Alberta ranchers could teach Wall Street moguls a thing or two about leveraging other peoples’ money for personal gain.
The Auditor General just released a report showing that Alberta ranchers short changed Albertans about $25 million last year. Furthermore, they’ll keep doing it unless the new government does something about grazing leases on Crown land.
To be fair, the ranchers aren’t doing anything illegal. They’re using cowboy ingenuity to exploit a loophole in the law that’s big enough to accommodate a herd of Texas longhorns.
Sixty percent of Alberta land is owned by the Crown on behalf of Albertans. Ranchers, grazing associations and corporations graze 300,000 cattle on 5,700 grazing leases. They pay the government (that would be us) $4 million a year for grazing rights that would cost them 10 times more on the private market.
Furthermore, they keep entry fees paid by oil and gas companies that rightfully should go to the Crown.
The Auditor General estimates that the government is losing up to $25 million a year in entry fees but acknowledges it’s hard to pin down the precise number due to incomplete information.
The government pegged this number at $40 million in 1999 then revised it to $16 million during the debate on Bill 31 which was meant to update the rules. Bill 31 was never proclaimed—apparently ranchers are effective lobbyists in addition to being shrewd businessmen.*
To stick with the livestock metaphors—we’re being fleeced.
A license to print money
In addition to being ridiculously cheap, ranchers use grazing leases as low-cost collateral for mortgages and loans, sub-lease them at private grazing rates and sell them for up to 32 times their value.
The Auditor General says a rancher sold two leases that cost him $486 a year for $265,000. The leases had three years remaining on the term. Assuming they were 20 year leases the rancher’s cash outlay would have been $8,262 ($486 X 17 years). His profit was 32 times his initial investment. Wall Street investors take note.
It’s not illegal, but is it morally right?
The Code of the West
Aren’t cowboys bound by the Cowboy Code or something that prevents taciturn Marlboro men from ripping us off?
James Owen, a 40 year veteran of Wall Street and hedge fund owner, did extensive research on the Old West. He says there was indeed a Code of the West. He’s convinced Wall Street would become the honourable institution it once was if it simply applied the Code.**
Frankly, Ms Soapbox thinks Mr Owen is a hopeless romantic with a naïve view of both the American cowboy and Wall Street, however the Code is worth considering in this context.
It requires cowboys to be tough but fair (in the old days ranchers could sell their neighbour’s stray cows as long as they paid their neighbours the price they got) and to know where to draw the line because some things, like honour and reputation, simply aren’t for sale
Owen summarizes these principles in one simple concept: just because it’s legal doesn’t make it right.
Surely ranchers paying 1/10th the going rate for grazing land know they don’t own it and have no business subleasing or re-selling it at private rates or accepting entry fees from resource companies and not passing the benefits back to the land owner (us).
Drew Barnes, Wildrose MLA, rancher, and self-appointed spokesperson for the ranchers says the existing system is just fine. He says ranchers contribute to air ambulance services and renovate schools so a lot of the money stays local.
By Mr Barnes’ logic anyone who donates to charity while at the same time taking something that doesn’t belong to him deserves a pat on the back.
These ranchers are like Wall Street bankers in pointy-toed shoes. They’re equally effective at leveraging someone else’s assets to make a buck. Both operate under a different code: if it’s morally wrong but legally right, go for it.
So like the SEC, the NDP government will have to impose more rules clarifying what we already know—you can’t keep what isn’t yours.
Here’s hoping Shannon Phillips, Environment minister, plugs this loophole at her first opportunity so the benefits of grazing leases on Crown land accrue to all Albertans not just overreaching ranchers capitalizing on sloppy legislation drafted by a government looking to capture the rural vote.
Just because it’s legal doesn’t make it right.
*Hansard, Mar 7, 2000
**Cowboy Ethics: What Wall Street Can Learn from the Code of the West