Ontario Public Service (OPS) operating expenditures account for about $10 billion in annual spending.1 In the OPS, operating and back-office expenditures include information technology, human resource management, financial services, procurement, transportation, accommodations and facilities management, legal services, communications and business planning. These expenditures support and assist public departments to deliver on policy and program development and in the delivery of services.
Governments everywhere face challenges to improve public services while containing expenditure growth. Part of the Commission’s mandate is to recommend ways to improve value for money in all government activities by focusing on improved outcomes for programs and services within available resources. The recommendations in this chapter are intended to achieve fiscal efficiencies in operating and back-office expenditures without compromising service delivery. In most cases, they will improve it.
Business operations continue to change rapidly for the public sector. Variables such as economic trends, rapid changes in technology, increasing integration into a global system, and increased accountability and transparency for public institutions have significant operational impact on the public sector. The OPS and broader public sector (BPS) must keep pace with this rapid change to provide services as effectively and efficiently as possible.
The biggest component of OPS operating expenditures consists of wages and salaries, which account for 48 per cent of the $10 billion spent.2 Another 26 per cent goes to the provision of services and 20 per cent to employee benefits. Transportation, communication and supplies account for the remaining 6 per cent. Similar to program areas, labour costs are the primary fiscal driver.
In addition to the operating expenditures outlined in Chart 16.1, the Ontario government funded $109 billion in transfer payments in 2010–11. Of this, 45 per cent went to BPSorganizations such as Local Health Integration Networks (including hospitals), schools, colleges and universities.3 The remaining 55 per cent includes transfers to individuals, municipalities4 and other organization such as agencies, boards and commissions (typically known as the ABCs).
Implicitly, a portion of the annual transfer payments made by the Ontario government is directed to operating and back-office expenditures, though this portion varies by recipient. Since a significant portion of labour costs is embedded in program spending, the figure of $10 billion does not represent the full cost of labour to the province or taxpayers. We estimate that labour costs amount to about half of all program spending.
Chart 16.2 provides an overview of OPS operating expenditures over time and their relative portion of total government spending. As a percentage of total government spending, operating expenditures have decreased to less than 8 per cent in 2010–11, down from a historic high of over 10 per cent. However, total expenditures in this category have increased to over $10 billion as of 2010–11. Efficiencies may have been found through the creation of more streamlined processes, lowered administrative costs, better use of technology, and ongoing cost-avoidance and cost-reduction initiatives, but the Commission has been unable to quantify this through our research. Our challenge is to bend down the cost curve while driving for greater value-for-money outcomes, focusing on client service and ensuring accountability to taxpayers.
The Ontario government faces the twin challenges of creating the best public service in the world under the constraints of reaching fiscal balance by 2017–18. We have not placed an annual growth target on operating and back-office expenditures because of their diffusion through other program areas. However, just like program areas, back-office and operating expenditures must transform to find cost efficiencies. That effort will require innovative ideas and new ways to deliver on government priorities. This will include letting service delivery outcomes adjust the size of the civil service; considering alternative service delivery where value for money can be enhanced without compromising quality or access; and effectively managing public service delivery by balancing the need for accountability with governance that ensures the efficient and effective delivery of outcomes.
The objective of this chapter is to envision how Ontario government and BPSprograms and service delivery can achieve the best possible outcomes with their available resources. The Commission recommends ways to transform and find cost efficiencies in areas such as front-line service delivery, arm’s-length operations, regulatory services, information technology practices and transfer payments. Achieving a sustainable fiscal environment will require government to focus on future investment, as opposed to that which serves the status quo.
ServiceOntario was originally given a mandate in 2006 to become the provincial government’s public-facing delivery organization, with responsibility for delivering information and high-volume routine transactions, to individuals and businesses. ServiceOntario operates nearly 300 locations that provide the public with such services as health card and driver’s licence renewal. ServiceOntario is estimated to have reduced costs per transaction for driver, vehicle and health card services by about 7.6 per cent. It now provides innovations such as online service delivery, kiosk services, cross-government services, service guarantees and service consolidation, establishing ServiceOntario as a leader in client-focused public services. Looking ahead, the Commission believes it will be important to continue this success and broaden the mandate of the organization to reduce overall expenditures, increase productivity and improve service delivery to the public.
Recommendation 16-1: Expand the services ServiceOntario delivers. This includes pursuing additional partnerships for service delivery within the Ontario Public Service, and furthering service delivery partnerships with municipal and federal levels of government.
A crucial part of the expansion of ServiceOntario is the growth of services both horizontally (i.e., across provincial ministries) and vertically (i.e., in conjunction with federal and municipal services). This one-stop interface is more productive for clients and efficient for government. The efficiencies gained by integrating health card and driver’s licence renewal to one window, for example, could be replicated by migrating additional transactions such as tax collection, employment training and benefit administration to ServiceOntario.
For an example of the scale of just one site of possible integration, in 2010–11 Ontario provided citizens with nearly $18 billion in benefits through 37 income-based programs. Some of these programs were provided through 163 Ontario Works offices. ServiceOntario could deliver these services in a more integrated, seamless, timely and ultimately more cost-efficient manner.
The government should pursue additional partnerships within the OPS, such as transferring its call and Internet-based enquiries on employment standards and occupational health and safety from the Ministry of Labour to ServiceOntario. Expanding current ServiceOntario-managed databases to occupational health and safety inspectors would also permit more efficient management of enforcement activities.
Further steps should be taken to advance partnering with municipal and federal services —efficiencies can be found by working collaboratively with other levels of government. For example, ServiceOntario in Ottawa co-locates with the City of Ottawa and Service Canada to provide services from one location, therefore improving the client experience. Additionally, the new BizPal account (which allows Ontario businesses to manage multiple government requirements from a single account) allows 127 Ontario municipalities (such as Kingston, Timmins, Brampton and Sudbury) to partner with ServiceOntario and become more efficient in issuing business permits and licensing. The creation of more such hubs, with their critical mass, would make it easier to provide services in both official languages. Such synergies in service delivery will improve customer experience and capitalize on economies of scale.
How ServiceOntario delivers its services is just as important as the kinds of services it delivers. Three principles — a focus on the client, efficiency gains and accountability — should drive ServiceOntario’s delivery methods. This suggests a variety of changes, ranging from the delivery of services through new or alternate platforms, all the way to partnerships with the private sector, as long as accountability and a focus on the client are not compromised by the transformation.
Recommendation 16-2: The government should direct clients to more convenient and less expensive channels, such as online service delivery for birth registration.
Capital investment in new technology will play an important role in this transformation. Where possible, services should be shifted to the least expensive platforms available, resulting in savings for the government, a more efficient service experience for the client and a positive environmental impact through digitized services (i.e., digital rather than paper records). As a consequence, the government should stop delivering services in person if it can do so by telephone or through the Internet. As long as the move does not compromise service delivery — such as the provision of service in both official languages — the government should use the lowest-cost platforms.
An example of shifting consumers towards more convenient and less expensive channels is the provision of Vehicle Validation Stickers (Val Tag). ServiceOntario processed about 6.6 million validation stickers in 2010, at a cost of $18.4 million. Vehicles need not receive and display a new sticker each year; instead, their registration could be logged in an electronic database. Other jurisdictions, such as Quebec, have successfully moved away from vehicle licensing stickers and found that technology-based enforcement (like licence-plate scanning) is far more effective.
Recommendation 16-3: ServiceOntario should optimize current virtual processes.
As an example, Ontario health cards are now renewed every five years. Extending that renewal cycle to seven or 10 years could avoid significant costs without compromising security. Expanded electronic infrastructure might also lead to additional revenue through bulk data sales; it is also more compatible with transparency goals, such as “open government” initiatives. Moving from paper to digital records can save time, is environmentally friendly, and results in higher-quality services.
Recommendation 16-4: The government needs to increase ServiceOntario’s current annual $2 million capital budget.
This shift would allow ServiceOntario to make the necessary changes to more effectively deliver its service. As ServiceOntario expands, a small capital budget increasingly limits its ability to secure efficiency gains, particularly where investment in new technology is necessary for additional savings in the future. Most capital, in particular information technology, is antiquated and denies the possibility of automation and amalgamations of information systems.
Recommendation 16-5: Savings from efficiency gains in ServiceOntario operations should be used to generate a fiscal dividend.
ServiceOntario has generated efficiency gains on a number of fronts, and our proposed recommendations are designed to create more. To date, most of these efficiency gains have been put towards service improvements. In the current fiscal context, savings from further efficiency gains should be used to generate a fiscal dividend and make ServiceOntario an important contributor to fiscal sustainability. Further gains must come from capital, but there could — and likely will — be separate sources.
Recommendation 16-6: Where possible, private-sector participation should be used to move ServiceOntario further towards a full cost recovery model.
A significant opportunity exists for ServiceOntario to find new capital and expand services by leveraging private-sector investment and participation through competition. Partnerships with the private sector can provide better value for taxpayer money, as private-sector investments and expertise can drive expansion while still delivering a fiscal dividend. In these cases, private-sector delivery must meet the standards expected of public service delivery, such as the provision of service in both official languages.
Teranet’s agreement with the Ontario government is an example of a public-private partnership in public service delivery that modernized the way customers conduct electronic transactions in real property, title and writ searches, and registrations. Since the introduction of electronic registration in 1999, over 15.3 million documents have been registered electronically. Additional private-sector partnerships that improve public service delivery and quality need to be sought and attained.
Ontario has about 630 agencies, defined as entities to which the government makes at least one appointment. Agencies fall into one of two broad categories: classified and non-classified. There are about 258 classified agencies, which are generally constituted by a statute, a regulation under existing statute or an Order in Council, and to which the government makes the majority of appointments. These include a wide variety of bodies such as commissions, councils, authorities, foundations, trusts and boards.5 There are also over 300 non-classified agencies that are excluded from the financial and administrative requirements of the Ontario government but to which the government makes at least one representative appointment.
The mandate of Ontario’s agencies is diverse and complex. Agencies can perform a variety of roles from the provision of technical advice and expertise to quasi-judicial decisions that are independent of direct political involvement. Agencies can also operate an enterprise using specialized expertise or capabilities not found in government ministries. Owing to their very diverse role, they also vary widely in size, from the Workplace Safety and Insurance Board (WSIB) to the Ontario Geographic Names Board.
The role of agencies has been the subject of several reviews. The governance framework and accountability mechanisms of classified operational agencies were reviewed in the December 2010 “Report of the Special Advisor on Agencies” to the Minister of Government Services. The report contained a number of recommendations, including a plan to centralize and expand within one of the ministries full responsibility for all aspects of corporate oversight and governance support for agencies.6 However, there has yet to be a more extensive review of all agencies to determine if their mandates are still relevant and whether overall efficiencies can be achieved in the government’s use of these entities.
Recommendation 16-7: The government should review existing agency mandates and functions to determine if greater efficiencies could be achieved through rationalization or consolidation of programs, delivery through existing ministry resources, or the outright elimination of functions.
Similar to the agencies model used by government, Delegated Administrative Authorities (DAA) have been used to deliver a number of regulatory services since their inception in the mid-1990s. Under the DAA model, legislation is enacted that establishes an accountability and governance framework between a ministry and a private not-for-profit corporation, which then administers legislation on behalf of the government. Under the framework of the DAA model:
The Delegated Administrative Authority Review found that the DAAs are working effectively and efficiently as regulators of public safety and consumer protection.7 Delegated Administrative Authorities had the following benefits:
A DAA is funded by industry, not taxpayers. It is self-financing through fees collected from regulated businesses and, in some instances, licensed practitioners. A DAA is responsible for setting its fees, under a process agreed to by the minister.8
Recommendation 16-8: Where there is an existing non-tax revenue stream or where such a revenue stream can be created, strong consideration should be given to transferring or establishing responsibility for direct delivery to an arm’s-length, not-for-profit corporation, under the Delegated Administrative Authorities or similar model.
The Ontario government currently delivers a number of regulatory programs directly, covering a broad range of sectors and serving a number of public interests, including public safety, worker safety, environmental protection and consumer protection. In a time of fiscal constraint, there is a risk of service erosion as regulatory ministries seek to reduce costs. It is important to explore different forms of service delivery through arm’s-length bodies.
Examples of regulatory services now delivered from within government that should be examined include:
In considering whether to create new non-tax revenue streams to finance additional DAAs, it should be noted that, under Ontario’s new competitive corporate tax environment, industry may now have greater capacity to take on costs of service delivery currently borne by taxpayers.
Recommendation 16-9: Consideration should be given to rationalizing and consolidating programs that regulate inter-related sectors or that could otherwise gain efficiencies from greater integration.
Examples of regulatory programs that should be examined for potential efficiency and effectiveness improvements through consolidation include regulatory programs related to technical aspects of residential and commercial construction as well as consumer protection programs.
While less visible in the public’s eye than service delivery, information and information technology (I&IT) functions form the technological backbone of government operations. These functions include services such as a help desk, local and wide area network management, mainframe operations, web hosting, and the development of applications that can advance the government’s business vision and provide flexible solutions to IT problems faced by all organizations.
Previously, there were separate I&IT infrastructures developed by over 20 ministries. In the late 1990s, however, the government combined this hodgepodge of IT solutions into eight ministry clusters and one corporate cluster. Further efficiency and better value for money can be found by eliminating redundant services and centralizing common functions.
Recommendation 16-10: The government should shift its service delivery of information and information technology (I&IT) from in-house to external sources, where feasible.
The government’s existing I&IT infrastructure already uses a blended approach of service delivery made up of both in-house and external service delivery that includes both small and large arrangements with vendors. This blended approach typically reflected decisions to keep certain functions in-house, which retains the I&IT expertise that comes with being a knowledgeable owner. In a constrained fiscal environment, however, outsourced contracts may make the difference between the continuation and the end of some services.
Blended approaches to service delivery have been successfully adopted by British Columbia, Alberta and Saskatchewan. They have also been used broadly at the national level in the United Kingdom. The difference in outsourcing I&IT services is a choice of scope. Most jurisdictions explicitly engineer a solution to remain a knowledgeable owner in some areas, so policy, standards development and strategic/operational planning normally remain in-house.
In the current fiscal environment, the Commission believes that government IT service delivery should be driven by considerations of relative value-for-money and effectiveness calculations. Simply put, governments cannot afford to remain the only centres of expertise when it comes to IT service delivery if more cost-effective options are available.
Accountability is an essential aspect of government operations, but we often treat that goal as an absolute good. Taxpayers expect excellent public-sector management as well as open and transparent procurement practices. However, an exclusive focus on rigorous financial reporting and compliance as the measure of successful management requires significant investments of time, energy and resources. At some point, this investment is subject to diminishing returns.
While acknowledging the importance of transparency and prudent use of taxpayers’ money, the implicit costs of accountability measures should be reviewed as well. The Commission has found that little consideration has been given to the appropriate balance between containing risk and the effort and expense diverted to compliance with rules and regulations. The impact of inefficient rules in this regard go well beyond the OPS, and extend throughout the BPSto include hospitals, post-secondary education, elementary and secondary schools, and municipalities. The added cost to the government — and thus by extension to the public, private and non-profit sectors in ensuring compliance — should be considered in gauging the appropriate response to the risk of waste or fraud in operations.
The government should shift to measuring outcomes rather than inputs and process, and should take a risk-based approach to accountability. In trying to balance the goals of accountability and efficiency, the government may well find that there are opportunities both to streamline administration and ensure accountability in the OPS, BPS, private sector and non-profit sector.10
Recommendation 16-11: The government should ask the Ontario Auditor General to help find an appropriate balance between ensuring accountability and continuing oversight of compliance with rules and regulations.
Recommendation 16-12: At a minimum, the government should allow principles of efficiency to drive accountability programs, such as switching from individually tracked expenses to a per diem for civil servants and consultants, as is done by the federal government.
To keep pace with the rising expectations of citizens for high-quality and cost-effective public services, the OPS introduced shared back-office services in the late 1990s. Among the services consolidated were back-office functions (such as payroll, financial transactions, procurement, collections and insurance) and common administrative services (such as printing, mail, translation and asset management) into one integrated and specialized organization. While this is a good example of how Ontario has transformed the operations of the OPS, it is just the tip of the iceberg in terms of cost-saving practices that could be extended further to the BPS.
Recommendation 16-13: Selected shared services should be expanded to agencies, boards and commissions (ABCs) and the broader public sector.
This would include I&IT consolidation, supply chain management, back-office functions and centralized maintenance. Given that the introduction of shared services produced over $900 million in savings across the OPS, the magnitude of potential savings in the BPSis substantial.
The Commission’s recommendations address four main areas where shared services could be expanded to the BPS: I&IT transformation, supply chains, back-office consolidation and centralized maintenance. Other chapters in this report also discuss the importance of shared services and back-office efficiencies.11
Information and information technology (I&IT) is a business enabler, and it drives service delivery productivity. In 2010–11, the OPS spent about $987 million on I&IT. This includes IT infrastructure such as networks, telecom, desktops, data centres and servers, as well as information and data management, IT policy and governance structures. Significant leaps have been made in I&IT consolidation, integration and rationalization in the past 10 years.
Recommendation 16-14: The government should consolidate information and information technology (I&IT) services throughout the broader public sector.
Infrastructure consolidations within the OPS resulted in a permanent reduction of $100 million in costs annually.12 Further efficiencies can be found by pushing these efficiencies out to the BPSin the following services:
Recommendation 16-15: Significant savings and efficiencies can be achieved by further co-ordinating existing horizontal supply chains across the broader public sector.
A formal mandated framework would help. This would further reinforce key principles across the BPSsuch as value for money, specialization and differentiation, and accountability. Implementation of this recommendation should be phased in over three to five years to give the parties time to explore provincial, regional and sector-specific opportunities.
A shared service delivery model that is applied to collaborative purchasing, standardization of products and processes and back-office consolidation would further exploit economies of scale throughout the BPS. Within sectors, it would reduce administrative burdens, increase co-operation among sector partners, and encourage better performance management and measurement.
For example, a single hospital shared service organization (SSO) offering consolidated procurement and logistics to 11 hospitals in the Greater Toronto Area has saved $52 million cumulatively over five years and now generates $14 million in annual savings for its member hospitals.
Collaborative procurement practices across the BPSare now done on a voluntary basis. A standardized framework would enable the BPSto take advantage of its immense purchasing power and accelerate future savings and efficiencies.
A significant supply chain transformation would require medium- to long-term planning and investment in change management. To generate savings and efficiencies through transformed business practices, BPSorganizations will need to establish a culture of collaboration, standardization and performance measurement.
Back-office consolidation improves operational performance by replacing fragmented and duplicated systems with specialized and differentiated ones. Human resource (HR) management is invisible to the public but essential to the operation of public enterprises.
Recommendation 16-16: The province should take a direct leadership role in using core provincial infrastructure and expertise to foster shared services across the broader public sector. Significant economies of scale can be created through common shared services foundations, applications, resources and expertise.
Back-office consolidation in the BPSshould include the centralization of:
Recommendation 16-17: Expand consolidation of maintenance and plant management practices already established in the Ontario Public Service into the broader public sector to create efficiencies.
Given the Ontario Realty Corporation’s merger with Infrastructure Ontario, experience in property management could be extended to the BPS.
Transfer payment and grant programs in OPS ministries have tended to develop in relative isolation and are thus primed to deliver centralized efficiencies. By their nature, transfer payments and grant systems support a wide variety of agencies, programs and stakeholders. To list just a few examples, they support granting agencies such as the Ontario Arts Council, Ontario Media Development Corporation and Ontario Trillium Foundation, as well as highly specialized programs such as support for tourism development; operating funding for public libraries, museums and heritage organizations; project funding for arts and culture organizations; and support for small businesses.
Perhaps because these programs are so specialized, there has been little development of a formal “community of practice” through horizontal integration of administrative services. As a result, the government has failed to reap potential efficiencies in program administration that could also improve customer service. Currently, many organizations are funded by multiple ministries, but the government has no easy way to assess the universe of funded organizations as a whole. Likewise, recipient organizations have expressed frustration at having to deal with multiple requirements.
To address these issues, the Commission makes several recommendations that would centralize operations common to transfer payment and grant programs and, it is hoped, improve client experience, value-for-money outcomes and program efficiency.
Recommendation 16-18: The Ontario Public Service should develop an integrated transfer payment operation centre and an enterprise grant management system.
A joint project by the Ministry of Tourism, Culture and Sport and Ministry of Citizenship and Immigration resulted in the development of the Enterprise Grants Management System (EGMS). Further efficiency and value-for-money gains would be achieved by expanding this platform to the OPS. The expansion would create efficiencies in program administration as well as lower per unit ministry maintenance costs.
Recommendation 16-19: Consolidate back-office operations for grant programs or transfer payments with identical recipients.
Under the integration of a common management system, ministries should also be able to gain efficiencies through the identification and establishment of common administrative groups, forms production and the design and use of tracking and forecasting databases. For example, a number of programs in the Ministry of Economic Development and Innovation support the business development of Ontario’s brewery and vintners sector; this sector is also recipient of parallel programs by the Ontario Ministry of Agriculture, Food and Rural Affairs.
1. Public Accounts of Ontario, 2010–11 — Includes total salary and wages, employee pension and benefits, transportation and communications, services and supplies for unconsolidated expenses.
2. This figure does not represent the full costs of labour to the province or taxpayers. A significant portion of labour costs are embedded in program spending numbers for ministries. We estimate that labour costs amount to about half of all program spending.
3. Local Health Integration Networks and hospitals are discussed in greater detail in Chapters 5. Schools are discussed in Chapter 6, while colleges and universities are the focus of Chapter 7.
4. Municipalities are discussed in detail in Chapter 20.
5. Often they are referred to as the ABCs (agencies, boards and commissions). Classified agencies are subject to the Agency and Establishment and Accountability Directive, which is the most significant accountability instrument of government.
6. For more information, see p. 34 of the “Report of the Special Advisor on Agencies,” by Rita Burak.
7. Elaine Todres and Associates, “Delegated Administrative Authority Review,” May 2009.
8. Currently, the Ministry of Consumer Services is responsible for overseeing eight authorities, boards and corporations that operate under the DAA or similar model: Ontario Motor Vehicle Industry Council (Motor Vehicle Dealers and Salespersons); Real Estate Council of Ontario (Real Estate Salespersons and Brokers); Travel Industry Council of Ontario (Travel Retailers and Wholesalers); Technical Standards and Safety Authority (Technical Standards and Safety); Electrical Safety Authority (Electrical Safety); Vintners Quality Alliance of Ontario (Ontario VQA wines); Board of Funeral Services; and TARION (New Home Warranty Program). The Ontario Seniors’ Secretariat is currently implementing a new administrative authority, the Retirement Homes Regulatory Authority, established under the Retirement Homes Act.
9. For further discussion, see Chapter 7, Post-Secondary Education.
10. The non-profit sector is further discussed in Chapter 8, Social Programs.
11. For more on sector-specific approaches, please see Chapter 5, Health, Chapter 6, Elementary and Secondary Education, and Chapter 8, Social Programs.
12. Public Accounts.