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UPDATING ALBERTANS The Third Quarter Fiscal Update is comprised of two parts - the updated 2001-02 forecast and the actual results for the first nine months of the fiscal year (April 1 to December 31, 2001).
TABLE OF CONTENTS 2001-02 Forecast Actual Results2001-02 Forecast Highlights
Revenue Non-Renewable Resource Revenue Non-renewable resource revenue is forecast at $5.9 billion. This is $1.6 billion lower than the budget estimate. Natural gas royalties are forecast at $3.8 billion, down $1.7 billion from the budget estimate. Increased North American production, high storage levels, mild weather and reduced industrial consumption have combined to weaken prices from last winter’s record highs. Natural gas prices are forecast to average Cdn$3.76 per thousand cubic feet (mcf) for the fiscal year. This is $1.27 lower than the budget estimate and 9 cents lower than forecast in the Second Quarter Fiscal Update. Total oil royalties are forecast at $1.1 billion, down $39 million from the budget estimate. Oil prices are expected to average US$23.75 per barrel for the fiscal year. This is $1.25 lower than the budget estimate of $25.00. The impact of the lower oil price has been mostly offset by a lower-than-budgeted Canadian exchange rate. Revenue from bonuses and sale of Crown leases is forecast at $953 million. This is $108 million higher than estimated in the budget. Income Tax Revenue Income tax revenue is now forecast at $6.1 billion. This is $92 million higher than the budget estimate. Personal income tax revenue is up $251 million from the budget estimate, mainly due to prior year adjustments. This is partly offset by a $159 million reduction in corporate income tax revenue. A weaker world economy and higher tax refunds have lowered the forecast. Transfers from Government of Canada Transfers from the Government of Canada are expected to be $144 million higher than the budget estimate. The Canada Health and Social Transfer is $126 million higher than the budget estimate, reflecting updated data from the federal government. There is a net increase of $18 million in other federal transfers. Higher agriculture transfers have been partly offset by a rescheduling of transfers for the Primary Health Care initiative to 2002-03. Investment Income As noted in the Second Quarter Fiscal Update, weakness in world equity markets has resulted in realized capital losses and write-downs of investments, particularly in the technology sector. Investment income is now forecast to be $496 million less than the budget estimate. Net Income From Commercial Operations Net income from commercial operations is forecast to be $143 million higher than the budget estimate. This primarily reflects higher gaming and liquor revenues. Other Revenue Revenue from other sources is forecast to be $179 million higher than budgeted. A $29 million reduction in freehold mineral rights tax revenue and a $22 million reduction in timber rentals and fees have been more than offset by:
Expense Program expense is now forecast to be $834 million lower than budgeted. Corrective actions totalling $1.26 billion were announced in the October Update. Partly offsetting these savings is higher-than-budgeted spending in a few areas, primarily for agriculture, forest fires and health. There is an $86 million increase in debt servicing costs. The lower value of the Canadian dollar increases the foreign exchange provision on US dollar debt. Aboriginal Affairs and Northern Development spending is now forecast to be $1 million higher than budgeted. This is $32 million lower than the second quarter forecast as the proposed agreement with the Peigan First Nation was not ratified. Agriculture, Food and Rural Development spending is $285 million higher than budgeted. This reflects the cost of drought assistance and higher crop insurance payments. It also includes a $72 million increase in the restricted revenue and expense of the Alberta Dairy Control Board. Community Development spending is $36 million lower than budgeted. In addition to the deferral of centennial projects reported in the Second Quarter Fiscal Update, there is a spending lapse related to the First Nations Development Fund. Environment spending is $6 million higher than budgeted due to funding for Climate Change Central and the Western Canada flaring study. Finance spending is $34 million lower than budgeted primarily due to changes to valuation adjustments. Health and Wellness spending is $98 million higher than budgeted. The $211 million increase reported in the First Quarter Fiscal Update has been partly offset by the $93 million in corrective actions reported in the October Update. Expense has been reduced by a further $20 million primarily due to rescheduling to 2002-03 of funding under federal/provincial agreements for Primary Health Care and other initiatives. Human Resources and Employment spending is $34 million lower than budgeted due to lower costs for Supports for Independence, Labour Market Development and Skill Development programs.
Innovation and Science spending is $51 million lower than budgeted. As reported in the Second Quarter Fiscal Update, $10 million in SuperNet funding was deferred and $37 million was reallocated from program spending to capital investment. There is now an additional $3 million reduction in the dedicated revenue and expense of the Alberta Research Council. Justice spending is $9 million higher than budgeted, a $2 million increase from the Second Quarter Fiscal Update. Increased funding is required for Crown prosecutors and compensation increases. Learning spending is $38 million lower than budgeted. One-time capital costs for post-secondary facilities, budgeted at $13 million, are now being funded by Infrastructure instead of Learning. Previously announced lapses of $29 million have been partially offset by a $2 million increase in dedicated revenue/expense and a $2 million reclassification from capital investment to program expense. Municipal Affairs spending is $33 million lower than budgeted primarily due to the deferral of some funding for the Underground Petroleum Storage Tank Program. Revenue spending is $14 million higher than budgeted due to higher corporate income tax interest refunds. Transportation spending is $271 million lower than budgeted. This reflects the corrective actions announced in the October Update and a $13 million reallocation from capital investment.
The Net Change in Capital Assets affecting Operations is now forecast to be $5 million higher than budgeted. As noted in the Second Quarter Fiscal Update, $37 million of SuperNet program expense in Innovation and Science has been reclassified as capital investment. This increase is offset by deferred capital projects and transfers from capital investment to program expense in Transportation and Infrastructure.
Without the corrective actions announced in the October Update, the province would have faced a $1.2 billion deficit. The Third Quarter Fiscal Update includes a $92 million increase in revenue from the second quarter forecast (before taking into account the reclassification of the $45 million refund of expenditure for the Alberta Children’s Hospital as a spending reduction). Of this $92 million, changes in dedicated revenue and expense account for $68 million. The remaining $24 million was used to:
In total, dedicated revenue and expense has increased by $125 million from budget, including:
In addition, $93 million in drought assistance reported in the First Quarter Fiscal Update was declared a disaster program.
Despite a lower-than-budgeted debt payment from the economic cushion, accumulated debt will decline $423 million more than estimated in the budget to $6 billion. This improvement is due to:
As noted in Budget 2001, there is a three-month lag in receiving cash from natural gas royalties. This resulted in a large negative cash adjustment in 2000-01 and a corresponding large positive cash adjustment in 2001-02. The cash adjustment has become larger due to expected lower accrued royalties in the last quarter of the 2001-02 fiscal year. As noted in the First Quarter Fiscal Update, the cash adjustment has also increased due to administrative changes in the natural gas deposit policy and when royalty payments are due on fiscal year-ends ending on weekends. While higher cash payments from energy royalties will be received in 2001-02, lower-than-forecast payments will be received in 2002-03, reducing the cash available for debt repayment next year. The lower retained income of funds and agencies mostly reflects the lower investment income of endowment funds and the draw down of the accumulated surplus of the Agriculture Financial Services Corporation as a result of higher crop insurance payments. At March 31, 2002, the net assets of the province are forecast at $9.1 billion (excluding pension obligations).
Cash Available for Debt Repayment
Fiscal Year Assumptions, 2001-02
Actual ResultsFor the first nine months of 2001-02Overview of Nine-Month Results As a result of high energy prices in the first part of the year and the spending reductions which were implemented in the fall, the nine-month actual results show a positive balance of $1.28 billion. This positive balance will deteriorate significantly in the last quarter of the year as lower revenue is received from energy royalties and approved spending proceeds.
Method 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 Canadian 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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