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Faced with deficit, Alberta Premier banks on rebounding oil prices

Despite sagging oil prices and a growing deficit, Alberta’s premier says sharp budget cuts aren’t on the table.

Speaking Wednesday at a conference of the province’s municipal politicians -- whose cities and towns rely on the province for hundreds of millions in infrastructure transfers -- Alison Redford said the growing deficit wouldn’t mean major changes to the current budget, suggesting the government is banking instead on trimming spending through “in-year savings” and waiting for a revenue rebound.

The comments come as oil trades around $90 US a barrel, about 10 percent below government projections.

“It will have an impact, and we know we’ll have to address that, but we aren’t budgeting for Alberta’s future based on the first quarter of 2012. And we will not balance the budget on the backs of municipalities,” she told the morning crowd at the Alberta Urban Municipalities Association conference, which responded with loud applause.

Non-renewable resource revenues (mostly oil royalties) make up 28 percent of revenues for the debt-free, PST-free province – any drop in crude oil prices, as such, gouges the treasury.

The government had forecast $99.25 a barrel for oil, which the opposition Wildrose party had dismissed as an unachievable, “Alison in Wonderland” projection. Through the first quarter, the price averaged $92.75. Each $1 drop in the oil price drains $223 million from the province’s coffers annually.

All told, wealthy Alberta is on track for an additional billion-dollar shortfall in a budget that already forecasts a deficit of $886 million. But Redford, who won a commanding majority in an election five months ago, is signalling she prefers a deficit to sudden cuts.

“We were elected in April based on investing in families and communities, in healthcare and in education, and in infrastructure. And making sure we’re building schools and supporting family care [health] clinics, that was an important part of the work we’re doing,” she told reporters.

Speaking to the AUMA audience, Redford also said infrastructure spending is critical as new residents move to the fast-growing province. “They don’t bring new schools for their children, they don’t bring roads and they don’t bring hospitals. That’s our job.”

The health, education and infrastructure ministries collectively make up 60 percent of the province’s $41 billion budget. Alberta Finance says each department is looking for “in-year savings.” To do so without touching health and education is either unachievable or would mean deep cuts in other places.

What Redford also didn’t tell Wednesday’s crowd is it’s not just a first-quarter problem -- the province’s second quarter ends this week, with the oil price lagging consistently below provincial forecasts.

Speaking to reporters at the legislature later Wednesday, Redford declined to say what would be cut (that will only be made public “in the full course of time,” at the government’s discretion), saying only that the province’s system of “results-based budgeting” will help it save money.

Critics say the province needs to rein in spending and be more transparent about its finances, rather than being evasive on revenues, whether cuts are coming and what might be hit. (Redford’s government has released far less detailed financial updates than her predecessors, prompting the Canadian Taxpayers Federation to accuse her of hiding the books.)

“They have increased revenues but they’re hiking spending even faster. They project for the best circumstances. And it’s no wonder the books don’t balance,” says CTF Alberta Director Derek Fildebrandt. “We’re really fearing they’re trying to prepare the public for this game where you always push a balanced budget two years down the road.”

Redford’s speech Wednesday was significant because much of the province’s infrastructure spending is done through municipalities, and it was a major election issue. The opposition Wildrose party would have slowed some projects to spread the costs out; Redford pledged a building boom. Capital spending in the first quarter, however, was already down by a quarter – $249 million, down from an initially budgeted $336 million.

The province hasn’t cut its Municipal Sustainability Initiative, which is how it transfers most funding to cities and towns, but has pulled back elsewhere.

“We’re looking, as the president of the treasury board has said, at in-year cuts. And we’re in the process right now of making some decisions, which will in the full course of time become what we talk about in terms of government decisions,” she told reporters Wednesday morning.

Fildebrandt said former premier Ralph Klein balanced the budget with a much lower oil price, and that there’s no excuse for Alberta not being in surplus. “It should never be a question of deficit in Alberta. This is Alberta. It’s crazy that we’d ever run a deficit,” he said.

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