NDVA Committee Meeting

STANDING COMMITTEE ON NATIONAL DEFENCE AND VETERANS AFFAIRS

COMITÉ PERMANENT DE LA DÉFENSE NATIONALE ET DES ANCIENS COMBATTANTS

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, May 25, 1998

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[English]

The Chairman (Mr. Robert Bertrand (Pontiac—Gatineau—Labelle, Lib.)): Order.

Colleagues, welcome to our first meeting this week. We have with us this afternoon General Popowych.

General, I think it's not your first time in front of the committee. The way we usually do it is that you have a 15- or 20-minute time slot for your presentation, and then we go to a period of Qs and As.

Does Mr. Jamieson have a presentation to make also? Perhaps we'll have both presentations, then, and go to a question period after that.

The floor is yours, sir.

[Translation]

Brigadier-General Isidore Popowych (Director General, Personnel Services, Department of National Defence): Mr. Chairman,

[English]

distinguished members of the committee, to preface my remarks let me introduce the people who will either provide you with a briefing or assist me in answering questions: the president of our insurance program, SISIP, Mr. Dave Roberts; the chief of programs for our agency, Mr. Greg Pearson; a veteran of appearances in front of this committee, Mr. Jim Jamieson, who's director of our military family support; and Mr. Michel Lemoine,

[Translation]

who is the President of our CANEX purchasing system.

[English]

In addition, Mr. Chair, we have two individuals who are standing in the background but who indeed will participate in the Q and A period. These are two executive directors of our military family resource centres: in Borden, Mrs. Lyn Sorrel, and in Meaford, Mrs. Laurie Jackson.

As the members will recall, I briefed this committee in March of 1997 on the importance of personnel support programs to the quality of life of military members and their families. At that time I highlighted our central problem, the poor state of our personnel support infrastructure, and our plan to fix it. It is my pleasure today to describe to you what has been done.

[Translation]

As a brief refresher, the scope of the Personnel Support Programs includes the following: messes; physical education and recreation programs; a retail operation called the Canadian Forces Exchange System (CANEX); amenity programs for deployed units and ships; Personnel Assistance Funds; Family Support Programs (subject of separate presentation) and a life insurance program called the Service Income Security Insurance Plan (SISIP) or RARM in French.

[English]

Mr. Dave Roberts, the president of SISIP, will answer questions on our SISIP program.

[Translation]

Mr. Greg Pearson, Chief Programs Officer, and Mr. Michel Lemoine, the President of CANEX.

[English]

Most personnel support programs are supported in varying degrees by both public and non-public resources. Such funding responsibility, which to our knowledge is unique within the federal government, has proven to be the most effective, equitable and economical means of providing required services. Without non-public resources, most of our programs would be severely curtailed, eliminated, or the level of public funding would have to be increased correspondingly.

The principle of joint public and non-public responsibility for our personnel support programs is embodied in a Treasury Board policy that states in part:

A reasonable level of goods, services and recreational facilities should be available to Canadian Forces personnel in their areas of service. Where those levels are inadequate, the Department's responsibility as an employer to ensure their availability where practical and desirable may be discharged through a system of non-public fund organizations.

[Translation]

The policy governing the actual public and non-public sharing of the cost of the Personnel Support Program is specified in a Canadian Forces publication approved by Treasury Board. Public versus non-public responsibilities may be summarized as follows.

One hundred percent public responsibilities are the physical education programs in support of military training (staff, equipment and facilities such as gyms, indoor pools, arenas and sports fields), support to deployed forces and the Military Family Support Program.

Shared public/non-public responsibilities involve provision of municipal-type community recreation programs and facilities (community centres, libraries, messes), non-public funds, accounting and management services.

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One hundred percent non-public responsibilities are the specialty interest recreation activities such as golf, curling, rod and gun clubs and marinas. They are normally funded 100% with non- public funds.

In FY 1996-97, the public and non-public contribution to Personnel Support Programs was approximately $ 70 million and $47 million respectively. These figures include costs for personnel, programs, operations and maintenance, and capital construction.

[English]

Turning to the issue of infrastructure, you likely have had the opportunity to see that many of our gymnasiums, swimming pools, arenas, community centres and family resource centres are desperately in need of either modernization or replacement.

You may also have noticed, at some locations, the relatively new, contemporary facilities. These facilities, listed in exhibit A, which is attached, were built between 1994 and 1997 with non-public funds—this, in spite of the fact that funding, by policy, is largely a public responsibility. This recent three-year construction program was a stop-gap measure undertaken by non-public funds in recognition of the need to address quality of life issues during an era characterized by severe public budgetary restraint. These facilities have had a very positive impact on our base/wing military community personnel support programs.

Since I last addressed this committee, we have embarked on a major construction program to address the remaining personnel support facility shortcomings. Based on on-site evaluation of our personnel support buildings across the Canadian Forces, the leadership of the Canadian Forces has approved a $150-million construction program, to be equally funded by public and non-public funds, namely, at $75 million each. The scope of the program consists of 57 projects, of which 30 are new construction and 27 are major renovations. All construction starts are to begin within the next two years, starting this year, with planned completion by the end of year 2000.

Exhibit B, which is also attached to my briefing, identifies the projects planned for fiscal year 1998-99, and exhibit C identifies the entire construction program.

For your information, each individual project must still undergo a rigorous business case analysis prior to receiving departmental approval. This program represents the largest expenditure of either public or non-public funds on personnel support, military training and community facilities since the Korean War era when many of the existing facilities were built. This program has been enthusiastically received by both base and wing commanders and our military communities across Canada.

To conclude, the Canadian Forces leadership has approved an ambitious personnel support “get well” program that will have a substantive impact on the quality of life of our military personnel and their families. We are confident that this commitment of both public and non-public funds will have a positive impact on our communities and ultimately will contribute significantly to the operational readiness of the Canadian Forces. This major construction program will indeed add substance to what we espouse, that people are our most important resource.

I would be pleased to entertain your questions either now or after the next briefing.

The Chairman: Thank you very much. We'll go with Mr. Jamieson right away.

[Translation]

Mr. Jim Jamieson (Director, Military Family Support Program): Mr. Chairman, members of the committee, ladies and gentlemen, I have been asked to provide you with a brief introduction to the Military Family Support Program together with an overview of the primary issues and concerns reported by spouses of Canadian Forces members repeatedly in their contacts with those who deliver Military Family Support Program services.

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[English]

After four years of formal study resulting in the Study Report on Family Support, the military family support program was introduced in 1991. The program recognizes that spouses of CF members contribute to and support all CF missions, and that the support to families during out-of-country deployments and extended temporary duty is of great concern CF members.

The program also acknowledges sacrifices made by spouses, including employment instability, separation from extended family, and extra child care responsibilities, and it attempts to assist with these concerns.

At a somewhat broader level, the MFSP recognizes the major movement of women into the workforce, social changes requiring family-friendly initiatives by employers, and the desire of the Canadian Forces spouses to have a full voice in developing and shaping the services that affect their daily lives and those of their children.

[Translation]

The Military Family Support Program is implemented through Military Family Resource Centres at all Canadian bases, wings, and stations and at some foreign locations, and I know you have visited some of these in your work to date. Through it various services, the MFSP provides needed information, support and referral; promotes health and social well-being; buffers lifestyle stresses; enhances coping skills; assists in preventing individual, family and community breakdown; and aids individuals or families in distress. This is undertaken by professional coordinators and trained volunteers who develop and provide services in five core areas: information and referral, children and youth services, educational services including deployment support and limited employment finding assistance, volunteer development and crisis intervention.

[English]

Each military family resource centre is normally governed by a provincially incorporated and community-elected board of directors, of which at least 51% must be civilian spouses of CF members. Each board is an employer, and works in partnership with the local commander to serve the needs of CF families in the area. The local commander is represented on the board by a senior officer.

Outside Canada, military family resource centres operate under the direct authority of the local CF commander, as incorporation is not possible. Nevertheless, the local commander receives counsel from an advisory board with a composition similar to the Canadian-based boards.

The program's funding, as well as its services, have steadily increased over the past six years, in spite of many financial constraints within the department. In the fiscal year just begun, it is anticipated that $12.5 million in public funding will be dispersed to initiate, organize and coordinate programs and services. This amount does not include infrastructure, utilities and maintenance provided by local commanders.

It should also be noted that by and large no public funds are used for hands-on service delivery. All such funding must come from user fees, grants, awards, donations, non-public funds or fund-raising.

Military family resource centres have been judged to be highly useful, and are valued by most users of programs and services as well as by most local commanders. They have become an integral part of the Canadian Forces lifestyle, and appear to be one of our most positive personnel support initiatives in recent years. They are particularly valued by minority-language families, and have received specific praise for work in this area.

The incorporated board model has opened the door to various local and provincial grants and fund-raising opportunities, thus providing employment for some 380 full- and part-time employees in addition to the CF-funded core of over 350 full-time and part-time employees. Many of these employees are of course spouses of Canadian Forces members. In addition, there are currently 3,854 spouses and CF members who serve as board members and as program volunteers in the various military family resource centres.

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[Translation]

If there is a general complaint concerning MFRCs, it would be that more programs and services are required or desired. Public funding of some service delivery, particularly in the area of child care, is also expected by some.

[English]

There's a perception in some quarters that military family resource centres should not be needed in major Canadian cities. The experience of the program to date contradicts this perception. Orientation to services at a new location, schooling, housing and employment concerns, support during deployment, feelings of isolation away from a supportive base or an extended family, cost of living concerns, and the recent withdrawal of services at some Canadian Forces housing areas within cities are often greater stressors for CF families in large cities than at large rural bases.

The provision of programs and services related to the unique or accentuated needs of Canadian Forces families at all locations is, I believe, a valid mandate of the military family support program.

These unique or accentuated needs of CF families, which result from our lifestyle and particularly from the various forms of mobility required by our lifestyle, have been detailed in the joint work by all stakeholders. They form the core of services provided by all military family resource centres.

[Translation]

With this overview of the Military Family Support Program as background, I would like to turn to the major concerns of CF spouses as expressed to us.

Spousal employment and child care concerns are the two issues most frequently raised by spouses of CF members in formal and informal contexts with staff at Military Family Resource Centres and I would like to address each briefly.

[English]

While much has been done by MFRCs to assist spouses with employment through job banks, CV preparation, support networks, mentoring programs and limited user-pay skill upgrading, no public funds are currently spent in this area for formal assistance to or training of spouses.

Additionally, Canadian Forces policy does not allow spousal employment to factor directly into posting concerns. Underemployment may also be a factor even when employment is found. One study reported that an employed spouse of a CF member earns 40%, on average, of the employed spouse of a public servant.

There are many factors involved in the employment concerns of CF spouses. Essentially, these concerns revolve around the mobility required of CF families that results in some or all of the following: loss of a required second income, the requirement to move to a higher cost of living area while losing one income, the difficulty in finding work in today's economy, the need to re-qualify or re-certify in the new province, the loss of seniority in transferring and the perception that spouses of CF members are passed over by some employers out of hand.

While there's no perfect solution to this complex situation, it may be time to consider some form of direct assistance to CF spouses who must leave employment behind at the time of posting. An entitlement to professional employment-finding assistance, upgrading training, language training, re-certification cost reimbursement and/or home-based business start-up assistance may help to resolve this difficult situation.

Authority to use public funds in these areas for those who could demonstrate a loss of employment caused by the posting would be required, as would, of course, the funds themselves.

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In the area of child care, military family resource centres have accomplished a great deal in assisting many CF families to find affordable child care options. Many MFRCs offer a range of child care aids, including cooperative babysitting, parent and tot groups, structured playgroups, nursery schools, family home day care and, of course, institutional day care.

The centres are limited in this area, however, because no federal public funds are available to be used to subsidize child care costs. And provincial child care subsidies are diminishing in most cases and not applicable in many of our unique circumstances. This greatly limits our ability to support our families in many employment-related situations where child care becomes a concern.

While child care issues, ranging from emergency short-term care to full-fledged institutional day care, are not unique to the Canadian Forces, we do have some unique circumstances.

CF families with young children often do not have extended family or even close friends near at hand, and this can create real difficulties early in a posting and when emergencies or deployments develop.

The CF family may require two incomes to sustain a reasonable standard of living, particularly in view of limited pay increases in recent years. Within this context the increased pace of out-of-country deployments and in-country taskings has put extra stress on the parent left behind, who now must juggle needed employment with extra parenting responsibilities.

The CF requirement to be on short-term notice for base defence force, exercises, courses, weekend duties, civil emergencies, shift work also puts extra strain on child care arrangements, particularly for single parents, dual-career couples and CF members whose spouses are themselves frequently on the road. As in the case of spousal employment, it may now be time to seek authority to use some public funds to allow MFRCs to provide some child care options under some employment-related circumstances.

The United States Department of Defense has long ago gained permission to use public funds to subsidize child care under some circumstances. You will in fact be briefed on this tomorrow.

I would like to make it clear that I am not talking here about a financial benefit provided to the CF member. You have been briefed on concerns in this area relating to single parents only, by the director general of compensation and benefits. While this issue also needs to be resolved, it will not directly ensure the availability of child care in a number of our unique circumstances. The ability of military family resource centres to provide a range of improved child care services and a range of options in the face of needs created by employment requirements demanded of CF members requires funding dedicated to this purpose.

An appreciable sum would be required to have real impact in this area and to enable MFRCs to guarantee a range of direct child care services in the face of short-notice exercises or assignments and in emergency situations. Dedicated funding would also allow MFRCs to employ a coordinator to develop these options with the parents in the face of less deployment-related child care concerns. In effect, each MFRC board of directors would receive a limited funding envelope to meet needs that they would prioritize with the local commander from a limited range of options.

Mr. Chairman, that concludes my remarks. I would remind you that I've asked two of our colleagues from Borden and Meaford to be here. Perhaps when the time comes they may join us to answer some questions the committee may have.

The Chairman: Thank you very much to both of you.

We now go to the question period. I will start off with Mr. Goldring.

Jut to remind you, Mr. Goldring, it's a 10-minute round.

Mr. Peter Goldring (Edmonton East, Ref.): Thank you, Mr. Chairman, and thank you very much for your presentation, gentlemen.

It would appear from the papers here that one of your major sources of funding comes from the CANEX stores. There was a mention in here that in some places it has a problem of being competitive. What I would like to know is what the secret of the CANEX stores is. My understanding is they buy products, as any other retailer would buy products, and retail them to the members of the forces at comparable prices to civilian street products, in some cases maybe a touch higher, because of competitiveness.

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Understanding that the retail business is very complex and very competitive, I'd like to know what competition benefits CANEX has. Does it have free rent, free taxes, free labour, free subsidies, subsidized product, subsidized goods? What makes it so competitive that it can turn a magical profit every year to build— These are major construction projects, and I identify that most of these construction projects are in major centres, so you would have competition from local retailers too.

Is it magical management, or what is it that makes CANEX so profitable that it can turn money over for major projects such as this? And to what degree would it be turning over in a year?

BGen Isidore Popowych: Thank you very much. If I may, I will lead off with some generalities, and I will invite the president of CANEX to fill in the blanks.

There are two questions. First, dealing with the easier one, namely the source of funding for the major capital construction, CANEX profits are only one of our NPF sources. Another major source is the investment we earn from our capital. We invest our capital fund, which is about $100 million, and the source of that capital fund— Over the years—it has existed for over 30 years—part of the CANEX profits have gone into that capital fund.

When we closed CFE Europe, we sold many of our NPF assets. We received about $35 million to $50 million from the sale of our surplus NPF assets in Europe. Also, we sold excess NPF assets when we closed bases in Canada. Furthermore, we also earn interest off the loans we make to the bases.

So the funding for the major construction program is only in part from CANEX.

Mr. Peter Goldring: If I could interject, it says: “Much of the non-public funds come from user fees for the sport facilities and from the revenues produced by the CANEX stores”. Is that correct?

BGen Isidore Popowych: That is correct. We have facilities on our bases, for example golf clubs. The revenues to sustain that operation are totally from NPF, in other words from user fees and so on. For the operation and maintenance of a particular facility, user fees are one source.

CANEX profits also go to our base funds, which are used to sustain various community programs, such as Boy Scouts and minor hockey. So the statement you read is correct, but we have other sources of revenue.

Mr. Peter Goldring: But I'm trying to imagine how it can be so profitable when other retailers are struggling. What competitive edge does it have? Does it have free rent, free taxes, or free labour?

BGen Isidore Popowych: Let me now address the second question.

The most important factor that gives a competitive advantage to CANEX is purchasing power. We have a client base of a regular force of roughly 60,000 to 61,000 people. Other authorized patrons are of course the entire military community—the wives and the children—and also the reserves. So pure purchasing power allows us to not only be competitive against other retailers but indeed provide lower prices.

Bear in mind that we do not compete against the big boys—the Costcos, the Price Clubs, the Eatons, or the Wal-Marts of the world. We are in a niche market. We're in the convenience business. We cannot and do not compete against the big giants of the retail industry.

Mr. Peter Goldring: Has it ever been looked at on this basis, to offer it out under contract bid for various groups to assume this retailing operation—in other words, contracted out under periodic contracts?

BGen Isidore Popowych: Part of the CANEX business operates that way. We provide concessions. For example, we can have barber shops, hairdressers, and dry cleaners. There are portions of the CANEX business that are indeed, if I may use your term, contracted out. The hard-core retail operation is ours because we keep all the profits and we give it to the bases.

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Mr. Peter Goldring: So back to the bases, what are the free components in here that you don't have to factor into your business operations? Is the rent free, or are taxes and labour free?

BGen Isidore Popowych: First of all, not everything is free. In the manual that determines the cost sharing between public and non-public, which is approved by Treasury Board, the rules for cost sharing are explicitly defined. The principles governing who pays for what is largely determined by the location of a base. On the one extreme of the spectrum, if a base is located in a totally remote area and we have to provide a service to the military community, then the public pays for the construction of the facility and pays for its utilities.

Mr. Peter Goldring: So the rent is free?

BGen Isidore Popowych: In remote sites. In urban areas, for example, like Ottawa, then we're on our own.

Mr. Peter Goldring: What about Cold Lake, Borden, Valcartier, Petawawa?

BGen Isidore Popowych: It depends on the sites. Cold Lake would be a remote site.

Mr. Peter Goldring: It's a very big community around there.

Mr. Michel Lemoine (President, CANEX, Department of National Defence): In Cold Lake the facilities were built by CANEX and NPF funds. The only subsidies we receive in Cold Lake as a remote location revolve around utilities and maintenance; we receive 100% subsidy for those particular aspects.

Mr. Peter Goldring: Tax.

Mr. Michel Lemoine: You're correct, we do not pay property taxes, or corporate taxes as an entity of NPF.

Mr. Peter Goldring: What about employees?

Mr. Michel Lemoine: We pay all taxes other than property tax.

Mr. Peter Goldring: All employees are paid?

Mr. Michel Lemoine: All employees are paid out of NPF funds, except for $1.5 million you receive from Treasury Board to compensate for the operational requirements of the CF.

Mr. Peter Goldring: So Edmonton, for example, would be one that—

Mr. Michel Lemoine: Edmonton is considered an urban location. We receive absolutely no subsidy in that site.

Mr. Peter Goldring: Has it been considered to tender this out?

Mr. Michel Lemoine: It has been discussed many different times in studies, one of which was done as far back as 1968, another one in 1978 and the final one in 1988. It's interesting that they were all 10 years apart. The final result was a system that you have before you today, which is a centralized operation with a central headquarters that utilizes the buying power the general referred to initially. Our costs of operations are very low, and why we returned last year approximately $4.9 million to the CF is because, first—and you mentioned it yourself—we do have some very good management in the field who operate our facilities and our stores very cost-effectively, at a very high productivity rate of well over $100 per hour of labour used. We are able to garner, use that buying power, and offer products and services at lower-than-competitive prices in most cases, if not always, to allow us to generate that type of revenue.

Mr. Peter Goldring: So there is a conscious effort to keep the prices lower to benefit the service personnel using the facility?

Mr. Michel Lemoine: Very much so. In fact, we've currently initiated several programs that guarantee the lowest price for certain commodities and products within every marketplace in Canada. Those include basics such as grocery products—milk, bread, foodstuffs, etc.—and include brand name products such as in electronics and clothing and so forth. We guarantee the lowest price for the particular commodity within that marketplace.

Mr. Peter Goldring: Thank you.

BGen Isidore Popowych: If I may supplement that, we also have a credit plan where people can buy goods and you don't pay any interest on your credit card.

If I may make a suggestion on this theme of CANEX, which I'm grateful you raised, in our continuing search to improve what we provide to the troops, please note that in the United States, in their equivalent of CANEX, their exchange, the patrons of that exchange pay absolutely no federal or state tax. One area I might humbly suggest for the committee's consideration is that indeed we might consider having a similar tax-free arrangement for all patrons of CANEX. And we could control all that; people have to present CANEX cards and so on.

But the United States government truly is very mindful of supporting the troops. In fact, it's in legislation; it's in congressional orders that in fact their exchange system is immune from all taxes and the benefits are directly attributed to the soldier.

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The Chairman: Thank you very much.

[Translation]

Ms. Venne.

Ms. Pierrette Venne (Saint-Bruno—Saint-Hubert, BQ): I would like to ask our witnesses first of all how one goes about collecting non-public funds. You always distinguish between public funds and non-public funds. I have a vague idea of how they are collected, but I would like you to provide me with more details.

BGen Isidore Popowych: There are various sources of non-public funds. First, as we just mentioned, there is CANEX, a company with sales of roughly $117 million and profits between $4 and $4.5 million each year.

Second, there is the investment income from our central funds. Over the years, our central fund has grown and now totals $100 million. As I explained earlier, we have our sales activities and so on, which also generate millions of dollars. We provide loans to bases that want to build a marina or a golf course, and we collect interest on the loans we provide. So we make money in that way.

Ms. Pierrette Venne: Do you charge the going interest rate?

BGen Isidore Popowych: A little less. Fourth, we have an insurance company which also makes money.

Ms. Pierrette Venne: So those are the non-public sources of funds.

BGen Isidore Popowych: Yes.

Ms. Pierrette Venne: I would now like to talk about the messes that are located throughout the bases. The military personnel that I met told me that they were much less used these days. First of all, I would like to know whether this is true, if we compare the current situation with the one that existed ten years ago. Is it true that messes are being used much less? Second, can spouses of military members use these facilities at all times and go there alone to eat and drink, and so on? I would also like to know how much the messes cost and how much they make each year.

BGen Isidore Popowych: Over the years, the military culture has changed, just as society generally has changed. If I could make a personal comment here, I would say that when I joined the Canadian Forces about 35 years ago, the mess was the social centre. Now, the vast majority of our military personnel can be found in our gymnasiums at lunch time, for example. Society has changed and so have our values—for the better, I should add.

Nevertheless, messes continue to play an important social function. In a recent poll, troops were asked whether they thought the mess continued to play an important role. The vast majority said yes. The success of a mess really depends on their organization committees. A committee that organizes social activities for families is very successful. However, others have not changed, and the base commanding officers are in charge of the messes. We do not get involved in that, but rather in the broad policy discussions. The situation varies from base to base.

In your second question you asked about the access of spouses to messes at all times. I would say that that depends on local regulations. As far as I'm concerned, there is no regulation to prevent a spouse from going to a mess. However, we must remember that mess members are the CF personnel, not their spouses.

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Mess committees can draft their own regulations on visits and include access for spouses. I know that, generally speaking, they are quite liberal. However, the fact remains that the military personnel are the members of the mess, and they may invite whomever they wish. To answer your question very simply, I would say that it all depends on the rules put in place by the base commanding officer.

Ms. Pierrette Venne: So each mess has its own rules.

BGen Isidore Popowych: Yes. They have their own rules, but all these rules must—

Ms. Pierrette Venne: —be approved by someone?

BGen Isidore Popowych: —comply with national policy.

As regards the costs—

Ms. Pierrette Venne: Yes, how much do they cost the military?

BGen Isidore Popowych: That too is up to the mess committee to decide, and it is elected by the members. The cost varies from base to base, but the mess members make that decision.

The burning issue at the moment, Ms. Venne, is the fact that one rule is imposed on all members of the Canadian Forces, and that they are required to pay a monthly allowance to the mess. I can tell you quite honestly that what the military personnel find outrageous is the fact that the Canadian Forces have a regulation requiring them to be members of the mess and to pay a monthly amount that is not deductible for income tax purposes. I'm sure you have heard about this problem before.

For several years, we have been trying to solve this problem with Revenue Canada. The officials there are of the view that being a member of a mess is not the same as being a member of a professional association or a union, to which annual dues must be paid. They think the mess is a social organization. Under the current Act, military personnel cannot deduct these costs on their income tax returns.

I would like to suggest another idea. I agree that Revenue Canada has interpreted the Act appropriately, but the Act should perhaps be amended to allow CF members to deduct their mess fees from their income tax.

Ms. Pierrette Venne: If we were to give this privilege to military personnel, I'm afraid that many other taxpayers would want the same treatment. That would generate quite a discussion.

BGen Isidore Popowych: That is an issue, which—

Ms. Pierrette Venne: I apologize for interrupting, but I'm going to have to leave very soon. In some places, there are combined messes, but normally, the messes are segregated according to rank.

BGen Isidore Popowych: Yes.

Ms. Pierrette Venne: There are messes for senior-ranking officers and there are messes for the others. I don't remember the exact terminology you used. On the other hand, there are some messes for all ranks; I think you call them combined messes. I think I saw one at Long Point, if I remember correctly.

BGen Isidore Popowych: A combined mess, yes.

Ms. Pierrette Venne: Is it also up to the base commanding officer to decide whether or not the mess will be a combined mess? Who makes this decision? Should all messes not be combined messes in order to cut costs?

BGen Isidore Popowych: I'm going to ask my director of programs to answer your question. However, I would like to mention the combined mess model we have in Greenwood. A combined mess is located in the same building in which the ranks are separated. Some services such as the kitchen have been centralized. I think this is the way of the future and a good model. However, if we were thinking of changing our existing facilities in order to have an officers' mess, a privates' mess and a single mess for sergeants and chief warrant officers, that would cost millions of dollars. For that reason, with time, we may copy the model used in Greenwood, where there were messes dating back to the Second World War and where it was decided to build a combined mess.

[English]

Greg.

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Mr. Greg Pearson (Chief Programs Officer, Department of National Defence): I just was going to add that at one time, going back maybe 20 or 30 years, it would be a very unusual situation—maybe once a year or twice a year at the most—if in fact a rank other than the rank that was entitled to use the mess was able to come into the officers' mess, for example, or the officers were invited to the senior NCOs' mess, or the corporals were permitted to come to the warrant officers' and sergeants' mess. It would normally be things such as special Remembrance Day events or special Christmas and New Year's types of celebrations where that invitation might be extended.

Since that time, the whole situation regarding inter-rank visits to messes has been somewhat liberalized. Basically the jurisdiction to allow that to happen now is in the hands of what we call the PMC, or the president of the mess committee. This is the elected representative of the members of the mess. In the case of a corporals' mess, it would be a master corporal. In the case of a warrant officers' or sergeants' mess, it would probably be a warrant or an MWO. And in the officers' mess, normally it would a major or a lieutenant-colonel. That individual, along with his mess committee, could in fact grant permission for people to use the mess.

This has become a necessity—not just a nice thing to do, but a necessity of life—because we now have a lot of inter-service married couples, and a lot of our military families are represented in more than one rank group. So we find ourselves in a situation where the husband may be a warrant officer and the wife may be a captain. Obviously, if they're going to utilize fully the mess and be permitted to utilize the facilities, there has to be an arrangement whereby they can utilize the mess of the spouse, and we now permit that. So we've liberalized the rules considerably in the past little while.

[Translation]

Ms. Pierrette Venne: But you have not answered my question.

BGen Isidore Popowych: The final authority on mess policy lies with the Armed Forces Council, which is chaired by the Chief of the Defence Staff and managed by its members, the chiefs of the Air Force, the Navy and the Army.

Ms. Pierrette Venne: Thank you.

The Chairman: Thank you very much.

[English]

Mr. Pratt.

Mr. David Pratt (Nepean—Carleton, Lib.): Thank you, Mr. Chair.

My question relates to the whole issue of spousal employment. Mr. Jamieson directed some of his remarks to that issue in his comments. It's pretty clear from what we've heard on the various bases that this is a tough issue for everyone to try to grapple with. There's probably a need to be creative and innovative in how we approach it.

My impression is certainly that some of things that have been done by the MFRCs have really just scratched the surface of the problem in trying to deal with it. I'm thinking of the points you raised about CV preparation, support networks, mentoring programs, and those sorts of things. They don't really seem to have attacked the problem.

The thought of direct assistance is obviously a significant improvement, again in terms of some of things you've mentioned in your comments, but I'm wondering about a couple of things about this.

First, has any investigation been done into the possibility of farming out some of the work the federal government does, through either the Department of National Defence or other government departments—and I'm thinking of things such as income tax returns—to people in the home? Certainly over the last number of years a lot more work-at-home businesses of that nature have developed.

I'm also wondering if any contact has been made with the Americans about how they try to deal with the problem, because they have a similar situation. It seems to me, at least on the face of it, that they would have a similar situation. A lot of their bases are in places that aren't what you'd describe as major urban centres. Do you have any comments on that?

Also, are tax incentives something that you think might be considered?

Mr. Jim Jamieson: We have within the Canadian Forces a quality of life initiative, chaired by the ADM(Per), that is considering a large number of specific initiatives. We have two that we are getting close to fulfilling. One involves full-time employment counsellors at major locations. The second involves a possible grant to spouses on posting, to be used for certain activities. I will come to your more specific question in a second.

• 1625

I would argue that at many locations, we have done more than scratch the surface. We have become a major assistance to spouses in gaining employment. For example, in Esquimalt, we have a full-time person who works there, and he frankly has done wonders to help spouses and to convince several employers that this is a force of reliable, capable people they can use for part-time work. In Petawawa, for example, there have been good efforts to develop a business directory of home-based businesses of spouses, and it's been marketed quite well by one of the women who lives and works in that community.

So there are some locations where there has been major assistance in finding employment. We're taking those pilot projects and trying to install them now or instigate them in all of our major centres. That's the direction we're trying to go in.

As for the issue of possibly some sort of preferential employment, of course the majority of the people who work in CANEX, in our gyms, and in our family resource centres are spouses of military. So we have taken some initiatives to help.

I would agree with your first premise, or what I presume is your first premise: it's not nearly enough. The secret is to have competent people at each large base who can enter into arrangements with local employers to give some preference, almost an employment agency concept at our centres. That's proving to be successful where we have those things.

If you're suggesting that at the national level we consider arrangements for home-based businesses, no, we have not done that at the national level. Our success so far has been at the local level.

Am I answering your question?

Mr. David Pratt: You're getting there.

Mr. Jim Jamieson: Do either of you two want to comment on what you've done on that issue?

Ms. Laurie Jackson (Executive Director, Military Family Resource Centre, Meaford, Department of National Defence): I'm Laurie Jackson. I'm from the resource centre in Meaford, and certainly employment is a real challenge for some of the spouses in our area.

Above and beyond what the employment centre has done, we network with spouses to constantly work with them and find out who in the community might be hiring. We might partner them or buddy them up with another— Say we have one spouse who's got employment as a nurse at the hospital and this other person is looking for employment in a hospital field. We would buddy them up with that person, so they always know when the jobs are coming open.

One of the other interesting things we've done in Meaford is we've partnered with the base to run a summer cafeteria and have employed all spouses during that summer operation. It's done a couple of things. It's employed our spouses and provided them with skills and maybe some leadership qualities, as well as providing a service to the base.

Also, in some of the other fund-raising activities we get involved in, we try to employ spouses to head up those fund-raising activities. For example, we do a catering business also, and so we may hire a spouse to head up the catering business. It's profiting them and it's also profiting the centre at the same time.

Mr. Jim Jamieson: The point I was trying to make, sir, is that we think we're doing quite a bit, but we're not able to use any public money in this effort up until now.

Mr. David Pratt: I realize that, and that certainly is an impediment, but getting to the issue of the situation on American bases, has any investigation been done into what they're doing in that way?

Mr. Jim Jamieson: Yes, and in fact tomorrow you'll hear specifically on that. With your permission, I won't pre-empt what they'll tell you. They're going to be here tomorrow at this time to talk specifically about these two major issues I've raised with you: spousal employment and child care. Actually you'll have the deputy assistant secretary of defence, Ms. Becraft, who I think would be much better to address this. We are considering what they do, but as you'll see, they have used funds that are not available to me at the present time for some of their efforts.

• 1630

Preferential employment on base: Someone in this room can correct me if I'm wrong, but with the exception of out-of-Canada situations, we have not been in a position to directly offer preferential employment to spouses.

Mr. David Pratt: Do we have a fix on the level of spousal unemployment? Those who are looking for jobs, how many of them are searching—

Mr. Jim Jamieson: We know that in the surveys we've done, roughly 70% of the spouses are either working or tell us they want to be working. We don't have anything reliable that I know of that would tell you how many are out of work, but as I said, along with child care it is the thing we constantly face as a concern.

Mr. David Pratt: Thank you.

The Chairman: Thank you very much.

We now go to the five-minute round. Mr. Goldring.

Mr. Peter Goldring: Thank you, Mr. Chair.

Mention has been made of the mess charges and that they are not tax deductible, but is that mandatory? Am I to understand that every member pays a mandatory mess fee? If so, is there not some way, as CANEX appears to be the cash cow, the engine driving all of these projects, and their mess is part of the social aspect of Canadian Armed Forces members, that CANEX could create a program itself to offset some of these mess fees on a direct basis so that the men don't have to pay? In exchange for the men participating in your credit card system and other programs that tie them to extra purchasing from your CANEX stores, is there not some way you can offset, on a direct basis, some type of program to at least partially compensate them for their mess fees?

BGen Isidore Popowych: Mr. Goldring, my chief programs officer is biting at the bullet to give you an answer on this one, and I'll give him the floor in a moment.

There are two questions. First, is it mandatory? Yes. All members of the armed forces must belong to a mess and they are obliged to pay a mandatory monthly fee as determined by their own elected mess committee.

Can each member be subsidized? The level of monthly mess fees has never been an issue because it's very modest.

Mr. Peter Goldring: What is it?

BGen Isidore Popowych: It's roughly $5 or $6 a month. It depends—

Mr. Peter Goldring: Still, it would be an attraction to shopping at CANEX stores.

BGen Isidore Popowych: But here you're entering into some dangerous ground as to what you subsidize and don't subsidize. I could put more money into NPF to assist spousal families. I could put NPF into building homes. Housing is a major problem.

Everybody will have a personal opinion. Once you enter into personal subsidization, you enter into an extremely sensitive area.

Mr. Greg Pearson: In order to understand the whole issue, I think it's important to make a distinction between what is and isn't compulsory. The regulations state that each member of the Canadian Forces must belong to a mess appropriate to their rank. That's all the regulation says. The individual mess committees around the country, headed by a president of a mess committee, which is an elected executive representing the members at each mess, determine the magnitude of the mess dues and what they are to be collected for.

The general is correct. It ranges anywhere from $5 to $30, depending on what mess you belong to. The junior ranks club, because there are more members of those messes, tend to be a little lower and the officers' messes tend to be a little higher.

The capability to set the rate belongs with the membership. That's something that has to be understood. What the money is used for should be understood. Messes are provided by the public, generally speaking—the building, the furnishings to scale, the heat, the light, the structure. That is all provided by the public. What the non-public provides is the bar operation of the mess. The entertainment and activities that take place in the mess are normally run with non-public funds, with the exception of kitchens and dining rooms, which are a public responsibility.

Normally these mess dues are collected to support the non-public component of the mess. They're not there to provide food, to put a roof on the building or to heat it. The mess dues are to subsidize entertainment for the members, at the members' discretion, to purchase plaques and awards for the members when certain things happen, when they're posted and when they're leaving for a new location, and in some instances to help subsidize and pay for renovations or things that have happened to the mess that are what we call beyond scale. They are things that are not included in the public entitlement—the base has taken out an NPF loan and perhaps built a swimming pool in the back so that members can swim or something like that.

• 1635

Mr. Peter Goldring: But earlier it was mentioned that the mess dues and the fact that they were mandatory— there was a concern that it would be a taxable amount. So I would take from this that it was a concern. So no matter the amount, it is an amount.

Mr. Greg Pearson: Absolutely. Just so that you know the magnitude of the problem, if you totalled up all the mess dues across the country at all of the messes, you would be looking at about $12 million to $14 million a year.

Mr. Michel Lemoine: I would also mention that CANEX does subsidize many of the facilities. The money that CANEX earns goes right back to those bases to pay for the clubs and facilities the bases require for their personnel support programs—the Boy Scout clubs, the Girl Guides. Of the $4.9 million that CANEX earns, 80% goes back to the forces, back to the troops. At the discretion of the base fund committee at each base, to dispense to all of these— not the messes, but all of these other clubs and institutes that are there for the benefit of the families. So CANEX doesn't keep this cash. It gives it right back to the troops.

The Chairman: Thank you, Mr. Goldring.

Ms. Longfield.

Mrs. Judi Longfield (Whitby—Ajax, Lib.): Thank you. I have three or four questions. I'll get them all out and then whoever wishes to can answer.

The first has to do with the MFRCs and the funding. How is funding allocated to each individual MFRC? Is there any sort of equalization payment? In light of what the president of CANEX has said about the funds going back in, is it distributed force-wide or individually?

I'm asking this because I believe that CF members have a right to expect the same level of basic service from base to base, and I see that this is not happening. It seems to be that the richer the base and bigger the base, the better the services provided, and that really goes against the grain as far as I'm concerned. I think some of the outlying ones, some of the ones where it's more difficult for spouses to get employment, are not as well served by the very institution that is there to help them in the first place.

Second, what percentage of facilities run under the non-public funds of CANEX's recreational facilities are indeed staffed by CF members? I know that a number of the recreational facilities have been ASD'd, so figure that into the equation.

Third, as for the inability of many spouses to collect EI because they are forced to resign or quit and therefore do not qualify for EI when they get to another base, has DND put any kind of position to HRDC to asked for special dispensation there?

The other has to do with CANEX. The general indicated that CANEX could not compete with Costco and Wal-Mart, yet I heard you say that you guarantee the lowest prices. I haven't spoken to one CF member who thinks they're getting a good deal at a CANEX store. If it's a convenience store, are we comparing prices to 7-Eleven and Beckers? I've heard some horror stories about what a loaf of bread costs at a CANEX store. Sometimes it seems like it's a captive audience.

Finally, when entertainment is going to places like Bosnia to entertain the troops, who pays for the cost?

BGen Isidore Popowych: I will juggle your questions a bit so that I can rationalize who's going to answer what.

Mr. Jamieson, I would ask that you address the MFRC funding. Let me address the second—Jim, you can answer that one.

• 1640

With regard to staffing of our facilities out there, up until 1996 most of the staffing related to personnel support facilities such as gymnasia were done by uniformed military personnel. In 1996, as a result of a two-year effort, we—I hate the term ASD, by the way, but since you used it—

Mrs. Judi Longfield: So do I.

BGen Isidore Popowych: I find it offensive.

We changed under some horrendous pressures ultimately rooted in continuing budgetary reductions. Our local base commanders, rightly or wrongly, were told to live within excruciatingly difficult funding envelopes. They cut where they had to cut. They protected, as a top priority and for understandable reasons, their operational and training capability.

What suffered? I'm not criticizing anybody, I'm just trying to explain. They tackled the soft areas, where military personnel were employed in areas where perhaps it was not essential to have uniformed people perform those jobs.

One of those areas included our physical education and recreation officers, men and women. We reached a position in 1993 where our whole complement was reduced by 50% and going down. We had to intervene. First, we asked the leadership to stop the bleeding immediately and give us time to finish our strategic planning. One of the features of our strategic plan was indeed what we call NPFIs. In other words, do those jobs using NPF employees.

It did a couple of things. It stopped the bleeding. We had people on the ground. It was a long, competitive process. We used fewer people because we consolidated many functions and so on.

So we are now using NPF personnel to perform most of the functions that you are alluding to. It's also saving the crown at least $6 million a year, and we have hired many young, capable university graduates, both male and female. That, complemented by our experienced former military people— we have an excellent crew out there. The challenge is to keep them.

We could partly answer your question on EI, but the office of primary interest in this would be our director general of compensation and benefits. I say that because I'm a former director of compensation. EI was one of the flags I tried to carry, but I failed in my mission because of the intransigence of other government departments. It is not a new issue, just like the taxation of mess dues.

Madam, could you kindly refresh my memory on your CANEX question?

Mrs. Judi Longfield: General, in response to a question from Mr. Goldring, I think you indicated that CANEX couldn't and wasn't meant to compete with Costco and Wal-Mart.

BGen Isidore Popowych: Thank you.

Mr. Michel Lemoine: There is no way CANEX, a $100-million retailer, is able to compete on price alone with organizations such as Costco, Price Club, Zellers, Wal-Mart, etc. CANEX does it because we are located in the right spot and we buy from national suppliers and national programs, whereby we at least compete on cost of goods. Then we pass on the savings to our customers by taking a lower margin than what an Eatons, Bay or Zellers might take on similar products, hence our guaranteed lowest price on brand name products. We guarantee on brand name products that you will not find a lower price in the marketplace on those commodities where we know we can compete on those goods.

When it comes to groceries, you're right, we tend to operate convenience stores, and I will admit that in the past many of our managers probably priced with the local 7-Eleven. We no longer do that. We price with the lowest marketer of that product in the marketplace, and hence our advantage pricing, where we guarantee that our customers will pay the lowest price on grocery necessities in that marketplace. Whether it's Price Club, Safeway, IGA or Loeb, it doesn't matter, we'll match that price on those particular commodities.

• 1645

So, yes, I'm sure you did hear from some folks that they paid more for milk at our store, but I'll also give you an example of Goose Bay, Labrador, where, if CANEX did not exist and CANEX was not in place in a location such as that, where we sell milk for $5.99 for four litres, the local marketplace would be $11.99 without a CANEX store in that market. We do what we can to associate and to give our customers the best price possible. There is no way I can guarantee that at any given moment we are the best price on every commodity, but our managers do have the authority to match and beat the competition, if required.

The general alluded to a subject that is very strong and dear to my heart. We talk about spousal employment, and I believe we talk about that issue because we try to improve the buying power of our military families.

One of the ways the American military ensures that buying power and ensures the comment that you made, that they have the right to expect the same level of service at all locations, is that the American government guarantees that they will have the same price for the products sold by the exchange system no matter where they are posted in the world—and that is anywhere in the world. The costs of operating grocery stores and operations are 100% subsidized by the American government. The retail cost of those goods is a maximum of 5% above cost, so there's no grocery store in the United States of America that can compete with their grocery stores.

As to the retail facilities, there is no sales tax charged to that customer. In Canada, if there was no GST charged to the CF member of CANEX stores, that would be an immediate increase in their buying power of 7%. We talk about improving things for those folks on a non-pay compensation issue. That's the way to do it.

BGen Isidore Popowych: If I may close off that question, the United States navy recently completed a survey on their personnel support programs. The number one program that was viewed as such by the enlisted folks was their retail system.

Mr. Michel Lemoine: Number one, over all personnel support programs, was their exchanges.

BGen Isidore Popowych: I will ask Mr. Pearson to address who pays for our entertainment shows in Bosnia. That's a simple one.

Mrs. Judi Longfield: Okay.

Mr. Greg Pearson: The show that just came back was a wonderful success. We sent shows to Bosnia and northern Canada.

Mrs. Judi Longfield: We saw the posters when we were there.

Mr. Greg Pearson: Oh, did you?

It's predominately paid for with public funds, and when I say predominately, it's about 90%. About two years ago it was 100%.

We now have some corporate sponsors that help us put on the show. We had four corporate sponsors associated with the recent show in Bosnia, who contribute to the show and have their name connected with it: Royal Canadian Legion; Canadian Airlines; Skylink Aviation; and one other, a Canadian printing organization, I believe, St. Joseph Printers Ltd.

To give you an order of magnitude, our entertainment public budget for the whole year would be something in the neighbourhood of $300,000. Corporate sponsors might donate, say, $50,000 of that.

What it enables us to do is to maintain the quality of our shows at a time when the budgets are shrinking. Rather than reduce the number of shows, the number of entertainers, we've gone out to corporate Canada and asked if they would like to partner. We've been overwhelmed by the response. They would like to partner. They like to be seen to be connected with the forces, particularly doing something in the quality of life area like this, which is viewed as being very positive.

BGen Isidore Popowych: In terms of magnitude, I think our corporate sponsorship program is a modest percentage of our overall funding of our personnel support programs. We spent, combined NPF and public, roughly about $117 million. Our corporate sponsorship program now runs about $250,000. It is a small, but very important component, and we are vigorously pursuing that, because they are underwriting, in part, our sports program, which is so important for the morale of our troops. They underwrite part of our military family support programs, and as just explained, they underwrite part of our military family support operation, the calendar and so on.

Jim, I would ask that you address the final question, on MFRC funding.

Mr. Jim Jamieson: Yes, I'll be very brief.

As of April 1 of this year, we fund all 42 military family resource centres, based on their population base, and with the possibility of supplementation, depending on issues such as a major deployment facing Petawawa or some other; we try to give them extra money.

For instance, in Borden, we provide extra funding because they have a huge training base who are away from their families for a long time, and much of their business comes— That's even though those people statistically don't belong to that base. So it's a fair, equitable, coordinated program with some top-ups.

• 1650

Am I answering your question?

Mrs. Judi Longfield: You said that started on April 1?

Mr. Jim Jamieson: Yes.

Mrs. Judi Longfield: Okay.

Mr. Jim Jamieson: That doesn't mean the services are always equitable. At Borden, for example, 40% of their total budget is money they get from the Canadian Forces; the other 60% is money they raise. Some locations have not been able, because of their isolation, to raise very much at all.

Mrs. Judi Longfield: Sometimes there are economies of scale as well. It's cheaper to provide a service if you have 20 people accessing the service. I'm always concerned about that.

Mr. Jim Jamieson: As for the funding, you get more if you're small. It isn't dollar for dollar per person. There are nine ranges. The smaller bases get considerably more on a per capita basis than the larger bases.

Mr. Greg Pearson: The military family support program was criticized somewhat in its very early years because there was a very uneven distribution of programming across the country.

You alluded to the importance of standardized services. Starting on April 1, we'll introduce something called the operational plan, which is the red book Mr. Jamieson has in front of him. In fact, it apportions out the public money we do receive on an equitable basis, based on the role of the base and the population of the base, to ensure that all of the core-mandated programs are delivered in a similar fashion at each military family resource centre. That's been a major accomplishment over the last year.

Mrs. Judi Longfield: Is there a mechanism for review?

The Chairman: You have gone way over.

Mrs. Judi Longfield: Okay, thank you.

Mr. David Pratt: You got your money's worth.

Mrs. Judi Longfield: I did.

Mr. Jim Jamieson: As for the issue of EI, did you want me to address that, Mr. Chairman?

The Chairman: Yes, very quickly.

Mr. Jim Jamieson: The general alluded to the fact that there's been a great deal of frustration in the department over spouses coming from outside Canada who are not able to get EI even though they've paid into it, in many cases for years. My understanding is that, within Canada, there has been some progress such that if your spouse is posted and you have to go with your spouse, that does not preclude you from EI benefits.

Mrs. Judi Longfield: We've been told that it does in some—

Mr. David Pratt: There's a penalty.

Mr. Jim Jamieson: My understanding is that it does not, on the face of it, preclude it. We're getting mixed messages.

BGen Isidore Popowych: Madam, if you wish to have that question answered in a more fuller and accurate way, I will ask Colonel Lemay to provide the committee with that answer.

Mrs. Judi Longfield: I would much appreciate that. Thank you.

Thank you, Mr. Chair.

The Chairman: Mr. O'Reilly.

Mr. John O'Reilly (Victoria—Haliburton, Lib.): Thank you, Mr. Chair.

I knew you'd be disappointed if I didn't point out that a lone opposition member, Mr. Goldring, is here. There's no one from the Bloc, Conservatives, or NDP here. I knew you'd be disappointed if I didn't point that out to you. We can put it on the record.

Once again, Brigadier-General, welcome. Mr. Jamieson, it's good to see you again.

The focus of my question hasn't been touched on here, it's just been mentioned. Poor Mr. Roberts, sitting down at the end, is the president of a large service income security insurance plan, which has had no explanation, that I know of, in the past. I would like to know basically what that encompasses. Is it a type of insurance plan? If it is an insurance plan, what type of policy does it offer? Does it offer life, term, some type of benefits, RRSPs? Is that what's involved in it? If so, what's the cost in comparison to that of private industry? Is there any subsidy for the inability to pay the premium? I guess I need an overview of exactly what it is, Brigadier-General.

BGen Isidore Popowych: I'll ask Mr. Roberts to indeed address that question.

If I may, I'll give a very brief historical perspective.

Why do we have insurance in the first place?

Mr. John O'Reilly: True.

BGen Isidore Popowych: Why do we have it in the first place? In the late 1960s, members of the armed forces were attempting to procure personal life insurance. When the private sector was even willing to consider offering insurance to members of the armed forces, the premium rates were so high that in fact the answer was, no, you're not insurable.

The leadership of the armed forces of the day decided to go to it on its own. If nobody could provide it or was willing to provide it, we would create our own. In fact, the whole thing started off with a $4,000 loan from the Canadian Forces central fund. In short order, we partnered with Maritime Life, which has since been our partner in terms of administering our entire insurance program. What started off as a $4,000 loan is a book of businesses today worth $14 billion.

• 1655

With that brief introduction on its magnitude and origins, I'll ask Mr. Roberts to give you more specific answers.

Mr. John O'Reilly: Thank you.

BGen Isidore Popowych: We provide a service to the troops.

David.

Mr. Dave Roberts (President, Service Income Security Insurance Plan, Department of National Defence): Thank you, General.

Mr. O'Reilly, let me go down and explain first of all the nature of our structure so that there's an appreciation.

First of all, the SISIP organization is split in two financially. We have on the one side of the house what we refer to as the Treasury Board-supported plans, which include long-term disability plans both for the regular force and the reserve force. There are a number of other life insurance plans associated with executive compensation. Those are all Treasury Board-supported plans and are owned by Treasury Board. They dictate the rules, and so on. That involves assets in the order of $220 million.

On the side of SISIP proper, that's the life insurance the general was referring to. Essentially, it's the largest book of businesses associated with the term insurance, which amounts at this point to $14 billion, 98,000 clients, and five separate product lines. This includes, by the way, released members of the Canadian Forces and their spouses.

In terms of costs, as for the long-term disability plan—again, it's a Treasury Board-supported plan—85% of the premium associated with that plan is paid for by the employer. In other words, that's Treasury Board. So 15% of the premium is paid for by the employee, or the Canadian Forces member.

On the other side, SISIP proper, the life insurance premium is paid by the individual member for coverage on himself and his spouse, if so desired. It's all voluntary. It's all under a group policy. The premiums for the term insurance are anywhere from 10% to 30% below market, depending on your age group and your smoker/non-smoker status.

Does that adequately answer your question or do you have something else?

Mr. John O'Reilly: Well, actually I'm fairly aware of it. That's why I asked the question. I realize that insurance benefits are very hard to find in high-risk jobs, and I wanted to know what product you offer. Is it just life insurance? Is it just term? Is it just disability?

Mr. Dave Roberts: Obviously, up to this point, our major business has been life insurance. Starting in 1988, after 19 years of operation, our book of business was about $1.9 billion. So in the last nine years we've been working hard to make sure that people are properly insured and so on. I have 10 representatives in the field who do that.

In addition to that, we did a market survey in 1992. We surveyed 10,000 Canadian Forces members and received a response rate of 69%. We asked them really two specific questions. First, what products and services do you want? Second, in what priority do you want them?

We in fact recently introduced financial planning in three test markets. As recently as March, the board of directors authorized me to go national with the financial planning operation.

In addition to that, on January 2 I introduced a spousal disability plan. That was their second choice of the products and services they wanted. That was, as I say, introduced on January 2, and we're starting to market that now. That's on the side of SISIP proper.

In addition to that, we have a contract with Canada Trust that has been in place since 1975. It essentially amounts to retirement planning. In 1996, that was taken to tender, and Canada Trust won again. It involves personal assets of individual members of the force or former members of the force. It's somewhere in the order of $450 million.

It's not owned by us, obviously, it's owned by the membership, who have a private relationship with Canada Trust. My function essentially is to monitor the contract performance and facilitate the results.

• 1700

BGen Isidore Popowych: And we get good deals. That's what he monitors.

Mr. John O'Reilly: Yes, with the number of people you would be able to offer, you obviously would get a low premium.

Is there any subsidization available for an inability to pay a premium on behalf of a member?

Mr. Dave Roberts: In one case for regular force members with term insurance in force and for those who are released from the force, there is a benefit called a waiver premium. In the event that the individual was totally disabled, the premium is waived under term insurance.

Mr. John O'Reilly: When you expand on what you're offering as far as financial planning goes, what type of training are you putting out for financial planners?

Mr. Dave Roberts: That's a good question. All of the people who are planners are certified financial planners or are in the process of obtaining certification. Generally speaking, the senior planners are already qualified CFPs, while the junior planners have at least three courses completed.

That's what I have in my offices right now, and in the future offices I will continue to approach it in that manner.

As you probably are aware, in the financial services industry, financial planning is not generally regulated, except in the province of Quebec, where you must be qualified. But we're going to qualify it across the system.

BGen Isidore Popowych: If I may paint a broader picture, financial planning is one aspect of a broader service that we call financial services. I'm alluding here to things such as financial counselling for helping people, families, who are in dire financial straits.

We are talking about wealth, financial planning over the long term. We are talking about insurance services other than life insurance. We're talking about home and automobile insurance. We're talking about the whole range of entitlements that young soldiers have but are not aware of. They get married, their family situation changes, and they're not aware of benefits.

What we are embarking on very vigorously—in fact, I had my preliminary study done—is to rationalize the entire way of how we deliver financial services to members of the armed forces and perhaps come up with a concept of a one-stop shop.

So we're vigorously trying to improve what we have in that area.

Mr. John O'Reilly: Thank you, Mr. Chairman.

The Chairman: Thank you, Mr. O'Reilly.

I also have a few questions for you, if you don't mind.

Do you have a board of directors?

BGen Isidore Popowych: There is a board of directors called the NPF board of directors, which is chaired by the Chief of the Defence Staff. Its members include the commanders of the navy, army, and air force. It includes other group principals, principally, ADM(Per), the vice-chief, and the deputy chief of the defence staff. Also on that committee are the assistant deputy finance minister and the force's chief warrant officer. They are the board of directors for NPF. They are responsible for overall governance of NPF.

A subsidiary committee that's more operational is the personnel support executive committee, which I chair. Also, there are representatives from each of the operational elements plus the respective chief warrant officers. These are the representatives of the lower ranks.

The Chairman: Thank you, General.

Do you also have an annual report. Do you provide an annual report?

BGen Isidore Popowych: Yes, sir.

The Chairman: Would it possible for us to get a copy of that annual report?

BGen Isidore Popowych: With pleasure.

Let me be very specific. I think we should both understand this. In terms of my annual report, I'm the managing director of NPF, and I provide an annual report to the NPF board.

It's my accountability, so that addresses the whole scene of NPF and what has been done. I'll be asked what I promised, what I delivered, and how good or how bad I've been. I'll be asked to show my financial results. So it's a bit of accountability. I believe that's what you're referring to, Mr. Chairman.

The Chairman: Well, yes, but I'm more interested in the insurance side of it. Do they provide a financial report for how much is made from the insurance side of the business?

• 1705

BGen Isidore Popowych: Mr. Chairman, as Mr. Roberts explained, insurance is divided in two; one is the public side, one is the NPF side. On the public side, the financial information I assume is ultimately available through the Treasury Board. There is financial information on the NPF side. I'm not sure what you're referring to.

The Chairman: From what I understand, General, we have an insurance company here—

BGen Isidore Popowych: Yes. It manages both. The public and the—

The Chairman: It manages both. I presume this insurance company makes profits, because they wouldn't be in business if they wouldn't make profits.

BGen Isidore Popowych: Yes. There's revenue.

The Chairman: What I want to find out is how much money this insurance company makes.

Mr. Dave Roberts: It would be in the annual report.

BGen Isidore Popowych: Yes.

The Chairman: Just coming back to profits, how much profits were made last year—just a ballpark figure?

Mr. Dave Roberts: Last year the Treasury Board side made approximately $4 million, the profit side made approximately $11 million. The year before, SISIP proper made nothing, and the Treasury Board side lost about $12 million, if I recall correctly, because our long-term disability experience has been terrible.

The Chairman: This leads me to my other question. As you're aware, we've been going around the country to all the bases. We met with Major Henwood. He made a presentation. He was mentioning he was having problems with receiving payments from the insurance company. Are you aware of why he experienced those problems?

BGen Isidore Popowych: We are keenly aware of not only Major Henwood but of every case, of every claimant on SISIP. I am not surprised that you have raised this particular issue, but I've asked the president of SISIP, because as you might appreciate, we cannot talk about individual cases—

The Chairman: Okay.

BGen Isidore Popowych: However, we are prepared in fact to answer your question in a different way. I have asked the president of SISIP to explain how much money a claimant in similar cases at a comparative rank is getting. How is it adjudicated? The president of SISIP is ready to answer it from that perspective.

Mr. Dave Roberts: What people fail to understand, or what there's a misconception about out there, is that somehow this is a private company and we should be paying whenever somebody has a problem. In fact, the SISIP benefit is made up of four components: the Canadian Forces Superannuation Act, which is the member's pension plan; the Pension Act, which is essentially a benefit that is payable to people who are hurt on duty or in a special duty area; the Canada Pension Plan; and then SISIP.

In the case of long-term disability, which is what Major Henwood is referring to, in that benefit what is guaranteed is that they have 75% of their pay in the event they're rendered totally disabled. At the end of 1997 I had 768 claimants who were totally disabled. If when you do a calculation, and you take 75% of a major's monthly salary, as an example—and let's assume the major's making $5,818 a month—we guarantee that he would receive $4,363 a month.

Assuming he has 20 years of service under the Canadian Forces Superannuation Act, he would get approximately $2,094 from there. From CPP, assuming he doesn't go to work, he'd get $895. Depending on whether or not that person was hurt inside a special duty area, or for example in a car accident on his way home in the evening, he may or may not be entitled to Pension Act benefits. If somebody was inside a special duty area the Pension Act is relevant 24 hours a day, seven days a week.

If that person were to be hurt to an extent where he received 100% Pension Act benefit, then that person with a wife and one child—as an example, there's a graduated scale—would receive $2,368 a month, tax free.

• 1710

So already, in absolute numbers, before we even apply the SISIP standard, that person is receiving $5,357 a month, which is clearly above the $4,300 we guarantee. In addition to that, assuming a marginal tax rate of 39%, on a before-tax basis, that person is actually receiving $6,800 a month.

So in this particular example I've used here—and we could do the same thing for a corporal; a lot of permutations and combinations are possible here—what would happen is there would be no SISIP benefit to be paid on a monthly basis. This particular individual would be approved for claim and therefore would have access, if need be, to rehabilitation and so on, but there would be no monthly benefit payable because of the way the contract is written and because of the 75% guarantee. In that particular example, that's the way it would work.

Alternatively, if the person were outside an SDA and were driving home one evening, as we will drive home later on this evening, and the Pension Act were not relevant, then we'd have to make up the difference of approximately $1,400 in order to provide him with the 75% guarantee, because he'd get nothing from the Pension Act.

The Chairman: Mr. O'Reilly asked you a question a while ago, and you mentioned that one of the benefits you offer is waiver of premium.

Mr. Dave Roberts: That's correct.

The Chairman: Do you have accidental dismemberment in your policies?

Mr. Dave Roberts: Under the long-term disability plan for serving personnel, we do, and the same rules apply. If you took one in comparison to another, let's say for the sake of example that somebody lost an arm—and very specific things are covered—

The Chairman: Or both legs.

Mr. Dave Roberts: Or both legs, then it is better to be assessed under that particular part of the policy initially. In other words, the claim is adjudicated under that particular part of the policy, because the rehabilitation earnings, which are also an offset in the event somebody goes back to work, are not considered. It's to their advantage.

The Chairman: That's right.

Mr. Dave Roberts: And then of course at the end of the dismemberment period, that individual would then be considered or reassessed as to whether or not he's totally disabled.

The Chairman: Now you've lost me.

Mr. Dave Roberts: Well, if somebody is on a dismemberment claim, the dismemberment period is one, two, or three years.

The Chairman: Is it not just an amount?

Mr. Dave Roberts: No, it is not, not under the long-term disability plan, not for serving personnel. We have no dismemberment policies for serving personnel.

We do have dismemberment under what we call coverage after release, for release personnel. There the benefits are payable, again, for specific losses or loss of use, and it is based upon a percentage of the principal you have in force. For example, if you're carrying $200,000 worth of term insurance and you get the principal for the loss of both legs, then you would get the $200,000.

The Chairman: And then you would lose your long-term disability benefits.

Mr. Dave Roberts: No. I don't know how you're relating the two. Long-term disability is for serving personnel; coverage after release is for release personnel. So in a case such as Major Henwood's, as an example, he was serving at the time. I think he's released now; I'm not sure.

The Chairman: I just have a hard time understanding. If, for instance, a serving member of the Canadian Armed Forces has one of his legs blown off, there is no dismemberment benefit, whereas if he is insured for $100,000 life, the accidental death or dismemberment would usually, as you mentioned, be the $100,000. But then in the private sector, you would get an amount—

Mr. Dave Roberts: Yes.

The Chairman: —and also the long-term disability. What you're telling me is that for the Canadian Armed Forces, this does not exist.

Mr. Dave Roberts: No, it does not.

The Chairman: Okay.

Mr. Dave Roberts: It's associated with the long-term disability plan, not with the life insurance. There is no accidental death and disability component—

The Chairman: And dismemberment.

Mr. Dave Roberts: —or dismemberment component associated with the life insurance for serving personnel. It's actually associated with the long-term disability plan, and as I indicated earlier, the funding relationship between Treasury Board and the member. It's income replacement.

The Chairman: Okay.

I have a lot of other questions. I'm just wondering—

Mr. John O'Reilly: Sorry, Mr. Chairman, your time is up.

Some hon. members: Oh, oh!

The Chairman: I can come back later.

Mr. John O'Reilly: I got him.

The Chairman: Yes.

Some hon. members: Oh, oh!

The Chairman: Mr. Clouthier.

• 1715

Mr. Hec Clouthier (Renfrew—Nipissing—Pembroke, Lib.): I don't want to stop you when you're on a roll.

The Chairman: Go ahead.

Mr. Hec Clouthier: Just to switch gears for a second, with regard to, say, Base Petawawa—it's in my riding—with regard to Harvey's and Pizza Hut, can you explain to me how those deals are brokered? Do they get a special concession or do they pay fair market value for their rent?

Mr. Michel Lemoine: We own those.

Mr. Hec Clouthier: You own them?

Mr. Michel Lemoine: CANEX purchased those franchises and it operates them as a wholly owned operation. Those are CANEX facilities even though they bear the Pizza Hut and Harvey's name. Similar facilities exist in other bases, such as in Edmonton where we operate a Robin's Donuts, a Harvey's franchise. Those franchises were bought and wholly owned by CANEX.

The reason we purchased those facilities rather than operating our own canteens or cafeterias, which you've probably seen in other sites, is the same reason the market conditions bear: brand recognition, quality product, consumer acceptance.

Mr. Hec Clouthier: Far be it from me to advertise losing your job, but I'm coming to CANEX.

With regard to CANEX, which is across all of the military bases, has any thought ever been given to seeking— I don't want to use the word “ASD”, because I know what we've done with the racetracks across Canada. We've contracted out, but under special provisos, say, to McDonald's and to Harvey's.

If CANEX ever went to Zellers or Wal-Mart and said we want them to come into all our bases to operate our food and clothing stores, the proviso would be put in there that, number one, you have to hire spouses of military personnel, and number two, you will not charge GST to anyone who has a military card.

In many instances I know the same thing happened in another area. Some of these multinationals would actually come in and do the service, not expecting to make that much money because it's public relations. And then they go and advertise: we look after the Canadian military.

Has anything ever been thought of like that, because you'd be surprised, as you know with Harvey's, what the private sector will do. They'll be very flexible if they believe they can get a captive audience of 60,000 military personnel. On the public relations end of it, they will say, listen, we are the providers for the Canadian military.

Mr. Michel Lemoine: My background is in the companies you referred to. I used to work for Hudson's Bay and Zellers and so on. Their thinking process would probably very much go along the lines that you mentioned.

May I suggest to you, though, that the bottom line on this is that while you could probably hire a company like this to do that work for you, yes, they have to make a certain revenue prior to giving anything back to the military, which is what we do with our revenues.

You must keep in mind that we are, in a sense, a cooperative. The customers shop in our store, they hopefully get a good deal on the products they purchase and the services we provide, and we generate a revenue for that. We give it back to them in the services they utilize on other parts of the base. That's the real reason we exist.

Mr. Hec Clouthier: I know where you're coming from.

Mr. Michel Lemoine: So the cost of operations for a Zellers, let's say, would not be that different from, say, CANEX operations today. It would run around 14% or 15%. A typical Zellers store tends to achieve approximately 28% to 29% in gross profits. CANEX runs on 21%. So there's the lower pricing we offer our customers.

We maintain approximately the same costs of operation, and it's highly unlikely that Zellers would come in and be able to run it for, say, 12% or 13% because their cost of operation—I am familiar with it—runs in that 14% to 15% for typical retail stores. So their cost of operation would not be dramatically different.

Yes, they might gain some marketing benefits and so on, but there are other things that CANEX is now doing. We're starting a program where we rebate to our customers 1% of the purchases they make annually. Those are the things we are starting to do with the funds. We are not only giving it back to the clubs and the associations or the base fund, we are also now giving it back directly to our customers.

We have a program that started last year called Club Z Extra, where we rebate 1% of their purchases. So if the customer buys $10,000 at CANEX, in additional to the lower prices, we're going to give him 1% in gift certificates at the end of the year.

Mr. Hec Clouthier: What I was coming at, Michel, was that we're not going to give them the same amount of money— but in a different manner.

Perhaps you can answer this question. With the CANEX stores, is it the thought process that you first and foremost get the employees to be spouses of base personnel?

• 1720

Mr. Michel Lemoine: We attempt that, but unfortunately our union contracts prohibit detailing that group only. Approximately 40% to 50% of our staff— and it revolves around that figure because of the posting cycle. We currently have on staff approximately 1,300 employees across the system in Canada.

Close to half of those people are military spouses and dependants. They're local; they're very well trained, because many of them have worked for CANEX over the years. It's a very easy pool for CANEX to utilize and we do utilize them wherever possible. Unfortunately, because we have 23 different union agreements across the country, we cannot keep a position open. We must promote and do all the things in our collective agreement.

Mr. Hec Clouthier: That's why I was thinking if it was a multinational, perhaps they could override it.

I remember at one time in Base Petawawa you had to be a member of the military personnel to shop at CANEX, and you had a very lucrative deal. That is no longer the case. I can walk off the street and go into the CANEX, being a civilian. If you brokered some type of a deal with a multinational, I'm just thinking on the 7%, even the GST— I know what we did with the racetracks of Canada and they jumped at it immediately.

Mr. Michel Lemoine: The GST would be a major factor. If CANEX did not have to charge the GST to its patrons, there would be a major improvement in volume and in the buying power of the military personnel. The incremental increase in volume for the CANEX operation would be very dramatic and, in turn, it would generate more revenue to give back to the military for further improvement of the PSP programs.

How would the government control the multinationals not charging GST to military patrons?

Mr. Hec Clouthier: It's as if you go to a store and they say no GST this week. They still collect the GST, but they remit it.

Mr. Michel Lemoine: I realize that.

Mr. Hec Clouthier: So this is the same thing that we did in the other deal. We brokered a deal. If you come up and your ID shows that you're a member of the Canadian Trotting Association you don't pay the GST— but McDonald's was getting the GST.

Mr. Michel Lemoine: May I suggest to you that most corporations in Canada would not want to be giving a 7% discount, because that's what you're advocating.

Mr. Hec Clouthier: That's right. You might be surprised at what they'd do if they had the Canadian military—

Mr. Michel Lemoine: For 60,000 patrons, they would believe today they already have those customers. They would not see that as a major improvement in their market share.

BGen Isidore Popowych: In addition to the retail arguments so eloquently described by the president of CANEX, I will address the philosophy underlying where you're coming from.

As an aside, somewhere in my documents there's a title called MBA, so the good Canadian Forces sent me for a bit of training in business.

The private sector exists for only one purpose and that's to maximize the shareholder's wealth. We on the other hand are a social enterprise. We have a dual role: one is to generate funds and two is to provide a service.

What happens when we are on a base, where there's a relatively small population and, in fact, we may not even make a profit? If that were a pure business entity would it still continue? In the Canadian Armed Forces, because we run the operation, we will provide that service and we would subsidize this through other sources of revenue.

We have to be very careful. We do contract out. We do have concession agreements. Where it makes sense we have it. To holus-bolus give up our ability to provide a service and generate a bit of revenue— I'd be extremely prudent in my analysis. I'm not saying yes or no. We're very careful.

Mr. Michel Lemoine: May I give you one example?

Mr. Hec Clouthier: Sure.

Mr. Michel Lemoine: Have you seen Base Borden? There's a McDonald's restaurant on that base. That it not a CANEX operation. That is a McDonald's, owned and operated by a McDonald's franchisee of McDonald's Corporation.

McDonald's opened that facility in 1989. The first two or three years that franchisee was very happy. Today, McDonald's Corporation has stated very clearly they would never do that again. That facility does not generate the same return even though it has a confined market, a relatively high population base and a good transient population with the training that goes on at that base. McDonald's Corporation, the multinationals to which you refer, got into that situation and regret it. It has not worked.

BGen Isidore Popowych: Assumptions change. The number of recruits, the number of trainees reduced drastically as a result of the government's decision to downsize the armed forces. The rules of the game have changed. Now they're stuck with a contractual agreement.

Mr. Hec Clouthier: Lock them in for a long time. McDonald's has a lot of money.

The Chairman: Throw away the key.

Mr. Hec Clouthier: Throw away the key is right.

Chairman Bob has more questions now.

• 1620

The Chairman: No, I've used up all my time. There are no other questions, I gather?

I just want to thank the witnesses for coming in. I would also like to thank you for your understanding, because I believe you were supposed to appear a couple of weeks ago, and we had to bump you because of Bill C-25. Thank you very much for coming in this afternoon and helping us out in our report.

BGen Isidore Popowych: My pleasure, Mr. Chairman.

The Chairman: The meeting is adjourned.