Vancouver City Council

ADMINISTRATIVE REPORT

                                                                               Date: January 8, 2003

Author/Local: Karen Levitt/

604-873-7251

RTS No. 03139
CC File No. 1551
CS&B Date: January 16, 2003

TO:         Standing Committee on City Services and Budgets

FROM:   City Manager

SUBJECT: Property Taxation on Ports and Port Industries: Submission to Province

RECOMMENDATION

THAT Council endorse the statement in Appendix A that presents the collective position of local port host municipalities' on property taxation for port authorities and port-related industries, and that Council instruct the City Clerk to send this statement to the following provincial MLAs: Rick Thorpe, Minister of Competition, Science and Enterprise, Gary Collins, Minister of Finance, George Abbott, Minister of Community, Aboriginal and Women's Services, and Stan Hagen, Minister of Sustainable Resource Management (responsible for the BC Assessment Authority).

COUNCIL POLICY

There is no policy that is directly applicable to this issue, although from time to time Council has provided its perspective to the provincial government on a legislative or policy issue that may impact the effective operation of the City of Vancouver as a municipal corporation, or its financial well-being.

The City of Vancouver and the Vancouver Port Authority (VPA) have a very good working relationship. The guidelines for this relationship are set out in a Charter agreement that was established between the City and the VPA in 1998, which is included as background in Appendix E.

PURPOSE

The purpose of this report is to seek Council endorsement of a statement on the issue of property taxes paid by owners of property within Canadian ports (ie, port authorities and port-related industries) and to forward this statement to the appropriate provincial ministers.

BACKGROUND

As a host municipality to the Vancouver Port Authority and the North Fraser Port Authority, the City of Vancouver provides a full range of municipal services to port properties and related port industries. As with services provided in the rest of the City, our ability to fund these services depends primarily on the property tax system. Where port properties are privately owned, owners are liable for full property taxes. The City also receives full taxes on properties that are owned by port authorities but leased to private concerns on a long term basis. The balance of port property owned and occupied by federally chartered port authorities is exempt from property taxation, however the City does receive payments in lieu of taxes (PILTs) from these port authorities for these properties.

In recent months, the port tenants and property owners have sought to raise public and government awareness about port competitiveness issues, including the potential for changes to municipal property taxation. In response, several host municipalities in the greater Vancouver region that host the Vancouver Port Authority (VPA), the North Fraser Port Authority (NFPA) and the Fraser River Port Authority (FRPA) developed a staff working group to develop a position on property tax changes that could be presented to the province. This statement is intended to represent the position of local government on property taxation that should be considered by the provincial government at the time it is considering any changes to taxation policy in response to industry lobbying.

The city councils of each of the seven municipalities whose staff have participated in authoring this position are being asked to endorse this statement and forward it to the appropriate provincial ministers. These municipalities are: Port Moody, District of North Vancouver, City of North Vancouver, Burnaby, Delta, Richmond and Vancouver.

DISCUSSION

The following reviews additional background related to the issue of the taxation of port property and presents discussion of the rationale for the position being recommended by the staff group.

Canada Marine Act Review

There is currently a review underway of the Canada Marine Act, the federal legislation that governs Canadian port authorities. In October 2002, the City made a submission to the Canada Marine Act Review Panel, which is included here in Appendix B. A summary of the Vancouver Port Authority's submission is in Appendix C. These submissions to the federal review panel are provided as background only; the current report deals with a submission to the provincial government and only on the single issue of property taxes. This undertaking is completely separate from the federal review of the Canada Marine Act.

Industry Position & Lobby Efforts

Over the past two years there has been has been a concerted effort on the part of Greater Vancouver ports and port industries to raise public and government awareness about competitiveness issues vis-à-vis American west coast ports. Their position is that property taxes are a significant impediment to port competitiveness, when compared to their American counterparts, who pay lower property taxes and in certain cases levy their own taxes.

A paper written by Perrin, Thorau & Associates for the BC Ministry of Employment and Investment in early 2001 identified property taxes as "... one of the most significant issues - certainly the most significant issue within provincial jurisdiction ... " relating to ports' competitiveness. In the VPA's recent submission to the federal Canada Marine Act review panel, the payment of PILTs is identified as one of the six main issues they would like addressed in the review (Appendix C).

Competitiveness Factors

Property taxes are one of a great number of factors that impact port competitiveness between the US and Canada, which include:

• the requirement of Canadian port authorities to remit an annual stipend to the federal government,
• limited available means for Canadian port authorities to finance capital investment,
• limitations on Canadian port authorities concerning real property transactions,
• the Canada/US dollar exchange rate,
• differences in national and regional transportation policy/regulatory environments,
• differences in inland road and rail transportation infrastructure,
• potential port expansion capacity,
• differences in port labour costs and practices,
• differences in port operational productivity, and
• differences in capital and equipment costs.

It is very misleading to make comparisons between Canadian and US ports by isolating any one of these elements, such as property taxes. The status of port competitiveness at a point in time should be assessed as the synthesis of all relevant factors, taking into account the complex interrelationships among them. There has been a large number of studies conducted and reports written on the subject of port competitiveness over the past decade, and a selection of these is listed in Appendix D.

All Canadians Benefit from BC Ports

If it is determined that property taxes are indeed hindering port competitiveness, equity would dictate that any related subsidy would be provided at the federal level, since port authorities are part of a national infrastructure that benefits all Canadians and not just local residents and businesses. The VPA alone contributes $1.6 billion to the national GDP and generates $3.5 billion in economic output, according to their own analysis. It is the provincial and federal governments that are the direct beneficiaries of the economic activity generated by the local ports (via incremental sales, income and excise taxes), as illustrated in the following table.

BREAKDOWN OF TAXES GENERATED BY
VANCOUVER PORT AUTHORITY ACTIVITIES, 2000 ($ MILLIONS)

Note that property taxes received by municipalities do not increase with greater port economic activity, as do the income, sales and excise tax revenues received by senior governments.

Source: Vancouver Port Authority website, www.portvancouver.com, Economic Impact section.

GVRD Ports Competitiveness Review Task Group

In order to develop a coordinated regional response to the 2001 Perrin, Thorau & Associates report mentioned above, the GVRD Ports Competitiveness Review Task Group was created and chaired by GVRD staff. This group was comprised of representatives from various municipalities, as well as from the Union of BC Municipalities, Translink, senior governments, the Vancouver Port Authority (VPA), and port industry.

Informal Municipal Working Group

In November 2002, District of North Vancouver staff brought together a working group on port issues, whose membership is comprised of a small subset of the members of the original GVRD Task Group, and is limited only to representatives of municipalities that are host to one of the three local port authorities. This group has been created with the objective of quickly developing and delivering a succinct message to the provincial government regarding port taxation, and ensuring that this message reaches the appropriate audience, so that it can be taken into consideration before any changes to taxation policy are considered. The statement in Appendix A of this report was authored by this group.

Precedent for Provincial Intervention in Property Tax Policy: Bill 55

In the early 1990s, the railway industry successfully lobbied the provincial government with the message that they were paying too much tax in BC and that the situation negatively affected their competitive position. This contention, coupled with the elimination of federal subsidies to the industry, resulted a change to provincial legislation that put limits on the property tax paid by rail properties. BC municipalities' tax revenues were significantly affected by Bill 55. Despite the serious consequences for many municipalities in BC, there was little consultation in the development of this legislation.

City of Vancouver Revenues From Ports and Port Industry

Currently the City receives over $3 million in payments-in-lieu-of-taxes from the two port authorities in its jurisdiction, and a significant amount of property taxes from port industries situated on or adjacent to port authority land. A change to provincial property tax policy could affect some of this revenue, which would mean either a drop in tax revenues for the City, or that other property taxpayers would have to pay more to compensate for the lost revenues.

CONCLUSION

The cumulative impact of seven Greater Vancouver city councils endorsing and forwarding the statement in Appendix A to the appropriate provincial MLAs will provide a counter-balance to the recent significant industry lobbying on the issue of property taxation for port authorities and related industries. Cities should continue to receive municipal PILTs/property taxes from port authorities and their tenants, and it is important that provincial decision-makers hear from local governments and understand all of the equity issues involved before considering any changes to tax policy.

* * * * *

APPENDIX A
PROPOSED PROVINCIAL SUBMISSION FOR CONSIDERATION
IN ANY CHANGE TO PORT TAX POLICY

SUBMISSION TO THE
PROVINCE OF BRITISH COLUMBIA

PORT COMPETITIVENESS REVIEW

ON BEHALF OF

CITY OF PORT MOODY

DISTRICT OF NORTH VANCOUVER

CITY OF NORTH VANCOUVER

CITY OF VANCOUVER

CITY OF BURNABY

CORPORATION OF DELTA

CITY OF RICHMOND

December 2002

Property Taxation on Ports & Port Industries
Comments for Consideration in Provincial Review

Our ports are significant economic generators for the entire country
We recognise that our local port authorities are very important economic generators for the city, region, province and country, and we value the presence of these industries within our municipal boundaries.

Ports are primarily a federal responsibility
The responsibility of Canadian ports falls under federal jurisdiction - the Ministry of Transportation - and therefore the responsibility of keeping the ports competitive is primarily a federal responsibility. We acknowledge and appreciate that the Minister of Transportation, the Honourable David Collenette, has appointed a four-member expert panel to undertake consultations with stakeholders in an effort to review the Canada Marine Act (CMA) to identify recommendations for improvement.

However, our position is that competitive gains or CMA recommendations should not be at the expense of the host municipalities. The benefits of the ports are realised in all regions of Canada, and the federal government should take the lead role in addressing ports' competitiveness problems, rather than download these responsibilities onto municipalities. Most of the competitiveness issues that have been raised by ports fall under the domain of federal responsibilities, and require subsidy or investment level on the part of the Canadian federal government, as is provided by the US federal government.

The presence of the ports creates real costs for municipalities
There are significant municipal costs associated with the provision of services to ports and port industries, including police and fire services, and land use planning. It is important to note that some of these costs, while significant, are not necessarily direct cash outlays but rather are embedded/implied in peak staffing requirements or potential liability costs associated with emergency response on port lands.

Revenues from property tax and PILTs are crucial for municipalities
In order to help offset the costs of providing services to ports and port industries, it is absolutely necessary that ports and their tenants pay property taxes and payments in lieu of taxes (PILTs) in full and on time. If these revenues were to be decreased or eliminated, this would directly increase the financial burden on other local property taxpayers, and in addition, the provision of municipal services to port authorities and their tenants may ultimately be compromised.

Property taxes and/or PILTs are not the main obstacle to port competitiveness
Because there are so many differences in competitive factors between US and Canadian ports, we cannot just compare property taxes paid by ports in these two countries in isolation. Several factors under the control of the federal government could greatly improve port authorities' and related industries' competitiveness and their ability to make appropriate capital investments, and in dollar terms these would have a much greater benefit to ports than the reduction or elimination of municipal taxes and/or PILTs. These include:

- eliminating the requirement for port authorities to remit an annual stipend based on gross revenues,

- making available a wider range of tools available to port authorities for financing capital investment,

- where appropriate, granting ports the authority to acquire and dispose of real property on behalf of the federal Crown without the necessity of Supplementary Letters Patent, as well as the right to retain the proceeds of sales of federal real property, and

- playing a more strategic role in terms of legislation and investment that would facilitate the development of the comprehensive national transportation infrastructure.

Tax rate capping is not the solution
Municipalities basically have one major source of revenue to finance the services they deliver: property taxes. Any radical change to the property tax system will have extensive consequences for local governments. Municipalities are not structured in a way that lends itself to the use of property tax schemes or incentives to stimulate economic activity. When property tax revenues are decreased, there is no offsetting revenue generated elsewhere for a municipality. By comparison, federal government tax exemptions can be designed to stimulate investment activity, which in turn will generate a net gain via increased corporate income taxes.

A tax class shift is not the solution
The port municipalities do not support the concept of shifting Class 4 major industrial port properties to lower tax rate property classes, such as the light industrial or business class. The outcome of this approach would be only to generate a very significant loss in tax revenues that would have to be borne by the other property classes. Municipalities are going concerns operating with budgets that have been developed over many years, assuming a certain level of taxation from various established sources. Cities financial health rely on these revenue streams being sustained.

An argument that has been put forward port industry lobbyists that the ratio of Class 1 resident tax rates to Class 4 heavy industrial rates is as high as 10 to 1. While this fact is accurate, it needs to be understood in the following context. Taxation as measured in dollars per square foot of land is similar for both residential and heavy industry, because industrial land is assessed at approximately 10% of the value of residential land.

The BC assessment/tax system does not need major revision
The port municipalities' position on this issue is that allowances have already been made to accommodate Class 4 major industrial properties (exemptions on some infrastructure, favourable depreciation period), which came out of negotiations with port industries several years ago. The current structure recognizes and incorporates many of the recommendations from these past discussions. Additionally, the BC assessment scheme is recognized as one of the fairest and easiest to administer property assessment processes in the world.

The MFA credit rating is potentially at risk
If autonomy over taxation - that is, the ability of each city to set its own tax rates - is compromised via senior government dictating or limiting rate setting policy, it is possible that the credit rating of municipalities (through the MFA) may slip below its current AAA rating, which would result increased borrowing costs for all BC municipalities, Translink and the GVRD. This is because credit rating agencies will evaluate such a change as a restriction on the BC municipal sector's ability to repay its debt. There is precedent for this: in February 2002, Standard and Poors stated: "The ratings (of the MFA) also are supported by the MFABC member municipalities' strong liquidity and tax rate-setting autonomy over their local assessment bases."

Port downloading has already been absorbed by municipal governments
Through the downloading federal costs and responsibilities in recent years, such as disputes over PILT payments, the discontinuation of port policing, minimal funding of infrastructure and roads, etc., port municipalities are already contributing significantly to ports' competitiveness.

Municipal taxpayers should not subsidise a federal infrastructure facility
If it is determined that ports and or port industries should not pay property taxes, it is the federal government that should fund this subsidy, not local property taxpayers. The following three arguments strongly support this assertion.

- Our local port authorities benefit all Canadians, not just local municipal taxpayers. For example, according to recent VPA statistics, the Vancouver Port Authority currently generates almost 62,000 jobs and $1.6 billion of GDP Canada-wide. It is unfair to ask local taxpayers to subsidise national infrastructure.

- Municipal governments do not earn any incremental revenue associated with the economic activity generated by the port, while the provincial and federal governments enjoy direct cash benefits in the form of sales, income and excise taxes, plus the annual stipend remitted by port authorities to the federal government.

- As a capital tax, property tax in general is a regressive tax and is therefore not effective as a means of income redistribution. If ports and/or related industries require subsidy, then revenues associated with income tax rather than property tax should be used to ensure basic socio-economic equity among those who are paying.

It is noted this inequity is exacerbated in a situation in which ports would be required to remit an annual stipend to the federal government and at the same time be exempted from paying local property taxes. This would amount to a transfer of funds generated using a regressive tax source (from municipal governments) to the federal government, which has access to progressive tax sources. By any objective standard, this is unfair and counters basic principles of equity in taxation that are valued throughout Canadian society.

APPENDIX B
CITY OF VANCOUVER SUBMISSION TO THE CANADA MARINE ACT REVIEW PANEL

CITY OF VANCOUVER
CITY MANAGER'S OFFICE
Judy Rogers, City Manager
Brent MacGregor, Deputy City Manager

October 30, 2002                                             BY E-MAIL: cmareview@tc.gc.ca

CMA Review Secretariat
Transport Canada
Place de Ville, Tower C (25th Floor)
330 Sparks Street
Ottawa, ON
K1A 0N5

Attention: Canada Marine Act Review Panel

Dear Sirs,

Re: City of Vancouver Submission to the Canada Marine Act Review Panel

The Vancouver Port Authority and the North Fraser Port Authority each operate within the boundaries of the City of Vancouver as a Canadian Port Authority, according to the terms of the Canada Marine Act. As a host municipality to these port operations, the City of Vancouver is a significant stakeholder in the ongoing success of these port authorities and port-related industries. In this context, we submit to the CMA Review Panel the following recommendations regarding the governance, operations and financing of port authorities for consideration in the review you are conducting.

Issue #1. Payments-in-Lieu of Taxes & Ports' Competitiveness

In British Columbia, there has been much discussion recently about the ability of port authorities and port industries to pay property taxes or payments-in-lieu of taxes (PILTs), with claims that payment of property taxes creates a competitive disadvantage for Canadian ports vis-à-vis their American counterparts. The primary argument made is that property taxes hinder capital investment.

While the entire region, and indeed the entire country, benefits greatly from the presence of these ports, the City of Vancouver incurs significant costs associated with the provision of municipal services to the ports. It is crucial that the City continue to receive full and timely payments of PILTs from the port authorities within its jurisdictions, in order to help offset costs incurred.

Recommendation A - Full Payment of Payments in Lieu of Taxes. The City of Vancouver recommends that the federal government provide municipalities assurance that ports will pay in a timely manner full payments-in-lieu of taxes on all land and water lots that would otherwise be taxable, per the provisions established in 1999 by the FCM Joint Technical Committee on Grants in Lieu of Taxes, as laid out in Bill C-10 which recently amended the Payments-in-Lieu of Taxes Act.

There are several factors under the control of the federal government which could greatly improve port authorities' competitiveness and their ability to make appropriate capital investments, which in dollar terms would have a much greater benefit to ports than the reduction or elimination of municipal PILTs. These are detailed in Recommendations B, C and D below. Furthermore, in terms of matching costs and benefits, it is far more equitable to have all those that benefit from our ports - that is, all Canadians - contribute financially to their operations, and not just a small subset of those who benefit, e.g., City of Vancouver property taxpayers.

Recommendation B - Elimination of Federal Stipend Requirement. The City of Vancouver recommends that the federal government eliminate the requirement for port authorities to remit an annual amount from its gross or net revenues to the federal government, which would free up significant funds for capital investment in infrastructure.

Recommendation C - Expand Means of Financing Capital Investment. The City of Vancouver recommends that the federal government expand the tools available for port authorities to finance capital investments that are competitive with their American counterparts, such as access to federal funding, provisions for direct subsidies, revisions to imposed borrowing limits, provision for tax-exempt bonds, federal borrowing guarantees and/or any other appropriate means for competitively financing capital investments.

Recommendation D - Real Property Transactions and Proceeds of Sales. The City of Vancouver recommends that where appropriate, the federal government grant port authorities the authority to acquire and dispose of property on behalf of the federal Crown without the necessity of Supplementary Letters Patent, and as well, the right to retain the proceeds of sales of federal real property, in order to ensure the most efficient use of real property and to contribute to ports' overall financial well-being.

Issue #2. Firefighting

Vancouver Fire and Rescue Services (VF&RS) provides services to the Port of Vancouver for emergency fire, chemical and hazmat response for land-based incidents. In addition, VF&RS is a member of a consortium (comprised of five municipalities and the VPA) that operates a fleet of fireboats whose funding and mandate is stipulated in an agreement between all participants. VF&RS also has a separate MOU with the Coast Guard, which lays out chemical emergency response responsibilities (but does not create a legal obligation between the parties). From the City of Vancouver's point of view, it is important that VF&RS only respond to those incidents on port lands which a municipal fire department would normally attend, as the City cannot afford to incur the costs associated with training, equipment and liabilities that could arise from extraordinary incidents associated with the port.

Recommendation E - Clarification of Emergency Response Responsibilities. The City of Vancouver recommends that the federal government confirm their operational, financial and liability responsibility for all chemical, hazmat, oil spill and fire emergency response services associated with incidents that occur on port lands, and/or on vessels in harbour, under way or at port.

Issue #3. Policing

In July 1997, the Vancouver Police Department (VPD) assumed responsibility for policing the Port of Vancouver. Per a negotiated agreement at that time, the City received funding of approximately $4 million spread over seven years, to partially finance the transition of these responsibilities from the port police force to the VPD. The City of Vancouver would like to negotiate an extension of this funding for regular policing past the original seven years, and feel it is unreasonable to expect the City to fund those extraordinary police services that arise due to the presence of the port and port activities within our jurisdiction, that fall outside the realm of regular municipal policing requirements.

A separate but related matter is detailed in the November 20, 2001 VPD submission to the Senate Committee on Port Policing. The VPD feels it is essential that the federal government create and fund a coordinating body for the many law enforcement agencies operating on port lands, in order for each agency to effectively and efficiently provide the sort of specialized policing services the port lands and industries require.

Recommendation F - Creation of a Law Enforcement Coordination & Liaison Body. The City of Vancouver recommends that the federal government and/or the port authorities fund and coordinate an umbrella policing function to provide integration and liaison among all the various law enforcement units that work on port land, which include the VPD Waterfront Team, Organised Crime Agency, several RCMP units, Canada Customs officers, Joint Force Operations on drugs and car theft, etc.

Recommendation G - Annual Funding for Extraordinary Policing. The City of Vancouver recommends that the federal government and/or port authorities reimburse municipalities for policing services provided by municipal police forces that fall under the realm of federal responsibility but do not require enforcement by federal forces - those extraordinary police services that are required due to the unique nature of the port operations.

Recommendation H - Funding for Regular Policing Services. The City of Vancouver recommends that the federal government and/or the Vancouver Port Authority continue to reimburse the City of Vancouver for the provision of regular policing services by the Vancouver Police Department, beyond the original seven-year police funding agreement between the VPA and the City of Vancouver that was established in 1997.

Issue #4. False Creek Jurisdiction Divestiture

We call your attention to a separate submission made by the City of Vancouver Engineering Department, dated September 24, 2002, which discusses issues surrounding the divestiture of jurisdiction over the False Creek inlet.

Conclusion

In conclusion, we appreciate the opportunity to provide our input to this review panel. As a stakeholder in the success of the Port of Vancouver, the City of Vancouver is supportive of all changes to the Canada Marine Act which will contribute to the ongoing competitiveness, efficiency and ultimate success of the Port of Vancouver and related industries, that at the same time do not compromise the equitable relationship between those who benefit from the port and port industries, and those who finance and/or subsidize these operations.

Yours truly,



Judy Rogers
City Manager
judy_rogers@city.vancouver.bc.ca
604.873.7626

JR:KL:cd
R:\CM\Judy2002\CanadaMarineAct.wpd
cc: K. Levitt, Manager, Financial Planning, City of Vancouver
Y. Liljefors, Solicitor, City of Vancouver

 

APPENDIX C
SUMMARY OF VANCOUVER PORT AUTHORITY SUBMISSION TO
THE CANADA MARINE ACT REVIEW PANEL

Canada Marine Act Review
Updated October 24, 2002


What's At Stake
The Canada Marine Act Review is a critical event for the Port of Vancouver, as well as for its customers and stakeholders. It will have a substantial impact on the port's long-term competitiveness and its ability to effectively meet its users' needs. If a number of key implementation issues are not adequately addressed, the vital contribution that the Port of Vancouver currently makes to the Canadian economy will erode. Significant growth opportunities across all business sectors will be lost.

With the right regulatory environment, we can pursue these growth opportunities and nearly double the jobs and economic activity generated by the Port of Vancouver by 2020. But if changes aren't made, we will not be able to undertake the level of infrastructure development necessary to make this happen - or even to maintain our current competitive position.

Access to capital is the single greatest risk to the Port of Vancouver's competitiveness. To continue growing and competing with U.S. ports on the west coast of North America, while providing cost effective services for port users, the Port of Vancouver must have access to sufficient private and public sector capital to meet its infrastructure needs.

VPA Objectives
The Vancouver Port Authority (VPA) fully supports the objectives of the National Marine Policy and the Canada Marine Act (CMA).

The most important of these objectives is to provide marine infrastructure that effectively supports achievement of local, regional and national social and economic objectives, and promotes Canada's competitiveness and trade. Port management on the basis of commercial principles, and reasonable costs of service for users are also important guiding principles.

The VPA believes, however, that many provisions of the CMA are at cross purposes to these objectives. The legislation does not adequately reflect the fact that Canada's national ports are key strategic assets that must be kept strong, growing and competitive.

In particular, the CMA needs to be revised to improve ports' access to capital in the following ways:

· an enhanced ability to reinvest operating surpluses;
· less fettered access to private sector capital; and
· the opportunity to benefit from public investment in appropriate circumstances.

More specifically, the Port of Vancouver believes the following revisions to the Canada Marine Act are necessary to better meet the objectives of the legislation, and to safeguard the competitiveness of Canada's Port Authorities and the industries they serve:

1. Full reinvestment of operating profits (end stipend payments) Port Authorities in Canada are currently required to pay an annual charge (or stipend) from their gross revenues to the federal government. This limits ports' ability to reinvest in operational and infrastructure improvements. Discontinuing this annual charge is consistent with the National Marine Policy objective that Canada's national ports should serve as economic generators - or strategic assets that support broad national interests - rather than revenue generators.

2. Remove the cap on commercial borrowing The Port of Vancouver reinvests all of its operating surpluses in port operations and infrastructure, but these revenues are simply not sufficient to maintain the port's competitiveness and achieve future growth objectives. The port therefore needs access to private sector borrowing. However, the borrowing capability of Canada Port Authorities is arbitrarily limited under the CMA. This limitation is inconsistent with the principle of "commercialization" - whereby Port Authorities are to manage Canada's national ports in an independent and financially self-sufficient manner - and should be removed.

3. Clarification with respect to Payments in Lieu of Taxes Canada Port Authorities currently make Payments in Lieu of Taxes (PILT) to the municipalities in which they are located. This puts Canada's ports at a competitive disadvantage when compared to the U.S. ports with which they compete. U.S. port authorities not only don't pay property taxes, they have municipal taxing authority. Further, there are very few instances where the federal government doesn't make PILT for federally owned lands, even when those lands are managed by an external agency. The requirement to make PILT limits the revenues available for reinvestment in port operations and infrastructure, and is a particular burden for many smaller port authorities.

4. Ability to issue tax-exempt bonds U.S. port authorities have the ability to issue tax-exempt bonds to raise capital for infrastructure development. This financing tool means the cost of capital for U.S. ports is, on average, two to three per cent lower than for Canadian ports. The federal government should make the legislative changes necessary for Canada Port Authorities to issue tax-exempt bonds as well. This will lower the cost of capital for the Port of Vancouver, thereby making it more competitive, more financially self-sufficient and better equipped to finance the infrastructure projects necessary to meet future growth objectives.

5. Assets from port land sales to remain in an investment trust Under the CMA, proceeds from the sale of port lands in many cases accrue to the federal treasury, and are therefore not available for Port Authorities to reinvest. This policy has inhibited many Port Authorities from making strategic land sales and acquisitions. At the same time, it's clear that the value of federal real property assets should not be liquidated and used to subsidize port operations. An investment trust should therefore be established for each Canada Port Authority, in which proceeds from the sale of federal port lands would be held to facilitate future strategic investments.

6. Allow for direct federal infrastructure grants In the years ahead, there will be major infrastructure projects of national interest that cannot be supported by the VPA alone. Security issues and infrastructure projects to serve the growing U.S. container traffic market are key examples. Although Canada Port Authorities should be as self-sufficient as possible, the CMA should provide for direct federal investment when:

o Canada's national ports cannot finance strategic infrastructure projects on their own; and,
o it can be clearly demonstrated that such investments are in the public interest.

APPENDIX D
SELECTED REFERENCES ON COMPETITIVENESS OF CANADIAN & BC PORTS

LINK TO APPENDIX E

Comments or questions? Send us e-mail at info@city.vancouver.bc.ca
© 2002 City of Vancouver