Doug Millroy: biggest boondoggles in the history of this city?

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There was a feel-good atmosphere in the community early this week after council approved an agreement that would see the city receive $21.8 million of the $23.8 million in back taxes, exclusive of interest, owed by Essar-Algoma  for the years 2014-2017.

But it didn’t last long in all quarters as mayoral candidate Rory Ring labelled the agreement “one of the biggest boondoggles in the history of this city,” attaching a claim that the actual debt was not $23.8 million, but more than $36 million.

I hadn’t intended to comment on the agreement, seeing it as a straight news story best left to those covering city hall on a regular basis.

But Ring’s press release changed all that.

It wasn’t his attack on Mayor Christian Provenzano obviously designed to score marks with the electorate, that caught my attention, although I thought it was unfair of Ring to single him out when there was a team involved, which included Shelley Schell, the city’s treasurer and chief financial officer, in the negotiations and council voted to approve the deal.

Rather it was what I saw as some errors in what he was presenting as facts.

In claiming that the city was owed $36 million, Ring says Algoma owed $14 million at the time it came under the protection of the Companies’ Creditors Arrangement Act (CCAA) and up to April of 2017 had racked up another $10.8 million. He said the amount grew after that by $650,000 a month.

But the report to council indicates Algoma actually owed $11.1 million before it entered creditor protection and $11.3 million for 2016 and 2017.

In May of 2017 Algoma began paying the city $350,000 a month and this was raised to $500,000 in October  These payments were applied to arrears, meaning they would go against 2014 which then kept the ongoing debt in the $22 million range.

I note Schell told David Helwig of SooToday that the negotiated settlement is about $4 million less than what the city would have received: $2 million attributable to lost assessment and $2 million to waived interest.

The mayor pegged the loss at $4.5 million when I met with him, saying there is always going to be some give as you are not exactly operating from a position of strength when you are negotiating with someone under CCAA protection.

Actually, either $4 million or $4.5 million looks pretty good when compared to the last time the city had a problem collecting taxes from Algoma. Where in this case the city lost at least $4 million over a three-four year period, in 2001 it entered into an agreement with Algoma that saw a tax loss of $3,713,309 on a nearly $9 million tax bill for the year 1991.

The city received $5 million, which was paid in equal instalments in 2002 and 2003. The city’s tax loss on approval of the plan amounted to $1,125,000 and lost penalty and interest on deferred taxes came to $1,125,000. The tax loss to the Boards of Education was $955,489.

In 1992 the city faired somewhat better, Under its restructuring, Algoma agreed that in June it would begin making tax payments that would include an additional amount equal to 10% of the outstanding arrears. There would be 10 payments concluding in June 1995.

The city waived interest that otherwise would accrue to the date of the restructuring, believing that since Algoma was under credit protection there was some doubt that it would be collectable anyway.

Interest on the declining arrears balance was charged at the rate of 8% per annum and was collected in conjunction with the 10 instalments.

In the case at hand, the city said it had to settle the assessed value for 2014, 2015 and 2016 in order to negotiate the taxes on a full and final basis.

Considering the Municipal Propery Assessment Corporation (MPAC) was lowering Algoma’s assessment from $83 million to $39 million, apparently in part because of “economic obsolescence”, it doesn’t seem unreasonable that a deal was struck to lower the assessment to $60 million and, for that matter, for the city to accept Algoma”s offer to pay 80% of the arrears for those years.

The city also agreed it would not appeal the assessment for 2017-2020. The $39 million figure will stand.

Ring in his release had said that in April of 2017 Essar-Algoma had won a substantial victory in its assessment appeal with the Assessment Review Board and the value of its land was dropped from $83 million to $39 million.

“While the mayor had his eye off the ball fighting an unnecessary battle in Toronto courts, Essar-Algoma was winning a huge tax break at the Assessment Review Board,” Ring said, indicating that the drop in assessment was something we weren’t told.

That is probably because it was well-known, something I  tackled in May of last year. The lowering of Essar-Algoma’s assessment wasn’t done because an appeal was won, it was simply done by MPAC as part of the reassessment that takes place for all property every four years. The assessment appeal Algoma had launched was for the years 2014 through 2016 (for some reason it didn’t appeal 2013), which as I mentioned above resulted in the new $60 million assessment figure..

Ring told reporter Elaine Della-Mattia of The Sault Star that if Essar-Algoma has been forced to pay all of the taxes due on the $83 million assessment, business and industry would not have had a 56.7% tax-rate increase to make up for the lost tax dollars.

He seems to miss the point that in such negotiations, nobody is going to be forced to do anything.

And as for the 56.7% increase he says was imposed on business and industry, that was a bogus claim that surfaced in June of last year and was quickly laid to rest.

I said in a column on July 1 that I almost jumped out of my skin when a document came my way showing that the change in Algoma’s assessment meant a 56.67% tax increase for some firms in the city.

I was told that for Soo Foundry, this resulted in its annual tax bill increasing from $69,000 to $119,000, somewhat below the 56.67 percent but still high.

When I talked to the city I found it felt the false information was so egregious that it had set about sending out corrective information.

“The city wishes to advise the community that this information regarding the tax bill for property owners is incomplete and the conclusions drawn from such calculations are misleading and deceptive, “ said Deputy CAO/City Clerk Malcolm White. “For the multi-residential, commercial and industrial classes, the information being provided does not take into account tax capping and clawback provisions, which phase in tax increases within these tax classes.

“The city reminds property owners that their most recent final tax bill is in fact the only accurate and complete source of information regarding the 2017 taxes.”

“The loss of this tax revenue for a municipality is recovered through a clawback provision that limits the amount of an assessment-related decrease a property owner might otherwise expect.  “The revenue could also be recovered through levy increase or through reserves – the city has chosen the clawback provision. The overall increase this year in the large industrial class, after capping, is 8% for the majority of taxpayers.”

.I also contacted Robert Cohen, the operator of Soo Foundry, who said the figures I had provided in my email, taken from the information I had received, were wrong.

He agreed the increase was actually only 8% but feared what was to come.

“It is 8% but it is only 8% because of the provincial capping so what they have done is set in motion for, if nobody addresses it next year, steady increases over the next 10 years. All the capping does is mitigate the increase,” he said.”

Ironically, Cohen suggested Ring, executive director of the Sault Chamber of Commerce, as having one of the better explanations of the intricacies surrounding capping and clawback. But Ring was not available and deadline was upon me.

Ring is also upset that the city paid more than $500,000 to the Toronto Law firm of Aird and Berlis, seemingly believing it was to launch a lawsuit against Algoma and suggesting that in any event it could all have been handled by city staff.

I thought the price was high but never thought staff had the expertise or the time to handle the issue.

Anyway, I decided to attempt to find out what the city got for its money and was forced to put forward a request through Freedom of Information to do so as I originally asked for copies of invoices. After I learned the decision was to come down this week, I opted to accept billable hours rather than full invoices, which would have ended up costing hundreds of dollars for the work involved. I got off with $35.

Although council approved ongoing payments that appeared to total $535,000, Jeffrey King, solicitor/prosecutor in the legal department, provided me with information showing the actual total the city was invoiced came to $568,950.62. However, he explained that when the municipal HST rebate was factored in, the city’s total out-of-pocket expense came in at $508,950,62.

Aird Berlis billed 1,131.4 hours for the services of lawyers Steven Graff, Ian Aversa and Jeremy Nemers, which works out to $503 an hour for the $568,950 total or $450 an hour on the final charge of $508,950.

In a follow-up news release Ring said the mayor spent $500,000 fighting a case where the city had the protection of a lien to secure its payment and got nothing.

“In the meantime,” he said, “Essar-Algoma filed an appeal for a lower assessment at the Assessment Review Board. The mayor chose to refuse to negotiate a tax settlement before the assessment case went to a hearing. The city lost badly. And the Essar-Algoma tax bill was practically cut in half as a result. It wasn’t until the city was hit with that decision that the mayor came to the table to make a deal.”

This comment shows that Ring has learned nothing since he issued his first news release on the issue in which he made the same claim..

To repeat what I had already explained earlier in this piece, the fact of the matter is there was no such hearing. Therefore the city did not lose badly and Essar-Algoma’s tax bill was not “practically cut in half.”

If Ring wants to be considered a legitimate candidate for mayor, he is going to have to do much better than what he has shown here.

 

 

 

7 COMMENTS

  1. I wonder what the truth is of what is likely owing and has been paid to legal representatives from Toronto ?

  2. How can you trust a Mayor that says the city got 91% of the taxes ESSAR owed? (FAKE NEWS)

    Maybe we got 91% of the heavily discounted taxes the Mayor NEGOTIATED, but throwing out a million numbers and coming to the conclusion that we got 91% of what ESSAR OWED is simply not true, and makes me feel like I can’t trust anything this Mayor says.

    BTW my property taxes are waaaaaaay too high!

  3. The tax arrears numbers are well documented: $24.8 MM PLUS interest as of APRIL 17, 2017. These are the mayor’s numbers.

    It seems the city’s negotiating team did a deal that got us $21.8 MM and no interest for tax arrears up to DECEMBER 31, 2017. These are also the mayor’ss numbers.

    What happened to the millions of dollars of taxes that were charged between APRIL 17, 2017 and DECEMBER 31, 2017 that seem to have conveniently disappeared into thin air?

    Please get the Mayor to explain those additional $3+ MM dollars in lost APR – DEC 2017 tax arrears (on top of the 4 MM he already acknowledges) That seem to have been negotiated out of existence Doug.

    The Mayor’s credibility is on the line.

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