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Preamble:
WHEREAS the Government of Alberta initiated a three-year property tax holiday on new wells and pipelines, eliminated the Well Drilling Equipment Tax (WDET) and implemented a 35% assessment reduction for shallow gas wells and pipelines and additional depreciation adjustments for lower-producing wells; and
WHEREAS these incentives were introduced as temporary measures to support oil and gas industry needs, boost the industry’s competitiveness, and incentivize investment; and
WHEREAS municipalities experienced three years of reduced revenue because of these temporary measures resulting in decreased service levels, increased tax rates for residential, non-residential, and agricultural properties and increased risks to sustainable revenue-sharing agreements between rural and urban municipalities; and
WHEREAS municipalities have absorbed provincial downloads associated with policing, affordable housing, and other provincial services, in addition to losses in oil and gas revenue, based on the need to help the oil and gas industry and the province address fiscal challenges; and
WHEREAS the Municipal Government Act allows for municipal councils to pass a bylaw imposing a WDET to be assessed on the equipment used to drill a well for which a license is required under the Oil and Gas Conservation Act; and
WHEREAS the Government of Alberta has communicated there are no plans to reinstate the WDET and that the assessment reduction and additional depreciation adjustments are to continue until regulated assessment models for wells are updated; and
WHEREAS the Government of Alberta requires municipalities to budget up to five years in advance; and
WHEREAS unpredictable industry property tax incentives make long-term municipal budgeting extremely difficult;
Operative Clause:
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta advocate for the Government of Alberta to reinstate the Well Drilling Equipment Tax and eliminate the thirty-five percent (35%) assessment reduction and additional depreciation adjustments for lower-producing wells.
Member Background:
In 2020, the Government of Alberta implemented property tax incentives for the oil and gas industry to promote investment and economic activity in the energy sector. As a result of these incentives, municipalities have faced significant financial shortfalls due to reduced oil and gas tax revenues. This has caused concern about their continued financial viability and service level sustainability.
Municipalities understood that these incentives were temporary measures until the Assessment Model Review was completed and new assessment models for regulated property were developed.
While it is appreciated that the property tax holiday on new wells and pipelines is over, the loss of revenue from the continued elimination of the WDET and, the continuation of the assessment reduction and additional depreciation adjustments for mature oil and gas assets for an indefinite period will cause further assessment base loss resulting in continued reduction of oil and gas revenues.
Municipalities rely on oil and gas property tax revenues to fund infrastructure that the oil and gas industry utilizes daily. To offset this revenue loss, municipalities may have no choice but to increase tax rates, reduce service levels and incur debt, which shifts the tax burden from the oil and gas industry on to all other businesses and residents who are already facing an affordability crisis.
The Government of Alberta recently announced re-initiation of an assessment model review which is currently at phase one (proposed engagement plan) with no timeline in place for completion. While the review is underway, municipalities are still at risk of further revenue loss with the temporary measures in place. Meanwhile, according to the Alberta Energy Regulator, oil production and new wells placed on production has been steadily increasing since 2021 (https://www.aer.ca/providing-information/data-and-reports/statistical-reports/st98/crude-oil/production). There is also a significant increase in natural gas production and new wells placed on production since 2021 (https://www.aer.ca/providing-information/data-and-reports/statistical-reports/st98/natural-gas/production).
Municipalities recognize the oil and gas industry is critical to Alberta as they are a valuable member of the community and a major source of economic activity, jobs, and tax revenue. Municipalities also recognize they have supported the industry and the province in addressing their fiscal challenges over the last three years by absorbing the impact of reduced assessment values and the elimination of the WDET. Now that the Assessment Model Review has been restarted with engagement scheduled for early 2024, and that oil and gas production is increasing, it would be beneficial to municipalities to have opportunity, at least until the review is completed and assessment models are updated, to raise revenue to offset new costs associated with oil and gas industry growth.
RMA Background:
4-22: Well Drilling Equipment Tax Regulation
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta request the Government of Alberta reintroduce a Well Drilling Equipment Tax Regulation or otherwise provide funding to restore municipal revenue streams that assist with recovering costs for maintenance of public infrastructure from active industry participants.
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Municipal Affairs
Government has no plans to reinstate the Well Drilling Equipment Tax (WDET). The 35 per cent assessment reduction for shallow gas wells and pipelines, and additional depreciation for lower-producing wells, will remain in place until updated assessment models for regulated industrial property can be implemented in the next few years.
While government appreciates concerns about the reduced ability of municipalities to generate revenue because of the elimination of the WDET, it also recognizes that a careful balance is required to create favourable conditions for ensuring municipalities are appropriately funded to deliver services, while fostering conditions to support industry viability and employment. Any increase in drilling activity encouraged by the permanent removal of the WDET will provide additional economic benefits to Alberta communities. Municipalities will benefit from the future taxable assessment of new wells and any other related assessable infrastructure put in place at the well site. Additionally, municipalities may have other options, such as entering into road-use agreements, to address direct costs associated with the use of municipal services and deterioration of roads resulting from drilling projects. Maintaining a stable and strong oil and gas industry continues to benefit communities across Alberta through job creation and economic activity.
The Assessment Model Review process has restarted, with an engagement plan based on input from stakeholders, including representation from the RMA. Rural municipalities have been encouraged to provide their input through Rural Municipalities of Alberta as this process progresses.
In recognition of the many cost pressures facing municipalities, the Alberta government doubled the funding available through the Municipal Sustainability Initiative Operating program from $30 million to $60 million in Budget 2023 and this increased funding level is continued under the Local Government Fiscal Framework Operating program in 2024.
Development:
The Ministry’s decision to eliminate the WDET for the foreseeable future is essentially a download onto municipalities to require the broader municipal property tax base to subsidize the costs of infrastructure strain associated with the drilling of new wells. When considered in the context of a 35% reduction in assessment on shallow gas wells, additional depreciation on low-producing wells, and a continued lack of action to require oil and gas companies to pay property taxes, this downloading of private sector costs onto municipalities is extremely concerning. While eliminating the WDET could be justified during times of low commodity prices, it is an unnecessary handout to industry given current economic conditions and commodity prices. Given that the Government of Alberta has significantly more sources of revenue and the ability to deficit budget, RMA suggests that they consider providing a royalty break or similar provincial benefit to incentivize new drilling rather than continue to provide unneeded industry supports on the backs of local taxpayers.
This resolution is assigned a status of Intent Not Met.
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