Red Deer County recently had to write off $1.8 million in taxes owed by oil and gas energy companies.
That came on top of $4.8 million already written off as noncollectable since 2016 in the early years of an energy industry downturn that has stubbornly lingered. Some of the $1.8 million written off was from previous years and is clearly not coming.
County of Stettler got off easy this year, only writing off about $58,000 in taxes owed by oil and gas players. However, since the tax revenue shortfall that has to be absorbed into the budget has topped $1.8 million.
Lacombe County found itself in a similar position this month, writing off just under $90,000. Another $1.4 million remains owing.
A year ago, Lacombe County had to write off $600,000 in unpaid tax bills. In 2018, $374,000 of unpaid taxes dating back to 2016 had to be written off.
Rural Municipalities of Alberta president Paul McLauchlin said unpaid energy industry taxes are one of the top-five issues facing the organization, which represents 69 counties and municipal districts.
Ponoka County, where McLauchlin is reeve, has written off $4 million since 2017, including $1.5 million in 2019.
The issue is so prevalent that the county’s auditors recommended putting money aside in its budget to cover tax shortfalls.
“We’ve actually created a special account specifically designed to help buffer us from some of those write-downs,” he said. “That reserve we’ve actually bumped up to half a million dollars.”
In Ponoka County, the assets of some of the tax lagards have been bought up by other energy companies. So, hope remains that the new owners may square their tax accounts with the county.
Earlier this year, the association released the results of a survey of its members that showed they were owed $173 million in back taxes, up from $81 million in 2018.
McLauchlin said they are about to survey municipalities again.
“We want to have a real data-driven understanding of what the situation is now. Our every expectation is that ($173 million) number has grown.”
Mindful of the precarious financial position many oil and gas companies are in, the province has introduced changes to reduce firms’ tax burdens. A shallow gas well incentive program reduced their assessments by 35 per cent, an initiative that will be continued at least through 2023.
The province is also eliminating its tax on well drilling equipment and lowering the tax assessments for less productive oil and gas wells.
More sweeping changes were proposed earlier this year that alarmed many rural municipalities, some of which calculated they would lose so much tax revenue they would be unsustainable.
The negative reaction prompted the provincial government to take a step back and said it would continue consulting with municipalities.
Last month, the Rural Municipalities of Alberta passed a resolution urging the creation of an independent panel of experts to review unpaid energy taxes and their impact on municipalities and that the panel provide recommendations on what to do about it.
McLauchlin said the goal early next year is to sit down with the government and figure out a way going forward that works for everyone.
“It’s not only dealing with the past, it’s looking ahead to the future.”
Rural municipalities’ power to force energy industry companies to pay up is limited. Recent court cases have determined that when oil companies go bankrupt municipalities are considering unsecured creditors, putting them at the back of the line for recouping debts owed.
There has also been some frustration among municipalities that the government has not made tax breaks for energy industry companies conditional on them having squared any outstanding tax bills with municipalities.
Red Deer County Mayor Jim Wood said in other provinces municipalities have more power to ensure their taxes are paid. One method has been to deny any new drilling permits to oil and gas companies until their municipal taxes are paid off.
Wood said most energy companies do the right thing.
“It only takes one or two to make the whole industry look like a bad bunch,” he said.
Particularly galling for municipalities is that some companies are not paying their taxes simply because they know municipalities can’t do anything about it.
“They are not necessarily all companies going broke.”
Wood said Red Deer County supports the oil and gas industry and is happy to work with companies to help them succeed.
But the unpaid tax issue has become a big problem and he welcomes an independent review.
Not paying is not just taking advantage of municipalities, it is taking advantage of all of the residents, taxpayers and business owners in the county who have to cover shortfalls through their own taxes, he said.