2006-07
Quarterly Budget Report:
First
Quarter Fiscal
Update
Released: August
23, 2006
Table of Contents
The First Quarter Fiscal
Update consists of two parts – the updated 2006-07 forecast
and the actual results for the first three months of the fiscal
year (April 1 to June 30, 2006).
2006-07
Forecast
Highlights
- Capital Plan. Strong
2005-06 fourth quarter results and higher 2006-07 revenue have
allowed a $1.8 billion increase in capital commitments. The Capital
Account has been increased to pay for these projects.
- In 2006-07, capital spending
has been increased by $711 million ($539 million in capital
grants and $172 million in capital investment).
- There has also been a $1.1
billion increase in capital commitments in future years.
- Sustainability Fund.
In addition to the allocation to the Capital Account, $2.5 billion
has been allocated to the Heritage Fund, endowments and funds.
This is an increase of $591 million from budget including $200
million for a new Energy Innovation Fund.
- After these allocations, the Sustainability
Fund is forecast at $5.1 billion. This is $2.6 billion higher
than the minimum target level.
Fiscal
Summary
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Revenue
Non-Renewable
Resource Revenue
Non-renewable resource
revenue is now forecast at $11.9 billion, an increase of $531 million
from the budget estimate. Energy prices have been very volatile,
with oil prices reaching record highs, while natural gas prices
have been weaker than expected.
Total oil royalties
are forecast at $3.8 billion, $1.1 billion higher than estimated
in the budget. Oil prices are now forecast to average US$63.50 per
barrel for the fiscal year, US$13.50 higher than the budget estimate.
Oil prices are considerably
higher than expected by most energy analysts or estimated in the
budget. This reflects continued strong world demand, a significant
risk premium for possible supply disruptions and the uncertainty
regarding the amount of spare capacity available to offset any disruptions.
Risk concerns have resulted
in year-to-date (April to August) oil prices averaging nearly US$72.00
per barrel.
Natural gas royalties
are forecast at $6.2 billion, a decrease of $950 million from the
budget estimate. Natural gas prices are forecast to average Cdn$6.50
per gigajoule, a decrease of $1.00 from the budget.
The lower price forecast
reflects the impact of record levels of natural gas storage inventories
in the United States and a higher exchange rate forecast. Year-to-date
(April to August), natural gas prices have averaged Cdn$5.72 per
gigajoule.
Other non-renewable resource
revenue is forecast at $1.9 billion, $339 million higher than the
budget estimate. This is almost entirely due to higher revenue from
bonuses and sales of Crown leases, in particular,
from the sales of oilsands leases.
The Fiscal Responsibility
Act requires non-renewable resource revenue above $5.3 billion
be transferred to the Sustainability Fund. This transfer is now
forecast at $6.6 billion.
Tax
Revenue
Personal income
tax is forecast at $6.7 billion, up $689 million from the
budget. Preliminary data from 2005 tax returns indicate assessments
are higher than forecast. The outlook for personal and labour income
has also strengthened based on 2006 wage trends.
Corporate income
tax revenue is forecast at $2.7 billion, up $473 million
from the budget. Exceptionally high oil prices and continued strong
economic growth have contributed to a much stronger corporate profit
outlook than forecast in the budget.
Other tax revenue
is forecast at $3.3 billion, a $15 million increase from budget.
Increases in revenue from the fuel tax, insurance taxes and the
tourism levy are partly offset by a decrease in freehold mineral
rights tax revenue, due to the lower natural gas price forecast
and adjustments for lower productivity wells.
Transfers
from Government of Canada
Transfers from the Government
of Canada are forecast at $3.1 billion, $266 million lower than
budget. Health transfers and the Canada Social Transfer are $310
million lower than budgeted, reflecting the impact of higher provincial
income tax revenue on federal transfers.
Other transfers are up
$44 million, primarily due to the federal transfer for public transit
announced in March 2006.
Investment
Income
Investment income is forecast
at $1.8 billion, a $4 million increase from budget. Heritage Fund
and endowment fund income is down $101 million as a result of the
global correction in equity markets, which lowers market values
and expected realized capital gains. This decrease is partly offset
by a $105 million increase in other investment income, mainly due
to higher asset balances and interest rates.
Other
Revenue
Other revenue is forecast
at $4.4 billion, up $86 million from budget. The net increase comprises:
- $86 million increase in net gaming
revenue mainly related to video lottery terminal activity.
- $38 million decrease in timber
royalties revenue due to lower prices and a higher exchange rate
forecast.
- $38 million net increase in other
revenue.
Revenue
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Expense
- Total expense is $1.3 billion higher
than the budget estimate. Changes include:
- $539 million for increased capital
grants from the Capital Account.
- $516 million for disaster/emergency
assistance from the Sustainability Fund.
- $102 million for higher natural
gas rebates from the Sustainability Fund.
- $188 million net increase for
in-year operating expense initiatives drawn against the Contingency
Allowance.
- $6 million net decrease in
dedicated revenue/expense.
Sustainability
Fund
Natural Gas Rebates
– $464 million in rebates are forecast to be paid, a $102
million increase from budget. Rebate levels are now expected to
reach $2.50 per gigajoule in all six eligible months (October to
March), while the budget assumed rebate levels of $2.50 in two months
and $1.50 in four months.
Disaster/Emergency
Assistance – Total assistance of $516 million including:
$261 million for agriculture assistance, $231 million for higher
fire-fighting costs, $20 million for survey and control of mountain
pine beetle infestations and $4 million for flood disaster assistance.
Funding related to these increases is drawn from the Sustainability
Fund
Capital
Account
Capital grants funded from the Capital Account have been increased
by $539 million from budget. This includes increased grants for
school and post-secondary capital projects, health equipment, provincial
highway rehabilitation, petroleum storage tank site remediation,
and water and waste management infrastructure.
Other
Expenses
$300 million was set aside
in the budget for in-year, non-emergency initiatives. A net $188
million has been allocated primarily for higher health and education
operating expense.
Ministry
Changes
Advanced Education
– $40 million net increase. This includes $49 million to offset
cost escalation of approved capital projects, partially offset by
a $9 million decrease related to lower-than-estimated applications
for the Alberta Centennial Education Savings Plan.
Agriculture, Food
and Rural Development – $271 million increase comprising
$261 million in agriculture disaster funding, $5 million for wastewater
infrastructure and $5 million for bioenergy initiatives.
Education
– $293 million increase. $232 million has been provided for
school maintenance and renewal, cost escalation of approved projects,
modular classrooms, new schools and preservation projects, and $61
million has been provided in operating support to schools.
Environment
– $12 million increase consisting of $7 million for water
and waste management and $5 million for ground water mapping and
research.
Health and Wellness
– $262 million increase. This includes $150 million for medical
equipment, $31 million for auxiliary nursing salary adjustments
and $81 million for health authority operations.
Infrastructure
and Transportation – $175 million net increase. This
includes $102 million for natural gas rebates, $36 million for cost
escalation of approved capital projects, $40 million for municipal
public transit (fully offset by a federal transfer), and $14 million
in other increases. These increases are partially offset by a $17
million decrease in amortization.
Innovation and
Science – $20 million increase. $15 million is for
energy related research and $5 million for Water for Life
research. An additional $25 million has been committed for Water
for Life research in 2007-08.
Municipal Affairs
– $21 million increase. $13 million to assist in the remediation
of petroleum storage tank sites, $4 million for 2006 flood disaster
assistance, and $4 million for administration costs related to 2005
flood disasters.
Sustainable Resource
Development – $249 million net increase. $231 million
is for higher fire-fighting costs and $20 million for survey and
control of mountain pine beetle infestations. These increases are
partly offset by a $2 million transfer to capital investment.
Note on Energy Innovation Fund
$200 million has been
allocated from the Sustainability Fund to the new Energy Innovation
Fund. This Fund will support energy development and efficiency,
as well as environmental protection and sustainability.
$25 million has been allocated
from the Fund in 2006-07 for initiatives in the ministries of Agriculture,
Food and Rural Development, Environment, and Innovation and Science.
Funded initiatives include bioenergy research, ground water mapping
and research, and research on clean coal development and municipal
waste management.
Expense
Summary |
Expense
by Ministry
Alberta
Sustainability Fund
Transfers
The Fiscal Responsibility
Act requires non-renewable resource revenue above $5.3 billion
to be transferred to the Sustainability Fund. Increases in other
revenue, less certain adjustments, are also transferred to the Fund.
A net transfer of $6.6
billion to the Fund is being made. This includes $6.6 billion in
non-renewable resource revenue, a $1 billion increase in other revenue,
less $980 million in withdrawals for natural gas rebates and disasters/emergencies.
In addition, $1.1 billion
has been transferred from the better-than-forecast 2005-06 fourth
quarter results.
This amount is adjusted
for:
- $551 million in positive cash adjustments
primarily related to natural gas royalties.
- $248 million negative adjustment
related to retained income of funds and agencies..
Allocation
of Available Assets
Assets in the Fund above $2.5 billion
can be allocated to other balance sheet improvements, including
the Capital Account and savings.
$3.4 billion has been transferred to
the Capital Account to support capital spending in 2006-07. The
remaining $6.2 billion has been allocated to:
- Capital Account – $1.1 billion
to meet future-year commitments.
- Heritage Fund and other endowments
– $1.8 billion.
- Funds – Two new funds have
been established in 2006-07: the Cancer Fund received $500 million
and the Energy Innovation Fund received $200 million.
- Sustainability Fund – $2.6
billion has been left in the Sustainability Fund, leaving total
assets forecast at $5.1 billion at March 31, 2007.
Alberta
Sustainability Fund
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Capital
Plan
Capital Plan commitments
have been increased by $1.8 billion: $711 million in 2006-07 and
$1.1 billion in future years.
This increase will provide
funding for: cost escalation of approved projects, additional school
projects, health equipment, a new Edmonton Remand Centre, a province-wide
policing information technology system, petroleum tank site remediation,
regional water systems and other infrastructure support.
2006-07
Capital Plan
In 2006-07 capital spending
(capital grants to local authorities and capital investment in provincial
government-owned projects) is now forecast at $4.9 billion, $711
million higher than budgeted. Changes include:
-
Municipal
Infrastructure Support – Total allocation of
almost $1.1 billion, $64 million higher than budget. Increases
include $40 million related to the federal transfer for public
transit, $13 million for storage tank site remediation, $5 million
for highway improvements and $4 million for waste management.
-
Provincial
Highway Network – Total allocation of $1.1 billion,
a $25 million increase from budget, primarily for cost escalation
of approved projects.
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Health Facilities
and Equipment – Total allocation of $898 million,
up $150 million from budget, for health equipment.
-
Post-secondary
Facilities – Total allocation of $327 million,
a $49 million increase from budget, for cost escalation of approved
projects.
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Schools
– Total allocation of $571 million, an increase of $232
million from budget. Increased funding has been provided for
school maintenance and renewal, cost escalation of approved
projects, modular classrooms, and new schools and preservation
projects.
-
Community
Facilities and Centennial Projects – Total allocation
of $148 million, $27 million higher than budgeted, reflecting
the carry-over of unfinished 2005-06 projects in Community Development
and Infrastructure and Transportation.
- Water and Wastewater Management
– Total allocation of $105 million, a $15 million
increase from budget. A further $100 million has been committed
in 2007-08 for regional water systems.
- Government Facilities, Housing
and Equipment – Total allocation of $494 million,
an increase of $149 million from budget. Increased funding has
been provided for acquiring the Glenbow Ranch property for a new
provincial park, a province-wide policing information technology
system, replacing the Edmonton Remand Centre, replacing two government
airplanes and cost escalation of approved projects.
- Capital for Emergent Projects
– Total
allocation of $172 million, unchanged from budget.
Capital
Plan Summary
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Net
Financial and Capital Assets
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Net Assets
– Net assets are forecast at $38.5 billion at March 31,
2007, including capital assets of $12.7 billion.
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Capital Account
– Capital Account assets are forecast at $5.3
billion, an increase of $1.1 billion from March 31, 2006. These
assets are available to help pay for the cost of existing capital
commitments in future years.
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Accumulated
Debt/Debt Retirement Account – Sufficient funds
are available in the Debt Retirement Account to repay the remaining
accumulated debt as it matures.
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Heritage Fund
– The book value of the Heritage Fund (value
of external assets) is forecast at $15 billion, an increase
of $1.6 billion from March 31, 2006. The increase includes a
$1 billion allocation to the Heritage Fund, inflation-proofing,
increase for the advanced education endowment and repayment
of ASHC debt.
-
Endowments
and Other Funds – Allocations have also been
made to endowments and other funds, including the Cancer Prevention
Legacy Fund, the Energy Innovation Fund, the Medical Research
Endowment Fund, the Science and Engineering Research Endowment
Fund and the Scholarship Fund.
Balance
Sheet
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Capital
Account
Assets,
Liabilities and Net Assets
Other
Tables
Net Financing Requirements
2006-07 Fiscal Year
Assumptions
Capital Investment
and Amortizationa
Capital Grants to
Local Authorities and Other Infrastructure Supporta
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Actual Results
For
the first three months of 2006-07
Method
of Consolidation
This financial summary is prepared
on the same basis as used in Budget 2006.
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 the modified equity basis, the equity being computed
in accordance with Canadian generally accepted accounting principles
applicable to these entities.
The accounts of Crown-controlled SUCH
sector organizations such as school boards, universities, colleges,
technical institutes and regional health authorities that are controlled
by the government are not included in this fiscal summary. These
Crown-controlled entities are included in the consolidated financial
statements forming part of the Government of Alberta Annual Report.
Basis of Financial
Reporting
The consolidated fiscal
summary reports revenue (including gains and losses from sale of
capital assets), expense (including amortization of capital assets),
and net revenue.
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. Revenue excludes the change in equity
in Crown-controlled SUCH sector organizations.
Expense includes the province’s
cash payments towards the unfunded pension obligations. Expense
excludes the change in the unfunded pension obligations, which is
a non-cash expense that does not affect borrowing requirements.
Debt servicing costs include
interest payable and amortization of discount on debt issues.
Comparative 2005-06 figures
have been restated where necessary to conform to the 2006-07 presentation.
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Consolidated
Fiscal Summarya
Expense
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