Federal Government Presence in Newfoundland and Labrador Final Report August, 2006 The Leslie Harris Centre of Regional Policy and Development Memorial University St. John’s, NL A1C 5S7 Acknowledgments This report is the result of an initiative by the Harris Centre. In addition, the Harris Centre provided the financial support for the research undertaken for it; initially this was done via a research grant to Professor James Feehan and later by direct funding. The Research Assistant for this project was Alison Coffin. The report was written by Professor Feehan and Ms Coffin. Melvin Baker, Michael Clair and David Vardy gave helpful comments and advice on earlier drafts. The preparation of this report was also assisted by the cooperation of many federal and provincial officials in responding to requests for information but who bear no responsibility for opinions and conclusions expressed herein. Executive Summary During the years after 1992, the federal government, including its various agencies and Crown corporations, went through substantial expenditure restraint driven mainly by the need to deal with a large and growing public debt. However, with the magnitudes of the job losses, the announcements of closures of high-profile offices, and concerns by provincial government and business groups regarding spending restraint, a perception developed that the adjustments in Newfoundland and Labrador were disproportionate. Heightening the concerns was the timing of these events, as they came when the provincial economy was in very difficult circumstances. This report was therefore initiated by Memorial University’s Harris Centre in order to determine whether such perceptions were consistent with the facts. This report is about federal presence in terms of what might be described as active presence. As such, it does not focus on transfer payments to persons or to the provincial and local governments, nor does it deal with the effects of federal government policy decisions generally. The report, which relies extensively but not wholly on Statistics Canada data, is concerned with documenting: • employment in the province by the federal government and its agencies, including Crown Corporations, and examining how they have changed and comparing those changes to the national trend; • the number of federal government and other federal offices and the issues of office closures, downgrading and transferring of offices to the Maritimes; • the extent of spending by the federal government and its agencies on wages and salaries in Newfoundland and Labrador, both over time and relative to the rest of the country; • federal government spending on goods and services and capital expenditures in the province with a comparison with the national trend; and • spending by the federal government on subsidies and capital transfers to businesses in this province. One of the main conclusions is that the reduction in federal government employment since the 1990s was disproportionately large in this province and there is little evidence up to 2005 to suggest that there has been a turn-around. Also, regarding office location, there appears to be a continuing trend towards shifting offices and higher-level activities to regional centres that are typically in Nova Scotia and New Brunswick. Regarding senior executive positions and the presence of military personnel, the evidence suggests that levels have been disproportionately low for some time with no indication of change. There is also some evidence that from the latter half of the 1990s until 2002, there was a relative decline in the share of federal spending on goods and services as well as capital expenditures taking place in the province. This is consistent with provincial government and local business concerns over federal government procurement. On the other hand, the proportion of federal government outlays on assistance to businesses through subsidies has been somewhat higher than the province’s share of the national population. Capital transfers in support of Hibernia’s development were substantial prior to 1997 and since then have been modestly more than the province’s share of the national population. The overall conclusion is that the most pronounced aspect of the change in federal presence has been the decline in federal government employment and the associated downsizing, downgrading and closure of offices. Table of Contents I. Introduction ................................................................................................................. 1 I.a. Background ................................................................................................... 1 I.b. Scope of this Report .................................................................................... 3 II. Background on the Provincial Economy .................................................................... 5 II.a. Unemployment and Population Loss ........................................................... 5 II.b. Other Key Aspects of the Provincial Economy ............................................. 8 III. Employment ........................................................................................................... 13 III.a. Federal Government Employees .............................................................. 13 III.b. Executive Employment ............................................................................. 18 III.c. Military Personnel ...................................................................................... 19 III.d. Employment in Federal Government Enterprises ..................................... 21 III.e. Synopsis ................................................................................................... 23 IV. Federal Offices ...................................................................................................... 25 IV.a. Federal Offices in Newfoundland and Labrador ....................................... 26 IV.c. The Location of Federal Agencies with National Mandates ...................... 31 IV.d. Synopsis ................................................................................................... 32 V. Wages and Salaries ................................................................................................ 35 V.a. Wages and Salaries of Federal Government Employees .......................... 35 V.b. Wages and Salaries: Federal Government Business Enterprises ............ 39 V.c. Synopsis .................................................................................................... 42 VI. Spending on Goods and Services, Capital Expenditures, and Subsidies and Capital Transfers .................................................... 43 VI.a Current Expenditure on Goods and Services ............................................ 44 VI.b. Capital Expenditures ................................................................................ 47 VI.c. Subsidies and Capital Transfers to Business ........................................... 49 VI.d. Synopsis ................................................................................................... 53 VII. Conclusion ............................................................................................................ 55 Appendix ...................................................................................................................... 57 I. Introduction In recent years, a widespread perception has developed in Newfoundland and Labrador that there has been a substantial and systematic reduction in federal government employment and services. The purpose of this report is to investigate whether that perception is consistent with the facts. Subsection I.a of this Introduction gives a brief summary of the events that have given rise to these opinions on federal presence. Subsection I.b then further explains the role and scope of this report. I.a. Background In the early 1990s, the federal government was faced with large fiscal deficits and a growing debt. It therefore launched a series of measures during the remainder of the 1990s that were intended to improve its fiscal position. One of the measures was a reduction in the size of the federal public service. To varying degrees, those measures, including the reductions in federal government employment, affected all parts of the country. The concerns in Newfoundland and Labrador, however, appear to go beyond the federal government’s nationwide belt-tightening of the 1990s. The sense among many is that the reductions in employment and spending here were disproportionately large and that many important public services were eliminated. An internal provincial government report, which was completed in 1999, cited evidence to that effect. That study, which dealt with employment, found that there has been a 32.5% reduction in the number of federal departmental public service positions in the province between 1995 and 1999; it pointed out that the national average decline was lower, at 17.4%.1 At various times individual communities and representatives of sectors of the economy have pointed to cut-backs in federal jobs or services that have had an adverse effect on them. For instance, in recent years, there was considerable controversy in the wake of the news of the closure of the Gander Weather Office, the movement of a number of Department of Fisheries and Oceans positions outside the province, the uncertainty surrounding the military base in Happy Valley-Goose Bay, and the announcement of the closure of the Cool Climate