City writes off $1M+ in bad debt owed by province

By COLLIN GALLANT on February 11, 2022.

cgallant@medicinehatnews.com@CollinGallant

The City of Medicine Hat will write off more than $1 million in bad debt connected to tax accounts on provincial government buildings, a city committee heard Thursday.

The corporate services committee dealt with a third annual reduction in amounts of a grant program that the Alberta government uses to cover property tax bills on facilities such as the courthouse, remand centre and provincial building downtown.

The system of grants exists to solve legal problems that lower orders of government have no authority to levy a tax upon upper levels.

In 2019, the provincial budget cut the program by 25 per cent to save $30 million province-wide. Last year, the province paid 50 per cent of tax bills that were submitted.

That led the city finance department to require $457,000 to be written off as noncollectable for the 2021 tax year.

Division head Dennis Egert said the city is following a procedure laid down by the province, and other municipalities that have a larger government presence are more negatively impacted.

“It’s not mandatory (grant) but voluntary, they have reduced the amount they will pay municipalities,” he said. “We prepare the tax assessment, bill it to Municipal Affairs, they pay half and we write it off.”

Chair, Coun. Robert Dumanowski, told the committee the specific accounting action is logical, but the situation raises questions.

“There have been extraordinary cases where taxes are written off,” said Dumanowski, but he was concerned about the procedure being standard accepted practice.

“It seems confusing and counter-intuitive to transparency and generally accounting for public money.”

Other council members on the committee had stronger opinions.

“The reality is they reduced their taxes with us,” said Coun. Shila Sharps. “Wow.”

Since 2016 the province has scaled back the grants on some housing properties it owned inside city limits.

City officials have previously argued in the past that it’s unfair the properties benefit from city services, like road repair, storm water mains, fire response and transit, while paying a smaller share than other taxpayers.

All properties must be assessed under local taxation regulations set by the province, but since there is no legal avenue to collect a taxable amount, the difference is dealt with as write-off by city accountants.

Typically bad debt is folded into the next year’s tax requirement, which is then collected from the tax base at large.

In 2019, the Grants in Place of Taxes (also known as “GIPOT”) was reduced in the provincial budget to 75 per cent of total request, leading to a $227,000 reduction for Medicine hat, then 50 per cent in the 2020 and 2021 calendar years.

The difference in Medicine Hat has totalled $1.05 million over three years.

“We anticipate it to continue at 50 per cent (in 2022),” said Egert.

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