Rural municipalities need the regulatory muscle to squeeze oil and gas companies that don’t pay their tax bills, says their association’s president.
Al Kemmere, president of Rural Municipalities of Alberta, said the amount of taxes owed by oilpatch companies ballooned to $173 million last year from $81 million a year earlier, based on a survey of its 69 county and municipal district members.
“We were quite surprised it increased as much as it did,” said Kemmere, who is a councillor in Mountain View County.
Much of the missing cash is because of bankruptcies in an industry pummelled by low oil and gas prices for years.
However, what really irks municipalities are the delinquent taxes owed by companies still operating and able to pay up.
“A majority of this ($173 million) was from those still operating and not paying their taxes,” Kemmere said.
Ponoka County Reeve Paul McLaughlin went as far as to call the reluctance of companies to pay their municipal bills a “tax revolt.”
Kemmere wouldn’t go that far, but said, “we need to fix the legislation that allows oil and gas companies to not pay.”
If homeowners do not pay their property taxes, the municipality can seize their property and auction it off to recoup what is owed. It rarely gets that far, because those owing usually pay up in the end.
“We don’t have that same mechanism if companies continue operating and don’t pay,” said Kemmere. “We can’t force them.”
Premier Jason Kenney has suggested municipalities have the tools for enforcement.
“We don’t believe we do,” said Kemmere, who said the association wants to meet with the municipal affairs minister and the premier to discuss the issue.
“If they say we have the tools (to collect taxes), I want them to show us those tools.”
Exactly what sort of changes are needed to give municipalities the power to force tax payment is unclear. Seizing oil and gas company assets is likely not the answer.
How would one municipality seize part of a pipeline that spans multiple municipalities? Not to mention, the difficulty of sorting out the often opaque and complex ownership agreements around oilpatch assets.
Something the Rural Municipalities of Alberta has been requesting for years are regulations that require companies to fulfill their tax obligations before they sell assets to another company.
A ploy companies have used in the past is to transfer their liabilities — which often include well cleanup costs as well as unpaid taxes — to a smaller company, which then goes bankrupt. Those assets can be sold to cover some liabilities, but municipalities fall sixth or seven on the list of secured creditors.
Mountain View County, which wrote off about $500,000 in oil and gas taxes this past year, is in better shape than many, Kemmere said.
The Municipal District of Smoky River, northeast of Grande Prairie, has an operating budget of $9 million and $3 million in unpaid energy industry taxes.
In Red Deer County, just under $4.1 million in bad debts from oil and gas players are on the books.
Last November, Lacombe County wrote off $600,000 in uncollectable oil and gas company taxes, on top of $374,000 previously written off.
The County of Stettler was hard hit by the bankruptcy last year of Trident Exploration. The company had become the county’s biggest taxpayer and its demise slashed 25 per cent from its municipal tax base.
Unpaid taxes are only one of the financial challenges facing rural municipalities.
The province has asked municipalities to reduce the tax bill for shallow gas oil producers. At the same time, rural and small municipalities are being asked to contribute toward policing costs for the first time.
Last week, Ponoka County wrote off $250,000 in unpaid taxes from a pair of energy companies that went bust.
Kemmere is concerned unpaid taxes, coupled with increased costs, could spell big trouble for some municipalities.
“Potentially, we’ve got income at risk and extra expenses. It’s exactly the opposite of what you would hope it would be.”
The viability of some smaller municipalities could be at risk if the trend does not change, he said.