But the issue in BC came into sharper definition in July when Catalyst Paper hand-delivered cheques to four municipalities that only covered 25% of their property tax bill.  Timberwest, Celgar and West Fraser Timber joined Catalyst and all four took their respective communities to court saying they were paying too much.  The companies argued they should only have to pay for the cost of the services they received.

The communities were hit hard by the unexpected refusal of the companies to pay their taxes.  Castlegar Mayor Lawrence Chernoff told the Union of BC Municipalities convention in September that the company gave them no notice of their intentions leaving Castlegar in a very difficult situation.  The city was required to pay money that had been levied for the regional district.  The City was forced to cut $700,000 in external requisitions.

In BC property taxes are based on several classes of property.  The base rate is for Class 1 – residential properties.  Class 4 is Major Industrial and companies like Catalyst do pay much more than residential owners based on the value of their property.

On October 16^th Supreme Court Justice Peter Voith ruled on the issue.  The Judge rejected the companies’ argument saying, among other things,

The weight or significance given to such consumption data is a matter for Council alone. It is up to Council to fit and weigh such information, together with other categories of relevant information, into its decision-making matrix in the way that it considers appropriate.

What other categories of information might we look at in assessing property taxes?

Paul Willcocks in his usually thoughtful way identified an historical reason.  He points out that resource companies in the past were all highly profitable and operated in one industry towns.

They needed a stable workforce. Rather than building an old-style company town, they opted to pay high taxes to fund the services and infrastructure that allowed them to attract workers and their families.

Things have changed now, of course, but the Director of Finance for North Cowichan offered another reason before the court:

In adopting the annual tax rates bylaw, and establishing the tax rates to be imposed by North Cowichan in respect of each of the classes of property located within its boundaries for that year, the North Cowichan Council considers, among other things, the relative ability of each of the classes of property to meet the overall property tax burden.

This ability to pay question has not been examined too closely.  One of the few people to look at the issue is Kitimat Municipal Manager Trafford Hall.  Examining Kitimat’s aluminum industry he concluded that Kitimat’s property taxes came to about 1.6% of their operating costs.  Hall points out that property taxes are fully deductible from other levels of taxes reducing the actual cost to about one percent of operating costs.  Cutting their property taxes by 20% then would save one fifth of one percent.

What about Catalyst Paper?  In 2008 Catalyst reported operating expenses of $2,006.8 million.  In its 2009 Management’s Discussion and Analysis Catalyst said they had five mills, four in BC and one in Snowflake AZ.  They continued,

Major industry property taxes in the Company’s four mill operating communities in B.C. are well above other North American jurisdictions.  Property tax payments in 2008 in these four municipalities were approximately $23 million.  The Company has identified municipal property tax reduction as a priority in 2009. 

All told, that $23 million comes to about 1.15% of their operating costs.  And as Hall points out, property taxes are deductible bringing the real cost over good times and bad well under 1.0%.

How does that compare with residential property taxes?  Hall quotes Ontario’s 1990 Fair Tax Commission as saying property taxes comprised from 3 to 5.7% of residential household income.  And residential property taxes are not deductible from other taxes.

What can we conclude?  Times are tough for paper companies, but property taxes are a negligible part of the problem.  A significant cut in industrial taxes will make a very small reduction in their expenses but will lead to a dramatic increase in taxes for residential taxpayers. 

We hear a lot of talk about the need for big changes in revenue sources for municipalities and that talk is justified.  But until real changes are made and new revenue sources added, big cuts in industrial taxes will just lead to more tax unfairness.

The reason for the closings, according to a Catalyst press release, is the collapse of newsprint consumption and pulp demand:

The rapid decline in North American newsprint consumption is unprecedented,” said Richard Garneau, president and chief executive officer, “and it requires us to focus sharply on cost management as we optimize production across our mills to match capacity with the order book.

As devastating as the closures are, they aren’t entirely surprising. Things have been rough at Catalyst for a while: Crofton curtailed production for 30 days in the fall, and the Elk Falls sawdust/containerboard mill near Campbell River closed at the end of November.

Reacting to the most recent news, Jim Sinclair, president of the BC Federation of Labour, remarked that we are witnessing the “slow de-industrialization of the province”. For the folks on the Island and in Powell River, of course, it probably does not feel slow, but whatever you want to call the pace of change, the problems are expanding.

Sinclair went on to call (again) for some cooperative efforts by industry, labour, and the province to find a way out of this mess, echoing the BC Fed’s letter sent to the Premier earlier in the month:

Contributing close to 40 percent of BC’s exports and 25 percent of our GDP, it is only fair, reasonable and just that British Columbians through their government join hands to assist workers and communities in that sector as it endures bad times. We believe a strong, sustainable forest industry can continue to be a vital component of our economy.

That letter contains some very concrete suggestions regarding what the government can do: extend forest workers’ EI coverage, fund retraining, reforest, and assist forest-dependent communities like Crofton with some money to cover tax losses.

These are excellent ideas. In the short term, the government must follow through on this. Failure to do so—and the budget sure makes it look like we are headed for a failure to do so—can only suggest that the provincial government has no idea how bad things are, and how much worse they are going to get.

As for taxes, it is only recently that Catalyst has laid all the blame on the global downturn. Last summer, when the Elk Falls closure was announced, the company said

The decision reflects the severe impact of a permanent loss of traditional sawdust supply, as well as significant energy and chemical cost inflation, high labour costs and the heavy toll being taken by the uncompetitive major industry municipal tax levied on the Elk Falls mill.

In January, Catalyst CEO sent a letter to officials in Powell River, Campbell River, Port Alberni and North Cowichan that threatened mill closure if annual property taxes were not reduced from $23 million to $6 million.

The heavy-handedness of this kind bullying may be offensive, but Catalyst’s annual losses show there is no denying that costs have to come down, and unions have been trying to help them do exactly that.

The government, in contrast, seems to feel that workers and communities need to eat all the cuts in costs. It apparently has no idea what it is getting itself, and everybody else in the province, into. The provincial forest industry is in freefall, and not just on the coast, of course. Whether it can ever be resurrected in a socially and environmentally acceptable form is a good question, one the province needs to take seriously.

What is essential right now is immediate short-term aid to forest-dependent communities, and a provincially-coordinated industrial restructuring with a long-term vision, the capacity to ask big, tough questions, propose a range of creative solutions, and the authority to follow through and work with communities to rebuild.

The government must step in to this morass, and do so with some enthusiasm and resources. This may mean taking a significant public stake in forest operations, even “provincializing” aspects of the industry and the coordination of industrial production.

These are huge problems, and they call for unprecedented action. If we wait, this one may appear to “go away”, but I’d bet the farm that much bigger ones will have taken their place.