Rural municipalities feel the pinch as oil and gas companies skip out on tax payments

Rural municipalities and counties are grappling with the loss of potentially millions of dollars in unpaid taxes from struggling oil and gas companies, according the the Saskatchewan Association of Rural Municipalities (SARM).

"We know it most likely has a lot to do with the industry right now, with the oil prices in particular," said Ray Orb, president for the association.

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Oil and gas companies that walk away from wells that are no longer lucrative sometimes leave rural municipalities short of expected revenues.

"The RM is saddled with the responsibility of holding the bag for taxes and no one to pass it onto. Unfortunately, ratepayers in that rural municipality have to make up the difference at some point for delinquencies," Orb explained.

He said at this point, he didn't have a firm estimate of how many municipalities were dealing with tax arrears or how much money was outstanding, but he said it was very likely an amount in the millions, varying from year-to-year.

SARM appeals to province

Municipalities had raised tax delinquencies as an issue at SARM's annual convention. The association wrote to the province, asking for legislative rights that would allow municipalities to get preferential rights for payment on oil and gas propertiesin the case of bankruptcy.

The province's Ministry of Government Relations responded to SARM, noting issues of bankruptcy and insolvency fall under the federal government's jurisdictionand provincial legislation would not affect the laws surrounding oil and gas companies that go bankrupt.

The ministry suggested municipalities could try other options, including starting the collections process more quickly when companies start sliding into arrears, making a claim through the Small Claims court, or sending out a distress warrant to recover the cost of tax arrears.

Jean-Thomas Bernard, a University of Ottawa professor of economics, said high oil prices from 2010 to 2014 were exceptional.

"The oil price, except for this golden period, is usually unstable. So some companies go bankrupt on a fairly regular [basis]," he said.

Bernard pointed to one difference between Alberta and Saskatchewan in dealing with this issue. Last year, Alberta introduced a tax credit for rural Alberta counties and municipalities that can't collect education property taxes on abandoned oil and gas properties.

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"There's no such program in Saskatchewan. Right now, it is the municipality that are responsible to pay the bill," he said, adding the burden ultimately falls on other taxpayers and citizens.

Orb said there's one other area the province could play a part, which involves stepping in with money to fix up abandoned well sites.

"We need a substantial amount of money for a fund, so RMs can draw from that if companies do walk away, and RMS are faced with cleaning up the site," he said, adding he hoped to see SARM make progress on these issues in the new year.