Baloney Meter: Could an NDP government really find $600M in savings?
Friday, May 30, 2014 07:45 am
OTTAWA - "I'm the sort of New Democrat who also believes we need to count the pennies. There is a lot of waste in the system — I know that for sure."
— Ontario NDP Leader Andrea Horwath, May 14
If her party wins the provincial election, Ontario NDP Leader Andrea Horwath has promised to appoint a minister to find $600 million in annual savings, starting in 2015-16 — 0.5 per cent on a provincial budget of around $120 billion.
Is it realistic to find those kinds of savings through the measures the NDP is proposing?
Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements that culminates in a ranking of accuracy on a scale of "no baloney" to "full of baloney" (complete methodology below).
This one earns a rating of "a lot of baloney." Here's why.
To find hundreds of millions of dollars in annual savings, the NDP says it would:
— Reduce ministers' office budgets and cut the size of cabinet by one third;
— Merge government agencies that overlap;
— Cap the salaries of public-sector executives.
Besides those measures, which are listed in the NDP's campaign platform, a party official — speaking anonymously because he wasn't authorized to discuss the matter publicly — described where additional savings might be found.
Combining procurement for some departments and agencies, such as health integration networks and community care access centres, would increase the government's buying power and cut costs, the official said.
How much would an NDP government save? First, let's look at cutting ministers' office budgets and the size of cabinet.
Before the campaign began, the Liberal cabinet consisted of 26 people, including Premier Kathleen Wynne. To shrink that cabinet by one-third, eight people would have to go.
In Ontario, the annual base salary for a cabinet minister with a portfolio is $165,850. Cutting eight such ministers would save at least $1.3 million, although actual savings would be higher with benefits and other compensation included.
For a minister without portfolio, the base salary is $138,927. Cutting eight of them would save $1.1 million, again not including benefits.
Eight fewer cabinet ministers would also mean fewer staffers, but the official says the party has not factored that in. Nor does the NDP know how much could be saved through combined procurement.
Next, let's see how much money the government could save by consolidating government agencies that overlap.
Ontario has more than 560 agencies, boards, commissions, councils, authorities and foundations. The NDP official says the party has not reviewed each department or agency, but he offered the province's energy sector as an example of overlap.
Five separate agencies run the province's energy system: the Ontario Power Authority, the Independent Electricity System Operator, Ontario Power Generation, Hydro One and the Ontario Energy Board. All but the Ontario Energy Board, which is a regulator, could be combined to save money, the official said.
Just how much is unclear.
The four electricity agencies each have total operating budgets of more than $4.5 billion, said the official, while in Quebec, the amalgamated Hydro Quebec utility has annual operating expenses of $2.4 billion.
Consolidation would also reduce the number of highly paid executives, he added.
That's a good segue to the NDP's next measure, capping the salaries of public-sector executives.
The NDP hasn't given a number for the cap, but last year the party wanted CEO salaries at hospitals, utilities and other public-sector agencies capped at $418,000, twice the premier's annual salary.
For some top public servants, that would be a gigantic pay cut. At the top of the heap, Ontario Power Generation CEO Tom Mitchell earned $1.7 million last year. Another 151 public servants in Ontario earned more than $418,000 in combined salary and benefits last year.
Let's assume the NDP still wants combined salaries and benefits capped at $418,000. If all 152 were brought under that cap — and assuming they didn't all quit — it would save the government nearly $15.5 million a year.
The savings would probably be higher than that, because some salaries are a percentage of the highest earner in the organization, the official said. So if the top earner is making less, others in the organization would see their paycheques shrink as a result of the trickle-down effect.
All in all, many question marks remain — notably, just how much the NDP expects to save by reducing ministers' office budgets and cutting staff, combining procurement and merging agencies.
We do know that capping the pay of public servants and cutting cabinet by a third would only save the government close to $17 million a year.
That means the NDP still has to find savings of almost $583 million in the other areas to reach its annual goal of $600 million.
The official said the party's $600-million target is actually modest. He points to the recent Liberal budget, which had an annual program review savings target of $250 million for 2014-15 and $500 million for each of the next two years. Finding another $100 million in savings is doable, he said.
One last thing: suggestions that the new savings minister would have no staff are incorrect. Treasury Board staff who now serve the finance minister would be reassigned, the official said.
WHAT THE EXPERTS SAY
"The idea that they can get this kind of $600-million-a-year savings easily, I think, is far-fetched," said McMaster University economics professor Michael Veall.
If there are any savings to be found by combining procurement and government organizations, they would likely still fall short of the NDP's $600-million goal, he said.
Veall agreed much of the money saved by a cap on public servants' salaries and cutting the size of cabinet would be a one-off — and those two measures only account for a small portion of the NDP's overall annual savings goal.
Finding $600 million a year between 2015 and 2018 would be a tall order, he added.
"After that, where do you get the next $600 million? Repeated cost savings of that magnitude are not easy."
Mostafa Askari, assistant parliamentary budget officer at the federal level, stressed that he did not want to weigh in on the Ontario election or any of the parties' positions.
However, as someone who has closely scrutinized the federal government's spending, he did have some insight into how one would arrive at a savings target.
"What happens typically if you start with a number and then you go about finding that number, you may end up with a situation where you may find it hard to get to that number, or it may be difficult to find the areas where you have to cut," Askari said.
"At the end of the day ... they do across-the-board cuts, which is the worst thing one can do, because then you are essentially cutting everything, whether efficient or inefficient. You are cutting it essentially by the same amount."
Consolidating operations may lead to some savings, he said — as long as it's done properly.
"At the very high, theoretical level, when you consolidate you are hoping to get some efficiency," Askari said. "Whether that happens or not, that's a different question."
There's often a big upfront cost to merging agencies, said Mike Moffatt, an economist with Western University's Ivey School of Business in London, Ont.
"Like anybody who's done any sort of mergers and acquisitions knows, there's a big upfront cost in doing that," he said.
"You're trying to merge two organizations, two institutions under a single banner, a single name, a single set of stationery. There tends to be an upfront cost and then, possibly, savings down the road. So how they're going to do that and start saving money immediately is not at all clear to me."
He also questioned how the NDP arrived at its savings goal.
"To be able to say: 'OK, there's waste in the system, but we don't know what the waste is until we have this minister, but we know it's going to be approximately $600 million,' that's hard to believe."
Most of the $600 million the NDP aims to save would have to come from combining procurement, merging agencies and cutting ministers' office budgets. The experts agree: that's a tall order.
But the NDP plan does not show in any detail exactly how much money would be saved through each measure, and many calculations have yet to be done. Indeed, the $600-million figure is largely based on the annual program review savings target in the last Liberal budget.
For these reasons, Horwath's claim contains "a lot of baloney."
The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:
No baloney — the statement is completely accurate
A little baloney — the statement is mostly accurate but more information is required
Some baloney — the statement is partly accurate but important details are missing
A lot of baloney — the statement is mostly inaccurate but contains elements of truth
Full of baloney — the statement is completely inaccurate
Ontario NDP platformhttp://ourplan.ontariondp.ca/?source=homepage#plan
Ontario MPP and cabinet ministers' salarieshttp://www.parl.gc.ca/parlinfo/Documents/ProvincialIndemnities/SAL-ONT.pdf
2014 Ontario budgethttp://www.fin.gov.on.ca/en/budget/ontariobudgets/2014/ch2f.html#t2-24
Public Sector Salary Disclosure 2014http://www.fin.gov.on.ca/en/publications/salarydisclosure/pssd/