July 23, 2001

It is also important to state that we found the current accounting policies, financial reporting and capital planning processes of the province substantially sound. Obviously, our confidence in those areas assisted with the preparation of this report. (Cover Letter)

Unlike some other jurisdictions, British Columbia's relatively low debt gives it the capacity to run deficits in the short run while a "made-in-BC" solution replaces incremental budgeting with a base-line review of programs and services. (Executive Summary page ii)

Our forecast is intended to be reasonably conservative. We have included a forecast allowance as a means of managing risk. This allowance is greater than the amount used in the last provincial budget. (Executive Summary page iii)

Based on recent experience in other Canadian provinces, we are concerned that cost cutting in government often comes at the expense of those groups in our society that can least afford it or by lowering standards designed to protect the environment and public health and safety. We do not believe this should be or has to be the case in British Columbia. To the contrary, we believe that BC has an opportunity to address the deficit problem in a manner that avoids mistakes made elsewhere. (Executive Summary - page vi)

We found that the current capital plan, the capital planning process and the requirements for specific capital projects are solid. (Executive Summary - page viii)

Currently British Columbia's taxpayer-supported debt as a proportion of GDP and on a per capita basis is relatively low, second to Alberta. (Executive Summary - page ix)

British Columbia is a Canadian leader in public sector financial reporting. We found that the province's accounting policies and practices provide a high overall level of financial disclosure and accountability. (Executive Summary - page x)

There is a key element of forecasts that anyone who has ever predicted anything (and that is just about everyone) recognizes - forecasts are always wrong. (page 4)

In the Panel's view, the March 2001 budget provided a reasonable forecast of the 2001/02 fiscal situation. The Panel's forecast for 2001/02 is worse than the budget due to a lower economic forecast, softening energy prices and some expected spending increases. The Panel also believes that a larger forecast allowance is warranted because of uncertainties in both the revenue and expense forecasts. The budget fiscal plan for 2002/03 and 2003/04 (the "out-years") was not a reasonable forecast in the Panel's opinion. Those forecasts included energy price forecasts that were considerably optimistic and assumptions that significant cost reductions would be realized. (page 18)

The budget included a forecast allowance of $300 million, a practice that has been in place in British Columbia for several years and was supported by the Enns Report. The forecast allowance is intended to allow the Minister of Finance to produce a fiscal forecast that is neither optimistic or conservative but to introduce a fully disclosed element of conservatism (or optimism) into the budget forecast through the forecast allowance. (page 19)

The Panel has included a forecast allowance of $730 million for the remainder of 2001/02 (3% of CRF expense), $1,100 million in 2002/03 (4.3%) and $1,250 million in 2003/04 (4.5%). The lower amount in the current year is consistent with the fact that the first quarter has already passed. (page 20)

There are significant uncertainties associated with the revenue forecast, which could make the actual results greater or less than the forecast. (page 20)

There may be non-tax revenues sources that could be tapped, such as gaming revenues but that would require a policy decision and government would have to balance the social costs against any fiscal benefits. (page 21)

Another key factor in British Columbia's economic performance now and into the future is the uncertainty associated with Aboriginal land claims. Resolving that uncertainty will provide ongoing economic benefits for British Columbia as well as social benefits. (pages 21-22)

The major difference from the budget is an increase in BC Hydro net income in 2001/02 due to higher than expected export profits.
BC Hydro - the budget forecast of $300 million net income was a government imposed target that was in excess of the BC Hydro's forecast net income. There was considerable public discussion at the time about whether the target was feasible. In fact, BC Hydro has been earning export profits by using their ability to rapidly start and stop hydroelectric generating capacity to sell during peak periods and buy during off-peak periods. Even though BC Hydro has little surplus electricity, this practice has generated export revenue. Although prices are currently coming down, there is both upside and downside risk to the Panel's estimate of $375 million net income, which was provided by BC Hydro. (page 25)