Calgary’s property tax system to be tested once again
August 7, 2019
Recently, the City of Calgary announced details of budget cuts for 2019 that will help fund much needed, but delayed, tax relief for businesses who are facing consecutive years of property tax increases. As the debate for this year winds down, other approaches must be taken in the City’s bid to fund its programs and services for 2020. This fall, Calgary City Council must yet again approve a tax plan to support the approved One Calgary Budget 2019-2022. According to Avison Young, the vacancy rate in downtown Calgary now sits at 24.4 per cent, and is forecasted to stay above 14.6 per cent into 2024. This makes it a crucial for council to address the structural issues that are at the core of rising property tax burdens for businesses in our city.
The 2019 tax bills were met with a significant amount of backlash from the business community, many of whom saw a triple digit increase in their taxes since 2016. Throughout the City’s process in assessing and approving recommendations to tackle this issue, the Calgary Chamber was and is an active advocate for the Calgary business community. We identified short, medium and long-term solutions for the City’s consideration, hosted a round table between business leaders and then City Manager Jeff Fielding, and were at the table for consultations held by the City.
Despite many hours of consultations, the City failed to come to a consensus on a new and innovative approach. Opting instead to use last minute budget savings of $60 million combined with funds already earmarked for tax relief to fund another year of the Phased-Tax Program (PTP). While the PTP is a good program to reduce the immediate impact of tax increases, the program wasn’t designed to be used over multiple years. As a result, it has become less effective with each year as the underlying tax increases were built in to the portion that was being capped.
As budget talks ramp up in November for the 2020 fiscal year, we urge the City to stop tinkering with potential scenarios and take meaningful action. Early last year the Chamber outlined some strategies that the City should consider in order to address this ongoing issue. While we are in a new year, most of these strategies still hold weight. Three major changes the City can make to start creating a more equitable tax base are:
- Reduce the non-residential to residential tax ratio from 4.2:1 to 3:1 by the end the current council’s term in 2021 and committing to a long-term fixed ratio of 2.8:1 by 2023.
- Reduce the cost and increase the effectiveness of local government.
- Sale of city-owned land.
Reducing the non-residential to residential ratio
Calgary current ratio of non-residential to residential property tax rates is 4.22:1 which secures it as one of the highest of these ratios in the country. In 2019 we saw a minor shift in the tax burden. Residential properties now pay 47 per cent of all property taxes raised in 2019 and non-residential properties the other 53 per cent. The approach asks 14,000 non-residential accounts to carry the majority share of the tax bill, once again, while over 500,000 residential accounts carry less than half
While the chosen shift in tax burden begins the process of moving to a more equitable split, it falls behind other major cities like Edmonton where residential properties account for 52 per cent of the share and Toronto where the share is 63 per cent.
Refusing to address this ratio has led to the Calgary business community carrying the lion’s share of the property tax burden for years. A burden that was pushed onto small to medium sized businesses as the vacancy rates downtown reduced property values. Without immediate action, this problem could make matters worse for a very small portion of Calgary’s community who are bearing the brunt of filling in the gaps.
While this could mean a minor increase to property taxes for residential owners per year, addressing the ratio will spread any increases across a significantly broader tax base. This would lead to significantly smaller increases per account on the residential side than it would be on the non-residential side.
A locked in ratio sends a clear signal to investors about the tax rate and their associated increases, and the tax rates are simplified and made transparent as a result. The City of Saskatoon has is the only major city in Canada that has adopted this policy and has retained its place as having one of the most competitive property taxes in the country.
In addition to committing to a tax shift that lowers the non-residential to residential ratio, the City can use two additional levers in order to provide tax relief for those facing substantial increases in their tax bills. The City can work to reduce costs and increase their efficiencies in governance, and more actively sell non-revenue generating city-owned land.
Reduce costs and increase effectiveness of local government
While we appreciate the City making low-impact budget cuts to cover a good portion of the cost of administering a PTP program for 2019, more action is needed. Long term efficiencies must remain a focus for the city, with a plan to apply savings accrued to offset property tax increases. This could include: privatizing services, hiring lower cost consultants, and increase operational effectiveness of administration departments.
These budget efficiencies must be identified and implemented as part of a long-term strategy, to avoid the last-minute budget cut scramble that we have seen in mid 2019. By taking a stronger and more pro-active approach, efficiencies can be implemented in a staged approach to lower any risk of drastic service level decreases.
The Chamber believes that if the City commits to limiting year over year operational spending increases to the “smart-spending bandwidth”, matching the rate of inflation and population growth. This will inherently encourage departments within the City to innovate and find savings over time by becoming more efficient. Although the City has done a satisfactory job in keeping year over year spending at an acceptable level, the operating budget for the City will still grow by 11 per cent between 2019 and 2022. However, spending over the same time period outpaces the bandwidth limit by roughly $360-400 million per year, had the City adopted it in 2009.
Sale of city-owned land
The Chamber recommends that the City takes an increasingly active role in reviewing and selling appropriate blocks of non-revenue generating properties owned by the city, which will generate revenue in the short and long-term. First, the City will receive the sale price of the land/property, which can be then used to provide tax relief for those who need it. Secondly, it generates annual income from property taxes levied on the land once it is privately owned.
Tackling the property tax issue in our city will need a focused effort and multiple strategies. The Calgary Chamber appreciates that the City has been listening to the concerns of the business community. This is a problem that does not have an easy solution, and we need the City and the business community to continue working collaboratively to resolve it going forward.
The City must begin to treat this problem as long-term, and not as something that will fix itself. Extensive research is required, and a committee of Council should be developed to ensure the review in transparent and stays on schedule. If not, there is a real risk that we find ourselves in this same position for years to come.
The Calgary Chamber suggests the following timeline for the City of Calgary to guarantee that the business community as well as residential property owners have certainty for future tax years:
September 2019 – Direct City Administration to engage in consultations with internal and external stakeholder in order bring forward recommendations to the Priorities and Finance Committee no later than November 5th, 2019. The should resemble the 2019 Downtown Tax Response Report.
September to October 2019 – Engage with business leaders, communities, as well as internal and external stakeholders to develop short, medium, and long-term strategies.
November 5th, 2019 – Administration to present recommendations and findings from consultations to Priorities and Finance Committee
November 18th, 2019 – Administration to present recommendations and findings from consultations to Calgary City Council and deadline for Council to set 2020 tax rate and strategy as well as plans to address structural issues for the City.
We must see collective leadership and decisive action from Calgary City Council earlier in the budgeting process so there isn’t a need for last minute tax relief programs that are becoming less and less effective every time they are used. We implore the city to look at long-term structural change that provides Calgary’s business community with the certainty and equity that is needed for business to grow.