Update to oil and gas tax assessment

On Monday morning last week, the Alberta Minister of Municipal Affairs, Tracy Allard, made an update announcement on the Assessment Model Review for oil and gas companies. Industry companies pay a certain amount of dollars to the municipalities of whose boundaries they reside. These dollars are often a big chunk of the operating costs that municipalities rely on for infrastructure upkeep. The original review had been in the works for quite some time. When the proposed changes were released in the summer, Woodlands County, and many other rural municipalities, sounded the alarm on what would have been a devasting change.

The assessment was meant to enhance competitiveness by driving down the costs of doing business, specifically tax assessments. Municipalities were given four scenarios (A, B, C, and D) of what impact the lowered tax assessment would have on their bottom line. For Woodlands County, the change would have been a loss of 1.4 million at the least and 3.1 million lost at the most. Given the issues the county is already facing with unpaid taxes from energy companies, any of the scenarios could have been a lethal blow.

With that said, the updated announcement from Minister Allard was highly anticipated. She had been on the road for much of the last two months, ever since she was sworn in on August 25, so that she could hear from everyone involved in the assessment. “When the review started, the four scenarios would have cost municipalities anywhere from a seven percent to a 20 percent reduction. When I was sworn in as Minister of Municipal Affairs, my first decision was to hit pause on this review to do more consultation,” she said in her press conference. “I felt that we needed a better understanding of our municipalities’ concerns and the overall impact of any change.”

She stated that in her talks with municipalities, she heard that if they continued with the four scenarios that “they would be forced to raise taxes significantly or cut services or both.” Minister Allard said that in speaking with oil and gas producers, they heard that if tax concerns were not addressed, “they would no longer remain viable.” Finding a balance between the two was the key. “This was a very complex and nuanced decision as every factor caused a domino effect. We had to think about the proposed assessment changes and how they would impact things like education taxes, inter-municipal collaborative frameworks, police funding, seniors and recreation funding, and ultimately all ratepayers, both commercial and our residential taxpayers.”

Providing a financial break for the industry to help invigorate new growth and encourage job creation could not come at the cost of rural municipalities and the residents that reside within them. If taxes were raised significantly to make up for a massive loss, any positivity felt by the sector would be negated by the rest’s impact. “We have seen a triple threat with a global collapse of energy prices, the worst economic times since the dirty ’30s, and the COVID-19 pandemic. Unemployment is high, businesses are struggling to survive, and many Albertans are trying to figure out how to pay their mortgage or rent. Through these difficult times, the government has been working on plans to make life better for Albertans. I feel with our decision today, we have balanced the needs of both municipalities and the oil and gas industry.

Scrapping the four scenarios and lowering the impact on rural communities was at the forefront of the update, which was undoubtedly a relief for those administrations watching the conference with bated breath. “The energy industry and the municipalities continue to have a mutually dependent relationship. Municipalities need a strong oil and gas industry to create jobs for residents, and the energy industry needs municipalities to provide communities so their workers can live, raise a family, and enjoy a healthy quality of life. They also need municipalities to maintain roads and bridges for safe access to those work sites,” spoke Minister Allard.

Back in June, the corporate tax rate dropped down to eight percent. The changes in the assessment go hand in hand with that decision. “There will be no property taxes charged on new wells and pipelines for three years to kickstart investment for our energy industry here in Alberta. This will be reflected in the 2021 assessed values and applied for taxation in 2022, 2023, and 2024. This provides an effective incentive for future investment decisions for our industry partners at a time when we need it more than ever. We will also eliminate the Well Drilling Equipment Tax. Eliminating this tax will encourage industry to drill more wells within our communities at this time. As a result, this will create more jobs and more tax revenue for municipalities in the long term by, again, expanding their assessment base,” she explained.

The government is also working to keep less productive oil and gas wells viable across the province by lowering their assessment. “This measure will provide much-needed certainty to investors, municipal governments and, of course, to local taxpayers. We are doing these initiatives because you matter. Your businesses matter, your family’s matter, your livelihoods matter, and your communities’ matter.” Minister Allard added that she thanks rural municipalities for expressing their willingness to be partners in supporting the economy and expects them to do all they can to avoid increases to ratepayers. “I believe they will do just that!” The Alberta Government will continue to work on the assessment as the update is only for the next three years. Beyond that timeline, there will need to be a new plan in place.

For Woodlands County Mayor John Burrows, the announcement was welcomed, but he said they are still waiting to see exactly how it will affect the municipality. He credited West Yellowhead MLA Martin Long for being “instrumental in facilitating meetings with the Minister” and said that having that help in getting Woodlands County’s impact across to the government was particularly important. “I think the solution they were proposing with scenarios A through D was going to affect rural Alberta quite substantially, and I think the province wanted to maintain sustainability and didn’t want to affect rural Alberta unduly,” said Mayor Burrows.

He said that rural municipalities need to be sensitive to the issue the province is facing and that they will have to bear some of the pain. It is not clear yet just how much pain Woodlands County is set to bear, but a very rough estimate would be somewhere between half a million and seven hundred thousand at the newly proposed three percent margin. A far cry from what could have been a potential 3.1 million loss in the previous review. Mayor Burrows said that they would know better once the numbers are confirmed.

He hopes that the Alberta Government will deal with tax arrears at the same time. “What I would hope is that, if you are an existing facility and you want to take advantage of the three-year tax redevelopment and the drilling tax cuts, that you get current or at least get on a payment plan with any arrears. In the meantime, hopefully, this will attract some development, and we can weather the storm.”