Federal innovation department left $760 million unspent last fiscal year – The Logic

The federal innovation department did not spend about a quarter of the just over $3 billion it was authorized to spend in the 2019–20 fiscal year, according to new disclosures. More than half the shortfall consisted of deferred payouts to firms awarded funding by Ottawa’s flagship business support and broadband access programs.

Innovation, Science and Economic Development Canada (ISED) said almost all the unspent money will be moved to future years, mostly at the request of its intended private-sector recipients. But it’s not the first time the department has fallen short of its plans, and opposition party critics say they’re troubled by what appears to be a pattern.

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Innovation, Science and Economic Development Canada spent only $2.39 billion of the $3.14 billion it was authorized to in the 2019–20 fiscal year, new disclosures show. The department said it’s deferring funds to later years to meet the project timelines of the companies it’s backing, but opposition MPs expressed concern about what they see as a pattern of overpromising and underdelivering.

For the fiscal year ending March 31, ISED had authorities—a term for permission to spend money granted by standing legislation or by parliamentary votes—of just over $3.14 billion, but only spent about $2.39 billion, according to the annual departmental results report published last week. That means about $760.5 million, representing a quarter of the department’s financial power, went unused. The department also spent significantly less than the $2.81 billion it projected for the fiscal year in its April 2019 annual plan, before extra funding was added in the budget and estimates process.

ISED spokesperson Riyadh Nazerally said “the majority of lapses” in its grant and contribution programs were due to to funding recipients asking that the money allocated for them be “carried over to future years to align with [their] cashflow requirements.” Only $26 million of the unspent money will revert to Ottawa’s overall wallet, held by the finance department.  

But ISED is a serial deferrer. The gap between the department’s available cash and actual spending has widened slightly even as its annual expenditures have increased significantly. In the 2015–16 fiscal year, in which the Liberals formed government a little past the halfway mark, it used all but 20 per cent of its $1.49 billion in total authorities. By 2018–19, the difference had risen to $981.7 million of its $3.26-billion allocation, or 30 per cent unspent. 

NDP innovation critic Brian Masse said the underspending reflects a longstanding trend of Ottawa failing to follow through on its promises. The Liberal government “can announce programs, get news media hits and good fanfare responses, but never have to actually deliver on the goods,” he said, suggesting that funding requirements are designed too narrowly to allow many companies to qualify. 

“I’m not critical of government when they underspend,” said Conservative innovation critic James Cumming, but “you want to have solid planning and solid results.” While he noted most of last fiscal year’s unspent fund will be deferred, the Edmonton MP said the government should examine why it’s “consistently underspending to what [its] ask is.” 

The lapsing funds are not unique to ISED, or the current Liberal government. “Each year, billions of dollars approved by Parliament are not spent,” the parliamentary budget officer noted in a November 2015 report, calling it “a natural consequence” of the federal funding process and a result of “an elaborate internal administrative control system that can delay the implementation of programs.” Environment and Climate Change Canada, another department that administers several grant and contribution programs, came in 18.5 per cent under its allocation of about $1.90 billion.

According to the federal government’s public accounts, tabled at the end of November, the largest share of ISED’s unspent money last fiscal year was earmarked for the Strategic Innovation Fund (SIF). The department paid out about $253.7 million less than the $674.7 million it was authorized to disburse via Ottawa’s flagship business-support initiative, which provides repayable financing and non-repayable grants to help domestic firms grow and commercialize, as well as to attract foreign investment to Canada. 

Nazerally noted that the SIF is a claims-based program—companies must spend on their growth or R&D efforts, then file to be reimbursed qualifying amounts by the department. This year’s unspent money has been deferred to future years “when companies need to access funds for finalized agreements at a later date than originally anticipated.” 

The government may also need more time to negotiate contributions agreements while doing “robust due diligence,” which Nazerally called “normal practice” for large-scale programs. As The Logic reported in May, ISED paid out $313 million over the SIF’s first three fiscal years, during which time it awarded $2.06 billion in funding.

ISED also significantly underspent on its Connect to Innovate (CTI) program, a $585-million effort to extend broadband to rural and remote communities. ISED spent just $90.96 million of the $277 million authorized for the initiative in 2019–20. Nazerally said the department has “fully allocated all funding” from the program “to extend broadband infrastructure in Canada,” and will “support those projects able to spend the funds.” But he cited delays in procurement or construction, or because of weather or COVID-19 lockdowns.

Cumming said the government has “a bit of a patchwork” of broadband programs. In addition to the CTI, there’s ISED’s recently opened $1.75-billion Universal Broadband Fund, the Canada Infrastructure Bank’s $2-billion allocation to connectivity, and the Canadian Radio-television and Telecommunications Commission’s $750-million fund. COVID-19 has made people even more reliant on internet access for health care, schooling, government services and other activities, noted Windsor MP Masse. “How is it possible that we still haven’t exercised all the opportunities in those programs [like CTI]?”

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Ottawa is currently negotiating 29 agreements under the CTI, with another 69 in the planning, design and construction phase and seven operational, per ISED’s tracking website. 

Some firms allocated funding reported no major delays. All but one of BCE’s first round of contracts under the program are on schedule, said spokesperson Jacqueline Michelis; the telecom firm’s subsidiaries have been awarded about $53 million across 108 projects. Telus has not “requested a deferral at any point in the process” on the $21 million in CIT funding it’s set to receive for two Quebec installations, spokesperson Kalene DeBaeremaeker said.