Gallant government willing to repeal Canaport LNG tax deal
Robert Jones | CBC News | Posted: April 11, 2016 8:00 PM | Last Updated: April 11, 2016
Local Government Minister Brian Kenny seeks guarantee from Saint John council it won't cost province money
The Gallant government says it will grant a request from Saint John council to kill an 11-year-old tax concession at the Canaport LNG development 14 years ahead of schedule.
But first, the provincial government wants a guarantee from the city that the move will not cost the province any money, Local Government Minister Brian Kenny stated in a letter to the city.
"We have now completed our due diligence regarding the proposed repeal and are prepared to move forward, provided that the province is assured it is not financially impacted as a result," Kenny wrote in the letter, dated April 7.
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Councillors voted 7-2 in December to ask the provincial government to terminate the tax deal.
The concession freezes property taxes on land owned by Irving Oil and leased to the LNG development at $500,000 per year until 2030.
Taxes to the city will jump to $8.02 million per year if the concession is revoked based on the property's current assessment.
But because of the tax deal, Irving Oil has never bothered to challenge the Canaport LNG assessment and the province is worried if that happens there could be an unintended consequence and cost to it.
"We want to make sure that the City of Saint John understands that if there are any of those changes or adjustments that the City of Saint John, since they're making the request, the burden would be on the City of Saint John," Kenny told CBC News on Monday.
Every year the province conducts property tax assessments for all New Brunswick communities and guarantees amounts to municipalities based on those results.
Later each spring, as some property owners challenge their assessments and others fail to pay their property tax bills, the province alone deals with the shortfall.
Wants protection if Irving Oil appeals and wins
In his letter to the city, Kenny says in repealing the tax concession the province doesn't want to be responsible if Irving Oil appeals the LNG assessment and wins.
"We're just letting them know if they want us to move forward that we will not be liable for any of those changes," said Kenny.
The LNG development is assessed annually by Service New Brunswick like every other property in the province and is currently listed as being worth $299.5 million.
It's not that we don't trust [our assessment]. There is expertise there, but it is such a unique property. - Brian Kenny, Local Government minister
But government now seems nervous that the value it has been giving the development will not withstand a full scale appeal if one is brought by Irving Oil and it wants Saint John to pay the price if its assessors have been wrong.
"It's not that we don't trust [our assessment]," said Kenny. "There is expertise there, but it is such a unique property. It's not like you're assessing a commercial building that's so many square feet, or assessing a bungalow."
"It's a very unique piece of property and you would need some very unique expertise to go in and do the proper assessment of that property."
The financial risk to Saint John would likely come only in the first year of the tax deal's repeal and arises out of the city's current receipt of $17.5 million in equalization payments from the province.
Could lose $4M in equalization grant
Property taxes to the city from the LNG development will jump by $7.52 million per year if the tax deal is repealed, which the province will pay to the city early next winter.
But an increase that large will likely lower its equalization grant by close to $4 million, which would be distributed to other have-not communities. That scenario lowers the gain to Saint John of repealing the tax deal to $3.5 million.
But if Irving Oil then appeals the LNG assessment and is able to win a 50 per cent reduction, the city would have to pay back $4 million to the province.
It could not be refunded any equalization money since it will already have been paid out to others, so overall, Saint John would lose $500,000 under that scenario in the first year.
In subsequent years, however, its equalization would be recalculated and gains from rescinding the tax deal would begin, with the city quickly making up any loss in the first year.
City reviewing risks
Saint John Mayor Mel Norton says city managers have been asked to calculate exactly what the risks to Saint John would be if it agrees to the province's condition and council will consider its response soon.
"They're going to review those financial implications for the city and bring a report to council," said Norton.
Coun. Gerry Lowe, who is one of the leading advocates of repealing the LNG tax deal, believes the city will agree to the province's terms.
"It's positive. It's what we asked for, except there's all kinds of complications and it's just like anything else, we'll have to work through it," said Lowe.
The LNG tax deal was requested in 2005 by then-Irving Oil president Kenneth Irving, endorsed by the city and put into legislation by the province.
Last year, CBC News obtained the lease agreement for the LNG property, which shows Irving Oil collects $12.25 million US in annual rent for leasing it to the LNG development — an arrangement that was not disclosed to the city in 2005.
Because of that revelation and the fact there were no signed agreements between the city, the province or Irving Oil around the tax deal, the current council requested it be undone.