+ RMA Rural Municipalities
of Alberta

Resolution 6-18F

Securing Municipal Property Taxes in the Event of Bankruptcy or Insolvency

Date:
November 21, 2018
Expiry Date:
December 1, 2021
Active Status:
Active
Sponsors:
MD of Opportunity
District:
4 - Northern
Year:
2018
Convention:
Fall
Category:
Municipal Governance and Finances
Status:
Sent to Government
Vote Results:
Carried
Preamble:

WHEREAS the Municipal Government Act (MGA) requires municipalities to collect an Education Property Tax from property owners on behalf of the Government of Alberta and submit that amount regardless of whether the municipality is able to collect these taxes from property owners; and

WHEREAS this requirement has resulted in financial challenges for many municipalities throughout the province; and

WHEREAS across rural Alberta, a significant amount of unpaid requisitions are owed by several taxpayers that were in insolvency or receivership in respect to outstanding taxes including linear taxes; and

WHEREAS in a recent case, a court considered the municipality as an unsecured creditor when a court application was made to determine how the court-appointed receiver should distribute the proceeds from the sale of the taxpayer’s assets; and

WHEREAS Section 348 of the MGA stipulates that property taxes, local improvement taxes, business taxes or community revitalization levies take priority over the claims of every person except the Crown; and

WHEREAS the Court’s directive it very unlikely that a municipality will receive any payment in respect to the outstanding taxes under the current order as the proceeds of the sale are less than the total amount of all the secured claims; and

WHEREAS the issue of whether taxes including linear property taxes constitute a secured claim, in priority to other secured claims such as banks’ claims, has not been fully resolved; and

WHEREAS even if an appeal of the Court’s earlier decision in this matter is unsuccessful, such a negative result would provide a significant basis to lobby the Government of Alberta to make necessary legislative amendments to re-assert the secured status of taxes owed to the municipality;

Operative Clause:

THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta partner with Alberta Urban Municipalities Association to advocate to the Government of Alberta to amend section 348 and other relevant sections of the Municipal Government Act to ensure that municipal property taxes are legally assured a status as a secured claim in the event that the property owner enters bankruptcy or receivership.

Member Background:

Over the years, the MD of Opportunity has experienced that a number of commercial and industrial taxpayers have become insolvent and the MD has been unable to recover the significant amount of taxes and other levies from them. As a result, the MD suffered financial losses. The municipality made mandatory remittances of various levies such as school and seniors’ housing levies out of the MD’s operating budgets, even though the MD was unable to collect all such taxes from a number of delinquent taxpayers. This has caused a financial shortfall and challenge to meet the local community service expectations. The exposure for the MD stood in millions of dollars in recent years.

In case of bankruptcy, courts have considered the municipality as an unsecured creditor in determining how the court-appointed receiver should distribute the proceeds from the sale of the taxpayer’s assets. As the property taxes do not constitute a secured claim, the courts take the view that the property taxes should therefore be paid out only after all other secured claims (such as banks’) have been paid in their entirety. As the proceeds of the sale are less than the total amount of all the secured claims, it is very unlikely that a municipality like the MD will receive any payment in respect to the outstanding taxes.

The MD of Opportunity is currently involved in an appeal to see whether a court’s earlier decision in this matter is overturned. Even if an appeal is unsuccessful, a negative result might benefit the municipalities in that it would provide a significant basis to lobby the Province to make necessary legislative amendments to reassert the secured status of taxes owed to the municipality.

Section 348 of the Municipal Government Act (MGA) stipulates that property taxes, local improvement taxes, business taxes or community revitalization levies take priority over the claims of every person except the Crown. However, the courts have not upheld this section as intended in the MGA.

Other municipalities, including Lamont County, Vulcan County and Northern Sunrise County together with the MD of Opportunity are challenging the earlier court decision in Calgary Court of Appeal to reverse the lower court decision.

RMA Background:

4-17S: Collection of Outstanding Taxes for Education Requisitions from the Province of Alberta

THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties request that the Government of Alberta develop new tools or utilize existing mechanisms to ensure that municipalities that are unable to collect education property taxes through the tax recovery process be exempted from forwarding those uncollectible tax amounts to Alberta Education, or have the uncollectible amount refunded.

DEVELOPMENT: In fall 2017, the Government of Alberta announced the Provincial Education Requisition Credit (PERC) program, under which municipalities who have no choice but to remit requisitions to the Government of Alberta for unpaid education property taxes on linear oil and gas properties may apply to receive a credit equivalent to the amount of the requisition. PERC is funded through the Alberta School Foundation Fund’s net asset fund.

At this point, PERC extends to the 2019 tax year, and is capped at $10 million per year. As of March 2018, 37 applications had been processed and approximately $3 million of credits had been issued.

This resolution is assigned a status of Accepted, and the RMA will continue to work with the Government of Alberta to support the long-term viability of the PERC program and develop other mechanisms to address unpaid linear property taxes.

3-16S: Recovery of Linear Property, Commercial Property, and Education Requisition Tax Arrears

THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties (AAMDC) request the Government of Alberta to amend the Municipal Government Act (MGA), and other provincial legislation to broaden the tax recovery power of municipalities to collect linear property taxes by granting a lien in favour of the municipality as follows:

A lien equivalent to that granted to the Alberta Energy Regulator (AER) by s. 103 of the Oil and Gas Conservation Act (OGCA) that being: “on the debtor’s interest in any well, facilities, and pipelines, land or interests in land, including mines and minerals, equipment and petroleum substances” and the power to garnish funds owed to the debtor;

A lien which ranks in priority (or equivalent) to the lien granted in favour of the AER by s. 103(2) of the OGCA;

FURTHER BE IT RESOLVED that the AAMDC requests the Government of Canada to amend the federal Bankruptcy and Insolvency Act to recognize municipal linear property taxes and other municipal non-property taxes as a secured interest in priority to other unsecured interests;

FURTHER BE IT RESOLVED that the AAMDC request the Government of Alberta to provide a credit reimbursement to compensate for the education property taxes that become uncollectable due to linear and commercial property bankruptcy.

DEVELOPMENT: In 2016, Alberta Municipal Affairs had convened an inter-ministry working group consisting of representatives from Municipal Affairs, Energy, Treasury Board and Finance, Education, and the AER. The purpose of this working group was to address the concerns identified in resolution 3-16S and resolution 5-15F. More specifically, the working group explored how the suite of tools available to municipalities to recover unpaid linear property taxes could be expanded, as well as possible legislative or regulatory solutions to relieve or exempt municipalities from paying provincial education property tax requisitions on linear properties in which the municipality has not been able to gather tax revenues from the property owner.

Early in 2017, the working group completed their research and Government of Alberta staff internally developed options for the Minister of Municipal Affairs based on the working group’s findings. In fall 2017, the Government of Alberta announced the Provincial Education Requisition Credit (PERC) program, under which municipalities who have no choice but to remit requisitions to the Government of Alberta for unpaid education property taxes on linear oil and gas properties, may apply to receive a credit equivalent to the amount of the requisition. PERC is funded through the Alberta School Foundation Fund’s net asset fund.

At this point, PERC extends to the 2019 tax year, and is capped at $10 million per year. As of March 2018, 37 applications had been processed and approximately $3 million of credits had been issued. The creation of PERC meets the request in the third operative clause of this resolution.

5-15F: Recovery of Linear Property Tax Arrears

THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties (AAMDC) requests the Government of Alberta to amend the Municipal Government Act (MGA), and other provincial legislation to broaden the tax recovery power of municipalities to collect linear property taxes by granting a lien in favour of the municipality as follows:

  1. A lien equivalent to that granted to the Alberta Energy Regulator (AER) by s. 103 of the Oil and Gas Conservation Act (OGCA) that being: “on the debtor’s interest in any well, facilities, and pipelines, land or interests in land, including mines and minerals, equipment and petroleum substances” and the power to garnish funds owed to the debtor;
  2. A lien which ranks in priority (or equivalent) to the lien granted in favour of the AER by s. 103(2) of the OGCA; and

FURTHER BE IT RESOLVED that the AAMDC requests the Federation of Canadian Municipalities to request the Government of Canada to amend the federal Bankruptcy and Insolvency Act to recognize municipal linear property taxes and other municipal non-property taxes as a secured interest in priority to other unsecured interests;

FURTHER BE IT RESOLVED that the AAMDC request the Province of Alberta to provide a credit reimbursement to compensate for the Education Property Taxes that becomes uncollectable due to linear property bankruptcy.

DEVELOPMENT: In 2016, Alberta Municipal Affairs had convened an inter-ministry working group consisting of representatives from Municipal Affairs, Energy, Treasury Board and Finance, Education, and the AER. The purpose of this working group was to address the concerns identified in resolution 3-16S and resolution 5-15F. More specifically, the working group explored how the suite of tools available to municipalities to recover unpaid linear property taxes could be expanded, as well as possible legislative or regulatory solutions to relieve or exempt municipalities from paying provincial education property tax requisitions on linear properties in which the municipality has not been able to gather tax revenues from the property owner.

Early in 2017, the working group completed their research and Government of Alberta staff internally developed options for the Minister of Municipal Affairs based on the working group’s findings. In fall 2017, the Government of Alberta announced the Provincial Education Requisition Credit (PERC) program, under which municipalities who have no choice but to remit requisitions to the Government of Alberta for unpaid education property taxes on linear oil and gas properties, may apply to receive a credit equivalent to the amount of the requisition. PERC is funded through the Alberta School Foundation Fund’s net asset fund.

At this point, PERC extends to the 2019 tax year, and is capped at $10 million per year. As of March 2018, 37 applications had been processed and approximately $3 million of credits had been issued. The creation of PERC meets the request in the third operative clause of this resolution.

The Government of Alberta has not amended the Municipal Government Act (MGA) to broaden the tax recovery powers of municipalities, and municipal powers to seize assets to account for unpaid linear property taxes continues to rank lower in priority than that of the AER and other organizations.

Similarly, RMA has received no indication from the Government of Canada of a willingness to amend the federal Bankruptcy and Insolvency Act to place municipal interests above other non-secured interests.

RMA assigns this resolution a status of Accepted in Part and will continue to advocate on all aspects of this resolution.

Provincial Ministries:
Energy,
Municipal Affairs
Provincial Boards and Organizations:
AER
Back to Resolutions Database