Rural municipalities are concerned that a provincial government plan to provide tax relief to shallow gas companies will cause some budget pain next year. Photo from The Canadian Press

Provincial plan to reduce taxes for energy sector concerns rural municipalities

Lowering taxes for shallow gas companies could hit rural municipality budgets next year

Rural taxpayers will bear the brunt of a provincial government plan to slash taxes to extend a lifeline to Alberta’s beleaguered oilpatch, say central Alberta officials.

The province announced $23 million in tax relief this week for companies owning shallow gas wells and pipelines to stave off bankruptcies and save jobs.

The taxes are paid to municipalities, not the province. So, to shield municipalities from taking a budget hit this year, the Alberta government has promised to reduce municipal education tax bills to offset lost shallow gas well tax revenues.

No similar compensation has been offered for next year, which could leave a $500,000 hole in Red Deer County’s budget.

“For Red Deer County, to lose $500,000, that has to be made up somewhere,” said Mayor Jim Wood. “So other taxpayers are going to have to pick it up or we’re going to have to have less services.

“What I see this as being is a complete download from the province to municipalities.”

Wood understands that the province is trying to help a key industry, but does not believe reducing taxes paid to municipalities is the answer.

Municipalities have already been taking in less tax revenue from oil and gas companies because of the lingering downturn. Millions in taxes remain uncollected because of bankruptcies.

Red Deer County has written off $2.2 million in oil- and gas-related taxes since 2010.

“I think the province has good intentions, but I’m not sure if they’re aware of the unintended consequences,” he said.

“Cutting taxes is not the answer. Making sure (oil and gas companies) have a market is the answer.”

Municipalities got little warning of what the province intended. Invitations were sent out Friday to representatives from 15 affected rural municipalities to meet in Edmonton with Municipal Affairs Minister Kaycee Madu.

The government’s tax relief strategy did not go over well.

“There were a lot of glum faces leaving that room,” said Wood.

Lacombe County Reeve Paula Law is also concerned about the implications of the province’s plans, which could cost the county about $350,000 in lost revenue next year.

The province is calling the existing assessment model for linear properties (pipelines, power lines and similar infrastructure) an “outdated property tax model” and has told municipalities to expect changes.

“If they change that and there’s less taxes for the municipalities, municipalities would have to make up that loss elsewhere,” said Law.

Rural municipalities are also concerned that other oilpatch players will seek the same tax relief shallow gas producers are getting.

“We’re going to guess or assume that other companies may come forward with a similar request.

“It will be very difficult for each municipality, and we will have to work with (companies) and it will be up to each municipality as to how they deal and move forward with these requests,” said the reeve.

Law recognizes that the government is in a tough position and is looking for ways to help the energy sector.

“I think it’s going to be difficult for everybody with this. Is it the right way? That’s not for me to say.”

Al Kemmere, president of the Rural Municipalities Association of Alberta, acknowledged the government’s plan was the only way to provide short-term relief to gas producers and he was pleased municipalities will not be dinged this year.

“That said, in the long term, property tax should not be seen as a tool for relief.”

Not invited to Tuesday’s meeting was Clearwater County, which was a bit of a surprise, admits corporate services director Murray Hagen.

“That doesn’t mean we’re not going to be affected. But we don’t know to what extent.

“We’re going to wait and see what the list of wells looks like when it comes out, and from that, we’ll have to estimate what the financial impact might be.

“I think overall, it’s good news for the oil and gas sector and Clearwater County clearly supports those industries.”

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