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REF NO.: 11

SUBJECT: Harris Centre releases final report on federal presence in Newfoundland and Labrador
DATE: Sept. 14, 2006

Memorial University’s Leslie Harris Centre of Regional Policy and Development today released the final report on its study of the federal government’s presence in Newfoundland and Labrador. This study complements and completes an earlier report issued by the Harris Centre on Nov. 22, 2005.
The earlier report, which was made possible with the help of a contribution from the Crosbie Group of Companies, examined changes in federal government employment, wages and salaries, spending, and military personnel over the past 25 years. The final report includes these findings and adds information related to the number of federal offices in the province, examines the presence of Crown corporations and business enterprises and the wages and salaries paid by them, reviews federal government capital expenditures, takes a more focused look at current expenditures, and includes information on subsidies to business.
According to the final report, many federal offices in Newfoundland and Labrador were either downgraded or closed during the past 10 years. In addition, there are no Atlantic Canada head offices located in the province for any department or Crown corporation, save for Marine Atlantic; other than for Marine Atlantic, all federal offices in Newfoundland and Labrador report to a head office in either Nova Scotia or New Brunswick.  
There are no headquarters or major offices with national mandates in the province, as there is in Prince Edward Island, where the Department of Veterans’ Affairs is based.
The November 2005 report showed that the federal government’s current expenditures (exclusive of wages and salaries) are substantial, but that the province’s share of the national budget had dropped in the latter half of the 1990s. The situation is different in regards to capital expenditures, where the province’s share of the budget has exceeded its share of the national population by a modest margin. However, capital expenditures are less than half the value of current expenditures and the capital budget has generally been lower since 1995.
The federal government also provides grants and subsidies to businesses, including government business enterprises. These include grants for research and development, market development and operations; the gulf ferry subsidy to Marine Atlantic is an example of an operating grant to a government business enterprise. The percentage of federal government subsidies to businesses in this province is, for most years, somewhat higher than the province’s share of the national population.
At times, capital transfers from the federal government to corporations with activities in this province have been quite large, notably with regard to the construction of the gravity-based structure for the Hibernia offshore oil field. They have not, however, been substantial since 1996.
This report was prepared by Dr. James Feehan, professor of Economics at Memorial University, and Alison Coffin, a research assistant with the Harris Centre.
 Dr. Robert Greenwood, director of the Harris Centre, stated that the original report, released in November, “played a crucial role locally in the most recent federal election.” The report was the subject of a ministerial statement in the House of Assembly, it was included in a letter from Premier Danny Williams to the federal party leaders and was a major topic of discussion in the candidates’ debate held in St. John’s in January.
Copies of the report can be found on the Harris Centre’s website at www.mun.ca/harriscentre. The Harris Centre has a mandate to facilitate and coordinate the university’s activities related to regional policy and development.
 
Backgrounder
Federal Government Presence in Newfoundland and Labrador: Final Report, by Dr. James Feehan and Alison Coffin, Department of Economics, Memorial University, for the Leslie Harris Centre of Regional Policy and Development, August 2006.
 
Executive summary
During the years after 1992, the federal government, including its various agencies and Crown corporations, went through substantial expenditure restraint driven mainly by the need to deal with a large and growing public debt. However, with the magnitudes of the job losses, the announcements of closures of high-profile offices, and concerns by provincial government and business groups regarding spending restraint, a perception developed that the adjustments in Newfoundland and Labrador were disproportionate. Heightening the concerns was the timing of these events, as they came when the provincial economy was in very difficult circumstances.
This report was therefore initiated by Memorial University’s Harris Centre in order to determine whether such perceptions were consistent with the facts. This report is about federal presence in terms of what might be described as active presence. As such, it does not focus on transfer payments to persons or to the provincial and local governments, nor does it deal with the effects of federal government policy decisions generally. The report, which relies extensively but not wholly on Statistics Canada data, is concerned with documenting:
 
           Employment in the province by the federal government and its agencies, including Crown Corporations, and examining how they have changed and comparing those changes to the national trend;                                                                                                                       
           The number of federal government and other federal offices and the issues of office closures, downgrading and transferring of offices to the Maritimes;
           The extent of spending by the federal government and its agencies on wages and salaries in Newfoundland and Labrador, both over time and relative to the rest of the country;
           Federal government spending on goods and services and capital expenditures in the province with a comparison with the national trend; and
           Spending by the federal government on subsidies and capital transfers to businesses in this province.
One of the main conclusions is that the reduction in federal government employment since the 1990s was disproportionately large in this province and there is little evidence up to 2005 to suggest that there has been a turn-around. Also, regarding office location, there appears to be a continuing trend towards shifting offices and higher level activities to regional centres that are typically in Nova Scotia and New Brunswick. Regarding senior executive positions and the presence of military personnel, the evidence suggests that levels have been disproportionately low for some time with no indication of change.
There is also some evidence that from the latter half of the 1990s until 2002, there was a relative decline in the share of federal spending on goods and services as well as capital expenditures taking place in the province. This is consistent with provincial government and local business concerns over federal government procurement. On the other hand, the proportion of federal government outlays on assistance to businesses through subsidies has been somewhat higher than the province’s share of the national population. Capital transfers in support of Hibernia’s development were substantial prior to 1997 and since then have been modestly more than the province’s share of the national population.
The overall conclusion is that the most pronounced aspect of the change in federal presence has been the decline in federal government employment and the associated downsizing, downgrading and closure of offices. 
Major findings
The main features of federal employment in Newfoundland and Labrador are:
           The federal government and its enterprises are significant employers in Newfoundland and Labrador;
           There was a sizable reduction in the number of federal government jobs from 1993 to 1999, with no significant recovery up to 2005;
           The share of federal government jobs in this province has generally been slightly higher than the province’s share of the national population, but the share has been declining and some other provinces have much higher shares;
           There are relatively few executive level positions in the province, only about 0.8 per cent of the total such positions in the federal government;
           Of the 1,400 military personnel stationed here, the vast majority, approximately 900, are reservists;
           There are only about 500 regular Canadian Forces in Newfoundland and Labrador, which constitutes a mere 0.8 per cent of all regular forces;
           The extent of Canadian Naval presence appears to be limited to naval personnel enrolled in naval engineering programs; and
           Employment in federal government business enterprises in this province has fallen substantially and by disproportionately more than the nationwide decline; only 1.5 per cent of such employment was located here in 2005, compared to 2.5 per cent in 1981.
 
The main findings related to the location of federal government offices are:
           Many federal offices in Newfoundland and Labrador were either downgraded or closed during the past 10 years;
           Few, if any, existing federal government, or federal Crown corporation, offices in this province have mandates that extend beyond its boundaries;
           Federal entities with Atlantic Region responsibilities have their headquarters in other Atlantic provinces; and
           Headquarters and major offices with national mandates are heavily concentrated in the National Capital Region and none of those beyond that area are in Newfoundland and Labrador.
 
The examination of wages and salaries has established the following:
           Total payments of wages and salaries to federal government employees in Newfoundland and Labrador has been fairly stable in real terms for the past 25 years but somewhat less during the years 2000-2005 than during the first five years of the 1990s;
           There has been a substantial decline in wages and salaries paid by federal government business enterprise in the province, reflecting a national phenomenon of privatization, downsizing and contracting-out;
           Wages and salaries, as paid to federal government employees and to employees of federal government business enterprises, have each declined as a proportion of the respective total nationwide amounts paid; and
           The average payment per employee in this province is less than the national average.
 
The main findings in the Spending of Goods and Services, Capital Expenditures and Subsidies and Capital Transfers section are:
           Federal government current spending on goods and services, exclusive of wages and salaries of its employees, is substantial;
           During the latter half of the 1990s the percentage share of total such spending in Newfoundland and Labrador declined, which may be related to local concerns over procurement practices;
           Capital expenditures by the federal government in the province are smaller than current expenditures and the annual amounts of such spending have generally been lower since 1995, with severe reductions in 1996 and 1997 and an exceptionally high level of spending in 2002;
           For the most part, the share of federal government capital expenditures in the province has exceeded the province’s share of the national population by a modest margin;                                                               
           The percentage of federal government subsidies to business, including government business enterprises, that go to businesses in this province is, for most years, somewhat higher than the province’s share of the national population; and
           At times, capital transfers from the federal government to corporations with activities in Newfoundland and Labrador have been quite large, notably with regard to the Hibernia development.

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