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Report to the Government of Alberta on the Development, Renewal and Financing of the Government's plan for Spending on Capital Projects to 2019

October 19, 2015

Written By David A. Dodge

The purpose of this report is to set out the principles that should guide the Government of Alberta "on matters broadly relating to the development, reconsideration and renewal of the Government's plan for prioritization of and spending on capital projects, including without limitation of the financing of the capital projects". The capital plan has three basic objectives:

  1. to enhance long run growth, thus raising the real incomes of Albertans by improving the allocation of real resources, including raising private sector productivity;
  2. to support the delivery of major social programs (education, healthcare, etc. ...) and,
  3. to enhance stability, jobs and growth by making greater investment during periods of weak private investment and vice versa.

Specifically, the report will focus on the following areas:

  • The overall size of the capital plan, with consideration to spending already underway or planned, as well as the availability of labour and the potential impact on prices and costs;
  • The appropriate mix of capital investment to support both the delivery of education and healthcare services to Albertans and long-term growth of output and productivity, through better infrastructure and;
  • Approaches to financing the capital plan in the current economic climate.

The paper is set out in five parts. In light of the basic principles for the overall expenditure plan to achieve growth and stability, the principles to guide the establishment of the capital component of the plan are discussed in the first section of Part I.

But because private investment and government revenues in Alberta are highly dependent on very uncertain future north American oil and gas prices over which the Alberta government has no control, the Alberta government faces particular challenges in the application of these principles to its overall economic plan and in particular to its capital plan. This is discussed in a second section of Part I.

Part II looks at the capital plan in aggregate. A first section makes interprovincial comparisons to get some idea of the adequacy of infrastructure capital in Alberta and briefly assess the current fiscal room to accommodate capital spending. A second section provides an assessment of the implications of different possible oil price scenarios over the next decade for the appropriate size of the capital plan over 2015-2019. This assessment is based on analysis of the way in which "needs", affordability, and cost pressure are expected to evolve under the different oil price scenarios, and guides the recommendations related to the overall size of the capital plan.

Part III provides guidance on the quantum, financing and allocation of the capital budget for investment in infrastructure required as inputs for the provision of education, health, and general services by the government (schools, hospitals, public buildings and structures).

Guidance for allocation of investment in public use infrastructure (roads, water, sewers, etc) is set out in Part IV along with guidance for financing this investment. This section covers the appropriate mix of capital investment and the approaches to financing the capital plan.

Summary recommendations are presented in Part V.

Notes

  1. Ministerial Order No1,2015
  2. These principles are applicable in general to any provincial jurisdiction.

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