Three months ago, on August 31^st, Alberta’s 29^th Finance Minister, Doug Horner, violated the Government Accountability Act with the release of the first quarter fiscal update.

By midnight on Friday November 30th, Minister Horner will likely do that once again.

Yesterday, Minister Horner released the 2012-13 Second Quarter Fiscal Update.

While the update specifically details on page 4 how the ministry believes it’s in compliance with the Government Accountability Act, it’s still not.  To be sure, they have slightly improved the reporting from the first quarter, adding in projections from the time of the budget for both the second and third quarter, breaking down revenues again into 43 categories instead of just 8, adding in a chart on disaster/emergency funding, a chart on capital amortization and a chart on financing (borrowing) requirements.

That last chart, which was missing in the first quarter is specifically required under Section 5(1)(g) of the Government Accountability Act, so it’s nice to see it back in the report.

And it was nice that a Calgary Herald editorial picked-up on the fact that the Canadian Taxpayers Federation was responsible for getting the Finance Minister to do a slightly better job.

That being said, unless the Finance Minister releases more information in the next 36 hours, the Government Accountability Act will still be violated in one very clear way and one less so clear (but more important) way.

The blatantly obvious violation of the Act:

Section 5(1)(f)

Under section 9(1) of the Government Accountability Act, the government is required to report quarterly on the “accuracy of the consolidated fiscal plan for a fiscal year.”

What, pray tell, exactly is legally required to be in a “consolidated fiscal plan?”

Thankfully section 5 of the Act lays out the “Specific contents of consolidated fiscal plan.”  Seriously.  It’s right in the same Act.  Right there in black and white is what’s required, by law, to be publicly reported on both at budget time and every quarter.

Section 5(1)(f) reads: “the net financial position and breakdown by liabilities and financial and other assets.”

Meaning, the government must put in its consolidated fiscal plan the net financial position.  And it must give a breakdown of liabilities and assets.  In other words, it must include a balance sheet. And as such, until this past August, the finance minister always provided an updated balance sheet as part of the quarterly update.

Feebly, on page 4 of this most recent 2^nd quarter fiscal update the finance department attempts to claim that because it provides an update on the balance of the Sustainability Fund as of September 30^th ($4.997 billion), that meets the requirement of providing the “net financial position” of the government and therefore the Section 5(1)(f) of the Government Accountability Act. 

Ok, well then where’s the rest of the balance sheet?  How much equity is in province’s self-supporting lending organizations? What the balance of our endowment and other funds?  How much equity do we have in commercial enterprises?  How much money is left in the Debt Retirement Account? What other financial assets do we have?  How about the liabilities?  What’s our accumulated debt? How large are our pension liabilities? How much do the self-supporting lending organizations owe? What liabilities are on the books for capital projects or other liabilities? What’s the current value of all of our capital assets?

This is information that is required by Section 5(1)(f) to be reported on quarterly and it’s missing, from both the first and second quarter fiscal update.

The only portion of the Balance Sheet they do provide is an old figure on the Sustainability Fund and a separate report on the value of the Heritage Fund.

The less obvious, but more important violation of the Act:

Section 9(1)

Section 9(1) of the Government Accountability Act reads:

Reports on progress

9(1) The Minister of Finance must report publicly to the Lieutenant Governor in Council on the accuracy of the consolidated fiscal plan for a fiscal year,

The key words in this section are “accuracy” “consolidated fiscal plan” and “fiscal year.”

We already know what’s required in the consolidated fiscal plan, so let’s focus on the other two.

“Accuracy” and “Fiscal Year”

For 19 years the government used to provide updates as to where they thought they would be at the end of the fiscal year on both the revenue and expenditure side of the ledger. In fact, for all 13 charts in the normal quarterly report they would provide updated forecasts to the end of the year.  They would then also provide actual results for anyone who was interested (not many). 

Now they are only providing information for the actuals and projections for the first 6 months and the old projections (budget time) for the next three months.

While the information is somewhat interesting, it’s not useful in determining accuracy of the consolidated fiscal plan for the fiscal year. 

Perhaps this is best explained using a driving trip from Edmonton to Calgary as an example:

Imagine you are making the drive from Edmonton to Calgary to meet with a friend for lunch.  You tell them the day before you leave that you’re going to depart at 9am and be there around 12pm.  That’s the plan.  You then call them from Red Deer at 10:45am to tell them that you had to stop for gas and that you thought you would have been in Red Deer at 10:30am, but then refuse to tell them what time you think you’re going to arrive in Calgary.  Is it still at 12pm?  Are you planning a 2-hour shopping trip at the Balzac mall and won’t be making lunch after all?  Did you get reports of clear highways ahead or a snow storm coming in and closing the road?  You might know all of these things, but you’re not telling your friend any of this. 

In this illustration, your friend might appreciate getting an update as to when you reached Red Deer, but really what they want to know is if you’re going to be late for lunch. 

The government has told us where they are and where they thought they’d be after 6 months, but unlike the past 19 years, they’re no longer telling us whether they’re still on target for the whole year.

Section 9(1) requires them to report on the accuracy of the budget for the fiscal year, not just for the first six months of the fiscal year.

Further, as demonstrated in the first quarter fiscal update press conference, reporters who have been covering these updates for more than a decade could only understand whether the budget was accurate when they asked questions about individual sections. 

The government will only tell us that they’ve already run a $1.3 billion deficit and that they think that it might be somewhere between $2.3 and $3 billion by the end of the year.  But they don’t tell us why they think that, where money will be spent, or where the money will come from. 

Further, unlike previous updates they also no longer provide explanations as to whether variances are a result of in-year decisions or just poor estimates. 

For example, we see on page 7 that the actual operating expense for the department of health is $118 million higher than the estimate made for the first six months.  Does this mean that the six month estimate was wrong or that the government made a decision to increase spending?  Will it be back on track and hit the estimate provided in the budget by the end of the fiscal year, or will it be higher because the government decided to spend more than budgeted?  We don’t know.  Since the government no longer provides projections for the end of the year we have no idea whether the budget was accurate or not. 

If we had year-end projections, we could see whether they are in-line with the budget, higher or lower.  That would allow us to ascertain accuracy.

In closing, the Finance Minister is clearly in violation of the law right now.  But to remedy this he could opt to change the law.  The government could re-write the law to remove those sections, or remove any requirement to report quarterly at all. The bottom line is that for 19 years the government thought it was important to ensure they were being transparent with how they handled the finances of the province.  Now they do not.  And when governments stop providing information about the finances of province… look out.  It usually means they have something to hide.