Barrhead—County of Barrhead councillors are concerned energy companies will continue to leave the municipality in a lurch in regards to paying their property or linear assessment.
That is why councillors unanimously passed a recommendation by the administration that would see the county establish a $300,000 allowance for uncollectible taxes for 2019.
The funds will come from operating reserves and the municipality’s unrestricted reserves.
Director of finance and administration Tamara Molzahn noted under Public Sector Accounting Standards, governments at all levels are required to evaluate to what extent it will be able to collect on its tax receivables and make an allowance for what they believe is uncollectable.
For the most part, she said tax receivables are recoverable due to tools provided by the Municipal Government Act’s (MGA) Section 348.
“In that, we have priority claims and we have recourse if it ever gets to that position,” Molzahn said.
However, she said recent court decisions have determined that municipalities’ taxes do not have the same rights or tools when it comes to linear property. Linear assessment is the value the province places on the oil and gas wells, pipelines and electric power systems that are in a municipality.
In August, the Supreme Court of Canada (SCC) denied an appeal on the decision of the Alberta Court of Appeal in the case of Northern Sunrise County vs Virginia Hills Oil Corp.
The case questioned whether municipal property taxes for “linear property” constituted secured claims in insolvency proceedings.
The Alberta court rejected this claim and found that there is no statutory lien for linear property taxes under Alberta’s Municipal Government Act.
“We have taken a look at all the receivable balances at the end of the year with the oil and gas industry and determined $300,000 is potentially uncollectable,” Molzahn said.
The deemed uncollectable amount comes from nine energy companies.
This is on top of the more than $2 million the county wrote off in unpaid tax and penalties from three energy companies in October. The amounts were incurred from 2017 to 2019 from Sequoia Resources Corp, Trident Exploration (WX) Corp and Trident Exploration (Alberta).
County manager Debbie Oyarzun interjected, noting the fund doesn’t mean the company is necessarily in default of paying their taxes.
“This could be for companies that are verging on it, while they look good on the books but they have a challenge in paying,” she said.
Noting that they have already written off $2 million, Coun. Darrell Troock asked, if there are any energy companies actually planning to pay their taxes.
“Maybe that’s what we should be planning for: all of them going broke,” he said, adding that perhaps they need to start budgeting on the assumption that they will get no money from linear assessment.
“Because waiting like this is agony. It is the death of thousands of little cuts.”
He then asked if administration could come up with a report saying how many energy companies are paying their taxes.
“Not just how many companies, but how much are we bringing in from linear, because if it isn’t coming in, that is how we have to budget,” Troock said.
Reeve Doug Drozd reminded Troock that there are different categories of linear assessment, adding that for the most part energy companies are the ones that are the issue and not utilities such as electricity.
Oyarzun said that if councillors went to be conservative and not use projected revenue from linear assessment, that is their prerogative.
“That is a mentality, but regardless of whether you do that, we still have to go through this exercise,” she said.
Molzahn agreed, noting the problem is that all they can do is just an estimate, adding that is what they did when the municipality built an $800,000 contingency fund for unpaid taxes. Unfortunately, again, mostly due to the loss of linear assessment revenue from energy companies, that money is gone due to the municipality writing off what was owed from energy companies from 2017-2019.
Reeve Doug Drozd noted the other concern for municipalities was that the province would give other energy companies a similar reduction in their linear assessment as they did for shallow gas companies when the province mandated that local governments reduce the 2019 tax bill for the majority of shallow gas operators by 35 per cent.
Municipalities were then given a rebate on how much they had to collect on the province’s behalf in the form of a reduction of their school requisition, minus a credit for penalties.
Oyarzun agreed, saying she was expecting the province to make a similar adjustment as part of their linear assessment review.
“That has been postponed, they are still working on the model, so we are not expecting anything until 2021,” she said.
Coun. Dennis Nanninga was not sure the county should budget on the assumption that they would receive no linear assessment from oil and gas companies.
“We still have to hold them accountable and hold their feet to the fire,” he said. “Our message should be that we expect them to pay what is owed.”
Unfortunately, Oyarzun and Drozd said they have little recourse.
“Nor are we the only level of government that uses oil and gas revenue to pay the bills,” Drozd said. “If it were not for oil and gas in Alberta, could you imagine what our taxation rate would be? So why we cutting off our nose to spite our face. The province is still largely reliant on those revenues.”
Not alone
The County of Barrhead is not alone in wrestling what to do in declining revenue from oil and gas tax arrears.
Woodlands County has announced it is owed more than $9.5 million and as a result are cutting back services by about 15 per cent.
As part of the cost-cutting measures, in late November they announced they were undergoing a municipal wide organizational reconstruction and as a result, 11 positions would be phased out.
The Rural Municipalities of Alberta (RMA) also said its members are owed roughly $175 million in unpaid taxes from oil and gas companies.
The RMA determined the number through a survey they asked its 69 member municipalities to complete at the end of the year.
That’s a $92-million increase from last March when a similar survey found municipalities were at an $81-million loss from unpaid property taxes.
The increase has the organization asking for the province to help them recoup the losses.
“Many oil and gas companies are unable or unwilling to pay municipal property taxes due to the ongoing downturn in the price of oil and Alberta’s challenges in market access and receiving a fair price for its resources,” RMA president Al Kemmere stated in a Jan. 20 news release. “Rural municipalities also have little recourse to recover unpaid taxes from companies that have declared bankruptcy, as municipalities rank below the Alberta Energy Regulator in priority for seizing the assets of a bankrupt company.”
The RMA also stated they are “deeply concerned” that the province is tax collection method allows the oil and gas industry to transfer their struggles to municipalities through the non-payment of taxes and that they give local governments no tools to collect the debt.
“Rural municipalities are proud of their role as partners and supporters of Alberta’s oil and gas industry. However, municipalities require property taxes to provide the infrastructure and services that the industry relies on to access natural resources. If Alberta’s property tax system is not amended to prevent oil and gas companies from refusing to pay property taxes, many rural municipalities will struggle to remain viable,” Kemmere said in the news release.
