Saint John council approved its operating budget for 2019 with stern warnings the municipality could soon be in deep financial trouble.

The $160-million budget holds the tax rate at $1.78 — where it's been for several years.
Under the tax rate a home assessed at $200,000 would carry a tax bill of $3,750 next year.

But councillors heard that without an emergency funding package approved last year by the provincial government, the city's tax rate would have to increase more than ten cents to maintain service and employment levels where they are now.

"This budget is not sustainable," said Kevin Fudge, the city's finance commissioner. "[The] status quo business model is not an option."

• Saint John's proposed $160M budget inspires confidence and jitters 
• 'It's very upsetting': Saint John officials disappointed with new NBM in jeopardy 
• New year to bring in service cuts as Saint John's budget shrinks

Fudge said the city has to rein in rising salary and benefit costs and get the province to agree to some kind of reform of the property tax system.

The special funding package from the province amounts to $7.1 million in 2019, but runs out at the end of 2020.

The city assessment base grew by one per cent in 2018, but has averaged less than a per cent annually over several years — moving from the centre with the highest assessment base in the province in the year 2000 to third place today. That's 17 per cent behind Moncton and five per cent behind Fredericton.

The city has been asking the province for municipal tax reform, including removal of partial tax exemptions for major industries like the Irving Oil refinery.

According to Mayor Don Darling, the city has been assured by the Blaine Higgs government that some reforms are on the way.

Meetings with government 

Councillors met privately Monday with two local members of Higgs's cabinet, including Social Development Minister Dorothy Shephard and Post-Secondary Education, Training and Labour Minister Trevor Holder, along with PC MLA, Glen Savoie, who represents Saint John East.

"Excellent discussion today, great first meeting," Darling said afterward. "We talked about a range of items including municipal reform, which they were very supportive of."

The $160-million 2019 budget is $4.9 million higher than this year's budget.

It allocates $24.6 million for fire services and $26 million for police.

Meanwhile, public transit will receive $7.9 million.

The city has a permanent staff of 627 people and no major cuts to services have been proposed.

The investigation into special tax deals was launched after Premier Brian Gallant challenged the public during a call-in radio show to help him identify deals that were "not equitable."

Tax exemptions and discounts explored by the CBC include multimillion dollar breaks on forest properties, farmland, petroleum sites and other facilities. In some cases, the tax breaks have stayed in place long after their original purpose became irrelevant.

• New Brunswick tax breaks: Who gets what

This year, the tax breaks will cost the province an estimated $24 million.

That amount includes a seldom-mentioned $6.5 million provincial property tax exemption for Irving Oil's Canaport LNG properties.

CBC News has confirmed the Gallant government is allowing that exemption to continue even after it fully repeals a Saint John municipal property tax deal at the same site.

"The repealing of the LNG Act has no effect on the provincial property tax exemption," Nichole Bowman, a spokeswoman for Service New Brunswick, said in an email.

"The LNG facility will still be eligible for exemption of provincial tax revenue."

The other tax deals looked at by CBC News include:

• A 23-year freeze on the assessment of more than $2 billion worth of privately owned timberland that causes forest properties in New Brunswick to be undervalued for tax purposes by as much as 90 per cent.
• A tax deferral program on agricultural land that has allowed owners to postpone — and ultimately not pay — $129.9 million in provincial property tax over the last 38 years.
• A property tax exemption on crude oil storage tanks and pipelines attached to the Irving Oil refinery granted in response to the 1979 oil crisis that has been allowed to continue for decades after the crisis ended.
• Three other property tax exemptions for New Brunswick ports, airports and railway right of ways that have expanded to cost the province triple the amount originally estimated.

The tax deals are so deeply rooted in the politics of New Brunswick that none were seriously challenged during the Gallant government's strategic review of spending last year that was meant to place all government programs under a microscope.

Finance Minister Cathy Rogers said it was too big a task, and her department has recently begun looking at all special government tax deals.

"We decided we needed to do a more comprehensive review," she said.

"We are looking at this [now]."

• Irving Oil's tank farm and the tax break that keeps on giving

Farmland tax forgiveness

 

"I think you'd have a hard time electing that party up and down the [St. John River] Valley," Hyslop said.

"I expect there would be a pretty significant uproar."

Devised in 1978, the program allows farm owners to defer provincial property tax on land and farm buildings for 15 years, at which point, if the land is still in agricultural use, the debt is forgiven.

A total of $129.9 million in farmland property tax has gone uncollected by the province since the program began.

This year, hundreds of agricultural businesses used it to avoid paying provincial tax on nearly $600 million worth of property including the multi-billion-dollar Florenceville company, McCain Foods, which sheltered at least $11 million of its farmland and buildings from taxes inside the program.

Timberland tax concessions

 

About three million hectares of forest is owned privately in New Brunswick — an area five times the size of Prince Edward Island. J.D. Irving, Ltd., alone owns 725,000 hectares of that.

Adjusted for inflation, taxes on timberland in New Brunswick are now less than half what they were in 1966, following a series of assessment freezes over 50 years, including the last 23 years in a row.

For tax purposes, forest properties are deemed to be worth $100 per hectare and have been since 1994 even though the same properties sell on the open market for several times that.

It produces heavily discounted property tax bills, and even some who benefit from it, like Gray Rapids Timber co owner Carl Faulkner wonder if it's too generous.

"I think about that all the time and I really can't come up with the right answer," he said. "I honestly can't."

Last December, Gray Rapids partly sold and partly donated 853 hectares it owned along the Bartholomew River near Blackville to the Nature Conservancy of Canada.

The land was assessed by the province — and taxed — as being worth $85,300.  The Nature Conservancy had it independently appraised before the sale for $950,000.

As a sign of how stubborn tax deals can be to dislodge once granted, CBC News also looked at a 1980 tax exemption granted on crude oil storage tanks and pipelines attached to the Irving Oil refinery.

It was awarded largely to help the company survive a worldwide oil crisis that began in 1979, but the arrangement was left undisturbed after the troubles resolved themselves in the mid-1980s.

Originally valued at between $400,000 and $500,000,  the province will not say exactly what the crude oil tank and pipeline exemption is worth now, only to acknowledge it is "substantially more" than in 1980.

Commercial tax deals 'not equitable'

 

• Hunting for tax bargains: how we answered the premier's call

Keith Brideau has helped revive a number of old buildings in downtown Saint John and they're taxed at some of the highest commercial property tax rates in Canada, about 40 per cent of them levied by the province.
Brideau would like to see the entire property tax system reviewed, deals and all.
"When something has been around for a long time it tends to stay the same," he said.
"I think we have to challenge the existing system."


Edited by Connie Camp
Packaged by Daniel McHardie
Video by Paul Hantiuk and Earl Cabuhat