Sovereign wealth funds, especially those fattened by oil revenue, have become the bête noir of financial markets, seemingly buying up everything in sight at prices that more accountable investment funds can’t afford.

Sadly, the Alberta Heritage Savings Trust Fund has not joined the party. Between its yearend on March 31, 2007, and Dec. 31, 2007, the fund actually declined in value by $13 million, ending the year at $16.6 billion.

For this, it is not fair to blame the fund’s managers at the newly created Alberta Investment Management Corp. (although some will). The fact is that over those nine months, Alberta took $180 million more out of the Heritage Fund than it put in. And this in a time of three-digit oil prices.

Let’s leave aside the debate over whether the province collects enough in oil and gas royalties, which were the impetus for the Heritage Fund in the first place. Let’s instead take a comparative look at the way the Alberta government manages this one-time windfall. And you, sitting in Oakville, Ont., or Corner Brook, Nfld., should care. Not because you might one day benefit from that wealth, but for what it’s doing to the country right now.

In 2007-08, Alberta took in $11 billion in revenue derived from fossil fuels. That represented 29% of its total revenue for the year. More important is how you look at it in terms of expenditure. Even if you subtract the $4-billion surplus, that means the government relied on oil and gas to pay for more than 20% of its program and capital spending.

Not only is this risky for Alberta, given the volatile nature of energy prices and industry activity levels, but it means Alberta is able to spend one-fifth more than other provinces, setting the benchmark for health-care and post-secondary salaries, for example, and driving up construction industry costs in a frenzy of infrastructure spending. In Alberta’s current budget, the government expects to hike spending by 10%, and that’s down from the rate of growth of the previous two years.

Compare this with the way Norway manages its resources revenue. Due to a 1990 law, the government can spend no more than 4% of its oil and gas take (actually a tax on oil company profits) in general revenue. The rest goes into the Government Pension Fund — Global, better known as the Petroleum Fund. Just one of the aforementioned sovereign wealth funds, the Petroleum Fund started taking in money only in 1996 and already is worth about US$370 billion. The fund has a mandate to invest outside Norway, as a way to hedge against resources revenue and avoid the “Dutch disease” of inflationary pressures eating away at the country’s competitiveness. The Petroleum Fund’s returns are 100% compounded, with no dividends going to government coffers. Taxes and program spending in Norway have stayed where they were before oil prices took off and are not far different from that of the country’s Scandinavian neighbours.

Alberta’s Heritage Fund, on the other hand, was created 20 years earlier, with a commitment to save 30% of non-renewable resources revenue. In 1983, the proportion was cut to 15%; in 1987, to zero. The Klein government of the 1990s drew down the fund in its bid to slay runaway deficits. Now, the deficits are gone; indeed, so is the debt. And resources revenue is enormous, having peaked at $14 billion in 2005-06 — the year Edmonton gave out 400 “Ralph Bucks” to every citizen of Alberta.

It was also the year the government began contributing to the Heritage Fund again. In the last nine months of 2007, Ed Stelmach’s government chipped in $550 million (5% of the year’s oil and gas revenue, since we’re counting) and took out $730 million as a dividend. Former Alberta premier Peter Lougheed’s old “one-third rule” for savings now applies to “unanticipated surpluses.”

How much better off would Canada’s economy, taxpayers and competitiveness be — right now, not in some post-petroleum future — if Alberta just socked away 30% of its oil and gas revenue, let alone the 96% that Norway does? IE