CORRIGENDA: In analyzing the impact of the proposals on the final tax bill, I overlooked the effect of reductions in the education tax of 3.94%. These were introduced by the provincial government to offset the effects of reassessment. The net result is that for the coming year the tax increase overall including the education portion, will be 2.5% as stated at the time of the passing of the budget. For the industrial sector, this mean s a 6.7% decrease and for the residential sector, 2.5% increase. The multi-residential rates will increase by 5.3%. I would like to thank the staff of the finance department for pointing out the discrepancy and regret any confusion that I may have created by publishing figures which did not include the education tax reassessment reduction for the residential sector. My intent was to clarify. Perhaps all will become clearer following the orientation at Strategic Planning and Policy Committee later today.
"April is the cruellest month" and not, for most of us, because we hate to trade the cozy blanket of snow of winter for the cold rains of spring, as T.S. Eliot suggests. For us, April is tax month. We see the deadline looming. We search frantically for all those bits of paper we have collected over the year. We open a computer program, start filling in the various fields, and hope for the best.
That’s for those who do their own filing. Many of us have given up on this. Who can understand the ins and outs of the Canada Revenue Agency’s rules and formulae? We take our bits and pieces to a tax specialist and hope the final tally is not too bad. Leave it to the experts.
That seemed to be frame of mind of city hall staff as well as it ushered in the proposed tax policy for the coming year. It was first up on the agenda for the Corporate Services Committee under Consent items. Consents are usually the no-brainers, the matters you just rubber stamp or don’t disagree with. Unless someone makes a special effort to “pull” one of those items for special attention, they are like a giant omnibus bill; councillors vote for or against them as a package deal.
This particular item was one of nine such items, nestled cozily with various reports on education taxes, quarterly budget status reports, changes to the meeting calendar, compliance with Goods and Services Procurement policy and the like. Routine stuff.
Except what was being proposed wasn’t exactly “routine”.
There isn’t usually a lot of leeway in setting tax ratios, but that is what the committee was being asked to do. Usually, once you have decided how much money you need to run the city for another year, things are pretty much done. The province decides on the assessment of the property and a formula is applied. There’s very little leeway for council in determining how the actual costs should be distributed among the various categories of taxpayers. The province sets what is the average and you can’t stray too far from that.
But it turns out that this year there is a little more room for maneuvering. The residential (homeowner) rate, which accounts for the bulk of taxes collected, sets the base. The other classes—multi-residential, commercial and industrial—are assessed at multiples of that. So currently, the industrial rate is set at 2.2, more than twice the homeowner rate and the commercial at 1.98.
But the two categories are treated quite differently when being assessed. Houses are assessed at market value while the other categories are assessed at how much income they generate. So they can’t be compared on the basis of absolute value. But if one category gets a reduction, somebody else will have to pony up more because the total amount needed to run the city hasn’t gone down.
It’s not that different from federal and provincial taxes; if corporations get a tax break, someone is going to have to pay for it, and that means the individual wage earner.
But that was what staff was proposing: to give a break to the commercial and especially the industrial sector. It could encourage businesses to come to London and create lots of jobs which would allow more people to buy houses on which they would be taxed and everyone would live happily ever after. Along with exemption from development charges (new homeowners pay over $20,000 for those), lower water and wastewater rates, and below market serviced industrial land, lower taxes will really make London’s industry boom.
It had all been worked out with the previous council in 2011. A bit of it had been implemented already; now was the time to do the rest of it. No need to think about it, just do it. It had to be done by the end of the month so that the tax bills could be sent out.
The staff report from the finance department wasn’t all that thick, just eight legal-sized pages (single-spaced) of dense financial jargon along with three appendices and eleven schedules. A tax specialist could have made short work of it if given a long holiday weekend to study it and a couple of hours to ask questions before deciding whether the five recommendations should be supported.
The Corporate Services Committee is not composed of tax specialists, however, and some of them had probably had a few other matters to attend to during the most holy of days in the Christian calendar. Nevertheless, they are intelligent and industrious; they had some thoughtful questions to ask.
Even Ward 7 councillor Josh Morgan, who has the benefit of an economics degree, thought this shouldn’t be a slam dunk. He asked that the item be pulled for closer examination.
Setting the tax policy was the most significant thing city council does besides passing the budget, Morgan pointed out. In particular he wanted further exploration of the changes to the industrial rate to promote economic development. Despite his economics background, he thought the whole council, himself included, could use an orientation on this. They were already doing a lot for the industrial sector, what with the industrial land strategy, the community improvement plans, the subsidized water rates—there were a lot of tools at play to bolster industry. But was there an overarching coherent strategy?
City treasurer Martin Hayward said he would be pleased to do an orientation. But, he pointed out, London’s city staff already give out a lot more information than other municipalities.
There is a policy; this the result, he noted. There was a summary of the different levers for economic development in Schedule K. This particular approach was taken with Kitchener-Waterloo, London’s prime competitor, in mind. Besides, the recommendation was for the ratio for all the categories other than residential to be the same, 1.95. It would allow for “administrative efficiency”.
But, of course, what is easiest to administer isn’t always the fairest or the most effective.
Committee member Jared Zaifman (Ward 14) had questions too.
All of the comparators were with cities of 100,000 or more. Why wouldn’t they take a look at smaller communities closer by? Wouldn’t they form the competition as well? What about Woodstock, for example?
Ward 4 Councillor Jesse Helmer is not a member of the committee, but he has had a bee in his bonnet about tax policy for some time. In fact, he campaigned on the issue in the previous election. His concern is the disparity between the rates for tenants and the rates for homeowners. Many of his constituents can’t afford to buy their own homes. Why should they be charged at a higher rate simply because they live in a building with seven or more units? Nearly double! Why would they be treated as commercial rather than residential?
Staff pointed out that apartment buildings are a commercial venture and evaluated on the cash flow they generate. Besides, there would be no guarantee that any tax savings would be passed along to the tenants. A study from Hamilton proved that.
Perhaps not. But you can bet your bottom dollar that a tax increase would be passed along to the tenants and, in effect, that’s what the recommendations amounted to: a reduction for industrial and commercial that would be paid for by tenants and homeowners.
You can’t see it if you just look at the ratios which are 1 for homeowners and 1.95 for every other sector. But when you look at the dollar impact, a different story emerges.
You won’t find it on Schedule K. You have to go to Schedules G and H to get this. Both schedules show an overall tax increase of 2.5% as determined by the budget passed by council. But, should council stick with the current tax ratios, the average homeowner will pay 2.4% more in taxes and the increase for tenants will 6.4%. Industrial will go up by 10.7%.
If the proposed ratios go into effect, industries will pay on average 10.5% LESS per year, savings of about $1.4 million. That will be paid for by a 3.2% increase by the average homeowner. Multi-residential taxes (affecting tenants) will increase by 5.6%. That's not what we heard when when the budget was passed in February. We heard then that the increase would be 2.5% or $63 on a home assessed at $214,000 not nearly $113.
Still, this may be a reasonable direction to take. Certainly the previous council thought so when it established the policy in 2011. And they may be right. Maybe industry does need another carrot to consider locating and staying in London. Perhaps it is the path to prosperity.
But shouldn’t the public be aware of the policy and its implications? And how can councillors vote intelligently on this matter and explain their actions to their constituents if they are not fully versed on the ins and outs of the policy?
Despite staff's assurances that it would be happy to brief councillors, it was remarkably reluctant to make the time available. Hayward wanted a decision at council the following week. He would be happy to talk one on one with them but really, it would be hard to get in an information session with all of them before the meeting. And what if, after they had looked at it more closely and talked about it among themselves, they wanted to change the tax ratios? What if they weren’t really happy with the tax policy set by the former council?
It would be a lot of work revising all those schedules. How could staff possibly get those ready by the council meeting of April 14? And if they deferred a decision until the 28th, there wouldn’t be enough turnaround time before sending out the tax bills on March 30.
Of course, despite implications and inferences to the contrary, there was no legal reason that the new rates had to be sent out on March 30. There are always interim taxes until the new rates are confirmed. Legally, the new rates don’t need to go out until the end of the year, city solicitor Jim Barber acknowledged, although staff might have some logistical reasons for getting it done earlier.
And indeed, staff wanted it done sooner rather than later. It was up to council to approve the rates, of course, but these were the recommended ones and the committee and council should be prepared to endorse them now.
Even city manager Art Zuidema weighed in. Of course the policy was a decision of council. He wanted councillors to be better informed, but “we have to move ahead, we can’t diverge from current path,” he entreated. Any change in the proposed ratios would make London less competitive. There would be a “domino effect”.
It was a lot of pressure on the newbie committee. Chairperson and Deputy Mayor Maureen Cassidy (Ward 5) certainly seemed to feel it when she announced that it was decision time and although they were a new council and wanted to put their own stamp on things, they had to finish what the previous council had started. “Chaos might ensue” if they did not pass the staff recommendations tout de suite. They could always do their own stuff later.
That’s not quite true, of course. Any further changes will be severely circumscribed by provincial legislation. What you see is what you get.
The wrangling continued for the better part of two hours, but eventually the committee members gave in. Even Anna Hopkins (Ward 9) who had earlier announced that she could not support the recommendations without a proper orientation so that she could fully appreciate the impact on her constituents, supported the staff report when staff reluctantly agreed to attach an orientation to the Strategic Planning and Policy Committee meeting the day before the council meeting.
Look for that meeting to be a lengthy one. It includes orientations on the Housing Development Corporation and development charges along with a discussion of support for Orchestra London. And some less weighty stuff as well.
It’s best to keep those councillors busy. They have far too many questions for comfort.
Note: You can find the Corporate Services Committee agenda here along with the video and staff reports at the right hand side of the screen. I invite you to read them all!