How oil-blessed Alberta has sunk surplus revenues into funds for rainy days
| Edmonton, Alberta
Albertans pay lower taxes than their fellow Canadians in Ontario. Much like Texans, they reap the benefit of royalties and other revenues from the province's rich resources of oil and natural gas.
``It's some compensation for the snow,'' joked James M. Drinkwater, a provincial treasury official.
But also as in Texas, revenues in Alberta stand to be hit hard by the major decline in oil prices.
Unlike Texas, however, Alberta's reserves and production of oil and gas are so far still growing -- not falling. And also unlike Texas, Alberta, as Mr. Drinkwater put it, ``bought an umbrella for a rainy day, in the economic sense.''
In 1976, when the province began to reap the rich financial harvest of OPEC-induced increases in oil prices, the Alberta government created the Alberta Heritage Savings Trust Fund.
In its first year, the province put $1.5 billion (Canadian) of surplus revenue into this provincial savings and investment fund.
But today the fund has financial assets of some $12 billion Canadian (US$8.4 billion), and it has put together ``deemed'' assets (parks, a children's hospital, a health science center, and other ``investments'' in special projects that do not necessarily have a financial return) valued at $2 billion.
Those assets fall far short of the $50 billion to $60 billion believed to have been placed in Saudi Arabia's international monetary reserves, for example.
Alberta, however, has only 2.4 million people, compared with the 6 million in the desert kingdom.
Up in Alaska, that state's Permanent Fund, also benefiting from oil revenues, has about $7 billion in assets. The state has only 401,000 people.
Whatever, without the fund, Alberta taxes would have gone up substantially in the last four years when the province went through a business slump.
In the fiscal year that ended last March 31, the fund transferred net income of $1.575 billion to the provincial government's day-to-day operating accounts. To raise this amount of revenue, Alberta would have had to introduce a 7 percent sales tax or double provincial personal income tax receipts.
Before fiscal year 1983-84, Alberta set aside 30 percent of its nonrenewable resource revenues in the Heritage fund and left that money there to be invested or spent on special projects.
Then the provincial legislature voted to reduce the 30 percent to 15 percent and to use the fund's investment income to help pay for government services. Since that time the fund has continued to grow in nominal dollars, but it has stagnated in real terms.
Last fiscal year, for example, the province turned over $737 million to the fund from its resource revenues and took out $1.575 billion in investment income, for a net addition of $837 million to provincial revenues. Since total provincial revenues amount to about $10 billion, the fund's income is important.
In effect, this is a bookkeeping switch that gives provincial politicians the opportunity to appear to be prudently saving money for the citizenry without actually doing so.
The fund, as an official noted, is extremely popular with Albertans.
In the current fiscal year, the budget of last March indicates an addition of $677 million to the fund, somewhat less than in the previous year.
In fact, thriving oil and gas revenues from royalties and land lease sales probably boosted that amount perhaps 10 percent above the budget number, one source said.
With the inclusion of income from the Heritage fund, provincial revenues approximately match outgo. Alberta is the only remaining Canadian province with a triple-A credit rating, an official boasts. Ontario, the giant industrial province to the east, lost that top credit rating last year.
To keep the budget in balance, the province has exercised ``tough restraint'' on spending for three years. In the current fiscal year expenditures are going up 4 to 5 percent, not much at all after taking the effect of inflation into account.
But on a per capita basis the province has been spending about one-third more than the average of other provinces on health, education, and public works.
``We are a long way from the bare bones yet,'' an official notes.
Provincial officials, however, expect less natural resource revenues in the new fiscal year, starting in April, if the price of crude remains depressed.
A rule-of-thumb measure is that each $1 decline in the price of a barrel of oil costs the province $130 million to $140 million.
Alberta's government could be facing a real budget squeeze.