On June 27^th, Finance Minister Doug Horner released the 2012-13 Annual Financial Report for the province of Alberta, with what presumably passes for a calculation of the deficit: $2.8 billion.

This deficit calculation however leaves out billions more in spending on capital projects. Horner’s habit of leaving out critical (normally embarrassing) data in financial reporting has a long, long, long history.

So what was the real deficit last fiscal year (2012-13)?

The actual ‘consolidated cash deficit’ was $3.805 billion; that is, the net amount that the government spent above and beyond its actual revenues.

So why does the Canadian Taxpayers Federation (CTF) differ by nearly a billion dollars with the government’s assessment of the deficit?

It depends on what you include or exclude from the expenses column. As it turns out, Horner likes to exclude a little more than we do.

Table 1 is the CTF’s reconciliation of the numbers found in the Annual Report’s Fiscal Tables.

TABLE 1 (in millions)

Cash Adjustments

There is nothing wrong with how the government calculates its ‘Operating Surplus/Deficit,’ but in its ‘Cash Adjustments’ things get sticky. A ‘cash adjustment’ is a way for the government to reconcile money coming in an out of its coffers that it doesn’t consider to be spending in the traditional sense of the word, such as loans.

There are $2.381 billion moving around within ‘cash adjustments,’ but what is actual spending and what is just an, ‘adjustment?’

Included As Spending

The CTF includes ‘capital cash adjustments’ as spending in its calculation of the deficit. That is because this is money set aside from Operating Expenses and spent on capital. There is no good reason for not counting it in the budget’s balance.

This adds $963 million in spending to the balance sheet.

Excluded from Spending

CTF excludes two major ‘cash adjustments’ from spending: ‘retained income of funds and agencies’ and ‘other cash adjustments.’

‘Retained income from funds and agencies’ is primarily money from arms length agencies and crown corporations. This includes the Alberta Treasury Branch (ATB) which transfers its profits to the government of Alberta as revenue, but since the government doesn’t retain any of this revenue, it is transferred back to the ATB. Since no ATB dollars go into the government’s general revenue, and the money transferred back to the ATB is covered by what it pays into the government, this is fairly excluded from the main spending column.

While there is some danger that taxpayers could be on the hook for some of this ‘spending’ in the future (if ATB went bust for instance), it is not high enough to definitively count it as ‘in-year’ spending.

This leaves $723 million off of the expenses column.

‘Other cash adjustments,’ is similar in that it is money mostly moving in and out. For example, this includes student loans, which for the most part are expected to be repaid. Again, there is some risk that taxpayers could end up holding the bag for some for some of this, but it is not high enough to lump it in with the main spending column.

This leaves $695 million off of the balance sheet.

Collectively excluding ‘retained income of funds and agencies’ and ‘other cash adjustments’ leaves $1.418 billion off of the main spending column– legitimately in the view of the CTF.

Reconciling Reported Spending and Included Cash Adjustments

The reported deficit for 2012-13 was $2.842 billion. Adding to this $963 million in ‘capital cash adjustments,’ the consolidated cash deficit for 2012-13 was $3.805 billion.

Normally there is at least some briefing that takes place at the release of quarterly and year-end fiscal reports, but due to the flood, Horner canceled it this time. That is curious since these things are written well in advance of their release and was likely completed before the first day of flooding.

The result was that less scrutiny was paid to the 2012-13 Annual Financial Report than is normally paid to mere quarterly updates. Understandably, there were more interesting things for people to read about then an argument over best practices in accounting.

Speaking of which, this is the last time finances will ever be reported on like this in Alberta, because of Horner’s repeal of the Government Accountability Act earlier this year. Moving forward, the government will not be required to provide nearly as much information, and will present it in an even more confusing format.

But with Calgary and Southern Alberta on the road to recovery, many celebrated Canada Day and we are gearing up for the Stampede.

Somewhere in between these much needed holidays I hope that we find time to discuss the missing $963 million from the government’s balance sheet and the whopping $3.805 billion deficit that the province ran.

After all, we were already on track to run a $5.1 billion deficit this year, before a drop of rain fell.