City’s tax penalties could double

The penalties for not paying taxes on time could double in 2021 as the first step of an overall review to erase “invisible subsidies” in the city’s fees and rates.

Tax penalties and interest paid on prepaid taxes are reviewed annually in Medicine Hat against prevailing interest rates.

On Tuesday however, the council’s corporate services committee heard a new proposal that would align local rates against those charged in other Alberta cities.

Commissioner Dennis Egert said that when the city’s rates are substantially lower than other municipalities, there is lost revenue that is picked up by the general tax base.

“Inherent in those charges is an invisible subsidy,” he told the meeting. “We’re doing a search of all fees and charges and asking what should be the proper fee.”

Council will debate the changes at the Nov. 2 council meeting.

At committee, Coun. Darren Hirsch said the city currently has a “substantial” program to help those whose financial situation is impacted by the COVID-19 pandemic, and generally he’s in favour of structurally reforming the rates.

“(Currently) we’re asking those who play well in the sandbox — pay their taxes on time — to subsidize our low rates,” said Hirsch, who said missing tax deadline currently cost the average residential account about $175 per year.

The penalty rate right now, at 7 per cent, is about one-third what is charged on most credit card balances, and administrators at least suspect some delinquent account holders are putting other payments in line ahead of back taxes.

CAO Bob Nicolay said foregone revenue has a cost to the city during a time when the entire budget is being reviewed for revenue and cost containment.

“We’re in a place where nobody sees the cost, nobody sees the benefit and our taxes are paying for it,” he said, stressing the overall goal of the review is to “keep the cost of living in Medicine Hat the lowest in the free world.”

Committee members Couns. Robert

Dumanowski and Brian Varga said council will debate the measure, but along with Hirsch wondered if phased increases might be better.

“On the face of it, we’re effectively doubling the penalty and halving the discount (on prepaid taxes), and my conflict is that it seems unusually rapid,” he said.

“We have to run the city, but if we believe that people are challenged paying taxes, it’s doubly problematic.”

Specific to unpaid taxes, the rate charged next year would rise from 7 to 14 per cent. A separate bylaw change would see penalty charges on unpaid balances on utility bills rise from the current 2 per cent to 2.56 per cent. That would place the charge in the Hat at the average charged by the other four cities.

The local utility penalty rate has not been changed since 1999, and the difference could result in increased revenue of $96,000 to the city, which currently takes in about $350,000 each year.

Egert said it’s difficult to determine if fine and penalty revenue accurately reflects cost recovery, but other areas it is more clear cut.

As well the amount credited on balances would fall.

Under the current system the discount rate is set in relation to the Bank of Canada prime interest rate, and would drop by half to 0.5 per cent in 2020.

If approved, tax penalties would comprise an initial 8 per cent on the first day they are overdue, then 1.2 per cent monthly on balances.