Andrew Perez

THE DIAGNOSIS

Ontario is in a funk. Enter technocrat Don Drummond, the former federal mandarin tasked with writing a seminal report for the McGuinty government. The undertaking: revolutionize the way in which public services are delivered in Ontario. Never in recent memory has a government-commissioned report – a two-volume, 668-page document at that – garnered so much anticipation and pervasive speculation among the chattering classes. The refrain ‘Waiting for Drummond’ –popularized by a YouTube video produced by the public affairs program The Agenda with Steve Paikin – cleverly poked fun at the feverish anticipation surrounding the release of Mr. Drummond’s  report on February 15^th.

But in many respects, this is merely ‘the end of the beginning,’ as Toronto Star columnist Martin Regg Cohn aptly put it in a recent column.  Now that Mr. Drummond has terminated his unrelenting work on The Commission on the Reform of Ontario’s Public Services, it will now hinge upon Dalton McGuinty’s Liberal government to ‘operationalize’ Drummond’s most pertinent recommendations. To that end, this is a watershed moment in Ontario politics. “Don Drummond’s report on reforming Ontario’s public services is the most significant blueprint for government reform ever seen in Canada”, says Tony Dean, the former Secretary of Cabinet and Head of the Ontario Public Service from 2002-2008.

And yet support for Mr. Drummond’s influential report is by no means unanimous in public policy circles. Armine Yalnizyan, a senior economist at the Canadian Centre for Policy Alternatives, says the report is laced with a ‘$30-billion scare tactic’ – a direct reference to Mr. Drummond’s warning that Ontario is on pace for a $30-billion deficit and a debt-to-GDP ratio above 50 per cent by 2017-2018 if no action is taken. The suggestion here – one that Ms. Yalnizyan pointedly rejects – is that to avoid financial ruin, the province must slash public spending to a degree that will dwarf the cuts made in the early years of the Common Sense Revolution.

In spite of the mostly ideological debates that exemplify the lack of consensus surrounding the report, it is difficult to quibble with the fiscal diagnosis that Mr. Drummond laid at the government’s feet: that is, Ontario’s economy is vulnerable to external shocks, including those of the Eurozone debt crisis, the weakening of the global economy, and a heavy reliance on the fragile U.S. economy. Moreover, government expenditures are projected to outpace government revenues in 2011-2012; more explicitly, government revenues are projected to be $108.3 billion while expenditures are forecast to be $124.1 billion in 2011-2012. As Mr. Drummond stipulates, the projected 2011-2012 deficit is forecast to be $16 billion – 2.5 per cent of GDP – while the net debt is expected to soar to 238.4 billion: an increase of 56 per cent compared to 2005-2006.

Irrespective of these daunting figures, the McGuinty Liberals are intent on safeguarding an activist policy agenda: one that includes the likes of full-day kindergarten, generous tuition grants for post-secondary education, and robust social supports for the most disadvantaged among us. And so it’s within this ideological framework that Mr. Drummond was handed his mandate; in this vein, expect Mr. McGuinty to eschew the unsophisticated solutions emblematic of Mike Harris’s neo-liberal era – draconian cuts, across-the-board wage freezes, and considerable asset sales that produced temporary revenues – in favour of long-term efficiencies. In other words, almost every public service in the province will be rigorously assessed against a rubric that stresses ‘evidenced-based policy’, integration of services, and merit-based hiring practices where productivity is plainly rewarded and lack thereof is penalized.

THE TREATMENT

As it becomes readily apparent when sifting through the report, Mr. Drummond cloaks many of his findings in ‘reimagining how public services are delivered’ lingo. To be sure, this axiom has almost become engraved in the minds of senior public servants and influential political aids; to that end, the ‘reimagining ethos’ is the common thread interwoven throughout the document.  In it, Mr. Drummond examines a multitude of policy silos and government programs, charting 362 recommendations in total. It’s anticipated the government will cherry-pick from these recommendations, executing only those deemed politically palatable.  Following the release of Budget 2012 in late March, expect the government to move swiftly with muscular reforms in the following areas:

Public Education

The Drummond report’s 57 education recommendations amount to a forensic audit on several of the government’s flagship initiatives. While Mr. Drummond suggests modest spending increases – 1 and 1.5 per cent respectively – for elementary/secondary and postsecondary spending, the report also includes some thornier prescriptions.

Since coming to office in 2003, Mr. McGuinty has justifiably hung his hat as the ‘education premier’; true to his electoral commitments, he has presided over unprecedented investments in public education. In spite of the Liberals’ penchant for human capital investments, Mr. Drummond leaves no stone unturned in the education chapter of his report. Says Drummond: “We recommend the cancellation of the Full-Day Kindergarten (FDK) program with appropriate phase-out provisions.” But having already passed the baton, it’s now clear the Liberals will march to their own drummer; this was, perhaps, most evident when Finance Minister Duncan took to the airwaves in recent weeks repeating the refrain: “the commission advises, we decide.”

That being said, watch for the government to delay implementation of the FDK program from 2014-2015 to 2017-2018 and reduce FDK costs by adopting a more affordable staffing model of one teacher for about 20 students, rather than a teacher and an early childhood educator for 26 students. In fact, Drummond advises as much in his report: acutely aware the government is unlikely to heed his advice on scrapping the entire program, he provides, what is in his view, the next best option for the government.  And while temporarily delaying implementation of the FDK program may prove unpopular, watch for Mr. McGuinty to turn to his sturdy Education Minister, Laurel Broten, to stickhandle this thorny issue over the comings months and years.

Another signature policy put through the grinder by Mr. Drummond and his commission is that of small class sizes in the formative years. Over the previous nine years, the government’s principal strategy to improve student achievement has been to reduce class sizes in primary schools (JK – Grade 3). In fact, some 90 per cent of classes now enjoy 20 students or fewer and none have more than 23. Albeit, empirical evidence presents a more complex picture; it’s true that Ontario’s recent improvements on provincial assessments and quality indicators have coincided with reduced class sizes, but there is no evidence of causality.  As the report notes: “even if smaller classes had some impact on outcomes, the evidence suggests that investments in smaller classes do not offer the most efficient means for improving results.” Given this lack of convincing empirical evidence, Drummond recommends the province’s scarce resources not to be applied to reducing class sizes.

Will Mr. McGuinty adhere to Drummond’s cautious advice on class sizes? The short answer:  yes.  Increasing the class-size cap by two or three students in primary classes will be strongly considered by the government. Watch for the government to increase the cap for primary schools from 20 to 23 students and increase the class-size averages in junior/intermediate schools from 24.5 to 26. And while Mr. McGuinty may be reluctant to renege on some of his legacy commitments, expect these reversals to be among the least painful decisions he will be confronted with in the lead up to Budget 2012.

Labour Relations & Compensation

 Labour peace has been a staple of the McGuinty government’s nine years in office, but it was not established without a considerable price tag on the part of the public purse. Currently, there are over one million employees in the broader public service (BPS) – approximately 70 per cent of whom are unionized, compared with 15 per cent in the private sector. According to Drummond, labour costs account for approximately half of all Ontario government spending; as such, the commission’s target of 0.8 per cent overall program spending growth cannot be attained without moderation in the growth of public-sector total compensation. Translation: the government will need to come to the bargaining table armed with a public sector compensation restraint strategy that includes public pensions, salaries, and employee benefits.

Mr. Drummond also shrewdly suggests the province strongly consider raising the retirement age for teachers. He points out the typical teacher retires at age 59 – having worked for merely 26 years – but then collects a pension for 30 years. Based on this logic, Drummond recommends the government reject any further employer rate increases to the teachers’ pension plan and instead calls for reduced benefits. This all sets the stage for potentially acrimonious negotiations when teachers return to the drawing board to negotiate a new contract later this year.  Add to that another mammoth collective bargaining agreement up for renewal: that of the province’s 25,000 physicians. Says Drummond: “Ontario’s doctors are the best paid in the country, so it is reasonable to set a goal of allowing no increases in the total compensation envelope.” In other words, across all departments it is recommended there be zero budget increases for wage costs; what is more, any increases must be absorbed by departments finding savings elsewhere.

But in spite of the strong language referenced above, Mr. Drummond is quick to return to his ultimate goal: the nurturing of a highly competent public service working at a high level of productivity and delivering excellent public services. In this regard, tactics geared toward short-term fiscal gains – namely wage freezes and limits to new hires – ought to only be executed as last resorts, for these measures all too often damage labour relations, says Drummond. Most importantly, the report proclaims: “there should be no ideological or other bias towards or away from public or private-sector delivery of services, only a consideration of practical logic.”

Expect the government to follow the broad strokes of what Mr. Drummond proposes in the labour relations section of his report. Watch for the government to work collaboratively with members of the broader public service and bargaining agents to reach compromises that recognize the fiscal reality. Anticipate that the government will provide employers with the latitude to adopt and maintain iron-clad positions in the face of disagreement and disruption, while remaining results-oriented.

Intergovernmental Relations & ‘Ontario’s Campaign for Fairness’

One aspect of the Austerity Czar’s report that has garnered noticeably less media scrutiny is that of the intergovernmental environment Ontario must operate within. As Globe and Mail columnist John Ibbitson recently opined, things have become so dyer in the previous decade that the province has become two Ontarios. Says Ibbitson: “The first Ontario is Toronto, a Canadian New York whose economy is powered by financial services, education, biosciences, cultural industries, tourism, and more.” But says Ibbitson:“Outside Greater Toronto is a whole lot of Ohio, as the manufacturing sector follows other Great Lakes economies into rustbelt status.”

Independent of these facts, Ontario continues to finance the social programs that many provinces depend on. Its taxpayers contribute 39 per cent of federal revenues, but receive only 34 per cent of federal spending in return. Moreover, each year, 2 per cent of the province’s GDP – or $12.3-billion – bleeds to the rest of the country, even as Queen’s Park ratchets up a $16-billion deficit.  Fortunately, this reality was not lost on Mr. Drummond; he fittingly calls the current situation “a clear demonstration of the perverse structure of Canadian fiscal federalism.” As Ibbitson notes, Ontario voters can no longer afford to finance Employment Insurance programs that favour Atlantic fisherman over laid-off auto workers in southern Ontario.

Provincial Ontario politicians – most notably Dalton McGuinty – have been courting publicity on this important issue since the early 1990s. In fact, Mr. McGuinty has shown leadership, spearheading ‘Ontario’s Campaign for Fairness’ in his first term in office. It’s also an issue federal politicians of all stripes have done a lousy job on, says trusted Liberal strategist Bob Richardson. Fortunately, Richardson notes, Drummond cautions the government on why it can’t afford to lose momentum on this issue. According to the report, the government must forge an understanding with Ottawa as to why federal actions do in fact pose fiscal risks on Ontario. Drummond outlines four major risks:

1.      Changes to the common tax base:  common personal and corporate income tax bases simplify filing. Proposed federal changes to income splitting and Tax-Free Savings Accounts could cost Ontario $1.3 billion in lost revenue.

2.      Changes to Canada’s Criminal Code: changes to the federal Criminal Code will impose new demands on the provincial court and corrections system, adding to the fiscal burden. The Harper government’s omnibus anti-crime bill is expected to result in substantially higher costs for Ontario.

3.      Reducing support for immigration settlement services: in 2005, Ottawa and Queen’s Park agreed to increase funds for immigration settlement services in Ontario. However since then, Ottawa has underspent by more than $220 million under the agreement, reducing potential service to help newcomers settle, integrate, and find work.

 4.      Long-term health costs outstripping federal funding:  the long-run cost of health care will almost certainly grow faster than nominal GDP; moving to a GDP-based growth rate would cost Ontario about $239 million in 2017-2018, but could reach nearly $421 million if GDP growth is below 3 per cent..

Over the coming months, expect the McGuinty government to push hard for a more reliable and predictable federal partner in addressing Ontario’s fiscal gap. Watch for the government to exert pressure on Ottawa to modernize the federal programs that directly serve Ontarians or fiscal arrangements that support provincial services. Having recently received a clear mandate from the Ontario people, it’s likely the premier will bring his fight to Mr. Harper’s doorstep in Ottawa, resurrecting ‘Ontario’s Campaign for Fairness.’ Look for this campaign to pressure Ontario MPs to bring this issue to Ottawa, holding the federal government’s feet to the fire.

THE (POLITICAL) NARRATIVE

As senior Liberal strategists convene in the premier’s corner office on the second floor of the Ontario Legislature in the coming days, they will ultimately be confronted with two confounding questions: one, of the 362 recommendations, which ones will they execute? Two, how will they do so in a manner that is politically palatable? Veteran Liberal strategist John Duffy believes there is a constituency for genuine austerity measures, provided they are cautiously implemented. But public opinion polling may illustrate a different narrative: a recent Forum Research survey reveals unease at the spectre of all-encompassing government cuts.

“Liberal core voters are not on board with this. It’s going to be difficult for the Liberals. The education cuts hit their core supporters,” says Forum president Lorne Bozinoff.  The Forum Research survey revealed, overall, 30 per cent of those surveyed approve of the Drummond report, while 32 per cent oppose it and 38 per cent are undecided. But as avid political followers will know, public opinion polls are merely a snapshot in time. The fact remains these are still very early days in the government’s quest to transform the way in which it delivers public services. Over the coming weeks, look for a highly sophisticated government communications rollout on pending austerity measures. Its objective: to wet the public’s appetite for anticipated reforms across all sectors of government. Watch for the premier’s office to paint the reforms not as the politics of labour versus management, but rather, as pro-consumer politics: the idea that Ontarians are not getting enough in the form of top-drawer services for the tax dollars they dole out. Sold on these grounds, it’s less likely the reforms will ignite ideological conflict.

Dalton McGuinty has fashioned a professional political career as a resilient underdog. Unlikely to seek a fourth term, the premier is relishing the opportunity to tackle yet another determining public policy challenge. Somewhat encumbered by his government’s minority mandate, expect Mr. McGuinty to work constructively with the opposition parties in the lead up to the March 2012 Budget; the strategy will be to effectively neutralize the Drummond Report as a taxing political issue. Ultimately, the goal will be to garner Progressive Conservative and/or NDP support for next month’s budget. Thus far, it appears the opposition parties have not chartered a coherent response to the report’s findings. NDP Leader Andrea Horwath is intent on opposing the entirety of Mr. Drummond’s recommendations, with few exceptions. Meanwhile, Tim Hudak is all over the map: one moment calling on the Liberals not to cherry-pick from the report, the next moment rejecting recommendations that he himself finds politically toxic. Irrespective of the opposition, Mr. McGuinty must forge ahead unabated: he must uncover ways in which to begin rewarding Mr. Drummond’s rigorous analysis and faith in government’s ability to refurbish itself. The alternative – a complete collapse of public services and government revenues – would see Ontario replicate the economic crisis unravelling in Greece.

Bon Courage, Premier.

Andrew Perez is a second-year student in the Master of Public Policy program at the School of Public Policy and Governance, University of Toronto. He holds an Honours Bachelor of Journalism from Carleton University and previously worked for several elected officials of varying political stripes on Parliament Hill, Capitol Hill in Washington D.C., and most recently at Queen’s Park in Toronto.