More info re the election.
CG
A BC Rail time bomb is still ticking for B.C. taxpayers
Campbell Liberals left us on the hook for half a billion
By Vaughn Palmer, Vancouver SunApril 21, 2009
More than five years after Premier Gordon Campbell announced "$1 billion in cash" for the Canadian National takeover of BC Rail, the province is still on the hook for a potential payback to CN of half a billion dollars.
The obligation, regarded as purely hypothetical by the B.C. Liberals, though no less legally binding for all that, is recorded in the fine print of the provincial government books. It was $505 million in 2008, the last year for which the accounts have been made public.
The dollars relate to one of the controversial aspects of a controversial deal, namely the decision to put the accumulated losses of the BCR on the auction block along with the freight business, rolling stock and other assets of the government-owned railway.
The Liberals famously promised not to sell or privatize any part of BCR. Then they did.
Source: Blair Lekstrom, now a Liberal cabinet minister. "Did we break that promise?" he asked on the eve of the last provincial election. "Yes, we did, plain and simple."
Once the Liberal promise-breakers got into the swing of the selling game, they became quite creative, particularly in the way they made use of the railway's estimated $2 billion worth of accumulated losses over the years.
The losses didn't have any value so long as the railway was publicly owned and thus not obliged to pay taxes. But the Liberals realized that if the business were acquired by a private operator, the losses could be mobilized as write offs against corporate and other taxes, and over a number of years.
Only CN, among four initial contenders for the BCR, was prepared to bid on the value of the losses and did so "aggressively."
The giant railway, with operations across the continent, figured it could realize savings of about a quarter of a billion dollars in taxes paid to the federal government as well as several Canadian provinces.
"We're quite good at pushing out the envelope," as the CN chief financial officer Claude Mongeau put it in a conference call to investors after the deal was announced.
But Mongeau and his colleagues were nobody's fools. In case the tax collectors didn't go for their envelope-pushing interpretation, they insisted that the province indemnify their company for every penny of the anticipated reductions in corporate and other taxes.
The Liberals, desperately wanting to make the deal look as rich as possible and confident that there was little risk in making the indemnity, agreed.
When the deal was announced in November 2003, it saw CN pay $750 million to "buy the business" (as CEO Hunter Harrison put it) and another $250 million for the putative value of tax credits.
In return, the province supplied the indemnity, pegged to the "maximum present value" of the credits in the year in which they could be claimed, plus a hefty annual escalator clause, lately reckoned at nine per cent.
The indemnity has grown dramatically since it was first recorded on the provincial books after the deal closed in July 2004. From $367 million for the 2005-05 financial year to $505 million for the year ended Mar. 31 2008.
"These indemnities remain in effect until 90 days after the last date on which a tax assessment or reassessment can be issued in respect of the income tax attributes," according to the statement on page 71 of the most recent edition of the public accounts.
The Liberals have not said when that is likely to occur. But I'm advised that the tax question was not settled in the financial year just concluded. So the indemnity will again be there in the public accounts when the books are made public in June of this year -- alas, after the election.
Another nine per cent atop last year's figure would boost the indemnity to about $550 million, more than half the value of Campbell's original such-a-deal for the railway, albeit in today's dollars.
Not to worry, say the Liberals. "Management believes it is unlikely that the province or BCR will ultimately be held liable for any amounts under the tax indemnities."
Management being what is left of the executive suite at BC Rail following the sale of most of its assets. A well-paid bunch, according to a couple of columns by my colleague Les Leyne published in the Victoria Times Colonist last summer.
He noted how the once-proud railway has been reduced to about 40 kilometres of track serving the Roberts Bank superport, an underperforming real estate portfolio, and fewer than three dozen full-time employees.
Nevertheless, the CEO was paid $570,000 last year, and Leyne was able to cite a trio of other executives in the $300,000 range.
With all that time, not to say money, on their hands, one can only hope that they've figured right about the tax indemnity. Otherwise, provincial taxpayers could be headed for one more unhappy surprise in this scandal-racked deal.
Poll
Author
Topic: BC Election - Who ya gonna vote for? (Read 80927 times)