Property Taxes are a sensitive subject for even in the best of times, but when the economy is in a slump the impact hits Calgarians hard. I could probably get away with muttering something about lower taxes and fiscal responsibility like most other politicians, but I’m going to take a chance and get specific – because this is important.
In the last 4 years, the average property tax on both residential and non-residential property owners has gone up far faster than inflation. Since most people’s salaries don’t even keep up with inflation, much less stay equal to it, the overall effect has been dramatic and in many cases unaffordable. While I don’t support a pure pegging of tax rate to inflation (population increase has to be factored in, as well), I certainly think we need to acknowledge the fact that increasing taxes doesn’t work if people can’t pay them. So inflation matters, and should be taken into account.
What the City Can’t Control
Of your property taxes, the City gets 56% and Province gets 44%. We can’t control that 44% – the city is only collecting that tax on behalf of the province.
We also can’t really control property values – indeed, the City doing things that lower property values is a major complaint, even though taxes are based on a formula of the (Municipal Price Index) x (Property Value). This is why Vancouver has a lower tax rate than we do yet higher overall taxes – their property values are so large they are almost unaffordable. If your taxes have gone up more than 23.7% from 2011-2017, the remainder is due to your home being worth more. 23.7% is still a lot, though! Regardless, we have the the lowest residential tax rate of many big city in Canada except Vancouver (more on Vancouver in a moment).
It is illegal for a city to run a deficit. There is a good reason for this (many cities went bankrupt in the 1930’s as a result of large deficits) but it does create the challenge of the tax rate needed to be changed every single year, making it very difficult for property owners to predict and plan their budgets. I would like to see the City of Calgary create our own version of the Alberta Heritage Fund that can be used to dampen the effect of spikes and dips without Calgary going into debt (like a savings account instead of a credit card). It would likely have the added benefit of improving our credit rating and therefore the cost of borrowing for capital projects. Controls would need to be in place to make sure it wasn’t abused by future councils, however.
What the City Can Control
The Municipal Price Index is a seemingly objective measure that Calgary bases it’s tax decisions on. However, it’s hard to call it objective when 1) the criteria are not published in detail (unlike Edmonton), and 2) many of the criteria are created by in-house City of Calgary employees rather than using the more objective Conference Board of Canada criteria that most cities in Canada use. That’s a huge potential conflict of interest. I intend to take a very close look at how these criteria are created and the assumptions behind them.
The city can also control costs and to a lesser extent, how attractive the city is to potential new businesses moving here. These are the main tools we can work with to keep taxes low.
Residential Property Taxes
Calgary’s residential property taxes compare well with other major Canadian cities. Vancouver’s rate is so low because it’s real estate values are so high.
However, since 2007, our residential property taxes have gone up 2-3 times faster than either inflation or the consumer price index. This makes it very hard for owners to keep up. We need to be able to dampen the effect of sudden increases in tax rates due to economic conditions. The further the tax rate varies from inflation or the consumer price index, the higher the need to dampen the effect until the economy recovers.
We can also save up to 11 Billion dollars in capital costs by moving to a denser approach to new developments. The city is already moving towards this and I support it with 1 caveat – new communities should have a mix of density, so you can stay in the same neighbourhood while you progress in life, from a small apartment as a student, to a single family duplex as a small family, to a detached home with a nice backyard as your family grows, and back to a smaller condo after retirement. You should not be forced to move away from your friends, family, and favorite places as your needs change over time.
Non-Residential (Business) Property Tax
I believe that the taxation levels for non-residential properties are excessively out of balance. It’s currently about a 3.5:1 ratio of non-residential vs residential property taxes, creating a situation where businesses pay 55-60% of the total taxes. I think this should be closer to a 50/50 split. There are many ways to accomplish this (lower business taxes, provide tax deductions, increase residential property taxes, attract more business to Calgary, cutting government costs, etc.) and I want to work towards a solution where neither the business community nor the residents feel unfairly singled out. I think the solution is more likely to be a combination of adjustments rather a large single change, which can cause a series of unexpected consequences. I’m NOT in favor of increasing residential property taxes as part of the mix unless every other option has been explored, however.
The real answer is to attract business to Calgary – at the end of the day, that 40% vacancy rate downtown is what’s causing most of our tax increase issues. This is the long term strategy and we can pursue it with aggressive and focused tourism, conventions, and infrastructure investments. Big blue rings don’t bring businesses to Calgary – high quality transit systems, an educated workforce, and low taxes do.
In the meantime, we are in what is being called a “jobless recovery” and this is a situation in need of immediate attention. By analogy, we need to make our house fire resistant by installing sprinklers and fire alarms as a long term fix, but in the meantime we have to also put out the fire currently burning in the kitchen.
Like most things, it will take a combination of methods to address this – the faster the better. First and foremost, we need to cut our costs. Calgary currently has really bad processes in many areas, and these inefficiencies are costing us millions. We need to move to a “best bid” not “lowest bid” (which actually tends to cost more) procurement system. We need to allow companies to recommend innovative approaches that work better and cost less than just bidding on the old way of doing things. We need to negotiate fair contracts that cut unnecessary fat without destroying productivity.
We also need to make it easier for businesses to operate and we need to encourage the growth of support services to handle the work of multinational headquarters moving into our downtown. They will need construction, accounting, legal, HR, and many other services. By supporting these smaller Calgary-based companies, we can in turn provide the support the big companies need. These support companies also provide great jobs for Calgarians and the ability for our own companies to grow rapidly and become big companies in their own right.