Proceedings of the Standing Senate Committee on
National Finance

Issue 6 - Evidence

OTTAWA, Wednesday, February 2, 2005

The Standing Senate Committee on National Finance met this day at 6:25 p.m. to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 2005.

Senator Donald H. Oliver ( Chairman ) in the chair.

[ English ]

The Chairman: Honourable senators, welcome back after the Christmas break. As you are aware, this committee was created in 1919. At that time, it was the Finance committee. In 1968, its name changed to National Finance. This committee deals mainly with government expenditures, directly and indirectly, by examining the Estimates and the Supplementary Estimates and by examining bills. We also have a mandate to examine the annual report of the Auditor General. This committee is particularly interested in issues relating to accountability, transparency and parliamentary oversight. For that reason, we are delighted to have before us tonight's witnesses. Tonight's meeting will deal with the foundations. Since 1997, the federal government has transferred approximately $9.1 billion in public funds to foundations and endowments. This is an issue of concern to this committee because it involves the transfer of very significant sums of public taxpayer money to organizations with somewhat unsatisfactory accountability to Parliament.

It has been alleged that Parliament has been excluded from the normal budgeting process, and if something goes seriously wrong, how can parliamentary committees have an opportunity to deal with it?

When she testified before this committee on November 3, the Auditor General identified several areas of concern relating to the government's practice of delegating program responsibilities to certain foundations without what she called adequate parliamentary scrutiny. This raises a number of accountability issues that continue to be of great interest to this committee.

It is with that in mind that I am absolutely delighted to welcome several witnesses to our committee here tonight. Ms. Arnold is director of the Centre for Sustainable Community Development with the Green Municipal Investment Fund; Dr. Phillipson is the president and CEO of the Canada Foundation for Innovation; and Mr. Alvarez is the president and CEO of Canada Health Infoway.

I am extremely pleased that each of you is able to attend this evening, and we look forward to hearing from you. Following that, as is our usual practice, honourable senators will have a number of questions to put to you. We look forward to your various responses.

Without further ado, I would invite you to make your presentations.

Ms. Elisabeth Arnold, Director, Centre for Sustainable Community Development, Green Municipal Investment Fund: Honourable senators, it is a great pleasure to be here.

[ Translation ]

I would like to thank you for giving us the opportunity to appear today before the Standing Senate Committee on National Finance.

My name is Elisabeth Arnold. I am the Director of the Federation of Canadian Municipalities' Centre for the Development of Sustainable Communities. I am accompanied today by Mr. Michel Allaire, Senior Manager, Administration, Green Municipal Funds.

[ English ]

FCM — the Federation of Canadian Municipalities — has been the national voice of municipal government in Canada since 1901. We represent the interests of all municipalities across the country. Our members include Canada's largest cities, small, urban and rural communities, and the 17 major provincial and territorial associations. FCM is dedicated to improving the quality of life in all communities by promoting strong, effective and accountable government in support of a vision for Canadian communities based on principles of sustainable development. The green municipal funds are key to implementing this vision. FCM is proud of the achievements of the green municipal funds in supporting municipal governments to build sustainable communities and reduce greenhouse gas emissions. I am pleased to be able to report to you today on the progress of our initiatives.

[ Translation ]

The green municipal funds were established by the Government of Canada in its Year 2000 budget in order to promote investment in innovative municipal infrastructure projects, as well as adherence to environmental practices, including supporting municipalities' efforts to improve air, water and soil quality, to reduce greenhouse gas emissions, and to build sustainable Canadian communities. The initial allocation of $125 million for the establishment of the funds was doubled for fiscal 2001-02, reaching $250 million.

[ English ]

In fact, two funds were created. The $50-million green municipal enabling fund, which provides grants for feasibility studies and field tests, is designed to be fully committed by the end of fiscal year 2007. That fund is presently 44 per cent committed. The other fund, which I think is the focus of your interest today, is the Green Municipal Investment Fund, which is a $200-million revolving fund that provides loans and grants to municipal governments and private- sector partners to implement sustainable infrastructure projects that deliver environmental benefits, are innovative and can be replicated by other communities.

The Green Municipal Investment Fund is presently 81 per cent committed. Due to the enormous success and the enormous demand of the green municipal funds, the Federation of Canadian Municipalities is requesting a $250- million enhancement to the fund in the 2005 federal budget.

I would like to talk to you a bit about the governance of the green municipal funds, because we believe that it is an excellent model for the management of an endowment. As honourable senators may know, the federation is responsible for administering the green municipal fund according to the operating agreements, one for each of the two funds that I have mentioned.

A green municipal funds council advises the federation's national board of directors on the provisions of the funding agreements, develops and approves evaluation criteria, makes project and feasibility study recommendations, and ensures that contributions and investments are appropriately balanced among regions, environmental categories and between urban and regional areas as required in our operating agreements. Council members also provide input into the green municipal fund's annual report and the annual statement of plans and objectives.

[ Translation ]

The green municipal funds' council is made up of 15 members, five FCM representatives, five Government of Canada representatives, and five non-government and private sector organizations. The members of the Government of Canada that sit on the funds' council represent Environment Canada (two members), Natural Resources Canada (two members), and Transport Canada (one member). The funds are important to the collective and open labour relations developed with Government of Canada departments since the funds' inception in 2000. In addition to the presence of government representatives on the council, fund reports are regularly tabled before the Financial Services Branch of the Treasury Board and the Office of the Auditor General.

[ English ]

FCM believes that this governing model, this green municipal fund council, provides an excellent model for strategic monitoring of endowments and has worked extremely well in our case.

The green municipal funds report directly to the Minister of the Environment and the Minister Responsible for Natural Resources.

As recommended by the Auditor General in the 2002 report, and as required by the green municipal fund operating agreements, green municipal fund annual reports and annual statements of plans and objectives are submitted to the ministers.

The Auditor General also recommended that an independent compliance audit of the green municipal funds be completed every five years.

The first such audit, completed by KPMG, was submitted to the ministers on September 28, 2004. The audit found that all significant clauses examined were found to be generally compliant and that most non-compliant issues have already been addressed by management and/or have improved over the past year. We were very pleased with the results of that audit.

As well, a set of performance indicators based on a results-based management and accountability framework was introduced in the 2003-04 annual statement of plans and objectives, and the results, based on this framework, are reported on a quarterly basis to the green municipal funds council.

The office of the Auditor General has been provided with all green municipal funds annual reports produced to date, as well as the independent compliance audit. The annual report is also provided for information to all members of Parliament and to senators.

The green municipal funds are managed to meet the objectives set out in the operating agreements and according to policies recommended by the green municipal fund council and adopted by the FCM national board of directors. This includes targets for the allocation of the funds in the five environmental sectors, as well as regional distribution and urban/rural balance. Indicators have been developed to track fund progress in meeting all objectives, including grant and loan approvals, financial management and environmental performance analysis. These indicators are used by staff to monitor performance and adjust operations to ensure that goals and objectives are met. As I said, these are reported in our quarterly reports.

The endowment consists of funds that are committed to approved projects as well as unallocated funds. Committed funds are disbursed according to the disbursement schedules negotiated with the successful applicants. Loans are repaid according to a repayment schedule, with a maximum term of 10 years. Any committed but not yet disbursed funds are invested with the non-allocated funds, according to the investment criteria outlined in the green municipal funds funding agreements and according to the Department of Finance investment criteria.

[ Translation ]

According to the fund operating agreements, costs associated with the management of the funds must not exceed $5 million per year, that is 2 per cent of the funds' value. The funds must be financed by interest-generated revenue. This amount includes fund administration, promotion, and governance costs.

[ English ]

The green municipal funds operate on an application-based process. Applications are received by FCM and reviewed by green municipal fund staff. Completed applications that meet the GMF criteria are forwarded for analysis and scoring by peer reviewers. The peer review committee is comprised of 60 experts across the country, of which one third are appointed by the Government of Canada.

Loans are reviewed by independent financial advisers to determine the level of risk and to identify any potential conflict of interest. The majority of loans are made to municipal governments and are, therefore, low risk. These applications are submitted to the green municipal fund council, with the score provided by the peer reviewers, supported by a project description and a summary of peer reviewer comments, independent financial adviser assessment, when required, and staff analysis and recommendations.

As I said at the beginning, council recommendations for project approvals are then forwarded to the Federation of Canadian Municipalities' national board of directors for a final decision. After approval of the project by the national board of directors of FCM, the applicants are contacted to develop a contract for disbursement of the loan or grant. Upon finalization of the contract, disbursements are made according to the contract schedule, subject to the applicant's request, supported by proof of payment. This part of the project cycle can last up to two years.

A final project report is required at the final disbursement. Project performance results protocols have been developed in collaboration with TEAM, with SDTC, based on Government of Canada SMART greenhouse gas — GHG — emission measurement protocols. The green municipal funds require all project applicants to quantify their environmental results in a consistent framework through the project performance reporting system. Results are measured and reported for a period of one year after the implementation of the project.

All funded projects are required to provide final reports outlining the results of the studies and the environmental benefits delivered by projects. An important component of the green funds is that these reports are disseminated to municipalities across Canada to increase municipal capacity, to improve environmental performance, and to plan for a sustainable future.

FCM is honoured to have been entrusted with the management of the green municipal funds. We have funded 321 enabling fund feasibility studies and field tests to date, and 54 investment fund projects. These projects that have been approved have delivered significant environmental improvements in air, water and soil quality, including the reduction of over 800,000 tonnes of greenhouse gas emissions.

It is clear that the green municipal funds are meeting the objectives articulated by the Government of Canada when the funds were created.

[ Translation ]

The FCM is committed to maintaining excellence in the management of this allocation.

I would like to thank you for having allowed me to provide you with an update on the tremendous success of the municipal green funds.

[ English ]

The Chairman: Thank you for your excellent report.

Next, we will hear from Dr. Phillipson. We will hear from all three and then there will be a number of generic questions, so we would like to have all your reports first.

Mr. Eliot Phillipson, President and CEO, Canada Foundation for Innovation: Honourable senators, I wish to thank the Standing Senate Committee on National Finance for the opportunity to appear before you this evening. This marks the sixteenth appearance by the Canada Foundation for Innovation, CFI, before a committee of Parliament since its creation in 1997, but it is my first appearance as president.

Eight years into its mandate, CFI has committed almost $2.9 billion for close to 3,900 research infrastructure projects at 128 institutions in 62 municipalities across the country. These investments are made on the basis of a rigorous assessment of merit using international standards on the capacity of the project to enhance the training of future researchers and on the ability of the project to bring economic and social benefits to Canadians.

The impacts of CFI investments have been profound. The advent of CFI has catalyzed strategic planning by institutions and enhanced their differentiation and specialization because CFI investments are awarded to institutions based on their strategic priorities. The CFI investments have also contributed to the development of world-class expertise in communities across the country by enhancing the competitive position of the institutions in recruiting researchers from abroad and in retaining the best and the brightest of their faculty members. These investments have reversed the brain drain that so often dominated the headlines in the 1980s and 1990s. A stable financial environment enables medium and long-term planning that promotes well thought out investments that have and will continue to generate benefits in areas of strategic importance to Canada.

This committee has been interested in the issue of government foundations for some time. I, therefore, want to address some of your concerns regarding the transfer of significant amounts of public money to foundations.

The background to the discussion this evening was well articulated by the Auditor General in Volume I of the 2004 Public Accounts of Canada, when she said — and I quote:

I wish to reiterate that I express no view on the merits of foundations as a vehicle to deliver government programs. Nor should my comments be interpreted in any way as a criticism of the individuals in charge of the foundations. My concerns relate solely to the funding of these organizations in advance of need; the existing provision for their accountability and governance; and the way the Government accounts for its transfers to them.

In terms of the Auditor General's relationship to CFI, the current arrangements result from the legislation under which we were created. This is not an issue for CFI to comment on. The government presumably considered a number of possible arrangements and chose the foundation model as the way to deliver these programs.

With regard to reporting to Parliament, because of its status as a foundation entrusted with public money, CFI attaches paramount importance to operating in an economical, effective and transparent manner and to communicating its activities and results to a wide audience.

As required by the act, the CFI annual report is tabled in Parliament each year through the Minister of Industry. The annual report includes information not only on financial performance, but also on the CFI-funded projects, evaluations, results and corporate plans.

With regard to ministerial oversight, the funding agreement between CFI and the Government of Canada, approved by Treasury Board, sets out the terms and conditions under which CFI must operate, including the overall objectives, eligible recipients, projects and cost, selection criteria, evaluation, and the management of investments.

CFI submits to the Minister of Industry the results of independent third-party evaluations of its awards in accordance with a framework and a time frame approved by the CFI board of directors. These evaluations assess the overall performance in achieving the national objectives identified in the funding agreement.

Furthermore, to ensure value for money, the CFI appoints external experts to evaluate its programs. The CFI is also beginning to undertake scientific audits, by external experts of the specific projects in which it has invested. Also, the minister may require that an audit of the books and records of CFI be carried out to ensure compliance with the terms of the funding agreement. CFI annually provides to the Minister of Industry a corporate plan that includes planned expenditures, objectives, and performance expectations. The summaries of the corporate plans are provided to Parliament by the minister and are made public.

Finally, representatives of Industry Canada and Finance Canada attend meetings of the CFI's board of directors.

With regard to external auditing, from its inception, the board of CFI has taken prudent measures to ensure that sound accountability and governance practices are in place as well as to ensure auditor independence. Consistent with the practices of well-managed organizations, CFI has implemented a strong internal control environment to carry out its activities. The internal controls implemented are widely accepted in the business and public community and are reviewed by external auditors as part of their annual external audit of the CFI's financial statements. As well, internal audits have been conducted independently by external audit firms.

As regards our accounting practices, the CFI accountability structure includes accountability to Parliament, accountability to the government, an internal accountability mechanism, accountability of award recipients and accountability to the public.

Because CFI disburses the funds only when required and only when specific conditions have been met, CFI is able to exert a level of funds management and accountability that would not otherwise be feasible.

Finally, with regard to the foundation model, it has enabled CFI to plan its investments and to design innovative and flexible programs with an immediate and long-term perspective. Most importantly, it has encouraged institutions to develop strategic plans for research and research infrastructure. Knowing that funds will be available in three, four or five years for new infrastructure projects is invaluable to institutions and their researchers. In this regard, the Auditor General said the following to this committee on December 1, 2004:

I really believe that in order for programs to be successful over a longer term, they should have a stability of funding.

It can be challenging to fund major capital projects with annual appropriations when the funds have to be spent within a given fiscal year. The foundation model ensures the timely disbursement of the funds and allows for very effective planning and the flexible implementation of research infrastructure projects. Two examples follow. First, holding major competitions as we do over an 18- to 24-month cycle, rather than on an annual basis, has been beneficial for the institutions and for CFI. It has enhanced the institutional research planning activities, the merit review of projects using international benchmarks and the successful implementation of complex projects.

Second, recruiting the very best researchers is most challenging at a time of intense international competition. By providing institutions with the flexibility to call on funding at different levels over a number of years allows them to plan recruitment over a long term so that they hire the best people at the right time. The independent merit review process that CFI uses ensures that the funds available go toward the best projects that will bring economic and social benefit to Canadians. The foundation model also greatly facilitates the leveraging of additional resources as institutions work with their partners to raise the necessary funding.

In conclusion, the Canada Foundation for Innovation is meeting the objectives set out in the legislation and its funding agreement. The CFI is responsible for implementing government policy — which it does well — in the best interests of the public. As Canada, like all industrialized countries, positions itself to become competitive in the innovation-based economy of the 21st century, it is critically important that the commitment to the research agenda of the nation be maintained. Our experience over the last eight years has shown that the foundation model can work in an efficient, economical and effective manner and help the government to achieve its objectives through this innovative policy instrument.

Mr. Richard C. Alvarez, President and Chief Executive Officer, Canada Health Infoway: Honourable senators, I will introduce two of my colleagues. Mr. Brian Philbin is our CFO, and Mr. Michael Sheridan is our COO. With your indulgence, I might have to call on them occasionally to complete or supplement my answers to your questions.

Thank you for this opportunity to discuss Canada Health Infoway's accountability measures to ensure that we meet our objectives in an efficient, transparent and effective manner.

I want to begin my remarks by emphasizing the kind of work that I believe we are fortunate to be engaged in. Today, you or I can travel anywhere in the world with our bank cards and be recognized by any bank machine to withdraw money from an account. Airline passengers can thank information systems for quantum leaps in aviation safety, from tracking the performance of engine parts to precision support systems that warn of potential problems. Yet, if you or I fall sick and are taken to a hospital down the street, the emergency doctors will most likely have no idea about our medical history, which medications we take or which tests or treatments we have had. When we are discharged, our family physicians are unlikely to receive a discharge report and there is no mechanism in place for the follow-up treatment. That is why almost one third of seniors' hospitalization results from medication toxicity and why almost one half of the serious medication errors occur. Clinicians do not have enough information about their patients or about the drugs that they are prescribing.

Fortunately, Canada's first ministers have understood the need to get the right medical information to the right person at the right time. Four years ago, they agreed unanimously to work together to develop a Canada-wide health infrastructure to improve quality, access and timeliness of health care for Canadians. The first ministers recognized that Canada's challenges would best be met not with a federal commitment or a provincial commitment but with a national commitment to develop solutions that would not be a patchwork of isolated systems. The solution would operate across health care organizations and clinical systems and across provinces and territories. They recognized that by sharing risks, costs and best practice, progress would be accelerated and costs would be reduced.

Thus, Canada Health Infoway, CHI, was created in 2001 with a mandate to foster and accelerate the development and adoption of secure compatible electronic health records systems Canada-wide, by pursuing collaborative relationships based on joint funding. By the end of 2009, the goal is to have 50 per cent of Canadians benefiting from the basic elements of an interruptible electronic health record. Our total capitalization is $1.2 billion, allocated in three tranches since 2001. As late as September 2004, our first ministers came together and reaffirmed the critical role of the electronic health record in their 10-year plans to strengthen medicare.

Turning to the corporate structure and processes, Infoway is somewhat unique in its mandate, joint investments and structures. CHI was established as an independent not-for-profit shared governance corporation. We are not an agent of the Crown, a Crown corporation or a granting agency. The funding agreement with the federal government indicates the corporation's purpose, providing guiding principles for the use of funds, and sets out expected results. The focus on collaboration, with an oversight by the federal, provincial and territorial governments, is reflected in three important ways: the governing body membership, the board of directors, and the joint investment structure.

Starting with the governing body membership, Canada's 14 federal, provincial and territorial governments, represented by their deputy ministers of health, are the corporation's members and only shareholders. Infoway is organized around three basic principles, defined in its funding agreement and endorsed by all jurisdictions: The collaboration of each member government is required on an equal basis; each member has an oversight role of Infoway; and no individual member or government has a priority oversight role. Thus, Infoway is equally accountable to all its members who report to their ministers, ensuring that all ministers are informed of Infoway's plans, progress and issues. Members also endorse our annual corporate business plan, which is approved by the board. The chairman and I meet regularly with the members to ensure alignment of Infoway's plans with those of the provinces and territories.

CHI's membership, or governing body, is further enhanced by a regionally constituted and highly knowledgeable board of directors consisting of distinguished Canadians with relevant experience, who are appointed by the members. The board comprises federal appointees, one representative from each of Canada's five regions, and independent directors elected by the members. The federal deputy minister appoints the board chair.

Infoway's model was designed to foster collaboration with federal, provincial and territorial stakeholders, while ensuring re-use and compatibility of systems developed. To achieve this, Infoway operates as a strategic investor that co-invests, on average, 50-50 in development costs with member governments. Joint investment is a condition of the funding agreement, enabling us to leverage investment with other levels of government and, in some cases, with the private sector. To ensure value, gated funding requires specific results to be achieved for each project before Infoway funds can be released.

I wish to inform the committee that in this necessary cost-sharing investment model, Infoway can only move as quickly as our members' ability to match our investment funds. To strengthen this, Infoway has now completed a comprehensive three-year planning exercise with each member, from which we have collectively defined and agreed to preliminary long-term investments for each province and territory toward meeting our 2009 goal.

Infoway's accountability regime reflects our multi-government structure and requires us to have six things. The first is an independent third-party evaluation at least every five years to measure overall performance against the specified outcomes of the funding agreement. The evaluation framework, based on recognized standards, is being prepared and the report will be submitted to members and to the public by March 2006. The second is an annual corporate business plan developed through an extensive, expert peer review. The plan must be presented to members and a summary available to the public. The third is an annual report that tracks performance results against the corporate business plan of the preceding year for members in the public. I have enclosed a report in the package for the committee.

The fourth is an annual independent compliance audit to ensure conformity with the terms and conditions of the funding agreement submitted to all members. The fifth is an annual independent financial audit submitted to each member and publicly available. Finally, the sixth is a funding agreement which further strengthens ministerial oversight by the inclusion of default provisions including a reimbursement requirement.

Infoway has voluntarily surpassed the funding agreement's accountability requirements by creating three oversight subcommittees of the board: a governance committee, a finance, investment and audit committee, and a compensation and human resource committee. Beginning this year, the financial and compliance orders are separate independent firms and are to be rotated every three years.

The committee's invitation raises four specific issues that I would like to respond to directly. The first is reporting to Parliament through the federal minister. Our funding agreement with the Government of Canada states that Infoway acknowledges and agrees that the minister may make public the annual report and the performance evaluation and summaries of Infoway's corporate plans. Once again, Infoway is equally accountable to 14 member governments and, through them, to the Canadian public. Thus, we must provide all our members with annual reports, annual financial and compliance audits, and our business plan for the upcoming fiscal year, including budgets, objectives and expected results. As representative of the governments and, in particular, their health ministers, each member decides how best to disseminate this information.

Second, why is the Auditor General not the auditor of Infoway? Infoway's auditors are appointed by its members. As an independent shared-governance corporation, a decision to appoint the federal Auditor General as Infoway's auditor would require all the provinces and territory member governments to agree. Recognizing, however, the valuable experience and expertise of the Auditor General's office last November 28, while responding to a request for confirmation of fact, we extended an invitation for a detailed briefing on how we operate, our goals and our governance.

The third issue is ministerial oversight. Each member has an equal oversight, due to the shared federal, provincial and territorial governments.

Number four, accounting practices and government transfers. Transforming a health-care network comprised of thousands of systems and hundreds of thousands of professionals involves long-term commitment and careful planning, particularly as Infoway's funds are being leveraged to drive multi-year plans in each province and territory. Therefore, having longer-term guaranteed funding beyond government appropriations provides financial stability. Needed for comprehensive long-term planning, it certainly strengthens our credibility and the commitment of other governments to budget matching funds.

In summary, Infoway operates under a wide oversight umbrella that includes 14 federal, provincial and territorial governments. We support the need for transparency and direct accountability and are using all mechanisms available to us to preserve the public's trust.

In conclusion, honourable senators, electronic health records will improve patient safety, will reduce wait times and will help Canada's Medicare system become financially sustainable. Clearly, the challenges and the tactics needed to make it happen are formidable. The reality is that there is a national plan, one that has been collaboratively developed. An investment process that reflects the organization's mission is in place, and essential building blocks are already beginning to make a difference to patients, to health care providers and to the efficiency of the health care system itself.

We at Infoway are very excited about the opportunities ahead and are dedicated to achieving our goals in a transparent, accountable and cost-effective manner. Thank you for this opportunity. I welcome your questions and your comments.

Senator Oliver: Before I turn to Senator Comeau for the first question, Mr. Alvarez, you said at the beginning that you are capitalized to the extent of $1.2 billion?

Mr. Alvarez: That is correct.

Senator Oliver: You also indicated that to bring the electronic health records system into full effect across the entire country will cost about $2.5 billion. You do not have it all set up at this point, and you do not have the money. Will you be coming back to the federal government for more money, or will you be able to cost-share these additional revenues from the provinces?

Mr. Alvarez: Senator, I have some good news and some very bad news for you. Let me start with the bad news. The bad news is $2.5 billion will not get us an electronic health record across this country. It is going to be more in the region of $10 billion. Firstly, it has never been done nationally in any country in this world. The English — and it is the English; it is not the Welsh and the Scots — are furthest ahead in this game. They have allocated something like $16 billion for a population of 52 million to make this a reality. An independent study just completed by Booz Allen Hamilton looked at the cost points in our system. We are looking, over the next 10 years, at about $300 per Canadian, or about $10 billion, to make this a reality.

Senator Oliver: Will some of that have to come from the federal government? Will you be asking for more?

Mr. Alvarez: I am certainly going to be asking for more from the federal government. Right now, as we have it, notwithstanding the fact that I said in my speech that we are funding it on a 50/50 basis, it is only particular aspects of the projects that we fund. There are many aspects for which the provinces have to pick up the cost — for example, some of the hardware, the communications technologies, the networks. The provinces also have to pick up the cost for the operations and the maintenance, the ongoing.

Senator Oliver: The administrative costs.

Mr. Alvarez: The administrative costs. So when you take that into consideration, then the federal share becomes a lot less. Clearly, this is an issue where we cannot look only at costs; we have to look at the benefits.

The benefits, according to George W. Bush very recently — in fact last week when he spoke at the Cleveland clinic — are about 20 per cent of what he is spending, in terms of dollars. We do not feel we get the same amount because we have a uni-payer system. We feel we will get about 6 per cent, which will be in the region of $6 billion in savings a year, which is an enormous amount, notwithstanding that.

Senator Oliver: Before we get to those savings, how much more, over the next five or six years, are you going to be looking to the federal government to come up with in terms of capital dollars? Another $3 billion, $4 billion, $5 billion?

Mr. Alvarez: It could well be in that region. To get 100 per cent of this country, we would probably need another $3 billion. That will be matched by the provinces and territories, or need to be.

Senator Comeau: Thank you very much. I would like to welcome the witnesses to the committee as well. I have no questions regarding your mandate or your objectives, nor will I question the individuals that belong to the organizations. What I would like to zero in on is the question of the transfer of funds to the foundations out of the reach of Parliament.

I am going to ask a few questions to you, Mr. Phillipson, first. Why would you not ask the Auditor General to be the auditor of record for the CFI?

Mr. Phillipson: The legislation and the funding agreement, under which we were established and under which CFI operates, requires that the members and board —

Senator Comeau: I heard you say that, but it has to be an outside auditor, and it cannot be the Auditor General?

Mr. Phillipson: This is a government decision.

Senator Comeau: So it is in the legislation that it has to be anybody other than the Auditor General?

Mr. Phillipson: I do not believe it specifically states that it has to be ``anybody other than.'' It simply states that they will appoint external auditors to provide the audit. That is the government policy under which we operate. If the government changed the policy —

Senator Comeau: My impression was that it was your decision as to who became the auditor. There is nothing stopping you from saying, why not the Auditor General for Canada, which would give us the enhanced value of being all that much more accountable to Parliament, given that we are questioning the accountability aspect — not the other mandate nor the objectives, but the accountability aspect of spending taxpayers' dollars.

I do not think the legislation precludes you from saying that the Auditor General will be our auditor of record and that might go a long way towards helping us as Parliamentarians to feel safer.

Mr. Phillipson: Again, we are a policy instrument of government. We do not set the policy. Should the government change or dictate such a policy, we would comply.

Senator Comeau: I am not explaining myself correctly. I will try one more time. You do not have to wait for a government minister to tell you to appoint the Auditor General. You can do it because you have a board that has been appointed initially by the government. I believe others will touch on this point. There is nothing stopping you from saying: ``We do not need to get an order from the minister. We can do it, and let us do it.'' I will leave it at that point. On page 9 of the written document that you sent to this committee, you say that the CFI lives within the spirit of the Official Languages Act. What is meant by ``the spirit''?

Mr. Phillipson: In point of fact it should say that we live within it. According to our founding legislation, we are bound by the Official Languages Act. All our transactions, communications and interactions take place in both official languages.

Senator Comeau: Have you ever invited the Commissioner of Official Languages to give an opinion as to whether you are living within the spirit, or should we take your word for it?

Mr. Phillipson: Senator, I would have to get back to you on that. Since I have only been in the job since July, I cannot be certain whether we have ever done that, but it is in our legislation.

Senator Comeau: I understand ``living within the spirit.'' I am going the extra step by saying that, in order to make the Parliamentarians feel comfortable that the laws of the land, including the Official Languages Act, are well within the spirit, we will invite the commissioner to do a walk through CFI. She will report back to us and either we will feel comfortable with what she says or we will not, which is the case now with government departments.

Mr. Phillipson: Certainly. Since it is in our legislation, we would certainly be agreeable to such a thing as that.

Senator Comeau: I look forward to her receiving the invitation. You indicate, as well, that you are accountable to Parliament. I am not sure what ``accountable to Parliament'' means.

Mr. Phillipson: In the immediate sense, it means that we are required, according to the legislation, to produce an annual report that touches on all of the points in our brief — our expenditures, performance, and corporate plans. That report is submitted to Parliament through the Minister of Industry. In that sense, we are accountable.

Senator Comeau: That is not the same as, let us say, the Department of Public Works. Because you are an independent body, acting independently, meeting your own objectives and so on, it would not be the kind of accountability to Parliament that we would be accustomed to as parliamentarians.

Mr. Phillipson: On the contrary, you would find that our report includes not only financial audits but performance audits, value-for-money audits — and as I mentioned, we are beginning scientific audits. We have a policy of tremendous transparency. All of our grants are public knowledge; they are all on our website.

Senator Comeau: Are the value-for-money audits published as well or made available to parliamentarians?

Mr. Phillipson: Yes, all of our audits.

Senator Comeau: You mentioned the foundation model and you went through a great number of advantages of the foundation model. Are there any items in the advantages — I am not going to list them all — that could not be done by a regular government department other than probably the multi-year funding?

Mr. Phillipson: There are two that are of critical importance. The first is our application and adjudication cycle. It is important to remember that many of these are complex infrastructure projects where the application alone may take 18 to 24 months because it is complex, often multi-institutional, sometimes involving institutions in multiple provinces. Because these are complex applications, an annual cycle would not fit. We operate generally on an 18-, 24-, sometimes 30-month cycle and it is unlikely that in a regular departmental allocation we would be able to have a budget of $100 million one year and $600 million the following year. By the same token, once the awards have been allocated, the funds are not disbursed. In other words, because they do not have to be disbursed by year end, as they would be on an annual budget cycle, we retain control, management of the funds, and they are disbursed to the institutions when the milestones and conditions have been met. Just as the applications are complex, the design, the construction and the commissioning of these infrastructure projects are also very complex and require that funding be disbursed at appropriate times.

Similarly, one of our major funds is to assist institutions in recruiting new faculty members. The competition is extremely intense. We are in global competition, and when they need the funds to provide the infrastructure for those recruits, simply saying you can apply in next year's funding cycle because you just happened to miss this year's, we would be losing. In our last report — and you may have seen reference to it — 2003-04, there were 3,000 new faculty recruits to universities, colleges, teaching hospitals in Canada. Of those 3,000, 40 per cent are from outside Canada, including 700 from the United States, 500 from other countries. The time cycle is very rapid; hence, the ability of the institutions to be able to call on the funds following appropriate review by us is invaluable. Those are the two major advantages.

Senator Comeau: I have got a document here from the Public Accounts of Canada for 2004. It indicates that the grants provided in that year were in the amount of $51 million and the administration of the fund was $30 million. Would it actually cost $30 million to administer a fund that grants $51 million? You might want to explain that number.

Mr. Alvarez: Absolutely. Our overhead costs typically are running around about 20 per cent, and I would like to get them back into the teens. Having said that, senator, we are not a granting agency. I have about a 103 staff. These are professional staff that look at each particular project to decide whether we are going to invest in it, which means they are technical staff looking at the capabilities of the project and the capabilities of the resources, whether the money that will go in there will meet the objectives. It is not just a matter of reviewing a proposal. It is a matter of understanding the technology, understanding where one of our member jurisdictions want to go, and then granting that.

Our start-up costs were particularly high, but by the end of this fiscal year we will have had about $260 million in terms of committed investments, and our administration is running around about $28 million.

The Chairman: I have a follow-up question. As I understand it, of the $1.2 billion as of March 31 of 2004, you had only spent about $51 million. Are you saying today that you had spent $260 million?

Mr. Alvarez: By the end of this fiscal year, we will be up in the $260-million range of committed investments.

The Chairman: The rest of the $1.2 billion is just sitting in bank accounts or in investments?

Mr. Alvarez: That is correct.

The Chairman: How much money did you make on investments of these taxpayers' dollars in the last fiscal year?

Mr. Alvarez: I am not sure of the exact amount. Since the time we have had the funds, we had earned about $117 million interest. Having said that, the price of actually making these systems a reality is going to be a lot more than we currently have in our kitty at this point in time.

The Chairman: However, the funds were advanced to you before you needed them; that is the point I was getting at.

Mr. Alvarez: Absolutely; the funds were advanced to us to build a sustainable system that is going to take 10 years. It is not going to get done within a year. Secondly, I must emphasize that the ability for us to spend the funds is matched by the ability of the jurisdictions to match those funds as well. With their planning cycles, it sometimes takes a while. Having said that, if we look at our trends over the last little while, we certainly have started to speed things up.

Senator Massicotte: Having read the materials from all three of you, I note that the way governance structure is organized is somewhat different in each case. In one case, it is basically representatives of your department participating as members and naming a board. In another, it is very interesting re the innovation that you got the members appointing directors and directors appointing other directors.

We represent the people of Canada. The fact that your foundations have been set up and have been awarded large amounts of money — and I recognize that you publish annual reports and a lot of material — under those circumstances, it is satisfactory that the decision making is left to the department in at least two of your cases? Is that good enough?

The second issue I would raise is that there has been confusion in the last couple of years in some Crown corporations whereby, when errors occur, it is not clear whether the board members feel accountable, especially when some board members say I got the wink from the minister and the minister thought it was okay or the deputy minister thought it was okay. We saw more recently with BDC where they thought some board members said they should not vote on the issue because the deputy minister had an opinion. In your case, whose bottom line is it? Is it the board members, or would they say, ``I think the minister wanted this,'' or ``The deputy minister made a comment''? Whose bottom line is it?

Mr. Phillipson: May I address that? I may have misunderstood when you were looking at our chart. CFI's board of directors is made up of 15 people. The chair and seven of the board directors are appointed by the minister, and the other eight are appointed by the members. I think I heard you say the directors appoint themselves.

With regard to the substance of your question regarding what the deputy minister or the minister may feel, there is no opportunity in our system; the board of directors is the final authority, because CFI is an independent organization. It reports to Parliament through the minister; it does not report to the minister and is not accountable to the minister. As I indicated, we invite representatives of Industry Canada and Finance to attend our board meetings as observers because it is important that they be aware of what we are doing, but they do not participate in the decisions. It is important again to emphasize that our major role is disbursing funds for research infrastructure projects. That involves a very elaborate system of expert reviews and expert committees that are made up of literally thousands of experts in Canada and around the world. About 40 per cent of our expert reviewers and committee members are outside of Canada, so there is simply no opportunity for anyone in government to influence a specific decision.

How the funds are to be used in the broad sense is part of our funding agreement. They are for infrastructure — and there are some basic rules. However, the actual implementation — the evaluation, the awarding of the funds — is completely isolated from any influence from the minister. In fact, that may be one of the reasons the government chose to set up the foundation model in the way that it did.

Senator Massicotte: Your structure is somewhat different.

Senator Downe: Could I ask a supplementary on that? I would assume that when the government set up foundations, one of the reasons was to have some arm's length, particularly from the Department of Finance. I am very surprised to read in your report that you would invite Finance officials to your meetings. I understand they do not make decisions, but can you tell me how they participate? Or do they just sit there?

Mr. Phillipson: They just sit there; they are silent observers. They obviously do not vote and they do not speak. I should point out that the funding agreements that we have are not simply an allocation of funds and end of discussion. For example, of the funds that we have been allocated, $750 million was specifically designated for the years 2006 to 2010, and the agreement states that the use of the funds will be negotiated with government — again, not in the specific projects but in the broad terms. Therefore, it is important that Finance and Industry be aware of the types of thinking, the types of planning, that we are undertaking.

Mr. Alvarez: Maybe I could just take a shot at that.

Senator Massicotte: Make it simple. If someone messes up, or something is wrong, is the minister accountable in the House of Commons, or will the board accept responsibility, accept that they messed up, and be fired? Who gets the heat?

Mr. Alvarez: I believe my board will say that — ``We messed up; we are fired.'' Having said that, my board is accountable to the deputy ministers and, through them, the ministers of all the jurisdictions in Canada. My board is responsible to administer the affairs of the corporation and has fiduciary responsibilities, but they fulfill that by getting members to agree to a multi-year business plan that is developed with them and through them and then presented and agreed to at the AGM. They have to agree to an annual business report, which states the objectives for the following year, whether you met your objectives, and that is all published in there. If something gets messed up, one of those processes will catch it. At the end of the day, the board will be held responsible, and I suppose I, as CEO, will be held responsible, in terms of the administration of the corporation.

Senator Massicotte: What you are really saying is that the minister has no responsibility per se. In other words, as a Member of Parliament, he gets information, but the board can really say, ``This is our baby; we will give you the information, but it is our show. `` Therefore, there is not much relationship between the spending and the accountability to the House of Commons or the Senate.

Mr. Alvarez: One of the big issues here is that we have a funding agreement and our funding agreement is with the federal government. The funding agreement is monitored for compliance on an annual basis, and that report goes to all the members, including the federal government. If we are in non-compliance, the minister can call the contract.

The minister also, as part of the funding agreement, calls for a mid-term review. Again, that report is made public and is certainly made available to the minister. If we are in non-compliance with that, the minister again can intervene.

Ms. Arnold: We have a somewhat different model, in that our governing council is made up one third of government representatives, one third of FCM representatives and one third of private-sector and not-for-profit sector representatives who make recommendations to the FCM board of directors. Therefore, the accountability is from the corporation of the Federation of Canadian Municipalities directly to the two ministers — in our case, the Minister of Environment and the Minister of Natural Resources. We are held to account to the operating agreements — we have two, as I was explaining, one for the investment fund and one for the enabling fund — and again reported on an annual basis. It is a slightly different governance model but the accountability is through the federation, which is its own corporation. It has a board of directors that would be responsible.

In the case of non-compliance, one of the mechanisms the Auditor General felt was important, to ensure accountability in that kind of an endowment situation, was the requirement for the compliance audit, which I was explaining we have just finished.

Senator Massicotte: In your case, you are saying that there is a political responsibility but the board is substantive and takes the responsibility seriously. In such a case, then, if the minister disagreed with the board, the board understands the responsibility clearly enough that they would stand up and say that it is the right call, irrespective of the desire of the minister. Is that right?

Ms. Arnold: The board would be held to the letter of the operating agreements. That is your protection.

Senator Massicotte: The board would understand that role and would not blink.

Ms. Arnold: They would understand that role because those agreements were signed and negotiated. We understand that we are held to account to the terms of the operating agreements.

Senator Murray: There is a board and there is a council, Ms. Arnold.

Ms. Arnold: There is the municipal funds council.

Senator Murray: Are they responsible to the Federation of Canadian Municipalities?

Ms. Arnold: That is right.

Senator Murray: Do you think you work for the FCM or for the GMIF council?

Ms. Arnold: I am an employee of the Federation of Canadian Municipalities. I work for the federation, and the Green Municipal Investment Fund has specific responsibilities as outlined in our operating agreements. They make recommendations to the board in the way that I outlined, including recommendations on the specific projects that are to be funded.

Senator Murray: The board of the FCM makes the decisions.

Ms. Arnold: That is right.

Senator Murray: However, the minister does not table your report in Parliament.

Ms. Arnold: Both ministers are not required to do that but they certainly have that ability.

Senator Murray: Are you aware of whether or not you or other representatives of the GMIF have ever appeared before a parliamentary committee before?

Ms. Arnold: Yes, we have done so on numerous occasions.

Senator Murray: My information was dated and indicated that you had not appeared before. What committees have you appeared before?

Ms. Arnold: The most recent was the House of Commons Finance Committee.

The Chairman: Have you ever made an appearance before a Senate committee before?

Ms. Arnold: I have not attended before a Senate committee previously; this is the first invitation I have received. I can check to see whether the GMIF has had a previous invitation.

Senator Murray: I have a question along the same lines about your governance. You mentioned that the council comprises five representatives from the FCM, five from the federal government and five from non-governmental organizations and the private sector. What are those non-governmental organizations and private sector, and who selects them?

Ms. Arnold: In the initial make up of the council, those names were solicited and appointed by the federation. Those would be appointed by our board of directors. Those terms are coming to a conclusion, so we are in the process, as we are seeking new funding and looking at a new operating agreement, of establishing new criteria. The normal way to do that would be through a call and a selection.

Senator Murray: I would ask you to identify whether the NGOs are listed in your annual report?

Ms. Arnold: The members of the council are listed. Perhaps I can find that information.

Senator Murray: I will not take up the time of the committee. Thank you.

Senator Ringuette: My question is for Mr. Phillipson. I went to CFI's website, where I noticed that you have been at the foundation only since July, almost six months ago. I have some questions that may require some historic knowledge. If you do not have the information, please feel free to forward the answers to the chair or to the clerk so that we will have them later.

Mr. Phillipson: If I may, senator, our senior vice-president, Ms. Carmen Charrette, is here with us, and she has been with CFI since its beginning. Where I lack in institutional memory, I will call on her to assist.

Senator Ringuette: How many staff do you have in your Ottawa office?

Mr. Phillipson: We have 45, I believe.

Senator Ringuette: What is your yearly operating budget?

Mr. Phillipson: I assume you are referring to our administrative budget.

Senator Ringuette: Yes.

Mr. Phillipson: It varies, because our grant cycles are not on an annual basis. For example, in a year when there is a major grant competition, we have to utilize all of these external experts and reviewers. They are unpaid but we do cover their travel and out-of-pocket expenses. In such a year, the expenses are higher. In a year when we are not running a major competition, our administrative expenses are lower. Overall, if we look at our administrative costs as a percentage of the total allocation that we have received — and projecting to 2010 and the competitions we will hold — our administrative cost will work out at 2.6 per cent of our total allocation.

Senator Ringuette: What would the average be on a yearly basis?

Mr. Phillipson: The budget is under $10 million.

Senator Ringuette: I carefully read the brief that you sent to the committee. I noticed that appendix 1 and 2, in respect of the membership and the board of directors, shows that each of those bodies has a representative from the University of Saskatchewan. Is this a case of one member nominating a board member? In appendix 1 of members, there is only one for all four provinces of Atlantic Canada. On the board of directors, there is only one for all four provinces of Atlantic Canada. Yet, on each of these bodies, there is one person from the University of Saskatchewan. Is that usual or unusual? How can I interpret this?

Mr. Phillipson: Obviously, individuals are chosen, first and foremost, for their qualifications and their particular expertise. In selecting their eight nominees for the board of directors, the members and, presumably, the minister who appoints the chair and the other seven, look for geographic balance and balance across the various disciplines — academic, business, industry and voluntary organizations. In other words, there is an attempt to produce a balance in every respect. Depending on the timing, it may result in both a member and a board director being from Saskatchewan. Several of these will be turning over this year. It is my understanding that the members have already indicated that among their choices there will be increased representation from Atlantic Canada. We do not know who the minister will appoint as the seven representatives, or at least the replacements for those who are retiring — the GIC appointees. There is an attempt to have, and there is certainly a feeling that there should be, geographic balance, sector balance and the various expertise required to properly run an organization such as CFI.

How it happened that there is one from Saskatchewan on each, I cannot answer.

Ms. Carmen Charrette, Senior Vice-President, Canada Foundation for Innovation: The board director Lorne Babiuk is a GIC appointment. You asked if it is possible that the member from the University of Saskatchewan had any influence on that appointment. He was not a member-appointed board director so there is no connection.

Senator Ringuette: Who was first appointed? Was it Mr. Cyr, or was it Mr. Babiuk? Who appointed them?

Ms. Charrette: Lorne Babiuk was appointed by Governor in Council, and Ron Cyr would have been appointed by a group of members first named by the government which then appointed the other members.

Senator Ringuette: That confirms what I was getting at.

Mr. Phillipson, your predecessor's name was Dr. Strangway.

Mr. Phillipson: That is correct.

Senator Ringuette: How many years was he there?

Mr. Phillipson: He was there for six years, from 1998 to 2004.

Senator Ringuette: He was from B.C., is that correct?

Mr. Phillipson: He had been president of the University of British Columbia.

Senator Ringuette: Does he now, or during that six-year period, did he have a private interest in some kind of learning institution of his own?

Mr. Phillipson: I am not aware of it. Since leaving CFI, he has joined a university in British Columbia, but he certainly would not have had any connection with that institution then. In fact, I do not think that institution existed while he was president of CFI.

Senator Ringuette: You say you do not think that existed.

Mr. Phillipson: It is a new university.

Senator Ringuette: Created by?

Ms. Charrette: He was involved at the early stage of the creation. He was the man who had the vision behind the creation of this institution.

Senator Ringuette: Which institution?

Ms. Charrette: Sea to Sky University. I am not sure what the official name is. It is still known as Sea to Sky University.

Senator Ringuette: Has that university ever received any grants from the Canada Foundation for Innovation?

Ms. Charrette: No. It is intended to be an undergraduate university. There is no intention to have a strong research mandate for that institution. It is not operational yet.

Senator Ringuette: Did Mr. Strangway publish a book while he was at CFI?

Mr. Phillipson: Did he publish any books?

Senator Ringuette: Yes.

Mr. Phillipson: I have to admit I am not an expert on Dr. Strangway's academic activities.

Senator Ringuette: My second question, and as I said earlier, you can follow up with the answers to the chairman or the clerk, has CFI ever made any grants whatsoever to the publishing or the marketing of that book?

Mr. Phillipson: No. CFI's mandate is to fund the non-profit academic sector. There would not be funding for publishing. Perhaps Ms. Charrette can comment.

Ms. Charrette: Do you have the title of the book? One book was published on innovation, but that is a CFI book, not a Dr. Strangway book. I am not aware of another book. If you have a title, that would be helpful.

Senator Ringuette: I will further my research. I am hopeful that we have not completed our mandate in regard to foundations, so I will be happy to further my questions.

After seven years of operation and the established programs that you have and the allocation of funding that has been going on, have you ever made any recommendations to the minister in regard to some kind of changes to the program that you administer?

Mr. Phillipson: It depends. When you say ``some kind of changes,'' we have certainly not recommended to the minister that the mission or mandate that is in the legislation be changed. It is very specific. It is for research infrastructure in universities, colleges, teaching hospitals. It is to be on a 40 per cent basis funding by CFI. In other words, a number of basic principles are in the legislation. Those have not changed, nor have we ever advocated that they change. There are funding agreements with each allocation of funds, and there are what I would consider, in the broad scheme, minor changes in the programs.

Senator Ringuette: I want to bring forward to you information that I got from your website today. It is in regard to the projects that have been approved from CFI, cumulative to November 22, 2004. This is relatively recent and up to date.

I looked at the numbers that you have for the different provinces and the different projects that have been approved by your foundation. In B.C., 466 projects were approved, for over $350 million. I go further and I see that Saskatchewan — the small province of Saskatchewan — is doing pretty well under this program. They got 128 projects approved for $59 million. Then I went further and looked at the four Atlantic provinces, New Brunswick, Nova Scotia, P.E.I. and Newfoundland. The four of them have received $90,592,770.

The Chairman: For how many projects?

Senator Ringuette: I can do the calculation quickly. It is around 300 projects. That is 2.6 per cent of the total funding of your programs up to November 22 for the four Atlantic provinces. Those provinces constitute 7 per cent of the Canadian population. They have 12 per cent of the teaching faculties. They have 9.5 per cent of full-time students in Canada, and they have 16 per cent of university students. Yet, they get 2.6 per cent of the funding.

You will say, ``Well, there are two options. Either they do not submit projects, or they cannot submit projects because of our requirement of partnerships.'' Capital is not that easily accessible in Atlantic Canada. Therefore, the bigger are getting bigger, and the smaller are getting smaller, and you are making a major contribution for the future toward the increase in disparity.

My question is: Have you made recommendations in regard to having flexibility in your programs in order to reduce what we call the difference between the big and the small, between the current and the future, so that the Atlantic provinces cannot be as they are usually seen, as beggers, while they have 7 per cent of the population but only get 2.6 per cent your funding? That is not fair.

The Chairman: Mr. Phillipson, we look forward to your response.

Mr. Phillipson: It is an important question. The answer is not either of the possibilities that were raised. First, let me say that CFI does not have provincial envelopes. In other words, we receive applications that go through an expert review adjudication system, and the best ones are funded. There are no provincial envelopes by design nor by any other mechanism.

Second, the success rate of applications from Atlantic Canada is as good as the rest of Canada. However, you will say: ``How is it that the amounts funded are so small?'' It is important to understand that we accept the applications. They, as I say, do well in terms of the percentage of applications. Many of their applications are for smaller amounts. Many of the big awards — not all of them — about 47 per cent of the CFI grants are in the health field. They are not all medical, but many of them are medical, which requires a medical school. There is only one medical school in Atlantic Canada. Many of the projects that do attract multi-million dollars from CFI are in the medical and health field. In other words, it is the nature of the research often that dictates the size of the award that they are applying for.

There are many universities, as you know, in Atlantic Canada who do very well, but many of them are small. They ask for much smaller amounts. Their success rate when they do ask is as good as the rest of the country.

There is no systematic discrimination against Atlantic Canada. By and large, in the applications they submit, they do extremely well.

Senator Ringuette: I can understand you saying that — you have been there for six months. However, the trend is there, and it is there because you cannot submit a multi-million dollar project if you do not have the 60 per cent that you require. Therefore, why go through the trouble, because you already know you do not have the full 60 per cent? That is what I want to stress to you. There is a symptom there that requires you to investigate.

You say that you fund many health projects, and Nova Scotia's universities are leaders in health research. They are. I am sorry — and I understand you have only been there for six months. However, after six-plus years, it is time to review, to see if the parameters of the program and it is delivered are in sync with the regions that have some kind of disparity but still have brains that can provide a significant amount of innovation to Canadians.

Mr. Phillipson: Unquestionably. Let me reiterate again. We are bound by the legislation that limits us to funding 40 per cent of the projects. You raise the point about the difficulty institutions may have in securing the other 60 per cent. ACOA and the Atlantic Innovation Fund have been by and large very supportive of the successful applications. However, in order to address some of the concerns that you raise, we have already had two meetings arranged by ACOA with individuals in Atlantic Canada to try and address some of those concerns.

Senator Ringuette: Hence, I can be optimistic that the next time we meet each other there will be a shift into the percentage of grants, because you are working toward addressing this disparity issue?

Mr. Phillipson: Well again, honourable senator, you need to understand that if there is a disparity issue it is not created by CFI.

Senator Ringuette: It is by the requirements of private and provincial partnership.

Mr. Phillipson: That is the legislation under which we were created.

Senator Ringuette: That is why I was asking if it is your intention to make recommendations to the minister?

Mr. Phillipson: We have not.

Ms. Charrette: Part of that has been addressed, as mentioned, by the availability of the Atlantic Innovation Fund, which was a fund of $300 million. You are dealing also with historically different institutions, where more emphasis has been put on a mandate for research in some institutions than in others. Those are the kinds of things that take a long time. If you were to look at the funding provided by the granting agencies, the profile would not be that dissimilar to what you see here because of the nature of the institutions. Our experience, certainly in meeting with those institutions, has shown that the investments that are there will raise their capability to perform research in a way that they have not been able to do. I think it will take time, but we will see some progress in those areas.

Senator Downe: I have a few questions for the Canada Foundation for Innovation. You seem to be in the hot seat this evening. I am not clear on what percentage of funds you have disbursed from what you have received from the government to date.

Mr. Phillipson: Let me review that. We have been allocated — not all at once, but initially in 1998 and 2002-03 — a total of $3.65 billion. Of that, $2.76 billion has been awarded by the process that I have described; of that $2.76 billion, $1.23 billion has actually been disbursed. Awarded but not yet disbursed is the difference, $1.53 billion, and that speaks to the point I was making earlier, that once the funds are awarded for these large infrastructure projects, the money cannot be spent within 12 months because the design of the complex projects, the building, the commissioning, is a multi-year process. We do not disburse the funds until conditions have been met and until certain milestones have been achieved.

Senator Downe: It is over 60 per cent.

Mr. Phillipson: Yes. Of the monies that we have not even awarded — and that includes the $750 million that I referred to, which, by the funding agreement, obligates us not to award before the 2006-10 period.

Senator Downe: Would it be safe to assume that some of the awarded money will not meet the conditions and, therefore, will never be distributed?

Mr. Phillipson: It is, thus far, an extremely small percentage. My colleague will correct me if I am wrong. I am aware of only one award that we had to withdraw, because the principal investigator left the particular university. Even though we award to institutions, they have to have the research power behind it.

Senator Downe: It is very low.

Mr. Phillipson: Yes, and they are still being implemented, many of them.

Senator Downe: My second question concerns the Canada Research Chairs program. How many of those chairs have gone to women?

Mr. Phillipson: I cannot speak with authority about the numbers. It is a low percentage.

Senator Downe: Could you find out and let the clerk and this committee know?

Mr. Phillipson: Yes, I will do that.

Senator Downe: I have heard from women in the academic world who advise me that the way it is structured, through the recommendations — and you would know this better than I would — women in many universities are excluded by the old boys' club, who cut off their cash and have the recommendations and you rubber stamp them. In particular, younger women are not having an opportunity to break through.

I wonder if that is true, and you have indicated tonight there is a problem, what are you doing to fix it?

Mr. Phillipson: On the contrary, senator, it is the other way around. There are two categories of Canada Research Chairs. Tier 1 Chairs are for established, associate and full professors. The Tier 2 Chairs are smaller awards.

Senator Downe: I am referring to tier 1.

Mr. Phillipson: Right, it is in tier 1 that there is a significant disparity.

Senator Downe: Yes.

Mr. Phillipson: That may reflect the overall faculty composition in the universities — in other words, that there are a smaller percentage of women at the senior levels. If you look at the tier 2 chairs, in terms of the people who are coming into the academic world now, there is a much higher percentage of women. As they work through the cohort, to associate and full professor, many more of them obviously will become Tier 1 Chairs.

Senator Downe: The complaints I have heard are with regard to tier 1 women, who have been in the academic community since the 1980s, have a long career, have published, have tenure and so on, and are being blocked at the university level. I am not sure how it works, but when you receive the application, your hands are basically tied.

Mr. Phillipson: The chairs are allocated by formula to each of the institutions and then when they have an appropriate candidate —

Senator Downe: They recommend to you?

Mr. Phillipson: Not to CFI. It comes to the Canada Research Chairs committee, of which we are one of the participants with the three granting councils. They are reviewed in order to ensure merit, and some of them — not a large number, because the institutions are pretty careful about who they put forward — are turned down and are not funded. However, the program cannot, as it were, select individuals for the chairs who the universities have not nominated.

Senator Downe: I appreciate that, but you recognize the problem. Are you taking any action to address it?

Mr. Phillipson: I think, senator, the entire academic community is aware, is concerned and is doing what it can to enhance the numbers of women in the more senior positions. Part of it, as I said, is a cohort effect, in the sense that historically there was a smaller percentage of women, rightly or wrongly. I am not defending it, but I am saying that as the new cohort, which includes many more women, works its way through, that will start to be reflected in all of the programs in terms of percentages.

Senator Downe: So you are telling us tonight that in your tier 2 level you have equal representation, or close to it, between women and men?

Mr. Phillipson: I would like to say that. I cannot verify. In fact, I am quite sure that it is not equal yet, but it is certainly a larger percentage than it is among the tier 1.

Ms. Charrette: I would suggest that the people who are in the best position to answer that question are the people who actually manage the program at the Canada Research Chairs secretariat.

The Chairman: You have one at the table.

Ms. Charrette: We do, but in terms of detailed statistics and so on, I think it would be appropriate for the clerk to get the secretariat to provide the data, and we can assist in that. It is a very complex situation and there has been a lot of discussion on how to improve the situation, and some cycles have been better than others. Certainly, it is something of which we are very aware.

Senator Downe: You may be aware that a number of years ago the Government of Canada made a commitment, in appointments and other areas, to try to increase some categories that were underrepresented, including women, visible minorities, Canadians of Aboriginal descent and the physically challenged. I would hope that your group would keep this in mind as well. The argument you advance, we have heard in many areas, that being about when the next generation comes along, and so on. It is not really an argument that is acceptable any more. There are all kinds of Canadians from these underrepresented groups who are qualified. There is a bottleneck somewhere, and I would hope that you would try to push to open it up so we that more of these people will be given the opportunities that others have.

I want to share the view on the regional breakdown of the grants. I know it is a cause for concern advanced by many people that the disparity will grow. I have the good fortune to live in Charlottetown where we can see the tremendous impact of investment at the university and the veterinarian college, which I guess we considered medical.

I am advised me, Mr. Chairman, that it is no longer politically correct to refer to ``pets.'' They are ``companion animals.'' So the companion animals receive good treatment and good funding, and the students are doing great work at the NRC's constructive facility there. It is very important. It helps to grow the economy and creates employment.

The Chairman: Senator Downe made an interesting comment about the four target groups, and I would like to have your response to his statements about the four target groups the Government of Canada has indicated.

Mr. Phillipson: Again, I cannot speak officially on behalf of the Canada Research Chairs program, but having come from the academic world, until six months ago, I can tell you that all institutions with which I am familiar are acutely aware of the importance of diversity and inclusiveness and have active programs to encourage, support and facilitate the entry and the promotion of the groups that you mentioned. I do not think there is any question that the academic community is fully aware of the need and the responsibility, not only because it is morally and politically correct but because if we do not include those individuals, we are not availing ourselves of the opportunity for some of the best individuals. In other words, it hurts the academic enterprise as well as the social fabric. I do not think there is any question of the acute awareness of the academic community of the importance of what you have said, senator.

Senator Downe: Just so that everyone is completely clear, I am not talking about appointing some symbols. People have to be qualified and competent, but it is my belief that there are highly qualified and competent people in these categories from whom you can select. I am not suggesting for a moment that qualities or standards be lowered.

Second, as you may be aware, after many appointments the Government of Canada sends a letter asking if people would like to self-identify for any one of the categories. That may be something you want to pursue so that your statistics are totally up to date the next time we meet.

Mr. Phillipson: If I can momentarily take off my current hat and put on my previous one, I was Chair of the Department of Medicine at the University of Toronto, which is the largest academic department in the country. Without compromising standards, which no one wants, least of all the members of those groups, by the time I left that position 44 per cent of the assistant professors, that is, the entry level professors, were women, as opposed to about 18 per cent when I began 10 years earlier. However, at the professor level it is still only 18 per cent, but you can be sure, because these women are being promoted, as the men are, at regular intervals, that within another 10 years 44 per cent, plus or minus, of the full professors will be women. So it is changing. Many of them are also members of visible minorities. I cannot give you the exact number, but many of them are.

The Chairman: We all know and are conscious of what the president of Harvard said recently about math and science.

Senator Murray: Listening to the witnesses this evening and reading the material that we have been given, one is tempted to engage where I am sure they would like to be engaged, that is, on the substance of what they are doing, because it is extremely interesting work that all of them are doing in very important areas of public policy.

I am going to resist the temptation to get into that because our preoccupation is with accountability and governance. We are grappling with the fact that some $7 billion has been transferred by the government over a period of a few years to various foundations established in different ways — some by legislation, some under the authority of the Canada Corporations Act — foundations that have quite different forms of governance and many different types of relationships with the government and, ultimately, with Parliament. That is what we are trying to get at.

I think I have asked all the questions I intended to ask about the green municipal funds earlier. Let me move to the Canada Foundation for Innovation just so that I can get a better idea of what it is.

I have a note that says that the CFI funds up to 40 per cent of a project's infrastructure costs. These funds are invested in partnership with eligible institutions and their funding partners from the public, private and voluntary sectors who provide the remaining 60 per cent of the project's cost.

Dr. Phillipson, you elaborated on that a bit in your opening statement. I would like to know to what extent your partners turn out to be the federal government in various other emanations. You mentioned ACOA and the Atlantic Innovation Fund. To what extent does it turn out that it is the federal government, rather than other levels of government or private bodies or voluntary sectors, that is your partner?

Mr. Phillipson: I do not know if I can give you an exact answer, but I do want to make one comment. Apart from the Atlantic Innovation Fund, in most provinces the 40 per cent has been provided by a provincial government program, in other words, most of the provinces thus far have set up mechanisms to partner and to match the CFI contribution. The other 20 per cent has come either from the institution, the university, a donor or a partner from the private sector.

Senator Murray: Well, I guess that is the answer I was looking for. It is not the federal government in various other emanations?

Mr. Phillipson: No, in fact our legislation prohibits us from funding government-supported science.

Ms. Charrette: Federal government departments can be partner in projects, so in some cases they will provide funding because it helps them meet their mandate and their objectives by having a research facility that their researchers may have access to or so on. I would estimate that it is less than 5 per cent, but we can get you a more definitive answer.

Senator Murray: Situations in which an institution, for example, comes to you but also taps some other source in the federal government.

Ms. Charrette: That is right, such as Agriculture Canada, Environment Canada.

Senator Murray: Less than 5 per cent you think, so we will not pause on that. I am interested in what appears to be the self-perpetuating nature of your governance. The legislation dictates that the foundation will be governed by a board of directors made of a 15 individuals who will have to report to 15 members. The federal government appointed the first seven directors, including the chairperson of the board, and the first six members of the foundation. These six members then appointed nine further members of the foundation. The 15 members in turn appointed the next eight other directors. Directors are appointed for a three-year term while members are nominated for a five-year term.

Is this what it appears to be, a self-perpetuating membership that appoints?

Mr. Phillipson: It is, except for one very crucially important point. The appointment of the directors by the GIC was not the first time. It is ongoing. In other words, seven of the directors on a continuing basis are appointed by GIC and the chair and the other eight are appointed by the members.

Senator Murray: The members are appointed by whom? Is it by themselves or by each other? In other words, a vacancy in the membership is filled by the membership.

Mr. Phillipson: Yes, that is correct.

Senator Murray: Is there no other provision in the legislation about whom the members will represent? There is a list of them somewhere here. It all looks and sounds quite legitimate, but it is self-perpetuating.

Mr. Phillipson: The members do appoint new members but they appoint only half of the board. That is the minister, the GIC, appoints the chair and the other seven members of the board.

Senator Murray: Is there no other guideline as to the representativeness or otherwise of the membership?

Mr. Phillipson: In the legislation where it describes the qualifications of members, as well as directors, it does speak to the need for diversity and broad representation among the members.

Senator Murray: Beyond that, is there anything more specific than that?

Mr. Phillipson: I do not believe so.

Ms. Charrette: Half from business and half from academic, which is specified in the legislation.

Mr. Phillipson: The members.

Senator Murray: I see. Do the business members get to appoint the business members and the academics get to appoint the academics? Do you know how this works? Have you seen it work?

Ms. Charrette: No, they do not segregate it that way. They look at the whole to make sure that they have a group of individuals that is representative of the needs for the mandate of the foundation.

The Chairman: When you look at the names you see Martha Piper and Judith Maxwell and Donald Savoie.

Senator Murray: They are all well known. They are more than legitimate, the ones that I know, a few of them are quite highly qualified, but it is self-perpetuating. That is the point that should not be lost on us.

Now, Mr. Alvarez, I just want to get the financing of your organization clear. The capitalization, as the chairman pointed out earlier, is $1.2 billion, and your statement says that Infoway operates as a strategic investor co-investing on average — I am not sure what that means — 50/50 in development costs with the member governments. Then I go to another document that our researchers have provided — and this has been alluded to earlier. I am looking at grants provided, $51 million. That is what has come out of Infoway. Are we to take it that there is another $51 million that has been provided by your provincial partners? Is that the case?

Mr. Alvarez: Actually it is more than $51 million that has been provided by provincial partners.

May I respond to all three questions?

Senator Murray: Were there three?

Mr. Alvarez: Well, first, the $1.2 billion is made up of three tranches.

Senator Murray: Yes, I see that.

Mr. Alvarez: In 2001, we got, I believe, $500 million, in 2003, $600 million, and last year, for public health surveillance, $100 million.

Senator Murray: That is from the federal government.

Mr. Alvarez: Correct. The on-average statement, 50/50, we have nine programs from drugs and labs and Telehealth and public health surveillance, and the current dollars that we have are spread across those various areas. In some areas, for example, diagnostic imaging, typically we are funding 25 cents on the dollar. Where we go to client and provider registries, we are funding 75 cents on the dollar. That is why on average it is about a 50/50. In terms of the $51 million, if we put in $51 million then you can be sure that the provinces have put in at least $51 million. In some case, they could have put in a lot more because there are parts of the project that we do not fund. I do not know the document you are looking at, but that $51 million could have been for the first 18 months of operation.

What I have said is that by the end of this fiscal year we hope to have had about $260 million committed, which again will have to be matched. We will not sign a contract without the understanding that the jurisdiction will also come up with its share of the money.

Senator Murray: I do not think you mentioned, perhaps you did — I was not following because I did not realize we had a copy of your opening statement when you were making it — the distribution of these projects across the country among the jurisdictions, but we could get to that another time. Is there anything that stands out in your mind, areas that are very unrepresented or overrepresented?

Mr. Alvarez: Yes, I really would like to respond to that because I think it is an excellent observation and question. I have been in this job for the last 10 months and, quite frankly, there is a real concern that some of our smaller provinces may not have been able to step up to the table in terms of their equivalent type of funding. One of the things we have been able to do in the last little while is work with all provinces across the country to get a three-year plan across the country. The idea here is not to get an electronic health record in Ontario, or in B.C. or in Alberta. The plan here is to get a pan-Canadian electronic health record. Therefore, we are not serving our mission if in fact P.E.I. or Nova Scotia or the Northwest Territories is not up to speed as well. That is why it is important for us to try to get this three-year picture in terms of where the country is. There are absolutely no commitments. Incidentally, in the three- year picture we have done for six of the nine programs, we are looking at expenditures over $800 million.

There is no commitment from the provinces at this point that they will definitely have the money, but it gives them a sense in terms of what they can take to their treasuries — say, in Nova Scotia — and say: ``If we do what we said we were going to do for our plans, then Infoway will put X dollars on the table that we will have to match.'' In doing that, we have a good idea of how much of the equation this money is actually going to cover and how much will not be covered.

Senator Ringuette: In terms of your planning, if Ontario receives a grant from you to make electronic a certain portion of medical information, say, that involves development, et cetera, of a software program. I hope that, within your mandate, that software is being made available and shared with the other provinces so that your main objective of having one health information system is there. In other words, you do not have to duplicate and create 10 different systems to meet your objective. Am I correct?

Mr. Alvarez: One of the cornerstones of this program — which, incidentally in a very fractious area of health care in Canada, this is a program where I can certainly put my hand on my heart and say that 14 jurisdictions are working and co-operating and collaborating extremely well. A good example is the replication and reuse of the products that are developed in one part of the country and then moved to other parts.

For example, we have now a situation where we invested in Newfoundland and in Alberta in terms of client registries. Those registries now are being replicated with that software across the country. We have at times invested in parts of Saskatchewan and in B.C., and again they have been replicating. In fact, part of our contract will insist that this replication occurs, and part of our contract mandates that, at minimum, they will adopt the standards. If you do not get communication standards, data standards, then you will not be able to communicate across the country and we will not get our pan-Canadian system.

Hence, replication and reuse is absolutely essential and very well supported by the members.

Senator Murray: I will close by asking you about these three basic principles defined in funding agreements and endorsed by all jurisdictions. One, the collaboration of each member government is required on an equal basis. That is not a financial formula, because you have already told us that sometimes it's 75/25, or 50/50 or whatever.

Mr. Alvarez: Yes, but it is the same for all of them. If I am putting 75 cents on the client registries, then I will not put 75 cents on Nova Scotia and 25 cents for B.C. That will be for the entire program.

Senator Murray: Is that what that statement means?

Mr. Alvarez: They all have an equal vote. They will agree that this will be the percentage of funding for that particular program.

Senator Murray: Do you function by that kind of consensus?

Mr. Alvarez: We function by a business plan basically, and in the business plan we get down to that type of detail.

Senator Murray: But all have to agree.

Mr. Alvarez: Yes.

Senator Murray: The second principle is this: Each member has an oversight role in Infoway.

Mr. Alvarez: By that, we mean that the corporate business plan, the annual reports, the compliance audits, the financial audits are all made available to the members, the deputy ministers and, through them, to the ministers. They then are free to do with that as they choose, and they can table that in all 14 parliaments across the country. We also make those reports available to MPs and senators.

Senator Murray: Three: No individual member or government has a priority oversight role. Is this your way, or the way that 11 deputy ministers have of — depending upon the situation — telling their governments to get lost?

Mr. Alvarez: We are trying to say that around that particular table, neither the federal government's nor the provinces' vote is more superior than anyone else's; each has an equal vote. They can collectively tell us or the board to get lost or to agree to our plans.

Senator Murray: They are not going to object if a Senate or Commons committee takes a very active interest in the affairs of Infoway, for example, and how it is functioning and what it is doing. There is no requirement in your case either, is there, that your annual report be tabled in Parliament?

Mr. Alvarez: No, there is no requirement that it has to be tabled in Parliament, but it is available to the minister.

Senator Murray: You would have no objection.

Mr. Alvarez: We certainly will not.

Senator Murray: Once that is done, it is up to Parliament to decide to refer it to a committee or whatever and I think the minimum for all these foundations should be that their annual report be tabled in Parliament and then it is up to us to decide whether we are in a position to do something.

The Chairman: We would then be in a position to be able to summon you to account and could open up more channels of transparency.

Senator Murray: Thank you very much, all of you. It is very interesting.

The Chairman: I have a couple of questions on return on investment, because the amounts of money are Canadian taxpayers' money, and the amounts are very large, $9.1 billion over just a few years. A lot of the money has not been spent. As I understand it, as of March 31, 2004, the CFI had some $3.1 billion in bank accounts and investments. I would like to know what kind of return on investment you were getting for Canadian taxpayers' money for $3.1 billion.

Mr. Phillipson: At first when you said return on investment, I thought you meant the economic and social benefits, and I was prepared to give you a half hour response.

The Chairman: No, I am interested in the business component.

Mr. Phillipson: Right. The funds are invested according to government guidelines, and I believe — and our vice- president of corporate affairs is sitting there — that the return on investment has been 5.73 per cent since its inception.

The Chairman: Could I ask the other two presenters, what kind of return are you getting with your invested dollars?

Ms. Arnold: On the Green Municipal Enabling Fund, which is the grant fund, which has shorter-term investments, since inception, on an annualized basis, we have received just over 6 per cent. On the Green Municipal Investment Fund, we have an annualized return, since inception, of 7.26 per cent.

Mr. Alvarez: I knew I would need my CFO before the night was out. We are getting 4.35 per cent. Our funding agreement ties us to fixed income instruments.

The Chairman: No equities at all?

Mr. Alvarez: No, and that is in the funding agreement.

The Chairman: You are all sitting on a lot of money that has been advanced prior to its use. If this money were sitting in the Consolidated Revenue Fund, which is the government's main bank account, would it be getting a greater return on investment? That is one of the questions Canadians have a right to ask.

On behalf of the senators here present and those who had to leave early, I would like to thank each of you for your very candid and forthright presentations. We deeply appreciate it. I want you to know that we take these issues very seriously because it goes right to the heart of the mandate of this committee. You have helped us a lot.

The committee adjourned.