A proposal to cap tax rates imposed on oil and gas companies may threaten the structure of the Ponoka County tax revenue pool.
At Ponoka county council’s Tuesday, Jan. 27 regular meeting, Reeve Paul McLauchlin briefly mentioned the proposal being made by the Canadian Association of Petroleum Producers for a cap to be introduced along with the new Municipal Government Act (MGA).
Not much is known by Ponoka County administration about the proposal, but CAO Charlie Cutforth feels companies are looking for a limit to be placed upon mill rates municipalities can charge.
The current MGA is under review and Cutforth believed an updated version will be adopted sometime in 2016.
Across the province, on average, between 60 and 90 percent of a county’s tax revenue comes from oil and gas activity within its borders.
“One of the biggest concerns right now is municipal funding,” said McLauchlin.
Ponoka County derives 72 per cent of its tax revenue from the oil and gas industry. Residential property supplies another 23 per cent of the county’s tax revenue and the remaining 5 per cent comes from farmland and commercial.
Both Cutforth and McLauchlin believe the proposal made to the Alberta Government stems from the Canadian Association of Petroleum Producers’ claim that companies are not being treated fairly when it comes to tax rates.
“They’re feeling some (oil and gas) jurisdictions are being gouged,” said McLauchlin.
“Some municipalities, in my opinion, have taken liberties with the fact that oil companies have deep pockets,” said Cutforth.
McLauchlin says discussions for the idea began approximately one year ago.
Ponoka County has a healthy relationship with the oil and gas activity going on within it borders, but McLauchlin admits the bustle is one of the largest factors of wear and tear on county roads.
“We have a road out in the west country (Iola Road) and we just did a traffic count on,” said McLauchlin. In one week, the count revealed 3,000 vehicles, with the large majority relating to oil and gas, such as fracking vehicles.
‘They pound the business out of our roads,” said McLauchlin.
At the same time he acknowledges how vital the oil and gas industry is to the county. “They’re good neighbours, I think we’re going to be okay.”
“That would cause significant change in the tax structure of the county,” McLauchlin added, referring to the possibility of a cap.
The recent dive in fuel prices across the province will dampen any new oil and gas growth in the county, but Cutforth says whatever remains active is taxable.
In 2014, Ponoka County received just under $1 million in drilling licenses. Companies looking to drill wells apply to the province for a drilling licence and pay certain fees depending on factors such as depth of drilling. A portion of that payment is then given to the county.
Because of the low cost of oil, Cutforth says the county can expect only $200,000 in 2014, adding another cut to its revenue pool.
If any kind of cap is approved and the county begins losing a significant portion of its tax revenue, the money may have to come from residential and farmland, or cut services, or both, says Cutforth.
However, he dos not believe that kind of “desperation” is a probability in the near future.
With the lowest municipal tax rates in the province, Cutforth says the county would have a bit of wiggle room if it came to raising taxes to cover the difference.