifically on the Waterloo regional airport, but in general, if a property is transferred in a manner where we might suspect a conversion of use, that transfer is accompanied with a restrictive covenant on the land. It is registered on the title of the land, and any subsequent purchase or user of that land must clear that restrictive covenant, with the Government of Canada holding that interest.

I'm dealing with several cases right now, hospitals that took Veterans Affairs lands, for example. These lands are accompanied by covenants. The one I'm dealing with right now will cost the particular hospital that who wants to turn it into more commercial use about $4 million, paid to us, before that covenant can be lifted and before anyone can purchase that property and take the covenant off the title.

Mr. Telegdi: How do you do that when you suspect conversion of use? What I'm saying is, it's hard for anybody to have a crystal ball. Why don't we put it on there as a matter of policy to -

Mr. Lye: I should clarify that if the appraisal shows a highest and best use, different from the use, by and large the municipality of the agency purchasing the property will pay the full market value, and they themselves will take the financial ``dis-benefit'' of converting it to a lower-value use. Where that doesn't occur, however, covenants are placed on the land. It is matter of Treasury Board policy that this must be done.

Mr. Telegdi: In perpetuity?

Mr. Lye: To the extent that Justice will allow us to put a covenant on, in perpetuity. There are some difficulties; I'm not a lawyer. But, yes, they are enforceable covenants to the extent that we can place them on. The evidence is that covenants that are now about 20 and 30 years old are coming back, and they're costing money to clear. We are getting the benefit of those interests.

Mr. Telegdi: Do you have any comments on how we might hold people accountable in government? It's people who ultimately administer various programs and make the plays go. How do we hold people accountable within the bureaucracy?

Mr. Giroux: I can comment on that, Mr. Chairman. I know if tomorrow I were to do a very serious mistake that would put my president in trouble, he'd certainly look to me very quickly and ask me what I was prepared to do about it. He'd have to take the necessary actions. These kinds of things are taking place down the bureaucracy.

There is a system of accountability in place for a number of things that are happening.

Although these are not publicized, because it has not been the practice to show blood in a public place, in essence, a number of activities and things are being done to take care of individuals who, unfortunately, have not behaved properly in terms of their activities.

.1705

So there are accountability systems in place, but each case is examined on its own merits. It's true - these are being taken care of in the normal managerial process.

Mr. Telegdi: I have one final question to the Auditor General. I'm sure you must have read the book On the Take.

Mr. Desautels: Personally, I have not read the book in question. Some of my staff have reviewed it. All I can say is that only some of the allegations in that book relate to real property issues we in fact have raised in the past. I can't speak for the whole book, but all I can tell you is there is at least one case in the book that we have reported in the past.

Mr. Telegdi: It raised public awareness and certainly puts more of an accountability on everybody in government to make sure those types of horror stories don't happen.

Mr. Desautels: I have the impression that the author has probably read our past reports.

Mr. Grose (Oshawa): Mr. Chairman, I never use all my time, so I would ask that what remains of it would go to someone on the government side. As usual, I'll try to keep my question simple so that I have a shot at understanding the answer.

We find that government departments - which surprises me - are in the real estate business. Now, we've had departments before this committee whose main function was to send out cheques, and they can't even get that straight. Now we find they're in the real estate business. I wouldn't be surprised if the acquisition, maintenance, management and sale of property would be a bit beyond them as well.

I realize what I'm going to ask is beyond the power of any of the witnesses to answer, but I would like whoever would like to answer the question to give me their opinion. Would it not be better to have an overall property management department that had control of acquisition, management, maintenance and sale of all government property? Leave the departments to concentrate on sending out their cheques or whatever it is they don't do very well now; they might do it better.

It seems strange to me. I know in private business, this is the way it's done. If you have a branch plant it's not owned, run, controlled and sold by the branch manager.

I'd like an opinion on whether or not we would be better advised to do it this way rather than load it onto the operating departments.

Mr. Giroux: This issue was looked at very much by the Nielsen task force in 1985, when it dealt with real property. Mr. Clayton happened to be a member of that task force. He had to deal with all of these issues. I will put the pressure on him to answer your question.

Mr. Clayton: With my personal opinion.

Earlier Mr. Williams was saying the federal government has not been in the real property business for awhile. The fact is, the first Canadian government department was the Department of Public Works. It goes back to 1841.

If you look at our history - and then I'll talk about others - we started with the model you talked about. There was a general public works department that handled all the real property of the government. It then started to split off. We got into national parks and said, no, that isn't the public works department. We got into defence, and so forth.

In 1985-86, there was a confused relationship. We had to make a decision about which way to go - single department or the other one? We went strongly toward a decentralized model, saying the user should be in control.

I think what's interesting is that if you look at almost all of the other governments we compare ourselves with - the British, Americans, Australians, and so on - they have not only gone in that direction; they've even gone further. In a few places, they've eliminated their public works department and said they didn't want a central property agency at all - let everybody take care of that property. If you use it, you don't necessarily have all the expertise on staff, but the accountability has to be with the user of the department. They then hire the expertise.

Within the federal system the RCMP, for example, is a very big property manager. This is quite often not understood. Of course, people from central Canada don't see them as the local police.

So the RCMP is a very big property manager, and they're accountable, but the public works department does all the architectural and engineering work for them on contract, as a private firm would.

They have agents. They use Public Works as a specialist in buying or selling land, but the accountability is with the program department.

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Mr. Grose: I understand the system and how we got there. I'm still bothered, however, by the fact that the supervisor, Treasury Board, is saying these individual departments are not doing a good job at managing their real estate. Then we get to the Auditor General, who says the supervisors aren't supervising very well, either.

We then get into this kind of thing that I don't understand. We're doing four different modules, and so on. You lost me there. That's because I don't understand; I don't have this kind of mind.

It seems to me we've maybe outsmarted ourselves with this decentralization. We keep on saying, well, that's why we did it, and it seemed like a good idea at the time. But then we tell ourselves here that it's not working very well.

If it's not working very well, I would suggest we should take a long look - and I realize that's really not your department; all you can do is advise - at getting back to the original system. Maybe we had a good idea in the first place.

That's all.

Mr. Giroux: The Auditor General, of course, may want to comment, but I did not read his report as saying we should go back to a centralized system, or it doesn't work at all. The Auditor General legitimately pointed out to us that progress had been made, but there's still progress to be made. There are areas where there are gaps. In effect, this is the continuation of our policy.

Generally, we have been concentrating on managing real property much better for only the last 8 to 10 years, not for the last 130 years where we've been in Confederation. Our purpose in here is to take the Auditor General's report, build on what is in place and improve the areas where improvements are legitimately lacking.

From my experience in real property - I was the deputy minister of Public Works for four years - I would have a lot of difficulty arguing that we would solve the problems the Auditor General has pointed out by going back to a centralized system, of which the Auditor General was not very complimentary back in 1984, when the original audit was done. I think we have to balance some of these things.

[Translation]

Mr. Paradis (Brome - Missisquoi): Mr. Chairman, I would like to come back to the example cited earlier by Mr. Giroux, where he talked about a hypothetical 25% reduction in laboratory space. It seems fairly clear that with such a substantial downsizing exercise within the public service, it may not be that easy to find people to lease vacant office space.

I also have another more concrete example from my own riding, of a Canada Employment Centre in Farnham that is located in a building that belongs to the federal government, and it has in fact been empty for two or three years. The mayor of Farnham recently spoke to me of her concerns with respect to the future of that building.

So we have an empty building in Farnham, and another empty one in Southam, which prompts me to put this question to you: Has Treasury Board, whose mandate is to oversee the departments, including their real property inventory, put in place a policy dictating the procedure to be followed when a building has remained vacant for two or three years?

Mr. Giroux: Mr. Chairman, our general policy requires that departments review their inventory and if they are unable to identify any other use for a government building... I will not refer to any example in particular, because I am unaware of the details of the case you have mentioned, but it is likely that this building was used by the former Department of Employment and Immigration and that it is essentially an office building that is now part of Public Works' inventory. We would therefore expect Public Works to identify those buildings for disposal purposes.

The question really is, and Mr. Clayton raised this point earlier: Is there actually a market for that kind of property today?

What would the best use of the building be? What zoning regulations apply to it? In order to ascertain the availability of a building, we are required to consult the municipality so as to ensure that zoning will be appropriate for the government to make optimal use of the property.

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So there is a whole series of procedures to be followed; however, as a general rule we would ask the department a number of important questions, such as: Why didn't the department set the disposal process in motion?

We are perfectly prepared to consider the Farnham building - I admit I don't know what its actual status is at this point - and to discuss it with the department. Perhaps we could get back to you with additional details at a later date, but I can say, as a general rule, that that is the kind of thing we encourage departments to do.

Mr. Paradis: I mentioned that specific example because it illustrates one of my concerns. That particular building has been empty for two or three years, and throughout that period, the federal government has been paying taxes, heating costs and other related expenses. The city, however, may be prepared to buy it for $1.00. This is just an example of many that I could give you - I know there are a lot of other buildings sitting empty - because if that's the way it is in Farnham, I'm sure that it's no different in Chicoutimi, Saint-Jean and elsewhere. The government seems to be content to adopt a laisser-faire attitude, rather than dealing with these matters as they arise, and that's exactly what concerns me.

The Chairman: Mr. Lye.

Mr. Lye: Mr. Chairman, I'm afraid that's a very difficult example to comment on. I should point out, however, that there are two empty buildings in Farnham - a post office and an office building.

In terms of the availability of those buildings, much depends on the real estate market, and in towns like Farnham, there are often no potential customers who might be interesting in buying the building or even leasing it temporarily. So things can be quite difficult. Normally, however, when buildings are emptied, they are put up for sale and it's just a matter of time until they can be sold.

Mr. Paradis: Mr. Chairman, I understand the general rule is that a building is first offered to the province; if the latter is not interested in it, it is then offered to the municipality. I gather that is how things are generally done.

In the example I cited, however - and I'm sure there are other examples elsewhere - this procedure does not seem to have been followed. I want to ensure that the Treasury Board does in fact make enquiries all across Canada - in other words, I want to know whether the government does indeed follow the rule you have just mentioned when buildings have been vacant for more than six months, namely turn the building over to the province or municipality or else put it up for public auction? Do you actually follow this closely?

[English]

Mrs. Thomas-French: Yes, we do. We're organized on a regional and portfolio basis. It is our responsibility to follow up on the inventory of individual ministries and of the issues that fall within regional responsibilities. In a case like this, it may very well be that we have talked to Public Works about this individual case, although we're not necessarily personally familiar with it.

As you mentioned, there is a process in place that when a federal facility is declared surplus to requirements, we then circulate that building to other federal government departments and agencies, to the province and to the municipality. They can express an interest in purchasing that building at its market value.

From time to time, that process of circulation does take a long time. That is another one of the issues we follow up on with the department. Essentially, we demand that the process of circulation not drag on endlessly. There are cases where it has.

[Translation]

The Chairman: This will be your last question.

Mr. Paradis: I would just like to make one last brief comment, Mr. Chairman. Perhaps you should consider putting a system in place whereby if a building becomes vacant, you will automatically be made aware of that vacancy after three or six months, rather than having to wait an indefinite period of time to be told about it by the department. That's all I wanted to say.

Thank you, Mr. Chairman.

The Chairman: Mr. Desautels, would you like to make a few last brief comments? You have the floor.

Mr. Desautels: Thank you, Mr. Chairman.

I just want to say quickly that the issue we are discussing today is obviously a very important one, since we are talking about a portfolio valued at between 40 and 60 billion dollars. The four departments we audited spend approximately 2 billion dollars a year to maintain and manage their real property inventory. So the government's property management strategy definitely holds potential for real savings and cost avoidance.

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[English]

Very quickly, our chapter listed six things that needed attention.

First of all, there was a need, in our view, for a central challenge function and assessment of department performance.

Second, there was a need for identification and divestiture of surface properties. That's the point Mr. Paradis was just making.

Third, there was a need for improvements in the management information systems.

Fourth, we talked about a need for visibility of the full costs of real property to managers in the departments. I think that point came out a number of times today.

There are also dysfunctional effects of existing disincentives to sound management of real property, particularly when it comes to the disposal of real property.

Finally, we referred to the existence of reasonable policies within the Bureau of Real Property Management. The policies are reasonably good, but the compliance with them is not so good, and not that evident.

To summarize all of this, we agree that some progress has been made in certain areas, particularly in the area of the management information systems. I think there will still be a need to challenge the quality of the information produced by these MIS systems.

The area where I don't think we've made as much progress is in defining the central role for the Treasury Board Secretariat and the bureau. We still have the dilemma of how much should be monitored from the centre, and to what extent the department should be left free to carry on and manage their own affairs.

We feel we should not go back to the strong, central management; nevertheless, we think the bureau and Treasury Board should be expected to meet the role it has still on the books, confirmed in I think 1993. I don't think that part of the problem has been explored quite as much. I still believe it's an issue that needs to be addressed by Treasury Board Secretariat.

The Chairman: Merci, M. Desautels.

Today we have tabled the last report of the subcommittee on agenda and procedure. We will vote on it at the meeting tomorrow.

I thank our witnesses for coming.

We are adjourned until tomorrow.