EDMONTON – After a rosy spring for Alberta’s finances, weakening resource revenue and poor investment income during the summer have combined to put the province farther into the red.
Delivering its second-quarter fiscal update on Monday, the government is projecting a $3.1-billion deficit at the end of its 2011-12 fiscal year. While that’s still ahead of initial budget estimates of a $3.4-billion deficit, it’s considerably worse than the $1.3-billion deficit predicted after the first quarter than ended June 30.
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One main reason for the change is a decline in resource revenue. Conventional oil royalties are now projected to be $462 million less than they were at the end of the first quarter. This is due to a drop in oil prices and a less favourable exchange rate with the U.S. dollar.
Bitumen royalties are expected to be nearly $1 billion lower than the first-quarter estimates, due to higher operating costs that has led to lower-than-expected production in the oilsands.
These declines were somewhat offset by a projected record year in the sale of Crown leases, which is expected to generate revenue of $3.3 billion this year. That is a $2.3-billion increase from the budget and $955-million increase from first-quarter projections.
Weak global markets have also hit the province’s investments, resulting in a revenue forecast $625 million lower than at first quarter.
On the expense side, government costs have risen $860 million from the budget and $210 million from the first quarter.
The main reason for the change is increased bills for responding to disasters and emergencies, including forest fires, flooding and the battle against the mountain pine beetle. The province is spending $234 million this year to deal with the Slave Lake wildfire.
The provincial books have also been affected by Premier Alison Redford’s decision to restore $107 million in education funding.
Overall, the province is predicting total revenue of $36.8 billion, and total expenses of $39.9 billion.
The deficit is being covered by the province’s sustainability fund, the value of which is projected to dip to $8.1 billion by year end on March 31, 2012.
As for the Heritage Savings Trust Fund, its value stood at $14.7 billion by Sept. 30. That’s decline of about $400 million since the end of the first quarter, due to poor investment markets.
This drop has meant a decline in investment income from the fund, which the province puts toward its general revenue.