WE’RE NUMBER 1: CALGARY SEES THE HIGHEST JUMP IN COMMERCIAL PROPERTY TAXES
As Calgary city council faces another headache from the steep drop in the value of downtown office buildings — and in the taxes it collects — a new report shines a spotlight on the fallout for local businesses.
A study released Wednesday by real estate research firm Altus Group found Calgary experienced the largest jump in commercial tax rates among 11 major Canadian cities this year, climbing 9.5 per cent.
The nearly double-digit increase came on the heels of a bigger 11.4 per cent hike in 2017.
“The thing with Calgary is that the commercial rate is rising at a somewhat alarming rate for people,” said Kyle Fletcher, executive vice-president with Altus Group in Calgary.
According to the report, the ratio between commercial and residential taxes is also widening in the city, growing by almost 12 per cent in 2018, the largest increase in the country.
A commercial property owner in Calgary would face civic taxes roughly three-times that of a residential property owner with a similar value.
It’s not unusual for commercial property owners to pay higher rates than homeowners, but the gulf in Calgary is growing due to the number of empty downtown office buildings.
“The downtown office market continues to struggle and this is having the effect of driving down office assessment values, ultimately resulting in a shrinking overall assessment base,” the report states.
With more than one in four downtown office buildings unoccupied, the outlook for next year isn’t improving.
“All indications are we’re in for an even sharper increase on the tax rate in 2019,” Fletcher cautioned.
Rising property taxes aren’t a shock to most local business owners, particularly those outside the downtown. They’ve seen the pain first-hand on their annual tax bills in recent years.
But their frustration is mounting.
“I am just an old entrepreneur and they can’t just keep off-loading all of this,” said Fred Hamilton, who has operated Lincoln Exterior Renovations in the city for 39 years.
“These increases we are faced with are massive.”
Armed with copies of his company’s old bills, Hamilton points out his property taxes have climbed by almost a third since 2015 to $10,000 this year.
Based upon a preliminary assessment of his building, he expected the tab to rise above $13,000 for 2019, another 30 per cent bump in just one year.
The underlying problem is the downtown tax base that helped keep taxes low for everyone is now shrinking.
The gleaming towers south of the Bow River shed more than nine per cent of their assessed property value last year — $1.6 billion — and endured a $3.8-billion skid the year before.
Under the city’s revenue-neutral assessment system that must occur every year, these buildings are paying less in taxes to reflect their drop in value.
A sharp decline in the downtown revenue has shifted the taxes to other non-residential properties outside the core.
“Calgary has made the decision to put the burden on businesses in a way other cities haven’t,” said Zoe Addington of the Calgary Chamber of Commerce.
“Business owners are happy to pay for their fair share, but this goes beyond what is reasonable,” added Amber Ruddy of the Canadian Federation of Independent Business.
City assessor Nelson Karpa said market conditions are one factor, but he noted Calgary is also consolidating its business tax into the commercial property tax system. The move is causing non-residential rates to increase, although the study doesn’t reflect that business taxes will be eliminated next year.
In its defence, council has taken steps to soften the blow, using $90 million from its reserve funds to limit property tax increases on businesses at five per cent during each of the past two years.
But the appetite for another ad hoc program seems to be waning. City hall will release a report next week that will show the magnitude of the dilemma for 2019.
As Coun. Diane Colley-Urquhart said this week, it’s a “cometo-Jesus” moment for council.
Where will this moment of revelation leave businesses and homeowners?
Some councillors suggest the city should look at spreading the tax burden to Calgary’s 500,000 homeowners, as well as businesses.
However, this would be politically radioactive and councillors would need thermal underwear to stand the heat.
“We have a high business tax compared to other cities. And, unfortunately, you would have to shift some of the business tax to the residential — some of it — to create that balance,” Coun. Ward Sutherland said earlier this week.
“Otherwise we are going to put businesses out of business.”
Judging from the reaction of angry taxpayers and entrepreneurs, this shouldn’t be the first option.
The private sector has faced tough cuts since the recession hit in 2015. City hall needs to find ways to reduce its own spending, Hamilton insisted.
His company, which employs six people and another dozen renovation-crew members, hopes to break even this year, given the difficult economy and rising tax burden from all levels of government.
“It’s like they just don’t get it,” Hamilton concluded.
“You just can’t put that type of financial load on during a recession. It makes it worse.”