Westlock County registered an additional $673,623 in 2019 expenses from uncollected oil and gas property taxes, which is likely to put the municipality in a deficit.
At the Jan. 20 council meeting, councillors voted unanimously to make the changes to the 2019 budget, which administration detailed are necessary so the municipality can qualify for some credit from the provincial government to recover education requisitions.
Unpaid oil and gas property taxes from 2017 to 2019 amount to $1,569,756. In addition, administration discovered other properties that are at risk for collection — taxes owed on those properties add up to $203,867, but not all are oil and gas properties.
This puts the estimated allowance at $1,773,623 total, $1,000,000 of which has already been budgeted for, as well as an additional $100,000 for bad debt expenses in the 2019 budget.
Still outstanding are the education requisition payments associated with the accounts. These are payments which municipalities collect on behalf of the province.
As of Jan. 20, Westlock County qualifies for $112,537 from the Provincial Education Requisition Credit (PERC) and $1,598 from Designated Industrial Requisition Credit (DIRC).
The difference of $673,623 was officially written off so the municipality could apply for those credits by the Feb. 1 deadline, but this means a potential deficit for the municipality.”
“I’m just concerned that we’re going to put ourselves in a very large deficit situation for 2019,” said deputy reeve Brian Coleman.
Municipalities that register a deficit in a given financial year have three years to balance the budget.
More clarity on the 2019 deficit will be given in March, after the county goes through an audit.
Reeve Lou Hall said after the meeting that administration has ways to predict allowances for doubtful accounts and bad debt expenses, but several requests for comment from administration to explain how that is done went unanswered.
Problem at large
Urkow classified the county’s problems with collecting property taxes from the oil and gas industry as an “ongoing issue.”
“There’s no recourse for municipalities to collect their taxes,” she said.
This problem has been identified in the past, including during budget discussions, when CAO Leo Ludwig clarified that the Municipal Government Act offers provisions for municipalities to put other properties up for sale when property taxes go unpaid.
The same provisions don’t exist for oil and gas properties, which forces municipalities to make predictions regarding revenues from municipal taxes and allocate amounts as allowances for doubtful accounts, or bad debt expenses.
In the provisional 2020 budget, the county has allocated $500,000 as bad debt expenses, a $400,000 increase from the 2019 projected figure, but much more reflective of the current situation regarding unpaid property taxes, particularly from the oil and gas sector.
Since assessments are done at a provincial level, oil and gas properties that may have gone bankrupt continue to appear on municipal tax rolls. Ludwig said the province only removes them once they receive proof of bankruptcy from those companies in the form of a letter.
“In some of these cases, they’ve been bankrupt for several years. There are no more letters, there are no more directors or officers. They don’t exist anymore. How can you get a letter from them?” said Ludwig.
Usually, Urkow said, municipalities are notified of bankruptcies and in some cases, whatever money is left gets distributed to those who are owed. The situation is different when it comes to the oil and gas properties, for which Urkow says municipal taxes are not a priority.
“There’s never any cash back,” she said, as opposed to personal bankruptcies.
Within this municipality, however, questions remain about the county’s unwillingness to name the companies responsible, in particular the ones with significant impact like the company that owes $593,683.68 of the total $1.6 million.
The question was posed to council and administration, neither of whom responded.
In the County of Barrhead, councillors were also forced to write off significant amounts of unpaid property taxes. Three major oil and gas companies — Sequoia Resources Corp., Trident Exploration (WX) Corp. and Trident Exploration (Alberta) — accumulated $2,025,142.21 in lost tax revenue and penalties there from 2017-2019.
Sequoia is also responsible for the largest portion of the debt owed by 10 companies to Athabasca County.
“This is a very common problem across the province,” said Hall, who confirmed that councillors will be addressing the issue at an upcoming meeting with Municipal Affairs minister Kaycee Madu.
According to Rural Municipalities of Alberta (RMA), the total amount of unpaid oil and gas property taxes across the province amounts to $173 million, a 114 per cent increase over 2018.
When asked about this particular issue in November 2019, Madu said “it is something we are looking at” but the government is not at a point where a solution can be offered.
At the time, the provincial government was announcing changes to the MGA that allowed municipalities to offer tax exemptions to machinery and equipment properties.
Earlier that year, other changes allowed municipalities to participate in a shallow gas tax initiative, whereby they could reduce taxes to those properties by 35 per cent. The province would then reimburse municipalities by reducing the education requisition invoice.
In 2020, however, municipalities will no longer receive the reimbursement and must absorb the loss from incentives in their own budgets, according to an RMA press release.
Across Westlock County, 290 sites qualified and councillors voted July 16, 2019 to take part in the initiative.
