The formula financing agreement determines the amount of the grant from Canada. The agreement is negotiated regularly between the Government of the Northwest Territories and the Government of Canada. The current agreement came into effect, April 1, 1999 and is due to expire March 31, 2004 unless it is extended. The grant accounts for 70 percent of the territorial government's income.
Two major factors in the grant calculation are the NWT's population and spending by other Canadian jurisdictions. Final figures for both components are frequently unavailable for up to seven years and may require subsequent adjustments to grant transfers.
There is a risk that revenue figures for any given year are too high or too low. If they are too high, the risk is worse. It will then mean that the government would have to pay some monies back to Canada. Conversely, if they are too low, then Canada owes additional monies to the government. Either situation makes it more difficult for the government to properly plan and budget for its activities. The Auditor General suggested that the government, by carefully managing its revenue risks, could increase the amount of lead time it has to adjust for the inevitable shifts in grant revenues.
The committee and the government agreed with this recommendation. Conservative, yet realistic forecasts would significantly contribute to decreased revenue risks and improved financial planning and management. The committee encouraged the government to ensure a more reliable revenue stream is incorporated in the upcoming agreement negotiations.