A problem too big to CanNor

The Canadian Northern Economic Development Agency was launched to much fanfare as a new source of economic stimulus for the North. We examine how the machine works – and whether it’s aiming high enough.

The North has always been a place where Prime Minister Stephen Harper feels free to cut loose, to make exceptions. He comes to ride on submarines, stand on icebergs without wearing a lifejacket and scoot around on ATVs without a helmet. He eats seal meat with his cabinet ministers, although only a PMO photographer may record the event for posterity. There are still appearances to keep up, after all.

When the Canadian Northern Economic Development Agency was publicly unveiled, few outside the North took notice. It was just a minor nugget buried deep within the 2008 throne speech, soon to be completely forgotten as attention turned to the opposition parties’ ham-fisted attempt to form a coalition government, and Harper’s dubious-if-legal prorogation of Parliament that saved his government’s life.

Harper, the great shrinker of Canadian government, was making an exception for Canada’s regional economic development agencies, promising to boost funding and create new agencies in the two parts of Canada where none had existed before. One was for southern Ontario, which has seen its economy in freefall as globalization and recession devastate its manufacturing economy. The other was for the North.

While announcing the formal establishment of CanNor during a visit to Iqaluit in August, 2009, Harper invoked the ghost of John Diefenbaker. The North, Harper proclaimed, will shape Canada’s destiny: “Canada’s future is inextricably linked to our northern frontier, and we too have a dream to unleash the region’s vast potential.”

CanNor was to serve as a sort of clearinghouse for federal economic development programs in the North, which were already administered by Aboriginal Affairs and Northern Development Canada (then called Indian and Northern Affairs Canada.) It was also to host the Northern Project Management Office, which serves to help natural resource companies navigate the complex regulatory system (see our sidebar below).

The twist was to locate the agency’s headquarters in Iqaluit, instead of Ottawa, with branch offices in Whitehorse and Yellowknife (Ottawa is also home to a branch office). The idea was to assuage the classic northern grievance that the federal government is too far away and doesn’t understand us. “The era of benevolent yet ultimately ineffective paternalism is over,” the prime minister declared. “The days of development decisions being made in a city thousands of kilometres away are passed.”

By the standards of the federal government, CanNor is a tiny organization. It’s a department of the federal government, with its own minister, Nunavut MP Leona Aglukkaq, who also serves as the health minster and Harper’s de facto northern lieutenant. Much of its mandate was carved out of Aboriginal Affairs, which has a $7.3-billion annual budget and nearly 5,000 employees. CanNor, by contrast, has a budget of $44 million per year (it was $61 million per year until a pair of stimulus programs expired in 2010), and just 70 total employees, 38 of whom were transferred out of Aboriginal Affairs when CanNor was created.

But the money CanNor spends is not new. Only the agency itself is new, a specialized home for a suite of economic development funding packages that Aboriginal Affairs already administered. Chief among them is SINED, Strategic Investments in Northern Development, which dates back to 2004. The current iteration of the program, a five-year, $90-million fund, was announced in 2009 as the government scrambled to assemble a national economic stimulus package at the height of the recession.

How that money is divided is laid out in “investment plans” (which contain dangerously high levels of government jargon, so bear with me) for each of the three territories. The main fund is the “targeted investment program,” which allots precisely $22,261,667 to each territory over the five-year life of the plan. The program is subdivided into four areas that cover funding for things like geoscience, feasibility studies, “capacity development” and “gap-filling” (training, essentially), and, lastly, economic diversification.

So who gets how much money for what? That depends, says Kimberley Fairman, CanNor’s Iqaluit-based director general. Like many government programs, funding is most often doled out in response to applications, though other recipients are sought out by CanNor and encouraged to apply.

Most projects enter the front door of the system through one of CanNor’s three regional offices (the Ottawa office serves as a liaison office with Parliament Hill and the rest of official Ottawa). Fairman says CanNor also solicits proposals by making “targeted calls” to specific organizations, inviting them to apply. The best candidates for funding then undergo an assessment by staff, ensuring that the applicants pass muster: whether they’re well-managed and competent and whether the project stands a reasonable chance of success. Then follows a back-and-forth between the applicant and CanNor staff to iron out any potential wrinkles.

It’s a bit like applying for a bank loan, Fairman says. “The bank may identify certain risks that are associated with the project. We would do the same thing and in some cases we’re able to mitigate the risk.” That may involve increasing the amount of government oversight on a project or identifying holes in the plan. As a project proceeds up the chain, superiors sign off on it.

Hanging over the whole process are various policies: the SINED investment plans, territorial economic development strategies and the results of consultations with organizations. The hope is that, at the end of the year, all the available money has gone out to projects that will grow each territory’s economy. “It’s a combination of art and science,” says Michael Bloor, regional director of the Whitehorse office.

That’s why the cash each territory gets in each economic sector varies. Over the last three years, the Yukon has received $21 million in funding for tourism and cultural projects, more than three times what Nunavut got, and more than four times what the NWT got. That’s also why, when it comes to energy projects, Nunavut got funding for one project worth $5.8 million, more than three times what the other two territories received in that same category.

But this cannot come as a surprise. The Yukon has better transportation infrastructure and is far more established as a tourism destination than the other two territories. Money pumped into tourist amenities stands a far higher chance of earning a return than it would in, say, Nunavut.

Meanwhile, Nunavut, which uses a stable of geriatric diesel generators to produce nearly all of its electricity, would seem a sensible candidate for a big-ticket project like the replacement of eight aging diesel generators.

And it’s why Dave Ramsay, the NWT’s minister of industry, tourism and investment, was at a November 2011 news conference announcing $5.3 million for the territory’s geoscience office: the NWT’s mineral exploration industry desperately needs a shot in the arm.

In other words, the investment plan provides a rough outline of where that money is going to go over five years. “Once that investment plan is drafted and everyone is basically concurring with that plan, it becomes the filter which projects go through,” Bloor says. Once all the filtering is done, it’s off to the minister, who signs off on all funding agreements.

***

THAT THE BUCK stops with the minister responsible – Aglukkaq, for the time being – can be seen in one of two ways. The first is that it makes sense, at least according to the unwritten rules in Westminster-style parliamentary systems.  Under those rules, ministers are responsible for everything that happens in their departments, whether they’re aware of them or not. So in the name of accountability, perhaps it makes sense for the minister to put the final stamp of approval on the paperwork.

But to CanNor’s critics, that same protocol leaves the system open to political interference. Dennis Bevington, the Northwest Territories’ New Democratic MP, says the meddling began with the decision to locate the agency’s headquarters in Iqaluit, a reward for the territory that returned a member to the government benches, and a rebuke to the one that did not.

He says the centralization of authority inside CanNor has only increased in the wake of an accounting debacle last fall. An internal audit found the agency operated without a financial management plan that’s supposed to govern expenditures like tenders, credit card use and travel expenses.

At the same time, the agency had five chief financial officers over two years. All this, Bevington says, means CanNor needs a full-blown audit. “Without a more detailed audit, we don’t know exactly what the mismanagement was that took place with the parade of financial controllers going through the agency.”

“What this abuse has meant practically,” continues Bevington, “is that all financial decisions large and small are going to the minister’s desk for approval. In the past, with the different funding sources that existed, the project officers in the different territories – professionals with lots of northern experience – could provide surety to clients on projects under $250,000. This is not the case now, and that has meant extreme delays in projects that are time-sensitive. This is a bad situation.”

Fairman, CanNor’s director general, disagrees. Putting the headquarters in Iqaluit is in line with the whole idea behind the agency. “I think it’s easy to have a cynical approach to it,” says Fairman, born in the central Nunavut hamlet of Taloyoak. “But I think the other way to look at it is to understand the importance of establishing the headquarters in Nunavut. To me it was quite exciting to come back because of the opportunity here.” And, she says, while the initial approval of projects can take as long as a few months, CanNor currently aims for a standard of 90 days from application to final approval.

Patrick Borbey, CanNor’s new president, shrugs off the complaints, saying there was no fraud or misappropriation of funds. But he freely admits that haste in establishing the new department contributed to the growing pains. The agency, he says, is following a checklist of recommendations made by the auditor. All the necessary changes will be in place by the end of this fiscal year. And it’s also worth noting that Bevington himself praises Borbey’s appointment, calling him an experienced civil servant.

***

TIME WILL TELL if CanNor’s accounting practices get up to snuff, but there’s still the question of whether CanNor is big enough to tackle the North’s massive infrastructure needs.

When CanNor announced that $5.8 million for new generators in Iqaluit, the city’s Nunatsiaq News ran an editorial lambasting the federal government for tinkering around the edges of a major infrastructure need, while failing to pony up at least part of the $150 million to $200 million needed for a hydroelectric dam that would save Nunavut tens of millions per year in imported diesel costs. “The contribution amounts to a one-time handout that does nothing to address the power corporation’s long-term infrastructure financing needs,” the paper opined. Meanwhile, unheeded go the Yukon’s calls for a university and Nunavut’s calls for major infrastructure projects of almost every variety. The feds have promised $150 million for a leg of the Mackenzie Valley Highway from Inuvik to Tuktoyaktuk, but there’s still no clear indication that the rest of the all-weather road between Wrigley and Inuvik will ever get funded.

On the other hand, as Tom Hoefer, the executive director of the NWT and Nunavut Chamber of Mines, points out, nothing that CanNor does prevents other government departments from spending money on projects of their own. To wit: the hundreds of million of dollars the Conservatives have earmarked for a high Arctic research station, military port at Nanisivik and new icebreakers.

Still, the government has made it clear it sees resource extraction as the North’s lifeline. “The bread and butter of the Northern economy is going to continue to be the resource industry, mining in particular. That’s where the real sustainable jobs are going to be created,” says Borbey, while noting that CanNor also helps aboriginal groups prepare for resource growth. CanNor’s budget would seem to stand as proof that, while government acknowledges other needs beyond mining, it is also wary of starting new industries from scratch.

And maybe that’s for the best. After all, Canada is dotted with examples of pork-barrel profligacy and rusting monuments to state-sponsored industry. But when Stephen Harper invoked John Diefenbaker’s legacy in the North, he quoted from a speech Diefenbaker gave in Winnipeg in February 1958 – one outlining a vision of roads, railways and hydroelectric links snaking their way ever north. “We will open that northland for development by improving transportation and communication and by the development of power, by the building of access roads,” Diefenbaker thundered.

Today’s Prime Minister seems content with mostly funding feasibility studies and marketing plans. And those are important. They constitute a vision. But somehow it’s not quite the same.

Up Here Business, February, 2012.

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