Alberta rural municipalities will be facing financial challenges due to interim reductions on property and equipment taxes announced today by Municipal Affairs minister Tracy Allard.
For the time being, though, they won't be as severe as originally feared.
Allard announced energy companies will be exempt from paying property taxes for three years when drilling new wells and building new pipelines. The government will also eliminate the Well Drilling Equipment Tax provincewide for new drills.
Additionally, the government will lower assessments for less productive oil and gas wells while continuing the recently introduced 35 per cent assessment reduction on shallow gas wells for three years.
Allard was named Municipal Affairs minister in late August, during a time when Municipal Affairs was reviewing four options that were hotly contested by rural municipalities.
In her address, Allard recognized implementing any of those would see municipalities face up to a 20 per cent reduction in tax revenue. She opted to take a step back and reexamine the issue to find a balance between the concerns of both the municipalities and energy companies.
"When I was sworn in as minister of Municipal Affairs on Aug. 25th, my first decision was to hit pause on this review to do more consultations. I felt we needed a better understanding of our municipalities' concerns and of the overall impact of any change."
Al Kemmere, president of Rural Municipalities of Alberta (RMA), says municipalities want to be part of the solution to ensure a healthy oil and gas sector, but he pointed to challenges being imposed upon municipalities. That included over $250 million in unpaid property taxes of oil and gas companies.
"We've seen $81 million two years ago, $173 million last year of unpaid taxes, and if we don't fix that in the near future, all of these modifications are going to be for not, because it is going to leave my member municipalities without that ability to make sure that the tax collection is treated the same way as every other taxpayer."
While calling the minister's current approach balanced, he says it still leaves rural municipalities facing financial hardships.
"This is also going to be a challenge for my members because when you see the reduction in the assessed value of properties, that immediately plays on the tax rolls of those municipalities. When we see a tax holiday for new drills, those incentives are great incentives, but the challenge is those municipalities are going to be out those dollars."
Additionally, Kemmere says the elimination of the well drilling equipment tax will also leave municipalities without funding to address extreme infrastructure challenges faced when exploration takes place.
Rocky View Reeve Greg Boehlke says the county is pleased none of the four options on the table are being pursued at this time.
"I think the biggest benefit is we don't have to rob from Peter to pay Paul, so we don't have to give a discount to the oil companies and come back and tax either our commercial sector or our residents more money."
He says unpaid taxes by the energy sector isn't currently a large issue in RVC.
Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers (CAPP), says the industry doesn't view the decision as a tax break, but as an interim step in bringing assessments in line.
"The assessment values that are being used in the assessment, we would say aren't accurate, and the four options that came forward in the assessment review were correcting that," explains McMillan. "There was a substantive change from what is currently being used to all four of those options on the assessment base."
He continues, "We don't view this as tax breaks. In fact, this is an interim measure as we're working to correct a broader system issue that has built up over a very long period of time."
Boehlke is concerned with the position of CAPP.
"They seem to think taxes were their biggest issue, yet I would wonder about access to markets and world prices. The taxes here are relatively competitive. When things are rocking and rolling they don't mind paying them, and now that things are toughening up in the world market, I guess they're looking for any break they can get. That's fair but I don't think giving one sector of your business community a break on the back of others is the answer either."
Airdrie-Cochrane MLA Peter Guthrie says the assessment model is reviewed every five years and has been left unscathed for two decades.
"This is the fourth time it has come before government, and this is the fourth time it hasn't been fully addressed, but at least this time we are taking some steps forwards a resolution."
"The issue is still going to be lingering, and we are going to have to address it at some point in the future," says Guthrie. "This is trying to not have such a massive blow to municipalities but then at the same time try to present some relief for the oil and gas industry. So the minister is trying to find that short-term balance until she can find a long-term solution."
Guthrie says assessments have not been adjusted to reflect their true current value.
"It crept up during a time when economies were good, and there was a tendency to go after oil and gas companies in order to increase cash flow within the municipalities. So, this has got ahead of itself, in a lot of respects, because of the governance within municipalities."
He says in a sense, the government is providing municipalities notice that there are changes coming and to get their expenses in order.
"We are providing them with sort of an advance notice that we're going to have to address--fully address--the assessment issue."