WHEREAS municipalities rely on property tax revenue to provide essential services and core infrastructure to support economic development, including that of the energy industry; and
WHEREAS some solvent energy companies refuse to pay municipal taxes or have threatened to do so in order to extract concessions from municipalities; and
WHEREAS municipalities lack effective and pro-active tools needed to recover unpaid property taxes from oil and gas companies; and
WHEREAS the Alberta Energy Regulator (AER) is responsible for ensuring that energy companies operate in a responsible manner with regards to their environmental, legal and financial responsibilities; and
WHEREAS the refusal of an energy company to pay its municipal taxes is not currently grounds for the AER to suspend or revoke an energy company’s eligibility to hold well and pipeline licences;
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta advocate that the Government of Alberta direct the Alberta Energy Regulator to add unpaid municipal taxes to the grounds for which a company may be denied a licence to operate in Alberta.
Following the downturn in the energy industry in 2014 expenses have consistently come under pressure in the energy industry. Beginning with layoffs and contract negotiations in 2015 and 2016, the industry has aggressively cut costs. As a result, new projects have nearly ground to a halt in many areas of the province. Due to this, the assessment base of many municipalities has also been on a steady decline, often leading to increased taxes on the remaining ratepayers and reduced municipal expenditures on infrastructure and service delivery.
Reductions in assessment, while not desirable, are a normal part of running a municipality and the extent to which taxes will be raised or expenditures cut is the purview of council. Addressing the effects of these changes, be they good or bad, are also the responsibility of council. This is the law as it is written in the Municipal Government Act (MGA) and whether a ratepayer agrees with the decision or not, they must abide by it. For example, if a farmer disagrees and refuses to pay their property taxes the MGA has several prescriptions for recovering the lost revenue, including the seizure and sale of property.
The MGA provides for no such prescription when dealing with the energy industry. The Government of Alberta, through the Alberta Energy Regulator, has the ability to licence energy companies to operate. AER Directive 067 states the following:
Acquiring and holding a licence or approval for energy development in Alberta is a privilege, not a right. This directive ensures that this privilege is only granted to responsible parties. It sets out requirements for applying for, maintaining, and amending licence eligibility. It also identifies the circumstances in which the AER may revoke or restrict licence eligibility.
With regards to the circumstances for which the AER would revoke a licence, Section 9 states:
1) failure to provide complete and accurate information and ensure that information remains complete and accurate by advising the AER of material changes within 30 days;
2) after consideration of the factors in section 4, a finding by the AER that, as a result of a material change or compliance history, the licensee poses an unreasonable risk; or
3) the licensee fails to acquire or hold licences or approvals within one year following granting of licence eligibility.
Section 4 lists a number of factors which, taken together, are meant to give a picture of the company as a responsible operator that is able to meet its environmental, financial and legal obligations:
In assessing whether the applicant poses an unreasonable risk, the AER may consider any of the following factors:
While this section almost certainly implies that not paying debts, such as property taxes, are grounds for the termination of licenses, it does not say so explicitly. Rural municipalities now face a situation in which companies are using the lack of a specific threat to either seize their property or shut them down to extort municipalities into favourable tax treatment over their fellow businesses operating in the community. It is important to remember that this resolution is referring to solvent companies. It would be difficult to imagine this situation if the threat were directed at federal and provincial business taxes or royalties.
5-18F: Alberta Energy Regulator Requirements for Acquiring and Holding Energy Licences and Approval
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta advocate that the Alberta Energy Regulator (AER) be required to ensure that there are no outstanding municipal property taxes before licenses are transferred, including licensed properties declared as “Orphan Sites”; and
FURTHER BE IT RESOLVED that outstanding property taxes form part of the liability rating for oil and gas companies; and
FURTHER BE IT RESOLVED that oil and gas companies be required to post deposits in the amount of all outstanding municipal property taxes before they can apply for a license or transfer, and that these deposits are forwarded to the municipality from the AER upon the approval of the license or transfer.
DEVELOPMENTS: The Government of Alberta response indicates that although many factors are considered during the process of reviewing and approving a license transfer and within the AER’s liability management rating (LMR), payment of municipal property taxes is not among them. RMA appreciates that Alberta Energy is working to improve the LMR and overall liability management system and is considering input from RMA and Alberta Municipal Affairs related to the extent to which outstanding municipal taxes should be considered part of a company’s LMR. However, as rural municipalities are faced with mounting unpaid taxes related to oil and gas infrastructure, this issue must be addressed urgently.
RMA is also concerned with AER’s comments that imposing conditions on license transfers due to unpaid municipal taxes is beyond their jurisdiction, while also encouraging municipalities to intervene in the transfer approval process due to unpaid taxes. Based on the response, it is unclear what purpose this would serve, as it appears that AER could not alter the transfer approval process due to unpaid municipal taxes.
According to a 2019 RMA survey, rural municipalities are currently facing a deficit of between $81 million and $96 million in unpaid property taxes from the oil and gas industry. Based on the Government of Alberta response, there are no current provisions available in the transfer approval and liability management systems to address unpaid municipal taxes, and limited interest in expanding either process to do so. Given that lack of payment of municipal taxes is often a sign of financial distress for companies, and may lead to further abandonment of other commitments, RMA urges the Government of Alberta to include this within the scope of the AER (as they are the primary oversight body for oil and gas operations in the province).
This resolution is assigned a status of Intent Not Met, and RMA will continue to advocate on this issue.
5-17F: Alberta Energy Regulator – Amendment to Transfer Approval Process
THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties (AAMDC) requests the Government of Alberta amend the Municipal Government Act (MGA), and other provincial legislation, regulations and policies, including AER Directive 006: Licensee Liability Rating (LLR) Program and Licence Transfer Process to:
FURTHER BE IT RESOLVED that the AAMDC request that Alberta Energy direct the AER that prior to refunding any security deposits, check with all municipalities in which the company requesting the refund had leases in, to ensure property taxes are current.
DEVELOPMENT: RMA appreciates the recognition and the multiple steps being taken by the Government of Alberta to address the challenges faced by municipalities as a result of oil and gas operators who are have not payed property taxes. At this moment, however, there has been only limited improvements for municipalities through the Provincial Education Requisition Credit (PERC) program which only applies to the education property tax portion of the unpaid linear oil and gas property taxes. Until the amendments listed in the resolution are made, or more substantial improvements to the overall liability management system are provided, this resolution is assigned a status of Intent Not Met.
Alberta Municipal Affairs
The Government of Alberta recognizes the ongoing concern from municipalities regarding unpaid property taxes on oil and gas properties. With the downturn in the energy industry in recent years, municipalities are finding it increasingly difficult to collect municipal and education property taxes, often due to insolvency or receivership of oil and gas properties.
The provincial government has taken measures to help alleviate the financial burden on predominantly rural municipalities, including establishing the Provincial Education Requisition Credit program for uncollectable taxes on oil and gas properties. The Provincial Education Requisition Credit has now been extended until the end of the 2021 taxation year.
Alberta Municipal Affairs is working with Alberta Energy, the Rural Municipalities of Alberta, and other partners to review legislative options relating to special liens, as well as other potential options.
Recommendations are expected to be brought forward for consideration for potential spring 2020 amendments.
Alberta Energy Regulator
In April 2021, the Alberta Energy Regulator (AER) released a new edition of Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals. The revised version of Directive 067 added outstanding debts owed for municipal taxes as a factor used by the AER to determine “unreasonable risk” for an energy licence applicant. Under Directive 067, the AER could deny a company’s application to be eligible to hold energy licences due to unpaid taxes, which was not previously the case.
While the changes to Directive 067 represent a crucial step forward in how oil and gas companies may be held accountable for non-payment of property taxes, RMA continues to work with AER to understand how the addition to Directive 067 will be implemented. Outstanding questions include how unpaid tax information will be gathered and updated and the extent to which unpaid taxes will be weighed in relation to other risk factors when assessing a company.
Following RMA’s 2022 member survey indicating that the total amount of unpaid oil and gas property taxes facing municipalities has increased to $253 million, RMA has continued to push the Government of Alberta and the AER to act on this issue and to ensure the industry is properly regulated to meet its environmental, social and governance commitments and that companies are compelled to act as responsible corporate citizens.
Despite these outstanding questions and the lack of impact of Directive 067 to this point, the changes to Directive 067 meet the intent of the resolution. The resolution is assigned a status of Accepted.