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Auditor General Report – Systems Audit on Grazing Lease Management

The Office of the Auditor General (OAG) released a report in July which includes a systems audit on Alberta's grazing lease system. It's a healthy and even necessary process to undertake audits on the systems operating under the government but when these audits don't remain objective and don't include all the information, it ends up being a disservice and injustice to all Albertans.

In the overall conclusion, the report states "The department's processes ensure that public land in Alberta used for grazing is in good health" and "Albertans benefit by having leaseholders who help ensure long-term sustainability of the land and protect animal and plants at risk where needed". (page 15) But then states the department can't prove the grazing lease program is meeting objectives. Isn't having healthy landscape that is sustainable long-term the overall objective? If the department's objective was to maintain those grasslands the public "owns" as healthy functioning grasslands complete with a broad array of ecosystem goods and services (carbon sequestration, water infiltration and purification, habitat for native pollinators, wildlife and species at risk, biodiversity, prevention of erosion and all the esthetic ecosystem products to name a few) then the current measurements of rangeland health coupled with metrics to determine whether leased lands have been lost to other uses would satisfy the OAG's audit. Much of the OAG report deals with the statement that "current legislation allows an unquantified amount of personal financial benefit to some leaseholders over and above the benefits of grazing livestock on public land". (Although, if the amount is unquantified, how does the OAG know it's even a financial benefit? It could be a financial disadvantage.) The OAG acknowledges that "the department has no way to confirm whether the fees paid to leaseholders simply cover the costs as intended or are greater than the actual costs incurred (costs the OAG doesn't bother to quantify), providing a personal financial benefit to the leaseholder".

The OAG brings up two ways the leaseholder reaps the financial benefit of managing a lease. The first is the compensation paid to leaseholders as mandated under Surface Rights Act for the headache of managing industrial activity on lease lands. "In some cases the amount of surface compensation paid to leaseholders is many times the amount of rent they pay on a grazing lease." (page 15) And in those cases of high industrial activity on Crown lands, the objective of "keeping the land under lease in good health" is many times harder and takes many times more hours than those lands that don't have industrial activity. Honestly ask yourself - if your job just got many times harder due to circumstances outside your control, would you think a higher compensation is out of line? It should be noted that less than half of lease land has industrial activity on it and very few to the degree where the payments are high meaning widespread financial benefit, if there is any, is simply not happening.

Further to this topic, the OAG report then sites Bill 31, an unproclaimed bill from 1999, that would see more of these compensation fees go to the government and less towards the party who suffers the consequences and accepts the liability of industrial activity. It is irresponsible to bring up Bill 31 without also bringing up Bill 16, which was proclaimed and repealed most of Bill 31. The OAG also doesn't report (or research) why Bill 31 was unproclaimed and later repealed. This is one important question because the answer involves the embarrassment of the provincial government in defending the numbers that don't add up to the US government in a countervail suit. Had the US government been able to find these high compensation numbers were accurate, the beef industry in Alberta would now be decimated by tariffs imposed by it's trading partner to the south.

The second way the OAG reports leaseholders gain financial benefit from a public asset is the sale of leases and using the lease as collateral on mortgages and loans. Grazing dispositions are very similar to how other disposition agreements work in this regard. The lease contract itself is the (private) property of the leaseholder. The contract has value for the person who holds it. (This concept is an essential foundation for all business.) It's standard for all dispositions to be able to transfer or sell them to others who take over the management of the lease. If these contracts held no value, among other things, oil and gas companies wouldn't operate on Crown land, lumber wouldn't be extracted from Crown land and Crown land grasslands wouldn't be managed for the health of the landscape. The results of this would be extensive; the province's income would be slashed to a fraction of what it is, industry would move elsewhere to do business, a mismanaged forest ecosystem would mean an exponential danger of fire and loss of overall ecosystem health (on Crown lands), a degradation of grassland health means a fast track to desertification and loss of species at risk and further implications nationally and internationally in the spheres of protection of natural areas (IUCN for example). In addition, ranchers carry the liability on the leases. Since they are undertaking all the risk for all the land users on the Crown land, there absolutely should be some collateral value of the lease contract.

It seems the big picture is not seen in this issue. It is far more complex than it would seem on the surface and the far reaching implications of recommending changes to a system that is not understood are astronomical.

Two closing comments on the OAG report:

  1. Is it the OAG's job to weigh in on legislation and policy? Is that part of a systems audit? The OAG's opinion is laced through this whole report. It shouldn't be the job of the Auditor General to report on whether he thinks legislation, unproclaimed, repealed or otherwise, is for the best interests of the Albertans. That job is for elected officials.

  2. Taking credit publicly for the OAG undertaking this audit is Bob Scammell, journalist and long-time critic of the compensation payments to leaseholders. He is obviously working on his own agenda. The favourite story of journalists, Mr. Scammell included, is that government got it wrong. (Although it would seem that the very existence of healthy lease lands where Mr. Scammell loves to fly fish is evidence that government doesn't have it wrong.) This prejudice is what would seemingly be at the bottom pushing his agenda along. He continues to turn a blind eye to the facts that discredit his math on these payments.

    Notwithstanding the fact that a journalist instigated the OAG report in the first place, the OAG does owe it to all Albertans to at least take an objective approach. One example of this would be to do their own research which would include why Bill 31 was repealed by Bill 16.


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