Published on: 10/12/2014

The Auditor General (AG) of Ontario, Bonnie Lysyk, has released her Annual Report for 2014. The AG publishes a report annually reviewing a host of government program spending areas. These reports are divided into two sections: the first section reviews a different list of government programs each year – known as value-for-money audits – and makes a number of recommendations for how to improve the program’s benefit to taxpayers; the second section provides an update on the status of previous AG’s recommendations from the value-for-money audits undertaken two-years previous.

In her 2014 Annual Report the AG reviews, among many other programs, Infrastructure Ontario’s Alternative Finance and Procurement (AFP) project model, the provincial debt load, and the implementation of source water protection recommendations coming out of the Walkerton Commission Report in 2000. The AG also provides a follow-up report on the 2012 value-for-money audit undertaken on Metrolinx Regional Transportation Planning, among others. Highlights from each of these sections are provided below.

Value for Money Audits 2014

Infrastructure Ontario’s AFP Project Model

The AFP project model is a form of public-private partnership where the private sector designs, builds, finances, and occasionally maintains large public infrastructure projects. The government ultimately pays for these infrastructure assets, but over a much longer term than through the traditional capital procurement practice. Since the creation of Infrastructure Ontario (IO) in 2005, the government has used this model to deliver 75 major infrastructure projects across the province.

The AG’s review of this program produced some very interesting insights. For instance, as of March 31, 2014, public accounts report almost $23.5 billion in liabilities and commitments that present and future governments will pay for projects that are either completed or in various stages of design/construction. This means that a significant percentage of existing and future infrastructure budgets are already used up. Additionally, the 74 projects financed through this model have cost taxpayers at least $8 billion more in borrowing and other expenses, than if they had been delivered through traditional procurement methods.

The report is careful to note that the delivery model is not all bad, perhaps simply overused. The AG notes that there is a role for both AFP and traditional public sector project delivery, the balance of which needs to be more clearly identified moving forward. There needs to be more careful attention paid to taxpayer benefit over the long-term and reducing government borrowing from the private sector to fund these projects. The audit concludes by noting that the province could benefit by having IO deliver public-sector delivery projects, as well as AFP projects, on behalf of other government ministries (e.g. Ministry of Transportation), agencies and broader-public-sector partners (e.g. regions and municipalities) due to its gained expertise in delivering projects on time and on budget.

Source Water Protection

One of the central recommendations from the Report of the Walkerton Commission of Inquiry published in 2000 was for the Ministry of Environment and Climate Change (MOECC) to review and approve locally developed source water protection plans for every watershed in the province. The Clean Water Protection Act, 2006 was borne out of the recommendations made in the Inquiry which established a Source Protection Committee for each region in the province to develop these plans. Despite this early action, the province still does not have many of the plans in place. The AG’s report identified significant ongoing issues with source water protection in the province and noted that the MOECC still has no clear timeframe in place for when all of the protection plans will be approved. It also lacks a funding and oversight strategy to ensure that approved plans are actually implemented.

A number of shortcomings with the way the existing protection plans have been developed were also identified, such as: not accounting for industrial or commercials spills into the Great Lakes; having limited regulations in place to account for farms that produce and use manure (e.g. the farm that was the source of the Walkerton water source contamination would not be captured under the Nutrient Management Act); and, the MOECC only recovering about $200,000 of the $9.5 million in annual program costs associated with the taking of water by industrial and commercial users.

The AG recommends that the MOECC set a firm date for approving all of the plans, develop a strategy to implement and fund the plans, and charge industrial and commercial users enough to recover the program costs that help sustain fresh water in the province. There was significant urgency noted in the report to accomplish this goal in order to avoid any future drinking water contamination.

2012 Audit Update

Metrolinx Regional Transportation Plan

In 2012, the AG reviewed the Metrolinx Regional Transportation Plan (RTP) – also known as the Big Move – to ensure that the program was equipped to address the transit and transportation needs of the GTHA and that Metrolinx had a plan to appropriately communicate about its progress towards the RTP. Some of the primary recommendations coming out of that audit include:

• Working with MTO to develop a business plan to ensure the Air Rail Link is profitable (or at least break-even) – in process;

• A thorough review of traditional versus AFP project delivery models to ensure taxpayers are receiving the greatest value for their money – in process;

• Establishing ceiling prices in contracts where possible and closely monitoring project adherence to that ceiling – in process (i.e. Union Station Revitalization); and,

• Regularly and consistently engaging with stakeholders on the funding strategies for the RTP and keeping clearly defined price targets for all major projects – fully implemented.

Since this initial audit, Metrolinx has implemented one-third of the recommendations made and has made progress to varying degrees on most of the remaining, though on a longer timeline given the long-term planning laid out in the RTP. The progress is deemed as adequate, though a number of major recommendations will be required for implementation over the next 2 years in order to demonstrate viable progress.

Provincial Debt Load

An additional component of this report is an update on the provincial debt load each year. As of March 31, 2014 the AG reports that the provincial debt stood at $267 billion. By the time the province balances the spending deficit in 2017, the debt is likely to reach $325 billion (or $23,000 for every resident in the province), which means significant debt-servicing costs in the future at the cost of program spending. The AG has recommended that the provincial develop a strategic plan/critical path forward to reach its pre-recession net debt-to-GDP ratio of 27%. Steps are being taken in the right direction, as the deficit was lower than projected in 2014 by more than $1 billion, however the province has a long way to go to improve its long-term financial standing.

The full AG report can be found at: http://www.auditor.on.ca/en/reports_2014_en.htm

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