The Kenney government finds itself in a distinctly uncomfortable position today, having to balance the competing interests of two major political forces in Alberta: the energy industry and rural communities.
On one side, oil and gas producers are pushing for changes to a municipal property tax assessment system they say is profoundly unfair and must be retooled to protect jobs and investment.
On the other, the Rural Municipalities of Alberta (RMA) says the province is contemplating massive alterations that would lower taxes on wells and pipelines “with potentially devastating impacts on rural Alberta.”
The province is considering four separate options that would lower tax assessments on oil and gas assets — by between seven and 20 per cent — as early as next year, the group says.
The RMA says the deepest cut would cost the average rural municipality 12 per cent of its revenue in the first year of implementation, more than $290 million in 2021. Industry officials say it would have less effect than is being portrayed.
Stuck in the middle is a UCP government that dominated rural Alberta in the last provincial election, but also has overwhelming support from the energy sector and has pledged to attract more investment and jobs.
“These are the two really important power bases of the government,” David Taras, a political analyst at Mount Royal University, said Thursday.
“This is a big test, because how does the government navigate a situation where it really can’t win, regardless of what it does?”
The issue has percolated for years, becoming more acute with lower commodity prices.
Petroleum producers, particularly companies with older, less-productive shallow gas wells in southern Alberta, have been calling for the system to be overhauled to more accurately reflect what properties are worth.
They say the assessment system is inequitable because it’s not grounded in the true market value of the assets, while depreciation isn’t being properly considered as oil and gas production at older wells declines over time.
“We are at a point now where this issue could contribute to fairly dramatic job loss within those rural communities if we can’t get some reasonable degree of taxation,” said Tristan Goodman, head of the Explorers and Producers Association of Canada.
According to the Canadian Association of Petroleum Producers, there’s also a competitiveness issue to consider.
Its analysis shows a typical well pad in the Montney formation in Alberta is assessed at 20 times as high as on the other side of the border in British Columbia, while a thermal oilsands facility in Alberta is assessed at 13 times that of Saskatchewan.
“In some instances, companies will get municipal assessment bills where their assessment is worth more than the company itself,” said CAPP vice-president Ben Brunnen.
CAPP is advocating for the option that would provide the most tax relief, which Brunnen said would bring down industry property taxes in Alberta by about 25 per cent and provide about $200 million in savings.
Doug Dafoe, CEO of private gas producer Ember Resources, says the system is particularly out of alignment for companies that operate mature wells.
He noted Ember has about 150 people working in the field, generating economic activity in rural communities, including creating employment in small oilfield service firms, hotels and restaurants.
“Get the tax piece equitable, those jobs will stay there.”
Rural officials are unhappy with the four proposals, saying they’ve had limited input into the process. They have now begun to turn up the heat on the government.
The RMA said all four scenarios would significantly cut revenues for local governments, with the effect being uneven depending on the area and the assets.
“The only way to deal with this is to dramatically cut services, which will cut services to the oil and gas industry, or pass it along to all the other taxpayers, which is not a fair process,” said RMA president Al Kemmere.
The municipalities are also unhappy with the growing amount of property taxes not being paid by energy firms in recent years. In January, the RMA reported about $173 million is owed to 69 municipalities.
“We know there are stresses. We need the oil and gas industry to be healthy,” Kemmere added. “At the same time, we can’t expect a solution that doesn’t benefit Alberta, it only benefits the industry.”
One of the hardest-hit rural municipalities by the proposed reductions would be
Starland County, northeast of Calgary
.
In a news release, it said the proposed cuts would put the sustainability of the small county in question, cutting annual revenues by between $2.6 million and $3.7 million.
Starland County’s operational budget has already fallen from $14 million to $10 million in recent years, due in part to unpaid taxes, and it would have to drop further if these changes occurred, said Reeve Steve Wannstrom.
“If we go back to approximately a $6-million budget, I don’t know how we operate. We have water systems to run, sewer systems, roads and bridges,” he said.
Provincial officials say they will continue to hear input from industry and municipalities into the early fall.
Speaking to reporters this week, Premier Jason Kenney said no decisions have been made.
However, the premier said the review found the linear property tax assessment rules are “completely out of whack compared to our neighbouring provinces,” and there appears to be no relationship between an asset’s value and the assessment in many cases.
“It’s not our intention to see a huge revenue hit on those municipalities. At the same time, if dozens of companies go bankrupt, then the goose that laid the golden egg is dead,” he said.
“We all have got to figure this out in a common-sense way that balances the needs of municipalities for revenue, with the need for an accurate assessment model, with the need for survival for some of these companies.”
Finding that balance will be tricky.
The government has little extra money to smooth out disruptions caused by such changes. It also needs all the investment and jobs Alberta can get.
“They are trying to thread a needle,” said Taras. “Is there enough thread and enough needle to make this go away?”
Chris Varcoe is a Calgary Herald columnist.
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