How Alberta can learn from some First Nations on how to save oil money
4 First Nations in the province have their own trust funds to save oilpatch revenue
Soaring oil and natural gas prices are expected to help the Alberta government rebound from the $17 billion deficit of a few years back and instead swing into a surplus when the provincial budget is delivered next week.
The rising commodity prices will result in substantially higher royalty payments from the oilpatch, in addition to more funds raised from corporate and personal income taxes.
The unexpected influx of oil and natural gas revenue is renewing calls for the provincial government to save some of the money in its Heritage Savings Trust Fund, which was created in the 1970s to stash away some of Alberta's resource revenue for future generations.
However, the fund has experienced only minimal growth since the mid-1980s as ruling governments have often withdrawn money from it, instead of making deposits.
If the current Alberta government is looking for inspiration on how to better save its oil and natural gas money, it could turn to some First Nations in the province.
Small communities, big savings
Four First Nations have their own trust funds after deciding to stash away their own oil and gas cash. Unlike the Heritage Savings Trust Fund, the First Nations have made it a priority to grow their savings while also providing money to the local communities every year.
The Samson Cree Nation, located about 100 kilometres south of Edmonton, created the Kisoniyaminaw Heritage Trust Fund in 2007 with an opening balance of $349 million. In 2020, the fund had a balance of $518 million, while $283 million had been withdrawn by the Samson Cree over the years to support the community, including social programs and post-secondary tuition.
"Any one of our students that wants to go to university, we have a fund available to assist them," said Wilton Littlechild, a lawyer who helped in the effort to create the fund and has served as a trustee.
"It shows that you can actually educate your own people with your own resources without relying on government funding."
While there has been little oil and natural gas development in the area in recent years, any royalty payments from industry are automatically deposited in the trust fund.
The First Nation has used some of those funds to own its own bank, Peace Hills Trust, which at one point, Littlechild said, provided loans to about 400 other First Nations communities in the country.
Littlechild admits not all of the investment decisions have worked out, but "we learn from our mistakes and we've been able to recover losses over time, so that now, I would say we're ahead substantially."
Like anywhere in Canada, the community still faces challenges with addictions and other social problems, he said. Some of the revenues from the trust fund have gone toward housing, however, homelessness exists because of the community's growing population.
Littlechild is a member of the nearby Ermineskin Cree Nation, which created its own trust in 2011 with $123 million and has earned a 10 per cent annualized rate of return since inception.
The Onion Lake Cree Nation, which straddles the Alberta-Saskatchewan border, set up its trust in 2016 with more than $44 million. Since then, the trust has paid out $59 million to the First Nation and has a balance of just over $37 million. The annualized rate of return is nearly 11 per cent.
The Bearspaw First Nation, west of Calgary, established its trust fund last year.
Sovereign wealth funds
Several other governments around the world have created trust funds to save oil and natural gas revenue. Norway's sovereign wealth fund, the world's largest, is worth $1.3 trillion US.
Several U.S. states have funds created with fossil fuel revenue including Alaska, New Mexico, Wyoming and Texas.
Alberta's Heritage Savings Trust Fund is worth $18.4 billion, compared to a value of about $15 billion in 2011.
Initially, Alberta paid 30 per cent of its oil royalties into the fund. But, in 1987, the province stopped transferring money into it, except for some payments between 2005 and 2007.
The problem, according to Allan Warrack, a former Progressive Conservative cabinet minister who helped create the fund, is that when successive Alberta governments have faced tough economic times, they avoided diversifying revenues or increasing taxes. Instead, it's politically easier to dip into the fund, he said in an interview with Radio-Canada in 2019.
Since Alberta's nest egg was created by Premier Peter Lougheed in 1976, governments have used the fund and its investment income to pay for nearly $45-billion worth of programs, services and infrastructure — including building the Kananaskis Country Golf Course in the Rocky Mountains, west of Calgary.
"A lot of the money was wasted with foolish projects," Warrack said
The Alberta government has a separate Technology Innovation and Emissions Reduction fund that collects carbon tax money from heavy emitters in the province and spends some of the cash on emissions-reducing technologies and projects.
Calls to save for the next bust
The North American oil benchmark reached $95 US per barrel this week, which is double the price during the same time one year ago. Natural gas prices have also increased.
Alberta coffers are again gushing with cash, which gives the government several opportunities to save the money, pay down debt, or stimulate the economy, among other options.
"We have very healthy oil and natural gas prices right now," said Keith Brownsey, a political science professor at Mount Royal University in Calgary.
"We should be saving it for the next generation," he said.
Alberta will continue riding the highs and lows of commodity prices and struggle to build up its trust fund in earnest until it introduces a sales tax, said Brownsey.
"No government seems willing to do that, to take the hard road and to stabilize Alberta finances. And that's where we end up," he said.
"We are subject to the boom and bust cycle with oil prices. It's a mess."
NDP finance critic Shannon Phillips said the fund holds a special place in the hearts of many Albertans.
"It represents the value of all those folks who worked so hard in the 70s and 80s when oil prices spiked in those times. My dad was one of them, he was an electrician on oil rigs," she said.
Phillips said there is a need to save for the future, while also addressing rising costs within the province because of many factors including inflation, utilities, tuition and insurance.
In an emailed statement, Finance Minister Travis Toews said the government would like to turn its attention to the Heritage fund after its three main financial goals are achieved:
- Bringing spending in line with comparable provinces.
- Keeping net debt to GDP under 30 per cent.
- Balancing the budget after having a clear picture of the long-term impacts of the pandemic.
In the late 1970s and early 1980s, six provinces — Manitoba, Quebec, Newfoundland, New Brunswick, Nova Scotia and Prince Edward Island — borrowed a total of $1.9 billion from the Heritage Fund. The loans were repaid.
In 1995, the Alberta government surveyed residents about the fund and the majority of respondents said they wanted to preserve the money for future generations and focus on generating better returns on long-term investments.