The Government of Alberta is banking on a pipeline being built in the next four years in order to keep spending cuts to a minimum.
Alberta Finance Minister Travis Toews released the UCP government’s first budget Thursday, outlining spending cuts of 2.8 per cent – or $1.3 billion – over four years, with an eye to balancing the budget by 2022-23.
Addressing media Thursday afternoon, Toews left the door open to deeper cuts if a pipeline doesn’t come online or if a global recession descends. He said the budget was built with the expectation that Line 3 would come online in the first quarter of 2021 and TransMountain would be operational in late 2022.
“We have made projections based on what we believe are very realistic assumptions. But we’ve also pointed out the fact that if that egress doesn’t occur, if we don’t see additional pipeline access, that in fact there will be a $3-billion effect … to the government fiscal scenario. That would require additional spending restraint.”
Morinville-St. Albert MLA Dale Nally, who is the associate minister for Natural Gas, said the province’s hope is for three pipelines to be built – Line 3, TMX and Keystone XL – but they budgeted on two being built in order to build a buffer.
“When you are an energy-driven province like we are, there’s always going to be a bit of a guesstimate,” he said. “So that’s why we chose to be conservative and we said we only need two out of the three to be built.”
Revenues are expected to remain flat over the next couple of years before starting to rise in the last two years of the budget. The UCP plans to post a $600-million surplus in 2022-23, with debt projected to hit $93 billion that year.
Toews said the government has to pare down its budget deficit before it can tackle the bigger issue of debt. Addressing comparisons between the NDP’s plan for debt, which Toews claimed would have risen to $104 billion by 2022-23, the finance minister said a balanced budget comes first.
“It’s a lot of debt,” he acknowledged of the $93 billion figure.
“Ultimately, what we have to do is we have to get to a balanced budget. We have to get to a balanced budget, which this plan does, and at that point in time, as a province, as Albertans, we have to work on paying (the debt) down.”
Ken Kobly, the chair for the Alberta Chamber of Commerce, said his organization has been advocating for a zero-per-cent rise in operating expenses for years, as well as for capital spending to remain the same. He said this budget “ticked both those boxes.”
“I think this was a good, reasoned budget,” he said.
“I think it’s better than what a lot of people had predicted was going to happen.”
Crude by rail
While the four-year plan is to cut spending by 2.8 per cent, Toews said this year’s cut would be 0.5 per cent. The deficit for 2019-20 is expected to be $8.7 billion, largely due to a $1.5-billion window for the government to extricate itself from crude-by-rail contracts signed by the former NDP government.
“We will be negotiating hard to get the best deal for Albertans,” Toews said, adding the Ministry of Energy is already working to offload the contracts.
Budget by the numbers
While many departments will see cuts over the next few years, a number of key fears did not materialise. In particular, funding for libraries will be maintained and so will funding for Family and Community Support Services (FCSS) and policing services.
The province is budgeting $50 billion in revenue this year and $50.1 billion next year, $53.6 billion in 2021-22 and $57.5 billion in 2022-23, with expectations that the price of oil will rise to $63 per barrel by the last year of the budget.
“This is not a boom-time scenario,” Toews said. “This is a very cautious revenue projection.”
The budget also touts corporate tax cuts, including the Job Creation Tax Cut which will bring the corporate tax rate down from 12 per cent to eight per cent by 2022-23, as initiatives designed to draw investment and grow Alberta jobs.
As for debt, the province expects to borrow $15.1 billion this year, $15.3 billion next year, $12.3 billion in 2021-22 and $12.6 billion in 2022-23.
Consolidated debt servicing costs are estimated at $2.3 billion this year, rising to $3 billion by 2022-23.
Franco Terrazzano, the Alberta director for the Canadian Taxpayer Federation, said he felt the budget didn’t go far enough with its spending restraint.
“We’re going to be staring down the barrel of over $90 billion in debt in a few years, and this all has to be paid for with future taxes,” he said. “Yes, there is a plan to balance the budget, but we’re still paying multi-billion-dollar deficits before that, and multi-billion-dollar deficits mean more and more debt that has to get paid for by future generations.”
The province plans to roll the Alberta Child Benefit and the Alberta Family Employment Tax Credit into a new Alberta Child and Family Benefit, and also has plans to introduce a tax levy on AirBnBs.
The UCP also plans to pause the indexing of some benefits, including Assured Income for the Severely Handicapped (AISH) payments, meaning they will not rise with inflation, although they will not be cut either.
Nally said he is “incredibly” proud of the budget, which he said looks after Alberta’s most vulnerable people while still balancing the budget.
Pointing to AISH, he noted Alberta’s AISH program includes the highest payout in Canada.
“As conservatives, we’ve always been proud of taking care of the vulnerable and being generous on that perspective,” he said.
St. Albert MLA Marie Renaud, who is the NDP critic for Community and Social Services, said she expects the budget will have a significant impact on St. Albert.
“It looks like they spread the pain around quite a bit, but of course, a city the size of St. Albert is going to feel this,” she said.
Mixed news for municipalities
Municipalities will take a hit to their infrastructure and operating funding over the next few years.
The budget includes a six-per-cent cut over four years to operating funding, as well as cuts to a core capital program. The Municipal Sustainability Initiative (MSI) is a grant program that helps fund municipal infrastructure projects. The provincial government will introduce a reduction of $94 million in 2020-21 and $142 million the following year, an overall reduction of nine per cent.
St. Albert Mayor Cathy Heron said she was expecting cuts to municipal funding and is relieved they aren’t deeper, but the cuts still mean St. Albert will have to make some tough decisions in the coming years. Heron said the city will either need to raise property taxes or delay important infrastructure projects.
“Unfortunately for municipalities in general, we are now faced with raising property taxes or crumbling infrastructure. Those are our two choices.”
The budget also scraps a deal the former NDP government made to provide funding to Edmonton and Calgary once the MSI program ends. Instead, the UCP plans to introduce legislation for a new Local Government Fiscal Framework, which will apply to all municipalities.
The new framework means municipalities will split a pot of $860 million starting in 2022-23, with Edmonton and Calgary receiving just over half of that. The pot of money will be adjusted each year to reflect half the percentage change in provincial revenues. For example, if provincial revenues rise by four per cent, municipal funding would increase by two per cent.
Capital grants will also be based on population estimates as of 2020-21, instead of census data.
Barry Morishita, the president for the Alberta Urban Municipalities Association (AUMA), said he was disappointed to see the province move so quickly to set a number for the new pot of funding.
“The starting number is much too low for us to make the proper investments,” he said.
Heron said with the new plan, the devil will be in the details of how the distribution of money is calculated.
“I'm hoping because the new framework won't take place until 2022, we've got some time to to really collaborate with the government and work together and make them understand our needs a little bit better and work on that allocation formula,” Heron said.
Crown land grants cut in half
The province is cutting money it gives municipalities in lieu of taxes for crown lands by 50 per cent.
The grants will be reduced by 25 per cent this year and a further 25 per cent next year, which will allow the Ministry of Municipal Affairs to save $81 million.
St. Albert received $150,000 under that program last year, a number that will drop to $116,000 this year and $77,000 next year.
“That’s a $75,000 hit our budget over the next couple years, so that's big,” Heron said.
Holding the line on education spending
Spending on education in Alberta won’t increase for the next four years, and three education grant programs will be rolled into one.
The Class Size Funding, Classroom Improvement and School Fee Reduction grants will be combined to help fund enrolment growth, along with a one-time per-student transition grant valued province-wide at approximately $150 million.
Toews said the operating budget accounts for projected enrolment growth of 2.2 per cent (roughly 15,000 students) each year.
The province is also in the midst of coming up with a new funding formula for education, which is expected to be considered as part of next year’s budget.
Alberta plans to honour its commitments for new schools, which include a rebuild of St. Albert’s Paul Kane High School. The budget outlines $1.8 billion in capital spending for school construction and modernization, including $123 million for roughly 250 new modular classrooms and $397 million over five years for 25 new and modernized school projects, the details of which have not been released.
Joe Becigneul, chair of the board of trustees for St. Albert Greater Catholic Schools, said they aren’t really sure how this budget is going to impact education and students in the division yet.
“There doesn’t appear to be gaping holes, but there could be some holes,” Becigneul said.
The chair said the division is always concerned about transportation funding and money for inclusive education.
The chair said he had hoped the funding formula for inclusive education had been revised to more accurately reflect the needs of students with special needs.
“It costs a lot more money for a child with special needs, so you end up using some of your other dollars to provide (services) for those children,” Becigneul said, adding they will continue to pull from other pots to support students with special needs in their schools.
Public sector cuts
The size of Alberta’s public service will shrink by 7.7 per cent over the next four years.
In Alberta, there are approximately 26,000 people who work directly for the public service, meaning the cut translates to just over 2,000 jobs. The government plans to achieve much of that through attrition, hiring restraint and eliminating vacant funded positions.
Guy Smith, the president of the Alberta Union of Provincial Employees (AUPE) called Premier Jason Kenney a “job-killer” in the face of the Premier’s stated commitment to increasing jobs.
“When I talk to my members, they are burning out in some critical areas of public service and it’s just going to make the situation worse,” he said.
“This is going to damage services to the people of the province even more.”
Some 200,000 people across Alberta work in the broader public sector, and it will be up to individual government institutions to manage their new budgets. The province expects to decrease public sector compensation by 2.1 per cent over four years.
In St. Albert, up to 32.9 per cent of workers hold jobs in the public service. Some 2,430 people work in education, 3,000 in healthcare and social assistance, and 2,650 in public administration. Some 915 people work in administrative and support, waste management and remediation services, which accounts for a mix of private and public sector employment.
Nearly all the contracts the government has with labour unions will expire next year.
Toews delivered a message straight to public service workers on Thursday: “To the nurses, and teachers, and all the committed professionals who deliver to Albertans every day: work with us to bring Alberta’s spending in line.”
Nally said the attrition rate in the public sector is high enough for the province to successfully achieve the planned cut.
“I can tell you, we had long discussions about this,” he said.
“This is not an exercise in letting people go – this is an exercise in protecting the public sector.”
Orissa Shima, a nurse at the Sturgeon Hospital and president of the local nurses' union, said she is “very concerned” about the new budget and disappointed ordinary Albertans are going to be paying for the “tax cuts (Kenney's) given to the wealthy.”
“Not funding for population growth or inflation is a cut to health and education and this concerns me deeply for my children and my patients and clients. We are already stretched thin in the hospital and I’m worried for people trying to access the services they need.”
Double hit to post-secondary
Post-secondary students will take a double whammy next year as a freeze on tuition lifts and interest rates for student loans increase.
Overall tuition increases institution-wide will be capped at seven per cent per year for three years, with no program being able to raise tuition more than 10 per cent.
Interest rates will rise from prime to one per cent plus prime. That means a student with a $30,000 loan amortized over 10 years will pay $15 more per month.
Toews said the goal is to bring government funding for post-secondary in line with spending from other provinces.
“Our goal over the next four years is to adjust the way we deliver education in this province and reduce the government funding requirement,” he said.