With energy company’s unpaid tax bills climbing, Red Deer County plans to pump up its line of credit to maintain its financial flexibility.
County council gave first and second reading to a bylaw increasing the municipality’s line of credit with Servus Credit Union to $30 million from $25 million.
Heather Surkan, county director of corporate services, said the increase ensures the county has access to enough money, even in a worst-case scenario, to run its operations smoothly.
The line of credit is used to cover the gap between when money is needed for expenses such as road construction or operations, and when tax revenues and government grants start to flow in. The county tax deadline is June 30.
Often, provincial grants start to flow in before the county has to tap into its line of credit.
“However, administration is unable to predict with any uncertainty on the timing of revenues, nor expense requirements, therefore, a line of credit is prudent,” says Surkan’s report to council.
“Our worst-case scenario with respect to timing, potentially requires about $26.6 million for a line of credit.”
Typically, money is borrowed for only a short amount of time before it is repaid.
The lingering oilpatch downturn has put additional pressure on the finances of the county, and many other rural municipalities.
Last year, $2.5 million in taxes could not be collected. Counting previous years, about $5 million in taxes are outstanding, 75 per cent of them owed by oil and gas companies.
Surkan told council there is no risk to increasing the line of credit.
“We won’t necessarily use it, but at the same time, we need to have that facility.”
Mayor Jim Wood said like any large business, the county uses a line of credit to ensure money flows smoothly in and out of the organization.
“It’s part of doing business.”
Council opted not to pass all three readings of the borrowing bylaw to give the public an opportunity to see what the county is planning and comment if they wish before the bylaw gets final approval in two weeks.
“I think the people need to know what’s going on and why we’re doing this stuff,” said Coun. Richard Lorenz.
Falling revenues from energy taxes are outside the county’s control, Lorenz pointed out.
As well, the province has already reduced the amount shallow gas producers pay in municipal taxes to help that industry. The move was expected to save producers $20 million.
Municipalities were compensated for their tax losses last year, but a similar deal has not been proposed for this year.
Meanwhile, there have been signs the energy industry’s fortunes could be improving.
Wood said another oil company has been taking over some of the wells left when Trident Exploration Ltd. when bankrupt last year, leaving $2.3 million in unpaid taxes to Red Deer County alone.
“It sounds like they’re taking over hundreds of wells,” said Wood. “That’s good for us.
“To leave some of these wells sitting as orphans does no one any good.”