Energy News
Cold Lake to reap oilsands tax windfall
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- Category: News
- Written by Jim Bentein
Officials in the City of Cold Lake are celebrating in the wake of a deal they signed Sept. 20 with the Alberta government that will see the cash-strapped municipality, in the centre of a boom caused by nearby oilsands expansion and the growth of adjacent Canadian Forces Base (CFB) Cold Lake, receive a tax windfall of between $17 million to $18 million a year—more than its entire existing tax revenue.
However, Ernie Isley, a former provincial Conservative government cabinet minister who is now mayor of Bonnyvllle, about 35 kilometres west of Cold Lake, is vowing to fight the pact, sealed in a memorandum of understanding between the province and the city, because his town was left out of the arrangement.
“It’s a sweetheart deal for the city and a shafting to everyone else in the [area],” says Isley, who held several senior cabinet posts in the Alberta Progressive Conservative governments of Ralph Klein and Don Getty, but announced about a year ago he was shifting his support to the Wildrose Party.
Under the complicated arrangement the 11,700-square-kilometre Cold Lake Air Weapons Range will become a new municipality governed by the province, with the City of Cold Lake receiving the taxes paid for its use by the military and oil industry. The area—a practice bombing site for CFB Cold Lake—is also the location of oilsands plants operated by Cenovus Energy, Canadian Natural Resources and others.
Meanwhile, the County of Lac La Biche, also experiencing growing pressures from oilsands development to its north stretching to Conklin, about 120 kilometres away, will lose that tax revenue but be compensated by being able to annex 16 townships where oilsands plants are located, adjacent to the weapons range.
To complicate the arrangement even further, it’s understood the province will pay some compensation to the Regional Municipality of Wood Buffalo, which now includes those 16 townships and reluctantly surrendered control of the area.
Cold Lake Mayor Craig Copeland says the deal, signed during a visit to the city by Municipal Affairs Minister Hector Goudreau and Treasury Board President and Minister of Finance Lloyd Snelgrove, means the municipality can go ahead with long-delayed infrastructure projects.
“Our debt level is over $20 million and we have less than $1 million in borrowing capacity,” he says. “We just sent the [provincial] government a list of needed infrastructure projects that would cost $175 million, and this money will help us complete some of those.”
Copeland says the city, created in the late 1990s through the amalgamation of the towns Grand Centre and Cold Lake, as well as Medley, the residential portion of CFB Cold Lake, was never financially sustainable and was becoming unable to keep up with routine upgrades.
The dominos leading to the agreement were set in motion this past January when Col. Dave Wheeler, commanding officer of CFB Cold Lake, took the unprecedented step—for a military officer—of taking a political stand on the city’s financial plight.
He signed a joint letter from the city to Snelgrove and Goudreau calling upon the province to realign the city’s boundaries to include the air weapons range.
Wheeler, who has since declined requests for interviews, argued that the city needed the tax revenue from the base, including about $10 million a year Ottawa pays in the form of a grant in lieu of taxes to the County of Lac La Biche, to upgrade infrastructure on the base for the arrival of Canada’s new F-35 fighter jets.
However, that would have set off a chain reaction, with the province robbing Peter to pay Paul.
County of Lac La Biche Mayor Peter Kirylchuk said the loss of the $17 million it annually receives because the base has been within its boundaries would mean “we would no longer be sustainable,” since that represents more than half of the county’s total revenue.
To compensate, the province suggested Lac La Biche be able to annex the land to its north, but that prospect concerned the Regional Municipality of Wood Buffalo, which argued for what Mike Evans, executive director of stakeholder relations for the municipality, called “equilibrium.”
The new arrangement will see it retain most of the tax revenues from a cluster of oilsands plants around Conklin.
Cold Lake Mayor Copeland calls the deal “incredibly positive news for the community.”
The city council had threatened to shut off any new development in the city until the matter was settled and also flirted with dissolution, essentially turning the city into an unincorporated municipality and letting the provincial government pick up the pieces.
That threat, along with the less-than-subtle lobbying by the base commander, seems to have worked.
Although Cold Lake isn’t getting everything it initially wanted—namely, for it to be allowed to annex the weapons range and to collect the related tax revenue—the arrangement may eventually lead to that, Copeland says.
The agreement outlines a five-year funding formula, beginning in 2012, which will see the weapons range converted into an improvement district, under the administration of the province. The province will collect tax revenues from the Department of National Defence (which pays to use the base) and from the oil and gas companies active on the range. That adds up to $17 million to $18 million a year, all of which will flow to the city.
That’s more than the entire tax revenue Cold Lake gets now, which totals about $12 million annually.
The city, in turn, has agreed to pay “transitional funding” to Lac La Biche, starting at $5 million and sinking by $1 million a year for five years, until it is zero.
Copeland says the province and county believe tax revenues from oilsands plants, which will flow to the county from the new area it’s annexing, will eventually make up for the loss of the entire $17 million.
In addition, the city will pay $600,000 next year to the Municipal District of Bonnyville, the rural municipality that maintains the two access roads to the weapons range. That will rise to $1 million by the fifth year of the deal and remain there.
He says tax revenue to the city will likely grow to $20 million by the time the five years is up, taking it from one of the most indebted municipalities in Alberta to one of the wealthiest.
And Copeland says the province has also agreed to eventually allow the city to annex the weapons range, which would likely make it geographically the largest city in the world. Cold Lake’s population is about 14,500 now.
He says aside from needed infrastructure upgrades, the city will be able to hold the line on property taxes. Average homeowners pay about $4,000 a year in taxes, making them among the highest taxed in Alberta.
Copeland says Cenovus, Canadian Natural Resources, Imperial Oil and other oil companies with plants in the area joined CFB Cold Lake in supporting the city’s efforts.
“They were very supportive in wanting to see the taxes flow to where their workers live,” he says.
While the Cold Lake mayor is delighted, his Bonnyville counterpart is anything but, going so far as to suggest the province gave the city a “sweetheart deal” out of “vindictiveness” because of Isley’s support for the Wildrose.
He says he had been communicating with Snelgrove for months to convince him to make a deal that would see tax revenues flow to all local municipalities, including his town of 6,400.
Isley says Bonnyville has become the area’s oilfield service centre and also needs help to finance infrastructure. He met with Snelgrove just before the deal was announced and expressed his unhappiness, he says.
“But he had made up his mind,” he says.
Isley argues that the city doesn’t need to maintain infrastructure on the military base, pointing out that Ottawa has spent $147 million there since 2006.
And he further argues that concerns about whether incoming military personnel can afford housing in Cold Lake, one of the base commander’s chief worries, could be dealt with by paying them a housing allowance.
Isley vows to continue fighting the decision, adding that the agreement with Cold Lake “will lead to a serious split” among residents of the area.
