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EXCLUSIVE: ‘Sweetheart’ port tax deal questioned by North Vancouver

Questions are being raised about whether one of the North Shore’s industrial port terminals got a “sweetheart deal” on its property taxes from the previous provincial government, leaving other municipal taxpayers to pick up the tab.

Questions are being raised about whether one of the North Shore’s industrial port terminals got a “sweetheart deal” on its property taxes from the previous provincial government, leaving other municipal taxpayers to pick up the tab.

According to documents released under Freedom of Information, Fibreco Export Ltd. on McKeen Avenue has been in a protracted dispute with the District of North Vancouver and the Ministry of Finance going back at least four years. According to the district, the company still owes more than $1 million in back taxes and penalties.

The company, however, has launched a lawsuit against the municipality alleging the district has “unjustly enriched” itself at Fibreco’s expense.

The dispute stems from decisions made by the B.C. Liberal cabinet under the 2004 Ports Property Tax Act, which gave the province the power to cap municipal tax rates for certain “designated” port properties and compensate municipalities for lost revenue with provincial grants.

Fibreco, which is owned by a consortium of Interior logging companies that export their waste wood chips for pulp, is divided into two lots – a waterfront section leased from the Vancouver Fraser Port Authority and a fee simple upland portion, both of which were given the capped rate by the province in 2004.

According to a briefing note prepared by the district, the province removed the capped rate from the upland portion of the property in 2010 – but no one told district staff, who continued billing Fibreco for property taxes at the lower, legislated rate. The change went undiscovered until 2014, when staff noticed during a review of their tax rolls.

Tax shortfall dilemma

“The difference between what we levied and what we should have collected because of the difference of the designation over the three years was $994,000,” said David Stuart, chief administrative officer for the district. “We said this is going to be a real problem because we’re going to have to retroactively levy taxes.”

When Stuart approached the Ministry of Finance about the dilemma in 2015, he was told a “clerical error” was to blame for Fibreco losing the lower tax rate from 2010 to 2013, and that it had since been placed back on the list of properties benefiting from the cap. But the province didn’t offer a solution for what to do about the taxes Fibreco had never been billed for due, Stuart said.

To forgive back taxes, “it would require a legislative or regulatory change by the province,” said Stuart.

Before the tax shortfall dilemma could be resolved, however, the province made another move in late 2014. By order in council, cabinet lowered the taxable value of the upland portion of the property from $23 million to just over $6 million. (For comparison, the neighbouring lot of waterfront industrial property on McKeen Avenue sold to Wesbild Holdings Ltd. in 2017 for $115 million.)

After the lowered assessment in 2015, Fibreco’s property tax bill fell by about $600,000 per year – an amount equal to the difference between the capped and uncapped rates, according to the district.

“In our view, the devaluation was intended to assist Fibreco in recouping the additional taxes that it incurred as a result of the provincial error,” the briefing note stated.

During the years of the dispute, Fibreco continued paying what the company thought its current tax bill ought to be but did not pay any of the back taxes or penalties. By 2017, the shortfall had grown to about $1.63 million, according to the district.

“In January (of 2017), we asked our local MLA to intervene and request cabinet deal with the matter by returning the property to its 2014 valuation and/or give us some dispensation to rescind the tax increases that arose as a result of the province’s error,” the district’s briefing note stated. “Both the minister and the chief of staff declined to deal with the matter.”

Because municipalities cannot forgive debts or offer a lower tax rate for one property, the difference had to be collected from other taxpayers in the municipality. In this case, it was the rest of the heavy industrial property owners who, in effect, were subsidizing their neighbour, not knowing it, Stuart said.

Stuart said West Vancouver-Capilano Liberal MLA Ralph Sultan did a “yeoman’s job” of carrying the district’s concerns to cabinet but he too was unsuccessful. In an interview, Sultan said he has been “very definitely” on the side of the district in the dispute.

“The forestry industry was struggling and this was an attempt by the B.C. Liberal government to help the forest industry with one of their channels of distribution,” he said. “But of course from the perspective of the North Shore, they were the ones who were being asked to ante up the subsidy, not the provincial government. They were off-loading this wonderful gift to the real estate taxpayers of North Vancouver. I pointed that out to the minister and said this is not going to sell very well but I think the question is whether you in fact have the right do this.”

Sultan said it was the ministry’s position that it was within their rights.

Since 2005, Fibreco has donated $48,363 to the B.C. Liberal party, its candidates or its leadership contestants, according to the Elections B.C. In that same time, it gave $1,290 to the B.C. NDP. Tolko, a company whose affiliate is Fibreco’s majority shareholder, has donated more than $300,000 to the Liberal party or its candidates since 2005.

Christy Clark campaign stop

The terminal also hosted then-premier Christy Clark during the 2017 election for a campaign stop to talk about the importance of the forest industry to B.C.’s economy. “The biggest forest-dependent town in British Columbia is Metro Vancouver,” Clark told the gathered press.

But even at the time of the campaign stop, Fibreco’s leadership had already set a plan in motion to drastically scale back its wood export business in favour of grain exports. The company had filed applications with the Vancouver Fraser Port Authority and the District of North Vancouver to demolish the wood chip export infrastructure and build an $85-million grain terminal.

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An artist’s rendering shows Fibreco’s grain terminal as it will look when completed. image supplied

By the summer of 2017, the district threatened to seize the property for delinquent taxes and sell it at auction, which the municipality is legally required to do. Fibreco approached North Vancouver-Lonsdale NDP MLA Bowinn Ma, asking if her newly sworn-in government would halt the tax sale, a request that was denied.

“In September, the Ministry of Finance wrote back to Fibreco and the district that we did not intend to intervene in the tax sale and that doing so would have been extremely inappropriate,” said Ma. “. . . I took on this issue because we need to ensure the tax system is fair for people and businesses in our community. Obviously when one property value is set inappropriately low compared to the other properties around it, the taxes aren’t applied fairly.”

Ma said she found the debacle “bizarre” when she learned of it after taking office.

Threat of tax sale

Facing the threat of a tax sale, the company paid back about $257,000 in September 2017, “which was just enough to keep the property out of tax sale in 2017,” Stuart said. “Depending on what they do this year, they might find themselves in the same situation.”

On March 14 though, Fibreco filed a lawsuit in B.C. Supreme Court against the district, saying the payment in September 2017 was “under protest” and that the district would be “unjustly enriched” by collecting any more money from Fibreco.

The Community Charter does not grant municipalities the power to deliver revised tax notices for previous years or to impose taxes for a given year in a later year, the company argued in the statement of claim. Fibreco also stated the district was compensated by the province for lost revenue under the Port Property Tax act from 2010 to 2014.

In the lawsuit, Fibreco is seeking the return of the 2017 payment made to keep the property out of tax sale, plus interest. The company is also asking for a declaration that Fibreco does not owe the district any taxes, penalties or interest for the years 2010 to 2017, and for a permanent injunction preventing the district from attempting another tax sale.

Throughout the dispute, district and Fibreco staff have met many times on the subject of the company’s eventual conversion to a grain export terminal. Stuart said discussions between the two sides were cordial, despite the elephant in the room. Because Fibreco’s proposal did not require a rezoning, council had little discretion about whether or not to approve the development permits and council could not use Fibreco’s request as leverage to collect the back taxes.

When the issue came for a vote at district council on Feb. 19, councillors supported Fibreco’s plan on its own merits – a modernization of a local terminal, increasing exports of an environmentally safe commodity and designing the terminal taking local concerns about noise, pollution and dust into account. Only one council member hinted at the dispute, which had only ever been discussed behind closed doors.

“I’m supportive because, of course, this is a working harbour and I think the new approach with the equipment and machinery in use is going to be an added benefit and improvement over the status quo. To me, apart for some past history, I think it’s a pretty good project,” Coun. Robin Hicks said, breaking into light laughter.

While she couldn’t speculate on why the previous government made the decisions it did, Ma said the dispute exemplifies why one of her government’s first actions was banning political contributions from corporations and unions.

“Nobody should ever have to ask whether big money was involved in a decision or not,” she said. “I would say it’s not enough for a government to consider itself above reproach. They also must be seen to be above reproach.”

Sultan, though, rubbished the notion that the Liberal cabinet’s decision had anything to do with Fibreco’s donations to his party.

“Who am I to pass judgment on that? There’s no question they were friends of the government as any forestry company has to be if they have their minds sorted out properly. I’m sure if you asked them all today, they’d all speak with great enthusiasm about the present government,” he said. “I think these quid pro quo allegations make good social media denunciations but frankly in 16 years in politics here, the linkage is very hard to demonstrate.”

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A view of Fibreco’s port terminal operations in North Vancouver. image supplied google

The district was quick to ask the newly formed NDP government to review the circumstances around the valuation and, by order in council, cabinet has since reset the value of the property to just over $24.3 million for tax purposes, which Ma said was a “correction” based on the fee simple value of the property as of 2014, plus inflation. The district is also asking the NDP to review the Port Property Tax Act to see if it is having the desired effect of spurring investments at port terminals.

Robin Silvester, president and CEO of the Vancouver Fraser Port Authority, said he couldn’t comment on the dispute. But he did speak in defence of the Port Property Tax Act.

“Certainly we see the Port Property Tax Act as having been fundamentally important to catalyzing the investment that we’ve seen and the tax benefits to the municipalities as a result of that have been huge by virtue of expansion of the tax base rather than gouging an existing tax base to the extent of killing it,” he said, noting that hundreds of millions had been spent in recent years for upgrades as Neptune Terminals, Cargill Canada, G3 and Richardson International. “It was a very well-considered piece of legislation by the province in terms of having exactly the effect they hoped for to the benefit of municipalities.”

While Fibreco’s renewal project has been approved and the assessment changed back to a normal level, there is still the lingering matter of the back taxes and now, possibly, court action between Fibreco and the district.

Because the province lowered Fibreco’s assessment so drastically in 2015, the company wound up paying less in property tax than it would have if it had never lost the capped tax rate at all, according to the district.

“Even if they paid all their back taxes up, paid all the penalties, paid all the interest, they’re still ahead $433,000 and we provided that information to them,” Stuart said in an interview before the lawsuit was filed. “The frustration is that this was not caused by the district or Fibreco at the end of the day -– this mess that we find ourselves in. It was caused by the province. And the province could have, we think, chosen to fix this and they chose not to.”

After reviewing the district’s briefing note, Dermod Travis, executive director of the watchdog group Integrity B.C. said district taxpayers should be concerned.

“Definitely I think what radiates off this particular memo is the fact that something was going on behind closed doors, which suggested that a sweetheart deal was struck between the provincial government and a major corporation in British Columbia, also a major donor to the B.C. Liberal Party and it’s the District of North Vancouver that’s getting stuck with the bill,” he said. “That would demonstrate quite frankly that a lot more sunshine needs to be put on this … to determine whether or not it’s an isolated incident or whether there are similar incidents in other parts of the province as well as Metro Vancouver.”

After the district was served recently with the lawsuit, Stuart said, “(We) intend to assert that our actions were proper given the legislative framework that we work with.”

Neither Fibreco, nor former finance minister Mike De Jong responded to repeated requests for an on-the-record interview.

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