On August 30, Premier Alison Redford responded to our repeated calls for Alberta’s government to amend its budget plan to ensure that the province doesn’t break the bank (even more) following the massive June floods.

In a report last week (revised after the fiscal update), the CTF calculated that Alberta was already on track to run a $4.9 billion deficit even before the flood, based on the budget tabled last winter.

The premier directly addressed the CTF’s call for an emergency budget,

“The immediate costs of the response are being accommodated within current funding appropriations. However, due to the magnitude of the disaster, government may come forward with a supplementary estimate later in the year, which will include an update to the fiscal plan.”

This is a welcome change in tone from the Premier’s initial reaction to the CTF’s call for an update to the budget:

“They [the CTF] shouldn’t be making people afraid. We are a government that has put in place a sound financial plan. We have access to cash. We’ve made the right decisions with respect to investing in infrastructure and we have the capacity to deal with this.”

To be fair, the Premier had been working a bit of overtime when she gave her initial reaction to the CTF’s proposal, so she may have not been in the mood for anything drawing attention to the fact that the $16.8 billion Sustainability Fund had been drawn down. Her written response of August 30 is much more measured and, even encouraging in some respects.

The Premier also responded to the CTF’s call for the province to budget $500 million annually for emergency and disaster spending.

“Your recommendation to increase this provision in the provincial budget will be taken into account as government considers all input and makes decisions based on what is best for the entire province.”

Her statement in this regard is non-committal, however politicians generally don’t respond to something unless they want to talk about it. From that perspective, this is encouraging news.

Previously, the province budgeted next to nothing on disasters, but spent an average of more than $500 million annually; however, the province made a significant improvement in the last budget by earmarking $200 million. This is still more than $300 million short of the average disaster spending over the last decade.

Premier Redford was less forthcoming in her comments regarding the potential of Alberta borrowing to pay for the flood. The Premier directly opened the door to borrowing for the flood, but said that it may not be necessary because the government had $3.3 billion left in the Sustainability Fund (now called the Contingency Account). This is technically true, but fails to take into account that Alberta is already borrowing $4.6 billion for its Capital Plan deficit, and will draw down the Sustainability Fund by approximately $226 million for the Operating Plan deficit. Without accounting for any flood spending, this leaves the province with a deficit of $4.9 billion, 95% of which will be borrowed from outside of the Sustainability Fund.

In short, Alberta was already borrowing against the entire Sustainability Fund (and more) for the Capital Plan, and was planning on spending some of it directly. The Premier’s response of August 30 to the CTF makes certain now that the Sustainability Fund will be directly spent to pay for flood costs, and that they may or may not have to go beyond that with direct borrowing.

Since the Sustainability Fund was already 140% borrowed against (pre-flood), it really is a moot point if they borrow even more to fund flood damage, or spend the rest of the fund itself.

Finally, the premier stated categorically that she would not reprioritize any capital projects in order to free up money to pay for flood damages.

“We are not going to put work on hold all around the province because of the flood. Budget 2013 included a carefully considered plan to borrow for the Capital Plan along with a clear debt management plan.”

Well, at least she was clear about it. It might be irresponsible to continue with business as usual when the province’s already massive $4.9 billion deficit could reach towards $7.4 billion with flood damage, but at least she gave a straight answer.

To summarize: the premier will consider altering the fiscal plan in the fall (maybe a good thing), she will consider establishing a realistic disaster and emergency budget (a very good thing), she isn’t sure how all this new debt will look on the books (doesn’t really matter at this point), and she will make no change whatsoever to capital spending (too bad).

Click here to read the Premier's full response to the CTF: http://www.taxpayer.com/media/Fildebrandt.pdf