Budget bill will increase service fees with less accountability, say critics

More on the government’s plans to repeal the User Fees Act and replaced it with the streamlined Service Fees Act (no changes or amendments made by the House FINA committee). The critique by Roy Cullen, the author of the User Fees Act, is revealing:

As the Liberal Member of Parliament for the federal Ontario riding of Etobicoke North from 1996 to 2008, Roy Cullen had the relatively rare accomplishment of having a private member’s bill pass with strong support in both the House of Commons and the Senate.

In 2004, Bill C-212, An Act respecting user fees, received royal assent. The bill was intended to increase accountability, oversight, and transparency for the way in which the federal government sets fees for various services, from providing Canadians with passports to giving them access to national parks.

But the government’s current omnibus budget Bill C-44 proposes to replace the User Fees Act with a Service Fees Act that would come into force next April and which would, Mr. Cullen argues, reduce public-service obligations to justify raising prices to Parliament.

His bill required federal departments and agencies to clearly explain how user fees are determined, and identify their cost and revenue elements, as well as create standards comparable to those in other countries where comparisons are relevant and “against which the performance of the regulating authority can be measured.”

The Service Fees Act is silent on those two points. It also seeks to automatically raise fees every fiscal year by the percentage change in the Consumer Price Index (CPI), which concerns Mr. Cullen.

“Some of these user fees have never been justified in a way my bill required them to be justified,” he explained in an interview this week from Victoria, where he now resides. “They’ve never undergone benchmarking to determine whether they met the performance standards identified in the legislation.”

He recalled that when he was developing the User Fees Act, several departments and agencies sought exemptions on the basis their user fees were “unique” and could not be compared against those charged in other jurisdictions. “In some cases, there was some validity to their arguments, in others, it was just a cop out,” Mr. Cullen said.

However, a 2016 internal Treasury Board document, obtained by CBC News earlier this year under the Access to Information Act, stated that 84 per cent of user fees have not been revised since the User Fees Act was passed. A subsection of the act that would reduce a user fee if it failed to meet its performance standard has resulted in a “disincentive to amend fees,” said the memo to Treasury Board President Scott Brison (Kings-Hants, N.S.), which also noted the “significant time and effort…required to prepare proposals to amend or create fees” under the User Fees Act.

“While fees have not increased over time, costs have. This resulted in an increase in the rate of taxpayer subsidies for government services that benefit private interests.”

Roger Ermuth, assistant comptroller general in the Treasury Board Secretariat, who wrote the memo obtained by the CBC, told the House of Commons Standing Committee on Finance last month that based on information from the latest available departmental performance reports, the federal government collected [in 2014-15] $1.9-billion in user fees, but the associated costs to deliver services were around $3.4-billion.

But he indicated that the goal isn’t necessarily to increase fees by $1.5-billion to close the gap.

Former federal official Andrew Griffith, who served as director general of citizenship and multiculturalism in what is now Immigration, Refugees and Citizenship Canada until his retirement in 2011, believes there has to be a consideration of the public interest in setting and hiking government fees beyond recovering the costs of providing services, as there was with the User Fees Act.

In a brief he presented to both the House and Senate finance committees, Mr. Griffith also recommended that any proposed fee increase in the proposed Service Fees Act that exceeds the annual CPI adjustment and which affects the general public, such as citizenship or passport application fees, should be referred to the relevant Parliamentary committee for review, “rather than the after-the-fact reporting required in the proposed Act.”

He said while the “User Fees Act consultation process and justification requirements may have been too onerous, the Service Fees Act goes too far by removing all meaningful transparency and consultations,” and Mr. Griffith argues that the proposed legislation could have a further impact on citizenship applications whose numbers have decreased from 198,000 in 2014 to 92,000 last year, in part, because of increasing fees, according to his analysis.

In 2014, the citizenship-application processing fee jumped from $100—a price that had remained unchanged for 20 years—to $300 and then $530 later that year after the federal Immigration Department obtained an exemption from the User Fees Act. The first increase was announced in February 2014 when the former Conservative government unveiled Bill C-24, The Strengthening of Canadian Citizenship Act, and was subject to Parliamentary review. The second hike was revealed in a Canada Gazette post just before the Christmas break in December 2014, “all but guaranteeing no one would notice at the time, and resulting in no debate,” Mr. Griffith wrote in his brief.

He added that had automatic consumer price indexing been allowed, the citizenship application fee would have only grown to $150 in 2016. Instead, an immigrant couple must pay $1,060 (plus an additional $100 right-of-citizenship fee each), and $200 for every child, to apply for citizenship.

“Over time, there will be a larger percentage of the population that will remain permanent residents unable to afford citizenship,” Mr. Griffith said in an interview.

“From a policy perspective, Canada has always had the model that we don’t just select immigrants, we try to select future citizens to fully integrate and participate in Canadian society.”

He would like to see the Service Fees Act distinguish between “public benefits,” such as for citizenship applications where the government could split the cost to provide the service with applicants, and “personal benefits,” such as for passport applications where the government could take a full cost-recovery approach in providing Canadians with the travel document.

Source: Budget bill will increase service fees with less accountability, say critics – The Hill Times – The Hill Times

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Former MP and Minister Roy Cullen on the Service Fees Act (Budget 2017 Bill C-44)

Former Minister Cullen’s submission to the Finance Committee’s hearings on the omnibus Budget Bill C-44 and the User Fees Act/Service Fees Act:

It is disappointing and somewhat disconcerting that C 212, An Act respecting user fees, will be repealed and replaced by the Service Fees Act. It took me roughly two years to steer my Bill through Parliament where it received unanimous consent.

I am told that since C 212 received Royal Assent in March 2004, only roughly nine user fee proposals have followed the process outlined in that piece of legislation. For me it begs the question, did Departments/Agencies not believe their proposal would meet the criteria laid out in C-212, or were the user fee proposals not that important? Some parts of C 212 may be somewhat cumbersome and I support any streamlining that will improve the efficiency of the legislation.

With respect to performance standards, will the Treasury Board and TB Secretariat ensure that the performance standards that are proposed by Departments and Agencies are realistic stretch goals and not unambitious targets? Will these performance standards be benchmarked against jurisdictions with similar fees? While I appreciate that, consistent with C-212, consultations with interested persons and organizations are required (Art. 12) and that complaints will be reviewed by a panel (Art. 13), Bill C-212 calls for the department or agency to “establish standards which are comparable to those established by other countries with which a comparison is relevant and against which the performance of the regulating authority can be measured”. {Art. 4(1)(f)}.

Departments will be inclined to set performance standards that they can meet, and in many cases they will be inclined to argue that comparisons with other jurisdictions cannot be made.

Source: https://www.ourcommons.ca/Content/Committee/421/FINA/Brief/BR8953638/br-external/CullenRoy-e.pdf

 

The pendulum swing on government service fees: C-44 Service Fees Act proposal

The recommendations from my  brief to the House and Senate Finance Committees and the related article in Policy Options, based in part of how the previous government was able to increase fees twice within a year with minimal scrutiny:

While it is unlikely that the Commons and Senate finance committees will undertake a serious review of the proposed “Service Fees Act,” the following suggestions would reduce the possibility for potential government abuse of fee setting:

  • Insert a provision that explicitly allows for public interest considerations, rather than just cost recovery, to be applied when fees are set. The Treasury Board included public interest considerations in its guidelines for the User Fees Act. But as a fundamental principle, this should be written into the Act itself, rather than relying on subsequent regulations or guidelines.
  • Require that any proposed increases that are twice the annual consumer price index adjustment, and that directly impact the public (e.g., passport fees, park fees), be referred to the relevant Parliamentary committee for review in advance.
  • Ensure that Treasury Board Secretariat regulations and guidelines reflect these two points as good practices, even if the government chooses not to amend the Act.

While there may have been a need to streamline the consultation process for fee increases, the proposed “Service Fees Act” makes it too easy for government to raise fees without any meaningful public consultation and debate. The government needs to ensure a reasonable balance between efficiency and consultation, particularly for those fees that affect the general public.

Source: The pendulum swing on government service fees

House/Senate Brief: Bill C-44 Division 21: Risks and Implications of the Service Fees Act

Liberal bill would automatically increase user fees for federal services by rate of inflation

This kind of fundamental legislation should not be part of an omnibus bill but needs to be debated separately. As I have written before (The impact of citizenship fees on naturalization – Policy Options), CIC/IRCC obtained an exemption from the User Fees Act for citizenship fees in Budget 2013.

This allowed the department to raise fees twice in one year with minimal consultation and arguably misleading Parliament both with respect to the impact of the exemption (i.e., fee increases would not lead to a decline in applications) and that the second increase (from $300 to $530) was not mentioned during the C-24 hearings in either the House or Senate:

The Liberal government has introduced a bill that would significantly increase the fees that Canadians pay for a variety of federal services, such as campsites, fishing licences and passports.

In an omnibus budget bill brought forward Tuesday, the government proposes a new Service Fees Act that would automatically hike hundreds of fees by the level of inflation each year.

The move would also make it much easier for departments to apply for fee increases to better match the cost of providing services to individual Canadians and businesses. The proposed law is slated to come into effect April 1 next year.

The federal government collected about $2 billion in various fees in 2014-15, the latest year for which figures are available, but estimates it cost $3.4 billion to provide those services — resulting in a massive shortfall of $1.4 billion.

FedBudget 20170322

Finance Minister Bill Morneau’s last budget only hinted at the significant changes in user fees being contemplated. Over the four years, starting April 1, 2018, the government expects to collect $364 million in additional fees. (Justin Tang/Canadian Press)

The measure was briefly mentioned in last month’s budget document, which estimated aggregate fee revenues would increase by $36 million in 2018-2019, and by $147 million in extra revenues by 2021-2022.

The measure does not target specific fees. Rather, it replaces 13-year-old legislation that effectively froze fees by making it too onerous for departments to apply for increases as costs rose.

Federal officials estimate only about 20 per cent of all federal fees are captured by the User Fees Act of 2004. But the new legislation would capture almost all fees, and would require government to report in detail to Parliament each year on the amounts collected versus the cost of providing services.

Opposition critics have called the measure a tax grab, which can especially hurt low-income Canadians.

But a spokesman for Treasury Board President Scott Brison, who is shepherding the new user-fee regime, says the bill would relieve taxpayers of the unfair burden of paying for services enjoyed by individuals and corporations, while it also increases transparency.

Exempts some fees

“The government is always looking for ways to minimize costs for taxpayers and making the fee system transparent,” said Bruce Cheadle.

“We want to give everyone equal access to high-quality government services and we’re going to ensure middle-class Canadians aren’t disproportionately footing the bill for this.”

The new bill exempts some fees from the new regime, including fees under the Food and Drugs Act and some fees considered too small to be material.

The government also suggests that some costs, such as those related to food safety, will not always be fully charged back to users because there is a public good also attached to some government services.

CBC News first reported on the government’s plans in February, citing an internal briefing note for Brison that argued fees have been largely frozen since 2004 as departments shied away from the complex regulatory process of arguing for increases.

The briefing note from August 2016 said 84 per cent of existing user fees have not changed in 13 years, and cover a diminishing fraction of the actual cost of delivering the services.

Despite the fresh measures to increase fees, Brison last year eliminated all retrieval, processing and reproduction fees under the Access to Information Act. And this year, Parks Canada is waiving entry fees for its national parks and historic site to celebrate Canada’s 150th anniversary.

Source: Liberal bill would automatically increase user fees for federal services by rate of inflation – Politics – CBC News

Ottawa looks at user-fee hikes for potential new revenue

While it is appropriate that the government is reviewing the User Fees Act to streamline the process (and increase revenues), there is a risk in providing departments with too much flexibility and too limited public consultations.

A clear case in point is with respect to citizenship fees, set at $100 in 1995.

The previous government obtained an exemption from the Act in Budget 2013 omnibus legislation which allowed it to avoid lengthy consultations and increase the fees to $300 in February 2014 along side Bill C-24’s revamping of the Citizenship Act. The government then did a further increase to $530 January 2015, with the change buried during the Christmas holidays.

This further increase was never mentioned during the Commons and Senate hearings on C-24, highlighting again the risk to public accountability.

There is also the broader risk that the current government may only look at fees from a cost recovery or private interest perspective, and not take into account that some fees reflect a mix of private and public interest.

I have argued elsewhere that citizenship fees have such a mix (see The impact of citizenship fees on naturalization – Policy OptionsC-6 Senate Hearings: Expected Impact on the Naturalization Rate) given the shared interest in encouraging political as well as economic and social integration.

Passports, also part of IRCC, are IMO more of private than public interest, where full cost recovery makes sense. Passport fees are subject to the Act and in testimony, departmental witnesses indicated that it took about two years to obtain approval:

The Liberal government is eyeing the user fees Canadians pay for federal services as a new source of revenue.

Since 2004, fees for everything from fishing licences to campsites have generally fallen farther behind the cost of providing those services. That’s the year the User Fees Act was passed, compelling departments to justify to Parliament any proposed fee increases or new fees.

The requirements under the law have been so onerous, however, that they effectively discouraged departments from applying for increases even as costs rose. The result is that taxpayers are stuck with higher bills for private benefits enjoyed by individuals and corporations.

The federal Treasury Board wants to fix the law to smooth the way for more fee increases, putting the fee-cost arithmetic back into balance — and snaring fresh revenues that could be worth millions of dollars.

The wide-ranging initiative, called the Modernizing of the Management of User Fees, is outlined in an internal document CBC News obtained under the Access to Information Act.

“While fees have not increased over time, costs have,” says the heavily censored Aug. 8 memo for Scott Brison, the Treasury Board president. (Numerous sections of the document, available below, have been whited out.)

“This resulted in an increase in the rate of taxpayer subsidies for government services that benefit private interests,” it says.

The freezing effect of the 2004 User Fees Act was dramatic, says the memo. Prior to the legislation, there were an average of 10 proposals each year to increase fees. After 2004, that dropped to 2.4 proposals annually.

Increased paperwork

Changes brought about by the legislation added “significant time and effort” in paperwork for fee increases or new fees, which discouraged applications. Departments have also since been wary of a provision that requires them to cut fees whenever they fail to meet performance standards, says the document.

As a result, 84 per cent of existing user fees have not been revised in nearly 13 years, and now cover a diminishing fraction of the cost of providing the services.

The memo cites the example of the Canadian Food Inspection Agency, which in 2004–2005 collected $54,999 in user fees for services that cost government $694,641 — or only about eight per cent of the bill.

Nine years later, at $55,988 in fees versus $877,306 in costs, the ratio had worsened to 6.4 per cent.

Other departments, including Health Canada and Industry Canada, have been more successful in keeping the fee-to-cost ratio in balance.

The released sections of the memo do not contain an estimate of potential new revenues.

A spokesman for Treasury Board declined to provide details or timing for the initiative.

‘Strengthening the accountability’

“While the matter of modernizing user fees is still under consideration, we remain committed to strengthening the accountability, oversight, and transparency of user fees,” Alain Belle-Isle said in an email.

Sheila Fraser, then-auditor general of Canada, found in 2008 that there were about 220 federal fees reported publicly, worth about $1.9 billion to the federal treasury. Fees are charged on a wide range of services, including passports, licences for manufacturing drugs, marine navigation, citizenship, and national park entry.

Fraser’s report, which made headlines that spring, criticized the government for overcharging Canadians for consular fees that were attached to passport application fees.

‘Inappropriately subsidizing’

Less noticed was her warning that the government “may be recovering less than an appropriate amount from fee payers, or, depending on the fee, taxpayers may be inappropriately subsidizing a private benefit …”

Source: Ottawa looks at user-fee hikes for potential new revenue – Politics – CBC News

Citizenship Statistics January-June 2016: 64 Percent Drop in Applications

The release of IRCC citizenship and other statistics for the first half of the year provides an indication of what the overall 2016 numbers of permanent residents and new citizens will likely be.

citizenship-data-slides-2015-008The chart above, year-to-year comparison, shows the expected drop (41 percent) in the number of new citizens following IRCC’s success in 2014 and 2015 in eliminating the backlog (from a high of  323,000 in 2012 to 59,000 on 30 June 2016).

The more significant news is the dramatic drop in the number of people applying for citizenship (63.9 percent), mainly reflecting the sharp increase in citizenship fees from $100 (plus $100 right of citizenship fee) before February 2014  to $530 in 2015 (the right of citizenship fee remained unchanged).

To a lessor extent, some of the 2014 changes to the Citizenship Act in C-24, such as the extension of language and knowledge testing to 55 to 64 year olds, also played a role.

If this trend continues, there will only be about 70,000 applications in 2016, compared to about 130,000 in 2015.

Of concern is that IRCC did not appear to have seriously considered the possible impact of this increase in fees when advocating successfully for an exemption to the User Fees Act and its requirements for full public consultations.

In the Canada Gazette announcement announcing the increase to $530 (Regulations Amending the Citizenship Regulations P.C. 2014-1453 December 12, 2014), IRCC stated:

“An important assumption made in the monetized analysis is that the fee increases are not anticipated to affect the demand for citizenship. The last census (2006) reports that 85% of eligible immigrants received Canadian citizenship, or approximately 228,000 individuals. The CBA assumes that the fee increase will not impact the naturalization rate as the value placed on obtaining citizenship is very high and the benefits associated with obtaining citizenship far outweigh the fee increases. Thus, the number of applications expected per year is not anticipated to fall following an increase in the fees.”

Hard to believe that such a categorical assumption could be made, in contravention of basic economics and the realities of many low-income and refugee immigrants. Pure assertion, no real evidence. It mischaracterizes the Census number, which includes all the foreign-born (about six million), not just recent immigrants whose naturalization rate is significantly less.

Approval rates increased slightly to 92.1 percent from 91.4 percent.

Processing time continues to decline from 21 months during FY 2015-16 to 18 months in the latest quarter (April-June 2016), helped by the declining number of applications.

A cynic might suggest that the previous government, in addition to implementing many of the administrative changes and business process simplification needed to reduce future backlogs, put into place a number of measures that effectively reduced demand for citizenship as part of the their objective of making citizenship “harder to get and easier to lose.”

The increase in the number of new permanent residents reflects the increase in levels for 2016.

The datasets used are from Opendata: Citizenship Application ProcessingImmigration, Refugees and Citizenship Canada Overview.

One minor irritation with the datasets of Opendata: for citizenship, IRCC has moved from calendar to fiscal year reporting unlike for permanent and temporary residents, where it remains on a calendar year basis.

While it is possible to correlate the calendar and fiscal years, IRCC should be consistent for all its data sets. While I prefer the calendar year basis given that it allows to track longer term trends consistently, I can also understand the rationale for fiscal years, given the linkage to planning, budgeting, and reporting.

But please pick one or the other and stick to it!

Note: Revisions to application numbers can occur given incomplete applications are returned to the applicant without being entered into the database. When these are subsequently resubmitted with the missing information, they are dated and counted from the date of the original application. It is unlikely, however, that any revisions will alter significantly this trend.