Alberta Heritage Savings Trust Fund

Alberta Heritage Savings Trust Fund (HSTF),[1][2] established in 1976[3]:10[4] by former Alberta Premier Peter Lougheed[3]:10[4][5] had three objectives: "to save for the future, to strengthen or diversify the economy, and to improve the quality of life of Albertans."[4] The HSTF operates under the Alberta Heritage Savings Trust Fund Act and provides "prudent stewardship of the savings from Alberta’s non-renewable resources by providing the greatest financial returns on those savings for current and future generations of Albertans."[6] The Heritage Savings Trust Fund used oil revenues to invest for the long term in such areas as health care, education and research and as a way of ensuring that the exploitation of non-renewable resources would be of long-term benefit to Alberta.[4] As of 2012, the fund was invested in stocks, bonds, real estate and other ventures, with the aim of generating revenue for the province.

Between 1980 and 2014, although non-renewable resource revenues (NRR) in Alberta generated almost $190 billion[7] the value of the Heritage Fund in 2014 was only $17.3 billion.[8] After 1987 NRR was no longer added to the Heritage Fund.[4] By 2009 after losing $3 billion in the markets, the value of the Heritage Fund had dropped to $14 billion, which was its value in 1985.[5] The Alberta's Heritage Savings Trust Fund (HSTF) was worth $17.5 billion as of March 31, 2014 according to the Alberta government’s 2013-2014 annual report."[1]

History

Initially, the fund received 30 per cent of Alberta's non-renewable resource royalties.[9] Over time, successive Conservative governments propped up dubious ventures in domestic ventures ranging from forestry to aviation and food processing.[9]

During the early 1980s, the fund made loans to other provincial governments in Canada. Later the fund's money was used for capital infrastructure projects.[4] After 1987 Alberta's non-renewable resource revenues (NRR) were no longer added to the Heritage Fund.[4] In 1983 $25.5 million from the AHSTF was used to build the Kananaskis Country Golf Course to diversify Alberta's economy while Premier Peter Lougheed was in office.[10]

During the late 1980s and 1990s, the view emerged that government “should not be in the business of business”[5] and should not be so actively engaged in shaping the future. The Alberta Heritage Savings Trust Fund was shifted away from strategic business investments to become a savings tool investing for financial return. Investment into the fund was halted in 1987.[4][11]:101 Ralph Klein, who was Alberta Premier from 1992 through 2007, used the HSTF to fund special projects to encourage economic diversification.[12] During the mid-1990s, public opinion turned against allowing governments to dip into the Heritage fund to fund special projects, and instead all income earned each year began to be withdrawn from the fund and added to general revenues.

Between 1980 and 2014, although non-renewable resource revenues (NRR) in Alberta generated almost $190 billion the value of the Heritage Fund in 2014 was only $17.3 billion.[4]

Alberta Investment Management Corporation

Alberta Investment Management Corporation (AIMCo), a large institutional investment fund manager, headquartered in Edmonton, Alberta, in 2007 was made responsible for the management of the assets of the Alberta Heritage Savings Trust Fund (AHSTF).[13] Legislation creating AIMCo was passed by the Alberta legislature on 20 March 2007,[14] and AIMCo became a crown corporation on 1 January 2008.[15] Prior to 2008, the corporation's assets were managed by a division of Alberta Finance.

Council for Economic Strategy 2011

In its May 2011 report entitled Shaping Alberta’s Future by Premier Ed Stelmach's Council for Economic Strategy proposed the institution of a "Shaping the Future Fund to ensure that money produced by converting natural assets today is invested with intentionality to secure prosperity for future Albertans."[11]:107

The flagship idea of the Council was,[11]:101

“ That the government of Alberta establish a Shaping the Future Fund, based on proceeds from the sale of non-renewable energy assets (primarily royalties) to ensure that wealth produced by converting natural assets today is invested wisely in our economic future based on proceeds from the sale of non-renewable energy assets (primarily royalties) to ensure that wealth produced by converting natural assets today is invested wisely in our economic future... Other resource-based economies have established sovereign wealth funds as a means of managing the effects of resource development and of capturing the lasting benefit of their natural resources. By avoiding expenditures during boom times and making financial investment in other jurisdictions – or counter-cyclic investments in infrastructure, diversification and education – these governments have minimized the worst aspects of resource booms in other parts of their economies. ”

Fiscal Management Act 2013

In 2013 Fiscal Management Act "committed the government to saving a portion of its non-renewable resource revenues for the future."[7]

“ The Fiscal Management Act stipulates that the government must set aside five per cent of the first $10 billion of non-renewable resource revenue , 25 per cent of the next $5 billion and 50 per cent of all NRR in excess of $15 billion. Given that NRR have averaged $9.6 billion a year since 2000, that would amount to less than $500 million a year in savings if the next decade’s royalties look like the last. Meanwhile, the province has never reached the $15-billion threshold at which the real savings kick in. ”

Criticisms

In their August 2015 contrast for The Globe and Mail between the AHSTF and the Norwegian Government Pension Fund Global, Brian Milner and Jeff Lewis wrote that Norway parks 100 per cent of its non-renewable resource (NRR) revenue from royalties and dividends in a fund that is barred from investing a krone in the domestic economy.[9]

Reports by the Canadian Centre for Policy Alternatives and the Fraser Institute[16]:9 concluded that Alberta should be saving more of its non-renewable resource revenues. Since 1980 the NRR in Alberta, has generated almost $190 billion, but the value of the Heritage Fund was only $17.3 billion in 2014. After 1987 NRR was no longer added to the Heritage Fund.[4] The Fraser Institute report compared the Alberta Heritage Fund to Norway and Alaska's NRR funds and argued that Alberta's was significantly "smaller than others because of its relative under-funding and chronic withdrawals of most income from the fund."[16]:9 Alaska for example continued to deposit 25 percent of its NRR from 1982- 2011 and Norway contributed 100 percent. If Alberta had followed the Alaskan formula, by 2011 the Heritage Fund would have had $42.4 billion instead of $9.1 billion. By the Norway rules Alberta would have had $121.9 billion by 2011.[3][16]:9

In 2013 Madelaine Drohan, author of the Canadian International Council report entitled The 9 Habits of Highly Effective Resource Economies: Lessons for Canada,[17]:94and a Canadian correspondent for The Economist, echoed the IMF call for "stabilization funds" arguing that every province in Canada should consider establishing a sovereign wealth fund, as global peers have done, and treat non-renewable resource revenue (NNR) as "capital to be saved and invested, rather than income to be spent."[18] She added that in provinces like Alberta where the Fund already exists, it "should be implemented with a great deal more rigour."[18] Drohan warned in 2013 against the "political temptation" to "raid" the Fund and offered the Canadian Pension Plan Investment Board (CPPIB), a Crown corporation, the largest pension fund in Canada, as a model.[18] By March 2015 the CPPIB fund had grown to $219-billion and made a 16.5-per-cent rate-of-return in 2013.[19]

In its annual report on the Canadian economy in February 2013, the Washington-based International Monetary Fund (IMF) urged Canada, and resource-rich provinces like Alberta and Quebec to "better manage boom-and-bust commodities cycles by stashing away more tax revenue in "stabilization funds" during good times.[20] IMF mission chief for Canada, Roberto Cardarelli, suggested that Norway, with the largest sovereign wealth fund, is an example Canada should follow. However, unlike Norway, resource royalties are collected at the provincial, not the federal level in Canada.

Max Fawcett, the editor of Alberta Oil magazine, warned that the "new" Alberta Future Fund, "which would receive $200 million a year" that would "support big-picture projects" and the two "new innovation endowments" announced by Finance Minister Doug Horner in the 2014 budget, would be funded by raiding the Alberta Heritage Savings Trust Fund. There were no new savings.[7]

According to Fumbling the Alberta Advantage, a Fraser Institute report written in 2015, "Between 2005/06 and 2013/14, and adjusted for inflation, the province of Alberta garnered $101.3 billion in resource revenues."[21]:2

"Given what is now known about the spending patterns of the last decade—that Alberta spent an extra $49.2 billion on programs above inflation and population growth—a deposit of 25% of resource revenues, or $25.3 billion, into the Heritage Fund would not have been unreasonable had program spending been more carefully controlled. Instead, the province deposited just $4.5 billion, or 4.5% of all resource revenues between 2005/06 and 2013/14."

— Fumbling the Alberta Advantage

See also

References

  1. 1 2 Priaro, Mike (2 February 2015), "Jim Prentice’s government should revitalize Peter Lougheed’s legacy" (PDF), Inside Policy (The Macdonald-Laurier Institute), retrieved 7 March 2015
  2. ↑ Alberta Heritage Savings Trust Fund Annual Report 2013–2014 (PDF). Alberta Treasury Board and Finance (Report). 31 March 2014. ISBN 978-1-4601-1185-7. Retrieved 7 March 2015.
  3. 1 2 3 Clemens, Jason; Murphy, Robert P. (March 4, 2013), Reforming Alberta's Heritage Fund: Lessons from Alaska and Norway, retrieved 7 February 2015
  4. 1 2 3 4 5 6 7 8 9 10 "Historical Timeline series=Heritage Fund", Government of Alberta, Treasury Board and Finance, December 2, 2014
  5. 1 2 3 Canadian Press (5 July 2009), Lougheed upset at stagnant Alberta Heritage Fund, Edmonton, Alberta: CTV, retrieved 6 April 2015
  6. ↑ Alberta Heritage Savings Trust Fund Third Quarter 2014–2015 (PDF) (Report). Department of Treasury Board and Finance, Government of Alberta. December 2014. p. 23. Retrieved 7 March 2015.
  7. 1 2 3 "Money for Nothing: The Province vs. Non-renewable resource revenue: Alberta governments have a long history of squandering non-renewable resource wealth. Why that needs to stop – now", Alberta Venture, 5 May 2014, retrieved 7 March 2015
  8. ↑ Bennett, Dean (3 February 2014). "Alberta Debt Debate To Resume Monday". The Canadian Press via Huffington Post (Edmonton). Retrieved 7 March 2014.
  9. 1 2 3 theglobeandmail.com: "Alberta and Norway: Two oil powers, worlds apart", 15 Aug 2015
  10. ↑ McClure, Matt (5 April 2015), "Taxpayers hit with double-bogey for flood-damaged golf course", Calgary Herald, retrieved 13 April 2015
  11. 1 2 3 Shaping Alberta’s Future: Report of the Premier’s Council for Economic Strategy (PDF) (Report). May 2011. p. 112. Retrieved 7 March 2015.
  12. ↑ "History", ALPAC, retrieved 4 February 2015
  13. ↑ "Our Clients", Alberta Investment Management Corporation, retrieved 6 February 2015
  14. ↑ Legislation establishes new provincial corporation to manage Alberta's investments
  15. ↑ "AIMCo Posts 7.9% Gross Return for the Latest Fiscal Year". SWF Institute. June 28, 2012. Retrieved 2012-06-28.
  16. 1 2 3 "How much would Alberta’s Heritage Fund be had it followed Alaska’s or Norway’s rules?" (Fraser Forum May/June 2013), Fraser Institute, May 2013, retrieved 7 February 2015
  17. ↑ Drohan, Madelaine (2012). The 9 Habits of Highly Effective Resource Economies: Lessons for Canada (PDF) (Report). Canadian International Council. ISBN 978-0-9866175-6-0.
  18. 1 2 3 Drohan, Madelaine (18 March 2013), Learn from Alberta’s mistake: Provinces should save resources, Canadian Business, retrieved 7 March 2015
  19. ↑ Curry, Bill (3 September 2014). "Report questions Canada Pension Plan Investment Board’s ‘active’ investing". The Globe and Mail. Retrieved 7 March 2015.
  20. ↑ McKenna, Barrie (14 February 2013). "IMF urges Canada to set up rainy-day resource fund". Ottawa: The Globe and Mail. Retrieved 7 March 2015.
  21. ↑ Milke, Mark; Palacios, Milagros (February 2015), Fumbling the Alberta Advantage: How Alberta Squandered a Decade of High Energy Prices, Fraser Institute, retrieved 7 March 2015
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