ARCHIVE - FINANCIAL MANAGEMENT
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In this section, we review CSC's current capital and operating budgets. With respect to capital, we propose that CSC reconsider its current accommodation strategy from the perspective of building new regional, correctional complexes and identifying opportunities for more effective operational management processes. We also consider the management of health delivery from two perspectives—the costs associated with using outside hospitals and the approach required to adequately fund the cost of health care for federal offenders.
The Panel was asked to review CSC's Business Plan (2007–08 Report on Plans and Priorities) and operating budget for the fiscal period ending March 2008. Time constraints limited the Panel's review to critical, high-level observations.
The adjusted 2007–08 fiscal budget identifies expenditures of $2.1 billion comprising $1.3 billion in salaries and contributions to employment benefit plan; $0.6 billion in general operating expenses and $0.2 billion in capital allocations. The adjusted budget includes an addition of $0.1 billion to support operating and capital non-discretionary initiatives to meet statutory requirements, pending the results of the Panel's report.
It is helpful to note that over the past 10 years CSC has been facing capital and operating expenditure pressures resulting from a number of factors that have been referenced in this report, including the changing offender population, increasing requirements for programming and mental health treatment interventions and the rapid erosion of physical infrastructure. The rapid increase in demands for operational enhancements has caused CSC to make significant reallocations of its capital monies to the detriment of addressing the needs of its aging physical infrastructure. The Panel believes that this situation has to be addressed to provide the best cost-effective approach to addressing physical plant pressures without jeopardizing CSC's ability to fund its operating requirements.
CSC's capital expenditure allocation is $162.0 million for 2007–08 and $241.0 million for fiscal 2008–09. This includes re-profiling from delayed approved projects previous years, and the addition of two years of interim funding, $43.6 million in 2007–08 and $89.2 million 2008–09, to address immediate physical plant and equipment pressures.
However, according to CSC, their true capital needs are better represented by requirements identified in the following table.
|Fiscal Year||Actual Reference Levels (*)||Operational Status Quo||Status Quo plus APR/EP (**)|
|Total - 10 years||$1,460,797||$2,944,579||$3,597,279|
|Average per year||$146,080||$294,458||$359,728|
(*) Includes two years transition funding of $43.6M in 07-08 and $89.2M in 08-09 and reprofiling of previous years funding. Baseline is $129.2M.
(**)Assumes APR and Earned Parole (EP) legislation will be adopted in 2008-09.
The Operational Status Quo column reflects CSC's estimate of the capital required to remain within its statutory requirements as they relate to providing safe and secure facilities. The Status Quo Plus (plus APR/EP) column presents CSC's estimate of its requirements in order to respond to population increases driven by the elimination of Accelerated Parole Review and Statutory Releases and their replacement with Earned Parole, as recommended in this Report. These estimates are primarily driven by an assumption of an increase of approximately 1,600 new beds over the 10-year period. The Panel notes that consideration has not been given to the positive impact that an earned parole program might have on reducing the number of offenders reoffending in the community and its impact on the total bed count. The Panel believes that a fully functioning earned parole system, coupled with the recommendations in this report will have a positive impact on the effectiveness of the correctional system.
CSC carries out a yearly, extensive program review to assess its capital requirements and updates its Long-term Capital Accommodation Plan. In the preparation of this capital plan, CSC considers such factors as:
- code, regulatory and policy requirements;
- security requirements;
- addition of new capacity to respond to increases in offender populations;
- major repairs or upgrades to existing facilities and equipment;
- adjustment required for operational requirements; and
- replacement of facilities and equipment at the end of their life cycles.
Core to CSC's capital plan is an approved base, capital budget of $129.2 million. The forecasted average cost of maintaining the operational status quo results in an average incremental requirement of $148.4 million per year or approximately $1.5 billion over ten years. The likelihood of the true requirement approaching $175 to $200 million per year is high when considering such factors as the continuing increases in the cost of capital projects (inflation); operational impacts related to the changing offender population that result in certain facilities becoming operationally dysfunctional, and changes in infrastructure to respond to programming needs, particularly those associated with 'retooling' CORCAN's operations. Further pressure will be applied to base capital needs as a result of some of the recommendations of this report.
A key consideration that is not factored into CSC's current capital cost estimates is the impact of building new facilities or even correctional in different regional locales or correctional complexes, financing these new capital expenses in a new way, and decommissioning facilities that have long served their usefulness. The Panel believes that these considerations must be added to the equation. CSC must be prepared to consider the cost advantages of 'building new facilities/complexes' vs. 'maintaining old infrastructure,' especially when considering the incremental and escalating maintenance costs of facilities that have well passed their normal life cycles. In this context, it should be understood that the idea of a 'complex' is not foreign to CSC. The Panel saw examples where 'quasi-complex' were either in existence or under development (Sainte-Anne-des- Plaines, Saskatchewan Penitentiary, Pacific Institution and Regional Treatment Centre). The management of these facilities still does not take advantage of the operational efficiencies that would be associated with a complex.
What is clear to the Panel is that, if CSC is in need of additional capital of $200 million or more each year to maintain and replace its current facilities, it warrants full consideration of whether these additional investments would be better allocated to financing new, more operationally efficient and effective complexes that could meet evolving population management requirements. The Panel believes that the physical configuration that has been described for complexes could meet these requirements, particularly when considering the report provided by Deloitte and Touche. It indicated that initial estimates provided by CSC were based on operating assumptions more specific to the status quo, and did not represent potential cost-efficiency and cost effectiveness scenarios that were more futures oriented. As a consequence, their conclusion was that further consideration should be given to issues such as operational, program delivery and staff complement efficiencies accruing from the proximity of facilities; consideration of the financial impact of longer life cycles; management of the impact of future population growth, and savings from rethinking how refreshing and/or redeveloping of current infrastructure could occur.
Generally, CSC's operating budget is distributed in the following manner—79.4% to penitentiaries, 11.8 % to the community, and 8.8% to National and Regional Headquarters. It should be noted that some recent adjustments to this operating base such as resources for the correctional officer contract agreement and community mental health initiatives were primarily allocated to penitentiaries and the community. It is further noted that in 2007–08 approximately 7.7% is identified for Program Development and Delivery and 8.0% for Health Care.
The Panel has been told that under current operating assumptions there is little flexibility to reallocate resources to where they may be required in the future. Based on the needs of the changing offender population, increases to the current operating bases for programs and health could be significant. However, the Panel believes that there are possible efficiencies that could be identified as part of CSC's response to its recommendations. Gains through operational effectiveness measures should be considered in both the penitentiary and community areas.
The Panel recommends CSC undertake a review of possible efficiencies that could be identified through the reengineering of penitentiary, operational processes. In particular the review and introduction of new approaches to program development and delivery should result in the identification of re-profiling opportunities.
At the same time, the Panel recognizes that CSC's current infrastructure may severely limit its ability to implement extensive re-profiling. The Panel strongly believes that the introduction of new physical infrastructures, either through redeveloped penitentiaries, or the building of new complexes, should provide CSC with the flexibility to re-profile costs to the benefit of improved program delivery.
The Panel suggests that CSC look at other correctional jurisdictions to determine the operational and related cost-effective benefits of moving in this direction.
With respect to the delivery of health care, the Panel notes that because offenders are outside the health care system (Canada Health Act) while they are under sentence CSC is totally responsible for the costs of their health care needs. Simply put, the majority of health needs of offenders would be funded either under provincial health plans of their respective provinces, if they were individuals in the community, or, in the case of mental health, under special allocations from Health Canada.
The total adjusted resource allocation for 2007–08 for health care is $151.4 million. Actual costs for hospitalization alone have increased by 25% from $5,778.4 million in 2004–05 to $7,216.6 million in 2006–07. The Panel understands that hospitals in the Ontario Region use OHIP standards to build for care and treatment (inpatient care, day surgery) outside the penitentiary. At the same time, the Panel was made aware of variances in the use of these standards, particularly in areas outside major metropolitan areas. The Panel suggests that CSC review standards used in the delivery of outside hospitalization in each of its regions in order to ensure that they are consistent with provincial standards, or are justified based on factors such as geographic location, availability of specialist staff, etc.
The provision of both medical and mental health care in federal penitentiaries by CSC is of concern to the Panel, particularly in light of the escalating costs of health care and the diminished role of the provinces in providing acute mental health care in the community.
As a consequence, the Panel wants to highlight the importance of ensuring that both federal and national initiatives related to health care take into consideration the responsibilities and accountabilities of CSC. The Panel suggests that the Government examine how health care costs are funded for federal offenders and either consider providing a direct allocation out of Health Canada, or continuing consideration of these core costs in the determination of CSC budgetary allocations.
The Panel notes that CSC made a strong case for and received interim funding to offset ongoing capital and operating requirements to address the risks and needs posed by the changing offender population. The Panel believes that this funding is critical to provide a minimum response while CSC examines the immediate and longer-term impacts of the recommendations of the Panel. We believe this interim funding for 2007–09 should be made part of CSC's baseline operating allocations and referenced in future resource submissions.
- The Panel recommends that any review of changes to CSC's physical infrastructure consider the impact of building new correctional facilities in different regional locales or correctional complexes, financing these new capital expenses in a new way, and decommissioning facilities that have long served their usefulness.
- The Panel suggests that CSC look at other correctional jurisdictions to determine the operational and related cost-effective benefits of building new correctional facilities in different regional locales or correctional complexes.
- The Panel recommends that CSC review standards used in the purchase of outside medical services in each of its regions.
- The Panel recommends that the government take into consideration the importance of ensuring that both federal and national initiatives related to health care reflect the responsibilities and accountabilities of CSC. The Panel suggests that the Government examine how health care costs are funded for federal offenders and either consider providing a direct allocation out of Health Canada, or continue consideration of these core costs in the determination of CSC budgetary allocations.
- The Panel recommends that the two-year bridge funding provided by Treasury Board to CSC for the period of 2007–09 be extended as part of CSC's normal operating allocations.
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