Nfld. & Labrador

Tens of millions spent, dozens of new jobs in return

The Newfoundland and Labrador government has funnelled more than $20 million into business-attraction initiatives that have provided a net benefit of fewer than 100 new jobs — a quarter of them seasonal.

N.L. government's business-attraction efforts accompanied by big talk, but modest results

Innovation Minister Keith Hutchings is now in charge of business-attraction programs once housed in the now-defunct Department of Business. (CBC)

The Newfoundland and Labrador government has funnelled more than $20 million into grants, loans and the direct costs of business-attraction initiatives that have provided a net benefit of fewer than 100 new jobs — a quarter of them seasonal.

That’s according to an analysis of government data by CBC News.

Taxpayers fronted another $16 million for executive and support services in the now-defunct department whose main job was attracting outside investment to the province.

Those numbers encompass an eight-year period from 2004 through the end of 2011.

Innovation Minister Keith Hutchings, whose department is now responsible for the programs, says cultivating outside investment takes time.

"We’ve had moderate success, but certainly, as I said, it’s a long-term process in terms of attracting businesses to the province," Hutchings told CBC News. "There’s always room for improvement, and I’m certainly looking forward to building on the success we have, and certainly look at new programming that moves us forward."

Hutchings acknowledges that employment is a "key component" of the benefits the province gets from business-attraction programs.

"In most cases, yes, it would be new jobs. In other cases it could be enhancements of a company that’s already here and foreign investment would come in to expand that, or to open that entity to new markets, maybe export. So there could be a variety of initiatives that would come from that investment."

Funding programs

There were three main business-attraction programs offered by the Department of Business.

The department was axed as a standalone body by Premier Kathy Dunderdale after the October 2011 provincial election.

Its operations and programs were absorbed by other wings of the bureaucracy – mostly the innovation and rural development portfolio now overseen by Hutchings – and are continuing, government officials say.

Confederation Building is the seat of the provincial government in St. John's. (CBC)

CBC News obtained job-creation figures for the three business-attraction programs — along with details on grants, loans and contributions handed out — under provincial access-to-information laws.

Other spending details are found in the public accounts, a document published by the finance department each year.

Those numbers span nearly eight years, up to the beginning of 2012.

Here’s how they add up:

The province spent a total of $15.7 million on business-attraction initiatives.

  • Roughly $10.7 million of that came from the flagship business attraction fund. Companies who qualified for that fund created a net total of 2.5 full-time jobs and another 22 seasonal ones. The firms created 72.5 new full-time jobs, but the numbers were hurt by the main recipient, Terra Nova Shoes, which now actually employs 70 fewer people than it did when it accepted the government cash.
  • The province has been repaid $1.3 million. That cash came from companies that couldn't meet the terms of their original agreements, or closed up shop.
  • Another $5 million has been spent on "special initiatives." The majority of that cash went to companies who received aid from an oil and gas development fund and an aerospace and defence fund. Those companies have created 55 new jobs, according to a breakdown obtained by CBC News.

The Department of Business spent another $6.7 million on costs directly related to business attraction, according to the public accounts and this year’s budget estimates. Those costs include things like salaries, travel and consultants’ fees.

That all adds up to a total of more than $20 million in direct spending on business attraction.

The result? A total net increase of 57.5 full-time jobs, plus 22 seasonal ones.

Erase Terra Nova and its job losses from the equation, and the number of new full-time jobs jumps to 127.5.

This is how the province has described its flagship $25-million business attraction fund:

"The Business Attraction Fund provides for large-scale, strategic investments in business ventures and infrastructure for the purpose of attracting business to Newfoundland and Labrador. Through this fund, the Department of Business will be able to provide loans and equity investments to companies interested in establishing operations and conducting business in the province."

Executive support for the department totalled another $16 million. While its main job was business attraction, the department administered other government initiatives, including red-tape reduction and the province’s branding strategy. Officials could not give a breakdown of how much of that $16 million was tied to business attraction.

‘Sustaining’ businesses

The government prefers to use a different set of numbers. It says 348 jobs have been "created and retained" by those funding programs.

But more than half of those jobs – nearly 200 of them – were positions that already existed before the companies in question got a dime of government cash, according to documents provided under access-to-information laws.

The department also pointed to Friday’s announcement reaffirming a deal first announced last year, to provide Canada Fluorspar with a $17 million repayable contribution to help re-open the mine in St. Lawrence.

But government officials acknowledge that cash has nothing to do with the business-attraction funds in question.

‘Leading role’

It wasn’t supposed to turn out this way. The then-fledgling Tory government created the new Department of Business in 2004, with big promises and big plans. 

That year’s budget speech said the department would "play a leading role in attracting new business and investment to the province."

Premier Danny Williams personally took charge of the department, touting the value of his private-sector business experience.

"The new Department of Business will be critical to implementing our agenda for business growth and investment throughout the province," Williams said in May 2004.

While the department was set up in 2004, its main funding mechanisms — a flagship $25-million business attraction fund and a $7-million grants program — did not get going until three years later.

Those programs, the government said at the time, were vital.

"In a globally-competitive environment, it is critical to provide new and existing businesses with the incentives they need to successfully operate in Newfoundland and Labrador," Williams said in announcing the new funds on April 26, 2007.

"These programs will assist us in fostering a positive business environment, enabling job growth, and showcasing on the international stage what Newfoundland and Labrador has to offer from a business investment perspective."

The minister in charge of the department echoed those words.

Kevin O’Brien called the new funding "a critical milestone to attract investment and position the province as the preferred choice for business operations."

Four cabinet ministers – including (from left to right) Jerome Kennedy, Premier Danny Williams, Paul Oram, Trevor Taylor – attended a press conference in Harbour Grace announcing $8 million for Terra Nova Shoes in 2008. (Government of Newfoundland and Labrador)

But it wasn’t until mid-2008 — more than a year after that announcement, and four years after the department’s creation — that officials actually managed to strike a deal with anyone.

A quartet of cabinet ministers, including the premier, went to Harbour Grace to announce an $8-million repayable contribution to Terra Nova Shoes.

The cash was aimed at allowing the company to consolidate its Canadian operations in Newfoundland, and carry out an expansion that would create 50 jobs, bumping the total number of workers to 220.

Terra Nova has since cut its workforce to 100 employees. It renegotiated its deal with the province in 2010, dropping job targets to the 85 to 110 range, and repaying $1 million.

A series of smaller deals have since followed. (A full list of government  business-attraction contributions can be found by clicking here. The list of job creation figures is here.)

Over the years, a procession of cabinet ministers — five in the department’s last five years — issued assurances of the next big deal about to be announced.

Most of those didn’t actually happen.

In 2007, then-minister Kevin O’Brien said the department had 25 "very, very active" files under review. Later that year, the number jumped to 30. Two or three of those were "very, very hot files – very hot," the minister assured.

A few months later, a planned "substantial announcement" did not materialize.

Fast forward to mid-2008, and the province had yet to give out a dime. Then-minister Paul Oram said the lack of action was proof that the government’s due-diligence measures were working.

In April 2009, Oram told a legislative committee that "within the next few weeks we are going to be announcing a couple of more deals that have been done."

A year later, and another minister, but a similar message.

"There are five that we will be announcing in the next — I do not want to put a time on it because you will phone me the day after that and ask me where they are, but in the very near future there are five announcements that are pending," Ross Wiseman said.

At the time — April 2010 — Wiseman said 75 active files were under consideration by the department.

In response to questions from opposition MHAs at a legislative committee, Wiseman said it would be "reasonable" to wait another two years before asking about the success of the department’s efforts.

"To answer your question, in two years time [it] might be a lot easier than answering it now, and we would have a longer period of time to determine success," Wiseman said.

Two years have since passed.

Budget versus reality

The lack of business-attraction action recently caught the eye of Auditor General Wayne Loveys.

Loveys reported in January that the government has budgeted $137.4 million for business-attraction initiatives in the five-year period from 2006 to 2011, but only spent $20.1 million.

"Diversification of the economy is important to the future of the province," the auditor general noted, in reference to government business-attraction and economic-development efforts.

"This is especially true given the volatility of oil revenues and the fact that oil is a non-renewable resource."

The auditor general noted that the "government’s objective ... in terms of leveraging such funding to diversify and strengthen the economy, has likely not been fully realized."

In response to a CBC News access-to-information request, the government could find no record of ever having done a value-for-money audit on its business-attraction programs.