Revenue shortfall could hit $6 billion Don Braid,

The cat had been squirming around in Alberta’s budget bag for weeks. On Wednesday, the PCs let it out. This is one ugly cat. The province’s revenue shortfall could be $6 billion or more in the next fiscal year, 2013-14. That number isn’t public or official — yet — but it’s the live one kicking around inside government.

The province was supposed to run a surplus next year. To do that under conditions now expected, $6 billion has to be cut out of spending somehow.

To be clear, the $6 billion isn’t a deficit projection, but an estimate of lost revenue due mostly to low bitumen prices and poor land sales. That does not make it less alarming. The spending cuts required to run even a routinely awful deficit — like this year’s projected $3 billion — could rip services apart.

It’s a situation unparalleled since 1986, when oil prices collapsed and the province began running big deficits.

That persisted for nine years. This trend, too, won’t be a shortterm blip. As Finance Minister Doug Horner said Wednesday, it could last for some years.

“These are very difficult eco- nomic times, they’re very different economic times,” Premier Alison Redford told me during a year-end interview.

The main problem is a differential of more than $30 a barrel between the West Texas Intermediate price and the amount Alberta bitumen producers actually receive.

If the WTI price is $90 a barrel, the local take is about $55, and companies pay royalty on only that much. The culprits are poor access to markets and higher U.S. production, combined with America’s persistent weak economy. Throw in weak gas prices and low land sales, and Alberta has a $6-billion problem.

The PCs finally rolled out the full extent of this crisis Wednesday. The opposition will hammer them for being vague before, but Redford counters that the extent of the problem became apparently only recently.

“It’s not a bottomless pit of money,” Redford says. “Certainly not now.

“We’re going to have to do some tough stuff, we’re going to have to make some tough decisions, but we will keep building infrastructure.”

The premier would not say where pain will be felt. The province will still keep promises in health care and education, including multi-year funding.

Long-term care isn’t being cut, she insisted. Through borrowing, capital projects will continue.

The premier almost makes this sound like a painless problem. It isn’t. But Alberta governments, like the doctors, often explain the illness first, to soften up the patient for surgery.

For the next six weeks the howls of agony will echo inside government, as ministers work out details of cuts and other measures. Then the pain will move outdoors, to the rest of us.

Redford says the province rolled this out now because the depth of the problem has just been revealed through federal numbers and a finance ministers meeting.

She says it’s “ridiculous” for the opposition to claim the PCs knew about it when they passed their cheery pre-election budget in the spring.

“If we knew, then everyone else knew as well. The federal government just went through exactly the same process, and attribute their change in projection almost entirely to the price of natural resources.

“We were very confident in our projections … something happened this year that was entirely different from what we’ve seen before.

“It simply was not unique to Alberta. The world changed.”

On Wednesday, Alberta’s political world shifted as well. Redford won’t abandon her progressive goals, but necessity nudges her toward the Wildrose fiscal view.