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Over the last three weeks, I had the students in my public management course simulate the Ontario budget process, and here’s what happened.

I assigned them to two-person teams, including the premier and chief of staff, minister and deputy minister of finance and of the largest program departments (Health; Education; Training, Colleges, and Universities; Community and Social Affairs; Transportation; Children and Youth Services; Energy and Infrastructure; Municipal Affairs and Housing; Environment), as well as a minister and deputy minister of the privatization secretariat.

The program departments were asked to contribute to reducing the deficit by decreasing aggregate spending by $3 billion, roughly a 5 per cent base budget cut. The privatization secretariat was asked to analyze total or partial privatization of the LCBO or Ontario Lotteries and Gaming (OLG). User fees were accepted as a substitute for budget cuts. The exercise was thus designed to reflect the challenges of restoring fiscal balance that Canadian governments will face in the aftermath of the Great Recession.

The program department teams had two weeks to research their department’s programs and budget and prepare submissions with proposed budget cuts or increased user fees. The minister and deputy minister of finance analyzed the proposals and made their own recommendations. The premier then convened a cabinet meeting to discuss the proposals and, a few days after the cabinet meeting, announced his decisions.

What, with the advice of cabinet, did the premier decide? To meet the $ 3 billion deficit reduction target, there would a partial privatization of the LCBO to bring in $1.5 billion, $ 940 million (32 % of the total) in budget cuts, and $ 560 million (18 %) in increased user fees. The budget cuts were primarily in Health (Local Health Integration Networks and the mismanaged eHealth initiative, rather than OHIP), Education (the public and Catholic school boards saving money by operating a joint school bus system), and Transportation. The bulk of the increased revenue came from higher hydro rates. The students, like the Ontario government they are simulating - as evidenced by its Throne Speech earlier this week - have little appetite for cuts in public services and preferred to balance the budget by increasing revenues.

As an instructor, my concern is whether this was a successful learning exercise. In general, the task of organizing a process to achieve a collective goal that conflicts with individual departmental interests is one that engages students. Consider more specifically the form the exercise took. We would like public sector budgeting to be as easy as managing a Facebook page, where you can readily add new friends or drop ex-friends. In reality, governments tend either to add many new programs, or cut many existing programs, but do not do both simultaneously.

A simulation that deals with new programs (say a pot of $ 3 billion in new spending) is relatively easy because the participants can find ideas for new programs bruited about in the media, and then concentrate on new programs to the exclusion of their departments’ existing ones.

A simulation that deals with cuts to existing programs is more challenging because it forces the students to learn about their department’s programs and mandate, go through the Estimates, and then make some choices about what to cut. Learning how to make sense of the Estimates is particularly valuable. In addition, looking for efficiencies gives students an incentive to search intensively. For example, the Ministry of Education team found a pilot program in the Peterborough area where the public and Catholic school boards are sharing buses and recommended scaling this up province-wide.

One of the fascinating things about a simulation is that teams in a comparable situation may react differently. For example, the Community and Social Services (COMSOC) team refused to offer any cuts, arguing that their mandate involved helping the hardest hit victims of the recession, and these people should be spared any additional pain. On the other hand, the Children and Youth Services (CYS) team reluctantly were willing to propose cuts to child welfare benefits and programs targeting at risk, low-income, and disabled children. The finance minister and premier, acting compassionately, agreed to exempt COMSOC and rejected most of the proposed CYS cuts.

One question that arises is whether some of the cuts proposed were classic “Musical Ride cuts.” The Ministry of Education team went so far as to propose merging the Catholic and public school boards. They were not aware that Ontario’s Catholic schools have their status enshrined in the Constitution, so at most this would have been an unconscious Musical Ride cut. But I think there is more to it than that.

We have had quite a few things entrenched in the Constitution - for example assured ferry service to Prince Edward Island - or enshrined in agreements - the Crows Nest Freight Rate - that have ultimately been modified in response to economic and technological change. So, for the students to challenge the separate status of the Catholic schools was not a clever attempt to outsmart a budget cut, but rather an honest recognition that the province bears additional cost in having two school systems and that, under conditions of fiscal constraint, it is reasonable to look for ways, such as shared bus service, to rationalize them.

Another concern in a budget-cutting exercise is what Eddie Goldenberg calls the PIMBY, or please in my backyard, syndrome. While there are some public investments that most constituents and legislators don’t want in their backyards - prisons, garbage dumps, nuclear waste storage facilities - there are others - highways, government offices, museums - that they yearn for.

The Ministry of Transportation proposed delaying construction of the Windsor-Essex Parkway, but the minister of finance and premier rejected the proposal. If you look through the cabinet lineup, you’ll discover that Finance Minister Dwight Duncan represents Windsor-Tecumseh and Economic Development Minister Sandra Pupatello represents Windsor West, so it’s easy to see why that proposal wouldn’t make it through Cabinet. On the other hand, if at some point in the future the Ontario Government becomes very intent on balancing the budget, then you could imagine the Windor-Essex Parkway would be the first major transportation project to be delayed, with Finance Minister Duncan leading by example.

For an instructor, a simulation project like this takes considerable time for design, social engineering, consultation, evaluation, and feedback. However, I’m convinced that the students gain a deeper understanding of the budget process, discover how concepts apply in practice, and enhance their management skills by being responsible for a management process. And they now await the McGuinty Government’s budget to see how it tackles the issues they have confronted.

I’ve been looking at the Government of Canada portal and Prime Minister Harper’s website as well as the White House portal. The differences between the US and Canadian sites are dramatic.

In a word, the essence of the Canadian sites is political messaging, and the message is all about Stephen Harper. Both the Canada portal and the PM’s site have three columns, and the eye is drawn to the top of the middle column - the widest column - which contains news stories almost always featuring the photogenic (or not) Prime Minister.

The Prime Minister’s site has the news of the day dominating the central column, priorities and utilities in the left column and video and audio in the right column. Today, there are 7 - count ‘em 7 - photos of the Prime Minister on the site (including the banner and all three columns).

The left column of the Canada site includes links to services, other aspects of governance (Supreme Court, Parliament), and utilities, while the right column links to priorities (currently the Economic Action Plan, Haiti, the Olympics, and armed forces recruitment). Links to popular services are below the story of the day in the middle column.

The Canadian sites do not occupy the full screen width-wise, but have well-defined left and right borders and leave considerable space in the margins beyond the borders. The implicit message is of focus and concentration.

Now let’s shift over to whitehouse.gov. President Obama is at the top, with links to four rotating videos, today including the State of the Union address and the announcement of the Clinton-Bush Haiti Fund. The weekly video address - the online successor of the Saturday radio address - is one of the four during weekends and early in the week.

The site also has three columns, but they play out very differently than those on the Canadian sites. The right column contains priorities (Haiti, economic recovery, and the flu) and the middle column legislative proposals, with Health Care now at the top. The bottom of the page contains five columns of links, including issues, the briefing room, and background about the President and the White House. The extensive links at the bottom drive the site to cover the entire screen width-wise. As a consequence, the three columns in the middle of the page have considerable space and don’t seem cluttered, even though they are full of content.

The most distinctive feature of the White House site is the blog, which occupies the left column. It deals with a variety of policy and management issues Videos are presented, and posts authored by, a variety of administration officials including department secretaries, agency heads, and White House and agency staff. The main White House blog expands to nine sub-blogs including the middle class task force, the office of citizen engagement, open government, and partnerships.

While the White House site itself does not host consultations, the posts on the blog take you outside it to numerous consultations hosted on social networking sites (the response to the State of the Union address on Facebook) or departmental websites (a consultation on high speed rail on the Department of Transportation site). The open government blog leads to the Administration’s path-breaking initiative (data.gov) to make government datasets available - gratis - for citizen users, including software developers.

In effect, whitehouse.gov has become the administration’s high profile consultation portal. In contrast, the federal government’s consultation portal (consultingcanadians.gc.ca) is somewhere out there in Government of Canada cyberspace, but lacks a high-profile link to the Canada portal.

Think of the rubric “Obama Administration.” Putting the emphasis on Obama calls up the image of the embattled President, winning some battles with Congress (Bernanke’s confirmation), losing others (the deficit reduction panel), and with others still in the balance (health care legislation). Putting the emphasis on Administration evokes an image of the departments launching a host of initiatives: a vision of widespread creativity in governance. On the White House site, the embattled President rests atop the creative Administration, with the latter launching many new initiatives and consulting widely about them. It’s a portal of many voices, and it is the diversity (and occasional cacophony) of voices that makes it a far more exciting place than its Canadian counterpart.

For the skeptics who claim that innovation in government is an oxymoron, the notion that a tax collection agency could be innovative seems even more oxymoronic. Yet my intuition tells me that the Canada Revenue Agency indeed has bragging rights to such a claim.

Historically, it has been a rapid adopter of information technology, using it to enhance service by providing for payment online or over the telephone and to enhance compliance through aggressive data mining. Its status as a special operating agency, discussed in David Brown’s article in the most recent issue of Canadian Public Administration, has likely facilitated its innovativeness.

More recently, the Harper Government has likely become a driver of innovation, because of its use of tax credits - rather than spending programs - to implement social and economic policy. This philosophy of government tends to leave the program departments sitting on their hands but puts the onus on CRA. Some recent examples that come to mind are tax credits for child care, child fitness, disabilities, public transit use, and now home renovations.

For each such initiative, CRA has to come up with a precise definition of what is creditable, communicate the ensuing rules to the public, and ensure compliance. The latter would involve requiring taxpayers, or their income tax preparers, to keep receipts and occasionally auditing. The home renovation tax credit will be an interesting case. It has been widely advertised and tremendously popular. As the end of the eligibility period and this year’s tax filing date approach, the question that comes to mind is what sort of auditing CRA will do to ensure that taxpayers have been following the rules. Given the populist nature of this program - with a maximum permissible claim of $ 9000 in expenditures - the standard practice of auditing the few biggest users won’t work. The possibility of the program being extended in the upcoming budget underlines the importance of effective administration.

While the next federal budget is likely to involve expenditure cuts or constraints, I would be very surprised if the Harper Government didn’t extend its philosophy of populist tax credits in some other area, again calling upon CRA for implementation.

As a public management blogger and a taxpayer who has taken advantage of several of these programs (universal child care, child fitness, home renovation), what I see is the tip of the iceberg. Below the waterline is what CRA is doing to implement these initiatives. I think there is an interesting story here of innovative policy implementation for a public management researcher to explore.

Just as Highway 61 (running from New Orleans to Duluth, Minnesota) kept reappearing in Bob Dylan’s life, Highway 407 ETR keeps reappearing in mine. I co-authored a book about it six years ago (If You Build it … at www.407etrbook.com), and I get asked to comment on its ongoing controversies.

I was just on Goldhawk Live on Rogers television, along with Ontario Transport Minister Jim Bradley, NDP transportation critic Peter Tabuns, Toronto Star reporter Jack Lakey, editor of Road Today magazine Manan Gupta, and a host of irate callers. The callers were incensed about several billing policies, including Ontario vehicle license denial for unpaid bills, attempts to collect unpaid balances going back up to 15 years, and 27 percent annual interest rate charges.

At the outset, it’s important to understand that 407 ETR’s business model is unlike most services in the economy (including old fashioned toll roads with collection booths) in that you can use it before you pay for it. This gives the operator, 407 ETR Concession Company Ltd., an incentive to be aggressive in collecting unpaid bills. What the operator prefers is that users lease transponders and have charges automatically billed to their bank account or credit card. Transponders are accurate virtually all the time. The $3.50 per trip collection fee imposed on video imaging is a strong incentive to lease a transponder, which costs $21 for a yearly lease.

By way of personal disclosure, I should say that I make about 20 trips yearly on 407 ETR and have had a transponder since the highway opened in 1997. I’ve had two small problems, a transponder’s battery wearing out and a transponder not functioning because I had placed it behind a metallic windshield sun shade, and both were handled quickly and videoimaging charges were refunded.

My guess is that somewhere in excess of 80 percent of the operator’s revenue comes from transponder users like me. As Pareto’s Law would predict, the administrative problems come from users who don’t have transponders. In an interview two years ago with co-author Chandran Mylvaganam and me, the operator’s spokesman told us that approximately 4 per cent of 407 ETR’s traffic is not billed, which includes both licenses that are not readable and those that are not billable because they are from jurisdictions that have not agreed to make their vehicle license data available. License plate denial is a very powerful mechanism for ensuring that Ontarians pay up, but of course it doesn’t extend beyond Ontario’s borders.

We heard numerous complaints on the program and it is hard to assess their validity. The most common complaint linked the three issues mentioned at the outset, claiming that the operator was deliberately taking its time billing, letting interest accumulate at a very profitable 27 percent per annum, and then using the threat of plate denial to collect.

If these accusations are true, they are a legitimate public policy concern. The question for a policymaker is what to do about them. Ontario Transport Minister Jim Bradley, citing the province’s failure to challenge the original privatization agreement in court, said that there was essentially nothing that could be done. The other panelists, myself included, weren’t so sure. Two possible approaches are suasion and legislation. Suasion would involve the government (perhaps the Ministry of Consumer Services rather than Ministry of Transport) gathering information about these complaints and presenting them to 407 ETR’s ombudsman and then the operator.

The operator is a Spanish-Australian consortium that has preferred to maintain a low public profile and collect the revenues rather than present itself as a high-profile good corporate citizen. This would suggest the government would get nowhere with suasion and the implicit threat of “naming and shaming,” but would have to legislate.
The legislative approach would not involve challenging the lease agreement, which the courts have already defended, but rather drafting consumer protection legislation applicable to all current and future Ontario toll roads, or perhaps even more broadly. This would require legal advice as to whether the courts would likely rule that such legislation contravenes the operator’s lease agreement.

Lurking down the road is an issue mentioned by Minister Bradley in the discussion, namely the development of Highway 407 East, a toll road running from the eastern end of 407 ETR in Pickering to Highway 35/115. The minister promised that the government would not repeat the mistakes of the past and 407 East would be built and run entirely by the government. A moment’s consideration suggests that likely will not come to pass. If it did, people would have to carry two transponders, one for 407 ETR and the other for 407 East, and would receive two bills for a single trip using both parts of the highway.

While the minister claims that this will lead to competitive benchmarking because drivers will compare the two operations, it is more likely that drivers will tell the two operators to get their acts together. In addition, obvious economies of scale will give both an incentive to make their technologies at least interoperable, and more likely completely integrated. Finally, by virtue of having developed and operated 407 ETR for over a decade, 407 ETR Concession Company Ltd. will have an enormous advantage over any other potential bidders for contracts on the development of 407 East. When the government moves to the contracting stage for Highway 407 East, it and 407 ETR Concession Company Ltd. will have to begin talking in earnest.

So if I were the Ontario Government, what would I do now? I’d gather information about billing practices and, if there are some that appear questionable, I would meet with the ombudsman and the operator. I would also get counsel to look at the question of whether consumer protection legislation would escape being over-ridden by the lease agreement. And I’d recognize that Minister Bradley’s “two operators, one highway” line will ultimately be untenable, and the two operators will have to talk about interoperability and integration.

Toronto transit riders are facing a fare increase at year-end and, because tokens are undated, the TTC has reduced their availability, thereby generating long queues and consternation on the part of riders.

By way of personal disclosure, I should say that I’ve seen this scenario played out often enough to know what was coming, so when I saw the first mention in the newspaper of possible fare increases I began hoarding. And last Sunday afternoon, despite the sign on the ticket booths indicating token sales were limited to five to a customer, a helpful agent was willing to sell me ten. I now have a cache of 23 tokens, which should be sufficient for my infrequent TTC trips over the next six weeks.

Recalling the TTC’s own slogan, is there a better way? Let me suggest two.

The first would be for the TTC simply not to restrict the sale of tokens, accept that there will be some loss of revenue due to hoarding, and recognize that it is the inevitable cost of maintaining good customer relations. That is what Canada Post does by selling perpetual (P) stamps valid at any time, rather than requiring customers to buy additional stamps every time rates go up.

A second solution would be to adopt better, more flexible pricing technology. Twenty-five years ago - that’s right, twenty-five years ago - I was in Hong Kong and saw how their subway system used what were called Common Stored Value Tickets. You bought a ticket for a certain value, and on every trip the automated card readers would deduct the price of that trip, until the ticket was used up. If the TTC had such a system today, fare changes would be easily implemented by increasing the amount deducted from the card on the day the new fares come into effect.

From a broader public policy perspective, I don’t think ever-increasing transit fares are the way to go. The better way would be to increase transit ridership and decrease automobile traffic in the core. The best way to do that, as has been demonstrated in London and Stockholm, is through an area pricing scheme, where road tolls are used to fund improvements in the public transit system. At the limit, I’d even support making transit free to riders, and fund it entirely through road tolls.

Highway 407 was an early foray into leading edge road tolling, so the technology exists right in our own backyard.

Let’s see if next year’s mayoral candidates are far-seeing enough to embrace these ideas. The one least likely to do so is the unimaginative stuffed shirt John Tory, who in the 2003 mayoral campaign even went so far as to set up a website attacking David Miller’s willingness to contemplate road tolls. Maybe next time will be different.