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British Columbia’s residency requirement on welfare: a rational choice case study Olmstead, Amy D. K. 1996

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B r i t i s h Columbia's Residency Requirement on Welfare: A Rational Choice Case Study by My D. K. Olmstead B.A. McGill University, 1995, THESIS SUBMITTED IN PARTIAL FULFILMENT THE REQUIREMENTS FOR THE DEGREE OF ••; .-.-MASTER OF ARTS: . V . i n THE FACULTY OF GRADUATE STUDIES Department of P o l i t i c a l - S c i e n c e We accept t h i s thesis as conforming to/the required standard THE UNIVERSITY OF BRITISH COLUMBIA August 1996 © A m y D. K. Olmstead, 1996 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of TV) j/ \\OxX S(MMCJ^ The University of British Columbia Vancouver, Canada Date ^ H / f t r \ / V ^ k DE-6 (2/88) Abstract This paper examines B r i t i s h Columbia's residency requirement on s o c i a l assistance implemented by the NDP government on December 1, 1995. The p o l i c y created a three-month waiting period for newcomers to the province before they could apply for s o c i a l assistance. Because i t v i o l a t e d ;the Canada Assistance Plan (CAP), the residency requirement put the BC government at r i s k of losing, through federal penalty, many mi l l i o n s of d o l l a r s more than the intended savings. To explain the BC government's decision-making, I use a r a t i o n a l choice nested games approach. I argue that the residency requirement p o l i c y produced two sets of interactions i n two separate p o l i c y arenas. In the p r i n c i p a l arena, the B r i t i s h Columbia Social Services Ministry negotiated with the federal Department of Human Resources Development (HRD). The negotiations centred on the p o s s i b i l i t y of federal concessions in- exchange for BC withdrawing the residency requirement. In the secondary arena, the federal Department of Finance was consulting with i t s p r o v i n c i a l counterparts regarding the' long-term funding formula for the Canada Health and Social Transfer (CHST) set to replace CAP on A p r i l 1, 1996. Social Services interacted with the federal Department of Finance to influence the outcome of the funding decision. I propose that the BC government risked minimal resources i n the primary arena to gain substantially higher payoffs from the CHST funding formula. The government linked these two arenas through a ' t r a d e - o f f strategy that allowed them to apply the p o l i t i c a l pressure and communication generated by the residency requirement and negotiations with HRD to the Finance arena. This 1 enabled them to. increase the p o s s i b i l i t y of a favourable payoff i n that arena. I f i n d that the rational, choice approach produces an explanation that r e f l e c t e d the government's actual decision-making more cl o s e l y than other t h e o r e t i c a l approaches. i i i Table of Contents Abstract i i Table of Contents ' v ' i v Chapter One Introduction 1 Alternative Theoretical Approaches 3 The Rational Choice Approach . 17 Methodology 25 Chapter Two Rational Choice i n the Residency . Requirement Case 31 The P r i n c i p a l Arena: Social Services 37 The Secondary Arena: Finance 43 Two Arenas 45 Chapter Three Introduction 47 The Game Begins 4 9 The Finance Arena 74 The CHST A l l o c a t i o n Formula Decided 83 The Residency Requirement i n Multiple 8 6 Arenas Chapter Four A Summary of Findings 90 The Counter Explanations 92 Evaluation of the Theoretical Approach 95 Bibliography 102 Apendix 1 Interviews 105 i v Chapter One: Theoretical Approaches Introduction On November 3, 1995, the NDP government of B r i t i s h Columbia implemented a residency requirement on welfare- the f i r s t i n Canada in almost t h i r t y years. While supported by most B r i t i s h Columbians, a storm of controversy erupted over the p o l i c y i n the rest of the country.. The residency requirement placed a three-month waiting period on new-comers to the province before they could apply for s o c i a l assistance. The BC government anticipated that the p o l i c y would save $2 m i l l i o n a month. However, i t went against the conditions of the fe d e r a l - p r o v i n c i a l cost-sharing agreement for s o c i a l assistance and would l i k e l y result i n the loss of well over $30 m i l l i o n in federal transfers for the 1995-96 f i s c a l year. In t h i s thesis, I w i l l attempt to explain t h i s puzzling p o l i c y choice. On the surface, the residency requirement p o l i c y could simply be dismissed as a mistake or an imprudent r i s k . It could also be f i l e d under the category of 'fed-bashing', a popular e l e c t o r a l ploy, or 'province building'. . Upon closer examination, these explanations do not r e f l e c t the actual decision-making of the BC government. - Consequently, an explanation must be found for the choice, of the residency requirement that allows a focused examination of decision-making and p o l i c y determinants. Much of the l i t e r a t u r e on Canadian s o c i a l p o l i c y takes an i n s t i t u t i o n a l approach to understanding the timing and content of p o l i c y and i t s development over time. Scholars have revealed how i n s t i t u t i o n s structure roles, information, resources, access to decision-makers, and decision-making processes. Institutions 1 a f f e c t Canadian s o c i a l p o l icy in systematic and generalizable ways.1 P l u r a l i s t - i n f l u e n c e d approaches have also played a important role i n expanding our understanding of social., p o l icy .development. Neo-Marxists have probed the pervasiveness of c a p i t a l i s t influence on the state. Each approach has something valuable to of f e r Canadian s o c i a l p o l i c y analysis. The evidence surrounding the residency requirement p o l i c y points to a complex decision-making process influenced by r i s k calculations, the behaviour of other governments, and e l e c t o r a l opinion. The unique way these and other factors were weighed encourages us to look beyond the above t h e o r e t i c a l approaches. I propose an approach that i s not yet commonly used in Canadian s o c i a l p o l i c y analysis. This approach emphasizes a key element lacking i n the others by centring the theory around a model of human, agency. The ra t i o n a l choice framework of po l i c y analysis i s ' based on the premise of government pursuit of p o l i c i e s with maximum e l e c t o r a l u t i l i t y within the various constraints on i t s decision-making. I argue that the B r i t i s h Columbia government r a t i o n a l l y chose the residency requirement i n accordance with preferences determined by the pursuit of e l e c t o r a l success. Lured by the p o s s i b i l i t y of substantial payoffs i n the federal Finance Department's discussions . about .the Canada Health and Social Transfer funding formula,. the BC government sought to use the residency requirement to influence the CHST outcome.2 ' L e s l i e Pal, State, Class and Bureaucracy: Canadian Unemployment Insurance and Public Policy, (Kingston: McGill-Queen's University Press, 1988), 138. ' . 2The CHST was set to replace the Canada Assistance . Plan in 1996-97 and the Finance Minister had to decide by March 1996 : on the funding formula to begin i n the 1998-99 f i s c a l year. 2 In the next section, I w i l l b r i e f l y review the alternative t h e o r e t i c a l approaches, some of t h e i r contributions to the study of Canadian s o c i a l policy, and show why they are sub-optimal theories for analyzing the residency requirement p o l i c y . Then, I w i l l explain the r a t i o n a l choice approach to i d e n t i f y i n g government po l i c y preferences and explaining decision-making. . Alternative Theoretical Approaches Perhaps the least useful t h e o r e t i c a l approach for examining the residency requirement . i s ned-Marxism. In neo-Marxism, the state i s considered the instrument of the dominant, c a p i t a l i s t c l a s s . State p o l i c y i s used to benefit capitalism d i r e c t l y , through p o l i c i e s that preserve or promote the conditions favouring c a p i t a l accumulation or i n d i r e c t l y , through 7 p o l i c i e s that grant some concessions to labour, to preserve the long-term s t a b i l i t y of i -the c a p i t a l i s t order. 3 Broadly considered, government po l i c y i s the product of society's .class struggle. Neo-Marxism's application to the residency requirement case i s l i m i t e d . The residency requirement amendment i s merely a minor component of Canada's^ s o c i a l p o l i c y . In addition, a residency requirement has c o n f l i c t i n g e f f e cts on c a p i t a l i s t i n t e r e s t s . It r e s t r i c t s the mobility of labour and thus acts against the interests of business by diminishing the labour pool available to i t . At the same time, i t reduces the costs of s o c i a l programs and therefore has a favourable impact on the tax burden c a r r i e d by the corporate sector. In the end, the po l i c y change may simply be too small to be evaluated using neo-Marxist theory. In Canada, pluralism has an important place i n public p o l i c y 3Gabriel Almond, "The Return to the State," American P o l i t i c a l Science Review, v o l . 82 no. 3 (September 1988) : 868. analysis. The mainstream of. p l u r a l i s t debate views the public p o l i c y process as a set of interactions between government and society where government i s t y p i c a l l y unable to. overcome the m u l t i p l i c i t y of s o c i e t a l constraints on i t s behaviour. 4 The American school,dominated the development of pluralism. It proposed an atomistic view of groups with one-on-one relationships with government and which grew and weakened i n response to environmental change.5 The Canadian approach has evolved d i f f e r e n t l y . Presthus' accommodation theory proposed that "policy decisions are the result of negotiation and consultation among e l i t e s " , with e l i t e s defined as l e g i s l a t o r s , top bureaucrats and private interest group leaders, with resources, and interest i n a p o l i c y area. 6 Government i s not a simple 'cash-register' (as some of the American, l i t e r a t u r e of the time suggested); i t has i t s . own interests stemming from the desire to maintain power and from i t s s i g n i f i c a n t and unique resources. Building upon t h i s " p a r t i a l theory" of interest group behaviour and c r i t i c i s i n g some of the c h a r a c t e r i s t i c s of the e a r l i e r American theories, Paul Pross developed a theory of p o l i c y communities. • The p o l i c y community (made up of relevant government agencies, i n s t i t u t i o n a l i z e d interest groups, and the attentive public) has the dominant voice i n determining p o l i c y due to i t s 4Almond 861^-4; E r i c Nordlinger, "The Return to the. State.: C r i t i q u e s , " American P o l i t i c a l Science- Review, v o l . 82 no. 3 (September 1988): 877. 5Paul Pross, Group P o l i t i c s and Public Policy, (Toronto: Oxford University Press, 1986), 96. • 6Robert Presthus, E l i t e Accommodation in Canadian P o l i t i c s , (Toronto: MacMillan of Canada, 1973), 4. 4 functional, r e s p o n s i b i l i t i e s , vested interests and specialized knowledge.7 In his theory, the state has long-term influence and i s more autonomous than other actors but i s not consistently dominant over,them. 8 Pross has constructed a powerful, i f not uncontested, t o o l for understanding p o l i c y development. Pross argues that the po l i c y community model i s prevalent i n po l i c y development, although to d i f f e r e n t degrees i n various Canadian governments. Certain types of p o l i c i e s are more l i k e l y •to be influenced by. interest groups than others. The o r i g i n of a po l i c y and the nature of i t s impact are key factors In determining the role of interest groups. Interest groups are more l i k e l y to have established relationships with bureaucracies, than with cabinet and therefore they generally have a greater a b i l i t y to influence long-term p o l i c y trends deriving from bureaucratic i n i t i a t i v e s . In addition, p o l i c y that i s intended primarily to respond to s o c i a l problems or flaws i n ex i s t i n g p o l i c y i s more l i k e l y to be influenced by knowledgable interest groups than p o l i c y intended as a t o o l for broader p o l i t i c a l purposes. The residency requirement, I w i l l argue, was a p o l i c y created as an instrument to address a policy area beyond the issue of migrants applying for welfare.- As such, i t was not simply intended as a response to the problem it's content appeared to address (the cost of new-comers applying for BC s o c i a l assistance) because i t was used i n a s p e c i f i c way to address broader issues of s o c i a l assistance financing. The po l i c y demonstrated that the state possesses it s ' own interests and pursues a c t i v i t i e s not open to 7Pross 98. 8Pross 241. 5 i n t e r e s t groups or o p p o s i t i o n p a r t i e s . 9 The p o l i c y was not the product of an e v o l u t i o n a r y b u r e a u c r a t i c process and was only a sub-optimal remedy to the s o c i a l . a n d f i s c a l problem i t most d i r e c t l y a f f e c t e d (migration and e s c a l a t i n g S o c i a l Services c o s t s ) . Most impo r t a n t l y , as I w i l l show i n Chapter Three, the case f o r using a n e o - p l u r a l i s t model to examine the determinants of the residency requirement i s hampered by the lack of i n t e r e s t group a c t i v i t y i n i t s development. The i n s t i t u t i o n a l approach has been the dominant one i n s o c i a l p o l i c y a n a l y s i s i n Canada. By a v a r i e t y of s c h o l a r s , i n s t i t u t i o n s have been a t t r i b u t e d great i n f l u e n c e i n Canadian s o c i a l p o l i c y . I n s t i t u t i o n a l i s m d i f f e r s from p l u r a l i s m and Marxism i n that the s t a t e , through the. i n s t i t u t i o n s that create and maintain i t , can be accorded a s i g n i f i c a n t degree of autonomy from s o c i e t y . However, autonomy i s not the crux of the debate between these t h e o r i e s . I t i s more u s e f u l to focus on which v a r i a b l e i s to be the t h e o r e t i c a l s t a r t i n g p o i n t and, consequently, which one shapes and i n f l u e n c e s the other v a r i a b l e s . 1 0 Due to the resources, pervasiveness, and l o n g e v i t y of the various i n s t i t u t i o n s of the s t a t e , many sc h o l a r s have t i p p e d the balance of i n f l u e n c e as a s t a r t i n g p o i n t f o r a n a l y s i s i n i t s favour. To f u l l y understand p o l i c y determinants, the i n s t i t u t i o n a l approach deems that "you must pay a t t e n t i o n to the manner i n which the p o l i t i c a l system i s organized to produce p o l i c y outcomes". 1 1 9 N o r d l i n g e r 882. 1 0 N o r d l i n g e r 876. "Michael Atkinson, " P u b l i c P o l i c y and the New I n s t i t u -t i o n a l i s m , Governing Canada: I n s t i t u t i o n s and P u b l i c P o l i c y , ed. Michael Atkinson (Toronto: Harcourt Brace Jovanovich Canada, 1993), 6 By structuring the decision-making process, i n s t i t u t i o n s affect i n t e r e s t group access to p o l i c y decision-makers; the interests, incentives and preferences of individuals; the type and amount of resources available to actors; the patterns of i n t e r a c t i o n among actors; and the accumulated norms and perspectives of in-groups. 1 2 In short, i n s t i t u t i o n s influence the content of policy, although the causal rel a t i o n s h i p i s neither simple nor u n i - d i r e c t i o n a l . For example, the i n s t i t u t i o n a l structure of- federalism has an impact on s o c i a l p o l i c y by a f f e c t i n g the interests of decision-makers and t h e i r preferences over time. It has also been attri b u t e d the power to influence p o l i c y scope and r e d i s t r i b u t i v e impact, the timing and speed of. implementation, accountability, and the balance of interests that shape p o l i c y . 1 3 Michael Atkinson i d e n t i f i e s three variants of i n s t i t u -tionalism - r a t i o n a l choice, s t r u c t u r a l , and organizational. The t h e o r e t i c a l approach Atkinson labels ' r a t i o n a l choice i n s t i t u t i o n a l i s m ' i s d i f f e r e n t from the r a t i o n a l choice approach I w i l l be using. His variety of r a t i o n a l choice examines only the i n s t i t u t i o n a l constraints on r a t i o n a l decision-making, and therefore has a d i f f e r e n t focus and narrower scope than the approach I label r a t i o n a l choice. I w i l l only review the r a t i o n a l choice and s t r u c t u r a l variants here because between them they i l l u s t r a t e the explanatory a b i l i t i e s of i n s t i t u t i o n a l i s m . These 21. 1 2 P a l , State, Class and Bureaucracy, 4-11. "Frederick Fletcher and Donald Wallace, "Federal-Provincial Relations and the Making of Public Policy' i n Canada," D i v i s i o n of Powers and Public Policy, Richard Simeon, research coordinator, (Toronto: University of Toronto Press, 1985), 134-5. 7 two prominent variants can be combined i n d i f f e r e n t ways to produce other i n s t i t u t i o n a l variants. In the f i r s t variant (rational choice iristitution'alism) , i n s t i t u t i o n s are structures made up of negotiated • rules that constrain the behaviour of individuals with preferences, - which are considered to be ' independent variables. Individuals .seek to maximize t h e i r preferences within procedural rules which allow for c o l l e c t i v e . action. Institutions are "congealed power re l a t i o n s h i p s " 1 4 and p o l i c y outcomes are determined by accountability rules,- agenda control, access to resources, and opportunities for intervention i n decision-making. A number of stable p o l i c y outcomes (driven by. d i f f e r e n t preferences) can be produced from' a given i n s t i t u t i o n a l arrangement. • While t h i s variant provides a good theory of the evolution from preferences to p o l i c y , i t i s r e l a t i v e l y s i l e n t regarding the o r i g i n of those preferences and what, end they are used to a t t a i n . 1 5 In the second variant (structural), the structure of i n s t i t u t i o n s (including formal structures and informal rules and norms) are examined for t h e i r a b i l i t y to transform preferences and b e l i e f s . Over time, i n s t i t u t i o n s are able to influence p r e f e r e n c e s , and t h e r e f o r e p o l i c y outcomes, i n s p e c i f i c d i r e c t i o n s . The focus of study i s often on the relationship between a given i n s t i t u t i o n and the ideas and preferences that accompany i t . This type of analysis i s often accompanied by the normative objective of moulding an i n s t i t u t i o n to achieve the desired p o l i c y outcome. The emphasis on i n s t i t u t i o n s such as federalism means- that 'Atkinson 30-.. 'Atkinson 26-30. 8 i n d i v i d u a l decision-makers tend to get l o s t , and i n s t i t u t i o n a l change can be d i f f i c u l t to explain. 1 6 One difference between the f i r s t and second variants of i n s t i t u t i o n a l i s m rests i n the type of power possessed by i n s t i t u t i o n s . In the f i r s t , i n s t i t u t i o n s create contractual relationships and r e s p o n s i b i l i t i e s that allow or promote certain types of c o l l e c t i v e action and i n the second, i n s t i t u t i o n s have the power to transform preferences and b e l i e f s . 1 7 In the f i r s t , the weight of history has l i t t l e bearing on current preferences while in the second the power of the i n s t i t u t i o n s comes in part from values transmitted through time and accumulated p o l i c y outcomes. In the f i r s t , sources of government•policy preferences are not explained. In the second, i n s t i t u t i o n a l and p o l i c y change are d i f f i c u l t to explain. Structural institutionalismT has had a large impact on the analysis of s o c i a l p.qlicy i n Canada. Alan Cairns, for example, has stressed the a b i l i t y of government to shape society through the d e f i n i t i o n of decision-makers' roles and through the preference of some values, p r i o r i t i e s , cleavages, interests and actors over others. 1 8 C a l l i n g the h i s t o r i c a l weight of i n s t i t u t i o n s "generational imperialism", Cairns examined the impact of federalism on Canadian p o l i t i c a l culture, i d e n t i t i e s and p o l i c y development. 1 9 •. • • . 1 6Atkinson 31-4 . "Atkinson 27. 1 8Alan Cairns, "Author's Introduction," Constitution, Government, and Society in Canada, ed. Douglas E. Williams (Toronto: McClelland and Stewart, 1988), "18. 1 9Cairns, "Author's Introduction," 18. 9 For example, in. "The Government and Societies of Canadian Federalism" published i n 1977, Cairns argued that p r o v i n c i a l governments created by the d i v i s i o n of powers i n 1867 have developed into actors intent on expanding t h e i r resources, power, j u r i s d i c t i o n , and d i s t i n c t i v e p r o v i n c i a l i d e n t i t i e s . The general impact has been to make p r o v i n c i a l interests dominant over other p o l i t i c a l actors i n po l i c y formation (like labour), to reduce the coordinating a b i l i t y of the federal government, and to impede p o l i c y cooperation i n the face of recognized s o c i a l problems. 2 0 A normative thrust was evident i n many of Cairns' s t r u c t u r a l i n s t i t u t i o n a l analyses. In "The Other C r i s i s of Canadian Federalism" (1979), Cairns named t h i s i n s t i t u t i o n a l structure as a factor i n the de c l i n i n g capacity, of the government to attain public goals. 2 1 Ins.titutionalism places a great emphasis on the constraining role of i n s t i t u t i o n s i n r u l i n g out certain p o l i c y options. In t h i s case- where an i n s t i t u t i o n had been vi o l a t e d for the f i r s t time i n t h i r t y years- i n s t i t u t i o n a l i s m can provide valuable insi g h t s . The i n s t i t u t i o n a l arrangement created by CAP had successfully prevented p r o v i n c i a l residency requirements, once' r e l a t i v e l y common, by provinces since 1967 . 2 2 Indeed, only one other v i o l a t i o n of any 2 0Alan Cairns, "The Government and Societies of Canadian Federalism," Constitution, Government, and Society i n Canada, ed. Douglas E. Williams (Toronto: .McClelland and Stewart, 1988), 145-50. . * 2 1Alan Cairns, "The Other C r i s i s of Canadian Federalism," Constitution, Government, and Society i n Canada, ed. Douglas E. Williams (Toronto: McClelland and Stewart, 1988), 171. 2 2Keith Banting, The Welfare State and Canadian Federalism, (Kingston: McGill-Queen's University Press, 1987), 102. 10 CAP rule has been noted. 2 3 Theoretically, the rare v i o l a t i o n of an i n s t i t u t i o n a l rule can serve simply to underline the importance of that r u l e . 2 4 Consequently, evidence of a contravention of CAP and of a nation-wide commitment to ; voluntary labour mobility does not necessarily rule out such an i n s t i t u t i o n a l approach as a useful explanation i n general, but i t . does rule i t out i n the residency requirement case. A l t e r n a t i v e l y , with i n s t i t u t i o n a l change from CAP to the CHST on the horizon and with a great deal of i n s t i t u t i o n a l uncertainty, p o l i c y that v i o l a t e d e x i s t i n g rules would not necessarily be surprising. A r a t i o n a l choice i n s t i t u t i o n a l approach could reveal what objective a government could be pursuing during i n s t i t u t i o n a l upheaval that would cause i t to break one of the e x i s t i n g rules. The i n s t i t u t i o n s of federalism and bureaucracy have played key roles i n the analysis of s o c i a l policy, although there continues to be disagreement about the precise nature of t h e i r influence. The treatment of the two i n s t i t u t i o n s provides important background for anyone attempting s o c i a l p o l i c y analysis i n Canada. I w i l l examine several studies i n order to more clos e l y examine how neo-i n s t i t u - t i o n a l i s m has contributed to our.understanding of Canadian s o c i a l p o l i c y . The bureaucratic structure i n a given p o l i c y area has been i d e n t i f i e d by. Canadian scholars as an i n s t i t u t i o n with generalizable e f f e c t s on p o l i c y . L e s l i e Pal, for one, has proposed that the bureaucracy structures such variables as relationships 23"BC-Ottawa .dispute heats up," Globe and Mail, 6 December 1995, A4. 2 4Atkinson 31. 11. between agencies, access to resources and information, and the creation of p a r t i c u l a r ih-groups which allow experts within the bureaucracy to largely determine the nature of p o l i c y . 2 5 Pal examined the development of the Unemployment Insurance p o l i c y and found that i t was dominated by the bureaucracy. It structured the a v a i l a b i l i t y of information, resources, and expertise i n a way that allowed a small group of experts to determine the bulk of the p o l i c y . Factors such as organizational ideology and the primacy of inter-agency c o n f l i c t (as opposed to agency-interest groups relations) allowed p o l i c y decision-making an important degree of insul a t i o n from s o c i a l and p o l i t i c a l i n t e r e s t s . It also created a large degree of continuity over time i n p o l i c y content. The p o l i c y preferences of the experts were independent variables i n t h i s case and program development demonstrated the autonomy of the state from competing s o c i a l i n t e r e s t s . 2 6 Keith Banting has argued that federalism as a contractual r e l a t i o n s h i p between governments has constrained the growth of s o c i a l security spending, and has created an elite-dominated, insulated decision-making process requiring high lev e l s of consensus. 2 7 Others argue that two lev e l s of government actually increase access to p o l i t i c a l d e c i s i o n makers and, hence, po l i c y influence. In addition, two levels of government competing against 2 5 P a l , State Class and Bureaucracy, 171. 2 6 L e s l i e Pal, "Revision and Retreat: Canadian Unemployment Insurance, 1971-1981," Canadian Social Welfare Policy: Federal and p r o v i n c i a l Dimensions, J.S. Ismael, ed, (Montreal:. McGill-Queen's University Press, 1985), 84 and 95. 2 7Banting, The Welfare State,. 115 and 175-7. 12 each other for power, j u r i s d i c t i o n , and resources may produce a larger public sector and greater p o l i c y innovation than a single level, of government. Persuasive arguments have been made for both cases. In his study of the Canada Pension Plan in p a r t i c u l a r , Banting emphasized the influence of the i n s t i t u t i o n a l structures on the decision-making process. Federalism as divided authority slowed the 1 pace of p o l i c y development by creating a process dominated by competing governmental i n t e r e s t s . 2 8 In addition, the bureaucratic processes constrained public access to. decision-makers -and directed the influence of i d e o l o g i c a l forces underlying pension p o l i c y . 2 9 The Canada Assistance Plan (CAP) has been studied for both explanatory and normative purposes. In his 1983 study, Derek Hum concluded that the divided f i s c a l and p o l i c y j u r i s d i c t i o n for s o c i a l assistance produced by the i n s t i t u t i o n of CAP prevented provinces from making certain q u a l i t a t i v e changes to p o l i c i e s . 3 0 He found that p r o v i n c i a l i n i t i a t i v e s that attempted to respond to the problem of poverty among the working poor by extending s o c i a l assistance programs were blocked by the i n s t i t u t i o n a l arrangement with the federal government . 3 i CAP had the power to constrain p o l i c y options. From t h i s b r i e f examination, the primary weakness that emerges 2 8Keith Banting, " I n s t i t u t i o n a l Conservatism: Federalism and Pension Reform," Canadian Social Welfare Policy: Federal and P r o v i n c i a l Dimensions, 57. 2 9Banting, " I n s t i t u t i o n a l Conservatism," 69. 3 0Derek Hum, Federalism and the Poor: A Review of the Canada Assistance Plan, (Toronto: Ontario Economic Council, 1983), 6-9. 3 1Fletcher and Wallace 140. 13 ; ' •• ... ^ • • b . . . ' from the above i n s t i t u t i o n a l approaches i s the lack of explanation of why actors are motivated to act and how motivation i s related to p o l i c y outcomes. While s t r u c t u r a l i n s t i t u t i o n a l i s m attributes government p o l i c y preferences (in a c i r c u l a r way) ,to the i n s t i t u t i o n s themselves, the f i r s t variant treats them as independent variables. In Hum's analysis of CAP, the factors that produced the p r o v i n c i a l government's preference to act for the working poor, an independent variable, were generated by a process s p e c i f i c to that p a r t i c u l a r p o l i c y . In Pal's study of UI, he mentioned that at certain points i n the process, decision-makers were sensitive to the public mood. At the same time, the public's e f f e c t on decision-makers' incentives to act and government policy preferences was not integrated into a causal relationship with p o l i c y outcome.32 Banting was more candid about the explanatory l i m i t s of the i n s t i t u t i o n a l approach. 3 3 He admitted that although i n s t i t u t i o n s are "the key influence of the p o l i t i c s of pensions", they do not determine basic p r i n c i p l e s . 3 4 Several years l a t e r , he concluded that i n s t i t u t i o n s are not the. most important determinants of s o c i a l p o l i c y i n Canada. 3 5 Unfortunately, neither n e o - i n s t i t u t i o n a l variant' provides adequate tools for the analysis of decision-making i n the residency requirement case. As a result, possible counter explanations derived from them are persuasive but upon closer inspection are not convincing, a point to which I w i l l return in the f i n a l chapter. 3 2 P a l , State, Class and Bureaucracy, ,177. 3 3Banting, " I n s t i t u t i o n a l Conservatism," 62. 3 , !Banting, " I n s t i t u t i o n a l Conservatism," 69. 3 5Banting, The Welfare State, 179. 14 t For example, a Cairns-type s t r u c t u r a l i n s t i t u t i o n a l argument could explain, the p o l i c y as a product of the t r a d i t i o n i n BC of bombarding the federal government . with economic claims as ..compensation for long-term federal discrimination. 3 6 The NDP government i n B r i t i s h Columbia Inherited a place i n an i n s t i t u t i o n a l structure which transmitted government po l i c y preferences for province-building and fed-bashing. These preferences may have been enough to have produced the residency requirement p o l i c y . A l t e r n a t i v e l y , the BC government's actions could be explained as a response to i n s t i t u t i o n a l uncertainty, as I mentioned above as a possible r a t i o n a l choice i n s t i t u t i o n a l perspective. The termination of CAP and the uncertainty surrounding the p r i n c i p l e s and funding of the CHST could have motivated the BC government to break e x i s t i n g rules to influence i n s t i t u t i o n a l change. These factors were c i t e d by BC during the period under examination, although there Were many others. Using a non - i n s t i t u t i o n a l r a t i o n a l choice approach s i m i l a r to the one I propose, one could also posit that the f i n a n c i a l costs of the po l i c y were so minimal i n comparison with the ov e r a l l budget of the province arid with government spending p r i o r to an elec t i o n that the policy's p o l i t i c a l advantage i t s e l f may have outweighed the costs. Powerful public rhetoric, high p r o f i l e p o l i c y statements, and dramatic confrontation i n the months p r i o r :to the el e c t i o n were purchased at the r e l a t i v e l y small cost of $39 m i l l i o n (money that did not come but of campaign funds). Considered t h i s way, there r e a l l y i s no po l i c y puzzle at a l l . 3 6Cairns, "The Government' and Societies of Canadian Federalism," 150. ' 15 While each of these explanations, on the surface, removes the puzzle, they are not consistent with the BC government's decision-making on the issue. The problem with explanations driven by other t h e o r e t i c a l approaches b o i l s down to the absence of a causal chain of relationships that begins by explaining the. incentives of government p o l i c y preferences and ends with the p o l i c y outcome. Certain p o l i c y trends or general p o l i c y d i r e c t i o n may be i d e n t i f i e d . as the product of i n s t i t u t i o n s , but i n operational terms p o l i c y i s the product of individuals weighing preferences. 3 7 For ind i v i d u a l p o l i c i e s , i t i s ess e n t i a l to examine, how and why government po l i c y preferences are ranked and to what end. When considered i n t h i s way, i n s t i t u t i o n s play a more marginal, less than determining role i n the generation of government po l i c y preferences and proposals. One l i k e l y incentive to government behaviour, public opinion, i s alluded to by some i n s t i t u t i o n a l i s t s . but denied habitual influence on government po l i c y preferences and p o l i c y outcome. This i s true even during el e c t i o n periods, where we f i n d clear examples of how the desire to win elections influences parties to p u b l i c i z e p o l i c i e s that appeal to a p l u r a l i t y of the electorate. 3 8 Although i t s influence varies with timing and the size and; nature of p o l i c y , e l e c t o r a l considerations must underlie p o l i c y decisions i n a democracy, according to r a t i o n a l choice. A theory must be able'to incorporate the electorate into the po l i c y process. In sum, the explanation of how; and why a certain p o l i c y i s , chosen must include an e x p l i c i t causal process between the electorate, incentives, government policy preferences, constraining Almond 858. 'Banting, " I n s t i t u t i o n a l Conservatism," 59. 16 variables, and p o l i c y outcome-. While i n s t i t u t i o n a l variables are a relevant part of t h i s explanation, they are not the most productive s t a r t i n g point for analysis. I propose that the r a t i o n a l choice explanation of p o l i c y formation i s capable of uncovering the determinants of the residency requirement p o l i c y by bringing to l i g h t the incentive structure and decision-making process that produced i t . The Rational Choice Approach The r a t i o n a l choice approach to p o l i c y analysis rests on a micro-analytical explanation of p o l i c y formation. The unit of analysis i s the i n d i v i d u a l decision-maker and the. s t a r t i n g point i s the manner in which she makes decisions. In t h i s approach, p o l i t i c i a n s ' p o l i c y preferences are driven by the pursuit of e l e c t o r a l v i c t o r y . A government or party chooses p o l i c y preferences to best achieve t h i s primary objective and a government implements p o l i c y preferences within i n s t i t u t i o n s that structure interactions with other • actors. In t h i s way, r a t i o n a l choice can be considered a synthesis of n e o - i n s t i t u t i o n a l variants and neo-pluralism since i t recognizes the influence of i n s t i t u t i o n s and other actors, including interest groups. More importantly, r a t i o n a l choice takes the independent variables of public preferences and creates a causal relationship, through desire for e l e c t o r a l support, with the dependent variables of government p o l i c y preferences and decision-maker actions. In t h i s section, I w i l l examine the key aspects of r a t i o n a l choice for the following analysis of the residency requirement. F i r s t I w i l l consider the relevant actor under examination and what drives i t s behaviour. Next, I will.review the relationship between the voter and government decision-making, including the role of ideology. Then, I w i l l examine the i n s t i t u t i o n s and other actors that influence BC's decision-making through strategic behaviour. The decision-making unit i s an in d i v i d u a l or a group that acts as a team. In a parliamentary system, t h i s team i s the government (represented by cabinet) .,39 In d i f f e r e n t p o l i c y areas, the decision-making team can be represented by a variety of like-minded i n d i v i d u a l actors.. The decision-maker has a r a t i o n a l , consistent ordering of preferences that w i l l produce p o l i c y designed to maximize the votes of individuals seeking to maximize t h e i r u t i l i t y income. 4 0 The party pursues f i r s t e l e c t i o n and then, as the government, pursues re-election. Through the instrumental act of voting, e l e c t o r a l competition creates a causal relationship, with intervening variables, between voters' u t i l i t y calculations and p o l i c y . 4 1 To act r a t i o n a l l y , the government must make the "optimal adaptation to. an i n s t i t u t i o n a l environment" where "the inte r a c t i o n between individuals i s assured to be an optimal response to each other." 4 2 This requires strategic behaviour, including the' weighing of ri s k s produced by the p o s s i b i l i t y of : other actors' behaviour ..(an . independent variable) . 4 3 Under analysis i s the r a t i o n a l i t y of the decision-making, not the 3 9Anthony Downs., An Economic Theory of Democracy, (New York: Harper and Row, 1957), 25-6. 40Downs 31 and 37. 41Downs 31. 4 2George Tsebelis, Nested Games, (Berkeley: University of C a l i f o r n i a Press, 1990), 40. 4 3Masaru Kohno, "Rational Foundations for the Organization of the L i b e r a l Democratic Party i n Japan," World P o l i t i c s , v o l . 44 (April 1992): 382 and 394. 18 eventual success of the actor's chosen p o l i c y course. 4 4 Actual p o l i c i e s are t y p i c a l l y only p a r t i a l alterations to previous p o l i c y . This allows parties and voters to measure only the marginal•impact of po l i c y on expected u t i l i t y , a simpler c a l c u l a t i o n than the a l t e r n a t i v e . 4 5 When cal c u l a t i n g the expected u t i l i t y of future p o l i c i e s , voters compare the governing party's past p o l i c y and promises for the future against opposition parties' promises. 4 6 Rational choice theory emphasizes the role of the marginal • voter i n determining e l e c t i o n outcomes, and hence the role of the marginal voter.in the creation of. government p o l i c y . In order to simplify t h i s component of pol i c y decision-making, I w i l l consider the marginal voter to be the median voters i n the middle cl a s s . • I w i l l assume that low income earners tend to vote for l e f t - o f -centre parties* and high income earners for right-of-centre p a r t i e s . 4 7 In BC, the post-1952 party system has been dominated by one party on each side of the l e f t - r i g h t p o l i t i c a l spectrum, making i t not a gross d i s t o r t i o n to assume that the median voters in the middle class are the determining voters i n election outcomes. Another factor that must be considered regarding e l e c t o r a l competition i s the time frame voters use when determining which party offers the preferred combination of p o l i c i e s . There i s no 44Downs 6. 4 5Paul Peterson and Mark Rom, Welfare Magnets, (Washington: The Brookings Institute, 1990), 56. 46Downs 52 -4 . 4 7Dennis Mueller, Public Choice. II, (New York: Cambridge University Press, 1989), 290. 19 d e f i n i t i v e answer here, but there i s agreement that when voters measure expected u t i l i t y , past p o l i c y performance has a large impact on t h e i r c a l c u l a t i o n s . 4 8 How far i n the past voters remember depends on the t h e o r i s t ' s conception of the forgetfulness of the voter. Government behaviour shows that governments "believe that voters remember the months or year before an e l e c t i o n much more c l e a r l y than the year or two a f t e r 'an e l e c t i o n . 4 9 We see t h i s when new governments implement the most unpopular p o l i c i e s in the year af t e r e l e c t i o n and announce highly popular ones i n the months before an'election. Voters often appear to validate the assumption by r e - e l e c t i n g f i r s t - t e r m governments that behave.this way. Without conclusive evidence, we w i l l assume that ' voters remember more c l e a r l y , and are thus more influenced by, the events i n the year up.to the e l e c t i o n than by the year af t e r the previous e l e c t i o n . We must also examine which p o l i c i e s influence voters' u t i l i t y c a l c u l a t i o n s . Again, there i s no clear agreement on t h i s point. Today, the issue cleavages i n society are cross-cutting and few individuals w i l l weigh the same p o l i c i e s In the same way. : Much.of the l i t e r a t u r e argues that f i s c a l policy.has the greatest impact-on voter u t i l i t y c a l c u l a t i o n s . 5 0 P o l i c i e s r e g a r d i n g unemployment, interes t rates, spending lev e l s , economic growth rates, and tax l e v e l s affect the economy in ways, that d i r e c t l y and v i s i b l y erode or bolster the quality of voters' l i v e s through income, p o s s i b i l i t y of employment, and costs of l i v i n g . We w i l l assume that f i s c a l 4 8Mueller 299. 4 9Mueller 286. -5 0Mueller 277-8; Peterson and Rom 56. 20 p o l i c y has the greatest impact on u t i l i t y c a l c u l a t i o n s . Social assistance p o l i c y and the amount of resources devoted to i t a f f e c t many of these f i s c a l variables. Voters, consequently, have reason to consider s o c i a l assistance p o l i c y c l o s e l y when ca l c u l a t i n g expected u t i l i t y paths for various p a r t i e s . This makes amore e x p l i c i t connection within r a t i o n a l choice between s o c i a l assistance,policy, which does not affect each voter d i r e c t l y i n the form of benefit cheques, and each voter's preference calc u l a t i o n s . On the p o l i c y proposal side, the variety of spending options for p o t e n t i a l governments are li m i t e d at a given time by a narrow spectrum of possible available resources. When parties court the same voters, the p o l i c y proposals can narrow even more. This makes i t d i f f i c u l t for parties to produce d i s t i n c t i v e and more popular p o l i c y platforms than t h e i r competition. In contrast, substantial e l e c t o r a l advantage- can come from the creation of economic growth or new resources without taxation. 5 1 For p r o v i n c i a l governments, the federal government i s a s i g n i f i c a n t source of revenue" and revenue . p o s s i b i l i t i e s . , When formulating p o l i c y and ranking p o l i c y preferences, the government i s acting under, conditions .of uncertainty which constrain i t s behaviour. Information i s costly regarding public preferences,, the future actions of i t s competitors and other government actors, and ele c t i o n outcomes. Voters also act under conditions of uncertainty. The costs of information are high and the future behaviour of the chosen government i s unknown. Ideology i s an important variable i n the relationship between government, parties,, and voters. While party behaviour designed "Mueller -278 . to maximize votes would suggest a uniformity among party platforms, that i s not what we see. Instead, ideology continues to play a role i n determining p o l i c y . Ideological positions are produced by the need for d i s t i n c t i o n and the need to cut the costs of information gathering for parties and voters. 5 2 In t h i s sense, ideology i s a dependent variable. E l e c t o r a l competition means that parties must d i f f e r e n t i a t e themselves i n a meaningful way or voters w i l l lack the Incentive to choose between them. Under conditions of costly information, some voters w i l l vote i d e o l o g i c a l l y instead of by performing u t i l i t y , c a l c u l a t i o n s . This short-cut i s r a t i o n a l as long as the behaviour of parties i s di f f e r e n t from each other and that difference i s consistent with t h e i r respective ideologies. Evidence exists that i n systems where the l e f t - r i g h t i d e o l o g i c a l dimension Is s i g n i f i c a n t , parties take d i f f e r e n t approaches .to' economic policy, including s o c i a l assistance. 5 3 Keeping policy consistent with ideology also allows short-cuts for the party because i t does not need to perform voter opinion p o l l s for each p o l i c y . 5 4 The need for consistency means that a party w i l l create a f l e x i b l e but coherent i d e o l o g y which allows i t to attra c t the p l u r a l i t y o f a population divided into s o c i a l groups. The tension between s o c i a l groups, between labour and c a p i t a l or between poor and r i c h for example/ prevents parties from appealing to a l l groups 5 2Tsebelis 156. 5 3Geoffrey Garrett and Peter Lange,< "Government Partisanship and Economic Performance," Journal of P o l i t i c s , v o l . 51 no. 3 (August 198.9) , 681. 54Downs 97-9. 22 simultaneously. 5 5. Uncertainty, regarding the exact nature and numerical strength of each s h i f t i n g and cross-cutting s o c i a l group,, the need-to d i s t i n g u i s h i t s e l f from other parties, and cost-cutting help prevent the convergence of ideologies. 5 6. However, i t would be misleading to suggest that ideology i s simply a dependent variable, created based on public preferences. In i t s . a b i l i t y to constrain p o l i c y s h i f t s , the weight of id e o l o g i c a l t r a d i t i o n can also make i t an independent variable at any given time. The ide o l o g i c a l inheritance can sometimes be problematic for p a r t i e s . Ideologues who jo i n p o l i t i c a l parties may push' i d e o l o g i c a l positions that may be unpopular among the electorate because of preference for p o l i c y purity over e l e c t o r a l v i c t o r y . Ideological i n e r t i a or lag can also produce i d e o l o g i c a l positions, and p o l i c y consistent with i t , that are p o l i t i c a l l y unpopular. 5 7 As seen above, several i d e o l o g i c a l positions — no matter what t h e i r o r i g i n - can be e l e c t o r a l l y competitive at the same time due to uncertainty. Holding an unpopular i d e o l o g i c a l p o s i t i o n temporarily can also be r a t i o n a l because long-term competitiveness must be taken into consideration as well as short-term. 5 8 Since distinguishable ideologies are important over the long-term, maintaining a consistent ideology i s valuable enough for' the future to subsume a short-term reduction i n e l e c t o r a l competitiveness. 5 9 In the long run. however, parties that "Mueller 290. 56Downs 100-2. "Downs 97. 5 8Tsebelis 156. 59Downs 112 . 23 consistently choose unpopular i d e o l o g i c a l positions w i l l cease to play an important role i n e l e c t o r a l competition and voters' u t i l i t y c a l c u l a t i o n s . Other actors also constrain decision-making. Rarely does. an actor have complete control over the behaviour of actors with whom i t interacts, and consequently, complete control of the outcome of po l i c y decisions. Policy i s used.strategically by the government to a t t a i n i t s desired ends. The government pursues e l e c t o r a l v i c t o r y i n r e l a t i o n to other parties who affe c t the government's preferences, options and choices. The government i s linked to .other governments through federalism generally and through s p e c i f i c i n s t i t u t i o n a l arrangements i n d i f f e r e n t p o l i c y areas. Competition with other parties for e l e c t o r a l v i c t o r y i s structured by e l e c t o r a l laws, the most s i g n i f i c a n t of which i s the fi r s t - p a s t - t h e post system i n Canada. This and multi-party competition mean that a party only has to win a p l u r a l i t y of seats to gain power. Other relevant e l e c t o r a l ' v a r i a b l e s structuring el e c t o r a l , competition are non-periodic elections and spending l i m i t s . The above provides an outline of the r a t i o n a l choice approach I.use i n t h i s study. In addition, I propose that the most f r u i t f u l way to understand the B.C. government's implementation of the residency requirement i s as i f I t were engaged in a nested game i n multiple arenas. In such a game, the observer considers the game in the p r i n c i p a l arena without taking contextual factors into ac-count, •whereas the actor perceives that the game is-nested inside a bigger game that defines how contextual factors (the other arenas) influence 24 his payoffs and those of the other players. 6 0 B r i e f l y , the payoffs i n the p r i n c i p a l arena (the Social Services arena), were determined by the events i n the secondary (Finance) arena. To the observer, the nature of the relationship between the two arenas might not be f u l l y v i s i b l e . 6 1 However, the government c l e a r l y intended the residency requirement p o l i c y to have an impact i n both arenas. Once t h i s relationship i s i d e n t i f i e d , the impact of the relevant i n s t i t u t i o n a l context on the decision-making process of the BC government can be evaluated. Rational choice allows the residency requirement to be explained as the product of the government decision-making process which i s the result of a causal r e l a t i o n s h i p between public opinion, other actors, i n s t i t u t i o n s , and government preferences and actions. Methodology . The residency requirement p o l i c y appears to be an appropriate case for the application of a rational-choice based analysis. The p o l i c y was not a product of the bureaucracy which means that policy s t i m u l i can be more simply linked with the decision-maker (cabinet). In addition, the relevant i n s t i t u t i o n a l variables and p o l i c y stimuli can be i d e n t i f i e d i n communications between the. relevant actors. The proximity to an el e c t i o n and the high v i s i b i l i t y of the p o l i c y means i t was l i k e l y that the residency requirement.was considered c a r e f u l l y for i t s impact on e l e c t o r a l Tsebelis 8. Tsebeiis 10. 25 competition. 6 2 Each of. these factors makes the residency requirement an appealing subject f o r . r a t i o n a l choice theory. C r i t i c s of the r a t i o n a l choice approach a l e r t students to certai n problems within the. theory. Two primary concerns are whether r a t i o n a l choice produces t a u t o l d g i c a l explanations and whether p o l i c y decision-making can actually be considered r a t i o n a l . As Brian Barry and others have pointed, out, r a t i o n a l choice explanations of p o l i c y decision-making can be i n danger of being t a u t o l o g i c a l and explaining a si t u a t i o n merely by redescribing i t . 6 3 Downs himself recognized the error of f a l s e l y a t t r i b u t i n g r a t i o n a l i t y to an actor without a rigorous' application of .the conditions of r a t i o n a l behaviour. 6 4 The pot e n t i a l of reaching ,a tautological, conclusion i s even greater with a nested game- the type of r a t i o n a l choice approach used i n the following case study. In an attempt to demonstrate, that ya p a r t i c u l a r p o l i t i c a l action f u l f i l s the conditions of r a t i o n a l i t y , ,it may be tempting to search the. surrounding p o l i t i c a l environment for factors which t i p the u t i l i t y calculations i n favour of r a t i o n a l i t y . Tsebelis makes an important t h e o r e t i c a l d i s t i n c t i o n when he argues that a nested game i s the recognition of the i n s t i t u t i o n a l context t h a t , i s consistent with the actor's •own perspective, not simply an arb i t r a r y s h i f t of the examiner's . 6 2This i s , of course, something which must be determined, but the l i k e l i h o o d i s strong.. / 6 3 B r i a n Barry,. Sociologists/ Economists and Democracy, (London: Collier-MacMillan, 1970), 33. -64Downs 6. ' ••"• ' .2,6 -sphere of observation. 6 5 -The adherence to process-tracing methodology, aided by careful examination of the actor's communications, w i l l hopefully strengthen the legitimacy of the causal r e l a t i o n s h i p i n a nested game to prevent a t a u t o l o g i c a l or spurious conclusion. , The process tracing method'of analysis i s p a r t i c u l a r l y useful for t h i s single-case study where I w i l l not engage i n prediction but w i l l use a model to guide analysis. What i s being examined i n t h i s case i s the r a t i o n a l i t y of the residency requirement po l i c y ; that i t confers enough benefit on the government to compensate for the r i s k s and losses. Without the benefit of comparison with other cases, the determination of causal relationships between dependent and independent variables requires that a theory be used to evaluate the outcomes "on the basis of s p e c i f i e d i n i t i a l conditions". 6 6 The requirements of r a t i o n a l i t y as set out by Tsebelis w i l l be used to esta b l i s h the conditions of inquiry and define, the characteristics- of a ra t i o n a l p o l i c y decision-making. Tsebelis proposes strong and weak requirements of r a t i o n a l i t y which I w i l l adopt to measure the actions of governments as, they pursued r e - e l e c t i o n . 6 7 Tsebelis's weak requirements of r a t i o n a l i t y are straight-forward. To conform to the weak requirements of r a t i o n a l i t y , an actor's b e l i e f s and preferences must be consistent, not contradictory and preferences must be 6 5Tsebelis 7. "Alexander George and Timothy McKeown, "Case Studies and Theories of Organisational Decision Making," Advances i n Information Processing i n Organisations, v o l . 2 (1985), 30. "Tsebelis 24-30. 27 t r a n s i t i v e . In addition, the actor must seek to maximize the expected u t i l i t y of e l e c t o r a l gain she w i l l derive from an event or action. The actor would be w i l l i n g to. pursue an event i f the expected u t i l i t y m u l t i p l i e d by the expected p r o b a b i l i t y of i t occurring i s equal to or larger than the costs mul t i p l i e d by the pr o b a b i l i t y of the event not occurring. These a l l refer to the actor's b e l i e f s only at a given moment. As information changes an actor w i l l a l t e r her preferences, b e l i e f s and pr o b a b i l i t y c a l c u l a t i o n s . 6 8 Because t h i s analysis does not u t i l i z e formal game theory, we w i l l not employ the strong requirements of r a t i o n a l i t y because they are based-on behaviour i n equilibrium. This i s a rei t e r a t e d game and actors were able to act after seeing the behaviour of other actors. While interests, p r o b a b i l i t i e s of action, and payoffs can be i d e n t i f i e d , incorporating them into a formal game theoretic structure i s beyond the scope of t h i s essay. However, the essence Of the strong requirements o f ' r a t i o n a l i t y i s useful because i t "establish [s] a correspondence between b e l i e f s or behaviour and the r e a l world." 6 9 Preferences, p r o b a b i l i t y calculations and b e l i e f s about other actors must approximate r e a l i t y i f actors are to undertake any a c t i v i t y with more than a b l i n d reliance on luck. It i s also the foundation for the usefulness of r a t i o n a l choice as an ideal-type model. For the purposes of t h i s case, the amount of communication, the f a m i l i a r i t y of the actors with each others' behaviour and interes t s , and t h e i r access to information i n i t i a l l y 6 8Tsebelis 24-7. 6 9Tsebelis. 27. 28 bolsters the. presence of strong r a t i o n a l i t y . This w i l l be r e v i s i t e d i n the concluding.chapter. The conditions established by r a t i o n a l choice theory as ar t i c u l a t e d above w i l l form the conditions of analysis. The path of r a t i o n a l government action w i l l be set by the requirements of ra t i o n a l decision-making within the framework of a multiple arenas nested game. Government decision-making w i l l be compared with the decision-making of an actor under the conditions of r a t i o n a l i t y to determine i f the government i t s e l f acted r a t i o n a l l y . F i n a l l y , i t may be asked whether governments actually behave in the way that r a t i o n a l choice theory suggests that they do. There i s evidence to suggest that when deciding on po l i c y cabinet considers the pol i c y ' s popularity, i t s timing, i t s ide o l o g i c a l consistency, and the behaviour of other governments and p a r t i e s . 7 0 However, i t i s important to remember that r a t i o n a l choice i s simply an ideal-type or a n a l y t i c a l model and i s not a r e f l e c t i o n of r e a l i t y , although I argue i t i s a more accurate r e f l e c t i o n than other theories. 7 1 . One can argue, as Downs does, that "theoretical models should be' tested primarily by the accuracy of t h e i r predictions rather than by the r e a l i t y of t h e i r assumptions." 7 2 I believe that the usefulness of r a t i o n a l choice for understanding Canadian public p o l i c y i s dependent upon how closely, and under what circumstances, 70New Brunswick cabinet minister, c o n f i d e n t i a l personal interview, June 1996. . . 71Almond 854 . 72Downs 21. government decision-making actually approaches the conditions of the theory. It would be f u t i l e and mis-directed to attempt to show that there i s a perfect match between theory and r e a l i t y . However, I hope that by applying r a t i o n a l choice to t h i s p a r t i c u l a r case of government decision-making, we can learn something about, how governments do behave. In the next chapter, I w i l l examine the independent variables which affected the BC government's residency requirement p o l i c y . These include ideology, other parties, other governments, the public's preferences, and relevant i n s t i t u t i o n s . I w i l l also present a sketch of the Canada Health and Social. Transfer discussions and.of the BC Social Services Department, including the f i n a n c i a l pressure i t was under and e a r l i e r NDP attempts at s o c i a l assistance , reform. I w i l l conclude with a b r i e f look at the r e l a t i o n s h i p between the two arenas under consideration. 30 Chapter Two: Framework and Background In t h i s chapter, I w i l l examine more cl o s e l y how the conditions of the r a t i o n a l choice t h e o r e t i c a l model apply to the residency requirement p o l i c y . I w i l l analyze the e l e c t o r a l s i t u a t i o n , relevant i n s t i t u t i o n a l structures and government actors, and the role of ideology i n BC p o l i t i c s . I w i l l also provide a picture of the pressures for p o l i c y i n i t i a t i v e s i n the Social Services Department and the forces at work i n the Canada Health and Social Transfer discussions. In BC, the s i t u a t i o n i n Social Services provided the impetus for the BC government to reform s o c i a l assistance according to i t s own preferences. The residency requirement was a part of these wider reforms. Lastly, I w i l l present a general outline of the application of nested games theory to the two arenas (Social Services and Finance) affected by the residency requirement p o l i c y . Rational Choice i n the Residency Requirement Case In t h i s case, the actor i n question i s the cabinet of the NDP government i n B r i t i s h Columbia which was seeking to re t a i n power in an e l e c t i o n less than a year away. During the f a l l of 1995 and p r i o r to the announcement of the residency requirement, i t was speculated that the government would soon c a l l an e l e c t i o n . The e l e c t i o n was not c a l l e d i n the f a l l but the government (and the public) knew that there would be one within a year, as per e l e c t o r a l laws. Because of the proximity of the e l e c t i o n and the place new p o l i c i e s would have i n e l e c t o r a l competition, the p o l i c i e s announced during and aft e r t h i s time had increased sig n i f i c a n c e for voters and the government. The BC government acted as a decision-making team with two 31 sets of actors- the Social Services Department and the Finance Department. The BC government dealt with three other sets of actors i n t h i s case- the parties competing with i t to form the government, voters, and other governments. There was no interest group involvement. The BC government was linked with these actors through a set of i n s t i t u t i o n s that constrained i t s behaviour. The BC government has been linked by federalism for over a century of policy i n t e r a c t i o n to the other p r o v i n c i a l governments and the federal government. In the s o c i a l assistance f i e l d , the Canada Assistance Plan linked these governments i n p o l i c y development and financing for s o c i a l assistance. CAP structured the quality of relations and processes of int e r a c t i o n between the actors. The in t e r a c t i o n with other governments influenced the benefits and costs borne by the BC government. Because of t h i s , the government had to formulate preferences for action with respect to other governments' behaviour within the constraints of federalism and CAP. The government woos voters i n competition with other parties through the e l e c t o r a l system. The BC government attempted to mitigate the uncertainty of e l e c t o r a l support and public preferences through p o l l s and l i k e i t s main competition, the L i b e r a l Party, i t vied for the support of the large middle c l a s s . Ideology has played an important role i n past e l e c t o r a l competition. There had been a l e f t - r i g h t i d e o l o g i c a l divide i n BC p o l i t i c s since 1952. There had been one main party on either side of the centre l i n e and several other small parties between the centre and the right during that period. 1 Predominantly a two-Donald Blake " P o l i t i c a l Culture," (unpublished draft October 1995), 1. 32 party system, no party had formed a government except the NDP or Social Credit. These conditions held af t e r the defeat of the Social Credit party i n 1991, except that the L i b e r a l Party had moved to replace Social Credit, i d e o l o g i c a l l y and demographically, as the dominant party on the r i g h t . 2 Like r a t i o n a l choice theory suggests, ideology has served as an important t o o l i n distinguishing the parties from one another. The consistency of the i d e o l o g i c a l positions of the NDP and Social Credit parties has helped voters cut the costs of gathering information. The recent changes on the right (most importantly the competition between the Liberals and the Reform Party) erode some of the cost-cutting advantage o v e r a l l . However, the NDP s t i l l benefits from i t s unique c e n t r e - l e f t ideology since i t s competitors are clustered to the right of centre. The i n s t i t u t i o n a l context for the in t e r a c t i o n between BC and the other governments i n s o c i a l assistance was the product of the Canada Assistance Plan. CAP was created i n 1967 and was the outcome of a long set of sometimes contentious negotiations between the federal government and the provinces. Some provinces, l i k e B r i t i s h Columbia, were reluctant to enter into an agreement that constrained t h e i r policy-making power. The residency requirement condition was a p a r t i c u l a r l y contentious issue for BC. The province had used residency requirements frequently i n the past due i n part to i t s long-time popularity as a destination for unemployed Canadians. 3 2Donald Blake, "Parties and Elections," (unpublished draft July 1995), 10 and 17. 3Lesley B e l l a , "The P r o v i n c i a l Role i n the Canadian Welfare State," Canadian Public Administration, v o l . 22 (1979): 450. 33 CAP i n s t i t u t e d a hierarchical, r e l a t i o n s h i p between the federal and p r o v i n c i a l governments. It made the provinces dependent on Ottawa for funds at the same time as they were constrained by federal regulations i n t h e i r capacity to respond to f i s c a l pressures. Under CAP, the provinces were incapable of d i c t a t i n g the nature of federal p a r t i c i p a t i o n , as demonstrated by the cap on CAP implemented i n 1990-91 and the program's termination i n 1996. The cap on CAP reduced the amount of s o c i a l assistance spending for which Alberta, Ontario and B r i t i s h Columbia could claim 50% federal government support. It imposed a c e i l i n g of 5% on the annual increase i n federal CAP payments to these provinces. The 'have' provinces resented the cap and, as the federal government tightened i t s spending i n the 1990's, the h i e r a r c h i c a l relationship increasingly became a h o s t i l e one. The joint r e s p o n s i b i l i t y for s o c i a l assistance created by the federal CAP agreement also acted as an i n s t i t u t i o n a l constraint on welfare reform. The two sets of p a r t i a l l y independent actors often had d i f f e r i n g p o l i c y objectives, which made acting on inter n a l reform pressures d i f f i c u l t . The i n s t i t u t i o n a l structure also shielded s o c i a l assistance p o l i c y from external demands for change.4 In addition, CAP divided the provinces between those who were w i l l i n g to maintain the current arrangement of federal influence i n order to secure federal funding and those who claimed that the continued federal p o l i c y role was impeding the effectiveness of s o c i a l assistance reform. Because of i n t e r -p r o v i n c i a l dissent and po l i c y overlap, only incremental program change occurred i n the face of s o c i a l and f i s c a l dynamics i n the 4Banting, The Welfare State, 206. 34 1990's. The reduced influence of the federal government due to i t s diminishing transfers reduced i t s a b i l i t y to coordinate the restructuring of the s o c i a l safety net required by government d e f i c i t s and new socio-economic conditions. As a r e s u l t , the federal government terminated CAP with only a s k e l e t a l national s o c i a l assistance program to replace i t . Relations between BC and other provinces p r i o r to CAP were not harmonious due to the s p i l l - o v e r s generated by s o c i a l assistance p o l i c y . The most v i s i b l e s p i l l - o v e r i s the migration of s o c i a l assistance recipients provoked (in part) by variable benefits between provinces. The BC p r o v i n c i a l government monitors the movement of individuals i n general, as well as newcomers who apply for s o c i a l assistance. Net in-migration pf recipients perhaps seeking higher benefits i s an e a s i l y i d e n t i f i a b l e cost to the province. In addition, certain services i n one province can stimulate demand for those services i n another. Tax levels, influenced by s o c i a l assistance services, have an impact on a province's appeal as a business centre and on i t s economic growth. When s p i l l - o v e r s are not regulated, the i n f l u x of welfare recipients and the s e n s i t i v i t y to higher taxation can create a downward pressure on welfare benefits. Each s p i l l - o v e r from other provinces' s o c i a l assistance p o l i c y acts to constrain the p o l i c y options of p r o v i n c i a l governments as they attempt to balance desired services with resource constraints and a healthy economy.5 S p i l l - o v e r s are one of the reasons why conventional economic l i t e r a t u r e often recommends that r e d i s t r i b u t i v e functions be assigned to the central government, despite the benefits associated 5Wallace Oates, F i s c a l Federalism, (New York: Harcourt Brace Jovanovich, 1972), 190-2. 35 with the a v a i l a b i l i t y of a variety of p o l i c y choices. 6 Unregulated horizontal competition encourages provinces to keep benefits low i n order to off- l o a d negative s p i l l - o v e r s ( l i k e mobile welfare recipients) onto other provinces and to t r y to attra c t p o s i t i v e s p i l l - o v e r s (like mobile tax payers). CAP acted to constrain t h i s horizontal competition between provinces by providing additional funds, which promoted the equalization of benefits, and by introducing funding penalties as an enforcement mechanism. CAP and the budget cutting of the 1990's i n t e n s i f i e d the concerns about s p i l l - o v e r s between provinces. The future of s o c i a l assistance aft e r CAP was structured by the Canada Health and Social Transfer (CHST). Announced i n the 1995 federal budget, the CHST was designed to combine financing for health, post-secondary education, and s o c i a l assistance under one transfer program. Funding.arrangements were announced for two years arid future arrangements were to be determined before the 1996 budget afte r a process of discussion between federal and p r o v i n c i a l Finance Departments. This process was plagued by the same tensions between governments that existed i n s o c i a l assistance i n the f i n a l years of CAP. The CHST came into e f f e c t on A p r i l 1, 1996 and ushered i n a $2.8 b i l l i o n cut i n federal transfers. The Act e n t i t l e d "The Federal P r o v i n c i a l F i s c a l Arrangements Act," passed on June 6, 1995, stipulates the conditions of the CHST. The only regulation remaining under the CHST regarding s o c i a l assistance i s the 6Gerard Belanger, "The Divis i o n of Powers i n a Federal System," Di v i s i o n of Powers and Public Policy, Richard Simeon, research coordinator, (Toronto: University of Toronto Press, 1985) : 7 . 36 r e s t r i c t i o n on residency requirements which continues to be punishable by the withholding of federal funds. Uncertainty concerning the future CHST a l l o c a t i o n formula, national p o l i c y objectives, and the.federal role i n s o c i a l assistance continued to dominate the s o c i a l assistance arena through 1995. This b r i e f review highlights the variables constraining the BC government's a b i l i t y to bolster i t s e l e c t o r a l support. E l e c t o r a l competition, ideology, CAP, other governments, and the CHST and i t s a l l o c a t i o n formula each constrained BC's a b i l i t y to implement i t s p o l i c y preferences. In the f i r s t chapter, I described r a t i o n a l choice theory regarding the behaviour of an actor involved i n two arenas with d i f f e r e n t but related payoffs. In the.following sections, I w i l l b r i e f l y outline the two i n s t i t u t i o n a l arrangements that structured the two arenas- the relationship between Social Services and Human Resources Development, and the CHST a l l o c a t i o n formula discussions created by the federal Finance Department. I w i l l also reveal the linkage between the two arenas. The P r i n c i p a l Arena: Social Services Policy a c t i v i t y within the Social Services arena was stimulated by f i n a n c i a l constraints and by persistent and deteriorating s o c i a l problems. During the early part of the NDP government's f i r s t mandate, there was a reluctance to target Social Services for program reform. Spurred by the leak of an independent, and c r i t i c a l , study of welfare administration i n the province, fraud and abuse became the f i r s t highly v i s i b l e targets of reform. 7 C i t i n g the necessity to ensure funds went to those 7,,We're not doing a good enough job, says minister promising tougher l i n e on welfare," Vancouver Sun, 13 May 1993, A l . 37 t r u l y i n need, over the next several years m i l l i o n s of do l l a r s were spent to crack down on fraud and abuse. These i n i t i a t i v e s resulted in savings of many times the cost of anti-fraud programs. 8 Migrants were also i d e n t i f i e d as a s t r a i n on the Social Services budget. BC Social Services Ministers had been s i g n a l l i n g a c r i s i s of growing welfare r o l l s and f i n a n c i a l s t r a i n at least since 1993. Migrants were c a r e f u l l y tracked by the government and the Minister of Social Services pointed to 6000 newcomers to BC who joined the welfare ranks i n 1992 as one of the pressures on the system. 9 The migrants did not i n i t i a l l y make a large impact. In March 1993, only 7.5% of welfare recipients had arrived from outside the province i n the previous year. 1 0 Although I lack comparable s t a t i s t i c s , an increase i s v i s i b l e two years l a t e r in 1995 when migrants made up almost 28% of new monthly welfare cases. 1 1 The issue of migrants continued to be pushed into the spotlight by Social Services. The number of welfare recipients from Alberta raised concerns about the Alberta government o f f -loading i t s welfare cases onto BC. Migration to BC was thought to have been promoted by federal and p r o v i n c i a l cuts to s o c i a l assistance benefits, as well as by free one-way bus t i c k e t s to BC 8"Welfare crackdown," Vancouver Sun, 15 February 1995, B3. 9"Welfare close to collapse," Vancouver Sun, 10 March 1993, A l . 1 0"Influx to BC strains welfare," Globe and Mail, 3 June 1993, A l . n L e t t e r from BC Minister of Social Services Joy MacPhail to Minister of Human Resources Development Lloyd Axworthy, 3 November 1995. 38 offered by the Alberta government.12 By 1994, migration from Alberta (then up to 700 cases per month) was being p u b l i c l y linked by the BC government with the difference i n welfare benefits between the two provinces. 1 3 With the Ontario Harris government cuts to welfare benefits and the large number of welfare recipients leaving Ontario, that province f e l l under the same suspicion. 1 4 This s i t u a t i o n prompted a June 2, 1995 l e t t e r to Human Resources Development Minister Lloyd Axworthy from BC Social Services Ministers Joy MacPhail. In i t , MacPhail raised BC's concerns about the CHST and i t s continued p r o h i b i t i o n of residency requirements. 1 5 In each of the f i r s t nine months of 1995, over 2200 migrants from outside BC had begun to receive s o c i a l assistance from the province. 32% of these migrants came from Ontario, 30% from Alberta and 15% from Quebec. Almost 80% were single employable adults. 1 6 While t h i s i n f l u x of pote n t i a l labour placed a burden on BC's s o c i a l assistance budget, the province's growing economy also attracted c a p i t a l and new business development. Migrants and fraud were not the only i d e n t i f i e d source of 1 2"Alberta's poor land on BC's doorstep," Vancouver Sun, 22 December 1993, B l . ""Hundreds double up on Alberta, BC welfare," Vancouver Sun, 31 August 1994, A l . 14"BC must not be 'destination resort' for welfare cases," Vancouver Sun, 27 July 1995, A l . ""Meetings and Correspondence between the Minister, the Deputy Minister and t h e i r counterparts i n BC, " i n t e r n a l HRD document, undated. 1 6 B r i t i s h Columbia, Department of Social Services, "Residency Requirement, Cost-Saving Measures for Welfare," press release and back-grounder, 3 November 1995. 39 f i n a n c i a l s t r a i n . Federal cuts to Unemployment Insurance (UI) and CAP also featured prominently. Cuts to UI were blamed for the increased welfare case-load and the cap on CAP for the p r o v i n c i a l government's reduced a b i l i t y to handle i t . 1 7 Social Services had been p u b l i c l y c a l l i n g for a review of national s o c i a l assistance for several years. 1 8 During t h i s period, f i n a n c i a l s t r a i n prompted continued fraud crackdown and the rej e c t i o n of an increase i n welfare benefits that would have increased them to 1982 purchasing power.19 In 1995, an appeal board was created and e l i g i b i l i t y for hardship benefits was tightened. 2 0 By the middle of the 1995-96 f i s c a l year, Social Services was an t i c i p a t i n g a $100 m i l l i o n budget over-run. 2 1 Rising numbers of youth on welfare, the growing welfare r o l l s (9.4% of the population), and high unemployment despite a growing economy and job creation deepened concerns about the effectiveness of the system. 2 2 The Reform and Li b e r a l parties i n the province were c a l l i n g for tough measures l i k e 'workfare' and benefit, cuts to 1 7Eg: "Welfare close to collapse," Vancouver Sun, 10 March 1993, A l ; "Alberta's poor," Vancouver Sun, 22 December 1993, B l ; "Welfare recipients increasing," Globe and Mail, 7 February 1995, A7. 1 8"Welfare close to collapse," Vancouver Sun,'10 March 1993, A l . 1 9 , ,$75/Monthly welfare hike rejected, " Vancouver Sun, 21 March 1994, B l . ' 20"BC tightens welfare rules," Globe and Mail, 14 September 1995, A2. 2 1"Meeting with Joy MacPhail," i n t e r n a l HRD document, 14 November 1995. 22"BC Welfare: Abused or just too generous?" Vancouver Sun, 4 March 1995, B3; "Welfare recipients increasing i n BC," Globe and Mail, 7 February 1995, A7. 40 combat these problems. 2 3 In October of 1995, the NDP government announced that i t would examine welfare reform. In the f a l l of 1995, the 'BC Benefits' s e c r e t a r i a t was established by cabinet. The secretariat was led by the Deputy Minister of S k i l l s , Training and Labour Gary Waters and was made up of s t a f f from relevant government departments. The secretariat reported to a committee of deputy ministers who reported to the cabinet's 'BC Benefits' Working Group". The Working Group was. lead by Social Services Minister Joy MacPhail and met weekly once the secre t a r i a t had been established. The group gave d i r e c t i o n , t o p o l i c y i n i t i a t i v e s , reviewed a l l po l i c y documents, made recommendations, accepted s a t i s f a c t o r y proposals, and requested additional information when necessary for t h e i r careful decision-making. Cabinet was the f i n a l decision-maker on the p o l i c i e s i n the package, although i t was the Working Group that shaped the di r e c t i o n of p o l i c y reform according to the government's preferences. 2 4 The residency requirement, an order-in-council signed on November 3, 1995 by the Lieutenant-Governor, was announced four days before the 'BC Benefits' package. Althdugh the residency requirement p o l i c y was developed by the 'BC Benefits'.team i n the same process as the other reforms, i t was not announced as a 23"BC must not be 'destination resort'," Vancouver Sun, 27 July 1995, A l ; "Workfare proposal s t i r r i n g NDP f i g h t , " Vancouver.Sun, 30 October 1995, A l . 2 4Melanie Courchene, BC government p o l i c y advisor for 'BC Benefits', telephone interview, 17 July 1996. component of the reform package. 2 5 Called a "major renewal of B C s s o c i a l safety net", the package included a family bonus for low income working families; a new Youth Works t r a i n i n g program; changes to services for people with d i s a b i l i t i e s ; new support for children who have l e f t home; and further measures for f i g h t i n g fraud and abuse. 2 6 The government e x p l i c i t l y chose to focus on program reform rather than across-the-board cuts to programs and benefits. According to the NDP government, the residency requirement was consistent with i t s commitment to the s o c i a l safety net because i t preserved services for B r i t i s h Columbians i n the face of federal abandonment of national p r i n c i p l e s and presented BC as a leader i n creating new migration agreements. 2 7 The residency requirement p o l i c y was accompanied by new procedures for replacing l o s t or stolen cheques. The requirement was expected to save Social Services $2 m i l l i o n a month by denying welfare to newcomers (including refugees 2 8) u n t i l they had l i v e d i n BC for three months. The p o l i c y would not aff e c t BC residents who had been out of the province for less than half a year or families with dependents who had l i v e d i n BC i n the past three 2 5Melanie Courchene, BC government p o l i c y advisor for 'BC Benefits', telephone interview, 17 July 1996; Gary Waters, Deputy Minister of S k i l l s , Training and Labour, telephone interview, 4 July 1996. 2 6 B r i t i s h Columbia, Departments of Social Services and S k i l l s , Training and Labour, "Major Renewal of B.C.'s Social Safety Net Introduced," press release, 9 November 1995. " B r i t i s h Columbia, "Residency Requirement," 3 November 1995; Gary Waters, BC Deputy Minister of S k i l l s , Training and Labour, telephone interview, 4-July 1996. 2 8This part of the p o l i c y was repealed on 3 June 1996. 42 years. 2 9 The policy, which v i o l a t e d the conditions of the Canada Assistance Plan agreement, was set to take e f f e c t on December 1, 1995. After announcing the residency requirement, the BC Department of Social Services began i t s int e r a c t i o n with the federal Department of Human Resources Development (HRD) which administered CAP. Upon BC's announcement, HRD charged the BC government with intending to contravene CAP and threatened to withhold the remaining transfers to the province. The 1989 Federal Court decision i n the Finlay case said that i t was i l l e g a l for the federal government to continue CAP payments during a contravention of the agreement. 3 0 At stake for BC was the $8 m i l l i o n to be saved i n 1995-96 by the residency requirement and the possible loss of $47 m i l l i o n i n transfers. The maximum possible gain was $8 m i l l i o n while the maximum loss was $39 m i l l i o n . 3 1 Negotiations between Social Services and HRD were based on BC seeking concessions i n exchange for withdrawing the residency requirement. The resources u t i l i z e d i n t h i s , the 'Social Services' arena, were p o l i t i c a l and public pressure and legal arguments. The Secondary Arena: Finance The second i n s t i t u t i o n a l arena (Finance) was less obvious because i t could not be deduced from the content of the residency 2 9 B r i t i s h Columbia, "Residency Requirement," 3 November 1995. 30"BC-Ottawa dispute heats up, " Globe and Mail, 6 December 1995, A4. Finlay v. Canada ( M i n i s t e r of Finance) regarding Manitoba's alleged v i o l a t i o n was l a t e r over-ruled on other grounds by the Supreme Court aft e r being upheld i n the Federal Court of Appeal. •""November CAP Payment," inter n a l HRD document, 17 November 1995. 43 requirement i t s e l f . The 1995 federal budget announced the end of CAP, set for A p r i l 1, 1996. The Canada Health and Social Transfer set to replace i t f e l l under the mandate of the federal Department of Finance. Finance was responsible for deciding on the a l l o c a t i o n formula for the CHST for the 1998-99 f i s c a l year and beyond. It was to do so after discussions with the p r o v i n c i a l Finance Departments before the 1996 federal budget announced i n March. The formal fe d e r a l - p r o v i n c i a l Finance meetings began i n the summer of 1995. Ad hoc, b i l a t e r a l discussions took place along side of the formal meetings between the federal department and i t s p r o v i n c i a l counterparts. The federal Finance Department was attempting to b u i l d a consensus among the provinces. This was a d i f f i c u l t task because the provinces were divided between 'have' and 'have not', i n f l u e n t i a l and marginal, as well as along i d e o l o g i c a l l i n e s . Many of the tensions had been c a r r i e d over from the f i n a l years of CAP and were aggravated by on-going f i s c a l r e s t r a i n t . The Federal Finance Department was under no obligation to secure consensus on funding, however i t would be extremely b e n e f i c i a l to do so. A consensus would bolster the federal role in s o c i a l p o l i c y and would allow Ottawa to share the r e s p o n s i b i l i t y for the resultant formula. The stakes i n the Finance arena were extremely high. Since the implementation of the cap on GAP, BC had l o s t $1.7 b i l l i o n i n federal funding. The 1996-97 CHST a l l o c a t i o n formula preserved that funding arrangement by a l l o t t i n g BC the same proportion of funding as i t had received i n 1995-96 from the t o t a l funding of CAP and Established Programs Financing for health and post-secondary education. Should the a l l o c a t i o n formula that replaced the temporary CHST formula be more favourable to BC (closer to a per 44 capita formula), the province would receive hundreds of mil l i o n s of additional d o l l a r s i n cash and tax points. Since the federal government was under no leg a l obligation to secure p r o v i n c i a l agreement, p o l i t i c a l and public pressure were the only available resources to influence the a l l o c a t i o n formula. Two Arenas The possible payoffs i n the Finance arena dwarfed the benefits and possible costs i n the Social Services arena. The residency requirement linked Social Services with the Finance arena and i t s payoffs through the policy's unique use as a tool, for p o l i t i c a l pressure and communication. BC Social Services engaged the federal Finance Department through p o l i t i c a l pressure and public rhetoric, and through i t s demands made during negotiations with HRD. Social Services was not an i n s t i t u t i o n a l i z e d actor i n the Finance arena. Discussions regarding the a l l o c a t i o n formula were already established between the federal and p r o v i n c i a l Finance departments. The residency requirement p o l i c y created a temporary re l a t i o n s h i p between the federal Finance and BC Social Services Departments as BC attempted to use the Social Services p o l i c y to influence the payoffs i n the Finance arena. To recapitulate, the residency requirement p o l i c y was implemented by the BC government to increase e l e c t o r a l support i n the months before the election, and perhaps beyond. The residency requirement was used to produce f i n a n c i a l gain for the BC government and for B r i t i s h Columbians, who would benefit from the additional revenue without additional taxation. It was also used to p u b l i c i z e a clear picture of the NDP's id e o l o g i c a l p o s i t i o n on s o c i a l assistance and to demonstrate the NDP's willingness to defend BC's interests against other governments. The residency 45 requirement p o l i c y involved the BC government (primarily, although not exclusively, through the Social Services actor) i n two arenas. Thus, the government's u t i l i t y calculations had to take into account the payoffs and r i s k s of int e r a c t i o n i n these two arenas. The precise manner i n which t h i s linkage occurred, and why, w i l l be explored as the po l i c y i s examined through the r a t i o n a l choice approach i n the next chapter. 46 V Chapter Three: The Case Study Introduction ' The period from November 3, 1995 to January,23, 1996 captured a potent example of intergovernmental competition i n a federal system. Lacking the emotional i n t e n s i t y of the Quebec referendum that preceded i t by only three days, the announcement of the residency requirement on November 3 contained some of the same grievances. The B r i t i s h Columbia government c i t e d a pattern of discriminatory treatment at the hands of the federal government, a federal system incapable of addressing the s o c i a l and economic problems of the day, the punishing f i n a n c i a l costs of federalism, and an inadequate p o l i t i c a l voice i n national p o l i c y - making). Such' a federal system may 'provoke provinces to go outside normal i n s t i t u t i o n a l arrangements to press t h e i r claims. The residency requirement was the product of one such i n i t i a t i v e . Over a three month period, the B r i t i s h Columbia government announced and implemented a residency requirement on welfare and was penalized by Human Resources Development (HRD) $47 m i l l i o n i n remaining transfers for the 1995-96 f i s c a l year. It then pursued negotiations with HRD. After terminating the negotiations, BC announced legal- action against the federal government for the withheld transfers. I w i l l consider only the losses p o t e n t i a l l y accrued and the gains p o t e n t i a l l y captured during the 1995-96 f i s c a l year. Evidence from interviews, government documents, and public communication points to the appropriateness of t h i s time frame because i t appears to match the time frame that the actors themselves were using. I w i l l r e v i s i t the time frame i n the concluding chapter. , -'. • . . •' i -47 In t h i s chapter, I w i l l examine the events beginning with the residency requirement and measure the actions of the BC government against the conditions of r a t i o n a l i t y i n the two arenas i n which i t was involved. The analysis w i l l focus on the impact of the payoffs i n the secondary arena (the federal Finance Department's determination of the CHST a l l o c a t i o n formula), on the payoffs i n the p r i n c i p l e arena (BC Social Services and i t s i n t e r a c t i o n with HRD) and the e f f e c t t h i s had on the BC government's-decision making. I w i l l explore the two arenas through interviews conducted ~ with o f f i c i a l s at both lev e l s of government and through public and' private communications and documents. The Social Services arena '. w i l l be examined f i r s t . There, the BC government pursued the residency requirement as a means to bolster i t s e l e c t o r a l support. Although Social Services- was the most prominent actor, decisions regarding the p o l i c y were made by cabinet, as discussed e a r l i e r . 1 The BC government interacted with Human Resources Development through. CAP, and less s i g n i f i c a n t l y , with the other p r o v i n c i a l governments through communications among Social Services ministers and through the .spill-overs of s o c i a l assistance p o l i c y . I w i l l examine the expected payoffs i n t h i s arena using the p o l i c y i t s e l f , the expectations regarding HRD behaviour, and the p r o b a b i l i t y of being penalized under CAP." I w i l l show that an actor behaving r a t i o n a l l y would not have chosen to implement the residency requirement. Next, I w i l l explore the secondary arena (Finance) and how i t was linked to the BC Social Services Ministry through public rhetoric and pressure, bargaining, and the in t e r n a l communications XBC Social • Services o f f i c i a l , c o n f i d e n t i a l telephone interview, July 1996. , 48 pf the federal government. I w i l l examine. .the payoffs i n t h i s arena and hpw they -affected'the.payoff structure i n the p r i n c i p a l arena. I w i l l also examine BC's expectations regarding the federal Finance Department's behaviour and.the perceived p r o b a b i l i t y of achieving the desired end. In the secondary arena, influence over the a l l o c a t i o n formula for the Canada Health and Social Transfer could produce two possible outcomes: the status quo or substantial f i n a n c i a l gain for the BC government and s p e c i f i c a l l y Social. Services. In other words; no net loss was possible i n t h i s arena (unlike i n the principal) and the possible gains far outweighed the losses incurred i n the p r i n c i p a l arena. I propose that what appears to be a sub-optimal p o l i c y choice i n the p r i n c i p a l arena i s r a t i o n a l when considered with payoffs i n the other arena i n which.it was intended to have an impact. The game begins Just days afte r i t was announced, the BC government revealed to the media the widespread public support for the residency requirement p o l i c y . 2 A p o l l performed on October 19 and a focus-group study performed the next day had shown that 74% of respondents supported or strongly supported a three-month waiting period for newcomers applying for welfare. 3 It was one of.the most strongly approved welfare reform p o l i c i e s tested i n the p o l l . Interestingly, at no point did the study mention that t h i s type of. p o l i c y was prohibited by present and future cost-shared agreements. 2"Axwo.rthy attacks BC residency requirement- welfare plan widely backed," Vancouver Sun, 6 November 1995, A l . Viewpoints Market Research, "Social Safety Net Study: Complete Results," prepared for the BC Department of S k i l l s , Training and Labour, 19 October 1995, 8. 49 The p o l l numbers supporting the pol i c y were used p u b l i c l y and during negotiations with Human Resources Development to lend legitimacy to the p r o v i n c i a l government's action. 4 Not only was the po l i c y popular by i t s e l f , the residency requirement was also made to f i t within the i d e o l o g i c a l thrust of the s o c i a l assistance reforms. The public opinion studies revealed that, of people with an annual household income of $60, 000 or less, there was support for a "renewal" plan l i k e ' BC Benefits' over large, Ontario-style cuts to programs and short-term savings. 5 Cuts and 'get tough' measures were the type of s o c i a l assistance reform being advocated by the NDP's competitors the L i b e r a l and Reform p a r t i e s . The focus-group study had revealed that general support for the po l i c y was accompanied by some reservations about the actual severity of the migrant problem and about denying benefits to Canadians looking for work.6 The id e o l o g i c a l inconsistency posed by the residency requirement's erection of ba r r i e r s to Canadians was resolved by a public o f f e r by BC to other p r o v i n c i a l governments to engage i n r e c i p r o c i t y agreements for welfare with the province. That proposal was based on the three-month payment agreements under Medicare. 7 By incorporating t h i s element, the NDP government believed that the residency requirement appeared to reinforce it's id e o l o g i c a l commitment to the national "Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. Viewpoints Market Research, "Income Assistance Focus.Groups Report on Qualitative Research, " prepared for the BC Department of S k i l l s , Training and Labour, 20 October 1995, 11. Viewpoints Market Research, Income Assistance Focus Groups Report on Qualitative Research, 20 October 1995, 10. 7 L e t t e r from MacPhail to Axworthy, 3 November 1995. 50 . safety net. The exclusion of the upper-level income groups from the focus group study perhaps r e f l e c t e d the NDP's acknowledgment that upper-income groups were more l i k e l y to support right-leaning p a r t i e s . At least, i t r e f l e c t e d the importance . of the middle class i n e l e c t o r a l competition. In addition to being a popular ideology, the residency requirement shielded the BC government from some of the blame for i t s budgetary problems i n Social Services. As framed by the BC government, the residency requirement c l e a r l y i d e n t i f i e d the source of Social Services f i n a n c i a l s h o r t f a l l s - the federal government and the cuts to benefits i n other provinces. "We can no longer afford to assume federal r e s p o n s i b i l i t i e s with a p r o v i n c i a l budget>" said Social Services Minister ,Joy MacPhail. 9 Premier Harcourt advised, p o t e n t i a l migrants to "stay where you are," and MacPhail stated that " t h i s i s our response to the federal government abandoning B r i t i s h Columbians." 1 0 In the strong t r a d i t i o n of B r i t i s h Columbian attacks on the federal government, t h i s provided the government with a popular r h e t o r i c a l cushion. Federal funding was linked i n multiple ways to the problems of migration and to BC's decision to . impose a residency requirement. In a. l e t t e r from MacPhail to Lloyd Axworthy dated the day of the residency requirement announcement, MacPhail r e i t e r a t e d her government's grievances about CAP funding and pointed to three 8 L e t t e r from MacPhail to Axworthy, 3 November 1995. 9British'Columbia, "Residency Requirement," 3 November 1995. 1 0"Ottawa threatens to cut BC cash," Vancouver Sun, 7 November 1995, A l . • ~ • ' 51 other federal p o l i c i e s that harmed BC. One was the temporary CHST funding arrangement which retained the same proportion of federal funding.for BC as i t had received from CAP and Established Programs Financing i n 1995-96. Another was cuts to UI which BC estimated cost the'province $71 m i l l i o n annually. The t h i r d was the burden of refugees and immigrant sponsorship breakdowns on the province. One federal o f f i c i a l f e l t that the BC government, perhaps i n . recognition of the bigger economic picture, was not interested i n punishing migrants with the residency requirement but i n the larger issues related to migration. 1 1 , Federal action i n each area had a negative f i n a n c i a l impact on BC Social Services. Had the cap on CAP not been implemented, B r i t i s h Columbia would have received an additional $1.7 b i l l i o n between 1990 and 1995-96.12 The BC government estimated that the temporary CHST formula would cost the province $1.3 b i l l i o n over the next two years, i n comparison to what i t would have received without' the carry-over of the cap on CAP.13 UI cuts and immigration put pressure on s o c i a l assistance as individuals without other means of support turned to welfare. By "allowing the current system to deteriorate into a patchwork of p r o v i n c i a l s o c i a l programs", the federal government had presided over an increasing s t r a i n on B r i t i s h Columbia's s o c i a l safety net. 1 4 The l i n k between the residency requirement and federal n F e d e r a l HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, June 1996. 1 2 l IPrompted by Funding Inequity," i n t e r n a l HRD document, undated; Letter from MacPhail to Axworthy, 3 November 1995. 1 3 B r i t i s h Columbia, "Residency Requirement," 3 November 1995. 1 4 L e t t e r from MacPhail to Axworthy, 3 November 1995. 52 programs appeared at f i r s t to be an i n d i r e c t one: designed to e x p l a i n and j u s t i f y the choice of a residency requirement and not to imply t h a t the residency requirement a c t u a l l y removed the sources of the problems. The p o l i c y was a p r o v i n c i a l a c t i o n intended t o r e l i e v e one of the symptoms of the problems over which the province had c o n t r o l - migrants. The BC government could not a c t u a l l y change the e s t a b l i s h e d f e d e r a l p o l i c i e s at the root of i t s problems because - a p r o v i n c i a l government i s . unable to take u n i l a t e r a l a c t i o n , (short of withdrawal) on f e d e r a l cost-shared programs. In r e a l i t y though,' the BC government d i d have an impact on the f e d e r a l government because of the contravention of CAP. When she announced the p o l i c y , MacPhail i n d i c a t e d that' the f e d e r a l i government could p o s s i b l y challenge BC over the residency requirement. MacPhail a l s o s t a t e d f o r c e f u l l y t h a t she expected B r i t i s h Columbia to win a l e g a l challenge on the i s s u e . 1 5 Federal penalty would e n t a i l w i t h h o l d i n g t r a n s f e r s during contravention of the CAP agreement. At the time of the announcement, S o c i a l . \ Services s t i l l had two payments from the . f e d e r a l government remaining, t o t a l l i n g $158 m i l l i o n of/the $883 m i l l i o n entitlement f o r the year. 1 6 The second of these two payments would be made a f t e r the residency requirement p o l i c y went i n t o e f f e c t and would be the one w i t h h e l d . ' . Payments f o r CAP were l e g i s l a t e d to be made on the 20th of each month based on claims submitted by the p r o v i n c i a l governments. 15,,BC to deny wel f a r e , " Vancouver Sun, 4 November 1995, A l . . ' 16"CAP Payments to B r i t i s h Columbia 1995-1996," i n t e r n a l HRD document, undated. „ for t h e i r - s o c i a l assistance costs. A payment made on June 20, for example, would include an advance for services provided (but not yet b i l l e d ) i n June plus the difference between the amount advanced for May and the amount b i l l e d for May. . Under the cap on CAP, one twelfth of the annual allotment would be advanced and regular payments would contain the advance plus the difference between the previous- advance and the costs b i l l e d . This meant that f u l l payments for claims were made u n t i l the federal money ran out several months before the end of the f i s c a l year. 1 7 Despite t h i s , the CAP agreements, created year-long conditions of services even for the 'have' provinces. From the federal government's legal perspective, these provinces were simply advanced the money for the l a s t months of the year i n the e a r l i e r months.18 When asked i f the BC government was aware of the above information, a p r o v i n c i a l o f f i c i a l r e p l i e d "we've been receiving CAP payments for 20 something years and we're f u l l y aware of the procedure." 1 9 The BC government knew that i t would receive a December 20 payment and<that i t would be the l a s t . This was the payment that could be withheld i f the residency requirement started on December' 1. The size of that l a s t payment was a source of uncertainty because i t was based on the size of the November costs which had not yet been incurred. Early i n November, HRD estimated that the amount e l i g i b l e to be withheld would be approximately $32 1 7Lenora Homolus, HRD Program Administration, telephone interview, 20 June 1996. 1 8Faye Campbell, HRD Legal Counsel, telephone interview, 10 June 1996. 19BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, July 1996. 54 m i l l i o n . 2 0 BC could expect, based on previous 1995 payments, to have anywhere between $4 0 and $65 m i l l i o n l e f t for the December payment. • . As the b i l l i n g process proceeded, the size of the December payment became clearer to BC. On November 16, Social Services submitted a claim for $111 m i l l i o n for October-related expenses for payment on November 20. This would have been i n l i n e with 1995 monthly payments which had varied between $93 m i l l i o n and $118 m i l l i o n . The claim would have l e f t $47 m i l l i o n for the December 20 payment.21 In addition to the regular claim, a supplementary claim of $40 m i l l i o n was submitted. The claim had not been anticipated by the federal government.22 One federal o f f i c i a l f e l t i t was submitted purposefully to extract the most money possible from the federal government before December l . 2 3 The claim, for costs spanning from A p r i l to September, was an unusual one involving back-payments for the 1995-96 f i s c a l year. As a res u l t , HRD administration required more time to examine the claim before approval and payment.24 Under CAP, the Minister was allowed such a delay to ensure claims met with the standards of the 2 o „ C A p payments to B r i t i s h Columbia 1995-1996", in t e r n a l HRD document, undated. 21"November CAP Payment," in t e r n a l HRD document, 17 November 1995. 22"November CAP Payment," inte r n a l HRD document, 17 November 1995. "Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 2 4Claims included an income support c a l c u l a t i o n error; low wage redress; s k i l l s , labour and t r a i n i n g costs; imprest reversals; and daycare costs for the f i r s t six months of the f i s c a l year. - 55 agreement. 2 5 On November 20, HRD decided to pay only the more t y p i c a l claim of $111 m i l l i o n for October- costs. After receiving the November 20 payment, Social Services submitted another claim on November 28 for costs incurred i n November. These costs,were t y p i c a l l y paid on December 20. The claim was for $84 m i l l i o n and did not include any welfare costs. 2 6 Despite i t s knowledge of the CAP payment, procedure, the province requested that t h i s be paid by the end of November. HRD could not f u l f i l BC's request because of time constraints and the CAP l e g i s l a t i o n . 2 7 As a res u l t , BC was aware before the residency requirement came into e f f e c t on December 1 that there were $47 m i l l i o n remaining i n transfers from the federal government. This would mean a net loss of $39 m i l l i o n for the rest of the 1995-96 f i s c a l year instead of an $8 m i l l i o n gain over four months should the payment be withheld. At the same time as the BC government began to get a clearer idea of how much the December 20th payment would be, i t began to get a clearer idea of how much of i t could be withheld. The most po s i t i v e scenario involving the withholding of funds was mentioned by a senior p r o v i n c i a l o f f i c i a l who said he hoped that only $8 m i l l i o n be withheld i f BC was penalized. 2 8 This would have allowed the BC government to break even f i n a n c i a l l y . The ""November CAP Payment," inter n a l HRD document, 17 November 1995. ""Assistance Claim- BC- November Costs," i n t e r n a l HRD email, 28 November 1995. 2 7Lenora Homulos, HRD Program Administration, telephone interview, 20 June 1996. 28BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. . 5 6 o f f i c i a l ' s p rediction was based on the federal Minister of Health's action i n October of 1995 against the Alberta government when i t imposed f a c i l i t y fees i n contravention of the Canada Health Act. In that case, the Minister withheld an amount equal to the revenues generated by the f a c i l i t y fees. However, the Canada Health Act (CHA) and the Canada Assistance Plan were two d i f f e r e n t agreements. The CHA e x p l i c i t l y provides for penalties of t h i s kind for f a c i l i t y fees while CAP agreements did not. Unlike CAP, the CHA agreement s t i l l functions i f one of i t s conditions i s v i o l a t e d . 2 9 As a model for federal behaviour in t h i s type of case i t was e s p e c i a l l y poor because there had never been a contravention of the CHA's p o r t a b i l i t y clause, which was s i m i l a r to the one found i n CAP agreements. It was u n l i k e l y that the o f f i c i a l expected that t h i s scenario be f u l f i l l e d . Information regarding the size of the p o t e n t i a l penalty became, much clearer to BC at the November 10 meeting between Axworthy and MacPhail and t h e i r o f f i c i a l s . At the meeting, Axworthy said that the whole amount of the remaining transfers was at r i s k i f there was a contravention. ' The federal o f f i c i a l s mentioned that the f i n a l payment could be about $32 m i l l i o n , which would mean a net loss of up to $24 m i l l i o n for BC . (including the $8 m i l l i o n in. savings from the policy) . 3 0 The federal government was consistent throughout negotiations i n asserting that only the remaining CAP 2 9Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, June 1996. 3 0"Meeting with Joy MacPhail," i n t e r n a l HRD document, 14 November 1996. 57 money, but a l l of i t , would be withheld. 3 1 As a r e s u l t , for the BC government the amount l i k e l y to be withheld should a penalty be imposed became clear as the size of the f i n a l payment was established. The best scenario for the BC government was obviously to use the residency requirement to save $8 m i l l i o n without being penalized by the federal, government. However, the fact that the CAP agreements e x p l i c i t l y prohibited residency requirements meant that BC had to assume the p o s s i b i l i t y of a federal penalty. 3 2 Consequently, the r i s k of being penalized had to be weighed with the amount to be withheld against the predicted savings. Once again, the federal government was consistent, from the beginning, i n i t s p o s i t i o n that i t would uphold the CAP agreement with the province. Axworthy- p u b l i c l y a r t i c u l a t e d t h i s i n early November and i n a November 6 l e t t e r to MacPhail. 3 3 The federal government's le g a l p o s i t i o n was clear from the s t a r t . In addition, at the time, of the policy's creation, the BC government was aware of the federal government's legal p o s i t i o n regarding contraven-t i o n . 3 4 In a September l e t t e r to Reform MP Randy White, MacPhail c i t e d the federal legal p o s i t i o n when she said that the BC 3 1The p o s s i b i l i t y of BC having to reimburse the federal •government for funds transferred i l l e g a l l y did not appear to be broached. . 3 2Section 6.(2) (d) of the f e d e r a l - p r o v i n c i a l CAP agreement signed on March 31, 1967 by Canada and B r i t i s h Columbia states that "a period of residence i n the province of. B r i t i s h Columbia or i n Canada w i l l not be required as a condition of e l i g i b i l i t y for assistance or for the receipt or continued receipt thereof." ""Correspondence between the Minister, the Deputy Minister and t h e i r counterparts i n BC," i n t e r n a l HRD document, undated. 34BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, July 1996. 58 government could not implement a residency requirement on immigrants because the federal government would penalize the province. 3 5 y The federal legal p o s i t i o n rested on the Finlay case of 1989 - regarding Manitoba's alleged contravention of CAP through i t s recovery of welfare over-payments. In-that case, the Federal Court of Canada found that Manitoba was i n contravention of the CAP agreement and that i t was i l l e g a l for Ottawa to continue CAP transfers during a breach of agreement.36 The l e g a l issue was complicated by a Supreme Court r u l i n g on Finlay v. Canada' ( M i n i s t e r of Finance) ([1993] 1 S.C.R. 1080) i n 1993 which found that Manitoba was actually not i n contravention of CAP. In i t s decision, the court did not.comment on the transfer payment issue. Because the court did not over-turn the e a r l i e r judgement on the withholding of transfers, the federal government's, le g a l counsel believed that the f i r s t r u l i n g s t i l l had precedent. More b a s i c a l l y however, the o r i g i n a l r u l i n g was based on contract law where i f one component of the contract (CAP agreement) i s not f u l f i l l e d then the contract no longer e x i s t s . If the contract no longer ex i s t s , then CAP payments to the province could not occur. 3 7 The p r o v i n c i a l government's le g a l p o s i t i o n d i f f e r e d on t h i s point. The BC government interpreted the Supreme Court's 1 3 5 „ B C f a i i s t o sway Ottawa," Globe and Mail, 8 December 1995, A l . ' , ' 3 6 F i n l a v v. Canada (Minister of Finance) , (1989) 57. D.L.R. ,(4th) 211. The Federal Court of Appeal upheld the case i n (1990) 71 D.L.R. (4th) 422. "BC-Ottawa dispute heats up," Globe and Mail, 6 December 1995, A4 . 3 7Faye Campbell, HRD legal counsel, telephone interview, 10 June 1996. 59 decision to mean that the o r i g i n a l r u l i n g regarding the withholding of funds was no longer binding. 3 8 . , The BC government supported i t s l e g a l p o s i t i o n on another point as well. I t argued that since CAP payments ran out after payment for November services, the CAP agreement between the two governments ceased to exist at the end of November regardless of the date of payment for those services. This p o s i t i o n was bolstered by CAP 'S permanent demise on March 31, 1996. BC believed that i f CAP was an on-going program from year to year, there would be a greater incentive to consider i t a continuous year-long •program even though payments stopped each year i n December or January. In other words, BC believed i t did not contravene CAP because the agreement had expired permanently. 3 9 Indeed, t h i s was the e x p l i c i t reason for the residency requirement taking e f f e c t on December 1.40 On t h i s point, the federal l e g a l p o s i t i o n was that the CAP agreement applied to entire - f i s c a l years and that the payments applied to costs incurred over.the whole twelve months.41 - The capped payments to 'have' provinces which began i n 1990 did not change t h i s f a c t . It simply meant that one twelfth of the t o t a l allotment was allocated i n theory for each month. Following t h i s interpretation, 1 HRD should have withheld an amount equal to 1/12 38BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 39BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. - , 40"BC's welfare recipients face s t r i c t e r conditions," Globe and Mail. 7 November 1995, A13. 4 1Faye Campbell, HRD legal counsel, telephone interview, 10 June 1996. 60 of $882 million, for each month the residency requirement was i n e f f e c t . Had i t done so, BC would have l o s t the $47 m i l l i o n and would have had to return $247 m i l l i o n from the money i t had been advanced. 4 2 However, near the end of the f i s c a l year the federal government forgave t h i s debt by Order-in-Council, presumably for p o l i t i c a l reasons. 4 3 This i s a potent i n d i c a t i o n of the federal government's reluctance to penalize B r i t i s h Columbia i n i t s defense of CAP. , Despite the province's legal, argument, there was s t i l l a s l i g h t difference of opinion within the BC government regarding the p r o b a b i l i t y of the federal government withholding transfers. In public, MacPhail was the most adamant in asserting the b e l i e f that the federal government would not withhold funds. She c a l l e d such a move "unprecedented" and "unbelievable" and pledged t c defend the p o l i c y i n court. 4 4 MacPhail's inconsistent message that she f u l l y expected a l e g a l b a t t l e but that federal action would be unli k e l y points to the l i k e l i h o o d that these public statements were p o l i t i c a l posturing and cannot be taken as a serious i n d i c a t i o n of the BC government's perception of r i s k . Other individuals within the BC government commented on the r i s k of federal penalty. One o f f i c i a l within the department of Social Services "did not believe that the government would be " 2Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 4 3Faye Campbell, HRD legal counsel, telephone interview, 10 June 1996. """Axworthy l i k e l y to withhold BC funds," Globe and Mail, 5 December 19.95, A4; "Axworthy attacks BC residency requirement," Vancouver Sun, 6 November 1995, A l . 61 . penalized" but was not surprised when i t did happen. 4 5 An i n f l u e n t i a l cabinet member disagreed with the federal legal i n t e r p r e t a t i o n but was aware that there was r i s k of penalty. 4 6 This was echoed by a member of the p o l i c y team that created the residency requirement who said the government "took some comfort in our leg a l p o s i t i o n " but had a " l e v e l of understanding of the r i s k involved". 4 7 In the BC government, there was no evidence of MacPhail's public certainty. The p r o v i n c i a l government would not have assessed the r i s k of penalty on l e g a l interpretations alone... Interaction with and close observation of the federal government gave clues regarding the p o s s i b i l i t y of penalty. The previous Alberta Canada Health Act case i n October served as a pertinent example of federal resolve to preserve e x i s t i n g national standards and agreements, as well as i t s leverage i n cost-shared agreements. The Alberta government was allowing private c l i n i c s to levy f a c i l i t y fees on t h e i r patients, i n contravention of the CHA: The federal government won that b a t t l e , although the Alberta government's surrender was probably aided by a lack of public support. The federal commitment to CAP i n the residency requirement case was strong. • Upon BC's announcement of the' residency requirement, Axworthy immediately p u b l i c l y threatened to take 45BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 46BC cabinet minister, c o n f i d e n t i a l telephone interview, June 1996. 4 7Gary Waters, Deputy Minister of S k i l l s , Training and Labour, telephone interview, 4 July 1996. 62 a c t i o n . 4 8 He e x p l i c i t l y reinforced t h i s message at the f i r s t meeting between the two ministers and o f f i c i a l s on November 10 i n V i c t o r i a . 4 9 Axworthy thus set up public expectations of ..federal action and attempted to make clear to the BC government his commitment to withhold the funds i f contravention occurred. Axworthy was taking a "we have no choice" l i n e of argument based on the l e g a l p o s i t i o n . 5 0 Rhetoric became more resolute as the December 1 deadline approached. Axworthy gave no i n d i c a t i o n p u b l i c l y or i n communications with the province that he had any room to manoeuvre on t h i s question short of BC withdrawing the requirement. 5 1 In the face of federal commitment, the only p o l i t i c a l factors (in addition to l e g a l ones) i n BC's favour were the tense p o l i t i c a l .situation between the two governments and the popularity of the p o l i c y . BC used both of these advantages during negotiations.and public exchanges. If the federal government was to penalize the province, i t would be attacking a popular p o l i c y and attacking a province that was already vocal about the raw deal i t was getting out of Confederation. At the time, BC was complaining about a lack of p o l i t i c a l voice (compared with i t s growing economy and population) in' the 4 8 , lAxworthy attacks BC residency' requirement, " Vancouver Sun, 6 November 1995, A l . 4 9"Meeting with Joy MacPhail," i n t e r n a l HRD document, 14 November 1995. 5 0Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 5 1Based on records of meetings, public communications, correspondence between MacPhail and Axworthy, and interviews with o f f i c i a l s . 63 federal L i b e r a l cabinet and i n federal p o l i t i c s i n general. BC was also clashing with the federal government over c o n s t i t u t i o n a l change. From ' November 1995 to January 1996, the province was locked i n a b a t t l e with the federal government over i t s right to i t s own veto over c o n s t i t u t i o n a l change within a proposed federal statute. At f i r s t the province was a part of a region comprising the four western provinces with a shared veto. It was awarded the status of a 'region' and given i t s own veto on December 7, 1995. Instead of accommodating BC's objections, t h i s only served to aggravate BC's general grievances regarding c o n s t i t u t i o n a l change. 5 2 . These other public issues meant that although the federal government's le g a l position was firm, there,was p o l i t i c a l pressure on i t to solve the issue i n the least contentious manner consistent with t h e i r p o s i t i o n . 5 3 Up to early November, for the BC government acting r a t i o n a l l y to have chosen to pursue the residency requirement, i t would have had to assume an 80% p r o b a b i l i t y of escaping without f i n a n c i a l l o s s . 5 4 This i s equivalent to a near-certainty of federal inaction or of reaching a mutually acceptable solution v i a negotiations or of winning a legal s u i t against the federal 52"BC wins c o n s t i t u t i o n a l veto," Globe and Mail, 8 December 1995, A l . . * "Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 5 4Based on the weak requirements of r a t i o n a l i t y where benefits X p r o b a b i l i t y of no penalty= cost X p r o b a b i l i t y of penalty. I w i l l assume the lowest possible December payment of $40 m i l l i o n (based on previous 1995 payments to BC) , which would leave $32 m i l l i o n a f t e r the $8 m i l l i o n i n savings. 8 m i l l i o n X 0.8 = 32 m i l l i o n X 0.2. The p r o b a b i l i t y of not being penalised would have to have been calculated at 80%, which was e n t i r e l y u n l i k e l y based on available evidence. v ^ -64 government for the withheld cash. Based on the strength of the federal' government' s legal. argument and Axworthy*'s early behaviour . and public commitment to uphold the policy, i t was highly unlike l y that BC assessed the p r o b a b i l i t y of federal inaction or a legal v i c t o r y at t h i s l e v e l . ' . x ' In addition, the prospect of a mutually acceptable solution being produced through concessions offered by the department of Human Resources Development .during subsequent negotiations was uncertain. Considering that the BC government was w i l l i n g to r i s k tens o f . m i l l i o n s of do l l a r s and that i t pointed to a variety of "problematic federal p o l i c i e s , adequate concessions would have had to be of considerable value. Although I w i l l show l a t e r that the residency.requirement p o l i c y had intentional consequences i n the Finance arena, the negotiations with HRD could produce only li m i t e d benefits for Social Services on the issues BC wanted to address. Migrants and funding issues were necessarily CHST related, and were - ' • • • ' • .1 therefore the federal Finance Department's r e s p o n s i b i l i t y . Immigration was also outside HRD's mandate. Concessions from HRD would have had to address migration and funding within i t s mandate and l i m i t e d resources. The BCXgovernment would have had d i f f i c u l t y p r e d i c t i n g s i g n i f i c a n t f i n a n c i a l benefits to Social Services from po t e n t i a l HRD concessions. • / . , Despite the p o s s i b i l i t y of federal r e t a l i a t i o n and the unlikelihood of adequate concessions from HRD, BC chose the residency requirement. P o l i t i c a l pressure on the federal government meant that Human Resources Development was w i l l i n g to negotiate with the province, which could have a f f e c t the o r i g i n a l 65 u t i l i t y c alculations before the p o l i c y ' s s t a r t i n g date. 5 5 In a November 6 l e t t e r to MacPhail,, Axworthy stated that he was "ready and w i l l i n g to s i t down with you [MacPhail] and your p r o v i n c i a l counterparts to search for workable s o l u t i o n s " . 5 6 HRD expected that successful negotiations would result i n the repeal of the residency requirement at the e a r l i e s t possible date. This was understood by the.BC government.57 B r i t i s h Columbia was also w i l l i n g to negotiate despite the apparent l i m i t e d a b i l i t y of HRD to address BC's concerns. 5 8 On November 7, the Assistant Deputy Minister of Social Services Lynn Tait spoke with an HRD o f f i c i a l and indicated' that the BC government wanted a b i l a t e r a l meeting between the MacPhail and Axworthy. Tait suggested that t h i s take place no e a r l i e r than the November 9~announcement of the 'BC Benefits' package of s o c i a l assistance reforms. 5 9 It was decided that the Ministers would meet on November 10 because Axworthy had been previously scheduled to be i n V i c t o r i a on that d a t e . . ' • At the November 10 meeting, the two governments decided to e s t a b l i s h a process of discussions between designated o f f i c i a l s 5 5Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May . 1996. ""Meeting and Correspondence between the Minister...," i n t e r n a l HRD document, undated. "Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, June 1996; BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. . 5 8Gary Waters, Deputy Minister of S k i l l s , Training and Labour, telephone interview, 4 July 1996. 5 9"Discussion with B r i t i s h Columbia Tuesday November 7, 1995," in t e r n a l HRD document, 7 November 1995. 66 i from each department. This process began almost immediately. 6 0 Both parties expressed a desire to resolve the c o n f l i c t , although they acknowledged that reaching an understanding before the December 1 deadline would be d i f f i c u l t . During a conversation on Monday November 13, Lynn Tait indicated that the BC government had issues which could be addressed by the federal government to enable BC to delay or repeal the December 1 s t a r t i n g date. It was implied that substantial progress could be s u f f i c i e n t to postpone the s t a r t i n g date. 6 1 It i s uncertain what the BC government expected i n the way of progress. The most important issues for BC were a more equitable CHST a l l o c a t i o n formula beginning i n the 1998-99 f i s c a l year (one that removed discrimination against 'have' provinces) and a federal i n i t i a t i v e to address the migrant issue. The BC government also f e l t that the CHST a l l o c a t i o n formula was not being decided quickly enough. Primarily, BC was "looking for fast and s i g n i f i c a n t action on the CHST," said one p r o v i n c i a l o f f i c i a l . 6 2 Another possible issue for discussion was immediate, short-term f i n a n c i a l r e l i e f for the over-budget Social Services Department. Despite media reports to the contrary, MacPhail was not going to force the issue of UI reform during these discussions. 6 3 UI changes were already being examined by the federal government, some of which would reduce 6 0Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 6 1 , IMeeting with Joy MacPhail," i n t e r n a l HRD document, 14 November 1995. -62BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. ""Meeting with Joy MacPhail," i n t e r n a l HRD document, 14 November 1995. 67 pressures'on p r o v i n c i a l s o c i a l assistance budgets. The discussion process set up at the November 10 meeting produced an evolving package of offers from HRD. Agreement was not e a s i l y found, which i s not surprising considering that the main issues addressed by the BC government f e l l outside the mandate of HRD. The CHST a l l o c a t i o n issue was the r e s p o n s i b i l i t y of the Finance Department, which had been holding m u l t i l a t e r a l discussions for several months with the p r o v i n c i a l Finance Ministers. In a November 20 l e t t e r to Axworthy, MacPhail raised immigration issues such as sponsorship breakdown and federal off-loading of refugees. Immigration was another subject that was outside HRD's mandate. On November 24, Axworthy sent a l e t t e r to MacPhail with the components of the package as i t appeared at that stage of negotiations. The federal government hoped that the offers would be s u f f i c i e n t to delay the December 1 s t a r t i n g date for the residency requirement. The package contained proposed federal i n i t i a t i v e s regarding o f f - s e t t i n g in-migrant costs, setting up meetings between the federal Finance Department and Social Services, and the early start-up i n the province of a new employment program. 6 5 None of these i n i t i a t i v e s guaranteed an e x p l i c i t amount of federal resources for the province. However, the promise of probable benefits made i t arguably less r a t i o n a l for the BC government to implement the p o l i c y . With the HRD offer, the i n i t i a l u t i l i t y c alculations r e j e c t i n g the residency requirement were tipped further against implementing ""Meeting with Hon. Joy MacPhail," i n t e r n a l HRD document, 8 November 1995. 6 5Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 68 the p o l i c y . When the f i n a n c i a l benefits from the federal concessions (in exchange for hot implementing the policy) are considered against the o r i g i n a l r i s k and u t i l i t y c alculations, the decision to implement i s even less r a t i o n a l than i t was i n the f i r s t instance. There were now tangible benefits i n place of the status quo produced by not choosing the residency requirement. Although the context of the negotiations meant that i f the BC government were to back down the resolution would be perceived as a federal p o l i t i c a l victory, f i n a n c i a l l y i t would have been the r a t i o n a l option. P o l i t i c a l factors alone at t h i s stage (and only t h i s stage) may have had enough weight .to t i p the u t i l i t y c a lculations i n favour of implementing the requirement aft e r i t was announced. The r a t i o n a l i t y of t h i s decision does not, however, discount the - i r r a t i o n a l i t y of the o r i g i n a l action (when considered within the Social Services arena). Since the BC government did not believe that the package at t h i s point gave BC adequate assurance that there would be fast and s i g n i f i c a n t action on the CHST a l l o c a t i o n formula, the residency requirement took e f f e c t on December 1 as planned. 6 6 On December 5, Axworthy withheld the remaining $47 m i l l i o n i n federal transfers, c i t i n g the same leg a l argument he had used a l l along. Discussions between the two level s of government continued•. After the money was withheld, BC imposed a December 21 deadline for reimbursement. 6 7 That deadline passed without resolution. BC decided to continue with negotiations with renewed threats of leg a l 66BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 6 7 " C o a l i t i o n going to court," Globe and Mail, 21 December 1995, A4. -69 action i f the negotiations were to f a i l . 6 8 MacPhail had spoken pf taking the federal government . to. ccurt since the p c l i c y was announced. The issues f c r discussicn remained fast and f a i r acticn on the CHST a l l o c a t i o n formula and federal assumption of r e s p o n s i b i l i t y , for migrants. O f f i c i a l s at both lev e l s of government indicated that i t was the CHST a l l o c a t i o n formula that was the most important issue. 6 9 By January 23, the discussions had evolved to the point that the package of federal .offers included reimbursement of a "substantial" portion of the $47 m i l l i o n , a $32 m i l l i o n three-year ' jobs program for new residents i n the province, and federal promotion, of a mobility clause during f e d e r a l - p r o v i n c i a l discussions of p r i n c i p l e s for the CHST.70 Legal, advisors thought that HRD might be able to refund some of the money withheld i f the requirement was repealed. before the end of March. 7 1 The BC government reviewed t h i s package and decided that i t did. not address BC's concerns and that adequate progress i n the future was not l i k e l y . 7 2 The BC government was d i s s a t i s f i e d with each of these o f f e r s . Since i t claimed that the whole $47 m i l l i o n withheld belonged " " V i c t o r i a holds off on legal action," Globe and Mail, 22 December 1995, A4. 69BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996; Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 70"BC launches welfare funds su i t against Ottawa," Vancouver Sun, 24 January 1996, B l . 7 1Faye Campbell, HRD leg a l counsel, telephone interview, 10 June 1996. 7 2 P r o v i n c i a l Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, July 1996.. 70. r i g h t f u l l y to BC, a p a r t i a l reimbursement (no matter how substantial) was not an adequate solution. At about $10. m i l l i o n a year, the employment program .would do l i t t l e to ease the current Social Services' budgetary problems and was small change compared with f i n a n c i a l losses associated with the cap. on CAP and the temporary CHST a l l o c a t i o n formula. 7 3 BC's evaluation of the mobility clause was based i n large part on the reaction of other provinces and t h e i r behaviour i n future CHST negotiations. The proposed mobility clause would alloca t e a certai n portion of the annual CHST a l l o c a t i o n funding, not additional federal funding, to a s s i s t i n g provinces with costs due to in-migration. Instead of assuming f i n a n c i a l r e s p o n s i b i l i t y for mobility, the federal government intended to o f f - l o a d costs for migration onto the provinces. That would probably not have been popular with - any province which had a net loss of welfare recipie n t s due, to mobility. In addition, the provinces were p u b l i c l y and p r i v a t e l y not supportive of either r e c i p r o c i t y agreements or the mobility clause. 7 4. It was i n the interest of any province with net out-migration to o f f - l o a d i t s migrants onto other provinces to save costs. v It was not i n the short-term s e l f ' i n t e r e s t of these provinces to mitigate s p i l l - o v e r s with t h e i r own resources. The success of a mobility clause would depend on the a b i l i t y of the federal government and BC to influence the other provinces. Despite these c r i t i c i s m s , i n the context of the Social 7 3The 1995-96 p r o v i n c i a l Social Services budget was $2,781 b i l l i o n . $10 m i l l i o n i s approximately only 0.36% of that budget. 74BC Social Services o f f i c i a l , - c o n f i d e n t i a l telephone , interview, May 1996. ' ,. , ! 71 ' -~ Services arena the package was a generous one.- By pressuring the federal government with the residency requirement,, BC had generated a new program and new revenues for the province that would d i r e c t l y benefit Social Services; had produced,federal action on mobility that could decrease Social Services' future costs related to migrants (since i t was the most popular destination province i n raw numbers and per capita 7 5) ; and had obtained commitment for reimbursement of a portion of the l o s t transfers (which would also d i r e c t l y benefit Social Services). The package could almost offset the $47 m i l l i o n withheld from Social Services for the 1995-96 f i s c a l year and i t held out hope for some r e l i e f on the migrant issue. The benefits were not outstanding compared with ^Social Services/ p o s i t i o n before the residency requirement. The offer was, however, an excellent opportunity to compensate for the sub-optimal p o l i c y decision of pursuing the residency requirement. j s In addition,' the f i n a n c i a l gains would, be seen by the electorate as a p o l i t i c a l v i c t o r y for the BC government over the federal government. Unlike the November 24 package, t h i s one attached clear and e x p l i c i t monetary value to the federal o f f e r s . BC had captured the federal government's attention, had made i t .recognise and understand BC's grievances, and had made i t address those grievances with p o l i c y i n i t i a t i v e s and f i n a n c i a l resources. Through these offers, the federal government had admitted that BC had been treated u n f a i r l y by previous arrangements. Only the NDP in government was i n a pos i t i o n to produce t h i s type of tangible r e s u l t from c o n f l i c t with the federal government. Accepting the package would make a popular pre-election announcement and would '•"Statistics Canada, Catalogue No. 91002, Vol. 9, No. 2, pg 18. ' 72 put the government one up on i t s e l e c t o r a l competition. A f t e r assessing the poten t i a l f i n a n c i a l and federal p o l i t i c a l concessions produced by the residency requirement p o l i c y , the BC government should have recognized t h e i r u t i l i t y as compensation for the penalty. However, the BC government chose to forego these benefits and take the federal government to court for the withheld tr a n s f e r payments. This action produced a loss of the p o l i t i c a l and f i n a n c i a l u t i l i t y gained during the discussions with no guarantee of recovering the $47 m i l l i o n i n court. A r a t i o n a l actor c a l c u l a t i n g her u t i l i t y would have chosen to accept the package. An explanation for the BC government's sub-optimal choice l i e s i n the o f f e r that was missing from the package: no agreement had been achieved regarding BC s CHST a l l o c a t i o n formula grievances. The outstanding issue was alluded to i n the explanation for the package's r e j e c t i o n . One p r o v i n c i a l o f f i c i a l compared the $32 m i l l i o n over three years produced by the employment creation program with the $1.3 b i l l i o n l o s t by the BC government under the 1996-98 temporary CHST a l l o c a t i o n formula. 7 6 It was when the federal Finance Department vetoed the date proposed by HRD for settlement of the CHST a l l o c a t i o n formula that BC gave up on the discussions. 7 7 When Axworthy said p u b l i c l y that the two parties were only "one or two words" from agreement, i t was t h i s issue to which he was r e f e r r i n g . 7 8 7 6 B r i t i s h Columbia, "Residency Requirement," 3 November 1995. 7 7Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996 . 78"BC launches welfare funds suit against Ottawa," Vancouver Sun. 24 January 1996, B l . 73 The Finance Arena Since the CHST funding issue ended negotiations between Social Services and Human Resources Development, i t i s a reasonable s t a r t i n g point for analysis to assume that the issue was also the stimulus to the i n t e r a c t i o n . Indeed, t h i s i s what a close examination of the s i t u a t i o n indicates. >From the beginning, the payoffs i n the Finance arena determined B C s actions. There had already been a c t i v i t y i n the Finance arena on the CHST a l l o c a t i o n formula before the residency requirement was chosen. In the 1995 budget, the federal Finance Minister had announced a temporary a l l o c a t i o n formula for-the 1996-97 and 1997-98 f i s c a l years. In that budget, Martin indicated that a permanent a l l o c a t i o n formula would be determined a f t e r consultation with the Finance Ministers from the provinces and t e r r i t o r i e s . This process began i n June of 1995. Eight meetings were held from June 1995 to February 14, 1996 with Finance Ministers, Deputy Ministers, or departmental o f f i c i a l s . Only one meeting had been held before November 1995 (when BC announced the p o l i c y ) , and four were held from November to January, including one i n December with the Ministers. BC Finance Minister Elizabeth C u l l attended t h i s meeting. 7 9 None of these meetings had produced public interest or media attention. B i l a t e r a l background discussions between the federal Finance Department and i t s p r o v i n c i a l counterparts also took place. 8 0 The 1996-97 CHST a l l o c a t i o n formula preserved the 79Andrew Treusch, Director Federal-Provincial Relations, written communication, 25 June 1996. 8 0Ruth Dorkleson, Special Assistant to the Minister of Finance, telephone interview, 10 June 1996. 74 proportional allotment of funding each province had received o v e r a l l from CAP and Established Programs Financing (EPF) transfers i n 1995-96. EPF for health and post-secondary education was allocated on a per capita basis. In 1996-97 BC would receive 12.31% of the t o t a l CHST allotment and the value of the transfer to the province would f a l l by $349 m i l l i o n from 1995-9,6. In 1997-98, the o v e r a l l value of the transfer f e l l to BC again, t h i s time by $153 m i l l i o n . 8 1 The BC government asserted that the discriminatory temporary CHST a l l o c a t i o n formula would cost the province $1.3 b i l l i o n during the two f i s c a l years. Federal cuts to s o c i a l assistance funding affected a l l provinces, but they had a greater impact on 'have*" provinces due to the a l l o c a t i o n formula. While Alberta and Ontario had reduced s o c i a l assistance costs by cutting services and benefits, BC's lev e l s of services, and therefore costs, remained r e l a t i v e l y high. Because of t h i s commitment to the p r o v i n c i a l safety net, BC was arguably affected to a greater extent than the other 'have' provinces. It was t h i s transfer s i t u a t i o n that drove the BC government's interest i n the CHST a l l o c a t i o n formula. The cap on CAP was designed to a l l o c a t e l i m i t e d federal resources to more greatly benefit those provinces most i n need. It retained 50% federal financing for the , seven 'have not' provinces, but l i m i t e d the amount of funding available to the three 'have' provinces. Without the cap, the 'have' provinces would have received an additional $10.1 b i l l i o n between the 1990-91 and 1995-8 1Calculated from "The Canada Health and Social Transfer," f i n a n c i a l table, Federal-Provincial , Relations/Department of Finance, March 1996. 75 96 f i s c a l years. 8 2. The 'have' provinces have the d i s t i n c t i o n of being three of the four most populous. A s h i f t from funding influenced by considerations of need to one based on population would benefit them greatly. This was the incentive for BC to support a per capita formula, while the urgency and determination to address the issue came from the greater impact of federal funding decisions on BC. In contrast, the 'have not' provinces i n general supported a p a r t i a l l y equalising formula which took into account f i n a n c i a l need. 8 3 Federal f i s c a l constraints also affected questions of a l l o c a t i o n . Barring an unlikely increase i n the a v a i l a b i l i t y of federal resources f o r s o c i a l programs, Finance would be forced to penalize poorer provinces to a greater degree than 'have' provinces i f i t wished to adjust the ex i s t i n g formula to r e f l e c t a greater measure of per capita funding. On the other hand, Ontario, Alberta and B r i t i s h Columbia were i n f l u e n t i a l members of the federation and the federal government was dependent upon t h e i r , and t h e i r taxpayers'/voters', continued willingness to provide f i n a n c i a l support for national programs. The dilemma rested on two conceptions of fai r n e s s - equal treatment versus equality of outcome. .A compromise, solution had to be sought and the f i n a l balance rested i n the hands of p o l i t i c a l forces. 8 4 The BC government believed that the m i l l i o n s of additional 8 2 , ,Prompted by Funding Inequity," i n t e r n a l HRD document, undated. 8 3Ruth Dorkleson, Special Assistant to the Minister of Finance, telephone, interview, 10 June 1996. 8 4Ruth Dorkleson, Special Assistant to the Minister of Finance, telephone interview, 10 June 1996. 76 d o l l a r s that would be won through the elimination of> the discriminatory funding formula would be very popular with the BC ele c t o r a t e . 8 5 This consideration was consistent with the objectives of u t i l i t y maximizing voters and a u t i l i t y maximizing government. Actions taken to achieve that objective were driven by a r a t i o n a l goal. " The above provides only a s u p e r f i c i a l discussion of the complex issues surrounding a l l o c a t i o n formulae for cost shared programs. However, i t i s a good i n d i c a t i o n of the incentives of the BC government and of the constraints i t faced i n winning a per capita CHST a l l o c a t i o n formula. Not surprisi n g l y , according to one federal o f f i c i a l , the CHST discussion process was1 fraught with contention. 8 6 BC recognized the p o l i t i c a l nature of federal Finance's decision on the a l l o c a t i o n formula. The federal Finance Department was under no leg a l obligation to secure p r o v i n c i a l support for the a l l o c a t i o n formula. Provinces had to r e l y on p o l i t i c a l influence and the weight of t h e i r arguments regarding fairness. According to one member of the po l i c y team that developed the residency requirement, the p o l i c y was to be used "primarily as a leverage to negotiate". 8 7 Unlike i t s intended cost-saving impact i n the Social Services arena, i n the Finance arena the p o l i c y acted as a " p o l i t i c a l statement" showing that "BC won't be taken advantage of" 85BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. ^ 8 6Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 8 7Gary Waters, BC Deputy Minister of S k i l l s , Training, and Labour, telephone interview, 4 July 1996. 77 by federal programs any longer. 8 8 The residency requirement mobilized f o r c e f u l rhetoric and public opinion, sent a clear message to federal 'actors regarding BC's grievances, and demonstrated the province's willingness to take r i s k s to get what i t wanted. If the p o l i c y could be linked with the Finance discussions, i t s influence could be added behind the t r a d i t i o n a l BC sources of leverage ( s i g n i f i c a n t wealth and large population) that the BC Finance Minister brought to the Finance arena. The residency requirement was e x p l i c i t l y linked to the Finance arena through the public rhetoric and the c o n f l i c t with HRD. The public rhetoric i d e n t i f i e d BC's grievances about federal funding p r a c t i c e s . The c o n f l i c t allowed the BC government to keep CHST issues i n the public eye and create pressure through the deadlines i t imposed and the federal desire for resolution. Through the resultant negotiations, i t also produced the p o s s i b i l i t y of one-on-one discussions between federal Finance and BC Social Services regarding the CHST. Using a p o l i c y from one arena to create pressure i n another p o l i c y arena and to create an alternative way to communicate i s a strategy known around at least one cabinet table as a ' t r a d e - o f f . A New Brunswick cabinet minister gave examples of several p o l i c i e s that'had been e x p l i c i t l y evaluated by the cabinet i n t h i s manner. After assessing f i n a n c i a l benefit, i d e o l o g i c a l consistency, popularity, e l e c t o r a l timing, possible reactions of other actors, and the leg a l p o s i t i o n of a risky policy, a government can consider whether the p o l i c y can be used to make gains i n another p o l i c y 88BC cabinet minister, c o n f i d e n t i a l telephone interview, June 996. 78 area. The p o l i c y can make a point i n the other 'arena', send a message to an actor i n the other arena, and 'up the ante' i n the other arena by applying increased p o l i t i c a l and public pressure. This type of action i s used both as a t o o l for communication and to produce additional leverage. 8 9 The residency requirement f i t s t h i s model of action i n multiple arenas well, although no BC o f f i c i a l described i t e x p l i c i t l y as a ' t r a d e - o f f . The same variables making up a trade-of f p o l i c y were considered by the BC.government. The government had grievances i n another p o l i c y area (Finance). There was uncertainty regarding the l e g a l i t y of the po l i c y and there was a strong p o s s i b i l i t y of federal penalty. The p o l i c y would put pressure on the federal government to seek concessions. As a resul t , f i n a n c i a l savings were subject to another government's action and thus were risky.. The p o l i c y was popular and the id e o l o g i c a l p o s i t i o n that i t a r t i c u l a t e d regarding national and p r o v i n c i a l benefits standards was powerful and would be p o s i t i v e l y received by the electorate. These variables are those t y p i c a l l y considered i n a ' t r a d e - o f f p o l i c y . The BC government used the residency requirement to create pressure within the federal government on Finance to help resolve the c o n f l i c t . The residency requirement sent the message to Finance that BC was "drawing a l i n e i n the sand," as one cabinet member put i t , and would no longer support a system that discriminated against i t . 9 0 Although o f f i c i a l l y negotiating with 89NB cabinet minister, c o n f i d e n t i a l personal interview, June 1996. 90BC cabinet minister, c o n f i d e n t i a l telephone interview, June 1996. 79 HRD, BC was able to implicate Finance i n the r e s p o n s i b i l i t y to meet i t s demands. The intended use of the residency requirement p o l i c y f i t s the ' t r a d e - o f f model quite neatly. The BC government believed that i t was possible that Finance would implement the changes to the a l l o c a t i o n formula preferred by the province. 9 1 When the r i s k s of the p o l i c y ' s impact on the Social Services arena were weighed, the same member of cabinet said that the p o l i c y used for leverage was "absolutely" worth i t , even i f the 1995-96 transfer payments were permanently l o s t . 9 2 This use of the residency requirement p o l i c y explains why the BC government made demands regarding the CHST allocation.formula during the discussions with Human Resources Development that were outside,of HRD's mandate. Doing t h i s allowed Social Services to insert i t s e l f into the federal Finance arena. The BC government wanted Finance to commit to a per capita a l l o c a t i o n formula at the e a r l i e s t possible date. 9 3 The BC government was not s a t i s f i e d with simply producing p o l i t i c a l pressure on Finance and communicating i t s grievances. It also pushed for d i r e c t bargaining between Social Services and federal Finance. Because of Social Services' CHST- related demands, at the f i r s t meeting on November 10, HRD proposed to set up a four-way discussion between Axworthy, MacPhail, Finance 91BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 92BC cabinet minister, c o n f i d e n t i a l telephone interview, June 1996. 93,,BC launches welfare funds s u i t , against Ottawa," Vancouver Sun, 24 January 1996, B l . . ' 80 Minister Martin and BC Finance Minister C u l l . 9 4 Few early e f f o r t s were made by HRD on the CHST issue beyond attempting to secure the willingness of Finance to a s s i s t i n resolving the c o n f l i c t . This was because the CHST was not an issue that could be resolved before the December 1 s t a r t i n g date for the residency requirement. 9 5 After December 1, an important part of HRD's strategy became working to get some sort of commitment from Finance regarding the desire of Social Services to bargain with Finance d i r e c t l y . However, Finance believed that i t would be inappropriate for the Minister, Paul Martin, to be seen giving BC p r e f e r e n t i a l treatment by i n i t i a t i n g a b i l a t e r a l process with the Social Services Minister v. when a m u l t i l a t e r a l process with a l l provinces Finance Departments, was on-going. 9 6 The BC government also wanted 'fast' action on the a l l o c a t i o n formula. This was not an easy issue to resolve ei t h e r . According to one federal o f f i c i a l , the challenge was to produce a deadline for agreement on the a l l o c a t i o n formula when i t was ultimately the Finance Department's r e s p o n s i b i l i t y and authority to draw up the budget document announced i n March. 9 7 As a r e s u l t , Finance was reluctant to commit to an a l l o c a t i o n formula before the 1996 budget announcement. Consequently, Social Services proved to be a somewhat awkward actor i n the Finance arena. 9 4"Meeting with Joy MacPhail," i n t e r n a l HRD document, 14 November 1995. 95"BC Residency Requirement," in t e r n a l • HRD document, 28 November 1995. 9 6Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, June 1996. 9 7Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, June 1996. 81 During the same period, BC Finance Minister C u l l joined the e f f o r t to apply pressure to the federal Finance Department on the CHST issue. S i g n i f i c a n t l y , C u l l was one of the members of the p o l i c y team that developed the residency requirement p o l i c y . The f i r s t meeting of a l l federal and p r o v i n c i a l Finance Ministers was set for mid-December. Before the meeting, MacPhail said that the BC government intended to "take the b a t t l e " to the meeting and C u l l stated p u b l i c l y that she would r e i t e r a t e the BC's government's demands to end the discriminatory funding formula c a r r i e d over to the temporary CHST formula. 9 8 It was a clear attempt to bring the pressure, issues, and media attention of the residency requirement to the low-profile CHST discussions. By January, - HRD was t r y i n g to get the Finance department to guarantee a date for a decision on the a l l o c a t i o n formula. 9 9 At t h i s point there were only four f e d e r a l - p r o v i n c i a l CHST discussions, l e f t , two with o f f i c i a l s , one with the Deputy Ministers and one with the Ministers on February 14, 1996. By January 23, HRD had proposed a decision deadline to Finance. The Finance Department vetoed that' proposal, which prompted the BC government to withdraw from negotiations with HRD. F a i l i n g to win either a commitment to a p a r t i c u l a r a l l o c a t i o n formula before the f i n a l meetings or a deadline for reaching a decision on the formula, BC gave up. . The BC government followed through on i t s threats and f i l e d a writ and statement of claim with the Supreme Court of B r i t i s h Columbia regarding the withheld 98"BC wins co n s t i t u t i o n a l veto, 1 1 Globe and Mail, 8 December 1995, A l . "Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 82 transfer payments. MacPhail c l e a r l y intended to maintain pressure on the federal government when she announced l e g a l action and said "sometimes, i t takes a huge deliberate knock on the head" to get federal a t t e n t i o n . 1 0 0 The continued pressure due to the lack of resolution retained the use of the residency requirement p o l i c y as a trade-off i n the Finance arena. The CHST a l l o c a t i o n formula•decided c The CHST discussion process i n the Finance arena continued. At the meeting of federal and p r o v i n c i a l Ministers on February 14,, the l a s t one of the process, Martin presented his department's compromise p o s i t i o n on the a l l o c a t i o n formula. The proposed f i v e -year formula neither kept the discriminatory formula nor moved completely towards per capita a l l o c a t i o n . The formula included adjustments for population changes. 1 0 1. The' proposal Martin brought to the( meeting was altered only minimally between that time and the release of the federal budget i n March. 1 0 2 There i s no way of knowing how much the actions of the B r i t i s h Columbia government between November 3, 1995 and January 23, 1996 I n f l u e n c e d Minister Martin's decision on the CHST a l l o c a t i o n formula. The evidence shows that the a l l o c a t i o n formula produced by t h i s process addressed BC's primary concerns about per capita funding., ' ' ,v The a l l o c a t i o n formula moved half-way from the combined per 100"BC launches welfare funds suit against Ottawa," Vancouver, Sun. 24 January 1996,, B l . . 101BC Social Services o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. 1 0 2Ruth Dorkleson, Special Assistant to the Minister of Finance, telephone interview, 10"June 1996. 83 capita/equalizing formula to pure per capita funding by the end of f i v e years. Consequently, from 1998-99 to 2002-03 BC w i l l receive $945 m i l l i o n more than i t would have under the 1996-97 temporary CHST funding formula. This gives BC on average an additional $189 m i l l i o n per year. Unlike the 'have not' provinces, B r i t i s h Columbia, Alberta, and Ontario w i l l be receiving proportionally more of the t o t a l transfers and more in r e a l d o l l a r s i n 2002-3 than in 1996-97. More s i g n i f i c a n t l y , BC w i l l be the beneficiary of the largest proportional increase i n transfers of a l l of the provinces. The new a l l o c a t i o n formula benefits B r i t i s h Columbia over a l l other provinces. 1 0 3 When asked i n June of 1996 how successful the residency requirement had been at achieving i t s 'trade-off' goals, one BC cabinet member said the p o l i c y "got the attention of the federal government" and that "the p o l i t i c a l point has been made".10'1 The 1996 federal budget speech,stated: This budget also.addresses our commitment to provide a new approach to a l l o c a t i n g the CHST among provinces- one that addresses the funding d i s p a r i t i e s r e s u l t i n g from the l i m i t s on Canada Assistance Plan transfers imposed on c e r t a i n provinces by the previous government. The new a l l o c a t i o n w i l l be phased-in during the course of the new five-year transfer arrangement. As a r e s u l t , current d i s p a r i t i e s i n per capita funding le v e l s among provinces w i l l be reduced 1 0 3BC's share of t o t a l CHST funding w i l l increase by 107.9% from 1995-96 to ,2002-3 (from 12.31% to 13.29%), compared with 104.3% for Ontario (35.98% to 37.53%) arid 104.9% for Alberta (8.57% to 8.995%)-. Calculated from "The Canada Health and Social Transfer," f i n a n c i a l table, Federal-Provincial Relations/ Department of Finance document, March/1996. 104BC cabinet minister, c o n f i d e n t i a l telephone interview, June 1996. ' w. , . • . , 84 by h a l f . 1 0 5 In funding and i n theory, the changes to the CHST a l l o c a t i o n formula r e f l e c t the funding issue pushed'so f o r c e f u l l y and argued so persuasively by BC through the residency requirement. The migrant issue remains outstanding, and consequently, i s an on-going pressure on Social Services resources. It would be imprudent to overstate the cause and eff e c t r e l a t i o n s h i p between BC's residency requirement and the a l l o c a t i o n formula. , There may have been some sympathy i n the Finance Department for a s h i f t i n the d i r e c t i o n of per capita - funding before the p o l i c y was announced, although there was no o f f i c i a l statement i n that regard. 1 0 6 There was a very small (one quarter of a percent for BC) increase i n the proportion of funding received by a l l 'have' provinces i n the second year of the temporary a l l o c a t i o n formula. In addition,. the provinces supporting per capita based funding could perhaps have successfully argued t h e i r preferences during the discussion process without the residency requirement. It i s unlikely, though, that the outcome would have been so favourable to BC alone without the residency requirement's f o r c e f u l a r t i c u l a t i o n of grievances. The question that remains i s whether, according to the conditions established by Tsebelis, the residency requirement was r a t i o n a l . 1 0 5Canada, Department of Finance, 1996-97 Budget Speech, March 1996, 11-12. 1 0 6Federal HRD o f f i c i a l , c o n f i d e n t i a l telephone interview, May 1996. However, . according to Ruth Dorkleson (in a l a t e r communication) , there was no mention i n the 1995 budget document or related speeches favouring a per capita funding and the CHST a l l o c a t i o n formula. 85 The residency requirement i n m u l t i p l e arenas At the root, BC's most s i g n i f i c a n t observation was that the determination of the a l l o c a t i o n formula was a p o l i t i c a l i s s u e . The observation allowed BC t o create a p o l i t i c a l instrument to produce r e s u l t s i n i n t e r a c t i o n w i t h the f e d e r a l government towards the u l t i m a t e o b j e c t i v e of e l e c t o r a l success. The a c t u a l e f f e c t of the p o l i c y ' s pressure would be d i f f i c u l t t o determine, both before and a f t e r the a l l o c a t i o n formula was announced. The p r o b a b i l i t y of the p o l i c y ' s maximizing the government's long term revenue would a l s o be d i f f i c u l t t o c a l c u l a t e . However, i t was almost c e r t a i n t h a t the c o n f l i c t generated by the residency requirement would produce p o l i t i c a l pressure on the f e d e r a l government and t h a t t h i s would b e n e f i t r a t h e r than i n j u r e BC. The same preference was behind the p o l i c y ' s intended impact i n both arenas: the BC government wanted to produce more revenues f o r s o c i a l a s s i s t a n c e . In the second arena, since s o c i a l a s s i s t a n c e t r a n s f e r s were bundled with h e a l t h and education under the CHST, BC. could have chosen to reduce funding to h e a l t h and education or t r i e d t o increase o v e r a l l revenue to maintain current funding a l l o t m e n t s . The second option was c l e a r l y the one p r e f e r r e d by the BC government. I t would have r e q u i r e d an o v e r a l l increase i n CHST funding or a d d i t i o n a l p r o v i n c i a l taxes, a l e s s d e s i r a b l e o p t i o n . Because of t h i s , the residency requirement l i n k e d the two arenas i n an i d e o l o g i c a l l y c o n s i s t e n t way. The l i n k between the two arenas meant tha t minimal resources w i t h i n the S o c i a l Services arena were, put at. r i s k t o produce lar g e revenues (hundreds of m i l l i o n s ) i n the Finance arena. I t was p r e v i o u s l y e s t a b l i s h e d that the payoffs and p r o b a b i l i t y c a l c u l a t i o n s i n the S o c i a l Services arena were not adequate f o r the 86 BC government to r a t i o n a l l y implement the residency requirement. In contrast, the Finance payo.ff structure meant that even i f the p r o v i n c i a l government did not believe that i t could win the law su i t against the federal government, enacting the residency requirement was s t i l l consistent with the objective of f i n a n c i a l gain for e l e c t o r a l benefit. It was almost certain that the increased p o l i t i c a l pressure and f o r c e f u l communication of grievances would not adversely affect the CHST a l l o c a t i o n formula. It was also quite certain that p o t e n t i a l long-term payoffs i n the Finance arena would dwarf the $39 m i l l i o n short-term loss ($47 m i l l i o n penalty minus $8 m i l l i o n saved revenues) i n the Social Services arena. If the predicted payoff was a gain of only $250 m i l l i o n over a f i v e year period, then the p r o b a b i l i t y of making such a difference would only have to have been 13.5% for the BC government to pursue the residency requirement p o l i c y . 1 0 7 Because p o l i t i c a l pressure and demands for fairness were the key to success, the need to maintain leverage determined the r a t i o n a l i t y of the government's actions. Since the BC government's objective was change i n the CHST a l l o c a t i o n formula, accepting HRD's offers before the December 1 deadline and not implementing the residency requirement would have removed the province's leverage. This explains the government's choice at that point. The HRD offer's during the negotiations were also dwarfed by the 1 0 7The figure of $250 m i l l i o n i s simply a hypothetical number which would be worthwhile to pursue as a payoff but which i s smaller than the actual payoff BC received. The c a l c u l a t i o n would be 250 X 0.135 = 39 X 0.865, or a 13.5% of producing an additional $250 m i l l i o n i n CHST funding. 87 p o t e n t i a l CHST payoffs. 1 0 8 Accepting the January package would also have removed. BC's public p u l p i t , while ending negotiations without resolution retained the p o l i t i c a l pressure on the federal government to repair relations with BC. At that point, the BC government would only have to have had the smallest p r o b a b i l i t y of winning for i t to r a t i o n a l l y take the government to court. 1 0 9 However, higher p r o b a b i l i t y might have been needed i f the government perceived a p o l i t i c a l cost to los i n g the law sui t before the e l e c t i o n . Court action further demonstrated that BC's grievances. had not been addressed and i t maintained p o l i t i c a l pressure a f t e r BC had withdrawn from.the negotiations. At each stage, the po t e n t i a l CHST payoffs explain the choices made by the BC government. The BC government's behaviour was driven by e l e c t o r a l concerns. Long-term payoffs i n revenue would translate, most importantly for the 1996 election, into short-term p o l i t i c a l gains. Short-term p o l i t i c a l gains would come primarily from winning abundant resources from the federal . government, and from a r t i c u l a t i n g and re i n f o r c i n g the NDP's ideology, and defending BC's in t e r e s t s . Additional resources without additional taxation would p o s i t i v e l y a f f e c t the marginal voter's expected u t i l i t y c a lculations for the NDP i n the short-term and possibly the long-1 0 8Assuming an expected payoff of $250 m i l l i o n against the benefits of the January package ($32 m i l l i o n employment program and p a r t i a l reimbursement at, hypothetieally $30 million) at $62 m i l l i o n , the calculations would be 62 X 0.80 = 250 X 0 .20 . . BC would only have had to believe i t had a one i n f i v e chance of winning some concessions .in the CHST funding formula. 7 1 0 9 I f one assumes le g a l costs at about $1 m i l l i o n ( l i k e l y an v overestimate), the calculations would appear as 1 m i l l i o n X 0.98 = 47 m i l l i o n X 0 .02 . The pr o b a b i l i t y of winning would have had to be 2% or greater, which was reasonable to assume. 88 term. The u t i l i t y of the po l i c y was that p o l i t i c a l gains would help maximise the e l e c t o r a l success of the governing NDP i n the up-i coming e l e c t i o n . By l i n k i n g the residency•requirement with the Finance arena, the BC government had a reasonable p o s s i b i l i t y of achieving its', CHST a l l o c a t i o n formula objectives and therefore i t s e l e c t o r a l ones. By refusing to r e l y on the inst i t u t i o n a l > structure prescribed by the Finance department for determining the CHST a l l o c a t i o n formula, the BC government was able to gain a p o l i t i c a l edge i n a l t e r i n g the CHST a l l o c a t i o n formula. In doing so, i t generated additional revenue for the province without taxation, something other BC parties would'not have been able to do. The residency^ requirement was used to . transcend established i n s t i t u t i o n s i n the name of furthering the NDP government'AS e l e c t o r a l u t i l i t y . In the f i n a l chapter, I w i l l examine the p o l i c y determinants revealed by the use of ra t i o n a l choice analysis i n t h i s case. Based on t h i s , I w i l l attempt to evaluate the usefulness of r a t i o n a l choice theory for t h i s case s and, more broadly, for. Canadian public p o l i c y analysis. I w i l l also review the questions l e f t unanswered by t h i s examination. . 89 Chapter Four: Conclusion A summary of findings At the beginning of t h i s study, I challenged the use of other t h e o r e t i c a l approaches in the residency requirement case. I postulated that by focusing on the actor's decision-making, r a t i o n a l choice would allow us to more f u l l y and accurately uncover the determinants of the p o l i c y . Rational choice also allows, the public, as voters, to be brought into the p o l i c y process as the incentive for government action. The focus on decision-making integrates independent variables l i k e e x i s t i n g i n s t i t u t i o n s , the behaviour of other actors, e l e c t o r a l competition, and ideology into a coherent evaluation of the outcome of the p o l i c y . Each acts to constrain government decision-making. From t h i s s t a r t i n g point, I was able to i d e n t i f y and organize the determinants of the residency requirement p o l i c y . The BC government sought to achieve a p l u r a l i t y of e l e c t o r a l support i n the approaching e l e c t i o n . Voter u t i l i t y calculations and e l e c t o r a l competition i n BC meant that the government preferred p o l i c y that generated additional resources for Social Services without taxation and that bolstered the NDP's unique i d e o l o g i c a l p o s i t i o n on the c e n t r e - l e f t . The sources of the s t r a i n on the Social Services budget revealed the context of BC's decision-making. In addition, the evidence regarding the BC government's decision-making corresponded to a r a t i o n a l actor's consideration of p o l i c y determinants. Consider the f i n a n c i a l considerations as an example. The Social Services Department was faced with an expanding budget and reduced federal transfer payments. The residency requirement proposed to save $2 m i l l i o n a month for the 90 department- only about 0.3% of the total,1995-96 Social Services budget. However, there was r i s k involved, r i s k s i g n i f i c a n t enough to warrant not pursuing the p o l i c y . At t h i s point, the government weighed the r i s k s and decided to pursue the p o l i c y because of the u t i l i t y of producing greater gains i n CHST discussions through p o l i t i c a l pressure, increased communication, and bargaining. Gains i n the CHST a l l o c a t i o n formula would increase BC's revenue without additional taxation, and forge a more equitable deal for BC taxpayers. It also bolstered the NDP government's a b i l i t y to d e l i v e r valued s o c i a l programs at desired l e v e l s . A l l of t h i s would improve the voters' u t i l i t y calculations for the NDP. Rational choice allowed the complex interplay between a variety of actors to be uncovered i n the normal course of explanation. Through the nature of s o c i a l assistance p o l i c y and CAP, i t was vulnerable to other p r o v i n c i a l governments but was r e l a t i v e l y powerless to affect t h e i r p o l i c i e s d i r e c t l y . Through CAP, the BC government shared the s o c i a l assistance p o l i c y f i e l d with the federal government and was the bottom player i n that authority r e l a t i o n s h i p . With the choice of the residency requirement, the BC government t r i e d to a f f e c t each actor by l i m i t i n g s p i l l - o v e r s from other province's p o l i c i e s and through the negotiations with the federal government. The end goal was not greater p r o v i n c i a l autonomy, but a f a i r national s o c i a l services program. A r a t i o n a l actor seeks the optimal response to the i n s t i t u t i o n a l environment but i s also able to a l t e r that environment where i t i s not bound by legal structures. As a r e s u l t , the actor can engage other actors through the creation of a new i n s t i t u t i o n or the p a r t i c i p a t i o n i n an i n s t i t u t i o n previously closed to i t . Analysis of BC decision-making using a nested game allowed the appropriate i n s t i t u t i o n a l environment to be revealed from the actor's decision making process. The r a t i o n a l choice approach uncovered the creation of a new relationship amid exis t i n g i n s t i t u t i o n s . The Counter Explanations The strength of the concern over s o c i a l p o l i c y reform in Canada and i t s p o l i t i c a l potency raises the p o s s i b i l i t y of several counter-explanations to the r a t i o n a l choice approach to the residency requirement puzzle. The student of Canadian p o l i t i c s i s urged to f i n d the simplest explanation to any p o l i c y question. In the f i r s t chapter, I presented what i s perhaps the most compelling counter-explanation based on the drive of p r o v i n c i a l governments to augment t h e i r autonomy, resources and j u r i s d i c t i o n . 'Province building' appeared to be a plausible s t r u c t u r a l i n s t i t u t i o n a l explanation and was indeed more simple than the one produced by r a t i o n a l choice. However, when the actual decision-making process was examined, t h i s explanation was found to be misleading. There was more to the BC government's decision-making than a quest for greater power and autonomy. Another explanation - that p o l i t i c a l popularity derived from 'fed-bashing' and attacking other provinces was purchased at the r e l a t i v e l y low price of $39 m i l l i o n - i s subject to the same c r i t i c i s m . This explanation, which finds i t s roots i n r a t i o n a l choice theory, does i d e n t i f y the significance of the electorate and i t s role i n determining government preferences. However, the case study revealed that the BC government considered other issues than simply the price of purchasing a h i g h - p r o f i l e p o l i t i c a l podium to score short-term p o l i t i c a l points. 92 Contrary to both explanations, the content of interviews, statements, and. communications reveal a variety of policy determinants. Short and long-term financing, ideology, services, f e d e r a l - p r o v i n c i a l program coordination, the future of national standards, and the strength of BC's p o l i t i c a l voice were among the factors considered during the decision-making process. Certainly, the points i d e n t i f i e d by these counter-explanations were factors in the government's decision-making, but they were not the only factors. Also, more careful attention was paid to the r i s k of the p o l i c y than the above explanations would indicate.' Each aspect of the p o l i c y was weighed c a r e f u l l y by the BC government, showing concern for the resources at r i s k . By supposedly solving the puzzle with ease, each mis-represents the actual decision-making of the BC government. \ Another possible counter-explanation, supported by r a t i o n a l choice i n s t i t u t i o n a l theory, posits, that a -period of i n s t i t u t i o n a l change and uncertainty can produce rule-breaking behaviour. This i s not a f a l s e description of what actually occurred: the BC government took advantage of the end of CAP and the creation of new CHST funding rules to generate leverage through unorthodox i n s t i t u t i o n a l manoeuvring. However, the explanation would not t e l l us what motivated the government's desire for i n s t i t u t i o n a l change nor what factors the BC government considered when making decisions. I believe that the r a t i o n a l choice approach to solving t h i s p o l i c y revealed the determinants of the residency requirement p o l i c y more accurately than another approach would have. It uncovered a variety of dynamics i n p r o v i n c i a l decision-making i n a federal system. Each of the approaches proposed by the counter^ 93 explanations reveals only one. The residency'requirement policy c e r t a i n l y d i d have more complex intentions than can be explained, by these counter-explanations. It would be imprudent to extrapolate the u t i l i t y of ra t i o n a l choice analysis to Canadian public p o l i c y from i t s tentative success i n t h i s case. The residency requirement was a small, high-p r o f i l e , i d e o l o g i c a l l y charged p o l i c y intended to be used before an e l e c t i o n . It was the product of a highly p o l i t i c a l — as opposed to bureaucratic , — p o l i c y process. It was neither a modification of e x i s t i n g p o l i c y nor a pol i c y intended to have a l a s t i n g impact. There were r e l a t i v e l y few actors.involved. These reasons made the incentives, determinants, and payoffs clearer than in larger p o l i c y i n i t i a t i v e s such as the change from Unemployment Insurance to Employment Insurance. Recently, Patrick James used the r a t i o n a l choice game-theoretic approach to explain the actions and bargaining of the Alberta and federal governments over energy p o l i c y from 1980 to N i 1981.1 James focused on the interaction between the actors, t h e i r communication, strategies, incentives, and payoffs, although i n a much more rigorous manner than i n t h i s case. In his sophisticated analysis, he coherently incorporates a variety of policy determinants and reveals the complexity of decision-making i n a confrontational p o l i c y area. His success prompts a re-thinking of the u t i l i t y of r a t i o n a l choice i n enhancing our understanding of Canadian federalism. P a t r i c k James, "Energy P o l i t i c s in,Canada, 1980-1981: Threat Power i n a Sequential Game," Canadian Journal of P o l i t i c a l Science, XXVI: I .(March 1993): 31-59. 94 Evaluation of the Theoretical Approach The preceding analysis of the residency requirement attempts . to explain i t s puzzling r i s k s by revealing the decision-making behind the p o l i c y . No attempt was made by t h i s study to predict the path of BC government action by weighing the u t i l i t y of each possible action available to i t . The number of po l i c y options was too numerous and the interaction with other actors too complicated during such an intense period to do so. Instead, the conditions of r a t i o n a l choice theory were used to evaluate the choices made by the BC government. At the point when a p a r t i c u l a r p o l i c y choice was made, the requirements of r a t i o n a l decision making were used to evaluate the most obvious options. Some of these options included whether to allow the pol i c y to take e f f e c t on December 1, whether to agree to the federal government's evolving package of offers at certain points, and whether to pursue legal action against the federal government. The option that most benefited the u t i l i t y of the government was i d e n t i f i e d . Then, the actual choice made by the government was compared with i t . If the two choices matched, the BC government was said to be acting r a t i o n a l l y . The BC government was found to have reasonably s a t i s f i e d the strong condition of r a t i o n a l i t y , which i s an accurate correspondence between the actor's perspective and r e a l i t y . From the communication between the two governments and discussions with a variety of actors, i t appeared that each had a reasonable idea of the preferences and information held by the other. The only s i g n i f i c a n t discrepancy seemed to be that the B r i t i s h Columbia government appeared to have over-estimated the willingness of the Finance Department to negotiate with Social Services about the CHST. While co r r e c t l y measuring the p o l i t i c a l pressure on the 95 Finance Department to a s s i s t i n the settlement of the c o n f l i c t , i t underestimated the Department's a b i l i t y to s h i e l d i t s e l f from these demands. As a re s u l t , the BC government f a i l e d to make the federal Finance Department commit at an e a r l i e r date to an a l l o c a t i o n formula approved by BC. However, demanding such a deadline may have been considered only another way to produce p o l i t i c a l pressure, which i t did successfully. Overall, we can say that there was a reasonable correspondence between the b e l i e f s of the two governments and r e a l i t y . By adhering to an analysis guided by the weak conditions of r a t i o n a l i t y as set out by Tsebelis, the BC government was found to have r a t i o n a l l y pursued i t s e l e c t o r a l objectives by using the residency requirement i n a ' t r a d e - o f f strategy. BC did not have inconsistent or contradictory b e l i e f s and preferences, and i t s preferences appeared to be t r a n s i t i v e . Risks and minor losses in the Social Services arena were traded for increased communication and p o l i t i c a l leverage i n Finance's CHST a l l o c a t i o n formula discussions. Its strategy was not only an e f f e c t i v e one, but one known i n a system were multiple governments share policy j u r i s d i c t i o n s . The choices of the BC government were found to be the r a t i o n a l responses to the payoff structure postulated here, the government's circumstances, and e l e c t o r a l objectives. However, t h i s does not necessarily demonstrate a causal relationship between the policy determinants i d e n t i f i e d and the p o l i c y outcome. To determine whether there was a causal relationship, I c a r e f u l l y s crutinized the information possessed by the BC government, i t s stated objectives, i t s motivations, and other factors, considered during the decision-making process at every i d e n t i f i e d stage. At each stage, the government was found to have weighed the factors pointed to by r a t i o n a l choice theory. Not only did the p o l i c y choices f u l f i l the requirements of ra t i o n a l choice, they were the product of considerations s i m i l a r to those theorized by r a t i o n a l choice. The above evidence and methodology strongly suggests a causal r e l a t i o n s h i p between the i d e n t i f i e d p o l i c y determinants and the po l i c y outcome. In the f i n a l analysis, unresolved questions remain. One of the most obvious i s the BC government's decision to ret a i n the residency requirement i n the 1996-97 f i s c a l year under the CHST, which forbids such a p o l i c y . One might question why BC retained the residency requirement i f the BC government had succeeded in winning a favourable CHST a l l o c a t i o n formula. This question relates to the d i f f i c u l t choice of the time frame for t h i s study. The continued s e n s i t i v i t y of the residency requirement issue due to the BC government's le g a l action and the federal government's n o t i f i c a t i o n of continued contravention has been the primary b a r r i e r to continuing the examination of the po l i c y under the CHST. O f f i c i a l s were unwilling to discuss motivation, decision-making, or actions taken under the CHST so I lacked the necessary evidence for analysis beyond the 1995-96 time period. Among those o f f i c i a l s I interviewed, federal and p r o v i n c i a l , there was a strong tendency to consider the inte r a c t i o n under CAP to be a separate set of actions. Only CAP considerations were raised i n r e l a t i o n to costs and federal p o l i c y concessions. The time frame chosen corresponds with CAP and contained the CHST fed e r a l - p r o v i n c i a l discussions and the federal budget announcement of the CHST a l l o c a t i o n formula. As i t was associated with the savings and costs to Social Services and federal-BC bargaining, the residency requirement was CAP s p e c i f i c . Unfortunately, I was unable to uncover e x p l i c i t information regarding the intended duration of the residency requirement. One BC o f f i c i a l said that the p o l i c y had an " i n d e f i n i t e " time frame upon i t s creation, although i n the same sentence she pointed out that p o l i c i e s are p e r i o d i c a l l y re-examined. 2 She also agreed that the end of CAP and the beginning of the CHST might have been an appropriate time for the residency requirement to have been reviewed, without saying that the p o l i c y actually had been reviewed at that time. It i s evident that the p o l i c y actually was re-examined early i n the 1996-97 f i s c a l year because on June 3, 1996, the p o l i c y ' s application to refugees was repealed. 3 Other information points to the policy's intended short-term impact. The p o l i c y was intended to "[draw] a l i n e i n the sand", an action that i s usually a clear and immediate response to a threat. A BC cabinet minister said that the p o l i c y was a response to a " c o l l e c t i o n of annoyances" which were a l l contemporary and urgent issues. 4 BC hoped for quick progress on these issues during the negotiations with HRD. Consequently, there i s evidence that the residency requirement was considered by the BC government i n the short-term as defined by CAP. There i s evidence that the p o l i c y was reviewed sometime during the beginning of the 1996-97 f i s c a l year. After that re-2Isabel Donovan, BC Director of Income Assistance, telephone interview, 8 August 1996. 3 B r i t i s h Columbia, Department : of Social Services, "Refugee Claimants Exempted from Residency Requirement," press release, 3 June 1996. 4BC cabinet minister, c o n f i d e n t i a l telephone interview, June 1996. 98 examination, the government chose to ret a i n the p o l i c y . The BC government has e l e c t o r a l incentives to resolve the s t i l l -outstanding migrant issue and, although the payoffs of retaining the p o l i c y would be substantially lower than those available from the CHST a l l o c a t i o n formula, the costs and r i s k s under 'the CHST are also dramatically.lower. The CHST ( B i l l C-7 6 passed on 6 June, 1995 e n t i t l e d "An Act to implement certain provisions of the budget tabled i n Parliament on February 27, 1995") i s s i g n i f i c a n t l y d i f f e r e n t from CAP. The CHST regulations do not preclude the Act from continuing i n the case of'a contravention of universal access. Penalties would also take longer to apply than under CAP due to a multi-step penalty process involving cabinet, the Minister of Finance, and Parliament. Unlike the Finlay case, there i s no leg a l precedent for withholding cash. Under the CHST, the federal government could actually choose not to penalize a province acting i n v i o l a t i o n of the CHST (ss. 21) . Consultation between HRD and the offending p r o v i n c i a l department i s also mandated by the Act (ss. 20(1)). The penalty may be postponed to be imposed i n the f i s c a l year following the non-compliance (ss.23) The CHST i s much more f l e x i b l e than CAP regarding the amount of transfers withheld. The penalty, whether and when i t i s levied, i s discretionary. Possible penalties are to be decided at the di s c r e t i o n of cabinet, imposed by the Department of Finance, and should be "appropriate" to the "gravity of the non-compliance" (ss. 21(1)(a)). This would make the federal government better able to deal with the pressure (discussed i n Chapter 3) on i t to resolve a contravention without a large negative impact on BC and i t s voters. The required qrder-in-council stating the intent to 99 penalize a p r o v i n c i a l government i s p u b l i c l y announced i n a report to Parliament and i n a l e t t e r to the offending government with a thirty-day delay before the money i s actually withheld (ss. 21(3) and (4) ) . This gives the offending province ample warning to modify i t s behaviour. As of t h i s writing, BC has received the federal government's "notice of concern" as per ss. 20 (2)(a) which indicates to the province that the federal government suspects contravention.of the CHST agreement and has begun the long process of acting on that suspicion. ' B r i t i s h Columbia, as of the end of July, has received a l l of i t s CHST payments from A p r i l to July. ' > Considering the nature of the CHST, what would provoke the BC government to leave the p o l i c y i n place i f i t were to re-evaluate i t ? Most obvious, the migrant issue remains unresolved. Speculatively, to remove the po l i c y without gains i n that area might be seen as losing face i n the public eye. By removing the poli c y , BC has l i t t l e to gain from the federal government. In addition, the BC government has nothing to lose by retaining the p o l i c y . There can be no .unseen threat to transfers so the BC government runs l i t t l e short-term r i s k i n retaining the po l i c y . BC could look forward to more consultation and a t h i r t y day notice, ample warning, before, being penalised. Penalty could take many months and would perhaps not be very large. A 'wait and see' game could be a viable option, upon reconsideration of the residency requirement. Having speculated about possible reasons for the continuation of the residency requirement aft e r the CHST funding issue had been resolved i n BC's favour and based on e l e c t o r a l incentives, and r i s k calculations under the CHST, the continuation does not pose a 100 problem to the accuracy of my analysis. The evidence shows that the retention of the p o l i c y is.consistent with the description of BC's actions i f the p o l i c y was re-examined at the.beginning of the 1996-97 f i s c a l year. Lastly, there i s the question, alluded to e a r l i e r , of the accuracy of speculating about government decision-making. Within the . constraints that l i m i t e d my access to information, t h i s r a t i o n a l choice approach offers a plausible explanation that i s consistent with the evidence and more accurate than other explanations. In the end, i t i s also r e l a t i v e l y straight-forward. 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"Revision and Retreat: Canadian Unemployment Insurance, 1971-1981." Canadian Social Welfare Policy: Federal and P r o v i n c i a l Dimensions, ed. J.S. Ismael. Montreal: McGill-Queen's University Press, 1985. ' ' ' — • • State, Class and Bureaucracy: Canadian Unemployment Insurance and Public Po l i c y . Kingston: McGill-Queen's University Press, 1988. Oates, Wallace. F i s c a l Federalism. New York: Harcourt Brace Jovanovich, 1972. Peterson, Paul and Mark Rom. Welfare Magnets. Washington: The Brookings Institute, 1990. Presthus, Robert. E l i t e Accommodation i n Canadian P o l i t i c s . Toronto: MacMillan of Canada, 1973. Pross/ Paul. Group P o l i t i c s and Public Po l i c y . Toronto: Oxford University Press, 1986. Tsebelis, George. Nested Games. Berkeley: University of C a l i f o r n i a Press, 1990. 103 Viewpoints Market Research. Income Assistance Focus Groups: Report on Qualitative Research. Prepared for B r i t i s h Columbia S k i l l s , Training and Labour Department. 20 October 1995. . Social Safety Net Study: Complete Results. Prepared for B r i t i s h Columbia S k i l l s , Training and Labour Department. 19 October 1995. 104 Appendix 1: Interviews Federal Government: Department of Human Resource Development: Lenora. Homulos, Program Administration, 20 June 1996. Faye Campbell, Legal Counsel, 10 June 1996. Confidential interviews with two individuals i n May and June 1996. Federal-Provincial Relations O f f i c e : Andrew Treusch, Director, 10 June 1996. Department of Finance: Ruth Dorkleson, Special Assistant to the Minister, 10 June 1996. B r i t i s h Columbia P r o v i n c i a l Government: Department of Social Services: Isabel Donovan, Director of Income Assistance, 8 August 1996. Confidential interviews with two individuals i n May and July 1996. Other Departments: ' Gary Waters, Deputy Minister of S k i l l s , Training and Labour, 4 July 1996. Confidential interview with cabinet minister i n June 1996. Melanie Courchene, p o l i c y advisor 'BC Benefits', 17 July 1996. Other: Confidential interview with New Brunswick cabinet minister i n June 1996. 105 

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