Alberta's money problem
What to do with all the riches?: In Calgary, a KFC closed down because it couldn't find enough workers
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by L. IAN MacDONALD
The Gazette, Friday, May 26, 2006
Welcome to Calgary, where there is an abundance of plenty, and plenty of abundance.
The headlines in the Calgary Herald tell the story of a boom driven by oil at $70 a barrel. On the first business page: "Calgary's towering demand for offices": $500 million in new office space invested in 2005, an increase of 58 per cent, compared with 13 per cent in Montreal and 16 per cent in Toronto.
Inside the business section: "Syncrude completes $8.4 billion expansion" over a story on the tar sands project at Fort McMurray, which employed 6,500 construction workers over five years, will produce 300,000 barrels of oil a day, and return more than $650 million a year in royalties to Alberta. Extracting oil from the tar sands used to be thought expensive at $40 a barrel, but not when the operating margins are in the 40s.
A local magazine, Avenue, reports that Calgary is adding 8,000 new homes every year in a city whose footprint is now the size of New York, with one-tenth the population. The suburbs are pushing into the foothills of the Rockies, west of the city, practically halfway to Banff.
On the flight out from Toronto, an executive from Imperial Oil, which moved its head office to Calgary from Toronto last year, told of moving into his new custom-built home while a subdivision was still being completed around them. The developer told him his best construction workers were crews from Quebec, who had driven out in their trucks and were sending money home.
But the main city page of the same day's paper tells of the challenges that accompany success: "Operating room idled by lack of surgical nurses" over a story of a shortage of eight nurses which threatens to shut down one of 14 operating rooms at the Peter Lougheed Centre for a week this month.
Alberta is facing a critical labour shortage, and not just among professionals. Todd Hirsch, chief economist of the Calgary-based Canada West Foundation, tells the story of the Kentucky Fried Chicken outlet that closed down because it couldn't find enough workers to feed the customers. Hirsch adds the high-school drop-out rate is reaching worrisome proportions because kids can make a killing driving trucks in the oil patch.
Social problems also accompany economic success. The same issue of Avenue magazine that reported on the housing boom also noted that the homeless rate has doubled in Calgary in the last three years. There is work for everyone who can work, but some people just can't, and rely on a rich city for the quality of compassion. The province can afford to build homeless shelters, but that just covers one of the social needs.
Alberta's good fortune is clear in a reading of its books. The provincial debt is completely paid off, and the province is projected to run a surplus of $7.3 billion in this fiscal year, which everyone knows is a low-ball number. Driven by oil royalties, the surplus could easily surpass $10 billion. The federal surplus is projected to come in at a hefty $8 billion for a population 10 times the size of Alberta.
What is Alberta going to do with all this money, which is now becoming a political as well as an economic question. Ralph Klein tried giving some of it away last year when every Albertan received $400 on the occasion of the province's centennial in Confederation.
Klein was very much in local and national headlines yesterday when he threatened to pull out of any new equalization program if energy revenues were added to the formula. "This is a political showdown, but this is also a constitutional issue," he said, vowing to fight any incursion on Alberta's petro-wealth "tooth and nail."
Klein's unprovoked outburst isn't about equalization. It's about a politician having a long goodbye, and not a very happy one. It's also about the premier of Alberta having to deal with a prime minister from Alberta in a province where only one can be king.
Still, the question remains, what is Alberta to do with all this money? Should it invest in trying to diversify out of oil? That's been tried before, as Hirsch points out, during the boom of the 1970s, on a bunch of failed initiatives which only proved the state has no business in the private sector of the nation.
One thought is that Alberta could lend money to other provinces at rates above security yields but less than the prime borrowing rate. That might generate some goodwill in the country, as opposed to envy over Alberta's good fortune.
One more reminder of that came with the bill at breakfast yesterday. There was GST on it, but no provincial sales tax.