Despite weaker commodity prices, Alberta said that it is on track to meet most of its budget commitments, although certain plans will have to be scrapped as the expected surplus is shrinking.

The province’s second update shows a $2 billion surplus for the 2008-2009 fiscal year, up $435 million from budget, but down by $6.5 billion from its first quarter forecast. Nevertheless, the remaining surplus, together with other available cash, will still enable the government to follow through on the vast majority of its commitment to carbon capture and storage research and the Green Transit Incentives Program Fund, it said.

“While Alberta is not immune to the turmoil in world financial markets, we are extremely fortunate to be in the position we are today,” said Finance and Enterprise Minister Iris Evans in a release. “We are well-placed to weather the global economic crisis, benefiting as we do from a low tax environment, no provincial debt, and an economy still predicted to grow next year.

“That being said, we recognize that we must continue to be prudent as we plan for next year’s budget.” Revenue for the year is now forecast to be $39.9 billion, an increase of $1.3 billion from budget, mainly due to higher oil and gas prices earlier this year. This is down $6.7 billion from the revenue predicted in the first quarter due to lower energy, investment and corporate income tax revenue.

Resource revenue is up $2.8 billion from budget, primarily due to higher oil and gas prices from earlier this year and land sales income, but down by $4.3 billion from the first quarter due to falling oil and gas prices over the last four months.

Expenses are forecast to be $37.9 billion, an increase of $905 million from budget, due to increases in disaster and emergency funding, as well as priority program and capital spending. This is $143 million lower than the first quarter however, due to lower natural gas rebates.

Surplus allocation, including cash adjustments from the 2007-2008 fourth quarter and other cash adjustments, is $3.9 billion. Of this total, $2 billion of the cash available will go to the Carbon Capture and Storage Fund, and a further $1.8 billion will go to Green TRIP. The remaining $224 million required for the Green TRIP commitment will be allocated at a later date.

The Alberta Heritage Savings Trust Fund had capital losses of $605 million in the quarter, more than wiping out first quarter capital gains of $155 million, and producing an overall loss for the six months ended September 30, is $450 million. As of September 30, the fund had a fair value of $15.8 billion, down from $17.1 billion.

“The enormous volatility in the world markets has affected investments the world over, and the Heritage Fund is no exception,” said Evans. “But the Heritage Fund is invested for the long term, and I am confident that it is well-positioned to ride out this economic storm.”

Most of the loss came from investments in U.S. and non-North American equities. It also has unrealized losses of $765 million through the first six months of the fiscal year. At September 30, unrealized capital losses on investments totaled $133 million compared to unrealized capital gains of $632 million at the beginning of the year. Unrealized losses are those losses which would be realized only if an asset was sold.

IE