BARRHEAD-It is not perfect, but it is a start and something they can live with.
That was the unanimous consensus County of Barrhead councillors expressed during their Oct. 20 meeting, regarding the province's announcement about the previously announced changes to how energy companies are assessed municipal property taxes (also called linear assessment).
On Oct. 19, newly minted Municipal Affairs Minister Tracy Allard announced that they had put a stop to their plan to select one of four possible assessment models which if they had been implemented would have meant a reduction of anywhere from seven to 20 per cent in what municipalities receive from linear assessment revenue.
In the County of Barrhead's case, this would have meant a loss of anywhere from $500,000 to $900,000 in tax revenue. The government announced the proposed change in July.
The highlights of the three-year plan include an exemption from property taxes for companies when drilling new wells or building new pipelines. The province will also eliminate the Well Drilling Equipment Tax for new drills. Additionally, the government will lower assessments for less productive oil and gas wells while continuing the 35 per cent reduction on shallow gas wells that the province announced in the fall of 2019. The changes will be reflected in the 2021 assessed values and applied for taxation in 2022, 2023 and 2024.
The government estimates its three-year plan will save the industry between $81 and $84 million. Allard also estimated the changes would decrease municipalities linear assessment revenue by about three per cent.
Reeve Doug Drozd believed the advocacy efforts of the Rural Municipalities Association (RMA), as well as individual rural municipalities, really made a difference.
He suggested municipalities' advocacy efforts might have been in part responsible for the cabinet shuffle that brought Allard to her new post.
Drozd added by having a new face to the file, not only did it give the government a chance to have a new perspective but allowed Allard to "press pause" as she took the time to consult with industry and municipalities who would have been adversely impacted by any of the proposed assessment changes.
County manager Debbie Oyarzun interjected that administration had been preparing for the best of the proposed assessment models, taking about $500,000 from their budget projections and that staff would now make the appropriate adjustments, but said that the announcement means that basically, the municipality is back at square one.
"The 35 per cent continued reduction in shallow gas wells shouldn't have that great of an impact on us," she said. "Most of the producers in our area have deeper wells."
Coun. Walter Preugschas asked how much of an impact the lowering of assessment on less productive wells would have on tax revenue.
Oyarzun said they haven't received information on that part of the plan, but added it was her understanding that the province would not be lowering assessments for the 2020 taxation year.
Although Coun. Marvin Schatz was pleased that the government decided against making the proposed change to the assessment model, he said the latest announcement does little to address the most pressing issue rural municipalities and that is the non-payment of property taxes by energy companies.
When Trident Exploration ceased operation in May 2019, the municipality was owed $1.7 million including the penalties for late-payment. At the Oct. 6 meeting, director of finance Tamara Molzahn said that for the 2020 tax year about $1.2 million from oil and gas companies was overdue.
It is an issue relegated to the County of Barrhead, in nearby Woodlands County, not including the 2020 tax year, the municipality has had to scramble as multiple energy companies have defaulted in their taxes. In nearby Woodlands County in 2018 and 2019 tax years, oil companies defaulted more than $9 million in tax revenue.
RMA president Al Kemmere, who was part of Allard's Oct. 19 announcement, said unpaid taxes for the energy sector is the most pressing challenge for its members.
The RMA estimates its members are owed more than $173 million in property taxes.
"We need to have a strong oil and gas industry ... and the industry needs to have strong and viable municipalities. This is a good effort to recognize that," he said. "If we don't fix [the problem of unpaid taxes] in the near future all these modifications are going to be for nought. Because it is going to leave [RMA municipalities] without the ability to make sure tax collection [from the energy industry] is treated the same way as every other taxpayer."
Allard noted that the announced changes would be only one part of the government's plan to make the energy industry more viable saying that the government will be starting a longer-term review of the system, including the ongoing issue of energy companies’ unpaid property taxes.
Coun. Darrell Troock said the review is long overdue, saying he hopes the long-term review will help the small producers in the county.
"There are a gazillion small guys out there pumping one barrel a week from some of these abandoned wells that they bought from oil companies and they have these large tax bills," he said.
Drozd agreed, noting in other industries, taxes on equipment would be prorated and would include depreciation.
But in the same token, he said it was important to have municipalities represented at the table when these changes that will impact rural communities viability are made.
"[RMA] were at the table before, but only as observers," he said. "Now there is a commitment that RMA will not only be in the room but contribute."
Barry Kerton, TownandCountryToday.com
