Canada

Prevalence of natural hazards

Canada covers a large territory, lying between three oceans and stretching across mountain ranges, plains, forests and tundra. Weather patterns range from arctic to moderate, and geological patterns also vary widely. As a consequence, Canada is exposed to a broad range of natural hazards (See table below).

Wildfires, floods and droughts are three of the most costly hazards in Canada. In the past 30 years, wildfires have consumed an average of 2.5 million hectares of forest land a year, resulting substantial direct damage; the in annual costs of bringing these fires under control has ranged between USD 500 million and USD 1 billion (Natural Resources Canada, 2017). The 2016 Fort McMurray fire caused an estimated USD 4.6 billion in damage and reduced Canada’s gross domestic product (GDP) by almost half a percentage point in the second quarter of 2016 (IBC, 2017a). Droughts can be a driver of wildfires, but can also cause significant damage on their own. The 1992 Prairie Provinces drought, for example, caused an estimated USD 5.8 billion in damage, much of which was related to loss in crop and livestock yields (Public Safety Canada, 2017a; EM-DAT, 2017).

Types of natural hazards to which Canada is exposed

Natural hazard category

Types of natural hazards

Geophysical

Earthquakes, volcanic activity, tsunamis

Meteorological

Hail, winter storms, tornados, fog, snow, extreme temperatures

Hydrological

Floods, storm surges, icebergs, sea ice, avalanches, landslides

Climatological

Wildfires, droughts

Sources: EM-DAT, 2017; Public Safety Canada, 2017a

Major natural disasters in Canada since 1980

Disaster event/ location

Year

Fatalities

People affected

Estimated damage in USD

Prairie provinces drought/ Manitoba, Saskatchewan, Alberta

1992

0

0

5.8 billion

River flood/ Southern Alberta

2013

4

100 000

5.7 billion

Wildfire/ Fort McMurray

2016

2

90 000

4.6 billion

Winter storm/ Ontario, Quebec, Manitoba

1998

28

18 745

4.6 billion

Thunderstorm/ Toronto

2013

0

0

1.4 billion

Hail storm/ Calgary

1991

0

0

885 million

Assiniboine river flood/ Manitoba, Saskatchewan

2011

Not available

Not available

633 million

Tornado/ Southern Ontario

2005

0

-

500 million

Sources: EM-DAT, 2017; Public Safety Canada, 2017a

Floods occur frequently across Canada, most often caused by spring thaw and heavy storm rainfall. Along the coasts, storm surges can also lead to flooding. Floods in southern Alberta in the summer of 2013 resulted in USD 2.7 billion in damage, while a storm surge in 2004 in Kings County, Prince Edward Island, caused around USD 2.6 million in damage (Public Safety Canada, 2017a).

Storms also pose a major risk all across Canada. A thunderstorm in Toronto in 2013 caused USD 1.4 billion in damage. Hailstorms and tornadoes too have had significant negative impacts in the past. The summer 2005 tornadoes in southern Ontario, for example, resulted in damage estimated at USD 500 million. Winter storms can occur throughout Canada and have caused major damage in the past. The 1998 winter storm in Eastern Canada caused USD 4.6 billion in damage and 28 fatalities (Public Safety Canada, 2017a; EM-DAT, 2017).

Geophysical hazards such as earthquakes occur much more rarely but nonetheless pose a major threat. The subduction zone off the coast of British Colombia has the potential to cause major earthquakes and threatens large metropolitan areas, including Vancouver. A less strong earthquake in eastern Canada could cause comparable damage due to the higher vulnerability of the built environment. The Insurance Bureau of Canada (IBC) estimates the total damages of a magnitude 9.0 earthquake off the western coast of Vancouver Island at around CAD 75 billion (USD 62 billion), and those of a magnitude 7.1 earthquake in the Quebec City-Montreal-Ottawa corridor at almost CAD 61 billion (USD 50 billion). Although no tsunami has occurred in the recent past, two tsunamis struck British Columbia in the early 1960s, and the risk of a tsunami occurring in the future is considered high (Public Safety Canada, 2017a).

Past fiscal impact of disasters

Annual average losses caused by disasters have been estimated at USD 1.14 billion (PreventionWeb, 2017). Information from the Canadian Disaster Database (CDD), a publicly accessible web-based repository of historical information on natural and manmade disasters, suggests that between 1980 and 2016 annual average losses amounted to USD 629 million (Public Safety Canada, 2017a). The overall probable maximum loss has been estimated at USD 23.2 billion (1.45% of GDP) for 500-year return events, and at USD 36.4 billion (2.28% of GDP) for hazardous events with a 1000-year return period (PreventionWeb, 2017).

Subnational governments lead disaster response and the provision of financial assistance for disaster recovery (Murphy, 2011). Each provincial and territorial government1is responsible for administering disaster financial assistance in its jurisdiction and for determining the rules for the assistance it provides. When disaster recovery costs at subnational level exceed an established initial threshold, the affected provincial or territorial government may request post-disaster financial assistance from the federal government (Office of the Parliamentary Budget Officer, 2016).

The majority of the federal government’s financial resources for post-disaster relief and recovery are financed by the Disaster Financial Assistance Arrangements (DFAA), with some additional support available via smaller federal programmes. The DFAA is financed through an annual budget. The potential increase in financial requirements that unforeseen events such as natural disasters could pose for the funding capabilities of the central government is reflected in the design and implementation of its debt management programme, which is flexible and adaptable, and is also factored into its broader contingency plans.

Since the inception of the DFAA in 1970, a total of CAD 4.8 billion (USD 3.7 billion) has been distributed to provincial and territorial governments in the aftermath of disasters. Overall, annual federal reimbursements of provincial and territorial response and recovery costs via the DFAA have increased from CAD 4.3 million (USD 3.6 million) in 1980 to CAD 175.8 million (USD 144.8 million) in 2014. The increase is linked to a higher occurrence of extreme weather events in the past five years and an increase in both asset values and concentration (Parliamentary Budget Office, 2015; Office of the Parliamentary Budget Officer, 2016; Statistics Canada, 2015).

Annual reimbursements via the DFAA to provincial and territorial governments, 1980-2014
Annual reimbursements via the DFAA to provincial and territorial governments, 1980-2014

Source: Parliamentary Budget Office, 2015.

The majority (78%) of DFAA expenditure has been in response to floods (CAD 1.4 billion; USD 1.16 billion), for which insurance only became available in 2015. The southern Alberta and southeastern British Columbia flood of June 2013, for instance, resulted in CAD 1.35 billion (USD 1.11 billion) in costs to the DFAA, while the 2011 Assiniboine River flood resulted in CAD 769 million (USD 633 million) in DFAA transfers, 68% of which was disbursed to Manitoba and 32% to Saskatchewan. In 2014, flash floods following a period of heavy rain in Saskatchewan required DFAA post-disaster assistance of CAD 160 million (USD 131.7 million) (Office of the Parliamentary Budget Officer, 2016).

Manitoba, Saskatchewan, Alberta and Quebec, which are exposed to a wide variety of hazards, have been the principal recipients of assistance under the DFAA, while the remaining provinces made less frequent use of that assistance (Office of the Parliamentary Budget Officer, 2016; Nadarajah, 2016).

Given the continual and growing demand for federal disaster response and recovery funding, the central government increasingly encourages investments in disaster risk reduction measures to mitigate ex ante the impact of future disaster. Since 2014, through the National Disaster Mitigation Program (NDMP) and the new Disaster Mitigation and Adaptation Fund, the central government has contributed to disaster risk reduction efforts at subnational level a number of times, particularly for flood risk management (Government of Canada, 2017).

Share of DFAA payments by hazard, 1970-2014
Share of DFAA payments by hazard, 1970-2014

Source: Office of the Parliamentary Budget Officer, 2016.

DFAA payments to provincial and territorial governments by hazard, 1980-2014
DFAA payments to provincial and territorial governments by hazard, 1980-2014

Source: Parliamentary Budget Office, 2015.

Managing disaster-related contingent liabilities

Identification of disaster-related contingent liabilities

Explicit contingent liabilities

Explicit contingent liabilities arise from payment obligations that are based on laws, or clear policy commitments that could fall due in the event of a disaster. In Canada, a number of federal laws and policies recognise the federal government’s explicit commitment to sharing with provincial and territorial governments the cost of responding to disasters and reconstructing public and private assets. The tables below illustrate the extent of the federal government’s explicit commitments to provide post-disaster financial assistance.

Explicit central government obligations for post-disaster financial assistance in Canada

Commitment to finance…

Yes

No

… post-disaster response and recovery

…a share of the costs incurred by subnational governments to finance post-disaster response and recovery

… reconstruction and maintenance of central government-owned public assets

x

… rehabilitation and reconstruction of private assets

x

… other expenses incurred by subnational governments (e.g. payments to businesses or individuals)

x

…government guarantees for disaster losses incurred by public corporations and public-private partnerships

x

Note: The Emergency Management Act states that the Minister of Public Safety and Emergency Preparedness may provide financial assistance for eligible events upon the passing of an Order in Council. Legislation authorizes, but does not make financial assistance obligatory. However, given that no request for assistance has been declined to date under the DFAA, it could be considered a quasi-statutory programme.

Source: OECD Survey.

Laws and policies underpinning explicit central government contingent obligations

Legal basis/guideline

Description of obligation

Emergency Management Act1

Under section 4 (1) (j): the Minister of Public Safety and Emergency Preparedness may provide financial assistance to a province if:

a provincial emergency has been declared to be of concern to the federal government by the Governor in Council under Section 7(c)

the Minister is authorised by the Governor in Council under Section 7(d) to provide financial assistance the province has requested assistance.

Guidelines for the Disaster Financial Assistance Arrangements2

Reimbursable costs:

- costs related to emergency operations in the immediate disaster period such as rescue, transportation, shelter, health, food and security

- costs related to post-disaster period for individuals, such as damage to primary residences (not cottages), replacement of essential furnishing and clothing, and assistance to small owner-operated businesses (where insurance is not available at a reasonable price)

- costs related to repairing public infrastructure, such as roads, bridges, buildings, and sewer and water utilities.

Progressive cost-sharing scale, with up to 90% of the costs eligible for federal reimbursement

Guide to AgriRecovery3

Reimbursable costs:

extraordinary costs that agricultural producers incur in order to recover and that cannot be covered with assistance from existing programming

60% of the costs eligible for federal reimbursement; 40% to be borne by provincial and territorial governments

Source: OECD Survey; Department of Justice Canada (2018), Minister of Agriculture and Agri-Food (2014), Public Safety Canada (2018).

The Emergency Management Act provides the legal framework for some of the federal government’s disaster-related contingent liabilities. The Minister of Public Safety and Emergency Preparedness may provide financial assistance to provincial and territorial governments that request it if an emergency has been declared and the Governor in Council has authorised the assistance.

The federal assistance is provided through the DFAA cost-sharing reimbursement programme. Under the DFAA, provincial and territorial governments may request reimbursement of their net costs – that is, costs for post-disaster recovery (e.g. repairing public infrastructure such as roads, bridges, buildings, and sewer and water utilities) and for assistance to affected households and businesses, minus any financial assistance from other sources and any recoveries from insurance payouts or legal actions. Eligible costs under the DFAA include those related to emergency operations, damage inspection, appraisal and clean-up, and restoration and reconstruction of public (and sometimes private) works and infrastructure to their pre-disaster condition. Additional repair or replacement costs required to meet current federal, provincial codes and standards for construction, access, fire and occupational safety are also eligible. Eligible items may also include assistance for the recovery of essential personal property of individuals, small businesses and farmsteads.

Certain costs of provincial and territorial governments cannot be shared with federal funding available via the DFAA. These include restoring or replacing insured or insurable items and repairing damaged luxury items or non-primary dwellings. Indirect costs are likewise ineligible for cost-sharing under the DFAA; these include loss of income, disaster-related reductions in provincial sales taxes revenue, legal and other costs associated with the settlements of estates of people killed by the disasters, assistance to businesses other than small businesses, and interest on loans obtained for bridge financing or on late payments made by provinces. Other categories of costs not eligible for reimbursement under DFAA are damages caused by man-made hazards or health emergencies and costs related to fighting forest, prairie or grass fires or wildfires (except where they pose a threat to built-up areas) and damages limited to one economic production sector or incurred on reserves.

As defined in the DFAA Guidelines, reimbursements to subnational governments are made on a progressive scale. The threshold that needs to be met in order to qualify for federal reimbursements via the DFAA starts at CAD 3.07 (USD 2.53) per provincial citizen, resulting in initial thresholds ranging from CAD 114 450 (USD 94 162) in the more sparsely populated Nunavut to over CAD 43 million (USD 36 million) in Ontario. Once eligible disaster recovery expenses incurred by the affected provincial or territorial government exceed the initial threshold, at least half of the expenses eligible for financial assistance under the DFAA are reimbursable. The maximum federal reimbursement rate is 90% of eligible costs and applies when the final threshold of CAD 15.37 (USD 12.65) per citizen has been passed. The cost-sharing formula is adjusted annually for inflation (Public Safety Canada, 2017b).

Expense thresholds under the DFAA, 2017

Province/ territory

Population 2017 (Q1)

Initial threshold amounts for 50% federal reimbursement (CAD)

Final threshold amounts for 90% federal reimbursement (CAD)

Alberta

4 280 127

13 139 990

65 785 552

British Columbia

4 777 157

14 665 872

73 424 903

Manitoba

1 328 346

4 078 022

20 416 678

New Brunswick

757 771

2 326 357

11 646 940

Newfoundland & Labrador

529 696

1 626 167

8 141 428

Nova Scotia

952 024

2 922 714

14 632 609

Northwest Territories

44 263

135 887

680 322

Nunavut

37 280

114 450

572 994

Ontario

14 094 167

43 269 093

216 627 347

Prince Edward Island

149 383

458 606

2 296 017

Quebec

8 356 851

25 655 533

128 444 800

Saskatchewan

1 158 339

3 556 101

17 803 670

Yukon

37 693

115 718

579 341

Source: Public Safety Canada, 2017b.

Cost-sharing formula under the DFAA

Provincial/territorial expense thresholds (per capita of provincial population) for DFAA reimbursement

Provincial/territorial share (%)

Federal share %)

First CAD 3.07

100

0

Next CAD 6.15

50

50

Next CAD 6.15

25

75

Remainder (over CAD 15.37)

10

90

Source: Public Safety Canada, 2017b.

Where the DFAA does not apply, other forms of federal disaster assistance may be available through smaller programmes. A post-disaster support program for agricultural producers AgriRecovery has been set up as a complementary cost-sharing mechanism between the central and provincial/territorial levels of government to provide margin-based support for income losses and disaster relief to affected agricultural producers. Costs are shared between the central government and the respective affected provincial or territorial government using a 60:40 cost-sharing formula (AAFC, 2017). Through AgriRecovery, CAD 118.5 million (USD 97.7 million) has been channelled to agricultural producers affected by extraordinary natural hazards in 2015-16, a 9% increase since the framework’s inception (Government of Canada, 2016). Farmers may also benefit from flexible payment arrangements and government-backed loans to finance recovery offered by Farm Credit Canada.

For small businesses (excluding the farming industry and not-for-profit organisations), the Small Business Financing programme offers loans up to CAD 1 million (0.7 million USD) for post-disaster recovery. Costs related to natural hazards affecting indigenous groups on reserves are not eligible for DFAA reimbursement (Public Safety Canada, 2017b). Through the Indigenous Services Canada (ISC) Emergency Management Assistance Program (EMAP) First Nations or tribal councils for reserves, lands set aside in Yukon under Cabinet Directive (Circular No. 27) and lands formerly defined as a reserve or lands set aside which now form part of modern treaty settlement lands may request reimbursement for disaster response or recovery activities (ISC, 2018).

In addition, indigenous low-income households on reserves may benefit from the Emergency Repair Programme (ERP) that provides up to CAD 20 000 (USD 16 500) per household in support of emergency repairs on homes following disasters2. To qualify, household income must be below an established range based on household size and geographic region (CMHC, 2018).

When an extraordinary event such as a disaster has prevented a large number of taxpayers from meeting their tax obligations, the fairness provisions in Canadian tax legislation allow the Canada Revenue Agency (CRA) to forgive or cancel penalties and interest charges on late tax remittances or late filing of a return due to the disaster. To indicate that relief is available, the CRA issues a news release, after which taxpayers may request to be considered for relief.

For damaged natural environments, restoration and recovery funding is available via the Environmental Damages Fund. Provincial, territorial and municipal governments as well as non-governmental organisations and aboriginal groups are eligible to apply for funding (Public Safety Canada 2017c).

As provincial and subnational governments have primary responsibility for providing post-disaster assistance and may determine their own rules for this, provinces and territories have their own range of programmes available for this purpose (Public Safety Canada, 2017c).

Federal disaster assistance programmes

Programmes

Agency

Description

Beneficiaries

Disaster Financial Assistance Arrangements (DFAA)

Public Safety Canada

Cost-sharing programme to reimburse a portion of eligible provincial/territorial expenditures arising from natural disasters

Provincial or territorial governments

AgriRecovery

Agriculture and Agri-food Canada (AAFC)

Cost-sharing framework to provide targeted assistance to alleviate extraordinary costs related to disaster recovery in the agricultural sector

Agricultural producers

Federal Loan Assistance

Farm Credit Canada

Flexible payment arrangements and government-backed loan guarantees to support recovery from disasters

Agricultural producers

Canada Small Business Financing Programme

Industry Canada

Loan guarantee programme to secure loans against inadvertent non-compliance with payment terms due to disasters or other reasons

Small businesses with gross annual revenues ≥ CAD 10 million

Emergency Repair Programme (ERP)

Canada Mortgage and Housing Corporation

Financial contributions to assist disaster recovery

Low-income households on reserves

Taxpayer relief provisions

Canada Revenue Agency (CRA)

Taxpayer relief provisions to help taxpayers meet tax obligations under extraordinary circumstances, such as disasters.

Affected taxpayers

Environmental Damages Fund

Environment Canada

Financial awards to support projects aimed at remediation or restoration of the environment

Community groups, universities and local governments

Emergency Management Assistance Program (EMAP)

Indigenous Services Canada

EMAP provides funding to First Nations communities so they can build resilience, prepare for natural or man-made hazards and respond to them.

First Nations located on:

• a reserve, as defined in s. 2 (1) of the Indian Act, R.S.C., 1985, c. I-5

• lands set aside in Yukon as per Cabinet Directive (Circular No. 27) entitled Procedure for Reserving Land in the Yukon and Northwest Territories (1955)

• lands formerly defined as a reserve or lands set aside which now form part of modern treaty settlement lands

Source: Public Safety Canada, 2017c, 2017d; ISC, 2018.

Examples of provincial and territorial disaster assistance programmes

Ontario has two disaster assistance programmes in place. The Disaster Recovery Assistance for Ontarians Program reimburses homeowners, tenants, small owner-operated businesses, farmers, and not-for-profit organisations for basic, essential disaster-related costs not covered by insurance. The Municipal Disaster Recovery Assistance programme provides assistance to municipalities for extraordinary costs associated with emergency response and for repairs to essential property and infrastructure following a natural disaster.

In British Columbia, the Disaster Financial Assistance programme is designed to compensate individuals for essential uninsurable losses (e.g. caused by coastal flooding) and to reimburse local governments for damaged infrastructure. Compensation is unavailable if damages are located in designated flood plains, unless such buildings were determined properly protected prior to the disaster, and for wildfire losses.

Source: Raikes and McBean, 2016; MAH, 2018a; 2018b; Government of British Colombia, n.d.

Implicit contingent liabilities

The central government’s contingent liabilities are clearly limited to reimbursing provincial and territorial governments for natural hazard-related costs; but exceptions have been previously made for major man-made disasters. For instance, in the case of the 2013 Lac Mégantic train derailment, the federal government provided funding for immediate response, recovery and reconstruction as well as economic recovery and decontamination.

Provincial and territorial governments may also set their own widely varying rules for post-disaster assistance to affected households and businesses. Thus, implicit contingent liabilities may arise at subnational level. For example, Alberta covers 100% of primary residence damage, while British Columbia covers only 80% of damage up to a total claim of CAD 300 000 (USD 247 140) (Office of the Parliamentary Budget Officer, 2016). Households that have moved from one province or territory to another may have the expectation that post-disaster support in their new province will be at par with what is available in the old.

Ad hoc post-disaster support may also create implicit contingent liabilities. For example, following a 2013 ice storm in southern Ontario and Toronto that caused major power outages the Ontario government distributed more than 500 000 gift cards to affected individuals and families (cards were worth CAD 50 [USD 41] and CAD 100 [USD 82] respectively). Such actions may create expectations that compensation will generally be available after other disaster-related power outages (Spitz, 2013).

The results from two surveys also illustrate that implicit contingent liabilities at subnational level may emerge in case of disaster (IBC, 2017a; Thistlethwaite et al., 2017): in 2014, over a third (38%) of survey respondents said they expected the government to help pay for the costs caused by an earthquake, and in 2017, nearly half the respondents said they expected the government to assist in financing flood-related damage costs (IBC, 2014; IBC, 2017a; IBC, 2017b).

Estimation of insurance payouts

The amount of insurance paid out to compensate for losses incurred by disasters is an important determinant of the size of government contingent liabilities. In Canada, insurance payouts in the case of disaster are not regularly estimated, but a review of the types of hazard insurance available has been carried out (Office of the Parliamentary Budget Officer, 2016). Hazard insurance is available for both households and businesses.

Under most available household policies, damages caused by fire, wind and hail are covered. Flood insurance for residential properties became available in most provinces only in 2015, following the experience of the destructive 2013 Alberta floods (limited flood insurance became available in 2018 in Quebec). Since 2015, home insurance thus increasingly also includes protection against inland flooding caused by riverine, creek or lake overflow and heavy rainfall, although it is limited to properties outside high-risk floodplains; coastal flood insurance remains unavailable. Take-up of household insurance is low: estimates suggest a rate of 10-15% (Raikes and McBean, 2016; Nadarajah, 2016; IBC, 2017a). Earthquake insurance may be purchased in addition to standard home insurance, with higher deductibles than for other perils. In addition to home insurance, motor vehicle insurance is available for multiple perils (including non-catastrophe perils) through a public insurance company operating in British Columbia, Manitoba, Quebec, and Saskatchewan (IBC, 2017b).

Farmers have available AgriInsurance, a federal-provincial-producer cost-shared asset and business continuity natural hazard insurance. AgriInsurance is a provincially delivered programme to which the federal government contributes a portion of total premiums and administrative costs. At slightly over 60%, take-up for horticulture crops is relatively high, but take-up for fresh fruit and vegetable production remains low. For five provinces– Alberta, Saskatchewan, Manitoba, New Brunswick and Nova Scotia – the federal government also provides a reinsurance arrangement (deficit financing) (AAFC, 2012, 2016).

In addition, businesses may choose from several types of business insurance policies, such as commercial property insurance and business interruption policies that cover hazard-related losses (IBC, 2017c).

Quantification of disaster-related contingent liabilities

In Canada, the estimated financial impacts of potential future natural hazard events are assessed through the federal All-Hazards Risk Assessment exercise conducted periodically and co-ordinated by Public Safety Canada with input from various other relevant departments and agencies. This initiative examines six impact categories, including “economy”, which involves an assessment of the direct and indirect economic cost of emergency events, as estimated by the finance ministry, Finance Canada (OECD, 2015). In recent years, Public Safety Canada has been piloting an updated approach and methodology to all-hazards risk assessments to inform its way forward and ensure continued relevance in a changing environment.

In order to ascertain the overall risks to the fiscal framework, forecasting of future central government expenses uses records of historical DFAA expenses and the results of ex post evaluations of the economic and fiscal impacts of past natural disasters. Forecasting was last performed in 2016, when the Office of the Parliamentary Budget Officer provided an estimate of the average annual DFAA costs for weather-related disasters in light of their increasing fiscal cost. The analysis built on information from IBC and SwissRe on insured losses and total losses as well as historical records available from the DFAA, and used imputed values where such information was missing. Catastrophe modelling was used to estimate future annual losses for hurricanes, convective storms (thunderstorms) and winter storms. The analysis concluded that weather-related hazards in the future would generate about CAD 902 million (USD 717 million) in total annual costs to the DFAA, up from CAD 360 million (USD 360 million) in 2011-16 (Table 6.9).

Types of information from previous events available to calculate disaster-related contingent liabilities in Canada

Type of disaster-related contingent liability

What gets recorded

Relief spending

Financial assistance distributed via the DFAA

Spending for the reconstruction of damaged public infrastructure and assets

Financial assistance distributed via the DFAA

Spending for the reconstruction of damaged private assets

Financial assistance distributed via the DFAA

Spending on increased social transfers due to a post-disaster economic slowdown

Not included

Expenditures due to guarantees issued to public or private entities suffering disaster losses

Not included

Post-disaster payments to subnational governments

Financial assistance distributed via the DFAA

Reduced tax collections

Not included

Disrupted operations of public corporations

Not included

Disrupted operations of private corporations

Not included

Deterioration in the terms at which the government can in the short term refinance public debt or raise additional debt

Not included

Source: OECD Survey

Estimated future DFAA annual weather-related payouts to territorial and provincial governments, 2017-23

DFAA’s share of total event loss (%)

Estimated annual total damage 2017-23 (million USD)

DFAA amount 2017-23 (million USD)

Hurricanes

19.2

81.47

15.68

Convective storms

0.27

553.88

1.51

Winter storms

12.12

1 419.79

171.70

Floods

27.71

2 005.86

555.53

Total

4 061.25

744.56

Source: Office of the Parliamentary Budget Officer, 2016.

Estimating the fiscal impacts of disaster-related contingent liabilities and integrating them into overall fiscal forecasting

The central government includes an adjustment for risk in the fiscal forecast to account for potential economic and fiscal risk. This risk adjustment is re-evaluated and modified as economic and fiscal risks unfold, and changes year to year depending on various circumstances.

While the 2017 budget (Government of Canada, 2017) includes a projection of the budgetary balance and federal debt-to-GDP ratio under various economic growth scenarios, it does not specify disaster-related contingent liabilities as such. Similarly, Canada’s “Fiscal and Economic Prospects” report (Conference Board of Canada, 2017) do not discuss the fiscal impact of a natural disaster, despite featuring a range of other fiscal risk scenarios.

Under Part VI of the Financial Administration Act, the annual Public Accounts of Canada3 includes a disclosure of contingent liabilities, including those under the federal disaster assistance programmes DFAA and AgriRecovery. In addition, all past payouts under the DFAA have been listed and published in a detailed overview in response to Parliamentary Budget Office Request IR0206. This overview unravels all past spending under the DFAA by provinces, hazard and year, and specifies remaining liabilities as well as whether advance and interim payments have been made (Parliamentary Budget Office, 2015).

In a natural disaster scenario, there is the potential for a significant increase in financial requirements over a very short time horizon. The current debt management strategy maintains Treasury bill issuance well below the market’s capacity, to ensure that issuance can be increased on short notice if required. Once a disaster has passed or if the effects persist, debt management strategies would aim to decrease the elevated stock of Treasury bills by terming out debt issuance – thereby ensuring that the central government is prepared to rapidly increase issuance in response to a future crisis.

The government of Canada’s contingency planning takes the form of a prudential liquidity plan (PLP) that it can access if it temporarily loses access to funding markets or requires more funding than the market is able to provide in the very near term. The PLP is analogous to Basel III liquidity requirements for financial institutions. In the federal government’s case, the plan currently holds sufficient liquidity to cover at least one month of net projected cash-flows. These flows include payroll, benefit payments, programme funding and the servicing of debt and liabilities on the expense side, and government tax receipts on the revenue side.

Implementation arrangements for providing post-disaster financial assistance

In Canada, central government shares the responsibility for post-disaster relief and recovery wit provincial and territorial governments, which are first to be involved in response and recovery efforts. When a disaster requires a response and recovery that exceeds sub-national capacities federal assistance may be made available.

Under the provisions of the Emergency Management Act, provincial and territorial governments may request assistance from the Minister of Public Safety, including assistance under the DFAA if an emergency has been declared with a Federal Order-in-Council for the hazardous event in question. The emergency declaration must authorise the provision of financial assistance. While provincial and territorial governments are encouraged to submit a request as soon as possible, they may do so up to six months after the end of the event. The Regional Director of Public Safety Canada serves as initial federal liaison with provincial officials and co-ordinates review of provincial requests for assistance via the DFAA (Public Safety Canada, 2017b).

A request for reimbursement under the DFAA is processed as soon documentation of provincial/territorial expenditure is receives. This includes invoices for goods or services purchased and paid for as part of disaster response and recovery measures as well as accounts and records of post-disaster financial assistance provided to households and businesses by the respective provincial or territorial government. Federal assistance is provided only after federal auditors have reviewed disaster recovery-related expenditures incurred by provincial or territorial governments against the DFAA eligibility criteria. If the initial provincial/territorial expenditure threshold is not exceeded, the file is simply closed; otherwise provincial/territorial authorities have up to five years after the emergency declaration to submit the final reimbursement claim. The actual transfer of the full reimbursement sum can take place up to eight years after the hazardous event. To meet the funding needs more quickly, advance and interim payments to provincial and territorial governments are possible. These must be requested in writing and supported by adequate documentation, including information detailing actual interim expenditures and estimate revisions, and must be submitted at any time for interim payments, and within the first 12 months following the end of the event for advance payments (Public Safety Canada, 2017b; Office of the Parliamentary Budget Officer, 2016). First Nations or tribal councils may address rrequests for assistance via the EMAP to ISC’s regional offices, which specify the respective application procedures (ISC, 2018).

For assistance distributed to agricultural producers via the AgriRecovery framework, provincial and territorial governments can launch a request to Agriculture and Agri-Food Canada, the federal agency charged with administration of this programme. The disaster event and its impacts are then jointly assessed to determine whether agricultural producers should receive assistance. During the assessment process, governments may consult with producers and/or sector organisations to gain a better understanding of the disaster, its impacts, and the needs of affected producers with respect to recovery. If the joint assessment concludes that an AgriRecovery response is necessary, participating governments launch the support initiative and notify eligible agricultural producers (AAFC, 2017). Mitigating disaster-related contingent liabilities and financing residual risks.

To mitigate previously identified, quantified and disclosed disaster-related contingent liabilities, governments need to control and ideally reduce their size and decide on how to provision for the residual risk.

Increasingly, Canada’s government is encouraging investments in mitigation and prevention measures to address the pressure that rising costs place on the DFAA, and to attain a more balanced approach to emergency management planning. Specifically, it may offer additional support for the repair and rebuilding efforts that result in more resilient structures. The total amount eligible for cost sharing is limited to 15% of the total eligible actual costs associated with repair and reconstruction of damaged public and private infrastructure. As of July 2017, the central government has issued payments related to disaster risk reduction projects totalling CAD 4 million (USD 3.3 million). As of July 2017, provincial and territorial governments had forecasted investments of CAD 386 million (USD 318.63 million) in future mitigation projects; these costs are to be shared by the federal government under the DFAA.

Under the Emergency Management Act responsibility for ex ante disaster risk management measures in Canada lies with provincial and territorial governments, which in turn may delegate responsibilities in this area to municipalities through legislation. To support provincial and territorial governments in the fulfilment of their responsibilities in this regard, and in recognition of the value of ex ante disaster risk management, the central government in 2014 launched the National Disaster Mitigation Program (NDMP) to financially support disaster risk management efforts at subnational level, with flood risk management as the primary focus. The initial budget was set at CAD 200 million (USD 165.09 million) over five years (Public Safety Canada, 2017e). The NDMP complements previous federal disaster risk reduction programmes, such as the discontinued Flood Damage Reduction Program. For First Nations or tribal councils funding for mitigation and preparedness measures can be made available through EMAP (ISC, 2018).

The 2017 federal budget, too, illustrates this shift towards disaster risk management ex ante, with CAD 2 billion (USD 1.65 billion) earmarked over 11 years to a new cost-shared Disaster Mitigation and Adaptation Fund. Projects to support climate-related disaster mitigation will be one of the categories eligible for funding provided to provincial and territorial governments. In addition, the 2017 budget foresees CAD 16.4 million over five years allocated to disaster risk assessment of federal transportation infrastructure assets (Government of Canada, 2017).

References

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Notes

← 1. Provincial and territorial governments describe the administrative divisions responsible for subnational governance in Canada. The major difference between a province and a territory is that provinces receive their power and authority from the Constitution Act, 1867, whereas territorial governments have powers delegated to them by the Parliament of Canada. There are ten provinces (Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec and Saskatchewan) and three territories (Northwest Territories, Yukon and Nunavut).

← 2. For northern or remote areas the maximum total amount may be increased by an additional 25%.

← 3. See for example the Public Accounts of Canada for 2015-16, at www.tpsgc-pwgsc.gc.ca/recgen/cpc-pac/2016/pdf/2016-vol2-eng.pdf.

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