It was something they didn’t want to do, but in the end, they didn’t have a choice.
That was the consensus of County of Barrhead councillors at their Oct. 15 meeting as they unanimously voted to write off $2,025,142.21 in tax revenue and penalties.
The outstanding taxes were accumulated by three oil and gas companies — Sequoia Resources Corp, Trident Exploration (WX) Corp and Trident Exploration (Alberta) — from 2017 to 2019.
Later in the meeting, the councillors also directed administration to apply for the Designated Industrial Requisition Credit (DIRC), as well as the Provincial Education Requisition Credit (PERC).
County manager Debbie Oyarzun said the demise of these companies and some recent court decisions that have made municipalities unsecured creditors — most notably the Alberta Court of Appeal’s decision in the case of Northern Sunrise County versus Virginia Hills Oil Corp. —have made it nearly impossible to collect the monies that are owed.
“We’ve done a lot of digging around to see what is available to us in an attempt to recover as much of these dollars as possible and have determined it is time to apply for PERC and DIRC,” she said.
Trident Exploration (Alberta) owes the most outstanding taxes at $2,205,142.21, with $1,279,400 being taxes and $296,053.62 coming in as penalties. The remaining funds come in the form of the education requisition ($207,682.23) and industrial requisition ($3,236.05) the province requires municipalities to collect on its behalf.
Trident Exploration (WX) owes the county $230,371.59, including $167,164.70 in outstanding taxes, $33,205.22 in penalties, $29,535.91 owed in outstanding education requisitions and $465.76 in designated industrial requisitions.
Sequoia Resources Corp. owes $56,510.53, including $14,907.35 in penalties. They also owe $7,479.70 and $37.21 in education and designated industrial requisitions respectively.
Finance and administration director Tamara Molzahn noted the only tool at their disposal to recoup any of the money was through the province’s PERC and DIRC programs, which require a company to be in receivership and the likelihood of the municipality collecting on its debt to be virtually nil.
Although the receivership process isn’t complete in all three cases, Molzahn said they all meet the province’s criteria for applying.
Molzahn noted that while they have until early in the new year to apply, she recommended doing so sooner rather than later.
“We know that funding is limited, but we don’t know how many applications have been made or if [the province] plans to extend the programs,” she said.”
To deal with the shortfall, the county will need to dip into its reserves, most notably the uncollectable tax reserve at $1.64 million.
Molzahn said they would also take the remaining $889 out of the general tax stabilization reserve. The latter is low because they used more than $800,000 to bolster the uncollectable tax reserve.
She added they will also completely clean out the assessment reserve by taking out $44,441.25, along with $317,591.93 from the unrestricted reserves, a move that will leave the account with roughly $85,130.
Molzahn said she is hopeful that they will receive $240,000 in PERC funding and another $4,000 from DIRC.
“They aren’t guaranteed funds, but we should get them in 2020. Unfortunately, we can’t use them to offset this year,” she said.
Oyarzun stressed that the county doesn’t receive PERC and DIRC credits in the form of actual money. Instead, whatever they receive will be taken off of the amount the county owes for its education and designated industrial requisitions.
Coun. Darrell Troock said he was concerned that by draining their reserves, it would put them in a vulnerable position if residents and companies continue to be in tax arrears.
He also suggested that the county should institute a bonding system for oil and gas companies.
Oyarzun said that wouldn’t solve their problem, as anything they collected would be reserved to repair damage companies did to the county’s roads.
“And if they went into receivership, we would be put at the bottom of the pile,” she said.
However, Oyarzun said she has asked the Alberta Energy Regulator (AER) what steps they have taken to ensure companies buying the assets of companies in receivership are not able to do the same thing again.
“They [the AER] said they do look into the solvency of the new company but they are looking at putting in a more rigorous process going forward,” she said.
Molzahn agreed they had very “few tools in their arsenal” but are looking into the possibility of asking companies to enter into a tax payment instalment plan right upfront before they fall behind.
“We can’t force them to accept an instalment plan, but at least then we would have some security,” she said.
