Municipal Leaders Respond to Recent Oil and Gas Assessment Review
This past summer municipalities throughout the province were facing the prospect of losing millions of dollars in tax revenue because the Ministry of Municipal Affairs was contemplating changes to the regulated assessment models for wells, pipelines, and well-site machinery and equipment.
Those changes did not come to pass, but the Minister of Municipal Affairs did exempt energy companies from paying property taxes for three years when drilling new wells and building new pipelines. The Province also decided to lower assessments for less productive oil and gas wells while continuing the recently introduced 35 percent assessment on shallow gas well for three years.
Reeves in the Counties of Two Hills, Minburn, Beaver County, and Lamont County shared their perspectives regarding the recent announcement and what it could mean for ratepayers in the future.
Don Gulayec, Reeve of the County of Two Hills, explained: “One of the reasons for sending out the province’s proposed tax modelling was to inform our taxpayers about the potential assessment changes and how it could l affect them monetarily. In our letter to ratepayers we included the Premier’s and MLA’s phone numbers in hopes that they would call and voice their displeasure for such an aggressive move.
I believe the Province having received thousands of calls from grassroots individuals throughout the Province along with calls from rural municipalities like ours, rethought their plans to burden the rural taxpayer. Under the new so-called assessment adjustments, our municipality stands to face a loss in revenue of around $200,000. This number does not include energy companies that have not paid their taxes.
The Province has been making ongoing revenue enhancement adjustments all along, it’s only because of COVID that the full impact at the rural level was not felt. Things like police funding whereas our county will be paying additional funds for the rural service, 2021 – $89,000, 2022 – $123,000 and 2023 – $164,000. We now are hearing that Municipal Sustainability Initiative funding is being reduced or altogether eliminated a potential loss of $1.2 million.
The County has started preliminary budget discussions but we will not look at formal numbers and proposals until tax collection is completed. I would say to our ratepayers that because of our Council’s ability to live within their means and consider the needs of the County as a whole gives us the edge up on our finances. We would not be in this envious financial state if it was not for our Administration’s due diligence towards fiscal responsibility and continually adding efficiencies to our operation.
Should the energy sector companies in our boundaries take advantage of the three-year property tax exemption for new drills and pipeline installations, we already know it will cost our municipality hundreds of thousands of dollars in road repairs and maintenance. These new drills will not only occur along provincial highways, they will be down our connector county roads. The result will be fluid haul routes, drilling rigs, service rigs, and well servicing equipment travelling down school bus routes past farm yards and acreages.
The roads in question can handle seasonal heavy agricultural traffic but were never built to withstand daily heavy industrial traffic. Council and Administration are all for industry and the potential job creation, but not when it will cost our landowners additional tax dollars to repair and maintain this capillary road infrastructure. There has to be a funding balance that will need to be created by the energy industry.”
Roger Konieczny, Reeve of the County of Minburn, said: “The Government of Alberta decided to forgo the planned Assessment Model Review (AMR), and instead opted for a three-year initiative to help oil and gas producers. The first part of this was to lower property assessments on older and lower productive oil and gas properties. We have not gotten the finalized details of this proposal yet, but the province believes it will reduce the County of Minburn’s revenue by approximately one percent or $152,000 in the first year, rising slightly in the following years.
The second part was to permanently eliminate the Well Drilling Equipment Tax, which will not have much impact on municipalities that do not experience much rig activity, such as Minburn. The third thing was to provide a three-year exemption on all property taxes for any new oil and gas developments. This could affect our potential revenue, as the County sees benefit from pipelines that travel through our area, generally to either Strathcona or Hardisty. But, we feel this is a small price to pay given the turmoil in the energy sector and the County recognizes we have to do our part in maintaining an industry that has given so much to Alberta over the years.
In addition to the significant pushback seen across rural Alberta, we believe the key reason the AMR was scrapped was due to the lack of supporting data the government presented to support the proposed assessment changes. The new Minister of Municipal Affairs recognized this and immediately took steps to admit this shortcoming and to subsequently pause this review.
In terms of financial health, the County of Minburn continues to see a decline in its energy-related assessment, which translates into less revenue. In addition to the AMR effects, we are budgeting for a further 5 percent assessment decrease from energy properties in the County, an increase in our annual RCMP requisition from the province, the 2021 end to the Municipal Sustainability Initiative (MSI), which provides capital dollars to municipalities, and ongoing property tax delinquency from the oil and gas sector. This last point continues to be the largest point of concern; since 2016, the County of Minburn has seen around $4 million in taxes go uncollected.
We have been taking proactive measures over the last few years to mitigate these effects while looking more closely at our budget to ensure programs and services are delivered efficiently and tax dollars are spent wisely. And these continued pressures will require further examination and belt-tightening because the County knows that tax increases are not the answer in an economy such as this.”
Beaver County Reeve Jim Kallal said, “In 2021, the assessment model will be revised to make the 35 percent reduction in shallow gas well assessment permanent, low-producing wells will be depreciated, the oil well drilling tax will be eliminated, and all new wells and pipelines will receive a tax break for the next 3 years. We have also heard that there may be a further reduction in assessment for functional obsolescence of buildings and structures related to machinery and equipment assessment.
Beaver County administration is still reviewing the impacts of the new model. The County historically received little revenue from the oil well drilling tax and only time will tell how much revenue the County will forgo for new wells and pipelines. It appears at this time that the loss of tax revenue from industrial property taxation will be in the range of $200,000 – $350,000 depending on the impact of the functional obsolescence factor.
However, the Provincial Government and Minister Allard have committed to their continued review of the assessment model. We expect that the County’s assessment base will be further reduced in the coming years, and the impact could be significant. While we understand the oil and gas industry is suffering and their success plays a large part in the economic recovery of both the Province and the County, it will be difficult to continue to provide the services that County residents enjoy when our tax base is being eroded.”
Lamont County Reeve Dave Diduck said the County is seeing some activity of new wells being drilled, especially directional drilling for oil. The amount of revenue lost will depend on the number of wells that are drilled and the related infrastructure that goes with these wells. In respect to lost revenue for Lamont County, we cannot clarify this at this point until the wells are completed and assessed by the provincial government. In respect to lowering the assessment on aging wells and infrastructure related to them, here again, we will not know this number until the provincial government provides us with their assessment numbers early in the new year.
Quite simply, at this point, we cannot identify the exact financial impact the new assessment model will have on Lamont County or any of our neighbouring rural municipalities. We are assuming it will not be as impactful as the original model proposed, however, at this point in time we simply do not have a dollar amount and will not have that information until the government provides us with revised linear assessment figures early in 2021.
Lamont County continues to be supportive and wants to work with the oil and gas industry to ensure its long-term survival. A significant portion of our tax revenue does come from the oil and gas industry. We understand the oil and gas industry is hurting in our current economic environment and it is incumbent on all levels of government, including municipalities to work with the industry to ensure their continued survival. However, solutions arrived at must be fair and equitable to all parties.”