When City of Powell River officials start budget deliberations this week, Catalyst Paper Corporation’s precarious financial situation will be top of mind.
Councillor Chris McNaughton, who holds the finance portfolio, said the city is at a tipping point where it must address the financial sustainability of maintaining service levels against a backdrop of uncertainty in major industry taxes. “As finance portfolio holder, I will be asking council to direct staff to prepare a second budget scenario that would respond to the potential loss of over $2 million in Class 4 taxes,” McNaughton said. “The scenario would also incorporate other projected tax losses as a result of the multiplier effect of additional job loss and potential business closures.”
Catalyst has been going through a restructuring process under court protection from creditors through the Companies’ Creditors Arrangement Act. The Toronto Stock Exchange suspended trading of Catalyst shares at the beginning of February and has announced it will remove Catalyst from listings at the close of trading on March 8.
McNaughton said the budget plan would be a blend of tax increases, new revenue opportunities and service cuts. “Council would fully engage the community in this discussion if we were faced with a situation similar to the one Campbell River is experiencing,” he said.
Catalyst closed down the Elk Falls mill in Campbell River in 2009. In January of this year, BC Assessment Authority announced that the mill lands no longer met the requirements of a major industrial property and reclassified it as business/other, which means a significant reduction in Catalyst’s property taxes.
The City of Campbell River is forecasting a loss of $1.8 million in tax revenue for 2012 because of the reclassification, which equates to a 12 per cent residential tax increase.
In 2011, Catalyst paid $4.6 million in taxes to the City of Port Alberni and is estimated to owe $4.3 million in 2012. Port Alberni has been incrementally reducing industrial taxes, in response to Catalyst’s claim that Alberni’s industrial taxes were too rich.
In January, the Supreme Court of Canada ruled on a case involving Catalyst and the District of North Cowichan. While the court ruled in favour of North Cowichan, it did find tax levels on the mill were “harsh.” It also pointed out that the ratio between residential property and major industrial property in North Cowichan in 2009 was one-to-20.3, dramatically higher than the one-to-3.4 ratio that was prescribed by regulation for all municipalities in BC until 1984.
Elected officials in North Cowichan are considering up to a $350-per-average home shift in property taxes from major industry to residential. That would result in about a 35 per cent additional increase to the municipal portion of the residential tax bill.
Powell River’s tax revitalization bylaw sets Catalyst tax rates at $2.25 million per year for the next four years, which is a tax ratio of one-to-3.65.
In Powell River, the shift in taxes from major industry to business and residential taxpayers has occurred gradually over the past seven years, McNaughton pointed out. “Powell River, including taxpayers, unions at Catalyst’s mill and council, have provided real leadership in addressing major industry tax issues by dealing with the problem head on,” he said. “The gradual shift has not eliminated the cumulative impact of the tax shift on residential and business taxpayers, however, this approach to the tax shift has ensured that our city has maintained service levels.”
The benchmark for the 2012 budget is 2011 revenues and expenses, plus cost of inflation, only where required, plus the costs of borrowing for recently completed capital budgets. Council budget deliberations begin tomorrow, Thursday, February 16, immediately following the committee-of-the-whole meeting.
