Addressing Budget 2010 Cost Containment Measures in Crown Corporations' Corporate Plans

Crown Corporation Issue Note

Issue

How should Budget 2010 cost containment measures be reflected in Crown corporations' documentation?

Context

Budget Plan 2010 announced that "operating budgets of departments and Crown corporations, as appropriated by Parliament, are being adjusted in 2010-11 and then frozen at 2010-11 levels for both 2011-12 and 2012-13. . . . The Government expects that other federal organizations, for which expenses are not appropriated by Parliament (for example, enterprise Crown corporations), will follow suit and freeze their operating expenses."

For appropriated or partially appropriated Crown corporations, allowable adjustments will be managed by the Treasury Board, which will determine the need for permitted adjustments (e.g., for funding new policy initiatives, non-discretionary essential services, payments that arise from liabilities and other contingencies.) Note as well that for appropriated and partially appropriated Crown corporations, any increases in future year operating budgets approved through the 2010-11 Annual Reference Level Update (ARLU) process are still valid at the levels approved. Notably, this freeze does not apply to capital budgets.

Although appropriations are frozen at 2010-11 levels, most Crown corporations will continue to generate some level of additional revenue. Since it is unlikely that a corporation's financial statements will distinguish appropriations from revenue from other sources, the corporation will have to provide evidence that it adheres to the intent/spirit of the announcement in its documentation (i.e., the corporate plan and annual report).

Analysis

These cost containment measures have implications for the content and approval process for all Crown corporations' corporate plans.

Corporate plans and budgets approved by the Treasury Board (TB) and the Governor in Council prior to March 4, 2010 remain valid, as approved. However, the next corporate plan will be expected to include any necessary adjustments to the plan and the 2011 (or 2011-12) operating budget. For corporate plans approved by the board of directors before March 4, 2010, but awaiting ministerial or TB recommendation, the submissions should continue as planned, on the understanding that the financials may not accurately reflect the Budget measures and will be adjusted the following fiscal year (i.e., FY 2011-12 or FY 2011). Corporate plans not yet approved by the board of directors should be reviewed to ensure that they reflect these measures before being submitted to responsible ministers and TB. This would entail making any necessary adjustments to the operating budget amounts listed in the four planning years (2011-12 to 2014-15), as appropriate.

All Crown corporations must emphasize wherever possible throughout their corporate plans what they have done to respond to Budget 2010 measures. Appropriated Crown corporations' corporate plans must discuss how they intend to manage expenditures within the limits imposed by the operating budget freeze. Their corporate plans need to explain where any increases in operating expenses in a particular area, or for new activities, are being offset by reductions in other areas of spending, or possibly through increased profits.  

Self-financing Crown corporations, in particular, must clearly illustrate the corporation's commitment to respecting the spirit and intent of the cost containment measures by highlighting actions taken to reduce or limit their operating expenses and cut discretionary spending in areas such as travel, hospitality, consulting, communications and advertising. Self-financing Crown corporations should show that any increase in operating expenditures, particularly discretionary spending, is necessary to generate a corresponding or greater increase in revenue that will clearly result in increased profits for the corporation.

Conclusion

In drafting corporate plans and annual reports, all Crown corporations must explain how they are meeting the spirit and intent of Budget 2010 cost containment measures. For appropriated Crown corporations, in the event of a demonstrable need to increase expenses, possibly due to emerging circumstances, requests for any allowable adjustment must be submitted to TB ministers for approval. Such requests should be discussed with your TBS program analyst before proceeding. Self-financing Crown corporations will need to pay particular attention to containing discretionary expenses while identifying in their corporate plans and annual reports such cost increases that are not within their direct control – for example, due to contractual arrangements (e.g., accommodation rental agreements) or market forces (e.g., interest rates). For all Crown corporations, the upcoming corporate plans (and annual reports) must, wherever possible, highlight any internal review activities, achieved savings and/or cost reductions that demonstrate the corporation's commitment to Budget 2010 cost containment.

Further information

For further information or clarification concerning any specific circumstances, corporations are encouraged to seek advice from their Treasury Board program analyst.

Updated

September, 2010

Prepared by

Treasury Board Secretariat
Government Operations Sector
Governance Directorate