Rob Paterson has a thoughtful post about the reliance of municipalities on property taxes and the precarious position that creates for both the municipality and the taxpayer. This is going to be a very difficult budget year for the City of Charlottetown. It always was going to be difficult, but the Provinces unilateral decision to shift to a tax grant system has created even more uncertainty and handicapped the City even further.
Archive for the 'Taxes' Category
It was recently brought to my attention that my previous post about the City’s decision to discontinue the Charlottetown Airport’s grant in lieu of property taxes did not sit well with certain people, particularly the Board of Directors of the Airport Authority. I have to admit, after reading that short entry again, it does sound unnecessarily flippant or cheeky. That was not my intention. It was meant to be a simple statement of fact, and the brevity was more to do with time constraint than anything else (You may have noticed there have been very few updates on this site recently — I’ve been very busy.)
What I said was true — one of the factors Council considered when we made our decision was the apparent success the airport has achieved over the last four or five years. The City’s budget process was very challenging this year with the property tax assessment freeze, among other factors, making it necessary to review all of our expenditures. Grants in particular, having reached a million dollars annually, were scrutinized closely. Dozens of non-profit groups depend on the City for operating revenue each year. Many have no other source of revenue than grants, subsidies, and donations, and in many cases they serve the most vulnerable in our City — seniors, the disabled, youth at risk. In the end, there were very few who did not receive less than in years past.
All things considered, the consensus of Council (unanimous if I recall correctly) was that the Charlottetown Airport had weathered the difficult transition after Transport Canada handed small airports to independent local authorities. Unlike many grant recipients, Council felt the airport was a successful commercial operation with access to growing streams of revenue. There was also some discussion of the fact that Charlottetown was foregoing a significant amount of revenue for what is, in effect, a regional airport. It serves the entire province but, to my knowledge at least, Charlottetown was the only municipality contributing significantly to its bottom line.
I never meant to suggest that the Airport Authority was flaunting its success, and we therefore pulled their grant. Absolutely not. I think all Islanders are very proud of the airport’s recent success and improved service, and we all feel that pride each time we read about new passenger records. But those announcements created a perception on Council that perhaps the City’s assistance was no longer required. That perception may not be reality. I realize the air transport industry is extremely volatile.
The City has only served notice of intent to opt out of our agreement with the Airport Authority. They will not begin paying taxes for two years, if I recall correctly. If the City’s decision significantly threatens the longterm success of the airport’s operations, I expect they will be approaching Charlottetown, the Province, and other municipalities, to negotiate some other type of arrangement. I would suggest, in the remaining two years of the agreement, that they come to Council, as many other grant recipients and applicants do annually, to inform us why our assistance is important to them. It’s probably best if we’re not making decisions based on media stories, but in the absence of that communication we may have nothing better to go on.
I want to apologize for upsetting people with my previous comments. Blogging and politics can be a dangerous mix. Occasionally I tend not to be as guarded with my comments as when I’m speaking to “real” media. There was no ill intent, but clearly my comments should have been accompanied by some further explanation. And lastly, I’m willing to discuss this issue — with an open mind — with representatives of the Airport Authority at any time.
It was years of headlines like this, that resulted in a headline like this.
The recently introduced provincial budget made the 34-cent issue disappear, and I don’t mean they resolved it by eliminating provincial property taxes in full-service municipalities, as the Federation of PEI Municipalities (and of course, Charlottetown) has continually asked.
No, the problem, by all accounts, is only getting worse for the City, which makes me question the point of all those intergovernmental meetings I attended that were supposed to result — I was lead to believe — in a better deal for the City. Senior City staff are still meeting with their provincial counterparts in an attempt make sense of it all, which I’m told is not an easy task. I will attempt to explain it when I’ve figured it out myself.
Even Stratford is upset. Stratford!
An article in yesterday’s Guardian, in which I figured, made reference to the “34-cent issue.” This has been a bone of contention between the City of Charlottetown and the provincial government for many years, but it is not well understood by the public and attempts at succinct explanations are not always successful. For example, the article states:
…the province, which collects property taxes for the city, takes $1.50 per resident and gives back $1.16, keeping the other 34 cents. In other words, the province charges a fee for providing the service…
The first sentence is sort of correct, almost, but the second confuses two issues. The City does, in fact, pay a fee to the province for administering the collection of municipal property taxes. Last year, that fee was approximately $417,000. This is not a tax. It is just an administration fee to collect the tax, and is separate from the 34-cent issue (The fee itself is another bone of contention, because when the federal government stopped charging GST to municipalities, the province promptly clawed back the savings the City realized by imposing the admin fee, but I digress.)
Another blurb caught my attention in the Guardian article. I may be nitpicking here, but I think it should be clarified. The article states:
the ‘34-cent issue’, as it’s been dubbed, has cost city taxpayers $5 million.
Again, technically correct, but I would add to the end of the sentence the words “last year alone.” The amount has grown with assessments, but this has cost City taxpayers millions of dollars, each year, since the scheme was hatched.
If you’ve made it this far, you might be asking, “Yeah, we pay taxes. So what? Tell me something I don’t know.” Well, for starters, there is no other full-service municipality in Canada where the provincial government keeps a portion of property taxes. Property taxes are generally supposed to be used to deliver services to… properties. In Charlottetown, it is the municipal government that delivers all the services, such as snow plowing, water & sewer, police & fire services, street paving, sidewalk construction, etc.
So, in Charlottetown you pay a residential rate of $1.67 per $100 of assessed value, but only $1.33 goes to the city. The other 34-cents goes directly into the province’s general revenues to be spent in any way — and any place — the government sees fit, whether it’s plowing the roads in Souris or subsidizing the beef plant in Albany. That is, the City delivers services using only 80% of the taxes paid by its residents. The other 20% is a tax on Charlottetown; a disincentive to live here; a cash cow for the province; a transfer payment to the rest of the province. It is unfair.
City taxpayers are already struggling to pay their taxes. Charlottetown, like every municipality, is struggling to provide essential services, build and repair infrastructure, and manage ballooning costs using revenue that is mainly derived from property tax. But with the baseline set at 34-cents — the starting point at which you actually start to receive something in return for your taxes — it is impossible to generate sufficient revenue without creating an unreasonable burden on City taxpayers. The tax rate in Charlottetown has actually dropped in recent years, but the City — like most municipalities — has relied on increases in assessments to balance its budget. If the province would simply eliminate the 34-cent “Charlottetown Tax”, and treat us the same way every provincial government treats its full-service municipalities, the residential tax rate would immediately drop from $1.67 to $1.33. The City of Charlottetown could then begin to slowly increase the rate as required, with proper budget debate and justification, so that we could deliver a level of service that is proportionate with the price residents are paying for it.
With only the weekend between us and presentation of the 2008 budget on Monday, and being the first year of the freeze on residential property tax assessments, I thought I’d link to this NOW magazine article about property taxes that highlights some of the inherent quirks, conflicts and competing interests that are created by the whole concept of property taxes. The article is a short excerpt from a longer piece that author Dylan Reid has posted at the Toronto urban issues blog, Spacing Toronto. Pretty dry stuff for most people, but, hey… you get what you pay for here. Enjoy.
Although Charlottetown has experienced a small boom over the last few years in downtown office construction, it is also quite apparent that we have a problem finding tenants for some of our existing office and commercial buildings. In some cases, as companies were setting up shop here, these vacant buildings were passed over in favor of new construction because the market, increasingly, demands a different kind of office space — larger footprints, providing more square footage per floor.
In other cases, property owners seem unwilling to lease their space. Are they just content to pay the property taxes on a vacant building rather than pay for expensive upgrades and renovations and take their risks in a competitive market? If yes, the provincial Real Property Assessment Act is potentially underwriting that risk averse trend, costing the City of Charlottetown unknown thousands (millions?) in tax revenue, not to mention the eyesore of dilapidated, boarded-up buildings in our downtown core.
The reason is right in the definitions on page 1 & 2 of the Act. Commercial is property that is used by a business. If you don’t have a business running you default to non-commercial.
(d) “commercial realty” means real property owned by the Crown or any person, used or occupied by any industry, trade, business, profession, vocation or government business and includes real property used or occupied
(i) “non-commercial realty” means all real property except commercial realty;
Essentially, once the business moves out a property no longer meets the definition of a commercial property in the Assessment Act. And as you can see from this table, that’s quite a significant drop in your tax bill, and all you have to do is close shop!
So this has nothing to do with municipal zoning (i.e. commercial vs. residential) which is a planning tool, but rather how the province defines properties for assessment purposes. In my opinion, once your building is vacant and in disrepair, this is an incentive to avoid the risks of re-entering the commercial property market. And by all accounts this is one source of the problem in Charlottetown.
What is the answer? Are commercial tax rates just too high, generally? Would forcing vacant property owners to pay the commercial rate really be enough incentive for them to get back in the game and make a go of it? Or is the commercial rate just too much of a burden for some property owners to overcome?
I don’t have the answers to these questions. But there is discussion on council about trying to correct this situation and I hope we do what’s best to create a vibrant and successful commercial environment in downtown Charlottetown.
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