SEE BEV DAHLBY
Businesses taking a disproportionate hit from city hall, writes Bev Dahlby
The City of Calgary’s property tax conundrum has been well-documented in the Calgary Herald.
The high vacancy rate in the downtown office buildings has resulted in a sharp decline in their assessed values. Under the City of Calgary’s so-called revenueneutral property tax rate setting policy, this has meant a sharp increase in the nonresidential property tax rate on commercial and industrial properties outside Calgary’s core to continue to collect a large share of property tax revenues from non-residential properties.
To shield these properties from tax increases over five per cent, city hall transferred $45 million from its community economic resiliency fund in 2017 and $41 million from its fiscal stability reserve in 2018.
The recent chief financial officer’s report to the priorities and finance committee indicates that, based on preliminary assessment data for 2019, there has been a further $4-billion dollar decline in the value of the downtown offices. Under its current policies of maintaining the level of non-residential property tax revenues, the city will have to increase its nonresidential mill rate to offset the decline in the assessed value of the office towers.
This tax rate hike is forecast to increase the property taxes on commercial or industrial property, that has not changed in value, by 17 per cent in 2019. The report estimates that if the city is to again limit non-residential property tax increases to five per cent, it will have to further dip into its reserve funds to the tune of $89 million.
The municipal non-residential mill rate has almost doubled over the last 10 years and is now 3.9 times as large as the municipal residential property tax rate. The increase in the tax burden on the business sector has been partly offset by the gradual elimination of the business tax. However, businesses’ share of total property tax and business tax revenues has remained relatively constant at 57 per cent.
Is there any rationale for collecting such a large share of the city’s revenues from the business sector? One justification would be that the businesses in Calgary receive a larger share of the benefits of municipal services than residents.
While it is very difficult to measure and compare the public services received by businesses and residents, it seems unlikely that the cost of providing municipal services to businesses is 3.9 times as large.
A simpler explanation is that municipal politicians think that taxes on businesses are largely borne by nonresidents who do not vote in local elections. Since the tax on residential property is one of the most visible and unpopular of taxes, municipal politicians are simply responding to the political pressures of “Don’t tax me, don’t tax me, tax the other guy behind the tree.” But the long-term consequences of local governments’ excessive taxation of business is to reduce business competitiveness locally, provincially and nationally.
Spending $175 million over three years to limit tax increases and with no revival in the office real estate market in sight, the city’s current tax policies are clearly unsustainable. What is to be done?
No one likes paying higher taxes, but there is a strong case for rebalancing the property tax burden from the businesses to homeowners if Calgary wants to maintain its status as a business friendly city with a vibrant entrepreneurial culture.
A number of fiscal measures should be considered, including expenditure restraint and increasing user fees for services that are now solely or partially funded from tax revenues, to moderate the rate of increase in property taxes on homeowners.
It is time for Calgarians and their elected officials to face up to the fiscal challenge of reducing reliance on taxing businesses to fund the public services that make Calgary a great place to live and work.