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UPDATING ALBERTANS
TABLE OF CONTENTS 2002-03 Forecast Actual ResultsNet Increase (Decrease) in Capital Assets Affecting Operations 2002-03 Forecast Highlights
Revenue Non-Renewable Resource Revenue The non-renewable resource revenue forecast has been increased to $5 billion, almost $1.3 billion greater than the budget estimate. The increase reflects higher prices partly offset by a reduction in natural gas and crude oil production. Natural gas prices are expected to average Cdn$3.65 per thousand cubic feet for the fiscal year, 65˘ higher than budgeted. Although North American storage levels remain high and US economic conditions continue to be sluggish, the gas price has been buoyed by falling US and Canadian natural gas production, and high oil prices. The forecast assumes a moderate El Nino will result in a warmer than normal winter in North America. Natural gas royalties are now forecast at $3.3 billion, up $758 million from budget. Oil prices are forecast to average US$26.25 per barrel over the fiscal year, $6.25 higher than budgeted. The increase is mainly due to declining crude oil inventories and oil supply concerns caused by Middle East tensions. Total oil royalties are forecast at $1.1 billion, up $526 million from the budget estimate. The forecast for income tax revenue has been increased to $6.9 billion, $639 million more than budgeted. Corporate income tax revenue is forecast at $2.3 billion, $700 million higher than budget, as a result of strong cash receipts to date. Personal income tax revenue is expected to be $4.6 billion, $61 million lower than budgeted. This is based on preliminary federal assessments for the 2001 tax year. Transfers from Government of Canada The forecast for transfers from the Government of Canada has been reduced to $2 billion, $140 million lower than budgeted. The decrease is due to a $252 million reduction in the Canada Health and Social Transfer, caused mainly by a prior year adjustment. Preliminary 2001 tax year assessment data indicate that Alberta’s share of the national tax point transfer component of CHST has increased. This reduces Alberta’s share of the cash transfer portion. This lower forecast is offset partially by higher transfers for agricultural and emergency flood assistance. Total investment income was budgeted at $1.2 billion. It is now forecast at negative $184 million, almost $1.4 billion below the budget estimate. The decline in equity markets is expected to result in a $765 million loss in Heritage Fund and other endowment funds. This represents $506 million in write-downs of assets (where the value is considered to be permanently impaired) and net realized losses of $259 million. Other investment income (primarily from Alberta Municipal Financing Corporation, Agriculture Financial Services Corporation, and interest on debt retirement funds) is forecast at $581 million. This is $32 million higher than budgeted, primarily due to higher interest income on debt retirement funds. Total revenue from all other sources is forecast at $6.8 billion, $240 million higher than budgeted. This is mainly due to higher revenue from:
Expense Aboriginal Affairs and Northern Development spending has been increased by $32 million over budget for a settlement agreement with the Piikani (Peigan) First Nation and the Government of Canada. Finance spending is expected to be $8 million higher than budget, but $19 million less than the first quarter forecast, due to changes in the lending activity of the Alberta Municipal Financing Corporation. This expense is fully offset by increased revenue. Gaming spending is up $31 million from budget, as noted in the First Quarter Fiscal Update, due to introduction of the Community Initiatives Program. Infrastructure spending is up $10 million from budget. $35 million in funding for school facilities and centennial projects deferred in October 2001 has been reinstated. $30 million is in program spending and $5 million is in Infrastructure’s capital investment. This increased funding is partly offset by a lapse of $20 million. Learning spending is increasing by $32 million over budget. As reported in the First Quarter Fiscal Update, a contribution of $35 million is being made to the Teachers’ Pension Plan as part of the commitment to cover one year of the teachers' share of the pre-1992 unfunded pension liability. This is partly offset by a $1 million transfer from program expense to capital investment, and a $2 million decrease in sales of learning resources which reduces both expense and revenue. Municipal Affairs expense is $18 million higher than budget to pay for disaster recovery assistance programs due to flooding and forest fires. This is partially offset by federal transfers under disaster cost-sharing agreements of $9 million. Sustainable Resource Development expense is $229 million greater than budgeted due to increased forest fire-fighting costs. Transportation’s program spending is up $16 million from budget, and capital investment is up $69 million, to reinstate $85 million in funding deferred in October 2001 for highway rehabilitation and construction projects and water management infrastructure. Debt Servicing Costs are forecast at $580 million, $5 million less than budget.
The net change in capital assets affecting operations is forecast to be $133 million, $40 million higher than the budget estimate. Capital investment is forecast to be $38 million higher than budget. Capital investment is up $69 million in Transportation and $5 million in Infrastructure, in both cases to reinstate funding deferred in 2001-02. Partly offsetting this is a decrease of $33 million in Innovation and Science’s capital investment for SuperNet, as the project's funding schedule has changed. Several other ministries have reallocated funding between program and capital requirements. Capital amortization is $2 million less than budgeted.
The economic cushion has declined to $199 million and the contingency reserve for non-emergency in-year initiatives has been exhausted. In the First Quarter Fiscal Update, $165 million was allocated from the contingency reserve for in-year initiatives. This consisted of $100 million for deferred capital projects, $35 million for teachers’ pensions and $31 million for the Community Initiatives Program, offset by a $1 million net lapse in other spending. Based on the lower second quarter revenue forecast, no further allocations from the contingency reserve are allowed. Pursuant to section 4(4) of the Fiscal Responsibility Act, the first quarter allocations do not have to be reduced. Total emergency and disaster assistance is now forecast at $970 million, consisting of:
Section 4(2) of the Fiscal Responsibility Act
provides that emergency and disaster expenses are deducted from the economic cushion prior to calculating the allocation of the cushion.
Net Assets The province's net assets (excluding pension liabilities) are forecast to increase by $199 million in 2002-03 to $10 billion. Total financial assets are forecast at $23.6 billion. Total liabilities are forecast at $13.6 billion. In addition, there are pension obligations of $4.8 billion that are scheduled for elimination under a separate 1993 legislated plan. At March 31, 2002, the province had $8.416 billion of outstanding accumulated debt and had set aside $3.155 billion for future debt repayment. Accumulated debt less cash set aside for future debt repayment equalled $5.261 billion. $1.634 billion of accumulated debt will mature in 2002-03 and will be repaid from the cash set aside. This will reduce outstanding accumulated debt to $6.782 billion and cash set aside for future debt repayment to $1.521 billion, leaving the net amount at $5.261 billion. As part of the implementation plan of accepted Financial Management Commission recommendations, the government is currently reviewing how the cash available from 2002-03 operations will be used.
Cash Available from 2002-03 Operations
Fiscal Year Assumptions
Actual ResultsFor the first six months of 2002-03Method of Consolidation This financial summary is prepared on the same basis as used in Budget 2002. The results of all government departments, funds and agencies, except those designated as commercial enterprises, are consolidated on a line-by-line basis. Revenue and expense transactions between consolidated entities have been eliminated. The accounts of Crown-controlled corporations and provincial agencies designated as commercial enterprises are consolidated on an equity basis, the equity being computed in accordance with generally accepted accounting principles. 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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