One of the items at the Monday April 29th Thunder
Bay City Council meeting was a discussion on tax policy and a move to bring it more
in line with provincial requirements.
Namely, the province has property tax ratio thresholds and in order to meet them
there needed to be a reduction in non-residential tax ratios as follows: Industrial
ratio from 2.925444 to 2.63, Multi-residential from 2.422438 to 2.0, and Commercial
from 2.137932 to 1.98. This has been a
process that has been underway since 1998 and partly as a result the share of the tax
levy paid by residential ratepayers has been rising over time while that of
non-residential has been declining.
In Thunder Bay at
present, nearly two-thirds of the tax levy is borne by residential ratepayers
while the other third is non-residential or essentially business property
taxation. In 1990, it was about a 50/50 split. It should be noted that the City
of Thunder Bay’s financial statements now report taxation revenue without
dividing it into residential and non-residential as used to be the case only a
few years ago. To get that information,
one now has to go onto the government of Ontario website and access the Financial
Information Returns provided by municipalities which can be quite a daunting task. This lack of transparency on the part of the
City of Thunder Bay in reporting these important numbers more directly is a
disappointment.
Of course, municipal
public finance can be a pretty arcane and complex issue– even for an economist
- and the discussion the other evening was actually more spirited and informative than
usual, all other things given.
Administration affirmed that the tax levy this year would remain the
same and the changes to the residential burden would be phased in but in the
end based on the short segment I observed they did not successfully allay the
concerns of councilors that residential taxes could rise even if the tax levy
stayed the same. Indeed, the emphasis
that the tax levy is going to remain the same this year did not deal with the concern
that taxes for residential will rise more than they otherwise might
in future. How can this be?
Essentially, the
purpose of tax ratios is to distribute taxes relative to residential properties
which are set equal to “1.” So, if a business property has a tax ratio of 2,
that means it would pay twice the amount of municipal taxes than a similarly
valued residential property. This is
seen as an issue of “fairness” that was addressed in 1998 with the Fair
Municipal Finance Act (Bill 79) and the province has set ranges within which
these ratios should lie, and the proposed changes are designed to eventually
get Thunder Bay there. For example, the provincial
range for commercial for example is supposed to be between 0.6 and 1.1 so you
can see that even at 1.98, Thunder Bay has a way to go (See the accompanying
table for a list of ratios). Part of
Thunder Bay’s issue is that much of its municipal spending was based on a rich
industrial and commercial tax base given the large grain and forest industrial sectors
but their decline over the last 30 years has reduced the non-residential base,
but spending has continued to grow.
What does this
mean? Even if municipal tax levies are
kept at growth rates at the rate of inflation, residential rate payers will pay
a larger share of that increase – over time.
If the total tax levy grows by say 2 percent, the increase to the
residential ratepayer will actually grow by more to offset the impact of the
shift away from non-residential taxation.
This of course also means that the total share of the tax levy paid by
residential ratepayers will grow beyond the current approximately two-thirds
share. It should be noted that the shift
to residential is something underway across the provinces and not unique to
Thunder Bay. In the end, somebody does
have to pay taxes if municipal services are to be provided, and so the question
is one of what the balance should be across classes of properties. Unfortunately, that question appears to have
been answered in 1998 and is still being implemented.
What to do? One comment raised during the meeting
suggested that these tax ratios were a one-size fits all policy from Ontario
and that more leeway needed to be provided to northern Ontario
municipalities. That may well be the case,
but this policy has been in place for 20 years now and there has been ample
transition time. Saying the rates are
going to have to be changed for the north as a special case will not be well
received at Queen’s Park given there are similar issues affecting
municipalities especially outside the GTA.
The more unpalatable answer is pretty obvious. The only way to keep residential taxes in
Thunder Bay from rising more than they have to is a greater effort is to
restrain expenditure growth and perhaps even look at reductions for some
areas. This is why Thunder Bay needs a
thorough and long overdue organization and service review at the municipal level.
