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Zurich Citizens News, 1975-07-31, Page 2Page 2 - Zurich Citizens News, July 31, 1975 HOW ONTARIO IS FINANCED With the introduction of the mini -budget in July the net cash requirement of the prov- ince was increased to $1,769 billion. This is being financed in the following way:Non- Public Borrowing. Canada Pension Plan 42%; Ontario Municipal Employees Retire- ment System (OMERS), 8%; Teachers' Superannu- ation Fund, 13%; Public Bor- rowing (to be determined), 37%. The shortcomings of these sources will soon become evi- dent as the province is def- inetely losing the funds from which it has so freely borrowed to finance its def- icit position since 1970. Assessing these sources individually will illustrate firstly that the plateau period of the Canada Pension Plan is approaching more rapidly than originally anticipated due to the indexing of bene- fits. The plateau period is the point at which benefits would rise to equal contribut- ions and then continue to increase steadily above them. This would rapidly deplete the former excess amounts of capital from which the prov- ince could borrow. The plat- eau period was originally anticipated to occur around 1948. In the Federal Govern- ment's "White Paper on Income Security" published in 1970 proposals were made to increase the scope and gen- erosity of payments from the C.P.P. Should these prop- osals be approved (and ap- proval must come from 2/3 of the provinces contain- ing 2/3 of Canada's pop- ulation) it is estimated that the fund's plateau period will occur in the early years of the 1980's. Gross revenue of the C.P.P. comes from three sources: (1) Contributions of employees employers and the self- employed, (2) provincial int- erest payments on the cum- ulative amount borrowed and, (3) repayments of prin- cipal as the Loans mature or; at the discretion of the Minister of Finance subject to early recall as the funds are needed. The gross revenue is then reduced by benefit payments and expenses of administrat- ion. The resulting net rev- enue is available as invest- ment capital to the particip- ating provinces in that year. However, the actual cash flow to the provinces is the net revenue less provincial pay- ments of interest and repay- ments of principal. So al- though the fund level may continue to rise the net provincial cash flow is decl- ining and will become negat- ive in the early 1980's. And finally, the government still has not decided what action to take to compensate for this eventual loss of funds. Instead they have been borr- owing more and more from it every year and this year it accounted for approximat- ely one-half of the province's financing needs. The funds of both OMERS AND THE Teacher's Super- annuation Fund are solely invested in Ontario debent- ures -quite a convenience factor in easing the province' s borrowing requirements. The Report of the Joint Study Group on OMERS Invest- ment Policies (Feb. 14/74) ers" under the OMERS Act supports the finding that if are obliged to discharge future contributions were to OMERS' liabilities. The be invested in a full range probability of the province of marketable securities under having to step in to guaran- the . Pension Benefits Act tee OMERS pensions anyway and its regulations rather is very remote particularly than in the non -market- if funds were invested in a able Ontario debentures, conventionally diversified OMERS would receive a portfolio of Canadian secur- - higher rate of return on the ities. system's funds Every investment special - possibly from a minimum ist whom the Study Group of 3/4% per annum to a max- consulted was of the opinion imum of 1 1/4 % per annum. that the best interests of the Such a higher return on the employers and the members basis of funds to be avail- of OMERS would be served able for investment would if OMERS' funds were to be considerably increase the invested in marketable IDB offers help to area firms The Industrial Development the area several times monthly where on reasonable terms Bank is trying to make its on an informal basis, to cond- and conditions in keeping with facilities better known and uct follow-up credit studies as the needs of the operation. more readily available well as to respond to re - throughout this area. quests for advice on the banl's In addition to financial ass - An experienced represent- functions from local financ- istance, IDB is issuing a series ative of IDB, H.A. Sheldon, ial institutions, chartered of helpful brochures on small has recently been assigned the accountants and municipal business management which specific responsibility of officials on behalf of their are available, on request, handling financing proposals clients. at no charge. IDB also organ - from the Zurich territory. He The IDB, established in izes, through its branch off - will be operating out of the 1944 as a subsidiary of the ices and with the assistance Stratford district office, which Bank of Canada, makes loans and co-sponsorship of dist- administers the IDB programs to new or existing businesses rict Chambers of Commerce, in Perth and Huron Counties. of all types for a variety of management seminars to help In the above capacity, purposes. While there are no owners and operators of small - Mr. Sheldon will conduct pre- limits on loan amounts, al- er businesses improve their advertised visits to Exeter most 80 p;er cent of the banl's management skills. (on the second Tuesday of loans are for $50,000 or less, each month) for the purpose reflecting the bani's special Speakers on the functions of making IDB 's financial and focus on providing assistance of 'the bank are also provided advisory services available to - to small businesses, where the for civic, professional and local b usinesses. proposal is sound and financ- service club meetings on re - Mr. Sheldon will also be in ing is not available else- quest. System's investment income. securities of the Canadian As a result of the impact of capital market! inflation - (pensions are Knowing the anticipated J. E Longstaff being determined on the basis growth of OMERS, if 20% e of earnings at or near retire- of its funds were to b e invest- ment and the purchasing pow- ed in marketable Ontario er of pensions is protected provincial bonds (the average SEAFORTH MEDICAL CENTRE by"increasing the pension each for a Cdn. pension fund is 527.1240 year by an index such as the 25% in provincials), then the T4esday, T,iursday, Friday, Sat - CPI) - OMERS requires additional sums the province urday a.m., Thursday evening additional revenue to increase of Ontario would have to its benefits. Therein lies the borrow in the public market CLINTON OFFICE significance of investments would be as follows:1974 - 10 Issse Shwa 4112.7010 increasing investment income. $96,000,000; 1975 - $110, Monday and Wednesday At this point, the prime 000,000; 1976 - $122,000,000 Call either office -for question is: should the funds 1977 - $134,000,000; 1978 - apponntment. of OMERS be dedicated to $150,000,000; 1979 - $170, (1) a reduction of the impact 000,000; 1980 - $185,000,000; Norman Martin of Ontario's borrowing on 1981 - $201,000,000; 1982 - the public capital market; $217,000,000; 1983 - $232,000, OPTOMETRIST (2) a reduction in the cost 000. Office Hours: of Ontario's long term money; The consequences of Ontar- 9-12 A,M. — 1:30-0 P.M. (3) the enhancement of Ont- io being required to borrow Closed all day Saturday ario's credit; OR (4) the excl- such sums in the public Oben 235.2433 looter usive interests of the empl- market rather than from oyees and members of Omers. OMERS would be an increase With OMERS acceptability in the supply of the prov- assured (in early 1970's), ince 's securities in the mark- RobertWestlake as OMERS actuaries accumul- et and, an increase in the o ated reliable data with regard price of money to the prov- to members', age, sex, dis- ince. Insurance ability, retirement, mortality It is clearly a matter of „ etc., and as the System mat- time before the province Spoeialh M ured and stabilized, the need loses this source of income. General Innwoswee"' for support from its custodian, The Teachers' Superannua- Phone 24301 — Zurich the Province of Ontario which tion Fund appears to be head - was essential in year one, was ed in the same direction Guaranteed Trust no longer essential and in since all of its investments .. fact was less adequate now are presently held in Ontario Cert�f ieates ten years later. (i.e. Ontario debentures with coupons had initially issued 40 year ranging from 6% to 8.57 %. debentures which the fund Pension Funds must out of could not have obtained else- necessity try to obtain the' where and guaranteed the highest rate of return possible fund's pension benefits.). on their investments in order J. W. �A►B However, even though to comp;ly with demands the funds are supposedly for increased benefits ZURICH PHONE 23 ..43I guaranteed by the province, brought on by unyielding there is no section in the inflatin. OMERS act that staes that the So far this non-public province is to provide monies borrowing accounts for 63% to pay OMERS Pensions if the of the net financing require - system were unable to do so. ments. We are left with In fact, Section 10 of the Act $648 million still to be found provides that "the contribut- to balance the 1975 budget. ions of the employees shall be The province has already gone such an amount as is required to the market (July) to obtain in addition to the contributions $150 million. Over half -way of the members and interest through the year and we still earned to provide for the pay- have another $498 million ment of benefits and exp- to find. How do they propose enses." In other words, the to obtain this with interest municipalities and local rates remaining at all time boards of Ontario as "employ- highs? aae�t� Reay, Dols aid Co. Chartered Accountants 268 Main St., Exeter ARTHUR W. READ Resident Partner Bus. 235-0120, Res. 238-8075 Business and Professional Director OPTOMETRISTS OPTOMETRIST INSURANCES 1 Yr 71/2% 2YR 8% 3-4 YR....9 I/4% 5YR 97/8% A JCTIONEBRS PIRCY WRIGHT LICENSED AUCTIONEER Kippers, Ont. Auction Sale Service that is most efficient and courteous. CALL THE WRIGHT AUCTIONEER Telephone Homan (S111)262-5515 Hugh Tan FILSON and ROBSON AUCTIONEERS 20 years' oxporiotoco of complete solo service Provincially licensed. Conduct sales of any kind, • any place. To insure success of your sale. orappraisal Phonev Collect 666-0833 666-1967 NORM WHITING LICENSED AUCTIONEER A APPRAISER Prompt, Courteous, Efficient ANY TYPE, ANY SIZE, ANYWHERE We give complete sale service. PROFIT BY EXPERIENCE Phone Collect S'1%4 R*BTER GERALD L MERNER Chartered Accountant BUS: 20 Sanders E. — EXETER --- 235-0281 RES: 10 Green Acres — GRAND BEND -- 238-8070