-
RURAL MUNICIPALITIES OF ALBERTA
“I’m pleased with the minister’s announcement today. Municipalities are strong partners in responsible energy and resource development. Unpaid oil and gas property taxes have been the RMA’s top advocacy issue for several years and resulted in rural municipalities across the province losing a collective $268 million in revenue that would be used to provide infrastructure and services across rural Alberta. We appreciate that this is a complex and politically sensitive issue, and the ministers of Municipal Affairs and Energy deserve credit for taking action to stand up for rural municipalities and all taxpayers in Alberta. This action represents major progress in holding accountable the small number of oil and gas companies that operate without paying taxes.” – RMA President Paul McLauchlin
A recent RMA member survey showed that rural municipalities collectively face an unpaid property tax burden of $268 million from oil and gas companies, which represents a 6% increase from last year. These results show that unpaid taxes continue to be a crisis for rural municipalities even as the industry enjoys a boom period, and that a legislative or regulatory solution is long overdue. While this approach will not assist municipalities in recovering taxes owed by companies that are now insolvent, it will require operating companies to pay municipal taxes to sell or acquire licences. This is a crucial accountability tool that has been lacking. Given that 41% of the $268 million currently outstanding is owed by operational companies, this change could have an immediate positive impact for rural municipalities.“This issue is not only about municipal impacts. It is also about industry operating with a complete lack of accountability due to legislative loopholes and an uninterested regulator. Today, with the province’s action, some industry accountability has returned,” said McLauchlin. “This change will not only provide rural municipalities with greater fiscal certainty moving forward, but should also have an immediate impact as operational companies with taxes in arrears will be required to pay what they owe before selling or acquiring licenses.”
The RMA is also encouraged by the requirement for the AER to work directly with the RMA and rural municipalities to gather unpaid tax data and update it on a regular basis. Rural municipalities are stewards of the land, and this action will support responsible energy development moving forward. While the AER previously had the option of considering property tax payment status when assessing a company’s risk, it had continuously refused to work with municipalities to gather that data, instead relying on companies to self-report their property tax payment performance, and ignoring the RMA’s requests for information on if and how the regulator actually gathered or used property tax payment data. The RMA is looking forward to developing an approach to support the ongoing sharing of property tax data between municipalities and the regulator.“Rural municipalities are crucial to the oil and gas industry. RMA members build and maintain the roads and bridges industry uses to access wells and pipelines, and provide crucial community services used by those working in the industry. Despite this, the AER has refused to treat rural municipalities as partners, or even as high-priority stakeholders. Year after year, it refused to act on a growing problem as frustration mounted and the reputation of the industry suffered. The province’s actions show that, regardless of the AER’s views, oil and gas companies should be held accountable for paying municipal property taxes, much like every other property owner in the province. While I’m disappointed that it took a ministerial order to push the AER to properly partner with municipalities, I’m optimistic that we will collaborate to develop a strong system of sharing unpaid tax information and, as a result, improve industry accountability across the board.” – RMA President Paul McLauchlin
While the Ministerial Order is great news for rural municipalities, rural landowners across the province continue to face a similar issue as some oil and gas companies ignore their contractual obligation to pay surface leases for oil and gas wells located on private property. While data on unpaid surface leases is much harder to access because it depends on individual landowners sharing such information, rural municipalities are reporting widespread frustration and concern among landowners that surface lease payments are being ignored, delayed, or that companies are making only partial payments. Surface lease disputes can be directed to the Land and Property Rights Tribunal, but the dispute process often places landowners at a disadvantage as many lack the resources and knowledge of the process to participate effectively. While addressing accountability for municipal tax payments is a huge step in the right direction, the province must now turn its attention to surface lease payments.“While this Ministerial Order is a major positive step in holding oil and gas companies accountable for paying municipal property taxes, rural landowners continue to struggle with unpaid surface leases. In many cases, those affected are small family farms or acreages that use surface lease revenue to supplement their agricultural income, or to support their retirement,” explained McLauchlin. “Unfortunately, the data on the value of unpaid surface leases is not great; we know that this is also a widespread problem, but it is mainly the responsibility of same small group of bad actors that are ignoring their property tax payment obligations. We are thankful for the province’s action on unpaid taxes, but we now plan to shift our focus to better understanding and developing solutions to hold the same companies accountable for making surface lease payments.”
Brandon Low Manager of Marketing & Communications 587.671.0164 brandon@RMAlberta.comNisku, AB, March 7, 2023 – The Rural Municipalities of Alberta (RMA) has conducted a member survey identifying that as of December 31, 2022, approximately $268 million in property taxes currently owed to rural municipalities by oil and gas companies have gone unpaid. This represents a 6.1% increase from amounts reported for the 2021 tax year, and a whopping 231.5% increase from the 2018 tax year, which was the first year that the RMA collected such data. After four years of requests for government to act in the public interest to put a stop to this unethical behaviour, rural municipalities continue to be treated as a piggy bank by some oil and gas companies, even as industry profits and government royalty revenues soar.
“Given the success of the industry and the wealth it has generated, I am shocked that I still have to discuss this issue, and that rural municipalities and rural property owners continue to be forced to subsidize an industry in a massive boom period. While oil and gas revenues flow to government as royalties or out of the province to shareholders, industry and the provincial government assume rural municipalities can magically maintain service levels even as they face an average shortfall of nearly $4 million due to non-payment of taxes.” – Paul McLauchlin, RMA President
While this is not a new issue, some companies continue to ignore their obligations and pile a fresh mountain of tax arrears onto the backs of rural municipalities. RMA members reported over $53 million in unpaid taxes from the 2022 fiscal year that are currently unpaid. This is a larger amount than from any other fiscal year, and a sign that previous government attempts to address the issue have been ineffective. Additionally, operational companies are responsible for 41% of the $268.5 million unpaid tax burden. This suggests that for many companies, not paying property taxes is a choice without consequences, as they continue to profit from Alberta’s natural resources without meeting their legislated responsibilities.
“The unpaid oil and gas property tax issue is nowhere near solved. The Government of Alberta has allowed legislative and regulatory gaps to remain in place and industry continues to take advantage of them, even in good economic times,” explained McLauchlin. “The fact that many years after this issue arose, 41% of unpaid taxes are from operational companies shows a complete failure on the part of the Alberta Energy Regulator to ensure that the industry operates in the public interest. While rural municipalities try their best to use the limited enforcement tools available to them, there needs to be an effort at the provincial level to hold the industry accountable. If property tax payments are ignored, what other environmental or regulatory responsibilities will the province look the other way on next?”
In recent years, the Government of Alberta has amended legislation to provide municipalities with a “special lien” on unpaid oil and gas property taxes that gives them status as a secured creditor in bankruptcy proceedings. Additionally, the AER now has the option to consider property tax and surface lease payment records when assessing their risk levels. Both of these changes were promoted as major steps toward solving the issue, but clearly neither has been effective. To address this issue once and for all, the AER could simply prohibit any company in arrears on property taxes or surface leases from operating.
“While we’ve gone in circles with the province and AER on this issue over the years, the solution is simple: if a company wants to continue to extract and sell Alberta’s oil and gas resources, they must make property tax and surface lease payments. Unfortunately, the province has been unwilling to pursue this simple and rational regulatory solution presumably because doing so would push several companies that have no business operating into bankruptcy and create a messy situation for the province and the Orphan Well Association,” said McLauchlin. “In other words, the AER is propping up ‘zombie companies’ on the backs of rural municipalities because they lack the proper regulatory and accountability framework to properly address the impacts of poorly regulated companies failing.”
Payment of property taxes is a matter of survival for many rural municipalities. RMA members are responsible for over 70% of Alberta’s roads and 60% of Alberta’s bridges. The industry’s boom means more strain on municipal roads and bridges from drilling rigs, more maintenance activities at older wells, and more of a need for new or upgraded municipal roads and bridges to reach previously untapped resources. Without access to tax revenues, many municipalities have had no choice but to reduce service levels, increase tax rates on other property owners, and even lay off staff. These decisions impact all rural residents and businesses, and often cancel out the local economic benefits that oil and gas industry growth should provide.
McLauchlin said, “What some in the industry and government don’t understand is that without rural municipalities, the oil and gas industry would be nowhere near as successful as it is. Property taxes are not collected for fun. They pay for the construction and maintenance of roads and bridges for the oil and gas industry to access resources, as well as to provide everything from water to waste collection to recreation and many other services to rural residents, many of whom work in the oil and gas industry. Ignoring property taxes doesn’t just hurt the municipality, it hurts rural communities and places an unfair burden on other rural businesses and residents.”
For decades, Albertans and the oil and gas industry have been partners. While individual companies profit from Alberta’s oil and gas reserves, tax and royalty payment from industry support world-class infrastructure and services. However, when industry is no longer asked to be accountable or follow the same rules and regulations as other industries and individuals, public trust in both the industry and the regulator is compromised. As this issue drags on and all other rural property tax payers continue to subsidize non-payment of taxes by industry, municipal leaders are left to wonder if “public interest” will ever be a part of the AER’s vocabulary.
“Rural municipalities and the industry are partners in driving Alberta’s economy. Our members know that most oil and gas companies pay their taxes on time and in full, and are strong corporate citizens,” explained McLauchlin. “They also know that there are no consequences for those that don’t. The Government of Alberta talks about ethical oil and a commitment to ESG principles, but the AER has shown little interest in ensuring the oil and gas industry acts in the public interest, leaving this up to companies to decide. Rural municipalities are not looking for the AER to collect taxes on their behalf or get involved in local disputes over tax rates or payments. They are simply asking for industry to be held accountable to meet their legal obligations, which includes paying property taxes to support the costs of the public infrastructure and services they are more than happy to utilize. This is a reasonable request with a straightforward solution. All that seems to be lacking is the political will.”
Brandon Low Manager of Marketing & Communications 587.671.0164 brandon@RMAlberta.com“Year after year, rural municipalities provide clear, documented, and verifiable evidence that a select group of property owners are simply choosing not to pay their property taxes, and year after year, the problem drags on due to a lack of industry regulation and accountability. While all other property owners in the province face strict penalties for non-payment of property taxes, oil and gas companies continue to exploit legislative and policy loopholes and hide behind an industry regulator that has, for many years, refused to hold some companies accountable for poor business decisions, high liability risks, and a lack of concern for the public interest.” – Paul McLauchlin, Rural Municipalities of Alberta.
While the Government of Alberta has taken some steps to close loopholes and empower municipalities to enforce payment of taxes, the survey results indicate that their impact has been minimal. For the 2023 property tax year, rural municipalities are facing roughly $43 million in unpaid taxes. In last year’s survey, that amount was approximately $50 million. While a 14% reduction in “fresh” tax arrears is a step in the right direction, it by no means indicates that the problem is anywhere near solved.“While government and industry supporters typically question the RMA’s survey results by arguing that the total unpaid tax amount includes legacy tax arrears that will likely never be collected, an additional $43 million in new unpaid taxes in 2023 indicate quite clearly that this is an active, ongoing issue that continues to make it more difficult for rural municipalities to provide the infrastructure and services that oil and gas companies, as well as other industries and rural resident, rely on,” McLauchlin explained. “This issue is not settled; companies continue to profit from Alberta’s resources while ignoring their community obligations and funnelling profits to executives and shareholders.”
In recent years, the Government of Alberta has taken two notable steps in an attempt to curb unpaid taxes. The first was to amend the Municipal Government Act to clarify that municipalities have a secured status (a special lien) to recover unpaid taxes during bankruptcy or insolvency hearings. The second was to order the Alberta Energy Regulator (AER) to no longer approve licence transfers or new licences for companies with outstanding property tax arrears above $20,000. While both changes were steps in the right direction, neither target the companies that have the resources to remain operational and profitable, but are not in a position to expand their holdings. The RMA’s survey showed that in 2023, just over 10% of members were able to utilize special lien status to recover unpaid taxes, and about 30% noted that the requirement on licence transfers and acquisitions had a positive impact on their ability to recover taxes.“In recent years, the Government of Alberta has made two legislative and policy changes intended to deal with property tax non-payment by some oil and gas companies. While these have led to modest improvements in the situation, they are far from a solution,” McLauchlin said. “One change focuses on helping municipalities recover taxes from bankrupt or insolvent companies, and the other restricts the ability of companies to grow their asset base if they have taxes in arrears. While both help on the margins, neither target the companies at the root of the problem: the “zombies” that continue to operate but have no interest in growing. These companies often cut costs anywhere they can: in tax payments, in surface leases, in safety initiatives, in reclamation preparation. These are the companies that are a risk to rural municipalities and all Albertans but are allowed to continue to pull Albertans’ resources from the ground and funnel profits out of the province.”
While the simple solution would be to revoke a company’s licence if it has property taxes in arrears, the AER’s hands-off approach to regulation has led to a situation where dozens of companies are operating with virtually no assets and very high liabilities. Requiring them to meet their property tax obligations would likely lead to a flood of thousands of wells into the Orphan Well Association (OWA). It is shocking that the AER has allowed the situation to reach this point and unfair that rural property taxpayers are being forced to prop up companies that have no business operating because the AER and Government of Alberta are not prepared for the outcomes of holding them accountable.“I’ll be blunt. Rural municipalities and all other companies and individuals paying property taxes are being used. We are being used by a small number of zombie oil and gas companies to not only subsidize the taxes they don’t want to pay, but to prop up their very existence. The AER has allowed these companies to operate for such a long time, with such poor financial management, that they are now unequipped to deal with the consequences of them failing,” said McLauchlin. “I am a strong supporter of the oil and gas industry, as are all RMA members. However, what the AER has allowed a small number of companies to get away with is not in the public interest. It harms municipalities, it harms other property owners, and it harms the oil and gas industry. The only group benefitting are these irresponsible companies taking advantage of the AER’s hands-off approach. At the end of the day, we need a regulator, not a cheerleader.”
Because of the risks that immediate enforcement of property tax payments would have on the OWA and Albertans, the RMA is proposing that the Minister of Energy direct the AER to prevent companies from operating if they have property taxes in arrears, but that this enforcement be phased in over the coming months, with timelines linked to the level of risk associated with each company that would be impacted by the enforcement. Those with the means to pay tax arrears quickly should be required to do so or face licence revocation. Those operating as zombies should be given some time to divert their revenues to property tax payments.“Given how long companies have been allowed to ignore their property tax obligations, it is absurd that we have to propose a phased approach to enhanced enforcement. Unfortunately, this is the situation that regulatory inaction has placed us in. A phased enforcement approach is a reasonable strategy that will give companies more time to get their financial house in order, with defined timelines and consequences for inaction. Allowing this problem to continue unchecked while offering Band-Aid solutions is simply unfair to Albertans, and will allow a few bad actors to continue to damage the reputation of Alberta’s oil and gas industry.” – Paul McLauchlin, Rural Municipalities of Alberta.
Brandon Low Media Contact 587.671.0164 brandon@RMAlberta.com