WESTLOCK/ATHABASCA - Municipalities are running the numbers on what the new tax breaks for oil and gas properties are going to mean for their budgets.
The new measures were adopted in lieu of the assessment model review proposals that would’ve significantly reduced the municipal tax bases across the province under any of the four options.
“I’m cautiously optimistic. I think that it’s good news that they’re not accepting any of the four recommendations. There’s still something coming but at least we’ve got some time to deal with it and know that there’s going to be a lot of thought put into it. We’re going to prepare for the worst and expect the best,” Westlock County reeve Lou Hall told the News Oct. 22.
While they pressed pause on implementing the four recommendations, Municipal Affairs minister Tracy Allard announced that the government will exempt new wells and pipelines from taxes, allow a 35 per cent reduction on shallow gas wells to move forward, reduce assessments for less productive wells and scrap the well drilling equipment tax for new drills.
The tax break is intended to “attract investment and create good jobs,” she said Oct. 19, but it’s only temporary. A long-term review of assessment models will be finalized over the next three years.
Allard estimated that on average, municipalities will lose about three per cent of their tax base, as opposed to the 7-20 per cent RMA predicted with the initial review. That amounts to $7 million total, Allard said in a separate press conference with rural newspapers.
The new measures come into effect in 2021 — new wells, shallow gas wells and the unproductive ones will see the changes on their 2021 assessment for the 2022 tax year.
“The focus is really on recovery — economic recovery, recovery from COVID — that’s really the highlight for government right now, to move in a direction that can create jobs,” said Athabasca-Barrhead-Westlock MLA Glenn van Dijken.
“I think one of the things that we have to recognize is that Alberta’s job situation is in crisis and we have to do as much as possible to get investment coming back creating jobs. This is an opportunity where we can actually kick-start something with that drilling activity.”
But in Westlock, interim CAO Rick McDonald says there’s been a “communication breakdown” generally between the province and municipalities.
Tax break effects not yet known
Although he wasn’t ready to comment on the new changes, Athabasca County deputy reeve Travais Johnson said he liked that van Dijken listened to munis.
“All the municipalities said the original idea wasn’t good and they made some changes, so that shows us that they are actually listening to us, that’s a good thing, but how it’s going to affect us right now we still have to let the dust settle and really get into it to see what the numbers really mean,” he said.
Allard toured the province over the summer, after the four proposals were announced in late July and Rural Municipalities of Alberta warned they could have disastrous effects on rural municipalities.
It’s the same story in Westlock County, where interim CAO Rick McDonald says it’ll take a while to run the numbers. They’re looking into tracking wells and exploration in the area, something that until now hadn’t been an administrative priority.
“When a company puts a well in, there’s no development permit, so we’re not made aware, but sometimes they contact us for transportation because they need road access or they might just contact us to let us know they’re coming. Or what we’ll do is we’ll wait for Municipal Affairs industrial assessment to provide us with a new assessment and we know they’re there,” he said.
Unpaid taxes
The four options that came out of the initial review — all of which would have reduced the assessed value of oil and gas property, thus the taxes they pay — aren’t off the table completely. Instead, they’ll be reviewed over the course of three years.
But in rural Alberta, the problem elected officials would like to solve is that of unpaid taxes from the oil and gas industry.
“We’ve seen $81 million two years ago, $173 million last year of unpaid taxes, and if we don’t fix that in the near future, all these modifications are going to be for naught because it is going to leave my member municipalities without that ability to make sure that the tax collection is treated the same way as every other taxpayer,” said RMA president Al Kemmere.
Oil reps, however, didn’t agree with Kemmere’s estimates.
“I would take some exception with the numbers that have been put forward. We have done a similar search on the numbers. It is a very small percentage of taxes which go unpaid,” said Tim McMillan, president of the Canadian Association of Petroleum Producers, but added that “there’s some legitimate concerns about the mechanisms that municipalities have to rectify those unpaid taxes.”
In Westlock County, McDonald says they’re looking at about $1 million lost in unpaid property taxes this year. They’re setting the same amount aside for 2021.
“We can’t tell you who the companies are … but I can tell you that when it comes to linear tax, we have right now 23 companies not paying, six of those companies are bankrupt. Over three years, we’ve lost about $900,000 and this year, we lost $333,000, expected to be similar in 2021. Our industrial property, on 163 files, over the last three years we’ve lost $964,000 and this year we lost $213,000.”
Kemmere also pointed out that it’s not bankruptcies that are causing this problem, but “people who chose not to pay their taxes.”
“One thing I continue to do is let industry stakeholders know that if they don’t work in collaboration with municipalities, landowners and all of the partners, they don’t have a future. They all have to work together, otherwise people will make decisions accordingly,” said van Dijken.
