Municipalities that have relied on tax revenue from the energy sector come to grips with the province’s grim new reality
Alberta’s rural municipalities are contemplating a future where it could become more difficult to find money for services such as roads.
“Will things be the same as they were in the past?” said Al Kemmere, president of the Rural Municipalities of Alberta (RMA), as he pondered a major source of his members’ tax revenue.
“No, I think we’ve seen the heyday, so to speak, of oil and gas. But will things be better than they are right now? I’m hoping so.”
Although each rural municipality is unique, as much as 40 to 80 percent of their revenue can come from oil and gas companies, he said. The largest part of their responsibilities typically involves maintaining and improving rural roads and bridges used by farmers, said Kemmere.
But the energy industry has been battered by COVID-19, plummeting oil prices and a growing global movement to limit climate change.
As a result, the provincial government announced an exemption Oct. 19 on municipal property taxes for three years for companies that build new pipelines or drill new wells. The exemption will be reflected in the 2021 assessed values and applied from 2022 to 2024.
Other cuts include reducing tax assessments for less productive wells, eliminating a tax on well-drilling equipment, and extending a 35-percent cut in tax assessment on shallow gas wells for three years.
During the annual general meeting Oct. 24 of the governing United Conservative Party (UCP), Municipal Affairs Minister Tracy Allard described the tax cuts as “some minor surgical changes … this isn’t the time for us to be making sweeping changes, although those may come in the future.”
Kemmere said Allard has “assured us that conversations will start in the new year, and those conversations are going to be a lot about municipalities and the oil and gas industry in the future.”
Potential solutions could involve getting help with infrastructure for some municipalities from the provincial Municipal Sustainability Initiative, he said, adding his comments don’t constitute a commitment by either Allard or the RMA.
The provincial government contemplated deeper tax cuts in July, but after months of consultation, the cuts were softened to something less detrimental, he said. However, the elimination of taxes for well-drilling equipment was only revealed to the RMA on the Friday afternoon before the announcement the following Monday, Oct. 19, taking rural leaders by surprise, said Kemmere.
Rural municipalities look after about 85 percent of the roads in Alberta, or 174,000 kilometres, and about 60 percent of the bridges, or about 8,800, he said. If drilling takes place, such roads will take a “tremendous beating, and they’re not going to have the revenues to either repair them initially, or moving forward, keep those roads in a healthy condition,” he said.
Road maintenance is essential at a time when agricultural equipment is getting bigger and farmers must travel longer distances due to things such as the closure of railway branch lines, he said.
But efforts by rural leaders to minimize the tax cut fallout will be for nothing if unpaid taxes by oil and gas companies are allowed to keep growing, said Kemmere. Such taxes totalled $173 million last year, up from $81 million two years ago, he said.
It’s a bigger problem than some companies defaulting because they’ve gone bankrupt, he said. Some of them are “still operating, and they’re choosing not to pay their taxes, and that’s not acceptable,” he said.
The current system allows companies “to not pay their taxes year on year on year, and then go broke anyway, so if you fix the legislation, at least they will be current on their taxes and the municipality will only be out on that last year of taxation if they go broke,” he said.
Some hard decisions may lie ahead for a province that has taken for granted decades of prosperity fueled by oil and gas.
“I think the harsh reality is if the roads and bridges are not going to be adequate, it’s going to affect the ability of farmers to get their product to market, or to get their seed in, or move their cattle around,” said Kemmere.
Rural municipalities can do things such as dip into their reserves, but if the oil and gas industry can’t pay its tax bills as it once did, it will eventually fall into the lap of rural landowners and agricultural producers in the form of tax hikes or cuts to services ranging from land-use planning and roads to social services, he said.
“I’m not convinced the oil and gas industry is ever going to be what it was, and so that means we’re all going to have to learn to manage our expectations within that,” said Kemmere.