Saskatchewan Province Of 18-K/A Annual report (foreign governments) (amended)

The Honourable Rod Gantefoer
Minister of Finance

SASKATCHEWAN BUDGET UPDATE

08-09

READY FOR GROWTH

3^RD QUARTER
FINANCIAL REPORT

3^rd Quarter Financial Report
Government of Saskatchewan
February 27, 2009

3^rd Quarter Financial Report
General Revenue Fund Update

INTRODUCTION

The 2008-09 third quarter report shows that the government’s financial outlook remains sound.

The revenue update reflects continued momentum in the provincial economy despite falling commodity prices and the unfolding global economic recession. Further increases in tax revenue and other revenue fully offset lower non-renewable resource revenue.

The government has also decided not to take $185.0 million in dividends from the Crown Investments Corporation in order to increase financial flexibility in the Crowns for their future capital spending programs.

The net result is that General Revenue Fund (GRF) revenue at third quarter is forecast to be $107.7 million, or 0.9 per cent, lower than at mid-year.

The third quarter GRF expense update primarily reflects the $500.0 million “booster shot” in accelerated infrastructure spending brought forward from 2009-10. The spending was announced in February 2009 to provide Saskatchewan residents with much-needed infrastructure and serve to stimulate the Saskatchewan economy in the face of the current global economic downturn.

Other major spending increases include advancing the funds for the previously announced Saskatoon Circle Drive South bridge project ($98.5 million) and additional Agriculture spending ($111.8 million).

Taken together, the changes in GRF revenue and spending serve to reduce the pre-transfer surplus forecast by $768.7 million from the mid-year outlook. The increased spending is intended to support economic growth and stabilize the agricultural sector, therefore the funds are being drawn from the Growth and Financial Security Fund. Overall, the results for the year continue to support the mid-year forecast of a $2.3 billion GRF surplus.

The third quarter outlook for government total debt is unchanged from mid-year. Relative to the 2007-08 debt level, government total debt is now forecast to decrease by $2.7 billion, a reduction of almost 40 per cent.

3^rd Quarter Financial Report/ GRF Update 1

FINANCIAL OVERVIEW

The 2008-09 Budget estimated a General Revenue Fund (GRF) surplus of $250 million.

At third quarter:

• revenue is up $2,786.0 million or 29.7 per cent from budget (down $107.7 million from mid-year);

• operating expense is up $1,192.9 million or 13.9 per cent from budget (up $661.0 million from mid-year); and,

• interest costs are down $25 million from budget (unchanged from mid-year).

The resulting pre-transfer surplus is $1,867.7 million – an increase of $1,618.1 million from the budgeted $249.6 million pre-transfer surplus.

2008-09 GRF Financial Overview
		Budget			Mid-Year			3rd Quarter		Change from
		Estimate			Projection			Forecast			Budget			Mid-Year
	(millions of dollars)
Revenue	$	9,366.5		$	12,260.2		$	12,152.5		$	2,786.0		$	(107.7	)
Operating Expense*		8,581.9			9,113.8			9,774.8			1,192.9			661.0
Operating Surplus		784.6			3,146.4			2,377.7			1,593.1			(768.7	)
Debt Servicing		535.0			510.0			510.0			(25.0	)		--
Pre-Transfer Surplus		249.6			2,636.4			1,867.7			1,618.1			(768.7	)
Transfer to GFSF		(124.8	)		(1,318.2	)		(933.9	)		(809.1	)		384.3
Transfer from GFSF		125.2			1,000.0			1,384.4			1,259.2			384.4
Net Transfer from (to) GFSF		0.4			(318.2	)		450.5			450.1			768.7
Surplus	$	250.0		$	2,318.2		$	2,318.2		$	2,068.2		$	--
* Budget Estimate includes $10.4 million provided to the Ministry of Municipal Affairs by Further Estimates
GFSF Balance**	$	1,634.0		$	1,952.2		$	1,183.5		$	(450.5	)	$	(768.7	)
** 2008-09 opening balance = $1,634.0 million.

One-half of the pre-transfer surplus ($933.9 million) will be transferred to the Growth and Financial Security Fund (GFSF) and $1,384.4 million will be transferred from the GFSF to the GRF, leaving a forecast GRF surplus of $2,318.2 million.

The GFSF balance is forecast to be $1,183.5 million at the end of 2008-09. This reflects the 2008-09 opening balance of $1,634.0 million being reduced by the net transfer of $450.5 million to the GRF.

Government debt is forecast to be $4.2 billion at March 31, 2009, down $2.7 billion from budget and unchanged from mid-year. This represents a reduction in government total debt of almost 40 per cent from March 31, 2008.

2   3^rd Quarter Financial Report/ GRF Update

REVENUE UPDATE

At the third quarter, total GRF revenue is forecast to be $12,152.5 million, a decrease of $107.7 million since mid-year.

Revenue Reconciliation
(millions of dollars)
Budget Estimate	$9,366.5
Mid-Year Total Change	2,893.7
Mid-Year Projection	$12,260.2
3rd Quarter Changes
Own-Source Revenue Changes
Individual Income Tax	+89.6
Potash	+72.6
Sales Tax	+67.0
Corporation Capital Tax	+39.2
CIC Dividend	-185.0
Crown Land Sales	-147.9
Oil	-119.7
Corporation Income Tax	-22.6
Other net changes	+71.2
Total Own-Source Change	-135.6
Total Federal Transfer Change	+27.9
Total Change	-107.7
3rd Quarter Forecast	$12,152.5

While commodity prices continued their downward trend over the third quarter, continued strength and momentum in the provincial economy has led to upward revisions to tax revenue and other own-source revenue. These increases offset a lower non-renewable resource forecast.

Tax revenue is forecast to increase by $185.2 million since the mid-year forecast as the result of strong economic activity in the province. Continued strength in domestic demand has led to upward revisions in Sales and Fuel tax revenue.

Individual Income Tax revenue is forecast to be higher than at mid-year primarily due to stronger income growth in 2008. Increases in population, employment and wages and salaries have resulted in a growing taxable income base in the province.

Corporation Capital Tax remains strong as average prices for resources remained high over the past year despite price declines in recent months.

The $22.6 million reduction in Corporation Income Tax is primarily a result of downward revisions to the national taxable income base as forecast by the federal government.

In total, tax revenue is $190.3 million higher than estimated in the 2008-09 Budget after accounting for the $334.0 million tax reduction package announced in October.

At third quarter, total non-renewable resource revenue is $217.9 million lower since mid-year. West Texas Intermediate (WTI) oil prices averaged US$94.50 per barrel through the first 10 months of the fiscal year, but monthly averages in December and January were in the US$42 per barrel range. The current fiscal-year price forecast has been lowered to US$87.67 per barrel from US$93.95 at mid-year.

Falling oil prices have been accompanied by a lower exchange rate and a smaller

3^rd Quarter Financial Report/ GRF Update 3

light-heavy differential. These two factors have served to partially offset some of the oil revenue losses due to falling world prices. The current fiscal-year forecast for the exchange rate has been lowered to 90.45 US cents, down from 91.26 US cents at mid-year. The value of the Canadian dollar averaged 90.75 US cents through the first 10 months of the fiscal year.

The current 2008-09 revenue forecast assumes oil prices and the value of the Canadian dollar will remain at depressed levels through the end of March.

Crown land sales finished the fiscal year at just over $928 million. While this is down $147.9 million from mid-year, it is still the best year on record and $735.6 million more than budget.

The forecast for natural gas revenue is $12.8 million lower than at mid-year, and other non-renewable resource revenue is down $10.1 million.

The potash revenue forecast has been revised higher by $72.6 million since the mid-year forecast primarily due to lower exchange rates. Potash is sold in US dollars, so any decrease in actual and forecast values of the Canadian dollar results in a higher Canadian dollar price.

In total, non-renewable resource revenue is forecast to reach nearly $4.2 billion, a $2.3 billion increase over budget. Revenue from potash, Crown land sales, oil and natural gas are all higher than budgeted despite the unfolding global economic recession and financial crisis.

The government has also decided not to take $185.0 million in dividends from the Crown Investments Corporation in order to increase financial flexibility in the Crowns for their future capital spending programs.

The special $365.0 million dividend from the proceeds related to the sale of the NewGrade oil refinery holdings will still be received by the GRF in 2008-09 as this revenue was dedicated to GRF debt repayment, infrastructure and green initiatives in the 2008-09 Budget. These commitments have been met.

Other net changes since mid-year amount to $110.0 million and primarily reflect increases in other revenue ($65.4 million), including unanticipated refunds of prior-year expense under the Canadian Agricultural Income Stabilization program ($77.4 million), higher federal transfers ($27.9 million), increased motor vehicle revenue ($5.0 million) and other net changes ($11.7 million).

4   3^rd Quarter Financial Report/ GRF Update

EXPENSE UPDATE

At the third quarter, total GRF expense is forecast to be up $661.0 million from the 2008-09 mid-year projection.

Expense Reconciliation
(millions of dollars)
Budget Estimate	$9,116.9
Mid-Year Total Change	531.9
Mid-Year Projection	$9,623.8
3rd Quarter Changes
Forecast Changes since Mid-Year
Highways and Infrastructure	+98.0
Agriculture	+111.8
Municipal Affairs	+13.8
Justice and Attorney General	+3.6
Education	+2.0
Teachers' Pensions and Benefits	-63.3
Other Net Changes	-4.9
Total Forecast Changes	+161.0
Accelerated Capital
Health	+152.8
Education	+141.7
Municipal Affairs	+131.6
Social Services	+29.9
Advanced Education, Employment
and Labour	+26.4
Highways and Infrastructure	+17.6
Total Accelerated Change	+500.0
Total Change	+661.0
3rd Quarter Forecast	$10,284.8

The $661.0 million increase mainly reflects:

• $152.8 million in Health due to accelerated infrastructure spending;

• $145.4 million in Municipal Affairs primarily due to accelerated infrastructure spending and increases related to eligible funding from the federal public transit program;

• $143.7 million in Education mainly due to accelerated infrastructure spending;

• $115.7 million in Highways and Infrastructure due to advancements in funding for the Saskatoon Circle Drive South project, the Saskatchewan Global Transportation Hub and for other projects within the Urban Highway Connector Program;

• $111.8 million in Agriculture mainly due to the introduction of the Saskatchewan Cattle and Hog Support Program, an increase in AgriStability and AgriInvest costs related to revised farm income forecasts, the revaluation of Crown Land held for resale, and higher-than-anticipated uptake in the 2008 Farm and Ranch Water Infrastructure Program;

• $29.9 million in Social Services due to accelerated infrastructure spending;

• $26.4 million in Advanced Education, Employment and Labour primarily due to accelerated infrastructure spending; and,

• a reduction of $63.3 million in Teachers’ Pensions and Benefits due to reduced requirements for the Teachers’ Superannuation Plan as a result of expected teacher retirement and changes in contribution balances.

3^rd Quarter Financial Report/ GRF Update 5

DEBT UPDATE

The GRF borrows for government and Crown corporations.

Public debt as reported in the Province’s financial statements is composed of:

• Gross Debt - the amount of money owed to lenders; less,

• Sinking Funds - the amount of money which has been set aside for the repayment of debt.

Total debt, or public debt plus guaranteed debt, is used by most members of the financial community when analyzing creditworthiness.

• Guaranteed Debt - the debt of Crown corporations and others that the Province has promised to repay if they are unable to do so.

Total debt of the GRF at March 31, 2009 is currently forecast to be $8.0 billion. This is $0.1 billion lower than the mid-year projection and $2.3 billion lower than at March 31, 2008.

GRF Total Debt
			As at March 31, 2009
				Mid-Year	3rd Quarter		Change from
	31-Mar-08			Projection		Forecast	31-Mar-08				Mid-Year
	(millions of dollars)
Crown Corporation Total Debt	$	3,395.2	$	3,863.0	$	3,767.2	$	372.0		$	(95.8	)
Government Total Debt		6,848.7		4,192.2		4,192.2		(2,656.5	)		--
GRF Total Debt	$	10,243.9	$	8,055.2	$	7,959.4	$	(2,284.5	)	$	(95.8	)

Crown corporations are responsible for the principal and interest payments on their debt. Crown corporation debt is incurred in the normal course of business, primarily for investment in infrastructure and business development initiatives which provide revenue streams to service the debt.

Crown corporation debt at March 31, 2009 is currently forecast to be $3.8 billion. This is $0.1 billion lower than the mid-year projection and $0.4 billion higher than at March 31, 2008.

Government debt at March 31, 2009 is currently forecast to be $4.2 billion, which is unchanged from the mid-year projection and $2.7 billion lower than at March 31, 2008. This represents a reduction in government total debt of almost 40 per cent from March 31, 2008.

6   3^rd Quarter Financial Report/ GRF Update

2008-09 Third Quarter Financial Report Province of Saskatchewan General Revenue Fund Statement of Revenue
		Budget		Mid-Year		3rd Quarter			Change from
	Estimate			Projection			Forecast		Budget				Mid-Year
	(thousands of dollars)
Corporation Capital	$	444,100	$	504,100		$	543,300		$	99,200		$	39,200
Corporation Income		616,500		616,500			593,900			(22,600	)		(22,600	)
Fuel		413,300		413,300			425,300			12,000			12,000
Individual Income		1,932,000		2,095,100			2,184,700			252,700			89,600
Sales		979,800		1,087,300			1,154,300			174,500			67,000
Tobacco		183,800		192,300			192,300			8,500			--
Other		109,500		109,500			109,500			--			--
Less: Fall 2008 Tax Reduction Package*		--		(334,000	)		(334,000	)		(334,000	)		--
Taxes	$	4,679,000	$	4,684,100		$	4,869,300		$	190,300		$	185,200
Crown Land Sales	$	192,500	$	1,076,000		$	928,100		$	735,600		$	(147,900	)
Natural Gas		118,000		144,400			131,600			13,600			(12,800	)
Oil		1,054,600		1,608,500			1,488,800			434,200			(119,700	)
Potash		352,600		1,427,000			1,499,600			1,147,000			72,600
Other		189,200		138,900			128,800			(60,400	)		(10,100	)
Non-Renewable Resources	$	1,906,900	$	4,394,800		$	4,176,900		$	2,270,000		$	(217,900	)
Crown Investments Corporation of Saskatchewan	$	185,000	$	185,000		$	--		$	(185,000	)	$	(185,000	)
- Special Dividend		365,000		365,000			365,000			--			--
Saskatchewan Liquor and Gaming Authority		383,600		419,400			428,900			45,300			9,500
Other Enterprises and Funds		34,800		36,400			37,000			2,200			600
Transfers from Crown Entities	$	968,400	$	1,005,800		$	830,900		$	(137,500	)	$	(174,900	)
Fines, Forfeits and Penalties	$	10,200	$	11,300		$	11,600		$	1,400		$	300
Interest, Premium, Discount and Exchange		92,400		141,600			141,600			49,200			--
Motor Vehicle Fees		141,500		141,500			146,500			5,000			5,000
Other Licences and Permits		34,700		34,700			35,500			800			800
Sales, Services and Service Fees		91,100		95,700			96,200			5,100			500
Transfers from Other Governments		16,800		14,800			14,800			(2,000	)		--
Other		40,000		40,000			105,400			65,400			65,400
Other Revenue	$	426,700	$	479,600		$	551,600		$	124,900		$	72,000
Own-Source Revenue	$	7,981,000	$	10,564,300		$	10,428,700		$	2,447,700		$	(135,600	)
Canada Health Transfer	$	810,900	$	810,900		$	828,100		$	17,200		$	17,200
Canada Social Transfer		335,000		335,000			341,100			6,100			6,100
Other		239,600		550,000			554,600			315,000			4,600
Transfers from the Government of Canada	$	1,385,500	$	1,695,900		$	1,723,800		$	338,300		$	27,900
Revenue	$	9,366,500	$	12,260,200		$	12,152,500		$	2,786,000		$	(107,700	)
* Includes the impact of the Low-Income Tax Credit and changes in Individual Income Tax credits announced on October 21, 2008.

3^rd Quarter Financial Report/ GRF Update 7

2008-09 Third Quarter Financial Report Province of Saskatchewan General Revenue Fund Statement of Expense
		Budget		Mid-Year	3rd Quarter		Change from
	Estimate			Projection		Forecast	Budget				Mid-Year
	(thousands of dollars)
Executive Branch of Government
Advanced Education, Employment and Labour	$	761,014	$	867,125	$	893,475	$	132,461		$	26,350
Agriculture		302,805		332,250		444,054		141,249			111,804
Corrections, Public Safety and Policing		291,878		310,065		310,175		18,297			110
Education		992,231		1,001,698		1,145,410		153,179			143,712
- Teachers' Pensions and Benefits		194,083		195,014		131,745		(62,338	)		(63,269	)
Energy and Resources		38,551		40,690		40,460		1,909			(230	)
Enterprise and Innovation		60,131		60,158		59,885		(246	)		(273	)
Enterprise Saskatchewan*		--		6,087		6,087		6,087			--
Environment		186,167		187,666		185,467		(700	)		(2,199	)
Executive Council		8,716		8,716		8,716		--			--
Finance		44,256		44,256		43,319		(937	)		(937	)
- Public Service Pensions and Benefits		254,278		254,278		254,261		(17	)		(17	)
First Nations and Métis Relations		70,336		89,979		89,979		19,643			--
Government Services		13,450		13,450		13,260		(190	)		(190	)
Health		3,745,333		3,825,333		3,978,133		232,800			152,800
Highways and Infrastructure		372,090		372,090		487,740		115,650			115,650
Information Technology Office		5,401		5,401		5,401		--			--
Intergovernmental Affairs		3,538		3,538		3,388		(150	)		(150	)
Justice and Attorney General		129,542		132,997		136,547		7,005			3,550
Municipal Affairs**		251,220		251,220		396,642		145,422			145,422
Office of the Provincial Secretary		4,153		4,153		4,412		259			259
Public Service Commission		36,621		36,621		36,121		(500	)		(500	)
Saskatchewan Research Council		12,082		12,082		12,082		--			--
Social Services		631,446		645,826		675,726		44,280			29,900
Tourism, Parks, Culture and Sport		136,858		136,858		136,496		(362	)		(362	)
CIC Transfer for Carbon Capture Trust		--		240,000		240,000		240,000			--
Legislative Branch of Government
Chief Electoral Officer		1,071		1,295		1,295		224			--
Children's Advocate		1,531		1,531		1,531		--			--
Conflict of Interest Commissioner		151		151		151		--			--
Information and Privacy Commissioner		822		822		822		--			--
Legislative Assembly		22,931		23,169		22,733		(198	)		(436	)
Ombudsman		2,068		2,123		2,123		55			--
Provincial Auditor		7,126		7,126		7,126		--			--
Operating Expense **	$	8,581,880	$	9,113,768	$	9,774,762	$	1,192,882		$	660,994
Debt Servicing		535,000		510,000		510,000		(25,000	)		--
Expense **	$	9,116,880	$	9,623,768	$	10,284,762	$	1,167,882		$	660,994
* Enterprise Saskatchewan was established as a special operating agency by The Enterprise Saskatchewan Act.
** Budget Estimate includes $10.4 million provided to the Ministry of Municipal Affairs by Further Estimates

 

8   3^rd Quarter Financial Report/ GRF Update

2008-09 Third Quarter Financial Report Province of Saskatchewan General Revenue Fund Statement of Debt
				As at March 31, 2009
					Mid-Year		3rd Quarter			Change from
	31-Mar-08				Projection			Forecast		31-Mar-08				Mid-Year
	(thousands of dollars)
Crown Corporation Public Debt
Information Services Corporation
of Saskatchewan	$	13,547		$	13,547		$	13,547		$	--		$	--
Investment Saskatchewan Inc.		3,919			--			--			(3,919	)		--
Municipal Financing Corporation
of Saskatchewan		25,764			62,969			42,268			16,504			(20,701	)
Saskatchewan Crop Insurance Corporation		72,158			4,740			1,352			(70,806	)		(3,388	)
Saskatchewan Housing Corporation		34,075			32,195			33,183			(892	)		988
Saskatchewan Opportunities Corporation		31,844			49,728			43,028			11,184			(6,700	)
Saskatchewan Power Corporation		2,173,311			2,535,039			2,412,149			238,838			(122,890	)
Saskatchewan Telecommunications
Holding Corporation		289,698			341,375			341,372			51,674			(3	)
Saskatchewan Water Corporation		40,118			50,060			39,468			(650	)		(10,592	)
SaskEnergy Incorporated		709,894			772,570			840,052			130,158			67,482
Crown Corporation Public Debt	$	3,394,328		$	3,862,223		$	3,766,419		$	372,091		$	(95,804	)
Government Public Debt		6,824,323			4,146,880			4,160,887			(2,663,436	)		14,007
Public Debt	$	10,218,651		$	8,009,103		$	7,927,306		$	(2,291,345	)	$	(81,797	)
Guaranteed Debt		25,227			46,139			32,132			6,905			(14,007	)
Total Debt	$	10,243,878		$	8,055,242		$	7,959,438		$	(2,284,440	)	$	(95,804	)
Crown Corporation Gross Debt	$	3,759,538		$	4,258,981		$	4,165,981		$	406,443		$	(93,000	)
Crown Corporation Sinking Funds		(365,210	)		(396,758	)		(399,562	)		(34,352	)		(2,804	)
Crown Corporation Public Debt	$	3,394,328		$	3,862,223		$	3,766,419		$	372,091		$	(95,804	)
Crown Corporation Guaranteed Debt		862			821			821			(41	)		--
Crown Corporation Total Debt	$	3,395,190		$	3,863,044		$	3,767,240		$	372,050		$	(95,804	)
Government Gross Debt	$	7,818,371		$	7,327,039		$	7,107,380		$	(710,991	)	$	(219,659	)
Government Sinking Funds		(994,048	)		(3,180,159	)		(2,946,493	)		(1,952,445	)		233,666
Government Public Debt	$	6,824,323		$	4,146,880		$	4,160,887		$	(2,663,436	)	$	14,007
Government Guaranteed Debt		24,365			45,318			31,311			6,946			(14,007	)
Government Total Debt	$	6,848,688		$	4,192,198		$	4,192,198		$	(2,656,490	)	$	--
Total Debt	$	10,243,878		$	8,055,242		$	7,959,438		$	(2,284,440	)	$	(95,804	)

3rd Quarter Financial Report/ GRF Update 9