A survey has found that more than $81 million in property taxes from oil and gas companies have gone unpaid to rural municipalities, putting communities in a bind to fund critical services.
The recent Rural Municipalities of Alberta (RMA) survey determined the high figure after 54 of the organization’s 64 member municipalities participated.
“When they choose not to pay, it puts pressure on municipalities because more of their tax base gets eroded,” said Al Kemmere, president of RMA, noting many of these companies are still operating.
“It causes municipalities to make tough decisions.”
The survey was conducted in January and February 2019.
Kemmere said the RMA wanted to look into the issue of unpaid taxes because communities had been experiencing problems.
He said municipalities support the oil and gas industry, but they often have little recourse to recover unpaid taxes because many of these companies have declared bankruptcy.
Municipalities are low on the list of beneficiaries from bankrupt companies selling their assets, he added, noting the Alberta Energy Regulator and banks are given higher priority.
The Canadian Association of Petroleum Producers (CAPP) said in a statement that municipal taxes are the second highest cost to oil and gas companies after provincial royalties, adding it’s important industry work with municipalities to establish tax rates that are equitable and competitive.
“The oil and natural gas industry across Canada is facing numerous competitiveness challenges including constraints on market access and the resulting negative impact on prices,” Ben Brunnen, vice-president of oilsands, fiscal and economic policy with CAPP, said in the statement.
He said small- to medium-sized oil producers are vital to the province’s natural gas sector and face the same challenges as large producers but have limited ability to mitigate problems.
But Ron Govenlock, mayor of Woodlands County, said he believes tax rates are fair.
“We understand the returns on investment are not what they once were and it’s a hardship, but companies rely on our infrastructure to operate. That doesn’t come cheap,” he said.
Govenlock said the municipality is already facing a $4.3 million shortfall in unpaid taxes from oil operators, making up about 22.5 percent of its tax revenue.
Unpaid taxes from companies could grow to $8.6 million, he added, if operators don’t pay by July.
“They’re using us as a bank to continue to keep their own operations going,” he said. “We respect we need industry to provide the jobs and tax revenue to make municipalities healthy and vibrant, but we can’t continue down this path.”
Kemmere noted the province has introduced the Provincial Education Requisition Credit (PERC) program to help offset education property taxes from the portion of these unpaid tax bills, but municipalities have to write off the unpaid bills in order to qualify, which he said can be discouraging.
“It’s discouraging because it means you won’t have a chance to collect those unpaid taxes in the future,” he said.
“When the unpaid tax figures are still in your books, there is a glimmer of hope you might one day get them.”
Govenlock added municipalities can’t use the PERC program for unpaid taxes from companies that are operating; only insolvent ones, which adds another layer of challenges.
Of the communities that responded to the survey, 24 indicated they have or would use the program to offset some of the unpaid taxes.
According to the survey, municipalities have applied for about $3.2 million under the program since it was introduced.
Kemmere said while the program is helpful, it doesn’t address the large issue of tax recovery.
RMA members are pushing the province to put greater accountability on the oil and gas industry, asking for more oversight from the Alberta Energy Regulator regarding unpaid municipal property taxes.
Members want the regulator to ensure there are no outstanding municipal property taxes before licences are transferred, including orphan sites, which are abandoned and don’t have a company legally responsible for clean up.
The organization is also urging for broadened tax recovery powers, Kemmere added.
“We need to work through with the province to obligate those who owe the municipality money to step up and pay if they keep operating,” Kemmere said.
The Alberta Ministry of Energy said in an emailed statement that it’s taking the issue seriously and working to fix it, adding the former Progressive Conservative government failed to address problems when oil and gas prices were high.
Energy spokesperson Mike McKinnon said in the statement the government is putting in a mechanism to flag bad operators and measure a company’s ability to take care of wells, noting most oil producers play by the rules.
He said municipal taxes and compensation payments will be part of that framework, and will soon share more details.
“We recognize the (PERC) program doesn’t solve all the challenges that municipalities deal with when it comes to unpaid taxes, but where it’s within the provincial government’s power to help, we have taken action to help and will continue fighting for communities and landowners across the province,” he said.