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Stuck between a rock and a hard place, the UCP government has faced a tricky choice in recent weeks — upset the province’s oil and gas industry, or anger rural voters.
Instead, it will strive to find the middle ground in the contentious issue of overhauling municipal property tax assessments on oil and gas wells and associated pipelines.
Municipal Affairs Minister Tracy Allard will announce a compromise of sorts on Monday, providing petroleum producers with a series of incentives and tax breaks potentially worth more than $80 million annually — and costing rural municipalities tens of millions in revenue — but it’s not the sweeping reform of the assessment model that the energy industry favoured.
The province won’t adopt any of the four controversial options under examination to reform the system, changes the Rural Municipalities of Alberta (RMA) had estimated could cost local communities more than $290 million next year.
Instead, the province will put a comprehensive overhaul on hold for three years.
However, the government will provide petroleum producers with a three-year property tax holiday when they drill new wells or construct new pipelines.
It will eliminate a well drilling equipment tax, which cost the industry $23 million last year, and the government will lower property assessments for less productive oil and gas wells for three years. This step will lead to an estimated $21 million in savings for industry in municipal property taxes and $7 million in education taxes.
Finally, a measure introduced last year that cut assessments on shallow gas wells by 35 per cent will be continued.
Ben Brunnen, vice-president of the Canadian Association of Petroleum Producers, said the suite of changes should lead to about $85 million annually in tax savings at a critical time for the industry.
“What the province has effectively done here is create the right conditions to encourage investments within the growth areas of the province,” Brunnen said in an interview.
“They’ve found a compromise where both industry and municipalities give a little.”
Similarly, RMA president Al Kemmere said the announcement attempts to strike a balance.
“I believe we are giving up something — we are giving up dollars, no doubt about it — but it’s nowhere near where industry wants it to be, either. So that’s where the balance is,” he said.
This issue has been boiling for months across the province.
In an interview, Allard said this isn’t the time to make comprehensive changes to the assessment system on oil and gas wells, machinery and pipelines, as the COVID-19 crisis, recession and oil-price crash are hitting Alberta.
However, the government will develop plans in the coming months for a longer-term review to update the regulated assessment system.
“We are going to have this three-year solution that will hopefully bridge us to better financial times,” she said.
“This was a compromise, recognizing the domino effect to other things — to residential taxpayers, to the education requisition across the province . . . There are so many pieces affected by how the assessment model is used.”
The province will not provide additional money to municipalities that lose revenues from the tax measures. Allard estimated all of the changes will total around $80 million annually, depending on how many new wells are drilled.
Since taking power last year, the UCP government has signalled the current municipal property tax assessment process on wells and pipelines needs to be recalibrated. Last summer, Premier Jason Kenney said the system is “out of whack” compared to other provinces.
Producers contend assessments aren’t based on true market value, that depreciation isn’t being properly considered in the calculations, and that assessments sometimes exceed the entire value of companies, such as shallow gas producers.
Four options under consideration would have lowered overall assessment values on affected properties between seven and 20 per cent, according to the RMA.
Since the summer, rural leaders have been lobbying government MLAs to re-examine the matter, saying these options would lead to hefty tax increases, deep service cuts or a combination of the two.
Kemmere said more work and consultations will need to be done in the coming years on assessment reform.
“The government has made a decision on municipal dollars here. While it’s nowhere near where we feared it was going, it’s still an allocation of municipal money,” he said
.
“It’s a balance, and the fact (is) we are being assured we are going to have the (broader) conversation in the future.”
To say rural municipalities have been watching this issue closely is an understatement, given what is at stake.
For example, Cypress County Reeve Dan Hamilton said last week the steepest assessment cut being proposed would have led to a $7.8 million drop in its annual revenues, or about one-third of its non-residential tax base.
“We have had a few sleepless nights being on the council side, trying to figure out what to do,” he said. “We have spent a lot of time, lobbying the government, trying to get everything stopped.”
The energy industry has also been pressing.
Analysis by CAPP said a typical well pad in the Montney formation in Alberta is assessed at 20-times as high as in British Columbia, while a thermal oilsands facility in Alberta is assessed at 13 times that of Saskatchewan.
Allard, who became the Municipal Affairs minister in August, has been meeting with civic leaders in recent weeks, looking for a potential solution.
“Municipalities have told us over and over that they need predictability and stability, and I believe this achieves that,” she said.
“There’s no perfect answer for an imperfect situation and, right now, it’s definitely an imperfect situation. But I do believe this sends the right signal to industry.”
Tristan Goodman, president of the Explorers and Producers Association of Canada, said the government has improved the tax situation for companies with mature oil and gas assets, while creating incentives to encourage more drilling, investment and jobs in Alberta.
But a broader discussion in the next three years will still be needed about reviewing the assessment system involving all groups, he said.
“It’s given us some breathing space and is very valuable, but we still have . . . outstanding things that we look forward to working on. And I think everybody is committed to that,” he said.
It’s often said a good compromise leaves all sides unhappy.
On this front, it appears everyone is walking away from the process without getting exactly what they wanted. The UCP will soon find out just how unhappy all sides are with the balancing act.
Chris Varcoe is a Calgary Herald columnist.
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