During the oil boom, Texas spent prudently, Alberta did not

The oil boom between 2004 and 2014 presented a substantial opportunity for governments in oil-producing regions to bolster their public finances. Unfortunately, while some jurisdictions such as Texas did just that, Alberta did the opposite.

During that period, the Government of Texas exercised comparative fiscal restraint while the Government of Alberta increased spending unsustainably in many years. The difference between the two is that inflation-adjusted spending per person in Alberta grew by 49 per cent compared to 37 per cent in Texas over the course of the decade. As a result, whereas in 2004/05 Alberta’s per-person spending was 68 per cent higher than Texas, by 2013/14, that gap had grown to 83 per cent.

Given these different spending trajectories, it’s not surprising Texas concluded our analysis period with five straight surpluses whereas Alberta ran budget deficits in four out of five years.

There are a number of reasons why Alberta’s spending increased faster than Texas’, but one of them was a much more rapid expansion of the government workforce. Over the course of the decade under analysis, public-sector employment growth in Alberta averaged 2.6 per cent annually, more than twice the growth rate (1.2 per cent) in Texas.

Partly as a result of these different spending choices, Alberta’s financial position has deteriorated rapidly in recent years with projections of a rapid run-up in debt in the years ahead. By contrast, Texas’ overall financial position has been, and is expected to remain, stable in the years ahead. In fact, Alberta’s net debt per person is expected to exceed $7,000 per person by fiscal year 2018, dwarfing the per person debt burden in Texas.

While lower oil prices have hurt both governments, Texas is still running surpluses while Alberta plans to run deficits until 2024. This is not primarily the result of circumstances, but choices. Texas spent prudently, Alberta did not.