Protest sheds light on issue that resonates close to home

PROTEST RALLY: Rural municipalities held a protest rally at the Legislature grounds on Thursday, July 30, at 1pm to bring across their sentiment over proposed changes to the assessment model for regulated properties such as wells and pipelines – an issue that has serious implications to municipalities within the G5 community that derive revenue from the oil and gas industry, including Saddle Hills County, Birch Hills County and the Municipal District of Spirit River No. 133. The changes are intended to provide Alberta’s struggling oil and gas operators a tax break on municipal property taxes. The Rural Municipalities of Alberta, which is made up of Alberta’s 69 counties and municipal districts, describes the changes as the death knell to some municipalities. The proposed changes are expected to be included in the agenda on the next meeting of the G5 leaders. It is understood that efforts are underway to have a G5 meeting within August. A G5 meeting originally scheduled in the spring was cancelled due to the COVID-19 pandemic. // Contributed Photo

Rural municipalities in Alberta joined together on Thursday afternoon, July 30, for a protest outside the Legislature in Edmonton to express opposition to the proposed tax changes designed to provide the province’s struggling oil and gas operators a tax break on municipal property taxes. The proposed tax changes, which are the result of a year-long, government-led review, will have serious impact on the Central Peace. “The biggest hit would be Saddle Hills County followed by Birch Hills County and then the MD (Municipal District of Spirit River No. 133),” a source with knowledge of the issue told The Central Peace Signal.

The taxation proposals are currently being reviewed by the Government of Alberta, and a spokesperson from Municipal Affairs said consultations are ongoing with municipalities.

Consultations, led by a committee made up of industry and government representatives, began in December 2019, and a report outlining four possible linear taxation models was provided to the Government of Alberta about two weeks ago, said Al Kemmere, president of the Rural Municipalities of Alberta, which was also a participant of the consultation process.

Documents shared with The Central Peace Signal showed that revenue losses from implementing the proposed tax changes would require significant tax increases in the Northern Sunrise County, about 135 kilometres northeast of the Central Peace. In a letter to Dan Williams, MLA for Peace River, the County outlines the tax increases as follows:

  • between 223.4% and 521.1% for residential tax rate
  • between 11.6% and 31.3% for non-residential tax rate

Alternatively, the County will have to reduce full-time employment by between 37.7% and 86.4%. “Raising tax rates to offset the impacts of the assessment model change will have the effect of simply transferring taxes from the oil and gas industry to other businesses and residents,” the letter states. “We may be forced to enact a combination of all three changes as well as reduce service levels and intermunicipal collaboration agreements to remain viable. These changes will impact not only our municipality and the services we provide to residents and businesses but the entire region.”

The proposed changes to the assessment model for regulated properties such as wells and pipelines are expected to be included in the agenda on the next meeting of G5 leaders. It is understood that efforts are underway to have a G5 meeting within August. A G5 meeting originally scheduled in the spring was cancelled due to COVID-19.

Kemmere said if the overhaul to the provincial rate assessment model is pursued, rural municipalities would be forced to balance their budgets through steep residential tax hikes or deep cuts to municipal services. “Some rural municipalities simply may not survive,” he noted.

Camrose County, about 600 kilometres southeast of the Central Peace, is contemplating increasing residential mill rate by up to 56% and non-residential mill rate by 32% as well as reducing its workforce by up to 30%, or a combination of those measures, said Reeve Cindy Trautman. “This isn’t a Camrose County issue. This is a rural issue – there is no county in Alberta that will not be affected,” she said.

According to an RMA report dated July 29, 202o, the proposed reforms would result in annual revenue cuts ranging from 7% to 20%. Some of the 69 counties and municipal districts represented by the RMA stand to lose up to 40% of their tax base, Kemmere said.

Oil and Gas Industry Struggles
The proposed changes are intended to support the competitiveness of the oil and gas industry, according to the Government of Alberta, while ensuring the viability of municipalities.

A survey released by the RMA in January 2020 showed approximately $173 million in property taxes owed to rural municipalities from oil and gas companies have gone unpaid, up 114% from the $81 million identified through a similar survey conducted in March 2019.

In March 2020, Reeve Gerald Manzulenko said unpaid taxes owed by oil and gas companies operating within Birch Hills County account for $552,000 of an estimated $746,000 in shortfall of the County’s 2020 budget.

A huge chunk of the tax delinquency in 2019 – or up to $482,000 – was owed by Calgary-based Long Run Exploration Ltd, which has several operations across the Peace Country.

The company, according to a County press release, has neither paid any portion of its tax deliquency in 2019 nor did it provide “any information to the County regarding plans to settle” its unpaid taxes.

Other oil and gas companies, which the press release did not name, combine for approximately $70,000 in unpaid taxes.

“These are companies that are still operating today, that have not filed for bankruptcy protection, and whose corporate offices have made the decision to not pay tax bills,” Manzulenko said. “We can only hope that additional companies operating in the County do not follow Long Run’s lead, as we do not have the same options available to us in dealing with these accounts that we do with delinquent ratepayers related to titled properties. Birch Hills County, and others, need leadership from the provincial government to deal with these companies.”

Non-payment of taxes by oil and gas companies on property that they own and operate has been an ongoing issue for rural municipalities, RMA said, adding that it is deeply concerned that flaws in Alberta’s tax collection regime are allowing oil and gas companies to transfer their struggles to municipalities in the form of unpaid taxes, and municipalities have no ability to take action to recover owed taxes.

“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 a news release.

An oilpatch consultant said about 40% of unpaid taxes are from severely distressed companies in an industry hard and widely hit by lower resource prices. The rest of the shortfall is from companies that continue to operate but don’t pay.

Years of low oil prices have left many small oil and gas producers in dire straits.

Ben Brunnen, vice-president of oilsands with the Canadian Association of Petroleum Producers, said some municipalities will see increased revenue from the rate changes, a fact also acknowledged by the RMA report to its members.

“If we don’t do something to arrest the trend of industry bankruptcies and financial insolvencies, there’s not going to be a long term or an industry in some of these communities, so the assessments are going to go to zero,” Brunnen was quoted as saying in press reports. “It’s one of those scenarios where everyone needs to sacrifice a little bit.”

In July 2019, the Government of Alberta announced a tax relief for the province’s oil and gas operators in the form of an immediate 35% cut in municipal taxes on shallow gas wells and pipelines. For that, the province compensated municipalities for their losses. Alberta said no further compensation will be provided.