Source URL: rmalberta.com/news/as-the-industry-booms-rural-municipalities-continue-to-face-mounting-unpaid-property-tax-bills-from-oil-and-gas-companies/

As the industry booms, rural municipalities continue to face mounting unpaid property tax bills from oil and gas companies

Nisku, AB, March 8, 2022 – The Rural Municipalities of Alberta (RMA) has conducted a member survey identifying that as of December 31, 2021, approximately $253 million in property taxes currently owed to rural municipalities by oil and gas companies have gone unpaid. This represents a 3.3% increase from the unpaid amounts reported for the 2020 tax year, a 46.7% increase from 2019, and a 213.2% increase from 2018. This growth indicates that some oil and gas companies continue to ignore their tax payment obligations even as Alberta’s economy improves, oil prices skyrocket, and new oil well drills increase substantially.

While most oil and gas companies pay taxes on time and in full, the industry and the Government of Alberta have previously made excuses for companies choosing not to pay property taxes, arguing that due to low commodity prices, payment of property taxes would lead to insolvency for such companies and result in lost jobs and negative economic impacts. This was clearly inaccurate, as the industry is now booming, yet property taxes continue to be at the bottom of the to-do list for some companies.

“As the oil and gas industry’s fortunes have improved over the past year, both oil and gas companies and the Government of Alberta have benefitted tremendously. Companies are reporting record profits, and the province has turned a projected large deficit into a budget surplus, nearly entirely due to an increase in resource prices and energy industry investment in the province. Meanwhile, rural municipalities, which play a critical role in providing access to oil and gas resources, are left behind, still unable to collect the taxes required to fund core infrastructure and operations. Not only is this unfair to municipalities, it is unfair to every rural taxpayer who must pay more or receive fewer services to off-set those taxes not being paid by the oil and gas industry. It was unfair when the industry was struggling, and it’s even more unfair now.” – Paul McLauchlin, RMA President.

This issue persists due to a lack of action on the part of the Government of Alberta to hold industry accountable. The province made some modest progress in the past year by restoring the ability of municipalities to place special liens on oil and gas properties, as well as allowing the Alberta Energy Regulator (AER) to consider payment of property taxes when reviewing energy licence approval and transfer applications. However, both changes have significant limitations and neither has addressed the issue.

While the special lien powers may work in some situations, the complexities of seizing or restricting access to oil and gas properties will often outweigh the tax recovery benefits. As such, municipalities require more support and guidance from the Government of Alberta on how to exercise the powers safely and effectively.

The AER’s new ability to consider municipal tax payments appears as a positive step, but it is under no real obligation to consider property tax payments, or report on if and how it has utilized this power. Additionally, despite requests from the RMA, the AER has chosen to rely on industry self-reporting of property tax payment performance rather than collaborate with municipalities to gather and update property tax data.

“While the province has taken some steps related to this issue, none solve the problem. If the political will was there, this issue could be solved quickly and simply through the AER. If companies want to profit from Alberta’s oil and gas resources, they should be required to pay all property taxes in full and on time,” McLauchlin said. “Building this into the industry’s regulatory system would be simple, transparent, and effective, but the AER and Alberta Energy seem unwilling to stand up and actually regulate industry during a period of record profits.”

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 revenue needed to manage this critical transportation network is almost entirely derived from property taxes. If municipalities are unable to depend on taxes being paid, they may be unable to manage roads and bridges at a level required by the oil and gas and other industries. 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. This action means profit for industry, but costs for municipalities. Without access to tax revenues, many municipalities have had no choice but to reduce service levels, increase tax rates on other property owners, and in some cases 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 in Alberta as it currently is. Property taxes are not collected for fun. They are needed to 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 as a whole and places an unfair burden on other rural businesses and residents.”

It is also important to consider that not only are rural municipalities dealing with unpaid taxes, they have absorbed many other downloads and losses in revenue recently, all based on the need to help the oil and gas industry or the province address fiscal challenges. This includes a three-year property tax holiday on newly drilled wells for the 2022, 2023, and 2024 tax year; the elimination of the Well Drilling Equipment Tax; a 25% reduction in the Municipal Sustainability Initiative grant program in 2021, 2022, and 2023; as well as increased responsibilities (and costs) associated with policing, affordable housing, and other primarily provincial services.

“To say that municipalities have made sacrifices to support the industry and the government is a huge understatement. Currently, oil companies will not be required to pay property taxes on newly drilled wells until 2025. Last year, the number of new wells increased by 135% compared to the previous year, and this growth is likely to continue. Every new well brings new infrastructure strain and municipal costs. Not only will municipalities be required to absorb those costs using existing revenue streams, but they are unable to collect taxes that are owed to them. As industry and the province celebrate their new wealth, it is frustrating to see such incentives remain in place, plus little action being taken to address the lack of payment of taxes that are owed.” – Paul McLauchlin, RMA President

Brandon Low
Manager of Marketing & Communications
587.671.0164
brandon@RMAlberta.com