CALGARY, ALBERTA--(Marketwire - March 4, 2013) - Successive Alberta governments have saved little of the province's resource revenues in the Alberta Heritage Savings and Trust Fund, leaving it far short compared to similar funds found in Alaska and Norway, concludes a new report from the Fraser Institute, an independent, non-partisan Canadian think-tank.
In 2011, the Heritage Fund's equity was valued at a mere $14.2 billion. That is not much more than the $12.7 billion value of the fund back in 1987 when the province stopped making deposits, linked to resource revenues, to the fund.
The report, Reforming Alberta's Heritage Fund: Lessons from Alaska and Norway, examines the history and structure of the Alberta Heritage Savings Trust Fund, which was established in 1976, and compares its performance to similar funds established in Alaska and Norway. Both Alaska and Norway have built sizeable endowments in their funds, dwarfing Alberta's, thanks in large part to rules requiring the Alaskan and Norwegian governments to bank a specific amount of resource revenues each year.
"Unfortunately, Alberta has no legislative or constitutional requirement for government to save resource revenues for future generations," said Mark Milke, Fraser Institute senior fellow.
"Obviously, Alberta's recent history of boosting spending beyond inflation and population growth reduced its opportunities to save. When you combine that with a tendency for governments to withdraw the fund's earnings, the result is Alberta's Heritage Fund isn't much larger than it was three decades ago."
The report calculates that if the Alberta government implemented Alaska-like rules for contributions to the Heritage Fund after it balanced its budget in 1995, contributions would have equaled $31.8 billion instead of the actual contributions of $3.9 billion between 1995 and 2011.
But rather than build up the fund, Alberta's provincial government consistently withdrew earnings from the fund to finance program spending. Between 1977 and 2011, the Heritage Fund earned $31.3 billion on its assets but the Alberta government withdrew $29.6 billion.
Alaska: A constitutionally protected fund
In contrast to Alberta's practice of withdrawing most earnings from the Heritage Fund, Alaska's Permanent Fund was designed to grow. In 1976, Alaska's voters ratified a constitutional amendment requiring the state to deposit at least 25 per cent of specified resource revenues. The Alaska legislature later raised the contribution rate on new oil and gas fields to 50 per cent. In addition, restrictions were placed on how the earnings of the fund could be used.
Alaska's Permanent Fund Dividend program (which is subsidiary to the Permanent Fund) also transfers a large portion of the fund's earnings to eligible residents. In a typical year, Alaskans receive payments totaling 10.5 per cent of the fund's total earnings over the past five years. Between 1977 and 2011, Alaska's Permanent Fund had cumulative net income of $41.6 billion, with disbursements to Alaska residents totaling $19.2 billion over the same period.
Jason Clemens, Fraser Institute executive vice-president and co-author of the study, said that once Alberta returns to a balanced budget, it should take a long, hard look at Alaska's Permanent Fund and the state's contribution requirements.
"Although Alberta is currently running a deficit, it should think ahead about how best to manage the Heritage Fund and ensure it meets its original mission of providing the greatest financial return for current and future Albertans," he said.
"If Albertans want to leave a legacy for their children, the province should follow the examples of Alaska and ensure a specific percentage of resource revenues are placed in the Heritage Fund each year."
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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.