1. Treasury Board Ministry 1 Government Controllership Challenges in Alberta’s Hot Economy September 13, 2007

2. Treasury Board Ministry 2 Overview Today’s Alberta Fiscal Framework Being Accountable – Government Accountability Act Internal Audit Fiscal Pressures Revenue Volatility and Developments in Public Sector Accounting

3. Treasury Board Ministry 3 Today’s Alberta An exceptionally strong economy High productivity levels Record corporate profits Lowest unemployment in 30 years Highest personal disposable income No accumulated debt (debt offset by Debt Retirement Account) Lowest taxes

4. Treasury Board Ministry 4 Almost $160 Billion in Major Projects

5. Treasury Board Ministry 5 Personal Disposable Income 2001-2005 Annual Average (dollars per capita)

6. Treasury Board Ministry 6 Total Provincial Tax Load 2006-07 (per cent of the Canadian average)

7. Treasury Board Ministry 7 Natural Gas and Crude Oil Royalties (millions of dollars)

8. Treasury Board Ministry 8 Fiscal Framework – Key Elements: Deficits and Operating Debt Outlawed 2003-04 FMC recommendation Debt for capital (e.g. P3’s) Revenue Sustainability Fund Expense basis Contingency Allowance Capital Framework (government capital and capital grants)

9. Treasury Board Ministry 9 Source: Alberta Finance Fiscal Framework - Alberta Surpluses(Deficits)

10. Treasury Board Ministry 10 Fiscal Framework - 2007-08 Revenue: $35.3 billion Investment Income Fees & Licenses Commercial Corporate Taxes $3.1 billion Other Taxes $3.6 billion Federal Transfer Payments $3.7 billion Personal Income Tax $7.3 billion Resource Revenues $10.3 billion Other Sources (fines and penalties; refunds of expense; miscellaneous)

11. Treasury Board Ministry 11 Fiscal Framework: 2007-08 Expense by Function: $33.1 billion Transportation, Communication and Utilities $2.5 billion Agriculture, Resource Management and Economic Development $2.1 billion Social Services $3.1 billion Education $8.7 billion Health $12.2 billion Debt Servicing $.2 billion Other $4.5 billion

12. Treasury Board Ministry 12 Fiscal Framework: Sustainability Fund The Fund had $7.7 billion in assets at the end of the 2006-07 fiscal year Offset the costs of emergencies, disasters, natural gas rebates, settlements with First Nations and unexpected declines in revenue If the Fund has assets greater than $2.5 billion, funds can be allocated to the Capital Account, Heritage Fund, endowments and other balance sheet improvements

13. Treasury Board Ministry 13 Fiscal Framework: Contingency Allowance A minimum of 1% of “revenue for fiscal policy purposes” must be set aside as a contingency (budgeted at $314 million in 2007-08) This is the limit on in-year operating spending increases or revenue policy reductions This limit excludes increases for: emergencies/disasters and natural gas rebates funded from the Sustainability Fund; and Capital spending funded from Capital Account and dedicated revenue/expense increases

14. Treasury Board Ministry 14 Fiscal Framework - Capital Addressing Capital Requirements Capital projects can be financed from three sources: current year revenue, Capital Account, and alternative financing (including P3s) Capital Account Allows the surplus from one year to be used in another for government-owned capital projects and capital grants to local authorities

15. Treasury Board Ministry 15 Fiscal Framework – Capital (continued) Alternative Financing Alternative financing of capital projects is allowed for both government-owned capital and local authorities’ capital Infrastructure Deficit Issue Portion of unanticipated surpluses will go to address this issue

16. Treasury Board Ministry 16 Capital Plan Summary by Function

17. Treasury Board Ministry 17 Province’s Support for Capital Infrastructure

18. Treasury Board Ministry 18 Being Accountable – Government Accountability Act Government 3-year and Consolidated business and fiscal plans Quarterly financial reports Annual performance reports (Measuring Up, ministry annual reports) CCAF project to improve performance reporting

19. Treasury Board Ministry 19 Being Accountable: Environmental Scan Looks at trends and issues facing Alberta government Undertaken by a committee of Assistant Deputy Ministers Used in the planning process to guide discussion and decisions

20. Treasury Board Ministry 20 Being Accountable: Trends/Risks - Alberta Growth pressures Energy sector – technical and environmental challenges Land claims Issues around skilled workforce Urban/rural demographics Security of information Changing governmental relationships Increasing public demand for services

21. Treasury Board Ministry 21 Being Accountable: Five Government Priorities Focus of government action: Govern with Integrity and Transparency Manage Growth Pressures Improve Albertan’s Quality of Life Build A Stronger Alberta Provide Safe and Secure Communities Strategies supporting the five government priorities are set out in mandate letters for each Minister Progress on the strategies are reported quarterly on the government website http://www.premier.alberta.ca/

22. Treasury Board Ministry 22 Being Accountable: Measuring Performance “Measuring performance is the key to improving results and delivering services that meet the needs of Albertans. The government is setting performance benchmarks and targets so that programs can be accurately evaluated. Funding of programs will be increasingly tied to results achieved. To provide full accountability, these results will be shared with Albertans” Budget ’95, Building a Strong Foundation

23. Treasury Board Ministry 23 Internal Audit: An Effective Oversight Resource Reporting relationship to Senior Officials Projects focus on adding value Annual risk assessment and deputy ministry requests Assurance and advisory projects Cross-government projects and ministry specific projects Emphasis on working with ministries to improve operations OAG relies on internal audit work

24. Treasury Board Ministry 24 Fiscal Pressures Volatile Resource Revenues Public expectation that spending should increase with revenue (health, education) Demands on infrastructure (roads, hospitals, schools) Surplus management Two-thirds of surplus allocated to capital maintenance and renewal

25. Treasury Board Ministry 25 Resource Revenue Volatility

26. Treasury Board Ministry 26 Income Tax Volatility Personal income tax revenue – subject to measurement uncertainty due primarily to the use of economic estimates of personal income growth Corporate income tax revenue – subject to measurement uncertainty due primarily to the use of five year moving average of historical corporate income tax refund ratios to determine corporate income tax revenue balance

27. Treasury Board Ministry 27 Sensitivities to Fiscal Year Assumptions 2007-08 a

28. Treasury Board Ministry 28 Revenue Volatility and Developments in Public Sector Accounting Intense revenue volatility Accounting developments - PSAB Federal and government transfers Solutions/Questions Experience of other jurisdictions

29. Treasury Board Ministry 29 Revenue Volatility and Developments in Public Sector Accounting Justification for public-private partnerships (P3s) Costs Basis of recognition and measurement of resulting obligations and assets Expansion of the reporting entity SUCH sector (2008-09 line-by-line) Disclosure of and assessment of capital assets and infrastructure deficit Market value assessment of investments

30. Treasury Board Ministry 30 Questions ??