Next mayor must address tax hit of office vacancies
Businesses outside of the downtown core threatened with double-digit rate hikes
It’s likely the most crucial and complex economic policy issue that will face Calgary businesses in the next four years.
To date, however, there’s been precious little discussion in the municipal election campaign about what the next city council should do about the empty downtown office towers in the city — and an enormous tax shift that awaits businesses outside the core.
Thankfully, the top candidates for the mayor’s chair have started to turn their attention to the matter.
But business leaders say they need more details, including a long-term strategy, from all candidates to solve the challenge of a profound tax shift caused by vacant downtown buildings south of the Bow River.
“It has and will continue to put businesses at risk of closure if it is not addressed,” Calgary Chamber of Commerce president Adam Legge said Tuesday, a day after the organization hosted a debate involving the three leading mayoral candidates.
For years, the glimmering downtown office towers were a symbol of Calgary’s bright economic fortunes.
The overall assessed value of these buildings almost quintupled between 2003 and 2015, according to a report by the Conference Board of Canada.
But the collapse in oil prices led to thousands of layoffs in Calgary-based companies over the past two years. Fewer workers meant less need for office space.
The office vacancy rate downtown has skyrocketed, forecast to average 27 per cent this year, the report says.
Last year, the value of the downtown office buildings dropped by $3.8 billion, to $17.4 billion, according to city hall.
This decline cut deeply into the municipal taxes paid by owners of non-residential properties. For example, the assessment for the iconic Bow building declined 22 per cent to $1 billion.
Under the annual reassessment process — designed to be revenue-neutral for city coffers — property taxes for many businesses outside of the downtown skyrocketed to make up for the shortfall.
Think of it like a see-saw: If one side goes down, the other must come up.
Until the city adopted a $45-million program to cap all tax increases for affected businesses this year at five per cent, more than 3,500 non-residential properties were in line for a double-digit jump.
Almost 1,000 faced hikes of 30 per cent or more.
The Conference Board of Canada predicts the assessed value of the downtown office market will drop another 15 per cent in 2017, creating more headaches next year.
Business owners and groups like the chamber have been wondering for months what the plan for fixing this problem will be for 2018 and beyond.
A new Mainstreet Research/ Postmedia poll found 47 per cent of Calgarians surveyed late last month believe city council should again help businesses with the issue when the next tax bills are sent out. Another 29 per cent were opposed, while 24 per cent were unsure.
On Monday, incumbent Naheed Nenshi announced he would extend the five per cent cap on the municipal portion of non-residential property taxes, to give the downtown more time to rebound.
“I have identified a source of funding if I’m re-elected to go and renew this program for another year, so no business will see an increase of more than five per cent this coming year, either,” he told a Postmedia editorial board on Tuesday.
“Then, council has a tough decision to make, which is what do we do in the next (2019-2022) budget cycle?”
Andre Chabot, who served as councillor for Ward 10, voted against the cap last January and called the city’s plan a political quick-fix.
He proposes a tax deferral system spread out over 10 years. Businesses facing big hikes would only pay a portion of their increased property taxes if the trend continues, carrying forward the outstanding amount.
As downtown property values recover and the tax burden shifts back, the unpaid taxes would come from those savings.
“If we could soften that spike by spreading it out over a period of time, then they wouldn’t go out of business and they could continue to pay their taxes,” Chabot said in an interview.
Local lawyer and candidate Bill Smith agrees the tax shift is causing problems, but is more focused on curbing city hall spending.
Smith hasn’t released a strategy on how to address the tax-shift issue, but said he’d be willing to look at renewing council’s $45-million cap if it prevents businesses from closing.
“How do we wind up with an extra $45 million would be my question at the beginning?” he said in an interview.
“But if it’s there and we’ve got it in the reserve fund, yeah absolutely, let’s look at what we can do to soften the blow for businesses.”
These ideas are short-term fixes to what could potentially be a decade-long problem, given the amount of vacant and new office space that must be absorbed.
A deferral account would mean businesses would have to pay the higher taxes back as some point. Renewing the cap would divert money from other areas, such as the city’s rainy day fund, and that can only go on for so long.
All three candidates agree attracting businesses downtown is the ultimate solution, but exactly how that will happen?
“At the end of the day, no one has come forward with a more significant medium- to longterm solution to something that I think will be around for upwards of five to 10 years, which worries me,” said Legge. It should worry all taxpayers. For voters, this is a far-reaching civic issue that needs a vigorous debate with big, bold solutions — solutions we deserve to hear from all candidates before heading to the polls on Oct. 16.
If we could soften that spike by spreading it out over a period of time, then they wouldn’t go out of business.