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UPDATING ALBERTANS The First Quarter Fiscal Update is comprised of two parts - the updated 2001-02 forecast and the actual results for the first three months of the fiscal year (April 1 to June 30).
TABLE OF CONTENTS 2001-02 Forecast
2001-02 Forecast Highlights
Revenue Non-Renewable Resource Revenue Total resource revenue is forecast at $7.1 billion, down $452 million from the budget estimate. The decrease mostly reflects declining natural gas prices partly offset by higher revenue from land sales. Resource revenue is $3.5 billion lower than in 2000-01. Natural gas prices are expected to average Cdn$4.53 per thousand cubic feet for the fiscal year ($4.30 per gigajoule), 50 cents lower than the budget estimate. Mild weather, higher US gas supplies and reduced demand for natural gas have increased storage inventories and reduced natural gas prices. The forecast for Alberta production also has been lowered. As a result, natural gas royalties are forecast to decline by $647 million from the budget estimate. Oil prices are expected to average US$25.63 per barrel over the fiscal year, up 63 cents from the budget estimate. The higher price forecast reflects strong year-to-date prices and the expectation that OPEC will be able to maintain prices within its selected range. Royalties from oil sands are expected to be lower than the budget estimate due to higher operating costs. As a result, total oil royalties are essentially unchanged from the budget estimate. Revenue from the bonuses and sales of Crown leases is forecast to be $220 million higher than budgeted. The increase reflects the higher prices being paid for hectares sold. Personal Income Tax Revenue The personal income tax revenue forecast is $319 million higher than the budget estimate. Personal income tax revenue for the 2000 calendar year is expected to be higher than previously forecast. This results in a positive prior-year adjustment in 2001-02 and an increase in the base forecast for the current year. Net Income From Commercial Operations Net income from the Alberta Gaming and Liquor Commission is $80 million higher than the budget estimate. Higher-than-expected actual results from lottery and liquor revenues in 2000-01 increase this year’s base forecast. Transfers from Government of Canada Transfers from the Government of Canada are expected to be $18 million lower than the budget estimate. The forecast for the Canada Health and Social Transfer (CHST) is down $66 million. Higher income tax revenue reduces the CHST cash transfer. Farm income support transfers are $40 million higher than budgeted. Other transfers are $8 million higher, primarily due to the Hepatitis C initiative. Other Revenue Revenue from other sources is down $27 million from the budget estimate. Revenue from the freehold mineral rights tax is down $38 million because of lower natural gas prices. Lower forest product prices are expected to result in a $19 million reduction in timber rentals and fees. These reductions are partly offset by $30 million in increases, including higher restricted revenue of the Alberta Dairy Control Board and higher revenue from crop and hail insurance premiums.
Expense Health and Wellness spending is forecast to increase by $211 million over the budget estimate. As announced on July 5, 2001, $200 million is being provided to health authorities for one-time transitional funding. This funding will help with higher-than- anticipated service levels, population growth and inflation. Additional funding of $11 million is being provided to vaccinate children under the age of twenty-four months against meningitis. Agriculture, Food and Rural Development spending is forecast to increase by $136 million over the budget estimate. This includes a further $121 million for farm income assistance and to assist eligible farmers and ranchers deal with drought disaster conditions. Restricted revenue and expense of the Alberta Dairy Control Board is forecast to be $15 million higher than budgeted. Sustainable Resource Development spending is expected to increase by $55 million due to additional costs of fighting forest fires. Justice spending is forecast to increase by $3 million to provide for compensation costs for Justices of the Peace, and to address recommendations of the 2000 Judicial Compensation Commission. Infrastructure is expected to lapse $130 million. Lower-than-anticipated costs for the 2000-01 energy assistance programs allowed $90 million in infrastructure projects to proceed in 2000-01 rather than 2001-02. The first quarter forecast also includes a $40 million lapse in the 2001-02 Market Transition Credit Program. Transportation is expected to lapse $13 million. Lower-than-anticipated costs for the 2000-01 energy assistance programs allowed deferred transportation projects to proceed in 2000-01 rather than 2001-02. Human Resources and Employment is expected to lapse $5 million. Lower-than-expected numbers of clients in the Supports for Independence and the Skills Development programs more than offset the increases in the costs of Child Health Benefits, Employment Initiatives and other training programs. Debt Servicing Costs are forecast to be $20 million lower than the budget estimate. The lower forecast reflects a larger-than-expected debt repayment in 2000-01 and lower short-term interest rates.
The Net Change in Capital Assets affecting Operations is forecast at $272 million, down $2 million from the budget estimate. Capital investment is forecast at $586 million, down $2 million from the budget estimate. Capital amortization is unchanged from the budget estimate of $314 million.
Allocation of Economic Cushion Forecast changes and disaster assistance have resulted in smaller allocations for debt repayment/increase in financial assets and the contingency reserve. The allocation for debt repayment/increase in financial assets is $472 million, down $141 million from the budget estimate. The contingency reserve, prior to in-year allocations, has declined to $157 million. The net increase in spending (excluding debt servicing costs) is $254 million. Of this amount, $144 million is a charge against the contingency reserve. This leaves $13 million remaining in the contingency reserve. Pursuant to sections 4(2) and 4(3) of the Fiscal Responsibility Act $110 million of the spending increase is not charged against the contingency reserve. This includes $93 million for drought disaster assistance and $17 million in dedicated revenue/expense increases. Note: In-year spending increases for health and other programs have been partly offset by lapsed spending in other areas.
Accumulated debt (including cash set aside for future debt repayment) is forecast to decline to $6.1 billion by March 31, 2002. This is a $362 million improvement from the restated budget estimate. The improvement is primarily due to administrative changes in the natural gas deposit policy and when payments are due on fiscal year-ends ending on weekends. These changes will result in approximately $470 million in natural gas royalty cash payments being received in 2001-02 rather than 2002-03. With the exception of these timing changes, the overall forecast of accumulated debt for the period 2001-04 is essentially on track with the three-year forecast presented in Budget 2001. As noted in Budget 2001, the three-month lag in receiving the cash from natural gas royalties results in a large negative cash adjustment in 2000-01 and a corresponding large positive cash adjustment in 2001-02. At March 31, 2002 the net assets of the province are forecast at $9.5 billion (excluding pension obligations).
Cash Available for Debt Repayment and Balance Sheet Improvements
Sensitivities to Fiscal Year Assumptions, 2001-02
Actual ResultsFor the first three months of 2001-02Method of
Consolidation
This financial summary is prepared on the same basis as used in Budget
2001. 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 2000-01 figures have been restated where necessary to conform to
2001-02 presentation.
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