Overpayment Clawback

More than a third of PEI's municipalities will be digging deep over the next two years thanks to an error in how the province calculated monthly property tax payments in 2022.

The province issues monthly payments to municipalities based on estimated property tax revenue for the upcoming tax year. At the end of the year, the province reconciles its accounts to compare actual tax collections with what was paid out to municipalities, a final payment is then made to the municipality or clawed back.

In 2022, the province was experimenting with a new model to calculate these monthly payments that would account for projected growth. Data from this new model somehow made its way into the calculations the department used last year, which resulted in some municipalities receiving more money each month than they should have.

Some municipalities alerted the province that there appeared to be a mistake, but were assured that the calculations were correct and the money was theirs to budget and spend. By the time the error was acknowledged, 23 of the province’s 64 municipalities had been overpaid.

While the province admits that the error was theirs, the 23 municipalities are still on the hook. The province will begin making up for this error beginning in January 2024 by reducing monthly payments to each municipality for 24 months. For one example, Charlottetown was overpaid by $3M, which will result in the city’s monthly payments being reduced by $127,000.

The province’s plan to recover these funds doesn’t sit well with the Federation of PEI Municipalities. The Federation would like the province to eat its mistake and forgive the overpayment, and warns that some municipalities could be forced to either raise taxes or reduce services to cover the expense. The province says it's open to discussing longer repayment terms for municipalities that find the 24-month repayment period challenging.

This situation is a slap in the face to municipalities that are already shortchanged when it comes to the amount of provincial property taxes that are shared with municipalities. This issue is coming to light as the Federation begins negotiation this week with the province on a longstanding demand to increase the amount of property tax revenue the province shares with municipalities.

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📝 A Note To Readers: I asked the province twice for a list of the 23 municipalities and the amounts owed. The province did confirm the error and provided a statement explaining how the error occurred, but did not tell me which communities were impacted. I will update the web version of this story if/when I confirm this information.