03/20/2014 12:21 EDT | Updated 05/20/2014 05:59 EDT

New report says Nova Scotia cabinet should loosen grip on contentious job fund

HALIFAX - The Nova Scotia cabinet should loosen its grip on a contentious job-creation fund to improve the program's accountability, a new report on economic development says.

The report by former Dalhousie University president Tom Traves says the cabinet-controlled Jobs Fund requires an arm's-length decision-making process to ensure it has the public's trust.

"My major concern about the Jobs Fund relates to its governance," he wrote in the report released Thursday. "At present, cabinet makes all decisions for its use without specific program guidelines."

It has often been criticized as a slush fund guided by the political motivations of cabinet rather than sound economic policy.

Last November, the province's auditor general said he found examples within the fund of unsecured loans and loans that were approved but did not always include the required financial and economic analysis.

The previous NDP government changed the name of the 50-year-old Industrial Expansion Fund in 2011 and promised more accountability.

But the New Democrats did not provide independent oversight despite an earlier auditor general's report that found the fund had no application system, no documented approval process and relied too heavily on secret reports to cabinet.

Premier Stephen McNeil said Thursday he had yet to read the Traves report, but he endorsed the idea of making the fund more transparent.

"Any time that we have an independent and external body looking at delivering financial commitments is a good thing," he said just before the report was released.

When he was Opposition leader, McNeil pledged to have an arm's-length body oversee the fund.

The overhaul of economic development programs was one of the Liberal government's key promises in last year's election campaign.

Despite the Jobs Fund's reputation, Traves said some kind of fund is needed to deal with major projects or emergency situations that don't conform to the requirements of Nova Scotia Business Inc., the province's business lending agency that is overseen by an independent board.

While Traves said the Jobs Fund needs oversight from an independent board, he also recommends that cabinet retain the right to revive or reject proposals from the board, which means politicians would ultimately maintain control.

Even with a cabinet veto, the board's input would make funding decisions more accountable, Traves said.

"I think it raises the bar on clarity, transparency and the need for explanation," he told a news conference.

Conservative Leader Jamie Baillie rejected Traves's recommendation, saying Nova Scotia Business Inc. has the tools to do the job.

"We already have an independent body, NSBI, and an independent board populated by smart, private-sector people," he said. "We don't need more bureaucracy ... to do the same thing."

At the end of the last fiscal year, Traves said the fund's portfolio totalled $776 million in loans, loan guarantees, equity investments and grants.

Traves concluded that Nova Scotia Business Inc. and Innovacorp, the province's early-stage venture capital organization, are generally doing a good job and he accepted the current practice of giving cabinet final approval on large deals.

He also acknowledged the arguments made by some that governments should not assist businesses because it interferes with free markets and wastes taxpayers' money.

"These points have merit but, given the province’s weak economic performance, some interventions seem essential," he wrote.

Traves said Nova Scotia is competing with every other Canadian province and U.S. state willing to assist business to attract economic development. U.S. state governments, cities and counties spend an estimated $70 billion annually on economic development incentives, he found.

That leads business to shop around new development to "the highest bidder" or they ask for money to prop up struggling operations, Traves added.

"Businesses understand these competing opportunities," Traves wrote. "As a relatively small, open regional economy, we cannot avoid these pressures."

Traves also said there's nothing wrong with the province offering financial support to large, successful multinationals like French tire manufacturer Michelin. Such support is used to leverage much larger investments, he said.