Oil prices are in a freefall, to the delight of motorists and the consternation of officials in Saskatchewan Finance. Minister Gantefoer wants to put more money into school funding and municipal revenue sharing. Yet relying on the topsy-turvey world of oil prices and the revenues that follow is the Fool's Gold of government finance.

Whether $40 a barrel or $140 a barrel the Saskatchewan government should implement a policy that prohibits oil and gas revenues from ever being used for program spending. Instead, it can direct the money from oil royalties into the Debt Retirement Fund. And when that multi-billion dollar burden is shed, such revenues could be put in a Legacy Fund to earn money for future generations.

The idea is innovative, though not revolutionary. This path has been taken before - at least three times.

In 1976, as the Alaska Oil Pipeline was completed, the state government added an amendment to its constitution: "At least 25 percent of all mineral lease rentals, royalties, royalty sales proceeds, federal mineral revenue-sharing payments and bonuses received by the state be placed in a permanent fund, the principal of which may only be used for income-producing investments."

In time, it created a special corporation to manage the funds. By now the Alaska Permanent Fund is worth more than $28 billion. Earlier this year, it handed out $2,069 to each resident as dividends, plus a one-time $1,200 "resource rebate."

Norway took a similar path and created a savings fund back in 1991. Since 1997, three quarters of oil revenues have been put into it. The results have been staggeringly successful for the oil-rich nation. As of March this year, the fund had $368 billion-about $78,000 for each Norwegian. Already, ten percent of the government's revenue comes from this source.

Alberta founded its Heritage Fund the same year as Alaska. However, Alberta contributed nothing to it from 1987 until 2005 as it spent itself into debt and then saved itself back out. The fund currently has more than $15 billion and has generated about $30-billion in earnings over its lifespan spent mostly on government programs.

Even so, many say Alberta has slipped into dangerous ground by spending much and saving little. The whistle was blown in November by the Alberta Financial Investment and Planning Advisory Commission, headed by Jack Mintz. The commission recommended aggressive measures to save revenues and grow the fund to $100 billion by 2030.

Saskatchewan can only wish. The commendable move to reduce the debt by $2.6 billion this fiscal year will still leave $4.2 billion of debt in spring 2009. Worse, this number does not include almost $4 billion of debt in the Crowns and more than $5 billion in unfunded public sector pension liabilities.

Saskatchewan can't let up on debt reduction whatsoever, even while it lowers property taxes. It must continue to tackle this problem in proportion to its fiscal capacity. With potash prices stable, and widespread expectations that Saskatchewan will lead the country in economic growth again next year, only one question mark remains.

That's oil. Oil royalties earned almost $1.7 billion last fiscal year, and, until recently, were expected to come close to that again this year. Last year, however, the surplus was $2.6 billion. The province didn't need to touch that royalty revenue, and, provided it budgets right, shouldn't need to again. The price of oil will determine only one thing-the capacity of the province to pay down debt-not the capacity of regular program spending.

In time (hopefully not long from now), oil royalties could sustain a Legacy Fund that earns dividends forever. Oil, once extracted from the ground, can never return. But the revenues from that oil can be kept forever to the benefit of present and future generations. Could there be a better way to use a non-renewable resource