+ RMA Rural Municipalities
of Alberta

Resolution ER1-22S

Alberta Energy Regulator Action to Require Oil and Gas Companies to Pay Municipal Property Taxes

Date:
March 15, 2022
Expiry Date:
April 1, 2025
Active Status:
Active
Sponsors:
RMA
Year:
2022
Convention:
Spring
Category:
Municipal Governance and Finances
Status:
Sent to Government
Vote Results:
Carried
Preamble:

WHEREAS Alberta’s rural municipalities rely on property tax revenue to support the construction and maintenance of infrastructure and provision of municipal services; and

WHEREAS Alberta’s rural municipalities host most of the province’s oil and gas exploration activity; and

WHEREAS oil and gas companies utilize rural municipal infrastructure (particularly roads and bridges) to access well sites, pipelines, and other privately owned infrastructure; and

WHEREAS the Municipal Government Act empowers municipalities to apply property taxes to oil and gas assets located within their municipal boundaries; and

WHEREAS the Municipal Government Act provides municipalities with tools and powers to recover lost revenue from non-payment of property taxes, including the seizure and sale of property; and

WHEREAS due to gaps in provincial legislation and regulations, municipalities have been unable to apply many of these powers to recover unpaid taxes on oil and gas properties in recent years; and

WHEREAS this lack of enforcement mechanisms has resulted in some oil and gas companies ignoring their legal obligations to pay property taxes; and

WHEREAS unpaid property taxes have serious impacts in rural municipalities, including reduced service levels, increased tax rates on other property types, and reductions in regional collaboration; and

WHEREAS the total amount of unpaid taxes owed to rural municipalities has increased by 213% from the 2018 tax year ($81 million) to the 2021 tax year ($253 million); and

WHEREAS in the 2021 tax year, the average rural municipality faced an unpaid tax burden of $3.7 million dollars from oil and gas operations; and

WHEREAS some oil and gas companies are also ignoring their obligations to honour surface rights agreements, resulting in many rural property owners being directly impacted in the form of a lack of compensation to offset the loss of use of a portion of their property; and

WHEREAS in recent years, the oil and gas industry has focused on fulfilling an environmental, social, and governance (ESG) mandate in which companies strive to operate as accountable corporate citizens; and

WHEREAS non-payment of property taxes undermines the “social” pillar of the industry’s ESG focus, harming the industry’s reputation locally, across Alberta, and internationally; and

WHEREAS in 2021, the Government of Alberta amended the Municipal Government Act to clarify the ability of municipalities to apply special liens to oil and gas property to recover unpaid taxes; and

WHEREAS in 2021, the Alberta Energy Regulator (AER) amended Directive 067 to clarify that the AER may consider payment of property taxes when reviewing applications for oil and gas licenses; and

WHEREAS neither change has resulted in a solution to unpaid taxes by the oil and gas industry, as the amount of unpaid taxes continues to grow, despite significant increases in the price of oil and gas and the drilling of new oil and gas wells in 2021 compared to previous years; and

WHEREAS the AER has previously stated that enforcing the oil and gas industry’s payment of municipal property taxes is beyond their scope and mandate; and

WHEREAS the AER’s mandate is, in part, to ensure “the safe, efficient, orderly, and environmentally responsible development of oil, oil sands, natural gas, and coal resources over their entire life cycle…while  providing economic benefits for all Albertans”; and

WHEREAS non-payment of property taxes negatively impacts all other property taxpayers in the form of either increased tax rates or reduced service levels to off-set uncollected property tax revenue; and

WHEREAS non-payment of property taxes is an indication that an oil and gas company may be unable or unwilling to meet other environmental or regulatory responsibilities;

Operative Clause:

THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta (RMA) urge the Government of Alberta to direct the Alberta Energy Regulator (AER) to amend the directives, policies and other processes (including directives 067 and 088) necessary to require any company regulated by the AER to pay all current and historical municipal property taxes in full as a condition of operating in Alberta; and

FURTHER BE IT RESOLVED that the AER replace its current practice of relying on industry self-reporting of property tax payments by collaborating with the RMA and rural municipalities to develop a system by which rural municipalities can easily share unpaid property tax information with the AER. 

Member Background:

Rural municipalities play an important role in supporting Alberta’s oil and gas industry. Rural municipalities cover over 85% of the province’s land mass, and maintain over 70% of roads and 60% of bridges in Alberta, many of which provide the industry with access to resources that are extracted and refined for profit.

Like other property owners, oil and gas companies are responsible for paying municipal property taxes on wells, pipelines, buildings, and other assets. These taxes support municipalities to build and maintain infrastructure and provide services used by the oil and gas industry, as well as other industries and Albertans. Rural municipalities dedicate an unusually high portion of their budgets to building and maintaining transportation assets. In 2018, Alberta’s municipal districts, counties and the Special Areas Board spent an average of just under 50% of their overall expenses on transportation costs. In comparison, all Alberta municipalities spent an average of under 20%, while municipalities in Ontario and British Columbia spent an average of 10%. This disparity speaks to the outsized responsibility that Alberta’s rural municipalities have in providing roads and bridges, many of which exist primarily (or only) for the purpose of providing the oil and gas industry with access to natural resources.

Despite this, rural municipalities across Alberta have struggled to collect property taxes from some oil and gas companies in recent years (see chart below).

The reasons for the lack of payment are straightforward: municipalities lack the tools and powers to enforce payment of taxes, and the Alberta Energy Regulator (AER), despite being responsible for regulating the oil and gas industry to ensure it operates responsibly and in the public interest, has been unwilling to take meaningful action to require oil and gas companies to pay taxes as a condition of operating in the province.

In the past year, the Government of Alberta has done the following in an attempt to address the issue:

  • The Government of Alberta passed Bill 77: Municipal Government (Restoring Tax Accountability) Amendment Act, 2021. Bill 77 clarified the ability of municipalities to use special liens to recover unpaid taxes on oil and gas properties, a power that was not available for several years prior due to the 2019 Northern Sunrise County v Virginia Hills Oil Corp Alberta Court of Appeals decision.
  • The Alberta Energy Regulator (AER) introduced Directive 067: Eligibility Requirements for Acquiring and Holding Energy Licences and Approvals. Directive 067 includes a clause stating that the AER may consider “outstanding debts owed for municipal taxes” as a factor when determining whether an applicant for an energy licence poses an unreasonable risk.

While both changes reflected modest progress towards addressing the issue, each have significant weaknesses and neither has led to progress in reducing the amount of unpaid taxes, as explained below:

  • Municipalities have significant questions related to how to implement the special lien powers introduced through Bill 77, including what risks a municipality may incur by seizing or restricting access to an oil and gas facility, as well as whether the administrative costs and enforcement challenges associated with doing so will outweigh the potential tax recovery benefits.
  • The AER has not shared any details related to how it utilizes the inclusion of municipal taxes as a risk factor in Directive 067, and has not responded to RMA inquiries as to if, how and to what extent the AER has used unpaid taxes to inform their risk evaluations since Directive 067 was put in place in April 2021. Additonally, the AER has chosen to rely on industry self-reporting of property tax payment performance and has rejected RMA’s request to collaborate to develop a mechanism for municipalities to report unpaid tax information to the AER.

When RMA raised the issue of unpaid taxes as a concern in previous years, government decision-makers were dismissive of the issue, arguing that due to the previously poor economic conditions being incurred by the oil and gas industry, requiring companies to pay taxes may have economic consequences and lead to lost jobs and lost investment in the province. While this argument was questionable in difficult economic times (homeowners and other business owners are not permitted to unilaterally ignore tax obligations due to their personal financial difficulties), it holds no weight in the current economic climate.

Unpaid taxes owed to RMA members increased by 3.3% between the 2020 and 2021 tax years (from $245 million to $253 million). This is a modest increase compared to previous years. However, when considered in the context of the industry’s overall growth (the drilling of new wells increased by 135% from 2020 to 2021), any increase in unpaid taxes is unaccesptable and proof that non-payment is not an issue of a lack of ability on the part of some oil and gas companies, but rather a lack of interest in meeting their obligations when no meaningful enforcement mechanisms exist.

This continued increase during a “boom” period for industry is also proof that as the regulator of the industry, the AER needs to fulfill their mandate to ensure the orderly and responsible development of oil and gas and provide economic benefits to Albertans by requiring oil and gas companies meet their legal obligations to pay property taxes. Not only does non-payment of property taxes undermine the economic, social and governance (ESG) focus of the industry and harm the industry’s reputation both within Alberta and beyond, but it is also an indicator of risk that a company may be unable or unwilling to meet other environmental or regulatory obligations. If a company ignores property tax obligations, what obligations will they ignore next? If the AER actually views themselves as the regulator of industry, rather than the protector of industry, they must step up and take enforcement action on the small minority of companies that are taking advantage of rural municipalities and rural residents, rather than continue to enable them. Action on this issue will have a positive outcome for rural municipalities, rural residents, other rural businesses and industries, responsible and accountable oil and gas companies, and the overall reputation of the province’s oil and gas industry both within Alberta and across the world.

RMA Background:

1-21S: Alberta Energy Regulator Directive 006 – Licensee Liability Rating (LLR) Program and License Transfer Process

THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta advocate to the Alberta Energy Regulator to amend Directive 006 to include as a condition of transfer of all oil, oil sands, natural gas, and coal resource assets from one company to another that municipal property tax arrears be paid in full.

Click here to view the full resolution.

2-20F: Blue-Ribbon Panel to Review Unpaid Taxes Owed by Oil and Gas Companies

THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta urge the Government of Alberta to appoint an independent panel of experts to review unpaid property taxes owed by oil and gas companies and its impact on rural municipalities; and

FURTHER BE IT RESOLVED that the panel provide the Government of Alberta and rural municipalities with implementable recommendations related to the recovery of property taxes owed by oil and gas companies.

Click here to view the full resolution.

1-19F: Priority of Unpaid Property Taxes on Linear Property

THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta (RMA) advocate for the Government of Alberta to take steps to ensure that municipalities are able to effectively recover all property taxes, including property taxes on linear property; and

FURTHER BE IT RESOLVED that RMA advocate for the Government of Alberta to address the growing concern regarding unfunded abandonment and reclamation costs for oil and gas properties and the affect that those costs have on the ability of municipalities to recover unpaid property taxes; and

FURTHER BE IT RESOLVED that RMA advocate for the Government of Alberta to make immediate amendments to the Municipal Government Act (MGA) to

  1. Clarify that the reference to “property tax” in section 348 includes all property taxes, including property taxes on linear property;
  2. Clarify the meaning of the phrase “…land and any improvements to the land…” in section 348 to specify that all of the property that is subject to assessment pursuant to Part 9 of the MGA within that municipality is subject to the special lien established in that section;
  3. Provide municipalities with improved enforcement powers, such as the specific power to apply to the courts for the appointment of a receiver to enforce a claim for unpaid linear property taxes against the assets that are subject to a special lien established by section 348;
  4. Apply the above amendments retroactively to ensure that existing linear property tax arrears constitute a secured claim.

Click here to view the full resolution.

6-19F: Municipal Recourse for Solvent Companies Choosing Not to Pay Taxes

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.

Click here to view the full resolution.

Provincial Ministries:
Energy
Provincial Boards and Organizations:
AER
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