The Canadian Taxpayers Federation (CTF) will be in Edmonton this morning for the release of Finance Minister Doug Horner’s 2^nd quarter fiscal update. Based on the 1^st quarterly update and developments since, here are a few expectations, predictions and hopes.

Continued, large deficits, but maybe a bit smaller than Q1 

At the time of the last quarterly update, the CTF projected a consolidated deficit of $4.9 billion, not including any flood-related spending. If we exclude flood-related spending, this was a slight improvement over the $5.1 billion that the CTF projected from the original budget documents.

There are rumors coming from the government that the deficit – at least in the way they calculate it – will come down a bit due to lower than budgeted spending and higher revenues. This is positive news, although anything still in the neighborhood of $4.9 billion is still a massive deficit.

Expect them to post another large deficit – albeit smaller than Q1 – but don’t expect them to be forthcoming with the numbers of the actual, consolidated deficit. The CTF will be onsite to do the calculations in the event that the government does not.  See more on how we do this below.

Flood Cost Estimate

The government has yet to nail a hard number to the flood related costs that it will pick up. While it was a $5-$6 billion event, a large portion is being picked up by the feds, and a not insignificant sum by insurance companies. Will we get a harder estimate on what the cost will be to the Alberta government? Importantly, will they tell us in what year they expect the spending to be recorded?

Funny money?

How will Horner actually report the deficit? Since the government repealed the Government Accountability Act during the last budget, Horner has provided only the “operating balance” of the budget for day-to-day expenses, but no consolidated deficit or surplus that includes both operating and capital spending.

The result is that Albertans cannot trust their government to give them an honest picture of the province’s finances. This is so extensive in fact that Auditor General Merwan Saher slammed the government for this in his July 10^th, 2013 report.

There is a chance that Horner will be a little more forthcoming in reporting the numbers this time around, although we’re not holding our breath.

A return to regular quarterly reporting?

The Finance Minster’s quarterly updates last year were woefully lacking in detail - so much so that the CTF believes that it actually broke the law. To get around this statutory inconvenience, Horner repealed the Government Accountability Act to give himself massive leeway in determining what information the public is entitled to.

Expect details to be included when there is optimistic news to report, but the minister now has the power to selectively withhold fiscal details that he deems unnecessary. If the numbers are improving however, we may get more information than last time.

How Will the CTF Calculate the Deficit?

As mentioned above, the Alberta government radically changed its accounting practices at the time of the last budget, taking billions in capital spending off the main set of books. This artificially depresses the actual size of the deficit or surplus. The CTF makes it its business to reconcile the operating and capital budgets in order to provide the public with an accurate picture of the province’s fiscal health.

Here’s how we do it (using the budget’s figures). 

The ‘operating deficit’ in 2013-14 was projected by the government to be at least $451 million. That is a cash shortfall for the day-to-day expenses of the government for things like salaries, running MRI machines and buying paperclips. This is the figure that Finance Minister Doug Horner wants Albertans think about.

Yet, while the government spends $38.6 billion on operations, there is still another $5.2 billion spent on the Capital Plan, which has been rolled into separate budget entirely.

The Capital Plan is now be funded almost entirely by debt (88 per cent), in one form or another. The reason that Minister Horner claims that the Capital Plan is not a part of the deficit, is because he essentially considers ‘borrowed money’ to be ‘revenue.’ If you don’t consider money borrowed on your credit card to be the same as money earned from your job, then you don’t agree with Doug Horner.

To understand how much of the Capital Plan is borrowed, one has to peel out several line items that are already counted in the Operational Plan. This includes things like federal transfers for capital funding and self-generated income from arms-length agencies. This leaves the Capital Plan with a funding shortfall of $4.6 billion. This is money that will come from traditional debt and public-private partnerships.

The funding shortfalls for the Capital and Operational plans taken together produce a ‘consolidated deficit’ of $5.1 billion. Since the first quarter fiscal update, the CTF has revised this figure down to $4.9 billion, although it doesn’t include a penny of flood-related spending.

The CTF’s calculation of the real, consolidated deficit excludes one area of the operational budget that some calculations have included – “cash adjustments.” There’s good reason for this, but one can only go so far when showing how the sausage is made before starting to turn stomachs.