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A tale of unfettered growth and unpaid taxes

Municipalities struggling to maintain infrastructure and services

Last week, the first segment of this article, “Wells, resources and an economy in transition: Lives of Albertans intertwined in history of oil and gas prosperity and abandonment” looked at some historical moments, including the province’s first oil well at Athabasca Landing in the 1890s; explored how the nearly unbreakable bond between Albertans and the oil and gas industry came to be; and you were introduced to University of Alberta professor Joel Gehman, whose research involves observing how companies in various industries go about their business, he is also the director of the Centre for Corporate Social Responsibility, and the founder of WellWiki.org.

 

ATHABASCA/BARRHEAD/WESTLOCK - The newly formed Government of Canada’s first foray into the oil business in the 1890s was a bust — the wells that had been drilled on the premise that large pools of liquid petroleum existed below the natural gas deposits that had been found, did not produce, and the federal government moved on after assessing the value of the region to be in fisheries and furs.

By the mid-1920s though, another Geological Survey of Canada scientist, Karl Clark, had developed a hot water separation process at the University of Alberta, making the extraction of the bitumen many times more efficient. Further research would eventually lead to the thermal extraction processes used today. Between the Athabasca, Peace River and Cold Lake deposits, it is estimated 1.7 trillion barrels of bitumen lay beneath the boreal forest and muskeg of Northern Alberta.

By the late 1960s, the science had reached a point that investment in Alberta’s oilsands was now commercially viable, and over the next 20 years, the expansion of the Athabasca Oilsands, particularly in the area north of Fort McMurray would make Alberta an economic powerhouse, attracting more and more investment and the manpower needed to make Alberta the quintessential have-province in Canadian confederation, until recently.

The boom-and-bust cycle that came to characterize the industry became engrained in the psyche of Albertans, and the dependence on the resource economy became a crutch for not only workers, who enjoyed a lifestyle that couldn’t be maintained without the booms, but also the governments — federal, provincial and municipal — which were all just as dependent on the cash flow, and seemingly unprepared for the busts. Now, with $240 million dollars in unpaid municipal taxes from oil and gas companies across the province on the table, the frustrations among municipal leaders are growing.

Rural Municipalities of Alberta (RMA), which recently conducted a survey of its members to determine the extent of the problem, notes its members manage 70 per cent of the roads and 60 per cent of the bridges in Alberta, and without the revenue to maintain their transportation networks, they will fall into disrepair.

“The fact that every rural municipality in the province took the time to complete this survey speaks to the anxiety and frustration that rural leaders are facing on this unpaid tax issue. In some municipalities, unpaid tax amounts are so high that service levels are being reduced, municipal staff are being laid off, and serious discussions are occurring about whether the municipalities can continue to function,” said RMA president Paul McLauchlin in a recent media release.

Additionally, unlike with residential and commercial properties, municipalities are not able to use liens or other tax recovery options on linear property. While there are many companies that are paying their taxes as expected, the RMA survey found 57 per cent of unpaid taxes come from companies that are still operating.

“There is no reason why oil and gas companies should have an option to pay property taxes and face no consequences if they choose not to. Not only does this non-payment impact municipalities providing the infrastructure that those companies use every day, but it is also disrespectful to every other homeowner and small business in the municipality who will see their taxes increase or their service levels decrease due to the irresponsibility of some oil and gas companies,” said McLauchlin.

In Athabasca County, the topic of linear assessment changes and unpaid taxes from the industry has been discussed around the council table numerous times in the last year. In the county’s 2021 budget, $580,000 in taxes from oil and gas companies is “assumed to be collectable,” said director of corporate services Amber Oko during the Feb. 25 council meeting.

“It is an assumption in the budget that they are currently collectible, because we don’t know what portion of that wouldn’t be,” she said. “The risk was saying that they wouldn’t be collected. I just don’t want to move toward writing them off at this stage, until we have a really good idea that they wouldn’t.”

In the County of Barrhead, director of finance and administration Tamara Molzahn noted $2.5 million in unpaid oil and gas taxes has been written off since 2018. The municipality was able to recover $250,187 through PERC and DIRC and there is also an application for another $78,585 in 2021.

“Taxes are written off when the oil and gas company is in receivership. The county writes off the taxes to access the Provincial Education Requisition Credit (PERC) and Designated Industrial Requisition Credit (DIRC) program. The amount that can be recouped is limited to the school and designated industrial requisitions on those properties,” she said in a March 11 e-mail. “In addition to the taxes written off, the county has $942,405 outstanding in taxes from solvent oil and gas companies for years 2016-2020.

On Feb. 23, Westlock County councillors approved writing off $2.12 million in unpaid oil and gas taxes from 2017 to 2019. The municipality will recover $112,537 in PERC and DIRC and has applied for another $22,000 for that same time period. More than $891,000 is expected this year in overall unpaid taxes, not all are from oil and gas, but in previous years up to 84 per cent of the total unpaid taxes came from that industry.

The same day, they approved a motion to send a letter outlining their concerns to the Alberta Energy Regulator (AER), asking for amendments to the regulator’s Directive 067 — to revoke the licence of viable operators that choose not to honour their municipal tax obligations; not to permit licences to be purchased or transferred if the holder is in default of any taxes to Alberta municipalities; and to initiate steps with the Government of Alberta to make municipalities secure creditors so these taxes can be collected.

Between 2015-2019, Westlock County wrote off $2,377,848 with an additional $702,000 expected for 2020.

“Alberta’s rural communities are the municipalities that own and are expected to safely maintain the important infrastructure necessary for the oil and gas industry to succeed,” wrote reeve Jared Stitsen. “As a partner in this success the fair assessment and collection of municipal taxes (including provincial taxes levied for schools and seniors) is foundational to the support and maintenance of this infrastructure by our municipality.”

Many municipalities, including Athabasca County, have since come forward to continue to advocate for big changes. Woodlands County is perhaps one of the harder hit municipalities in the region, having more overall wells and more suspended wells than either of the three other rural municipalities.

The current balance due in Woodlands County stands at $3,848,860, but would be $12,154,614.17, if not for $8,305,754.17 in PERC funding since 2015.

Last week, Woodlands County’s resolution, 1-21S, at the RMA Spring Conference was carried. The subject was AER’s Directive 006 – Licensee Liability Rating (LLR) Program and License Transfer Process, which Woodlands County wanted to amend to include a condition of transfer of all oil, oil sands, natural gas, and coal resource assets from one company to another that municipal property tax arrears be paid in full. Additionally, the resolution aims to require full disclosure of oil and gas company financial situations, including unpaid property taxes, and not just a formula as currently defined in Directive 006.

The resolution now has the advocacy power of RMA and its members behind it, though several resolutions on similar subject matter from previous years, have fallen on deaf ears at AER.

“That’s exactly what we need to do,” said Athabasca County Coun. Travais Johnson during the county’s Feb. 25 meeting. “We need to pressure them, so they can’t get approvals if they don’t pay their taxes. I think it’s a great thing and we should be 100 per cent behind it.”

Back at the U of A, professor Joel Gehman has a unique perspective on the whole situation.

Gehman got his PhD from Pennsylvania State University after spending 13 years in industry as an entrepreneur, manager and executive in the areas of management consulting, business development, technology management, and marketing strategy. He arrived in Alberta in 2012 after receiving a research grant and has since received $5.1 million in grants and fellowships from a variety of sources to conduct his work, along with a number of prestigious academic awards.

His WellWiki.org website, which catalogues the pertinent information of more than 4.3 million oil and gas wells in Canada and the United States, is getting bigger than he ever imagined. More than 619,000 of those wells are in Alberta, and more and more of them are being abandoned.

“I’m in a business school so my research looks at how organizations do deal with sustainability issues and environmental, social and governance issues that may be of concern to different stakeholders that they interface with,” he said. “And so that’s one of the ways that I’ve been thinking about this oil and gas activity, and so the site, although it originated in research I was doing, it’s now taking on a life of its own where its goal is to basically just take the data we have and make it available to the public,” he said.

How businesses, including oil and gas companies, adjust to factors outside the realm of their financial bottom line, is also a large part of his research. There are lots of ways to tell how business is doing financially, he said, but not other aspects, and there is no one-size-fits-all solution that’s perfect for every business. Though refusing to pay taxes while still remaining viable, may not be ideal answer.

In a province whose destiny was determined before it even came to be, where every aspect of life — even politics — revolves around oil and gas resources and the companies that extract them, it’s no wonder so many are dependent on the industry in so many ways, and wouldn’t have it any other way, despite the glaring issues Alberta is now facing.

“That is up to them, so some people will be in favour of oil and gas activities; some people will be opposed to oil and gas activity, and part of what I think a site like WellWiki can do is at least inject a little more evidence into the discussion, hopefully,” said Gehman.

With files from Kevin Berger and Andreea Resmerita

 

czwick@athabasca.greatwest.ca

 

 

 





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