“I think Albertans recognize the problem we are facing with revenue and want us to do this to work toward a balanced budget… We’re telling Albertans this is the way it is.”
Those words could have easily been spoken by Premier Jim Prentice today. But they were actually spoken by one of his predecessors, Don Getty, in 1987.
During his time in office, Getty saw a 67 per-cent decrease of oil prices and a $3.5-billion deficit. Today, Prentice is facing a 50 per-cent drop in the oil price and has forecasted a $7-billion deficit. Like Getty, Prentice has promised to balance the budget with a blend of cuts and increased revenues, though Getty was unable to effectively? do that three decades ago.
In this special report, the Calgary Journal looks at the challenges surrounding the 1985 oil crisis to better understand what the future holds for Albertans.
"The sun always shines on Alberta," said Premier Lougheed in 1980, but the sun set faster than Albertans expected.
Among those who didn’t see that sunset coming so quickly was Lougheed’s treasurer Lou Hyndman. On budget day in March 1982, legislative records show him saying, “No other province in Canada matches the comprehensive range of health, educational, social, recreational, police and other services available in Alberta."
Nevertheless, Lougheed increased government expenditures by 27.2 per cent – even though the province was already spending more per person than anywhere else in Canada.
In addition, according to Hyndman, Albertans enjoyed many other advantages: no sales or gasoline taxes, Canada’s lowest personal, property, and corporate income taxes, and cities and hospitals that were debt free.
The great quality of life Albertans enjoyed was a product of skyrocketing oil prices. Oil went from US 4$ per gallon in 1973 to hit a peak of US $40 per barrel seven years later according to historical records kept by the U.S. Energy Information Administration. As a result, the Globe and Mail reported that by 1980 the Alberta government got 57 per-cent of its revenue from oil and gas royalties even after saving 30 per-cent of its totality.
However, by the end of 1982, Lougheed announced the end of the boom in the province. Alberta was under pressure from a recession that began in the early part of that decade. Decreasing oil demand in Canada and the strains of the National Energy Program, which made Alberta sell its oil at lower-than-world prices, made the situation worse according to multiple newspaper reports at the time.
Despite the crisis, the government continued its course. In 1983, legislative transcripts shows Hyndman described that year’s budget as one of “balanced optimism and realistic confidence.” The province trimmed an expected $2.4-billion deficit down to $845 million without raising income tax, introducing a sales tax or making service cuts, according to a Globe and Mail summary of the budget.
Lougheed did that, the Globe and Mail reported, by decreasing government program expenditure growth from a planned 35 percent to 6.5 percent. He also took money out of the $11.7 billion Heritage Fund and reduced the amount of oil and gas revenues going into that piggybank. These two measures added $2.2-billion to provincial revenue – making up a quarter of all the revenues that year.
Two years later, Lougheed, often referred to at the time as Alberta’s blue-eyed oil sheik, stepped down – leaving Getty, a Lougheed former energy minister and former Edmonton Eskimos quarterback, to deal with emerging financial challenges.
"Well, that's it, the end of a political story," said Lougheed at the culmination of the 1985 leadership convention. "But you're looking at one with a happy ending."
However, Getty’s years in office proved the outgoing premier wrong. Due to a free-fall in oil prices, Getty initially continued to spend like the oil bonanza never ended – despite mounting deficits.
As Getty took the wheel of the Alberta government, Saudi Arabia unexpectedly drowned the market with oil, decreasing prices from $30 to $11 per barrel between November of 1985 and March of 1986. While oil prices collapsed, the Globe and Mail reported that Alberta’s economy sank into a $3.5-billion deficit.
Despite the revenue shortfall, Getty’s treasurer Dick Johnston expected the budget would be balanced by 1990 without the need for drastic measures, according to newspaper reports at the time.
Moreover, a Calgary Herald report of a news conference organized during the crisis quoted Getty as saying, ''I'm determined not to raise taxes, and I'm determined not to cut services.”
But not everyone was confident that approach – which included royalty cuts and tax breaks to shore up a wounded oil and gas industry – would be effective.
''The plan here is, ‘We're hoping oil prices will rise,’" NDP finance critic Alex McEachern told the Globe and Mail in 1986. ''They sit there praying for that all the time." Other than that, ''all their plans are supply side. We're in real trouble here."
Indeed, the Toronto Star reported that, by the beginning of 1987, the falling oil prices dropped government revenues by 20 percent.
That prompted Calgary Herald columnist Don Braid to write that the province “must bring its Cadillac services into line with its bicycle economy, or risk huge deficits and tax increases.”
Without signs of recovery of the oil price by 1987, Getty took unpopular measures trying to reduce the deficit. In the budget for that year, he slashed spending by 6.3 per-cent and introducing $1-billion in new taxes, according to a Globe and Mail’s summary of that year’s budget.
"We've always had the money in this province to do not only what we needed, but also what we wished…We can't do that anymore," Getty told reporters after the budget day.
The Globe and Mail also reported that, to raise funding, Getty increased personal and corporate income taxes, health premiums, alcohol taxes, introduced a new five-cent a liter tax on gasoline and a five per-cent levy on hotel rooms.
Corporate taxes rose by over a third to 15 per-cent. An average family with an income of $40,000 would now pay an extra $339 in taxes per year.
He also froze government hiring, with 2,000 of the province’s 35,000 public employees being laid off and another 2,000 retiring early. The government also made cuts to hospitals, municipalities, school boards and universities.
Getty, like Lougheed in 1983, also stopped putting money into the Heritage Fund, using oil and gas royalties to pay for spending in that year’s budget.
Newspapers at the time reported that Getty’s measures were very unpopular.Albertans had gotten used to having low taxes and having high levels of service funded by oil. As a result, Getty didn’t make any other significant cuts or tax raises in the coming years until he left government.
At the time, according to the Calgary Herald, the government expected to balance the budget by 1990 with these measures – which assumed that oil prices would rise steadily. However, Getty’s hope to end the deficit was never realized.
Instead, by the time he left office in 1992, the Calgary Herald was reporting that he had accumulated seven years of deficits – totaling $17-billion – and turned net assets of $12-billion in 1986 into a net debt of $5-Billion when he left.
“The government kept forecasting a rebound in oil prices and spending as if the money would return, it didn't, but the government bills went up by one-quarter,” the Globe and Mail reported.Indeed, in an interview with the Calgary Journal, Scott Henning, Alberta director of the Canadian Taxpayers Federation, said, “Lougheed had run spending levels so high that were unsustainable and bailed them out to Getty.”
Like Lougheed and Getty, many Albertans enjoyed the benefits of high oil prices. But they were also taken by surprise by the downturn of events during 1980s – which created much pain across the province.
Fern Preece, a Calgary Library Technician, lived through the downturn during the 1980s.
“Albertans were like grasshoppers who were happy, dancing and unwary of the coming cold winter,” said Preece. “We should have been more like ants…. In the 80's Alberta was devastated.”
Preece was 28 when she was part of mass layoffs in 1982 at Delta Project, an engineering company. She lost her job at the company’s archive where she dealt with construction standards and records.
Preece was only one of many Albertans to get a pink slip.
The province’s unemployment rate jumped from 3.9 per-cent in 1981 to 11 in 1983 and in 1985 Unemployment was at 9.8 across the province, according to Statistic Canada Labour Force Survey records. However, in the building trades, the statistics were even gloomier, with the Edmonton Journal reporting 75 per-cent unemployment in 1985.
Unemployment insurance payments increased over 90 per-cent, and people on welfare increased by more than 89 per-cent in Alberta in 1982, according to a summary of the 1980s by that was published by the Edmonton Journal at the end of the decade.
The situation was desperate for many. In 1987, during an Edmonton town hall meeting with then education minister Nancy Betkowski, a worried mother talked about how her two daughters, one a geologist and the other a sociologist, were able to find only temporary jobs supplied by the government.
“It may well be your daughters will have to move go to Ontario for a couple of years,” responded the minister, according to the Globe and Mail.
Indeed in 1987, Alberta license plates were abundant in Toronto at that time, according to a feature report published by the Globe and Mail at the time. Many went to look for jobs to Ontario where unemployment was at five per-cent according to Statistic Canada. Between 1983 and 1988, 72,250 left the province.
“Albertans were hammered dramatically by shock after shock,” Robert Mansell, academic director of the University of Calgary School of Public Policy, told the Calgary Journal. "A lot of people got hit back then."
Those hits took their toll on Albertans. The province reached epidemic levels leading the nation on home foreclosures, suicides, bankruptcies, divorce, addiction, and domestic abuse through the 1980s, according to CBC News.
Emigration and high unemployment combined with record high mortgages rates and levels of personal debts crashed the housing market. Covering the 1987 housing market, the Globe and Mail reported average home prices in Calgary lost 30 per-cent value between 1982 and 1987.
“The Calgary Herald classified section bulged with homes for sale, sometimes including all the contents and cars,” CBC News reported. Some sold their homes for nothing to real estate speculators, and others simply walked out of their homes. The Edmonton Journal reported that between 1982 and 1987 there were over 25,000 home foreclosures in Alberta.
Preece didn’t have to move to Ontario to find a job. She was fortunate to be hired as a librarian with the Alberta Vocational Center, today Bow Valley College, right after being laid off. There, she saw first-hand the misery produced by high unemployment – especially among single parents, refugees, newcomers, and people with mental issues.
According to Trevor Harrison, director of the Parkland Institute, "Many people were forgotten by the government" – something he also saw while working at a government social service office in Fort McMurray.
David Swann, interim leader of the Alberta Liberal Party and who worked in a private medical practice in Pincher Creek during the 80s, shares Harrison’s views.
"The government gave its back to those who needed it the most," Swann told the Calgary Journal. "The government introduced broad cuts instead of selective ones. The people who needed to be protected got cut across the budgets.”
By 1989 the economy started to improve in Alberta. However, unemployment was still high at 7.2 per-cent across Alberta, and over 40,000 Calgarians – or six per-cent of the city – were receiving unemployment insurance payments and welfare support, according to a Calgary Herald report.
For many the struggles from the past still linger today – with the present feeling like déjà vu.
“Back [during the 80’s] we had a similar conversation to the one today. Why didn’t we plan for more volatility?” said Robert Mansell, academic director of the University of Calgary’s Public Policy School.
“We should have learned. How many of these crises do we have to go before we learn?” Mansell asked.
Apparently, a lot. The Parkland Institution’s Harrison states, “This is the fifth boom and bust since the 80s… This is really a nightmare.”
According to Swann, the interim leader for the Alberta Liberal Party, that’s because “we don’t only have a financial deficit today, but also an infrastructure and a social deficit since the 80’s.” Swann says that deficit includes 77 schools the province still needs to build.
Another example of the social deficit is that “three consecutive premiers have promised money to expand the Tom Baker Cancer Centre, and once more it has been delayed,” said Paul Chatsko, a University of Calgary professor who focuses on the history of Alberta and the oil industry.
Nevertheless, while the 1980s might hold many lessons for the present, the government of Alberta prefers to look the other way, toward the future.
In a brief interview with the Calgary Journal, Alberta Finance Minister Robin Campbell said he would not comment on the decisions Lougheed and Getty took through the 1980s because he was not in government back then.
“We don’t like to judge the decisions of the past…We never look at the past because those decisions were made at the time with information we don’t have,” said Campbell. “Every situation has its own set of circumstances.”
Campbell indicated that the present looks very different than the past for Albertans, so he also would not comment on what lessons the province could learn from the crisis during the 1980s.
“Today the oil industry, the provincial government, and the people of Alberta are more resilient than the crisis in the 1980s,” said Campbell who indicated that the provincial government is working with the people of Alberta to solve the current deficit.
Indeed, Todd Hirsch, chief economist for ATB Bank told the Calgary Journal that Alberta has a more diversified economy and robust oil industry today than it had in years past – even though “Prentice is in a similar situation to Getty.”
Greg Stringham, vice-president of oilsands for the Canadian Association of Petroleum Producers, told the Calgary Journal that he agrees with the Alberta oil industry is more resilient today.
“We have learned from the past that there are price cycles and that you have to prepare to become competitive during the down cycle,” said Stringham. “The lesson from the 80s is that now we care a great deal on prudence and fiscal control.”
Not everyone agrees with that assessment, with one major oil and gas company operation manager telling the Calgary Journal that “serious” players like Suncor and Syncrude could resist up to a year before being greatly damaged by the low prices, but small and medium players not so much.
“Some people now are looking how to survive this hit, but not everyone is going to be able to... Things are going to change,” said the operation manager on condition of anonymity because he was not authorized to speak with the media.
“This is a good opportunity, this is a reality check because some people were becoming too accustomed to the new rich lifestyle where people were spending like there is no tomorrow.”
But it also could be a reality check for government too – a learning opportunity that could be improved if it is willing to look at the past.
Hirsch told the Calgary Journal that the big lesson from the Getty era for Prentice is that “we can’t live on debt and deficits…Getty never cut a lot of the deficit while Prentice is not going to allow debt to pile up.”
Meanwhile, Mansell said Prentice must give “serious consideration to diversify the government revenue.” And that means the premier asking, “How do we become less reliant on oil and gas royalties?”
As for the Parkland Institute’s Harrison, he says the lesson Prentice should learn is that “you can’t cut and make a way to prosperity.”
But whether any of that happens remains to be seen. Indeed, according to Scott Henning at the Canadian Taxpayers Federation, “The rest of Don Getty’s story is written, whereas Prentice’s is not.”