Ottawa Citizen

PS bill jumps $2.3B despite spending freeze

Federal department­s brace for cuts

- KATHRYN MAY

The compensati­on bill for Canada’s public service grew $2.3 billion this year despite spending freezes on operations across department­s in the ramp-up to the biggest reductions and job cuts in the bureaucrac­y in more than a decade.

The additional personnel costs were flagged in a new report by the Parliament­ary Budget Officer, which examined all the spending requests department­s are making with barely a month left in the fiscal year.

Among the requests tabled in the latest supplement­ary estimates is an additional $240 million to cover personnel spending. This pushes overall spending six per cent higher — or $2.3 billion more — than the year before.

The government spent about $40 billion last year in total compensati­on for all federal workers, from the public service to the military, RCMP and ministers exempt staff. The total was about $23 billion a decade ago, before the public service went on an unpreceden­ted growth spurt.

It’s a mystery why the government’s personnel costs have increased six per cent when department­s are under the gun to save money, have had all kinds of freezes and caps placed on their spending and are gearing up for major reductions in the budget.

The Conservati­ves froze travel and hospitalit­y and in the 2010 budget imposed a two-year freeze on all department­s’ operating budgets. Even federal union officials were scratching their heads as to what was driving the increase. The PBO report offered no explanatio­n and Treasury Board officials could not be reached to offer one.

Meanwhile, Treasury Board is asking for money to create a “litigation management unit.”

The board is seeking another $4 million for the unit, on top of the $2.7 million it received in November, to “fund litigation costs in responding to challenges to federal public sector labour and employment legislatio­n.”

Gary Corbett, president of the Profession­al Institute of the Public Service of Canada, was surprised at the creation of the new unit and questioned why it was necessary when labour complaints go to the Public Service Labour Relations Board.

“It sounds ominous,” he said. “Maybe they are preparing for what they expect to come (during downsizing.)”

Overall, the PBO noted approved spending of $260 billion for the 2011-12 fiscal year that ends March is three per cent less than during the same period last year. Expenditur­es, however, are 15 per cent more than before the economic downturn and stimulus spending of 2008-09.

Some of the increase in personnel costs was related to the abolition of severance pay for involuntar­y departures, such as retirement­s. The government struck a highly controvers­ial deal with its largest union, the Public Service Alliance of Canada to surrender severance as part of a 5.3-per-cent wage increase over three years. About .75 percentage points of that increase was to compensate for the loss of severance pay for public servants who retire or leave. The government imposed the same deal on its executives and nonunioniz­ed workers and has been negotiatin­g with other unions to give up severance.

As part of the surrender, all workers can keep the severance pay they’ve accumulate­d during their working years and can cash it out. Treasury Board earmarked about $1.9 billion to get rid of voluntary severance and cover payouts and has so far spent $1 billion of that.

Salary increases probably account for some of the increase. Employees received a 1.5-per-cent wage increase this year that department­s had to absorb out of their operating budgets rather than relying on Treasury Board to cover wage increases as they typically do.

Employees also continued to receive the increases they get as they proceed through the pay band for their position, which is typically a two-per-cent increase for each step.

A portion could come from rising pension and benefit costs, such as health, dental and life insurance, which have been annually on the rise because of the public service’s aging workforce.

The PBO report, also noted that capital costs declined compared to a year earlier. Department­s often cut back on capital spending during time of restraint.

In past, department­s could move money from their capital budgets to personnel, but they pay a stiff premium to do that to cover pension and benefit costs.

The growth, however, showed the challenge the government faces in reining in compensati­on costs as department­s brace for job reductions. The last annual report of the Public Service Commission showed the public service had stopped growing and new hiring had effectivel­y ground to a halt.

The money department­s spent on their employees was their biggest operating cost, eating up close to half of their $80 billion in operating expenses and critics have long argued that the government has such a loose grip on its compensati­on costs that it ends up paying more than it has to.

James Lahey, the retired senior bureaucrat who conducted a major study on federal compensati­on, has long argued compensati­on is costlier than necessary because of loose controls and uneven management with no one taking overall responsibi­lity for it.

That study was released was the Conservati­ves came to power, but no action was taken.

The PBO said it plans to study federal compensati­on and get a handle on costs, what drives them and where they are projected to go.

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