Newsrelease
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Newsrelease |
August 31, 1999
Edmonton, Alberta
"Last year, with oil and gas revenues nearly 40 per cent lower than the year before, our diversified economy held strong, growing by 3.7 per cent. This year, with energy prices higher than the analysts predicted, we are in a position to make some significant one-time spending increases to key areas."
Alberta's first quarter financial results are in and the numbers show the province is poised to enter the 21 Century in great shape, with revenues $1.3 billion higher than estimated in Budget '99. This is mainly as a result of oil and gas prices being much higher than anyone had anticipated.
The fiscal success has cleared the way to increase program spending to key areas - the classroom, children, justice, health and forest fires -- while maintaining the province's prudent practice of debt repayment.
"Alberta's financial game plan continues to pay off. We've been fortunate with the rebound of the resource sector, but our planning has put us in a position to take advantage of improved energy prices," said Provincial Treasurer Stockwell Day. "A year ago at this time we were lowering our oil price projections and preparing to navigate stormy economic seas. We've weathered those storms well and Albertans are reaping the benefits."
The highlight of the first quarter was the elimination of Alberta's net debt, marked by the Premier at a ceremony on June 24. By the end of the year, though, our remaining debt will be $12.4 billion. That debt will be offset mainly by the significant assets in the Alberta Heritage Savings Trust Fund. That means Alberta will have net assets of $1.4 billion.
The economic cushion for 1999-2000, prior to the allocations from the contingency reserve, has been increased to about $2 billion, up from $617 million forecast in Budget '99. This is due to the higher revenue and debt servicing costs $80 million lower than originally forecast.
Alberta's contingency reserve of 25 per cent of the economic cushion has increased to $498 million. About half of this has been earmarked in the first quarter for priority spending. Areas in line for spending funded from the contingency reserve, savings in other program spending and increases in dedicated revenue include:
Details of the spending are contained in the attached Backgrounder. The remaining contingency reserve is being held for items that may arise through the rest of the fiscal year.
These spending increases come on top of already significant hikes announced in Budget '99. Health spending was increased by 21 per cent, or nearly a billion dollars over three years, while the budget for Learning was boosted by 19 per cent, or $600 million over three years. Day said the recent strong oil and gas prices don't open the door for the province to abandon its conservative fiscal planning. He noted that the province can't count on high energy prices every year.
In accordance with the Fiscal Responsibility Act passed this spring, an economic cushion replaces the revenue cushion from previous years. At the beginning of the year, the economic cushion must be at least 3.5 % of the total budgeted revenue for the year. When revenues come in higher than budget, as they have this year, the dollars go directly into the cushion.
A full 75% of the cushion must be used to repay debt (or increase assets) while the remaining 25%, called the contingency reserve, may be used to offset program spending increases not anticipated at the beginning of the year. The first quarter report forecasts this year's economic cushion at almost $2 billion. Of that, $1.494 billion has been allocated for debt payment, and $498 million is contingency reserve.
$1.992 billion economic cushion - $1.494 billion debt payment = $498 million contingency reserve.
Spending in the first quarter forecast is up $260 million ($256 million of this is program spending and the other $4 million is for capital assets) from original budget estimates. A portion of these increases, $21 million, is funded by increases in dedicated revenue. The remaining $239 million comes from the contingency reserve. So, there is an additional $259 million left in contingency to spend, if necessary, during the remainder of this fiscal year.
$498 million contingency reserve - $239 million for increased program spending = $259 million left in contingency for additional in-year spending increases.
There are spending increases in three areas in the Ministry of Learning at first quarter. School boards will receive a one-time grant of $151 million (about $300 per student) to climb out of debt and address other pressing local priorities. As announced in July, the cap on funding has been removed for students with severe emotional behavioral disabilities and on English as a Second Language programming. This will cost $16 million. Another $4 million will be spent changing from quarterly payments to monthly payments from the Alberta School Foundation Fund to school boards. Although these increases total more than $170 million, only $141 million will come from the contingency reserve because the rest is offset by savings within the Ministry resulting from lower growth than was expected in student enrolment.
Also funded by contingency is $80 million to battle forest fires. The extra is needed to combat the disastrous effects of drought and lightning in Northern Alberta.
Another $13 million will come out of the contingency reserve to ensure adequate funding for Child and Family Service Authorities throughout the province. The one-time increase will be used to get the Authorities up and running during this, their first year of operation. The increase has already been included in the Authorities' budgets for the 1999-2000 fiscal year.
The extra $10 million dedicated to Regional Boards for Persons with Disabilities (that was announced in July), will also come out of the contingency reserve. This funding will be used by the Boards to offset expected shortfalls in their budgets. The Canadian Blood Service will also receive almost $4 million from the reserve to offset increases in both the cost and the demand for fractionated blood products. So, in total, the increase in Health and Wellness spending that is funded through contingency is almost $14 million. On top of that, Hepatitis C initiatives will receive $7 million, but this funding comes directly from the federal government.
Click here for graphic - "Oil Prices"
Click here for graphic - "NYMEX Gas Price"
Click here for graphic - "How Oil Price Forecasts Are Stacking Up - Forecasts for 1999 as Reported in Budget '99 1Q Update"
Click here for graphic - "How Oil Price Forecasts Are Stacking Up - Forecasts for 1999 as Reported in Budget '99"
Click here for graphic - "How Natural Gas Price Forecasts Stack Up - Forecasts for 1999 as Reported in Budget '99 1Q Update"
Click here for graphic - "Forecast of Assets, Liabilities and Net Assets at March 31, 2000"
For further information, please contact:
Shannon Taylor
Communications Director
Alberta Treasury
(780) 427-5364
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Updated by waywaa@treas.gov.ab.ca - August 31, 1999
