The Vancouver Sun
Friday, September 14, 2007
Page: G3
Byline: Don Cayo
Panel cops out on property tax imbalance
The Vancouver tax commission's long-awaited report on property tax reform is neither bold nor innovative, nor likely to be of use for any longer than it takes to implement the changes it recommends.
But the tax policy it calls for is still a lot better than the status quo.
The commission, chaired by Stanley Hamilton of UBC's Sauder School of Business, was set up last year to look at the imbalance between the property tax loads carried by businesses and by residents.
The split was determined by an ossified, slow-to-change formula that originally assigned 60 per cent of the tax load to businesses and 40 to residents. This might have been fair at the time, but it became grossly inequitable as the city has evolved, and it had gradually been pared down to a 55-45 ratio by the time the commission set to work.
Yet, since the business base was scarcely growing in relation to the value of houses and condos, the business tax rate -- and thus the size of their tax bills -- had been driven to more than six times what homeowners had to pay. So businesses were left paying for well over twice their share of city services, and homeowners for little more than half.
What the commission now recommends is to continue chipping away at the ratio, shifting one per cent a year from commercial properties to homes, for seven years, at which point it will stand at 48-52.
That might be a fair split if it were in effect today. But what the report doesn't say -- and what I suspect no one knows, given the volatility of the city's real estate market -- is whether it will be even in the ballpark of "fair" seven years hence.
Perhaps more usefully, the report recommends a new phase-in mechanism to deal with the shock that hits owners of "hot properties" when their tax bills arrive. This phenomenon, which can hit both business and homeowners (although commercial properties are more susceptible), occurs when real estate prices in a particular neighbourhood are rising much faster than in other parts of the city.
Currently, the city averages assessments over three years to soften the impact of wild short-term swings. The commission compared this to both a hard cap and a system of phasing-in tax increases when assessments soar by 10 per cent or more in a single year. And it settled on the phase-in, with the three-year averaging to remain in place until the new system can be . . . well, phased in.
This is a complex area, and whether the phase-in will work out to be better or worse will, I suspect, depend on individual cases. But at least the commission looked at new approaches to solve an old, stubborn problem.
On the tax imbalance, however, I think it just copped out. Certainly, there were more innovative possibilities.
A key one -- which it considered and rejected -- is to tie the split between business and residential to actual consumption of city services. The commission did concede that this was the fair way to do it. But it rejected it on the grounds that consumption studies tend to be simplistic and flawed.
A better conclusion, I'd have thought, would be to do better consumption studies.
The commission also could have -- but chose not to -- looked at ideas ranging from basing business taxes on rent paid rather than assessed value, or the Vancouver Fair Tax Coalition’s proposal of rebates for businesses that occupy old, low-value buildings on "hot property" land. This situation currently results in businesses sometimes paying more in property taxes than in rent -- an unsustainable cost that forces many to fold or flee to the suburbs.
The commission did some original research in fumbling its way to its mundane conclusions, although most of it was composed of very small samples that may make broad conclusions suspect.
But it does conclude that, contrary to conventional wisdom (and, yes, that cliche does mean, at least in part, "unlike what I think"), there's no evidence that businesses are shunning Vancouver because of its tax rate. Yet. Although it acknowledges this is a real danger.
I think, however, that it's highly suggestive -- although not quite proof -- when you see that other municipalities in the region are outpacing the city in attracting investment in new business properties.
And I predict that if council incorporates the report's recommendations -- and it probably will -- when it starts on its new budget next winter, it will set the course for deja vu all over again.
Unless it fixes it right -- with a formula that stands up to logic and is flexible enough to meet the test of time -- we're going to see this debate spring up over and over and over again.
dcayo@png.canwest.com |
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