Lethbridge County’s head tax is unfair for cattle feeders — but there’s no easy alternative.
Those are the key takeaways from a new study that looked at both the impact of a per-cow tax, and how the county could raise badly needed funds for maintaining and repairing its roads.
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“If you’re a cattle feeder and you have a lot of capacity in your feedlot, you’re looking at a substantial tax bill,” said economist Mel McMillan, who co-authored the paper with Bev Dahlby and Mukesh Khanal of the University of Calgary’s School of Public Policy.
“If you’ve got several thousand head of capacity in your feedlot, you’re looking at several thousand dollars of tax.”
The $3-per-head business tax — more commonly referred to as a ‘head tax’ — was imposed on area feedlot operators in April 2016 in an effort to raise $3.5 million annually over 35 years to cover road and bridge maintenance. The tax was set to climb to $4 per head in 2017, but was instead dropped to $2.50 per head.
A group of feedlot operators in the county challenged the tax, but a Court of Queen’s Bench judge ruled in April that the county had the “delegated taxation powers” laid out in the Municipal Government Act. That was good news for the county’s road budget but a blow for cattle feeders.
“Assuming that other counties do not implement a similar tax, cattle-feeding operations in Lethbridge County are going to be somewhat less competitive,” said McMillan.
“It’s certainly going to have some effect.”
While estimating its impact is difficult, it could slice profits by one-fifth, he said.
“A 20 per cent cut into your profit margin is substantial,” said McMillan, adding the feeders don’t have a way to pass on the extra tax cost to either cow-calf producers or consumers.
“It does raise costs to this particular group of people, and they’re an important part of the Lethbridge County economy. It may have some consequences there.”
However, McMillan is quick to point out that cattle feeders weren’t necessarily taxed fairly before the levy was imposed.
“Feedlots can put a lot of use on roads, hauling feed and hauling cattle,” he said.
“If a quarter section that’s all feedlot is taxed the same as a quarter section that’s all in barley, there’s a considerable difference in the utilization of roads and other services that are provided by the municipality.”
And their research found that Lethbridge County has a “legitimate case for generating more revenue.”
“We found that the county is not a big spender in large part, and it’s probably not investing enough in its roads right now to maintain them to the standard that is necessary,” said McMillan.
“The county does have to spend some more money on roads, and some money should probably be coming out of the confined feeding operations.
“So we have to take a more balanced look at it. It’s a question of how do you do it?”
The trio came up with three potential alternatives, but all had their drawbacks.
One was to charge truckers for the use of county roads based on mileage — using GPS technology and basing tolls on truck weight, location, and distance travelled.
“This is possible. It’s been used in New Zealand and Oregon, so it would be conceivable to do. New technologies make it workable,” said McMillan.
“But that would require provincial co-operation and trucking industry co-operation as well. That would be a fairly significant item and something the municipality could not do on its own.”
Option No. 2 was to levy a charge on cattle feeders based on their use of county roads, working from the assumption that feedlots located closer to provincial highways would use county roads less, and vice versa. Around 72 per cent of feedlots in Lethbridge County would see their tax burden reduced if this sort of usage charge were put in place instead of a head tax.
“Some feeders that are on provincial highways would pay nothing, and those that are sitting on 10 miles of county roads before you get to a provincial highway would be paying more,” said McMillan.
“But that may be considered unfair by some of the cattle feeders.”
The final option looked at giving breaks to feedlots that produce most of their own feed.
“Some of these cattle-feeding operations would have a considerable amount of farmland associated with them, and an operation that produces all of its own feed doesn’t use much more local roads than if you were a grain farmer hauling grain,” said McMillan.
“The county could look at how much farmland was associated with a given feedlot, and the feedlot would be charged only for the number of head that it produced that were beyond the feeding capacity of the farmland that it owned.”
But it’s tough to say which is the best option, said McMillan.
“What do people regard as fair and an equitable distribution? How easily can it be managed?” he said.
“You want equity, you want efficiency, you want administrative ease. All of that would have to be balanced out by the municipality, the voters in the county, and the feeders.”
But the bottom line is the bottom line, he said, and Lethbridge County should revisit the tax before cattle feeders start moving on to greener pastures.
“There is a concentration of feedlots in that area, and presumably they’re there because there’s some advantage to them being there,” said McMillan.
“There is a risk that some feeder operations that are on the margins of profitability may decide to reduce or even end their operations.”
The entire report Taxing Feedlots in Alberta: Lethbridge County’s Tax on Confined Feeding Operations can be found on the University of Calgary School of Public Policy website.