All that’s left is a signature from the judge in Superior Court on August 22nd, 2018, after all three motions were passed unanimously during the special city council meeting Monday night. The CCAA cloud hovering over the city vis-a- vis Essar Steel Algoma, has lifted.
The report to council titled ‘Essar Steel Algoma Incorporated’s (ESAI) CCAA Proceedings and Tax Assessment Appeal’ was the subject of the special session.
The most important thing to take away from the City Council Meeting is that the city is now in a position to collect 80% of the taxes owed before the CCAA (Companies’ Creditors Arrangement Act) with former Essar Algoma began, and 100% of taxes owed post filing of those same court actions.
Algoma Steel is assuming a huge amount of debt.
A presentation by Mayor Provenzano, complete with slides, framed the overview of the report, tabled Monday, August 2018. The report would serve as the plan of action to wrap up this years’ long process for tax recompense.
The City of Sault Ste Marie is collecting 20.4 million dollars from Algoma Steel, which works out to roughly 91% of taxes owing. The City further agreed to not go back to MPAC (Municipal Property Assessment Corporation) for a re-assessment on Algoma Steel’s properties up to and including 2020.
City Council provided the negotiating team with a mandate. The team consisted of, Mayor Provenzano, CAO Al Horsman, Shelley Schell – CFO / City Treasurer Treasure, City Solicitor Nuala Kenny, assistant City Solicitor Melanie Borowicz-Sibenik and support from external legal council.
Taxes were owing to the City of Sault Ste. Marie for 2014, 2015, 2016, 2017.
“The deal that we reached relates to those four tax years.” stated Provenzano.
Outstanding taxes were negotiated thoughout the summer and fall (2017), and the agreement is reflective up to and including, Dec. 31st, 2017. Taxes for 2018 would go forward as normal.
For the years 2013 – 2016, Algoma’s asset had an MPAC valuation of 83 million dollars. “We were taxing as a city based on the valuation of those tax years.” Shared Provenzano.
“Algoma appealed its MPAC assessment valuation for 2014,2015, and 2016 – stating that they did not agree with the asset value – prior to the CCAA process.”
“It became an issue in the CCAA process because they didn’t agree with the rate that they were taxed at. In 2017 Algoma was reassessed my MPAC at 39 million.
“So from 2014 – 15 – 16 it was valued at 83 million. 2017 going forward its 39 million.
As of 2017, the city would start taxing Algoma at the MPAC valuation of 39 million.
“We were taxing them based on 83 million and they (Algoma) weren’t willing to pay taxes based on an assessment of 83 million.” said the Mayor.
“We had to negotiate the assessment. Before we could negotiate the taxes owing, we needed an assessed value (of Algoma) sorted out – What that would amount to – and negotiate how much of that money we could recover.”
“Through the process we agreed (the city and the representatives of the company) to proceed on the basis that the asset (Algoma) would be assessed at 60 million.
For 2014, based on an assessment of 60 million, Algoma would have owed 6.4 million. In 2015 – 6.1 million – In 2016 – 5.7 million – In 2017 when the assessment was factored at 39 million, the city would receive 5.5 million.
The mayor said that there were two perspectives going into the negotiations. 1) Pre filing taxes owed – or those taxes that Essar Global would have accrued when they owned the asset. 2) Post filing taxes accrued as of CCAA process beginning.
For 2014 and 2015, the total taxes were 12.5 million.
“We received during that period 1.4 million. On a prefilling basis we were owed 11.1 million based on 60 million dollar assessment.On a post filing – basis, as of the day the company went into CCAC to the end of 2017 we were owed 11.3 million.”
“The city was owed 22.4 million dollars. Of that 22.4 we are collecting 20.4 million. The city and company agreed that they would pay 80% of the taxes owed by the previous company. – 80 % of Prefilling taxes of and 100% of post filing taxes.”
In total 21.8 million for those four tax years would have been owed (2014 – 2015 – 2016 and 17). A difference of 2 million is borne out in the pre-filing equation of the agreement.
9 million + 11.4 million = 20.4 million dollars. The city has already received 1.4 million from Algoma.
“We also negotiated a number of other things.” shared Provenzano. “We agreed not to appeal their 2017 – 2020 MPAC assessment value. Unless MPAC reassess Algoma, the company will be valued at 39 million dollars.”
The City further entered into an agreement with Algoma Steel about tax fairness.
“The company agreed to assist us in our development activities, specifically NORONT Resources. We couldn’t have made that submission without their assistance. They will be working with NORONT to locate the plant on their property, should we be successful in our submission (for the ferrochrome smelting plant). If we are successful with this submission, Algoma will be an integral piece. We are coming out with a win-win.”
The negotiated settlement will no doubt be welcome news for the community and the approx.3,000 employees of Algoma Steel.
“This company is healthy, and those employees (Algoma) have a solid and bright future.” said Provenzano.
As of Oct 2017, Algoma Steel has been paying 500,000 dollars a month to the city.
“We wanted to make sure we collected enough money for the taxpayers of Sault Ste Marie. We (city and company) negotiated a consent agreement on a full and final basis.”
Mayor Provenzano said that the City can now look forward to “replenishing reserves and not cutting any services.” He added that the goal was to “negotiate a tax deal that we were proud of. A fair and solid tax deal for our community. This tax agreement finds that balance.”
CFO Shelley Shcell stated that, in her understanding of the process, “The MPAC assessment for companies such as Algoma Steel relate to their properties and other assets such as buildings. Paper mills and other specified industries have a criteria. One of the reasons their assessment did change was based on ‘economic obsolescence’. The steel industry has gone down. Between 2016 and 2017 we saw a 4 million dollar drop in assessment value of Algoma.”
Between 2016 and 2017 there was a 4 million dollar drop in MPAC assessment value for Algoma.
“Under the courts direction, monitor, etc., none of this money is recovered from Essar Global. As of the date of (court) filing, the party that will own the plant is the party that has taken responsibility for squaring away its debts and obligations.” Said Provenzano.
“Some debt will not be repaid – secured and unsecured. We will get the bulk of the money owed when the CCAA process is over. A lump sum will be made at that time.”
CAO Horsman said, “It’s not a windfall – we were taking money from our reserves. We didn’t borrow any money. This money will replenish our reserves. The west end treatment plant – for example – When we go to build it – we will have the reserves to build it.”
CAO Horsman added, “We don’t have this money over and above our levy. Now we have a chance to bring our reserves back up the level they were before this process began unfolding. To bring ourselves back whole.” stated CAO Al Horsman.
“This sets the stage for our future.” shared Councilor Paul Christian.
The City is on the hook for all legal fees.
Councillor Frank Fata raised the issue of local small and medium size businesses who have lost substantial sums to Essar Global.
“We certainly are sensitive to those owners, and sad that they can’t recover fulsome resources from this transaction. A lot of those people you are referring to have houses too, so they are also paying residential taxes. That is one of the motivating factors for what we did. We were very sensitive to them throughout the process.” said Provenzano “I certainly relied on and pointed to the fact that the company (Essar Global) left a lot of businesses high and dry. As far as unsecured creditor goes, I’m hoping that we have a lot of resources to make up some of the losses.”
“In this process, we did our best to recover as much as we could for the city.” He added.
“I want to thank the city staff and the CAO for working through this process. It’s been difficult. As hard as we have been working to diversity (economy), Algoma Steel is our main employer. I think we have done quite well in this process. This has been a lot of hard work. Mayor and council have been integral to this process.” said Mayor Provenzano.
Councillors Grandinetti, Shoemaker and Krmpotich declared conflicts of interest and did not vote on the motions before Council Monday night.
All three motions passed unanimously. Each motion represented a separate agreement and can be found here: http://saultstemarie.ca/Cityweb/media/City-Clerk/Council-Agendas/2018/2018_08_20_AGENDA_1.pdf?ext=.pdf