‘It’s going to hurt’: Tax break for oil and gas firms would empty rural budgets, communities warn.
A strategy to provide oil and gas companies a break on municipal property taxes would deal huge blows to the revenues of Alberta’s rural authorities, warns a group representing the state ‘s counties and municipal districts.
If the overhaul to the provincial rate assessment model is pursued, rural councils would be made to balance their budgets through exorbitant residential tax hikes or deep cuts to municipal agencies, said Al Kemmere, president of the Rural Municipalities of Alberta (RMA).
Some rural municipalities simply may not survive, Kemmere said.
"Nobody lives in a Cadillac world here," Kemmere said. "Rural Albertans often get by with the marginal, but if you decrease like it, it’s going to hurt.
Under this new version, will the municipality be viable within the next five decades? "
The proposed changes are the optima tax relief consequence of a yearlong, government-led inspection to provide relief to Alberta’s struggling oil and gas operators.
Consultations, headed by a committee made up of government and industry representatives, started in December, and also a report outlining four possible linear taxation units was given to the governing United Conservative Party’s caucus last week, Kemmere said.
Doubling home tax prices ‘just not achievable ‘
The state says no policy decisions have been made and it continues to consult with municipalities.
At issue are property appraisal practices for oil and gas operations. The current system evaluates them on replacement price — not market value — a practice business and government officials say overvalues industry assets and inflates tax bills.
The four model situations look at factors such as asset depreciation, foundation expenses, land assessment and other alterations.
Based on a RMA file, the proposed reforms would result in earnings reductions ranging from seven to 20 per cent annually. Some of the 69 counties and municipal districts represented by the RMA stand to lose up to 40 per cent of the tax base, Kemmere said.
To deal with impending earnings reduction, some regions are looking at increasing the residential mill rate by up to 50 per cent, but rate increases might be significantly more for communities that rely more heavily on tax revenues from oil and gas companies.
"To collect that which we’re dropping, it’s almost a non-realistic approach," Kemmere said. "We’ve got some members that are going to have to double their present tax rates within the home sector. And that’s just not doable. "
In Northern Sunrise County, the residential mill rate would have to be increased by 200 to 500 per cent, or the county’s workforce — and corresponding providers — cut by up to 80 per cent, its council stated in a press release.
The council expects to combine together with other rural municipalities to get a Thursday protest away from the legislature.
Camrose County, southeast of Edmonton, is looking at increasing the residential mill rate by up to 56 per cent, the non-residential mill rate by 32 per cent, reducing the county workforce by one third, or a mixture of those measures, stated Reeve Cindy Trautman.
That is a rural issue. There’s not any county in Alberta that won’t be affected.
Reductions in services like bylaw enforcement, road maintenance, waste and transportation are also being considered, she said.
Each of the four proposed scenarios would decrease county tax revenues in Camrose by about nine per cent, Trautman said. As much as $2.9 million would be cut from total revenues in the first year .
"Even at the lowest rate we might have to make some drastic cuts," she said.
That is a rural issue," she said. "There is not any county in Alberta that won’t be affected. "
Years of low oil prices have left several small oil and gas manufacturers in dire straits and rural communities are already struggling with outstanding taxes in the industry. A survey published by the RMA in January stated that the oil and gas industry owes $173 million in outstanding taxes to rural municipalities, double the amount in a similar report .
Trautman stated Camrose County has $1.1 million in outstanding business taxes on the novels.
"We need everyone to succeed but we don’t need counties to be taken down for this," Trautman said. "It seems just like another download on the county. "
‘Everybody needs to sacrifice a little bit’
Ben Brunnen, vice-president of oilsands together with the Canadian Association of Petroleum Producers, said some municipalities will see greater revenue from the rate changes, a fact also noted in the RMA evaluation of these situations.
Communities that don’t instantly benefit would still reap the benefits in the long term through new jobs, greater investment and by saving companies from bankruptcy,” he said.
"If we don’t do something to arrest the trend of business bankruptcies and financial insolvencies, there’s not going to be a long sentence or an industry in a number of these communities, so the assessments are going to go to zero," Brunnen said.
"It’s one of those situations where everybody needs to sacrifice a tiny bit. "
Kemmere said that the proposed changes could damage small oil and gas operators, noting that the reforms seem to favour large companies.
"That is putting money into the large companies who often possess offshore or out-of-the-province shareholders that are possibly going to put that in their own pocket," he said.
One of the UCP’s first actions to provide tax relief to Alberta’s petroleum and gas operators was an immediate 35 per cent cut in municipal taxes on shallow gas wells and pipelines, announced in July 2019. During that year, the state compensated municipalities due to their own losses.
No additional compensation will be supplied by the Alberta government.
In a statement to CBC News, a Municipal Affairs spokesperson said warnings concerning the taxation reforms and assessment of oil and gas properties and properties are continuing.
"We all know that any possible solution needs to find a balance between the well-being of the municipalities and the viability of the companies that invest and create jobs in those municipalities," reads the statement.
"Alberta’s assessment model for linear taxation has not been updated since 2005. Nevertheless, the government is consulting with municipalities and industry to determine the best path ahead. "
Trautman said consultation with individual communities has been limited. Details of the taxation schemes were provided to local authorities late a week, she said.
Camrose received note on Thursday to prepare for a possible rate change this collapse, leaving local authorities scrambling to compete with the possible budget shortfalls, ” she said.
"Because our tax records have been sent , there’s no opportunity to make it up. We’re very loath. We overlook ‘t need to pass this on to ratepayers if at all possible. "