National Post
Monday, March 17, 2008
Page: FP4
Section: Financial Post
Byline: Denise Deveau
Source: Financial Post
The price of a Canadian city address
Art Works Gallery owner Deanna Geisheimer is conflicted. On the one hand, she's always loved being a part of the downtown Vancouver business community. On the other, tax increases are turning her passion for art into a nightmare.
"It's insane," she says. "I wake up and look at my bottom line and wonder where did money go? Last year, if city council hadn't put a freeze on business property taxes, they would have gone up by $30,000! Even with [the freeze], they went up $9,000."
So how does a small business owner like Ms. Geisheimer survive when tax rates alone have increased 200% in the past five years? In a lot of cases, they don't. In others, they migrate out of the downtown core to look for cheaper pastures in surrounding suburbs.
"The only reason I'm surviving is because I've trimmed expenses to the bare bone and work incredibly long hours," Ms. Geisheimer says.
When it comes to sustaining a business in major metropolitan centres, it's a case of some good, more bad and a lot of downright ugly.
While city cores can be a fertile breeding ground for business networking, creative development and venture capital, rapid expansion and city spending are driving up costs and driving down vacancy rates.
Cities across the board are also under the gun from small business groups for tax increases that could get the most successful independent operators in trouble. Canadian Federation of Independent Business representatives across the major city centres have pretty much the same complaint.
"One of the key reasons for exodus of small businesses is taxes," Judith Andrew, vice-president of CFIB Ontario says.
"Another is that city spending is growing astronomically compared to inflation. This makes it onerous for the smaller business and makes them vulnerable to economic difficulty."
In the past six years in Vancouver for example, CFIB reports business owners pay five times the tax rate of residents, and city spending is almost doubling a 17% population growth and inflation rate. Calgary fares no better. Mike Bradfield, co-owner of Deborah Murray Designs, a Calgary-based clothing business established in 1986, says business and property tax is "the hidden gorilla that keeps hitting us over the head."
The company has moved to smaller facilities, downsized its staff and cut back on production just to stay afloat. Even with that, the tax bills and business licencing fees are topping$21,000 a year, and climbing.
Toronto is equally challenging says Julie Rusciolelli, president and owner of Maverick Public Relations, who purchased a building to avoid increasing rental costs. But ask her if the city has done anything for her as a tax-paying citizen, "I'd have to put a big fat zero on that," she says.
"I'm paying up the wazoo for taxes and still have to pay for garbage bags that miraculously don't get picked up. When we have a huge dump of snow, it's like climbing a mountain to get to the front door."
Nick Romita, owner of Edit One Video Workshop also bought a property in Toronto to avoid escalating rents in 2000. Since then his taxes have climbed to $10,000 from $6,000, and he is afraid of what the next year will bring. "The city simply doesn't acknowledge independent business owners in the downtown core," he says.
Because he lives around the corner, he can save on transportation, which is a good thing since the city also took away the parking spot in front of his office for a bicycle lane.
There may be slightly happier campers in downtown Montreal, where the cost of doing business -- from utility and taxes to lease rates and property values -- has consistently been lower than its counterparts. Even at that, "When you look at it from a provincial point of view, Montreal has the highest tax burden on small business than any other city in the province," says Simon Prevost, vice-president of CFIB Quebec.
How people actually measure small business support or lack thereof is not just about taxes. Prospects for top human, financial and/or educational resources, along with cultural and lifestyle preferences, can be brighter in major urban centres depending on your line of business.
WHAT PRICE PROGRESS?
In Western Canada, unprecedented population growth is drawing huge waves of potential customers and revenue opportunities in the energy sector. Of course, prosperity also brings much higher costs in its wake.
Sandy McNair, president of Altus InSite, a market information company in Toronto reports that that city has typically been the most expensive in which to obtain space until about two years ago when Calgary took that spot. "Now it has the highest rents and Vancouver has closed the gap more recently."
Vancouver for its part remains an at-tractive prospect for satellite offices for financial services and technology players, as well as supports a sizeable retail community. On the down side, beyond the high rent costs, vacancy rates are pretty much sitting at zero and will be for some time, Mr. McNair says.
For Calgary, there is no shortage of business opportunities to support the energy industry. But there is a dearth of affordable talent. CFIB Alberta reports that the suburbs hold more appeal, since taxes can run 69% to 75% less than in the city proper and property assessments are more favourable to small businesses.
MONEY AND MARKETS
To tap into working capital and critical mass, Toronto still tops the list. "There is no better place than Toronto for access to capital," Mr. Mc-Nair says.
John Stevenson, president and chief executive of LitenUp Food Services, a provider of healthy meals for home delivery, has always seen Toronto as an important hub for building a business.
"A major component for any business I've run is being able to take advantage of the very heavy population density here. It's home to a lot of corporate head offices and provides more opportunities to gain national exposure."
Carol Wilding, president and chief executive of the Toronto Board of Trade is the first to acknowledge that small businesses in Toronto have some very big challenges, especially on the property taxes front.
"Some really fundamental pieces need to be put in place. At the macro level we need to equalize tax rates, impose some sort of cost control within the City of Toronto and get more infrastructure investment. But we also have a lot of attractive elements. We're just not putting them together fast enough."
LA VILLE EN ROSE
Observers say overall, Montreal wins in terms of lower business costs, a relatively stable labour market, an appealing lifestyle and a strong core of biotech, digital arts and aerospace industries. "SMBs often start their business around one of these clusters. Also, we have a lot of creative minds that are ready to go out and start a business here. The one challenge we need to address is better access to venture capital to help sustain businesses beyond their second year of operations," says Isabelle Hudon, president and chief executive of the Board of Trade of Metropolitan Montreal.
Remi Racine, president and executive producer of the Artificial Mind & Movement (A2M), a video game developer, is one of those creative minds that relocated to Montreal from Quebec City in 2000 when his company had 60 employees. He says the lifestyle has been a big plus for his employees.
"Everyone else takes public transit, and everything is walking distance from the office. And it's the place to be for digital arts."
LOVE-HATE RELATIONSHIPS
Even though the major cities have their work cut out in terms of attracting and retaining small business prospects, there will always be those willing to weather escalating taxes and the wanton municipal spending, and stay put.
Despite snowy sidewalks, forgotten garbage bags and a hefty tax bills, Ms. Rusciolelli says she would never leave Toronto's downtown core.
"I'd have a lot more money in the bank if I moved to the 905 area [greater Toronto], but I wouldn't have half the staff I have now. There's a lot of great talent -- and my customers love coming here."
Ms. Geisheimer feels the same way. "People ask why I do it. If it wasn't for the tax situation, I love the industry, I love my business and I love what I do."
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