Part 1: Three-Year Fiscal Plan

Introduction

Budget 2006 continues government's legislated commitment to balanced provincial budgets. Following an estimated surplus of $1.5 billion in 2005/06 driven by higher taxation revenues and strength in natural gas prices, the updated fiscal plan forecasts a surplus of $600 million for 2006/07, and surpluses of $400 million in 2007/08 and $150 million in 2008/09.

The updated fiscal plan realizes the benefits of a strong, competitive economy that provide the necessary revenues to support government priorities. The higher levels of government revenues have provided the basis for expanded service levels, lower taxes and public sector compensation increases that are both fair to public sector employees and fair to British Columbians seeking additional health care, education and other support services.

As shown in Table 1.2, the available revenues have been allocated to:

• new commitments including:
• Children — $421 million over four years for program and service enhancements for children.
• Skills and Training — $400 million over four years to provide British Columbians with the skills to take advantage of the opportunities provided by a growing economy.
• $733 million in tax reduction measures over four years to ensure a competitive tax environment and to help address the high cost of housing;
• up to $6 billion negotiating framework to cover public sector compensation agreements through 2009/10 — including the $1 billion early agreement incentive allocation, $4.7 billion for new compensation agreements over the next four years and a further $300 million dividend which is contingent on fiscal performance in 2009/10; and
• the surplus and forecast allowance, which if unspent, will help to reduce debt.

Budget 2006 continues government's commitment to an infrastructure spending plan that is affordable, while meeting the needs of a growing economy. Total infrastructure spending on roads, schools, hospitals, post secondary facilities and other capital assets is higher than the September Update, providing an additional $627 million in 2006/07 and $1 billion in 2007/08 mainly reflecting needed infrastructure in the post-secondary and transportation sectors. More information on the three year capital spending plan is found on page 39.

Total debt at the end of 2005/06 is forecast to total $34.9 billion, a $943 million reduction from 2004/05. Total debt is forecast to increase by an average 4.5 per cent annually over the next three years to $39.8 billion by 2008/09. The increase in debt reflects the planned infrastructure spending in the health, education and transportation sectors, offset by expected operating surpluses.

However, to ensure the debt remains affordable for future generations of British Columbians both the total debt to GDP and the taxpayer-supported debt to GDP ratios continue to trend lower over the three-year plan. The key taxpayer-supported debt to GDP ratio is expected to fall from 16.4 per cent in 2005/06 to 15.4 per cent by 2008/09. Additional information on the debt outlook is found starting on page 45.

The government revenue forecast is based on income growth, demand, commodity prices, the exchange rate and other related assumptions included in the economic forecast. Revenue also includes forecasts submitted by Crown corporations and organizations in the SUCH sector.

Compared to the September Update, revenues (before tax reduction measures) are forecast to have increased by $1.0 billion in 2005/06, by $1.2 billion in 2006/07 and 2007/08 and by $1.1 billion in 2008/09, reflecting stronger overall economic activity, higher energy prices and increased federal contributions partially offset by lower commercial Crown net income. Almost all of these increases were incorporated in the fiscal plan at the time of the second Quarterly Report in November 2005. After deducting the impact of tax reduction measures — revenues are up $1.0 billion in 2005/06, $966 million in 2006/07, $959 million in 2007/08 and $860 million in 2008/09 since the September Update (as shown in Table 1.2). The revenue policy changes are detailed in Part 2: Tax Measures.

The fiscal plan is based on the Ministry of Finance's economic forecast that projects economic growth of 3.3 per cent for 2006 and 3.1 per cent in 2007 and 2008, slightly less than the independent Economic Forecast Council average. Full details of the economic forecast are found in Part 3: British Columbia Economic Review and Outlook.

 

 

Overall spending is forecast to increase by 3.7 per cent between 2005/06 and 2006/07, as funding is increased in most ministry budgets. Spending is forecast to rise a further 3.6 per cent in 2007/08 and 2.6 per cent in 2008/09. These spending increases now include the effect of upcoming public sector compensation increases as the government's negotiating framework is now included in the fiscal plan.

The main risks to the government fiscal plan include economic fluctuations such as exchange rate or sudden natural gas or other commodity price changes, and potential changes to federal transfer allocations on the revenue side, as well as service demand pressures on the expenditure side. These and other risks are more fully described starting on page 48.

A $300 million forecast allowance is retained in 2005/06 to protect the bottom line against unanticipated revenue shortfalls or spending pressures that may arise before the end of the fiscal year. The fiscal plan also includes forecast allowances of $850 million in 2006/07, $550 million in 2007/08, and $400 million in 2008/09 to protect the fiscal plan from revenue risks such as sudden changes in natural gas prices and from spending pressures such as natural disasters.

The three year fiscal plan conforms to the standards set by the accounting profession for senior governments in Canada referred to as generally accepted accounting principles or "GAAP".

Consolidated Revenue Fund Spending

Consolidated Revenue Fund (CRF) spending is forecast to increase from $27.1 billion in 2005/06 to $29.7 billion by 2008/09 — a 9.6 per cent increase.

This budget builds on the September Update's commitment to seniors to provide enhanced funding for programs and services for children, skills and training initiatives and investments in natural resources and economic development, while continuing government's commitments to health care and education.

Children

Budget 2006 invests $421 million over four years on programs and services for children. This funding is targeted to ensure the well-being of vulnerable children, to enhance programs and services to children with special needs and to support a quality education system for BC children.

Budget 2006 provides $72 million over three years to enhance existing programs and supports to care for and protect vulnerable children and youth, including child protection services and children in care. Program enhancements include strengthening of quality assurance and review functions within the Ministry of Children and Family Development; and additional supports and tools to caregivers, family members and ministry staff caring for children and youth at risk and vulnerable families. These include:

• more social workers and other front line staff to help vulnerable families and children and youth at risk;
• alternative dispute resolution processes, such as mediation and family group conferences for families;
• additional resources for grandparents and other relatives looking after children under kith and kin agreements; and
• in recognition of rising transportation costs, the foster parent mileage rate will increase from $0.20 per kilometre to $0.30 per kilometre. This is the first increase in over ten years.

Budget 2006 provides $100 million over three years to provide additional services to children, including government's response to the recommendations of the various external reviews of the child protection system. Government's objectives are to bring services closer to communities, making them more effective, and targeting them on early intervention so that children can remain within their families and communities, while ensuring their safety and well-being.

An estimated 140,000 children and youth experience mental health disorders in British Columbia. The current phase (Phase 2) of the Ministry of Children and Family Development's Child and Youth Mental Health Plan focuses on intervention and enhancing service capacity to assist children and youth with mental disorders. In 2005/06 funding for Phase 2 of the Child and Youth Mental Health Plan is $13 million, increasing to $27 million in 2006/07 and Budget 2006 provides additional funding of $17 million to increase total annual funding to $44 million in 2007/08.

Government continues to build on its ongoing investments in services benefiting children and youth with special needs. Budget 2006 provides $36 million over three years to reduce waitlists for services to children and youth with special needs and their families. This builds on the September Update which provided additional funding for assessments, reducing waitlists and services for school-aged children.

By 2008/09:

• 3,050 additional children and families will receive Infant Development Program services. This program serves children from birth to age three who are at risk for, or who already have, a delay in development;
• 5,200 additional children and youth will benefit from therapy programs;
• 1,150 additional children between the ages of 6 to 12 years will access Supported Child Development. Supported Child Development provides a range of consulting and support services in order that children with special needs can be included in regular child care;
• 1,000 children will receive specialized Fetal Alcohol Spectrum Disorder and other developmental behavioural intervention;
• 800 additional families will benefit from respite; and
• 650 additional children with complex needs will receive specialized services.

The Ministry of Children and Family Development continues the transition to new governance authorities for aboriginal and non-aboriginal child and family development services. Budget 2006 provides $31 million over three years for the planning and implementation of five regional aboriginal authorities. This funding is in addition to the $15 million increase provided in the September Update for 2005/06 to 2008/09. This funding shift will allow aboriginal communities to influence the full continuum of child and family development services and take action on issues affecting their children and families.

Budget 2006 includes a $30 million grant in 2005/06 for the Family Independence Fund. The Family Independence Fund will provide one time capital grants to assist families with a child or adult with developmental disabilities keep the family member at home. Capital grants to eligible families can be used for home renovations including lifts, elevators and ramps, and accessible vehicles.

With respect to Early Learning and Child Care, the federal government has agreed to honour the first two years (2005/06 and 2006/07) of the five-year agreement made under the previous federal government. Until further details are made available, the initial commitment to BC made by the previous federal government will continue to be included as part of funding to children services.

Crystal Meth

Government reconfirms its commitment to protect BC's youth from drugs and addiction by investing in the province's ongoing fight against crystal methamphetamine (crystal meth). Budget 2006 provides $2 million over three years for the Crystal Meth Secretariat. The Crystal Meth Secretariat, under the Ministry of Public Safety and Solicitor General, will integrate and coordinate efforts to combat the production and use of crystal meth. This funding builds on government's $7 million strategy to deal with addiction and prevention at the local level. The strategy includes initiatives to help communities fight crystal meth, and to support school based initiatives, public awareness campaigns and targeted treatment programs.

Education

Budget 2006 provides $112 million over three years in increased funding beginning 2006/07. This is in addition to $325 million previously allocated, for a total funding increase of $437 million over three years. This does not include any funding for compensation increases under the negotiating framework.

Per pupil funding for 2006/07 is estimated at $7,198 per student, a 1.5 per cent increase over 2005/06. Per pupil funding continues to grow to support student achievement despite declining enrolment projections. Enrolment is forecast to decline at an average of 1 per cent annually.

Government continues to support the plan to ensure schools meet provincial seismic standards. A budget of $1.5 billion to support a seismic mitigation program has been established and is underway.

The School Start-up supplement is provided to assist families on income assistance, with school-aged children, with the costs of a new school year. Beginning the 2006/07 school year, the Ministry of Employment and Income Assistance will increase the School Start-up supplement from $42 to $84 per year for children between the ages of 5 and 11 years and from $58 to $116 per year for children between the ages of 12 to 18 years. The School Start up supplement was last increased in 1993. Approximately 29,000 children on income assistance will benefit.

In addition to the $421 million in investments in child services, the Ministry of Children and Family Development is providing one-time grants out of its existing budget, totaling $25 million in 2005/06, to benefit children with special needs, children with life limiting illnesses and vulnerable families. These grants include:

• $10 million to the Vancouver Foundation to establish the Children and Youth with Special Needs Supports Fund. This fund will provide grants to assist eligible parents of children with special needs to access equipment, vehicle conversion and home renovations that will increase their child's ability to access and participate in home and community life.
• $10 million to the Victoria Foundation to establish the Fetal Alcohol Spectrum Disorder (FASD) Action Fund. The purpose of the fund is to promote prevention, public education, and parent and caregiver education. As well, the fund will support three year demonstration projects intended to focus on improving outcomes for children and youth with FASD through peer support, social and life skills development, transition supports and school based and other initiatives.
• A total of $3 million to the Law Foundation of BC ($2 million) and the British Columbia Dispute Resolution Practicum Society ($1 million). The funding will support the development of innovative dispute resolution processes in child welfare and build capacity for child protection mediation.
• A $2 million grant to Canuck Place Hospice. Canuck Place provides services for children with progressive life-limiting illnesses and their families. With this funding approximately 260 children and families will continue to receive services and supports.

Communities

Budget 2006 reconfirms government's commitment to strengthen BC communities by investing $191 million over three years in areas such as housing, safety and supports to vulnerable individuals.

Budget 2006 invests $8 million over three years for housing and support services for people who are homeless. The Minister Responsible for Housing will provide:

• $5 million toward a multi-year homelessness initiative to develop transitional and supportive housing units; and
• $3 million for Homelessness Outreach Teams. The goal of this three-year pilot program is to reduce the number of homeless people living on the streets. Community providers will be contracted to engage homeless individuals and link them with appropriate services and housing, reducing the requirement for emergency services. The teams will be piloted mostly in the lower mainland and Victoria.

Budget 2006 fulfills government's commitment to provide 5,000 new residential, assisted living and supportive housing beds by 2008. Budget 2006 includes $21 million over three years to Independent Living BC for 548 additional assisted living and supportive housing units for eligible lower income seniors and persons with disabilities.

The Ministry of Employment and Income Assistance budget includes an additional $16 million to provide for changes in caseload composition, an increasing demand for supplementary benefits and other program enhancements. Supplementary assistance includes health and other supports, such as bus passes for low income seniors and persons with disabilities. Enhancements to Ministry of Employment and Income Assistance programs include:

• increasing the earnings exemptions for persons with disabilities from $400 per month to $500 per month and from $300 per month to $500 per month for persons with persistent multiple barriers; and
• extending the period of time a low income senior receiving the Senior's Supplement may be absent from BC and still receive the supplement.

Budget 2006 also invests in other programs and services that assist people in need, including individuals with developmental disabilities. Community Living BC (CLBC) is a Crown agency with the mandate to provide community based services to individuals with developmental disabilities. The number of people with developmental disabilities accessing residential and day support services and their acuity of need are increasing as a result of demographic trends and advancing technologies. Budget 2006 provides additional funding of $67 million over three years for services to individuals with developmental disabilities. This funding is in addition to the $132 million increase provided in the September Update for 2005/06 to 2008/09. Between 2005/06 and 2008/09, these funds will provide access to community living services for 1,960 additional individuals and a total of 5,300 new or enhanced supports to individuals with developmental disabilities.

In the September Update, government committed to return 100 per cent of net traffic fine revenue to municipalities for community policing, crime prevention and other initiatives to make communities safer. In Budget 2006, the Ministry of Community Services provides an additional $21 million over the next three years for traffic fine revenue sharing; grants will total $50 million annually in each of those years.

In addition, Budget 2006 reflects government's commitment to double small community and regional district grants by providing an additional $42 million over the next three years, increasing annual grant funding from $27 million in 2005/06 to $48 million in 2008/09 and $54 million in 2009/10.

Budget 2006 provides $3 million for the Ministry of Attorney General's Community Court pilot program. The objective of this program is to provide a more effective response to street crime offences by enhancing linkages between the legal system and social programs. With a focus on problem solving sentencing, rather than on the process of adjudication of guilt or innocence, the program will identify and separate offenders who require significant jail sentences from those who are willing and appropriate candidates for sentences including treatment and rehabilitation.

The BC Coroners Service is an independent, quasi-judicial agency that investigates all sudden, unexpected and unexplained deaths in the province by determining the medical cause of death and the contributing factors preceding the death and to make preventative recommendations based on the findings, where appropriate. Additional funding of $13 million over three years is provided to the Ministry of Public Safety and Solicitor General to increase capacity and to reduce backlog, including the child death reviews.

Shelter Aid for Elderly Renters (SAFER) provides monthly cash payments to subsidize rents for eligible BC residents who are age 60 or over and who pay more than 30 per cent of their gross monthly income on rent. Effective June 1, 2006, the 10-year eligibility requirement to reside in Canada will be eliminated. The program will be available to persons who reside in British Columbia for one year and are age 60 and over. The cost of this program enhancement will be managed with the Ministry of Forests and Range and the Minister Responsible for Housing's budget. This builds on government's commitment to ensure that BC seniors share in the success of the province. The September Update provided $8 million in 2005/06 and $17 million annually thereafter to increase the SAFER maximum rental ceiling by $90 in low cost areas and $180 in high-cost areas. As well, program eligibility was expanded to include owners of manufactured homes. These changes were estimated to increase the number of eligible program participants from 12,000 to 19,200 by March 31, 2007.

The Senior's Supplement is a provincial monthly supplement provided to eligible seniors receiving the federal guaranteed income supplement. Approximately 47,000 low-income seniors currently receive a monthly benefit of up to $49 per single or up to $60 per partner in a married couple. Effective April 1, 2006, a senior receiving the Senior's Supplement may be absent from BC for up to six months and still receive the monthly supplement.

Health Care

Budget 2006 reconfirms government's commitment to health care and provides $301 million over three years in increased funding beginning in 2006/07. This is in addition to $1.65 billion previously allocated, for a total funding increase of $1.95 billion. This excludes the cost of upcoming wage settlements with doctors, nurses and other health care workers.

Examples of spending initiatives that are designed to increase access and services to the public include:

• $140 million over three years to provide start up costs and first year operating costs for the Abbotsford Regional Hospital and Cancer Centre which is due to open in the Spring 2008.
• $49 million in operating expenditures over three years for the expansion of critical and acute care beds at Surrey Memorial Hospital. This is the start of a five-year expansion project that will result in a new Ambulatory Care Facility, an expanded Emergency Room and additional renal dialysis capacity.
• More than $100 million over three years for operating costs associated with government's commitment to add 5,000 new residential care, assisted living, and supportive housing beds with home support by December 2008. This builds on the $75 million in each of 2005/06 and 2006/07 that was provided in the September Update to strengthen and modernise the full range of health care services for seniors, including purchasing temporary residential care and assisted living beds, increasing home support hours, enhanced adult day care, falls prevention, palliative care, health promotion programs, and acquisition of specialised equipment.
• $75 million over three years for surgical wait times initiatives such as the recently announced Centre for Surgical Innovation at UBC Hospital. The Centre will work in partnership with the Provincial Surgical Services Project to support dedicated operating rooms to help reduce patient surgical backlogs, and be responsible for championing change management and best practice across the province. Initially the Centre will focus on hip and knee surgeries.
• $60 million over three years for critical life supporting drugs and services for cancer, cardiac, renal and transplant patients; and
• $15 million over three years in additional funding for ActNow BC, which promotes healthy lifestyles including physical activity, healthy eating, living tobacco free, and healthy choices during pregnancy. This builds on the $100 million over three years provided for public health initiatives in the September Update.

Post-Secondary Education

Budget 2006 builds on government’s ongoing commitment to increase access to post-secondary education. Government recognizes that BC faces significant challenges now and into the future due to serious skill shortages in sectors such as health care, applied sciences, engineering and high technology. As such, Budget 2006 provides $161 million over three years beginning 2006/07. This is in addition to $300 million previously allocated, for a total funding increase of $461 million over three years. This does not include any funding for compensation increases under the negotiating framework.

Budget 2006 reconfirms government's commitment to create, in partnership with the post-secondary sector, 25,000 new student spaces by 2010. Budget 2006 includes $40.3 million in 2008/09 to fund 4,394 new post-secondary seats. By the end of 2008/09, there will be over 20,000 new seats in the post-secondary system.

As of September 2005, future tuition increases at public post-secondary institutions have been limited to the rate of inflation. Recognizing this would impact the ability of some institutions to raise revenues, and to ensure that provincial seat growth targets continue to be met, the September Update provided $15 million to post-secondary institutions to address cost pressures in 2005/06. Budget 2006 builds on this investment by providing an additional $15 million in 2005/06 and $30 million annually over the next three years.

In addition, Budget 2006 includes $11 million to honour government's commitment to fund a 1.5 per cent compensation increase negotiated under the previous wage mandate for unionized college and university support staff.

Economic Development

Achieving British Columbia's Potential

Initiatives to facilitate and support economic growth are critical components of the provincial fiscal plan. These initiatives include investments in natural resource sectors, communities, current and future workers, and emerging economic sectors throughout the province.

Skills and Training

In Budget 2006 government continues its commitments to enhance post-secondary educational and training opportunities throughout the province, and also provides significant new investments in skills, training and research to ensure that the province has a well-trained workforce for the future.

New skills and training funding in Budget 2006 includes:

• $39 million in additional funding to the Industry Training Authority for increased apprenticeship training through public and private training institutions.
• $3 million for Bladerunners, an internationally recognized, award winning youth employment program assisting multi-barrier and disadvantaged youth in gaining on the job construction training and apprenticeships. The Bladerunners program is currently being utilized on the Vancouver Convention Centre Expansion Project. The new funding in Budget 2006 will enable the expansion of this successful program to other communities, such as Prince George.
• $5 million for ESL training, allowing new immigrants to integrate into the community and enter the workforce more quickly.
• $17 million to extend broadband Internet access, and to provide equipment and training to 117 First Nations.
• $2 million for mineral exploration and mining training, and hands-on experience for youth in prospecting and environmental remediation. These initiatives build on government's existing partnerships with the oil and gas industry to build the Oil and Gas Centre for Excellence in Fort St John, which will accommodate an additional 180 students training spaces.
• $9 million for the Community Volunteer Program, enabling 2,500 additional income assistance recipients to receive up to $100 per month for clothing and other expenses related to performing volunteer work in their communities.
• $50 million in funding for the Natural Resources and Applied Science endowment to support economic development and diversification through research in sciences and engineering through grants and fellowships.
• $40.5 million in funding toward a new World Centre for Digital Media Education. In partnership with industry, this initiative will support further economic diversification through development of a new graduate program in digital media, capitalizing on the province's position as Canada's largest digital media cluster.
• From 2005/06 to 2008/09 the province will provide $145 million in additional operating funding to post-secondary institutions to support the creation of 25,000 new student spaces by 2010. By 2009 over 20,000 new student spaces will have been created throughout the province, representing a significant enhancement in post-secondary access for students. Effective September 2005 the province also limited future tuition increases to the rate of inflation, further assisting students in obtaining the training and education they need.
• In addition to the above spending initiatives, Budget 2006 also includes $90 million of income tax credits for training initiatives from 2006/07–2008/09 (for details on tax measures, see Part 2 - Tax Measures).
• In addition to these new spending and tax initiatives, the province has already committed $16 million to the Skills Connect and the International Qualifications programs. These programs provide training and services to new immigrants and assist employers and new immigrants in obtaining faster recognition of foreign training credentials. Provincial funding for these initiatives will leverage over $10 million in federal funding for these programs.

Research and Innovation

The province is also investing in the enhancement of research and innovation throughout the province, with the following investments funded through ministry budgets and the Contingencies Vote in 2005/06:

• $115 million to support life sciences research in the province, and attract, train and support health researchers in British Columbia through $45 million in funding for Genome BC and $70 million in funding for the Michael Smith Foundation.
• $4 million in funding for a Cancer Chair at the Canadian Cancer Society, BC and Yukon Division, and $15 million in funding for the Pacific Alzheimers Research Foundation, toward research in these critical areas.

In addition to these investments, the Ministry of Advanced Education will provide over $750 million in capital funding in Budget 2006 for post-secondary institutions to accommodate seat growth, replace existing infrastructure and increase research capacity throughout the province.

Municipal and Regional Infrastructure

Budget 2006 includes $114 million in grants to communities for investment in new municipal infrastructure, including water and sewer projects. This is in addition to the $635 million that municipalities will receive over the next five years through the New Deal with the federal government.

Natural Resources and Sustainable Development

Natural resources are a vital component of the provincial economy. The province continues to invest in initiatives to facilitate sustainable growth of this sector to provide opportunities for workers and communities, while at the same time funding initiatives to protect the environment.

New initiatives funded in Budget 2006 include:

• $113 million in funding dedicated to address the impacts of the mountain pine beetle outbreak. $38 million will be dedicated to additional resources for timber administration, road maintenance and land use planning associated with increased timber harvest levels. $75 million will be dedicated to the Forests for Tomorrow program to reforest destroyed areas quickly and efficiently. This funding builds upon the $101 million in provincial funding and $100 million in federal funding for 2004/05 to 2007/08, aimed at combating the beetle spread and mitigating damage. The province is continuing to pursue additional federal funding for these forestry initiatives in recognition of the impact of the mountain pine beetle on BC and the potential impact on the rest of Canada.
• $12 million for the Forest and Range Practices Act (FRPA) Resource Evaluation Program to monitor the success of FRPA in meeting government's objectives for sustainable forest and range management.
• $129 million in funding for initiatives targeting the oil and gas sector. $125 million will be dedicated through the transportation investment plan for the heartlands oil and gas road rehabilitation strategy, to upgrade roads and lengthen the winter drilling season. $4 million in funding will support enhanced environmental stewardship initiatives in oil and gas exploration areas.

• The province has also enhanced royalty credits for the oil and gas sector, to further encourage exploration and investment in infrastructure.
• $5 million for the operation of a containment level 3 lab of the Animal Health Centre in Abbotsford, and $13 million for construction of the lab. The high security lab will facilitate testing for dangerous pathogens, such as BSE and avian flu, in a safe and secure environment. This lab will provide rapid assessment that will enhance service to the agricultural sector while also performing a critical public health service.
• $3 million for Front Counter BC, a single window service initiative to provide client focused assistance to small and medium business operators in obtaining land use and resource authorizations.
• $6 million to enhance the capacity of the Ministry of Environment to assess permitting requests under the Wildlife Act, Parks Act and Environmental Management Act in a timely manner, and to build capacity of the Environmental Assessment Office (EAO) to address environmental assessments throughout the province in a timely manner. This is in addition to the increase of $5 million over 3 years previously committed for the EAO in the September Update.
• $30 million for economic development and conservation management initiatives within the central coast, north coast and the Queen Charlotte Islands. This funding is anticipated to leverage investments from not-for-profit groups and the federal government, but the province is committed to provide $30 million for these purposes in the absence of a multi-party agreement.
• $14 million for the Living Rivers Trust Fund, fulfilling the province's commitment to triple funding for this initiative.

These new initiatives build upon the significant commitments that the province has already made to environmental protection and sustainable development throughout the province, including:

• $17 million to increase the number of park rangers and conservation officers, and provide employment opportunities and training for youth through the BC Conservation Corps.
• $68 million for the investigation and remediation of contaminated sites on Crown land.
• $8 million to implement the Drinking Water Protection Act, including research into the protection of surface and ground water from contaminated sites.
• $16 million for cross-government land use planning activities including completion and implementation of land and resource management plans. This will result in increased certainty for communities, First Nations and industry by confirming environmental, economic and cultural objectives on provincial land.

Tourism and International Opportunities

Budget 2006 provides funding for tourism initiatives that support the objective of doubling the tourism industry by 2015, as well as funding for initiatives to take advantage of the province's international exposure.

New initiatives funded in Budget 2006 include:

• $15 million for new tourism initiatives through the Ministry of Tourism, Sport and the Arts.
• $6 million for gateway tourism centres at the Peace Arch and in Merritt. This builds on previous funding of $3 million in 2004/05 for visitors centres in Osoyoos and Golden.
• $5 million for development of all seasons resorts, adventure tourism and public recreation opportunities, as part of the provincial Resorts Strategy.
• $3 million for hosting major international, national and community-based sporting events. This funding will allow the province to build on the successes of recent events held in the province, as well as hosting the 2010 Olympic and Paralympic Winter Games.
• $21 million for initiatives designed to promote foreign direct investment in the province, as well as take advantage of economic opportunities presented by the 2010 Games and the province's Asia Pacific focus. The Commerce Centre in the Ministry of Economic Development provides industry with information and support on bid opportunities for both the 2010 Games and other Olympic Games. In-market representatives in the Asia-Pacific region will promote the province in target markets.

These initiatives are in addition to the $150 million that Tourism BC will spend from 2006/07 to 2008/09 on marketing the province in Canada and abroad.

Vancouver Convention Centre Expansion Project (VCCEP)

The Vancouver Convention Centre Expansion Project (VCCEP) represents a significant investment in tourism for the province. The total budget for this project is $615 million. This includes expansion, upgrades of the existing Vancouver Convention and Exhibition Centre, and interconnection of the existing and new facilities. Funding for the project is from the province ($272.5 million), the federal government ($222.5 million), Tourism Vancouver ($90 million) and from upfront payments related to commercial agreements ($30 million). The provincial contribution may be reduced if more than $30 million is realized upfront from commercial arrangements.

Provincial funding to the end of 2005/06 will be $230 million, including $28 million contributed on behalf of Tourism Vancouver. Further expenditures over the three-year fiscal plan period will total $133 million. Over time, Tourism Vancouver will reimburse the province for the $90 million contributed on its behalf.

2010 Olympic and Paralympic Winter Games (2010 Olympics)

The province has committed $600 million towards funding for the 2010 Olympics. This includes the provincial contribution towards components that are jointly funded with the federal government including venues, security, venue operating trust, live sites, and the Paralympic Games. It also includes the provincial commitment to medical costs, First Nation, sports and municipal legacies, and a $131.5 million contingency against unbudgeted costs. Budget 2006 includes $259 million for expenditures within the $600 million envelope. Coupled with expenditures to the end of 2005/06, expenditures to the end of 2008/09 are expected to be $415 million. In addition, Budget 2006 includes $40 million in the Contingencies Vote in each of 2007/08 and 2008/09 to cover potential increases, including cost escalation related to venues. This leaves $54 million for planned expenditures and $51.5 million in contingency for 2009/10.

Transportation Investment Plan

Budget 2006 updates and builds on the government's three year transportation investment plan. The current plan reflects the following changes from the previous three year plan:

• Interpretation of accounting policy now requires that transportation assets acquired through public private partnerships be recorded as assets with offsetting liabilities as the assets are constructed. In particular, construction costs incurred by private sector partners for the Sea-to-Sky, Kicking Horse Canyon and William R. Bennett Bridge are recorded as assets and liabilities of the province as they are constructed; these assets and liabilities were previously assumed to be recorded on the province's books when the projects were completed. The effect of this change in accounting policy interpretation means that assets and liabilities are now recorded earlier than initially forecast, however there is no change in the payments being made by the province through the public private partnership agreements.
• The province has committed to continue supporting the economic development of the oil and gas sector by extending, for a further three years, the funding for the heartlands oil and gas road rehabilitation program through the BC Transportation Financing Authority.
• The province will also invest $90 million in additional road rehabilitation to manage the impacts of the intense harvesting required under the Mountain Pine Beetle Strategy.

The province remains committed to securing federal cost sharing on all eligible projects and programs, and leveraging additional investments through partnerships with private partners.

Between 2006/07 and 2008/09 the updated transportation plan provides:

• $2.4 billion of provincial investment in transportation infrastructure; and
• $1.5 billion of investment leveraged through federal cost sharing and partnerships with private partners, local governments and other agencies.

The three-year transportation plan includes $319 million in provincial funding for the Gateway program. The Gateway program has three key projects, the North Fraser Perimeter Road, South Fraser Perimeter Road and the Port Mann/Highway 1 project. The federal Pacific Gateway Strategy has committed funding to the North and South Fraser Perimeter projects, but no federal funding commitment has been made to the Port Mann/Highway 1 project yet. Bridge tolling is considered to be a financing option for a portion of the Port Mann/Highway 1 project.

The province is committed to an overall provincial capital plan that is affordable today and in the future. In evaluating affordability for taxpayers the province looks at the capital spending and debt of all sectors, including the transportation sector.

Other changes

Budget 2006 reflects the full incorporation of Land and Water BC Inc. (LWBC) programs and resources into ministry budgets. LWBC will be legally dissolved by March 31, 2006. The transfer of BC Buildings Corporation into the Ministry of Labour and Citizens Services is underway and is planned to be completed by April 1, 2006.

Regional Authority Expenses

The Ministry of Children and Family Development continues the transition to establishing new governance authorities for child and family development services. The establishment of regional aboriginal authorities as legal entities will occur in 2006/07, followed by regional children and family authorities in 2007/08. The authorities will assume responsibility under legislation for the delivery of services over time.

Taxpayer-supported Crown Corporation and Agency Expenses

Taxpayer-supported Crown corporations and agencies provide a number of services to the public. These agencies are primarily funded by the provincial government, but may also have outside sources of revenue. Some of the services provided by taxpayer-supported Crowns are highway construction (BC Transportation Financing Authority), property assessment, (B.C. Assessment Authority), social housing (BC Housing Management Commission), transit services (BC Transit), and legal services (Legal Services Society).

As the taxpayer-supported Crown agencies receive most of their funding via grants from ministry budgets, their impact on total government spending is the amount by which their total spending exceeds any grants and transfers made to these entities by the ministries and special offices.

At $1,128 million, net spending forecast by taxpayer-supported Crown agencies for 2006/07 is $82 million higher than the projection in the September Update. This increase mainly reflects higher operating costs for BC Transportation Financing Authority, and increased budget for BC Housing Management Commission due to the devolution of federal social housing administration in British Columbia. The devolution will also include the funding that the federal government directs towards social housing in British Columbia, resulting in no net impact to the fiscal plan.

Revenue and spending of taxpayer-supported Crown agencies are combined with CRF revenue and expenses in Tables 1.3 and 1.4. Revenues and expenses for individual taxpayer-supported Crown agencies are provided in Appendix Table A9.

SUCH Sector Expenses

The SUCH sector is comprised of the school districts; universities; colleges, university colleges, and institutes; and the health authorities and hospital societies. The government funds these organizations that in turn deliver education and health care services to British Columbians on the government's behalf.

For some of these organizations, such as the school districts and health authorities, government transfers and fees cover most of their operating costs. For other organizations, such as universities and colleges, their operating costs are only partially funded by government, with the remaining revenues raised from outside sources. Revenue and spending of the SUCH sector entities are combined with CRF revenue and expenses in Tables 1.3 and 1.4. However, revenues and expenses for individual SUCH entities are detailed in Appendix Table A9.

SUCH sector expenses in excess of government transfers are forecast to be $2.9 billion in 2005/06. This amount is offset by the SUCH sector's own source revenue in determining the bottom line impact of the SUCH sector.

• Projected spending by school districts for 2005/06 is $4 million lower than the September Update fiscal plan. The decrease reflects unspent salary savings related to the teachers' job action.
• Projected spending by universities and colleges for 2005/06 is $35 million lower than the September Update fiscal plan. UBC Okanagan costs are lower than expected due to delay in operational startup.
• Projected spending by health authorities and hospital societies for 2005/06 is $101 million higher than the September Update fiscal plan. The is a result of additional expenditures related to surgeries, nurses training, and increased staffing levels to provide additional services to a growing and aging population.

Revenue

Government revenue includes the combined revenues of the CRF, taxpayer-supported Crown agencies, the SUCH sector, and the net income of commercial Crown corporations. Following growth of 14.4 per cent in 2004/05, revenue is forecast to total $35,484 million in 2005/06, up 6.8 per cent over 2004/05 (see Table 1.3).

The 2005/06 forecast includes the effects of 6.3 per cent nominal GDP growth in 2005 resulting in improved taxation revenue; increasing federal transfer payments; and the impact of rising natural gas prices. These improvements are partially offset by falling revenues from forests, commercial Crown income and the effect of tax measures announced since Budget 2004. These measures, introduced in February 2005, the September Update and Budget 2006, include a reduction in the social service tax rate, introduction of the personal BC Tax Reduction credit aimed at low and modest income taxpayers, enhancing the Medical Services Plan premium assistance and a reduction in the general corporate tax rate.

In 2006/07, revenue is forecast to decline 0.3 per cent reflecting tax measures announced in Budget 2006, lower equalization revenue, a reduced forecast of fees and other miscellaneous sources and the effect of falling lumber prices and forest harvest volumes. Budget 2006 tax measures totaling $253 million include increases to the home owner grants, $58 million in reduced social service tax revenue and $63 million in increased personal income tax credits including $30 million for training initiatives (for details on tax measures, see Part 2: Tax Measures). These annual decreases are partially offset by the impact of 5.7 per cent nominal GDP growth and rising health and social federal government transfers.

In 2007/08, revenue is projected to increase 2.1 per cent, incorporating the effects of 4.7 per cent nominal GDP growth, 11.8 per cent higher health and social federal government transfers and rising commercial Crown net income. These annual increases are partially offset by declining corporate income tax revenue due to lags in the federal government’s collection and instalment payment systems, lower forests revenue, the effects of falling coal and metal prices and an assumed zero equalization entitlement.

In 2008/09, revenue growth is expected to moderate to 1.4 per cent annual change as the impacts of 4.7 per cent nominal GDP growth are partially offset by the effects of falling natural gas prices.

Key assumptions and sensitivities relating to revenue are provided in Appendix Table A10.

Revenue changes since September Update

Compared to the September Update, revenue is forecast to be $1,008 million higher in 2005/06, up $966 million in 2006/07 and $959 million higher in 2007/08 reflecting an improved economic outlook and higher commodity prices, particularly natural gas. The main areas of change are:

• Personal income tax — up $322 million in 2005/06 including a $158 million prior-year adjustment due to higher 2004 revenues. This, combined with stronger economic activity and personal and labour income growth, results in a $172 million base improvement in 2005/06, rising to $274 million by 2007/08. These impacts are partially offset by $63 million of tax measures introduced in Budget 2006, including a $25 million dividend tax credit enhancement to parallel the new federal government tax credit and $30 million for initiatives to increase the availability of training opportunities and initiatives (for details on tax measures, see Part 2: Tax Measures).

• Corporate income tax — up $208 million in 2005/06, $114 million in 2006/07 and $119 million in 2007/08 due to improved outlooks for BC and national corporate profits and tax bases beginning in 2004. The increase in 2005/06 includes a $111 million higher prior-year adjustment for underpayments in 2004. The forecast also incorporates the extension of enhanced tax credit rates for film and production services.
• Social service tax — down $5 million, $53 million and $64 million over the three-year period, 2005/06 to 2007/08, mainly due to tax measures totaling $58 million introduced in Budget 2006. These measures include an exemption on labour services for software installation and maintenance, increasing the passenger vehicle surtax threshold, expanding the eligibility on machinery and equipment exemptions and repealing the tire environmental levy (for details on tax measures, see Part 2: Tax Measures).
• Fuel tax — down $11 million, $24 million and $26 million over the three years reflecting a lower 2005/06 base due to reduced consumption and the impact of a new tax measure introduced in Budget 2006 to expand eligible uses of coloured fuel.
• Property tax — up $1 million in 2005/06 and down $63 million and $56 million in the next two years, as the effect of new tax measures introduced in Budget 2006 to increase the basic home owner grant and grants to seniors, the disabled and veterans is partially offset by a higher 2005/06 base.
• Property transfer tax — up $150 million in 2005/06 and 2006/07 and $175 million higher in 2007/08 due to the very strong housing market this year. The forecast assumes annual declines of $25 million to $50 million reflecting moderation in sales activity.
• Energy and minerals — Natural gas royalties are forecast to be up $505 million, $563 million and $492 million since September Update due to higher natural gas prices, partially offset by weaker production volumes. The revenue forecast from other energy and mineral sources is up $41 million, $62 million and $40 million in the revised three year plan due to the effect of higher electricity and metal prices and increased revenue from the sale of Crown land drilling rights, partially offset by lower coal and petroleum revenues due to declining production volumes.
• Forests — down $43 million in 2005/06 as the effect of increased Interior harvest volumes is more than offset by weaker Coastal activity and a higher exchange rate. In 2006/07, revenue is up $76 million as the effects of increased Interior harvest volumes, a lower tariff and higher spruce-pine-fir prices are partially offset by the impacts of a higher exchange rate, weaker Coastal activity and policy changes intended to better align Coastal stumpage rates to market conditions. In 2007/08, revenue is expected to be $36 million lower mainly due to the impacts of continuing Coastal stumpage policy changes, weaker Coastal activity and a higher exchange rate. Table A10 provides more details on planned changes to Coastal forest policy.

• Federal government contributions — up $57 million, $367 million and $220 million from the September Update. The increase in 2005/06 reflects higher health and social transfers due to an increased BC population share and a higher forecast of national tax points. In 2006/07, equalization revenue is assumed to be $459 million compared to zero at budget due to the announcement on November 8, 2005 of a one-year extension of the current method of determining entitlement. This is partially offset by reduced health and social transfers due to the interaction of these programs with equalization transfers. In 2007/08, revenue from other federal transfers is up $156 million due to higher contributions in support of ministry operations and increased forecasts provided by taxpayer-supported Crown corporations and the SUCH sector.

In respect of the Early Learning and Child Care agreement as of September 2005, the revenue forecast includes $147 million in 2006/07 (including $62 million deferral from 2005/06) and $152 million each year in 2007/08 and 2008/09. The federal government has agreed to honour the first two years (2005/06 and 2006/07) of the five year agreement made under the previous federal government. Until further details are available, the initial commitment to BC made under the previous federal government will continue to be included as part of the fiscal plan for 2007/08 and 2008/09. The forecast also assumes zero equalization transfers beginning in 2007/08, no additional federal transfers to combat the mountain pine beetle infestation, and does not include any amount for BC’s share of corrections to the federal/provincial fiscal imbalances.

Commercial Crown Corporation Income

• British Columbia Hydro and Power Authority — BC Hydro's current income projections (before regulatory account transfers) for each year are down compared to the same years in the September Update fiscal plan (see Table 1.15). Energy cost increases, due to a low January inflow forecast and resulting higher purchases to meet domestic demand at higher market prices, are only partially offset by higher domestic revenue and additional energy trade revenues. Inflows into BC Hydro's reservoirs are forecast to be 90 per cent of normal this year, resulting in significant reductions to income mainly in 2006/07 (low water inflows mean less hydro generation and higher than normal market purchases).

BC Hydro is also experiencing increased operating expenses, primarily due to growth in demand and removal of mountain pine beetle infested trees from rights of way. Reduced income is expected to result in additional borrowing to meet cash requirements and higher interest costs in the next two years. For 2008/09, higher energy costs, operating expenses and finance charges, partially offset by additional revenue from domestic demand, are projected to further impact BC Hydro's income, resulting in $102 million lower income than in 2007/08.

BC Hydro has not included any rate increases in its forecast, and plans to file a revenue requirements application with the BC Utilities Commission in the spring of 2006.

• British Columbia Liquor Distribution Branch — LDB's annual net income projections in the fiscal plan are up slightly compared to the projections in the September Update. Increased sales and lower than anticipated product cost increases are projected to compensate for a higher than anticipated shift in market share to licensee retail stores and higher operating costs. LDB projects sales volume growth will continue to average 1 per cent per year.
• British Columbia Lottery Corporation — BC Lotteries has lowered its 2006/07 and 2007/08 net income projections since the September Update fiscal plan, reflecting a lower anticipated growth trend in gaming activity. Casino revenue continues to show strong growth, resulting in higher revenue projections from this source. However, lottery and bingo revenue projections have been revised downward due to lower player participation in lottery games, a continuing downward trend in traditional bingo play, and a slower than planned build out of community bingo gaming centres. The 2008/09 projection in the current fiscal plan is an extension of the revised growth trend.

A large portion of BC Lotteries' transfers to government is redistributed to charities and local governments. For 2005/06, the government forecasts that it will distribute $209 million of gaming proceeds as follows: $137 million to charities, $67 million to local governments, and $6 million for horseracing purse enhancement. The net proceeds after distributions will be $683 million, of which $147 million is allocated to the Health Special Account and $536 million will go into general revenue to fund healthcare, education and social services. The distribution of gaming proceeds to charities and local governments is projected to increase to $223 million in 2006/07, $238 million in 2007/08, and $255 million in 2008/09.

On February 2, 2006, BC Lotteries announced the creation of SportsFunder, a new suite of lottery games carrying the 2010 Olympic logo, which will generate an estimated $20 million for amateur sport in British Columbia. Funds generated through the sale of SportsFunder products will be targeted at four areas:

• Sport BC's KidSportTM program, providing sport registration grants to financially disadvantaged children;
• Game Plan/Team BC, providing support for high-performance BC athletes;
• financial assistance for coaching development; and,
• travel assistance for BC athletes to attend sporting competitions.
• British Columbia Railway Company — BCRC's income projections for the fiscal plan have changed from the September Update, primarily due to changes in the timing of property disposals. The reduction in 2005/06 also includes the write-down of assets and an increase to environmental provisions for its Vancouver Wharves subsidiary. The BCRC forecast assumes ongoing ownership of the Port Subdivision subsidiary.
• Insurance Corporation of British Columbia — ICBC's revisions to its outlook presented in the September Update reflects increasing claims costs, a change in claims valuation, and its submission to the BC Utilities Commission for increases to basic insurance rates. Based on the latest actuarial evaluation, increasingly higher costs primarily from injury claims are projected to have a $308 million negative impact on claims expense in 2005. The actuarial evaluation also resulted in ICBC having to expense $109 million in deferred premium acquisition costs in order to match the revised claims expense profile. This impact was partially offset by higher than expected premium revenue and investment income, and by the removal of margins on unpaid claims that had been in place to support low capitalization levels.

ICBC's revenue projections for 2006 to 2008 in its current outlook reflect the higher premium base and its application for the rate increase filed with the BCUC on January 27, 2006. The additional revenue will be used to fund claims cost increases as projected by the actuarial evaluation and maintain ICBC's capital base.

Full-Time Equivalents (FTEs)

Taxpayer-supported FTEs, including ministries and special offices (CRF), taxpayer-supported Crown corporations and agencies and regional authorities, is projected at 32,360 in 2006/07. This represents an increase of 1,066 FTEs from the 2005/06 forecast and is 892 FTEs higher than the 2006/07 forecast in the September Update due to increase in FTE's in the Ministries of Children and Family Development and Forests and Range and in taxpayer-supported Crown agencies.

By 2008/09, FTEs are projected to increase a further 301 to total 32,661 FTEs. Table 1.18 provides details of changes from the September Update. FTEs of the SUCH sector are not included in these forecasts.

Ministries and special offices (CRF)

The 2006/07 FTEs projection for ministries and special offices is 28,560 FTEs — a net increase of 1,229 FTEs from the September Update. The increase reflects priorities in a number of areas, such as additional support for children at risk and the child and youth mental health plan, the response to the mountain pine beetle and also reflects the transfer of BCBC employees to the Ministry of Labour and Citizens' Services upon wind-up of the corporation.

Community Living BC assumed control over services to adults with developmental disabilities on July 1, 2005. The establishment of regional aboriginal authorities as legal entities will occur in 2006/07, followed by regional child and family authorities in 2007/08. The authorities will assume responsibility under legislation for the delivery of services over time. Further information is available in the ministry's service plan.

Taxpayer-supported Crown agencies

The 2006/07 taxpayer-supported Crown agencies FTE projection is 3,412 — a decrease of 178 FTEs from the September Update. The reduction is primarily due to the impact of the BCBC wind-up and transfer of FTEs to the Ministry of Labour and Citizens' Services.

Capital Spending¹

In addition to funding municipal and regional infrastructure delivered by local governments, the province also invests directly in capital infrastructure to provide services to the public and facilitate economic development. Provincial capital infrastructure investments are made through school districts, health authorities, post-secondary institutions, Crown agencies and ministries.

The rising infrastructure demands of a growing economy coupled with inflationary pressures on existing capital projects requires government to be diligent in ensuring that capital and debt are affordable over the long term. To achieve this, government is committed to maintain a downward trend in the taxpayer-supported debt to GDP ratio, using a three year moving average. This ratio is a key measure often used by financial analysts and investors to assess a province's ability to repay debt. The independent Economic Forecast Council has confirmed that a declining debt to GDP ratio is an appropriate measure of debt affordability.

1	Capital investments are not included in the government’s annual surplus or deficit. In accordance with generally accepted accounting principles (GAAP), annual amortization expenses that recognize the estimated wear and tear of capital assets during the fiscal year are included in the government’s annual expenses instead of recording the full capital costs as they occur.

Taxpayer-supported capital spending

Taxpayer-supported capital spending includes capital infrastructure for school districts, health authorities, post-secondary institutions, taxpayer-supported Crown agencies, and ministries.

The capital spending numbers for health and education reflect the forecasts for health authorities, school districts and post-secondary institutions. Annual interest costs on capital related debt are also charged against government's surplus.

Taxpayer-supported capital spending is projected at $3.5 billion in 2006/07 before declining to $2.8 billion in 2008/09. Significant elements of this projected spending include the following:

• Continued implementation of a $1.5 billion program to seismically upgrade all at-risk schools in the province over a fifteen year time frame. A long term plan for the program is currently being developed by the Ministry of Education in conjunction with school boards. The province is providing over $740 million in capital funding from 2006/07 to 2008/09 to replace, renovate or expand K-12 facilities.
• The 25,000 seat expansion to the post-secondary system has significant implications on institutional facilities now and into the future. This need to accommodate the Province's growth plan, replace ageing facilities and develop new research capacity and infrastructure requires substantial capital funding contributions from the Province. Budget 2006 includes over $750 million in capital funding to post-secondary institutions throughout the province. Projects funded included the Oil and Gas Trades Expansion at Northern Lights College in Fort St. John, the new Laboratory Building at Douglas College, the Health Sciences Building at SFU, the Academic and Trades Expansion at the College of the Rockies in Cranbrook, the new Science Building at the University of Victoria and the Beaty Biodiversity Centre at UBC.
• Post-secondary capital spending also includes a significant level of investment funded through other sources, including foundations, donations, cash balances, federal funding and revenues generated from services. Examples of projects financed wholly or partially through such sources include Marine Drive student housing at UBC, Thompson Rivers University student residences, the Irving K. Barber Learning Centre at UBC, and various parking structures and student residences planned at various campuses throughout the province.
• The Ministry of Health Services will also provide $1.1 billion (including federal equipment funding) in capital grants to health authorities for new major construction and upgrading of health facilities, equipment, and clinical information systems over the next three years. When added to health authority funding from own sources, Regional Hospital Districts, and Foundations, this will support a total capital spending forecast of approximately $1.8 billion over the next three years.

Examples of major capital/equipment/IT projects include:

• Implementing key strategies to relieve demand pressures at Surrey Memorial Hospital (SMH) and allow for future service growth, including a new emergency and urgent care facility; a new ambulatory care facility; a new perinatal care facility and renovations to reclaimed space at SMH and new construction to accommodate approximately 140 additional acute care beds.
• Residential care and Assisted Living projects to support seniors and people with disabilities.
• Redevelopment of the East Kootenay Regional Hospital in Cranbrook including renovation and expansion of the Emergency, Ambulatory Care and Diagnostic Imaging departments.
• New academic space in teaching hospitals around BC including Prince George Regional Hospital, Victoria General Hospital, Royal Jubilee Hospital, Royal Columbian Hospital, and Kelowna General Hospital.
• Completion of the Vancouver General Redevelopment Project.
• Abbotsford Regional Hospital and Cancer Centre P3 Project.
• Academic Ambulatory Care Centre P3 Project at Vancouver General Hospital.
• Expansion and renovation to provide state of the art facilities for Maternity and Pediatrics Departments at Prince George Regional Hospital.
• Construction of a new Perinatal Wing at Nanaimo Regional General Hospital.
• Investments in existing facilities to ensure they continue to perform as needed to meet changing health care requirements.
• Investments in new and replacement medical and diagnostic equipment such as CT scanners, nuclear medicine equipment, major laboratory equipment, anaesthetic gas machines, defibrillators and ventilators.
• Information Management and Technology projects across health authorities. Some examples include Diagnostic Imaging Systems and Clinical Information Systems.

In addition, the Ministry of Health is investing in province wide eHealth initiatives such as Telehealth, Surgical Patient Registry, Electronic Health Record, Provincial Lab Information System, and INTERAI residential care assessment system.

• Ongoing commitment to the Transportation Investment Plan (see page 28 for more information) which will provide $3.9 billion of public and private sector investment over the next three years. Under the plan, provincial capital spending for 2006/07 to 2008/09 is directed towards initiatives such as Phase 2 of the Kicking Horse Canyon Project, the new Pitt River Bridge component of the Gateway Project, the Sea to Sky Highway improvements, the William R. Bennett Bridge, and funding to support road rehabilitation benefiting the oil and gas sector and additional road rehabilitation to manage the impacts of intense harvesting required under the Mountain Pine Beetle Strategy.
• The Vancouver Convention Centre Expansion Project (VCCEP). Capital spending for VCCEP on Table 1.19 is based on the total capital cost of the VCCEP, reflecting the funding provided by all partners; the province, Canada, and Tourism Vancouver. Table 1.20 shows the capital expenditures for the VCCEP associated with provincial financing only, which totals $273 million. Table 1.11 provides the timing and amount of provincial funding grants provided to the VCCEP. These grants are eliminated in the summary financial statements, so that only the total capital expenditures of the VCCEP are reported in the government financial statements.

Capital Contingencies

Recognizing that rising construction costs are currently a concern, the province has included a capital contingency of 5 per cent of taxpayer-supported capital spending in its three year capital plan as a prudent planning measure. This contingency is in addition to the contingencies included in individual project budgets. Should the capital contingency not be used in any year, taxpayer-supported debt will be lower.

Provincial capital infrastructure spending is financed through a combination of sources:

• cash balances;
• partnerships with the private sector (public-private-partnerships);
• cost sharing with partners;
• borrowing (debt financing).

Debt financing continues to represent a significant source of financing for provincial capital spending, so the level of capital spending has a significant impact on projected provincial debt.

Self-supported capital spending

Total capital spending includes capital infrastructure for self-supported commercial Crown corporations.

Self-supported capital spending is projected to range from $1.3 billion in 2006/07 to $1.7 billion in 2008/09. The majority of this capital spending is for electrical generation, transmission and distribution projects carried out through BC Hydro and BC Transmission Corporation to enhance reliability, public safety and growing demand. In addition to the projects shown on Table 1.20, other examples of electrical generation, transmission and distribution projects included in self-supported capital spending are new substations in Maple Ridge and Langley, redevelopment of the Aberfeldie generating station near Cranbrook, and seismic upgrades of the Coquitlam and Stave Falls dams.

Further details on provincial capital investments are shown in the service plans of ministries and Crown corporations.

Projects over $50 million

As required under the Budget Transparency and Accountability Act, major capital projects with multi-year budgets totaling $50 million or more are shown in Table 1.20. Annual allocations of the full budget for these projects are included as part of the provincial government’s capital investment spending shown in Table 1.19.

Over the next three years over $1.2 billion of provincial funding will be spent on major capital investments (greater than $50 million) including:

• $219 million for health care facilities including Vancouver General Hospital, the Academic Ambulatory Care Centre, and the Abbotsford Regional Hospital and Cancer Centre.
• $665 million for major transportation capital infrastructure. In addition, the Ministry of Transportation is investigating financial and project delivery options through P3s for improvements to Lower Mainland infrastructure. Provincial funding for the RAV project is not included in the province's capital spending, but is included in the transportation investment plan.
• $238 million for power generation and transmission capital projects by BC Hydro, BC Transmission Corporation and the Brilliant Expansion Power Corporation.
• $226 million for other projects including the Vancouver Convention Centre Expansion Project and tenant improvements for Surrey Central City (ICBC Properties Ltd.).

Table 1.20 identifies the provincial share of funding for major capital projects (over $50 million). However, total costs for some of these projects are higher as they are cost shared with the federal government, municipal authorities or the private sector.

Provincial Debt

The provincial government along with its Crown corporations and agencies provide services and capital infrastructure to support the social and economic programs needed for maintaining and enhancing the quality of life in BC. Funding for these programs is mainly derived from revenue sources such as taxation and the sale of natural resources. Government also obtains financing from outside sources mainly through debt issuances that are to be repaid on future dates.

Borrowing for operations is required to finance deficits and to meet other working capital requirements such as loans and advances or changes in accounts receivable/payable. This type of debt (government direct operating debt) tends to rise during periods of deficits, but declines with surpluses. Government operating debt is forecast to decline by $2.0 billion over the next three years reflecting continuing surpluses.

Borrowing for capital projects finances the building of schools, hospitals, roads and other social and economic assets. As these investments provide essential services over several years, the government, like the private sector, borrows to fund these projects and amortizes the costs over the assets' useful life.

In 2005/06, provincial debt is forecast to decrease by $0.9 billion to total $34.9 billion, $1.0 billion below budget. In 2006/07, total provincial debt will increase $1.7 billion from the 2005/06 updated forecast to total $36.6 billion. The 2006/07 change reflects:

• a $465 million increase in taxpayer-supported debt mainly to finance net capital requirements;
• a $692 million increase in commercial Crown corporation debt, mainly to fund power generation and transmission capital projects by BC Hydro and BC Transmission; and
• a $550 million increase in the forecast allowance to mirror the $850 million income statement forecast allowance.

Over the following two years, government direct operating debt is forecast to decrease $1.1 billion reflecting continued surpluses, while other taxpayer-supported debt will increase $3.1 billion mainly to finance capital requirements. Self-supported debt will increase $1.7 billion, mainly to fund power generation and transmission projects.

The debt forecast assumes a forecast allowance of $850 million in 2006/07, decreasing to $550 million in 2007/08 and $400 million in 2008/09 to mirror the operating statement forecast allowance. Should the government not require this allowance, projected debt levels under the fiscal plan would be lower by the amount of the forecast allowance for each year.

In general, the change in debt will not equal the surplus as:

• debt is required to finance capital spending in excess of non cash amortization costs included in the surplus; and
• due to other working capital sources/requirements that represent changes in balance sheet items (such as cash balances, loan receivables and other accounts receivables/payables), but do not form part of the surplus.

The following table reconciles forecast surpluses with changes in debt. There is not a dollar for dollar relationship between changes in direct operating debt and the surplus or deficit due to changes in other balance sheet items. In the updated fiscal plan, debt rises despite expected surpluses mainly due to the impact of capital spending in excess of amortization, and higher commercial Crown corporation debt incurred for capital investments.

The ratio of taxpayer-supported debt, which excludes commercial Crown corporations and other self-supported debt, to GDP is a key measure often used by financial analysts and investors to assess a province's ability to repay debt. The government is committed to maintain a downward trend in this ratio, using a three year moving average. The independent Economic Forecast Council has confirmed that a declining debt to GDP ratio is an appropriate measure of debt affordability.

The taxpayer-supported debt to GDP ratio is forecast to decline from the 15.8 per cent in 2006/07 to 15.7 per cent in 2007/08 and to 15.4 per cent in 2008/09, keeping debt affordable for future generations of British Columbians.

The decline in the taxpayer-supported debt-to-GDP ratio reflects the $1.2 billion improvement in taxpayer-supported debt in 2005/06, operating surpluses over the next three years, and higher GDP forecasts. Taxpayer-supported interest costs are expected to rise to 5.4 cents per dollar of revenue by 2008/09, due to higher interest rates and increased taxpayer-supported capital debt.

Table 1.23 summarizes the provincial financing plan for 2006/07. New borrowing of $5.0 billion is anticipated, of which $3.3 billion will be used to replace maturing debt and $1.7 billion will be used for capital and financing requirements.

Additional details on the debt outstanding for government, Crown corporations and agencies are provided in Appendix Tables A15 and A16.

Risks to the Fiscal Plan

The major risks to the fiscal plan stem mainly from changes in factors that government does not directly control. These include:

• Assumptions underlying revenue and Crown corporation and agency forecasts such as economic factors, commodity prices and weather conditions.
• The outcome of litigation, arbitrations, and negotiations with third parties, such as the softwood lumber dispute.
• Potential changes to federal transfer allocations and cost sharing agreements as a result of the recent change in federal government.
• Utilization rates for government services such as health care, children and family services, or employment assistance.

In addition, changes in accounting treatment or revised interpretations of generally accepted accounting principles (GAAP) could have material impacts on the bottom line.

Table 1.24 summarizes the approximate effect of changes in some of the key variables on the surplus. However, individual circumstances and inter-relationships between the variables may cause the actual variances to be higher or lower than the estimates shown in the table. For example, an increase in the US/Cdn exchange rate may be offset by higher commodity prices; or as occurred in 2004/05, negative fiscal shocks, such as forest fires and floods, can be offset by positive variances in other areas, such as taxation and energy revenues, federal transfers and other improvements.

Contingency Vote

Contingencies — General Programs

A $320 million contingency vote for general programs is included in the 2006/07 fiscal year. This is increased to $360 million in 2007/08 and 2008/09 reflecting a $40 million allocation of the $131.5 million 2010 Olympics contingency budget. The $360 million contingency represents roughly 1 per cent of overall government expense.

The allocation to contingencies is a prudent budgeting measure that protects the three year fiscal plan from:

• unforeseen and unbudgeted costs that may arise (such as unexpected environmental remediation costs); and
• pressures for costs that are currently budgeted based on estimates whose final value are impacted by external events or prices (such as payments made under the Vancouver Island Gas Pipeline Assistance Agreement that are directly linked to natural gas prices).

Table 1.25 outlines cost pressures that government has notionally allocated to the contingency vote across the three-year fiscal plan.

In addition to these specific items, corporate pressures such as the valuation of employer contributions to pension plans may also impact the contingency vote.

Contingencies — Negotiating Framework

For Budget 2006, wage and benefit funds of $420 million in 2006/07, $895 million in 2007/08 and $1.42 billion in 2008/09 have been included in contingencies and will be distributed by the Minister of Finance once settlements are reached. It is expected that future budgets for ministries, the SUCH sector and Crown corporations will incorporate compensation funding once settlements are reached and costs are known. Further details on the negotiating framework can be found in the topic box on page 56.

Forecast Allowance

In 2006/07, the government continues to build a forecast allowance into the bottom-line to act as a cushion against possible deterioration in revenue or spending forecasts, and thus increase the certainty of meeting the surplus targets established in the fiscal plan.

A forecast allowance of $850 million is included in the 2006/07 budget. This forecast allowance has the explicit effect of reducing the expected surplus from the government's most likely forecast of $1.45 billion in 2006/07 to a more conservative budget surplus of $600 million. The explicit nature of the adjustment to the surplus flows from the Budget Transparency and Accountability Act that requires disclosure of adjustments to the most likely fiscal result.

A corresponding $850 million borrowing allowance has also been included in the provincial debt forecast for 2006/07, increasing the total debt forecast by $850 million compared to the most likely forecast.

Forecast allowances for the 2007/08 and 2008/09 fiscal years are set at $550 million and $400 million, respectively. The higher forecast allowance in 2006/07 reflects increased risks to the surplus arising from natural gas price volatility. For example, a $1 decrease in natural gas prices results in a revenue reduction of approximately $300 million.

Own Source Revenue

The main areas that may affect own source revenue forecasts are BC's overall economic performance, exchange rate and commodity prices, water levels in the BC Hydro system, and the outcome of the softwood lumber dispute with the United States.

Revenues are sensitive to economic performance. For example, taxation and other revenue sources are driven by economic factors such as personal income, retail sales, population growth and the exchange rate. The revenue forecast contained in the fiscal plan is based on the economic forecast detailed in Part 3: British Columbia Economic Review and Outlook.

Revenues in British Columbia are also volatile, largely due to the influence of the cyclical natural resource sector in the economy and the importance of natural resource revenues in the province's revenue base. Spikes in commodity prices such as natural gas, lumber and electricity may have a positive effect on natural resource revenues in the near-term, until supply/demand imbalances level out. Given the recent volatility and high price forecast, natural gas price volatility remains one of the largest risks to the fiscal plan.

BC Hydro's operations are affected by weather patterns, which can change both reservoir levels and demand for power. An increasing reliance on gas-powered generation and imports to meet demand renders BC Hydro vulnerable to the volatility in the energy markets. A combination of low reservoir levels and higher energy costs can have a significant impact on the net income of BC Hydro that, in turn, affects the government's revenue forecast.

In situations where revenue could benefit as a result of a negotiated or litigated settlement, no revenue increases have been assumed except where a published agreement is available. For example, despite recent WTO/NAFTA panel rulings, there is still considerable uncertainty as to ultimate resolution of the softwood lumber dispute with the US. Therefore, no assumptions have been made in the fiscal plan as to potential benefits arising from such a resolution.

Federal Government Contributions

Potential policy changes regarding federal transfer allocations and cost sharing agreements could also affect the revenue forecast. However, due to insufficient information on specific proposals, it is too speculative to estimate the fiscal impact on the plan with any degree of certainty. As a result, the fiscal plan includes only those commitments made to the Province by the previous federal government.

For example, with respect to the Early Learning and Child Care agreement, the federal government has agreed it will honour the first two years (2005/06 and 2006/07) of the five year agreement made under the previous federal government and then switch to a subsidy-based system. Until further details are made available, the initial commitment to British Columbia made by the previous federal government will continue to be included as part of the fiscal plan for 2007/08 and 2008/09.

In terms of equalization funding, finalization of the mechanism for allocating fixed amounts of federal equalization transfers among provinces is still under review by an independent panel. The panel is expected to recommend changes to the program for 2007/08 onward. As a result, the fiscal plan assumes that the level of equalization committed by the previous federal government in November 2005 will be honoured for 2006/07. Pending the outcome of the panel recommendations and confirmation of federal government policy direction, no equalization funding has been assumed for 2007/08 or 2008/09.

Further, the fiscal plan assumes no additional funding to combat beetle infestation, or for BC's share of corrections to the federal/provincial fiscal imbalances.

It is important to note that while some commitments could result in positive fiscal impacts for the province, such as additional funding for the Pacific Gateway or the mitigation of beetle infestation, others could negatively impact the plan, such as the cancellation of the previous government's child care plan and, potentially, some of the promised tax changes. Still others, such as equalization funding and fiscal imbalance issues, are expected to involve lengthy negotiations. As such, the BC government will continue to monitor the situation and revise the revenue forecast as further information becomes available.

Details on major assumptions and sensitivities resulting from changes to those assumptions are outlined in Appendix Table A10.

Crown Corporations and Agencies

Crown corporations and agencies have provided their own forecasts. These forecasts, as well as their statements of assumptions were used to prepare the fiscal plan. The boards of those corporations and agencies have also included these forecasts, along with further details on assumptions and risks, in the service plans being released with the budget.

The fiscal plan does not assume or make allowance for extraordinary adjustments other than those noted in the assumptions provided by the Crown corporations and agencies. Factors such as electricity prices, water inflows into the BC Hydro system, accident trends, interest/exchange rates, decisions of an independent regulator, or pending litigation could significantly change actual financial results over the forecast period.

New decisions or directions by Crown corporation or agency boards of directors may result in changes to costs and revenues due to restructuring, valuation allowances and asset write-downs, or gains and losses on disposals of businesses or assets.

SUCH Sector

SUCH sector forecasts have been provided by management of the various organizations based on broad policy assumptions provided by the Ministries of Health and Advanced Education. Forecasts for the combined school districts have been compiled by the Ministry of Education based on the requirements of the School Act and the amounts of block funding included in the budget. Every effort has been made to ensure that the financial information is compiled in a manner consistent with GAAP as financial information is converted from the accounting policies followed by the sectors to those of the government reporting entity. While the lead financial officers and chairs of the board for the health authorities, universities, colleges and institutions have signed off on these forecasts, final plans are still subject to formal approval of their boards, as well as approval by School District boards. Final approved plans may therefore differ from the management forecasts included in the budget.

Some post-secondary institutions within the college sector have forecast deficits for 2006/07, 2007/08 and 2008/09. Government has not approved these forecasts since a funding review is currently underway and will be completed later this year. Upon completion, it is expected that revised forecasts with balanced budgets will be submitted by the institutions reflecting the results of this review. These forecasts will be included in Budget 2007.

Spending

The spending forecast contained in the fiscal plan is based on ministry and taxpayer-supported Crown corporation and agency spending plans and strategies, as well as SUCH sector forecasts. Details on major assumptions and sensitivities resulting from changes to those assumptions are shown in Appendix Table A11 and in ministry service plans. The main spending issues follow.

Public Sector Compensation

Collective agreements for almost 90 per cent of public sector employees are up for renegotiation over the next four months. A multi year funding envelope of up to $6 billion has been included in the fiscal plan for compensation agreements across the public sector.

This amount includes a $1 billion early incentive available in 2005/06, $4.7 billion for new wage/benefit compensation increases, and a dividend, up to a maximum of $300 million, if the projected surplus at March 31, 2010 is greater than $150 million and if settlement expiry dates are not before March 31, 2010.

Demand-driven Programs

The government funds a number of demand-driven programs such as PharmaCare, K 12 education, student financial assistance and income assistance. The budgets for these programs reflect the best estimate of demand and other factors such as price inflation. If demand is higher than estimated, this will result in a spending pressure to be managed.

Public Sector Program Delivery

The vast majority of government-funded services are delivered through third party delivery agencies that provide programs such as acute and continuing health care, K 12 education, post-secondary education, and community social services. All of these sectors face cost pressures in the form of program demand and non-wage inflation.

Treaty Negotiations and New Relationship

The government is committed to negotiating affordable, working treaties with First Nations that provide certainty regarding ownership and use of provincial Crown land and resources. The province has concluded Agreements-in-Principle with the Lheidli T'enneh, Maa-nulth, Sliammon, Snuneymuxw, Yekooche, and Tsawwassen First Nations. The province is seeking to reach Final Agreements with First Nations and the federal government. The province will therefore focus resources on key opportunities in order to reach final treaty settlements with First Nations and Canada. Outcomes of negotiations may ultimately affect the economic outlook and the fiscal plan when settlements are concluded.

The provincial government is committed to building a new relationship with First Nations and Aboriginal communities.

In March 2005, the Province began meetings with representatives of the First Nations Summit, the Union of BC Indian Chiefs and the BC Assembly of First Nations to develop new approaches for consultation and accommodation and a vision for a new relationship to deal with Aboriginal concerns based on openness, transparency and collaboration — one that reduces uncertainty, litigation and conflict for all British Columbians.

A New Relationship document was developed as a result of these meetings. It broaches the topic of a new government-to-government relationship with First Nations, including new processes and structures for coordination, and working together to make decisions about the use of land and resources.

The shared vision is to restore, revitalize and strengthen First Nations’ communities and cannot be achieved without the participation of Aboriginal leaders and organizations. Objectives include reducing conflict and improving the health and economic well being of First Nations. The success of the New Relationship and the Treaty process may affect the economic and fiscal outlook for the province.

Capital Risks

The capital spending forecasts assumed in the fiscal plan may be affected by a number of the various factors listed below:

• weather and geotechnical conditions causing project delays or unusual costs;
• changes in market conditions, including service demand, inflation and borrowing costs;
• the outcome of environmental impact studies;
• the accuracy of capital project forecasts;
• the successful negotiation of cost-sharing agreements with other jurisdictions; and
• the success of public private sector partnership negotiations.

The growth in the province's construction industry over the last few years in both residential and non-residential construction has led to some concern surrounding a shortage of skilled workers and mounting cost pressures. Rising building material costs and upward pressure on wages increases the risk of cost overruns on capital projects, in part due to the cumulative effect of inflation. Although many of the capital projects underway have contingency budgets, increased cost pressures may impact the accuracy of capital project forecasts.

Unfunded Liabilities

The College, Public Service, Teachers and Municipal Pension Plans — the four major public service plans — are joint trusteeship plans. In the event that a plan deficit is determined by an actuarial evaluation, the pension boards are required to address the shortfall by contribution adjustments or other means. Any unfunded liabilities (funding basis) are therefore expected to be short term in nature. For example, the most recent actuarial valuation of the Public Service Plan indicated a $767 million liability (funding basis), which was addressed by an increase to contribution rates of 1.88 per cent for both members and employers effective April 1, 2006.

Catastrophes and Disasters

The spending plans for the Ministries of Forests and Range and Public Safety and Solicitor General include amounts to fight forest fires and deal with other emergencies such as floods and blizzards. These amounts are based on historical averages of actual spending and on conditions of normal to moderate severity. Extreme occurrences may affect expenses in these ministries and those of other ministries.

Pending Litigation

The spending plan for the Ministry of Attorney General contains provisions for payments under the Crown Proceeding Act based on estimates of expected claims and related costs of settlements likely to be incurred. These estimates are based on a historical ten year average of actual spending. Litigation developments may occur that are beyond the assumptions used in the plan (for example, higher-than-expected volumes, or size of claim amounts and timing of settlements). Various legal actions may also establish precedents requiring minimum service levels in various areas of provincial jurisdiction or exclude certain services from taxation, such as the pending litigation regarding provincial sales tax on legal services. These developments may affect government revenues and/or expenditures in other ministries.

One-time Write-downs and Other Adjustments

Ministry budgets provide for anticipated levels of asset or loan write downs where estimates can be reasonably predicted. The overall spending forecast does not make allowance for extraordinary items other than the amount provided in the contingency vote.