The Honourable Rod Gantefoer

Minister of Finance

SASKATCHEWAN BUDGET UPDATE

09-10

SASKATCHEWAN:

STRONG AND STEADY

3RD QUARTER

FINANCIAL REPORT

3rd Quarter Financial Report

Government of Saskatchewan

March 2, 2010

3rd Quarter Financial Report

General Revenue Fund Update

INTRODUCTION

The 2009-10 third quarter GRF update shows an overall improvement in the government’s financial outlook.  Total GRF revenue has increased since mid-year despite further reductions in potash revenue.  This revenue improvement has allowed government to increase spending since mid-year in priority areas.

The outlook for Saskatchewan’s potash sector has improved in recent weeks.  However, the 2009-10 potash revenue forecast has decreased again at third quarter due to further reductions in 2009 sales volumes and prices.  This has resulted in refunds to producers of revenue received in the final quarter of 2008-09.  These refunds of over-payments are currently forecast to exceed current-year revenue by $203.9 million.

The GRF revenue update incorporates increases across several revenue categories, with significant increases in oil revenue, Crown land sales, the Resource Surcharge, and income taxes.  Other own-source revenue is also higher at third quarter.  These gains more than offset the additional declines in potash revenue since mid-year.

The third quarter GRF expense update incorporates increased spending since mid-year in the areas of health, municipal infrastructure and social services.  Despite these increases, expense is forecast to be $133.1 million lower than budget due to the spending restraint measures identified at mid-year, as well as further savings in several Ministries since mid-year.

In total, the changes in GRF revenue and expense improve the pre-transfer deficit by $54.2 million since mid-year.

The net transfer from the Growth and Financial Security Fund (GFSF) is now projected to be $510.1 million.  This will ensure that the budgeted $424.5 million GRF surplus remains intact and that government debt remains unchanged at $4.2 billion.

The GFSF is projected to have a balance of $705.0 million at the end of 2009-10, up $54.2 million from the mid-year projection.

  3rd Quarter Financial Report | GRF Update    1

FINANCIAL OVERVIEW

After taking into account the effects of measures implemented by the government to manage a substantial revenue decline, the third quarter report shows:

·   revenue is down $634.1 million or 5.9 per cent from budget (up $153.8 million or 1.6 per cent from mid-year);

·   expense is down $133.1 million or 1.3 per cent from budget (up $99.6 million or 1.0 per cent from mid-year);

·   the net transfer from the GFSF is forecast at $510.1 million, up $501.0 million from budget (but down $54.2 million from mid-year);

·   the budgeted GRF surplus is maintained at $424.5 million;

·   the GFSF is projected to have a year-end balance of $705.0 million (up $54.2 million from mid-year); and,

·   Government debt is unchanged from March 31, 2009 at $4.2 billion.

2009-10 GRF Financial Overview
	Budget			Mid-Year			3rd Quarter			Change from
	Estimate			Projection			Forecast			Budget			Mid-Year
	(millions of dollars)
Revenue	$	10,660.8		$	9,872.9		$	10,026.7		$	(634.1	)	$	153.8
Expense		10,245.4			10,012.7			10,112.3			(133.1	)		99.6
Pre-Transfer Surplus		415.4			(139.8	)		(85.6	)		(501.0	)		54.2
Transfer to GFSF		(207.7	)		-			-			207.7			-
Transfer from GFSF		216.8			564.3			510.1			293.3			(54.2	)
Net Transfer from (to) GFSF		9.1			564.3			510.1			501.0			(54.2	)
GRF Surplus	$	424.5		$	424.5		$	424.5		$	-		$	-
GFSF Balance*	$	1,215.1		$	650.8		$	705.0		$	(510.1	)	$	54.2
Government Total Debt*	$	4,164.7		$	4,164.7		$	4,164.7		$	-		$	-
* Budget Estimate reflects 2008-09 year-end amounts.

2     3rd Quarter Financial Report | GRF Update

REVENUE UPDATE

At the third quarter, total GRF revenue is forecast to be $10.0 billion, an increase of $153.8 million (1.6 per cent) since mid-year.  The higher forecast is primarily due to increased oil revenue, Corporation Income Tax (CIT) and Personal Income Tax (PIT).  These increases are partially offset by a further decline in the potash revenue forecast.

Revenue Reconciliation
(millions of dollars)
Budget Estimate	$10,660.8
+ Changes at Mid-Year	-787.9
Mid-Year Projection	$9,872.9
Changes since Mid Year
Corporate Income Tax	+83.5
Personal Income Tax	+41.1
Other Taxes	+4.2
Potash	-312.9
Oil	+235.5
Resource Surcharge	+40.0
Crown Land Sales	+23.6
Other Revenue	+38.8
Total Change since Mid-Year	+153.8
3rd Quarter Forecast	$10,026.7

Tax revenue is forecast to increase by $128.8 million since the mid-year forecast primarily due to higher-than-expected final assessment data for the 2008 tax year, relating to both PIT ($41.1 million) and CIT ($83.5 million).  The stronger assessments result in a higher prior-year adjustment payment in 2009-10.

Fuel tax and Tobacco tax have been revised upward by a combined $13.9 million as a result of higher-than-budgeted consumption.  Other taxes are down $9.7 million primarily due to a decrease in the Corporate Capital Tax (CCT).

At third quarter, non-renewable resource revenue is down $17.0 million from the mid-year forecast of $1,780.8 million.  The decrease is due to a further reduction in the potash forecast and a small reduction in other non-renewable resources revenue.  These decreases are offset by increases in oil, Resource Surcharge, Crown land sales and natural gas.

The potash revenue forecast has been decreased by $312.9 million since mid-year, from $109.0 million to -$203.9 million.  The decrease is due to further downward revisions to 2009-10 prices and sales, as well as refunds related to 2008-09 overpayments.

The profit tax portion of potash royalties is paid on a calendar-year basis.  For the first quarter payment, producers are required to estimate their full-year profit and full-year payments.  Based on these first quarter estimates, producers remit an installment payment equal to 25 per cent of total forecast payments for the year.  For the second, third and fourth quarter payments, the industry re-estimates full-year profits and makes payments such that their year-to-date payments are 50, 75 and 100 per cent, respectively, of their full-year estimates.

At the close of the first quarter of 2009, potash producers submitted profit tax

  3rd Quarter Financial Report | GRF Update     3

installment payments based on their internal forecasts of prices, sales volumes and profit.  The industry’s first quarter profit tax payments were received on March 31, 2009 and recorded in the 2008-09 Public Accounts.

These initial industry estimates for 2009 turned out to be well in excess of 25 per cent of actual profit tax owing for the 2009 calendar year.  The unprecedented deterioration in the potash market is now estimated to result in refunds owing to potash producers in relation to over-payments received last year.  These refunds will be paid out in the 2009-10 fiscal year and are forecast to exceed current-year revenue by $203.9 million.

The current potash forecast includes a 2009-10 average price of C$739 per K2O tonne (US$413 per KCl tonne) down from the mid-year forecast of C$814 per K2O tonne (US$452 per KCl tonne).  Total potash sales in 2009-10 are now forecast at 4.7 million K2O tonnes, down 1.0 million K2O tonnes from the mid-year assumption of 5.7 million K2O tonnes.

Other non-renewable resource revenue, which includes uranium, coal and other minerals, is forecast to be $8.9 million lower than mid-year.

Oil revenue has increased $235.5 million since the mid-year forecast.  The increase is primarily due to higher prices, a lower exchange rate, and a reduction in the light-heavy differential.  West Texas Intermediate (WTI) oil prices have increased from the mid-year estimate of US$65.73 to US$69.78 per barrel at third quarter.  The current fiscal-year forecast for the exchange rate has been lowered to 91.65 US cents from 93.15 US cents at mid-year.  The value of the Canadian dollar averaged 90.81 US cents from April until the end of January.  The light-heavy differential has been decreased from 22 per cent at mid-year to 15 per cent at third quarter.

The Resource Surcharge is up $40.0 million from the mid-year forecast of $400.8 million.  The increase is primarily due to unanticipated prior-year reconciliation payments from the resource sector in the third quarter.  The current forecast also accounts for higher monthly installment payments in the fourth quarter as resource sales improve.

Crown land sales are $23.6 million higher than mid-year reflecting actual 2009-10 results.  The final land sale of the fiscal year in early February was the largest of the fiscal year and generated $39.5 million.

Transfers from Crown Entities are forecast to be $5 million higher than at mid-year while other own-source revenue has increased $58.1 million since mid-year due mainly to increases in Interest, Premium, Discount and Exchange along with Sales, Services and Service Fees.

Transfers from the Government of Canada have decreased $21.1 million from mid-year due to a decrease in the Canada Health Transfer ($24.2 million), partially offset by an increase in other federal cost-sharing transfers ($3.1 million).

4     3rd Quarter Financial Report | GRF Update

EXPENSE UPDATE

At the third quarter, total GRF expense is forecast to be up $99.6 million from the 2009-10 mid-year projection.

Expense Reconciliation
(millions of dollars)
Budget Estimate	$10,245.40
Changes to Mid-Year	-232.7
Mid-Year Projection	$10,012.70
Changes since Mid-Year:
Health	+67.7
Municipal Affairs	+56.9
Public Service Commission	+12.6
Social Services	+7.3
Corrections, Public Safety
and Policing	+3.5
Public Service Pensions
and Benefits	+3.0
Tourism, Parks, Culture
and Sport	+3.0
Enterprise and Innovation
Programs	+1.4
First Nations and
Métis Relations	+1.3
Agriculture	-44.5
Highways and Infrastructure	-6.0
Finance – Debt Servicing	-5.0
Finance	-1.2
Other Net Changes	-0.4
Total Forecast Changes	+99.6
3rd Quarter Forecast	$10,112.30

The $99.6 million increase from mid-year mainly reflects changes in the following Ministries.

·   Health is up $67.7 million from mid-year, primarily due to higher-than-anticipated Fee-for-Service and Out-of-Province utilization, and increases related to H1N1 preparedness and facility and equipment capital projects that are nearing completion.

·   Municipal Affairs is up $56.9 million from mid-year, due to increased expenditures under the Building Canada Fund and Municipal Infrastructure Grants programs.

·   Public Service Commission is up $12.6 million from mid-year, primarily due to an increase in estimated non-permanent employee pension settlement costs.

·   Social Services is up $7.3 million from mid-year, primarily due to higher-than-expected Child and Family Community Services costs per case and higher-than-expected Saskatchewan Assistance Plan caseloads.

·   Corrections, Public Safety and Policing is up $3.5 million from mid-year, primarily due to increases for claims under the Provincial Disaster Assistance Program.

·   Finance – Public Service Pensions and Benefits is up $3.0 million from mid-year, mostly due to higher-than-anticipated costs across government.

·   Tourism, Parks, Culture and Sport is up $3.0 million from mid-year, primarily due to increases related to

3rd Quarter Financial Report | GRF Update    5

the Building Communities Program and the Community Initiatives Fund.

·   Enterprise and Innovation Programs is up $1.4 million from mid-year, primarily due to an increase related to the Ethanol Fuel Tax Rebate Program.

·   First Nations and Métis Relations is up $1.3 million from mid-year, primarily due to a net increase in current year gaming payments to reflect Saskatchewan Indian Gaming Authority and Saskatchewan Gaming Corporation 2009-10 forecasts.

·   Agriculture is down $44.5 million from mid-year, primarily due to lower-than-expected costs for the AgriStability Program.

·   Highways and Infrastructure is down $6.0 million from mid-year, primarily as a result of reduced amortization expense and deferral of work in the Urban Highway Connector Program.

·   Finance Debt Servicing is down $5.0 million from mid-year, primarily due to lower in-year borrowing requirements and lower interest rates.

·   Finance is down $1.2 million from mid-year, primarily as a result of lower-than-anticipated consulting and communications costs, and savings due to vacancy management.

6     3rd Quarter Financial Report | GRF Update

DEBT UPDATE

The GRF borrows for government and Crown corporations.  Total debt is composed of gross debt less sinking funds plus guaranteed debt.

Government total debt at March 31, 2010 is currently forecast to be $4.2 billion, unchanged from March 31, 2009.

Crown corporations are responsible for the principal and interest payments on their debt.  Crown corporation debt is incurred in the normal course of business, primarily for investment in infrastructure and business development initiatives which provide revenue streams to service the debt.

Crown corporation debt is divided into two components: Crown corporation general debt and Government business enterprise (GBE) specific debt.

Crown corporation general total debt is forecast to be $0.9 billion, an increase of $399.8 million from March 31, 2009.  GBE specific total debt is forecast to be $3.0 billion, a decrease of $4.4 million from March 31, 2009.

Taken together, Crown corporation total debt is currently forecast to be $4.0 billion, an increase of $395.4 million from March 31, 2009.  This is $443.7 million lower than the increase anticipated at mid-year, due to changes in the timing of capital projects.

GRF Total Debt
			As at March 31, 2010
			Mid-Year		3rd Quarter		Change from
	31-Mar-09		Projection		Forecast		31-Mar-09		Mid-Year
	(millions of dollars)
Government Total Debt	$	4,164.7	$	4,164.7	$	4,164.7	$	-	$	-
Crown Corporation Total Debt*		3,557.2		4,396.3		3,952.6		395.4		(443.7	)
GRF Total Debt	$	7,721.9	$	8,561.0	$	8,117.3	$	395.4	$	(443.7	)
* Crown Corporation General Total Debt plus Government Business Enterprise Specific Total Debt

3rd Quarter Financial Report | GRF Update     7

2009-10 Third Quarter Financial Report
Province of Saskatchewan
General Revenue Fund
Statement of Revenue
	Budget		Mid-Year		3rd Quarter			Change from
	Estimate		Projection		Forecast			Budget			Mid-Year
	(thousands of dollars)
Corporation Income	$	624,900	$	796,700	$	880,200		$	255,300		$	83,500
Fuel		438,000		438,000		443,000			5,000			5,000
Individual Income		1,802,600		1,848,600		1,889,700			87,100			41,100
Provincial Sales		1,155,600		1,130,600		1,130,600			(25,000	)		-
Tobacco		190,500		190,500		199,400			8,900			8,900
Other		247,300		247,300		237,600			(9,700	)		(9,700	)
Taxes	$	4,458,900	$	4,651,700	$	4,780,500		$	321,600		$	128,800
Crown Land Sales	$	127,800	$	127,800	$	151,400		$	23,600		$	23,600
Natural Gas		102,200		33,300		39,000			(63,200	)		5,700
Oil		573,100		952,800		1,188,300			615,200			235,500
Potash		1,926,800		109,000		(203,900	)		(2,130,700	)		(312,900	)
Resource Surcharge		461,800		400,800		440,800			(21,000	)		40,000
Other		177,200		157,100		148,200			(29,000	)		(8,900	)
Non-Renewable Resources	$	3,368,900	$	1,780,800	$	1,763,800		$	(1,605,100	)	$	(17,000	)
Crown Investments Corporation of Saskatchewan	$	185,000	$	185,000	$	185,000		$	-		$	-
- Special Dividend		110,000		570,000		570,000			460,000			-
Saskatchewan Liquor and Gaming Authority		440,700		431,400		427,300			(13,400	)		(4,100	)
Other Enterprises and Funds		41,200		55,000		64,100			22,900			9,100
Transfers from Crown Entities	$	776,900	$	1,241,400	$	1,246,400		$	469,500		$	5,000
Fines, Forfeits and Penalties	$	10,500	$	12,400	$	12,800		$	2,300		$	400
Interest, Premium, Discount and Exchange		176,700		194,700		225,300			48,600			30,600
Motor Vehicle Fees		149,400		149,400		149,400			-			-
Other Licences and Permits		32,800		32,800		33,300			500			500
Sales, Services and Service Fees		173,100		104,600		119,400			(53,700	)		14,800
Transfers from Other Governments		15,900		18,000		18,500			2,600			500
Other		40,000		59,600		70,900			30,900			11,300
Other Revenue	$	598,400	$	571,500	$	629,600		$	31,200		$	58,100
Own-Source Revenue	$	9,203,100	$	8,245,400	$	8,420,300		$	(782,800	)	$	174,900
Canada Health Transfer	$	843,500	$	843,500	$	819,300		$	(24,200	)	$	(24,200	)
Canada Social Transfer		335,000		335,000		335,000			-			-
Other		279,200		449,000		452,100			172,900			3,100
Transfers from the Government of Canada	$	1,457,700	$	1,627,500	$	1,606,400		$	148,700		$	(21,100	)
Revenue	$	10,660,800	$	9,872,900	$	10,026,700		$	(634,100	)	$	153,800

8     3rd Quarter Financial Report | GRF Update

2009-10 Third Quarter Financial Report
Province of Saskatchewan
General Revenue Fund
Statement of Expense
	Budget		Mid-Year		3rd Quarter		Change from
	Estimate		Projection		Forecast		Budget			Mid-Year
	(thousands of dollars)
Executive Branch of Government
Advanced Education, Employment and Labour	$	840,020	$	868,335	$	868,335	$	28,315		$	-
Agriculture		483,444		443,319		398,823		(84,621	)		(44,496	)
Corrections, Public Safety and Policing		324,014		333,861		337,361		13,347			3,500
Education		1,206,066		1,174,834		1,174,838		(31,228	)		4
- Teachers' Pensions and Benefits		173,169		173,169		173,165		(4	)		(4	)
Energy and Resources		42,888		40,982		40,739		(2,149	)		(243	)
Enterprise and Innovation Programs		22,133		21,835		23,233		1,100			1,398
Enterprise Saskatchewan*		47,305		45,406		45,406		(1,899	)		-
Environment		200,380		190,780		190,780		(9,600	)		-
Executive Council		9,057		9,002		9,002		(55	)		-
Finance		64,981		63,650		62,436		(2,545	)		(1,214	)
- Public Service Pensions and Benefits		264,411		264,411		267,457		3,046			3,046
Finance Debt Servicing		502,500		487,500		482,500		20,000	)		(5,000	)
First Nations and Métis Relations		87,585		89,285		90,575		2,990			1,290
Government Services		14,884		12,334		12,334		(2,550	)		-
Health		4,075,223		3,883,123		3,950,773		(124,450	)		67,650
Highways and Infrastructure		436,990		435,072		429,072		(7,918	)		(6,000	)
Information Technology Office		7,091		6,662		6,482		(609	)		(180	)
Intergovernmental Affairs		4,014		3,769		3,769		(245	)		-
Justice and Attorney General		142,275		145,200		145,200		2,925			-
Municipal Affairs		339,697		360,528		417,428		77,731			56,900
Office of the Provincial Secretary		5,024		4,812		4,812		(212	)		-
Public Service Commission		38,085		37,495		50,085		12,000			12,590
Saskatchewan Research Council		15,016		15,016		15,016		-			-
Social Services		722,760		736,148		743,495		20,735			7,347
Tourism, Parks, Culture and Sport		139,180		128,442		131,414		(7,766	)		2,972
Legislative Branch of Government
Chief Electoral Officer		1,179		1,675		1,675		496			-
Children's Advocate		1,621		1,621		1,621		-			-
Conflict of Interest Commissioner		151		151		151		-			-
Information and Privacy Commissioner		927		927		927		-			-
Legislative Assembly		23,662		23,727		23,727		65			-
Ombudsman		2,195		2,195		2,195		-			-
Provincial Auditor		7,459		7,459		7,459		-			-
Expense	$	10,245,386	$	10,012,725	$	10,112,285	$	(133,101	)	$	99,560
* Includes Innovation Saskatchewan. Enterprise Saskatchewan's mid-year projection has been restated to include Innovation Saskatchewan.

3rd Quarter Financial Report | GRF Update     9

2009-10 Third Quarter Financial Report
Province of Saskatchewan
General Revenue Fund
Statement of Debt
				As at March 31, 2010
				Mid-Year			3rd Quarter			Change from
	31-Mar-09			Projection			Forecast			31-Mar-09			Mid-Year
	(thousands of dollars)
Government General Debt	$	4,145,286		$	4,137,653		$	4,137,653		$	(7,633	)	$	-
Crown Corporation General Debt
Information Services Corporation
of Saskatchewan	$	13,547		$	13,547		$	13,547		$	-		$	-
Municipal Financing Corporation
of Saskatchewan		1,062			10,000			10,000			8,938			-
Saskatchewan Crop Insurance Corporation		2,053			-			-			(2,053	)		-
Saskatchewan Housing Corporation		33,212			31,834			31,669			(1,543	)		(165	)
Saskatchewan Opportunities Corporation		37,543			42,096			37,096			(447	)		(5,000	)
Saskatchewan Power Corporation		140,000			602,163			508,855			368,855			(93,308	)
Saskatchewan Telecommunications
Holding Corporation		28,900			16,400			12,900			(16,000	)		(3,500	)
Saskatchewan Water Corporation		41,412			57,007			46,951			5,539			(10,056	)
SaskEnergy Incorporated		222,500			237,751			259,039			36,539			21,288
Crown Corporation General Debt	$	520,229		$	1,010,798		$	920,057		$	399,828		$	(90,741	)
Government Business Enterprise Specific Debt
Municipal Financing Corporation
of Saskatchewan	$	37,266		$	88,853		$	88,853		$	51,587		$	-
Saskatchewan Gaming Corporation		-			6,000			6,000			6,000			-
Saskatchewan Power Corporation		2,157,215			2,319,705			2,117,710			(39,505	)		(201,995	)
Saskatchewan Telecommunications
Holding Corporation		262,468			356,235			255,686			(6,782	)		(100,549	)
SaskEnergy Incorporated		579,092			614,721			564,266			(14,826	)		(50,455	)
Government Business Enterprise Specific Debt	$	3,036,041		$	3,385,514		$	3,032,515		$	(3,526	)	$	(352,999	)
Total Public Debt	$	7,701,556		$	8,533,965		$	8,090,225		$	388,669		$	(443,740	)
Guaranteed Debt		20,305			27,045			27,045			6,740			-
Total Debt	$	7,721,861		$	8,561,010		$	8,117,270		$	395,409		$	(443,740	)
Total Debt by Category
Government Gross Debt	$	7,109,217		$	6,404,561		$	6,404,561		$	(704,656	)	$	-
Government Sinking Funds		(2,963,931	)		(2,266,908	)		(2,266,908	)		697,023			-
Government Public Debt	$	4,145,286		$	4,137,653		$	4,137,653		$	(7,633	)	$	-
Government Guaranteed Debt		19,412			27,045			27,045			7,633			-
Government Total Debt	$	4,164,698		$	4,164,698		$	4,164,698		$	-		$	-
Crown Corporation Gross Debt	$	3,956,576		$	4,802,719		$	4,362,627		$	406,051		$	(440,092	)
Crown Corporation Sinking Funds		(400,306	)		(406,407	)		(410,055	)		(9,749	)		(3,648	)
Crown Corporation Public Debt	$	3,556,270		$	4,396,312		$	3,952,572		$	396,302		$	(443,740	)
Crown Corporation Guaranteed Debt		893			-			-			(893	)		-
Crown Corporation Total Debt	$	3,557,163		$	4,396,312		$	3,952,572		$	395,409		$	(443,740	)
Total Debt	$	7,721,861		$	8,561,010		$	8,117,270		$	395,409		$	(443,740	)

10     3rd Quarter Financial Report | GRF Update