The City of Sault Ste. Marie is warning that it will be forced to take "draconian" measures by the end of June if Essar Steel Algoma's property taxes aren't paid.
In an affidavit sworn on Tuesday, city solicitor Nuala Kenny states that the $26 million in taxes already owed by the steelmaker represent approximately 25 per cent of the Sault's entire annual tax levy.
If Essar Algoma also fails to pay tax bills due on July 5 and September 5, it will owe about $29 million.
In her affidavit, Kenny warns that the city will have no choice but to decide on one or more of the following options by the end of June:
- levy Essar Algoma's tax obligations on the Sault's residential ratepayers, forcing a tax increase between 12 per cent and 20 per cent. This would be on top of the three per cent increase already forecast on local residential properties in 2018
- laying off at least 80 to 150 employees (representing 20 per cent of city staff) for each year that Essar hasn't paid property taxes since it first sought insolvency protection in November 2015
- take the money from the city's $40.5 million capital budget, of which about $16 million is provided by the provincial and federal governments solely to build and maintain roads, bridges and aqueducts. There isn't enough cash in this option to fully cover Essar Algoma's tax obligations, and it could place current and future government funding at risk
- borrow cash to compensate for Essar's unpaid tax bill. This option would also need to be supplemented by at least one of the other three options above
The city's warning comes as its lawyers try to persuade the Ontario Superior Court of Justice to deny a request from the Port of Algoma and the port's lenders for immediate payment of money owed by Essar Algoma.
The city argues that the steelmaker's fiscal circumstances have improved considerably and the port should not be allowed to queue-jump ahead of the city.
Under insolvency law, the city's claim takes precedence over every other claim except those from the Crown.
SooToday has been tracking other recent developments in the Essar Algoma sale and investment process, but our legal counsel advise that disclosure of that material may be prohibited by court order.
We will report on these developments once the situation is clarified.
Essar Steel Algoma's insolvency protection under the Companies' Creditors Arrangement Act expires on Apr. 30.