U.S. Steel should pay its property taxes, city argues in mediation hearing

The city begins arguing its case Thursday as to why U.S. Steel Canada should keep paying its property taxes as  the steelmaker seeks court protection to continue restructuring.

The city is one of several stakeholders in a mediation hearing, which runs from Thursday to Monday, where U.S. Steel Canada is arguing for an extension under the Companies Creditors Arrangement Act (CCAA).

As part of the extension, the company wants to suspend its property tax payments. It is also seeking suspend retiree health benefits and some pension payments, which local steelworkers are also opposing at the hearing.

The money at stake for the city is significant. U.S. Steel pays $5.8 million a year in property taxes. Its next installment, totaling $1,449,905.05, is due on Sept. 30.

City officials aren't even sure if that means delaying tax payments, or an exemption from them altogether, said Larry Friday, director of taxation.  "The wording of the request is ambiguous." But finance head Mike Zegarac has filed a motion response arguing Hamilton's case.

"These are the questions we're going to be asking," Friday said.

The United Steelworkers union, has also filed a motion opposing the request to suspend retiree health benefits and some pension payments.

• Steelworkers union pledges to fight for retiree health benefits
• U.S. Steel wants to suspend payments of benefits and property taxes

"We're keeping close contact with union and hoping for the best," said Scott Duvall, a Ward 7 city councillor and chair of the city's steel committee. 

If U.S. Steel Canada got a temporary reprieve and paid the taxes later with a penalty and interest, it wouldn't drastically interrupt the city's cash flow, Friday said.

But if it got an exemption, he said, that would be a dangerous precedent for restructuring corporations in the future.

"It wouldn't just be the city of Hamilton that would have a problem with that," he said.

"If for some reason, they didn't have to pay taxes while in CCAA protection, then we've got to collect the shortfall from every taxpayer."

Earlier this year, the steelmaker successfully appealed its assessment, citing cuts to production. The city and U.S. Steel signed a Feb. 27 settlement agreement, and the city has followed its side of the agreement, Zegarac said in his motion. The city paid USSC $7,185,553.19, he said, and withdrew its proof of claim in the company's CCAA proceedings.

U.S. Steel took over Stelco's operations in 2007, signing a largely secret deal with the federal government.

U.S. Steel Canada entered CCAA protection in September 2014, protection that was most recently extended to Dec. 11.

The company says it's been unable to negotiate a sale of its Hamilton and Nanticoke, Ont., operations, or reach a restructuring agreement.