Executive Summary: Key Legal and Evidentiary Issues

• Enterprise Properties Ltd. (EPL) challenged the vires of Flagstaff County's 2021 and 2022 property tax bylaws and 2022 budget, alleging unauthorized collection of property taxes for transfer to municipal reserve funds beyond the fiscal year.

• Admissibility of the Desilets Affidavit, an expert opinion report filed without consent or leave of the Court, was contested and ultimately ruled inadmissible as it fell outside the narrow exceptions for supplementary evidence on judicial review.

• Whether the Municipal Government Act (MGA) expressly or impliedly authorizes municipalities to allocate property tax revenues to reserve funds for future use was the central statutory interpretation question.

• The applicable standard of review was reasonableness, as confirmed under the Supreme Court of Canada's frameworks in Vavilov and Auer, with subordinate legislation benefiting from a presumption of validity.

• EPL's discrimination claim argued that its non-residential and machinery and equipment property class bore a disproportionate share of reserve fund contributions through higher tax rates.

• Flagstaff County successfully defended its interpretation of the MGA, resulting in the dismissal of EPL's application on all grounds, with costs presumptively awarded to the County.

Background and the parties involved

Enterprise Properties Ltd. (EPL) brought an application for judicial review before the Court of King's Bench of Alberta, challenging portions of Flagstaff County's 2021 and 2022 property tax bylaws (Property Tax Bylaw 04/21 and Property Tax Bylaw 03/22) as well as the annual operating and capital budget for 2022 and the 2022–2024 Business Plan. The case was heard by Honourable Justice D.J. Reed and consolidated three separate court filings under Docket 2101 12946. EPL, represented by Jeffery Talbot, owned property classified under the non-residential and machinery and equipment category in Flagstaff County. Flagstaff County, represented by Michael Swanberg, is a municipality in Alberta governed under the Municipal Government Act, RSA 2000, c M-26 (MGA).

The core dispute over reserve fund taxation

At the heart of EPL's challenge was the contention that Flagstaff County relied on the bylaws and budget to collect property taxes and then transfer a significant portion of those revenues into municipal reserve funds for use beyond the fiscal budget year, which EPL argued exceeded the County's jurisdiction under the MGA. EPL pointed out that the taxes allocated to reserves constituted the second largest line item in the budget at 14%, and that the amount held in the reserve funds had grown to over $75,000,000 and far exceeded Flagstaff's annual needs. EPL sought to have the portions of the bylaws and budget relating to the collection and transfer of tax revenue to municipal reserves quashed, along with a refund of its proportionate share of taxes paid for that purpose.

EPL's statutory interpretation argument

EPL argued that the MGA provides no authority for Flagstaff to levy taxes outside of its budgeting requirements for operating and capital budgets for a given year, and that raising taxes to enrich reserve funds for an undefined future purpose falls outside statutory authorization. EPL focused on Parts 8 and 10 of the MGA, contending that the budgetary sections (ss 242, 243, 245, 247, and 248) do not clearly delegate the ability to tax for prospective municipal reserves. EPL interpreted "expenditures" narrowly as an outlay of money spent on something and "transfers" as limited to intergovernmental transfers or transfers between operating and capital budgets. EPL conceded that a permissible reserve fund power existed for "true surplus" revenues remaining after all expenditures, but distinguished that from deliberately levying taxes to produce a surplus for future expenditures.

Flagstaff County's defence and the Reserve Policy

Flagstaff County countered that the MGA grants municipalities broad authority to raise funds for any program or policy approved by Council, including allocating funds to reserves for future contingencies and infrastructure. The County pointed to s 243(2)(h) of the MGA, which explicitly refers to transfers from a municipality's accumulated surplus funds or reserves, arguing this proves the power to establish and transfer funds into reserves. Flagstaff also highlighted its Reserve Policy, passed in 2021, which set out the various reserves created and the procedures governing their use. The reserves served defined purposes including bridge and culvert replacement forecasts extending to 2077, a ten-year water infrastructure reserve, a mill rate stabilization reserve to address anticipated property tax revenue volatility, fire capital replenishment, and a broadband internet project. The County relied on the Rural Municipalities of Alberta document, Understanding Municipal Reserves, which explained that reserves are essential for proper municipal fiscal planning given that municipalities cannot run deficit budgets and have limited debt capacity.

The admissibility of the Desilets Affidavit

A preliminary issue concerned EPL's filing, without consent or leave of the Court, of an affidavit from Neha Desilets, the Principal in the Accounting & Assurance and Consulting & Special Projects Practice areas of the firm Kingston Ross Pasnak LLP. The affidavit was an expert report comparing Flagstaff's reserves to those of sixty-three other Alberta municipalities and opining that it could take 400 years for Flagstaff to use its reserves. The Court ruled the affidavit inadmissible. Under Rule 3.22 of the Alberta Rules of Court, judicial review is generally conducted on the certified record of proceedings, and additional evidence is only permissible in narrow exceptions such as demonstrating bias, natural justice breaches, or when the decision maker has made no adequate record. The Desilets Affidavit was pure expert opinion evidence for which there is no authority for admission on judicial review, and EPL did not seek to have Ms. Desilets qualified as an expert. Even if admissible, the Court found it irrelevant to the issues before it.

The Court's analysis on vires

Justice Reed applied the reasonableness standard of review as established in Canada (Minister of Citizenship and Immigration) v Vavilov and Auer v Auer, under which subordinate legislation benefits from a presumption of validity and must be interpreted using a broad and purposive approach. The Court conducted a detailed analysis of the relevant MGA provisions and found that EPL's proposed narrow interpretation of "transfers" was tautological and would render the word "reserves" in the statute superfluous or meaningless. The Court agreed with Flagstaff that the words "surplus" and "reserves" in s 243(2)(h) must carry different meanings, as the Legislature is presumed to have included both for a reason. The Court noted that, at the time the bylaws and budget were enacted, the now-repealed s 243(1)(e) expressly required municipalities to include in their operating budgets "the amount to be transferred to reserves." The Court also drew support from Part 15.1 of the MGA concerning Regional Services Commissions, which mirrors the municipal budget provisions and explicitly includes transfers to reserves as mandatory operating budget items.

Distinguishing EPL's cited authorities

The Court found that the cases EPL relied upon did not assist its position. Paul's Restaurant Ltd v Victoria was decided over 30 years ago under a completely different statutory regime in British Columbia. Van Raay Paskal Farms Ltd v County of Lethbridge actually confirmed municipalities' broad taxation authority under the MGA on the issue that was appealed. The Telus Communications case was decided on different facts and a different version of the MGA, and its reasoning was not inconsistent with the Court's analysis in this case. The Court also noted that while EPL pointed to reserve fund provisions in other provinces, the task at hand was to interpret the MGA in accordance with the applicable standard of review.

Dismissal of the discrimination claim

EPL's argument that the bylaws and budget were discriminatory received limited traction. The Court found that EPL was not discriminated against vis-à-vis other property holders in the same class, as it pays the same tax rate as all similarly situated properties. The MGA expressly permits municipalities to establish different tax rates for different classes of assessable property under ss 297 and 354(3). EPL's higher contribution to reserves was simply a consequence of its property classification and the statutory framework, not unlawful discrimination. The Court held that EPL's argument amounted to a disagreement with the policy basis and justification for the tax rates, which is not appropriate for judicial review.

Ruling and outcome

The Court dismissed EPL's application on all grounds. Justice Reed found that Flagstaff County reasonably interpreted and complied with the MGA in enacting the bylaws and approving the budget, including the allocation of property tax revenues to reserve funds. As the substantially successful party, Flagstaff County was presumptively entitled to its costs under Rule 10.29 of the Alberta Rules of Court, with the parties given 30 days to provide written submissions on the quantum of costs if they could not reach an agreement. No specific monetary amount was awarded or refunded, as EPL's claims for relief were entirely denied.