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;
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.
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:
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:
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.
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.
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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.
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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
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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.
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March 16, 2023, a ministerial order (043/2023) was issued which directs the AER to require oil and gas companies to provide proof of full payment of municipal property taxes prior to issuing a new license to a company or allowing a company to sell or purchase and existing licenses. While the ministerial order should have an impact in reducing the amount of unpaid property taxes, it does not meet the intent of the first operative clause in the resolution, which calls for payment of taxes to be “a condition of operating in Alberta.” Under the new requirements, companies are still permitted to operate regardless of their property tax payment status using their existing assets.
In actioning the ministerial order, Alberta Municipal Affairs is working with rural municipalities to gather tax payment data on specific companies, which will then be shared with the AER. Municipal Affairs has developed a formal process in which municipalities can provide updated information quarterly to ensure the AER actions the ministerial order requirements using the most current data. This information-sharing process fulfills the intent of the second operative clause.
This resolution is assigned a status of Accepted in Part. RMA will continue to advocate for payment of taxes to be a condition of operating in Alberta for oil and gas companies.