Core Services Review: Air Mode Report

Table of Contents

• Introduction
  • Issue
  • Definition of Core Services
  • History and Background
  • Stakeholder Concerns
  • Objectives
  • Summary
• Existing Framework
  • Service Delivery Framework
  • Cost Recovery
• Comparative Analysis of Other Organizations
  • Background
  • Findings
  • Summary
• Data Collection and Analysis
  • Purpose
  • Methodology
  • Findings for the 2007–08 fiscal Year
• Air Industry Consultations
  • Background
  • Findings
• Federal Budget 2008
• Observations
  • Definition of Core Services
  • Cost Recovery
  • User Fees
  • Public Good Versus Private Benefit
  • It's Not About the Revenue
  • Economic Criteria
  • Airport of Entry Designation
  • CBSA/CAC Consultative Working Group
  • Service Delivery Framework
• Lessons Learned
• CBSA Best Practices
  • Annual Data Collection Exercise
  • Documentation of Denied Service Requests
• Conclusion
• Glossary and Acronyms

Introduction

Issue

The Core Services Review (CSR) was established in 2005 because the demand for air passenger clearance services from the Canada Border Services Agency (CBSA) far exceeded the CBSA's capacity to supply these services.

The CBSA receives ongoing requests for new and enhanced publicly funded core services; however, there has been no expansion of the CBSA's base budget to systematically service these requests. In addition, new initiatives and international commitments for increased security, such as the Arming and Doubling-up initiatives, have created significant demands and pressures on both the CBSA's resources and overall capacity. These pressures are limiting the CBSA's ability to expand core services.

The CBSA must take into account several factors when determining how to allocate its limited resources. For example, the total number of international passengers cleared at all Canadian airports shows that the eight largest Canadian airports processed 95.60% of total international passengers in the 2007–08 fiscal year. The top 20 airports processed 99.32% of total international passengers for the same period. The remaining small airports receiving CBSA services accounted for only 0.68% of total international passengers.

The CBSA is constantly faced with the challenge of balancing its dual mandate of facilitating the movement of legitimate trade and travellers while supporting national security and public safety. The Agency strives to make decisions as to the most efficient and cost-effective use of its limited resources while addressing all of its commitments. The CBSA will never be in a position to provide publicly funded core services to every Canadian air, marine, land and rail port that may request service.

Definition of Core Services

The concept of core services was adopted in 1987 following the Government of Canada's introduction of user fees and cost-recovery policies as a means of funding the expansion of certain services. CBSA passenger clearance services in effect at that time were grandfathered as publicly funded "core services".

Core services are defined as the CBSA's hours of operation at specified locations for specific services, such as clearance of international passengers at airports. For example, the CBSA provides Victoria International Airport in British Columbia with 24/7 passenger clearance services. Core services are offered in all modes of transport: air, marine, land and rail.

More information on core hours can be found in the Directory of CBSA Offices on the CBSA's Web site.

History and Background

Resolving the core services issue is a major undertaking that requires the CBSA to balance a number of diverging interests in a complex environment that is rapidly evolving. The CBSA is also constantly faced with a number of internal and external factors, such as terrorism threats, health threats such as severe acute respiratory syndrome (SARS), the value of the Canadian dollar, the fluctuating price of oil and the Arming and Doubling-up initiatives. All of these factors cause significant pressures for the CBSA.

The CBSA was created in December 2003, and before launching the CSR, the Agency had to achieve a certain degree of stability with respect to the integration of its three legacy organizations. The CBSA launched the CSR in fall 2005 to examine levels of passenger clearance services in all modes of transport and at all ports of entry and service locations across Canada.

The air mode was selected for the first phase of the Review as significant requests to increase levels of service were received in this mode of transport. Among key complaints from stakeholders is the application of cost recovery. Of the approximately 135 cost-recovery agreements between the CBSA and its clients in the 2006–07 fiscal year, 93 were in the air mode, 37 were in the marine mode and 5 were for services at land-border points of entry. The CBSA currently provides services at over 210 airports across Canada.

In December 2004, the CBSA proposed a plan to provide services to more than 20 new sites nationally and requested $30 million over two years to provide the new services and conduct a service delivery review. In April 2005, the CBSA was advised that funding was not available. The 2005 federal budget provided the CBSA with funding for capacity improvement; however, it did not provide for the expansion of publicly funded core services.

Stakeholder Concerns

Stakeholders suggest that the grandfathering of core services at certain airports and the use of cost recovery at other airports for the same services creates an uneven playing field. They suggest that the CBSA's service delivery and cost-recovery policies are applied unfairly and inconsistently and this creates a barrier to regional economic development, particularly for smaller airports and the communities they serve.

The current approach to decision making is regionally driven: local offices determine service expansion based on the availability of staff and the distance from the servicing office, among other factors. If a CBSA office lacks sufficient border services officers, the CBSA must refuse requests regardless of the client's willingness to pay. The grandfathering of publicly funded services and the ad hoc approach to service delivery have created scenarios where clients in some cities receive publicly funded air passenger services while others pay for the same services or are denied service.

Stakeholders have also indicated that the hours of service provided by the CBSA at certain locations are not responsive to commercial needs. For example, an airport may have core hours of service from 9:00 a.m. to 5:00 p.m.; however, flights arriving outside those hours may be subject to cost recovery. Since air travel is not a "9 to 5" operation, stakeholders suggest that cost recovery or the lack of service beyond core hours conflicts with the needs of air carriers, airports and travellers.

Objectives

There has been a lack of clarity on the mandate and key objectives of the CSR. For example, the CSR has frequently been mistaken for a review of the CBSA's cost-recovery policies. This is not the case.

The primary objectives of the CSR are the following:

• Develop a sustainable service delivery policy that is fair, transparent and allows for adjustments to core services in response to changing demands and conditions;
• Set criteria to determine where, when and which services should be delivered on a publicly funded basis that ensure the most efficient use of the CBSA's finite resources; and
• Establish a solid methodology that is easily understood and accessible to the CBSA's stakeholders and that objectively and fairly assesses requests for new and enhanced border services.

Summary

Canada's size, geography, relatively small population and population distribution create important and costly challenges in the delivery of Government of Canada services. Every community located near the Canada–U.S. border, or to an airport or marine port, can potentially request the CBSA establish an official port of entry or expand existing services, arguing that the services are necessary to support regional economic development. The CBSA recognizes the importance of economic development; however, the Agency must carefully weigh and consider all requests and factors to deliver cost-effective services while benefiting and serving the greatest number of citizens as possible to best deliver on its mandate of security and facilitation.

Existing Framework

Service Delivery Framework

The CBSA's existing Service Delivery Framework is an internal CBSA document that guides the Agency's decision-making process on the provision of services, including international passenger clearance services. A key principle of the Framework is that service delivery options must be flexible, innovative and take into consideration specific client needs.

This section provides a high-level description of the existing Framework. The Framework is a working tool for CBSA regional personnel and provides, among other things, the following:

• A definition of "core services" and of "new or enhanced services";
• The legal requirements and authorities for designated CBSA offices;
• A description of service codes (e.g. airport of entry, cruise ship operators);
• An outline of the process for reviewing, assessing and approving requests for changes to the designation of an airport service location or to the hours of service;
• The roles and responsibilities of the CBSA's regions and headquarters (HQ) in the decision-making process;
• The key assessment criteria that CBSA managers consider when reviewing service delivery requests;
• A business case template; and
• Cost-recovery guidelines and template.

The CBSA receives ongoing requests for changes to the designation of or the hours of service at border services offices; however, the CBSA operates in a dynamic environment and client requests are not the only factor that the CBSA must take into account when determining levels of service. For example, the CBSA must also consider the following:

• The CBSA's security and facilitation mandate;
• Legislative changes;
• New government, CBSA or departmental policies;
• Budgetary constraints or reductions;
• Technological changes;
• Shifting priorities;
• Changes to levels of risk;
• Traffic and volume changes;
• Operational efficiencies;
• Service standards;
• Work performed on behalf of other government departments or agencies; and
• Foreign government agency considerations.

Under the Service Delivery Framework guidelines, requests for new or enhanced services are reviewed and assessed by the regions. Decisions take into consideration factors such as passenger volumes and geographic proximity to existing locations with core services. Assessment criteria are captured in a business case prepared by CBSA regional personnel with information provided from a variety of sources, including the requestor. The business case is a vehicle for the regions and HQ to review the facts and assumptions on service level requests and to support, justify or provide details regarding a proposed service delivery change. The business case includes consultation, communications and implementation plans. It must also assess and identify the impacts on the CBSA with respect to the following:

• The CBSA's ability to deliver its existing programs and mandate;
• Levels of risk;
• Financial resources;
• Human resources;
• Facilities;
• Information technology; and
• Public environment sensibilities (e.g. reactions of interest groups).

If a service request meets the criteria and can be provided through the CBSA's current base budget resource levels, it is provided as a core service. If a service request meets the criteria but cannot be provided through the existing base budget, it may be offered on a cost-recovery basis. If the CBSA region does not have the capacity to provide the service, even under a cost-recovery arrangement, the request may be refused. This review process has resulted in an ad hoc regional approach that has created scenarios where clients in some regions receive services for free while others pay for the same services or have been denied the service. Stakeholders criticize the process as being unfair and lacking transparency.

Cost Recovery

The CBSA is unable to provide publicly funded core services to all sites that request services because of budget limitations. The CBSA uses cost recovery as a funding mechanism to provide services that are not funded as part of its base funding. The CBSA has the authority to enter into cost-recovery agreements with clients under the Canada Border Services Agency Act, subsection 13(2), and the Customs Act, subsection 167(1).

Cost-recovery contracts are a strong indicator of demand for CBSA passenger clearance services. Cost recovery allows the CBSA some flexibility to provide services beyond current base budget levels; however, this solution is not sustainable as it does not permit optimum allocation of human resources and business planning.

Border services officers are frequently required to work overtime and/or travel to provide off-site services and this potentially compromises levels of service at their home office site. For example, officers are frequently required to work overtime over extended periods of time to meet the terms of service contracts, which results in potential health and safety concerns. Officers may be required to travel extensive distances to provide off-site services. This could leave the home office short-staffed and potentially compromise service and security levels at the office, particularly if an incident requiring more officer resources were to occur.

As mentioned, in certain cases, the CBSA may deny service if the regional office lacks the capacity to deliver the requested services, regardless of the client's willingness to pay cost-recovery fees. The CBSA can enter into a cost-recovery agreement only if sufficient resources are available to perform the proper and secure clearance of international passengers.

Cost-recovery contracts frequently change from year to year, as do the locations requesting services, particularly in the marine mode (i.e. cruise ship operations). These fluid conditions create challenges for the CBSA in terms of achieving optimum long-term human resources and business planning. Nevertheless, cost recovery provides the CBSA with some flexibility to provide additional levels of service at certain locations.

Services provided under cost recovery are subject to a formal written agreement between the CBSA and the client. The contract provides details such as the location, the anticipated time of arrival and the number of passengers for each conveyance to be cleared. The contract also includes costing estimates for the services to be provided by the CBSA based on information supplied by the client. Clients are usually billed on a monthly basis for actual costs of services received. The CBSA uses a costing template that takes into account information such as the actual number of international arrivals to determine real costs. The methodology for cost recovery captures all costs of providing the service, including salaries, overtime, supervisory costs, corporate overhead costs, uniforms, training, accommodations and employee benefits.

Figure A: Breakdown of Cost Recovery by Mode

Figure A: Breakdown of Cost Recovery by Mode

	FY 05/06	FY 06/07	FY 07/08
Air	$2,030,366	$2,665,772	$2,073,582
Marine	$356,928	$471,389	$388,863
Land	-	$342	$241

Figure A provides a breakdown of cost recovery by mode of transport for the three most recent fiscal years. Based on the value of cost recovery, figure A shows that the air mode accounts for the majority of cost-recovery fees. While the marine mode typically accounts for an annual total under $500,000, the air mode's cost-recovery share has been over $2 million per year since the 2005–06 fiscal year. In contrast, the total amount of cost recovery in the land mode is typically less than $1,000 per year.

Figure B: Air Mode — Total Value of Cost Recovery by Region

Table B: Air Mode – Total Value of Cost Recovery by Region

	FY 05/06	FY 06/07	FY 07/08
Atlantic	$892,870	$1,388,499	$936,775
Quebec	$181,190	$407,429	$526,667
Prairies	$163,618	$258,972	$247,094
Pacific	$246,131	$112,866	$182,632
NORO	$455,903	$442,084	$117,681
NFFE	$74,289	$41,701	$52,174
GTA	$11,346	$14,221	$10,559
WSC	$5,019	-	-

Figure B depicts the breakdown of estimated cost-recovery fees collected by each of the CBSA's eight regions for the last three fiscal years. Figure B reveals that the Atlantic region is charging a larger proportion of cost-recovery fees in comparison to other regions. In fact, the Windsor–St. Clair, the Greater Toronto Area and Niagara–Fort Erie regions tend to have little to no cost recovery. The reduction of cost-recovery fees for the Atlantic region from the 2006–07 fiscal year to the 2007–08 fiscal year is a direct result of the CBSA's implementation of 24/7 publicly funded service to Halifax Robert L. Stanfield International Airport in 2007.

Figure C: Cost Recovery by Airport Size

Figure C: Cost Recovery by Airport Size

	FY 05/06	FY 06/07	FY 07/08
Large Top 8	$811,572	$822,061	$34,891
Medium Next 12	$504,418	$933,628	$1,082,632
Small Remaining 190+	$714,376	$910,083	$956,059

Aggregating the airports into categories of small, medium and large, based on international passenger volumes, yields interesting results. Figure C shows the proportion of cost recovery that each of these categories has paid over the past three fiscal years. Currently, the top eight airports, as identified in the CSR 2007 data collection exercise, are paying minimal amounts of cost recovery as a result of the expansion of service in the 2007–08 fiscal year to both Halifax Robert L. Stanfield International Airport and Ottawa Macdonald-Cartier International Airport. Since the top eight airports process 95.60% of passengers arriving in Canada, this is where the CBSA has chosen to implement 24/7 services before expanding service to medium and smaller-sized airports. Although cost recovery has increased in value for the medium and small category airports in each of the past three fiscal years, the CBSA must focus on servicing the majority of international passengers to achieve the most efficient use of its finite resources.

Comparative Analysis of Other Organizations

Background

In the initial phase of the CSR in the air mode, extensive research and consultations with various other government departments (OGDs) and foreign customs organizations were conducted. The objective was to perform a comparative analysis of the CBSA's approach to service delivery and cost-recovery user fee policies with those of other Canadian and foreign organizations.

The focus was on how OGDs involved in regulatory activities (e.g. passports, visas, meat inspections) handle requests for new services, whether a user fee approach applies to those services, and if so, how it is applied and managed.

Regulatory activities are a category of public services directed to specific people or firms and are provided either at the request of these parties or due to the nature of their activities. Since stakeholders tend to view such services as mandatory or necessary, they feel that costs should not be recovered.

Findings

First, the concept of "core" services is unique to the CBSA as is the grandfathering of services (i.e. new entrants into the marketplace must pay for services that established clients already receive on a publicly funded basis). The CBSA defines core services as the hours of operation at specified locations for specific services, such as passenger clearance at airports.

Second, none of the OGDs examined have a formal mechanism in place to handle new requests for services. Based on consultations with the OGDs, it appears that the most common forum for receiving suggestions and proposals is stakeholder consultations. When requests for service are received, the OGD then determines whether the request falls within its mandate and business lines and whether it would make sound business sense to provide the service.

Third, all the OGDs that were consulted that have regulatory activities employ some form of cost recovery or user-pay structure for either some or all of their services. Some have services that are financed from tax-based appropriations, others from private benefit services (i.e. cost recovery or user fees) and others use a combination of both. The application of cost-recovery and user-pay approaches varies greatly from one organization to the next, and even within individual OGDs. Certain organizations have only a handful of fees for specific activities and in other cases, such as the Canadian Food Inspection Agency (CFIA), the majority are prescriptive in nature. Today, the CFIA has over 1,000 different user fees covering 14 different regulatory programs.

When the CFIA was created in 1997, two of its legacy organizations, Agriculture and Agri-Food Canada and Fisheries and Oceans Canada, had well-established approaches for cost recovery in the Agri-Food and seafood sectors respectively. Those programs that migrated from Health Canada and the former Consumer and Corporate Affairs had no cost recovery associated with inspection activities. The current CFIA user-fee schedule is the result of a multi-year consultation process undertaken with regulated parties.

The following is a summary of the most commonly cited reasons for external charging to offset operational costs:

• To recover a fair share of the Government of Canada's cost of providing goods and services from those who receive the direct benefits;
• To earn a fair return for the commercial use of publicly owned resources (e.g. fishing licences);
• To rebuild or replace deteriorated visitor facilities using new revenues from fee increases (e.g. entry or camping fees at national parks and historic sites);
• As a means of levelling the playing field for stakeholders (e.g. in 2006, Natural Resources Canada proposed a new fee for explosives since foreign manufacturers had gained an unfair advantage over time as a result of changes due to emerging markets); and
• Cost-recovery user fees force managers to respond more directly to clients and to allocate their resources as efficiently as possible.

An important finding is that many of the organizations with user fees and cost-recovery policies tend to have well-developed service standards and ongoing consultations with stakeholders. Some have mechanisms in place to obtain feedback from stakeholders. Canada's User Fees Act, enacted in 2004, has made the consultative process a mandatory requirement.

The tragic events of September 11, 2001, had a profound impact beyond the U.S. border by radically reshaping the role of foreign border organizations and placing the focus on security. Escalating costs associated with increased security requirements have resulted in severe budgetary pressures for border organizations. Foreign administrations in the United States, Australia and New Zealand are becoming increasingly reliant on user fees as a means of offsetting some of the costs of providing border services.

Summary

The CBSA has the legislative authority to enter into cost-recovery agreements that are in line with Treasury Board policies and guidelines on external charging. In some instances, the CBSA is not able to apply cost recovery consistently due to internal factors, such as a lack of human resources or funding.

The CBSA faces similar dilemmas as OGDs and foreign customs organizations: it must assess the impact of fees on users and consider the users' ability to pay. The CBSA has the additional challenge of providing services to facilitate the movement of legitimate goods and people while also dealing with the ever-increasing costs of ensuring national security and public safety.

Data Collection and Analysis

Purpose

The purpose of the data collection exercise in the air mode was to collect data on an array of variables for all airports throughout the country. Currently, statistics available from the CBSA database are based on work locations where border services officers are stationed and not necessarily on individual airports.

By collecting data from individual airports, the CSR team is better able to determine trends as well as to better define the "service gap" (i.e. where service is currently in place versus where service may be requested in the near future). The collection of this data also allows for cross-airport comparisons based on variables including airport size, airport of entry (AOE) designation, passenger volume and estimated relative cost to process a passenger. As this type of data was not previously available at the CBSA, it has proven to be invaluable for the CSR.

Methodology

The CBSA contracted IBM Consulting to perform the inaugural data collection exercise for the 2005–06 and 2006–07 fiscal years. IBM Consulting obtained data from the CBSA's Web site, regional offices and Operations Branch. Data was collected for each of the 210+ airports that are serviced by the CBSA. The data was compiled and inputted into a template that included the following variables:

The template was initially populated based on available information. Next, it was sent to the regions for them to fill in the missing values and validate the data. Once this step was complete, the CSR team checked the data for uniformity and consistency among the regions, and then returned the template to the regions for verification and amendment, if necessary. This process was repeated until errors were no longer detected and the data was considered to be as accurate as possible. Data was collected by the CBSA for the 2007–08 fiscal year using the same methodology.

Findings for the 2007–08 fiscal year

Table A presents a listing of the top 20 airports and their international traveller volume along with the percentage of national travellers based on data from the 2007–08 fiscal year. The travellers are representative of passengers that were physically verified by a border services officer. The variables obtained for each airport include the number of international travellers and estimated total costs of providing CBSA services at an airport. The data revealed that of the 210+ airports for which data was collected, the top 8 account for 95.60% of international passenger volume. Expanding the top 8 to the top 20 indicates that 99.32% of international travellers passed through the top 20 airports during the 2007–08 fiscal year. The remaining 190+ airports serviced by the CBSA account for only 0.68% of the total international passenger volume.

These findings support employing resources in the top 20 airports in order to obtain the most efficient use of funding and to take advantage of economies of scale at these locations. In addition, efficiencies can be achieved when resources are permanently located on site, rather than deploying them from other servicing sites.

Table A: Top 20 Airports Based on International Traveller Volume

Rank	Location	International Travellers	Individual Percentages	Cumulative Percentage
1	Toronto Pearson International Airport	9,732,019	41.80%	41.80%
2	Vancouver International Airport	4,669,973	20.06%	61.86%
3	Montréal Pierre Elliott Trudeau International Airport	4,118,822	17.69%	79.56 %
4	Calgary International Airport	1,869,759	8.03%	87.59%
5	Edmonton International Airport	636,350	2.73%	90.32%
6	Ottawa Macdonald-Cartier International Airport	549,546	2.36%	92.68%
7	Halifax Robert L. Stanfield International Airport	362,382	1.56%	94.24%
8	Winnipeg James Armstrong Richardson International Airport	317,449	1.36%	95.60%
	Total: Top 8 Airport	22,256,300	95.60%	95.60%
9	Québec City Jean Lesage International Airport	232,825	1.00%	96.60%
10	Victoria International Airport	112,044	0.48%	97.08%
11	John C. Munro Hamilton International Airport	106,497	0.46%	97.54%
12	Kelowna International Airport	71,426	0.31%	97.85%
13	St. John's International Airport	62,648	0.27%	98.12%
14	Saskatoon John G. Diefenbaker International Airport	61,114	0.26%	98.38%
15	Regina International Airport	54,129	0.23%	98.61%
16	London International Airport	42,667	0.18%	98.80%
17	Toronto City Centre Airport	40,000	0.17%	98.97%
18	Region of Waterloo International Airport	32,735	0.14%	99.11%
19	Gander International Airport	26,885	0.12%	95.60%
20	Greater Moncton International Airport	22,563	0.10%	99.22%
	Total: Top 20 Airport	23,121,833	99.32%	99.32%
	Remaining 190+ airports	158,228	0.68%	0.68%
	Total: All Airports	23,280,061	100%	100%

Air Industry Consultations

Background

The CSR's work plan for the air mode included both research and consultation components in order to ensure a rigorous, empirically supported analysis of the issues. Upon completion of the extensive research and consultations with CBSA officials, OGDs and foreign customs administrations, the next step of the CSR was to consult with air industry stakeholders to discuss their issues and challenges and to exchange ideas on potential solutions.

Consultation sessions were held in Ottawa in February and April 2007. The bilingual sessions were facilitated by IBM Consulting and were widely attended by air industry stakeholders from across Canada. Participants included aviation associations, airport authorities, small airports, pilot associations, business aviation groups, importers and exporters, courier and freight associations and customs brokers.

Participants were provided with a workbook prior to the consultation sessions, which provided them with an overview of the work conducted by the CSR, a summary of findings and six propositions for discussion. Following the consultation sessions, air industry stakeholders were provided with a summary of discussion points and participants' comments from all three sessions and were invited to provide feedback to the CBSA.

The CBSA received very positive feedback from participants following the consultation sessions. Many expressed thanks for having been included and asked for continued discussions with the CBSA. Among the 82.5% of participants who completed the survey, 96% indicated that the consultation sessions had met their expectations and that they would be interested in participating in future consultations.

Findings

A key element of the consultations was the discussion on the six propositions. The following provides a brief summary of the participants' responses to each of the propositions.

• Proposition 1: There should be explicit criteria for assessing requests for border services and determining operational feasibility.
  • Participants tended to disagree with this statement since they view border services as mandatory; therefore, any airport requesting services should receive the services requested.
• Proposition 2: The economic benefit of requests for new or enhanced services should be factored into the decision to provide CBSA services.
  • Participants, and small airports in particular, agreed with this proposition; they suggested that airports, regardless of their size, provide jobs and economic benefits to their communities whereas a service model requiring minimum volume thresholds would be unattainable and unfair for some airports.
• Proposition 3: The CBSA should review and adjust levels of service on a periodic basis (up or down) to better reflect changes in demand and travel patterns and to better meet new demands within its fixed budget.
  • Most stakeholders were opposed to the reduction of any services and felt that the CBSA should establish service standards and improve efficiency mainly through increased use of technology, rather than by cutting back on services.
• Proposition 4: Judgments about the level of public good versus private benefit should underlie decisions on how border services are funded.
  • Participants insisted that border services are a public good and any private benefit would only be derived in cases where clients have the opportunity to receive expedited service.
• Proposition 5: The funding of all existing services should be examined to ensure a consistent approach.
  • Large airports indicated that market demand and risk analysis should be the primary considerations, whereas smaller airports felt that a standard (or basic) level of publicly funded services should be available to all, with no reduction in services as a result of any review.
• Proposition 6: Broad-based user fees (e.g. passenger clearance fees applicable to all passengers entering the country) represent an alternative funding approach.
  • Participants were generally opposed to user fees since they view border services as a public good. They also felt that the air industry is already burdened by pressures such as airport rent, excise fees and fuel taxes.

Overall, the CSR team gained a better understanding of specific concerns, issues and challenges, particularly the large versus smaller airport perspective. The consultations highlighted the fact that reconciling the interests of all airports remains one of the biggest challenges in developing a single policy framework. The consultations also revealed that participants seemed to understand many of the challenges facing the Agency in terms of balancing increasing demands for services within a fixed budget.

As part of its commitment to working in cooperation with air industry stakeholders, the CBSA recently established a consultative working group with the Canadian Airports Council (CAC) and its members and it was agreed the group would meet a few times a year. To date, consultation sessions with the CAC have taken place in April, July and November 2008. Meetings are set to occur on a semi-annual basis.

Federal Budget 2008

The CBSA provides a critical front-line contribution to the prosperity and security of Canada by managing the access of people and goods to and from the country. Budget 2008 committed $75 million over the next two years to ensure that the CBSA has the resources it needs to deliver efficient and secure border services at more than 1,200 domestic and international locations. These funds will increase the number of on-site border services officers at key border installations in order to meet evolving operational demands resulting from increased trade and travel. However, this funding was specifically earmarked for program integrity, to maintain current levels of CBSA services and to help stabilize the Agency. No funding was allocated for new or expanded core services. The Agency can only move forward with an identified source of funds.

Expansion of core services at airports and marine ports remains an important issue for the CBSA; however, the current fiscal reality does not permit the Government of Canada to address this issue at the present time. The CBSA will continue to deliver border services within the current funding level and human resources capacity, while taking into account security and service to the public.

Observations

Definition of Core Services

Throughout the review, the CSR team heard repeatedly from internal stakeholders, industry stakeholders and OGDs that the CBSA's definition of "core services" is confusing.

The CSR's study of OGDs in 2006 revealed that the CBSA's definition of core services is quite different from that of its Government of Canada partners. The CBSA defines core services as where and for how many hours per day the Agency provides publicly funded services. Under this definition, CBSA services provided on a cost-recovery basis are not considered core services.

Most OGDs, however, use the term "core services" in reference to their mandate and main business lines, and use "core services" and "mandated services" interchangeably. Arguably, all border services can be said to fall under the CBSA's security mandate, making the Agency's current definition of core services appear to be a bit of a misnomer.

During consultations, it was suggested that the CBSA consider using a new term to describe its services that are not publicly funded.

Cost Recovery

The findings of the CSR support cost recovery as a funding strategy to allow the CBSA to deliver more international passenger clearance services but only in the context of a well-defined cost recovery framework.

To better address stakeholder suggestions that cost recovery is unfair and applied inconsistently, the CBSA should develop a rigorous policy framework that explains the cost-recovery approach with respect to border clearance services. This policy should outline the specific situations where cost recovery will be applied, for example, where there is a direct private benefit to the recipient of the service (such as an expedited clearance at airports for special events groups). The policy should also identify provisions for variations from full cost recovery and the situations where partial cost recovery is appropriate, along with their respective formulas. To further reduce suggestions of inequity from stakeholders, all CBSA offices should adhere to the policy.

User Fees

A potential funding mechanism to expand or introduce CBSA core services is user fees. A user fee is a fee or levy that targets the user who benefits from a service or the user who imposes a risk that must be mitigated. User fees could allow the CBSA to defray some of the costs of providing international passenger clearance services at airports. These costs have been increasing steadily due to a growing number of requests for services at airports and ongoing efforts since 9/11 to bolster border security.

In 2006, the CSR team researched user fees in other Government of Canada departments and agencies. This research confirmed that the "user pay" principle is an integral feature of many programs and services administered by federal entities. For example, Health Canada levies mandatory user fees for a wide range of regulatory services such as evaluating new drug submissions, while the CFIA charges user fees for inspections and reviews of plant and animal cargo manifests. Although stakeholders do not embrace user fees, some federal organizations found that their clients are generally accepting of such fees provided they receive quality services on a timely basis and the fees are applied consistently and fairly.

During the CSR air industry consultations in 2007, most stakeholders voiced their displeasure with the notion of user fees. Certain stakeholders, however, were of the opinion that if some form of user fee is inevitable, Broad-based user fees applicable to all passengers entering the country regardless of location are preferable to site-specific user fees. Australia and the United States currently levy a per passenger fee for international airline passenger clearance. These stakeholders also felt that Broad-based user fees should be applicable to all modes of transport.

If the CBSA obtained funding for core services, new research and initiatives, it could examine user fees more closely — particularly Broad-based user fees — in partnership with central agencies and air industry stakeholders. Additional research could examine the following:

• A cost-recovery methodology;
• The cumulative impact of all fees on air stakeholders, including fees and charges imposed by other departments (e.g. Transport Canada's aircraft landing fees);
• The managerial and administrative implications of adopting user fees; and
• International trade agreement implications.

Before introducing any kind of user fee approach for CBSA passenger clearance services, the Agency must take the following into consideration:

• User fee funding is sensitive to changes in volume; therefore, it can create staffing or funding issues when volumes decrease;
• The CBSA could be accountable for meeting service standards under the Treasury Board's Policy on Service Standards for External Fees; and
• Legislative and regulatory changes are required.

Public Good Versus Private Benefit

Public good can be described as goods or services that provide a benefit to all Canadians. Typically, these goods or services are funded through general taxation. All government services provide some form of public good. Many government services also provide specific benefits to users over and above those received by the average taxpayer. These can be described as private benefits.

Proponents of cost recovery and user fees state that wherever possible and desirable, public services should not be given away. The beneficiary should pay for any service provided by a public agency, unless sound and convincing arguments can be produced that favour a particular degree of explicit public subsidy. They contend that when properly designed, cost recovery and user fees can serve as price signals that contribute both to equity and efficiency. This helps to ensure that scarce resources are put to their best possible use. When consumers are not charged for a government service, they will tend to use more of the service than is socially optimal.

Those opposed to user fees believe that charging for government services is wrong, particularly for mandatory or regulatory services that are not available through the private sector. Border services are mandatory, not voluntary. Therefore, is it really fair to charge for government services and if so, how much?

Conversely, supporters of cost recovery and user fees believe that fees are justified even when services are mandatory. The original logic continues to hold: where the user of a service obtains a benefit not available to all consumers, that user should pay for the benefit received. Once this is determined, particular care must be taken in setting charges because of the lack of price signals.

Equity is applied when cost recovery and user fees are administered to those who benefit most from the service and contribute more towards the cost of the service. As for efficiency, user fees can help determine the appropriate level of resources to allocate to a program because they tend to eliminate the excess demand that often exists with "free" goods and services.

The Government of Canada provides an enormous variety of goods and services to Canadians. Some of these services are priced, some are not, and many fall between the two extremes. Where on this continuum particular federal activities fall depends on the characteristics of the services (or goods) provided.

Border clearance services provide both public good and private benefits. But the determination of the level of public good relative to private benefit is subjective and can be difficult to quantify. Some cases are, however, easier to distinguish than others. For instance, where users have a significant impact on the way that services are provided, and this results in higher costs than if the Government of Canada had made the service decisions on its own, there are clearly private benefits.

Certain requests for international passenger clearance services are more easily categorized as offering a private benefit than others. For example, when a stakeholder requests services at a non-designated location when full services are available nearby at another location, this becomes an issue of convenience for the stakeholder. The CBSA frequently receives such requests from individuals or corporations for single events such as concerts or sporting events.

Most government services have elements of both public good and private benefit. This applies to the CBSA. Border services fall somewhere in the middle of the continuum of purely public good to purely private good. Efficiency requires that scarce resources be put to their best possible use. The challenge is in determining where border services fit along the continuum: which services should be publicly funded and which should be funded by the user.

Element of the mandate	Public good or private benefit	Beneficiary
Security/safety	Public good	Canadian society Protection from national security and safety threats
Free flow of goods and people	Public good	Canadian society Important for the economy Citizens have freedom to travel
	Private benefit	Businesses (airport authorities, port authorities, bridge and tunnel operators, etc.) Profit from flow of goods or people across the border Travellers Ability to travel in this instance Not all citizens can afford to travel; therefore, why should the taxpayer subsidize this?

The free flow of goods and travellers has elements of both public good and private benefit. There is a benefit that accrues to Canadian society in general, both in terms of the economic impact and the ability of citizens to move freely. But businesses and travellers receive a benefit greater than that received by the general taxpayer who is not travelling in that instance or make a profit from the sale of goods or services that flow across the border.

It's Not About the Revenue

The raison d'être for cost recovery and user fees is improved efficiency of government-provided services, not revenue generation (although revenue generation may be a secondary objective). In this regard, it is important to understand the costs of administration. If the costs of implementing the cost-recovery mechanism are greater than its benefits, then there is clearly no benefit to pursue this option.

The starting point for mandatory fees should be the cost of the service. Mandatory fees that bear no relation to the costs involved in providing a service may be considered a de facto tax. The costing formula used by the CBSA includes salaries, overtime, travel, meal allowances, supervisory costs and accommodations. For example, in servicing cost-recovery contracts, border services officers are frequently required to work overtime or to travel to provide off-site service.

The costs of administering cost recovery and user fees are not well understood by stakeholders. The CBSA uses cost recovery as a funding mechanism to address requests for new or enhanced services that are not financed as part of its base budget. Cost recovery is not used for revenue generation; it provides the CBSA with extra flexibility to provide services where it otherwise would not be able to.

The CBSA's cost-recovery contracts frequently change from year to year, as do the locations requesting border services. Certain requests can be for single events or seasonal activities, for locations that are not official ports of entry, or sometimes even for remote locations that do not have the facilities to clear international passengers (e.g. an international golf tournament in cottage country). These fluid conditions, particularly encountered at smaller airports, create long-term human resources and business planning challenges for the CBSA.

Economic Criteria

Stakeholders have voiced concerns with the current CBSA service delivery approach, contending that it creates an uneven playing field and presents a roadblock to regional economic development. This argument receives considerable attention. Stakeholders argue that because the CBSA does not provide publicly funded services to certain airports, these airports cannot attract additional flights that would benefit the local economy.

Economic benefits are typically generated in three ways:

1. Direct benefits: These arise from providing services and usually occur at the airports themselves (e.g. fixed based operators, firms that carry passengers or cargo, governmental agencies that support aviation, ground transport firms).
2. Indirect benefits: These occur as a result of providing the service. They can include regional expenditures (at hotels, restaurants) or expenditures by firms that have economic activity that is dependent on the airport.
3. Induced benefits: These are known as the multiplier effect. This effect is the local value of money as it circulates through the local economy and as individuals associated with the airport business buy goods and services in the local economy.

As part of the work on the CSR, the CBSA, in conjunction with IBM Consulting, developed the following three options for assessing economic benefits:

1. Internal assessment: The CBSA reviews requests and makes a determination of potential economic benefits.
2. Interdepartmental committee: The CBSA works with other departments and agencies that have expertise in matters of economic development and transportation issues.
3. Market test: With this option, no assessment is necessary. The CBSA would provide the services as requested and allow market forces to determine whether the venture is viable.

Under Option 1, the internal assessment, the CBSA would review requests and make determinations of potential economic benefits. The CBSA does not currently have the skills or capacity to perform this kind of work. The Agency would need to build or contract this capacity. It would also need to develop criteria and a process for assessing economic benefits. This may include consideration of the following:

• Benefits such as potential tourism revenue and job creation, spin-off businesses, lower costs for travellers, traffic relief at other airport locations, ability of businesses to obtain cargo quickly to feed their business needs (e.g. just-in-time manufacturing) and increased tax revenues for government;
• Costs for such things as infrastructure, airport facilities and other airport development, and the impact on other government organizations and the diversion of traffic from other sites; and
• Obligations of the stakeholder, including collecting relevant data and preparing a business case.

The main drawback with this approach is that this kind of assessment is very subjective and is usually based on many assumptions and complex projections. In cases where the Agency determines that the request does not merit investment, it is very likely the stakeholder can build an equally compelling and contradictory point of view.

During the course of the Review, many have questioned whether the CBSA should be playing such a large role on matters of economic development. While it is recognized that the CBSA's dual mandate of security and facilitation indirectly supports economic development, regional economic development itself is not part of the CBSA's raison d'être.

Under Option 2, the interdepartmental committee, decisions would be made through a committee that includes representation from other departments and agencies that have expertise in matters of economic development and transportation issues. The committee could include representation from departments and agencies such as the Atlantic Canada Opportunities Agency, Western Economic Diversification, Industry Canada and Transport Canada. The key benefit of this approach would be the input and sharing of expertise from professionals who deal with matters of economic development on a regular basis.

The group would need to develop a governance structure, including guidance on the scope of the work, reporting relationships, roles and responsibilities of committee members, the decision-making process, frequency of meetings and the selection of the committee chair. The committee would also need to develop criteria for performing its assessments. This could potentially be quite different from the set of criteria that would be developed under Option 1 given the different participants and their different points of view.

The main risk with this approach is that it would add an additional layer to the process of making service decisions, thereby making it much more complex and potentially slowing it down. In addition, it is not clear what the level of interest might be for this particular proposal.

Under Option 3, the market test, the CBSA would provide the services as requested and allow market forces to determine whether the venture is viable. This approach is predicated on the position that the CBSA should not hinder business opportunities, whatever their nature. If the market exists as predicted, the business will thrive; if it does not, the business will simply fold.

The main disadvantage of this approach is that the CBSA's resources are relatively fixed. If the service is not viable, the CBSA is left with a fixed cost (staff) that it cannot easily shed or put to alternative use. This is inefficient from a taxpayer perspective. In addition, this option only works well when the client bears the cost of the service, or at least a portion of the cost, and is required to contribute some capital. If the service is provided at the taxpayer's expense, there is really no true test of the market.

There are concerns that an approach that is fully funded by the government will not work well for this option. Consideration, however, should be given to some form of sliding scale or cost-sharing approach, where the client pays a lower portion of the cost as volumes increase and/or the client becomes eligible for publicly funded service once it meets the criteria for business merit.

Airport of Entry Designation

An airport of entry (AOE) is a Canadian airport authorized by the CBSA for the arrival and departure of international flights. Memorandum D3-2-1, International Commercial Air Traffic and Conveyance Reporting, outlines the CBSA's procedures for the reporting, use and control of aircraft in international service. Memorandum D3-2-1 states that international flights must report at an authorized Canadian AOE. It also notes that an AOE designation refers only to CBSA reporting requirements and is not a rating of the airport's physical facilities or operational capabilities.

All aircraft arriving in Canada from a foreign point of origin must arrive at an AOE unless otherwise authorized by the CBSA. The air carrier or its agent is responsible for controlling the delivery of passengers to the CBSA for passenger clearance; however, subject to operational and safety requirements, the CBSA may limit the number of international air passengers it processes at a given time.

An AOE is either an AOE with restrictions on aircraft passenger capacity or an AOE with no restrictions on passenger capacity. An AOE with restrictions is an authorized AOE for the clearance of persons arriving on unscheduled or scheduled flights where the passenger capacity, including crew, does not exceed "x" number of people. For example, an airport with an "AOE/125" designation is authorized for the clearance of up to 125 passengers and crew. In some locations where AOE restrictions are in place, staged off-loading may be permitted (see Glossary). An "AOE/15", also known as a general aviation airport, is an AOE for the clearance of persons arriving on unscheduled flights where the passenger capacity, including crew, does not exceed 15 people.

An "AOE" (without a numerical designator) is an airport with no restrictions on the number of passengers or crew arriving on scheduled or non-scheduled aircraft. For example, in the 2006–07 fiscal year, the top eight airports (see Table A in section 4.0) are all AOEs with no restrictions on aircraft passenger capacity.

Although there is an AOE definition in the Directory of CBSA Offices on the CBSA's Web site, the meaning of an AOE designation is not clear to internal and external stakeholders. The Agency is developing communications products to qualify an AOE designation and to clarify guidelines and prerequisites for an AOE designation.

CBSA/CAC Consultative Working Group

The transparency and accountability of any service delivery framework is critical to its acceptability to stakeholders, and consultation is an important component of any service delivery regime. Once established, the service delivery framework should not be seen as static and consultations can help ensure the framework remains flexible.

The CBSA and the CAC have agreed to establish a consultative working group. This partnership will allow the two parties to share information and engage in meaningful discussions and solutions in support of the mandate and mission of the CBSA and Canadian airports.

The goal of the consultative working group is to improve the ease of passenger and cargo processing at Canadian airports. The group will focus on problem solving and identify a forward agenda with short- and long-term milestones. One of the group's objectives will be to look at low-cost options that could result in more CBSA services being available to airports.

Through ongoing consultation and engagement, the CBSA and the air industry will work together to improve the way border services are delivered.

Service Delivery Framework

The Service Delivery Framework states that the role of HQ in the decision-making process is to ensure that a relative degree of consistency is preserved in the services that are provided between comparable sites. Under the Framework, however, HQ grants the regions as much flexibility as possible to determine service levels at a given location. Whenever possible, the regions, which vary in terms of population, geography, number of CBSA offices and modes of international transport supported, try to provide, to the best of their ability, as much service as possible to the greatest number of clients as possible and often employ creative solutions to do so. Unfortunately, it is this built-in flexibility that has contributed to suggestions that the CBSA is making arbitrary decisions and is being unfair in its dealings with its clients.

The existing Framework is a good beginning; however, it could be enhanced to improve decision-making processes by undertaking the following:

• Defining clear eligibility criteria for new services;
• Determining the criteria for publicly funding a new service;
• Outlining a process to conduct periodic reviews of service levels;
• Adding a "toolkit" to the Framework that includes a standard business case template and completion instructions for clients; and
• Publishing the Framework and making it a public document to increase transparency (e.g. posting it on the CBSA's Web site).

Lessons Learned

As a long-term project, the CSR provided many learning opportunities in terms of what works, what does not and ultimately what can be improved or done differently from a project management perspective.

One important lesson learned during this work is the value of working groups. A strong working partnership with central agencies is critical for shaping future work on core services and particularly the development of a policy framework for deciding which stakeholders merit publicly funded CBSA core services.

A second valuable lesson is not to underestimate the importance of consultations with industry stakeholders. Ongoing consultations with internal and external stakeholders should be a central feature of any review and the CSR will continue to work closely with stakeholders. Consultations with the CBSA regions are also essential in order to research and coordinate ideas and findings with the arm of the Agency that is responsible for delivering core services.

Lastly, the need to conclude reviews of this nature in a timely fashion is imperative. Many stakeholders are frustrated by what they perceive to be an undue length of time to bring the Review to a close. To better manage stakeholder expectations and to increase accountability, the CBSA should negotiate and communicate the deadlines for completion of work and commit to meeting those time frames. Also, information about the status and the progress of the Review should be shared with CBSA staff via the CBSA's intranet and with the general public via the Internet.

CBSA Best Practices

As a result of the in-depth analysis that has been conducted in the air mode, two best practices for the Agency have been identified: an annual data collection exercise and documentation of denied service requests. These best practices were identified as being of value to the CBSA based on the extensive data collection exercise and industry consultations undertaken in 2007. Collecting this type of information will allow the CBSA to better assess ongoing and future requests for service. These best practices will also be of benefit to the CBSA in accurately determining the service gap. A service gap exists between where the CBSA currently provides service and where it is unable to provide service within its base budget due to resource constraints.

Annual Data Collection Exercise

The CSR team conducted a data collection exercise in the air mode for the 2005–06, 2006–07 and 2007–08 fiscal years. It is recommended that the exercise be undertaken on a yearly basis to provide the Agency with the most current data available in the air mode. The data focuses mainly on the number of international passengers at each airport and the distances from CBSA servicing offices to major airports or servicing centres, for all airports serviced by the CBSA. The data was analyzed for trends and indicators and it helped develop a comprehensive overview of air border clearance services delivered across the country. International passenger volumes at airports are a key component in the review and are an important element for briefing senior management, including the Minister of Public Safety, on a variety of issues. To ensure that the most current data is available, an abbreviated version of the data collection exercise for the 2007–08 fiscal year was completed. This provides the CBSA with the most up-to-date and accurate data possible that will serve to further forecast, track trends and monitor activity in the air mode.

Documentation of Denied Service Requests

A second best practice is to identify any denied requests for service that have been made during a fiscal year. These denied service requests may come from airlines, airport authorities or a particular city for additional services beyond core hours or for a new service. This information may not be readily available since there are inconsistencies from region to region as to how this information is tracked; however, the regions will be asked to provide the most accurate information possible. The rationale for tracking denied service requests is to enable the CBSA to better identify its service gaps and to determine where the majority of the demands for its services are originating from.

Conclusion

Several key conclusions can be drawn from this report:

1. The Agency's funding shortfalls are compounded by a growing demand for services and border initiatives that will continue to grow, particularly from stakeholders in the air industry.
2. The CBSA's key challenge is balancing the Agency's security mandate with increasing client demands and expectations for new or expanded services.
3. Due to limited resources, the Agency will never be in a position to meet every stakeholder demand; therefore, service decisions as to who receives service, when and where must be made while taking into consideration the principle of "good value for money", efficiency, security and risk.
4. The fact that 99.32% of international passengers flow through the top 20 airports in Canada is an important factor to consider when evaluating and recommending options.

Ensuring the right level of service at airports is, and remains, an important issue for the CBSA. The development of a sustainable service delivery policy to prioritize stakeholder demands and maintain national security, which also supports economic prosperity, is a priority undertaking for the Agency. Key objectives are to address service level enhancements at large, medium and small airports; secure funding for options that were developed; and, through the policy framework, identify sites for service enhancement.

Next Steps

The CBSA has developed an effective and efficient CBSA core services delivery framework but additional research and analysis is still required through ongoing consultations. The Agency's short-term goals are the following:

• a) Implement a policy framework
  • The development and subsequent implementation of a policy framework to assess requests for service is crucial. The policy framework will provide clear criteria for stakeholders requesting core services and set the stage for future decisions as to where the CBSA should invest its resources. The CBSA will also assess, on an ongoing basis, new demands for services. It will conduct a review to address new service requests on a regular basis and put forth options to obtain additional resources for new services vetted through the framework.
• b) Secure funding for service expansion
  • Securing funding for service expansion is a key priority for the CBSA. Unfortunately, there is no identified funding mechanism to address current requests for passenger clearance services and there is no process in place to fairly assess future requests for services. Due to a lack of funding, the CBSA is unable to increase publicly funded services in the air mode. The strategy will be to seek policy approval of the developed policy framework to access the appropriate funding. The Agency is conscious of the need for enhanced service requirements.

Moving Forward

To address some of the issues at hand, it is vital that the CBSA work with the stakeholders in the air mode. Stakeholder engagement and partnerships are a key element of implementing next steps. Through the consultative working group, that includes various branches of the CBSA and stakeholders in the air mode, avenues for discussion will be created that in turn will build partnerships and ensure that each group's respective concerns are considered, prioritized and balanced.

This engagement is vital to create "good public policy" from a client and taxpayer perspective, to achieve transparency and to improve client satisfaction with respect to border service delivery. Being flexible to orchestrate future needs and requirements and taking into consideration new program priorities and government policy objectives are also essential in an ever-changing environment.

Glossary and Acronyms

Glossary

Base budget

The CBSA's fixed resource level.

Core services

The CBSA's Service Delivery Framework defines core services as "what services we provide, where and at what time based on available resources".

Enhanced service

The CBSA's Service Delivery Framework defines a "new or enhanced" service as, but not limited to, the following:

• A service that falls outside the authorized hours of service at a border services office (as indicated in the Directory of CBSA Offices that is available on the CBSA's Web site);
• A service that is at a location where border services are not currently provided (as indicated in the Directory); or
• A service that is outside the normal realm of a border services officer's duties at the location where the service is being requested.

Staged off-loading

Passenger restrictions are in place at certain locations. The CBSA may permit an airport to exceed its designation entry by allowing passengers to disembark in phases (i.e. staged off-loading). Airports with staged off-loading are noted on the specific port-of-entry listing in the Directory of CBSA Offices (e.g. Prince George).

Acronyms

AOE

airport of entry

CAC

Canadian Airports Council

CBSA

Canada Border Services Agency

CFIA

Canadian Food Inspection Agency

CSR

Core Services Review

HQ

CBSA Headquarters (Ottawa)

OGD

other government department