Population Growth and Property Taxes in Ontario’s Top 30

 

The last decade has been marked by rapid population growth in Ontario with total population rising from 12.852 million to 15.109 million - nearly 18 percent growth.  This growth has largely been in urban areas and some municipalities have grown substantially faster than others.  Figure 1 presents population growth rates from 2011 to 2022 for Ontario’s thirty largest municipalities.  These municipalities range from 2.928 million for Toronto to just under 100,000 for Niagara Falls and their population total in 2022 was 10.645 million people or about 70 percent of Ontario’s total population. Population growth rates ranged from a high of 69 percent for Milton followed by 34 percent for Brampton, and 32 percent for Waterloo.  At the bottom of the list were Mississauga, Thunder Bay, and Chatham-Kent.  Of these 30 communities, about half grew faster than Ontario as a whole while the remainder grew more slowly.  

 

 

 

Now the determinants of municipal population growth are complex but largely revolve around socio-economic incentives of one type or another including general economic opportunities and employment, access to locational amenities and services, the ability to provide housing via both availability and affordability and municipal taxation.  Taxation is an intriguing variable at the municipal level because on the one hand one would expect higher property tax levels all other things given to discourage population inflows and reduce population growth.  On the other hand, rapid economic growth and population growth expands municipal tax base and allows for lower rates on a broader base and hence lower average property taxes paid – residential, commercial, and industrial.  Needless to say, the resolution of the effect of property taxes on population growth is ultimately an empirical question and a fairly complicated estimation process that would need to account for this bi-directional effect.  

 

 

 

Nevertheless, it does not hurt to look at some charts.  Figure 2 presents the percentage change in average detached residential bungalow taxes (Source: BMA Municipal Reports and several municipal websites) for the period 2011 to 2022 for Ontario’s 30 largest municipalities ranked from highest to lowest.  The largest increase appears to be for Richmond Hill which saw average property taxes essentially double.  It should be noted that Richmond Hill was in the bottom third of these 30 Ontario municipalities when it came to population growth.  There is then a steep drop off going to 53 percent for Markham  and then a gentler downward slope ending with Windsor at 19 percent.  

 

 

 

 

 

In terms of the relationship between residential property taxes and population growth, there are two more figures.  Figure 3 looks at population growth from 2011 to 2022 as a function of the average bungalow taxes in place at the start of the period – taxes in 2011.  This does not control for anything else but does suggest a slightly negative relationship.  That is, places with higher property taxes in 2011 saw slower population growth in the decade afterwards.  Figure 4 looks at the relationship somewhat differently plotting population growth against the percentage change in average property taxes paid by a bungalow and here the relationship is slightly negative.  However, if you dropped the two obvious outliers in this chart (Richmond Hill and Milton), you get a more negative linear relationship between population growth (vertical axis) and property tax growth (horizontal axis) (see Figure 5).

 

 

 

So, the long and short.  Do higher property taxes affect population growth in a negative way?  Probably, but the relationship is only one of many factors that affect population growth.

Ranking Property Tax Burdens in Ontario Cities

A recent set of statistics published on the real estate site Zoocasa has attracted a fair amount of attention in the media and ultimately even in Thunder Bay.  The data for these Ontario municipalities includes the property tax rate, the average value of homes and tax calculations for some standardized home values ranging from $250,000 to $1,000,000 dollars.  The highlight of the data is of a course a ranking of property tax rates across 35 Ontario municipalities and the illustration that property tax rates in Windsor are the highest in the province and those in Toronto are the lowest with Thunder Bay coming in at second highest.

Of course, how you rank these tax burdens – especially when we are discussing property taxes in say Thunder Bay or Sudbury compared to southern Ontario cities – can lead to different answers.  In the end, much depends if you want to rank tax rates, the average taxes paid based on average property values, taxes paid per standardized house values or property taxes as a share of resources available – for example household income.  There are two components to calculating a simple estimate of property taxes paid – the value of the home and the tax rate applied. Using the tax and property value data from Zoocasa and household income data from the BMA 2019 report, here are some of the rankings in visual form.

First, Figure 1 plots average house values ranked from highest to lowest for the 35 Ontario municipalities.  The prices range from a high of $1.08 million dollars in Richmond Hill to a low of just under $189,000 for Sault Ste. Marie.  Not surprisingly, houses in the GTA area have the higher values while the four northern Ontario cities in the data are all at the bottom.  Sharing the bottom with northern Ontario cities are other places that have been relatively economically depressed in recent years – Windsor, London, St. Catharines.   

Why Thunder Bay Needs a Municipal Organizational Review

Thunder Bay Mayor Bill Mauro has called for an organizational review of how the City conducts its operations and has directed the City Manager to prepare a report that will deal with the scope of the proposed review.  This is in the wake of a 2019 Budget that saw the new council come in with a total tax levy of 2.29 percent which is below the annual average increase of the previous council’s four-year term of 3.6 percent.  However, there is room for improvement and an organizational review is a good way to try and put the city on a more sustainable tax levy path.

The BMA 2018 Municipal Study (see below) provides some quick comparisons in its Executive Summary that show why Thunder Bay needs a longer-term strategy to keep future increases closer to 2 percent. A property tax comparison shows that for the most part, property taxes in Thunder Bay are higher than either the provincial average or the average for northern Ontario. A basic detached bungalow has property taxes that are 10 percent higher than the provincial average and 19 percent higher than the average for northern Ontario.  For a two-storey home, Thunder Bay is 30 percent higher than the provincial average and 22 percent higher than the northern Ontario average. It should be noted that house values in Thunder Bay are substantially below the current provincial average - which incidentally in January 2019 was $554,936 while in Thunder Bay for February 2019 it was closer to $256,000. [Had to calculate this myself as the Thunder Bay site reports the median but not the average. Take 13.8 million dollars and divide by 54 sales]. A homeowner in Thunder Bay pays anywhere from 10 to 30 percent more in property taxes than the provincial average for a home that is about half the value. How's that for the Thunder Bay competitive advantage when it comes to attracting new business?

 

Our property taxes on apartment buildings are also higher than the average for the province or the North as are those for neighborhood shopping malls, office buildings, hotels, vacant industrial land and standard industrial land.  The only categories where we are  lower are motels – where we are 11 percent below the provincial average and 13 percent below the northern average – and large industrial land – where we are 3 percent below the provincial average but 8 percent above the North.

This raises questions of long term sustainability of these taxes given the slow economic and population growth in the City as well as the affordability when it comes to households paying these taxes.  While taxes are levied on the value of property, they are paid out of current income and here Thunder Bay also does not perform as well.  The slide below continues the comparison but this time on property taxes as a percent share of household income and water/sewer charges plus taxes as a  percent share of household income.  

 

For both these measures, we are higher than the provincial and northern averages though one may argue that the percent difference is small.  Average household income in Thunder Bay was $87,359 (the provincial average for municipalities in the BMA study was $102,194) with property taxes (at 3.9 percent on income) representing $3,407 dollars.  At the provincial percent share, taxes would be $3,319 - $88 dollars less - and at the northern Ontario percent share it would be $3,145 - $262 dollars less.  If our property taxes were as affordable as the Northern Ontario average - each household would pay $262 dollars a year less.

Why do we have higher taxes? That is the type of question a good organizational review would help answer.  When you start looking at the cost comparisons for services like general government, ambulances, general assistance, assistance to the aged, parks, sports and recreation, library, cultural services, police, and fire, Thunder Bay is usually at the higher end of the cost rankings for comparison Ontario municipalities.  While we can make arguments that the higher costs are a function of the geographic spread of the city, its regional role or its aging demographics, it remains that our costs are higher even when compared to other northern Ontario cities with similar features such as Greater Sudbury or Sault Ste. Marie.  

At the same time, the evidence suggests that we are increasingly providing a regional role in terms of health and education services and servicing a population larger than the official statistics might indicate.  Every year, thousands of university and college students move to Thunder Bay to acquire their education boosting our population from September to April.  Then there are the outlying First Nation communities who come to the city to also get health and education services many of whom also stay for extended periods to access these services.  However, how much more additional municipal service provision results from these demands that have to be met by the municipal property tax base is not a question with ready answers due to a lack of data - or at least publicly available data.  There is only so much a simple country economist can analyze if the data is not available. 

So, an organizational review is a good thing if it takes a look at how things are currently being done as well as what the actual demands for municipal services in Thunder Bay are.  If we have a municipal tax base for a City of 110,000 but are servicing a more regional population of 130,000 then we need to find some solutions.  An organizational review is not about cutting service but how to meet our current and growing needs and doing it in a manner that does not fiscally punish residential households and businesses in Thunder Bay.  Its about how to do more with less.  Simply throwing up your hands and saying taxes are higher here because things cost more is not really an option.  Things cost more for a reason and the organizational review should find out why.

Northern Ontario Property Tax Update

The 2017 edition of the BMA Municipal Study is out and there is a wealth of material here for blog posts for the next little while.  It is a municipal election year so comparisons of property taxes and service levels are particularly of interest. For this post, an update of property taxes paid for a detached bungalow in the five major northern Ontario cities.  According to the BMA, the definition of a single detached family bungalow is: "A detached three-bedroom single story home with 1.5 bathrooms and a one car garage.  Total area of the house is approximately 1200 sq, ft. and the property is situated on a lot that is approximately 5,500 sq. ft."

Figure 1 plots the average residential property tax paid for a detached bungalow for the five cities for the period 2005 to 2017.  In 2005, these averaged $2,260 and by 2017 the average was $3,530 representing an increase of 56 percent.  While property taxes trend up everywhere  there are several features that caught my interest. First, there is a clustering with Thunder Bay, Timmins and North Bay as higher property tax jurisdictions while Greater Sudbury and Sault Ste. Marie are generally cities with lower property tax levels - at least for this class of property.  In 2017, average taxes for a detached bungalow were highest in Timmins at $4,294, followed by Thunder Bay at $3,695, then North Bay at $3,576 then Greater Sudbury at $3,123 and finally the Sault at $2,954.


Second, the last year has seen the property taxes paid on an average  detached bungalow in Timmins apparently spike while those in North Bay actually declined.  Between 2016 and 2017, the value for Timmins rose from $3,574 to $4,294 - an increase of 14.4 percent.  Meanwhile, in North Bay, there was a decline from $3,632 to $3,576 -  a decline of 1.5 percent.  Naturally, these changes need to be put into the context of the local municipal economic and fiscal environment. 

Keep in mind, this also does not mean every property owner in Timmins saw a 14.4 percent increase in Timmins but the steeper increases may be related to how a change in assessment values for mining companies by MPAC that turned out to be lower than expected was measured in the BMA Report.  The projected decline could have resulted in higher rates on residential properties but the full impact appears to have been mitigated for the time being.   It turns out the average homeowner only saw a $125 increase in 2017 in Timmins.  As for North Bay, there apparently are rate decreases underway as a result of market assessment value shifts.


In any event, the annual percent increases for 2015 to 2017 plus an average of the three years are plotted in Figure 2.  The average increases in property taxes for a detached bungalow were highest in Timmins at 7.2 percent and lowest in North Bay at 0.6 percent.  Thunder Bay was in the middle of the pack at 2.9 percent - just below Sudbury at 3 percent and ahead of the Sault at 2.6 percent. more to follow.

Thunder Bay Taxes Are Going Up Again!

It is municipal budget season in Thunder Bay and the inevitable process of thrust, parry and spin is well underway. First the thrust: the amount spent by the City of Thunder Bay obtained from the tax levy is going up by 3.6 percent.  Moreover, water and sewer rates as well as tipping fees at the landfill will be going up by three percent.  In an effort to forestall the inevitable complaints that these increases are too high, the resulting parry and spin on the part of the City appears to be as follows. 

The 3.6 percent increase in the tax levy will only be a 2.9 percent increase to existing ratepayers after factoring in assessment growth.  According to the budget chair: “This is a budget that stays the course in terms of not reducing services but maintaining investments while living within our means.”

Moreover, much of the increase is going to hire new full-time positions and vehicles for the Superior North EMS.  The paramedic service has seen call volumes grow substantially in recent years as a result of the aging population and the opioid crisis. As well, according to the budget chair, in an ideal world “we would stay below the level of inflation,” but there has been a reduction in provincial transfer payments.

The efforts by the City to justify a 3.6 percent increase in the levy – that is in tax financed city expenditure – are pretty standard.  Differentiating between existing ratepayers and “new growth” conveniently sidesteps the fact that in the end it is all tax revenue coming from city ratepayers.  Arguing that we are “investing” in services and living within our means needs to be considered within the context of whether the services are cost-effective as well as the fact the money is not from some kind of endowment but comes directly from city ratepayers.   

As for the paramedic service, it would be nice to see some kind of breakdown in statistics as to exactly what the sources of the increased demand are in terms of case mix and demographic breakdowns.  In an interview on CBC Thunder Bay radio this morning, the chief of the Superior North Emergency Medical Services also noted that the city has a large transient population that is a source of increasing demand.  This raises the question as to whether city ratepayers rather than the province should be on the hook to fund what is increasing regional demand for emergency health services. However, as noted above, the province is apparently not very interested in raising its grant contribution.

The most entertaining line was the one that ideally, we would see tax increases that stay below the rate of inflation.  The last four years have seen increases in tax revenue all above the inflation rate suggesting that this aspiration has yet to be achieved by the current city council.  Nevertheless, given that it is an election year one should have goals and dreams to campaign on.

Given that it is an election year, it is also important to take a longer term look at municipal finances – in particular I want to focus on Thunder Bay municipal own-source revenue – that is tax and user fee revenues and then provide some comparisons to basic economic indicators for the city. The data on total municipal tax revenue, residential and non-residential tax revenue, and user fees spans the period 1990 to 2016 and is from assorted past City of Thunder Bay Consolidated Financial Statements as well as from the Financial Information Returns (FIR) maintained for each municipality by the Ministry of Municipal Affairs and Housing.  For 2017 and 2018, I use current City of Thunder Bay budget summaries with the total for 2018 a forecast based on the tax levy increase of 3.6 percent. From Statistics Canada, I have the inflation rate - inflation is Ontario’s Consumer Price Index with 2002 as the base year – as well as median total tax filer income and annual employment for Thunder Bay. Population figures for Thunder Bay are from the Census of Canada.

One point with respect to City of Thunder Bay financial data is that the summaries and budget information over the last few years do not seem to provide the tax revenue breakdown between residential and non-residential revenue. I suspect the reason for this has less to do with economy of presentation and more to do with drawing attention away from the fact that the residential share of tax revenue has risen dramatically. While FIR does provide this information, unfortunately it only becomes available with a lag and 2016 is the last available complete set of FIR data. Overall, municipal finance data is rather opaque and difficult to use not just in Thunder Bay but Canada as a whole.  Cities could do better when it comes to being accountable to their ratepayers via concise, comprehensive and easy to use statistics.

For the period 1990 to 2016 (but forecast to 2018 for taxation revenue), Figure 1 plots taxation revenue and its two components – residential and non-residential taxation (commercial and industrial).  It then also plots user fee revenue (water & sewer and other fees) and then the total of taxation revenue and user fees. In 2016, tax revenues grew 2.2 percent with residential tax revenue growing at 3.8 percent and non-residential tax revenue actually declining 1.1 percent.  User fee revenue also declined 2.5 percent (despite rate increases the previous year). As a result, own source revenues in 2016 grew a modest 0.6 percent compared to 5.3 percent the year before.  If one looks only at total municipal tax revenue, it grew 5.7 percent in 2015, 2.2 percent in 2016 and based on recent estimates (and not FIR data) grew at 3.3 percent in 2017 and will grow 3.6 percent in 2018.

Figures 2 and 3 provide composition information for taxation revenue and total own source revenue for the period 1990 to 2016. When one considers only tax revenue, from a 50/50 split in 1990 the distribution by 2016 had evolved into a 70/30 split.  The residential ratepayer in Thunder Bay now provides the City of Thunder Bay with 70 percent of municipal tax revenue. When the picture is broadened to total own-source revenue, the residential ratepayer in 2016 provided about 46 percent of own-source revenue, the non-residential ratepayer 21 percent and user fees – which incidentally are paid by both residential and non-residential ratepayers -about 34 percent.  
 

Figure 4 plots the average annual growth rates for total taxation revenue as well as residential and non-residential tax revenue and user fees, alongside the growth rates for Thunder Bay’s population, employment and median total tax filer income and Ontario’s inflation rate.  The average annual growth rate for taxation revenue has been 4.1 percent but residential tax revenue has grown at 5.6 percent while non-residential taxes have been growing at 2.3 percent.  On average, both residential and non-residential taxes revenues have grown faster than either population (-0.2%), employment (-0.1%), inflation (1.9%) and median tax filer income (2.2%).  User fee revenue has also grown faster than all of these indicators at an average of 5 percent.

So, the 2018 municipal budget year is shaping up to be somewhat modest in terms of increases at least by historical standards.  Total tax revenue is anticipated to only go up 3.6 percent (as opposed to 4.1 percent) while user fee increases of 3 percent look pretty good compared to average increases of 5 percent.  But then, 2018 is an election year and I suspect that we will be in for some pretty steep increases in 2019 once the election dust clears.  If one goes back to the 2014 election, that budget year saw a 2.2 percent increase in municipal taxation revenue but they made up for it in 2015 with a 5.7 percent increase.

It probably is a smart strategy to moderate tax increases in an election year and then raise them steeply early on in the new mandate so that their memory fades by the time the next election rolls around. It may perhaps be seen as calculating and opportunistic behavior on the part of our municipal politicians but it seems to work. Thunder Bay residents keep re-electing the same people over and over again.

Do Municipalities Really Need New Revenue Tools?

Municipalities in Ontario have been agitating for new revenues particularly given the sluggish growth in provincial government grants.  Well, apparently at least one municipal councilor in Thunder Bay also believes that cities need more revenue tools.  This is in spite of the evidence that Ontario municipalities have seen their revenues grow quite robustly over time.  According to the Financial InformationReturns maintained by the Ontario Ministry of Municipal Affairs, between 2000 and 2015, total municipal revenues in Ontario more than doubled growing from $22.7 billion to $47.8 billion.  While the growth rate has slowed somewhat since the 2009 recession, it remains that since 2000 these revenues have grown at an annual average rate of 5.2 percent.  This is much faster than either Ontario’s population or GDP growth.