Catalyst takes legal action to challenge unreasonable taxation

    RICHMOND, BC, June 5 /CNW/ - Catalyst Paper has petitioned to the Supreme
Court of British Columbia for judicial review of recently set property tax
rates in North Cowichan, Port Alberni, Campbell River. The company intends to
file a similar petition in Powell River on June 8, 2009. These are the four
municipalities where its BC paper mills are located. It seeks declarations,
under Section 262 of the Local Government Act, that the tax rates are
unreasonable and therefore beyond the municipalities' jurisdiction.
    Catalyst has held long-standing discussions with each of these
municipalities in an effort to address the issue of unreasonable tax rates
imposed on major industry. The bylaws being challenged would perpetuate
disparities that are unsustainable in light of extremely challenging economic
    Major industry tax rates have been set at slightly above 20 times the
residential rate in North Cowichan, and at about 10 times the rate in the
other three municipalities. By comparison, major industry rates in Alberta are
typically capped at four times the residential rate. Other Canadian, US and BC
municipalities also typically levy lower property taxes on major industry.
    The bylaws would result in a 2009 property tax cost for Catalyst within
these four municipalities of $19.3 million, excluding school, district and
other provincial levies. This is a modest reduction of about 10 per cent from
the previous year's payments of $21.7 million, and remains far higher than the
cost of municipal services consumed - estimated at between $4 and $6 million
in 2008.

    Property Taxes - 2009 Levies as per Bylaws Being Challenged
    (excluding school, district and other provincial levies)
                  North Cowichan  Port Alberni  Campbell River  Powell River
    Tax Assessment  $5.9 million  $4.8 million    $4.8 million  $3.7 million
    Property taxes at Catalyst's Snowflake, Arizona mill were approximately
    C$400,000 in 2008.

    "We've done all we can to impress on municipal governments that this is a
shared problem and that the viability of the industrial economy in coastal BC
is at stake," said President and CEO Richard Garneau. "Excessive property
taxes are diverting scarce capital that's needed to support the long-term
viability of our operations as we face one of the most difficult markets in
    "Legal action was not our first choice," Garneau continued. "But the
current bylaws suggest that our appeals for tax equity have not been heard,
and continuing to pay excessive tax bills with borrowed money is just not
sustainable or prudent, especially in current credit markets."
    Catalyst recently commissioned a study of taxation and development of an
alternative referred to as the Municipal Sustainability Model (MSM) for the
four communities. This involved a detailed analysis of service usage and cost
of service delivery, as a basis for a proposed consumption-based allocation of
taxes across classes of taxpayers. MSM creates clearer visibility of municipal
service costs and consumption.

    MSM Analysis 2008 Comparisons: Major Industry (MI), Residential (Res.),
    Small Business (SB)
    (in millions)

                             North Cowichan               Port Alberni
                            MI      Res.      SB       MI      Res.     SB
     taxes paid          $  7.5   $  6.9   $  1.5   $  6.5   $  7.5   $  3.0
     consumed            $  1.2   $ 11.3   $  4.7   $ 0.75   $ 11.3   $  5.4
     value               $  153   $3,548   $  195   $  111   $1,331   $  181

                              Campbell River              Powell River
                            MI      Res.      SB       MI      Res.     SB
     taxes paid          $  5.9   $ 11.1   $  4.4   $  4.6   $  6.5   $  2.0
     consumed            $  1.2   $ 13.3   $  7.0   $  1.5   $  5.6   $  5.8
     value               $  153   $3,128   $  895   $  113   $1,300   $  117
    Catalyst pays the large majority of major industry property taxes in
    these four municipalities.

    Property tax payments in excess of services consumed account for
approximately half of Catalyst's earnings losses in the last five years, and
have increased borrowing requirements by about $100 million. Given the high
major industry assessments in the four municipalities whose bylaws are being
challenged, payments by Catalyst accounted for nearly one-sixth of all 2008
major industry property taxes paid in BC.
    Catalyst therefore made its intention clear last year to make tax
payments for 2009 that reflect its actual consumption of services, plus 30 per
cent to account for the deductibility of corporate taxes as a business
expense. Such payments would total $6 million, or $1.5 million for each of the
four municipalities.
    Provincial bridge funding to assist these four municipalities during
their transition to a sustainable taxation model was also proposed to mitigate
short-term tax revenue-losses locally.
    Catalyst has also worked aggressively in the past two years to reduce all
controllable costs. Measures include employment reductions, a salary freeze
since 2007 for management and non-hourly employees, plans to achieve an
$80/tonne labour-cost benchmark, and reduced input costs.
    "Excessive municipal taxes are a recognized problem that needs to be
addressed with more than half measures," said Garneau. "We believe there can
be a future for each of our BC operations, but one of the things this depends
on is a reasonable and sustainable major industry tax levy."

    Catalyst is the largest producer of specialty printing papers and
newsprint in Western North America and also produces market kraft pulp and
owns Western Canada's largest paper recycling facility. The company's six
mills have a combined annual production capacity of 2.5 million tonnes.
Catalyst is headquartered in Richmond, British Columbia, Canada and its common
shares trade on the Toronto Stock Exchange under the symbol CTL.

For further information:

For further information: Lyn Brown, Vice-President, Corporate Relations,
(604) 247-4713

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