Watching the Numbers

My fight to set up Parliament’s first budget office

In March 2008 I became Canada’s first parliamentary budget officer. It was a great honour. Truth be told, I did not want that honour. I do not think most governments want more accountability. They talk the game but they do not walk the walk. This is true of the current Conservative government.

It was the best five years of my public service career. It is funny how life works. You take a job you do not want and it turns out to be a great experience. I got to work with a very strong team of public servants who wanted to build a true legislative budget office for their parliament, for their country. They wanted to reshape ideas about fiscal transparency and analysis to support decision making.

It was a five-year appointment. I was effectively appointed by the prime minister to watch over his budget making on behalf of Parliament. I would work “at pleasure” of the prime minister. This does not make sense. The purpose of a legislative budget officer is not to create pleasure for the prime minister. Notwithstanding a mandate for independent analysis, my office would be located in the Library of Parliament. The position of the parliamentary budget officer was afforded a large legislative mandate, which would connect him or her to Parliament. He or she, however, would report administratively to the parliamentary librarian. In a political environment of fear and intimidation, the librarian would be put under pressure to use administrative mechanisms to interfere with the independence of the analysis of the budget officer. This happened.

The experience and the future of the Parliamentary Budget Office can be told with the help of three quotes from three historical figures. Tom Fuller, the English clergyman and historian, said, “All things are difficult before they are easy.” Albert Einstein, the famous physicist, said, “In the middle of difficulty lies opportunity.” And George Bernard Shaw said, “Progress is impossible without change.”

 “All Things Are Difficult Before They Are Easy”

Setting up the first ever legislative budget office was a very challenging experience. There were many questions: What was the business model? Do we work for Canadians or members of Parliament? How do we ensure independence of our work? Given the small budget, how do we ensure adequate coverage of expertise and material for parliamentarians? Given the culture of secrecy in Ottawa on all matters related to budgets, how would the legislative budget office secure access to information and expertise to carry out its work? All these questions played out in the context of legislation that was clearly inadequate and problematic.

The genesis for a legislative budget office was long in the making. Opposition parties regularly complained about the inaccuracy of budget forecasts and their impact on public policy. The Finance Department underestimated budget deficits in the 1980s and then underestimated surpluses in the 1990s and for much of the first decade of this century. The opposition parties raised concern about the lack of upfront financial due diligence of many large-scale projects such as the gun registry. We had an auditor general to look at how money was spent after it was spent. Would it not be appropriate for Parliament to have access to expertise to provide financial due diligence before money was spent? Moreover, members of Parliament have often expressed frustration at the difficulty of understanding departmental spending plans. They wanted help before they voted on planned departmental appropriations.

The idea of a legislative budget officer came from the Conservative Party in Canada. It was part of their platform in the 2006 election. I was told that they wanted something like the Congressional Budget Office in the United States. CBO has had a stellar reputation for high-quality independent economic and fiscal analysis since its creation in the mid 1970s. When the Conservative Party formed a minority government in 2006 it moved forward with the Accountability Act. The position of the parliamentary budget officer was formed with the passage of the act in December 2006. There was no rush to appoint the first budget officer. I was appointed a year and half later. Nobody wanted the job. It was set up for failure.

In addition to the weak legislation, as previously noted, the officer was given a big mandate with a relatively small budget. The legislative mandate called for independent analysis on economic trends, the country’s finances, scrutiny of the estimates and costing. For this mandate, the officer was given a budget of $2.8 million. Relative to other budget offices that existed or were being formed at the time, this was considered quite small.

The challenge was to build a business model, mission and brand that would allow the office to punch above its fiscal weight. Here, we received some very good and early advice. From the deputy director of the American CBO, Bob Sunshine, we were given three points to consider: quality first, communication skills and the willingness to get tough because the independence and integrity of the office was going to be challenged. Sunshine, a brilliant U.S. public servant, was right on all counts. From Barry Anderson, a former senior official with the International Monetary Fund, the CBO and the Organisation for Economic Co-operation and Development, we were told that “cement dries quickly.” We needed to start the office with a strong business model.

The business model built at the PBO was the antithesis of the current public service in Canada: lean, analytical, open and web-based. We would be completely transparent. We would publish everything we produced on the PBO website. We would take our economic and financial skill set to wherever the expertise could be found. We would put the names of the authors of the work in the report. We would put the names of the peer review experts on the paper. They provided their expertise to Parliament and Canada for free. We had to be lean because the budget was so small.

The mission of the PBO was to promote fiscal transparency and the use of quality financial analysis by MPs. On this, we would be fearless. We would take on any project that would move these yardsticks forward. Our values and ethics would be embedded in this mission. We would not compromise.

Expectations for the office were very low, always a mixed blessing. I was told by a Cabinet minister that virtually nobody would be interested in financial analysis on the Hill. I was told by the speakers and librarian to keep my head down. These were peculiar bits of advice. Why would nobody be interested in how we spend taxpayer money? Is this not a fundamental responsibility of our elected representatives? Could we not find a way to make financial analysis interesting and accessible? If Parliament was broken, how could we fix it by keeping our heads down? Low expectations were a problem because, even though we consulted on the PBO business model and mission and brand, once we started to produce work of value, the controversy heated up very quickly. The government did not want the production of information and analysis that could be used to hold it to account. At least one opposition party, the Liberal Party, was thoroughly unconvinced that it would want a legislative budget office if it was in power. Low expectations in this environment meant that when you exceeded them you would not be rewarded for good work. You would instead be criticized.

I am not sure that things got easier, but we found clarity. Our PBO mission felt important to us. We were ready for challenge. Ironically, the frustration among many public servants with the lack of financial analysis that was bubbling up to deputy ministers and Cabinet ministers created an opportunity to hire some of the very best financial talent in Ottawa. People who came to PBO wanted to build something special and different and badly needed. People such as Mostafa Askari, Sahir Khan and Pat Brown signed on early. They attracted others to join. As Warren Buffet says, “Hire good people, then look out the window.”

“In the Middle of Difficulty Lies Opportunity”

While I am sure Albert Einstein was not thinking about building a legislative budget office when he made that statement, there were many moments over my five-year mandate when we were confronted with difficulties that needed to be turned into opportunities. It became a business philosophy.

When I was appointed in 2008 there was a minority parliament. In a minority parliament, my old boss Scott Clark, former deputy minister of finance, would say “Politics trumps policy.” Partisan politics is at a premium. Parties are ready for an election. Every financial bill is a vote of confidence where the government could fall. This was a difficult environment in which to launch a legislative budget office. But that simply added pressure to make sure our work was of high quality and authoritative. If a government was going to fall on a financial issue where PBO provided analysis, one better make sure that the analysis was rock solid. Therein lay the opportunity.

PBO’s very first project was the costing of Canada’s engagement in the Afghanistan war. We got that request from Paul Dewar, a member of the NDP. We were only a handful of people in the office and it was an unprecedented fiscal analysis that would test every ounce of energy of our staff. The principal authors (Sahir Khan, Ram Mathilakath, Ash Rajekar) saw nothing but opportunity. They worked with colleagues in the United States and across Canada and developed a detailed methodology. This methodology and the data and assumptions would be peer reviewed by a panel of international experts. We would release it on our website that the Library of Parliament did not want us to have. When requested by the prime minister and all the leaders of federal parties, we would release the report in the middle of the 2008 fall election—controversial timing. We released it because it was in the public interest to know how much taxpayer money was spent in Afghanistan—between $14 billion and $18 billion up to 2010–11. The office was launched. The analysis stood the test of time.

In the fall of 2008, the world financial crisis became a reality and the Canadian economy would experience its first recession in almost 20 years. Output was declining and jobs were being lost. After eleven years of balanced budgets and surpluses at the federal level, we were about to experience deficits. This was a difficult environment for Canadians. Ironically, it was an opportunity for the newly launched PBO. Parliamentarians needed alternative views in this environment of great uncertainty. PBO came out early with a contradictory view to the government’s. We projected a
recession and a deficit while the government was holding out hope for a better outcome. We were better positioned to explain the depth of the recession and the case for stimulus to Parliament.

Shortly after we released those first fiscal projections, PBO received news from the librarian that our budget would be cut by a third from planned levels in 2009–10. While it is difficult to argue that a budget cut is an opportunity in disguise, it made it clear that, after two strong reports, the government and the Hill bureaucracy were determined to clip the wings of the newly minted legislative budget office. Our open and transparent business model clashed with the confidential business model employed by the library. The government was not comfortable with analysis that would contradict its messages. At a House Finance Committee in early 2009, I was asked what the impact of the budget cut would mean to PBO’s capacity to deliver on its legislative mandate. I said the cut would not allow us to deliver on the mandate. And, taking a deep breath, I indicated that I was prepared to shut down the office if the planned budget was not returned.

The cut to the PBO budget and the controversy surrounding its business model was steered toward a joint committee of the Library of Parliament. Some called this a kangaroo court. Here the government and some members of the Liberal Party were able to exert pressure on PBO to adopt a Library of Parliament business model. But the library is not a legislative budget office. It provides largely confidential research services to members of Parliament. PBO was created through the Accountability Act and in the spirit of that act, it cannot be secretive. It provides financial due diligence before Parliament votes on appropriations or tax legislation. This work can be inherently controversial. PBO independence was at stake. Not independence from Parliament, but independence in the analysis provided to Parliament. Parliament needed to know that the work released by the budget office was not the product of interference from bureaucrats or elected representatives.

The joint committee drafted a report that recommended that the PBO not release products unless MPs agreed to do so. In such an environment, PBO officials could work months on an important report that would never be released to Parliament and Canadians unless the members who had commissioned the report liked the analysis. In such an environment, PBO work would be seen as partisan very quickly. In response, I drafted a work-around to the confidentiality provision. For all future reports the terms of reference on the project undertaken by the office would contain provisions on whom PBO would need to consult to undertake the work and how the work was going to be released. So in the middle of difficulty we found an Einsteinian opportunity to explain that there is no accountability without transparency.

There were other opportunities. PBO started producing long-term sustainability analysis in 2010 while the economy was still climbing out of a difficult recession. We wanted to know if we had a fiscal structure in place that would stabilize debt relative to the size of our economy in the face of aging demographics. We found there was a modest fiscal gap at the federal level. With subsequent releases we expanded this analysis to include the provinces and territories and local governments and eventually to include the Canada and Quebec pension plans. When the government indicated that it would change the rate of spending growth on the Canada Health Transfer, PBO was there to explain the impact on the provinces. When the prime minister went to Davos in Switzerland to tell Canadian seniors that the Old Age Security Program was not sustainable, PBO was able to use its analysis to indicate that it was (after the change to the CHT). Eventually, Finance Department analysis would be released to confirm PBO findings.

In the middle of difficulty, you can find opportunity. The government and the public service vacated this analytical space. We took it up.

On the revenue and expenditure analysis side of the legislative mandate of the PBO, we had ample opportunity to demonstrate value. PBO undertook to estimate the funding requirement for aboriginal educational infrastructure. This was a great opportunity to show the power of capital budgeting and highlight the federal funding shortfall. On the costing of the Truth in Sentencing Act, PBO had a chance to reveal the heavy treasury costs of incarceration. On the F-35 fighter plane, PBO got to show Parliament for the first time what a life-cycle costing looked liked. On the costing of the proposal for joint support ships, PBO demonstrated that the government was not setting aside sufficient resources against the requirements of the project.

During the period of economic weakness, PBO analyzed the flow of money under the economic stimulus program. A very smart student, David Pinet at the University of Ottawa, was able to put together a model to create pressure on the federal government to extend the deadlines of the Infrastructure Stimulus Program. The program was cost-shared with provinces and municipalities, and if the program deadlines were not extended, the provinces and municipalities would be on the hook. Later when the opportunity afforded itself, a senior PBO analyst and another very smart student, Carleton University’s Darren Roberts, would build a database to track departmental spending against the original authorizations provided by Parliament to the executive. It was a database that was built for about $30,000. It was a database that we wished we had had during the stimulus years. The Globe and Mail called it “democracy’s database.” I will not forget the look on that very smart student’s face when he read that editorial.

After the Conservatives achieved a majority government in 2011, they moved forward with significant spending restraint to get rid of a structural deficit they had created. They wanted to get back to budget balance before the next federal election in 2015. The fact that the Liberals had overseen a decade of balanced budgets while their reign was one of deficits was, I suspect, too much for them to handle. It was not for PBO to question the wisdom of restraining spending while the economy was operating below potential. While we did provide analysis on these impacts using Finance Canada (multiplier) estimates, our main goal at the time was to provide Parliament with analysis of the quality of departmental spending plans. Was there significant fiscal risk? Was there significant service level risk?

When PBO asked deputy ministers for their spending plans, we were told on multiple occasions that we would not see this analysis. Very few accountability officers (and those largely agents of Parliament) provided PBO and Parliament with the requested plans. Eventually Cabinet ministers said that PBO was exceeding its mandate. The government was effectively asking Parliament to vote on departmental appropriations without knowledge of the departmental strategy to maintain or alter service levels. In response to a request from the Leader of the Official Opposition for analysis of government spending restraint, we had no choice but to say it was not possible because there were no plans consistent with the budget. Departmental spending tabled in Parliament after the 2012 budget did not show the spending reductions. PBO went to federal court to seek a reference opinion on whether it is entitled to see this information so that it can carry out its duties under its legislative mandate. The federal court argued that PBO must go back and seek this data once again and the federal government must respect the act of Parliament and the mandate of the PBO. The saga continues. No transparency means no accountability. The system is broken.

 

“Progress Is Impossible Without Change”

The short-term future of the Parliamentary Budget Office is in doubt. This was inevitable given the weakness of the legislation. The current budget officer is a fine civil servant but he has no experience in working on a budget and has no experience in working at a central agency that produces a budget. The process to select the budget officer was secretive and politicized. The chief of staff of the government house leader was on the committee. There were no members from other political parties. A senior official from the Privy Council Office was on the committee. PCO supports the prime minister, not the legislature.

Nonetheless, in my opinion, the long-term future of the PBO is strong. The future is transparency and evidence-based decision making. The legislative fixes for the PBO are relatively simple to correct—changes to appointment, tenure and independence. If Canadians want a true legislative budget office in the future, they need to tell their federal candidates so in the 2015 election. Democracy works.

 

As for me, I am now at the University of Ottawa as the Jean-Luc Pépin Research Chair. The late U.S. senator Ted Kennedy famously said in his 1980 speech to the Democratic National Convention, “The work goes on, the cause endures.” I have an amazing opportunity to work with the next generation of leaders. I do not want to let them down. They need to be ready to lead and rebuild our democratic institutions.

The president of Ottawa University, Allan Rock, is committed to building a school of government for Canada. Why should the U.S. have great schools of government like the Kennedy School at Harvard, while Canada goes without? There is a need to reconnect our institutions of higher learning with our parliaments. We can start tackling those longterm issues related to health care, the environment, income inequality and many others in a way that energizes political debate and decision making.

I want to help build an institute of fiscal studies within the school of government. Again, both the United Kingdom and the United States are well stocked with institutes that provide independent public finance analysis, while Canada is not. We can provide authoritative analysis on the important crossroads policy initiatives that are critical for long-term Canadian prosperity, as well as taking on specific projects to help legislatures at all levels both in Canada and abroad. The work has started.

We are using students to tackle issues and demonstrate their skills with potential future employers. The business model is sound; the need and opportunities are significant. But of course, like the future school of government at the University of Ottawa, we will need financial help to build the capacity. I believe strongly that this is an initiative many Canadians will consider worth supporting.