Billion-dollar lumber sales barely budge N.B. sawmill assessments
Record revenues trigger one per cent property tax assessment increases at several mills
New Brunswick sawmills that won property assessment and tax concessions in 2014 and 2015 to help cope with poor lumber markets are still benefiting from the discounts even though lumber markets roared to all-time highs this year and mills have been piling up record revenues.
In 2019, at hearings looking at industrial property taxes in New Brunswick, MLAs were told manufacturing properties that received assessment discounts because of weak markets could expect increases if business recovered.
"If the market factors indicate that things are coming back or that the supply and demand situation is more favourable, then we will definitely have to take that into consideration in our assessments," said Steve Ward, who was Service New Brunswick's director of property assessment at the time.
Lumber markets have more than recovered from the weaknesses of several years ago but so far that appears to have had little effect on the province's valuation of lumber mills.
Last week, New Brunswick's largest sawmill, J.D. Irving Ltd.'s mill in Grande-Rivière outside Saint-Léonard, received notice of a one per cent property assessment increase for 2022, its first increase in seven years. That will raise the valuation of the mill for property taxes to $12.6 million.
The amount is $1.1 million below what the the sawmill was valued at in 2013 before the province awarded it an 11 per cent assessment reduction because of weak lumber markets.
On Friday, Service New Brunswick was not able to immediately explain why strong lumber prices over the last 15 months have not caused lingering assessment discounts at sawmills to be clawed back.
In an email, JDI said lumber market improvements are short term to date, and other issues are weighing on the industry.
"Sawmills in New Brunswick, including ours, saw a 10 per cent reduction in 2014 in response to a prolonged period of weak market conditions," wrote Anne McInerney, company vice-president communications.
"Although there has been an improvement, and most recently a short-term spike in the commodity's price, the overall competitive conditions in New Brunswick remain challenging."
Service New Brunswick has discounted assessments on multiple industrial properties in recent years, saying weak business conditions have caused depreciations in their value.
The technical term it uses is "external obsolescence."
In 2013, New Brunswick's six pulp and/or paper mills had their property tax assessments cut $130.7 million (52 per cent) by the province. The discounts are mostly still in place.
In 2017 the Canaport LNG terminal in Saint John had its assessment slashed $201.5 million (67 per cent) just as the city was preparing to apply full municipal property taxes to the facility. The terminal is scheduled for a one per cent assessment increase in 2022, its first since the discount.
In 2020 Premier Blaine Higgs said industrial sites winning property assessment cuts because of poor markets should lose them if markets improve and claimed he gave Service New Brunswick clear instructions on that point.
"I have said these very words to the department: I want the same conditions looked at that caused those rates to go down and compare markets today," said Higgs.
"Whatever conditions were set then and if they're different, then we should be applying that same logic and the rates should change accordingly."
Markets for liquified natural gas have not recovered, but lumber has.
Lumber mills are privately owned in New Brunswick and do not publicly report results but according to Statistics Canada, sawmills and wood preservation operations in the province generated revenues of $1.74 billion for the year ended in July 2021, the latest 12 months for which figures are available.
That is 140 per cent ($1 billion) above what mills in New Brunswick earned from lumber sales in 2013, the year that helped trigger assessment discounts that began in 2014.
Lumber prices in 2013 averaged less than $400 per 1,000 board feet on North American markets, well below current levels.
Since July 2020 prices have rarely been below $600 per 1,000 board feet and peaked in May 2021 as high as $2,100. Last Friday, markets closed with prices above $900.
Gerry Lowe, a former Liberal MLA and now a Saint John city councillor, initiated the 2019 legislature hearing into industrial property taxes. He says he believed the message delivered by Service New Brunswick at the time was that industrial assessments lowered for economic reasons were temporary and tied to however long the economic difficulty lasted.
"The idea was if things were bad in the industrial part, in other words the pulp mills and the sawmills and the LNG weren't making any money, then they had all the right to reduce the taxes and reduce the assessment," said Lowe.
"And the idea was if they got better and things came back up again, then up comes the assessment. But it doesn't seem to work that way."
Not all New Brunswick sawmills won assessment reductions during difficult markets, but several major ones did.
In addition to the 11 per cent reduction the J.D. Irving mill in Grande Riviere was granted in 2014, the company's Grand Lake Timber operation in Chipman won an $885,000 (11.9 per cent) assessment reduction. Its 2022 assessment is also up one per cent.
In 2015, Twin Rivers won an $870,600 (11.9 per cent) assessment reduction on its sawmill in Plaster Rock and Chaleur Forest Products won reductions of $767,600 (7.6 per cent) on its two mills in Belledune and Bathurst.
Some mills have since expanded or upgraded and have had assessment increases related to those improvements imposed, but the reductions granted because of weak markets and low lumber prices remain largely in place.