Province reviewing well-drilling tax

An important source of revenue for rural municipalities, including the MD of Bighorn, is currently under review, but Bob Barss, president of the provincial organization that represents rural municipalities is confident a positive result can be achieved.

Alberta Municipal Affairs is working with the Alberta Association of Municipal Districts and Counties (AAMDC) and its 69 rural municipalities to review the well-drilling tax.

The concern, however, according to Barss, AAMDC president and MD of Bighorn Reeve Dene Cooper, is that the program, along with its revenue, will end.

“We just want to make sure the public knows we are working with the government to find a solution and we feel very confident we can get that solution before the extension is over,” Barss said during a recent interview with the Outlook.

The well-drilling tax was established in 1948 to provide rural municipalities with revenue source to offset the maintenance and repair of roads used by the oil and gas industry.

Barss said the program generally worked well, as the tax was levied at the time a company drilled a well; once the well was drilled the impact on rural roads was lessened.

The MD of Bighorn, however, chose to use that revenue to offset taxes, putting roughly $1 million into the tax stabilization fund over the past decade. The MD uses this fund to provide some relief to Bighorn taxpayers in recession years where higher taxes would be a burden.

“This is one of the few sources of direct revenue, this would be an uncomfortable loss. On the other hand I haven’t got anything to replace it with. If it is to go, it’s not like there is two or three ideas in the wings. If it’s gone, it’s gone,” Cooper said.

The MD of Bighorn, he added, is big on land, but short on infrastructure.

“People think we are well off but we’re having to spend what we do have very wisely. We’re healthy, but not wealthy.”

Cooper said to date the tax stabilization fund has been used about six times, including on the most recent tax bill, which a saw a withdrawl of $100,000 leaving $600,000 in the fund.

However, as no new oil or gas wells are being drilled in the MD of Bighorn, Cooper said “we have to be really wise to utilize (tax stabilization fund) in the next while.”

AAMDC is currently conducting a survey with its members to establish just how much money rural municipalities have collected through the well-drilling tax and the organization is finding the amount will likely be in excess of tens of millions.

However, energy companies are re-drilling existing wells.

“And now infrastructure is taking the punishment again but there’s no more money for that well, it’s not a new well, it’s a re-drill,” he said.

AAMDC learned about a year ago that the well-drilling tax was about to expire as Barss said as a regulation it had a five-year sunset clause.

An option to give the program a two-year extension was not approved and AAMDC learned in November that the program would end in December of last year.

However, working with Municipal Affairs, AAMDC was able to negotiate a one-year extension as a grace period while the two organizations worked to understand how to move forward and what the implications would be.

“It’s huge in small municipalities and its huge in big municipalities. We haven’t heard of any push back from industry. It’s a part of doing business but we just need to continue down this road working with government to find out if there is a better way to offset continuing usage as the industry changes technology and uses, if there is some way we can improve how we deal with the infrastructure deficit on these roads.”

Wendy McGrath, a Municipal Affairs representative, said the ministry is holding discussions with stakeholders this month.

Otherwise, she said it’s premature to discuss the well-drilling tax program as it is under review.

The best-case scenario from the perspective of the AAMDC, is to have a tax or road-use fee, established in conjunction with the energy sector that ensures roads can be maintained.

“The energy sector pays a lot of bills in a lot of municipalities and we are very fortunate in this province to have an energy sector that works with municipalities.”

But if it comes to the point where no money is available to maintain or repair the rural roads used by the oil and gas industry, the only remaining solution would be to ban vehicle traffic.

“If our road infrastructure is completely gone they can’t move either. It is everybody in a partnership working in a collaborative partnership that will make the best benefit,” he said.

“If these roads blow out they will be banned and then nobody moves and that is definitely not a solution.

“At the end of the day, if we can’t find a better way we are going to push to maintain the well drilling tax. It may not meet everything, but it is still millions of dollars out of municipal budgets if we don’t have it.”