B.C. towns suffer as major paper companies refuse to pay tax

The Canadian Press Date: Saturday Dec. 5, 2009 3:54 PM ET

VANCOUVER — When a water pipe bursts these days in a British Columbia pulp and paper town, residents better dig out their rain boots. Water and sewer services have been slashed, major infrastructure projects have come to a halt and court battles are underway in several communities where pulp and paper companies are refusing to pay millions of dollars in taxes. From the north coast city of Prince Rupert, B.C., to four Vancouver Island communities and Castlegar in the Kootenay region, businesses claim unfair tax rates must be changed to reflect the current economic crisis that has hit them so hard. The issue has reached a crisis point in municipalities where budgets have been hammered by the lack of tax dollars from major contributors."In Prince Rupert, you have a one-in-seven greater chance of the infrastructure failing in your neighbourhood than you do in any other community in Canada," said Mayor Jack Mussallem.

Prince Rupert recently took over a pulp mill after Sun Wave Forest Products, a subsidiary of the China Pulp and Paper Group, failed to come up with about $6.5 million in taxes. The massive hole left in the municipal budget was compounded with costs of up to $100,000 a month to maintain the former Skeena Cellulose mill that shut down six years ago, forcing the municipality to do without basic services. "We've had water lines fail in neighbourhoods, we've had valves burst apart and wash out roads and flood adjacent properties and we've had in other areas retaining walls for road networks fail," Mussallem said. The community has seen hundreds of jobs disappear over the last few years with the closure of fish processing facilities and pulp and saw mills, and is only managing to pay for services through grant money, not funds that it generates itself. "We are $100 million behind in our infrastructure reinvestment," Mussallem said. "This is a situation, where a municipality, if it were allowed to, would go bankrupt. It's beyond a desperate situation. It's hand to mouth." The mothballed pulp mill is up for sale, and the closing date for proposals is Dec. 15. Prince Rupert's brightest hope for its economic future is its provincially- and federally-funded port, which Mussallem said is the most efficient in North America.

Mayor Lawrence Chernoff of Castlegar, B.C., wishes his town could have such an alternative for the Celgar pulp mill, whose owners are fighting a $3.2 million tax bill. He said big infrastructure projects were in the works to reduce dependence on the company that pays about 43 per cent of the municipality's total taxes, but they're now on hold because there's not enough money to proceed. Germany-based Mercer International, which owns Celgar, has rejected an incremental five-year decrease in taxes, Chernoff said. On Vancouver Island, Catalyst Paper (TSX:CTL) has sued North Cowichan, Port Alberni, Campbell River and Powell River over claims its tax bills are too high. In October, a B.C. Supreme Court judge ruled in North Cowichan's favour, saying the issue would be best addressed by different levels of government. But the company that paid only $1.5 million of this year's $6.5-million tax bill has appealed the decision while rulings in the other three cases are pending. The shortfall in North Cowichan amounts to about 25 per cent of the municipality's total tax dollars, said Mayor Tom Walker. He said Catalyst's tax bill comes to only one per cent of its total operating costs but the unpaid money is having a huge impact on the community. North Cowichan agreed to cut Catalyst's tax bill by $859,000, but the company balked before heading to court, Walker said. "We've trimmed our budget to bear bones," he said. "We just got mean and lean with every department and the rest of the shortfall we made up through temporary borrowing through various reserves."

The community has just passed a bylaw to borrow $4 million for next year's budget, Walker said. Catalyst spokeswoman Lyn Brown said taxes for major industries are out of line with the services they receive. "Our position has been, from the beginning, that the taxes we are paying as a Class Four taxpayer are unreasonable," she said, referring to the category of industrial taxes. Brown said the company took court action only after attempts to negotiate a solution failed. "For six years we appealed for reductions and weren't able to see accelerated adjustment and that has simply made an urgent priority an acute problem in a recessionary economy," she said. The time has come for an overhaul of tax rates that will also benefit other large sectors including manufacturing, export, freight and transportation, Brown said. "This isn't a time for fingerpointing, this is a time for rolling up our sleeves and fixing the problem," she said. "Our sense is that it needs to involve a variety of players -- anyone with a stake in the game in B.C. will have a perspective and potentially be part of the solution."

Community and Rural Development Minister Bill Bennett said he's discussed the issue of industrial taxes with the Union of B.C. Municipalities but legislating changes will not fix the problem. "There would be some significant unintended consequences around the province," he said, adding other industries such as mining, which are doing well despite the recession, would also end up paying lower taxes that would impact communities. "No one has persuaded me with an argument that we can have different tax rates for different industries," Bennett said. "How do you pick one industry and say we're going to have a lower rate for you? What happens when the price of pulp goes up?" Bennett said municipalities where companies have refused to pay taxes will be in a position to take court action as of Jan. 1, when those debts will be overdue. "Ultimately these companies are going to have to pay their taxes. That's just a fact of life."

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The effect of decreasing the Heavy Industrial Rate in some of these towns in half and the resulting residential tax increase can be found at http://vernonblog.blogspot.com/2009/09/industrial-tax-revolt-against-towns.html

Prince Rupert (as of 2008) are found in the table below: