Mayor Clarke And The Incredible Disappearing HST Issue

Economic development is the word on the street in the CBRM these days — CBRM Mayor Cecil Clarke popped up on CBC Cape Breton’s Information Morning on May 4 to speak to host Steve Sutherland about it and CBRM Regional Council has vowed to meet once a month to discuss it until it happens.

Mayor Clarke’s line is that the CBRM is getting no help from other levels of government in this department and must therefore go it alone.

But if you, like me, having been following the CBRM’s economic development adventures like a reality TV show (Strictly Come Developing) you will know that there’s more to the story than that. You will remember that, in the June 2016 episode, Mayor Clarke surprised CBRM Regional Council with the news the CBRM had withdrawn from Regional Enterprise Network (REN) 6, a provincially designated economic development region encompassing the CBRM plus Richmond, Inverness and Victoria Counties and served by two development organizations, Business Cape Breton (BCB) and the Cape Breton Partnership.

As the Spectator reported earlier this year, Clarke made that decision to withdraw unilaterally, telling members of the REN’s Liaison & Oversight Committee at their 26 May 2016 meeting that the CBRM was taking its flower baskets (a point of contention, apparently, about which more later) and going home. Although, strictly speaking, a municipality wishing to withdraw from the REN should have given a year’s notice, the committee bent the rules and allowed Clarke to pull the CBRM out and CBRM Council rubber-stamped this after the fact, agreeing to designate BCB as the CBRM’s “economic development arm.”

Clarke, as you can see in the clip below, encouraged Council to approve funding for BCB, after which, he said, the municipality would apply to the province for matching funds. The implication was that this would not be a problem. The reality, as the Spectator reported, was that the province turned the CBRM down.



In making the case to Council for leaving the REN (12 days after he’d left it) Clarke cited a number of issues but named only one: HST. The Mayor said the structure of the REN was such that participating municipalities had to pay too much in taxes for services rendered by the two delivery organizations. In the recent interview with Sutherland, Clarke even put a value on those payments:

Well, it was just an issue of the way they dealt with the interpretation of the legal structure and so then it would have put, I think at the time, an additional $70,000 in HST payments, and it just was just showing the inefficiency of the structure as well. And it wasn’t going into a staff salary, it wasn’t going into a program outcome, it was going into a bureaucratic requirement.

I went back to an earlier story in which I’d written about the HST issue and, as best I can figure, that $70,000 represents the HST that would be paid to BCB and the CB Partnership over two fiscal years (2015/16 and 2016/17).

I figure that because in my last story, I’d discovered that Clarke brought the HST issue up during a joint meeting of the Liaison and Oversight Committee and the REN Board of Directors on 11 April 2016, during which, according to the minutes:

Mayor Clarke indicated that there were three budget line areas he felt needed addressed [sic]. The first was the HST for the two fiscal years — 2015-2016 and 2016-2017.

In August 2016, I asked then-CAO Michael Merritt (ahhhh, remember him?) about the HST issue and he said:

The reference that the Mayor is speaking to is in regard to potential CRA interpretation. With regard to the HST implications of the overall project for the CB REN, the following is an estimate based on figures presented at the end of February for projected expenditures to March 31/16 for the fiscal year 15/16:

BCB – $17,416.14

CBP – $16,993.24

Total (CB REN) $34,409.38

The $34,409.38 is the impact on the overall REN budget with regard to HST expense after all rebates were taken in to [sic] consideration and allocated to each entity.

Merritt didn’t mention the 2016/17 totals, but if you just double the 2015/16 numbers, you get roughly $70,000.

But $34,409 is the figure for the “overall REN,” not just the CBRM. So let’s say another of the Mayor’s contentions — that BCB always served simply the CBRM while the CB Partnership served the other municipal units — is true. That means in fiscal 2015/16, the total spent by the CBRM on HST was $17,416.14. Double that and it’s $34,832.28.

It’s not peanuts, but it’s not $70,000.



Moreover, the actual amount of HST to be paid hinges on a “potential CRA interpretation.” During that joint meeting of the REN board and Liaison & Oversight Committee in April 2016, they decided to seek an opinion from the CRA on the matter. A month later, without waiting for the answer, Clarke pulled the CBRM out of the REN.

And when, during last week’s CBC interview, Sutherland asked the Mayor if leaving the REN and declaring BCB our economic development arm had freed the CBRM of the necessity of paying HST, Clarke replied:

That’s a good question when you have [CBRM Economic Development Manager] John…Phalen to ask a question of, I don’t know the current structure would be and all I know is, we had a staff position-plus that was going into a government requirement rather than to a practical outcome…I think in terms of the funding arrangement because we only have one entity we fund and we grant to, I don’t believe that that issue is a factor at this point, from my understanding.

So, he cared so much about the issue he unilaterally pulled the CBRM out of REN 6 but he didn’t care enough to follow up and find out if the move actually saved the municipality any money?

I contacted the CRA to ask about the issue and they said they could not comment on the GST/HST affairs of the CBRM or BCB, not even to say whether a ruling had been requested. However, spokesperson Mayya Assouad told the Spectator in an email:

Certain organizations, such as local fire protection associations or local economic development authorities, are established to provide municipal services or perform municipal functions.

Subject to certain requirements, the Minister of National Revenue may determine such organizations to be a municipality for GST/HST purposes. To be determined to be a municipality, an organization must submit an application and demonstrate that it meets the eligibility requirements

I contacted Jennifer Campbell of the CBRM Finance Department and I received this response (in an email from Christina Lamey, go figure):

Basically, under the REN arrangement, CBRM and other municipalities forwarded their financial contribution for the REN as per the formula agreed to.

As third parties, both Business Cape Breton and Cape Breton Partnership would invoice the REN for services provided, which included HST.

CRA rules dictate whether an entity is eligible to recover HST.  Business Cape Breton receives a 50% rebate, CBRM receives a public service body rebate (100% rebate on GST and 57.14% rebate on PST), other not-for-profits are completely ineligible for any rebate.  It was uncertain at the time whether or not the REN was able to recover any of the HST that Business Cape Breton or Cape Breton Partnership charged the REN.

Now, under the direct grant arrangement between CBRM and Business Cape Breton, there are no HST implications to CBRM as it is a grant no different than the grant we provide to Destination Cape Breton.

The question not answered here (and which I sent as a followup) was whether the CRA ever ruled on HST and the REN. Lamey told me that according to CBRM CFO Marie Walsh, they are not aware of any such ruling.

So did the CBRM save enough on HST to make up for the provincial funding it lost when it left the REN? Is this a great deal? Am I just missing something?



Downtown Blossoming

The really interesting thing about the HST issue, though, is that when Sutherland asked the Mayor last week why the CBRM had left the REN, Clarke didn’t bring up HST at all, answering instead:

Because it doesn’t work. It’s not working for us and it’s not providing. What we need is on the grounds. We don’t need a structure. We work strategically, through the Cape Breton Partnership, in terms of the broader framework, the Cape Breton Prosperity Framework, the dialogue and interaction. We didn’t need to have another process to do that on broad strokes. We needed actual, CBRM-focused activities.

What that is…They didn’t view, like, our Downtown Blossoming Program which the cruise industry wanted and which tourists needed, as an activity that…had economic purpose. Well, it has very much economic purpose and it actually employs three people. So, if those practical, day-to-day things are up for debate, they’re not up for debate with me. We need to do those things and we’re doing those things now. So, if the structure wasn’t working, we tried it, we led the Island-wide process, we will continue to participate Island-wide on initiatives that are good for the Island and for the CBRM but the Regional Enterprise Network wasn’t working for, you know, the CBRM, period.

The “Downtown Blossoming” program (which I believe has been called the “CBRM Blossoming” program since it was expanded beyond Sydney) involves hanging baskets of flowers on lamp posts. Love it or hate it, it seems like an odd issue to leave the REN over, especially since leaving the REN appears to have cost the CBRM provincial funding for economic development.

The CBRM’s “economic development arm,” BCB, has also lost ACOA funding for its Small Business Development Centre. ACOA spokesperson DA Landry told the Spectator in an email that the agency does not comment publicly on funding requests and communicates funding decisions only to applicants.

So BCB (and presumably Mayor Clarke) know why ACOA cut BCB’s funding and they presumably were also offered an explanation as to why the province refused to consider the CBRM as a REN in its own right and what that means for future provincial funding.

Perhaps this information could be shared with the rest of us during Council’s first economic development session.

NOTE: This story has been updated to include the response from Jennifer Campbell of the CBRM Finance Dept.

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