At the end of August, Finance Minister Doug Horner released the province's first quarter Fiscal and Economic Update. The minister boasted that Alberta's books might end up between a $247 million deficit and a $250 million surplus when the year is finished. The headlines of the minister's press release tried to spin these numbers to the media and voters, but the charts stapled to the back of it told a very different story.
In fact, the numbers show that even though the province had a welcomed bump in revenues during the first three months of the fiscal year, it is still on track to post a consolidated deficit of $4.9 billion; not including any flood related spending. So why is there a $4.6 billion difference between what the government says the deficit is, and what the Canadian Taxpayers Federation (CTF) says it is?
Last year, the province repealed the Government Accountability Act as well as radically changed its accounting practices. Both lead to sharp criticism from Alberta's übber polite Auditor-General Merwan Saher.
The changes effectively took $5.2 billion in annual capital spending off the main set of books so that it wouldn't count when tallying up the surplus or deficit. This is because Mr. Horner believes that the deficit should only account for the day-to-day spending of the government, and not total revenue versus total expenditures.
Of the $5.2 billion being spent on capital in fiscal year 2013-14, $4.6 billion (89 per cent) is borrowed. That is capital spending that the province has to raise either through public-private-partnerships (P3s) or through old-fashioned debt. Taken together with the operating shortfall of $247 million, Alberta has a consolidated deficit of $4.9 billion.
However, the CTF's calculation of a $4.9 billion deficit doesn't take into account flood related spending. While Premier Redford has stated that the flood's price tag will be 'well over' $5 billion, Finance Minister Horner opted not to include any estimate of what portion Alberta would be on the hook for after insurance and federal aid. Further, no estimate was provided as to what fiscal years flood spending was expected to fall into.
In the absence of official government estimates, we can expect that Alberta's share will fall between $1 billion and $3 billion. Now tack that onto our deficit of $4.9 billion and Alberta could come up $7 billion short on the high end.
Recently, Premier Redford responded in writing to the CTF's earlier calls for a budget revamp. In the letter, Premier Redford directly opened the door to borrowing for the flood, but said that it may not be necessary because the government had $3.3 billion left in the Sustainability Fund (now called the Contingency Account). This is technically true, but fails to take into account that Alberta is already borrowing $4.6 billion for its Capital Plan deficit, and will draw down the Sustainability Fund by approximately $226 million for the Operating Plan.
In short, Alberta was already borrowing against the entire Sustainability Fund (and more) for the Capital Plan, and was planning on spending some of it directly. Or put another way, it's like keeping a small amount of cash in the bank while you take out a large line of credit.
Long story short: grab a bailer, Alberta, this flood isn't over yet.
Derek Fildebrandt is Alberta director of the Canadian Taxpayers Federation.
