The pernicious frame

Auditor General John Noseworthy has stated he would like to see an audit of constituency claims going back to 1989. That's the year when the constituency allowance was first introduced.

"Go mad" would be the likely response. "Fill your boots if that will get to the bottom of the problem."

Part of the problem with auditing that far back starts from the assumption that the same system exists today that existed in 1989.

Demonstrably it isn't, even on the basis of the limited information on the current House of Assembly spending scandal that is in the public domain. Here's why.

When constituency allowances were first established, they were limited amounts of money intended to cover the necessary expenses of representing the people of the province. The rules stated clearly that a member of the House of Assembly was entitled to claim expenses for pins, a mail-out, Christmas cards for constituents and similar items. The amounts didn't vary from district to district or if they did vary it wouldn't have been by much. On the face of it, a mail-out to residents of a Labrador district with 2, 000 members would cost less than a district in St. John's with over 10, 000.

Members of the House of Assembly appear to have several other allowances to claim against, most of it referred to in the budget as "allowances and assistance". There was a constituency amount - for the pins, flags, and public meetings, but there was also a travel budget and that's the bit that would have varied and been obviously varied widely. It costs a heck of a lot more to get around Torngat Mountains or on the south coast of the island than it would to represent a St. John's constituency on a bus route. There is likely also an entertainment budget and for some members of the House, such as the leader of the opposition, those particular allowances might be higher than those available to an ordinary member.

Based on several conversations over the past week and on the information the Auditor general has made public, Bond Papers has come to the conclusion that what changed was not how the amounts were presented but how the Internal Economy Commission looked at members' spending. Sometime around 1998, the view took hold that members' allowances were to be looked on as a global amount to be allocated as an individual member saw fit. Fewer restrictions were applied and, consistent with the approach taken in Ottawa, the Auditor General was kept out. If a member didn't overspend the total budget - or at least didn't overspend by much - then everything was viewed as being just fine.

That date - 1998¹ - matches up with the date for the $2.8 million in questionable spending described by the Auditor General on Tuesday. It also predates, but only by a year or so, the changes to the Internal Economy Commission Act in 2000 and subsequent decisions by the IEC that have already been identified has possibly having contributed to the scandalous events.

Another part of the problem auditing back to 1989 - at this point - comes from something mentioned by AG Noseworthy when talking about questionable payments to four companies.

For one thing, AG Noseworthy told the public on Tuesday that the former finance director of the House had the bizarre practice of over-writing his spreadsheets for each year. We have no idea how long this has been going on. As a result, AG Noseworthy and his officials have had to reconstruct the accounting system.

The size of that task would be daunting: hundreds of accounts and tens of thousands of transactions for one hundred or more individuals over the past sixteen years. Rebuilding those records would take years, and this is allowing that complete records of claims and cheques exist back to 1989.

Even at this stage AG Noseworthy could reasonable have only re-built a relatively small portion of the total picture. There may be enough to indicate there is a wider problem but there certainly isn't a clear picture of what the rules were, what monies were claimed and paid and where those monies went. He may have only been able to reconstruct a general outline so far and therefore cannot see the detail in which the various demons will surely be lurking.

The most obvious approach to take from here onward remains the same as it has been since the outset. Given the scope of the problem and the number of people potentially associated with the problem - many of them still sitting in the House - the House of Assembly or cabinet must appoint a public inquiry.

It can run simultaneously with the police investigation with both being supported by the best forensic auditors available.

If there is a need to investigate back to 1989 or even before that, then by all means let's do it.

But let's start with the period in front of our faces.

Let the investigation be conducted, in part, by a commission of inquiry.

The pernicious frame that has been applied to date and lately the unsubstantiated accusations by the Auditor General about events back to 1989 might lead us in the wrong direction.


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¹ The Auditor General's report released to date follow the practice of referring to the fiscal year by the calendar year in which it ends. For example, the Auditor general would refer to the current fiscal year as FY2007 even though we are in calendar 2006 and the budget approved earlier in 2006 is set for Fiscal Year 2006.

By adjusting the dates given in the Tuesday report, the year identified as 1999 is actually FY 1998 by the way the budget would have been set.

The case for a public inquiry

With the latest revelations from the Auditor General of Newfoundland and Labrador, it is difficult to imagine that cabinet will not appoint a public inquiry to get to a complete picture of what happened in the administration of the House of Assembly.

The report from Auditor General John Noseworthy describes unusual circumstances surrounding payment of more than $2.6 million to three suppliers and a further $170, 000 paid to a company owned an operated by the former director of financial operations in the House of Assembly.

This brings the total of allegedly misappropriated and misspent public money to almost $4.0 million. In all likelihood, that number will go higher.

Unfortunately, the public has only a very limited amount of information. The Auditor General's reports, suggestive as they might be, are actually grossly inadequate as a guide to any further action or as an audit by a legislative auditor. Where there should be portraits in sharp focus, we sometimes find stick figures.

The epitome of this type of work is that conducted by Auditor General Sheila Fraser into spending at the Office of the Privacy Commissioner. It is thorough and well documented. AG Fraser's conclusions are, in every respect, supported by the information contained in the report itself.

By contrast, AG Noseworthy's report on Edward Byrne merely demonstrates that something unusual occured. There is no discussion of administrative practices within the legislature, nor does the report identify the nature of the claims allegedly submitted by Mr. Byrne. The report on payments to certain suppliers contains a number of comments that suggest a substantive problem within the legislature and potentially with relationships between the legislature and the Department of Finance. These are not to be addressed by AG Noseworthy, nor will they be dealt with by the police investigation currently under way.

AG Noseworthy has also made claims that are not yet supported by any evidence. He has suggested collusion - a criminal term - yet he has provided insufficient detailed information to support the contention.

Likewise, AG Noseworthy has advocated an audit of member's spending dating to 1989. He does this despite fairly clear evidence in what he has provided to the public that this
circumstance dates from about 1998 and continued and indeed may well have been facilitated by certain decisions taken by the legislature and by the Internal Economy Commission in Fiscal Year 2000 and afterward. Investigators can certainly go back to 1989 or even before that if they wish, however, there is a prima facie case for focusing attention a little more recently.

At his news conference today, AG Noseworthy was asked a sensible question by one reporter: "how did this happen?" His answer provided general and largely superficial comments. His report does give some clues to the issues that AG Noseworthy's work will leave unaddressed and which the police are simply not empowered to deal with.

Internal controls relating to purchases were basically non-existent:
- no segregation of duties - the former Director of Financial Operations ordered goods, indicated receipt of goods and approved company invoices for payment;

These internal controls were not solely the responsibility of the former director to implement. There were others within the House who had clear authority to provide direction on these matters. That such a situation continued for years is inexplicable unless further inquiry is made. A simple question on the signing and approval authorities within the House, asked for example the by IEC established in April 2004, answered truthfully, could have revealed the depths of the problem. We need to know if it was asked and if not, why not. We need to know also if it was answered truthfully.

- and although payment authorization was made on the Government's financial management system, it was most often performed by an official without seeing the original documentation.

This comment, almost cryptic in the Auditor's report, refers to a decision apparently taken by the IEC in 2000 and confirmed by subsequent IECs that the former director of financial operations need not provide any supporting documentation to the Comptroller General in order to generate payments. At the same time, however, we might wonder how it could be that some individuals apparently received overpayments on the order of 10 times the entitlement - something apparent even without documentation - yet no one detected this at all or apparently raised questions about it.

Much of the latest report seems to lay responsibility for the mess solely at the feet of the former financial operations director. However, the fact remains that the former director was accountable to the Clerk of the House who was in turn responsible to the Speaker and the Internal Economy Commission who were in turn answerable to the legislature as a whole. Perhaps the most remarkable aspect of the most recent Auditor's report is that questionable practices not only continued after April 2004 but accelerated from previous rates over the subsequent 21 months. Yet this is an aspect of the current scandal - in some respects the very heart of the entire matter - that AG Noseworthy will not be addressing at all.

If all that were not enough, somehow we must establish how the private sector auditors employed by the legislature after FY 2000 either were negligent or were duped.

Apparently the Auditor General will only be doing enough audit work to establish something odd occured. It will fall to the police - by AG Noseworthy's own comments - to look into any criminal activity. However the broader issues of administration, management and accountability will be handled some other way or ignored altogether. Those who had legal and moral responsibility appear to be escaping notice. They may have done nothing wrong; they may have been deficient in their actions. As it stands right now, they will escape any public scrutiny.

If we are left with these thin Auditor General reports and the widening police investigation, significant aspects of the House of Assembly scandal will not be addressed. Clouds will hang over more than ought to be overshadowed. This is unacceptable if our goal is genuine accountability. It is an unconscionable circumstance if our goal is to find the problems, fix them and restore the integrity of the legislature.

The only way the public can be assured of full and proper accounting is with a public inquiry. It need not be a long or complex inquiry, but it is - simply put - the only way of getting answers to all the questions raised by this complex and troubling episode. As argued here several days ago, in addition to a police investigation, itself supported by the finest forensic auditors available and experienced legal counsel, a public inquiry should be appointed.

The commission of inquiry would comprise ideally three individuals who, "by virtue of their considerable political and other experience, unimpeachable personal integrity, and commitment to parliamentary democracy can recommend all the measures needed to put the House in a proper state and begin the process of restoring public confidence in the most important of our public institutions."

Three individuals that come to mind are the current chief justices of the Supreme Court Appeals and Trial Divisions. A third individual is John Crosbie: member of the Privy Council, former minister of finance of Newfoundland and of Canada and former minister of justice for Canada. Others, such as Lynn Verge or retired Justice Bill Marshall have the requisite qualifications.

Make no mistake: AG Noseworthy's inquiries and the police investigation will not root out the answers to all the questions raised by this scandal which itself is without precedent in the province for over 80 years.

The case for a public inquiry has been made repeatedly in the past week. It now remains for the cabinet to make full and proper use of the Iron Fist which the legislature has provided in the form of a public inquiry. Anything else would be pulling punches.

The frame and the iron fist of cabinet

Less than a week after cautioning residents of Newfoundland and Labrador not to make hasty judgments about the financial scandal affecting the House of Assembly, Premier Danny Williams announced today measures that he claims will address the matter. The actions he is taking are guided, as much as anything else, by the frame he has placed around the issue.

That frame focuses on the Office of Auditor General and on moving forward from here with the Premier being seen as acting decisively to correct a problem.

Take a look at the release. It fits the frame perfectly. In a news release, the most important information for the reader is contained in the first sentence - sometimes called the lede - and in the opening paragraph. Here's the lede for the latest news release:

In light of recent findings of the Auditor General into the finances of the House of Assembly, Premier Danny Williams today announced that his government will build upon the successful reforms already implemented since forming government. The Williams Administration [sic] committed to transparency and accountability, and has demonstrated this commitment with several initiatives including passing the new Transparency and Accountability Act, Lobbyist Act and Access to Information legislation.¹

The second paragraph then builds off the first, confirming that the Premier is satisfied he was right all along and is doing all that needs to be done to handle the problems that have been made public. The actions announced on Monday include changes to the Internal Economy Commission Act that will clearly state the Auditor General can audit the House accounts, the appointment of Chief Justice Derek Greene of the Supreme Court Trials division to review member’s' salaries and allowances on a "“go-forward basis"” and implementation of other changes needed to correct the House of Assembly's internal controls and compliance.

Overall, one must know what occured and why before one can take corrective action on any problem. In this instance, the Premier is acting without knowing very much of anything save that something has occured. The Auditor General is still furiously reviewing the House accounts and producing tiny reports with the ink still wet. His copious media interviews contain claims but his one report thus far says little of substance beyond demonstrating that something wrong occured.

As well, the police investigation is only now underway and the larger issue of how the Internal Economy Commission operated will simply not be examined (see below).

Let's take the Premier's initiatives in order.

As far as the Auditor General is concerned, while this has been a key element of the Premier'’s frame for the House of Assembly misappropriation issue, it is not really the most important one in understanding what happened and why. The Auditor General can only detect problems after they have occurred. Since the Auditor General was allowed back to review the House books, the Premier'’s change to the IEC Act proposed on Monday is largely a cosmetic one.

Chief Justice Greene'’s task is one of the most curious aspects of a very curious approach to handling a scandal of this magnitude. Firstly, the Premier'’s news release makes it clear that while Chief Justice Greene will review salaries and allowances of members, the Chief Justice will not be acting with powers under the Public Inquires Act.

Under section 13 of the Internal Economy Commission Act, the House may appoint a committee of no more than three persons to review salaries, indemnities and other benefits with the powers of a public inquiry. The review is to be completed within 90 days and handed to the Internal Economies Commission for action. This confirms that the House is master of its own destiny and that members of the House are collectively responsible for appointing an independent commission to review salaries and benefits.

The Premier's charge to Chief Justice Greene is significant since it specifically prevents the Chief Justice from reviewing any aspects of the current scandal which may have arisen from the way in which the IEC discharged its responsibilities and which may affect any recommendations he makes. Since the Chief Justice does not have the powers of a public inquiry he cannot compel evidence from a witness or cause the production of any records. His powers are being clearly limited; the purpose of the limit is far from clear.

In short, Chief Justice Greene has been given a task that appears to be similar to requirements under the House of Assembly Act for setting salaries and benefits however he is reporting in this instance to the Premier and the cabinet to determine salaries for the House of Assembly.

As for the administrative changes, the Premier'’s news release on Monday makes it clear that the House of Assembly practices that likely contributed to the current scandal did not change in 2004. Rather, the only thing changed was the access to the legislature accounts for the Auditor General.

This is a significant acknowledgement on the one hand, however, it raises at least two unanswered questions that have potential significant implications. The most obvious question is why the IEC in 2004 did not put in place the simple administrative checks and balances which were obvious as long ago as 2000 when the IEC Act was changed.

There is also no potential for determining if the nature and amount of allowances is appropriate but that the IEC acted inappropriately. This is something Chief Justice Greene cannot determine since his powers have been purposely limited.

Did abuse continue after 2004? AG misreports date of audits

More importantly though, the second question is what, if any, misappropriation took place after 2004. The Auditor General has stated he is reviewing spending by the House of Assembly for Fiscal Years 2003 and 2004. This would cover the period from April 2003 to March 2005, given the government'’s fiscal year system.

However, the attachment to the Auditor General'’s one page report on Ed Byrne misidentifies the time period for the audit. The headings are for FY 2003 and FY 2004. The dates, though, are for FY 2002 and FY 2003. Only two payments appear to have been made in FY 2004 however it would appear, on the face of it that these payments actually relate to FY 2003.

This is no small matter. The Auditor General may have reviewed spending since May 2004 but his reports thus far have not indicated if he actually reviewed FY 2004 and found nothing or if he has simply not audited the period at all.

If administrative practices had actually changed in March/April 2004, then there would be no need for the Premier to announce those changes in 2006.

In "Reframing the issue", the Bond Papers raised the concern that, in his sincere desire to address an obviously grave issue, the Premier has effectively usurped legal powers he does not have. Monday'’s release confirms that this practice is continuing, although the Premier is suddenly conscious of this aspect. His news release concludes:

The Premier noted that the IEC is an autonomous body with representation from the Progressive Conservative and Liberal parties. Any changes to the operations of the House of Assembly would require approval of the SpeakerÂ’s Office and the IEC, and Premier Williams said he will be instructing his caucus members to ensure appropriate measures are undertaken.

Having already taken responsibility for decisions that are actually not his to make, this last paragraph raises even more questions. The Premier'’s news release on Monday suggests that he will ensure that salaries and benefits for the House of Assembly will be set by cabinet and imposed by the power of the government caucus. Even with the acknowledgement that the Premier lacks the legal power to do what he has undertaken, his comments suggest he will do it anyway.

It would be interesting to know if former New Democratic Party leader Jack Harris still holds the view he held in 2004, when he told the House of Assembly that the legislature made "provision for the Internal Economy Commission so the House of Assembly was not subject to the iron fist of the cabinet in telling the House of Assembly what to do."”
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¹ The Access to Information and Protection of Privacy Act was passed by the legislature prior to the 2003 general Election but not proclaimed by the grimes administration.

The Commission of Internal Economy - background

Like all legislatures that follow the parliamentary tradition, the House of Assembly in Newfoundland and Labrador uses a committee of members to manage the operations of the legislature.

The Internal Economy Commission Act establishes the membership and powers of the commission. House of Assembly operations include television broadcast of the legislature, production of a record of debates known as Hansard and maintenance of a legislative library to support the Speaker and the members in their duties.

The Act also provides other powers, such as the mechanism for reviewing members' salaries, allowances and other benefits.

Prior to 2000, money for House operations was maintained in accounts run by the legislature itself. Budget allocations were made each year but the House of Assembly maintained its own accounts as it had done since 1855. The Auditor general had full access to the accounts and supporting documents for expenditures.

In 2000, the House of Assembly approved amendments to the IEC Act that provided, among other things:

- money for House operations would come from the Consolidated Revenue Fund, maintained by the finance department through the Comptroller General, thereby eliminating the requirement for the House to maintain its own accounts;
- power for the IEC to determine who would audit the House accounts; and,
- power for the IEC to determine what, if any, documentation/information would be provided to the Comptroller General to support requests for funds in order to make payments.

The amendments bill went through all three legislative stages in a single day - May 11, 2000 - without amendment. There were surprisingly few comments by members.

Beaton Tulk, then government House leader said this - and only this - on second reading:

Mr. Speaker, I don'’t intend to belabour the points in this bill much except to say that some of the language that we see in laws governing the Internal Economy Commission Act dates back to responsible government days. What this bill clearly does is set out the duties of the IEC and the kind of duties that the IEC should carry out. They are more clearly defined in this bill. I would ask my colleagues to quickly move on passing the bill.

His Opposition counterpart, Loyola Sullivan said merely the following:

I have just a few brief comments because it is pretty straightforward and pretty routine. It does include that the accounts here shall be audited annually. I think as members of the House we have no problems with being subject to an annual audit here, and as elected representatives I guess we should be accountable there. We certainly endorse that increased accountability of Members of the House of Assembly, and we support that.

The longest comment came from Jack Harris:

I think it is symbolic in a way that the funds of this House were looked after by this House, that whatever was voted for the House was looked after internally by the House of Assembly, and that was recognized by the provision that had the Clerk physically handle the funds of the House. That is obviously being changed to bring it into line with the Consolidated Revenue Fund and the normal handling of accounts by government, with provisions to ensure that the Internal Economy Commission and the House retains its autonomy.

Similarly, we have a new provision which requires an annual audit of the accounts of the House of Assembly which I think is appropriate; that there be accountability through an annual audit. We are satisfied to support this bill and that the Internal Economy Commission should ensure that this annual audit is done, and that the auditor be appointed by the Commission as is provided for in the legislation.

In the controversy over the Auditor General's access to the house accounts in 2002, Sullivan reportedly sided with his fellow members of the IEC and backed keeping Elizabeth Marshall from her investigations. He now denies this, although there does not appear to be any public record of his objections anywhere.

At no point has anyone asked the former members of the IEC why they decided no documents needed to be sent to the Comptroller General, a practice which apparently remained in place until 2004 or may have remained in place until very recently. Itt was this decision which frustrated the checks and balances built into standard government administrative practices. As much as anything else, this decision facilitated any misappropriation of funds that may have taken place.

Since a number of people have been curious, following is a list of members of the IEC in 2000, 2002 and 2004. This list was compiled based on the official record of the House of Assembly.

Internal Economy Commission, 2000

Chairman: Speaker of the House of Assembly Lloyd Snow

Members: Doug Oldford, Deputy Speaker
Beaton Tulk, Government House Leader
Paul Dicks, Minister of Finance and Justice
Kevin Aylward, Minister of Forestry and Agriculture
Loyola Sullivan, Opposition House Leader
Tom Rideout, Opposition member

Secretary: Clerk of the House John Noel

Internal Economy Commission, 2002

Chair: Lloyd Snow

Members:

Bob Mercer, Deputy Speaker
Tom Lush, Government House Leader
KevinAylwardd
Joan Marie Aylward, Minister of Finance
Ed Byrne, Opposition House Leader
Loyola Sullivan, Opposition member

Internal Economy Commission, 2004

Chairman: Speaker Harvey Hodder

Members:

Roger Fitzgerald, Deputy Speaker
Ed Byrne, Government House Leader
Loyola Sullivan, Minister of Finance
Elizabeth Marshall, Minister of Health and Community Services
(replaced Nov 04 by Tom Marshall, Minister of Justice)
Kelvin Parsons, Opposition House Leader
Percy Barrett, Opposition member

Reframing the issue

The Liberals dealt with the issue by simply asking the AG’s office to stop the audit work and leave, [Auditor General John Noseworthy] said.

Asked if it smelled of a coverup, he said: "They asked us to stop our work and leave. So they certainly didn'’t seem interested in knowing what else was going on."
...
Premier Danny Williams, vowing to restore transparency within government, decided in 2004 the AG should be permitted access to the legislature's financial records.

- "Earlier AG investigation quashed”, The Telegram, June 24, 2006, p.1.

"This has surfaced as a result of the initiative my government took in basically having the auditor general go in and look at this matter," [Premier Danny Williams] says.

"I have a responsibility as premier and leader of the province to put these things on the table...but I think they [the people of the province] need to know that as their leader I will certainly be decisive and I'll act on it very quickly."

- "Ripe for abuse", The Independent, June 25, 2006, p. 4.

Think about how many times in the past week you've heard or read these comments or ones similar to them coming from either the Premier, the Auditor General or, as in The Telegram story, reported as a matter of fact.

In political circles, what you see here is an example of framing the issue. Language is selected, certain facts are highltighted and both are repeated by several, apparently independent or credible sources. A frame is a way of managing an issue. it is a way of guiding a discussion by telling what ought to be looked act and either deliberately or inadvertently leaving out other
aspects.

The frame is a way of influencing how issues are perceived, and in many cases is a way of pointing to the resolution that will follow.

The frame used in the examples above is very familiar. There is a problem and the Premier, personally, will resolve it. In fact, the current Premier - not of the party that was there before - made the crucial decision in 2004 to allow the Auditor General back to the House of Assembly to audit the legislature'’s accounts.

The problem with the Premier has placed around alleged misappropriation of funds from the House of Assembly is that it is wrong.

It is wrong for at least three reasons of fact. First, no Premier can make decisions about how the House of Assembly administers its funds, or oversees the administration of the House of Assembly itself. That job falls to a committee of members appointed according to the Internal Economy Commission Act.

Second, the frame used by the Premier and others is wrong because it suggests a partisan origin to the problem, when in fact the Internal Economy Commission is made of members of the House of Assembly from both the government and from the opposition. In 2002, the IEC voted unanimously to bar the Auditor General from auditing the House books.

Third, the frame is wrong because the decision to allow the Auditor General to review the House accounts did not prevent the alleged abuse of funds in the first place. It merely allowed the abuse to be detected after the fact. The root of the problem here, as Auditor General John Noseworthy has hinted, is the decision taken initially in 2000, reaffirmed by the IEC unanimously in 2002 and continued by the IEC after March 2004 to allow House of Assembly officials to request money to pay expense claims by members without submitting receipts to the province's Comptroller General. Apparently, they didn't even have to indicate whose claim or claims were to be paid by the money requested.

Aside from those matters of fact, we have to be careful about the frame we accept on this issue because of the wider implications.

At the most fundamental level, if we accept the frame already applied to this issue we will miss the legal responsibilities of the members of the IEC for overseeing the legislature‚’s administration. Each member knew or ought to know about the checks and balances provided by law. Each knew or ought to have know of the generally accepted practices designed to ensure money is spent properly and that only the amounts voted by the legislature are spent on the the things they are to be spent on.

When the IEC decided after 2000 not only to bar the AG from auditing the books but also to request money without the checks and balances provided in the Financial Administration Act and elsewhere, they created the very environment which led to the problem with which we are now are now faced.

The IEC members are not just anyone. They are the most senior members of the Opposition; those who sat on the IEC four and five years ago now hold the most senior positions in the current administration. The IEC also included experienced and senior members of the former administration, including a future Premier and the then-Minister of Finance and President of Treasury Board. It is difficult to imagine they were not familiar with the province‚’s financial administration laws and with the government's own internal administrative practices, all of which are designed to frustrate attempts to misappropriate public money.

In dealing with the issue now in front of our eyes, we would be remiss if we did not review the actions of the IEC in the period after 1999. Full accountability demands no less. For those who want to look for a guide to how broad this investigation should be, take a look at Auditor General Sheila Fraser's report into spending practices at the Office of the Privacy Commissioner. While it may be that a review will find the IEC acted generally in a proper way, we cannot ignore the possibility that, to paraphrase Fraser, certain individuals willingly or by omission turned a blind eye to the potential for the abuses now alleged to have taken place.

Beyond that, however, by accepting the notion that the Premier - any Premier of any political party at any time - can personally and individually dictate rules for the House of Assembly we would be continuing the steady erosion of the most fundamental check on public spending on which our democracy is based.

The Premier is the head of the government administration. However, the cabinet he or she leads derives authority to spend public money based on the consent of our elected representatives in the House of Assembly. The legislature is separate from government to ensure public oversight of government activities in every respect. These representatives are accountability to us, as it is our money they are spending to advance our interests.

The Auditor General summarized this idea as succinctly and eloquently as anyone in her report for Fiscal Year 2000:

Full accountability requires that Government, its departments, agencies of the Crown and Memorial University of Newfoundland be held accountable to the House of Assembly for their use of public money and the delivery of their programs. The need for true accountability dates back to the time when the democratic system of government was established. A democratic form of government requires as a minimum that government, its departments and agencies of the Crown report annually to the House of Assembly, the same body which provided the monies to fund their programs, on their financial and operational results.

Over the past decade, we have seen successive government administrations make more and more decisions without any scrutiny by the elected representatives of the people of our province.

In 1997, the Premier'’s Office gained de facto control over spending by the Lower Churchill project office. Over $57 million of public money - from the Hydro corporation‚’s funds - was spent by 2003/2004 without a proper accounting of the spending to the Hydro board of directors and without any but the most vague oversight by the House of Assembly. Even after this was brought to public attention shortly after the Williams administration took office, the Lower Churchill project office continues to operate in generally the same fashion as it has in the past.

The Auditor General also criticized the practice of creating Crown corporations using simple administrative means rather than through legislation, as has been the practice for decades. In the same report that raised the issue of auditing the House of Assembly accounts, the Auditor General - now the member of the House for Topsail - noted that up to 2001 fully 16 Crown corporations had been created solely under the Corporations Act. The Auditor General felt that these corporations were incurring public debt without appropriate legislative authority. It is curious to note that while some of the 16 were incorporated as far back as 1950, half were created in 1996 and the years after.

Times have not changed for the better. In this past session of the legislature alone, the cabinet was handed the authority to approve the break-up of Fishery Products International without any further reference to the legislature. In the last days of the last sitting, cabinet was also given the power to turn the Hydro corporation to whatever purpose it felt the corporation should do. As a result, cabinet now has the authority to incur as much debt and engage in as much spending of public funds as it sees fit and all without a requirement to seek the cursory approval of the legislature, let alone provide a complete accounting of its actions.

This current issue allows the opportunity to correct the erosion of the legislature's responsibilities but, unfortunately, the limited frame offered by the Premier has been too readily accepted. Hasty decisions are being made. The Premier, who cautioned against making snap judgments, will impose new policies this week before many of the investigations have even gotten underway.

No less an influential group than the editorial board of the province’s largest daily newspaper has already proposed that the legislature's spending be overseen by an unelected group: the epitome of an unaccountable and antidemocratic measure if ever there was one. The same editorial board has engaged in the cheap and easily cynical condemnation of all politicians, irrespective of facts, advising those who have taken issue with the Premier'’s usurpation of authority to "shut their mouths and stop whining."

The position taken by The Telegram is exactly what John Crosbie was talking about when told The Independent this weekend that this issue will “confirm for many that politicians in general are "a bunch of sleveens out for themselves. That's the biggest danger of all this. It hurts the province in the sense of distrust of politicians"…It's quite a blow."

John Crosbie is right. Unfortunately, the frame for this issue offered by the Premier serves to reinforce distrust of politicians. His approach, even fueled as it is by his own strong sense of ethics and his own integrity, may lead us to a situation which actually reinforces the very trends that led to this situation in the first place. His frame may well prevent us from looking deeper into this matter and dealing with all the issues we find.

Full accountability and the rehabilitation of our tarnished democracy demands that the members of the House of Assembly take control of this matter. A special committee of the legislature should be struck in an emergency public session to oversee a two-pronged investigation.

One prong is the police investigation which ought to be supported by both the ablest of forensic auditors and a judge of the federally- or provincially-appointed court with experience as a Crown prosecutor. This approach alone would ensure that the investigation can proceed and be seen to proceed without any potential hint of impropriety.

The second prong is to inquire into the House of Assembly itself. The best people to do this would be eminent members of the community who, by virtue of their considerable political and other experience, unimpeachable personal integrity, and commitment to parliamentary democracy can recommend all the measures needed to put the House in a proper state and begin the process of restoring public confidence in the most important of our public institutions.

The issues raised by allegations of misappropriation of public money cannot be addressed by any one person. They can only be addressed by collective action.

They can only be addressed by reframing the debate from a very limited one imposed in haste, even with the best of intentions.

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Revised 26 June 2006. A later post will look at the Premier's announcement made on Monday morning.

The unnamed scandal: Day 3

Ok.

Here's the latest CBC online story on the scandal in the House of Assembly.

So far no one has been able to put a name on this one. The easiest way has always been to attach "-gate" to it, as in Watergate, Strippergate, Heidigate.

We could call this one Glacier-gate. No it has nothing to do with a local arena. Nor does it have anything to do with a large block of ice.

In this case, Glacier-gate would refer to the oddly slow way things have developed. Like when the story broke: the Premier had sufficient details on the morning he met with Ed Byrne.

For some reason he took a whole day to let the rest of us in on what happened. Official excuse: the Prem had to meet with the Speaker of the House and the Auditor General. Apparently these guys were busy so they told Danny to cool his jets. The AG apparently met with the Prem after Danny's call to a radio call-in show. That was a mere two hours before Danny told the media "immediately" and about six to seven hours after Danny got Ed's resignation.

But then he only told us part of it, hinted at some more and told us to wait until the next day when the Auditor General would say more.

Then the AG shows up almost 24 hours later, releases a one-pager with few details and goes on the interview circuit with plenty of claims but based on what he himself would have to admit is a far-from-complete investigation.

Then the matter gets turned to the police: two full days after the Premier first became aware of the issue.

All this over a matter every bit as serious as the Hollis Walker inquiry scandal in the 1920s (that's how far back we have to go in Newfoundland and Labrador to find something this shocking).

And the investigation has been proceeding like a snail on a glue pad.

So the thing is either a glacier...

Or maybe it is being run by the Admiral from Get Smart:

"Would someone give me a little push?"

All jokes aside, this is a serious issue. A bigger post dealing with the issue, how it's being handled and what needs to happen is on the way.

Is dat you, Bill?

Apparently your humble e-scribbler turned up on Back Talk today with a reference from both Bill and a caller.

Nice to know people are reading the Papers.

Byrne resigns; serious questions appear

Premier Danny Williams announced Wednesday evening that he has requested and received the resignation of Ed Byrne [Left. Photo: CBC] as minister of natural resources, effective immediately.

The action came as a result of an audit of the House of Assembly conducted by the Auditor General of Newfoundland and Labrador.

There is no indication that Byrne has also resigned as government leader in the House of Assembly.

The poorly written release can be found here, at gov.nl.ca.

"I am not prepared to comment further on this matter, as I have referred it to the Department of Justice on the advice of the Auditor General," said Premier Williams. "I immediately requested Mr. Byrne‚’s resignation until the matter is resolved, as I take our government‚’s obligation to be accountable and transparent very seriously."

The Premier did comment further, in a media scrum that was broadcast live across the province at 6:15 pm. Williams told reporters the auditor general submitted a report persuant to section 15(1) of the Auditor General Act. That sections reads:

15. (1) Where during the course of an audit, the auditor general becomes aware of an improper retention or misappropriation of public money or another activity that may constitute an offence under the Criminal Code or another Act, the auditor general shall immediately report the improper retention or misappropriation of public money or other activity to the Lieutenant-Governor in Council. [Emphasis added]

Williams also told reporters that the auditor general reported on several other members of the House of Assembly. He said the auditor general's report has been turned over to the Department of Justice. Presumably, the report is now in the hands of the attorney general and may be turned over or has already been handed to the police for further investigation.

[UPDATE: According to a debrief on CBC radio, Byrne's resignation comes as the result of the first complete audit. Other members of the House of Assembly may be subject to further investigation. Logically, therefore, there may be no further investigation other than the review of Byrne's actions.

The CBC report this morning is significantly different than the implication from the Premier's comments on Wednesday that other members of the House of Assembly were - definite, not conditional - also under investigation. By definition an audit of the House of Assembly covers all members and hence involves all parties. However, if only this one problem has occured, then Williams has case the net of supicion wider than indicated by the facts at this point.

This would not be the first time the Premier made a statement which was untrue or used words and phrases with ambiguous meaning that appear designed to mislead.]

Byrne's departure from cabinet and the important natural resources portfolio removes one of the Williams administration's more competent ministers at a sensitive time. Work is underway on the province's energy plan, which is supposed to include a royalty regime for offshore natural gas.

Williams announced that Byrne will be replaced by John Ottenheimer, minister of intergovernmental affairs. Ottenheimer was moved from the high-pressure health portfolio to the less demanding intergovernmental affairs slot. It is unclear if Ottenheimer will be expected to tackle the full workload in natural resources or if Williams himself will serve as de facto minister.

During the media scrum Williams indicated he met with the Speaker of the House of Assembly and discussed the issue. Williams said he requested Byrne's resignation at a cabinet meeting on Wednesday morning.

There is no explanation why Williams chose to announce Bryne's departure live on province-wide television during the supper hour news programs of both major television stations, despite the fact that Byrne had apparently resigned over six hours earlier.

[UPDATE: The CBC debrief on Thursday refered to the Premier taking decisive action. This comment and references to other resignations resulting from investigations by auditor general John Noseworthy fit the Premier's Office contention from the news release and from the Premier's scrum that the Premier takes "our government‚’s obligation to be accountable and transparent very seriously".

It is interesting to note that in the Tulk case in 1998, Brian Tobin presented himself as taking decisive action. However, it was apparent from his own statements in the House of Assembly that an active police investigation had been underway in the Tulk matter for fully two weeks before Tobin and Tulk acted.

At this point, and given the dirth of accurate and detailed information, the best that can be said is that Byrne has resigned. It would be entirely inapproriate to attach any intepretation to the Premier's comments and actions beyond the facts presented. Taking this as part of a pattern involving other matters or repeating the Premier's accountability and transparency comments in an unqualified manner would constitute an unsubstantiated intepretation that fits the convenient political intepretation being applied by the Premier's Office, but not necessarily the facts as known at this point.]

Williams had been avoiding media interviews earlier in the day following his derogatory comments about the association representing the province's offshore supply and service companies. Williams did find time in his schedule to call Back Talk, a local radio call-in show, to defend himself against accusations that he had criticized NOIA before actually hearing what the association said at its news conference at midday Wednesday.

Williams called Back Talk at around 3:45 PM and spoke with program host Bill Rowe for about 10 minutes. He repeated his criticism of NOIA and also hinted - bizarrely and cryptically - that the offshore association was interfering in ongoing negotiations between government and the consortium that had been proposing development of the Hebron field.

There are no negotiations, a fact acknowledged on Tuesday by Ed Byrne. Speaking at NOIA's annual offshore petroleum conference, Byrne said the door was open to a resumption of talks been government and the Hebron proponents.

Williams made the rounds at NOIA's conference gala Tuesday night buttonholing delegates and making clear his displeasure at NOIA's recent calls for government and the oil companies to resume talks on the Hebron project. He also reportedly expressed the view that NOIA had no business commenting on Williams' refusal to follow the Atlantic Accord Implementation Act and appoint a chairman and chief executive officer at the Canada-Newfoundland and Labrador Offshore Petroleum Board.

In the scrum, Williams compared Byrne's resignation to that of Beaton Tulk, a cabinet minister udner Brian Tobin. Members of Tulk's immediate family and some of his office staff had been accused of accepting favours that, if proven, would have been a breach of section 121 of the Criminal Code. No charges were laid following a police investigation.

In the Tulk case, a police investigation had actually been underway for two weeks before Tulk resigned. Tobin requested Tulk's resignation only after Tulk's office received a media inquiry about the matter.

Such a clever dick

Danny Williams wouldn't like it if NOIA started pressuring him to get back to the table and restart negotiations on the Hebron project.

That project, based on the 500-odd million barrels in Hebron alone would have produced upwards of $10 billion in royalties for the province on top of between $3.0 and $5.0 billion of construction most of which would be done in the province. There are at least an additional 230 million barrels in two other adjacent structures, both of which are likely to be developed over time.

Danny turned up his nose at the deal when the proponents asked for $500 million in tax concessions and when they turned down a 4.9% ownership stake in the development that Williams himself admitted was worth only $1.5 billion in total.

Speaking to CBC Radio, Williams said that if NOIA - representing the offshore service and supply sector - wants to start pressuring him they should change their name to "Annoya".

Danny Williams is such a clever dick.

Pilot pulls Bond Papers off the rocks

The following was received on Friday as an e-mail with attachment and speaks for itself.

We stand suitably corrected.
____________________

I am writing to clarify some confusion that your article brought to light. "The Placentia Pilot" is the name of the 17 metre long launch that transfers the marine pilot to and from the pilot boarding station. The launch master and crew are not pilots; they are hired by the Atlantic Pilotage Authority (APA) under a private contractor arrangement. The qualification for the launch master, as set by the APA, is a minimum requirement of a 60 tonne master'’s certificate.

It is the Placentia Bay Marine Pilots who physically board the ships that are transiting the compulsory pilotage zone and are responsible for the vessels'’ safe navigation, not the pilot boat crew. Pilots are seasoned master mariners with over 20 years of combined nautical training and sea experience. The minimum requirement is an unlimited tonnage certificate.

Candidates undergo rigorous testing followed by a long apprenticeship, studying every aspect of the waterway for which they will be responsible. Once a pilot has qualified, they continue specialized training, ensuring that they are capable of handling the most up-to-date navigational equipment.

The Canadian Marine Pilots'’ Association'’s (CMPA) mandate is to foster public awareness of the role of marine pilots in protecting public safety and the environment, and to work with other marine stakeholders to further the common goal of ensuring a vibrant and healthy marine sector. I am attaching a recent media release issued by the CMPA that speaks to just the type of environmental concern that you mention in your article.

Capt. Patrick Careen
Chairman
St. John'’s/Holyrood/Placentia Bay Pilots'’ Committee

Attachment:

Atlantic Pilotage Authority Exempts Offshore Supply Boats

Halifax, NS - – Human error has been identified as the key causal factor in 75%-96% of marine accidents. These are the facts that make pilots and pilotage services the most important elements of safety in narrow waterways and ports. Due to their training for a specific area and their experience gained during everyday operations, pilots can minimize human error.

Until May 17, 2006 port stakeholders in Atlantic Canada and the residents who live and work along these waterways had the comfort of knowing that all ships above 1,500 gross registered tonnes were required to have a licensed marine pilot, or a pilotage certificate holder onboard, who was responsible for the safe navigation of the ship.

Effective May 17 at 12:01 a.m., the Atlantic Pilotage Authority and Transport Canada eliminated this safety margin for 96% of the vessel transits by Canadian ships operating at the 16 compulsory pilotage areas, in Atlantic Canada. [Amendment to the Atlantic Pilotage Authority'’s regulations under Subsection 4(2)(C)].

All Canadian-registered offshore supply vessels up to 5,000 gross registered tonnes are now free to operate in compulsory pilotage waters of the Atlantic Provinces without the requirement of having a licensed pilot or a pilotage certificate holder onboard.

The Canadian Marine Pilots'’ Association is puzzled by the APA'’s drive to turn over its responsibility to stakeholders and the public to the offshore supply boat operators.

"“Direct responsibility for public safety now lies with the private operators of offshore supply vessels to self-regulate their own standards in these confined waterways and we believe that is cause for concern,"” says Capt. Andrew Rae, Vice President, Atlantic for the Canadian Marine Pilots'’ Association.

"“Industry has always had the clear alternative not to use the services of pilots and pay pilotage fees by having their masters obtain pilotage certificates. This certification process has been in place to protect the public interest by providing for safe navigation within confined waterways. It is endorsed by the Canadian Transportation Agency (CTA),"” says Captain Andrew Rae, a marine pilot with 19 years experience at the Port of Halifax.

"“Safety concerns in narrow waterways and ports are accentuated by the continuing increase in marine traffic. The attendant growth in cargo volume has likewise increased the scale of the potential hazards to life, property and the environment that could result from just one catastrophic marine accident."

Economic growth potential for Atlantic Canada is directly tied to its ports. Canso and Saint John have received environmental approval to proceed with developing LNG terminals. Post-Panamax containerships are regular callers in the Port of Halifax. Approximately 90 million tonnes (90 billion litres) of petroleum products transit through the region'’s waterways, annually. Amending section 4 applies unilaterally to all APA compulsory areas in the region, including the port of St. John'’s, NL -– home to Atlantic Canada'’s busiest offshore supply base.

The Atlantic Pilotage Authority was established in 1972 pursuant to the Pilotage Act. The mandate of the APA is to establish, operate, maintain and administer, in the interest of safety, an efficient Pilotage service within the designated waters of the Atlantic region.

The Canadian Marine Pilots'’ Association'’s mandate is to foster public awareness of the role of marine pilots in protecting public safety and the environment, and to work with other marine stakeholders to further the common goal of ensuring a vibrant and healthy marine sector.

Outside the box: up the harbour and down the shore

Remember March?

Yeah the month, not the former ombudsman who could apparently travel in Newfoundland and make phone calls from Nova Scotia simultaneously.

March: just a few short months ago when Danny had the Lieutenant Governor read a Throne Speech so fulsome with its praise for our Glorious Golden Boy and his Golden Achievements that everything in Newfoundland and Labrador would soon be leafed, paved, lacquered, glazed and otherwise covered in the most precious of metals.

Yeah, well now its June.

Forget the Gold crap.

These days, the Premier is feeling a bit beleaguered, at least if a piece that aired recently on CBC is anything to go by.

The piece is a solid, straight-up reporting that looks at the issue of the Premier's election promise of "jobs, jobs, jobs" with what has actually been going on.

The Premier's own take on things doesn't really have an evident shred of optimism. Rather the Premier appeared to be speaking defensively: gimme credit for saving the place from imminent bankruptcy. We have things going on that no one can control. In the meantime we are working on planning to plant seeds for future growth.

Interestingly enough, the province was never facing imminent bankruptcy - that was the Premier's fiction. The other factors he mentioned were specific to the issues facing some companies in the fishery alone. The same factors - like Chinese competition and high exchange rates - don't affect other economic initiatives or don't affect other industries in the same way.

The segments with the Premier were an interesting clue to Danny Williams' current state of mind. If March was manic, then June is borderline depressive.

The whole thing reminded me of a piece I wrote in late 2003 or early 2004 for the Sunday Independent about the Premier's "jobs, jobs, jobs" agenda. At the time, no one knew how Williams would run a government. People were looking ahead with a sense of curiosity at what the New Approach would actually look like.

What was pretty clear in 2003 was the province could get out of its budget woes with some careful planning and with the continued economic growth coming from the offshore and Voisey's Bay. We all knew that growth was coming. Danny knew it too and that's why he ran the election on the up-note of growth.

What no one knew was that oil would hit US$70 a barrel and the cash would be pouring in at a rate no one in the province had ever seen before. That allowed Danny Williams to avoid making a whole bunch of good decisions and to crank up spending to unprecedented and, and in light of the economic slowdowns, likely unsustainable heights.

These days, though, there is no mistaking the point that the provincial government is in a hard spot. There are some factors in the economy that are beyond Williams' control. The stuff that is within his purview either foundered for one reason or another or simply have never existed.

And that goes to the core point of this piece from shortly after the 2003 election: government needs to focus on what government does.

In largest measure, since 2003 Danny Williams has focused his considerable talents in areas where, as Premier, he simply can't have an impact. He has been trying to run in the business sector rather than applying his managerial skills to running a government that will in turn create an environment where the private sector will develop the economy.

If he wanted to create jobs, he should have stayed in the private sector and put together the deals to create jobs and generate wealth. Instead, we have wound up with a mismatch between Danny Williams' considerable skills and the challenges at hand.

Worse still, the centralising tendency of government bureaucracy merely reinforces the most pernicious attributes of Williams' own hands-on leadership style. This has slowed down government's processes such that many policies are done one at a time rather than in parallel. Government has slowed to the point where it has taken three full years to get even the vaguest idea of some policy areas - like widening Hydro's mandate - and others, like the role and impact of the Business department or Danny Williams' own economic development seeds still haven't been seen at all.

When Danny Williams said his government has been pre-occupied with other things besides economic development, he was telling the truth. That situation is the problem and there is no sign it is being overcome or changed.

Running government is like drinking from a four-inch fire hose. The most important thing for an incoming administration is having a way of figuring out how much to drink so it can avoid getting drowned. An incoming administration has a list of the things it definitely wants to accomplish and sets to work on them right away. For everything else there is a framework that identifies what is important, what is not important and gives a guide that helps triage the stuff that pops up along the way.

In a sense, we are looking at a Premier and a government, three years into its mandate, that is increasingly being driven on some major issues instead of doing the driving. It's a variation on the idea discussed in another "Outside the Box" column from early 2004. Back then, it looked like those columns were just penetrating insights into the flipping obvious. In hindsight, the observations seemed to be all too relevant.

---------------------------------

Up the harbour and down the shore

If Danny Williams wants to solve the government deficit problem by producing new jobs, as he said he would, he will have to create something between 50, 000 and 100, 000 new jobs in the province over the next eight years.

To put that in perspective, there are about 219, 000 full-time equivalent jobs in the province today according to the Economics and Statistics branch of the provincial government. Since 1996, the economy produced about 31, 000 new jobs. To meet his commitments, Danny Williams will have to produce twice or three times as many jobs in the next eight years as the province could create in the past eight.

And he will have to do that while providing increased health services to an ageing population, providing education, services, roads, water and sewer and all the other things people expect from the provincial government. And he can'’t lay off government employees or increase the deficit.

Sounds impossible?

It is. Just look at our collective experience in the province and you can see why making promises like "Jobs, Jobs, Jobs" is nothing short of silly. Politicians seem to forget that whenever government tries to create jobs, it fails and fails miserably.

Stupidity, someone once said, is doing the same thing over and over and hoping for a different outcome. To stop being stupid, politicians need to focus not on creating jobs - something they can'’t do - and focus on politics, something they can do.

That'’s why, a decade ago, the provincial government decided to get out of the job-making business. It decided the best it could do is creating a climate where entrepreneurs - – people with ideas - – could focus on making jobs that last. There was a bit more to it, though. The regional economic boards were supposed to be a way to let people in the different areas of the province decide for themselves what they would do to develop their local economy.

The boards were also part of a wider move toward more regional control over a number of things, including health care and education. After all, politics is about who decides. In a province as big as this one, with a very small population, the "who" who decides often shouldn't be someone hundreds or thousands of kilometres from the issue. One major problem is that it has been hard to wrestle power out of the hands of bureaucrats and politicians in St. John's who want to keep deciding just about everything, right down to who can and cannot ride the local school bus.

But the logic remains. Take Eastport, for example, or other areas of the province where local fishermen have had a greater say in how the resources they depend on are managed. They make sensible decisions based on science, their own knowledge and their own interests. They virtually eliminate poaching. They close fishing in areas where it needs to be closed and develop new ways to improve the price they get for their product.

Maybe it is time to take these ideas a step farther and create a form of regional government that promotes economic development and administers health care, municipal services, education and even social welfare programs. New regional councils, elected regularly, would sort out local priorities and make decisions on that basis. The provincial government can look after setting broad strategic goals, much like the federal government set down basic principles for Medicare and then lets the provinces actually deliver the services. But the decisions on where hospitals go, or indeed if a new hospital is actually the best way to deliver health care in that particular region are left to the people who will be directly affected.

Transferring power for some decisions from St. John's to new regional governments wouldn't be a magical solution to job creation or anything else. It also won't guarantee equal success everywhere. What it will do is involve more people in deciding what the future will look like in Newfoundland and Labrador. In an odd way, a new approach of regional government - a county system - might help people realise that the issues up the harbour are much the same as the ones down the shore or in the four distinct regions of Labrador.

For the provincial government, those politicians can look at projects like Voisey's Bay or the offshore for the government revenues they generate, rather than the number of jobs. The deficit problem might just get sorted out by thinking outside the box for a change.

Equalization: the Experts Report; Williams reacts

Some months ago, we predicted a war among the province's over Equalization reform.

There have been some skirmishes as the forces gathered, most notably Ralph Klein's ludicrous claim that if Ottawa touched Alberta's natural resource revenues, then Alberta would leave the Equalization program. The only thing this bluster demonstrated was that Klein has no idea how Equalization works.

A few more shots were fired Monday with the release of the report by the Expert Panel on Equalization and Territorial Financing. Premier Danny Williams doesn't like the report at all, claiming Newfoundland and Labrador would lose $200 million annually in Equalization payments.

In an effort to discredit the report before Newfoundlanders and Labradorians had a chance to read it, Williams described the report as having "Ralph Goodale's fingerprints all over it". He called the report nonsense, and true to form, some commentators are backing Williams with nothing more than Williams condemnation.

Still, Williams insisted he was confident that Prime Minister Stephen Harper would do the right thing and not implement the report. He gave no reasons to justify his optimism.

The panel on Equalization and Territorial financing, appointed in 2005, comprised five experts in federal provincial fiscal relations. It was chaired by Al O'Brien, the former deputy finance minister in Alberta and included Fred Gorbet (Strategy Solutions), Robert Lacroix (CIRANO), Elizabeth Parr-Johnson (Parr Johnson Consultants) and Mike Percy (U of A Business School).

Their report is a comprehensive survey of the current issues in Equalization and includes recommendations based on almost two years of consultations. There is a simple description of the Equalization system itself and the basic objectives of the program. If nothing else, the comprehensive nature of the report reflects the considerable abilities and varied perspectives of the five panelists who authored it.

The Government of Newfoundland and Labrador did not make a submission to the panel during its consultations. New Brunswick and Saskatchewan did.

In the section on resources, the panel recommended two things in particular that are of interest to Newfoundland and Labrador.

First, the panel recommended using actual revenues to calculate entitlements, as opposed to the current estimating system. This creates a problem since it penalizes provinces who actually collect royalties below the national average and rewards those provinces taxing above the average.

Second, the panel recommended shielding half of resource revenues from the calculations, irrespective of whether those resources are renewable (like hydro power) or non-renewable (such as oil and gas). This was felt to be an acceptable compromise between total inclusion which was seen as not giving provinces benefit of the resource development and the unfairness of full exclusion which would create a situation in which some provinces had considerable revenues that were not being taken into consideration when calculating entitlements.

There are two specific sections of the report that will affect Newfoundland and Labrador. First, the panel recommends the inclusion of all resource revenues (renewable and non-renewable). There is also a specific recommendation on hydroelectric revenues which would collapse the existing approach into one using the actual revenues. The rationale is excerpted below.

13. All resource revenues should be treated in the same way.

The Panel sees no reason to distinguish between different types of resource revenues. Therefore, the treatment of all resource revenues should be the same whether those revenues arise from oil and gas, onshore or offshore resources, forestry, potash, other minerals, or hydroelectricity.

The measurement of fiscal capacity related to hydroelectricity deserves special mention. In most cases, provinces with substantial hydroelectricity resources have chosen to develop and distribute those resources through Crown corporations. For the most part, provinces have also chosen to provide electricity to their residents at low prices rather than charge full prices. Instead of capturing economic rent and generating government revenues, they give their residents the direct benefit of lower-priced electricity.

Under the current [Representative Tax System] RTS approach, a portion of provincial revenues from hydroelectricity is counted in one tax base (the water rentals base), while a portion of the profits of Crown corporations paid to provincial governments is considered in the same way as profits of private corporations. Some have suggested that this approach underestimates the revenue-generating capacity of provinces in cases where they charge less than the full economic value of the electricity.

The Panel considered a number of options for the treatment of hydroelectricity in the Equalization formula. Consistent with its position that all resource revenues should be treated in the same way, the current water power rentals base should be folded into a single resource revenue base and measured by actual revenues. In addition, the Panel recommends that the remittances from Crown corporations involved in resource extraction and development, including hydroelectricity Crown corporations, should be included as part of a province‚’s resource revenues and not as business income.

It is unclear what impact this change will have on Newfoundland and Labrador in the current situation or in a situation involving theLowerr Churchill development. Certainly the use of actual revenues, as opposed to estimates, eliminates the problem identified and resolved in the 1982 federal-provincial agreement on Upper Churchill revenues.

Second, the panel included a specific recommendation dealing with the offshore transfer agreements with Newfoundland and Labrador and Nova Scotia in 2005. There is also a sample calculation of how the cap would work. This is worth quoting in its entirety so there can be no confusion.

14. A cap should be implemented to ensure that, as a result of Equalization, no receiving province ends up with a fiscal capacity higher than that of the lowest non-receiving province.

Consistent with the Panel'’s principles, Equalization should provide equity among provinces. However, it should not result in less wealthy provinces having a greater fiscal capacity than provinces that do not receive Equalization.

The Panel'’s recommendations for including 50 percent of resource revenues in the Equalization formula will benefit receiving provinces with resource revenues. However, in some scenarios, a receiving province like British Columbia, Newfoundland and Labrador, or Saskatchewan could end up with a higher fiscal capacity after Equalization than a non-receiving province like Ontario. That runs counter to a fundamental principle of equity that should underlie any changes to the Equalization program.

Consequently, the Panel recommends that a fiscal capacity cap be implemented. To determine a province'’s post-Equalization fiscal capacity and whether or not it is entitled to Equalization, the Panel's view is that 100 percent of a province'’s resource revenues should be included in calculating a province'’s fiscal capacity for the purposes of the cap. If a province'’s resulting fiscal capacity is higher than that of the lowest non-receiving province, then its entitlement to Equalization would be capped. While some might suggest that less than 100 percent of resource revenues should be included in the cap for a variety of reasons, in the absence of reliable and comparable information, the Panel'’s view is that including 100 percent of resource revenues in determining a province'’s fiscal capacity for purposes of calculating the cap is appropriate.

The Panel understands that implementation of its recommended cap is complicated by the existence of separate Offshore Accords for Newfoundland and Labrador and Nova Scotia. In the case of Nova Scotia, its fiscal capacity continues to be lower than the lowest non-receiving province, so the cap does not apply. But in the case of Newfoundland and Labrador, the combination of resource developments in the province along with the Panel'’s proposed revisions to the Equalization formula mean that Newfoundland and Labrador'’s fiscal capacity (including own-source revenues, payments from Offshore Accords and Equalization) is expected to be higher than the lowest non-receiving province.

In the Panel'’s view, this contradicts a fundamental principle. It is not within the Panel'’s mandate to suggest that the Offshore Accords should be changed. However, we believe that the principle should be upheld. If Newfoundland and Labrador'’s fiscal capacity after Equalization is higher than the lowest non-receiving province, the cap should apply regardless of the Offshore Accords and the province should not receive Equalization payments that put them above the cap. The Panel understands that, under their 2005 Accord, Newfoundland and Labrador is protected from losses in Equalization payments. It'’s up to the federal government to determine how this should be resolved. In the Panel'’s view, the principles of Equalization should not be compromised nor should the Equalization program be adjusted to accommodate the Offshore Accords.

Would this approach cause a reduction in Newfoundland and Labrador's Equalization entitlements? The answer is almost certainly yes in the medium-term, once the Equalization system's transitional provisions come into force. Newfoundland and Labrador's entitlement in the next two to three years will decline in any event as its own source revenues grow from offshore oil, mining and other growth in the economy. This would likely amount to $100 to $200 million annually over the same time frame noted by Premier Williams on Monday, even without the expert panel's recommendations being implemented.

However, as the expert panel notes throughout the report, Equalization is supposed to decline as a province's own-source revenue grows and ultimately surpasses the national average to receive the federal transfer.

This notion is one of the fundamental premises contained in the 1985 Atlantic Accord and, to a large measure reaffirmed by the temporary nature of the transfers envisioned by the 2005 offshore accord. Premier Williams is simply wrong when he claims that there was a flaw in the 1985 accord on Equalization or that the accord was subsequently misapplied. He has been wrong before and the admission of one of his fundamental misrepresentations - that the province actually lost oil and gas revenues - is contained in the opening clause of the 2005 offshore deal.

There is no surprise that the Accord offsets were included in this panel report. The Bond Papers noted January 2006 that it would be difficult to keep these Equalization-related payments off the table.

As well, Bond Papers noted in February 2006 that Danny Williams proposed a different approach to Equalization in late 2005 that was at odds with the Harper proposal to remove non-renewable resources from the calculation of entitlements.

In his letter to federal party leaders, Williams proposed that Equalization be based on a formula which includes all provincial sources of revenue in calculating per capita fiscal capacity based on a 10 province standard. As a result, Alberta's economic performance would produce a significant cash result for this province. Williams also proposed that debt servicing costs be considered when calculating entitlements.

There is no explanation as to why Premier Williams appears to have abandoned his own proposal which are essentially similar to the recommendation of the expert panel to include all resource revenues.

Good governance: goose and gander

The Canada-Newfoundland and Labrador Offshore Petroleum Board regulates the offshore oil and gas industry. The senior administrative position is chairman and chief executive officer.

The provincial government is refusing to issue an order in council appointing a new chairman and CEO arguing that the positions should be slit as a matter of "good corporate governance." A panel appointed under the legislation governing the offshore board recommended the appointment of a single individual to the combined position but added a recommendation that both the feds and the province consider splitting the job. The key thing to bear in mind is that the panel performed its function and, as the legislation provides, its appointment is binding on both the Government of Canada and the Government of Newfoundland and Labrador.

The Board of Commissioners of Public Utilities, commonly called the public utilities board regulates a variety of activities in the province including electricity prices.

The House of Assembly just passed legislation establishing that the senior administrative position at the PUB will be a chairman and chief executive officer. "The chairperson shall be the chief executive officer of the board and shall have full authority for the overall operation, management and financial administration of the board."

So why is it good governance to split the job at one regulatory board but combine the two jobs of chairman and chief executive officer at another?

Doug House's speech

For some reason the abstract of a speech given recently by Doug House has attracted some attention. The speech itself isn't available online, but an abstract - a summary - is to be found at Simon Fraser University's Centre for Coastal Studies.

I say "for some reason" since, on the face of it, this paper did little more than describe the reality of the province currently. It's hard to imagine what is controversial or contentious about saying that "the current government finds itself under enormous pressure to prop up hurting communities, households and individuals through make-work, income support and the further overexploitation of endangered fish stocks. This vies with and threatens to undermine genuine efforts at rural industrial diversification from both government and community-based agencies."

Is this not the case? Is the Williams government not under pressure to provide make-work projects and income support?

Since people might be interested in what Doug has to say about other subjects, check out the rest of the Simon Fraser Centre's studies on oil and gas, coastal societies and similar topics. You'll find that back in 2000, Doug and a number of others with great experience in the local offshore oil sector discussed events in Newfoundland and Labrador over the past 25 years.

In the meantime, here's the abstract of House's latest speech. See if you find anything problematic or controversial in it.

Update: An alert reader noted in an e-mail that the St. John's Census Metropolitan Area accounts for about 35% of the population and holds about 34% of the seats in the House of Assembly.

The knowledgeable correspondent notes that as such "rural" parts of the province don't hold a preponderance of seats in the provincial legislature that is in any ways out of whack with the population and the allotment of seats.

Maybe the issue for House isn't with the preponderance of seats but rather that the demands for various government supports works against other efforts at economic development and diversification. That's the last sentence of the abstract in slightly different words.

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Oil, Fish and Social Change in Newfoundland and Labrador:
Lessons for British Columbia

Wednesday January 11, 2006

4:00 PM, Halpern Centre, Simon Fraser University

Abstract

During the past 20 years, the economy and society of Newfoundland and Labrador have been undergoing significant change. Oil, which has earlier been conceptualized as a "strong staple," has been in the ascendancy; while fish, a "weak staple," has been in decline. The places where the production of these two staples is centred have also changed significantly. Although exploration and production take place hundreds of kilometres offshore, oil company operations, most service and supply activities, research and development, education and training, and the public sector management and administration of this new industry occur almost exclusively within St. John'’s and the surrounding north east Avalon region of the province. The oil industry has also been a major catalyst for the growth of a marine technology cluster in St. John'’s, which also benefits from having Memorial University, the College of the North Atlantic, significant physical infrastructure, an airport, a harbour and the seat of government all located within a few square kilometres. Wealth, employment and population are becoming ever-more concentrated in this region.

At the same time, the decline in groundfish stocks, concern about shellfish stocks, and cut-backs to Employment Insurance payments for plant workers (but not fishers) have undermined the economic base of many fishing communities, the traditional outports of coastal Newfoundland and Labrador. People are leaving the outports, not just for mainland Canada but also for St. John'’s and the larger regional resource and service towns. Newfoundland and Labrador is rapidly becoming urbanized. Even the province'’s vibrant cultural industries - —music, drama, literature, film - —although drawing on a somewhat romanticized rural past are, with some notable exceptions, based in and contribute to the further growth of the city. More tourists flock to George Street than to Gros Morne or Twillingate.

What does all this mean for government decision-making and policy? Given the preponderance of rural seats in the legislature, the rhetoric continues to favour rural development. Although committed in principle to "real" economic growth in rural areas through better management of the fisheries and longterm industrial diversification, the current government finds itself under enormous pressure to prop up hurting communities, households and individuals through make-work, income support and the further overexploitation of endangered fish stocks. This vies with and threatens to undermine genuine efforts at rural industrial diversification from both government and community-based agencies.

Check out the Chicks

The Dixie Chicks new CD is great, and picks up on the spat from Natalie maines criticism of George Bush.

A good take on the PMO/news gallery flap

For those tripping over from RGL's latest ad hominem dodge, try this post on for size, from a fellow who styles himself Townie Bastard.

it's as simple and succinct a comment on the matter I have seen.

CNLOPB ups estimates of offshore gas and oil reserves

The federal-provincial board regulating the oil and gas industry offshore Newfoundland and Labrador today released revised estimates of the proven and probable reserves at two of the offshore fields that increase the total by about 700 million barrels.

The Canada-Newfoundland and Labrador Offshore Petroleum Board now estimates that Hibernia holds 1.244 billion barrels of oil, an increase of 379 million barrels. Hebron Ben Nevis now stands at 731 million barrels. That is 317 million barrels more than previously estimated.

Natural gas estimates for the offshore also increased. There are now estimated to be 10.234 trillion cubic feet of natural gas and 478 million barrels of natural gas liquids.

Among other implications, this means that the failed Hebron deal was likely worth twice as much to Newfoundland and Labrador as previously thought. Talks collapsed in early April over the provincial government's insistence on a 4.9% equity stake in the operating consortium and its rejection of $500 million in construction phase tax concessions.

Estimates in April were that the provincial government would have received over $10 billion in royalties and other income during the production phase of the project in addition to a considerable portion of the $3.0 to $5.0 billion to be spent in the construction phase.

It isn't clear if that revenue projection was based on the low-range estimate of Hebron at 400 million barrels or the upper part of the range - now confirmed - at over 700 million barrels. If the projection was based on the lower reserve estimate, then it would be safe to nearly double the provincial government revenue; that would have made provincial government revenues almost $20 billion, which is double the provincial accrual debt and approximately the same size as the annual gross domestic product. The tax concessions seem even more puny now than they did before.

The provincial revenue estimate apparently also did not include the 0.858 Tcf of natural gas or the 60 million barrels of natural gas liquids also present in the Hebron complex.

Placentia Bay no place for a tired ship's pilot

According to NTV News, the Atlantic Pilotage Authority (APA) is blaming crew fatigue for the accident that sent one of its two small boats (Left. Photo: APA) in Placentia Bay part way up the rocks on Buffett Island on Monday, injuring one crew member and causing an unspecified amount of damage to the $3.0 million aluminum hulled boat.

The APA pilots guide tankers laden with Iraqi and Grand Banks crude up the bay to moorings at the Come by Chance oil refinery or the Whiffen Head transshipment terminal. The picture at right shows the bows of Canship Ugland's tanker M.V. Mattea. (Photo: Canship Ugland)

Placentia Bay is no desolate place. There are bird colonies, rich fishing grounds and a host of other sensitive wildlife in the bay. A recent report supporting the establishment of an improved regional management system for the bay noted it is the most likely spot in Canada for a major oil spill.

So here's the thing: if the guys piloting their own small boat were so tired they put her up on the rocks on what appears to have been a calm, clear day, what's to prevent them from nodding off when they are guiding one of the tankers into or out of such a sensitive marine environment?

No one else seems to be thinking about that.

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Personal note: As indicated earlier my mother's family comes from Harbour Buffett, the harbour to which the wracked-up APA pilot boat was towed. She's a Collett and her father's family can trace back to Thomas who arrived in Buffett in the early 19th century. On her mother's side, the Marshall have an equally old - if not older - history in Newfoundland.

According to NTV, the guy who did the towing was named Stan Hollett. Stan is no relation to your humble e-scribbler, at least not for about five or six generations, but my mother recalled him from Buffett before the community was resettled. He apparently moved back some years ago and lives there pretty much year round. In itself, Stan's story is worth further investigation as is the history of the old community. It is picturesque, close to rich fishing grounds and once was a fairly prosperous little town.

In this instance, thankfully Stan and another fisherman were nearby to lend assistance to the APA. Otherwise this might have been a tragedy.

Another take on fastballs to the side of the head

Over at the blogspot site offalnews, Lono is feeling a bit smug.

He contends that Danny Williams "fastball to the side of John Risley's head comment is evidence that his comment about FPI is now proven. Essentially, Lono contends that John Risley should just have smiled quietly and gone on about FPI business rather than point out the obvious that Danny Williams changes to Fishery Products International's board and management won't have much of an impact other than drive up the company's costs.

He [Risley] stated the obvious truth: that these Act amendments are effectively meaningless. But now he's now left the door open for government to claim company resistance and impose real draconian measures. These comments can come back to haunt him.

The lesson here is that public communications is partly theatre and the players are actors on a public stage; play your role to best advantage to your side. If you respect the Fourth Wall, you can use it to your advantage to further your goals.

If you insist on breaching it you do so at your peril.

Here at Bond, there's a quandry. On the one hand Lono is dead right. On the other hand, we can also see an argument that Risley is merely belling the William's administration cat.

What will make the difference in these two interpretations is whether or not Danny Williams actually can take stronger measures against FPI without in the process either incurring legal challenges from the company or, worse still, cementing in place a reputation for being as anti-business and anti-investment as any political leader north of the Panama Canal.

Around here, the guess is that Williams and Risley are playing chicken and that this little tiff is just two capable leaders playing some game of "Mine is still bigger." It creates an interesting display for the on-lookers but ultimately it doesn't move FPI any closer to resolving its issues. Williams reaction is proof that Lono is right: i.e. that Risley was inviting a comment. What it doesn't show - yet(?) - is that Williams can actually fire a fastball at Risley's head and avoid a ricochet that will deliver a pretty solid smack to his own goolies in the process.

If you put your gear on the table and start passing out the hammers, at some point someone's tackle is gonna take a hard blow.

Update: John Risley did another interview today, this time an extended one-on-one with Fred Hutton at NTV for the supperhour news. He made a number of comments about how he personally and the current shareholders and directors of FPI have been vilified.

this little exchange with the Premier is likely to go on for a few days. Time will tell whether there is a big hammer the government will drop of if FPI has called the Premier's bluff on legislative changes to FPI.

Belling the cat

John Risley stated the obvious, namely that the government's changes to the Fishery Products International legislation won't have any significant impact on the direction the company will be taking.

Fish minister Tom Rideout (Left. Photo: CBC) couldn't say anything to contradict Risley because Risley is right. The section of the legislation dealing with how many board members FPI must have was stuck in there as a distraction from the real point of the bill. Rideout and Premier Danny Williams spent a lot of time talking about "fettering" the supposedly evil John Risley and another board member named George Armoyan.

For his part, Williams went so far as to brand Risley and Armoyan as being "hostile" to the best interests of Newfoundland and Labrador. In responding to Risley's comments Williams did his best to ramp up the trash talk, but ultimately he didn't say anything that was either relevant or convincing. Yep, as much as Williams tried to sound un-pussy-like, there's no question the noise we heard all through the little television clip was the dingling of the bell John Risley hung around the Premier's neck.

Now if Risley pointed out that Williams' legislation was really aimed at making it easier to break up FPI and sell off the bits - exactly the opposite of Williams' claims - then the noise would be a gonging so loud even the Premier's best jock bullshit trash talk wouldn't drown out the din.