Algoma property taxes: how the deal was done

When the city's bargaining team sat down to hammer out a deal on Essar Steel Algoma Inc.'s back taxes, it had already secretly decided three points were non-negotiable.

"There were three principles that as a negotiating team we agreed on before we started," Mayor Christian Provenzano told SooToday on Monday, an hour before the deal went to City Council for approval.

"One, we wanted to recover enough money that we didn't adversely affect the taxpayer or services. We really wanted to make sure we got enough money back that this didn't show up on the tax bill, or that we didn't have to decrease services," Provenzano said.

"Two, we wanted to make sure that we recovered enough money to replenish our reserves. We didn't borrow to cover the lack of tax monies paid here. We borrowed internally. We took money out of our reserves to finance our operations. So we recovered enough money to replenish our reserves."

"The third thing we wanted to make sure we did, is we looked at previous tax deals. We wanted to make sure that we were consistent with them, so we negotiated a tax deal that was objectively as good as or better that previous tax deals. We met all those goals."

As SooToday reported earlier tonight, City Council approved a negotiated settlement on Algoma's back taxes that will give the city $21.8 million of the $23.8 million owed for the tax years 2014, 2015, 2016 and 2017.

On Wednesday, the deal will be presented for approval by the Toronto judge overseeing the steel mill's emergence from insolvency protection. 

The new company that will take over the Sault's steel mill has agreed to pay 80 per cent of taxes outstanding from when Essar filed for protection from its creditors in November, 2015. That totals $9 million.

The new Algoma will also pay 100 per cent of the $11.4 million in taxes owing since the steelmaker filed for protection under the Companies' Creditors Protection Act.

Almost $2 million in interest outstanding for the tax years 2014 to 2017 will be waived.

The city decided to negotiate with Algoma after a recent Municipal Property Assessment Corp. decision reduced the current value assessment of Algoma's local property holdings to $39 million, compared to $83 million in 2014 to 2016.

So the settlement is about $4 million less than what the city would otherwise have received: $2 million attributable to lost assessment and $2 million to waived interest.

City negotiators also agreed to and/or negotiated the following:  

• city agreed not to appeal current value assessment for 2017 to 2020
• city agreed to enter into a memorandum of understanding to address tax fairness
• company agreed to assist and support the city’s economic development priorities/initiatives such as the Noront ferrochrome smelter submission
• company agreed to pay $500,000 per month in taxes as of October 2017
• all parties consented to settlement of the Assessment Review Board appeals

"We had to settle the assessed value for 2014, 2015 and 2016 in order to negotiate the taxes on a full and final basis," the mayor said in his PowerPoint presentation.

"We know assessed value for 2013 was 80-plus million (approximately) and assessed value for 2017 was 39 million (approximately.) The parties agreed to negotiate taxes owed based on an assessed value of $60 million for 2014, 2015 and 2016," Provenzano said.

"We agreed that they wouldn't pay the interest for those tax years, because they wouldn't be paying interest on the original amount, on $83 million, we would have to go back and restate it all based on $60 million," the mayor told SooToday.

"But throughout the process, we were writing off. Every year, our auditors write off a certain percentage of uncollected interest. We had write-offs throughout the process. We didn't require interest paid for those tax years, but as of Jan. 1 this year, interest on the amount started accruing again. The city will be getting 20.4 million on top of what we've already received."

"It's important that we don't look at this money as a windfall, because it's not a windfall," the mayor said.

"We were taking money from reserves to finance our operations. So we didn't go out and borrow money from someone else, which would have had a cost. We took money from reserves we had here. This money is enough to put back in those reserves and make those reserves whole again."

"If we didn't have this money, we would have had to borrow significantly more money... and that would have hit the tax base at that time."

"This isn't a big cheque that we now have over and above our levy," the mayor said.

Editor's note: The decision to reduce the assessed value of Algoma’s local real estate holdings to $39 million resulted from a routine reassessment by Municipal Property Assessment Corp. An earlier version of this article incorrectly attributed the reduction to an Assessment Review Board appeal.