FOLLOW THE MONEY TRAIL MONEY TRAIL
BURIED REPORT REVEALS CORPORATE GIANTS GAINED THE MOST FROM BILLIONS SPENT GAINED THE MOST FROM BILLIONS SPENT
Of t he nearly $ 5 billion a year Ontario spends on direct and indirect business subsidies and tax credits, 200 of the province’s oldest and largest companies are the biggest beneficiaries.
That’s according to a previously secret blue- ribbon report reviewing its “business support programs,” a messy mix of direct and indirect grants, tax credits, and programs and hubs designed to grow certain sectors of the economy.
So what does $ 5 billion a year buy the province — and taxpayers — of Ontario?
Ask the Liberal government, and the answer is it provides thousands of jobs, global competitiveness and economic stability.
Talk to the Tories, and it’s “corporate welfare.” Quiz the New Democrats, and it’s an opaque game of picking winners and losers that fails to keep track of promised jobs.
But what happens to these billions of dollars of public money and do they produce a better economy?
According to the Report of the Expert Panel Exami ning Ontario’s Business Support Program, too much goes to big businesses that don’t really need it at the expense of those who do. Though never r eleased, t his document preceded — and in many ways predicted — Auditor General Bonnie Lysyk’s 2015 report that found 80 per cent of all businesses receiving gov- ernment support since 2010 were asked by the government to apply.
In the six months ended March 2016, the government spent about $ 94 mill i on on direct grants to businesses through the Jobs and Prosperity Fund and Southwestern Ontario Development Fund, according to National Post analysis. Much of that went to big, profitable companies: up to $15 million to Waterloo tech firm Sandvine, or 16 per cent of the direct business grants over that period.
As Postmedia’s David Reevely revealed, Sandvine is doing so well, it expects to pay out that same amount in dividends by mid-2017.
It’s a case study that epitomizes the auditor’s report and the expert panel’s work.
The government says the blue- ribbon report on business support was “never intended” to be public. But the academics who wrote it believed otherwise.
“I understood it was going to be widely disseminated when I agreed to chair the panel,” said Margaret Dalziel, an associate professor at the University of Waterloo’s Conrad Business, Entrepreneurship and Technology Centre.
The report was submitted in July 2014, just after the election when the Liberals were bent on reforming government. That’s why the ministry says it was never released, but again, that’s not what Dalziel was told.
“We were led to believe it was going to be shared,” she said.
The report’s conclusions run contrary to much of the government’s rhetoric about supporting fledgling businesses, as it finds the companies who need the support the least gain the most.
“Approximately 200 companies, or 0.1 per cent of Ontario businesses, receive 30 per cent of total Ontario business support, and this does not include the significant incentive packages provided to companies like Cisco and OpenText,” it says.
Cisco Systems is often held up as an example as the best and the worst corporate welfare or “business support programs” have to offer. It was a recipient of up to $ 220 million in 2013, money meant to keep jobs in the province and create 1,700 new ones.
Amid re c e nt debates about corporate money in politics, it’s worth noting since 2012, Cisco has given about $ 64,000 to the Liberals through donations for by- elections and the 2014 general election.
“There’s no way that ( donated money) could” influence decisions, Economic Development Minister Brad Duguid said last week in an interview about the “strategic i mportance” of the grant system.
He said approval is divorced from politics and largely done by bureaucrats, though he often courts companies to come to the province.
Yet, the Cisco example remains illustrative for two reasons: it’s often cited by critics and experts as the most overt kind of corporate grant, the one that makes the case for and against the whole system.
“It’s kind of a race to the bottom,” Dalziel said.
“If you believe that what we offer Cisco is no better than what another 12 jurisdictions offer, then it’s only who pays the most to get Cisco to come.”
“If we’re buying j obs, they’re very expensive jobs,” she added.
The average Cisco employee makes six figures and works in a sector with low unemployment.
Essentially, that means people making the national average family income of $ 76,000 a year are subsidizing jobs worth much more. Again, Dalziel stressed it’s not necessarily t hat we shouldn’t use public money to attract private jobs, but that people should know more about it.
But there’s no one place where all forms of business support, grants or otherwise, are listed and tallied. Ontario has no clear set of criteria for their bestowal, as in British Columbia and Alberta. Even the list of the 374 grants the auditor general analyzed is not publicly available.
It’s important to note Ontario spends about half the money in the form tax credits or foregone revenue, and another solid chunk on programs few take issue with — on hubs like the Ontario Brain Institute that connect research with industry, or Communitech in Waterloo Region, which brings together startups and corporate giants such as Google Inc. What is usually the issue is t he millions given to companies that is used to provide shareholders with dividend cheques. It’s those direct grants that draw derision and the cries of “corporate welfare.”
These grants add up to $ 500 million a year — slightly more than 10 per cent of the total support detailed in the auditor general’s 2015 report.
Doling out that cash usually falls to Duguid, who defends direct grants as a necessary cost of competing in a global economy. He can approve grants or loans up to $ 25 million, after which they need to go through Treasury Board.
“Frankly, we live in a global economy that’s so fiercely competitive … that we can’t afford to take the old approach,” he said. “You need to pick winners, you need to support your growth firms that help build our economy in the new economy.”
He said he and his ministry have worked hard to increase transparency and streamline the system. But he also said the biggest grants will eat up the largest chunk of cash.
“So the minister is a travelling salesman with a briefcase full of money?” wondered NDP finance critic Catherine Fife. “There ( are) ways for government to be supportive to businesses without doling out briefcases full of cash.”
As the Kitchener-Waterloo MPP, she’s more than familiar with the tech sector and its needs and challenges, but she, too, raises the Cisco example and wondered, after recent global job cuts, how many of the promised positions remained. (Cisco would not reveal how many Ontario employees it had before and after the multi-million-dollar grant, though other queries were addressed.).
“If we knew that $220 million to a large corporation ended up with more jobs … then this conversation would be a different one,” Fife said.
That cuts to the thrust of the issue: the seemingly random nature of the grant system, as Don Drummond first noted in 2012. The money’s also given out in so many different funds — Drummond lamented he struggled to find out about 44 of them — and with too little transparency.
Ironically, the most recent report, the one almost buried, also bemoaned that very fact.
Some progress has been made since Drummond’s massive report on transforming the public service, as the most recent panel notes, but its analysis also reveals there are still 65 business support funds doled out through nine ministries. The fact the money is spread so widely makes it hard to track.
The expert panel analyzed $4.1 billion in supports in fiscal 2011-12. Almost half, $ 2 billion, was in the form of non- refundable tax credits; $ 829 million delivered by “intermediaries” — innovation hubs and various specific government programs and institutes; $532 million transferred directly to companies; and $77 million “allocated to four programs whose intent was not business support.”
By March 31, 2015, total spending on economic support and tax credits hit $4.877 billion.
Duguid said the province has listened to the auditor, the panel and Drummond, and has streamlined many grants under the Jobs and Prosperity Fund. In addition, it is always working to make the whole thing more prosperous.
“If we want to to be globally competitive, we’re either in the game our out of the game,” he says of the grant system.
Micro- targeting sectors, whether it’s Ontario wine or biomedical science or information technology, is actually a good thing, Dalziel said. The breadth of programs isn’t the issue. Rather, it is the lack of central analysis and the fact the government does little to follow up on its jobs numbers.
Report after report say just that, yet little changes.
If people support corporate welfare, “the government should at least ensure these companies are creating the jobs they are saying they’re going to create,” said Tory MPP Monte McNaughton, who has made something of a quest to reform business supports in Ontario. He wants the data to be public and wonders if the legislature were to vote on each grant, it might make things more clear.
Duguid counters that voting would politicize an ostensibly independent process, and wondered where the party stands on the issue. The new leader, Patrick Brown, was an MP in Stephen Harper’s government when it partnered on some of these grants, but his party has no official policy as it revamps its platform.
The ministry did compile and provide the National Post with a list of all grants under the Jobs and Prosperity Fund since its inception and the Southwestern and Eastern Economic Development Funds since 2012. Some as-ofyet-unannounced grants were excluded, but overall the data show grants are clustered both in areas of innovation and regionally in competitive ridings.
Cambridge, Ont, for example received 13 of the recent grants, while neighbouring Guelph got six, and Kitchener and Waterloo five each.
The pattern continues of investing in a growing region, or pouring cash into an area that doesn’t need it while ignoring smaller communities that might.
That’s what worries economist Mike Moffatt, a professor at Western University’s Ivey School of Business and a consultant on the auditor’s report.
“I think the big issue is it’s not clear to people why this is important,” he said.
Since 2004, Duguid said the most recent numbers show Ontario has invested $2.8 billion in “business supports,” which fostered $ 29 billion in private sector investment and created or retained 160,000 jobs.
That word — retained — is another with which Moffatt and other experts take issue.
“Where I tend to have more i ssues with it are things like the Cisco deal … it doesn’t seem any new jobs are being created,” he said, “There can be i nstances where it does make sense … in cases where you have a l ot of unemployed or underemployed people in an industry and then you pay some money to attract that i ndustry to come to your jurisdiction.”
But he also noted, like Dalziel, that it’s a perfect conundrum, because companies like Cisco pit jurisdictions against one another.
A statement from Cisco said it also poured $150 million into Ontario, including $ 13 million into Pan Am Games “l egacy IT equipment.” It also suggested the provincial grant does, in fact, sway its position on where to settle, but that money is one of many factors: “The collaboration with Ontario allowed Cisco Canada to build an investment business case versus other geographies. Cisco chooses to invest in Canada and Ontario due to its collaborative governments, stable economy, distinguished educational institutions, skilled workforce and progressive immigration policy.”
Moffatt said, “The question for me i s what happens if Cisco leaves, what happens to t he i ndustry footprint?”
Other provinces do it more clearly, or don’t focus resources on companies that are already winning. How Ontario goes about doing so, or if it even should, remains the $5-billion question.