Alberta faces $4B budget deficit, Moody’s report states – Fiscal crisis blamed on huge drop in resource revenues

By Karen Kleiss, Edmonton Journal February 1, 2013

EDMONTON – Alberta’s spring budget will plunge the province $4 billion into the red, says a report issued Thursday by Moody’s credit rating agency.

The report gives Albertans an early hint at the damage falling bitumen prices could do to provincial coffers, five weeks before provincial leaders release the 2013-14 budget on March 7.

“Obviously the large fall in resource revenues is a negative reflection on Alberta’s credit, as is the fact that they have a very large reliance on resource revenues, which is a pretty volatile revenue stream,” Moody’s analyst and report author Jennifer Wong said in an interview Thursday.

“However, we do note that Alberta is virtually debt-free, which allows it to absorb (economic) shocks.”

Wong said the report is an attempt to bring clarity to investors in the wake of Premier Alison Redford’s television appearance last week, in which she warned Albertans the province is expecting to earn $6 billion less in resource revenues than it earlier anticipated.

Redford and her ministers in recent weeks have repeatedly warned Albertans that an oil glut in the United States means lower prices for Alberta bitumen, falling royalty revenues and “tough choices” ahead.

Details have been scarce, however, and the government will not say what programs and services will be cut.

In her report, Wong writes that “all else equal, a fall in revenues of this magnitude would mean a deficit of $4 billion for 2013-14, or about eight per cent of revenues.”

Finance Minister Doug Horner declined to comment on Moody’s deficit figure Thurdsay, because he hadn’t read the report and wasn’t clear on the agency’s assumptions and projections.

“I met with Moody’s last fall when I was in Toronto and met with the other credit ratings agencies and investors in the United States,” Horner said. “I can tell you that our financial situation is extremely strong in their eyes as well.

“Even with deficits, the credit rating agencies have maintained our pristine triple-A credit rating better than any in Canada. I’m very mindful of the fact that what I want to see after this budget is the fact that Alberta will have the strongest financial position of any jurisdiction in North America.”

Mel McMillan, an economics professor at the University of Alberta’s Institute for Public Economics, said he doubts a deficit will impact the province’s triple-A rating.

“Most of (the $4-billion deficit) will likely be (taken from) the sustainability fund,” McMillan said, referring to Alberta’s $5-billion savings account. “But what do we do if we have a $4-billion deficit next year?”

He said if Albertans want to sustain provincial spending, they will have to find additional sources of revenue.

“Perhaps resource revenues will recover — I call that the cross-the-fingers approach — but maybe they won’t. We just don’t know. In the meantime, do we go into debt? Do we increase taxes?”

Liberal leader Raj Sherman said “the common-sense middle is to cut wasteful spending and address issues of revenue and taxation.

“That’s where the Alberta Liberals stand,” he said.

NDP leader Brian Mason said if the estimate is correct it is “a major failure on the part of the Redford government.

“She made three promises, none of which I think she is going to be able to keep. The first was to balance the budget in 2013-14, the second was no tax increases, and the third was no service cuts.

“Good luck with that, Alison.”

With files from Sarah O’Donnell

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