Consistent with the government’s commitment to an accountable
and open fiscal management environment, this fiscal update
provides British Columbians with a current picture of provincial
finances for the 2001/02 fiscal year. It is based on the budget
presented to the Legislature on March 15, 2001, updated to
||economic and fiscal developments that have
occurred since March; and
||new measures introduced by the government to
stimulate the economy.
A full three-year plan for the period 2002/03 to 2004/05 will
be presented to the Legislature on Tuesday, February 19, 2002.
The summary accounts are now projected to show a $1.5-billion
deficit in 2001/02. This compares to a $1.1-billion surplus that
was forecast in the budget on March 15, 2001.
Table 2.1 provides an
overview of changes to the forecast since March. The updated
forecast is presented in Table 2.2, and further details of changes
are provided in Table 2.3.
Since March, the revenue forecast has been lowered $470 million
to reflect an outlook for weaker electricity prices and the effect
of slower economic growth in 2001, partially offset by the
positive effect of tax cuts. The forecast incorporates the
previously announced personal income tax rate reduction which
provides taxpayers with benefits estimated at $1.15 billion in
2001/02, and further net tax reduction measures in the July 30
Update totalling $228 million. These measures are expected to have
a positive stimulative effect on a number of revenue sources
through increased economic activity.
The spending forecast has increased $455 million since March to
reflect a number of previously unfunded pressures and accounting
changes. In addition, a number of other risks will need to be
managed closely over the rest of the year to ensure that budget
targets are achieved.
The forecast for Crown corporations shows a $23-million
improvement from the March forecast, primarily due to improvements
in the finances of British Columbia Hydro and Power Authority (BC
Hydro) and Forest Renewal BC.
The one-time benefit of joint trusteeship was reduced $110
million, based on a revised estimate of pension plan liabilities
prepared during the finalization of the 2000/01 Public Accounts.
Joint trusteeship for the Teachers’ Pension and Municipal
Superannuation plans was concluded on April 5, 2001.
The summary accounts forecast allowance has been increased $200
million from the March 15 Budget to recognize more of the risks to
the financial forecast over the rest of the year. The expenditure
budget increase of $455 million also includes a $140-million
increase in the Contingencies vote to help manage further spending
Consolidated Revenue Fund Revenue
At $22.7 billion, CRF revenue is projected to decline $1.3
billion or 5.5 per cent from the final result for 2000/01. The
forecast is $1.8 billion or 7.5 per cent lower than the March 15
Budget in part due to a series of announced tax cuts intended to
stimulate the economy as well as lower expected growth in the U.S.
and lower energy prices (see Table 2.4).
Details on main revenue sources are shown in Table 2.5 and in
Supplementary Table 5. Key economic and other assumptions
underlying the main sources in the 2001/02 revenue forecast are
shown in Table 2.6.
Personal income tax — down $1,135 million from
the March forecast and 18 per cent lower than 2000/01 mainly due
to the effect of announced tax rate reductions. The forecast
incorporates the announced rate reductions on June 6, with an
estimated value of $1,150 million. Although the reductions for the
2001 tax year were announced retroactive to January 1, 2001, the
revenue forecast reflects a fifteen-month effect in the 2001/02
fiscal year as recommended by the Auditor General. The effect of
the tax reduction is partially offset by a $20-million increase
due to a reduction to the dividend tax credit rate, and by the
recovery in forecast economic growth as a result of tax cuts (see
Corporation income tax — down $91 million from
the March forecast but 9.5 per cent higher than 2000/01. The
decline from March resulted from a lower federal government
forecast of national corporate profits that will reduce
instalments to the province over the rest of the year. The
forecast incorporates the effect of a reduction to the general tax
rate (13.5 per cent from 16.5 per cent effective January 1, 2002)
which has an estimated value of $16 million in 2001/02. This is
offset by a $20-million increase resulting from the elimination of
the three-per-cent investment tax credit effective July 31, 2001.
Lags in the tax collection system administered by the federal
government mean that the provincial government will not reap the
positive effects of these measures until future years. However,
the benefits to British Columbians are expected to begin this year
as new investment and job creation takes hold.
Social service tax — down $79 million from the
March forecast, but up 1.3 per cent from last year. Elimination of
the sales tax on production machinery and equipment and an
increase to the threshold at which vehicles are subject to a
higher tax rate (effective July 31, 2001) will reduce revenue by
$134 million this year. This is partly offset by the expected
positive effect of higher retail sales growth in response to the
Corporation capital tax — $83 million below the
March forecast and 24 per cent lower than 2000/01. The effect of
phasing out the tax applied to non-financial corporations
(starting September 1, 2001) will reduce revenue by $101 million
in 2001/02. However, this is partly offset by the effect of
larger-than-expected final assessments at the end of 2000/01 which
increased the tax base.
Fuel, property and other taxes — down $33
million from the March forecast but slightly higher than last
year. Fuel tax revenue is $29 million lower than the March
forecast due to the effect of tax reductions for jet, aviation and
bunker fuels, which reduce revenue by $17 million this year, and a
lower-than-assumed tax base at the end of 2000/01. The
6.1-per-cent decline in fuel tax revenue from 2000/01 also
reflects a 1-cent-per-litre increase in revenue transferred to the
Greater Vancouver Transportation Authority (TransLink).
Natural gas and petroleum royalties, permits, fees and
minerals — unchanged from the March forecast and $34
million lower than last year as the high levels of Crown land
drilling rights sales in 2000/01 are not expected to continue at
the same pace in 2001/02.
Forests — up $40 million from the March
forecast and down slightly from 2000/01. Stumpage revenue is
expected to be $29 million higher than the March forecast as the
effects of an outlook for higher spruce-pine-fir (SPF) 2 x 4
prices and a lower exchange rate offset lower average hemlock
prices and harvest volumes. Lumber export fees collected by the
federal government for 2000/01 will be $28 million higher than the
March forecast. This is partly offset by a lower forecast of
logging tax revenue in 2001/02.
Columbia River Treaty — $356 million below the
March forecast and 25 per cent lower than 2000/01 due to the
effect of lower assumed average market prices on sales of
electricity received under the treaty. Electricity received under
the treaty is sold on behalf of the government through Powerex, a
subsidiary of BC Hydro, at market electricity prices. Since March,
average monthly market electricity prices in the U.S. have fallen
about 75 per cent. By contrast, net income of BC Hydro improved
since the March forecast as the corporation was able to take
advantage of the unexpectedly high volatility in the market during
the first two months to increase its electricity trade margins
(i.e. differences between purchase and selling prices).
Other revenue — down $77 million from the March
forecast and 1.9 per cent lower than last year. The budget
revision reflects lower estimates of revenue from asset
dispositions, Medical Services Plan premiums and Crown land sales.
Crown corporation contributions — down $29
million from the March forecast due to a correction of the
dividend estimate for BC Hydro used in the March forecast,
partially offset by the effect of a higher net income forecast for
2001/02. Contributions from Crown corporations are 5.9 per cent
lower than the previous year due to lower net income from BC Hydro
and the Liquor Distribution Branch.
Federal government contributions — $11 million
lower than the March forecast due to lower Canada health and
social transfer (CHST) contributions resulting from weaker
national economic growth and a lower national tax base.
Forecast Assumptions and Risks
Changes to the revenue forecast can result from a combination
of factors. These include changes in economic conditions, policy
changes implemented mid-year, and other unpredictable events such
as changing weather patterns, commodity prices, foreign trade
restrictions and labour disruptions. Sometimes unrelated changes
offset one another. For example, higher-than-expected energy
resource revenue more than offset lower-than-forecast forest
revenue in 2000/01.
Table 2.6 compares the Ministry of Finance’s key economic and
other assumptions for the main revenue sources in the March and
July revenue forecasts for 2001/02. The table also provides
estimated revenue sensitivities to changes in individual
Consolidated Revenue Fund Expenditure
At $24.8 billion, CRF spending is $455 million higher than the
March 15 Budget primarily to reflect a number of previously
unfunded pressures and accounting changes.
Chart 2.2 shows that total spending in 2001/02 is 12.1 per cent
higher than the comparable 2000/01 budget estimate. This is due in
part to the effect of $385 million of overspending that occurred
in 2000/01 (carried over into 2001/02), based on Public
Table 2.7 provides an overview of changes to the spending
forecast since the March 15 Budget.
In 2000/01, the Auditor General recommended a pension
accounting policy change that had the effect of reducing the
government’s overall expenditure for the year. When this change
is excluded from last year’s estimates, the underlying increase
in budgeted program spending is $2.3 billion or 10.3 per cent in
2001/02 (see Table 2.8). Based on the actual results for 2000/01,
comparative program spending shows an 8.4-per-cent increase in
Chart 2.3 shows the major components of the $2.3-billion
increase in budgeted program spending for 2001/02. Of the total
increase, health spending alone makes up nearly 50 per cent while
education and social services account for 27 per cent.
The following provides information on full-year spending
budgets in 2001/02 compared to the 2000/01 comparative budget
estimates (see Table 2.8). Where applicable, references are
included at the end of each section and in the margins to
highlight significant changes since the March 15 Budget.
Legislation — up $6 million for increased costs
related to an election year.
Officers of the Legislature — up $25 million including
$24 million for Elections B.C.
Office of the Premier — up $5 million. The increase
reflects a change since March and provides $3.5 million in funding
for Crown Agencies Secretariat costs, which are no longer being
directly recovered from Crown corporations. The budget also
includes an increase of $1 million to support the new Premier’s
Council on Technology, and to provide for the enhanced
responsibilities of the government’s Chief Information Officer.
The remaining increase is primarily to cover the cost of the Core
Review and a number of other initiatives to improve the
effectiveness of government.
Ministry of Advanced Education — up $159 million. A
10.7-per-cent increase ($142 million) in educational institutions
and organizations funding (including enhanced funding for Industry
Training and Apprenticeship Commission programs) will provide: $47
million towards enhanced services for post-secondary students,
including 5,025 new student spaces (including 400 new spaces for
nurses), increased funding for the Technical University of British
Columbia, and expanded training of health care workers under the
Health Action Plan; $83 million towards increased funding support
for core funding and cost increases of post-secondary
institutions, including compensation for the tuition fee
reduction, funding for previously contracted salary and benefit
increases, and funding for anticipated contract settlements. The
student financial assistance program budget will increase by $21
million or 16 per cent to fund anticipated increased demand, and
amortization and debt service costs will decrease by $7 million.
Since March, $13 million was added to the ministry’s budget for
operating maintenance expenses that were previously classified as
Ministry of Agriculture, Food and Fisheries — up $3
million mainly due to increased funding for Fisheries Renewal BC.
Ministry of Attorney General — a $51-million budget
increase includes an additional $18 million for payments to the
McLeod Lake Indian Band for forestry stumpage revenue collected on
their behalf, $19 million for increased claims against the
government under the Crown Proceeding Act, $4 million for
Air India proceedings, and additional funding for labour cost
increases and other program enhancements. Since March, $14 million
has been added to the budget including $9 million under the Crown
Proceeding Act, $4 million for Air India proceedings and
additional funding for justices of the peace and treaty
Ministry of Children and Family Development — up $190
million. Services for children and families will increase $90
million and community living services for adults and special needs
children will increase $60 million. The increases primarily
reflect the costs of contract changes for community social service
workers. Additional funding of $27 million is provided for early
childhood development, approximately half of which is focused on
the needs of aboriginal children. The budget includes $16 million
for the implementation of an early intensive behavioural support
program for autistic children. The ministry’s budget is
essentially unchanged since the March 15 Budget.
Ministry of Community, Aboriginal and Women’s Services
— combines certain programs and services formerly provided by
nine separate ministries. The increase of $91 million from the
2000/01 budget estimate includes:
||$13 million for funding for low wage redress
in the contracted community social services sector and the
Community Partners Program;
||$20 million for the new five-year
Canada/British Columbia Infrastructure Program. Provincial
expenditures will be matched by the federal government,
providing $40 million in green infrastructure projects
(sewer and water) in British Columbia;
||$20 million for conditional grant programs,
with most of the funding to provide for sewer and water
projects through the Renewed Sewer/Water Program;
||$45 million for planned Child Care BC
||$27 million for housing programs to provide
subsidies for affordable housing units completed in 2001/02;
partially offset by:
program efficiencies and transfers of $10 million; and
||program reductions since March of $24
Ministry of Competition, Science and Enterprise — down
$9 million primarily due to the conclusion of a number of
time-limited agreements ($5 million), the elimination of Build BC
Special Account disbursements in 2001/02 and reductions to both
communications and strategic project funding.
Ministry of Education — up $233 million. A
5.3-per-cent increase ($204 million) in transfers to public
schools provides for capital maintenance; wage and benefit
increases for all signed collective agreements; provision for
anticipated settlements during 2001/02; funding for the Teachers’
Pension Plan Joint Trusteeship Agreement; and a $10-million
contingency buffer if enrolment growth is higher than expected.
The budget also maintains funding for reduced class sizes in
Kindergarten to grade 3 (20 students in Kindergarten and 22
students in grades 1 to 3). The budget provides $21 million for
increased amortization and debt service expenditures and an
additional $7 million for independent schools. Since March, $64
million was added to the budget for operating maintenance expenses
that were previously classified as capital expenditures.
Ministry of Energy and Mines — up $30 million
including the addition of $4 million for revenue-generating
mineral, oil and gas initiatives, and increased payments required
under the Vancouver Island Natural Gas Pipeline (VIGAS) agreement.
The level of VIGAS payments is dependent upon prevailing natural
gas prices. The increase in ministry expenditure is partially
offset by lower program spending in other areas.
Ministry of Finance — up $1 million mainly due to
increased amortization costs for the corporate accounting system.
Ministry of Forests — up $53 million mainly due to $55
million of additional funding for forest fire fighting that was
added to the budget since March, partially offset by lower
spending in other areas.
Ministry of Health Planning — unchanged. This new
ministry was created from components of the former Ministry of
Ministry of Health Services — up $1,101 million and
includes $387 million in base budget increases related to the
supplementary estimates received in 2000/01. Significant
components are $53 million for rural physician recruitment and
retention initiatives; $180 million for health authority service
pressures and strategic initiatives under the BC Health Action
Plan; and $67 million for improved access to hospital care,
enhanced home support services and the BC Health Guide program.
Notwithstanding the significant budget increase, some $400
million in potential spending pressures have been identified.
Management strategies will be required to stay within the overall
The Regional Programs’ budget (up $759 million) includes
funding for a variety of negotiated and announced compensation
provisions and payroll tax changes affecting health care workers,
as well as other changes including:
Acute and Continuing Care, up $698 million (including
base budget increases related to 2000/01 supplementary
estimates) provides an additional:
$16 million for the operation of new continuing care beds and
replacement or upgraded beds;
$39 million for additional home support and nursing;
$70 million for provincial critical services including cancer
treatment, cardiac care, renal dialysis and transplants, and
other acute care service requirements;
$77 million for operating expenses that were previously
classified as capital expenditures, added to the budget since
||$37 million for Adult Mental Health including
additional funding of $22 million for expanded crisis
response and emergency services, more case managers and
clinicians and additional community residential care spaces.
This includes $2 million for compensation increases that was
added to the budget since March; and
||$24 million for Public and Preventive Health
including expanded funding for enhanced immunization,
chronic disease and injury prevention, and expanded child
care facility licensing capacity.
The Medical Services Plan budget will increase $211 million to
provide for the annualized costs of 2000/01 settlements with
physicians in rural and small urban centres;
demographic/utilization increases in physician services; and
increased services by, and rate adjustments for, physicians paid
through alternative funding arrangements such as service
contracts. It also includes $19 million for new primary care
initiatives, funded by the federal government, which was added to
the budget since March.
A $58-million lift in the Pharmacare budget is for utilization
and price increases. This includes $45 million that was added to
the ministry budget since March.
A total of $70 million is provided for equipment; $29 million
is included as part of government’s capital spending shown in
Table 2.13, and $41 million is included in operating spending.
Other increases in the Ministry of Health Services include an
additional $41 million for amortization and debt servicing. An
additional $7 million was added to the budget since March for
Emergency Health Services’ compensation increases, which was
offset by savings in amortization and debt servicing costs.
In total, $143 million was added to the ministry’s budget
since the March 15 Budget to recognize unfunded budget pressures.
Ministry of Human Resources — up $73 million or 3.9
per cent. BC Benefits Programs will increase $70 million or 4.3
per cent. BC Benefits includes an additional $8 million for
increased utilization in the child care subsidy program, $55
million for an increase in the disability benefits caseload, $20
million for the full-year cost of the flat rate earnings
exemption, $10 million for increased costs in the health care and
dental benefits program, $7 million for the full-year cost of the
July 2000 two-per-cent BC Benefits rate increase, $6 million for
disability-related new initiatives, and $9 million for other
ministry pressures. The budget increases are partially offset by
$35 million of savings resulting from a projected
4.7-per-cent-decline in the income assistance and Youth Works
caseload and a $10-million reduction in labour market programs, of
which $7 million occurred since March.
Ministry of Management Services — up $12 million.
Since March, $14 million was added to the budget to reflect
additional funding of $5 million for a retirement allowance, which
provides a lump sum payment of up to three months salary upon
retirement for employees with more than 20 years of service. This
accounting change is in response to a recommendation by the
Auditor General that the government record its obligation for
post-retirement benefits in its financial statements. Funding of
$9 million was added to provide for increased severance settlement
costs. The increase in ministry expenditures is partially offset
by lower program spending in other areas.
Ministry of Provincial Revenue — up $6 million mainly
due to the cost of retroactive home owner grants.
Ministry of Public Safety and Solicitor General — a
$48-million budget increase includes $18 million for police
services, $6 million for pre-trial facilities, and additional
funding for labour cost increases and other program enhancements.
The budget also includes an additional $9 million under the Emergency
Program Act to better reflect historical expenditures in
response to emergencies and disasters. Since March, $3 million has
been added for wind-down costs related to the photo radar program.
Ministry of Skills Development and Labour — up
slightly due to government-wide salary and benefit increases.
Ministry of Sustainable Resource Management — up $20
million including an additional $2 million to accelerate
landscape-unit planning and $1 million for increased contributions
to the Muskwa-Kechika Trust Fund. An additional $14 million was
added since March, including $5 million for a contribution to the
federal government for land purchases under the Pacific Marine
Heritage Legacy (PMHL) agreement, and $9 million to accelerate the
Central Coast Land and Resource Management Plan. The government
will also provide a $20-million capital investment for the PMHL
Ministry of Transportation — up $27 million. Net
increases are predominantly due to the provision of a $34-million
grant to the BC Transportation Financing Authority, which will be
applied against the financing costs of capital road improvements.
The increases are partially offset by a $23-million decrease in
contributions to British Columbia Transit, resulting from a
revised method of calculating the amortization of prepaid capital
advances. Debt servicing and amortization costs of $15 million for
the Rapid Transit 2000 Project are included in the budget because
assets are now being brought into service.
Ministry of Water, Land and Air Protection — up $47
million. This includes $4 million to initiate an action plan for
protection of drinking water and to restore service levels.
Additional adjustments have been made since March to recognize the
province’s potential $45-million net cost for cleaning up the
Britannia Mine, and for program reductions.
Management of Public Funds and Debt (debt interest) —
down $186 million due to the full-year impact of lower debt levels
from the previous year, and lower interest rates on refinanced
debt and floating-rate debt. Since March, the forecast has been
reduced $17 million mainly due to lower-than-assumed interest
rates and delayed borrowing. Although debt for government
operating purposes is forecast to increase $2.1 billion by
year-end, most of the borrowing will occur in the latter part of
the fiscal year. As a result, the full impact on interest costs
will be delayed until 2002/03.
BC Family Bonus — down $32 million due to program
changes to the federal National Child Benefit System. Effective
July 1, 2001, the combined BC Family Bonus and the National Child
Benefit Supplement increased to $1,332 from $1,260 per child per
year. Changes were also made to the income threshold and rates at
which benefits are reduced, resulting in more families receiving
the maximum benefit. This resulted in a reduced requirement for
Contingencies (All Ministries) and New Programs — up
$255 million to reflect the larger spending budget and a number of
spending risks in programs. Since March, $140 million was added to
the budget to allow for a number of other potential costs that may
occur over the rest of the year.
Amortization of Change in Unfunded Pension Liability —
$72 million lower primarily due to the effect of joint
trusteeships introduced last year and in April for the major
public sector pension plans.
Other Appropriations — up $23 million mainly due to an
increase for seismic mitigation costs for government buildings.
Assumptions and Sensitivities
The main assumptions supporting the 2001/02 expenditure
estimates are summarized in Table 2.9, together with a description
of the major risks and sensitivities.
Expenditure Assumptions and Risks
Catastrophes and disasters:
The expenditure budgets for the Ministries of Forests and
Public Safety and Solicitor General include amounts to fight
forest fires and other emergencies such as floods and blizzards.
These amounts assume normal to moderate conditions and severity of
costs. Although the overall expenditure budget includes a
$360-million contingency vote in 2001/02, express provisions are
not included for catastrophes or disasters beyond the amounts
already identified in ministry budgets. Costs of such unforeseen
events may also affect other ministry programs.
The 2001/02 expenditure budget for the Ministry of Attorney
General contains provisions for settlements under the Crown
Proceeding Act based on estimates of expected claims and
related costs of settlements likely to be incurred in 2001/02.
Other litigation developments may occur that are beyond the
assumptions used in the July 30 Update (such as potential costs
for a Carrier Lumber Ltd. settlement or pending litigation related
to disability Home Owner Grants), and may also affect expenditures
in other ministries.
The 2001/02 expenditure budget for the Ministry of Public
Safety and Solicitor General contains provisions for settlements
under the Criminal Injuries Compensation Act based on
estimates of expected claims likely to be incurred in 2001/02.
One-time write-downs and other adjustments:
The 2001/02 expenditure budget does not assume or make
allowance for extraordinary items other than the amount provided
in the Contingencies Vote.
Recoveries within ministry budgets:
A number of ministry budgets assume that a portion of
expenditures will be recovered from other agencies. The 2001/02
expenditure budget assumes that budgeted recoveries will be fully
realized. Should recoveries be lower than budgeted, this could
result in additional net expenditures.
Since the March 15 Budget, the Contingencies (All Ministries)
and New Programs Vote has been increased $140 million to allow for
a number of potential costs that may occur over the rest of the
year. In addition, the summary accounts forecast includes a
$500-million forecast allowance for unforeseen developments during
the rest of the year. This is $200 million higher than the March
Corporations and Agencies
In total, Crown corporations (after adjustments) are forecast
to show a net loss to the summary accounts of $267 million in
2001/02, a $23-million improvement from the March 15 Budget. This
compares to a combined net loss of $53 million in 2000/01 (see
Crown Corporations and Agencies
Combined net losses of taxpayer-supported Crown corporations
and agencies (after adjustments) are projected at $333 million, up
$20 million from the March 15 Budget.
Operating losses totalling $124 million are $20 million higher
than the March forecast. This reflects a $53-million expected loss
for 552513 British Columbia Ltd. (Skeena Cellulose Inc.),
partially offset by improvements in Forest Renewal BC and the
British Columbia Buildings Corporation.
Combined net losses (after adjustments) are $123 million higher
than the final results for 2000/01. The increase primarily
reflects larger losses in Forest Renewal BC and 552513 British
Columbia Ltd. (Skeena Cellulose Inc.), lower net incomes of the
British Columbia Buildings Corporation and the British Columbia
Ferry Corporation, and the effect of one-time asset dispositions
in other Crown corporations in 2000/01.
British Columbia Buildings Corporation —
projected net income of $40 million is slightly higher than the
March 15 Budget but $11 million lower than last year. The effect
of lower gains from property sales and a 3.5-per-cent increase in
operating costs will be partially offset by a 1.6-per-cent
increase in operating revenue. The corporation expects to pay a
$16-million dividend to the provincial government in 2001/02.
British Columbia Ferry Corporation — estimated
net income of $3 million is unchanged from March and $8 million
lower than last year. Operating revenue will increase 1.6 per cent
mainly due to a toll increase in February 2001, and increased
motor fuel tax received from the provincial government. Operating
expenses will increase 3.5 per cent, due to higher costs for
pensions, training and safety initiatives, existing collective
agreements, professional services and debt interest. These are
partially offset by a reduction in amortization expense.
BC Transportation Financing Authority — a
projected break-even forecast compares to net income of $1 million
in the 2000/01. Revenue will increase 8.2 per cent, largely due to
a $44-million grant and increased dedicated taxes received from
the provincial government. Expenditure will increase 8.4 per cent
mainly due to higher debt interest costs (reflecting higher debt
levels) and increased amortization.
Forest Renewal BC — a projected net loss of
$107 million is $32 million lower than the March forecast, but $43
million higher than last year due to lower stumpage revenue and
investment income and a 3.1-per-cent increase in costs. The
corporation will manage its projected deficit by accessing its
program continuity reserve.
552513 British Columbia Ltd. (Skeena Cellulose Inc.)
— a projected net loss of $53 million compares to the March 15
Budget forecast of $6 million net income. The change from March
primarily reflects the impact of lower-than-assumed pulp prices.
Due to an outlook for weak world pulp prices, and the expected
effect on the finances of the company, 552513 British Columbia
Ltd. has been reclassified from a self-supported to a
taxpayer-supported Crown corporation.
Other taxpayer-supported Crown corporations and agencies:
combined net losses of $7 million are unchanged from the March
forecast. This compares to combined net incomes of $49 million in
2000/01. The change from last year reflects the effect of a
one-time $18-million gain from the sale of 577315 British Columbia
Ltd.’s investment in Western Star Trucks Holding Ltd. in
2000/01, and lower net incomes in other Crown corporations in
Commercial Crown Corporations and Agencies
The net contribution from self-supported commercial Crown
corporations (after adjustments) is forecast at $66 million in
2001/02, up $43 million from the March 15 Budget forecast.
Including BC Hydro’s rate stabilization account transfer, total
operating income of $1.6 billion is up $14 million from the March
forecast. Higher projected net income in BC Hydro is partially
offset by lower net incomes of the Insurance Corporation of
British Columbia (ICBC), British Columbia Railway Company and
other Crown corporations. The rest of the improvement from the
March forecast reflects a $29-million reduction in dividends paid
to the CRF due to a re-estimate of BC Hydro dividends.
Combined net contributions from self-supported commercial Crown
corporations is $91 million lower than 2000/01. The decline from
the previous year was mainly due to lower net incomes of BC Hydro
(including rate stabilization account transfers), ICBC and the
Liquor Distribution Branch, and lower accounting adjustments for
differences in fiscal year-ends.
British Columbia Hydro and Power Authority —
net income is projected at $375 million (before rate stabilization
account transfers). The forecast is $75 million higher than the
March 15 Budget target mainly due to high electricity trade
margins earned during the first two months of the fiscal year. A
trade margin is generally the difference between the purchase and
the selling price of electricity. The forecast assumes no change
in domestic tariff rates. It incorporates the impact of recently
announced price caps in the California energy market and assumes
that a $45-million transfer will be required from the rate
stabilization account in order to achieve BC Hydro’s regulated
rate of return in 2001/02.
BC Hydro was able to earn a larger-than-expected income during
the first two months of the fiscal year as it was able to take
advantage of the unexpectedly high volatility in the market to
increase its trade margins. The recent introduction of price caps
within the western region in mid-June 2001, has dampened the
volatility in the market and as a result has reduced the margins
BC Hydro is able to earn in the electricity trade market. The
forecast of net income for 2001/02 is lower than the previous year
largely due to the impact of low snowpack levels on reservoir
inflows leading to the increased use of higher-cost energy
purchases in comparison to hydro-generation. Lower electricity
trade margins for the remainder of the year, largely due to price
caps in the region, also contribute to the lower net income
forecast compared to last year.
Liquor Distribution Branch — projected net
income of $616 million, unchanged from the March forecast and 4
per cent lower than 2000/01. The decline from last year mainly
reflects a 2.3-per-cent increase in product and operating costs
(due to amortized costs of a new retail management system), and
additional costs relating to the shutdown of glass breakers and
wage settlements and some one-time adjustments.
British Columbia Lottery Corporation — net
income of $585 million is unchanged from the March forecast and
$23 million higher than 2000/01. Increased revenue from relocated
casinos and increased lottery sales is partially offset by higher
costs for prizes, commissions and operations.
British Columbia Railway Company — a net income
forecast of $1 million in 2001 is $17 million lower than the March
forecast mainly due to an outlook for lower revenue from rail and
container traffic. An $8-million improvement from the previous
year largely reflects the effect of a one-time provision of $13
million in 2000 for anticipated environmental remediation costs.
The corporation does not expect to pay a dividend to the
provincial government in 2001/02.
Insurance Corporation of British Columbia — a
net income forecast of $35 million is $40 million lower than the
March 15 Budget target. Net income is projected to be $104 million
lower than in 2000 (after deducting road safety dividends).
Re-estimates of the costs of settling previous years’ injury
claims are not expected to result in the same level of significant
savings as they did in 2000. This will result in an overall
increase in claims costs but is partially offset by higher premium
revenue due to increased sales.
Other commercial Crown corporations and agencies:
a combined net income forecast of $3 million is $4 million lower
than the March forecast mainly due to a reclassification of 552513
British Columbia Ltd. (Skeena Cellulose Inc.) to a
taxpayer-supported Crown corporation (the March forecast included
a net income forecast of $6 million).
Corporations Forecast Assumptions and Risks
The main assumptions supporting the forecasts are summarized in
Table 2.11 together with a description of the material risks and
Forecast Assumptions and Risks
Crown corporations and agencies have provided their own
forecasts which were used to prepare the summary accounts forecast
for 2001/02, as well as the statement of assumptions and risks.
The boards of those corporations and agencies have reviewed these
The July 30 Update for 2001/02 does not assume or make
allowance for extraordinary adjustments other than those noted in
the assumptions provided by the Crown corporations and agencies.
Factors such as weather, electricity prices, fuel costs and
accident trends could significantly change assumptions and
resulting forecasts. The 2001/02 summary accounts forecast
includes a $500-million forecast allowance for unforeseen
developments affecting the government and its Crown corporations
during the rest of the year.
Provincial debt includes borrowing for schools, hospitals,
transportation, utilities and other capital infrastructure
projects. Capital spending for 2001/02 is estimated at $2.9
billion, down $134 million from the March 15 Budget. The decrease
primarily reflects the reclassification of $154 million in
maintenance costs previously budgeted as capital expenditures and
now included in ministry operating budgets (primarily Health
Services, Education and Advanced Education). An overview of this
change is outlined in Table 2.12 and the adjustments in capital
spending are reflected in Table 2.13. This reduction was partially
offset by additional spending for minor capital purchases by
government ministries and the delayed purchase of land for the
future site of the Pacific National Exhibition (previously
forecast to take place in 2000/01).
The government has undertaken a detailed review of its
operating and capital spending to ensure that expenditures have
been correctly classified in accordance with the government’s
accounting policy. As a result, some capital maintenance
expenditures were reclassified as operating expenses of ministries
while some operating expenses were reclassified as capital
expenditures. With the completion of the 2000/01 Public
Accounts, $154 million of capital spending items in the March
15 Budget have been removed from the 2001/02 capital budget and
added to ministry operating expense budgets consistent with the
government’s accounting policies.
Compared to 2000/01, capital expenditures will increase $104
million as higher capital spending by self-supported commercial
Crown corporations (primarily BC Hydro) will be partially offset
by reduced spending for taxpayer-supported capital projects (see
The capital spending amounts may be affected by various factors
As the financial impact of these risks is difficult to
estimate, and because some risks are offsetting, a monetary value
is not provided.
As required under the Budget Transparency and Accountability
Act, significant capital projects with multi-year budgets
totalling $50 million or more are shown in Table 2.14. The annual
allocations of the full budget for these projects are included as
part of the provincial government’s capital spending shown in
Table 2.13. Total spending on these major projects in 2001/02 is
estimated at $818 million, and the cumulative total at March 31,
2002 is forecast at $3.8 billion.
As of March 31, 2001, $2.3 billion was spent over a number of
years on major transportation capital projects including the
Vancouver Island Highway and the SkyTrain extension. In
2001/02, a further $367 million will be spent on major
transportation projects, with the largest share for SkyTrain.
Cumulative spending on major health facilities will increase
$102 million to total $257 million to the end of 2001/02, with
significant spending for the Surrey Memorial Hospital and the
Royal Jubilee Hospital in Victoria. The revised forecast for the
completion of all major health facilities totals $640 million.
Spending for power generation capital projects by the British
Columbia Hydro and Power Authority and Arrow Lakes Power Company
will increase $241 million to total $716 million by the end of
2001/02. These agencies are self-supported and the combined
revised forecast for these projects is estimated at $1 billion.
ICBC Properties Ltd. (a unit of the Insurance Corporation of
British Columbia) will have invested $193 million by the end of
2001/02 on the acquisition and renovation of Surrey City Centre
(including space for the Technical University of British
Columbia). The total budget for the Surrey City Centre development
is $253 million.
Table 2.15 provides a partial list of the many projects
occurring throughout the province in 2001/02. It contains projects
moderate to large in size that are situated in various regions in
the province and sponsored by various ministries and agencies.
The government and its Crown corporations borrow to finance
their operations (for example, when expenditures exceed revenues),
to finance construction of capital projects or other investments,
to refinance maturing debt and to finance working capital needs.
Provincial debt is reported using two classifications:
Roughly $25 billion or 75 per cent of total provincial debt
(excluding the warehouse borrowing program) reflects investments
in capital assets — schools, hospitals, roads, transportation,
utilities, and other forms of provincial infrastructure.
Total provincial debt is estimated to be $36.8 billion at March
31, 2002, or 28.2 per cent of provincial gross domestic product
(GDP). This is $2.1 billion higher than the March 15 Budget and
$2.9 billion higher than in 2000/01 (see Table 2.16).
Taxpayer-supported debt will total $28.2 billion or 21.7 per
cent of GDP by the end of 2001/02. This is $2.6 billion higher
than the March 15 Budget forecast reflecting additional borrowing
to finance the currently forecast summary accounts deficit and the
reclassification of 552513 British Columbia Ltd. (Skeena Cellulose
Inc.) debt from the self-supported category to taxpayer-supported.
The increase is partially offset by lower balances for education
and health facilities (due to the reclassification of certain
capital expenditures as operating costs) and highways, ferries and
public transit (due to lower-than- expected year-end balances at
March 31, 2001).
Self-supported debt will total $8.1 billion, $638 million lower
than the March budget due to a lower debt forecast for BC Hydro
and the reclassification of 552513 British Columbia Ltd. (Skeena
Cellulose Inc.) debt as taxpayer-supported.
The debt forecast includes a $500-million forecast allowance
provision. This is $200 million higher than the March 15 Budget,
consistent with the increase in the summary accounts forecast
Although the July 30 Update does not present a three-year
outlook, the recent review by the Fiscal Review Panel suggests
that, based on preliminary fiscal forecasts for the next few
years, it is likely that operating deficits will continue in the
near term, requiring additional borrowing and an increase in
government’s operating debt.
Chart 2.4 shows the expected change in total provincial debt in
2001/02. In total, provincial debt will increase $2.9 billion by
year-end to finance working capital requirements and numerous
capital projects of the government and its Crown corporations and
agencies. Taxpayer-supported debt will increase $3.3 billion,
commercial Crown corporation and agency debt will decrease $112
million and a borrowing allowance of $500 million is established
to provide for unexpected developments in the government’s
overall borrowing needs. These requirements will be met through
new borrowing of $5.7 billion ($5.2 billion if the forecast
allowance is not required) and a $712-million drawdown of
previously borrowed funds held under the provincial warehouse
borrowing program (see Table 2.17).
Borrowed funds will be used to finance the $1.5-billion deficit
and maturing debt of $2.7 billion, and to partially finance
capital expenditures of $2.9 billion and operating and working
capital requirements of the consolidated revenue fund and Crown
corporations and agencies. Some financial requirements (for
example, certain commercial Crown corporation projects and
portions of taxpayer-supported infrastructure projects) will be
financed through internal sources such as net income of the
British Columbia Hydro and Power Authority, and surplus cash
balances at the end of 2000/01.
Further information on provincial financing activities is
provided in the topic box in this report. Details on the debt
outstanding for the government, Crown corporations and agencies
are provided in Supplementary Table 7.
Table 2.18 summarizes the forecast changes in the province’s
financial position during 2001/02. The table shows that:
The government and its taxpayer-supported Crown corporations
and agencies are projected to have a total staff utilization of
approximately 44,100 full-time equivalents (FTEs) in the 2001/02
fiscal year. This includes 34,844 FTEs for ministries and special
offices and 9,344 FTEs for taxpayer-supported Crown corporations
and agencies. Since the March 15 Budget, there has been an
increase of 70 FTEs for ministries and special offices and a
decrease of 368 FTEs for Crown corporations and agencies. The
decline in Crown corporations primarily reflects the removal of
Highway Constructors Ltd. (HCL) employees from the utilization
count, partially offset by the addition of Canadian Blood Services
employees and various utilization increases in other Crown
corporations. HCL employees have been removed from the FTE count
because their costs are not paid directly through salaries, but
are instead recovered from private-sector contractors.
Utilization in ministries and special offices is projected to
be 1,575 FTE’s higher than in 2000/01. The increase is due to
planned under-utilization, reduced requirements for fighting
forest fires and hiring recruitment lags in 2000/01, and
additional resources that were provided in the March 15 Budget for
new initiatives and service delivery pressures in children and
families services, including before-and-after school child-care
and justice programs in 2001/02. Taxpayer-supported Crown
corporations and agencies show a 108-FTE increase from last year
due to minor increases in the activity of several Crown
corporations and agencies. Further details on staff utilization
projections are available in Schedule G of the Estimates.