Canaport LNG tax concession caveat causes concern in Saint John

The Gallant government is insisting there are no banana peels it knows about waiting for Saint John if it decides to proceed with undoing a property tax concession at the Canaport LNG development.

But the province's unusual condition that it be shielded from the "potential implications" of the change has generated some nervousness in the city, especially since the only thing that could go wrong is if the provincial government itself has botched the LNG development's property assessment.

"Shouldn't be fooled twice," tweeted former Saint John city manager Terry Totten upon learning of the strings attached to the province's offer to kill the tax concession.

"Saint John should do a pile of work before pulling this trigger, if ever."

• Gallant government willing to repeal Canaport LNG tax deal
• Saint John will ask province to repeal Canaport LNG's tax deal

On MondayNew Brunswick's Local Government Minister Brian Kenny announced the provincial governmentwill agree to a request from Saint John to end the 2005 tax concession 14 years ahead of schedule, but only on the condition that Saint John agrees to assume all of the financial risks that might flow to the province from a change.

Unexpected caveat

"The City of Saint John, since they are making the request, the burden would be on the City of Saint John to make sure the province doesn't get hit," Kenny said.

It was an unexpected caveat, especially since the only thing likely to cause a problem with ending the tax deal for the province, is if the province itself has been routinely over estimating the value of the LNG property.

That could result in the assessment crumbling in the face of an aggressive appeal by Irving Oil after the tax deal is dissolved and the province doesn't want to have to refund any money if that happens.

Leaders of New Brunswick's various third parties sayif the province's assessment of the LNG property proves to be a problem the province and not Saint John should be the one on the hook.

"It's absurd for the provincial government to ask a city to reimburse the provincial government on an assessment appeal," said People's Alliance Leader Kris Austin.

"They don't do that for any other municipality so why are they doing it for the city of Saint John?"

The provincial government is responsible for assessments in New Brunswick and evaluates over $45 billion worth of property annually.

It collects and distributes nearly $700 million in property taxes for New Brunswick communities based on those assessments and normally takes responsibility for mistakes by absorbing the cost of successful property tax appeals.

No assessment guarantee

But Kenny says the provincial governmentdoes not want to guarantee its assessment of the LNG property and insists Saint John pay if mistakes show up.

The provincial governmentassesses the LNG property as being worth $299.5 million, an amount it has increased by $9 million over the last five years.The province reviews the amount yearly and charges Irving Oil $58,000 for each evaluation.

The tax deal takes that assessment and artificially lowers it to $18.7 million so Saint John will qualify for only $500,000 in property tax from the LNG property.

Ending the tax deal will allow Saint John to collect tax on the full assessment, generating a 1,500 per centincrease in property tax to $8.02million per year. But that's only if the full assessment done by the province is correct, which Kenny does not seem convinced about.

"It's a very unique piece of property and you would need some very unique expertiseto go in and do the proper assessment of that property," Kenny told CBC Newson Monday

It must be an awful conundrum to common council.- David Coon, Green Party leader

Green Party Leader David Coon says it is hard to know whether the Gallant government is being cautious, or knows of problems with its LNG assessment it is not disclosing.

"The nature of this offer suggests there is some back story some context that is currently invisible to the city," said Coon.

"It was a surprise to me. It must be an awful conundrum to common council."

Pulp mills precedent

The province does have some experience in having its assessments dismantled by big industry.

In 2013, the province's six pulp and paper mills successfully challenged their assessments and had them lowered by a combined $131 million overnight more than 50 per cent.

It cut their combined property tax bill by nearly $6 million and created municipal budget problems in Saint John, Nackawic, Atholville and Edmundston.

But the province also lost tax revenue in that case.

Part of the problem for Saint John now is that if Irving Oil does eventually challenge the assessment of the LNG property the city will have to rely on the province to mount a defence again, except this time the province will have no financial incentive to win the case.

"The city needs to know the province has its back and that's what is I guess a bit upsetting is the sense that in this offer, if you want to call it that, the province does not seem to have the city's back," said Coon.

NDP Leader Dominic Cardy says Saint John is right to be nervous about the way the Gallant government is trying to make it financially responsible for any mistakes the province may have made in the assessment of the LNG property,

You're not paranoid if they're really out to get you.- Dominic Cardy, NDP leader

"You're not paranoid if they're really out to get you," said Cardy.

"It's a risk Saint John and the province took on jointly and I think it's reasonable for the city to ask that the risk be shared."

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.

Property taxes to the city from the LNG development will jump significantly if the tax deal is repealed, which the province wouldbegin to pay to the city early next winter. But a large increase wouldthen lower its equalization grant,which would be distributed to other have-not communities.

The problem arises if Irving Oil then appeals the LNG assessment and is able to win a significant reduction. The province wants the city to agree to pay the difference back.

The city could not be refunded any equalization money however, since it will already have been paid out to others.That raises the possibility of Saint John losing money on the repeal of the tax deal in the first year.

In subsequent years, however, Saint John's equalization would be recalculated and gains from rescinding the tax deal would begin.