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Alberta budget using debt to fund construction

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The Alberta Budget 2014 will generate a surplus this year by implementing a debt management plan to increase capital spending financed through direct borrowing.

The Alberta Budget 2014 will generate a surplus this year by implementing a debt management plan to increase capital spending financed through direct borrowing.

“Our borrowing plan ensures Albertans continue to have the infrastructure they need today and in the future,” said the president of Treasury Board and Minister of Finance Doug Horner, during the recent budget speech.

“A critical part of our borrowing plan is our debt repayment plan. Just as we have economists, we also have experts who are focused on how we borrow, including how we repay our debt.”

Horner tabled the budget on March 6 in Edmonton.

The budget aims to boost the construction and maintenance of critical infrastructure to support population and economic growth.

Capital spending, which is being financed through direct borrowing, will increase to $6.599 billion in 2014/15, from a forecast of $5.445 million in 2013/14. It is expected to increase in 2015/16 to $6.648 billion and then fall to $5.997 in 2016/17.

“As much as we don’t want to see governments going into debt, it is important that governments have a debt policy, as well as a debt repayment plan,” said Peter Pilarski, vice president with Merit Contractors Association.

“They are going into debt at a time when the economy and population is growing, which provides for long-term stability for the construction industry,” Pilarski said.

In total, Budget 2014 will provide $19.2 billion for the construction of major infrastructure projects over the next three years.

The government plans to borrow $12.2 billion between 2014/15 and 2016/17 to help finance the capital plan.

In addition, the government borrowed $3.6 billion in 2013-14 and $925 million in 2012-13 for capital investment.

To put all this into perspective, capital spending by the Alberta government was about $7.593 billion at the peak of the most recent economic boom in 2008/09.

Capital spending declined to $6.528 billion in 2009/10, $5.889 billion in 2010/11 and $5.732 billion in 2011/12.

The government is setting aside money each year in a capital debt repayment account so that sufficient cash will be available to repay debt as it comes due.

In 2013-14, $34 million was set aside, and another $106 million is planned for 2014-15. The account is forecast to grow to $640 million by 2016-17.

The amount of direct borrowing for the capital plan cannot exceed three per cent of the average of operational revenue of the current year and two prior years, under the Fiscal Management Act.

The payments required for capital debt servicing costs are being drawn from current-year revenue.

The government is transferring $200 million to the Alberta Heritage Scholarship Fund from the Heritage Fund to support new scholarships and other financial supports for students pursuing a trade. The scholarship fund will hold more than $1 billion by the end of 2014-15.

Currently, the scholarship fund supports about $38 million annually in merit-based awards to students.

As a result of the $200 million contribution, there will be $9 million per year in new scholarships starting in 2015-16.

Funding for school capital will reach $624 million in 2014-15 for the construction of new schools and modernization projects, modular classrooms and other renewal and maintenance efforts.

This includes $345 million in funding to support the government’s plan to build an additional 50 new schools and 70 modernizations by 2016.

A public-private partnership (P3) procurement process is being used for the first bundle of 19 schools being built under this school construction plan.

The government said P3s will be used when it can be demonstrated that they provide value for taxpayers relative to traditional procurement.

The budget estimates that economic growth in Alberta will be 3.7 per cent in 2014, while net in migration is expected to be 83,700.

Total population growth is expected to be more than 100,000 in 2014 and 2015.

Budget 2014 includes operational surpluses in each year, with $2.6 billion estimated for 2014-15, and $2 billion in 2015-16 and $3.2 billion targeted for 2016-17.

by Richard Gilbert

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