Steel mill balks at sky-high city taxes, doesn't pay 2016 interim bill

Essar Steel Algoma's unpaid property taxes are starting to seriously strain its relations with the City of Sault Ste. Marie.

On top of the $14 million Essar (ESA) owes to the city for last year's property taxes, there's word now that the troubled Sault steelmaker also hasn't paid its $1.8 million interim city tax bill for 2016.

The $14 million owing from 2015 is tied up in ESA's court-supervised insolvency proceedings and won't be released anytime soon, although city officials expect to receive the money eventually as secured creditors.

But 2016 taxes are an entirely different ladle of fish.

Last November, 11 days after ESA filed for protection from its creditors, Judge Geoffrey Morawetz of the Superior Court of Justice ordered the company to make mandatory payment of any "municipal realty, municipal business or other taxes, assessments or levies."

The city and its team of top Toronto insolvency lawyers take that to mean ESA must pay all property taxes going forward.

ESA's first instalment on its 2016 municipal property taxes — $1.8 million — was due on Monday, March 7.

Essar demands its taxes be reduced 71 to 78 percent

One business day before that deadline, on Friday, March 4, ESA President and Chief Executive Officer Kalyan Ghosh wrote to Mayor Provenzano, demanding that the $14 million it pays in annual taxes be reduced to just $3 million or $4 million.

That's a tax cut between 71 to 78 percent.

The city refused ESA's request.

The company's latest tax bill remains unpaid.

Clearly bewildered and exasperated by the steelmaker's conduct, City Solicitor Nuala Kenny has launched a court battle to get ESA to pay up.

"Both my team and I at the city have a great deal of difficulty understanding [ESA]'s delayed and unsatisfactory response to the city..." said Kenny in an affidavit filed April 20 with Ontario's Superior Court of Justice.

ESA has 15 properties within the City of Sault Ste. Marie.

The largest, by far, runs alongside Wallace Terrace.

Here's how the properties break down on ESA's latest tax bill:

• 00000 Wallace Terrace - $1,787,833
• 150 Conmee Avenue - $11,372
• 833 Wallace Terrace - $2,056
• 73 Huron Street - $1,289
• 399 Base Line Road - $1,068
• 105 West Street - $715
• 00000 Base Line - $547
• 00000 Portage Lake - $434
• 00000 Ontario Avenue - $197
• 32 Yates Avenue - $152
• 1177 Base Line - $142
• 40 Yates Avenue - $110
• Unassigned - $31
• 1048 Queen Street East - $00
• 80 Hudson Street - $00

ESA points out that it's appealing its assessment on the Wallace Terrace property through Municipal Property Assessment Corporation (MPAC).

The city says that's no excuse for not paying the 2016 tax instalment.

"As city solicitor, I truly believe that neither the request in the March 4 letter, nor the pending assessment appeal for tax years commencing in 2014, authorizes the debtor [ESA] — until such matters are resolved in the debtor's favour — to withhold payment of its realty tax obligations to the city for 2016 and beyond," Kenny argues.

That's especially true, Kenny says, when the steelmaker is already $14 million in arrears on its tax payments.

Tax rate up 44 percent since 2007

Meanwhile, ESA's Kalyan Ghosh echoes what many in Sault Ste. Marie's business community have been saying all along — that even though our city has very low tax rates on residential properties, the rate charged on commercial and industrial properties is disproportionately high.

"The Sault Ste. Marie large industrial tax rate is up 44 percent since 2007, and the industrial rate has grown 36 percent over the same period," Ghosh says.

"Over the same time frame, the education component for both large industrial and industrial occupied has declined 61 percent and 44 percent respectively. Such increases simply cannot be supported in the best of economic times and must be addressed to ensure the viability and competitive position of the businesses that bear the burden."

Discrimination?

Ghosh argues that the very existence of a special tax rate for large industries in the Sault is unfair and discriminatory.

"Sault Ste. Marie is one of only 16 municipalities, from among 104 in Ontario, that even have a large industrial tax class," he says. "And within that minority group, Sault Ste. Marie applied the largest differential between its standard and large industrial tax rates, exacerbating its discriminatory treatment of large industrial employers." 

Sault Ste. Marie has only three or four employers large enough to to be taxed at the large industrial rate, Ghosh says,

These are the same businesses that contribute most to the Sault's overall tax base.

Employees and retirees at ESA, he says, represent almost 28 percent of households in the residential tax class.

"Ultimately, the bottom line is that our cost structure must align with that of our competitors and that would put our annual tax payable in the range of $3 million to $4 million per year," Ghosh said in his letter to Mayor Provenzano.

"We request an amendment of the tax class structure and a reduction to the tax rates applied to bring Sault Ste. Marie in line with comparable municipalities across Northern Ontario." 

City: payment necessary to continue services

Back at City Hall, City Solicitor Kenny is warning that payment of Essar's 2016 tax obligations "is necessary for the city to continue to provide the debtor [ESA] — both directly and indirectly through the city's residents — with satisfactory services."

"At a basic level," Kenny says, "these services represent typical municipal services that one would expect such as sanitation, road maintenance and emergency services. However, in the case of the debtor and its stakeholders, the services are often much more direct and tailored."

The city's application to force ESA to pay its 2016 tax bills will be heard on June 15 by Superior Court Justice Frank Newbould in Toronto.

Chamber of Commerce also concerned

Essar Steel Algoma isn't the only one bothered by the Sault's high tax rates on industrial sites.

A Sault Ste. Marie Chamber of Commerce study done prior to this year's city budget deliberations found our tax rate on large industrial occupied properties was second-highest among 104 Ontario municipalities, and highest among six Northern Ontario cities.

For smaller industrial sites, our rate was third highest in Ontario and highest in the north.

"Among six cities in Northern Ontario, the Sault Ste. Marie large industrial occupied municipal rate is 311 percent higher than the lowest rate (North Bay)," the chamber reported.

"A large Sault Ste. Marie industrial property assessed at $15 million pays a total property tax (municipal and education rates combined) of $1,296,300. A similarly assessed large industrial property in North Bay pays a total property tax of $449,850."​

ESA pays 5.5 times more taxes than a residential ratepayer

The following, as approved by City Council last month, are the latest tax ratios for various property classes.

Tax ratios demonstrate how the tax burden is distributed between classes relative to the residential class ratio, which is equal to ‘one.’ 

Large industrial properties have a tax ratio of 5.5, meaning they pay 5.5 times the amount of municipal tax as a similarly valued residential property. 

• Residential & Farm -1.00000000
• Multi-Residential -1.30476749
• Commercial Occupied - 2.20424281
• Commercial New Construction - 2.20424281
• Commercial Excess Land - 1.54296997
• Shopping Centres - 2.33994673
• Shopping Centres New Construction - 2.33994673
• Shopping Excess Land -1.63796271
• Office Building - 3.21940235
• Office Building New Construction - 3.21940235
• Office Buildings Excess Land - 2.25358164
• Parking Lots & Commercial Vacant Land - 1.62966327
• Industrial Occupied - 3.10295644
• Industrial New Construction - 3.10295644
• Industrial Excess Land - 2.01692168
• Industrial Vacant Land - 2.01692168
• Large Industrial - 5.51093162
• Large Industrial Excess Land - 3.58210555
• Pipelines - 2.08604521
• Farmland - 0.25000000
• Managed Forests - 0.25000000

Unpaid liquor, food bills from Essar Centre corporate suite

In an interesting aside, the city has provided the court with invoices claiming that in the weeks just before ESA filed for protection from its creditors, the company ran up a $3,418 tab for beverages, food, tips and other hospitality expenses at its corporate suite in the Essar Centre

In just the week before it claimed insolvency, the steelmaker charged $338 for drinks, $244 for food and a $100 tip.

Its tab there for the previous month included $1,153 for beverages, $863 for food and $384 in gratuities.

To date, the city has only received a $474 payment on that bill.

ESA's explanation

"The company uses the box for employee appreciation and recognition for safety performance, production records or special project teams," Brenda Stenta, ESA's manager of corporate communications, tells SooToday. "The company also hosts visiting customers in the box when they travel to the Soo should their schedule permit."

In the months since ESA filed for court protection last November, Stenta says "the company allocated the remaining season game nights in the box to community non-profit and charitable organizations who were able to use the evening as a fundraiser, for volunteer or sponsor appreciation, or some groups elected to host the individuals they serve for an evening."