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UPDATING ALBERTANS The First Quarter Fiscal Update is comprised of two parts – the updated 2002-03 forecast and the actual results for the first three months of the fiscal year (April 1 to June 30, 2002).
TABLE OF CONTENTS 2002-03 Forecast Actual ResultsNet Increase (Decrease) in Capital Assets Affecting Operations 2002-03 Forecast Highlights
Revenue Non-Renewable Resource Revenue Non-renewable resource revenue is forecast at $4.611 billion, up $897 million from the budget estimate. Natural gas prices are now expected to average Cdn$3.25 per thousand cubic feet for the fiscal year, up 25¢ from the budget estimate. The higher prices are the result of increased demand in the United States, higher oil prices and a slowdown in the growth of gas supply. Natural gas royalties are now forecast at $3.0 billion, $434 million higher than the budget estimate. Oil prices are expected to average US$25.50 per barrel over the fiscal year, up $5.50 from the budget estimate. The higher prices reflect low inventory levels in the United States. Total oil royalties are forecast at just over $1.0 billion, up $470 million from the budget estimate. Revenue from bonuses and sales of Crown leases is forecast to be $559 million, a $50 million decrease from the budget estimate. The decline is due to lower prices per hectare and reduced land sales. Total income tax revenue is forecast at $6.441 billion, $183 million higher than the budget estimate. Corporate income tax revenue is forecast to be close to $1.9 billion, an increase of $314 million over the budget estimate. The increase is due mainly to higher energy prices. This is partly offset by a $131 million decline in personal income tax revenue. Preliminary federal assessments of personal income tax returns for the 2001 tax year indicate revenue was overestimated last year. Transfers from Government of Canada Transfers from the Government of Canada are forecast at $2.273 billion, $105 million higher than the budget estimate. Agriculture support transfers are forecast to increase by $100 million, of which $82 million relates to the federal Canada Farm Income Program for which negotiations are under way. Funding of $9 million for the costs of the flood in southern Alberta is also expected. Total investment income is forecast at $621 million, down $563 million from the budget estimate. The income of the Alberta Heritage Savings Trust Fund and the endowment funds is forecast to be down $615 million from the budget estimate. This is due to the weak performance of equity markets this year. These declines are partly offset by higher investment income on debt retirement funds due to an increased level of assets and an increase in the income of the Alberta Municipal Financing Corporation due to a higher level of lending activity. Total revenue from all other sources is forecast at $6.737 billion, $206 million higher than budgeted. The increase is primarily due to proceeds from private crop reinsurance ($108 million) and higher revenue from timber royalties ($35 million), freehold mineral taxes ($30 million) and crop and hail insurance premiums ($22 million).
Expense Agriculture, Food and Rural Development spending is now forecast to be $723 million higher than budgeted. This includes $324 million in acreage payments and payments for covered crops and beehives to eligible farmers and ranchers. In addition, $399 million is being provided for increased crop insurance, farm income disaster, farm water and grasshopper programs related to drought and disaster conditions. The $399 million increase is expected to be partly offset by increases in agriculture revenue of $227 million, which includes $108 million from private crop reinsurance and an $82 million federal transfer payment under the federal Canada Farm Income Program. Sustainable Resource Development spending is forecast to be $139 million higher than budgeted due to forest fire-fighting costs. Infrastructure spending is forecast to be $35 million higher than budgeted. The increase reinstates funding for some school projects that was deferred as part of the corrective actions taken in October 2001. Transportation spending is forecast to be $33 million higher than budgeted. The increase restores some of the funding for the rehabilitation of provincial highway projects that was deferred in October 2001. Gaming spending is forecast to be $31 million higher than budgeted. The increase reflects the cost of the Community Initiatives Program which was announced on June 24, 2002. Learning spending is forecast to be $31 million higher than budgeted. This reflects a contribution of $35 million to the Teachers’ Pension Plan as part of the government’s commitment to pay the teachers’ share of pre-1992 unfunded pension obligations for one year. The increase is partly offset by the transfer of $4 million from program expense to capital investment. Finance spending is forecast to be $27 million higher than budgeted due to an increase in lending activity of the Alberta Municipal Financing Corporation. The increase is fully offset by increased revenue from the higher lending activity. Municipal Affairs spending is forecast to be $17 million higher than budgeted due to disaster relief for southern Alberta flooding and forest fire-fighting costs. The increase is partly offset by $9 million in federal transfers under disaster cost-sharing agreements. Debt Servicing Costs are forecast to be $55 million lower than budgeted. The forecast higher value of the Canadian dollar this fiscal year reduces foreign exchange provisions on US dollar debt.
The net change in capital assets affecting operations is forecast at $130 million, an increase of $37 million from the budget estimate. Capital investment is $37 million higher than the budget estimate. Transportation's capital investment has increased by $32 million due to the reinstatement of some provincial highway projects, which were deferred in October 2001. The rest of the increase is due mainly to the reallocation of program spending to capital investment by some ministries. Capital amortization is forecast to be $340 million, unchanged from the budget estimate.
As a result of in-year spending initiatives, the contingency reserve has been almost exhausted. The allocation to the contingency reserve is down by $7 million to $174 million. A net $165 million has been allocated to spending initiatives consisting of:
This leaves only $9 million in the contingency reserve. Pursuant to section 4(2) of the Fiscal Responsibility Act, Orders in Council declared drought, forest fire and flood disasters on August 20. Under the disaster provisions, $723 million in drought relief to farmers, $139 million of forest fire-fighting costs and $17 million in southern Alberta flood assistance are not deductions from the contingency reserve. Instead, these expenses are deducted from the economic cushion prior to the calculation of the 75%/25% allocation. Section 4(3) of the Act provides that certain surplus neutral spending changes are also not deductions from the contingency reserve. These consist of:
At March 31, 2003, the province's financial assets are forecast to total $24.0 billion. Total liabilities, excluding pension obligations, are forecast at $13.7 billion, resulting in net assets of $10.3 billion. The province's accumulated debt is forecast to decline by $1.7 billion to $6.7 billion by March 31, 2003. It is expected that $2.1 billion of the funds that have been set aside for future debt repayment will remain in the account at year end. This would reduce accumulated debt to $4.6 billion.
Cash Available for Debt Repayment
Fiscal Year Assumptions, 2002-03
Actual ResultsFor the first three months of 2002-03Method of Consolidation This financial summary is prepared on the same basis as used in Budget 2002. Basis of Financial Reporting The consolidated fiscal summary reports revenue (including proceeds from sale of capital assets), expense (including amortization of capital assets), and net revenue. Consistent with the policy that capital assets are not included in the province's financial assets, losses on disposal and write-downs of capital assets do not affect revenue, expense or net revenue for the period. The intermediate result of operations (net revenue) is then adjusted for the difference between capital investment and capital asset amortization. The final result is the consolidated net results of operations subject to the Fiscal Responsibility Act. Expense includes the province's annual cash payments towards the unfunded pension obligations. Expense excludes the annual change in the unfunded pension obligations, which is a non-cash expense that does not affect borrowing requirements. Revenue and expense are recorded using the accrual basis of accounting. Cash received for goods or services which have not been provided by period end is recorded as unearned revenue. Debt servicing costs include interest payable, amortization of discount on debt issues, and amortization of unrealized exchange gains and losses on unhedged foreign currency debt. Comparative 2001-02 figures have been restated where necessary to conform to 2002-03 presentation.
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