Revenue shortfall pushes Alberta’s financial situation from bad to worse

By The Canadian Press - Tuesday, February 19, 2013 at 8:48 PM - 0 Comments

CALGARY – The Alberta government’s bottom line continues to bleed red ink and the province is planning job cuts and a wage freeze for civil-service managers to try to stem the flow.

Tory Finance Minister Doug Horner announced plans Tuesday for a three-year management salary freeze. It is to begin April 1 and is expected to save taxpayers $54 million.

The government is also reducing the number of public-sector managers by 10 per cent, or about 480 positions, over that same time period, he said. While some positions are vacant and won’t be filled, there will be some people who lose their jobs.

He blamed falling oil and gas revenue. Premier Alison Redford has coined the term bitumen bubble to refer to the difference between the benchmark prices for oil in North America and the lower price Alberta receives for its land-locked oilsands bitumen.

In the first nine months of the 2012-13 fiscal year, Horner said resource revenue was $2.4 billion lower than expected.

“The government is taking decisive, aggressive and immediate action to help address this revenue shortfall,” Horner said as he released the province’s third-quarter fiscal update.

“We can’t control world market prices but we can make decisions that will make an impact on our bottom.

“It’s costing us a lot of money. It doesn’t paint a pretty picture for the third quarter and to be honest it’s not getting all that prettier,” he added.

Alberta is now forecasting a deficit of between $3.5 and $4 billion in 2012-13 — at least four times what was originally predicted in the last budget.

Horner will deliver the 2013-14 budget March 7. He didn’t rule out further job cuts to the rank-and-file within Alberta’s public sector.

“Nothing is off the table,” he said. “The upcoming provincial budget focuses on making the tough but thoughtful decisions necessary to allow the province to continue to deliver on its priorities.”

The head of the Alberta Union of Provincial Employees said talk of layoffs and wage freezes in the public sector is “short-sighted.”

“Government staffing levels haven’t increased since the mid-1990s while the province has added a million people. Employees are stretched as it is,” said union president Guy Smith.

“I question the wisdom of freezing wages, cutting public-sector jobs, and reducing services at the same time demand is increasing.”

But the management cuts were not enough for the Opposition Wildrose party. Leader Danielle Smith suggested middle management ranks need to be thinned by half.

“It seems to me with what they’re putting forward here that this is window dressing,” she said. “The budget that was put forward last year is totally unravelling. We knew it did not contain projections that were remotely achievable.”

The Liberals concurred.

“It’s like putting your finger in the dike and hoping the problem goes away,” said Liberal member Kent Hehr. “Really it’s running around, pretending you’re doing something when you’re not dealing with the real issue.”

Horner said the lower resource revenue expectations have been partially offset by $600 million in savings across ministries and higher-than-expected corporate income tax, stronger investment income and higher revenue from gaming and liquor sales.

Premier Alison Redford had warned there will be tough choices required in the March 7 budget, but has ruled out tax increases or a provincial sales tax.

Alberta New Democrat leader Brian Mason said Albertans should expect service cuts and more broken promises in the budget based on the fiscal update.

“The PCs are obviously planning to balance the budget on the backs of Alberta families — patients, students and workers,” said Mason. “The announcement of wage freezes today should be the writing on the wall for Albertans to expect service cuts in the next budget year.”

Smith is not expecting to be pleased either.

“We don’t know what to expect on March 7,” she said. “But we know it won’t be pretty.”

Alberta’s not-so-renewable revenue

By Colby Cosh - Thursday, February 7, 2013 at 11:15 AM - 0 Comments

Todd Korol/Reuters

Alberta premier Alison Redford has put her government in national headlines with news that the province, at a time of high oil prices and outstanding labour-market conditions, is going to finish with an enormous deficit for 2012-13. The actual shortfall for the first half of the year came to $1.3 billion, and the 12-month total might be more than $4 billion. Redford blames what she calls the “bitumen bubble.” Alberta has sometimes gotten into fiscal trouble because of the unpredictability of benchmark prices for oil, but this time it is getting crushed by poor regional prices as the U.S. Midwest transforms from needy buyer to massive seller.

Economists and pundits inside and outside Alberta have used the opportunity to repeat long-standing pleas for the province to make its public revenue less oil-dependent. Since oil is a “non-renewable resource” that can only be sold once, goes the theory, the province’s share shouldn’t be used to meet ongoing government expenses; the worthy thing to do is to set it aside and invest it.

I find aspects of this argument amusing. In the early ’70s everyone agreed that Alberta’s “non-renewable” conventional oil would be gone in a decade or so. Yet the trend was for the amount remaining to keep getting larger. Meanwhile, how’s Newfoundland making out with its hypothetically “renewable” cod biz? Continue…

Pipeline economics: China needs oil, and Canada’s got it

By Colby Cosh - Tuesday, September 25, 2012 at 11:34 AM - 0 Comments

Jianan Yu/Reuters

The UC Berkeley economist Brad DeLong has said that Deng Xiaoping may have been “quite possibly the greatest human hero of the 20th century.” It’s a tough-minded, utilitarian judgment; DeLong knows that Deng, as leader of China, ordered the Tiananmen massacre of 1989. In the other pan of the balance, however, is the successful transformation of China into a free-market industrial power. That transformation, over three decades of Deng’s leadership, multiplied per-capita GDP 50-fold and lifted somewhere between 200 million and 400 million people out of poverty.

The revolution is still ongoing, and it runs on oil. Enter Canada. Hearings into Enbridge’s proposed Northern Gateway pipeline, which would link the town of Bruderheim, Alta., to the Pacific Rim at Kitimat, B.C., are being held now in Alberta and will soon shift to British Columbia. The B.C. phase of the hearings will see Enbridge challenged on whether it can successfully protect B.C. wildlands and the port of Kitimat from environmental disasters like the spill that affected the Kalamazoo River in Michigan in 2010.

But in Edmonton, the topic of discussion has been the basic economic rationale for the pipeline. Put in its simplest form: China needs oil, and Canada’s got it. In truth, however, that pretext could be stood on its head. Canada needs alternative markets for its oil, and China is the obvious one. Right now, the oil sands are more or less forced to take a U.S. Midwest price for their product. With the sudden reflation of U.S. oil reserves, Alberta has been getting an increasingly raw deal. Enbridge consultant Neil Earnest explained to hearing attendees at a Holiday Inn in south Edmonton that it costs about $7 in pipeline tolls to move a barrel of Western Canada Select crude to the Gulf of Mexico. “But the price [of WCS] today at Edmonton is not the Gulf Coast price minus $7,” he explained. Owing to the huge oversupply of crude in the U.S., “it’s the Gulf Coast price minus $30.”

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Strange bedfellows indeed

By Colby Cosh - Wednesday, February 10, 2010 at 12:12 AM - 16 Comments

The theory that new Alberta finance minister Ted Morton was put in place to placate the fiscal hawks and play the cold-eyed budget-slasher—a zombie Steve West—was always dubious. I’m not saying Morton wouldn’t suit the role, and he may still be called upon to wield the scalpel. But the Stelmach government has one obsessive, overriding imperative: to announce a budgetary surplus for the fiscal year 2012-13, immediately before calling an election. And Alberta’s revenues depend to a fantastical degree on world prices for commodities, chiefly natural gas (though the end-products of the tarsands are catching up fast).

So either the Tories will pull it off or they won’t. Morton’s job is to keep the fiscal plan on track for the 2012 “Mission Accomplished” announcement and pacify various interest groups in the meantime—if possible, without exhausting the rainy-day Sustainability Fund established in 2003 to address temporary revenue downturns resulting from the volatility of Alberta’s petro revenues.

As of today, the master plan is still pretty much on target. Revenues were slightly stronger than expected for 2009-10, limiting the deficit to $3.6 billion. Today’s 2010-11 budget allows for another deficit of $4.7 billion with a 4% overall increase in spending. After that, the government expects gas prices to rise slowly from the present trough and pull Alberta out of the red. The futures markets expect pretty much the same thing. (Alberta finance ministers could conceivably play dirty with oil-and-gas pricing projections, since they ultimately get to pick which forecasters they listen to; but while the temptation must be strong, as a rule they refrain. International lenders and rating agencies are watching, and they expect stern realism. From governments, anyway.)

That’s not to say that Morton and his predecessors haven’t cut things close. The projected 2012-13 surplus is tiny and the amount expected to be left in the Sustainability Fund account is less than $3 billion. One unexpectedly warm global winter or other economic shock could eat into both quantities fast, as could a simple continuation of the methane glut. And that would mean scalpel time. The Finance Minister is already screwing a tight lid on spending in some areas that are, considered from a non-Machiavellian moral standpoint, particularly recession-sensitive: child-welfare interventions, employment retraining for adults, anti-homelessness measures and social housing (whose relevant ministry’s 2010-11 budget takes a 19% boot in the shorts).

But, like the political scientist he is, he’s taking care of the electorally armed-and-dangerous departments: seniors, health, and education—the S.H.E. Who Must Be Obeyed when governing a province. Anybody who still thinks of Morton as a whip-cracking Wyoming cowboy bent on Goldwaterizing Alberta should contemplate the astonishing reactions to this budget. The president of the Alberta Federation of Labour called it “clearly a victory” for public services (by which they mean, “for the union”). The Friends of Medicare (i.e., the Most Holy Order of Nurses Militant) agreed. The President of the Alberta Teachers’ Association, still amicably disposed after its pension bailout, declared with satisfaction that “The government listened to Albertans.” These are the dogs who have barked loudest and most persistently during the past 17 years of Conservative government. Ted Morton sure makes for a funny-looking pack leader.

There's an orgy in Edmonton, but it's not what you think

By selley - Friday, April 25, 2008 at 12:12 PM - 0 Comments

Must-reads: Colby Cosh and Rosie DiManno on Robert Baltovich; John Ibbitson on the Democratic race; Peter Worthington on Rob Anders and Bob Rae; Chantal Hébert on the Tories in Quebec.

Rob Anders ain’t so bad
Not compared to Bob Rae, anyhow, or—shudder—Pierre Trudeau…

“To its credit,” Jeffrey Simpson writes in The Globe and Mail, “the national NDP was ahead some years ago in identifying climate change as a key issue.” The problem is what happened in the “some years” since. At the federal level, the Dippers “don’t want to touch a carbon tax … lest they be called tax-and-spenders” and lose support among carbon-belching unionized workers. And in British Columbia, the provincial NDP is busy opposing Gordon Campbell’s policies—which themselves “are so obvious and politically inoffensive as to be, well, yesterday’s”—in hopes of attracting votes in the “slow-growth or no-growth parts of the province.” It’s a losing strategy, Simpson assures us—but then, it wouldn’t be an NDP strategy if it wasn’t.

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