SEE CHRIS VARCOE
Solutions elusive even after meeting by city committee to tackle shifting tax burden
Coun. Gian-Carlo Carra calls it a crisis.
So does Coun. Druh Farrell. Just in case Calgary businesses haven’t heard, the property tax shift coming in 2019 — caused by the eroding value of those shiny downtown office buildings — is a five-alarm financial fire.
The solutions, however, remain elusive, even after a lengthy meeting by a city committee Tuesday delving into the issue of the shifting tax burden onto businesses operating outside the core.
But the scale of the issue is now apparent to everyone.
“They are recognizing it is a crisis and they are recognizing something needs to be done,” said Zoe Addington of the Calgary Chamber of Commerce.
“It’s tough for people to watch when they see their bills going up. It’s putting businesses at risk and the answer coming back from the city is we don’t know what to do.”
In a series of charts in a detailed 69-page report, city administration paints a bleak picture of what’s happening with the value of downtown office buildings in the wake of the recession and oil price crash.
Since 2015, a glut of vacant office towers, a lack of tenants and declining sale prices on these buildings have created a revenue hole for the city, and a headache for businesses outside the core shouldering more of the tax burden.
In one succinct snapshot, the report notes 142 non-residential tax accounts saw a collective $12.6-billion evaporation in their assessed values between 2015 and this year.
In turn, this created a $193-million tax gap that has been spread to other non-residential property owners across the city.
“This was not a collapse of our commercial sector. This was a very specific number of buildings in our city that (took) a hit based on the loss of approximately 35,000 employees in our downtown,” city manager Jeff Fielding told the priorities and finance committee.
“That’s how specific it is. And that’s why it’s so difficult to fix.”
The tax shift will cause more grief for businesses outside the core in 2019, as non-residential properties pick up more of the slack as part of the annual revenue-neutral property tax reassessment system.
The city still needs the $193 million, and non-residential property owners are on the hook for it.
In the past two years, council used money from its reserve funds — about $45 million annually — to limit tax increases on local businesses to five per cent.
Following on the heels of a punishing recession, this made sense.
This year, however, the same amount of money would only limit property tax hikes on businesses to about 25 per cent, a sign the problem is accelerating.
“The impacts will be severe for some small businesses,” Farrell said in an interview.
“This will hurt. There’s no softening the news.”
Another chart shows the future for business operators if nothing is done to mitigate the hikes.
Of the 13,800 commercial property owners in Calgary, about 10,000 are facing overall property tax hikes of more than five per cent next year.
Of that group, 1,700 would see tax increases exceeding 30 per cent.
Slightly more than 500 would get a tax bill climbing by 50 per cent or more if nothing is done to change the picture, according to the civic report.
So what are the solutions? Council could adopt another tax relief program, promote the conversion of downtown office buildings to residential or simply allow the market to settle into “its new norm.”
All of these alternatives have flaws.
Tapping the rainy-day reserves isn’t a practical long-term solution.
Converting officer towers to condos or apartments would move more people into the downtown, but generate less revenue as commercial property tax rates are higher than residential levels.
Business groups and some councillors have called for part of the tax burden to be spread out among homeowners, but Fielding said it’s not enough to fix the problem.
And council won’t be able to cut its way out of the matter, he stressed, although the idea seemed to be dismissed in an awful hurry.
Coun. Evan Woolley, whose ward represents part of the downtown, was disappointed more solutions weren’t on the table.
“It’s hard for me to go back into and talk to a small-business owner who is being priced out of their business and say that the sky isn’t falling, because that is their life,” he said.
The report also looked at the state of Calgary’s economy postrecession, offering a mixed bag of news.
It shows population growth has rebounded this year and is expected to remain healthy over the next five years, although economic growth will be relatively modest during this period.
The unemployment rate isn’t projected to slip down to six per cent until 2023, yet wages continue to expand and retail sales are growing.
Calgary has an impressive number of small businesses — about 55,000 — and more entrepreneurs are opening shops than are closing down.
During the first nine months of the year, 2,292 new businesses opened, and 1,735 closed.
It’s a nuanced look at an economy coming back from a tremendous walloping.
Mayor Naheed Nenshi insisted the sky isn’t falling on the tax front, and the city has the ability and capacity to find solutions to the downtown’s woes.
Two task forces will be formed to look at the matter — including issues facing the core — and report back next year.
“I’d just caution my colleagues from doing anything too rash or trying to solve this problem all at once,” he said.
“You have to eat an elephant one bite at a time.”
That’s true.
But it’s time for council to sit at the tax table and start chowing down, because for Calgary businesses, the bill is coming soon.