City committee grapples with ‘tax shift’ issue

City’s downtown has lost $12.6B in property value since 2015

A Calgary committee is recommending the creation of two task forces to deal with a looming property tax crisis which, if left unchecked, could result in some businesses facing 30 per cent tax increases in 2019.

The task forces — one of which would look at short-term financial fixes and one of which would try to promote downtown recovery — would be an attempt to deal with the impact of $12.6 billion in property value lost out of the downtown since the recession began in 2015.

Property values in the core have slid from 32 per cent of the total non-residential assessment base in 2015 to an estimated 19 per cent in 2019, pushing the tax load away from the owners of office towers onto the shoulders of non-residential property owners in industrial areas and the suburbs.

“This is probably the most serious issue council has faced in my career,” said Coun. Druh Farrell, who pushed for the creation of the task forces. “It’s a crisis.”

“It requires all of our attention.” On Tuesday, city administration told the priorities and finance committee the so-called “tax shift” created by the drop in downtown property values represents a $192-million burden that must be shared by 13,815 commercial properties.

In 2017 and 2018, city council spent $45 million and $41 million, respectively, on rebates to businesses to cap the resulting tax increases at five per cent. But city manager Jeff Fielding told members of council Tuesday the problem has grown so much since then, a similar rebate program this year would cost $89 million.

“I’ve never seen anything like it,” Fielding said, adding if nothing is done, even landlords whose property values have declined in 2019 could see modest tax increases.

And the owners of commercial buildings whose assessed value has gone up will see “material” hikes.

He said a building that was assessed at $5 million last year and is now assessed at $5.5 million, for example, would see its property tax bill go up by 28.7 per cent.

“The angry voices that are out there are real … I wish there was something out there we were able to offer them,” Fielding said.

City staff are currently exploring all options, including a continuation of the rebate program again this year, and the feasibility of narrowing the business-to-property tax ratio so that homeowners pay a larger share. Another piece of the puzzle could be converting empty office space into residential condos, Fielding said.

Farrell acknowledged there is no quick fix, but said her proposed task forces could look into everything from grants for struggling small businesses to revitalization programs aimed at making the downtown a more attractive place to work and live.

“The change in the economy is a structural change,” she said. “But you need to know we are looking for solutions.”

Mayor Naheed Nenshi said he believes the city will find a combination of levers that gets it to where it needs to be. He told business owners not to be overly alarmed.

“We’ve got your back,” Nenshi said last week. “We’ve had your back for the past two years, trying to protect you from these giant tax increases that are no fault of your own.”

But Amber Ruddy, director of provincial affairs with the Canadian Federation of Independent Business, said business owners are “beyond frustrated.” She said the city needs to look first at tightening its own belt before it talks about shifting some of the property tax burden to residential homeowners, spending money on downtown revitalization, or anything else.

“And I don’t just mean trim back on big-ticket items that haven’t been spent yet, I mean where can we trim back on things that are happening now?” Ruddy said.

Zoe Addington, policy director with the Calgary Chamber of Commerce, said she also believes the city’s first step should be to look at its own budget. But she said a deeper examination of the city’s property tax assessment system is a good idea.

“Maybe we should be considering things like, is there a floor where properties can’t go below? Is there a lower limit you can put on it, so that these downtown properties don’t drop below a certain point when it comes to assessed value?” Addington said.

She added it might also be time for a bigger conversation around who should bear the burden of an economic downturn.

“Because the way we see it is, if a business made the decision to build in the downtown and then the building is empty and not worth as much, it’s not fair for that burden to be passed onto other buildings outside of the downtown,” she said.