July 8, 2002

Financial Management Commission submits final report

Edmonton… A proposal that would address the province’s volatile revenue situation is one of the key recommendations of the Financial Management Commission’s final report to Minister of Finance Patricia Nelson.

The report, entitled Moving from Good to Great, includes 25 recommendations for improving the province’s overall approach to fiscal management.

The changes proposed by the commission would:

• Reduce the impact of volatile revenue
• Provide more stability in planning and budgeting
• Ensure debt elimination
• Revitalize the heritage fund and give it a new purpose
• Introduce a more sustainable way to finance capital projects
• Help plan for the decline in future resource revenue

“The recommendations in this report have far-reaching implications for Alberta’s future,” said Nelson. “We’re going to take some time to review the recommendations and provide a response in September. I’m encouraging my caucus colleagues to consult with constituents over the summer to gather feedback from Albertans on the Commission’s recommendations.”

Formed at the request of the Finance Minister in March, the Commission looked at all aspects of Alberta’s financial and accounting operations and made recommendations for possible improvements. The Commission was comprised of ten Alberta business leaders and chaired by David Tuer, Chair of the Calgary Health Region and former President of PanCanadian Energy Corporation. The Commission received submissions from 89 individuals and organizations from across Alberta, and incorporated many of their suggestions into the report.

“On behalf of all Albertans I would like to thank members of the Commission and those who made submissions for their time and hard work,” said Nelson. “Their commitment to building a better future for Albertans is outstanding.”

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Backgrounder:  Key Recommendations of the Financial Management Commission

1. The Alberta Heritage Savings Trust Fund should be retained, strengthened, allowed to grow, and renamed the "Alberta Heritage Fund" with four new purposes:

• To stabilize the impact of volatile resource revenues on the province's budget
• To manage the orderly pay down of existing debt as it comes due
• To address the backlog of deferred capital projects in the short term
• To serve as a transition to the time when resource revenues decline and as an integral part of the province's strategy for achieving a sustainable economic vision for the future.

2. To provide stable and predictable funding, the Commission recommends that all non-renewable resource revenues should go into the renewed Alberta Heritage Fund on an annual basis. All year-end surpluses should also go into the Heritage Fund. A fixed and sustainable amount of resource revenues should be drawn out each year to support the government's budget. The fixed amount should be set at the lesser of $3.5 billion or the average of resource revenues for the previous three years.
   
   
3. The renewed Alberta Heritage Fund should provide the vehicle for managing the orderly pay down of existing debt as it comes due. That means the bulk of Alberta's accumulated debt will be repaid by 2005-06.
   
   
4. A portion of the province's annual budget should be allocated for capital spending. The amount should not be less than 0.9% of the average of the provincial GDP for the previous two years.
   
   
5. Government should prepare a three to five year plan for capital and infrastructure projects and include that plan as part of its annual budget. Changes should be made to existing legislation to allow funding for specific approved capital projects to be carried over from one year to the next.
   
   
6. In the same way that debt must be repaid, so must government commitments to spending be honoured. Funds in the renewed Alberta Heritage Fund should be allocated to address the current backlog of previously committed capital projects in a planned and orderly way.
   
   
7. Government should produce and publish the list of committed but deferred capital projects along with its annual budget and report each year on the status of those projects.
   
   
8. Government and government-funded entities should be allowed to enter into alternative funding arrangements for capital projects under specific conditions and with appropriate guidelines in place.
   
   
9. All capital project proposals should include a business plan that clearly outlines the funding model and cost implications including operating costs, amortization, and debt repayment if applicable. Government should have the option of funding approved projects over a longer term or paying the full cost of the project in a given fiscal year.
   
   
10. Standardized methods for estimating and reporting on deferred maintenance and utilization, functional obsolescence, and efficiency of facilities should be established and communicated. Government and its funded agencies should use these tools in their planning and reporting.
    
    
11. The province should develop a plan for addressing deferred maintenance over the next five years. Funding for deferred maintenance should be identified as a component of the province's annual budget.
    
    
12. Government should clearly articulate a strategic plan for achieving a sustainable economic vision for the province. The government's business plan should be refocused as a strategic plan to achieve the vision and to provide criteria for setting priorities and making budget decisions.
    
    
13. The current business planning process should be strengthened by requiring all government ministries, organizations and agencies to focus on measuring their decisions against strategic goals linked to the government's strategic plan. Activities and operational matters should be left for internal operational plans.
    
    
14. Standing Policy Committees should be given increased responsibility for gathering information from various stakeholder organizations and providing this input to the budgeting process.
    
    
15. There should be regular reviews, including benefit-cost assessments, of all major government programs, policies and delivery mechanisms. The number of government departments and agencies should be reviewed.
    
    
16. The government should explore various incentives to encourage ministries and government-funded agencies to manage their budgets and assets more efficiently.
    
    
17. The government should undertake a review and risk analysis of all the major components of its expenses and revenues, including its dependent boards and agencies, with a view to developing a comprehensive, cost effective risk mitigation strategy.
    
    
18. The government should not be involved in public sector salary negotiations where it is not a signatory to the collective agreement.
    
    
19. Government should play a more direct role in establishing a framework for public sector salary negotiations through a mechanism for sharing information with various employer groups including health authorities and school boards. This would include providing guidance on the province's ability to meet new fixed costs on a sustainable basis and on competitive salaries and benefit levels in other provinces and jurisdictions.
    
    
20. To supplement the government's reporting regime, the government should consider adding the publication of a quarterly and an annual financial summary of the highlights limited to a few pages of material and presented in a simplified, easily readable, plain language format.
    
    
21. The Government should continue to work with the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants in the development of the government entity reporting proposal. Government-funded entities should be consolidated into the government's accounts and financial statements unless there is a compelling case why a specific entity should be excluded.
    
    
22. The government should continue working with PSAB in the development of the standard regarding the capitalization and amortization of assets and it should adopt the standard when it is developed.
    
    
23. The government should work closely with the Office of the Auditor General with the objective of having an audit opinion without reservations based on generally accepted accounting principles (GAAP) and not on a "disclosed basis" of accounting.
    
    
24. The government should signal its intent to move forward with a new fiscal framework and use the balance of the current fiscal year to prepare for the transition.
    
    
25. In five years or less, the government should establish a new Commission to provide an external review of government's fiscal situation and its fiscal framework.

• Financial Management Commission Final Report (html or pdf 1.9 mb)

• Financial Management Commission Website

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Jerry Bellikka Alberta Finance Communications (780) 427-5364 or cell (780) 718-5699 Dial 310-0000 for toll free access outside of Edmonton.